UNIT - VIII FCA ENVIRONMENTAL ACCOUNTING ENVIRONMENT:

A very wide term - Includes everything in all its manifest forms, on the earth, inside the earth and above the earth. Meant: To serve and support human society. Provides essential raw materials and inputs. Serves irreplaceable life support functions such as ozone layer. Absorbs and recycles at little or no cost to society waste products. Protests human kind from damages caused by economic activities. Enable coexistence in harmony with the other life forms.

What are National Accounts:

They measure national income by indicating GNP and NNP. In this context SNA means National Accounts.

Satellite Accounts:
Supplementary Accounts relating to environment and Environmental Costs are termed as satellite accounts.

Green Accounting :
Satellite Accounts linked with national accounts are termed as green accounting.

System of Integrated Environmental and Economic Accounting (SEEA):

Environmentally adjusted economic accounting also termed as environmental accounting. Gross National Product: Total of goods and paid up services plus (exports imports) is known as G.N.P.

Net National Product:( NNP)

After deducting for depreciation of fixed assets ( man made capital ) and value of non current assets from GNP, the figure arrived is known as NNP. Also known as Net National Income (NNI) or Net Domestic Product (NDP). NDP = C + I + ( X M ) where C = Consumption of goods and services excluding depreciation. I = Net capital formation or investment after depreciation. X = Exports. M = Imports.

Net Capital Formation:

NCF = NDP C (X M ) =I Where C = Consumption of goods and services excluding depreciation. I = Net capital formations after depreciation.

Environmentally adjusted Net Domestic Product (EDP):

EDP = NDP C Environmental Costs ( X M )

Sustainable Gross Income:

Means gross income less environmental outlays less current consumption of natural resources.

Environmental Accounting:
No standard definition- used synonymously with system of National Accounts (SNA)- Involves. I. Keeping records of pollution abatement and other environmental expenditure. II. Keeping Accounts of stock of natural resources. III. Adjustment made in GNP / NNP. IV. Assessment of environmental costs and benefits. V. Elaboration and measurement of indicaters for EDP.

Origin and Development:

In 1983 World Bank encouraged that environmental issues be considered in the system of national accounts. This was accepted by SNA study expert group meeting held in January, 1989. In 1990 UN requested statistical division of UN STAT to develop a satellite ( supplementary) system for integrated accounting rather than to modify the core system of SNA itself. Approach was confirmed by Earth Summit of UN conference on Environment and Development held at Rio de Janero in June 1992 (Earth Summit). In 1993 UNSTAT adopted a revised system of National Accounts altering accounting procedures for member countries. In December 1993 UNSTAT in project collaboration with CARSTEN STAHMER issued a hand book -to be called as system of Integrated Environmental and Economic Accounting (SEEA).

SEEA - OBJECTICES:
Under SEEA all assets classified into 1. Produced assets. 2. Non produced economic assets 3. Other non produced environmental assets. SEEA requires the following disclosures 1. Depletion of other non produced environmental assets. 2. Degradation of produced assets not reflected in market value 3. Degradation of non produced economic assets not reflected in market value. 4. Degradation of other non produced assets and 5. Other accumulation of produced and non produced assets with additional separate disclosure.

Valuation of National assets and changes therein:

1.Market Value Approach 2.Present Value Approach 3.Net Price Approach 4.Maintenance Cost Approach 5.Compensation Cost Approach

Market Value Approach

Natural Assets which have an economic value in the SNA / whose changes have been included in SNA. Non produced economic assets whose degradation is caused by pollution. Discharge of residuals. Contamination Water resources Wild biota Wild animals.

- uncultivated plants if priced. Are valued at market price of their substitutes or of similar assets.

Present Value Approach:

-Sum of the expected net revenue flows. - Discounted at nominal or real interest rates.

Net Price Approach:

Most simplified methods Over comes the draw backs of PV method. Involves preparation of assets accounts and determination and application of net price.

Maintenance Cost Approach:

Applicable to non produced natural assets used for consumption / production like exhaustible resources. Implies that of the use of the environmental resources has no impact on the nature or no cost is incurred to replace it, there would be no degradation and depletion of that resource. Example: Soil fertility replenished by fertilizers and water resources replenished by natural precipitation.

Compensation Cost Approach:

Applied for valuing effects resulting from environmental deterioration like logging / forest clearing for cultivation / habitation / colonisation /urbanizations.

Involves: 1.
2. 3. Avoidance Cost Restoration Cost Compensation Cost

Merits of EA
Disclosure of True Maximum Income Disclosure of unsound production and consumption Disclosure of environmental costs Application of the principle of polluter pays and user pays Lend to optimal allocation of resources Details of the Economy dependence on natural resources Disclosure of Internationally deteriorating environment Disclosure of decrease in Environmental area Comparison with conventional accounts Planning the resources To meet the condition of financiers like IMF WB and UNO.

Demerits:
Would show a lower level of measured income than GDP / NDP. Planners may not like With proper reinvestments, GDP/GNP may go up. Example: Jaisalmer (Rajasthan) with Indira Canal. Question marks in implementation: - Uncertainty about benefits - May need a large amount of labour / money - Considering cost / benefits whether it is worth while to go ahead. - Gathering and reliability of the data are other question marks.