Accounting for nature

DEFINITION: The expansion of economic principles and adaptation of financial decisions to take into consideration natural resources, ecosystem services, and values derived from human contact with the natural world

In comparisons of the costs and benefits of various actions in relation to the environment, the coordination of ecological and economic expertise can result in a balanced problem-solving approach.

Environmental decisions frequently set ecologists and economists on a collision course: Does society’s demand for energy justify the environmental impacts of mining and burning coal? Is the increased economic efficiency of large corporate farms worth the loss of a rural lifestyle? How much should the public sacrifice to protect endangered birds or plants? These decisions are difficult because they force comparisons of “apples and oranges,” pitting one set of values against another. Quantitative models (or accounting systems) that compare the costs and benefits of a course of action are frequently used to guide business and government decisions, but these have generally omitted environmental values. Accounting for nature in these models cannot produce completely objective solutions but can help coordinate ecological and economic expertise in a more balanced problem-solving approach.

Ecologist Edward O. Wilson has identified three kinds of national wealth: economic, cultural, and biological. He has observed that nations frequently create the illusion of a growing economy by consuming their biological or cultural “capital” to create short-term economic prosperity. For example, burning rain forests and replacing them with row crops may temporarily increase farm production in a developing nation, but tropical soils are often nutrient-poor and easily degraded by to the sun and rain. If the biological basis of production is ignored, the simply transfers wealth from one category to another, ensuring ecological disaster for its children in the process.

Developed nations have also neglected biological wealth in past cost-benefit analyses. Nations have justified the damming of wild rivers to make recreational lakes, for example, by counting the benefits of lumbering trees from the but not the losses of aquatic and forest habitats. Recreational activities have been evaluated according to the money that people pay to participate in them; thus hikers and canoeists in a wilderness area are given less consideration than water-skiers or drivers of recreational vehicles in a developed area because hikers and canoeists spend less money on equipment, fuel, and supplies.

Ecologists Eugene P. Odum and Howard T. Odum addressed this issue by calculating the value of ecosystem services provided by intact biological communities. Their approach was to measure the beneficial work performed by living systems and place a value on that service based on the time and energy required to replicate the service. A living tree, they reasoned, may provide a few hundred dollars in lumber if cut; if left alive, however, the oxygen it produces, carbon dioxide it absorbs, wildlife it feeds and shelters, soil it builds, evaporative cooling it yields, and flood protection it provides are worth far more on an annual basis.

In 1972, economists William Nordhaus and James Tobin refined the concept of national wealth by developing an index of net economic welfare (NEW) to replace the more familiar measurements of economic health such as gross domestic product (GDP). Their criticism of the GDP was that it counts any expenditure as a positive contribution to national wealth, whether or not the spending improves people’s lives. A dump, for example, contributes to the GDP when the pollutants are produced, again when millions of dollars are spent to clean it, and yet again if medical costs rise because of pollution-related illness. Nordhaus and Tobin’s NEW index subtracts and other environmental costs from the value of goods and services that actually improve living standards.

Economist E. F. Schumacher subsequently argued that environmental costs should be “internalized,” or charged to the industries that create them. This idea, also called the “polluter pays principle,” not only generates funds for environmental cleanup but also encourages businesses to make environmentally sound decisions. The price of recycled paper, for example, would be more competitive if the public costs of and pollution from pulp mills were added to the price of virgin wood fiber. Proposals for internalizing environmental costs have ranged from centrally planned models, such as a carbon tax on fossil fuels, to free market trading of pollution credits. Debt-for-nature swaps, through which developing nations receive financial benefits for preserving natural ecosystems, represent environmental cost accounting on the asset side of the ledger.

A fundamental difference between economic and ecological worldviews is the time scale under consideration. Business strategies may look five years ahead, but ecological processes can take centuries. Thus economic models that fail to take long-term issues into account are a frequent source of criticism by environmentalists. The US decision to build nuclear reactors during the 1960s and 1970s is a case in point. Nuclear power appeared economically attractive over the thirty-five-year life span of a fission reactor, but the twenty-four-thousand-year half-life of radioactive plutonium 239 in rods made skeptics wonder who would pay the costs of nuclear disposal for generations after the plants were closed.

Debates about growth are especially contentious. Traditional economists view the growth of populations, goods, and services as positive and necessary for economic progress and social stability. As early as 1798, however, economist Thomas Robert Malthus pointed out that on a finite Earth, an exponentially expanding human population would eventually run out of vital resources. In the closing decades of the twentieth century, Paul R. Ehrlich and Anne Ehrlich warned that unless population growth slowed soon, each person would have to consume less space, food, fuel, and other materials to avoid a global population crash. Whether one considers them economic pessimists or environmental realists, Malthus and the Ehrlichs demonstrate that taking a longer view is central to the task of accounting for nature. Sustainable development is the watchword for ecologists, economists, and political leaders attempting to create prosperity today while accounting for the welfare of future generations.

Bibliography

Anderson, Terry L., Laura E. Huggins, and Thomas Michael Power, eds. Accounting for Mother Nature: Changing Demands for Her Bounty. Stanford, Calif.: Stanford University Press, 2008.

Bedggood, Juliana. "Understanding Natural Capital and the Accounting for Nature Framework." Anthesis, 5 Apr. 2024, www.anthesisgroup.com/au/insights/understanding-the-accounting-for-nature-framework/. Accessed 15 July 2024.

Costanza, Robert, ed. An Introduction to Ecological Economics. Boca Raton, Fla.: St. Lucie Press, 1997.

Lubchenco, Jane. "Acounting for Nature on Earth Day 2022." The White House, 22 Apr. 2022, www.whitehouse.gov/ostp/news-updates/2022/04/24/accounting-for-nature-on-earth-day-2022/. Accessed 15 July 2024.

Pearce, Joseph. Small Is Still Beautiful: Economics As If Families Mattered. Wilmington, Del.: ISI Books, 2006.

Schumacher, E. F. Small Is Beautiful: Economics As If People Mattered. 1973. Reprint. Point Roberts, Wash.: Hartley & Marks, 1999.

Worldwatch Institute. State of the World. New York: W. W. Norton, 2010.