Green accounting debate in crucial stage

15 December 1998

For about a decade the World Bank has made occasional statements that countries should move away from orthodox national accounts and integrate environmental and social costs and benefits. The latest World Development Report reaffirms this:

“Green accounting is intended to correct the national accounts by subtracting from GNP the costs associated with natural resource depletion and pollution damage. There is widespread agreement that such adjustments are conceptually appropriate.”

The Bank has taken up work in this area, but this is limited to discussion papers by the Environmental Indicators and Valuation Department*, with little operational impact. Whilst they represent an advance on previous Bank thinking, the Bank’s papers have been criticised for being at the conservative end of the green accounting spectrum, suffering from:

  • starting with per capita GNP then subtracting extra costs;
  • assuming that lost natural resources can be replaced by knowledge, produced capital or other assets, and therefore that there are no environmental limits to economic expansion;
  • overusing the inequitable “willingness to pay” method to measure values of rainforest conservation, pollution avoidance etc.

It appears that the Bank will consolidate this work over the next year or two by developing a methodology for Country Assistance Strategy teams, and publishing genuine savings statistics in the World Development Indicators. It is essential that its approach is debated now, as Environmental Indicators and Valuation Unit’s methods are likely to be further diluted by Bank operations and research staff unless countervailing pressure is brought to bear.

Groups addressing new national accounting issues (with various degrees of interaction with the World Bank) include: the New Economics Foundation, Friends of the Earth and Rethinking Progress, IUCN and the Millennium Institute. Most are working on integrated accounting and on indices of welfare/development which take into account many factors ignored in traditional production/consumption models. The two (related) main approaches which have been tried in a number of developed and developing countries are the Genuine Progress Indicator and the Index of Sustainable Economic Welfare which are much more comprehensive than the Bank’s.

The Millennium Institute has produced 2 new macroeconomic models which improve upon the World Bank’s RMSM model developed in the early 1970s. One unpacks the assumptions behind the model and makes them graphic and visible on screen. The other, new, model – Threshold 21 – adds many new variables (for example on environmental and social change) and allows the operator to alter their relative importance, enabling the implications of different proposals to be assessed. The World Bank, despite expressing initial interest in the model, is understood to have rejected it but UN agencies and other agencies have used it for studies in Malawi, Bangladesh and other countries, with useful results.

* See Expanding the Measure of Wealth, 1997.

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