Environmental Accounting

Environmental Accounting
• Environmental accounting seeks to track environmental
resource use, including both resource depletion and
environmental degradation over a given period of time
• An effective management of natural resource, policy
maker mostly needs a consistent, reliable and
comparable data set relating to the availability and use
of such resources
• Environmental accounting represent the data about
the availability and use of natural resources
• It is a record that how much resources have been used
and how much remaining or adjustment and
compensation of resources in national income

Objectives of Environmental Accounting
• Prepare a balance sheet giving a profile or picture
of what kind of stock of resources is available at
given point in time
• Prepare an account that what are the uses of this
stock of resources and what are the benefits
derived from these resources and how they are
transformed over time
• It ensure that stock account(stock resources) and
flow resources (resources in use) are consistent

Need/Importance of Environmental Accounting
• Sustainable use of resources require effective management and
a record of already used and available resource
• For effective management policy makers requires a consistent
and reliable dataset regarding the availability and use of
resources
• Natural resource account play an important role in
measurement of sustainable income i.e loss or gain in natural
resources should be considered while determining national
income
• Environmental accounting shows the situation of degradation
of resources
• When natural assets are included in the accounts, it can also
give insights into issues of environmental distribution between
current and future generations.

Approaches for Environmental
Accounting
• Physical Approach
• Monetary Approach

Physical Approach
• Best approach for environmental accounting that
analyze the linkage exist between environment
and economy
• By looking to the current trend of utilization of
resources, it can predict the demand of natural
resources in future.
• The physical approach introduced by the
Norwegian government in early 1970s.
• The purpose of this approach was to provide
better and more long term planning of
exploitation of natural resources

Cont..
• It was visualized that improved natural resource
planning could be obtained by natural resource
accounting giving:
• New and better data
• Better coordination
• Common presentation of information on different
natural resources
• Integration of natural resource planning and traditional
economic planning
• Integration of national planning and regional
(subnational) planning.

Norwegian Accounting System
• According to the Norwegian Accounting System
resources are divided into two broad categories
1.Material resources - resources which can be
extracted or harvested from the nature. Accounts
for such resources are denoted material accounts.
2. Environmental resources - resources on which
possibilities for life and production are dependent.
Accounts for such resources have in Norway been
denoted environmental accounts

Resources Physical Classification
1. Material
Resources
Minerals resources
Minerals, hydrocarbons, stones,
gravels etc
Biological Resources
Biological resources in water, land
and on the ground
flow resources
Solar radiation, hydrological cycles,
wind and oceans current
Environmental
Resources
Status Resources
Air , water, soil and space etc.

• Material accounts :The material accounts comprise accounts
for reserves in nature and for the material flow of resources
from extraction through the economy to the usage.
• For mineral account (especially gas and oil) the categories are
defined as:
A. Developed reserves in which basic investment has been
made and production process started.
B. Underdeveloped reserves in which basic investment has
been continued and production is not yet started.
C. New field represent the deposit which are newly identified
and investment is not yet made.
D. Extraction reserves in which process of extraction is going
on and it is not yet reaches to ordinary production.
E. Revaluation involves the revision of previous estimates.

• Environmental accounts
1. Emission accounts, which give a survey of
emissions, discharges and waste.
2. Status accounts, which give a survey of
environmental status at one point of time and
changes between two points of time.
• For biological resources like fish the categories
are
a. reserves: existing stock resources
b. Recruitment: new addition to present stock
c. Revaluation: revision of previous estimation
d. Extraction: part of resource under use
e. Natural mortality: natural disappearance

Resources Accounting In France
• The French accounting system was introduced
by French government in 1978.
• The French accounting system built up on
similar basis which are considered in
Norwegian accounting system.
• The French accounting system classifies the
resources in to four broad categories i.e
underground resources, land resources, living
organism and type of environmental status

Resources Physical Classification
1. Underground
Resources
Minerals and other energy resources
( fossil fuel, hydrocarbons etc.)
2. Living
Organism
Flora and Fauna
3. Land Inbuilt Areas
4. Type of
Environment
(status)
Status Resources
Air , water, soil and space etc.

Account Categories
Central Account
Peripheral Account
Agent Account

Central Account
• It describe the state of a resource
and also describe the change in its
state from beginning to end of a
specific period, like existing status of
gas and oil deposit, it utilities and
status at present time and coming
end point.

Peripheral Account
• It shows the relationship between one
resource and another resources and between
human activities and other resources under
use.
• Relationship between resources and humans.
How resources depend on each other and
how humans used them

Agent Account
• Agent Account describe the flow between
resources and economic activity in term of
physical quantities as well as expenditures
approved for its maintenance, repair, supervision
or improvement
• In this account category, two parameters are
consider, the role of resources in economic
activities and development and second is the
repair or sustainability to use the resources for
long period for maximum development

Monetary Approach
• The monetary accounts are derived from the physical
accounts by applying monetary unit values, that is to
say, market prices or estimated (imputed) market
values, to the physical stocks and stock changes.
• According to the United Nations Division for
Sustainable Development, “the main problem of
environmental management accounting is that we lack
a standard definition of environmental costs” (UN CSD
2001 p. 4). Consequently, recognizing and uncovering
environmental costs is one of the most important
processes in environmental accounting.

Techniques to identify environmental
costs
• EMS (Environmental Management System) can be used.
• environmental impact assessment (EIA) is generally used.
• Cumulative impact assessment is a technique used to
examine impacts over larger spatial area (e.g. region)
• Strategic environmental assessment is a technique used
to examine impacts of strategies, plans, policies or
programmes.
• Life cycle assessment (LCA) or cycle inventory analysis
can be used for many of the above. The basic idea of life
cycle costing is to consider the costs caused over the
whole life cycle of a product
• To the determination of social costs, externalities,
contingent costs and environmental costs, environmental
economic valuation techniques can be used.

Environmental Accounting

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