Green accounting

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Green accounting is a type of accounting that attempts to factor environmental costs into the financial results of operations. It has been argued that gross domestic product ignores the environment and therefore policymakers need a revised model that incorporates green accounting.[1] The major purpose of green accounting is to help businesses understand and manage the potential quid pro quo between traditional economics goals and environmental goals. It also increases the important information available for analyzing policy issues, especially when those vital pieces of information are often overlooked.[2]


The term was first brought into common usage by economist and professor Peter Wood in the 1980s.[3]


It is a controversial practice however, since depletion may be already factored into accounting for the extraction industries and the accounting for externalities may be arbitrary. It is obvious therefore that a standard practice be established in order for it to gain both credibility and use. Depletion isn't the whole of environmental accounting however with pollution being but one factor of business that is almost never accounted for specifically. Julian Lincoln Simon, a professor of business administration at the University of Maryland and a Senior Fellow at the Cato Institute, argued that use of natural resources results in greater wealth, as evidenced by the falling prices over time of virtually all nonrenewable resources.[3]


Environmental Protection and Economic Growth[edit]

The effect of environmental policies on the economy has always been a controversial topic. Many economists argue that sanctioned limits on pollution curtail economic growth.[2] For instance, between 1973 and 1982, the United States imposed stricter regulations on pollution, which led to a 0.09% decrease per year in the national output growth.[4] A study conducted in 1990 also analyzed the economic growth with during the time period between 1973 and 1980s. The result indicated that the government regulation reduced the annual GNP by 0.19% per year.[5] Other researchers argue that those number is insignificant compared to protecting and sustaining the priceless environment.[2]

Distributional Impacts of Environmental and Natural Resource Policies[edit]

Not all industries pollute the same amount; chemical and paper manufacturing industries, for example, tend to pollute more than others. It is difficult to accurately measure the pollution level of each industry in order to categorize and to set up a fair set of policies. In particular, improved water quality might highly favor the higher income groups due to the fact that most improvements are done in the urban areas. [2]

Links Between Trade and Environmental and Natural Resource Policies[edit]

During the time of globalization and the rapid expansion of the international market, the US policymakers have come to realize the importance of what is happening in other countries. Before making any decision and submitting the final draft to Congress, the policymakers were concerned about the effects of the North American Free Trade Agreement on the environment[5]. National accounting systems that include environmental and natural resources could provide useful information during negotiations over the nations' commitments to restore or maintain natural capital.

Trade restrictions have not been used when a country's production and processing methods result in excessive discharges of pollutants (carbon, sulfur, nitrogen oxides, chlorofluorocarbons) across national boundaries. The difficulty comes in when determining the effects of trans-boundary pollutants on industry costs.[2]

See also[edit]


  1. ^ Sjak Smulders (2008). "green national accounting," The New Palgrave Dictionary of Economics, 2nd Edition\. Abstract.
  2. ^ a b c d e Rout, Himanshu Sekhar (August 2010). "Green Accounting: Issues and Challenges.". IUP Journal of Managerial Economics. 
  3. ^ a b Schaltegger, S. & Burritt, R.: Contemporary Environmental Accounting: Issues, Concept and Practice. Sheffield: Greenleaf, 2000 ISBN 1-874719-65-9
  4. ^ E F, Denison (1985). Trends in American Economic Growth 1929-1982. Washington, DC: Blockings Institution. p. 111. 
  5. ^ a b D W, Jorgenson; PJ, Wilcoxen (1990). "Environmental Regulation and US Economic Growth". Rand Journal (Vol. 21, No.2): 315–327. 

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