Environmental accounting is an idea whose time has come. It is an important tool for including the cost of depleting and degrading natural resources in government calculations of national economic health.

Hardly a day passes now when we are not informed of some new example of man's destruction of nature or of his worsening pollution&emdash;mostly in the name of 'progress'.

The atmosphere, the land, the oceans, and plants and animals: all of these are now under serious threat from man's impulse to accumulate wealth and material goods&emdash;or merely to survive.

Environmental accounting is a means of adding up damage and change to the environment and including the results in more conventional economic indicators. This should allow decision makers to put a proper cost on environmental impacts. UNEP has embraced the concept as a means to steer governments, economists, investors, businessmen and, ultimately, all of us into sustainable economic practices that no longer threaten the environment.

'Placing a monetary value on the component parts of a healthy ecosystem will always present a problem. But difficult as it may seem, we have to refine economic methods to allow every country to begin including environmental auditing in national planning,' Dr Mostafa Tolba, UNEP's Executive Director, told a special session of UNEP's Governing Council last August.

'I am therefore recommending that two or three member governments undertake to refine such tools, apply them at the national level and present the results to this Council at the earliest possible date,' Dr Tolba added.

Malaysia is one developing country that has volunteered to lead the quest. 'We have been misled by the way we have been measuring economic growth,' Prime Minister Dr Mahathir Mohammed told a conference on Tropical Ozone and Atmospheric Change in Penang last February.

'If we use up our own natural resources, then that is capital depreciation,' the Prime Minister said. 'When we import technology and machinery, we have to count their depreciation as a cost to the nation. Yet depreciation of environmental capital is not recorded at all.

'We have yet to develop an effective tool that can help ensure that future calculations of national income truly reflect "sustainable" income ... The subject of the environment is far too important to be left entirely to the external "free" market forces,' Dr Mahathir added.

The Director of the Washington-based Worldwatch Institute and 1989 winner of the Sasakawa International Environmental Prize, Lester Brown, points out that the basic biological systems of the earth are under severe stress as environmental destruction continues apace&emdash;yet key economic indicators show the world is prospering.

'How can basic biological indicators be so bearish [gloomy] and economic indicators so bullish [optimistic] at the same time? The answer is that the economic indicators are flawed in a fundamental way: they do not distinguish between resource uses that sustain progress and those that undermine it,' Brown wrote in his institute's publication State of the World 1990.

Chief among those indicators is the gross national product (GNP) which is the total of the value of all goods and services produced by a nation.

'Developed half a century ago, GNP accounts helped establish a common means among countries of measuring changes in economic output over time. For some time this seemed to work reasonably well, but serious weaknesses are now surfacing,' says Brown.

He argues that a misleading sense of national economic health may result. 'According to the conventional approach, for example, countries that overcut forests actually do better in the short run than those that manage forests on a sustained-yield basis. The trees cut down are counted as income but no subtraction is made to account for depletion of the forest, a natural asset. The advantage is short-lived, however, as overcutting eventually destroys the resource base entirely.'

To illustrate the flaws in current GNP accounting, economist Roberto Repetto and his colleagues at the World Resources Institute recalculated the GNP of Indonesia, incorporating the depletion of natural capital.

Considering only oil depletion, soil erosion and deforestation, he showed that Indonesia's economic growth rate from 1971 to 1984, originally reported at 7 percent, was in reality only 4 percent.

In Repetto's revised system of national economic accounting, natural capital depletion gets a line entry just as depreciation of plant and equipment does.

Other environmental costs may be identified, such as the cost of pollution and urban degradation on human health.

In Bangkok, some people point to the mushrooming high-rise blocks and the rapidly increasing number of cars as evidence of progress and prosperity. Yet, according to one government official, the high level of vehicle pollution concentrated in Bangkok's concrete corridors will eventually lead to serious respiratory disease for as many as one million Bangkok inhabitants.

Tens of thousands of young children&emdash;perhaps many more&emdash;living in the shophouse-lined streets of downtown Bangkok will suffer mental retardation from the effects of lead poisoning in their brains.

So, how can the cost of such medical tragedy be offset against the growing amuence which is a factor in causing it in the first place?

Most burgeoning third world cities face similar problems. In Mexico City, widely regarded to have some of the worst urban air pollution, seven out of ten newborn babies were found to have lead levels in their blood in excess of World Health Organization norms, according to a WHO/UNEP assessment of urban air quality.

'It is very difficult to calculate the loss from air pollution or even gains from using anti-pollution equipment,' said one environmental health expert. 'Normally, the cost of medical care or days lost from work are considered,' he added.

There are many other such issues: the costs of poisoning the underground water table through seepage of pesticides and fertilizers, and the costs of the safe disposal of toxic and other wastes.

Environmental accounting holds out the prospect that the cost of maintaining a healthy environment will eventually be included in every industrial product or service. The question is how to implement environmental accounting.

'The difficulty is, how can the actual price of an ecosystem in its totality be assessed?' asks Dr Tolba. 'Look at a country like Malaysia. If they are losing their forest, what are they losing? Are they losing (only) the timber, the plants and wildlife which can be useful in getting some medicines? Or are they losing the ecosystem itself?'

Dr Tolba adds that the trees produce oxygen, necessary for human life, they absorb carbon dioxide, a greenhouse gas, they stabilize the soil for agroforestry and protect watersheds against floods and soil erosion, preventing soils from being completely lost.

'It is for the economist to really start putting a price tag on all these functions of an ecosystem, and that is the difficulty we are still facing,' Dr Tolba said.

'What is included in present economic calculations is the price of wood when you sell it, or the price of the fish when you catch them. But what is the impact of catching the fish, or overfishing, on the ecosystem? Nobody is costing this, nobody is deducting this from the GNP or the rate of economic growth.'

Norway, Sweden, France and, to some extent, Germany are also testing environmental accounting- and will present progress reports to the UNEP Governing Council in 1991, 'But it will be a matter of, probably, a couple of years before they can come up with anything concrete,' said Dr Tolba.

Environmental accounting is not exactly a new idea. Ecological costbenefit analysis has been around for a few decades at least, but it has not been at the centre of economic decision makmg.

One example goes back to the Canadian province of British Columbia in the early 1970s when such an analysis was done by opponents of the proposed construction of the High Ross Dam in the Skagit Valley, which would have produced power for the city of Seattle in the neighbouring American state of Washington.

The benefits of proposed power generation were compared to the loss of resources such as fish, lumber and recreational opportunities for residents of the city of Vancouver.

Somehow, a value also had to be placed on organisms which were not | being commercially exploited but which were unique.

The solution devised by a Vancouver-based environmental group was to calculate the amount of solar energy absorbed during the evolution of a species which was facing elimination. The value of such energy was then calculated at current energy prices.

On that basis, when the balance sheet was drawn up, it was found that the value of lost biomass and exploitable resources was greater than the benefits of the dam. The referee for the project, the (US-Canadian) International Joint Commission, subsequently rejected the construction proposal, so the High Ross Dam was never built.

The proponents of this innovative approach to evaluating a species, J. R. E. Harger and G. F. Culane, admitted that the technique still had to be perfected.

However, to make environmental accounting meaningful&emdash;to put some value on unspoilt nature, biological diversity and their contribution to the quality of life&emdash;many such innovative methodologies will need to be devised.

In the closing decade of the 20th century, it is ever more apparent that humanity has been living with a grand delusion: that we can go on consuming the planet's natural resources forever. At the same time, merchants and advertising men try to spur us on to ever higher levels of material consumption and its supposed social status.

We must now recognize that the environmental demands of the planet, its health and natural diversity, are more important than material accumulation in determining our quality of life.

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