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Natural Resource Accounting

Natural Resource Accounting. Session Objectives: Interpret the results of natural resource accounting Develop policies based on the results of resource accounting. Session Agenda. What is natural resource accounting Major accounting methods Application of natural resource accounting

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Natural Resource Accounting

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  1. Natural Resource Accounting Session Objectives: • Interpret the results of natural resource accounting • Develop policies based on the results of resource accounting

  2. Session Agenda • What is natural resource accounting • Major accounting methods • Application of natural resource accounting • Discussions

  3. Estimate $ value of resource depletion & environmental degradation as a result of economic activities Adjust economic indicators (GDP, value-added) to reflect such value Interpret adjusted economic indicators Publicize adjusted economic indicators Suggest policy options What is Natural Resource Accounting?

  4. Natural Resource Accounting Steps • GDP - depreciation of produced capital = NDP • NDP - natural resource depletion = EDP1 • EDP1 - environmental degradation = EDP2 • EDP2 = environmentally adjusted NDP

  5. Split the annual net profits generated through sale of a resource into 2 parts: true income and user cost True income can all be consumed User cost is estimated in such a way that if it is invested, the annual revenue from the investment together with any true income from the resource in each year will generate a constant stream of true income annually, indefinitely R - X = R/(1+r)T+1 R = net profits X = true income r = discount rate T = life time of a exhaustible resource User- Cost Method

  6. Estimate the total net values of a resource stock at the beginning and end of the year The difference is the value of environmental loss Vt = (pt -ct)Q = NtQ Vt = value of a resource at the beginning of period t pt = market value per unit of the resource ct = per unit production cost Nt = net price Net Price Method

  7. Maintenance Cost Method • Costs that would have had to be incurred during the accounting period in order to avoid current and future environmental deterioration from the impacts caused during the same period. • Choose avoidance, prevention, or restoration activities based on available knowledge and technologies and according to cost-efficient principle. • Calculate the costs of the chosen activities.

  8. Policy Application 1Assess macroeconomic performance • EDP measures genuine net value created by an economy • Given GDP-K1-K2=EDP, for EDP to grow: • No further increase of K1 and K2 while GDP grows; • Reduction of K1 and K2 even if GDP stays the same; • Increase of K2 is at least compensated for by reduction of K1; or • GDP growth must exceed the rate of increase in K1 and K2.

  9. Have resource users pay for user cost or net price and invest the proceeds for ensuring a constant stream of income. Have users pay for maintenance costs and invest the proceeds for maintaining those functions. Restructure industrial policies according to relative importance of industries as revealed by sectoral EDPs. Prevent currency overvaluation and Dutch Disease by correcting the under-pricing of exportable resources Policy Application 2Reform economic policies

  10. Policy Application 3Evaluating effects of SD policies • Environmental impacts over time: (NDP - EDP)/NDP • Living off natural assets: C/NDP vs. C/EDP • C = consumption • Environmental investment: ECF/EDP • ECF = environmentally adjusted net capital formation • Genuine capital productivity: EDP/CAP • CAP = total capital stock

  11. Caveats • NRA does not include all economic values of natural resources and environmental functions • NRA does not address the question of environmental irreversibility • The use of NRA must be complemented by environmental and social indicators

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