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Accounting for natural wealth gains world traction

Sunday - 6/17/2012, 10:26pm  ET

By KATY DAIGLE
Associated Press

NEW DELHI (AP) - What is a sip of clean water worth? Is there economic value in the shade of a tree? And how much would you pay for a breath of fresh air?

Putting a price on a natural bounty long taken for granted as free may sound impossible, even ridiculous. But after three decades on the fringes of serious policymaking, the idea is gaining traction, from the vividly clear waters of the Maldives to the sober, suited reaches of the World Bank.

As traditional measures of economic progress like GDP are criticized for ignoring downsides including pollution or diminishment of resources such as fresh water or fossil fuels, there has been an increased urgency to arguments for a more balanced and accurate reckoning of costs. That is particularly so as fast-developing nations such as India and China jostle with rich nations for access to those resources and insist on their own right to pollute on a path toward growth.

Proponents of so-called "green accounting" _ gathered in Rio de Janeiro this week for the Rio Earth Summit _ hope that putting dollar values on resources will slam the brakes on unfettered development. A mentality of growth at any cost is already blamed for disasters like the chronic floods that hit deforested Haiti or the raging sand storms that have swept regions of China, worsening desertification.

Environmental economists argue that redefining nature in stark monetary terms would offer better information for making economic and development decisions. That, they say, would make governments and corporations less likely to jeopardize future stocks of natural assets or environmental systems that mostly unseen make the planet habitable, from forests filtering water to the frogs keeping swarming insects in check.

If the value of an asset like a machine is reduced as it wears out, proponents say, the same accounting principle should apply to a dwindling natural resource.

"Environmental arguments come from the heart. But in today's world based on economics it's hard for arguments of the heart to win," said Pavan Sukhdev, a former banker now leading an ongoing project that was proposed by the Group of Eight industrialized nations to study monetary values for the environment.

That study, started in 2007, has estimated the world economy suffers roughly $2.5 trillion to $4 trillion in losses every year due to environmental degradation. That's up to 7 percent of global GDP.

"We need to understand what we're losing in order to save it," Sukhdev said. "You cannot manage what you do not measure."

Using the same accounting principles, some countries are already changing policy.

The Maldives recently banned fishing gray reef sharks after working out that each was worth $3,300 a year in tourism revenue, versus $32 paid per catch. Ugandans spared a Kampala wetland from agricultural development after calculating it would cost $2 million a year to run a sewage treatment facility _ the same job the swamp does for free.

But environmental accounting still faces many detractors and obstacles. Among them is resistance from governments who might lack the resources and expertise to publish a "greened" set of national accounts alongside those measuring economic growth. Particularly in the developing world, many still struggle to produce even traditional statistics that are timely and credible.

And even practitioners are riven by debates on how to put a price on a vast range of natural resources and systems that encapsulate everything from pollination by bees to the erosion prevented by mangroves in an estuary. The single largest difficulty is that markets, which are the easiest way to value goods and services, don't exist for ecosystems.

"Since many things don't formally have a market price, how do you value them? Almost all the debate and discussion really hinges around valuation issues, and that is where it can get flakey," said India's former chief statistician Pronab Sen.

At one extreme, said Sen, are people who say natural resources should get a zero value since we don't know how to value them. Others argue that the values for such resources should be infinite, meaning they can't be touched since no one has an infinite amount of money.

Opposition is also expected from parts of the corporate world, since green accounting could make doing business or buying products more expensive.

A forest once valued by what its trees fetch on the timber exchange might instead be valued according to the carbon dioxide it absorbs, the animals it supports, the water it filters and the firewood it provides. Or it could be revalued with future generations in mind. That might lead to higher felling fees, pricey replanting requirements or more expensive wood. Some might rethink the economic benefit of cutting it down. Science would become a more important factor in economic decision-making.

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