Glossary
	Agenda 21 Agenda 21 is a comprehensive plan of action to be taken globally, nationally and locally by organizations of the United Nations System, Governments, and NGOs in every area where humans impact the environment.

A number of possible indicators come under the umbrella of 'green accounting'. Indicators such as air-quality indices and water-quality classifications are commonly used. However, policy-makers find it difficult to use such information directly. It is voluminous, difficult to aggregate and unrelated to other policy variables. So the challenge remains: How can existing environmental information be organised into a more useful form? This is green accounting.

In line with the emphasis on sustainable development, appropriate indicators have to reflect economic as well as purely environmental concerns. Agenda 21 explicitly called for the creation of integrated environmental and economic accounts. How can this be usefully done? First, efforts to measure sustainable development would be enhanced by expressing indicators of environmental change in monetary terms. Second, linking physical information about the environment to economic data in national accounts would be extremely useful for policy-makers.

Environmental indicators
The Organisation for Economic Co-operation and Development (OECD) has been influential in the development of environmental indicators, through the formation of the 'pressure-state-response' framework. This focuses attention on three key variables: the pressures on the environment (including underlying pressures such as population change, economic growth, structural change and public concern, along with proximate pressures such as land-use changes and emissions); the state of the environment itself (especially the extent of pollution and waste); and society's responses (government policies, measures taken by individuals and business, environmental activism and so forth).

Traditionally, environmental indicators have been largely descriptive and not explicitly tied to policy concerns. Recently, the Netherlands Ministry of Housing, Physical Planning and Environment developed a set of performance indicators specifically designed to measure progress towards the goals of Dutch environmental policy.

A major drawback of many environmental indicators is that they fail to reflect social and economic impacts. While the pressure-state-response framework does consider economic pressures and the various responses to them, the linkages are fairly informal and economic impacts are not considered at all. This drawback is particularly serious in the case of human health, where pollution is becoming a key concern. The World Bank, for example, estimates that for every 1,000 people in sub-Saharan Africa, nearly 600 'disability adjusted life years' are lost each year. A significant proportion of these losses stems from environmental pollution. For this reason, it is crucial that green accounting enables policy-makers and the public to gauge the magnitude of environmental impacts.

Broader quality-of-life questions are only indirectly addressed in national income accounts. To the extent that there is commercial activity associated with an environmental asset (such as tourism or hunting), the value added by this activity is part of national product. But the underlying asset (the pristine lake or wilderness) is not valued explicitly. Environmental concerns are not the only item neglected by the accounts: social concerns are only reflected indirectly, if at all. The social indicators that have evolved since the 1970s, which tend to focus on health and educational attainment, are designed to give policy-makers a direct indication of changes in social well-being. The most prominent such indicator developed so far is the Human Development Index, which is a sophisticated average of economic, health and educational attainment measures. Overall it has been successful in getting countries to adopt policies that foster literacy and better health. Conceivably this could be expanded to include environmental concerns. However, environmental ends would probably be better served by other means. The very nature of sustainable development, with its close linkages between the economy and the environment, argues for an approach that better represents those linkages.

Greening the national accounts
All things considered, greening the national accounts appears to offer the most powerful way of monitoring government commitments to the environment and sustainable development, and many countries are taking steps in this direction. However, no country is currently planning to alter the underlying structure of its accounts, only to provide green adjuncts or satellite accounts. Nor is there much uniformity to these efforts, owing to the experimental nature of the work and differences in the policy concerns of different countries.

	Thinking Points
	What are the major failures of environmental indicators? How can these failings be remedied?

To ensure international comparability, the UN has developed an integrated System of Environmental and Economic Accounting (SEEA) analogous to the SNA. SEEA is designed to provide a satellite account to serve as an adjunct to, but not a modification of, the current national income accounts. This approach is highly complex, however, involving disaggregating the standard accounts to highlight environmental relationships, linking physical and monetary accounting, imputing environmental costs and extending the definition of production in the SNA.

Altogether there are four main types of green satellite accounts. These are distinguished by their focus on resource and pollutant flows, natural resource balances, environmental expenditures, or green accounting aggregates. It is worth examining at least one of these--natural resource balances--because it is well suited to concerns about sustainability.

Natural resource balances
Concern about sustainability arises from the belief that future generations are entitled to at least the same level of well-being as we enjoy now. Sustainability is closely linked to the way in which wealth is used: A country that is consuming its wealth is eroding its economic base and will not be able to maintain its current standard of living. In this instance, wealth includes natural assets, such as oil reserves, in addition to the (physical and financial) assets produced by humans that appear in standard balance sheets. Corresponding to natural assets, of course, are natural liabilities, such as the build-up of pollutants in the environment.

While environmental liabilities are relatively difficult to compute, natural resource accounts are a major feature of many countries' green accounting programmes. These accounts are usually in the form of a balance sheet showing the opening and closing stocks of various natural resources, and the flows that determine the net changes.

P.Vaze, "Environmental Accounts: Valuing the Depletion of Oil and Gas Reserves," Economic Trends, no.510 (1996): 36-44.

Table 1. A natural resource account for United Kingdom Oil The opening stock is the volume (value) of oil reserves and inventories at the beginning of the year. The closing stock is the corresponding volume (value) at the end of the year.

Table 1 presents a simplified account of this type. In the simplest of these accounts, physical quantities such as barrels of oil or cubic metres of timber are the units of measurement. The relevant flows are then the quantity extracted less new discoveries (for non-renewable resources) or the quantity harvested less the natural growth (for renewable resources). More sophisticated accounts use money values as the units of measurement. In these accounts opening and closing stocks are valued using the prices prevailing at the beginning and the end of the accounting period.

Valuing resources presents problems of its own, however. The volatility of world resource prices can lead to large changes in the value of stocks (note the revaluation term in Table 1), leaving the usefulness of resource accounts open to question. However, these problems can be overcome, at least in part, by means of refinements to current methodologies and the accumulation of practical experience.

Valuing resource depletion is particularly important when determining the royalties governments charge for the right to extract resources owned by the public. Such royalties can be a major factor in economic policy: A recent study of the Philippines, for instance, suggested that levying taxes on resources extraction would raise revenues without inflicting excessive pain on the national economy. Of course, what the government actually does with those tax revenues is of considerable importance to the achievement of sustainable development.