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Green Accounting System and its Importance

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Ecologists and environmental economists condemn the way states to maintain their financial and national accounts ostensibly. Money spent on building human skills, educating, providing nutrition, maintaining health, land, air, water quality, or forests, excluding related buildings and equipment, is classified as final consumption expenditure in national accounts. This is a conceptual topic and this has a high chance of coming in exams like UPSC, State PSC, SSC and others and students need to go through it in detail for the upcoming exams.

What is Green accounting?

Green accounting is a type of accounting that attempts to include environmental costs in business results. It has been argued that the gross domestic product ignores the environment, so policymakers need a revised model that includes green accounting. The main purpose of green accounting is to help companies understand and manage potential trade-offs between traditional economic and environmental goals.

Sustainability check for generated output:

  • Measurement of output by national accounts is based on income generation.
  • Environmental economic accounts measure outputs as changes in natural capital (as opposed to physical capital such as buildings, roads, and machinery, which all deplete natural capital).  
  • A weakness of the national accounts approach, which focuses on the output generated from the capital, is the lack of a ‘sustainability test’.
  • Instead, environmental economists assess whether economic growth is negative or positive by subtracting the value of natural capital removed in the process of generating income from the annual output.  
  • Negative growth is unsustainable because it borrows from the future to generate income today. It’s a Ponzi scheme that can’t run indefinitely. It’s like a country piling up debt without building the ability to pay it back.

The Flawed Logic of Substitutability and Infinite Supply of Natural Resources:

  • The logic behind the United Nations Statistical Commission (UNSC)-approved and globally applied system of national accounts not including natural resource stocks is simply that, until recently, natural resources were inexhaustible. In some cases, it was thought that it could be replaced even if it was inexhaustible.
  • For example, limestone-based cement and steel can replace wood in house construction. Coal can replace energy services using oil, natural gas, biofuels, or new forms of renewable energy.
  • Ecologists and environmental economists reject the assumption of the infinite substitutability of natural resources. It is based on inadequate knowledge of how nature works. They see natural resource stocks as the result of a myriad of complementary processes that organically bind particular resources together. Removing part of the whole can throw the balance off and send a stable ecosystem to a “tipping point. 
  • It is a term the world is now familiar with, as the impact of accumulated carbon emissions on global warming and climate has been the subject of close scientific study.

Environmental Economic Accounting System (SEEA):

  • Recognizing the need to make economic accounting environmentally friendly, the UNSC created the Environmental Economic Accounting System (SEEA) in 2012.
  • This applies the accounting concepts, structures, rules, and principles of the System of National Accounts to environmental information.
  • This allows the integration of environmental information (often measured physically) and economic information (often measured financially) into a single framework.
  • India – A step-by-step approach to green accounting: In India, the Central Statistical Organization (CSO) is a leader in incorporating environmental economic assessments into natural capital stocks and services.
  • After the 1992 Earth Summit, the CSO created the Framework for the Development of Environmental Statistics (FDES). The Environmental Statistics Summary was published in 1997 and is updated regularly.
  • The Department of Statistical Planning and Implementation has commissioned a series of studies from 2000 to 2006 to assess and evaluate land, forest, air, water, and mineral resources.  
  • A group of experts chaired by Dr. Patho Dasgupta published a report Green National Accounts for India in 2013, proposing a framework in line with the SEEA framework.
  • In 2018, It published a physical account of four resources (land, water, small minerals, and forests).
  • EnviStats India 2019 added his two resource quality indicators, soil, and water, and assessed his two services, agro-ecosystem services, and natural resource-based tourism services.   The work to make the government’s financial accounting system compatible with environmental accounting is being carried out by the Government Accounting Standards Advisory Committee under the General Accounting Authority, which issued a concept paper on ‘India’s Natural Resources Accounting’ in June 2020.   led by the Association (GASAB).
  • Since the 1990s, there has been significant activity in natural resource accounting. However, India is far from integrating environmental accounts into national accounts.

Way Ahead:

  • According to the 2020 UNSC Global Survey on the Implementation of Environmental-Economic Accounts, 89 countries have developed at least one account in the last five years, up from just 54 in 2014, and 62 countries. are created regularly.  
  • One way to check a government’s commitment to a program is to evaluate the resources put into that program.
    In 2020, the government allocated just 3.7 full-time employees to environmental economic accounts on average.
  • Developed countries have on average seconded their five full-time employees, demonstrating a small but consistent commitment to green accounting.
  • Nevertheless, ecosystem-level environmental economic accounts (SEEA EA) are already important for sector decision-making. 
  • This is best illustrated by the case of CO2 emissions. Achieving the 2030 global goal of reducing carbon emissions by 45% from 2010 levels is one way to make governors. Because only what is measured is executed. The private sector and citizens find environmental economic accounts to be useful tools.
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Last Updated : 31 Oct, 2022
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