Green Accounting

In simple words Green accounting is kind of accounting that tries to factor the environmental costs within the financial outcome of the operations of a business. The decision makers have argued on the need of a revised method that includes green accounting because the Gross Domestic Product (GDP) ignores environment.

The idea was suggested in the 80’s by professor Peter Wood, although, the practice is still controversial. A fellow professor of the similar time, Julian Lincoln Simon, argued on the usage of natural resources that result in much wealth evident by the low prices of nonrenewable resources over the course of time.

To explain the subject further, let’s take a piece of red wood that is 300 years old, and that is cut and created into tables.  Now the table building and logging adds to the GDP while absolutely no deductions is done at the cost of losing a tree and its non market services. Similarly the waste from a paper mill when dumped into river results in increased GDP but no cut is made for the cost of water pollution. On the contrary, water and air cleaned by the old forests and wetlands doesn’t add anything to the GDP.

But the accounting methodology within the US omits such environmental costs, to measure the economic activity of the nation. However, with many recommendations, now the national accounting system is on its way to correction.

The NIPA or the national income and product accounts also support the measurement of GDP. The three main aspects that are ignored by NIPA are:

1. It counts over harvesting and pollution- causing industries as economic activity without deducting the environmental destruction done,
2. It ignores the depletion of the forests, oils, and other natural asset, and
3. It also fails to acknowledge the services and goods provided by the wetlands, air, water and other ecosystems.

‘The Nature’s Numbers’, a book by the environmentalists, favor green accounting and proposes to extend NIPA for the inclusion of production activities and assets related to the environment and resources. It also suggests developing near-market and non-market accounts in parallel. This intelligent, carefully written weighty book offers a crucial boost to green accounting. This book will mark to be an asset in devising ways to protect environment without making a drag onto the nation’s GDP.