Ecological Economics 36 2001 61 – 69
ANALYSIS
Seeing the trees as a forest: what counts in green accounting
Robert D. Cairns
Department of Economics, McGill Uni6ersity,
855
Sherbrooke St. W., Montreal, Canada H
3
A
2
T
7
Received 14 October 1999; received in revised form 3 May 2000; accepted 1 June 2000
Abstract
Applying ‘green’ accounting to value the commercial contribution and depletion of a forest is only a short-run variation of the traditional approach to net national product NNP and arguably provides less information. Green
adjustments can make a vital difference, however, by introducing nonmarketed values. Since optimal NNP is the linearized Hamiltonian, values are taken at the margin and exclude consumers’ surpluses, unlike in cost – benefit
analysis. Green NNP may also require imputation of unmarketed exports and imports. © 2001 Elsevier Science B.V. All rights reserved.
Keywords
:
Environmental accounting; Forests; Depletion; Non-priced amenities; Inter-national externality www.elsevier.comlocateecolecon
1. Introduction
A widely held perception is that the value added from commercial harvesting of a natural
resource is recognized in the national accounts as part of the net earnings of firms and payments to
factors, but that the depletion of the resource is neglected. Furthermore, vital, non-priced ‘ameni-
ties’ of environmental resources depleted by com- mercial activity are also neglected. A premise of
‘green’ national accounting is that all contribu- tions of natural resources and the environment
should be accounted similarly to consumption or investment, and all types of depletion similarly to
the depreciation of produced capital. A forest can be viewed as a prototypical resource for green
accounting because of its depletion as a commer- cial asset and because of its many non-commer-
cial, non-priced benefits to society.
The present study argues that correct green accounting for the commercial aspects of a forest
would be different from most proposals which are current in the economic literature. We follow that
literature by assuming that market prices are cor- rect social shadow values, as would be found in a
model of maximizing aggregate social welfare. Therefore, a decentralized, microeconomic ap-
proach to valuing an individual forest, using mar- ket prices, is appropriate. Unlike the literature,
however, our analysis is based on that pioneered by Martin Faustmann in the 19th century. We
Tel.: + 1-514-3983660; fax: + 1-514-3984938. E-mail address
:
rcairnsleacock.lan.mcgill.ca R.D. Cairns. 0921-800901 - see front matter © 2001 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 1 - 8 0 0 9 0 0 0 0 2 0 5 - 6
apply the approach consistently with the value- added method of summing the contributions of
individual economic units to obtain traditional net national product NNP.
Appropriate economic and accounting method- ology raises a further issue, however, of whether it
is worthwhile to implement green accounting: the practices of the traditional national accounts and
green accounting are, in a sense to be elaborated, equivalent.
For the
commercial aspects
of forestry, traditional NNP is arguably superior to
green NNP. For non-priced amenities, on the other hand,
green accounting would be a giant step forward. Because market prices do not exist, we revert to
an aggregate model to obtain expressions for the shadow prices of the amenities. We argue that the
interpretation by Weitzman 1976 of NNP as an index of welfare requires that valuation be done
at the margin, excluding consumers’ surpluses. If there are international environmental externali-
ties, green NNP may not capture all flows in the balance of trade unless adjustments are made in
the external accounts.
2. The forest as a purely commercial resource
