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| Counting economic costs to the environment

The Greensense project measures the welfare benefits of meeting environmental sustainability standards and identifies the economic costs of meeting such standards in three EU countries. Now completed, it was the first attempt at combining economic welfare and sustainability limits in environmental accounting at national level. In identifying the economic and environmental impacts, the project conclusions show that more informative welfare and sustainability measures associated with the environment can be offered alongside more traditional economic measures, such as GNP, to better guide policy.

There are two problems in national environmental accounting. One is a lack of data on the impact of environmental damage caused by economic activity. The other is how to incorporate sustainability indicators into environmental accounting. The Greensense project, now completed, was designed to tackle these issues by developing an applied integrated environmental impact assessment (EIA) framework for use in EU national accounting programmes. Greensense was funded by the European Commission’s Research DG under the Energy, Environment and Sustainable Development programme in the Fifth Framework Programme.

What measures for efficiency and sustainability?

Estimate the welfare benefits of meeting sustainability standards and identify the derived costs.
Estimate the welfare benefits of meeting sustainability standards and identify the derived costs.
Led by a team from the Department of Economics and International Development at the University of Bath, a partnership between four academic departments in Germany, Spain and the UK steered the research and coordinated the work with three specialist environmental consulting firms. The British staff was joined by researchers from the Centre for Marine and Climate Research at the University of Hamburg, the IER at the University of Stuttgart, and the Institute of Technology Research from the Universidad Pontificia Comillas of Madrid, and also AEA Technology (UK), the Institute of Occupational Medicine (UK) and ENCO Environmental Consultants (Norway).

The Greensense project was set up to create the tools to determine whether or not the use of environmental resources is efficient and sustainable, what policy actions were required, and what was likely to be the effect of these actions on well-being. The primary aim of the project was to develop a framework of national accounting that reflected the productivity of the economy, but also indicated an economy's sustainability in environmental terms. This was intended to contribute towards a consensus on the appropriate framework for green national accounting. The second aim was to address the current shortage of environmental data by extending the methodology by which environmental impacts are measured.

Environmental accounting framework

Greensense had four main objectives in improving current environmental accounting methodologies. The first objective was to address the criticisms made of existing accounting frameworks, while capitalising on their strengths. There was considerable dissatisfaction, for example, with the use of gross national product (GNP) as a measure of economic welfare. Although GNP was developed as a tool for economic measurement and was never intended for use as a measure of well-being, in the absence of an alternative it is used for this purpose. The Greensense research explored the limits of traditional national accounting more thoroughly and developed a new framework with two key components: a welfare-based measure – the index of consumption corrected for environmental damage (ICCED), and a sustainability-based measure – distance to sustainability.

The second objective was to improve the availability and coverage of information on the most important environmental impact categories: air pollution, climate change, biodiversity loss, natural resource depletion, toxic substances, urban environmental problems (specifically noise), waste and water pollution. These constitute eight of the ten main categories of the EUROSTAT pressure indices(1). The studies took place in the three test countries – Germany, Spain and UK – and sought to measure these categories of environmental impacts in monetary terms at a national level for 1990, 1998 and 2006. The estimates for 2006 were derived from projections of alternative paths to achieving sustainability standards.

What is sustainable development?

The third objective was to define environmental sustainability standards for the impact categories above and to estimate the reductions in impacts required to meet these standards in the three countries. Reflecting the ongoing debate as to how sustainability should be defined, three definitions were devised: ‘weak’, ‘policy-relevant’ and ‘strong’, and applied to the eight environmental impact categories.

The fourth objective was to estimate the welfare benefits of reducing environmental impacts so as to meet sustainability standards and identify the costs of technical measures required to meet sustainability standards. This data was used to provide first empirical estimates of the ICCED and the distance to sustainability within the environmental accounting framework developed in meeting the first objective. The detail concerning the treatment of each environmental impact category within the economic-environmental accounting framework will be given in the Greensense project book, due to be published in 2005.

Are we approaching sustainability?

As a conclusion, the team noted that although the lack of data limited the results for policy purposes, the evidence gathered showed that there has been progress towards meeting sustainability standards, in the UK and Germany, though not so clearly in Spain. Finally, if the sustainability standards were to be met, the benefits would offset the costs, even where ‘strong’ sustainability is considered. As an exercise, the Greensense project shows the range of information required to compile more complete accounting frameworks for the environment, well-being and sustainability. Net welfare in 2006 was shown to be higher when strong sustainability standards were complied with, since reductions in environmental damage are greater than costs incurred in meeting the sustainability standard.

(1) The ninth environmental impact in the EUROSTAT categorisation – marine environment & coastal zones – was excluded as Greensense was about EU land area; the tenth, ozone-layer depletion, is measured at a global scale.

Related research themes


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  • Professor Anil Markandya, Department of Economics, University of Bath
    Tel: +44 1225 383164
    Fax: +44 1225 383423