marketed goods and services, and pollution. Often the intent of these schemes is to augment the conventional accounts for the purpose of generating a superior (“greener”) measure of gross domestic product (GDP). Others have chosen a more comprehensive approach, covering not only nonmarket activity, but also market items (such as timber and mineral sales and the costs of pollution reduction) that are already covered in the conventional accounts.
As set out elsewhere in this report, the panel favors the development of satellite accounts that include both the market and the nonmarket components of the activity in question. For the environment, an inclusive approach would more fully highlight the economic importance of the environment and natural resources and serve to disaggregate market activity so as to identify costs and expenditures that are related to the environment and to its protection.2 To reiterate, however, comprehensive sectoral accounts cannot simply be added up, either with each other or with the conventional income and product accounts—perhaps with the intent of generating a green GDP—since there would be double-counting.
Currently, the NIPAs capture the value of minerals and other subsoil resources that are extracted and sold in the market economy. The NIPAs do not reflect changes in the stock of nonreproducible (or extremely slowly reproducible) assets such as oil or mineral reserves (Nordhaus, 2004, p. 13). Changes in these assets are excluded, not because they have no value, but because they have not yet flowed through markets. This is not unlike the current treatment of changes in the stocks of human or health capital explored in Chapters 4 and 5.
The BEA’s expanded IEESA effort produced a “full and well-documented” set of subsoil mineral accounts that did value reserves (National Research Council, 1999, p. 4). The IEESA accounting of net investment in subsoil assets includes a negative entry for depletions or extractions of subsoil assets and a positive entry for additions to reserves. The IEESA methodology is similar to the NIPA treatment of conventional capital formation. We note that this approach is not universally accepted: the SEEA, for example, does not account for new discovery of minerals; only negative changes in the value of subsoil assets are possible in that account.
We support the IEESA approach to accounting for nonreproducible asset
This task can be very difficult since environmental expenditures are often hard to separate from nonenvironmental expenditures. A firm may buy new equipment for reasons of profitability. Coincidentally, this equipment may be “cleaner.” In addition, some environmental control costs are not reflected in any increased expenditures. For example, a paper company may choose to reduce pollution simply by eliminating the production of bright paper. This choice has real economic costs for the firm, but it is not reflected in any increases in the costs of pollution-control equipment.