portionate clearing of denser and more commercially valuable forest areas, gave rise to considerably different rates of forest area and commercial wood volume losses. The fact that the two valuation techniques were applied using these two differing rates of forest loss decline, in turn, led to differences in the methodologies' policy recommendations.


National income indicators, by which policymakers often judge their countries' economic performance, abstract the costs of natural resource depletion and environmental degradation. By abstracting these costs, national income indicators mislead policymakers, presenting the depletion of environmental assets as income generation. In the case of natural resource extractive activities such as forest logging, income will be recorded as total revenues less extraction costs. No costs are deducted either for the inherent value of the resource or for any damage associated with its removal. Failing to subtract these costs inflates the true value added generated by the activity and presents the sale of an asset as production.

Capital depreciation provides another example of the asymmetrical treatment of natural and man-made capital in the SNA. Depreciation is not an economic transaction but an imputation capturing the decline in income-generating potential of assets over time. Yet depreciation is imputed and deducted only for wear and tear on reproducible, man-made capital. When natural assets are depleted, no analogous depreciation is recorded. The exploitation of resources and degradation of the environment undoubtedly lessen an economy's productive capacity, particularly those developing economies which rely heavily on resource-extracting industries. This being the case, it is clearly inconsistent and misleading to deduct depreciation for productive man-made capital, while ignoring the analogous depreciation of productive natural capital.

Various modifications to the national accounts have been proposed. The different methodologies focus on specific shortcomings in the current income calculations and differ in their valuation of the services provided by the environment.

No standard valuation technique for natural resource accounting has yet been established. Opinion remains divided among market values, opportunity or replacement costs, and discounted future revenues as bases for valuation of the physical units. To remain consistent within the SNA, which was constructed to measure formal market activity, it is generally accepted that only the commercially salable value of forest timber would be included in the valuation of forest resources. Significant nonmarket values and externalities are not captured by these resource depletion adjustments. In this sense, most natural resource accounting adjustments are extremely conservative, reflecting only a small portion of the true social costs of deforestation.

There are two commonly discussed NRA approaches that address resource depletion and degradation in the national income accounts; they are the "user cost" (see El Serafy in Ahmad et al., 1989), and the "depreciation" methodologies (see Repetto et al., 1989). The two methodologies attempt to address a basic asymmetry in the way the SNA treats natural and man-made capital. They differ, however, in the valuation of natural resource depletion.

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