Accounting for the Environment in Europe: Progress and Lessons

by Carolynn Look, Institute for Advanced Development Studies

A kilo of tomatoes in Spain typically costs around €1.99. This price includes the efforts of the farmer who grew the tomatoes, transportation costs, and the work of the retailer. What it does not include is the cost of emissions as these tomatoes make their way across Europe, or of water usage, deforestation and loss of biodiversity as monoculture plantations spread across Spain’s rural landscapes. Because of an increasing recognition of such detrimental effects, economists and governments have started to realize that air, water and forests are not in fact free and have asked themselves: What is the price of an old Cypress tree? How much does a clean river cost? How do you place a value on a gulp of unpolluted air, or on an entire habitat?

In Europe, particularly, many countries have started including environmental costs in their national accounts. Germany, for instance, produces an easy-to-read yet comprehensive sustainability report every year based on a myriad of data concerning such things as levels of energy consumption, pesticide use in agriculture, and air quality, which it puts side by side with social statistics such as employment, education, and crime in order to highlight which sectors need to be improved. For example, the latest report published by Federal Ministry of Statistics entitled “Sustainable Development in Germany” showed that efforts to preserve biodiversity were not meeting their 2015 goal, explained what was causing the lack of progress, and suggested focusing on improving protection of biodiversity, for instance by reducing land cultivation. The Italian government has also been making serious efforts since 2002 to pass legislation that will link documents concerning ecological sustainability to those normally adopted for economic planning. These have provided detailed environmental information—on such things as water usage during agriculture or how to account for pollution emitted during tourism—that will allow policy-makers to make more informed decisions. Many other countries, such as Sweden, the UK and Austria, have well-established environmental-economic accounting branches which regularly produce reports indicating their emission data and environmental expenditures.

Monetization of Resources

The question all European governments face is: how to place a value on the environment? For example, although wood as a resource for making paper, tables, or kitchenware may be relatively cheap its price often does not reflect a forest’s positive contributions to the environment, such as breaking down carbon dioxide or providing a habitat for animals. All these things remain largely invisible to policy planners thousands of miles away, but they would costs humans $trillions if they were trying to provide them themselves. Thusly—drawinginspiration from a group of German laws that allow regional ministries to charge varying compensation costs ranging from €30 – 2,000 to businesses when different ecosystems are damaged—a Land Cover Accounting project in the Czech Republic attempted to assign monetary values to ecosystems and created a spatial map to demonstrate this varying worth. The idea was that ecosystems have relative values based on such things as their age, level of biodiversity, and amount of resources.

Being aware of the value of nature and resouces can help policy-makers reach decisions that minimize environmental damage and thus long-term economic costs. In a 2000 paper in the Journal of Geographical Analysis, a group of Spanish researchers tested the results of economic policy and pesticide use limitations on farming activities in the Flumen-Monegros (north-eastern Spain) region by plugging predicted outcomes into an economic model. They then analysed this data and found that policies resulting in low crop prices or high water prices can lead farmers to either abandon their land or switch over from grains to pricier fruits and vegetables. These higher-value crops demand an intensive use of chemical pesticides and fertilizer and thus cause extensive environmental damage. The policies that they discovered led to more environmentally beneficial agricultural habits included the European Union (EU)-backed Common Agricultural Policy (CAP), which has subsidized farming activities in member states since 1962. Studies like this make it possible to predict future policies’ environmental and other impacts and aid policy makers in planning for a more sustainable future.

Environmental Cooperation of the EU

Since the early 2000s, European countries have been making a concerted effort to implement environmental-economic accounting (EEA) policies. In 2011, a proposal was passed that requires all EU member states to provide (a) air emissions accounts, (b) environmental taxation statistics, and (c) economy-wide material flow accounts (how natural resources move through the economy). The second batch of regulations is underway for the coming years, including accounts on environmental protection expenditure, environmental goods and services sector, and physical energy flow accounts of each industry. The main objective of this policy at the European level is to give priority to regular production of a core set of accounts, and at the national level to ensure that national statistical institutes maintain and potentially expand their work on environmental accounting. Through this they have been able to assess important country and region-wide environmental-economic accounting statistics, such as environmental taxation’s 2.4 percent contribution to the EU gross domestic product (GDP).

Protecting the environment is a task that cannot be tackled alone. This is a fact that is gaining recognition among EU member states and their combined efforts will certainly prove to be more fruitful than if they acted individually. Environmental law has become one of the most far-reaching and important EU legislations.  A unionised system of environmental-economic, or ‘green’, accounting is a first step not only in decreasing environmental damage, but also in showing individual countries the economic benefit of adopting sustainable policies.

However, although this system will help regulate policies within the EU, what is still being neglected is the fact that many products, especially agricultural ones, are grown and imported from abroad. Although the EU is starting to lower its domestic eco-footprint, what remains to be seen is whether this will lower its global environmental impact. What also remains to be seen is how free market advocates will respond to growing environmental regulations in the long-run, some of whom argue that these render businesses uncompetitive.

There is certainly a lot of work to be done in terms of optimizing environmental policies. But perhaps the growing European model of environmental-economic accounting can provide useful advice and act as an inspiration to other regions fostering ‘sustainability cooperation’. With the right intentions and efforts to provide transparent information, green accounting could even one day see global dimensions.

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About the Author

carolynn-lookCarolynn Look is part of the research and communications team at the Institute of Advanced Development Studies. This article was originally featured on INESAD’s English language blog Development Roast.