Tyler Cowen mentioned “green accounting” and William Nordhaus in a post the other day so I went looking for more information on the subject. Here’s one of the more succinct descriptions I found of the problem that green accounting aims to address:
When a majestic, 300-year-old red-wood is cut down and turned into picnic tables, the logging and picnic table-building activities add to the gross domestic product (GDP), while no deduction is made for the loss of that tree and all the nonmarket services it provides. When a paper mill dumps dioxin-laden wastes into a river, the paper-making boosts the GDP, but no deduction is made for the costs associated with the water pollution. Conversely, no addition is made to the GDP for the air and water cleaned by wetlands or old-growth forests.
If you’re keen on learning more about green accounting and William Nordhaus’ contributions, check out Nature’s Numbers and the perhaps not-so-riveting Recommendations to The Bureau of Economic Analysis On Improving the National Economic Accounts. (I will also humbly note that this relates to something I wrote for WorldChanging last December. “The global economy is driven by nature, and yet it’s not usually found on the accountant’s balance sheet.”)