An ‘environmental accounting’ primer

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What is it? (and why should we use it?)

By Peter Burnett

‘Environmental accounting’ (or ‘environmental-economic accounting’ to use its full name) is, on first blush, a dry-as-dust topic. Yet the ideas behind it and the insights it unlocks are fundamental to good environmental governance and a meaningful shift towards sustainability. That’s in part why Australia’s governments adopted a national strategy, or at least a common national approach, to environmental accounting in 2018.

Recently I attended a workshop in Brisbane on environmental accounting* hosted by state and federal governments. The workshop was lively and well-attended, with many more participants asking to be part of the discussions than had been originally invited. Clearly the value of environmental accounting is beginning to be acknowledged across multiple sectors.

But the development of environmental accounting didn’t happen overnight. Its gestation took over half a century with some of its central concepts going back centuries. What’s more, a lot more needs to happen before its full potential is realised.

Origins

Environmental accounting can be traced back to the 1970s when several countries, including Norway and France, developed what was then described as ‘natural resource accounting’, or in the case of France, ‘patrimonial accounting’, as part of their response to the emergent major environmental concerns of that era. There were also fears associated with resource scarcity arising from the oil crisis of 1973. These accounts were kept in physical terms.

At about the same time, economists William Nordhaus and James Tobin (later to be Nobel laureates) wrote a seminal paper highlighting the shortcomings of GDP as an economic indicator. They argued for a ‘Measure of Economic Welfare’ (MEW) that subtracted consumption of capital, including ‘environmental capital’, from domestic product. This is because treating consumed capital as income creates an inflated sense of well-being in the short term but is unsustainable over the longer term. Implementing a MEW would require the inclusion in national accounts of figures for the consumption of environmental or ‘natural’ capital, expressed in monetary terms.

During the 1980s the United Nations Environment Program (UNEP) and the World Bank ran workshops aimed at linking environmental accounting to the System of National Accounts (SNA), an international standard maintained by the UN. This work may have influenced another well-known UN project, the Brundtland Report of 1987, famous for proposing a global goal of ‘sustainable development’.

Brundtland placed great emphasis on policy integration as essential to achieving sustainable development. Although Brundtland did not go on to recommend environmental accounting per se, it did couch some of its arguments in economic and accounting terms, referring for example to ‘overdrawn environmental resource accounts’ and the need to maintain the stock of ‘ecological capital’. Given the implicit connections made in Brundtland, it’s probably no coincidence that Agenda 21, the action plan adopted by the subsequent Rio Earth Summit of 1992, linked accounting and sustainability directly by including a commitment to develop integrated environmental and economic accounting as ‘a first step towards the integration of sustainability into economic management’.

With Agenda 21 providing a mandate, the UN soon published a handbook on integrated environmental and economic accounting in 1993. However, it took a further 20 years to develop the handbook into a full international accounting standard and even then the scope of the standard was confined to traditional natural resources, with ecosystem accounting relegated to a supporting ‘experimental’ framework. The UN is scheduled to consider adopting a revised version of this experimental framework as a full international accounting standard in 2021. I hope this indeed occurs, but it reflects how long these processes take. The gestation period for this work is nearly 30 years!

Delay aside, a key innovation of the resulting System of Environmental-Economic Accounts (SEEA) is the concept of ‘combined presentation’, the ability to produce accounts expressed in either physical or monetary terms, or both. This allows accounts to support two streams of work: 1. the integration of environmental consumption into national accounting and
2. the use of physical accounts to inform environmental management.

Why bother?

As national accounting informs economic decision-making, the rationale for environmental accounting in monetary terms is clear. But why bother with physical accounting, other than as an intermediate step to monetary accounts? The answer lies in two developments, one in the late 1960s and the other going back to medieval times.

Concerns about the extent of environmental decline had been growing steadily through the 1960s. In 1969** two resource economists, Robert Ayers and Allen Kneese made a profound observation concerning environmental ‘externalities’ (externalities are the costs or benefits affecting persons not party to an economic transaction). Their observation was that if environmental externalities could no longer be regarded as exceptions, but were more the norm, then good economic decision-making required a ‘materials balance’; that is, a full recording and accounting for environmental impacts, in physical terms. Implicitly, Ayers and Kneese had just made the case for environmental accounts.

The other development foundational to the case for environmental accounting is the concept of the ‘double entry’, which goes back at least to the medieval ‘Venetian method’ of book-keeping. Double entry recognises that almost all transactions involve both a gain and a loss. In purchasing equipment for example, a business gains the equipment but loses the money used to pay for it, so it records both the gain and the loss in separate ledgers, one for equipment and one for cash. Moreover, accounting links the two aspects of the transaction, showing that this purchase in the equipment ledger was paid for with this payment, and correspondingly that this payment was attributable to that equipment purchase.

Stocks and flows

Environmental accounting builds on the parallels between our interactions with each other in business and our interactions with the environment. Just as business accounting tracks the stocks of business assets and liabilities, and the flows of business receipts and expenditure, recording the net change in capital at year’s end, so environmental accounting tracks the stocks of environmental assets (and liabilities, eg pollutants) and the flows of ecosystem services (and expenditure on ecosystem maintenance), recording the net change in natural capital each year.

Moreover, environmental accounts record the transaction from both society’s end and the environment’s end, making it ‘quadruple entry’. As a result, environmental accounts can show for example that this flow of ecosystem services to society came from that environmental asset, depleting it by this much, but that the depletion was offset by that degree of natural replenishment and this much environmental maintenance. This capacity to link transactions so specifically to their causes and impacts is what makes accounting a powerful tool for environmental analysis and decision-making.

What next?

Environmental accounting is starting to build significant momentum in Australia. As this work is still in its infancy, despite its long gestation, the ongoing work under way nationally and internationally to develop accounting standards and protocols remains important. More important however is the need to pay extra attention to, pardon the pun, the other side of the ledger, the application of accounts for better decision-making. I will cover this in a future article.

* The Brisbane workshop on environmental accounting brought together a number of researchers to present their work on the development or application of accounts. For example, Victoria presented their work on using accounts to identify the ecosystem services provided by forests.

**1969 is big in the news at the moment with the 50th anniversary of the Moon landing. It seems strange to me that so much attention is paid to this triumph of technology; while so little attention has been given to 1969 as the dawn of modern environmental policy. Beyond the analytical insights of Robert Ayers and Allen Kneese, 1969 also marked the passage of the world’s first comprehensive environmental law the US National Environmental Policy Act (NEPA), thanks significantly to the efforts of Professor Lynton Caldwell.

Image by Free-Photos from Pixabay

Trinity and the dawn of the Anthropocene

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Reflecting on the moment the world changed

By David Salt

Seventy four years ago, at 5.29am on Monday 16th of July 1945, the US military detonated the world’s first atomic bomb. Code named Trinity, the test was run out on a lonely New Mexican desert on an air force bombing range. Small by the standards of later tests, Trinity still managed to light up the surrounding mountains brighter than day, fuse the sand underneath it into radioactive green glass and generate a shock wave felt over 160 km away.

Yet the significance of Trinity extends way beyond that New Mexican desert, and even beyond the end of the Second World War which, with the aid of atomic weapons, was now only weeks away.

By some reckonings, 5.29am on Monday 16th of July 1945, marks the beginning of a new geological epoch – the Anthropocene, the age of humans. Seventy four years on, the trajectory of the Anthropocene should be at the fore front of all our thinking.

Written in stone

The Anthropocene is not yet an ‘official’ geological time period. Such decisions require a formal review and proclamation by the International Commission on Stratigraphy (ICS), a fairly conservative scientific panel not keen on mixing their science with fashion and politics (and the ‘Anthropocene’ is jam packed with political ramifications).

According to the ICS, planet Earth is still officially in what’s known as the Holocene Epoch, which began after the last ice age ended some 12,000 years ago.

But many scientists have been unhappy with the title ‘Holocene’ believing human activity is now dominating the Earth system, and this should be reflected in the stratigraphic nomenclature – the Earth’s geological rock strata reflecting the deep history of our planet. The name ‘Anthropocene’ was proposed by the atmospheric chemist (and Nobel laureate) Paul Crutzen back in the year 2000.

For a new geological epoch to be declared the rock strata above a proposed boundary needs to distinctly different from those below, suggesting some major change in the processes that created them. But this difference also needs to be evident all around the world, indicating that the change is global and not merely regional in character.

Can human activity be seen in the geological record? You betcha! Particles of plastics, concrete and aluminium, all of undeniable human origin are now widespread around the planet and found in today’s emerging strata. But possibly the most undeniable material of human origin being found in the strata are radionuclides from atomic bombs, beginning with Trinity in 1945. Nothing like these substances had existed on Earth prior to 1945, but now they coat the planet.

While the radionuclides serve as an easily detectable marker, they only exist in trace quantities. Other artificial materials are so abundant we’re drowning in them. The total amount of concrete that humanity has produced, most of it in the post-1950 period, amounts to about a kilogram for every square metre across the entire surface of the Earth. The amount of plastic wrap produced since 1950 is enough to cover the entire planet in plastic. And enough aluminium foil has been manufactured to wrap the continent of Australia.

All of these stratigraphic markers begin to appear in significant amounts around the middle of the 20th century. This coincides with a time that is now commonly referred to as the Great Acceleration, a period of unparalleled economic growth and development. And it wasn’t just plastic production that skyrocketed; so too did water use, energy use, fertilizer consumption, international tourism, dam construction and paper production. Underpinning it all was a swelling human population and an insatiable drive to grow the economy.

When did the Anthropocene begin?

When Crutzen first began writing about the Anthropocene with colleagues he proposed that it began with the invention of the steam engine and the Industrial Revolution from the second half of the 18th Century. This was because this period coincided with increasing levels of carbon dioxide associated with greater levels of coal consumption.

Other scholars have suggested the Anthropocence began much earlier, back with the Agricultural Revolution some 5-8000 years ago. The spread of agriculture also led to increased greenhouse gas emissions through changes in land management.

Others have suggested even earlier dates with human making their mark through the extinction of mega fauna in areas where they appeared.

Each proposal for the beginning of the Anthropocene has its strengths and weaknesses depending on your frame of reference.

From an Earth systems perspective, however, it is only from 1950s that the cumulative impact of human activity began to distort the Earth system itself. Humanity was changing the very behaviour of our planet. None of the earlier ‘start’ dates can claim this.

And, when you combine this with the crystal clear signal of radionuclides and their sudden appearance, I believe Trinity is the best candidate for the opening of this latest planet-shifting epoch – the Anthropocene. The fact that Trinity also symbolises our ‘mastery’ over matter by unleashing the dangerous power of the atom only reinforces the significance of the 16th of July 1945.

So, 74 years into the Anthropocene, where is it taking us? I don’t think we’ll need another 74 years to find out.

Image: The Anthropocene began with a bang. The Trinity explosion is pictured here 16 milliseconds after the detonation. The highest point of the explosion’s dome in this image is about 200 metres high. (Los Alamos National Laboratory)

Review of ‘green tape’ for farmers throws up old conundrums – but also contains one gem

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By Peter Burnett and Philip Gibbons

Wendy Craik’s review of the impact of national environmental law on farmers (Craik Review) was released quietly late last week by new federal environment minister Sussan Ley, nine months after it was received by her predecessor, Melissa Price. (That law, of course, is the Environmental Protection and Biodiversity Conservation Act 1999, or EPBC Act. It’s up for review later this year and for many years farmers have been complaining it places an unfair burden on their agricultural activities.)

Craik is a former Executive Director of the National Farmers’ Federation (NFF) and former head of the Great Barrier Reef Marine Park Authority. She is well respected by government, the farm and conservation sectors.

Useful but mostly problematic

Craik has handed over a good report. The review has produced some useful proposals, including ways to improve environmental information and to align existing research with regulatory objectives.

It does however throw up some old conundrums for government. Maybe this is why its release was delayed till after the election, and then done with little fanfare.

The review recommends keeping farmers informed about what they can and can’t do on their land by investing in environment department services and systems, yet Coalition governments have cut federal environmental resources by 40% in six years (ACF 2019). You can’t make an omelette without breaking eggs.

It also prescribes a new $1 billion National Biodiversity Conservation Trust as a remedy for biodiversity decline, an amount exceeding existing funding under the National Landcare Program. Same problem, a good proposal but requiring considerable additional resourcing.

Craik also made a number of recommendations, including nationally-aligned policies and encouraging environmental markets, that would require genuine and ongoing federal-state collaboration on policy, something that has mostly eluded federal and state governments over nearly 50 years of trying.

The conundrums are not confined to the recommendations.

The review found that only 2.7% of the 6000 referrals considered under the EPBC Act have been for agriculture.

This is a striking statistic given nearly 90% of all land clearing in Australia is for agriculture, suggesting that the EPBC Act is significantly under-applied and (from the government’s perspective) an indigestible outcome from a review originating in farmer complaints of regulatory burden.

Ley’s brief media release implies that she will defer responding until completion of a much larger review, the forthcoming second 10-year statutory review of the EPBC Act.

It is little wonder Ley is kicking the can down the road, a decision no doubt aided by current controversy concerning Minister Angus Taylor’s involvement in some of the events behind the review (Guardian 2019).

A gem of an opportunity

There is one recommendation however that presents a gem of an opportunity for immediate action.

One of the triggers for the review was complaints by farmers in the Monaro region of southern NSW about the combined effect of federal and state laws affecting the management of native grasslands on their properties (farmonline 2017).

The review prompted a ‘well-resourced’ offer from NSW that federal and state officials work together on two pilot studies, one in the Monaro, to identify what biodiversity needs protecting under both federal and state law and how to achieve this.

Craik supported the idea, proposing the production of non-statutory regional plans under an independent chair.

The NSW offer is significant. The traditional approach of the states towards federal environmental regulation has been to resist and contain, especially in regard to on-ground management, which the states have seen as their exclusive role and a major bulwark against federal jurisdiction creep.

Previous attempts at regulatory collaboration, such as the ‘one-stop-shop’ for development approvals, have focused on regulatory change negotiated between officials rather than on-ground management and service-delivery, and have been conducted in an atmosphere that was at least lacking in trust, if not adversarial.

A genuine attempt to work together on the ground, along with local stakeholders and twin aims of protecting what is ecologically significant while also making life easier for farmers and other businesses, has much better prospects of building the trust necessary for effective regulation. It would also be a valuable investment in social capital.

Cynics may regard the prospects of successful on-ground collaboration as limited. The problem is, we have tried most of the other options with limited success, especially over time.

The environment continues to decline, dramatically according to the latest UN report. The opportunity to trial collaborative regional planning is too good to leave in the in-tray.

The real climate change debate

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Beliefs trump evidence while the truth disappears in the babble

By David Salt

A few years ago American comedian John Oliver ran a skit on the way most mainstream media run debates on climate change. He lampooned the way they inaccurately portray the debate as a balanced affair in which a climate expert is pitted against a climate skeptic. The viewer sees one person versus one person – a 50:50 debate. But, as Oliver points out, the scientific consensus supporting climate change is an overwhelming 97%. To portray the debate as a 50:50 divide is inappropriate and dangerously biased.

Oliver demonstrates the ludicrousness of this by staging a ‘statistically representative debate’ in which three climate-change deniers argue their cant against 97 climate scientists who drown out the naysayers with their chorus of facts.

It’s a great skit, much loved by climate researchers and science communicators everywhere. If you haven’t seen it, I commend it to you. Indeed, I regularly screen it in a talk I give on ‘science and policy’. And, I note, it’s been watched by well over eight million people with 77,000 giving it the thumbs up with around 3,000 giving it the thumbs down – fairly close to the 97% scientific consensus.

So, having praised Oliver’s efforts, and lauded the skit’s central conceit, I’m now going to call it out for demonstrating two critical weaknesses in the overall effort to communicate the seriousness of climate change; flaws that are hampering current efforts to bring about enduring policy reform.

Belief vs evidence

The first relates to Oliver’s contention that facts are more important than people’s beliefs. He begins by pointing out that a recent Gallup poll found that 1 in 4 Americans are skeptical about the impacts of climate change and think this issue has been exaggerated. Oliver retorts (to much laughter) “who gives a shit, that doesn’t matter; you don’t need people’s opinions on a fact; you might as well have a poll on which figure is bigger, 15 or 5? Or, do owls exist? Or, are there hats?”

But, as we have seen increasingly over recent elections both here and abroad, beliefs do trump facts. We make fun of people’s beliefs, regardless of their relation to evidence, at our peril.

When I looked for stats on current beliefs in the US on climate change I found results from multiple surveys. Most suggested there was a growing acceptance of the reality of climate change, that young people had higher rates of acceptance and believed that governments should be doing more, and that Republican voters had significantly lower rates of belief.

One recent survey by Yale University of over 1000 adults found that a record 73% of Americans polled agreed that global warming was happening, marking a 10% point increase since 2015. The results were trumpeted in Forbes news under the banner New Survey Finds 3 Out Of 4 Americans Accept The Reality Of Climate Change, which is really pretty much the same as the figure quoted in the Oliver skit, just framed in the reverse way (1 in 4 Americans are skeptical about the impacts of climate change).

Speaking with one voice

And the second issue raised in the Oliver skit relates to the cacophony of scientist cries as the ‘statistically representative debate’ gets underway. The point he was trying to make is that the weight of evidence drowns out the denialism if you line them up along the lines of the 97% scientific consensus (97 scientists vs 3 deniers).

But I couldn’t hear any message; it was drowned out in the babble. Indeed, the only line you actually hear is that of the deniers who get the first line in: “Well I just don’t think all the science is in yet and settled,” says the denier. Oliver then asks for what the scientists think and you can’t hear anything from then on as the 97 voices speak out in unison.

So, Oliver’s point is made with comic impact but I think he also highlighted the problem of what the public hears when confronted by multiple voices spewing out endless facts and figures, impenetrable graphs and numbers loaded with dense techno-speak expositing doom and gloom if we don’t dramatically change our ways.

On the other side* is a tiny minority of players (usually representing unstated vested interests with deep and well-funded ideological roots) putting out simple, well-crafted messages of uncertainty, sowing seeds of doubt that, with time, flower into vigorous weeds of denial that prove ever so hard to pull out. Their seductive message is that this whole climate change thing is big and complicated, we’re still figuring out what it means, but we’d be fools to change the status quo while so much uncertainty is present. Let’s do nothing for now, keep the economy growing as we have for the past 50-70 years and some way down the track we’ll fix up the climate if indeed it turns out to be broken. And, if it does need fixing, our wonderful science and market forces will provide the solution.

It just isn’t fair

Scientists live and die by the evidence they generate. In their world facts win and beliefs inevitably bend to the weight of evidence, even if it takes a while. It’s a numbers game; over time the evidence builds and a scientific consensus forms (or shifts).

The scientific consensus on (anthropogenic) climate change has grown and solidified over the past 50 years. There is now no doubt in the world of science as to its reality or consequence, even if a small clique of deniers still warps the media debate. But this clique represents powerful vested interests, and their influence may take more than facts to shift.

Scientists believe their consensus will eventually permeate the societal debate; that, in a rational world, ‘facts’ will squash unfounded belief. But the real world isn’t always rational (or fair), and it doesn’t always conform to the rigorous black and white perspective of its scientific citizens.

*Sowing seeds of doubt is just one of several techniques employed by the climate-change denial lobby/collective. They also peddle conspiracy theories, cherry pick data, employ logical fallacies and set up fake debates. If you’d like to learn more about these dark arts and how they can be resisted, check on the University of Queenslands’ online course called Denial 101: Making Sense of Climate Science Denial. Highly commended.

Image: John Oliver stages a statistically representative debate. See https://www.youtube.com/watch?v=cjuGCJJUGsg