Green accounting

Also called: Environmental accounting · Topic: Environment and Sustainable Development · NCERT: Beyond NCERT

Meaning

Green accounting (also called environmental accounting) means adjusting national income for the natural resources a country uses up (depletion) and the damage its pollution causes (degradation). The adjusted figure is often called "green GDP".

• Formula: Green NDP = NDP − value of natural resource depletion − cost of environmental degradation

It matters because normal GDP counts a felled forest as income from the timber sold. It does not count the forest that is lost. Green accounting shows whether growth is real, or whether the country is simply running down its nature.

Explanation

Why normal GDP is not enough

• Markets put no price on nature. Clean air, a healthy river and pollination by bees have no market price.

• No price → people treat them as free → people overuse them.

• GDP records the wrong thing.

• Mining coal or cutting a forest → the sale is added to GDP as income.

• The loss of the coal seam or the forest → it is not subtracted anywhere.

• Natural capital (the stock of soil, water, air, forests, minerals and biodiversity) works like a bank deposit.

• Living on the yearly flow, like interest, keeps the stock safe.

• Eating into the stock itself is depletion. Normal accounts wrongly show this as income.

• This links to the Brundtland (1987) idea of sustainable development: meeting today's needs without harming the ability of future generations to meet theirs. If we do not measure nature, we cannot tell whether we are using it up.

What gets deducted: depletion and degradation

• Depletion means using up natural stocks, for example minerals, coal or forests cut faster than they grow back.
• Degradation means the cost of damage from pollution, for example dirty air or dirty water.
• Normal NDP (Net Domestic Product) already subtracts wear and tear of produced capital (machines, buildings). Green accounting goes one step further. It also subtracts the wear and tear of natural capital.

Worked example

• NDP = ₹100 lakh crore
• Coal and forest depletion = ₹3 lakh crore
• Pollution damage = ₹2 lakh crore
• Green NDP = 100 − 3 − 2 = ₹95 lakh crore
• So normal accounts overstate "sustainable income" by 5%.

International standards: UN SEEA

• SEEA (System of Environmental-Economic Accounting) is the UN's rulebook for green accounts.
• SEEA Central Framework (SEEA-CF), 2012 was the first international standard. It records the stocks and flows of individual environmental assets (water, minerals, energy, timber) alongside the economy [NCERT][2].
• SEEA Ecosystem Accounting (SEEA-EA), 2021: the UN Statistical Commission adopted chapters 1–7 as an international statistical standard at its 52nd session in March 2021 [3].
• It measures habitats and landscapes, ecosystem services (the benefits people get from nature) and changes in ecosystem assets. It links all of these to economic activity [3].
• Ecosystem accounts had informed policy in more than 34 countries [3].

Related wider measures

• Adjusted Net Savings (ANS), or "genuine savings" (World Bank): net national savings + education spending − energy, mineral and net forest depletion − CO2 and particulate damage [4].
• Positive ANS → total wealth is growing → growth is on a sustainable path [4].

• Negative ANS → the country is using up its wealth → growth is unsustainable.

• Dasgupta Review (2021), The Economics of Biodiversity, written for the UK Treasury: it treats nature as an asset. It asks countries to measure "inclusive wealth" (produced + human + natural capital), not only GDP.

In India

• Who compiles it: MoSPI / NSO (the National Statistical Office, under the Ministry of Statistics and Programme Implementation). It began compiling environment accounts in the SEEA framework in 2018. These are published as EnviStats India Vol. II: Environment Accounts [2].
• NCAVES project: India took part in the UN Statistics Division's NCAVES project (Natural Capital Accounting and Valuation of Ecosystem Services), launched in 2017 [2].
• Latest edition: EnviStats India 2024: Environment Accounts was the 7th consecutive issue. It was released on 30 September 2024 [1].
• It covers both SEEA-CF and SEEA-EA [2].
• It includes accounts of ecosystem extent, condition and services [2].

• It added a new area: Ocean Accounts [2].

• Partha Dasgupta Committee (2013): set up by MoSPI. It proposed a framework for green national accounts for India.

• The gap: EnviStats gives separate environment accounts. Depletion is still not subtracted inside India's main GDP figures.

Don't confuse with

• Green GDP / Green NDP vs Adjusted Net Savings: Green NDP adjusts income. ANS adjusts savings, and it also adds education spending (human capital) [4].
• Depletion vs degradation: depletion means using up a stock (coal, forests). Degradation means the damage cost of pollution. Green NDP subtracts both.
• NDP vs Green NDP: NDP subtracts only the depreciation of produced capital (machines, buildings). Green NDP also subtracts the loss of natural capital.
• SEEA-CF (2012) vs SEEA-EA (2021): SEEA-CF tracks individual assets such as water, minerals and timber [NCERT][2]. SEEA-EA tracks whole ecosystems and the services they give [3].

Prelims Hooks

• Green NDP = NDP − resource depletion − environmental degradation.
• SEEA-CF (2012) was the first international standard. The UN Statistical Commission adopted SEEA-EA in March 2021 at its 52nd session [3].
• EnviStats India comes from MoSPI/NSO, not MoEFCC or CPCB. The 2024 edition was the 7th issue and added Ocean Accounts [1][2].
• India began SEEA-based environment accounts in 2018 and joined the UN's NCAVES project (launched 2017) [2].
• Partha Dasgupta Committee (2013, MoSPI) proposed green national accounts for India. Do not mix it up with the Dasgupta Review (2021) for the UK Treasury.
• ANS is a World Bank measure. It adds education spending. Negative ANS = unsustainable growth [4].

Mains Points

• GDP vs real progress: GDP counts mining and forest felling as income but ignores the lost asset. Green NDP (in the example, 5% below NDP) shows how much growth just draws down natural capital. India's yearly SEEA-based EnviStats accounts [1][2] are a good base. The next step is to subtract depletion in the main national accounts, as the Dasgupta Committee (2013) proposed.
• Policy use and limits: green accounts help build nature into cost-benefit analysis. Examples are the NPV (Net Present Value) charged when forest land is diverted, environmental impact assessments (EIA) and payments for ecosystem services. The limits: putting money values on nature can be unreliable, and some values, such as sacred groves or tribal cultural value, may not fit any price.
• Sustainability and fiscal federalism: once forests are valued, conservation can be rewarded. The 15th Finance Commission gives a 10% weight to "forest and ecology" in sharing central taxes among states. The debate is whether this pays forest-rich states enough for the development they give up.

Related concepts

• Natural capital
• Ecosystem services
• Total economic value
• Contingent valuation
• Hedonic pricing
• Payment for ecosystem services
• Adjusted net savings
• Ecological footprint
• Earth Overshoot Day
• Carbon footprint

Read more

• Valuing and measuring nature: natural capital, ecosystem services and green accounting