They can be categorized as the needs for dematerializationof economic activity and for thepreservation of natural and produced (fixed) capital assets, used in production.
Both the TMR and MIPS indicators of material flow accounting (MFA) reflect the total use of materials as an index of throughput through the economy, including their hidden ‘ecological rucksacks’. For achieving sustainability of economic performance such throughput should be at a level compatible with the long-term ‘ecological equilib- rium’ of the planet. Ecological equilibrium can be operationalized by applying the nor- mative notion of equal ‘environmental space’, that is, access to environmental services by everybody, to the overall dematerialization effort. One result is a sustainability standard calling for halving global TMR while doubling global wealth and welfare: the popular notion ofFactor 4 (Weizsäcker et al., 1997). Under current production and consumption patterns, this can be translated into a Factor 10for industrialized countries. The assump- tion is that an equal environmental space should be reached by all countries in about 50 years while permitting a limited increase of material use in developing countries (Schmidt-Bleek 1994a, p. 168). It is recognized that such norms, which are based on reduc- ing the total weight of materials used, are ‘unspecific’ in their attempt at reducing overall environmental pressure. On the other hand, all kinds of actual and potential environmen- tal impacts and welfare effects are captured, at least roughly. In this manner, a precaution- ary approach is applied which permits anticipating potentially disastrous and largely unknown environmental effects (Hinterberger, Luks and Stewen 1996).
By contrast, economic accounting does not deal with uncertainty. It is a statistical infor- mation system which measures economic performance during a past accounting period.
With regard to physical depletion and degradation of natural assets, the SEEA measures only actually occurred and specific impacts of natural resource losses and pollution, gen- erated by different economic activities. The setting of normative standards is thus avoided in principle, since the deduction of the value of natural capital consumption can be seen as compiling only a ‘net’ value of production, without double counting of (depreciation) costs. Even though capital loss was not avoided de facto, the generation of (hypothetical) funds by means of a depreciation allowance would permit reinvestment of these funds for new capital formation. Such accounting for capital maintenance extends the sustainabil- ity criterion – allowing for capital consumption – already built into the conventional indi- cators of national income, product and capital formation, to natural capital. As shown above, modified aggregates of EDP, EVA, ECF, environmental cost and wealth (in eco- nomic and environmental assets) are the result of such accounting.
cannot be equated with sustainability as specified by these physical/ecological sustainabil- ity standards.
Advocates of the so-called environmental Kuznets curve (EKC) hypothesis suggested that delinkage will be an ‘automatic’ feature of growth. The implication is that no further action is required, once a certain level of economic development is reached.
Unfortunately, empirical studies confirm the EKC hypothesis only in selected cases and for particular emissions (Perrings 1998). (See also a special edition of Ecological Economics1998.) It is therefore useful to recast dematerialization in more strategic terms for purposes of policy analysis.
One such term is resource productivity which focuses on new technologies to reduce material inputs while generating the same or even better ultimate services from outputs.
Such an increase in resource productivity is the mirror image of a decrease in material inten- sity as proclaimed by the MIPS indicator. It is generally held, however, that technology alone cannot be the savior from non-sustainability: it needs to be reinforced by more or less voluntary restriction in consumption levels. ‘Eco-efficiency’ in production needs to be com- bined with ‘sufficiency’ infinal consumption. Otherwise, efficiency gains could be offset by increased consumption, due to lower prices made possible by the very same efficiency gains.
120
1975
Metric tons per capita
100
80
60
40
20
0 1978 1981 1984 1987 1990 1993 1996
J PL USA
D NL
Source: Adriaanseet al.(1997) and updating by S. Bringezu and H. Schütz (Wuppertal Institute for Climate, Environment & Energy).
Figure 14.3 Annual TMR per capita for the USA, the Netherlands, Germany, Japan and Poland
The task of MFA and its indicators would be to monitor progress in eco-efficiency and sufficiency and supply the information needed to link such progress to policy instruments of dematerialization. Such monitoring seems to increase in relevance, the lower the level of analysis. Physical indicators are most useful at the (managerial) micro level. Here, par- ticular materials can be easily linked to different production and consumption processes, and their potential impacts become more obvious. Eco-efficiency and MIPS are thus on target when considering production techniques in enterprises and consumption patterns of households. Moving up towards meso and macro levels of aggregation, the non- specificity of material flow aggregates makes it more difficult to base policy decisions on (the weight of) material flows. As a consequence, policy advice is deliberately couched in
‘guardrails’, suggesting a less stringent guidance in the use of materials towards Factors 4 or 10 (Spangenberg et al. 1999, ch. 7.2).
Proposedinstruments range from voluntary restraint in the use of materials to eco- labeling of resource saving production processes and products. It is interesting to note that the instruments also include monetary (fiscal) (dis)incentives and hence a notion of cost internalization, focusing however on discouraging the use of physical inputs rather than on minimizing environmental impacts (Spangenberg et al. 1999, ch. 7.3).
CapitalMaintenance: Accounting for Accountability
Costing natural capital consumption and thus allowing for the possible reinvestment of these costs reflects a monetary/economic notion of sustainability, namely as overall capital maintenance. Non-declining EDP would therefore indicate a (more) sustainable trend of economic growth. Compilations of EDP in case studies of environmental accounting (some of which are presented in Uno and Bartelmus 1998) did not show, at least for the countries included, a reversal in growth trends, comparatively measured by time series of GDP and EDP. One reason might be the relatively short time series avail- able. Given this data restriction, a more pertinent way of looking into the sustainability of economic performance is to measure a nation’s ability to generate new capital after taking produced and natural capital consumption into account.
Figure 14.4 presents environmentally adjusted net capital formation (ECF) in per cent of net domestic product (NDP). Indonesia, Ghana and Mexico (as far as a one-year result can tell) exhibited a non-sustainable pattern of disinvestment. The recent performance of all other countries seems to have been sustainable, at least for the periods covered, and in terms of produced and natural capital maintenance. This applies also to Germany, where the author recently estimated ECF/NDP to be positive and in the range of 8 and 10 per cent during 1990 and 1995, with environmental costs of about DM 60 billion or 3 per cent of NDP (Bartelmus with Vesper 2000)
Of course, such costing refers to the accounting and economic sustainability principles of keeping capital intact and does not represent welfare effects of, or damages to, the envi- ronment. Furthermore, past overall capital maintenance (or increase) tends to hide the fact that in the long run complementarities of natural capital might make it impossible to main- tain current production and consumption patterns and growth rates. Extending past trends into the future thus reflects a ‘weak sustainability’ concept: the assumption is that natural capital can be replaced, at least ‘at the margin’3by other production factors. The empiri- cal testing of this assumption should be an important field of sustainability research.
To encourage a strategy of capital maintenance at the micro levelof enterprises and households the environmental costs of depletion and degradation need,first of all, to be allocated to those who generate the costs. For the second step, prompting economic agents into ‘internalizing’ these costs, most (neoclassical) economists favor market instruments such as fiscal (dis)incentives, or tradable pollution permits, over direct regulation.
Theoretically, internalized degradation costs should reflect the ultimate welfare losses generated by environmental damage (to health and well-being), that is the costs borneby individuals. As discussed above, such damage costing is not practicable in (national) envi- ronmental accounting. Instead, maintenance costing is applied which assesses the cost of hypothetically avoiding actual impacts on the environment. Such costing permits us to allocate the macroeconomic social (expenditure) costs, generated by the degradation of a public good, to those who causedthe degradation. In other words, polluters can be made
‘accountable’ for their environmental impacts, in line with the popular ‘polluter pays’
principle.
Environmental maintenance costs are thus those at which the market instruments should be set, initially and pragmatically. They refer to the best available ‘eco-efficient’
30
%
25 20 15 10 5 0 –5 –10 –15
–201970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992
UK (ECF1) Philippines (ECF1) Costa Rica (ECF1 in 1984 prices)
Korea (ECF2) Japan (ECF2) Indonesia (ECF1)
Mexico (ECF2) Ghana (ECF2)
Note: ECF1 covers natural resource depletion only; ECF2 covers depletion and degradation costs.
Source:Bartelmus (1997).
Figure 14.4 Environmentally adjusted net capital formation (ECF) in per cent of NDP
solution which could have prevented environmental impacts or reduced them to accept- able environmental standards. The ultimate effects of possible cost internalization on the economy, that is, their final incidence on other market partners and corresponding changes in production and consumption patterns, would have to be modeled in terms of assumptions about price elasticities and production and consumption functions.
At the macroeconomic level, the comparison of the availability of different categories of produced and non-produced natural capital facilitates the setting of priorities for increase, exploitation or maintenance of natural and produced wealth. The availability of productive wealth thus determines the long-term growth potential of an economy. A declining (natural) capital base would alert us to limits of growth, nationally and globally.
The World Bank even considers comprehensive wealth assessments as a new model for
‘development as portfolio management’ (World Bank 1997, p. 28).
Changes in stocks through exploitation, discovery, growth, natural disasters and capital consumption are particularly important for investment decisions, as is capital productiv- ity which includes natural capital. Capital productivity may change and differ (among different economic sectors) considerably after incorporation of natural resource stocks.
Altogether different investment, price and growth policies should be the consequence of this information.
In addition, assessing the ownership of these stocks allows us to make informed deci- sions about establishing property rights for common-access resources. Such allocation might bring about a more caring treatment of environmental assets by its current users.
More importantly, information about ownership of environmental assets would help arguing for a more equitable distribution of these assets among individuals, countries and the present and future generations. Striving for equity in this regard would reflect a new form of societal accountability in the management of environmental assets at local, national, global and intertemporal levels.
NOTES
1. In the sense of the SNA which defines ‘economic assets’ as ‘entities (a) over which ownership rights are enforced . . . and (b) from which economic benefits may be derived by their owners’ (United Nations et al.
1993, para. 10.2). Therefore Figure 14.2 displays part of natural capital consumption under the column of economic assets.
2. Note that Germany’s reunification in 1990 increased material use abruptly. Since then, through adaptation to Western production and consumption patterns, material inputs decreased considerably in the ‘new States’.
3. Pointed out by David Pearce at the Second OECD Expert Workshop on ‘Frameworks to Measure Sustainable Development’ (Paris, 2–3 September 1999), meaning that substitution oftotalstock is, at least in the short and medium run, not necessary as is sometimes assumed by critics of the weak sustainability criterion.