Environmental

Valuation
and accounting
Submitted to: Submitted by:
Dr. Subhash Sharma Samriti(F-15-09-M)
Shubham (F-15-10-M)
Introduction
Environment valuation: Estimating the economic
value of natural resources and environmental assets goods
and services.
 The economic value of a natural resources as an asset can
be defined as sum of discounted present values of the flow
of all goods and services from the resource over its
productive life span.
 Total economic value =Use value +non use value.
 Estimation of the economic values of natural resources and
environmental amenities and services is necessary as there
is no market value of most of them and there are
externalities involve in their use.
 Total economic value

Use value Non use value

Direct use Indirect use Optional existence

(output that value values value

used directly) (functional (future direct (values of

Benefits) and indirect leaving use &
use values) non use values)

Environmental accounting Process and act of
:
recording the value of environmental assets, goods and
services in a appropriate set of record
 Environmental valuation and accounting can be useful for
several purposes such as:
 Formulation and appraisal of natural resource development
projects.
 Preparing green national account(account that incorporate
cost and benefits of natural resources and environmental
amenities and services).
 Determining the trade off between economic development
and quality of environment and extent of financial liabilities
of firms and household who degrade natural resources and
pollute the environment.
Importance of environment
valuation
 Production of economic goods requires input and use of
machine or fixed capital. Apart from this many economic
activities also require natural resources and environmental
inputs. E.G. land ,water air etc. for the production of goods and
services.
 When they are unlimited these resources consider free, but with
use there is change in the quality and quantity available for
other use and in future ,thus these sources have opportunity
cost and not free goods.
 Thus the change in the quantity of land air water as well as
flora and fauna raises cost of such development.
Measures of economic values
 There are several methods of valuation of
environmental assets, goods ,amenities ,services
and function:
1) Market valuation
2)Contingent valuation method
3)Travel cost method
4)Hedonic pricing technique
5)Tourism expenditure approach
6)Measures of non use values
a) optional values b) Existence values
Market valuation

 This is the principal method of valuation used in

conventional national account. Actual prices are
used for the valuation of those environmental
goods and services that are marketed.
 The basic principle of market valuation of
economic assets for which a price cannot be
directly observed in a market rests on using the
prices of the goods extracted from ,or services
provided by these assets for estimating the
future sale value, reduced by the exploitation
costs.
 It is difficult to estimate the future returns and
costs of natural resources exploitation by
industry, these estimate would require
information on the availability of future stock ,
prices and extraction cost that are usually
available.
 Two main valuation are applied which can be
seen as the simplification of basic principle of
present value calculation:
 Net price method
 User cost allowance method
Net price method
 It is defined as the actual market price of raw material
minus its marginal exploitation costs including a
normal rate of return of the invested produced capital.
 Net price value neglects future losses of net returns
from resource depletion.
 This method of estimation of stock values can also be
applied for valuing, all changes of natural assets during
the accounting period.
User cost allowance method

 This is a discounted measure to estimate the net

present value for the depletion of natural resources.
 Time bound stream of revenues from the sales of an
exhaustible natural resource into a permanent income
stream by investing a part of revenues over the life
time of resources.
Contingent valuation method
 It can be used to estimate both use and non use
values, and it is the most widely used method for
estimating non use values.
 It involve directly asking people in a survey how much
they would be willing to pay for specific
environmental services.
 This method is also known as state preference
method.
 Applying this method is generally a complicated
lengthy and expensive process.
Travel cost method
 This method is often used in research to access recreational or
ecotourism values of a recreation site such as national parks or a
hill station, this method is also used for the valuation of water
supply and fuel wood.
 It is based on the recognition that the cost of travelling to a site is
a major component of the full cost of visiting.
 It is assumed that the amount of money people are prepared to
spend to travel to a site, and the opportunity cost of the time can
serve as proxy for their willingness to pay.
 This method is most commonly used in India.
 This method include consumer’s surplus and hence used to forecast
demand.
Hedonic pricing technique
 This technique is used to estimate economic values for
ecosystem or environmental services that directly affect
market prices.
 It is most commonly applied to variations in housing prices that
reflect the value of local environmental attribute.
 It can be used to estimate economic benefits or cost associated
with:
 Environmental quality including air pollution ,water and
noise pollution.
 Environmental amenities, such as aesthetic views or
proximity to recreational site.
Tourism expenditure
approach
 This method assume that the value of an area for tourism
can be based on how much people spend to travel and
stay in a location.
 This method does not establish any relation between
price and demand and exclude consumer’s surplus.
 Calculation of average tourism expenditure requires data
on accommodation, food and transport expenditure, as
well as any gate and guide fees.
 In India Forest Department collect these data.
Measures of non use values

 There are two type of non use values:

 Option value:
 Future direct and indirect use values
 People may value the option to use the forest in the future or
merely the option to have it available in the future. Although
such values are difficult to measure in economic terms, they
should be recognized in valuing the contributions of forests to
the human welfare.
 OV is the algebraic difference between the expected value of
consumer’s surplus and the willingness to pay.
 Existence value/ Bequest value:
 Value of leaving use and non use values for offspring or
others.
 The value that people place on simply knowing that
something exists, even I they will see it or use it.
 People may value a natural forest or an environmental
amenity purely for its existence and without any
intention to directly use the resource in the future.
This include the intrinsic value of the forest.
 Existence values may arises from preventing the
extinction of species or preventing the complete
destruction of a natural resources.
 Valuation of intangible benefits in the
environment:
 There are no reliable and universally accepted
method of valuation of intangible benefits and
cost of the environment. If society wishes to
optimize the use of its natural resources and
environmental amenities is should compare the
social benefits and social cost of any change in
there present use. Only those changes should
be made who expected social benefits
substantially exceed the expected social cost.
Environmental accounting
 It is the process and act of recording the values of
environmental goods ,amenities and services in a
appropriate set of accounts and incorporating those
values in the national accounts.
 It comprises both physical accounts and monetary
accounts.
 Green accounting is a measure of sustainable income
level that can be secured without decreasing the stock
of natural assets .
 This require adjustment of system of national accounts
in term of stock of natural assets
 National accounts
 It is a set of systematic statements ,which indicate the value of
total final output of goods and services produced in various sector
of the economy together with details of distribution of factor
income among different groups and final expenditure of economy.
 In India ,a system of national accounts is followed in the form of
national income accounts or national income which help us to
understand the interrelation of various transaction and give us an
idea of the working of economy.
 The main objective is to compute the nation’s income on regular
basis.
System of national accounts

 In SNA ,allowance is made for capital consumption or

man made capital while calculating net domestic
product.
NDP=GDP-depreciation
 SNA has three main defects:
1) It neglect the depletion of natural capital such as farm
land ,forests, fishing stock, mineral etc.
2) Environmental degradation mainly from pollution.
3) Defensive expenditure which the society incurs in facing
the external effects of environmental degradation.
 To overcome these drawbacks of SNA ,the
statistical division of UN has develop the system
of environmental accounting(SEEA).
 The SEEA focuses on :
1. Accounting for the depletion of scarce resources
2. Measuring the cost of environmental degradation
and its prevention.
3. Introducing impacts on natural assets caused by
production and consumption activities of
industries ,household and government.
Objectives of environmental accounting by
SEEA

 Assessment of environmental costs and

benefits.
 Linkagesof physical accounts with
environmental accounts and balance sheets.
 Accounting for the maintenance of tangible
benefits.
 Elaboration
and measurement of
environmentally adjusted aggregates .
 The SEEA comprises the following types
of accounts :
 Land and soil accounts.
 Subsoil assets accounts.
 Forests accounts
 Fisheries and other Biota accounts.
 Water accounts.
 Air emissions accounts.
The major components of SEEA forest
accounts are :
 Forest related assets accounts: wooded land, standing
timber.
 Flow accounts (forest goods and services): forestry
and logging product ,forest services, supply and use
tables for wood product ,degradation of forest due to
forestry and non forestry activities.
 Expenditure on forest management and protection.
 Macroeconomic aggregates.
Application of SEEA in context of environmental
management:
 Identifying environmental priorities.
 Tracing pressure points.
 Designing environmental policies.
 Evaluating policy effects.
 International environmental management.
Problems of environment accounting

 SEEA does not include comprehensive natural

resource accounting.
 Lack of data has been one of the main problem in
SEEA.
 It focuses on the use of natural resources for economic
activities and ignore the flow and transformation with
in the natural resources.
 Data is arbitrary. E.G cost of preventing pollution can
only be determined if the causes of pollution are
identifiable.
References:

 Environmental economics ,Theory

and application : Katar Singh ,Anil
Shishodia.
 Internet.