Linking the Physical and Monetary Accounts

Popular indices of sustainable income, welfare and wealth are precursors to greening the national accounts. They take a short cut by correcting accounting indicators for environmental and social effects without grinding the corrections through the accounting rules and definitions. Their flaws make the case for a more systematic introduction of environmental concerns into the national accounts framework.

The physical input-output tables of the national accounts overcome some of the conceptual and procedural differences between material flow and economic accounts. They remain, however, in the physical realm and do not connect the physical data with their monetary counterparts. Hybrid accounts make this connection by embedding the physical accounts in the monetary national accounts.

Introducing asset accounts into the hybrid accounts and expanding the asset boundary of produced capital to non-produced natural assets generates the physical accounts of the United Nations System for integrated Environmental and Economic Accounting (SEEA). These accounts provide rigorous definitions of environmental impacts in terms of accounting concepts of capital consumption and accumulation. The actual measurement of natural capital and its consumption in a fully integrated green accounting system requires, however, monetary valuation of environmental impacts, described in Ch. 8.