Green accounting


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Green accounting

  2. 2. INTRODUCTIONTraditional indicators of economic growth have manyflaws with how they address the environment.GDPaccounts for environmental resources through their use asfactors of production as long as these factors of productionhave market prices.GDP is flawed because it does notinclude environmental resources that do not have a marketprice.GDP also may not include the depletion of naturalcapital and the pollution of resources caused byenvironmental externalities.For all these reasons,traditionalindicators of economic growth do not reflect thesustainable use of environmental resources.
  3. 3. GREEN ACCOUNTING attempts to place value onEnvironmental resources that do not have a marketprice.Both the Index of sustainable Economic Welfare (ISEW)and the Eco Domestic Product (EDP) are examples of indicators of Sustainable economic well being.GDP is relatively young measure of economic growth.When the GDP was developed between the 1930 and 1960, environmentalresources that did not have the market price were stillConsidered as free gifts of nature.
  4. 4. WHAT IS GREEN ACCOUNTINGGreen Accounting has a short beginning in thelate 1980s and is directly linked withenvironment sustainability. Its main focus isto place value on environmental resources thatdo not have a market price and incorporate theseresources into the national accounts and intoeconomic growth measure.
  5. 5. Failures of Traditional Growth MeasuresTraditional indicators of economic growth such as GDPhave many flaws because GDP does not take the depletionof environmental resources into account; it actuallyincreases when environmental resources aredepleted.Also ,if something does not have a market price, itis not part of GDP. The treatment of defensiveexpenditures within GDP is also a large problem becauseGDP actually increases when capital is spent on cleaningpollution or repairing environmental damages.
  6. 6. Green Accounting:A method to measure green growth Green accounting requires the identification and monetarymeasurement of the traditional private internal costs that directlyaffect the bottom line of the balance sheet. These are direct costs, such as materials and labor, which are attributed to a product or department and indirect costs, or overheads, such as rent, administration, depreciation, fuel and power.Externalities such as social and economic environmental costs thatimpact the external environment must also be taken into account. Although often ignored, their inclusion as internal items in corporate accounts could mean that scarce resources are more efficiently allocated.
  7. 7. Effective Balance SheetAn effective green balance sheet would be either in the red (a loss) or black (profit). However, this would only be after including all internal and external cost categories, such as health problems forworkers, emissions and pollution of air, land or water, degradation of the natural environment and depletion of finite resources. Internal and external benefits must also be calculated and quantified using monetary measures. These could include savings from new cleaner technologies resulting in lower pollution and better health, new markets and substitution of raw materials or production processes.Green accounts are a vital part of corporate social responsibility and can help with decision making and triple bottom line profitability.Essentially an organization needs to compare the costs of avoiding or preventing environmental damage against the cost of remedial activities.
  8. 8. BENEFITS• Creation of different indicators of sustainable economic well being.• Through Green Accounting, nations can observe their economic growth at a sustainable level.• Firms can also decide how much of an environmental resource to use and when to use it.• Important to the sustainability of environmental resources that do not have a market price.
  9. 9. OPPORTUNITIES IN GREEN ACCOUNTINGGreen accounting is a career choice with a big impact.Instead of figuring out how the corporate giant of theworld can make impressive profit,a green accountantanalyzes external and internal cost,then this informationcan be used by companies or government to calculatecarbon credits etc. Green accounting goes beyond whistleblowing and government sponsored studies. Manyprivate companies hire environment accounting toevaluate the cost of cutting pollution, including addingin benefits of tax relief for following governmentregulation or tax credits utilizing government approvedequipment , more will be relief from government.
  10. 10. CRITICISMS OF GREEN ACCOUNTING• Existence of numerous valuation techniques and sustainability indicators.• Not necessary for certain resources.• Correct implementation of green accounting methods.• It may be great theoretically,but very poor practically.• It is long term process therefore to draw conclusion is not easy.
  11. 11. CONCLUSION• Regardless of the criticism,green accounting is necessary to place value on environmental resources.• If traditional economic growth measures included environmental resources that do not have a market price as well as environmental resource depletion,green accounting would not exist.• The main problem with the GDP is that it only includes goods and services that are exchanged on the market and many environmental resources do not have a market price.