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Environment slowly finds its way into economics

New system presents data in physical and monetary terms, writes Gareth Hutchens.

The economics profession has always had an uneasy relationship with the environment. Since the 1700s, if mainstream economists thought about the ''environment'' at all, they often considered it part of the macro-economy - a mine, a forest, a fishery - not as a vital part of a fragile, and finite, natural system.

But in a sign of how things have changed, the Bureau of Statistics released a paper this week exploring the primary links between economic activity and the environment.

It follows the adoption in March by the United Nations Statistical Commission of a new system of national accounting that presents data about the environment and economy in physical and monetary terms, in a way that policymakers can use to measure the environmental consequences of government policies.

The ABS paper explains how the UN's System of Environmental and Economic Accounting could be applied to public policy issues that ''cut across environmental and economic domains'' - issues such as climate change mitigation, solid waste management, how best to look after the Great Barrier Reef and Murray-Darling Basin.

It says the system is a "significant milestone" because it has the same status as the traditional System of National Accounts, from which important economic indicators such as gross domestic product are drawn.

''The development of the SEEA has been driven by a desire to have more complete and robust information on the economy and the environment, and to better understand the interactions between the two,'' the ABS report says.


''This has been due to increasing realisation that economic prosperity is dependent on the ability of the environment to supply natural resources and to absorb pollution, and that environmental policies impact on economic activity.''

The ABS paper cites a report from the Stiglitz Commission, formed in early 2008 at the request of the outgoing French President, Nicholas Sarkozy, to address concerns about the way modern economies measured economic performance and wellbeing. That report, which was co-written by the economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, focused on the inadequacy of the most widely used measurement of economic activity - gross domestic product.

''What we measure affects what we do; and if our measurements are flawed, decisions may be distorted. Choices between promoting GDP and protecting the environment may be false choices once environmental degradation is appropriately included in our measure of economic performance,'' the Stiglitz report wrote.

But Dr Stuart Rosewarne, a senior lecturer in political economy at the University of Sydney, said he was concerned about attempts to put a dollar value on environmental assets.

''I think there's some measure in it; it does open the possibility for some lobbying, but the crucial question is who does the valuing [of environmental assets],'' he said.

''Putting a dollar value on the environment turns it into some sort of nominal abstract form that disregards what's unique about a particular environmental amenity or area.''

The ABS will be hosting a conference on Monday and Tuesday in Melbourne to examine how environmental accounts can be developed and used in Australia.