A sustainable resource is one that can be maintained over the long run without impairing the fundamental ability of the natural resource base to support future generations. Sustainability does not mean that resources must remain untouched, rather it means that their rates of use be chosen so as not to jeopardize future generations. In the case of nonrenewable resources, this implies using the extracted resources in such a way that it contributes to the long run economic and social health of the population. For renewable resources, it means establishing rates of use that are coordinated with the natural productivity rates affecting the way the resources grow and decline.
Sustainable Development’ was brought in use by the World Commission on Environment and Development (The Brundtland Commission) in 1987.The World Commission on Environment and Development defines sustainability as “Meeting the needs of the present generation without compromising the needs of future generations.” Sustainable development has become the accepted paradigm of growth but the conceptual ambiguity that surrounds it is still prevalent. It is important to understand that infinite extraction of the earth’s resources is impossible and without long term planning and regeneration of resources, we will leave future generations with a completely depleted earth. The concept of sustainability needs to be extended to all spheres of environmental, resource and economic planning to ensure that supply can always keep up with demand. Another alternative is to reduce the demand in order to ensure future supply. This can be achieved by cutting down resource consumption especially for energy purposes.
As such ‘sustainable development’ is defined in the handbook issued by UNSO as An increase in (real) domestic product, duly allowing for the consumption of produced capital and the depletion and degradation of natural capital, taking into account the past trends of depletion and degradation that can be offset or mitigated by technological progress, substitution and new discoveries of natural resources, or new additions to them, and changes in consumption patterns.
Sustainable development does not prohibit the use of natural resources but restricts their use in such a way that enough, or as much as possible, is left for the future generations. It can be achieved by increasing efficiency or cutting down on waste or by adopting other methods such as imposing a tax on environmental use, as well as using non-traditional sources.
Concepts of Sustainability
There is no universally agreed definition of the concept of sustainability. On the contrary, in the literature, we can find a vast array of definitions, meanings and interpretations. The Concept of sustainability can be listed under six headings
1. A sustainable state is one in which utility (for consumption) is non- declining through time.
In this concept sustainability is viewed as a constraint on economic behaviour, with the constraint being couched in terms of the profile of human well being over time. It relates to sustained rather than sustainable development.
2. A sustainable state is one in which resources are managed so as to maintain production opportunities for the future.
This Concept aims at maintaining production opportunities for future generations of people.
3. A sustainable state is one in which the natural capital stock is non-declining through time.
This concept is directed towards maintaining a non-declining natural capital stock.
4. A sustainable state is one in which resources are managed so as to maintain a sustainable yield of resource services.
This concept is often used in biological models of renewable resource stock, such as forest and fisheries. Sustainable yield refers to a constant flow of services from a resource stock, which is being maintained at a constant level through time. The maximum sustainable yield of a resource can be defined as the highest feasible flow of services that can be maintained over time from some environmental system.
5. A sustainable state is one, which satisfies minimum conditions of ecosystem stability and resilience through time.
This concept aims at primarily maintaining the integrity of the earth’s ecosystem.
6. Sustainable development as capacity consensus building.
The final concept of ‘sustainability’ focuses on processes rather than outcomes of constraints. It differs from the other concepts by viewing the issue primarily in terms of institutions and processes.
Approaches to Sustainability
Early work in neoclassical growth theory, which incorporated natural resource constraints on economic activity implicitly, modeled Sustainable Development as non-declining consumption over time, and was concerned with intergenerational efficiency rather than equity. This lead to the development of the Hartwick rule. However given that individuals derive utility directly from the environment, and not just from the consumption goods that are produced partly with natural resources, non-declining consumption has been replaced by non-declining utility as a goal of policy in economic models. An alternative way of considering Sustainable Development has been to concentrate on means rather than ends: since resources are necessary to produce utility, some constraints on the amount of resources passed forward to future generations might be an appropriate way of achieving Sustainable Development.
The Hartwick-Solow approach
In an influential paper in 1997, John Hartwick proposed a rule for ensuring non-declining consumption through time, in the case where an economy made use of a non-renewable resource (such as oil) in its economic process, Hartwick showed that, so long as the stock of capital did not decline over time, non-declining consumption was also possible. He suggested that the stock of capital could be held constant by investing all Hotelling rents from non-renewable resource extraction in man-made capital. These rents are those resulting from the intertemporally efficient extraction programme for the non-renewable resource, although the price vector used to calculate these rents must be ‘sustainable prices’, prices from an inter-temporal model that includes a sustainability constraint.
Criticisms of the Hartwick rule follows that individuals derive utility directly from the environment, and do not view it merely as an input to production. If this is the case, non-declining consumption is not equivalent to non-declining welfare over time. The rule is also criticized on the basis that natural resources and man made capital are not nearly substitutable as Hartwick-Solow approach suggests.
Non-declining natural capital stock approach
Rather a different approach to the limited degree of substitutability between natural capital (Kn) and man-made capital (Km) is that of the London school (Pearce et al, Klaasen and Opschoor). Here the view is taken that, whilst some substitution is possible between certain elements of Knand Km (for example, better machinery, meaning that less raw materials are used to produce certain products), many elements of Kn provide non-substitutable services to the economy. Their view was that if it is necessary to maintain some amount of the natural capital stock constant in order to allow future generations to reach the same level of utility as the average held by this generation, this holding constant of the natural capital stock becomes a rule for Sustainable Development. The views suggested by them for holding Kn constant was (1) the existing level, (2) the level consistent with maintaining the critical element of Kn, and (3) Some amount in between these two. A rule for Sustainable Development suggested by the London school is to prevent reductions in the level of Kn below some constraint value.
The Safe Minimum Standards approach (SMS)
Closely linked to the non-declining natural capital stock approach is that of safe minimum standards (SMS), identified primarily with Ciriacy-Wantrup (1952) and Bishop (1978, 1993). The SMS approach originates from decision making under uncertainty. The Society is deemed to be unsure about the future. The SMS rule is to prevent reductions in the natural capital stock below the safe minimum standard identified for each component of this stock unless the social opportunity costs of doing so are ‘unacceptably’ large. The key difference between the SMS approach and the critical natural capital approach is that, under the former, the SMS for any resource type is allowed to be breached if society deems the opportunity costs of preserving the SMS to be unacceptably high. Under the latter, however, no consideration is given to the costs of protecting the critical natural capital stock, which is to be preserved regardless of any cost consideration.
Indicators of Sustainability
National Accounting and its deficiencies
Economic data has been in existence in the form of statistics or accounts in one form or the other, all over the world. National governments and international bodies have found such data indispensable in planning, development, policymaking, monitoring implementation and measuring economic success.
Such data have been eventually known as National Accounts. National accounts estimate gross national product (GNP) and net national product (NNP). At present, besides GNP and NNP, other economic data such as prices and employment statistics are also widely used to judge the economic performance of a country. However, all such macroeconomic estimates neglect factors such as environment pollution, congestion of parks and wilderness areas, depletion of natural resources and the ozone layer, as well as global warming which comprise the unfortunate side of economic growth.
It was only in the 1960s and early 1970s, that the importance of environment highlighted this deficiency in national accounts. More recent criticism leveled against national accounts accents on the fact that these measure the depreciation of man-made capital such as plant and machinery, but neglect the stock of natural resources as well as environment, and their depletion coupled with the degradation in environmental quality. Pollution and accumulations such as new finds of sub- soil resources, new uses of environmental assets, etc. comprise significant varieties, which cannot be neglected. For example, no adjustment is made for the depletion in petroleum energy stock when oil is extracted and consumed. Logging of tropical forests invites no estimation of the loss of an asset and its effects. Again, when land cultivation increases, no allowance is made for the harmful effects on soil or water storage. When chloro-fluro carbons were first used, no anticipation of the damaging loss to the ozone layer was perceived.
Neglecting the depreciation of natural resources and environment necessarily implies that the net income of product is overstated. It was thus stated by the 1992 Earth Summit in Rio de Janeiro that without better stewardship of the quantities as well as qualitative changes in natural assets, development would be undermined. GNP and NNP, without showing the effect of deterioration in environment and natural resources, may provide a distorted picture. For instance, any increase in expenditure on medical services, or on household cleaning due to increased pollution levels will result in an increase in economic activity, and thus, an increase in GNP and NNP, whereas actually speaking, this increase is negated if the social costs are weighed against the social benefits.
Environmental Accounting and its Objectives
The neglection of environment and natural resource distorts the picture of production in two ways: (1) it produces undesirable output such as pollution and (2) it leaves out a number of crucial inputs such as soil, water, forest products, minerals, sea-life, coral provided in the form of natural resources to the production process. This lack of full accountability of all types of inputs and outputs complicates the nation’s economic and environmental policy. As discussed earlier the economic growth as measured through the prevailing system of national income accounting is far from reality and is overstated since it does not take into account the amount of natural resources used, the damage caused and the changes incurred by their use in economic growth. Deficiencies in national accounting vis-à-vis the importance of natural assets have led to recognition of the value of environmental resources and services, and efforts to evolve methods to overcome the drawbacks. Environmental accounting is the method which takes into account environmental resources and services, and changes therein, and measures their effects on GNP and NNP to reveal true maximum income (True Net Capital Formation) which nations can consume while maintaining a sustainable development and growth without jeopardizing the interests of the present and the future generations, as well as of our neighbors.
Though there is no standard definition of natural resources and environmental accounting, the term environmental accounting could, in a general sense, be used to indicate taking into account of the environment and changes in it, and integrating the results with the system of national accounts so as to provide a valuable information base for planning and laying policies for the integrated sustainable development and growth of the nation.
The objectives are as follows:
Taking the total stock of assets or reserves related to environmental issues,and changes therein.
Estimation of the total expenditure on protection or enhancement of environment.
To identify that part of the gross domestic product which reflects the cost necessary to compensate for the negative impact of economic growth, i.e. the so-called defensive expenditure to protect the environment.
Assessment of environmental costs and benefits.
Elaboration and measurement of indicators, relating to environmentally
adjusted product and income, which are disclosed by EDP.
Methods of Environmental Accounting
Different countries have been following different methods of environmental accounting most of the methods are in their initial stages and are undergoing continuous revision. Few of the approaches discussed here are the System of Integrated Environment and Economic Accounting (SEEA) and the Environmental and Natural Resources Accounting Project (ENRAP) are efforts to expand conventional national economic accounts in order to better reflect interactions between the market economy and the natural environment.
SEEA (System of Integrated Environmental and Economic Accounting)
The UN Statistical Office (UNSO), in collaboration with Carsten Stahmer, designed this System of Integrated Environmental and Economic Accounting (SEEA). These are commonly termed as Environmental Accounting. These accounts are designed for linking with the system of National Accounts, measuring national income. After the necessary linkages are done they are called as environmentally adjusted economic accounts to arrive at Environmentally Adjusted Domestic Product (EDP). The objectives of the SEEA involves the segregation and elaboration of all environment-related flows and stocks of assets, assessment of deterioration of environment in terms of costs, linkage of physical resources accounting with monetary accounting, and lastly, measurement of indicators of environmentally adjusted domestic income and product (EDP).
ENRAP (Environmental and Natural Resource Accounting Package)
The ENRAP accounting structure is based on the premise that an economic account should attempt to cover all the economic inputs and outputs that together, comprise an economic system. For inputs and outputs to be "economic," they need not have market prices; rather they must be scarce enough, if they are marketed, to attract a non-zero price. The natural environment is one major source of non-marketed but economically scarce inputs and outputs. ENRAP essentially "expands" conventional economic accounting structures to cover the input and output services of non-marketed (essentially environmental) capital.
The reason for ENRAP's emphasis on a complete accounting of all economic inputs and outputs is that ENRAP is primarily a tool of policy. By "policy", we mean those governmental actions that are intended to alter the amount, composition, and distribution of system outputs. The ultimate object of economic policy is to find the level, the composition, and the distribution of economic outputs that attain agreed upon social objectives in an efficient and fair manner. Even though ENRAP is popularly viewed as a system of environmental accounts, because it attempts to cover all economic inputs and outputs, whether environmental or non-environmental, it is more than a tool of environmental policy. It is also, a tool of more general economic policy.
Although the principal motivation for ENRAP has been on its policy or "management" role in particular, its support of environmental management--its coverage of the services of both conventionally marketed capital and environmental capital makes ENRAP consistent with the theoretically "correct" performance or "scorekeeping" measures put forth in the economic literature.