Introduction of envio

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Introduction Figure 1: Macroeconomics in Context. (Source: Global Development And Environment Institute, Tufts University) The traditional macroeconomic model portrays a hypothetical economy in which only businesses engage in production, and in which the natural environment plays no role. Increasingly, however, people have raised questions about whether this gives an adequate picture of themacroeconomy. People have come to realize that economic activity actually takes place within the context o
  Introduction Figure 1: Macroeconomics in Context. (Source:Global Development And Environment Institute,  Tufts University)The traditionalmacroeconomicmodel portrays a hypothetical economy in which only businessesengage in production, and in which the natural environment plays no role. Increasingly, however,people have raised questions about whether this gives an adequate picture of themacroeconomy.People have come to realize that economic activity actually takes place within the context of human social institutions which in turn are inextricably embedded in the natural environment.This embeddedness is illustrated by the outer rings labeled “Social Context” and “PhysicalContext” in Figure 1. In addition, the contributions to production of households and communitygroups (within the core sphere), and of non-profit as well as government institutions (within thepublic purpose sphere) have recently received more attention, as illustrated in the center of Figure 1. Of course, the role of businesses, both foreign and domestic, is recognized in both thetraditional and newer approaches.Many researchers argue that national governments need to start gathering new kinds of data inorder to face the challenges of 21st century concerns. Building on these new kinds of information, some researchers are concentrating on developing refined measures of nationalassets and production, keeping as close as possible to the framework of theNational Income andProduct Accounts (NIPA).Other researchers make it their aim to design indicators that more directly measure social andeconomic well-being. Rather than seeking to measure the volume of production, theseresearchers seek to develop indicators of the quality of life. Accounting for the Environment The natural environment plays roles that are indispensable to economic life.Environmentaleconomistsdescribe these under the headings of three functions:  1. Resource functions: the natural environment provides natural resources that are inputsinto human production processes. These include such things as mineral ores, crudepetroleum, fish, and forests. Some of these resources, such as fish and forests, arerenewable while others, such as minerals and petroleum, are not. 2. Environmental service functions: the natural environment provides the basic habitat of clean air, drinkable water, and suitable climate that directly support all forms of life onthe planet. Water filtration provided by wetlands anderosion control provided by tree- covered hillsides are other examples of services provided by ecosystems. People enjoythe services of the natural environment directly when they enjoy pleasant scenery or outdoor recreation. 3. Sink functions: the natural environment serves as a “sink” which absorbs (up to a point)the pollution and wastes generated by economic activity. Car exhaust dissipates into theatmosphere,for example, while used packaging goes into landfills and fluid industrialwastes end up in rivers and oceans. Some wastes break down relatively quickly intoharmless substances. Others are toxic and/or accumulateover time, eventuallycompromising the quality of the environment. The way in which the natural environmentprovides the resources and environmental services that sustain economic activity isillustrated by the arrow on the left in Figure 1, showing inflows into economic activity.The way in which economic activity puts waste products into environmental sinks isillustrated by the arrow on the right in Figure 1, showing the economy generating flowsback into the environment.While for centuries these three environmental functions were treated as though they wereprovided “free” and in unlimited amounts, more recently the problems of depletion of resources,degradation of environmental services, and overuse of environmental sink functions havebecome increasingly apparent. Physical Accounts A first step towards accounting for the environment is simply to attempt to quantify some of themajor environmental effects of economic activity in physical terms, such as in terms of proportions of fish stocks lost or tons of coalburned.Many governments have already committed in principle to creating such accounts for their ownnation, at least on one issue of major concern. The burning offossil fuels and the resulting releaseof carbon dioxide (CO 2 ) into theatmospherehas been scientifically linked to global changes in climate that may, if not halted, have catastrophic results within the next few decades. In 1997 theKyoto Protocolon Greenhouse Gas Emissions was drafted. It aims to reduce climate-change-causinggreenhouse gas emissions (like that of CO 2 ) to 5 to 7 percent below 1990 levels by 2012.Individual goals were set for different countries. By 2004, 125 parties, including mostindustrialized countries such as Canada, United Kingdom, France, Germany, Italy, Spain,Switzerland, Sweden, Norway, Japan, the Republic of Korea, and New Zealand (as well as manyless industrialized countries including China and Mexico) had ratified the agreement.Of course, for a country to know if it is complying with its promise, it needs to know what itshow many tons of greenhouse gases it released into theatmospherein 1990 and how many tons  it is releasing currently. The gathering of scientific and economic information necessary tomeasure such environmental variables, aggregated to a national level, is thus a new andexpanding field. Natural Assets and the National Accounts The Bureau of Economic Analysis currently counts only manufactured assets in its tables of national assets, and only investment in manufactured assets in its calculation of investment (andsavings). The 1999National Research Council report pointed out that:Natural resources such as petroleum, minerals, clean water, and fertile soils are assets of theeconomy in much the same way as are computers, homes, and trucks. An important part of theeconomic picture is therefore missing if natural assets are omitted in creating the nationalbalance sheet. Likewise, consuming stocks of valuable subsoil assets such asfossil fuels or water or cutting first-growth forests is just as much a drawdown on the national wealth as is consumingaboveground stocks of wheat, cutting commercially-managed forests, or driving a truck. (Nature’s Numbers: Expanding the National Income Accounts to Include the Environment,National Research Council, 1999, pp. 19-20)  In principle, then, this panel concluded, the value of a nation’s natural resources should be addedto the value of its manufactured capital stock in accounting for national assets.Measures of thenatural capitalstock of a country should also include the value of assets relatedto environmental service and sink functions. An old-growth forest, for example, not onlyprovides timber resources, but also environmental services such as water retention,habitat provision, and carbon sequestration, as well as recreational and esthetic value. Ideally, then,tables in the national accounts that look at a country’s assets should be much expanded.Asset tables measure stock values. That is, the value of assets is measured as of a point in time.But more importantly, perhaps, for immediate policy purposes, is the issue of taking into accountchanges in the level of national environmental assets. When, over the course of a year,nonrenewable resources are depleted, or the environment’s capacities to provide service flows or function as an effective sink are degraded, the nation’s ability to produce in the future is reduced.Thenatural capitalstock has depreciated. This is a flow variable  the amount of “disinvestment” that occurs measured over the course of a year.In concept, then, whenever the depreciation of manufactured capital is subtracted in the nationalaccounts, depreciation of natural capital should be subtracted as well. For example, the 2003version of the United Nations System of Integrated Environmental and Economic Accountsdiscusses a measure called environmentally adjusted net domestic product (eaNDP), or grossdomestic product (GDP) less both these kinds of depreciation. eaNDP = GDP  </dd>−- Depreciation of manufactured capital </dd>−- Depreciation of natural capital</dd>  This measure should more accurately reflect the full picture of production and depreciation in agiven year.Similarly, The World Bank in 1995 proposed that saving less both kinds of depreciation becalled Genuine Saving: Genuine saving = (Gross) Saving  </dd>-– Depreciation of manufactured capital </dd>-– Depreciation of natural capital </dd>Under standard measures of net saving, a country only needs to save a little more than theamount it needs to replace its worn outmanufactured capital in order to appear to be saving for the future. The genuine saving measure points out that countries that run down their  naturalcapitalmay be making things worse for the future, even if their manufactured investment seemsto be keeping a healthy pace. National Accounts and What Nature Produces The adjustments we just discussed relate to the asset or stock value of natural assets, and how thevalue of these assets can depreciate over time. But, you might have noticed, in calculatingeaNDPwe started with the traditional measure of the flow of production over a year, GDP. Should wealso adjust the measures of the flow of national production to account for environmental factors?Should GDP itself be “environmentally adjusted”?In an ideal accounting system, we might think of the natural environment as yet another productive sphere or sector. The ecosystem, unless severely disturbed, generates over the courseof any year suchgoods and services as new plants in forests and fields, new livestock and fish,cleanair and water, spectacular scenery, an amazing diversity of plant and animal species, andservices such as protection from solar radiationoften without any effort on the part of humans. Many of these natural processes add to human well-being, and humans could not survive andflourish without them. In theory, then, accounts of production relevant to human well-beingshould include all the flows of new goods and services that nature generates.Most economists agree, however, that compiling comprehensive accounts for all that nature doesfor us over the course of a year would be an over-ambitious task. In fact, for productive flows asfor stocks of assets, what we really want to know about for policy purposes are the ways that theeconomy and environment interact, particularly when this interaction leads to undesirableoutcomes.For example, suppose a hillside is stripped of its forest covering, and the wood is sold as pulp for papermaking. The lack of vegetation now means that runoff fromrainincreases and a town downstream from the hillside suffers flooding and has to repair many buildings. Even if thevegetation should grow back by the end of the year, something has happened. In thenationalaccounts as currently constructed, the logging activity contributes to GDP in this year (in theform of valuable wood products) and the activity of repairing buildings is counted as an
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