Environmental Accounting
One strand of Cambridge work in accounting work harks back to preoccupations of Faculty members in the 1920s and 1930s—in, for example, Pigou’s Economics of Welfare (1920).[1] Accounting for externalities, a key concept in Pigou, received scant attention in the Faculty in the third quarter of the last century, but was taking centre stage towards the millennium, with concerns over the global warming and environmental degradation which were accompanying (conventionally measured) GDP growth.
Barker deployed a descendant of the CGP’s model, with its disaggregated industry accounts, to analyse policies for the mitigation of greenhouse gases, an output, or by-product—an economic ‘bad’ rather than an economic ‘good’—conventionally left out of business and national accounts (e.g. Barker and Scrieciu 2009). He drew on this work as one of the coordinating lead authors for the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC 2007 and for the Third Report). He was recognised as one of those who had ‘contributed substantially to the preparation of IPCC reports...contributing to the award of the Nobel Peace Prize for 2007 to the IPCC’ (IPCC 2012).
Partha Dasgupta has also tackled problems of environmental externalities unaccounted for in conventional income measures. He builds on Hicks’s definition of income: the maximum amount that could be consumed while maintaining capital intact. The accountant assesses whether capital has been maintained intact with the balance sheet, and in one of his contributions Dasgupta proposes innovative ways of incorporating the natural environment as natural capital— including, for example, soil, fisheries, fresh water, and the atmosphere—in the balance sheet. He explores the depreciation of natural capital, which should be represented in the balance sheet and income statement but is routinely ignored in accounts; yet it can be sufficiently important that, if it were recognised, it could entirely offset the incomes conventionally recorded (Dasgupta 2008).[2] Among Dasgupta’s many honours is the 2002 Volvo Environment Prize, which recognises among other achievements his part in founding ecological economics, ‘his decisive work on the economics of exhaustible resources, his insights on their role in providing essential ecological services’ (Volvo Environment Prize 2002).[3]
- [1] Writing on the ‘National Dividend’, and building on the work of Marshall, Pigou observes, for example, ‘It is a paradox.. .that the frequent desecration of beauty through the hunt for coal or gold...must,on our definition, leave the national dividend intact, though, if it had been practicable.. .to make a chargefor viewing scenery, it would not have done so’ (Pigou 1920: 32). Another distinguished contributor tothis long-running discussion, who spent two spells working at Cambridge is Nobel Laureate Amartya Sen(see, for example, Stiglitz et al. 2009).
- [2] See Dasgupta (2001) for a more extended discussion.
- [3] Dasgupta has also been appointed by the Indian government to lead the effort to create Green NationalAccounts for India.
