Environmental full-cost accounting: Difference between revisions

Revision as of 17:21, 6 March 2015

"Environmental full-cost accounting"

[Wikipedia] Environmental full-cost accounting (EFCA) is a method of cost accounting that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social and economic costs and benefits or advantages – in short, about the "triple bottom line" – for each proposed alternative. It is also known as true-cost accounting (TCA), but, as definitions for "true" and "full" are inherently subjective, experts consider both terms problematic.

Since costs and advantages are usually considered in terms of environmental, economic and social impacts, full or true cost efforts are collectively called the "triple bottom line". A large number of standards now exist in this area including Ecological Footprint, eco-labels, and the United Nations International Council for Local Environmental Initiatives approach to triple bottom line using the ecoBudget metric...

Because of this evolution of terminology in public sector use especially, the term full-cost accounting is now more commonly used in management accounting, e.g. infrastructure management and finance. Use of the terms FCA or TCA usually indicate relatively conservative extensions of current management practices, and incremental improvements to GAAP to deal with waste output or resource input...

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"Externalities"

[Wikipedia] In economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit.

For example, manufacturing activities that cause air pollution impose health and clean-up costs on the whole society, whereas the neighbors of an individual who chooses to fire-proof his home may benefit from a reduced risk of a fire spreading to their own houses. If external costs exist, such as pollution, the producer may choose to produce more of the product than would be produced if the producer were required to pay all associated environmental costs. If there are external benefits, such as in public safety, less of the good may be produced than would be the case if the producer were to receive payment for the external benefits to others. For the purpose of these statements, overall cost and benefit to society is defined as the sum of the imputed monetary value of benefits and costs to all parties involved.

Thus, unregulated markets in goods or services with significant externalities generate prices that do not reflect the full social cost or benefit of their transactions; such markets are therefore inefficient.

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Steven Schmidt:

In the Green Party Platform of the US, as I was drafting in the mid-1990's, the thought was to find a way to deal with the economic problem of hidden costs of production. True-cost/full-cost pricing and accounting was a foundation concept on which we developed green ideas to deal with a wide-spectrum of environmental challenges.

The smog in Los Angeles in the 1950's for example, which was as bad as any city internationally, had profound negative consequences, especially damaging children's health. The costs were significant and real, generational, as reduced lung capacity and in-air particulates led to a host of medical conditions. Political leaders like George Brown and Jerry Brown realized much was needed to be done and they went to work. I joined in, having opportunities to work with both men over the next decades.

Update/SJS: LA Times-March 2015 -- "Clean air is good. Here's a tip of the cap to all who worked to make LA a model for clean air regs in CA, the nation, and green best practices that have been out in front, adopted by cities and states around the world... The kids and kid's health say Thanks!"

The beginnings of the US green movement in law and practice can be traced to the 60s/70s era and its green ideas, many of which came from California, and the subsequent foundation of environmental laws in California and the US.

As an extension of this work, in my personal way in the founding Green Party Platform of the US I offered special attention to the problem of 'externalities', adding to the Key Values and document language, a focus on full-cost/true-cost accounting as a method to move toward 'smart' and sustainable eco-nomic growth. I wrote the following and then went on to address how economics/energy/policy could make a difference:

"'TRUE-COST PRICING', which reflects the 'realistic' cost of products including ecological damage and externalities caused during the manufacturing process, must be adopted to achieve accurate financial accounting. Only with a shift in the way we are seeing, can we accurately assess our energy choices and costs – and the long-term impacts of the energy decisions we are making."

Greens support a major redesign of commerce. We endorse 'true-cost pricing'.

Sustaining our quality of life, eco-nomic prosperity, environmental health, and long-term survival demands that we adopt new ways of doing business. Greens support a definition of sustainability where we openly examine the economy as a part of the ecosystem, not as an isolated subset in which nothing but “resources” come in and products and waste go out and never the economy and the real world shall meet.

The issues of damaging growth, as a result of ill-considered development, are many but clearly the need for smarter, greener ways to bring quality of life, security and progress are the challenge of our times.

In the U.S. and across the globe, based on 'out in front' green environmental precedents created in the law, regulations and practice, the changes, shifts, new directions for smart, well-managed and sustainable environmental policies are beginning to take effect even as fossil fuel, polluting, toxic producing industries and non-renewable energy companies look to roll-back progress.

The political issues and debates, such as the "precautionary principle vs cost-benefit analysis", will continue as green leadership and green best practices continue to push forward.

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More/References

http://en.wikipedia.org/wiki/Environmental_movement_in_the_United_States

Managing the Environment, Managing Ourselves: A History of American Environmental Policy -- 2006 -- by Richard Andrews

Environmental Policy: New Directions for the 21st Century -- 2012 -- by Norman J Vig, Michael E Kraft

American Environmental Policy: Beyond Gridlock -- 2013 -- by Christopher McGrory Klyza, Christopher David J. Sousa

The "golden era" of American environmental lawmaking in the 1960s and 1970s saw twenty-two pieces of major environmental legislation (including the Clean Air Act, the Clean Water Act, and the Endangered Species Act) passed by bipartisan majorities in Congress and signed into law by presidents of both parties. But since then partisanship, the dramatic movement of Republicans to the right, and political brinksmanship have led to legislative gridlock on environmental issues. In this book, Christopher Klyza and David Sousa argue that the longstanding legislative stalemate at the national level has forced environmental policymaking onto other pathways.

A Fierce Green Fire -- 2003 -- by Phillip Shabekoff

"Aldo Leopold at 100" -- Leopold Links / ASU

When the Earth Moved -- April 15, Earth Day, 2013 / New Yorker

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