Macroeconomics and the Environment

Macroeconomics and the Environment

Essays on Green Accounting

Advances in Ecological Economics series

Salah El Serafy

Though scientists and environmentalists have long expressed concern over the rapid deterioration of the global environment, economists have largely failed to recognize the issue’s relevance to their field. Salah El Serafy argues for an increased focus on the economic aspects of environmental degradation, calling for a fundamental shift in how economists measure and discuss national income.

Chapter 7: Income from extracting petroleum and controversies over keeping capital intact

Salah El Serafy

Subjects: economics and finance, environmental economics, international accounting, environment, ecological economics, environmental economics


There is nothing ‘green’ about petroleum but it was one of two things that triggered my interest in having the system of national accounts reformed, and both occurred during the 1970s. One was my becoming acutely aware from my work on macroeconomics at the World Bank that the deterioration of the natural resource base which sustains many economies, rich or poor, but primarily the latter, was being overlooked by the macroeconomists. The other, the focus of this chapter, was the upheavals that rocked the international petroleum market. Many must have forgotten – if they had been of age then – the emotional reactions, even within academic circles, to the rises in petroleum prices during that decade. The petroleum price rises of the 1970s appear now to have been quite moderate if compared to the now prevailing prices and their projected future trajectory. It will be recalled that the petroleum market upheavals of half a century ago were set off by two events: a Middle East war of 1973–74 and the Iranian revolution of 1978. But it was largely the first event’s impact that got me started on the road of reforming the national accounts. True there was a short-lived embargo in the air, but this had nothing to do with the Organization of the Petroleum Exporting Countries (OPEC; see below). To me, confusion was rife as the oil revenues were conflated with oil incomes, together with an exaggerated role of OPEC as a monopolist.

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