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Macroeconomics and the Environment

Essays on Green Accounting

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.
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Chapter 3: The environment as capital

Essays on Green Accounting

Salah El Serafy


This chapter reproduces an invited paper read in Washington DC to the first meeting of the newly formed International Society for Ecological Economics held at the World Bank in May 1990. I had no formal connection at the time to the Bank’s Environment Department although I had kept a close watch on ecological deterioration while helping to shape the Bank’s development strategies for individual borrower countries. Projections of future exports, an important element in country policy formulation and for assessing borrower creditworthiness for Bank lending had to be made. In many cases future exports were assumed to grow simply by projecting older numbers regardless of ecological feasibility or even world market opportunities. Other duties at the Bank unfortunately limited my participation in the conference and hence any contribution I might have made to the follow-up discussion. Some environmentalists with disdain for economics have resented the appellation of ‘capital’, wary of economists trespassing on their turf. But I wished to establish the fact that taking note of ecological deterioration should be a primary concern for macroeconomic analysis and projections, and that a ready vehicle was available in the national accounting system. This chapter is included here with minor changes from Chapter 12, ‘The environment as capital’, in Robert Costanza (ed.), (1991), Ecological Economics: The Science and Management of Sustainability, Columbia University Press, New York, pp. 168–193. It proposes a gradual national accounting reform, which, however, was not adopted in the 1993 SNA. Of note is my endorsement of the then unborn ‘Environmental Satellite Accounts’.

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