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Marialuisa Tamborra, Marcella Pavan, Anil Markandya and Alistair Hunt 7.1 INTRODUCTION This chapter outlines the methodological issues that arise when defensive expenditures are considered in an accounting framework. The principal approaches that have been developed to devise such a framework are described and then the approach taken here is explained. It has long been recognised that the broad concept of defensive expenditures could be an important indicator to use in conjunction with the figures presented in conventional economic accounts. Since the mid-1970s, attempts have been made to develop series data on pollution abatement and other environmental expenditures. The issue of defensive expenditures has gained increased momentum in both academic and government policy circles in recent years and quantification of defensive expenditures is considered to be crucial for addressing environmental policy. This is particularly the case since these estimates can be used both in the context of environmental monetary accounts and of response indicators. An insight into the overall purpose of recording such expenditures is provided by Peskin (1999), who draws a distinction between the two basic functions of accounting, scorekeeping and management. Scorekeeping essentially maintains a record of performance that is represented in the form of aggregate statistics. Some commentators would like to see estimates of defensive expenditures used in this way, with the aim of deducting the figures to arrive at measures of ‘green GDP’. The position taken by the project team, however, is more in line with the management function, in that estimates of defensive expenditures provide...