- How can Green Accounting contribute to sustainability?
- What are the main steps in Green Accounting?
- What are the strengths and limits of Green Accounting in a sustainability context?
- How could Eco-Efficiency Analysis used to support EPA decision-making?
- Where to Find More Information about Eco-Efficiency Analysis
- Illustrative Example of an Approach using Eco-Efficiency Analysis
Green accounting (also known as environmental accounting) seeks to better measure sustainability by expanding gross measures of national welfare (product, investment, etc.) to include non-market values, in particular ones associated with environmental goods and services. In addition, green accounting seeks to incorporate costs and benefits of environmental protection and depletion of natural capital – two measurements not typically included in national accounting systems such as gross domestic product. While opinions vary on how to perform green accounting, the technique is used worldwide and is well-established in the US.
By integrating social and ecological costs and benefits resulting from the natural environment into traditional economic accounting systems, green accounting aims to capture the interdependency and dynamic interactions between the three pillars of sustainability (economy, society, and environment). More accurately valuing natural resources costs and benefits may contribute to the development of more appropriate and sustainable economic, trade, and development policies.
Incorporating green accounting into national economic accounts could provide a measure of sustainability; however, considerable advances in methods of measurement and valuation are needed. From a purely accounting perspective, particular forms of capital could be diminished or, in an extreme case, wholly eliminated without decreasing overall welfare if other forms can be substituted for it. There are, of course, no substitutes for the life-sustaining services of nature and the question of when and how to account for this fact is the source of many ongoing debates in green accounting.
While much has been written on the general subject of green accounting, there is no single, formal methodology associated with it. The Satellite Economic and Environmental Accounts (SEEA) is a widely discussed effort to compile economic and environmental data into a common framework using green accounting. SEEA is structured as a series of methodological options from which users choose the techniques that are most appropriate to their needs. In addition, the National Academy of Sciences reviewed a system of environmental accounts developed by the Bureau of Economic Analysis (BEA) in 1994 called the Integrated Economic and Environmental Satellite Accounts. However, there has been little progress in developing a standardized system for green accounting.
Some of the overarching methods currently in use for green accounting include natural resource accounts; emissions accounting; disaggregation of conventional national accounts; value of non-marketed environmental goods and services; and, green gross domestic product.
In theory, through green accounting, national economic accounts could offer both a concise definition of sustainability and an operational procedure to determine if sustainability is being achieved. A society is “sustainable” if the value of the goods and services its citizens consume does not decline over time; and, consumption will not decline if that society conserves, rather than depletes, its capital. The essential environmental factors considered in the System of National Accounts (SNA) provide a standard set of recommendations on how to compile measures of economic activity. The essential environmental factors considered in the SNA are environmental expenditures, non-marketed goods, non-marketed services, and consumption of natural capital. In order to account for environmental effects in the SNA, various environmental goods and services must be defined and assigned a monetary value. A great deal of discussion is still ongoing on how best to address these issues. At present, national economic accounts fail to include non-market goods and services, such as those provided by natural resources and the environment. Therefore, until this obstacle is overcome, a full system of green accounts is not possible.
Green accounting has the potential to provide EPA decision-makers with a way to tally sector-level environmental and other non-market effects. For instance, monetizing air quality and climate damages at the individual source and county level for all major emitters in order to identify where total environmental damages exceed their value added.
Due to the incomplete account data, green accounting is not currently used by EPA to support decision-making. EPA has, however, partnered with the Tellus Institute to maintain and further develop tools and documentation on Environmental Accounting.
- The United Nations Environment Program has developed a Green Accounting: A Virtual Resource Center that provides a searchable database of various materials and internet links related to green accounting.
- The Encyclopedia of Earth provides scholarly articles about the Earth, its natural environments and their interaction with society. They have provided an insightful article describing green accounting.
- Enhancing Supply Chain Performance with Environmental Cost Information: Examples from Commonwealth Edison, Andersen Corporation, and Ashland Chemical
Source: EPA Office of Chemical Safety and Pollution Prevention 
Suite of sustainability tools: green accounting; life-cycle analysis; benefit-cost analysis
Corporate decision-makers typically do not have costs and benefits available relating to their corporate environmental, health, and safety (EH&S) performance. Such costs may include not only those costs historically associated with EH&S, but also costs associated with material usage, labor, and capital resources. Heightened recognition of these costs through environmental managerial green accounting approaches often reveals cost-effective opportunities to prevent pollution and eliminate wastes, and encourages business decisions that are both financially superior and beneficial to the environment.
Supply chain management is a particularly promising area for the application of green accounting techniques. Many firms already pursue strategies that emphasize eco-efficiency, i.e., improving material utilization per unit of production. By expanding those efforts to include purchasing, inventory management, materials handling, disposition and logistics, companies can further improve environmental and cost performance. Environmental managerial green accounting methods enable them to identify and quantify the most viable opportunities.
This collection of case studies (PDF) (55 pp, 252K) from EPA’s Office of Chemical Safety and Pollution Prevention illustrate how supply chain management practices can be improved by determining the financial impact of business activities that have a bearing on a company’s environmental performance. Moreover, this report shows how environmental managerial green accounting approaches can be integrated into ongoing business processes. The report includes case studies of multi-disciplinary processes at three companies: Commonwealth Edison, Andersen Corporation, and Ashland Chemical Company. While the approaches vary among these companies, each one provides valuable lessons for other companies.
The experience of Commonwealth Edison (ComEd), a large Chicago-based electric utility company with annual revenues of approximately $7 billion, demonstrates that electric utilities and other companies can successfully and substantially reduce their costs and environmental burdens with innovative accounting practices. In 1993, ComEd began to recognize that the total cost of managing materials and equipment was much more than the initial acquisition cost. In particular, company managers realized that the costs related to environmental management were often overlooked. This acknowledgment led to ComEd’s first phase of life-cycle management activities, which enabled them to minimize the chemical inventories at generating stations. These reductions and other early successes prompted ComEd to launch a formal Life-cycle Management (LCM) initiative in 1995. Since then a small, dedicated LCM staff has formed effective partnerships with ComEd operating divisions to systematically assess life-cycle costs and benefits.
ComEd’s LCM initiative has reduced waste volume while providing over $50 million in financial benefits. While these gains include improvements in supply chain management, facility management, and other business processes, this case study focuses on the supply chain activities.
The activities of Andersen Corporation illustrate how a company can improve its financial and environmental performance by using environmental managerial green accounting information in supply chain management decisions. As the largest manufacturer of wood windows and patio doors in North America with annual revenues of approximately $1 billion, this company achieved substantial financial and environmental benefits when it began incorporating environmental considerations into its purchasing, materials handling, inventory, and disposition decisions.
In the late 1980s, executives at Andersen released a directive to their staff to reduce emission levels of toxic chemicals. In response to the directive, Andersen managers formed a Corporate Pollution Prevention Team whose mission was to eliminate the use, release, and transfer of hazardous chemicals. This multi-disciplinary team conducted a waste accounting project, developed waste reduction goals, and justified waste reduction projects by developing several business cases that quantified environmental and other cost savings. For example, the team justified the purchase of an improved system for mixing paints at point-of-use based on the savings from improved material usage rates and reduced waste.
Based on their initial success, company managers recognized that a more systematic implementation of environmental accounting techniques would improve their ability to make strong business cases for a wide range of projects. Accordingly, they developed procedures for environmental cost assessments for a number of supply chain management activities. The process leads to more comprehensive and lucid business cases, including detailed Internal Rate of Return schedules that incorporate savings from increased material efficiency and reduced waste streams.
While a number of companies have adopted environmental accounting practices, relatively few have fully integrated these activities into their established cost accounting methods. The Electronic Chemicals Division of Ashland Specialty Chemical Company achieved this integration during a manufacturing cost analysis in 1999. The corporate auditing team and an external consultant led a process of identifying and quantifying a number of cost reduction opportunities. Several of these opportunities supported the company’s overall goal of using materials more efficiently and minimizing waste.
This case study describes how the company integrated its Manufacturing Cost Analysis and EH&S Cost Study and provides specific tools that can help companies realize similar objectives. These tools include a detailed list of environmental activities, a representative list of interviewees, and a time allocation worksheet for capturing hidden EH&S costs. The integration effort uncovered at least one sizeable cost reduction opportunity and has led the company to make EH&S cost considerations an established part of its broader cost audits.
- The Future of Radiation Protection: 2025
Source: EPA Office of Air and Radiation 
Suite of sustainability tools: futures methods; green accounting; risk assessment; exposure assessment; collaborative problem-solving
The Future of Radiation Protection: 2025 (PDF) (81 pp, 901K) is a report on challenges the radiation protection community will confront over the generation ahead. It is also a handbook with exercises that people in the field of radiation protection can use to develop better responses to those challenges. It is a product of a project carried out by the Institute for Alternative Futures with support from the US EPA. The project involved hundreds of people inside and outside the radiation protection community during a three-year period between late 1999 and early 2002.
The project reached conclusions that are themselves challenging. The bottom line is that the challenges ahead are so numerous and serious that they cannot be dealt with successfully through business as usual. A major shift in perspective and approach is needed:
Exclusive focus on current issues, programs, budgets
Greater attention to the full range of radiation-related challenges facing society, leading to major changes in current priorities
Tacit assumption that the future will be much like the present
Realization that the future is likely to be much worse than the present if business-as-usual continues
Radiation protection defined primarily by a focus on “Legacy” issues
Assessment that Legacy issues will decline in importance and that future needs center primarily around developing more preventative approaches to 4 Key Sectors: Energy, National Security, Industrial & Consumer, and Health
Radiological attacks and other terrorist acts viewed as possible but not given a high priority
Radiological attacks and other terrorist acts considered highly credible and on a high priority
Reactive responses to problems after they become serious
More anticipatory, preventative approaches to problems
Conflicts between deeply entrenched positions
Emphasis on good science and shared principles for working toward better positions
Limited emphasis on public information and involvement due to habits of secrecy from the Cold War era
Primacy of transparency and public right-to-know; emphasis on public education and as much access as feasible to credible, usable information
Radiation protection as a community onto itself
Integration of radiation and environmental protection through shared principles for guiding action, combined databases, and risk harmonization