Usefulness of Environmental Accounting

Greening the national accounts are useful both for economic and environmental policy especially for the developing countries. Developing countries are usually natural resource based economies and are characterised by high population growth and pressure on natural resources. Most of the developing countries depend mainly on agriculture, fishing, forestry, mineral extraction and other primary activities rooted in the natural resources. So in these countries, omission of the degradation and depletion of the country's natural capital will lead to over-estimation of the national income figures. This also gives a false illusion that the economy is growing when natural wealth (in fact, the future wealth) is declining.

By comprising some green indicator in place like 'environment adjusted domestic product' (EDP) or 'genuine savings', the policies can be designed to enhance economic growth without extensive natural resource depletion, thereby achieving more sustainable income. It is as well feasible that after proper accounting of natural resources, the GDP may need to be adjusted downwards as natural resource extraction no longer can be considered under the value-added expression but as depreciation. The gap between GDP and the environment adjusted GDP quantifies the extent of depletion and degradation and therefore serves as a signal of the importance of environmental effects.