Visualizing Environmental Science

human production and consumption. Resource degra-

dation and pollution represent the overuse of natural

capital. Resource degradation is the overuse of sources, and

pollution is the overuse of sinks; both threaten our long-

term economic future.

National Income Accounts

and the Environment

Much of our economic well-being flows from natural

capital—such as land, rivers, the ocean, oil, timber, and

the air we breathe—rather than human-made assets.

Ideally, for the purposes of economic and environmen-

tal planning, national income accounts should include

natural resource depletion and

environmental degradation. Two

measures used in national income

accounting are gross domestic prod-

uct (GDP) and net domestic product

(NDP). Both GDP and NDP pro-

vide estimates of national economic performance that are

used to make important policy decisions.

Unfortunately, current national income accounting

practices provide an incomplete or inaccurate measure

of income because they do not incorporate environmen-

tal factors. Two important conceptual problems exist with

the way national income accounts currently handle the

economic use of natural resources and the environment:

natural resource depletion and the costs and benefits of

pollution control. Better accounting for environmental

quality would help address whether for any given activity

the benefits (both economic and environmental) exceed

the costs.

Other methods have been suggested that take a sus-

tainability perspective on national income accounting by

including measures of social and environmental well- being.

For example, the genuine progress indicator (GPI) in-

cludes human development and natural capital depletion.

Natural Resource Depletion If a manufacturing

firm produces some product (output) but in the process

wears out a portion of its plant and equipment, the firm’s

output is counted as part of GDP, but the depreciation of

capital is subtracted in the calculation of NDP. Thus NDP

national income

accounts Measures

of the total income of a

nation’s goods and ser-

vices for a given year.

Environmental InSight ✓✓THE PLANNER

Economics and the environment

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Economy

Products

Production Consumption

Natural Capital:Sources

are the part of the environment

from which materials move.

Approximately 3.3 billion cubic

meters (116 billion cubic feet)

of wood is harvested annually;

1 7 percent of that is used for

making paper.

Per person annual consumption of

paper in the United States is more

than 355 kg (783 lb).In 2006 net

earnings of the world’s 100 largest

forest and paper companies totaled

$15 billion.

Paper and paperboard products

account for about 34 percent of

the municipal solid waste stream,

more than any other source of

waste. In 2006 Americans

generated about 85 million tons

(187 billion pounds) of wastes

from paper products.

Economies Depend on Natural Capital Sources for Raw Materials and Sinks for Waste Products

Natural Capital:Sinks

are the part of the environment

that receives input of materials.

Products and money

flow between

production and

consumption.

Raw Materials Money Waste Products

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Environmental Economics 63