Environmental Social Accounting Matrices

Theory and Applications

Pablo Martínez de Anguita, John E. Wagner

• Publisher: Routledge
• Year: 2010
• ISBN:
  9781136990601
• Edition: 1
• Topic: Economics
• Subtopic: Sustainable Development
• Index: Economics

In this book Professors Pablo Martínez de Anguita and John E. Wagner put two disciplines together, regional and ecological economics, presenting a way to understand ecological economic concerns from a regional perspective, and providing a mathematical tool to measure their interrelationships. This book offers different regional economic models that explicitly include the role of the natural resources and pollutants in economic regions through the use of Social Accounting Matrixes and Input-output models.

The main objective of this book is to explore Input-output and Social Accounting Matrix (SAM) models by expanding the accounts to include natural resources and the environment. The proposed models in this book incorporate the forest and other natural resources and pollutants as a component in a larger model of how the economy and environment of larger areas interact. This book will be of interests to postgraduates, researchers and scientists in the fields of regional, resource, environmental, or ecological economics.

1
Basic concepts in natural resource economics

The economic concept of value and the I–O models

The word “value” has many meanings. Brown (1984) defines it as “an enduring conception of the preferable which influences choice and action.” “Preference” is used here to mean the ranking of one thing by an individual below or above another thing because of a notion of betterness. Nevertheless, there are two other nonpreferential related uses of value: a functional or mathematical value of a variable (i.e. if 7n + n² = 60, then the value of n = 5), or as Andrews and Waits (1978) describes “functional value relationships.” This concept of value refers to a biological or physical relationship of one nonhuman entity to another, for example, the value of nitrogen in corn production. It is the job of applied sciences to determine these functional values. These I–O relationships can exist whether or not humans prefer them or are even aware of them; they are discoverable, but exist no matter what we prefer.

“Value” in the sense of preference can be understood from a philosophical or ethical perspective as “an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of existence” (Rokeach 1973). These are called held values.¹ In this case, value is a total concept, as opposed to a marginal concept. Many authors have proposed different ethical approaches based on several notions of value, such as intrinsic value as opposed to utilitarianism, pragmatism, or logical positivism. Examples of intrinsic value have been the idea that the life of nonhuman beings has a value in and of itself (Naess 1984) or the idea of mother earth proposed by James Lovelock (1979) in his work on the “Gaia Hypothesis.” We will consider these philosophical values only as held values that may help in understanding the “assigned measures of values.”

From an economic perspective, value can be understood as “the relative importance or worth of an object to an individual or group in a given context” (Brown 1984). In this case, value will be a marginal concept. This last economic definition of value has several advantages. It is measured or determined with respect to a person’s held values and associated preferences, that is with respect to a person’s perception of the object and all other relevant objects. It is also measured with respect to the context in which the measurement takes place; thus, if the context changes, then the economic value changes. This leads to the recognition that economic value depends directly on who is doing the assessing: economic value is a relative or relational concept.

Although “economic measures of value are a small subset of what is encompassed by value every day” (Boulding 1956), they can help in understanding the relative importance or worth of a marginal unit of the good in question to the group entity (Brown 1984). People express their preferences through the choices and tradeoffs that they make, given certain constraints, such as income or available time. These tradeoffs must be comparable. This is done quantitatively through prices. Price is defined as a marginal concept. It is not meant to measure the intrinsic value of a good, but only as a means of allocating a scarce good to a specific use. Price therefore can be defined as a measure of relative scarcity.

Any natural resource contains different held values, including intrinsic, economic, cultural, and aesthetic values. These values only translate into economic value in so far as they are scarce and capable of generating human welfare, including spiritual or moral welfare. Thus, if a resource remains unknown; even if it is providing an environmental service, it does not have economic value since it has no relational value with anyone who can give economic value to it: as long as it is not known, it cannot be preferred. Economic theory can measure these preferred and comparable values using theories such as total economic value (TEV) Approach² (Pearce 1992).

Value can also refer to a biological or physical relationship of one nonhuman entity to another, and therefore does not depend on any held values. These nonpreference meanings of the word “value” applied to natural resources can come from functions such as biological or physical relationships. In this sense, we will address these “values in biophysical terms” as “resource inventory” or simply “inventory.”

The object of using the Environmental Social Accounting Matrix (ESAM) framework in this book is to achieve a way to measure sustainability, assess the flow of resources between the economic system and ecosystem, and establish possible limits to the economic system according to the biophysical possibilities of a territory. In this book, two different meanings of the word “value” appear throughout the text and, therefore, a clear distinction is required. We will always refer to biophysical values with the word “inventory” and we will only use the word “value” when indicating a human preference. Finally, we will refer to “economic value” when this preference is assigned through prices. Therefore, economic value will be the result of multiplying the desired good or service by its price; namely, an assigned value indicating its relative scarcity in relation to the specific preference.

There can be many approaches to mix ecosystem goods and services and economic values into a single framework. Using traditional neo-classical utility theory, an ESAM presents a broad framework to combine ecosystem goods and services and economic values allowing for many different interactions between them to be examined. In other words, all values are commensurable and can ultimately be reduced to a single measured unit. Based on this metric, while an ESAM allows accounting for the measures of people’s preferences, at the same time, it is also able to expand the accounting system to include “satellite” accounts of other types of values related with ecosystem goods and services included. An ESAM framework uses traditional I–O relationships to describe resource flows between the ecosystem and the economic system; for example, for every dollar of output from the economic system, 0.25 dollars of resource flows into the economic system from the ecosystem are required. Different types of models can be proposed by taking into account different contexts depending on how these concepts are included. The beauty of an ESAM is that it makes it possible to compare different type of models without denying any rule of the theories that underpins both economic models as well as the accounting for ecosystem goods and services.

ESAMs require a large amount of data. As collecting primary data can be very expensive, secondary data are often used. Secondary data sources include various governmental agencies. However, without these data an ESAM would be a very powerful but useless tool.

The concepts of scarcity and sustainability applied to natural renewable resources

According to the dictionary definition, “scarcity” means to be not common or the ability of having an inadequate supply, not sufficient to meet the demand. This definition is too vague and can have several biophysical and economic interpretations. The scarcity of a renewable resource “in physical terms” tends to mean a lack of the resource. But any lack of the resource has to be established according to some reference point. As the objective of this book is to use ESAMs as estimators of regional sustainability, biophysical scarcity will be defined as a distance to a sustainable limit. Thus instead of scarcity, the inventory of a renewable resource is defined with respect to its sustainable limit; decreases or increases in inventory imply moving further or closer to this limit.

The dictionary defines “sustainable” as capable of being sustained or maintained. Biophysical sustainability is defined as the maximum level of use or harvest that can be continually taken from a resource stock for an indefinite period. This is the point that maximizes the growth rate of the natural resource. It also defines the minimum stock of the resource required to maintain this harvest level. When dealing with environmental emission management, we will define the concept of “assimilative capacity” as an upper level above which sustainability declines. This assimilative capacity is the ability of the natural system to accept certain pollutants and to render them benign or inoffensive (Field and Field 2006).

Biophysical sustainability and assimilative capacities are not static concepts. Additionally, there is no single measurement for them. For example, a species, with either a large or small population, can be a sustainable population as long as it breeds and maintains its population. For some resources, such as forests, sustainability can be easier to define because different silvicultural management regimes can provide for a certain percentage of the future losses or increases of populations. In other natural resources, such as fisheries, there are many different levels of sustainability. Defining a sustainable population could be done by relating the studied population not only with its viability (autoecology approach), but also with other populations (sinecology approach) or larger ecosystems (population dynamics approach). Any of these are beyond the scope of this book. If ESAMs are to be used to measure how economies interact with nature and sustainable limits, sustainable limits must be defined and used as an input in the ESAM. Sustainable limits are not an output of an ESAM. The sustainable population, sustainable harvest levels, or assimilative capacity of a natural resource must be measured and defined using a biological science.

Natural resource scarcity can be also defined in economic terms where society does not have sufficient resources to produce enough to fulfil any unlimited subjective wants or needs. Alternatively, scarcity implies that not all of society’s goals can be attained at the same time, so that tradeoffs of one good against others are made. In this sense, scarcity is a marginal concept that depends on the allocation of the preferences and the price of the resources.

Assigned values will have a monetary representation and their scarcity will be based only on the relative and economic perception of value. We will refer to this scarcity as their relative “economic scarcity.” This economic approach will use price as an economic natural resource scarcity indicator.

The concept of sustainability can be also interpreted in economic terms. From this perspective, “sustainability” means that future production curves are not adversely affected by what we do today. This does not mean that we must maximize environmental quality. It means simply that the environmental impact is reduced enough today to avoid shifting future production possibilities curves back in comparison to today’s production possibilities (Field and Field 2006). From this perspective, a resource use rate is called sustainable when the use rate can be maintained over the long run without impairing the fundamental ability of the natural resource base to support future generations (Field and Field 2006). “Sustainability” does not mean that resources must remain untouched; rather, it means that their rates of use must be such that it does not jeopardize future generations. For renewable resources, such as forests, it means establishing use rates that do not exceed the natural productivity. In addition, the assimilative capacity of the ecosystem must also be considered in economic terms.

The difference between biophysical and economic sustainability can be described using the idea of substitution. From a biophysical perspective, if a resource disappears, it is lost forever. From an economic point of view, finding a substitute for the lost resource eliminates the problem. Thus sustainability will be defined as biophysical and scarcity will be defined in terms of prices.

Using the idea of “scarcity” only in an economic sense can be dangerous. Policy decisions are most frequently determined on economic criteria, and as Spash (2000) explains, if this monetary value fails to represent the values individuals associate with the environment, the interpreted responses as trade processes will result in misrepresentation of the motives lying behind the economic valuation. In such circumstances people may find the use made of their statements unacceptable (Burgess et al. 1995). On the other hand, using the same word for two different concepts can be misguiding. This is the reason we will also include the ideas of inventory increases and reductions.

ESAM is a framework where price can be used as well as other relative scarcity or value indicators. Using money is only one way to measure how important ecosystem services are to people. ESAM as a framework can provide the opportunity to use other indicators. Whatever the indicator used, the products or results obtained through an ESAM analysis will be always subject to the limitations of the nature of data provided.

The TEV of natural renewable resources

Measuring resources in economic terms, with the limitations mentioned above, allows for estimating the value that ecosystem services provide by using different tools. The first one is market: fish or lumber, for example, are bought and sold in markets and their trading prices can be registered. But the most important services from “nature,” like a day of wildlife viewing or a view of the ocean, are not traded in markets. Thus, people do not pay directly for many ecosystem services. This economic value can be estimated by accounting for the number of people who are willing and able to pay to preserve or enhance the services. Thus, it is not necessary for ecosystem services to be bought and sold in markets in order to measure their value in dollars. What is required is a measure of how much purchasing power (in dollars) people are willing and able to give up to get the service of the ecosystem, or how much people would need to be paid in order to give it up, if they were asked to make a choice similar to one they would make in a market. This is the base of the TEV Approach (Pearce 1992) that will be used to account for natural resources in economic terms in the ESAM framework: total economic value can be defined by the sum of a number of components when adding all of this “purchasing power” (Pearce 1993; Randall and Stoll 1983).

This approach is not free of controversy. Ecological function and existence values are difficult to analyze and estimate scientifically and economically. Also, asking for a willingness to pay or using any other estimating method has difficulties: people are not familiar with purchasing such goods, and their willingness to pay may not be clearly defined. However, even considering these limitations, TEV is the widest possible method that allows estimating economic values for the services of ecosystems in dollar terms (Costanza et al. 1997a)....

Table of contents

• Contents
• Illustrations
• Preface
• Abbreviations
• 1 Basic concepts in natural resource economics
• 2 Regional I–O economic models
• 3 Social accounting matrices
• 4 Regional economic multipliers Multiplier analysis: general background
• 5 Ecosystem and economic system framework
• 6 The accounting of sustainability in a SAM
• Notes
• Bibliography
• Index