Environmental Accounting for Pollution: Methods with an Application to the United States Economy

The present study presents a framework to include environmental externalities into a system of national accounts. The paper develops estimates of air pollution damages for each industry in the United States. The first section proposes a framework for national economic accounting that values pollution using marginal damages. An integrated-assessment model (the Air Pollution Emission Experiments and Policy analysis model) is used to quantify the marginal damages of air-pollution emissions for the U.S. The empirical estimates indicate that stone quarrying, solid waste combustion, sewage treatment plants, and fossil fuel based power generation have pollution damages larger than their conventionally measured value added. The largest single industrial contributor to external costs is coal-fired electric generation, whose damages range from 1.4 to 3.5 times value added depending upon modeling assumptions.