Green National Accounting : Why and How ?

The present paper gives an overview of the theory of green national accounting. Three purposes of green national accounting (measurement of welfare equivalent income, sustainable income, or net social profit) and two measures (Green NNP and wealth equivalent income) are considered. Under the assumption of no exogenous technological progress, Green NNP is shown to equal wealth equivalent income if there is a constant interest rate or if consumption is constant. It is established as a general result that sustainable income ≤ wealth equivalent income ≤ welfare equivalent income, while Green NNP ≤ welfare equivalent income under no exogenous technological progress and a constant utility discount rate. Green NNP is shown to measure gross social profit rather than net social profit. * Acknowledgments: I wish to thank CES, University of Munich, and the Norwegian Research Council (Ruhrgas grant) for hospitality and support during this research, Kjell Arne Brekke, Wolfgang Buchholz, John Hartwick, Atle Seierstad and two anonymous referees for helpful suggestions, and John Pezzey and Jeffrey Vincent for many detailed and useful comments. I am also grateful to Partha Dasgupta and Martin Weitzman for inspiring some of the analysis of the present paper by having made available their correspondence on green national accounting during the fall of 1997, and for commenting on an earlier version.