6. Environmental accounting and green budgets.

So-called 'Green Net National Product' (see folia 4) is meant to measure changes in society's wealth un­derstood as a combination of man-made, natural and knowl­edge capital. The change in natu­ral capital is assumed to incorpo­rate depletion of natural re­sources and degradation of envi­ronmental resources. Incorporating natural and environmental resources into na­tional accounts, means that the Net National Income (NNI) defined as the sum of consumption and the value of net investments provides for such a measure under certain assumptions. The assumptions are (see folia 4):

• that there is no exogenous technologi­cal progress (that is, all techno­logical progress is fully reflected in augmented stocks of knowl­edge capital)

• that the inter­est rate is constant.

If both con­ditions are satisfied then the NNI is the level of consumption that, if held constant, would yield the same present value as the path of consumption that the economy will actually follow.

This result implies that the level of consumption which ex­ceeds the NNI cannot be sus­tained. (see folia 5) Thus at the sustainable level of operations in the economy, depletion of natural resources and degradation of environmen­tal resources have to be compen­sated for by investments in man-made and knowledge capital.

Question is how the NNI misrepresents the sustainable level of consumption (see folia 5). When the formal assumptions do not hold. If there is exogenous technologi­cal progress or if the economy has large stocks of unexploited natu­ral resources, then the NNI un­derestimates this level. If inter­est rates are decreasing then it overestimates it.

7. Market limitation.

Although the 'Green Net National Product' should capture whatever values are created, consumed or invested, this is easier said than done. A vast area of environmen­tal benefits is excluded from mar­ket transactions and thus not priced on a regular basis. Never­theless, goods and services pro­vided by the environment are an important part of welfare and -by definition - they affect the sustainability of economic development scenarios.

First of all, markets and mar­ket prices serve as references in virtually all valuation techniques (see folia 5). In some cases the value of an en­vironmental asset can be deter­mined on the market.

A more difficult case is when the environmental asset in question is not a subject of market transactions. Then its value can be revealed either by linking its consumption to the consumption of a complementary market good or by simulating a transaction in a hypothetical market. The first approach, called the travel-cost method, is exemplified by infer ring the value of a beach (the environmental good) from the price people pay for the journey to get there (the related market good). The second one, called the contingent valuation method, takes scenario of delivering the good, say a clean beach, and asking people about their willingness to pay for it.