UVM Theses and Dissertations
Format:
Print
Author:
Dias, Daniel Lopez
Dept./Program:
Natural Resources
Year:
2010
Degree:
Ph. D.
Abstract:
Current economic practice does not encompass adequate consideration of nonmarket factors, such as the economic functions provided by the 'natural capital' of the natural environment. For example, the 'source' function of raw material provision and 'sink' function of waste assimilation. For most natural capital functions markets do not mediate use. Problems subsequently arise from the zero-sum nature of environmental exploitation and the damages resulting from natural capital overuse and dysfunction. The depletion and degradation of natural capital occurs because the economy does not price their economic benefits and no alternative mechanism currently exists to keep use in balance with available quantities and qualities. The economic functions of natural capital are therefore frequently termed market 'externalities'; their provision and consumption take place external to the market. The costs incurred and benefits enjoyed are consequently termed' external costs' and' external benefits'.
This dissertation designs, constructs and applies a system for accounting and communicating the external costs and benefits of non-market factor consumption and production by companies. This system is entitled the Externality Accounting System [EAS]. The EAS can provide all non-market factors (but restricted in this dissertation to the economic functions of natural capital) with a market signaling device analogous to price. If developed and used appropriately, the EAS is capable of introducing and restoring balance to use. To fulfill this 'pseudo-price' objective, the EAS needs to: (1) Provide comprehensive capture of the overall natural capital use and investment by companies; (2) Be applicable to and employable by all companies; (3) Offer practicable calculation of external costs and benefits; (4) Communicate external costs and benefits in ways that are simple to interpret; and (5) Provide a feedback mechanism between companies and customers, for example, via a company 'true cost' indicator.
To achieve the comprehensive specification the EAS employs Input-Output [10] modeling architecture. The 10 component enables quantification of a company's indirect natural capital use and investment and the associated external costs and benefits. Indirect refers to 'upstream' along supply chains and 'downstream' through product use and disposal. Post EAS construction, various natural capital management applications are outlined and exemplified: (1) Rating; (2) Reporting; (3) Supply Chain Management; (4) Investment Analysis; and (5) Fund Composition and Construction.
Results of this inquiry are manifold and include: A Non-Market Value Compendium detailing the damage values for various environmental pressures exerted by industry sectors in different geographic regions; Industry Technology Externality Intensities that reveal the vulnerability of agriculture and wider food systems to 'climate change': Externality Trade Factors that provide a mechanism to capture the environmental consequences of trade; Introduction to Key Environmental Performance Indicators [KEPI], based on 'materiality' tests, to aid and prioritize company reporting of their environmental interaction; and the introduction of a new investment metric. Interestingly the EAS demonstrates (via application to fund reconstruction) corporate accounting for external costs does not necessarily sacrifice financial performance.
This dissertation designs, constructs and applies a system for accounting and communicating the external costs and benefits of non-market factor consumption and production by companies. This system is entitled the Externality Accounting System [EAS]. The EAS can provide all non-market factors (but restricted in this dissertation to the economic functions of natural capital) with a market signaling device analogous to price. If developed and used appropriately, the EAS is capable of introducing and restoring balance to use. To fulfill this 'pseudo-price' objective, the EAS needs to: (1) Provide comprehensive capture of the overall natural capital use and investment by companies; (2) Be applicable to and employable by all companies; (3) Offer practicable calculation of external costs and benefits; (4) Communicate external costs and benefits in ways that are simple to interpret; and (5) Provide a feedback mechanism between companies and customers, for example, via a company 'true cost' indicator.
To achieve the comprehensive specification the EAS employs Input-Output [10] modeling architecture. The 10 component enables quantification of a company's indirect natural capital use and investment and the associated external costs and benefits. Indirect refers to 'upstream' along supply chains and 'downstream' through product use and disposal. Post EAS construction, various natural capital management applications are outlined and exemplified: (1) Rating; (2) Reporting; (3) Supply Chain Management; (4) Investment Analysis; and (5) Fund Composition and Construction.
Results of this inquiry are manifold and include: A Non-Market Value Compendium detailing the damage values for various environmental pressures exerted by industry sectors in different geographic regions; Industry Technology Externality Intensities that reveal the vulnerability of agriculture and wider food systems to 'climate change': Externality Trade Factors that provide a mechanism to capture the environmental consequences of trade; Introduction to Key Environmental Performance Indicators [KEPI], based on 'materiality' tests, to aid and prioritize company reporting of their environmental interaction; and the introduction of a new investment metric. Interestingly the EAS demonstrates (via application to fund reconstruction) corporate accounting for external costs does not necessarily sacrifice financial performance.