In a fantastic article, titled “Environmental Accounting for Pollution in the United States Economy“, Professors Muller, Mendelsohn, and Nordhaus for the first time build a framework whereby individual industry/company polluting contributions to the National Account (GDP) can be measured. As they note, historically, the approach in measuring the cost of pollution has been to rely “… on material flows analysis to calculate the tons of
emissions per unit of production by industry” As they note, while “[]the materials-flow approach is useful
for tracking physical flows, but it is inappropriate for national economic accounts because it does not contain values and because the damages associated with different source locations and toxicity are not included.”
So Muller-Mendelsohn-Nordhaus (MMN) method allows for integrating the environmental impact of different industries into the national account. The implications are huge. If environmental conscience states/counties suffer from lack of tax revenues that would have been generated if the polluting companies where allowed to operate, now with this method a system can be envisioned through which the polluter states/counties can pay for the sins! Of course on a global scale, such a method can also give rise to a system whereby industrially rich countries can measure what the fair value of the compensation for poor environmentally rich could look like. Brazilians and Congolese may find it more valuable to sell the oxygen their rain forests generate than their minerals! (After all without their iron ore we might be catapulted back to the stone age but without their oxygen we be DEAD! if you don’t believe me, check out the new series Terra Nova on Fox)
