islands of the world viii changing islands- changing worlds kinmen island (quemoy), taiwan, r.o.c....

ISLANDSISLANDS OF THE WORLD VIIIOF THE WORLD VIIIChanging Islands- Changing WorldsChanging Islands- Changing Worlds

Kinmen Island (Quemoy), Taiwan, Kinmen Island (Quemoy), Taiwan, R.O.C. R.O.C.

From November 01-07, 2004.From November 01-07, 2004.

““ACCOUNTING FOR ENVIRONMENTAL ACCOUNTING FOR ENVIRONMENTAL RESOURCES AND SERVICES IN THE RESOURCES AND SERVICES IN THE

CONTEXT OF CARIBBEAN CLIMATE CHANGE; CONTEXT OF CARIBBEAN CLIMATE CHANGE; THE CPACC EXPERIENCE”THE CPACC EXPERIENCE”

Presented by Dana A. Lewis

LecturerH. Lavity Stoutt Community College

Tortola, BVI

Structure of PaperStructure of Paper

• Introduction

• “Environmental Accounting: A Literature Review”,

• “Methodologies of Environmental Accounting”,

• “A Comprehensive Review of CPACC”.

• Conclusion.

Structure of PresentationStructure of Presentation

• The Research Problem

• What is CPACC?

• The Basis for Environmental Accounting

• The Methodologies of the discipline

• The CPACC application

• Lessons Learnt

• Conclusion

Research ProblemResearch Problem

• Accounting for environmental resources and services is an important consideration for the Caribbean because of its small island masses and limited financial recourses.

• But this process is indeed costly (Boyd, 1998).


• In order for the environmental accounting to offer any solution to climate change, the value of environmental resources and the measurement of the changes in the levels of environmental quality across the Caribbean would need to be the foundation for environmental policy and decision making (Lewis, 2001).


• Environmental accounting adds worth to national income accounting, financial accounting, or internal business managerial accounting disciplines (EPA, 1995).

• The end users would include government ministries, product designers, financial analysts, and facility managers, to just name a few.

Map of the CaribbeanMap of the Caribbean

What is CPACC?What is CPACC?

• CPACC was a cooperative project of the Organization of American States, the Caribbean Community, the Global Environment Facility, the World Bank, and the University of the West Indies Center for Environment and Development. Its goal was to help Caribbean islands prepare for combating the adverse effects of global climate warming, particularly sea level rise.


• Islands participating in CPACC were Antigua and Barbuda, the Bahamas, Barbados, Belize, Dominica, Jamaica, Grenada, Guyana, St. Kitts and Nevis, Saint Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago.


• The CPACC project had various components; but the most applicable to this discussion are Component 7(C7) and Component 8 (C8).


• C7’s objective was to assist participating islands in applying the tools of resource valuation, environmental accounting in environmental decision-making.

• C8’s objective was to address the formulation of economic and regulatory proposals.


• After completion, C7 was deemed a success story with one major shortcoming; its inability to follow-through its economic valuation initiatives with solid, “full-proof” environmental accounting applications for decision making.

• Component 8 (C8) attempted to do this but was limited in its application.

The Basis of Environmental The Basis of Environmental AccountingAccounting

• Environmental accounting is the method, which assigns directly environmental costs to the applicable resources.


• Boyd (1998) expounds on this point, theorising that it is accounting for any costs and benefits that arise from changes to a firm’s products and processes, where the change also involves a change in environmental impacts.

• As a result, it is implied that environmental accounting is founded on the basic economic concept of externalities.


• Worldwide, environmental costs are generally defined narrowly as those costs which are incurred in compliance with, or prevention of breach of, environmental laws, regulations and company policy.

• Often, the costs of common natural resources such as air, water and energy are subsumed into a one line 'operating cost' or 'administrative cost' that are regarded by management as independent of production (Environment Australia, 2004).


• But, the true environmental costs to a firm can be far broader, including: costs of resources, both those directly related to production and those involved in general business operations; waste treatment and disposal costs; the cost of poor environmental reputation; and the cost of paying an environmental risk premium.


• There is no doubt that the accounting profession has a sufficiency of tangible and intellectual resources and concern to be able to address social, environmental and sustainable development issues with the appropriate degree of urgency, (Adams, 2004).

• However, there are competing issues.


• As a discipline, environmental accounting envelopes the subjects of environmental auditing, environmental benchmarking, environmental performance evaluation, life cycle assessment/analysis, and life cycle cost accounting.


• In particular, environmental benchmarking is carried out to measure a company’s internal progress against its goals. As such, it can be used to set internal goals and rate internal improvements.


• Environmental auditing is helpful because it works with specific criteria used to measure a company’s environmental performance by looking at its business goals, activities, and other factors.

MethodologiesMethodologies

• Life Cycle Cost Accounting is one methodology which is intended to account for the full cost of a product throughout its entire life cycle, (Sustainable Development International Corp., 2004).

• It seeks to move away from the externalization of environmental costs by attempting to incorporate them into product costs up front.


A “normative” accounting model that starts with this premise: Pollution is going to be paid for either way through of better prevention or eventual clean up. – Otherwise known as the precautionary principle


Encouraging investment in the environment might be to devise an accounting regime in which the successful prevention of problems brings about social-benefit revenue. – Otherwise referred to as consumer preference – demand intervention


A “green model” based on the notion that industrial activity involves costs to future generations where some “soft” resources, such as human talent and labor, are renewable – this allows for less morbidity!


An “environmental incentives model” that would revolve around the concept that traditional accounting profit principles (not likely) to promoting investment in environmental protection. It would allow the capitalization of prevention and clean up.

In other words, Cleaner production saves money, gives less pollution; and there is a higher demand for product.


• Alternatively, the framework presented by Boyd (1998), outlines a method where mangers must make an optimizing decision based on incomplete information, information that could be improved at some cost by better accounting data or procedures.

• His model explores a manager’s decisions relating to the use of inputs in a production process.

The CPACC ApplicationThe CPACC Application

• C7 included pilot study work done in the islands of Trinidad and Tobago, St. Lucia and Dominica.

• C8 comprised pilot study work done in the islands of Antigua and Barbuda and St. Kitts and Nevis.

Map of Trinidad and TobagoMap of Trinidad and Tobago

The CPACC Application: Trinidad The CPACC Application: Trinidad and Tobagoand Tobago

• In the case of Trinidad, the Valuation Methodologies were: the Preventative/Mitigation Expenditure Method, the Change in Productivity Method and the Defensive Expenditure Method and were applied to the resource activities of the industrial plants, agriculture, wetlands and religious and cultural sites, respectively.

Map of St. LuciaMap of St. Lucia

The CPACC Application: St. LuciaThe CPACC Application: St. Lucia

• In the first case, residential and commercial properties, the defensive expenditure method was used. The defensive expenditure matrix was prepared.

• The fisheries resource activity utilized the change in productivity method where this process perhaps was the easier of the four collection data requirements since there was some data history already existent on this.

• The residential Beach Use exercise had as its valuation method, the Random Utility Model.

• The Visitor (Stay-over and Cruise-ship) Beach Use data methodology was not obvious at the beginning but eventually it was decided to use the Hedonic Price Model, Contingent Valuation Method and the Travel Cost Method for this component.

Map of DominicaMap of Dominica

The CPACC Application: DominicaThe CPACC Application: Dominica

• With respect to Dominica, The project components were as follows:– Residential and Commercial Properties: Hedonic

Model– Fisheries: Change in Productivity Method– Visitor (Stay-over and Cruise-ship) Beach Use:

Undecided– Residential, Commercial and Public Properties:

Defensive Expenditure Method– National Park in Soufrere: Contingent Valuation Method

Map of AntiguaMap of Antigua

The CPACC Application: Antigua The CPACC Application: Antigua and Barbudaand Barbuda

The final economic instrument selections for Antigua and Barbuda were:

• Establishment of a middle market for retail supply of sand

• Import sand from Guyana, which would be cheaper or use other aggregate mixes as an alternative to sand for concrete.

• Establishment of a beach-management policy, including enhanced sand mining regulation.

Map of St. KittsMap of St. Kitts

The CPACC Application: St. Kitts The CPACC Application: St. Kitts and Nevisand Nevis

Three instruments were identified to influence each stage, namely:

• Eco-labeling

• Environmental Charter, and

• Set backs

Lessons LearntLessons Learnt

• There are valuable lessons which were learnt from C7 and C8.

• Specifically, emphasis was not placed on the development of the environmental accounting methodology and the capacity to effectively apply the discipline to the economic valuations results derived.

Lessons Learnt Lessons Learnt

• Similarly, more resources needed to be made available for developing the regional team with respect to the usefulness of the discipline.

• There was also limited regional cooperation and the sharing of material.

• As alluded Boyd (1998), allocating environmental benefits to resources will be a costly task.


• Research also shows that the original time outlined for the two components was too short; the time needed to implement a project, such as this and to ensure capacity-transfer from C7 to C8 needed to be extended.

• In my opinion more time was spent on the earlier components of the project overall.

• There seemed to be a need for specific training of country team personnel by experts as a part of the capacity-building and transfer process.

• The broadest possible cross-section of technical expertise would have made the country teams more effective in implementing economic valuation.


• The last concern was the implementation and execution of data collection.

• Primary data collection for an island pays off better if executed as ongoing process rather than just for the purposes of the project completion.

• The designation of a specific team and coordinator for this activity would have been allowed for effective implementation at the national level and would have widened the scope for capacity-building with the country for the entire project.


• In summary, there were seven benefits that the C7 and C8 identified; but these benefits however, were not entirely capitalized on:


• 1. Providing better estimates of the true cost to the islands producing green products; which would have improved pricing and hence profitability;

• 2. Allocating costs to the appropriate product, process, system or facility and thus revealing costs to the responsible managers;

• 3. Assisting managers in targeting cost reduction, improving environmental quality and in reinforcing quality principles;

• 4. Motivating staff to search for creative ways to reduce environmental costs;

• 5. Encouraging changes in processes to reduce waste, reduce resource use, recycle waste or identify markets for waste;

• 6. Increasing employee awareness of occupational health and safety issues; and

• 7. Increasing the likelihood of the company having a competitive advantage and greater customer acceptance of the firm's product or service.

ConclusionConclusion

• In conclusion, the effectiveness of these approaches depended on how adaptive governments were in considering new policies and approaches to deal with the impacts of sea-level rise on coastal resources.

• But as Boyd (1998) alluded to “information has value only if it leads to decisions different from those in the absence of the information”.

ConclusionConclusion

• The implementation and execution of the CPACC projects has done this so far but there needs to be a more forceful regional thrust to ensure that the process continues.

• End Of Presentation

islands of the world viii changing islands- changing worlds kinmen island (quemoy), taiwan, r.o.c....

Documents

caribbean slide

financial accounting

environmental policy

environmental costs

environmental decisionmaking

conclusion slide

bvi slide

research problem accounting