Pollution Expenditure Accounting
This has been the earliest reaction to overcome the weaknesses in the conventional economic accounts. It involves developing data series on pollution abatement and other environmental expenditures. However, there are some limitations of using this approach, which are mentioned below.
a) These data refer to expenditure already incurred, either due to policy or standard business and household practices. Hence they should not be considered as additions to conventional economic accounts as they are a re-specification of the information already accounted for;
b) The abatement expenditure data tend to overestimate the true opportunity costs, as they contain outlays on materials, which are already included in the value- added expression of the sector producing these materials. Thus there may be the risk of double counting;
C) The practice of comparing pollution abatement expenditures with GDP is misleading since the GDP covers primary costs and is free from double counting. This can be addressed by using input-output techniques.
The use of pollution expenditure data has limited scope for policy. They can only give an indication of how various environmental policies may affect productivity.