13 October 1994

Doc. 7186

MOTION FOR A RESOLUTION towards sustainability, full cost pricing and corporate accounting

presented by Lord DUNDEE, United Kingdom, EDG, and others

1.       The 1987 "Brundtland Report" and the 1992 "Earth Summit" (inter alia) established that the pursuit of sustainability must become a major goal for all national and regional governments. Many governments in Europe have taken explicit steps towards identifying what sustainability will mean in practice and have actively established policies that will move them (it is hoped) towards sustainability. Nevertheless, many nations have still to fully engage with the demands of sustainability and few nations have established how the demands of sustainability will translate into everyday economic behaviour - especially in the corporate sector.

2.       It is increasingly obvious that translating sustainability into everyday economic behaviour is extremely difficult. Also, it is increasingly likely that any serious moves towards sustainability will be exceptionally disruptive to present economic systems. Governments, businesses and academics have been seeking practical means to place economic behaviour on the path towards sustainability but the realistic policy options are relatively few.

3.       One opinion is to adopt a full "command and control" regime which would lay down a panoply of laws and regulations governing all aspects of economic interactions with environmental and social factors. Such an option is increasingly considered politically untenable, practically too difficult and economically inefficient.

4.       The second, and far more popular option is to take steps which work through market based instruments which seek to ensure that market prices reflect the full environmental costs associated with economic activities. That is, it is widely considered politically and economically superior to work "with the grain of the market".

5.       The principle behind "environmental" market prices is that as most interactions with the environment are not included as part of the prices that individuals, businesses and other organisations pay for goods and services these prices, and thus our wealth, is overstated. More simply, air, water, land, scarce resources and so on, are used largely as "free goods" and so humanity is not consuming just global income but consumption is eating into global capital. This is not only imprudent but severely limits the options for future generations (and some present peoples).

6.       Broadly speaking there are three approaches that can be taken to encourage this reflection of the full environmental costs:

i.       valuation of environmental assets : this involves "valuing" air, habitats, clean water etc. and then adding this value into the prices that we pay for goods and services. One extreme version of this is a "full privatisation" option which allows (e.g. companies) to "buy" air and use it and sell it. It is an approach generally favoured by economic theorists;

ii.       piecemeal adjustments through taxation, grants, licences and the like : rather than making a formal estimate of the "value" of environmental goods this piecemeal approach recognises the problems and tries to move towards a more desirable state but without any systematic analysis of the environmental effects. The current tax differential on leaded and unleaded petrol is of this sort as is the widely debated "carbon taxes". This is the approach currently adopted by governments;

iii.       introduction of "full environmental costs" throughout the whole of a product's life cycle : this approach is finding increasing favour (with, for example, the United Nations and the EU Fifth Action Programme) and offers perhaps the most realistic option for business.

7.       The identification of what shall constitute the "full environmental costs", is far from simple and there are, it would seem, two conceptually different approaches.

i.       The first is a conservative approach which focuses on remediation of environmental degradation caused by an activity. The environmental costs would be the actual or potential costs necessary to remediate that degradation - either to maintain the status quo or to set in train actual improvement to the European and global environment.

ii.       The second approach recognises that trade-offs between economic and environmental well-being will be necessary and seeks to tie the environmental costs to some assessment of environmental values (as in approach 6 a) above).

8.       Any move towards a sustainable costing or full cost pricing is likely to have dramatic effects on price structures and economic activity - not just in Europe - but to date (as far as we are aware) there has been no systematic investigation of how full cost pricing might operate or, more importantly, of the likely effects that full environmental costs will have on national and regional economies.

9.       Thus, because there has been no systematic investigation of the steps towards an understanding of what a full system of accounting for environmental costs might look like, European economies are likely to find themselves either without any systematic response to the need for sustainability or facing a groundswell of movement towards environmental pricing without any understanding of the issues at stake.

10.       The undersigned, members of the Assembly, believe that it is imperative, therefore, that substantial research programmes are initiated as soon as possible to explore these issues.

signed :

Dundee - United Kingdom - EDG

Jung - France - EPP

Ruffy - Switzerland - SOC

Theis - Luxembourg - EPP

Motiu - Romania

Dromberg - Finland - EDG

Alemyr - Sweden - SOC

Wohlwend - Liechtenstein - EPP

Parisi - Italy - EPP

Redmond - United Kingdom - SOC

Szabo - Hungary - SOC

*       SOC - Socialist Group

      EPP - Group of the European People's Party

      EDG - European Democratic Group

      LDR - Liberal, Democratic and Reformers Group

      UEL - Group of the Unified European Left