Environmental Accounting: Case Study Analysis

Imagine a factory located upstream that pollutes a river. It produces steel for the automotive industry. Downstream, local fishermen find they catch less fishes due to the pollution.

Both are flourishing businesses that produce wealth and prosperity for the community. But there is a problem environmental economists must deal with:

1. Can you suggest any criteria that could be used to decide on who has the right to use the river? The factory, the fishermen, both?

There are several criteria that could be analysed in this particular case, and they include the level of dependence on the river for the fishermen, in comparison to that of the factory. The history of the two parties' experience with the river should also be taken into account - e.g. who was using the river first and for how long? How important has the river been to each parties' business? What is the percentage of income generated from using the river? In addition, the magnitude of the pollution in the river caused by the factory can also be studied to understand its environmental effects, such as what element is causing the decrease in number of fishes and whether it will also have an impact on other animals or human beings living in the vicinity of the river. An important criteria that should also be considered are the laws governing the use of the river and other rules or regulations that are enforced, such as natural laws, or environmental laws, in the area where this case takes place.

In many places, a river is generally assumed to be public property and is accessible to the public for multiple uses, such as swimming, fishing, boating, and other activities. In such situations, the river and its running water can be utilized over and over again by the people who use it, as long as the fishes can survive and the quality of the river's water is maintained.

In this case study, it is obvious that the lives of the local fishermen are dependent on the river as they use it to fish and make profit. The way they practice their fish-catching activities have also been quite safe for the river as the fishes have managed to survive all this while, before the river was polluted by the factory. The cleanliness and well-being of the river is also vital to the rest of the community because a badly polluted river is more likely to cause disease, endanger the lives of fish and other wildlife, produce malodours, and will certainly be an eye-sore to the residents living nearby the river.

On the other hand, the factory is not dependent on the river to make profit. If the river becomes over polluted or dries up some day, the factory could change the location of their dumping site and this action would have little effect on their business. By dumping their waste into the river, the factory is causing the quality of the river and the area around it to deplete as it gets polluted. Therefore, the factory's use of the river is causing damage to public property, as the areas around the river, including any residential areas nearby the river are also receiving the negative affects of the pollution. The polluted river becomes detrimental to the community or public as people will not be able to use the river anymore since it is deemed unsafe. The potentially hazardous waste that has been dumped into the river may also leak into the drinking water of the community, and its chemicals may poison animals and other wildlife that utilize the river.

With regard to the economic prosperity that both businesses are contributing to the community, the continuous dumping of waste into the river would mean the end of business for the fishermen, which would greatly affect the local fish market and the economy. However, if the factory can come up with another solution to manage their industrial waste without dumping it into the river, both businesses can continue to flourish and the community can still benefit from the economic activities of both parties.

From the criteria mentioned and the brief analysis of the case above, it can therefore be concluded that the fishermen should have more right to use the river as compared to the factory.

2. Can you propose any instrument or agreement to solve the problem?

A cost-benefit analysis could first be adopted to analyse the costs and benefits of each party's use of the river. Then for the short term, I would propose the use of regulation, or enforcement of the law to solve this problem. The factory should be fined for polluting the river and causing damage to public property, ordered to stop their dumping of the industrial waste into the river or they would have to shut down the factory, and perhaps some compensation should be extended to the fishermen as well, because their business was badly affected by the pollution, which caused the number of fish in the river to decrease.

For long term, I would suggest the incorporation of extended accounts such as that of the National Accounting Matrix including Environmental Accounts (NAMEA) into the national account as it takes into consideration the multi-dimensional aspects of the environment and relates it to the economy in efforts to develop sustainably. It could be used to measure the impact of certain cases on the environment, such as the case discussed above, and provide statistical analysis that can be further studied to decide on the best ways to handle future cases concerning the environment. Write down the short summary of this case.

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