Externality Theory

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Criticism toward the concept of externalities comes mostly from the corner of ecological economists. As Clive Spash (2009) has stated: externality theory falsely assumes social and environmental costs are minor defect in a perfectly functioning system. Internalizing the externality does nothing to address inherent underlying structural default. An additional critique towards externality accounting is high degree of uncertainty (Pizzol, 2015; Weidema, 2015), methodologies are more often than not based on an accumulation of calculations techniques with each their own assumptions. Results derived from these calculations are questionable to say the least.
Shadow price calculations are nonetheless often used as a tool in a wide range of decision-making
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Albeit a simplified version as momentarily is the case, it consisted of aggregating environmental, social and economic impacts into a single score (Weidema, 2013). Several decades later there was additional support for monetization in form of Natural Capital Accounting. It was namely discussed in the renowned Brundtland Report in 1987 and the 1992 Rio Summit. During the summit is was concluded that there is a necessity to develop quantitative information regarding not only financial but also environmental and social activities. These efforts led to the adoption an official Natural Capital Declaration in June 2012 at the Rio+20 conference, led by the World Bank (WAVES,…show more content…
Natural Capital Accounting comes in many forms, such as Eurostat’s Sustainable Development Indicators (Eurostat, 2015), which is a list of list of over a hundred pointers to measure EU’s Sustainability Development Targets or also indices that orientate on aggregating various data sources into a single number, such as the Human Development Index (UNDP, 2010). The distinct difference between the mentioned approaches and monetary valuation is the evaluation of environmental impacts, the former using indicators and indexes, the latter using financial terms (Schaltegger and Burritt,

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