True Cost Accounting

General

True Cost Accounting (TCA) is applied as a new way of bookkeeping that includes the impacts on natural and social capital. It is not LCA, but it is highly related with LCA and S-LCA (‘Social LCA’). The system of the eco-costs has been expanded to cope with the typical issues of TCA in the field of Natural and Social Capital.
The basic philosophy starts with the fact that food has external costs that are not covered by the economic market price (Hardin, 1968), and that our human welfare is largely supported by ecological systems (Constanza et al. 1997). From 2007 to 2012 the UNEP hosed a big project “The Economics of Ecosystems and Biodiversity” (Sukhdev, 2012) to define practical applications of TCA, which gained momentum in Agriculture and the Food industry. It deals with habitat and species losses, pollution of land and water , impacts on soil and biodiversity, as well as socio-economic impacts. It is a broad philosophy on the way we should take care for our Mother Earth. When it comes to practical accounting, the well developed methods of LCA and S-LCA seem to be indispensable, however, not sufficient. This web-section describes some practical choices and the required extensions of the eco-costs system in the field of Natural Capital.

The main issues in TCA are:

  1. Climate change
  2. Water pollution and water scarcity
  3. Biodiversity of land
  4. Soil fertility
  5. Social labor conditions
  6. Animal wellbeing
  7. Consumer health

It is obvious that the industrialized agriculture and food production affects the above 7 issues in a negative sense. It are ‘hidden costs’ that are generated by producers but carried by society as a whole. These  so-called ‘external costs’ are not covered by the price of the products. To counteract the negative spiral of production and consumption, these external costs should be communicated to the consumers, and should become part of the consumer price (e.g. by taxes, governmental regulations, implementation of best practices).

Content

A transition from the industrialized bio-industry to organic farming will reduce the eco-costs of food considerably in E-LCA (E-LCA is the classical environmental LCA, coping with issue 1, 2, and 3). Furthermore, drastic improvement of the social labor conditions in the developing world is required for a sustainable world, as expressed in the s-eco-costs of S-LCA (issue 5). The issue of Soil fertility is new in E-LCA, so data are lacking in standard LCI databases.
Animal wellbeing (issue 6) is obviously an issue in chicken farms and pig farms.
Issue 7 (Consumer health) is about unhealthy components in food like pesticides. It are the so-called ‘internalities’ of products, which differ from the ‘externalities’  in E-LCA. Externalities of products is damage to third parties; internalities is unintended damage to people who buy the products.