Sustainable National Income (SNI)
Onno Kuik (email@example.com)
SNI assesses the distance between the present and the sustainable level of production and
consumption. SNI represents the maximum level of economic activity that can be
developed within an accounting period that respects the sustainability standards. All the
costs that need to be made to meet the standards of pollution and resource use in order to
prevent the sustainability standards to be exceeded, irrespective whether they are to be
made by industry, government or households, are considered to be intermediary
expenditures and should therefore not count as income. To put it simply, SNI is the
difference between standard national income and the expenditures that need to be made
to respect the sustainability standards.
In Hueting’s approach to sustainable income accounting, a sharp distinction is made
between objectively determinable sustainability and the sustainable use of environmental
functions on the one hand, and society’s subjective preferences for such a use on the
other hand. Environmental functions can be defined as the set of possible uses of the
biophysical environment. If the use of one function is at the expense of other functions or
of its own future use, the function is scarce, i.e., its use entails an opportunity cost—a
“price” (Hueting, 1974). Sustainability requires such use of environmental functions as to
assure their indefinite availability. Note that this definition of sustainability does not
necessarily require the conservation of all environmental assets. If an environmental
function can be performed by several environmental assets, substitution between these
assets is allowed in principle. For example, the function “resources for energy
production” can be performed by fossil energy resources such as coal, oil and gas, but
also by renewable energy resources such as solar, wind, and hydro. For a sustainable use
of the function “resources for energy production” the depletion of the stock of one kind
of asset (e.g., oil) is no problem as long as its depletion is accompanied by an equivalent
increase in the stock of substitute assets (e.g., solar).
Is sustainability, i.e., the sustainable use of environmental functions, desirable? Does
society want to preserve all environmental functions indefinitely at all costs? The answer
to these questions can only be given on the basis of society’s subjective preferences for
the use of environmental functions. Hueting stresses the point that, in general, society’s
subjective preferences for environmental functions and therefore its “demand” for these
functions is not (completely) observable. It is difficult to derive individual preferences for
environmental functions based on observed behaviour. There are no markets for
environmental functions. Although some information on the demand for environmental
functions can be inferred from defensive expenditure and financial damage, this
information is incomplete and often does not address the most vital functions such as the
This paper has been written for the Overview of Advanced Tools for Sustainability Assessment of the
“Sustainability A-Test” project of the European Union, DG Research, see http://ivm5.ivm.vu.nl/sat/ (6
functions of the life-support systems of our planet. Alternative valuation techniques such
as contingent valuation are not very accurate and are not always applicable. Moreover,
none of these techniques can provide reliable data on society’s preferences for a liveable
environment for future generations. In a word, whether or not we want to become
“sustainable” is not known. Hueting therefore makes assumptions on preferences. He
strictly separates the “objective” concept of sustainability (the indefinite availability of
environmental functions) from the question whether or not society really wants to achieve
such sustainability (Hueting and Reijnders, 1998).
Given the lack of knowledge of subjective preferences, SNI shows the correct measure of
national income only if one assumes that society’s preferences for the sustainable use of
the environment are absolute, i.e., independent of their costs. Hueting argues that there
are as many green national incomes as there are assumptions on subjective preferences
for environmental services. These subjective preferences include preferences for future
availability of environmental functions, thus affecting the discount rate at which future
benefits and costs are assessed. This situation will persist as long as we are unable to
correctly measure subjective preferences for the current and future use of environmental
functions. In this unfortunate situation it is necessary to be explicit about one’s
assumptions. Sustainable National Income represents the maximum level of income that
can be derived from thát level and composition of economic activity that leaves
environmental functions available, now and in the future, given the state of technology in
the year of reporting. Whether Sustainable National Income, thus defined, correctly
measures welfare or utility is another question altogether. An important assumption is
that society’s preference for the sustainable use of environmental functions is absolute,
i.e., independent of the cost of achieving this sustainable use. Hueting stresses the point
that this assumption cannot be accepted or refuted on empirical grounds. Another
important issue regards the role of future technological improvement in the efficiency of
use of environmental resources. Hueting, deliberately, does not take this factor into
account. He acknowledges that such future technological improvement could in principle
lessen the tension between economic growth and environmental degradation, but he does
not want to speculate on it. In fact, he is sceptical on the chances that as yet not
implemented an unknown technology can safeguard the environment for future
generations in the face of ever-increasing population and production (Hueting, 1996).
SNI assesses the distance between the present and the sustainable level of production and
consumption, given today’s technology. When the calculation of SNI is repeated in later
years it can be assessed whether technological improvement has indeed reduced this
Hueting further assumes that conditions for the sustainable use of environmental
functions can be determined by science and can be expressed in the form of physical
standards. The sustainability standards should be in the form of “no more pollution
should be allowed than can be naturally assimilated by the environment”, or “so many
fish may be caught that the catch is maximal but sustainable” and consequently does not
deplete the stock (Hueting and Reijnders, 1998). SNI is directly dependent on the
sustainability standards. When there is large scientific uncertainty on the maximum
sustainable use of environmental resources, there will be a corresponding uncertainty
in the estimated SNI.
SNI assesses the maximum level of economic activity that can be developed within an
accounting period that respects the sustainability standards. The diagram in Figure 1
illustrates this idea in a simplified way.
Figure 1 Demand and supply of environmental functions. Source: Hueting et al. (1995).
s = supply curve or elimination cost curve
d = incomplete demand curve based on individual preferences (revealed from
expenditures on compensation of functions and on restoration of physical
d’ = approximate demand curve based on assumed preferences for
BD = distance that must be bridged in order to arrive at sustainable use of
EF = costs of the loss functions, expressed in money.
The X-axis depicts the level of an environmental function, e.g., the cleanness of air, the
integrity and size of natural habitats, the stock of fish in the sea, all expressed in physical
dimensions. The Y-axis depicts money. Curve s is the supply curve for the environmental
function or the elimination cost function. It shows the costs of sustaining a certain level
of the environmental function. The part of the social demand curve for the environmental
function that can be observed is d. This curve is based on individual preferences revealed
from expenditures on compensation of functions and resoration of physical damages and
is obviously incomplete. Hueting et al. (1995) argue that a complete demand curve for
environmental functions, based on individual preferences, cannot be determined. Many
governments, however, including the Dutch, have adopted ‘sustainable development’ as
official government policy. If this is taken seriously, one may assume that society has
collectively expressed an absolute preference for the preservation of (certain)
environmental functions. This absolute preference is depicted in the assumed ‘collective’
demand curve d’. Demand for an environmental function is then equal to the
sustainability standard, and it is completely inelastic. Now assume that the present level
of the environmental function on the X-axis is B. To reach the sustainable level at D,
elimination costs of the magnitude of EF have to be made. If this exercise is repeated for
all environmental functions that have to be sustained, then the sum of all EF’s is the
money-difference between the standard national income and the SNI.
In the SNI approach cost-effectiveness or elimination cost curves play a central role. A
cost-effectiveness curve indicates the relationship between the level of an environmental
function and the social costs that are needed to restore and maintain this level. In the SNI
methodology costs can accrue from two different sets of actions. The first set of actions
comprise technical measures to reduce pollution from a given economic activity. These
technical measures can be ‘end of pipe’ measures, process changes, or the development
of alternatives for non-renewable resources. Abatement cost functions for the depletion of
fossil fuels, climate change, depletion of the ozone layer, acidification, VOCs,
eutrophication, zinc emissions, photochemical ozone, aridification, and local soil
pollution have been estimated (Dellink et al., 1997). The second set of actions comprise
volume reductions in the burdening or extracting economic activities themselves, under
the condition of constant employment. In a macro-economic or general equilibrium
framework such volume reductions would amount to structural shifts in the sectoral
composition of an economy - that is a shift away from environment burdening towards
The measures from one or more of these sets of actions will typically affect more than
one sector of the economy, and possibly all. The effects of the implementation of
technical measures and sectoral shifts on the level of national income should therefore
preferably be evaluated in an integrated multi-sector framework (Hueting and De Boer,
2001; Zeelenberg et al., 1997).
Gerlagh et al. (2002) built an applied general equilibrium model for the Netherlands with
elimination cost curves and sustainability standards for various environmental themes by
which such an integrated assessment could be carried out.
The SNI is computed by an applied general equilibrium model (the SNI-AGE model) in
which the ‘sustainability standards’ act as restrictions on the feasible set of solutions. The
model contains detailed abatement cost curves for environmental themes. The difference
or “gap” between SNI and conventional NNI measures the dependence of the economy
on that part of its natural resource use that exceeds the sustainable exploitation levels.
The gap between SNI and NNI is therefore an indicator of the extent of unsustainability
of an economy
To compute the SNI, one needs the SNI computer model with a set of environmental
restrictions and abatement cost curves, a dataset with economic and environmental
(NAMEA) data for a particular country and year, a set of sustainability standards.
4.1 Evaluation results
The SNI method gives an ex-post assessment of the economic performance of an
economy over a time period of a year. Aspects of sustainable development that are
included are economic performance and environmental damage and resource depletion. It
calculates the hypothetical national income that would have been achieved if the
economy had respected the sustainability standards.
The sustainability standards presently incorporated in the SNI-AGE model refer to nine
environmental themes (see Table 1). For sustainability – it is assumed – individual
environmental pressures should be reduced by a range from 46 percent (fine particles in
air) to 100 percent (dehydration, soil contamination). The SNI model contains detailed
information on abatement technology for each environmental pressure with respect to
effectiveness as well as costs. There are, however, limits to the extent to which abatement
technology can be employed cost-effectively. For example, to meet the sustainability
standard for the greenhouse effect, about 45% of the required reduction can be achieved
through technical measures in various sectors of the economy, while the remainder
should be reduced through changes in the size and composition of the economy (Gerlagh
et al., 2002).
Table 1 Sustainability standards for the Netherlands, 1990
Unit Base 1990 Sustainability
Greenhouse effect bln kg CO
-eq. 251 53 79%
Ozone depletion mln kg CFC11-eq. 10.4 0.5 94%
Acidification bln Acid eq. 38.4 10.0 74%
Eutrophication mln kg P eq. 312 128 59%
Fine particles in air mln kg PM10 440 240 46%
Smog formation mln kg NMVOS 44 20 55%
Dispersion to water bln AETP eq 194 73 62%
Dehydration % affected area 100 0 100%
Soil contamination # contaminated
600,000 0 100%
Source: Gerlagh et al., 2002.
SNI-AGE can also calculate the consequences to sustainable national income of
alternative economic scenarios. It is therefore able to be of use for prospective, ex-ante,
assessments of the sustainability impacts of economic developments.
Sustainable National Income for the Netherlands has been calculated for 1990, 1995 and
2000 (Gerlagh et al., 2002; Hofkes et al., 2004). The calculations show that sustainable
national income would be about 56 percent below conventional national income (NNI) in
the year 1990. The reduction of greenhouse gases is responsible for the bulk of the
income loss. The trend analysis of Hofkes et al. (2004) shows that the relative gap
between NNI and SNI has decreased in the Netherlands over the period 1990 to 2000, but
that the absolute gap over the same period has increased by 13 billion Euro. Hofkes et al.
(2004) decompose the changes in SNI over the period 1990-2000 in scale, composition
and technique effects. The technique effect (the emission intensities of economic
activities) has contributed most to the relative increase in SNI over that period and
prevented a further increase of the absolute gap between NNI and SNI.
The SNI-AGE model makes use of NAMEA data, abatement cost curves, and
4.4 Strengths and weaknesses
The main strengths of the SNI method are its clear and comprehensive measure of
sustainability that is not dependent upon estimates of subjective preferences for
environmental quality, and its robust general equilibrium methodology that takes account
of all interdependencies and feedbacks between one the one hand the economy and the
environment and on the other hand between various alternative environmental themes.
The SNI-AGE model is complex and needs highly skilled personnel to operate and
maintain it. The formulation of the sustainability standards is difficult, but once obtained,
several standards may be transposed to other countries. For the general public, the
methodology (the applied general equilibrium model) may be difficult to
4.5 Further work
It would be interesting to test the SNI-AGE model for other countries inside and outside
the EU. Another interesting direction would be to use SNI-AGE for an ex-ante
assessment of alternative socio-economic development paths.
Dellink, R., F. van der Woerd, B. de Boer (1997). Kosteneffectiviteit van milieuthema’s (Cost
Effectiveness of Environmental Problems, in Dutch), Institute for Environmental Studies,
Vrije Universiteit, Amsterdam.
Gerlagh, R., R. Dellink, M. Hofkes, H. Verbruggen (2002). A Measure of Sustainable National
Income for the Netherlands, Ecological Economics, 41, 157-174.
Hofkes, M., R. Gerlagh, and V. Linderhof (2004). Sustainable National Income: a trend analysis for
the Netherlands for 1990-2000. IVM Report R-04/02, Institute for Environmental Studies,
Vrije Universiteit, Amsterdam.
Hueting, R. (1974). Nieuwe Schaarste en Economische Groei, Amsterdam. Published in English as
New Scarcity and Economic Growth, North-Holland, Amsterdam (1980).
Hueting, R. (1996). Three Persistent Myths in the Environmental Debate, Ecological Economics, 18
Hueting, R., P. Bosch, B. De Boer (1995). The Calculation of Sustainable National Income, IDPAD
Occasional Papers and Reprints, The Hague/New Delhi.
Hueting, R. and L. Reijnders (1998). Sustainability is an Objective Concept, Ecological Economics,
27 (1998) 139-147.
Hueting, R. and B. de Boer (2001). Environmental Valuation and Sustainable National Income
Accoding to Hueting. In: E.C. van Ierland, J. van der Straaten and H. Vollebergh, Economic
Growth and Valuation of the Environment, Edward Elgar, Cheltenham, UK/Northampton,
Zeelenberg, K., B. de Boer, R. Brouwer (1997). Sustainability in Growth Models, Statistics
Netherlands, Research Paper no. 9744, Voorburg.