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Full-Cost Accounting

Accounting method — instantiates Rebound-Aware Efficiency Governance

Pulls the upstream, downstream, social, and environmental costs an efficiency decision leaves off-ledger back onto it — so the choice is judged on its full resource burden, not just the metered operating bill.

Full-Cost Accounting widens the ledger. It takes the costs an efficiency decision normally leaves off the books — upstream production burdens, downstream disposal, social and environmental harms, indirect and induced resource use — and brings them onto the decision account, so the choice is judged on its full burden rather than the narrow operating bill. In this archetype its job is to expose the burden-shift and rebound that a single-metric efficiency claim hides: a device cheaper to run may carry a heavy embodied cost or push resource use upstream, and an on-ledger operating saving can mask an off-ledger increase. Its distinctive move is internalization — converting external costs into entries a decision-maker actually sees and weighs — which is what separates a real total from an efficient-looking fragment. It works in the language of the decision ledger: costs, brought on-book.

Example

A logistics firm is choosing more fuel-efficient delivery vehicles and is about to approve them on the operating fuel saving alone. A full-cost account adds the columns that decision omits: the embodied energy and materials of building the vehicles (and, for the electric option, the battery), the upstream resource draw of the electricity or fuel that powers them, the end-of-life disposal and recycling burden, and the social cost of the emissions still produced. Assembled, the account shows the efficient fleet is still a net improvement — but far less of one than the fuel-bill saving implied, because a large slice of the burden simply moved upstream into manufacturing and energy supply. The approval now rests on the whole resource cost rather than the slice that happened to be metered on the operating line.

How it works

The method is a boundary expansion of the account. It enumerates the cost categories a conventional ledger externalizes — upstream, downstream, social, environmental, lifecycle, risk — assigns each a value, and folds them into the same decision account as the direct operating costs, so trade-offs are made against a common total. Its leverage and its danger both live in two choices: which externalities are admitted to the ledger, and how each is valued. Done honestly it turns a hidden burden into a visible one; done loosely it lends a spurious precision to numbers that are really judgments.

Tuning parameters

  • Cost boundary — which externalities are admitted. A wide boundary catches burden-shift; a narrow one quietly re-externalizes the inconvenient costs.
  • Valuation method — market proxy, avoided-damage cost, or shadow price. Each answers "what is this harm worth?" differently, and the choice can swing the total.
  • Monetization vs multi-criteria — collapse everything to money, or keep some effects in their own units. Money enables clean trade-offs but invites false precision on the unpriceable.
  • Discount rate for future harms — how heavily distant costs are weighted. A high rate makes long-run environmental burdens nearly vanish.
  • Attribution rules — how shared and indirect burdens are apportioned to this decision versus others.

When it helps, and when it misleads

Its strength is that it stops rebound and burden-shift from hiding off the ledger: it makes externalities decision-relevant and gives a common denominator for otherwise incomparable trade-offs. Where a decision is about to be made on a conveniently narrow cost, it is the corrective that restores the missing columns.

It misleads whenever the unpriceable gets priced. Putting a dollar on a life, an ecosystem, or a distant harm invites both false precision and manipulation,[1] and because the boundary and the valuation each move the answer, the method can be steered to almost any conclusion. The classic misuse is to choose the boundary and the valuations that justify the decision already made — an audit run backwards. The discipline is to make boundaries and valuation choices explicit, run sensitivity analysis over the contested numbers, and keep the most uncertain effects visible in physical units rather than laundering them into a single figure.

How it implements the components

  • externality_register — the core: an explicit register of the social and environmental costs pulled from off-ledger onto the decision account.
  • embodied_and_indirect_resource_account — it accounts the upstream and indirect resource burdens — embodied energy, materials, induced use — as costs the decision must carry.

It does not model the *physical lifecycle flows scenario-by-scenario — that is Comparative LCA Model, whose physical burdens this method monetizes — and it sets no corrective price; that is Price Incentive Adjustment.*

References

[1] An externality is a cost (or benefit) of an activity borne by parties who are not part of the transaction. Internalizing it — the aim of full-cost accounting and of a Pigouvian price alike — depends on valuing it, and the honesty of the exercise stands or falls on how transparently that valuation is made. ↩