1. Introduction

The growing global emphasis on sustainability, climate risk, and the energy transition, which can drastically shorten the economic life of fossil fuel and mineral reserves, demands more accurate and forward-looking financial reporting in extractive industries [1]. Under traditional accounting (e.g., U.S. GAAP or IFRS), resource extraction profits are largely treated as current income without fully recognizing the diminution of the underlying natural asset base[2]. For example, depletion is often recognized via units-of-production amortization or tax-based percentage depletion allowances, which allocate historical costs but do not reflect the economic loss of finite resource wealth. As a result, a mining or oil company might appear profitable while it is effectively liquidating its resource assets, potentially misleading stakeholders about long-term sustainability [3][4]. The consequences of ignoring resource depletion are becoming more severe in an era of potential “peak oil” [3] and rapid climate-policy shifts that could strand fossil fuel assets (e.g., unburnable carbon) well before physical exhaustion [4]. Prior research in green national accounting and “genuine savings” has demonstrated that standard profit measures overstate sustainable income when resource depletion and environmental degradation are ignored. For instance, Hartwick’s rule [5] showed that if all rents from exhaustible resources are invested in reproducible capital, consumption can remain constant indefinitely, a theoretical underpinning for sustainability in an economy with depleting resources. Hamilton [6] extended these ideas by calculating changes in wealth per capita including natural capital, demonstrating that many resource-rich countries were experiencing declining wealth when proper adjustments were made. This mirrored earlier concerns by Daly [7], who argued that genuine sustainable development requires reinvestment of resource rents into forms of wealth that can support future well-being. These insights underscore that treating resource windfalls as pure income is dangerous; some portion must be set aside to preserve future capacity. This paper proposes and discusses a user cost accounting framework for extractive industries, a value-based approach initially inspired by Keynes [8] and developed by El Serafy [9], to address these shortcomings in corporate financial reporting. Under the user cost concept, only a fraction of extraction revenue is treated as true income, with the remainder set aside to invest in replacement capital, thereby maintaining the productive base of the firm or economy [10]. In essence, user cost accounting treats a portion of resource revenue analogously to a depreciation charge on natural capital [11]. This idea operationalizes Hicks’s definition of income (the amount one can consume without reducing future capacity) for non-renewable resources: part of the resource rent must be preserved to secure future income streams [12]. We build on these foundations and extend them to modern corporate accounting, including not only natural resource depletion but also climate constraints and social impacts.

Our contributions are both conceptual and practical, and can be summarised as follows:

• Critical Review of Conventional vs. Sustainable Accounting: We review the limitations of traditional accounting methods for depletion and contrast them with the sustainable income concept. We bridge academic and professional discourse to ensure our framework is practical, not just theoretical. We clarify the theoretical underpinnings of user cost and sustainable income, and show mathematically how user cost accounting can be integrated into financial reporting.
• Reinvestment Scorecard Development: Building on new case studies, we propose a quantitative Reinvestment Scorecard with concrete metrics and thresholds [13]. This scorecard evaluates how effectively an extractive company is reinvesting resource rents into sustainable assets or diversification. We define benchmarks for “High”, “Moderate”, and “Low” performance on key indicators (e.g., the percentage of CapEx in renewable or alternative projects, reserve replacement ratio, carbon intensity improvements).
• Introduction of Sustainability-Weighted Discount Rates (SWACC): We refine the user cost formula by examining the choice of discount rate [14]. Traditionally, the firm’s cost of capital (a private discount rate) is used, but we introduce a Sustainability-Weighted Cost of Capital (SWACC) that blends the corporate WACC with a lower “social” discount rate via a factor λ (lambda). We explore how λ can be dynamically adjusted over time based on reserve depletion profiles or external policy changes. For example, as reserves dwindle or as carbon budgets tighten, λ can be increased to place more weight on the social rate, thus increasing the user cost charge to reflect greater emphasis on sustainability.
• Dual Financial Reporting, Conventional vs. Sustainable Accounts: We translate the theoretical framework into a dual reporting format. Using Freeport-McMoRan’s 2023 financial data as an illustrative case, we construct side-by-side income statements and balance sheets under (A) traditional accounting and (B) sustainable accounting with user cost. This tangible illustration shows, line by line, how revenue, expenses, and profits would be adjusted. In our sustainable version, we introduce a “User Cost (Natural Capital Depreciation)” expense that reduces the recognized income. We also show how the accumulated user cost is carried on the balance sheet as a form of replacement reserve fund rather than being paid out or consumed.
• Carbon Budget Accounting Extension: We extend the framework to address climate change by developing a carbon budget depletion accounting method. We treat a company’s allowable emissions (under a given climate target) as a finite resource akin to a mineral reserve. Using Science Based Targets initiative guidance and climate models, we illustrate how a carbon-intensive company can calculate its total carbon budget (e.g., the total CO₂ it can emit from now until 2050 under a 1.5°C scenario) and then allocate an annual “carbon depletion charge” as it emits [15]. We provide a case example with an illustrative depletion schedule for Anglo American’s operational emissions, given its net-zero commitments by 2040 [16].
• Incorporating Human and Social Capital Costs: Recognizing that sustainable income must also account for human and social dimensions, we propose an extension of the user cost paradigm to human and social capital [17]. Extractive operations can degrade human capital (through worker injuries, skill depletion) and social capital (through community impacts and conflict). We outline how companies might estimate a Human Capital User Cost (e.g., based on training investment needed to offset workforce turnover or lost productivity from injuries) and a Social Capital User Cost (e.g., based on community investments needed to offset social impacts or the economic cost of social conflicts). While these are more challenging to quantify than natural capital depletion, we provide illustrative approaches to include these costs in the sustainable income framework.
• Implementation Tools, Blockchain and Data Transparency: To support practical adoption, we explore how emerging technologies can facilitate trustworthy reporting of sustainable income. We discuss blockchain-based ESG data tracking systems that provide an immutable record of production, emissions, and reinvestment data [18][19]. We highlight a real pilot [20] where multiple mining companies and stakeholders share ESG data via decentralized identities and data trusts, enhancing verification while preserving privacy. These approaches can build stakeholder trust in the new accounting measures by ensuring verifiability (countering greenwashing) and proper use of funds earmarked for sustainability.
• Policy Implications and Key Recommendations: We examine the policy and standard-setting implications of our framework [21]. Regulators and accounting standard-setters aiming to strengthen sustainability reporting can draw on these concepts for new guidelines. We offer specific actionable recommendations, summarised in a “Key Policy Recommendations” section, such as mandating a supplemental “Statement of Resource Earnings and Reinvestment” in financial reports, or providing tax incentives for reinvesting in renewable capital. We align our suggestions with current regulatory trends (e.g., the SEC’s climate disclosure proposal [20] and the EU’s CSRD) to demonstrate feasibility. By prioritizing the top two to three measures, we provide a roadmap for policymakers to drive adoption of sustainable income accounting.

Overall, our paper integrates theory, empirical analysis, and practical guidance to argue that user cost-based sustainable income reporting can enhance transparency and long-termism in extractive industries.