<p>Robert Rubin, chairman of the Citigroup Inc., executive committee, speaks to reporters in New York on March 22, 2004.  Photographer:  Daniel Acker/Bloomberg News</p>

Robert Rubin, chairman of the Citigroup Inc., executive committee, speaks to reporters in New York on March 22, 2004. Photographer: Daniel Acker/Bloomberg News

Robert Rubin, the former Treasury secretary and one-time chairman of Citigroup Inc.'s executive committee, has put forth an odd idea for new accounting standards. Speaking last week at a conference on climate change, he said that companies should be required to include environmental costs that they impose on the rest of society as expenses in their own earnings reports.

Here's the relevant excerpt from Rubin's comments last week, as reported by Bloomberg News:

The key to this is really the political system. If you had accounting rules that result in the externalities [i.e., the costs of greenhouse-gas emissions] being captured in financial statements, then obviously people would react.

It’s not a carbon price issue, it’s an accounting issue: ‘I run a business. I emit. I don't pay the price for the emissions. I produce the good. I sell it. I don't care about the emissions because it's not my cost. It's society’s cost.’ That's an externality.

[Once] you have accounting standards that require you to reflect that cost in your reported earnings, then it becomes something that every analyst is going to look at and evaluate in your stock.

The problem with this proposal is it makes no sense. A company that emits greenhouse gasses may very well harm the world at large. However, if the emissions aren't creating a cost for the company itself, there is no incremental expense for it to report on its financial statements.

You can't just make up numbers (at least you're not supposed to) and put them on a company's income statement and call it an expense if the company isn't incurring any costs or otherwise making any economic sacrifice. Accounting isn't supposed to be about moral judgment or electoral politics. The purpose is to provide information about a business's financial performance.

Changing the accounting standards the way Rubin suggested would require an overhaul of the Financial Accounting Standards Board's definition of the term "expenses." Here's how the FASB defines it now: "Expenses are outflows or other using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations."

Back in 2008, when Rubin was at Citigroup, the U.S. Comptroller of the Currency sent Citigroup a letter pointing out all sorts of shortcomings with the valuation model that the bank was using for the subprime mortgage bonds on its books. Now Rubin would have companies come up with expense figures for greenhouse-gas emissions out of thin air to include in their earnings. If Citigroup had so much difficulty figuring out the value of its collateralized debt obligations, you have to wonder how it would determine the total cost of pollution that Citigroup causes around the world every year.

One final note: Rubin was talking about changing the accounting standards, not the tax code. My guess is that most companies would love to be able to make up whatever numbers they want for emissions expenses and use those figures as deductions for tax purposes on their Internal Revenue Service filings.

For that matter, so would I. At least we can dream.

(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)