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Policy Roundtable Bishkek, September 2015 Session 2: System of Environmental-Economic Accounting Presenter: David Bain Environmental-economic accounting Outline – Session 2 ◦ Part 1. Background – System of National Accounts ◦ Part 2. System of Environmental-Economic Accounting (SEEA) ◦ Part 3. Benefits of an accounting approach “If you can’t measure it, you can’t manage it” Part 1. The System of National Accounts The System of National Accounts (SNA) is the internationally agreed standard set of recommendations on how to compile measures of economic activity in accordance with strict accounting conventions based on economic principles. Developed in the 1930s, gross domestic product (GDP) is the best known measure of macro-economic activity. GDP has also come to be regarded as a proxy indicator for overall societal development and progress in general. However, by design and purpose, it does not measure environmental sustainability or social inclusion. System of National Accounts SOCIETY (THE BIG PICTURE) SNA: Economic production Production boundary But, economic production is only part of our overall interests System of National Accounts There are many important activities that take place which are not economic (outside the production boundary), at least as defined by the SNA Consider: ◦ Unpaid house work ◦ Unpaid care of family ◦ Leisure/exercise System of National Accounts Similarly, there are kinds of activities we want information about that are not regarded as industries in the SNA/ISIC Consider ◦ Tourism ◦ Information technology ◦ Recreation System of National Accounts And, there are ‘assets’ we are concerned about, but as they are not used in production, they have no ‘economic value’ in the SNA Consider: ◦ The air we breathe ◦ The ‘environment’ ◦ Society System of National Accounts The SNA doesn’t directly address these issues, but it does recommend ways to categorize, measure, value and present information that addresses these issues in a comprehensive format that can be linked to SNA concepts: Satellite accounts Satellite account Satellite accounts use the structures and principles of the SNA to look at a wider range of interests other than purely economic SNA System of National Accounts Broadly speaking, there are two types of satellite accounts: •One type involves some rearrangement of central classifications and the possible introduction of complementary elements. • Such satellite accounts mostly cover accounts specific to given fields such as education, tourism and environmental protection expenditures and may be seen as an extension of the key sector accounts. System of National Accounts The second type of satellite analysis is mainly based on concepts that are alternatives to those of the SNA. These include a different production boundary, an enlarged concept of consumption or capital formation, an extension of the scope of assets, and so on. A Satellite Account for the Environment The System of Economic-Environmental Accounts (SEEA) combines aspects of both types of satellite account, e.g. 1. Environment protection expenditure 2. Changes to production boundary 3. Enlarged scope of assets 1. Tourism Satellite accounts are used to examine a wide range of issues SNA 2. Unpaid work 1+2 Environment Part 2: System of Environmental-Economic Accounting (SEEA) European Commission Food and Agriculture Organization International Monetary Fund Organisation for Economic Cooperation and Development United Nations World Bank 2012 SEEA “A country could exhaust its mineral resources, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife and fisheries to extinction but measured income would not be affected as these assets disappeared.“ Robert Repetto, Senior Fellow at the International Institute for Sustainable Development and for the Energy and Climate programs at the United Nations Foundation in Washington. He is one of the world’s leading environmental economists. SEEA Online Training Module Overview, Page 6 / 11 Purpose of the SEEA The effect of human activity on the environment has emerged as one of the most significant policy issues in environmental sustainability. There is growing concern about the effect of economic activity upon the environment and increasing recognition that economic growth and human welfare are dependent upon benefits obtained from the environment: • The SEEA is the first international statistical standard for environmental-economic accounting. • It is a conceptual framework for understanding the interactions between the economy and the environment, and for describing stocks and changes of environmental assets. Is GDP growth sustainable or are we just living off our natural capital? SEEA: Objectives •SEEA provides information that supports sustainable development •The concept of sustainable development is difficult to define…here is the UN definition: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” SEEA Online Training Module Integrated statistics The SEEA was designed to be coherent and complementary with other international standards, recommendations and classifications: • It's based on agreed-upon concepts, definitions, classifications, and accounting rules. • The SEEA provides a structure to compare and contrast source data and allows the development of aggregates, indicators and trends across a broad spectrum of environmental and economic issues. Overview, Page 8 / 11 Environmental statistics Statistics - process of collecting, organising and interpreting numerical data about the world Environmental statistics are often compiled with a legal or administrative purpose Environmental statistics use a number of concepts, methods and classifications ◦ often not well integrated with each another In the past, environmental statistics have some limitations in their ability to inform… SEEA Online Training Module Unit 1, Page 3 / 5 Information silos versus integrated data Linking environmental and socio-economic data through an internationally agreed statistical framework is essential for integrated policy making. Information silos SEEA integrated data • • • • Developed to answer one particular question or problem Difficult to figure out if all information is included Not always easy to see the whole picture, or how it relates to other data • • • Enables analysis of the impact of economic policies on the environment and vice versa Identifies socio-economic drivers, pressures, impacts and responses affecting the environment Supports greater precision for environmental regulations and resource management strategies Supports relevant perspectives on economic development, environmental sustainability and social equity The SEEA Central Framework Until today, the links between environmental sustainability and the economy have been poorly explored. The SEEA provides the framework for reversing the historical ‘information silo’ approach to statistics: It provides international agreed concepts and definitions on environmental economic accounting that allows integration of statistics on the environment and the economy. The concepts and definitions are designed to be applicable across all countries, regardless of their level of economic and statistical development, their economic structure, or the composition of their environment. SEEA places statistics on the environment and its relationship to the economy at the core of official statistics! SEEA Online Training Module Unit 2, Page 3 / 8 Stocks and flows of the SEEA The Central Framework integrates information on the stocks and flows of the economy and the environment. In practice, environmental-economic accounting includes the compilation of physical supply and use tables, functional accounts and asset accounts for natural resources. Stock accounts for environmental assets cover natural resources and land; either in physical (e.g. tonnes of fish) and / or monetary values (e.g. value of fish). Combined physical and monetary accounts bring together physical and monetary information for the derivation indicators, including depletion adjusted aggregates. Flow accounts are supply and use tables for products, natural inputs and residuals generated by economic activities; either physical (e.g. m3 of wastewater) and / or monetary values (e.g. cost of wastewater treatment). Flow accounts are supply and use tables for products, natural inputs and residuals generated by economic activities; either physical (e.g. m3 of wastewater) and / or monetary values (e.g. cost of wastewater treatment). Activity / purpose accounts explicitly identify environmental transactions already existing in the SNA, e.g. environmental protection expenditure (EPE) accounts, environmental taxes and subsidies. Flows Stocks and flows Part 3. Benefits of an accounting approach Why environmental accounts? SNA = SEEA They vary in form and content but have a number of common features: • Production boundary • • Definition of products Territory / residential approach • Organising framework • Defined concepts • Defined data items • Rules for recording data, and in particular agreeing on the treatment of particular difficult issues • Provide a platform for consistent collection, consolidation and presentation of data (i.e. standard tables) SEEA: Benefits of an accounting approach Accounts provide added value: Integrates basic data and understanding of cause/effect from different sources and links to other types of statistics Improves data quality by guaranteeing consistency (checks and balances) Provides policy-makers with coherent time series of data, indicators and descriptive statistics for scenario modeling Implicitly defines ownership and hence responsibility for environmental impacts SEEA Online Training Module Unit 3, Page 2 / 8 Links between SNA and SEEA The SEEA applies the accounting concepts, structures, rules and principles of the SNA to environmental information. Because it uses the same accounting conventions, the SEEA is generally consistent with the SNA: • The measurement boundary to distinguish between physical flows is defined by the production boundary as described in the SNA. • The definition of products aligns with the SNA definition, i.e. those goods and services created through a production process and having economic value. • Also the measurement boundary for physical and monetary flows aligns with the economic territory of a country and economic activity is attributed based on the residence of economic units rather than on the location. SNA = SEEA • • • Production boundary Definition of products Territory / residential approach SEEA Online Training Module Unit 3, Page 5 / 8 Differences - Depletion adjustment Depletion is the decrease of a natural resource due to extraction at a level greater than that of regeneration. Measures of depletion in physical terms can be valued to estimate the cost of using up natural resources with relation to economic activity. Can you imagine how the SEEA and the SNA recognize the change in the value of natural resources attributed to depletion? Drag the headlines to the corresponding approach! SEEA ……………….. • • • Value of depletion is considered to be a cost against income In the sequence of economic accounts, depletion adjusted balancing items and aggregates are defined They deduct depletion from the measures of value added, income and saving SNA ……………….. • • Value of depletion is not recognised as a cost against the income earned by enterprises extracting natural resources It is shown in other changes in the volume of assets account alongside flows such as catastrophic losses and uncompensated seizures SEEA Online Training Module Unit 3, Page 6 / 8 Valuation in the SEEA The SEEA adopts the same market price valuation principles as the SNA and provides guidance on the valuation of renewable and non-renewable natural resources and land: • In monetary terms, the asset boundaries of the SEEA and the SNA are the same. Only assets - including natural resources and land - that have an economic value following the valuation principles of the SNA are included in the SEEA. • In physical terms, the asset boundary of the SEEA is broader and includes all natural resources and areas of land that may provide resources and space for use in economic activity. Environmental assets that have no economic value should be clearly distinguished. Monetary: SNA = SEEA Physical: SNA < SEEA Accounting approach: Why are monetary values important? A single measurement unit is needed to aggregate/compare different benefits and costs Monetary units are a commonly-used decision-making metric What can valuation achieve? 1. 2. 3. 4. 5. 6. raising awareness and mainstream their value into decision-making undertake a full economic evaluation of land use decisions design economic incentive instruments (e.g. payment for ecosystem services) derive total economic value of forests and its contribution to the economy augment SNA estimates (e.g. depletion adjusted, green GDP) calculate improved macro-economic sustainability indicators (e.g. comprehensive wealth, genuine savings) Valuing forests, for example Forest land Forest ecosystem services Forest benefits benefits forests provide for humans = final goods and services that generate utility and alter human welfare values depends on who benefits where variety of beneficiaries ◦ in different sectors ◦ forestry (e.g. logging, wood, etc) ◦ non-forestry (e.g. agriculture, energy, water, tourism, etc) ◦ across different scales ◦ local (e.g. forest land user, downstream municipality) ◦ national (e.g. industries, governments) ◦ global (e.g. international community) Valuing forest services Common International Classification of Ecosystem Services for the SEEA Experimental Ecosystem Accounting Valuing forest benefits 1.direct market benefits: final forest goods & services that can be traded in markets ◦ goods produced for the market (e.g. timber, firewood/charcoal, NTFP) ◦ goods produced for self-consumption/informal exchange (e.g. timber, firewood/charcoal, NTFP) ◦ regulating services with a market price (e.g. through carbon trading/tax, payments for ecosystem services) Valuing forest benefits 2.indirect market benefits contribute to production of market goods and services by other economic activities (agriculture, energy, water, tourism) ◦ non-forest market good (e.g. recreation, information/knowledge) ◦ complementary input in non-forest production (e.g. genetic material, grazing, pollination, water flow/cycle regulation, soil retention) ◦ substitute-input in non-forest production (e.g. grazing, pollination, water flow/cycle regulation, soil retention) Valuing forest benefits 3. non-market benefits: services that do not contribute to market goods and services ◦ cultural benefits (e.g. cultural heritage, local identities, spiritual or religious benefits) ◦ non-use benefits (bequest, altruist and existence values) SEEA Online Training Module Summary, Page 3 / 5 Summary The SEEA is the first international statistical standard for environmentaleconomic accounting. It provides a framework for organizing and linking data so that they can be used to derive broader measures of progress to complement GDP: • • Two other parts of the SEEA are not a statistical standards (SEEA Experimental Ecosystem Accounting, SEEA Applications and Extentions). • The subsystems on water, energy and agriculture maintain close links with the concepts and terminology of the subject areas. • The SEEA applies the accounting concepts, structures, rules and principles of the SNA to environmental information. It is generally consistent with the SNA. • Global implementation is following a flexible and modular approach, aims at establishing technical capacity and recognizes differences in policy issues. SEEA organizes physical and monetary data into combined presentations. • The benefits to policy decision-making are most broadly captured in relation to sustainable development. • The SEEA is reversing the “information silo” approach to statistics and provides indicators that directly respond to the demand of integrated policy-making. Environmental-economic accounting Acknowledgement: The information, slides and graphics in this presentation have been developed by many people in many organisations. Principal contributions have come from the: United Nations Statistical Division World Bank – Global Partnership on Wealth Accounting and Valuation of Ecosystem Services (WAVES) Australian Bureau of Statistics Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) Discussion and questions … and remember, “if you can’t measure it, you can’t manage it”. David Bain, Consultant [email protected]