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Bridging Economy and Environment: Use of Environmental Accounting in Local & Regional contexts Alistair Hunt University of Bath, UK Inter-Regional GROW Conference: Bologna, 20th June, 2007 EU Policy Context Lisbon (economic and social) Gothenburg (environment) Climate change Sustainable transport Public health Resource management Green accounting links economic and environmental objectives Overview of Presentation Green (environmental) accounting Rationale Elements of Green Accounting: Theoretical & conceptual basis Empirical progress in different contexts Conclusions for research and practical applications. Rationale for conventional accounting Measurement of economic activity production = GDP Often used as indicator of welfare Two elements of accounts Changes in Stocks of Capital - Investment Measurement of production/output – Flows - Consumption Standard National Accounts (SNA) framework NNP = C + I – D + X – M Where: NNP = Net National Product C = Consumption I = Investment D = Depreciation X = Exports M = Imports Misleadingly used as measure of welfare: welfare not proportionate to consumption of produced goods Green accounting – rationale “The effect of mankind’s activity upon the environment has been an important policy issue throughout the last part of the twentieth century…. increasing recognition that continuing economic growth and human welfare are dependent upon the services provided by the environment” Source: The United Nations Handbook of National Accounting Integrated Environmental and Economic Accounting Economic – Environmental linkages have implications for meso- and macro-economic management Meso/macro-economic management more responsive to environment if environmental indicators exist Economic activity and environmental impact Elements of Green Accounting - Outline • Environmental services • • • Environmental damages • • Pollution flows e.g air & water quality Defensive (environmental protection) expenditures • • Ecosystem life support systems Landscape e.g. noise reducing windows & IPPC technologies Resource depletion • Non-renewables; renewables Weak and Strong Sustainability Different types of capital: Manmade capital - K Human Capital (Intellectual capital) - H Social capital - SC Natural capital - N Stocks of natural resources including oil, gas forests and fisheries The earth’s life-support system Weak and Strong Sustainability Weak sustainability: The sum of the values of changes in capital stocks must be positive. E.g. the Hartwick rule K H SC N 0 Strong sustainability: Each type of capital stock must be maintained in its own right. K 0, H 0, SC 0, N 0 Empirical progress in Environmental Accounting in different contexts – some evidence UN initiative on Green Accounting – UNSEEA (1993, 2000, 2003) System of integrated Environmental and Economic Accounting (SEEA) – complements SNA method for measuring economic activity Adds environmental information to existing Input-Output economic data Physical stock and flow tables Hybrid (physical & monetary) stock and flow tables Methodological guidance on resource depletion, degradation, defensive expenditures Physical & monetary stock and flow tables Often known as NAMEAs (National Accounting Matrix including Environmental Accounts). Physical flow accounts include four types of flow: products (produced in the economic sphere and used within it), natural resources (mineral, energy, biological), ecosystem inputs (air and water) and residuals (solid, effluent, emissions). Each of these accounts is expressed in terms of supply to, and use by, the economy. i.e. tables represent the flows between the economy and the environment. Simple hybrid supply and use table – Use in RAMEA/NAMEA An indicator of weak sustainability: genuine savings Genuine Savings = monetary savings less the depreciation on manmade capital less the depletion of natural capital. (From S = Iv identity) Value of changes in economy’s overall capital stocks. Negative genuine saving corresponds to unsustainability, since if depleting capital stock, can receive lower welfare from it in future Genuine Savings rates low or negative for SubSaharan Africa and for Middle East and North Africa. Assumes all capital is substitutable Genuine savings for Tunisia, as % of GDP The Index of Sustainable Economic Welfare (ISEW) ISEW (Daly and Cobb (1989)) current welfare should be measured as the current flow of services from all sources, rather than current output of marketed goods E.g. value for leisure time to correct for the fact that welfare could increase while NNP decreases if people choose to work less; higher incomes of urban residents are compensation for externalities connected with urbanisation and congestion, proportion of income should not be included as welfare The Index of Sustainable Economic Welfare (ISEW) ISEW = Consumption + Investment + Extra-Market services + Consumer Durables Services + Services of Roads + Public Health & Education – Consumer Durables Expenditure – Private Defensive Expenditure on Health /Education – Advertising – Commuting costs – Pollution costs – cost of loss of ecosystems – resource depletion costs – Long term environmental damage Applications at national level: UK, Sweden, Netherlands, Italy, Poland, Austria Applications at local level: Siena (Pulselli et. al. 2006) Problem – mixes sustainability and welfare issues in single measure Index of Consumption Corrected for Environmental Damage (ICCED) - EC Greensense project ICCED developed: to demonstrate how well-being changes over time if sustainability standards imposed and effects of environmental damage are accounted for. corrects for environmental damage and expenditure incurred under sustainability policies (similarities with local EcoBudget initiatives e.g. Roma) Sustainability targets analysed under the GREENSENSE project Environmental Impact Weak Sustainability Air pollution Invest the value of damage to capital Current legislation with Emission Ceilings stocks due to air pollution. Climate Change Invest the NPV of the cost of current 550 ppmv by 2120 carbon emissions ($4/tonne current estimate) Invest the value of damage to capital Natura 2000 network to be preserved stocks due to biodiversity loss No further wetland loss or degradation 15% of agricultural area under management contracts No further deterioration of natural and seminatural forests Energy: Invest % of resource rents 12% energy from renewables by 2010 Invest value of future price Increases Forestry: Invest value of future price increases Invest the value of damage to capital Concentration levels of lead and cadmium stocks due to Toxic substances given in EU Directives Not applicable since only current Not applicable since only current welfare welfare impacts impacts Biodiversity Natural resources Toxic Substances Urban Environmental Problems (Noise) Waste Water Pollution Invest the value of damage (e.g. land converted for landfill) due to waste Invest the value of any decline in water resource stocks. Intermediate sustainability target Strong sustainability target Medium Ambition GAP Closure Emission Ceilings / Maximum Technical Feasible Solution 450 ppmv by 2120 + 20% of all land to be preserved in natural condition 16-19% energy from renewables by 2010 (current estimate) Future steady-state concentrations of lead and cadmium Not applicable since only current welfare impacts Landfill max. 35% of household waste; Land space availability Recycle 25% Satisfaction of the EC Water Framework Satisfaction of the EC Water Framework Directive Directive Greensense: Environmental impacts on welfare (UK) Total environmental Impacts Air Pollution Biodiversity Resource Extraction Toxic Substances - dioxins Toxic Substances - heavy metals Noise Waste Water Pollution Total Billions of (2000) Euros 1990 1998 24 13 -0.174 Intermediate Strong Sust. Target Sust. Target 2006 2006 6.6 5.5 -0.044 (.19) 0.5 1.8 0.06 2 (.18) 0.4 0.04 2.6 (.23) 0.2 25 17 9 0.3 2.6 0.2 8 Greensense: ICCED Measures - UK Per capita (2000) Euros UK 1990 GDP 13238 Final Consumption Expenditure 10910 Env. Damage Env Damage as % Consumption Env Damage as % GDP Avoidance cost ICCED 426 3.91 3.22 Intermediate Target 1998 2006 22398 29523 18563 25313 294 1.58 1.31 Strong Target 2006 29523 25313 161 0.64 0.55 143 0.56 0.48 0.2 25151 0.2 25170 Summary of Empirical initiatives NAMEA: includes environmental issues within standard accounting framework Genuine savings – sustainability-related decision rule ISEW – broader interpretation of welfare ICCED – includes welfare effects of meeting sustainability targets Conclusions on Green Accounting Recognition of need to address both current welfare and sustainability issues from macro-perspective National and international initiatives (e.g. UN SEEA, 2003) are developing improved methodologies Variety of initiatives reflects lack of consensus on priorities and methods Local applications of methods can reflect regulatory responsibilities but may be difficult to define sustainability at this scale? Applications very data-hungry and modelling intensive