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12/11/2013 Framework for Green National Accounts in India Rakesh Kumar Maurya Director 2‐12‐2013 Social Statistics Division Central Statistics Office National Statistical Organization Ministry of Statistics & Programme Implementation New Delhi Environmental and Natural Resource Accounting in India p g stage. g is in developing The entire process of Environmental and Natural Resource Accounting involves 3 steps: ◦ Physical Accounting ◦ Monetary Valuation and ◦ Integration with Economic Accounting. d tto d l sector‐wise t i uniform if th d l ◦ IIn order develop methodology for Natural Resource Accounting, the Ministry commissioned 8 studies on NRA to specialized institutes. 1 12/11/2013 A Synthesis Report based on 8 studies has since been prepared under the guidance of a Technical Advisory Committee (TAC) to recommend sector wise methodology for h d l f environmentall accounting. The TAC recommended the preparation of a National Accounting Matrix that would include environmental accounts. Subsequently, in accordance with the direction of Hon’ble Prime Minister, Minister an Expert Group under the Chairmanship of Professor Sir Partha Dasgupta, Emeritus Professor, University of Cambridge, UK was set up in 2011 to develop a framework of green national accounts and prepare a roadmap for India to implement the framework. The Group held three meetings. The Group submitted its Report in March, 2013. 0 3. An International Workshop was held during 5‐6 April, 2013 in New Delhi to discuss the Report. The Workshop was inaugurated and the Report unveiled by Hon’ble Prime Minister 2 12/11/2013 Chapter 2 of the report and its appendices deal with the conceptual foundations of National Accounts. The conceptual framework lays out the conditions for sustainability under the assumption that information is not a serious constraint for evaluating and aggregating the diverse elements that compose an economy. It provides an outline for what would ideally be needed for a comprehensive set of national accounts. The Report’s central conclusion is that, adjusting for the population, the coin on the basis of which economic evaluation should be conducted is a comprehensive notion of wealth (adjusted for the distribution of wealth in the economy) and not on GDP and nor on the adhoc indicators of human well‐being such as HDI. In terms of wealth, it can means that “the social value of an economy’s stock of capital assets, comprising ◦ Reproducible Capital (commonly known as “ manufactured capital”: roads, ports, cables, building machinery, equipment and so forth) ◦ Human Capital (population size and composition, education, health), and ◦ Natural Capital (ecosystem, land, sub‐soil resources and so on ) In particular, Changes in the circumstances of an economy should be judged on the basis of their effect on the economy’s wealth per capita, adjusted for the distribution of wealth. In other words, wealth per capita tracks intergenerational well‐ being averaged across the generation exactly: the former increases over a period of time if and only if the latter increase over that same period of time. 3 12/11/2013 “Intergenerational well‐being” means that a numerical index of the well‐beings of present and future people; and by sustainable development. In other words, Economic development is sustained over a period of time if during the period intergenerational well‐being does not decline. Appendix 4 of the report shows that there is a close connection between intergenerational well‐being and wealth and that shadow prices provide the link. Its means that wealth and intergenerational well‐being track one another: if any brief interval of time wealth increases if and only if intergenerational well‐being increases. [Proposition 1 of the report] In other words, an economy’s development is sustainable over any brief interval of time if and only if its wealth increases over the interval. [Proposition 2 of the report] In Appendix 5, the report shows that neither GDP nor HDI reflects an economy wealth i.e., neither GDP per head nor HDI can serve effectively in economic evaluation by stating that “Wealth is the appropriate criterion in both sustainability and policy analyses.[Proposition 4 of the report] By considering the wealth per capita as the sustainability and policy criterion, the Proposition 4 can be restated as “Intergenerational well‐being averaged over the generations increases over a period of time if and only if per capita net aggregate investment over the period is positive”. [Proposition 7 of the report]‐ prove given in the Appendix 4 (section A 4.5) 4 12/11/2013 Proposition 6 hints the possibility that Net Domestic Product (NDP) is a significant statistic in economic evaluation. NDP=GDP‐ capital depreciation That means in a closed economy NDP =consumption +net aggregate investment (value of net changes the economy’s capital assets) Therefore Proposition 2 can be recast as Proposition 8 “I “Intergeneration t ti well‐being ll b i averaged d over th the generations ti increases over a brief interval of time if and only if aggregate consumption per capita is less than net domestic product per capita. Propositions 7 and 8 embody the ethical significance of net domestic product. That means consumption per head must not exceed NDP per head if development is to be sustainable. Therefore proposition 2 and 8 reveals the connection between an economy’s income and capital accounts. Proposition 6 hints the possibility that Net Domestic Product (NDP) is a significant statistic in economic evaluation. NDP=GDP NDP=GDP‐ capital depreciation 5 12/11/2013 In order to measure whether a country is growing sustainably, Chapter II of the report argued for the need to track changes in wealth or per capita, where the definition of wealth takes account of different forms of capital, capital including natural capital. capital Thus, there is sustainable development if net aggregate investment per capita is positive or, equivalently, net domestic product per capita exceeds consumption per capita. The System of National Accounts (SNA) allows us to estimate these economic aggregates. There are three economic aggregates that are important for accounting for the environment: Net Domestic Product, Consumption Expenditures and Aggregate Net Investment. One measure of the ability for a country to grow sustainably is whether its Net Domestic Product (NDP) per capita exceeds its consumption per capita on a continual basis. Net Domestic Product is a standard economic aggregate and is measured as GDP minus depreciation on a country’s capital. Depreciation is a business accounting term while in national accounts the related term is Consumption of Fixed Capital (CFC). CFC in the existing SNA does not include depletion of environmental assets environmental assets. 6 12/11/2013 The National Accounts Statistics (NAS) incorporates environmental goods and services in multiple ways within the current and accumulation accounts. While there is a lot to be done in terms of strengthening the environmental components of the NAS. GDP does not account for depreciation of natural capital stock as a result of economic exploitation and environmental degradation. Details in next slide In other words, GDP may increase even when the stock of natural capital capital, such as minerals minerals, soils and forests forests, is being depleted. The NDP would more correctly measure these changes in natural stocks; however, CFC, the measure of depreciation, is currently not calculated for non‐produced assets such as land, mineral and other deposits. Table 1: Environmental goods and services not included in India’s National Accounts Environmental Factors and variables LAND Land Improvement Change in Land Use Depletion/Degradation of land Status regarding inclusion in NAS Included in GFCF Not Included (Data available) Not Included Reasons for non‐inclusion Data need to be updated in National Bureau of soil survey (NBSS) Data need to be updated NBSS Degradation of Soil Not Included Impact of Disasters Not Included Non‐availability of complete data Not Included (Data available) Not Included (Data available) Updating of data in State Land Use Board Not Included (SLUB) will be required Data available but the same to be N l d d Not IIncluded disseminated by Registration offices Updating of data in Directorate of Not Included Economics & Statistics at State level will be required Included Included Land Use, Cover Area, and Yield use pattern Productivity of Land R i Reall EEstate prices Cropping Pattern Output prices/ revenues Gross/Net sown area Soil depth, colour, salinity and drainage (Soil erosion, run‐off and soil loss under the treated Not Included and un‐treated micro‐watersheds, soil loss prevented by dense forests) Data need to be updated in NBSS. Data on soil loss prevented by dense forests are not available. 7 12/11/2013 Status regarding inclusion in NAS Not Included (Data available) Environmental Factors and variables Forest Extraction of minerals in forests Reasons for non‐inclusion cover/Forest cover change Not Included (Data available) Accumulation of timber due to natural Regular and complete data are not Not Included regeneration/natural growth available Loss in timber volume due to insects, pests and diseases Not Included No data available after 1972 Animal grazing Not Included Data not available regularly Shift in cultivation Not Included Data available, but more details are required Carbon stock Not Included (Data available) Asset valuation of forest & livestock Not Included Deforestation Not Included (Data available) Land area under forest Not Included (Data available) Physical volume of timber NTFPs Carbon sequestration potential Area of Sacred Medicinal Plants Volume harvested for timber and fuel wood Included Included Not Included Not Included Included Included Volume of forest stock affected by forest fire Included Area regenerated/Area afforested Not Included (Data available) Mangrove cover Biodiversity Not Included (Data available) Not Included Limited data available Biomass: Litter Deadwood Solid organic carbon (below ground and above ground)/Impact of worms Not Included (Some data are available) Environmental Factors and variables MINERALS WATER* AIR Status regarding inclusion in NAS Data not available Data not available Data not available Reasons for non‐inclusion Depletion of Minerals Not Included (Data available) Pollutant loads from mining Not Included Data not available Surface and ground water quality Not Included Limited Data available BOD, COD and SS Not Included Data generated through primary surveys in case studies need to be updated Sedimentation in water ways and their treatment costs Not Included No reliable data available CO2 SO2 SPM N2O, Methane, HFCs, SF6 Carbon monoxide Nitrogen dioxide Not Included Not Included Not Included Not Included Not Included Not Included Limited data available Limited data available Limited data available Limited data available Limited data available Limited data available Fuel Consumption Not Included Data available through ASI, but not on a regular basis Ozone depleting substance; CFCs, Halgon, CTC Not Included (Production/consumption data available) 8 12/11/2013 The System of Environmental–Economic Accounting (SEEA) Central Framework is a multi‐purpose framework that describes the interactions between the economy and the environment, the stocks and changes in stocks of environmental assets. assets Central Framework consists of three parts: i. ii. iii. physical flows of materials and energy within the economy and between the economy and the environment; stocks of environmental assets and changes in these stocks; and economic activity and transactions related to the environment. The classification of different environmental assets within SEEA Central Framework is presented in Table (next slide) Table : SEEA Central Framework classification of environmental assets 1 1.1 1.2 1.3 1.4 1.5 2 3 4 4.1 4.2 5 5.1 5.2 6 7 7.1 7.2 7.3 Mineral and Energy resources Oil Resources Natural gas resources Coal and peat resources Non‐metallic mineral resources ((excludingg coal and p peat resources)) Metallic mineral resources Land Soil resources Timber resources Cultivated timber resources Natural timber resources Aquatic resources Cultivated aquatic resources Natural aquatic resources Other biological resources (excluding timber resources and aquatic resources) Water resources Surface Water Groundwater Soil water 9 12/11/2013 The Central Framework (SEEA) organizes and integrates the information of the various stocks and flows of the economy and the environment in a series of tables and accounts. These tables and accounts can be linked to relevant employment, employment demographic and social information. The Central Framework(SEEA) comprises the following types of tables and accounts : Supply and use tables in physical and monetary terms showing flows of natural inputs, products and residuals; Asset accounts for individual environmental assets in physical and monetary terms showing the stock of environmental assets at the beginning and end of each accounting period and the changes in the stock; A sequence of economic accounts that highlights depletion adjusted economic aggregates; and Functional accounts which record transactions and other information about economic activities undertaken for environmental purposes. Considering the Indian scenario and SEEA Framework, Expert Group has recommended that: 1. Prepare PSUTs and Asset Accounts for (i) land, (ii)forest and timber, (iii)minerals. (iii)minerals This can be completed within a year or so. so Develop a medium‐term plan (extending to a period of, say, 5 years) that would include (i) the preparation of Monetary and Supply Use Tables (MSUT) for land, forest and timber, and minerals for implementing the SEEA in those sectors; (ii) the development of PSUTs and Asset Accounts for soil, water, carbon, and energy; and (iii) planning and collecting data for the purposes of valuing changes in water, carbon, and energy sectors. We note here that MSUTs for minerals can probably be prepared more quickly than those for the other sub‐sectors because of the availability of market prices for minerals and data on extraction costs. Develop a medium‐term plan for estimating net domestic product (NDP). In addition to adjusting for depletion of reproducible and the types of natural capital that were identified in (1)‐(2) above, the move would require subtracting defensive expenditure on the environment from GDP and identifying better ways to account for human capital as investment. 2. 3. 10 12/11/2013 4. 5. 6. Initiate exploratory research in two areas: (i) the development of a more complete set of national accounts, including a balance sheet for the nation; and (ii) the identification of principles for valuing and periodically collecting and compiling data on environmental assets and flows. This would culminate in a valuation‐and‐data manual that can be used for making to the ki adjustments dj h SNA. SNA Develop a long‐term plan (extending, say, to a period of ten years) for (i) institutionalizing mechanisms for periodic collection of data and for organizing periodic studies and surveys for environmental accounts; (ii) collecting and compiling data for valuation and preparation of MSUTs for aquatic resources, air, and biodiversity. The Planning Commission could fruitfully put in place a mechanism for estimating shadow prices and their natural ranges. Taking in to account the recommendation of the Expert Group and the suggestions emerged out of the workshop held in April 2013, the following steps of implementation off GNA have h been b suggested d for f consideration d off National Statistical Commission: Preparation of Asset Accounts in forest and land on pilot basis. Preparation of PSUTs for those sub‐sectors of environment where data readily available. Fairly good amount of related data already do exist in the Government set up and what is required is to pool them together for preparation of complete tables. 3. PSUTs for forest sector and land sector can be taken in the first instance. 1. 2. 11 12/11/2013 4. 5. 6. 7. 8. 9. Dialogue with State/UT Governments even in case of selected sectors(not a closed list) on which work has to start as the tables to take care of requirements of State/UTs and also for available of data with State/UTs. On issues of additional data needs both central Ministries and States/UTs to be taken on Board to cope up with the challenges. Data need assessment to be done for different sectors. Other Sectors were even physical data are not available may be taken up later after ensuing data flow and also various related issues to be worked out. Planning for converting studies in to a regular data flow system. Monitoring accounting exercise to be done for those sectors for which PSUTs are made before this valuation studies are to be undertaken. Continuing discussion and dialogue with Central Ministries‐Ministry of Agriculture(Land and Soil), Department of Animal Husbandry(Live Stock), Ministry of Water Resources(Water), Ministry of Environment and Forest(Forest, timber, carbon, bio‐diversity, Air), Ministry of Mines(Minerals), Central Electricity Authority and Ministry of Power(Energy) with regard to pooling of existing data available with them and other sources and for putting in place a system for collection of new data sets. 10. Consultations with States/UTs in order to take into account their requirements for Environmental Accounting and also to cope up with to collection of new data sets. the challenges g with regard g 11. Preparation of action plan for implementation and carrying out research studies to scale up for national level figures and valuation purposes. 12 12/11/2013 THANK YOU 13