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Session 3: Introduction to Integrated Environmental and Economic Accounting

Xiaoning Gongxgong@uneca.org

ChiefEconomic Statistics and National Accounts Section

African Centre for Statistics (ACS) Economic Commission for Africa (ECA)

African Centre for StatisticsRegional Workshop on Environment Statistics and Accounts

7 - 11 March 2011, Addis Ababa, Ethiopia

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Outline• Sustainable development and the System of

Environmental-Economic Accounting (SEEA)• Structure and application of SEEA• Country experience• SEEA and DPSIR Framework• SEEA and set of environmental statistics and

indicators• the system approach to environmental information• SEEA and the ecosystem approach• SEEA and the DPSIR framework• SEEA and the FDES

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Concerns of Sustainable Development

• Is the use of environmental endowments posing a threat to economic development now, either by being used up too quickly with no prospect of replacement or by generating a level of pollution which threatens human health and the existence of species?

• Even if not now, would it do so if continued without change into the future?

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Concepts of Sustainable Development

• “Humanity has the ability to make development sustainable -- to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs.” (World Commission on Environment and Development, 1987, p. 8).

• Three common interpretations of sustainability:– Three-pillar approach– The ecological approach and – The capital approach

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The three-pillar approach to sustainable development

• Three-pillar approach to sustainable development refers at once to economic, social and environmental needs.

• SEEA has clearly a great deal to say about the interaction of environmental and economic systems, but offers less with respect to economic/social interaction or social/environmental interaction.

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The ecological approach to sustainable development

• Economic and social systems are sub-systems of the global environment; that is, sustainability in the economic and social spheres is subordinate to sustainability of the environment.– The key property to be sustained is the capacity of

ecosystems to respond with resilience to external perturbations and changes.

– The “health” of ecosystems must be protected and enhanced if they are to exhibit the resilience that is necessary for sustainability;

– A “resource” that enables ecosystems to adapt and evolve in the face of changing circumstances.

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The capital approach to sustainable development

• Sustainable development is closely related to the long-standing economic concept of income as defined by Hicks (1946): “income is the maximum amount an individual can consume during a period and remain as well off at the end of the period as at the beginning.”

• Example: with only source of income of a net return of 10% annually from a stock portfolio valued at $1 million at the beginning of a year, the maximum amount of annual income is $100 thousand (without depleting her stock portfolio).

• The income of a nation can thus be defined as the amount that it can collectively spend during a period without depleting the capital base (or wealth) upon which it relies to generate this income.

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The capital approach to sustainable development (cont’d)

• Sustainable development is development that ensures non-declining per capita national wealth by replacing or conserving the sources of that wealth; that is, stocks of produced, human, social, and natural capital.

• In the SEEA– Natural capital (Yes)– Human and social capital (No)– Produced capital (Not much)

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Natural capital and sustainable development

• Natural capital comprises three principal categories: – Natural resource stocks,– Land, and – Ecosystems.

• Provides three essential functions:– “Resource functions”: goods and services for the benefit

of mankind, such as mineral deposits, timber from natural forests, and deep sea fish;

– “Sink functions”: waste products are vented into the air, water (including sea water) or are buried in landfill sites.

– “Service functions” provide the habitat for all living beings including mankind, such as air to breathe, water to drink, and a pleasing landscape for leisure pursuits.

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Natural capital and sustainable development (cont’d)

• The long-term sustainability of development depends upon the maintenance of natural capital (in addition to the other forms of capital).

• If stocks of natural capital decline to the point where they are no longer able to adequately provide the functions listed above, any pattern of development that relies on these functions is not sustainable.

• A change will be required to either– Eliminate the need for a particular natural capital service

or – Find a means of replacing the natural capital service with a

service of produced capital.

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Population Growth and Sustainable Development

• Not only must capital stocks be non-diminishing, but they must in fact grow at the same rate as the population if per capita income is to remain constant.

• The effects of technological change may mean that the population can grow faster than capital stocks with no reduction in income earning potential if technology allows more productive use to be made of existing stocks.

• development must be compatible with long-term maintenance of capital stocks.

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Capital Approach: Precautionary principles

• Renewable resources should not be used in excess of their natural regeneration;

• Non-renewable resources should be used prudently and efficiently with care that the same function is available to future generations, say by technological development or shift to use of renewable resources;

• Sink functions should not be used beyond their assimilative capacities;

• Activities which cause deterioration in service functions should be avoided or at least minimized.

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SEEA: a framework for measuring sustainable development

• SEEA can serve as at least a partial framework for measuring sustainable development from all three of the broad approaches noted.

• The system has not been designed to serve any particular perspective and, indeed, should be of considerable value regardless of the user’s particular point of view on the concept.

• The focus of the SEEA on macro-level accounts integrating environmental and economic data makes it particularly useful from the perspective of the capital approach.

• The SEEA has the capacity to respond to data needs across the full range of views within this approach.

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SEEA: Four Categories of Accounts• Physical and hybrid flow accounts of materials and

energy: e.g. Emissions accounts for greenhouse gases.

• Economic accounts and environmental transactions: e.g. expenditures made to protect the environment.

• Asset accounts in physical and monetary terms: e.g. timber stock accounts showing opening and closing and the related changes.

• Extending SNA aggregates to account for depletion, defensive expenditure and degradation: how the existing SNA might be adjusted to account for the impact of the economy on the environment: depletion, defensive expenditures, and degradation.

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Schematic Presentation of SNA & SEEA

Agr manu Serv HH Corp Govt HH Corp Govt

1a 1b 1c 3(a-d) 3(ef) 3g 4-6(ab) 4-6(c) 4-6(d) 7-8 10 13 14

Agr 1a

manu 1b

Serv 1c

HH 3(a-d)

Corp 3(ef)

Govt 3g

HH 4-6(ab) From HH 2010

Corp 4-6(c) 983

Govt 4-6(d) 1058

7-8Capital tr

(437) From FCF 892

10 By ROW 578

12 To HH To ROW

13 To HH To ROW

14 To HHTo landfill

sitesTo ROW

15 2010 983 1058 892 578

TOTAL

Transfers fr ROW (73)

Capital

ROW Imports (499) LI to ROW (2) Transfers to ROW (77)

4236

1727FI fr ROW (6)

Residuals

Export (499) Fr industry

Tax on inputs (133)

Labor incomes (1300)

OS (321)

Tax on labor & profits (104)

Residuals

TOTAL (EXP) 4236 1727

Re-absorbed by production

Distribution and Use of

Income

Final consumption (1399)

Savings (455)

To industryNatural resources

Ecosystem inputs

Intermediate consumption (1883)

Payment to factors (1721)

To industry

Transfers (2120)

Goods and Services (CPC)

Generation of income

FCF (455)

Capital ROWAccount (classification)

Goods and services (CPC)

Generation of incomeDistribution and Use of

Income

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Economic Accounts (SNA)

Agr manu Serv HH Corp Govt HH Corp Govt

1a 1b 1c 3(a-d) 3(ef) 3g 4-6(ab) 4-6(c) 4-6(d) 7-8 10 13 14

Agr 1a

manu 1b

Serv 1c

HH 3(a-d)

Corp 3(ef)

Govt 3g

HH 4-6(ab) From HH 2010

Corp 4-6(c) 983

Govt 4-6(d) 1058

7-8Capital tr

(437) From FCF 892

10 By ROW 578

12 To HH To ROW

13 To HH To ROW

14 To HHTo landfill

sitesTo ROW

15 2010 983 1058 892 578

TOTAL

Transfers fr ROW (73)

Capital

ROW Imports (499) LI to ROW (2) Transfers to ROW (77)

4236

1727FI fr ROW (6)

Residuals

Export (499) Fr industry

Tax on inputs (133)

Labor incomes (1300)

OS (321)

Tax on labor & profits (104)

Residuals

TOTAL (EXP) 4236 1727

Re-absorbed by production

Distribution and Use of

Income

Final consumption (1399)

Savings (455)

To industryNatural resources

Ecosystem inputs

Intermediate consumption (1883)

Payment to factors (1721)

To industry

Transfers (2120)

Goods and Services (CPC)

Generation of income

FCF (455)

Capital ROWAccount (classification)

Goods and services (CPC)

Generation of incomeDistribution and Use of

Income

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Environmental Accounts (SEEA)

Agr manu Serv HH Corp Govt HH Corp Govt

1a 1b 1c 3(a-d) 3(ef) 3g 4-6(ab) 4-6(c) 4-6(d) 7-8 10 13 14

Agr 1a

manu 1b

Serv 1c

HH 3(a-d)

Corp 3(ef)

Govt 3g

HH 4-6(ab) From HH 2010

Corp 4-6(c) 983

Govt 4-6(d) 1058

7-8Capital tr

(437) From FCF 892

10 By ROW 578

12 To HH To ROW

13 To HH To ROW

14 To HHTo landfill

sitesTo ROW

15 2010 983 1058 892 578

TOTAL

Transfers fr ROW (73)

Capital

ROW Imports (499) LI to ROW (2) Transfers to ROW (77)

4236

1727FI fr ROW (6)

Residuals

Export (499) Fr industry

Tax on inputs (133)

Labor incomes (1300)

OS (321)

Tax on labor & profits (104)

Residuals

TOTAL (EXP) 4236 1727

Re-absorbed by production

Distribution and Use of

Income

Final consumption (1399)

Savings (455)

To industryNatural resources

Ecosystem inputs

Intermediate consumption (1883)

Payment to factors (1721)

To industry

Transfers (2120)

Goods and Services (CPC)

Generation of income

FCF (455)

Capital ROWAccount (classification)

Goods and services (CPC)

Generation of incomeDistribution and Use of

Income

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Environmental Inputs: Goods & Services

Agr manu Serv HH Corp Govt HH Corp Govt

1a 1b 1c 3(a-d) 3(ef) 3g 4-6(ab) 4-6(c) 4-6(d) 7-8 10 13 14

Agr 1a

manu 1b

Serv 1c

HH 3(a-d)

Corp 3(ef)

Govt 3g

HH 4-6(ab) From HH 2010

Corp 4-6(c) 983

Govt 4-6(d) 1058

7-8Capital tr

(437) From FCF 892

10 By ROW 578

12 To HH To ROW

13 To HH To ROW

14 To HHTo landfill

sitesTo ROW

15 2010 983 1058 892 578

TOTAL

Transfers fr ROW (73)

Capital

ROW Imports (499) LI to ROW (2) Transfers to ROW (77)

4236

1727FI fr ROW (6)

Residuals

Export (499) Fr industry

Tax on inputs (133)

Labor incomes (1300)

OS (321)

Tax on labor & profits (104)

Residuals

TOTAL (EXP) 4236 1727

Re-absorbed by production

Distribution and Use of

Income

Final consumption (1399)

Savings (455)

To industryNatural resources

Ecosystem inputs

Intermediate consumption (1883)

Payment to factors (1721)

To industry

Transfers (2120)

Goods and Services (CPC)

Generation of income

FCF (455)

Capital ROWAccount (classification)

Goods and services (CPC)

Generation of incomeDistribution and Use of

Income

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Application of physical and hybrid flow accounts

• The key sustainability policy goal to which hybrid accounts respond is the desire to maintain or improve economic performance while simultaneously reducing or eliminating the impact on the environment.

• “Decoupling” can be brought about by changing consumption and production patterns away from materials with environmentally damaging consequences, by adopting new technologies which make more efficient use of environmental resources or which reduce the damage brought about by existing production patterns.

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Application of economic accounts and environmental transactions

• As well as direct intervention in the state of the environment via environmental protection expenditure, it is increasingly common for more environmentally friendly behavior to be encouraged by means of economic instruments.

• These may be taxes to discourage consumption by increasing prices or they may be means of controlling property rights and access to environmental media by means of selling licenses and permits.

• Expenditures made to reduce the pressure on the environment are an important measure of the human response to the sustainability challenge.

• This category of accounts is an assessment of the economic costs and benefits, including their sectoral impact, of reducing human impact on the environment. This is very important information for those interested in analyzing sustainability from a fiscal perspective.

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Asset accounts in physical and monetary terms

• Natural resources, land and ecosystems represent the stocks that provide the many environmental inputs required to support economic activity. If such activity is to be sustainable, the capacity of natural capital stocks to furnish these inputs must be maintained over time or the economy must find a substitute for the natural capital which is capable of delivering an equivalent input. If both of these conditions are not met the current pattern of development is not sustainable.

• The asset accounts are also relevant to the intra- and intergenerational equity issues of sustainable development. In a number of countries, natural resources are owned and controlled by the government on behalf of the population at large. It is thus important to be able to see where income arises from the use of the resource and how it is apportioned between the extractor and the owner.

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Application of adjusting SNA aggregates• Not every statistical office will be in a position to make such

extensions (as they are data intensive and methodologically complex) and not every one will wish to (as they can be controversial). Nevertheless, it is the logical culmination of the SEEA to explore the possibilities as well as to note the theoretical, practical and institutional hurdles to doing so.

• The use of resource functions raises the question of whether the resource is being depleted and if so whether the allowance in the economic accounts to maintain produced capital intact (the consumption of fixed capital) should be augmented by a term which might be called the consumption of natural capital.

• Some of the expenditure in the economy relates to attempts to avoid using the sink function of the environment. This includes environmental protection expenditure and may include other expenditure of a type which might be described generally as defensive expenditure.

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Flexibility of implementation• Countries which are resource rich may concentrate first on those

resources where there is seen to be a risk to sustainability or there is discussion about the way in which government appropriates revenue from their exploitation.

• Countries with high levels of material throughput may find it useful to build physical flow accounts for specific materials and later building complete physical input-output tables.

• If a country imposes strict environmental standards, with significant cost to producers and consumers, then environmental protection expenditure accounts may be an early priority.

• Those where there is as yet little active environmental protection may prefer instead to concentrate on the calculation of residuals and their impact in order to discover how urgent the problem of introducing environmental protection is.

• Countries where environmental depletion or degradation has reached the point where it constrains economic activity may be interested in knowing what percentage of their current gross economic output might be consumed by the loss of natural capital. For such countries, the extended aggregates would be of considerable interest.

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Canadian ExperienceCanadian Experience• Before choosing a conceptual foundation, we first asked what

high-level policy objective the framework would have to support

– This was done to ensure relevance of the framework to our users

– A lesson from the development of economic statistics is that this first step is crucial to long-term success

• We wanted an objective that could be defined in very general terms while being tightly focussed

• We also wanted an objective that would have broad social and political acceptance

• While ensuring statistical rigour in collection, treatment and interpretation of the data

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Chinese Experience: Partners and Cooperation

National Bureau of Statistics (NBS) joined with:

• Ministry of Environmental Protection (MEP)• State Forestry Administration (SFA)• Ministry of Water Resource (MWR)• Ministry of Land and Resource (MLR)

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Environmental Statistics in China• Line Ministries

– MEP: Environmental monitoring (since 1980s)– MWR: Water conservancy and water resources (1950s)– MLR: Mineral and land administration/resources (1950s)– SFA: Forest production and forestry census (1950s)

• National Bureau of Statistics (NBS)– Established environmental statistical systems (1980s)– Integrates main information of environmental statistics into

publication since 1998 (freshwater, marine, atmospheric environment, solid waste, ecosystem environment, natural disasters, investment in the treatment of environmental pollution, urban and rural environment, etc.)

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Environmental Accounts in China• National Bureau of Statistics (NBS) taking the

lead in compiling– Energy accounts (physical and hybrid)– Mineral valuation– Hybrid water accounts– Physical forest stock accounts

• Line Ministries with associated academies– Participating in the methodology design– Providing statistical data source– Participating in most of the compilation of the accounts

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SEEA

-Ch

ina

Fra

mew

ork

Mineral Stock Accounts

Water SUT/hybrid

Water Stock Accounts

Forest Stock Accounts

Land Stock Accounts

Mineral and Energy Accounting

Water Accounting

Land-resource Accounting

Forest Accounting

Forestry SUT

Waste Emission Accounting

EPE and Environment Degradation Accounting

Water Emission Accounts

Air Emission Accounts

Waste Pollutant Accounts

EPE

Resources accounting

Environment accounting

Energy SUT/hybrid

Ecological Accounting

Forest Ecological Service

Environment Degradation Accounting

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SEEA and the DPSIR framework –

Pressure

State

ImpactResponse

Driving force

Economic activity and population growthe.g. National accounts,energy flow accounts,agricultural accounts,land use / cover acc’s

Use as sink, extraction, harvest, or catch of natural resources, e.g. Air emission accounts, flows of carbon

The physical quantity of resources, the quality of the environment and the size and extent of ecosystems and arease.g. Asset acc’s including land use and land cover acc’s

Depletion and degradation of the environmente.g. Water acc’s, forest acc’s, fisheries acc’s, land and ecosystem acc’s

Money spent to protect the environmente.g. Env. protection expenditure accounts (incl. mitigation/adaptation exp), env. goods and services sector, env. taxes, env. subsidies, emission permits

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DPSIR Framework• Early development at Statistics Canada and carried on by

UNSD, UNEP, OECD, EEA and others• Strengths

– Useful for classification and reporting of existing environment statistics data– Indicators developed are useful and well-known

• Weaknesses– Difficult to distinguish natural processes from human stressors

• Even more difficult to link particular stressor with a specific response– Not always clear how to classify a given variable

• Is acid rain a “response”, a “state” or a “pressure”?– Little guidance to identify and evaluate data gaps– No built-in links to other frameworks such as SEEA– May lead to inappropriate solutions:

• Focus on “bads”• End-of-pipe solutions rather than systemic change

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SEEA and set of environmental statistics and indicators

• Individual sets of environmental indicators are usually internally consistent but often no consistency from one set to another as they are often collected to meet the need of a particular regulatory or administrative purpose.

• SEEA is an integrated system of accounts in which there is consistency from one account to another in terms of concepts, methods, definitions, and classifications, producing data consistent across time and compatible with SNA.

• The SEEA relies upon the sets of environmental statistics for the basic statistics required in its implementation.

• It is reasonable to expect that over time the implementation of the SEEA will result in changes to the way in which environmental statistics are collected and structured in a given country.

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SEEA and FDES• The FDES is intended to be a conceptual framework to

define the scope of environment statistics• It has been suggested that the SEEA can not handle:

– Social links (these are not covered by either the SNA or SEEA)

– Natural processes (methods and practice lacking)– Issues of environmental quality (methods and practice

lacking)• As consensus emerges, natural processes and

environmental quality can be covered by the system approach and SEEA standard accounts

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Conclusions• SEEA is the conceptual framework for environmental

information as well as a framework for measuring sustainable development.

• There are four categories of accounts in SEEA and each has strong applications.

• The implementation of SEEA is flexible and some countries have good experiences.

• The relationships between SEEA and DPSIR, set of environmental statistics and indicators, and the framework for the development of environment statistics (FDES) demonstrate that:– They closely related and complemented to each others.– SEEA has distinct advantages.

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Thank you

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