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ENVIRONMENTAL ASSETS IN THE AUSTRALIAN NATIONAL ACCOUNTS
For an asset to be included in the Australian national accounts it must have an identifiable owner, and the owner must be able to derive an economic benefit from holding or using the asset. Economic environmental assets can include subsoil assets, land, forests, water, and fish stocks in open seas that are under the control of an economic agent (often the government).
Environmental assets such as the atmosphere are outside the scope of economic assets, as they do not have an identifiable owner who can derive an economic benefit from their use. This is not to suggest that these assets are of no value. On the contrary, many environmental assets are essential to life itself. However, even if they fell within the definition of an economic asset, the valuation techniques available to measure such assets tend to be arbitrary and controversial.
The environmental assets in the Australian national and sector balance sheets are land, significant subsoil assets, plantation timber, and native standing timber available for exploitation. Land valuations are available through administrative sources, and net present value techniques (which take into account current production rates, prices, costs, and discount rates) are used to value both subsoil and native forest assets. Plantation standing timber is also considered an environmental asset and plantations are included in the balance sheet as inventories because timber growth is controlled. Water and fish stocks have not been included on the Australian national balance sheet due to a lack of available data.
The Australian national balance sheet recorded $4,961 billion (b) worth of assets at 30 June 2004, of which $2,149b (43%) were economic environmental assets (table 24.29).
While land accounts for 82% of the value of Australia's economic environmental assets, the value of rural land accounts for only 10% of the total value of land (table 24.30). Subsoil assets account for 17% and timber (native and plantation) account for 1% of Australia's economic environmental assets. No values are included for other environmental assets. The value of environmental assets grew strongly over the period covered, almost tripling between 30 June 1996 and 30 June 2004. Much of this growth was due to rising prices. Environmental assets only grew by 15% in chain volume terms, that is, after adjustment for changes in prices during the period.
Depletion is defined in the international System of National Accounts 1993 (SNA93) (OECD 1993) as the:
Depletion in an economic sense results because the value of the resource stock has been lowered through its use in a productive activity, and the use has reduced the asset's ability to produce an income stream in the future. In this sense, depletion is analogous to depreciation of produced assets whereby the current value of the stock of fixed assets declines through normal use, wear and tear and foreseen obsolescence.
Physical depletion may not necessarily equate to economic depletion in cases where asset values are low or the resource life is long. While the physical dimension of depletion can be fairly readily observed in practice, its value cannot. This is because the mineral or other natural resource product is not what is being valued - rather it is the decline in the value of the mineral asset below the ground or the standing timber in the forest. Generally, one has to resort to capital theory to undertake this valuation. (See Environment by Numbers: Selected Articles on Australia's Environment, 2003 (4617.0)).
The depletion of minerals and fossil fuels in any one year, is the change in the value of the asset between the beginning and end of the year, arising purely from the extraction of these natural resources. An addition occurs, when previously unknown stocks of minerals are discovered and delineated or previously subeconomic stocks become economic because of changes in prices or mineral extraction techniques. An 'addition' can also be negative. For example, if mineral prices fall and previously economic stocks become subeconomic, the owner can no longer derive an economic benefit from the asset so it is excluded from asset values. In the Australian national accounts the value of a new discovery is not in itself considered as production or income because it is a 'gift of nature'. Similarly, reclassification of the economic status of known stocks is considered to be an 'other change in volume', not production or income. Graph 24.31 shows that depletions are increasing at a relatively constant rate, whereas additions are erratic. The end result is that in some years more subsoil resources are added than are depleted, while in other years the reverse is true and in some years depletions and additions are more or less equal in value. The main contribution to the negative 'additions' in 2000-01 and 2002-03 was reclassification of some crude oil resources from economic to subeconomic. Conversely, crude oil additions were the major contribution to total additions in 2001-02 and 2003-04.
If land is used sustainably, it has an infinite life and, therefore, no adjustment for depletion is required. However, where land is being degraded due to economic activity, an adjustment to income for land degradation is applicable. In the context of economic depletion used here, land degradation represents the year-to-year decline in the capital value of land resulting from economic activity (after deducting price rises due to inflation).
Changes in the value of agricultural land can be determined from data on market values or land rates data. However, data for land values are affected by a host of factors other than changes in productive capacity from the impact of land degradation, including inflation, technological advances and changes in land use due to re-zoning, subdivision and 'lifestyle' considerations (Roberts 1997).
Two recent national studies used different approaches to measuring economic losses due to land degradation.
In concept, these two approaches can be reconciled because the net present value of future lost profits should be equal to the decline in the capital value of land due to degradation. The ABS has used the data from these studies to produce estimates of the incremental effect of land degradation on the value of land and the lost profits from agricultural production each year. The results of this are presented in graph 24.32.
Forests are renewable biological resources. In the national balance sheet, forests are depicted as two types: old growth native forests and plantations. The valuation of the depletion of renewable assets presents a different set of issues to valuation of non-renewable assets as it may be possible to replace (over time) the part of the asset that is used in the current period. Where a forest is harvested sustainably, no depletion adjustment is required.
Estimates for depletion of native forests are not available. However, given the value of native forests on the national balance sheet is $3b compared with $377b for subsoil assets, it is expected that depletion will have a relatively insignificant effect on the overall value of natural resources. This is premised on a narrow economic view that does not account for damage to intrinsic non-monetary values such as ecosystem services, biodiversity and aesthetic/recreational values.
ADJUSTING THE AUSTRALIAN NATIONAL ACCOUNTS
There is currently an asymmetry in the Australian national accounts between the treatment of produced assets such as buildings, and plant and natural (non-produced) assets. Depreciation of produced assets (termed consumption of fixed capital (COFC) in the national accounts) is deducted to derive the various 'net' income measures in the national accounts such as net domestic product (NDP), net operating surplus (NOS), net national income and net saving. No such deduction is made for natural assets when they are used up or degraded as a result of economic activity. The net measures thus fall short of being sustainable concepts of income, although they are superior to the various 'gross' measures in the Australian national accounts in this respect.
The experimental estimates derived for the value of depletions and discoveries of subsoil assets and the degradation of agricultural land are indicative of adjustments that could be made to the national accounts in the context of a satellite account and are shown in table 24.33. Depletion adjustments unambiguously lower the net values. If the value of discoveries is included in income in place of the value of mineral exploration, the net effect of that adjustment can be positive or negative.
The net saving levels are changed by the same amount as for NOS, but the nation's net lending position is left unchanged.
Adjusting the Australian national accounts for depletion and additions of subsoil assets also affects growth rates, which may increase or decrease. As table 24.34 shows, the adjustments have the biggest impact on both NDP and NOS in 2001-02 and 2002-03, due to the high value of subsoil asset additions in 2001-02, followed by the low (negative) value of subsoil additions in 2002-03.