4628.0.55.001 - Completing the Picture - Environmental Accounting in Practice, May 2012
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 10/05/2012 Final
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POLICY FRAMEWORKS The Australian government and Australia's state and territory governments have implemented a number of policies and programs aimed at addressing sustainability (Figure 4.1). These have similar objectives and in general aim to maximise the benefits of resource use over time. One of the common features of the policies listed in Figure 4.1 is the express need for consistent information on economic, environmental and social aspects of Australia.
Here we examine the Commonwealth Treasury’s strategic framework(footnote 7) , which sets out five dimensions for the evaluation of policy:
The following sections take the Treasury’s third dimension on sustainability and shows how the SEEA can be applied in this context. In particular, four questions are considered:
While this work focuses primarily on measures based on a capital approach, there is ongoing work on extending the capital approach to develop long term and quality of life based indicators. What is the value of Australia’s capital base? The capital base of Australia could be viewed as comprising five asset types:
Figure 4.2 shows the current price value of these types of capital in Australia between 2000-01 and 2009-10. The value of the four types of natural capital for which estimates exist (land, subsoil assets, timber and fish) is approximately equal to that of the produced capital for the nation. The value of natural capital and produced capital in Australia both show an upward trend in the period from 2000-01 to 2009-10. During this period natural capital more than doubled in value from $1,528 billion to $4,574 billion.
The increases in the value of natural capital in current prices were due to increases in the value of land and of subsoil assets (both increased by 13% compounded per annum between 2000-01 and 2009-10). Over the same time produced capital increased by 7% compounded per annum while financial capital's net liability increased by 9% compounded per annum. Estimates of the value of water, renewable energy 'stocks' and carbon are not included in the value of natural capital although these could be considered economic assets in the SNA. While there are economic uses of water and an active market in water rights, valuation has proved problematic. The Net Present Value(footnote 13) (NPV) approach yields very low asset values for water as the urban water market is highly regulated and a resource rent is therefore not typically captured by the producer. Much of the economic benefits of water use are captured by intermediate users (e.g. agriculture) and final consumers (e.g. households) but these benefits do not feature in direct resource rent and NPV calculations(footnote 14) . For renewable energy, the profits made by electricity generators could be used to value the stocks of solar, wind and hydroelectric power resources. It is likely that at least some of this value is already captured in values of produced capital and the associated valuations of land and possibly water. For carbon, stocks are not separately valued at present although the various measures introduced or to be introduced as part of the Clean Energy Futures Act may enable carbon stocks to be separately valued in the future. In comparison to current price estimates, volume measures of Australia's capital base remove the price bias from these estimates by fixing the price index at a particular point, usually the last point of the series and deflating the values of the asset over the preceding years. A chain volume measure represents values at constant purchasing power. Volume measures reflect the real value of assets over time and are useful in a sustainability context to examine the impact of changes to the stock of assets. The main limitation with using volume measures is that it may be difficult to reconcile changes in some of the component series after chain volume measures have been applied. Using volume measures as shown in Figure 4.3, preliminary natural capital estimates increased by 1% compounded per annum between 2000-01 and 2009-10, driven by subsoil assets (which increased by 3% compounded per annum) and land assets (increased by 1% compounded per annum). For the same period, produced capital increased by 4% compounded per annum in volume terms and financial capital (increased) by 6% compounded per annum.
Human and social capital estimates are not part of the SEEA Central Framework. At present they are constructed using experimental frameworks. For example, the Fraumeni-Jorgensen lifetime income approach is adopted by the WGSSD. The ABS produced experimental estimates of human capital in 2008(footnote 15) using this general approach. The estimates of human capital estimates are presented in Figure 4.4 for selected years between 1986 and 2001. Over this time period, human capital increased by 2% compounded per annum and per capita human capital increased by less than 1%.
The ABS has not attempted a comprehensive monetary estimate of social capital. Instead the ABS has developed an estimate of "low social capital" which may be an indicator for the total stock of social capital(footnote 16) . The low social capital estimate is derived from combining aspects of social capital (network type, support, trust, community involvement, and feelings of safety). Low social capital was more prevalent in older age groups, up to 14% of the 60+ population in 2006. Low social capital was characterised by a lack of a social network (14%) and feelings of a lack of support from the community (13%). This age group did have the highest levels of trust with only 7% of the population with low trust. No data are readily available to test if social capital is increasing or declining over time, though the methodology used to create low social capital estimates could be repeated for the general social survey results from 2001 and 2010. How much capital is available per person? Sustainability from a capital perspective can be defined as non-declining per capita wealth over time. Per capita estimates of Australia's capital base are presented in Figure 4.5. The amount of produced capital, natural capital and financial assets (in real terms) was approximately $364,000 per capita in 2009-10. This represents an increase of 0.5% compounded per annum for the last nine years. Over the same period net national savings per capita has increased by an average of 10% compounded per annum.
The value of natural capital in per capita volume measures declined by less than 1% between 2000-01 and 2009-10. Over the same period per capita estimates of produced and financial capital in volume measures increased, respectively, by 2% and 5% compounded per annum (Figure 4.6). What is the income generated from Australia's capital? One particular motivation for deriving a more complete picture of total capital for Australia is to examine the income derived from these assets. Income from natural assets can be measured in three ways:
For Australia, estimates of Resource Rent and Return on Natural Assets are available for subsoil assets. Such estimates are not available for Land and other assets that support ecosystems services. A useful related indicator is 'depletion adjusted Net Operating Surplus', though depletion adjustments can also be applied to other national accounts aggregates such as Net Domestic Product, Net National Income and Net National Savings. Experimental estimates for the value of depletion of subsoil assets and the degradation of agricultural land could be applied to various national accounts aggregates to deliver depletion-adjusted aggregates. Such aggregates would be presented in the context of a satellite account. For example, Figure 4.7 presents depletion-adjusted Net Operating Surplus which have lower values while having minimal impact on overall growth rates(footnote 17) .
Adjusting national accounts aggregates for depletion typically results in small changes to the growth rates (0.1% or less). Net primary income to non-residents increased by 10% over the period 2000-01 to 2009-10. It peaked in 2007-08 and has fallen away recently with the global financial crisis. For the same period Rent on natural assets increased by 12%, compounded per annum, and peaked at $9.5 billion in 2008-09. Calculating direct income flows from natural assets and produced assets is challenging with current sources of information. Resource rent is available for subsoil assets (Figure 4.8), but these estimates are not necessarily a precise indication of the rent for the mining industry as they are calculated from the natural resource assets without strict regard to the sector or industry that extracts them. Similarly values for return on natural assets are unavailable. Figure 4.8 contains examples of possible aggregates that could be provided for subsoil assets if these data were to become available.
One aspect of sustainability is the distribution of income derived from the capital base across sectors and, within the household sector, between particular household types. This may be possible with existing data but has not yet been attempted by the ABS. Income from wealth may be a poor indicator of sustainability, since: "While economic wealth is an important measure of sustainable development from the capital perspective, it cannot stand alone. Economic wealth measures only the capital base that contributes to market income. While market income is an important contributor to well-being, it is far from alone. Well-being is also created by "consuming" non-market flows of goods and services such as breathtaking scenery on a smog-free day, positive relations with one's loved ones and the personal capacity to pursue self-fulfilment. The non-economic assets that produce these flows must be measured both because they are important in and of themselves, but also to ensure that in the pursuit of market income the capital base from which non-market well-being is derived is not eroded. To the extent that this was the case, gains in market income would be misleading in isolation as an indicator of sustainable development." (footnote 18) How much is spent on maintaining or improving Australia's capital base compared to depletion of Australia's capital base? Investment in produced capital is defined as total expenditures on products intended to be used for future production. This is the key distinction between financial investment and capital investment. Another key distinction is that expenditure related to intermediate consumption and to inventories is not included in investment. A nation has the choice to invest in capital stocks or to spend on current consumption activity. One of the problems of this choice is that without sufficient information, investment has the risk of being random or of following a simple trend: "While concerns about dissimilarities among the various types of capital are legitimate, there are several reasons why the broad concept is nonetheless useful for measuring sustainable development. Firstly, it offers a basis for the important insight that development is not entirely stochastic or random but can be managed through investments in specific stocks. Furthermore, it provides a framework that explains why spending income on investments rather than current consumption is likely to enhance well-being in the future."(footnote 19) In addition, investment in capital is important for achieving sustainable development: "… natural capital contributes to the production of marketed goods and/or provides environmental amenities, the economy will maintain a constant or increasing level of per capita well-being only if investments in other forms of capital exceed the monetary value of natural capital depletion on an economy-wide basis." Values for regrowth in the environment are not available for Australia and replenishment of subsoil assets occurs in geological timeframes. However, environmental expenditure could be considered as a proxy for investment in natural capital. Environmental expenditure for both protection and conservation activities are important for improving environmental quality as economic activity takes place. Environmental expenditure benefits both market and non-market natural capital. Environmental expenditure is defined in the SEEA but recent estimates for Australia are unavailable. Data on environmental expenditure were compiled for Australia during the late 1990's and there is some limited information from a survey on the mining and manufacturing industry in 2000-01.
From Figure 4.9 we observe that investment has increased strongly over the past decade. Gross fixed capital formation (investment in produced capital) increased by 9% compounded per annum over the period from 2000-01 to 2009-10, largely from investment by mining in the latter part of the decade. Over the same period, transactions in net international investment position (financial investment) increased by 13% compounded per annum.
Between 2000-01 and 2009-10 depletion of non-renewable assets increased by 9% compounded per annum. Depletion and consumption of fixed capital have both increased steadily over time and depletion peaked at $7.4 billion in 2008-09 (Figure 4.11). Monetary estimates of depletion are useful as indicators of resource use as they are a convenient way in which to integrate different asset types. Nevertheless, monetary and physical data are needed to conduct a full evaluation of sustainable development. THE ROLE OF ENVIRONMENT EXPENDITURE IN SUSTAINABLE DEVELOPMENT The Environmental Expenditure Accounts (EEA) of the SEEA are a tool for monitoring the amount of economic activity aimed primarily at protecting, restoring and conserving environmental quality which can impact on natural capital. These accounts focus attention on four key questions about expenditure:
Financing The financing table in the EEA shows the flow of funds from the sectors that pay for environmental activity to those which receive funding for those activities. The primary use of this table is to quantify the funds available by sector to pay for environment activities. Expenditure that is not self-financed will be largely accounted for by subsidies or grants from government allocated to industries, households or not-for-profit organisations. Expenditure The expenditure table identifies who directly spends money on environmental protection, whether the source of funding is self-finance or finance provided by another party (the financing information can be found in the Financing table). This table is useful for identifying who has control over the spending of money for environmental protection. Production The production table details the economic production pathway of environmental specific services. The table shows output of environmental (protection) specific services, as well as intermediate consumption, value added, and compensation of employees (SEEA 2012, paragraph 4.55). Such information may be used to analyse the economic characteristics and performance of the environment protection industry. The figures are broken down by different types of producers, such as government producers and producers of environmental protection products for their own use. Supply and use of environment specific goods and services The supply and use tables detail the economic value of environment specific goods and services available to be consumed in the economy and the total usage of these goods and services.
THE ROLE OF ENVIRONMENTAL TAXES AND SUBSIDIES IN MANAGING SUSTAINABLE DEVELOPMENT There are a range of transactions, such as taxes and subsidies, which reflect efforts by governments on behalf of society, to influence the behaviour of producers and consumers with respect to the environment. Most of these environmental transactions are already recorded within the core national accounts framework but many cannot be easily identified due to the structure of the accounts or the types of classifications that are used. The SEEA provides a framework for separately identifying these environmentally related taxes and subsidies. An environmental tax is a tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific, negative impact on the environment (SEEA 2012). In practice, this definition is applied by looking at all of the various taxes levied in a country and making an assessment as to whether the tax base in each circumstance is something that has a negative environmental impact (SEEA 2012, paragraph 4.150). There are four categories of environmental taxes(footnote 20) :
Of particular interest in recent times has been pollution taxes; especially those relating to greenhouse gas emissions. In order to reduce greenhouse gas emissions, Australia plans to set up a carbon permits trading scheme. Industries will be obliged to purchase carbon permits in order to discharge CO2 into the atmosphere. SEEA 2012 includes a table to track the volume and value and carbon permits on the market. Information on total numbers of permits and the use of such permits could provide important information for carbon emission policy. If the stock of permits declines over time, it is understood that carbon emissions have been reduced. From the different categories of permit use, policy makers can see if the market-incentive approach is effective in lowering levels of discharge of CO2 and in prompting behavioural change. In addition, the ABS can report tradable carbon permits in industry breakdowns, where most carbon-intensive industries can be identified and their emission scale closely tracked to assess the effectiveness of policies in place. PHYSICAL ENVIRONMENTAL ASSETS A representation of physical environment assets able to support assessments of sustainability is complex. There are many different asset types which have different characteristics, units of measurement and functions within the environment. A number of physical sustainable development indicators are being compiled using the guidance from the WGSSD by the Department of Sustainability, Environment, Water, Population and Communities in their measures of sustainability program. Certain physical information from subsoil asset accounts can support assessments of sustainability, for example, the expected life of particular minerals for Australia as shown in Figure 4.12. While the expected resource life of these key metallic resources can be significantly affected by such things as new discoveries, such measures can at least demonstrate when there is a downward trend in the availability of a resource. More detailed physical tables on environmental assets of interest to the economy are contained in Appendix 1. RELATIONSHIP TO OTHER REPORTS ON SUSTAINABILITY AND WELLBEING Measuring Sustainability program Department of Sustainability, Environment, Water, Population and Communities The Measuring Sustainability program's objective is to promote a sustainable Australia by delivering reliable, relevant and accessible information on environmental, social and economic aspects of sustainability to decision makers and communities. A key mechanism will be the development and implementation of sustainability indicators for Australia to support consideration of sustainability issues in decision making and planning at national and community levels. The System of Environmental-Economic Accounting provides a framework to ensure consistent basic data for environmental and economic variables, which can support delivery of programs such as the Measuring Sustainability program. Measures of Australia's Progress Australian Bureau of Statistics Measures of Australia's Progress (MAP) is designed to help Australians address the question, 'Is life in Australia getting better?' MAP provides a digestible selection of statistical evidence in answer to this question. Australians can use this evidence to form their own view of how our country is progressing. The range of key statistical measures that MAP presents demonstrates change. They are grouped under three broad headings: the society, the economy and the environment. Within these broad domains several dimensions are addressed, such as health and work within the social domain, national income within the economic domain, and biodiversity within the environmental domain. Within most of these dimensions a headline indicator which directly addresses the notion of progress is used to tell a story about the extent of progress within that dimension.1 Parkinson, M., 2011, Sustainable Wellbeing – An Economic Future for Australia, The Shann Memorial Lecture, August 2011. <back 2 Australian Bureau of Statistics, 2011, Australian System of National Accounts, 2010–11 (ABS cat. no. 5204.0). <back 3 United Nations, 2OO8, Measuring Sustainable Development: Report of the Joint UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development, New York and Geneva. <back 4 Smith, R., 2008. Measuring the Sustainability of Well–Being: a Capital Approach. Paper prepared for the 30th general conference of The International Association for Research in Income and Wealth. <back 5 United Nations, 2008. Measuring Sustainable Development: Report of the UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development. <back 6 United Nations, 2008. Measuring Sustainable Development: Report of the UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development. <back 7 Parkinson, M., 2011, Sustainable Wellbeing – An Economic Future for Australia, The Shann Memorial Lecture, August 2011. <back 8 Produced capital is defined as non–financial assets that have come into existence as outputs from production processes that fall within the production boundary of the SNA. (SNA 2008) <back 9 Financial capital is defined as all financial claims, shares or other equity in corporations plus gold bullion held by monetary authorities as a reserve asset. For sustainable development, net financial assets with the Rest of the World are shown as net domestic financial assets are conceptually equal to zero as domestic assets equal domestic liabilities. (SNA 2008) <back 10 Four basic categories of natural capital are generally recognised: air, water (fresh, groundwater and marine), land (including soil, space and landscape) and habitats (including the ecosystems, flora and fauna which they both comprise and support). In this case subsoil assets, land, timber and wild fish are being used as an estimate of natural capital. Water, habitat and ecosystems and soil resources are not explicitly included.. <back 11 Human capital was estimated in ABS (2008). Research Paper: Measuring Human Capital Flows for Australia: A Lifetime Labour Income Approach (ABS cat. no. 1351.0.55.023) <back 12 The framework for social capital in Australia is defined in ABS (2004). The values are from: ABS (2009). Research Paper: Exploring Measures of Low Social Capital (ABS cat. no. 1351.0.55.024). <back 13 Where market values are not readily observable Net Present Value is the preferred technique for valuing assets. It is based on the expected return on the asset over its life. See (ABS, 2002, Accounting for the environment feature article in Australian National Accounts: National Income, Expenditure and Product ABS cat. no. 5206.0, June Quarter 2002) for more details on the NPV technique. <back 14 Comisari, P., Freeman, B., Feng, L. 2011. Valuation of water resources and water infrastructure assets. Presented at 17th meeting of the London Group on Environment Accounting. <back 15 ABS, 2008. Research Paper: Measuring Human Capital Flows for Australia: A Lifetime Labour Income Approach (ABS cat. no. 1351.0.55.023). <back 16 ABS, 2009. Research Paper: Exploring Measures of Low Social Capital (ABS cat. no. 1351.0.55.024). <back 17 See also, ABS Year Book Australia, 2009–10 Environment Chapter, ABS cat. no. 1301.0 for more information on the use of depletion to adjust National Accounts estimates. <back 18 United Nations, 2008. Measuring Sustainable Development: Report of the UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development. <back 19 United Nations, 2008. Measuring Sustainable Development: Report of the UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development.<back 20 Note that payments to government for the use of land or natural resources are treated as rent – Rent, or resource rent, is the payment to government for the use of natural resources when the government is both owner and taxation authority (SEEA 2012) – and therefore are excluded from resource taxes. In the National Accounts of ABS, rent on natural assets is published in General Government Income Account and mostly, if not exclusively, composed of mining royalties. <back Document Selection These documents will be presented in a new window.
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