Accounting For Environmental Assets
System of Environmental-Economic AccountingAccounting for Environmental AssetsJulian ChowUnited Nations Statistics DivisionSEEA Training Seminar for the ECA2-5 February 2015Addis Ababa
System of Environmental-Economic AccountingObjectives of the Day Recap: The definition and scope ofenvironmental assets The link between environmental assets andeconomic assets The structure of asset accounts The definition of depletion of individualresources The approaches to the valuation of individualresources The possible applications of information fromasset accounts
System of Environmental-Economic AccountingDiscussion:What Questions or Issues do youhave about Accounting forEnvironmental Assets?
System of Environmental-Economic AccountingDefining Environmental Assets
System of Environmental-Economic AccountingDefinition of Environmental Assets“Environmental assets are the naturallyoccurring living and non-living components ofthe Earth, together constituting the biophysical environment, which may providebenefits to humanity”2012 SEEA Central Framework 2.17
System of Environmental-Economic AccountingOne Environment : Two PerspectivesIndividualenvironmentalassets iculturalareasFish
System of Environmental-Economic AccountingScope of Individual .3Mineral and energy resourcesOil resourcesNatural gas resourcesCoal and peat resourcesNon-metallic mineral resources (excluding coal and peat resources)Metallic mineral resourcesLandSoil resourcesTimber resourcesCultivated timber resourcesNatural timber resourcesAquatic resourcesCultivated aquatic resourcesNatural aquatic resourcesOther biological resources (excluding timber resources and aquatic resources)Water resourcesSurface waterGroundwaterSoil water
System of Environmental-Economic AccountingPhysical and Monetary Scope In principle, when accounting for environmental assetsin physical terms include all environmental assetswhether or not they have a monetary value All land in a country is included in physical land accounts Also timber resources, other biological resources, soil, inlandwater resources Mineral and energy resources scope is knowndeposits Aquatic resources scope is all resources within EEZplus rights on high seas In practice limit to commercial stocks and subsistence
System of Environmental-Economic AccountingKey Points and Boundary Issues Distinct treatment of land Account for its provision of space / area not theresources that are within it Include natural and cultivated biologicalresources Oceans and atmosphere excluded Stocks of potential energy from renewablesources excluded E.g. solar, wind, tidal power Slight exception for hydropower
System of Environmental-Economic AccountingEcosystem Assets Areas comprising combinations of individualresources (timber, soil, water, etc) but alsohaving ecological processes and characteristics Aim to assess Condition of the ecosystem within an area (i.e. how isit functioning, quality of processes) Flow of ecosystem services to economic and humanactivity Ecosystem asset accounting measuresenvironmental impact rather than environmentalpressures
System of Environmental-Economic AccountingKey Messages Environmental assets can be seen from twoperspectives: individual resources & ecosystems Both natural and cultivated resources areincluded in scope Scope is generally broader in physical termsthan in monetary terms Land is accounted for in terms of area/space
System of Environmental-Economic AccountingThe Structure of Asset Accounts
System of Environmental-EconomicAccounts (SEEA) viewFinal demandSectorsIndustriesAssetsFinancial andproduced assets,opening balanceNatural resourceassets, openingbalanceNatural resourceassets, openingbalanceSectorsWastesCommoditiesIndustrial output ofgoods and servicesIndustrial intermediatedemandFinal demandGross fixed capitalformationEnvironmental protectionexpendituresEnvironmental protectionexpendituresCapital expenditures forenvironmental protectionResource productionby industriesResource productionby households/gov’tResource use byindustriesResource use byhouseholds/gov’tWaste consumption byindustriesWaste consumption byhouseholds/gov’tWaste output byindustriesWaste output byhouseholds/gov’tOther changes in volume& holding gains/losses onfinancial & producedassetsChanges in and holdinggains/losses on naturalresource assetsChanges in naturalresource assetsFinancial andproduced assets,closing balanceNatural resourceassets, closing balanceNatural resourceassets, closing balance13
Connections between SUT and asset accountsAsset accounts(Physical and monetary terms)IndustriesMonetary Product-supplysupplyProduct-useand usetablePhysicalsupplyand umptionRest of theworldImportsHousehold tionexpendituresExportsNatural inputssupplyNatural iduals-useProducedEnvironmentalassetsassetsOpening stockGross capitalExtractednaturalresourcesImports idualsgenerated byindustryCollection &treatment ofwaste and otherresidualsImportsHousehold finalconsumptionResidualsgenerated byhousehold finalconsumptionExportsGross capitalformationResiduals Residuals fromreceivedscrapping andfrom thedemolition ofrest of theproducedworldassets;Emissionsfrom controlledlandfillsResiduals AccumulationResidualssent to theof waste inflowing to therest of thecontrolledenvironment*worldlandfillsOther changes in volume ofassets (e.g. natural growth,discoveries, catastrophic losses)RevaluationsClosing stock
System of Environmental-Economic AccountingBasic Asset Account Structure
System of Environmental-Economic AccountingReappraisals and Reclassifications Reappraisals: changes due to use of updatedinformation to reassess physical size of thestock Changes in quality Changes in technology to permit additional extraction May imply revisions Reclassifications: where an environmental assetis use for a different purpose – particularlypermanent changes in land use Decrease in one category leads to increase inanother
System of Environmental-Economic AccountingAccounting structure Structure: conforms with a balance sheetstructure - opening stocks, closing stocks andannual variations
System of Environmental-Economic AccountingAsset accountsAsset accountsTopics covered (detailed definition)Mineral and energy resourcesPhysical and monetary accounts for minerals and energy stocks(oil, natural gas, coal and peat, non-metallic minerals and metallicminerals) (CF 5.172)LandPhysical and monetary accounts for land, land cover, land use andforest (CF 5.235)Soil resourcesArea and volume of soil resources (CF 5.318)Timber resourcesPhysical and monetary accounts for timber resources (CF 5.343)Aquatic resourcesPhysical and monetary accounts for fish, crustaceans, molluscs,shellfish and other aquatic organisms such as sponges andseaweed as well as aquatic mammals such as whales. (CF 5.393)(CO2, pollutants) (CF 3.233)Other biological resourcesCultivated animals and plants including livestock, annual cropssuch as wheat and rice, and perennial crops such as rubberplantations, orchards and vineyards. (CF 5.462)Water resourcesStock of water resources (CF 5.471)
General structure of the physical account for environmentalassets (physical units)Mineral & energyresourcesLand (incl. Soil resourcesforest land)Timber resourcesCultivated NaturalOpening stock of resourcesAquatic resourcesCultivatedNaturalWater resourcesYesYesYesYesYesYesYesYesnaYes*Soil cipitationAdditions to stock of resourcesGrowth in stockSoil depositionReturn flowsDiscoveries of new stockYesnanananaYes*Yes*Yes*Upwards stGross catchAbstractionnanaEvaporationTotal additions to stockReductions in stock of resourcesExtractionsNormal reductions in stockSoil extraction Removals sesNormallossesEvapotranspirationCatastrophic lossesYes*Yes*Yes*YesYesYesYesYes*Downwards esYesTotal reductions in stockClosing stock of resources
System of Environmental-Economic AccountingExercise on Water Resources
The economyRiversandstreams5000, T1Lakes2700, T1ArtificialReservoirs1500, T1Soil water500, T1Groundwater100000, T118070089028010541419430Other territories10000The Sea56
System of Environmental-Economic Accounting
System of Environmental-Economic tionInflows from other territoriesInflows from other inland water resourcesDiscoveries of water in aquifersTotal additions to stockReductionsAbstractionfor hydro power generationfor cooling waterEvaporation & actual evapotranspirationOutflows to other territoresOutflows to the seaOutflows to other inland water resourcesTotal reductions in stockClosingArtificialreservoirs1500Type of water resourceGroundwater Soil waterSurface waterGlaciers,Rivers andLakessnow and 4043805947002159994301000035544553010797523
System of Environmental-Economic AccountingExample: Land accounting
System of Environmental-Economic AccountingMotivation of land accounting Assessment of the ownership and use of land as part ofeconomic production process Assessment on various issues such as impacts ofurbanization, sustainability of agricultural and forestry, theuse of inland water resources, biodiversity conservation, etc. Assessment of national and institutional sector wealth Provide indicators of change (e.g. land use and land cover)and allow trade-off analysis Unlock the power of GIS to locate areas of change and mapa wide range of social, economic and environmentalinformation Fundamental to ecosystem accounting
System of Environmental-Economic AccountingKey components in land accountingLand accounts register the state of land cover at certain time (calledland stocks) in terms of extent (area) and type; changes between two steps in time (called landflows)Key components of land accounting include land cover types and their functions or uses(ecological, economic, social) at broader scale land ownership and tenure at finer scale.
System of Environmental-Economic AccountingImportant definitions Land: A unique environmental assets that delineates thespace in which economic activities and environmentalprocesses take place and within which environmental assetsand economic assets are located (SEEA Central Frameworkpara 5.239) Land cover: refers to the observed physical and biophysicalcover of the Earth's surface and includes natural vegetationand abiotic surfaces (SEEA Central Framework para. 5.257) Land use: reflects the activities undertaken and theinstitutional arrangements put in place for a given area for thepurpose of economic production, or the maintenance andrestoration of environmental functions (SEEA Central27Framework para. 5.246)
System of Environmental-Economic AccountingInternational guidance of land accounting SEEA Central framework – section 5.6 “Assetaccounts for land” SEEA-Experimental Ecosystem Accounting –section 4.3 “Compiling ecosystem asset accounts” CBD’s Quick-Start Package on Ecosystem naturalcapital accounting – chapter 4 “The Land Coveraccount” Technical guidance on land accounting (currentlydeveloped as part of SEEA Implementationprogramme)28
System of Environmental-Economic AccountingPhysical assets accounts for land in SEEACentral Framework Objective: Describe the area of land andchanges in the area of land cover over anaccounting period Types of land accounts Land cover Land use Land ownership by industry or institutional sector Measurement units: Units of areas such as hectares or squares metres
System of Environmental-Economic AccountingPhysical assets accounts for land:properties General, a country’s area will remain unchangedfrom one period to the next Changes between the opening and closing stockof land in physical terms Primarily encompass changes between differentclasses of land Exceptions: Reclamation of land Land subsidence or high water level Political reasons: war, disputed territory
System of Environmental-Economic AccountingLand cover classification Land cover classification system v3 (LCCS 3) developed by FAO Includes land and inland waters
System of Environmental-Economic AccountingLand cover basic rules
System of Environmental-Economic AccountingPhysicalaccounts for land cover (hectares)Total opening stock Total closing stockIncrease of land cover type due to human activityIncrease in area resulting from natural processReflect changes due to the use of updated information thatpermits a reassessment of the size of different area of land cover.E.g. new satellite imagery or interpretation of satellite imageryDecrease of land cover type due to human activityDecrease in area resulting from natural process
System of Environmental-Economic AccountingLand cover change matrix (hectares)Total opening area Total closing areaGrassland and tree-covered area converted tocropfield over a period of time
System of Environmental-Economic AccountingClassification of land use Classification of land use (interim) in the SEEA Central Framework 4-digit level classification1Land3Coastal waters1.1Agriculture3.1Coastal waters used for aquaculture or holding facilities1.2Forestry3.2Coastal waters used for maintenance and restoration ofenvironmental functions1.3Land used for aquaculture3.3Other uses of coastal waters1.4Use of built-up and related areas3.4Coastal waters not in use1.5Land used for maintenance and restoration ofenvironmental functions1.6Other uses of land n.e.c.1.7Land not in use2Inland waters4Exclusive economic zone (EEZ)2.1Inland waters used for aquaculture or holdingfacilities4.1EEZ areas used for aquaculture of holding facilities2.2Inland waters used for maintenance andrestoration of environmental functions4.2EEZ areas used for maintenance and restoration ofenvironmental functions2.3Other uses of inland waters n.e.c.4.3Other uses of EEZ areas n.e.c.2.4Inland waters not in use4.4EEZ areas not in use
System of Environmental-Economic Accounting
MonetarySystem of Environmental-Economicasset accountAccountingfor land bytype of and use (currency units)Acquisition (additional to stock) and disposal (reduction ofstock) of land are recorded when transactions inenvironmental assets take places between institutional unitsin different sectors.Reclassifications occur in situation in which land is used for differentpurpose.
System of Environmental-Economic AccountingData Visual photo-interpretation of satellite images National cartographic sources of land-coverinformation National field survey38
System of Environmental-Economic AccountingExisting global sources of land cover mapsNon-exhaustive list: Global land cover information service (for 2000 and 2010, at 30m,based on Landsat, mapped by China): MODIS Land cover (annual since 2001, at 250m, by NASA): GlobCover (for 2005 and 2009, at 300m, based on MERIS,European Space Agency): Global Land Cover-SHARE (compilation of the available best datasources for land cover from the countries, at 1km, by FAO):Issues: Problems of spatial accuracy and details Lack of time series
System of Environmental-Economic AccountingExercise on Timber Resources: Q1
System of Environmental-Economic AccountingDepletion of Environmental Assets
System of Environmental-Economic AccountingDepletion and Sustainable YieldSustainable yield curveHarvestMinimum viablepopulationCarrying capacityPopulation size
System of Environmental-Economic AccountingDefinition of Depletion“Depletion, in physical terms, is the decreasein the quantity of the stock of a naturalresource over an accounting period that isdue to the extraction of the natural resourceby economic units occurring at a level greaterthan that of regeneration”2012 SEEA Central Framework 5.76
System of Environmental-Economic AccountingKey Points Depletion must be a physical flow before valuation takesplace Monetary estimates equal physical flow * average price of resourcebefore extraction Only for natural resources not cultivated resources Only extraction by economic units – not all reductions instock Discoveries of non-renewable resources are notconsidered regeneration Depletion will generally not equal change in the value ofthe stock Depletion is distinct from degradation which reflectsreductions in the functioning of ecosystems
System of Environmental-Economic AccountingExercise on Timber Resources: Q1
System of Environmental-Economic AccountingMonetary Valuation
System of Environmental-Economic AccountingDefining Economic Assets Economic owner: The institutional unit entitled to claim the benefits associatedwith the use of an asset in an economic activity Economic benefits Include operating surplus from sale of extracted resources, rentearned by allowing use of resources, receipts from sale ofassets Economic asset Store of value representing the benefit or series of benefitsaccruing to the owner by holding or using the asset over time
System of Environmental-Economic AccountingEconomic and Environmental AssetsECONOMICASSETSProduced assets- Fixed assets &inventoriesENVIRONMENTALASSETS- Cultivatedbiological resourcesNon-produced assets- Contracts, marketing- Natural resourcesassets, etc.& landFinancialassetsNatural resources& land with noeconomic benefits(e.g. barren land,known mineraldeposits withoutcurrent economicvalue)
System of Environmental-Economic AccountingValuation Principles & Methods Value at balance sheet date (e.g. end offinancial year Value using market prices Market prices are amounts of money that willingbuyers pay to willing sellers Exchange prices/value or transaction prices –generally observable If prices not observable need to determine aprice that would be applicable if a market hadexisted
System of Environmental-Economic AccountingMethods for Estimating Market Prices Market price equivalents Prices for similar products or assets Written down replacement costs Used for buildings and machines equal to the originalpurchase price adjusted for depreciation and thecurrent replacement cost Net present value (NPV) Assess the value of the future flow of benefits(income) from using or owning the asset
System of Environmental-Economic AccountingLogic of NPV1. Estimate past Resource Rent (RR) from sale ofresources2. Estimate the physical stock and remainingasset life assuming a rate of extraction3. Estimate future annual flows of RR over theasset life4. Discount each future annual estimate of RR5. Sum the discounted estimates NPV
System of Environmental-Economic AccountingMeasures of Resource Rent Residual value method Generally obtained from national accounts andrelated data - see Table 5.4.1 Appropriation method Based on payments made by extractors ofresources to owners of resources – e.g.royalties paid to government for mining Access price method Based on payments made by extractors foraccess rights and licences – e.g. quotas infishing In theory all provide the same estimate but inpractice all can be quite different
System of Environmental-Economic AccountingResidual Value MethodOutput (sales of extracted environmental assets at basic prices, includes all subsidies on products, excludes taxes on products)Less Operating costsIntermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products)Compensation of employees (input costs for labour)Other taxes on production plus Other subsidies on productionEquals Gross Operating Surplus – SNA basis (a)Less Specific subsidies on extractionPlus Specific taxes on extractionEquals Gross Operating Surplus – for the derivation of resource rentLess User costs of produced assetsConsumption of fixed capital (depreciation) Return to produced assetsEquals Resource rentDepletion Net return to environmental assets (b)
System of Environmental-Economic AccountingAsset life The asset life is the expected time over which anasset can be used in production or the expectedtime over which extraction from a natural resourcescan take place In a very simple caseAsset life closing physical stock/expected annual extraction overexpected annual growth However, especially for natural biological resources, need to considerbiological model and associate sustainable yields of biological resourcesto ensure the impact of changing age and biological structure is takeninto account in the determination of the asset life
System of Environmental-Economic AccountingValuation ― Net present value Net present value (NPV) is the discounted valueof future economic benefits from a given asset Follows conventions adopted in the System ofNational Accounts to value capital assetsTRR1NPV tt 1 1 ri where:RR resource rentT reserve life, i.e. Closing stock extractionri discount rate
System of Environmental-Economic AccountingExercise:Valuation of a Coal Deposit
System of Environmental-Economic AccountingUse of Asset Accounting Information
System of Environmental-Economic AccountingPossible Indicators in Physical Terms Changes in land use and land cover E.g. rates of conversion of agricultural and forest land Shares of resources that are cultivated or naturalbiological resources Ratio of extraction to natural growth for naturalbiological resources Intensity of water use: abstraction / stocks Availability of resources per capita Asset lives: expected extraction rates / stocks
System of Environmental-Economic AccountingExpected Asset Lives of MineralResources
System of Environmental-Economic AccountingPossible Indicators in Monetary Terms Total wealth including environmental assets Shares of wealth attributed to individual assets Rates of return to different assets Estimate future government revenues –royalties, taxes, rent, quotas, licences Depletion Adjusted GDP Productivity measures adjusting for cost of naturalcapital in addition to cost of fixed capital
Example: Depletion-adjustedaggregates from the sequenceof economic accountsSystem of Environmental-EconomicAccountingAccounting entryProduction accountOutputTaxes less subsidies on productsLess Intermediate consumptionGross Value Added**Less Consumption of fixed capitalNet Value AddedLess Depletion of natural resourcesDepletion adjusted Net Value AddedGeneration of income accountGross value addedLess Compensation of employees payableLess Other taxes less subsidies on productionLess Taxes less subsidies on productsGross operating surplusLess Consumption of fixed capitalLess Depletion of natural resourcesDepletion adjusted Net Operating surplusAllocation of primary income accountDepletion adjusted Net Operating surplusPlus Compensation of employees receivable (Households only)Plus Taxes less subsidies on production receivable (Generalgovernment only)Plus Property income receivable (interest, dividends, rent)Less Property income payableDepletion adjusted balance of primary incomeDistribution of secondary income accountDepletion adjusted balance of primary incomePlus Current transfers receivableLess Current Transfers payableDepletion adjusted Net Disposable IncomeUse of disposable income accountDepletion adjusted Net Disposable IncomeLess Final consumption expenditureDepletion adjusted Net SavingCapital accountDepletion adjusted Net SavingLess Gross fixed capital formationLess Changes in inventoriesLess Acquisitions less disposals of valuablesLess Acquisition less disposals of natural resources and landLess Acquisition less disposals of other non-produced, nonfinancial assetsPlus Capital transfers receivableLess Capital transfers payableAdd back Consumption of fixed capitalAdd back Depletion of natural resourcesNet Lending/BorrowingInstitutional H*2 954na1 5291 4251691 25661 121 4251 331221631221 154TotalEconomy3 6041331 8831 8542221 63261 6261 8541 1505813351322262852851 1541911912453021062242171123411 358761106347375781713672482901 3584205821 196140734111178290352- 621 1961 015181343221 5981 39919978288262-7- 6235253218148254199376281033231696- 46634272352333- 103163-4783973911 63663617421259816265222610
System of Environmental-Economic AccountingThank You!seea@un.org62
Soil resources Area and volume of soil resources (CF 5.318) Timber resources Physical and monetary accounts for timber resources (CF 5.343) Aquatic resources Physical and monetary accounts for fish, crustaceans, molluscs, shellfish and other aquatic organisms such as sponges and seaw
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The paper examined the theoretical framework for environmental accounting. It adopted theoretical approach. We looked at the different definitions of environmental accounting. Conceptual framework and terminologies were explained. They include environmental accounting, environmental financial accounting, Ecological accounting, Natural resource accounting etc. Other concepts such as
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