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1301.0 - Year Book Australia, 2009–10  
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Contents >> Environment >> Environmental assets

ENVIRONMENTAL ASSETS

The economy has a complex relationship with the environment. The environment provides the raw materials and energy for the production of goods and services that support people's lifestyles. The environment also sustains damage through the activities of households and businesses. While this damage is well documented in the environmental literature, it generally falls outside the scope of the national accounts for an economy.

The national accounts measure of GDP includes the value of goods and services produced and the income generated through the use of environmental assets, but they do not reflect the economic cost of depleting environmental assets or the damage that arises from economic activity that is not remediated. In recognition of this asymmetry, the Australian Bureau of Statistics (ABS) has examined how to capture the environmental damage sustained in servicing the Australian economy and the longer-term sustainability in exploiting its environmental assets.

This section discusses how the environment is treated in the Australian national accounts and gives a broad overview of some environmental accounting undertaken by the ABS to capture certain economic costs to the environment.


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. Environmental assets that could be considered economic assets for the purposes of a national account 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 the national accounts, 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.

There are four environmental assets identified in the Australian national and sector balance sheets: land; significant subsoil assets; plantation timber; and native standing timber available for exploitation. Land valuations are available through administrative sources. 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. Plantations are included in the balance sheet as inventories because timber growth is controlled by an economic entity. Water and fish stocks have not been included on the Australian national balance sheet to date due to a lack of available data.

The Australian national balance sheet recorded $8,107b worth of assets at 30 June 2008, of which $3,544b (44%) were economic environmental assets (table 2.32). The value of environmental assets grew strongly in the period 1998 to 2008, with an average annual growth rate of 12%.

2.32 ASSETS, Current prices - 30 June

1998
2008
Average annual change
$b
$b
%

Financial
300
1 026
13.1
Buildings and structures
1 265
2 854
8.5
Machinery and equipment
303
476
4.6
Other produced
122
197
5.0
Other non-produced
1
10
24.8
Environmental
1 193
3 544
11.5
Total assets
3 183
8 107
9.8

Source: ABS Australian System of National Accounts, 2007-08 (5204.0).


Land accounted for 89% of the value of Australia's environmental assets included in the national balance sheet as at June 2008 (table 2.33). The value of land increased more than two and a half times in the period 1998 to 2008 - an average annual growth of 12%. Subsoil assets, which account for 11% of the assets, more than doubled in value over the period. In contrast, native and plantation timber, which account for less than 1% of Australia's environmental assets, saw relatively modest growth.

2.33 ENVIRONMENTAL ASSETS, Current prices - 30 June

1998
2008
Average annual change
$b
$b
%

Rural land
93
263
11.0
Other land
950
2 885
11.8
Oil and gas
81
139
5.5
Other subsoil
61
246
15.0
Native standing timber
2
2
2.1
Plantation standing timber
7
9
1.5
Total
1 193
3 544
11.5

Source: ABS Australian System of National Accounts, 2007-08 (5204.0).


The strong growth in the value of Australia's environmental assets was mainly due to rising prices. In the period 1998 to 2008, average annual growth in volume (or 'real' terms) was only 1%. Average annual growth in the volume of land was 1% in the period, while subsoil average annual volume growth was 3%. Table 2.34 indicates that real growth in the stock of environment assets has been quite modest in the period, and that the strong growth in values can be attributed mainly to price effects.

2.34 ENVIRONMENTAL ASSETS, Volume/Real(a) - 30 June

1998
2008
Average annual change
$b
$b
%

Land
2 694
2 994
1.1
Subsoil
253
339
3.0
Native standing timber
2
2
-0.7
Plantation standing timber
9
9
1.5
Total
2 959
3 344
1.2

(a) Reference year is 2006-07.
Source: ABS Australian System of National Accounts, 2007-08 (5204.0).


Measuring depletion

Depletion is defined in the U.N. System of National Accounts 1993 as the:

... reduction in the value of deposits of subsoil assets as a result of the physical removal and using up of the assets, ... the depletion of water resources, and the depletion of natural forests, fish stocks in the open seas and other non-cultivated biological resources as a result of harvesting, forest clearance, or other use.

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 (or extraction) 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.


Subsoil assets

The economic 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 output 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 2.35 shows economic depletions of minerals and fossil fuels increased at a relatively constant rate from 1999 to 2000 before levelling off in 2004-05 and 2005-06, whereas 'additions' are erratic as subsoil discoveries can be both substantial and sporadic, for example, the sharp rise in 2006-07 was mainly attributed to major finds in copper resources. The result is that in some years more subsoil resources are added than are depleted while in other years, the reverse is true. In some years, depletions and 'additions' are more or less equal in value.

2.35 Subsoil additions and depletion
Graph: 2.35 Subsoil additions and depletion

Land

If land is used sustainably, it has an infinite life and, therefore, no adjustment for economic 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 adjusting for price changes.

Changes in the value of 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.

Two national studies used different approaches to measuring economic losses due to land degradation. One used a farm survey to estimate the extent of land degradation on farms. Combining data from the survey with land value data, regression techniques were used to estimate that the difference in the capital value of farms with and without degradation was approximately $14b in 1999. This represents the total accumulated value of losses in land value due to degradation. The other - the National Land and Water Resources Audit - used models to estimate the 'yield gap', that is, the difference between profits with and without soil degradation. Lost profit at full equity due to salinity, sodicity and acidity was estimated as $3b in 1996-97.

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 are presented in graph 2.36.

2.36 Land degradation
Graph: 2.36 Land degradation



Forest assets

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 the economic depletion of native forests are not available. However, given the value of native forests on the national balance sheet is $2b compared with $385b 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.
Applying environmental accounts depletion estimates

There is currently an asymmetry in the Australian national accounts between the treatment of produced assets, such as buildings, and environmental assets. Depreciation of produced assets (termed consumption of fixed capital (COFC) in the national accounts) is deducted to derive 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 similar deduction is made for environmental 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.

International discussion on the treatment of renewable and non-renewable resources in the environmental accounts concluded that reappraisals and discoveries of mineral and energy resources are not the result of productive activities. Non-renewables should be treated as a volume change to the stock of resources. Subsoil discoveries therefore do not form a part of production and income. Additions to renewable resources need to be offset against the harvest of these resources.

The experimental estimates derived for the value of depletions 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 2.37. 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. These estimates will be different to those previously published due to the treatment of subsoil additions as other volume changes to assets and not as a factor of production.

2.37 PRODUCTION ADJUSTED FOR DEPLETION AND ADDITIONS, Current Prices

2002-03
2003-04
2004-05
2004-06
2006-07
$m
$m
$m
$m
$m

Subsoil depletion
3 686
4 146
4 067
4 253
4 157
plus
Land degradation
322
331
345
360
377
equals
Gross depletion adjustment
4 008
4 477
4 412
4 613
4 534
GDP
781 675
841 351
897 642
967 454
1 045 674
less
Consumption of fixed capital
121 521
128 350
134 927
146 126
159 102
equals
NDP
660 154
713 001
762 715
821 328
886 572
less
Gross depletion adjustment
4 008
4 477
4 412
4 613
4 534
equals
Depletion adjusted NDP
656 146
708 524
758 303
816 715
882 038

Source: ABS data available on request, Australian System of National Accounts.


Adjusting the Australian national accounts for depletion also affects growth rates. As table 2.38 shows, the adjustments have impacts of similar magnitude (+/-0.1%) on the growth rates of NDP.


2.38 CHANGES IN PRODUCTION GROWTH AFTER adjustment for depletion and additions,
Current prices

2002-03
2003-04
2004-05
2005-06
2006-07
%
%
%
%
%

GDP
6.2
7.6
6.7
7.8
8.1
NDP
6.4
8.0
7.0
7.7
7.9
Depletion adjusted NDP
6.3
8.0
7.0
7.7
8.0
Net change in NDP growth
-0.1
-
0.1
-
0.1

- nil or rounded to zero (including null cells)
Source: ABS data available on request, Australian National Accounts.




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