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4628.0.55.001 - Completing the Picture - Environmental Accounting in Practice, May 2012  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 10/05/2012  First Issue
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CHAPTER 1-INTRODUCTION

Introduction
Background
What is the system of environmental-economic accounting?
The SEEA as a system
Valuation
SEEA as a co-ordinating framework for environmental-economic statistics
SEEA development and implementation


INTRODUCTION

The System of Environmental-Economic Accounting (SEEA) was adopted as an international statistical standard by the United Nations Statistical Commission at its 43rd meeting, held 28 February to 2 March 2012. As an international statistical standard the SEEA now has the same status as the System of National Accounts (SNA), from which key economic indicators such as GDP (gross domestic product) emerge. The adoption of the SEEA by the United Nation's peak statistical body is a significant milestone in the on-going development of information to support the needs of government, industry and the general public in the area of environmental policy.

In recognition of the SEEA adoption, the Australian Bureau of Statistics (ABS) produced this publication "Completing the Picture - Environmental Accounting in Practice" to inform government decision-makers, policy analysts, scientists, industry and other groups on how environmental accounts could be used and further developed in Australia.

The ABS program of environmental-economic accounts is evolving. Readers are invited to submit comments on this publication to help inform the future shape of the program. As resources permit, the ABS plans to continue to seek ways to expand the program, both in terms of the range of accounts produced and the frequency of their compilation.


BACKGROUND

The development of the SEEA has been driven by a desire to have more complete and robust information on the economy and the environment and to better understand the interactions between the two. This has been due to increasing realisation that economic prosperity is dependent on the ability of the environment to supply natural resources and to absorb pollution, and that environmental policies impact on economic activity. In the report "Beyond GDP" the Stiglitz Commission noted:
      'What we measure affects what we do; and if our measurements are flawed, decisions may be distorted. Choices between promoting GDP and protecting the environment may be false choices once environmental degradation is appropriately included in our measurement of economic performance. So too, we often draw inferences about what are good policies by looking at what policies have promoted economic growth; but if our metrics of performance are flawed, so too may be the inferences that we draw.'(footnote 1)

The SEEA is a measurement framework that can provide a range of metrics that link information on the economy and the environment. This integration of information is achieved by the use of common frameworks, classifications and standards, providing an integrated database for policy analysis and decision making.

This publication is structured to provide an introduction to the SEEA, its potential uses and to describe what a regular set of environmental-economic accounts for Australia could look like. Chapter 1 introduces the SEEA, briefly explaining its key features and the following seven chapters provide some examples of how SEEA accounts can be applied to a selection of public policy issues in Australia that cut across environmental and economic domains. These are:
  • Mitigating climate change (Chapter 2)
  • Adapting to climate change (Chapter 3)
  • Sustainability (Chapter 4)
  • Managing the Great Barrier Reef Region (Chapter 5)
  • Managing the Murray-Darling Basin (Chapter 6)
  • Green growth (Chapter 7)
  • Solid waste management (Chapter 8)

Each chapter is designed to be read as a stand-alone chapter and hence there is some overlap in the data presented. Chapters 2-8 do not contain large tables of data, which for ease of reading are instead included in the Appendix. In the Appendix the environmental accounts already produced by the ABS - water and energy accounts, as well as the natural resources appearing on the national balance sheet - are complemented by other SEEA accounts at various stages of development. In some cases the information presented in tables is labelled as 'experimental' to acknowledge that the output is the product of recent development work and should, at this stage, be considered experimental.

The tables contained in the publication show the potential for SEEA accounts to provide an integrating framework for many types of environmental and economic information.
WHAT IS THE SYSTEM OF ENVIRONMENTAL-ECONOMIC ACCOUNTING?

The SEEA is an accounting framework that records as completely as possible the stocks and flows relevant to the analysis of environmental and economic issues. An accounting approach distinguishes the SEEA from independent sets of statistics on environmental and economic issues because it demands coherence and consistency with a core set of definitions and treatments. As such the SEEA provides a framework to combine a wide range of source data to create aggregates, indicators and trends across the broad spectrum of environmental and economic issues.

The SEEA has its roots in the SNA. The SNA is a framework that measures economic activity and organises a wide range of economic data into a structured set of accounts. It defines the concepts, classifications and accounting rules needed to do this. The SNA measures economic activity in monetary terms and such valuation is usually based on market transactions. In a limited number of cases where market transactions do not occur but the transactions are very similar to market transactions, the value is approximated using a range of internationally agreed techniques. The SEEA extends the SNA by recording environmental data that are usually available in physical or quantitative terms in conjunction with the economic data in monetary terms from the SNA. The power of the SEEA comes from its capacity to present information in both physical and monetary terms in a coherent manner.

The integration of information concerning the economy and the environment requires a multi-disciplinary approach. The SEEA thus brings together, in a single framework, information on water, minerals, energy, timber, fish, soil, land and ecosystems, pollution and waste, production, consumption and investment. Each of these areas has specific and detailed measurement approaches that are integrated in the SEEA to provide a comprehensive view.

The SEEA is not designed to provide the richness and depth of statistics that exist in each specific area. Rather it is the linkages and connections developed in the SEEA that provide an additional and broader perspective and hence add value to the detailed information already available.

The broad and integrated nature of the SEEA makes it a relevant framework for the analysis of a wide range of current environmental policy issues from the management of individual natural resources, to the consideration of the prospects for decoupling economic growth from adverse environmental impacts.

Apart from these specific applications, the SEEA can also be used for:
      1. Deriving a range of indicators concerning environmental-economic issues such as energy use, water consumption, depletion of natural resources, etc
      2. Trend analysis through the use of common definitions and standards
      3. Providing a framework for organising existing data and for assessing its quality and completeness
      4. Monitoring the state of the environment and its relationship to the economy
      5. Following changes in trade patterns and the embedded emissions through physical input-output analysis
      6. Understanding where and when the benefits and costs of natural resource use accrue
      7. Enabling international comparisons and reporting.

THE SEEA AS A SYSTEM

The SEEA consists of a coherent, consistent and integrated set of tables and accounts which each focus on different aspects of the interaction between the economy and the environment or on the changing state of the environment. The tables and accounts are based on internationally agreed concepts, definitions, classifications and accounting rules.

There are four main types of accounts in the SEEA framework. These accounts are added to the existing monetary stock and flow accounts of the SNA:
      1. Physical flow accounts
      2. Functional accounts for environmental transactions
      3. Asset accounts in physical and monetary terms
      4. Ecosystem accounts

The first three types of accounts form the core of the SEEA and are known as the SEEA Central Framework. Ecosystem accounts are to be described in a second part of SEEA to be known as SEEA Experimental Ecosystem Accounts. The four main types of accounts are briefly described below.

Physical flow accounts record flows of natural inputs from the environment to the economy, flows of products within the economy and flows of residuals generated by the economy. These flows include water and energy used in production (e.g. of agricultural commodities) and waste flows to the environment (e.g. solid waste to landfill).

Functional accounts for environmental transactions record the many transactions between different economic units (i.e. industries, households, governments) that concern the environment. The relevant transactions are identified by first defining the set of environmental activities - i.e. those activities that reduce or eliminate pressures on the environment and that aim to make more efficient use of natural resources. Examples include investing in technologies designed to prevent or reduce pollution, restoring the environment after it has been polluted, recycling, conservation and resource management. Environmental activities are classified as being either environmental protection activities or resource management activities.

Asset accounts in physical and monetary terms measure the natural resources available and changes in the amount available. Asset accounts focus on the key individual components of the environment: mineral and energy resources; timber resources; fish/aquatic resources; other biological resources; soil resources; water resources; and land. They include measures of the stock of each environmental asset at the beginning and end of an accounting period and record the various changes in the stock due to extraction, natural growth, discovery, catastrophic loss or other reasons.

The compilation of asset accounts in physical terms can provide valuable information on resource availability and may help in the assessment of sustainability. A particular feature of the SEEA asset accounts is the estimation of depletion of natural resources in physical and monetary terms. For non-renewable resources the quantity of depletion is equal to the quantity of resource extracted but for renewable resources the quantity of depletion must take into account the underlying population, its size, rate of growth and associated sustainable yield.

Ecosystem accounts are a developing area and not yet part of the international statistical standard. Ecosystems are areas containing a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit. Ecosystem accounts are structured to summarise information about these areas, their changing capacity to operate as a functional unit and their delivery of benefits to humanity.

The benefits received by humanity are known as ecosystem services. They are delivered in different forms and are grouped into three broad categories. The first category of ecosystem services is provisioning services. These are the benefits received from the natural inputs provided by the environment such as water, timber, fish and energy resources. The second category is regulatory services. These include the benefits provided when an ecosystem operates as a sink for emissions and other residuals, when an ecosystem provides flood mitigation services or when an ecosystem provides pollination services to agriculture. The third category is cultural services. These are the benefits provided when an ecosystem such as a forest, provides recreational, spiritual or other benefits to people.

Each of the different types of accounts are connected within the SEEA framework but each one focuses on a different part of the interaction between the economy and the environment. Examples of the relationships between the different accounts include:
  • Asset accounts and ecosystem accounts focus on the stock and changes in the stock of environmental assets, with asset accounts focusing on the individual components and ecosystem accounts focusing on the interactions between these components.
  • Changes in the stock are most often the result of economic activity which in turn is the focus of physical flow accounts. Measurement of flows of natural inputs in the physical supply and use tables is consistent with the measurement of extraction in the asset accounts and the measurement of provisioning services in ecosystem accounts.
  • Measurement of flows of residuals to the environment as recorded in physical supply and use tables is an important consideration in the measurement of ecosystem services, particularly regulatory services.
  • Measures of the flows of natural inputs and residuals can also be related to transactions recorded in functional accounts for environmental protection and resource management, including investment in cleaner technologies and flows of environmental taxes and subsidies. For example, payments for emission permits recorded in functional accounts can be related to the flows of emissions recorded in the physical supply and use tables.
  • The effectiveness of the expenditure for environmental purposes may, ultimately, be assessed by changes in the capacity of ecosystems to continue their delivery of ecosystem services as recorded in ecosystem accounts.

These examples serve to highlight the many and varied relationships between the accounts, each taking a different perspective. Throughout the SEEA these relationships are supported by the use of common concepts, definitions and classifications.
VALUATION

One of the most difficult aspects of environmental decision-making is how to make trade-offs between the environmental assets that deliver a range of non-market goods and services, including ecosystem services, against development alternatives for which there are clear economic values. The SNA and the SEEA Central Framework include the value of environmental assets that have direct economic values. For example land, timber, fish, minerals and fossil fuels are included in the National Balance Sheet(footnote 2) . Valuation in the SNA and the SEEA Central Framework is based on market transactions or, where these are unavailable, the net present value of future expected income resulting from the use of these assets is recommended.

However, some environmental assets and many ecosystem services are not transacted in markets, although the value of some services may be included in the value of goods and services traded in markets. For example, the value of pollination is captured in the value of agricultural crop production, while tourism operators derive income from the people visiting natural attractions such as Uluru and the Great Barrier Reef.

The development of standardised methods for identifying and separately distinguishing the value of environmental assets and ecosystem services is an on-going area of work in the SEEA. The recognition of the value of these assets and services could provide important information to decision-makers and enable a comparison between different development alternatives.
SEEA AS A CO-ORDINATING FRAMEWORK FOR ENVIRONMENTAL-ECONOMIC STATISTICS

The SEEA stands apart from individual sets of environmental statistics in a number of ways. While sets of environmental statistics are usually internally consistent, there is, usually for good reason, often no consistency between one set of statistics and another. Environmental statistics are often collected with a particular regulatory or administrative purpose in mind and the way in which they are structured is specific to this need.

In contrast, the SEEA is an integrated system of accounts in which, to the fullest extent possible, there is consistency between one account and another in terms of concepts, methods, definitions and classifications. In addition, implementation of such an integrated system aims for consistency across time. This is of the utmost importance in developing the comparable time-series estimates that are necessary in the policy process. The final important difference between environmental statistics and the SEEA is the latter's explicit goal of achieving compatibility with the economic information of the SNA and other satellite accounts. This adds considerable value to both the environmental and the economic information as it facilitates their analysis within a common framework.

The SEEA is different from traditional sets of environmental statistics in important ways, but it also relies upon them for the basic statistics required in its implementation. Ideally, these statistics would be readily available in a format that allowed their direct incorporation into the system. For example, data on air emissions from industrial sources would ideally be classified according to the industrial classification used in the SEEA. This would allow their simple incorporation into physical flow accounts and combined accounts.

It is likely that over time, as the SEEA becomes better known and adopted, there will be changes to the way in which environmental statistics are collected and structured, and in particular the adoption of common classifications and definitions of concepts. For this to occur there must be a spirit of collaboration and respect between those producing environmental accounts and those collecting data. The former group must understand that collecting data for environmental accounts may be a secondary concern for those responsible for providing information to, for example, a regulatory programme. The latter group must be convinced of the importance of having highly structured and consistent data within an accounting framework. The SEEA can serve as a guiding framework for the development of environmental information systems that are more compatible with economic statistics.
SEEA DEVELOPMENT AND IMPLEMENTATION

The ABS has been working closely with a range of institutions nationally and internationally on the development and implementation of environmental accounting. In Australia the ABS, the Department of Sustainability, Environment Water, Population and Communities and the Bureau of Meteorology are collaborating on the National Plan for Environmental Information (NPEI), the State of the Environment Report as well as the planning for national environmental accounts. The NPEI is a particularly important initiative as environmental accounts must be underpinned by regular and reliable environmental information. Also at the national level the ABS is working with the Department of Resources Energy and Tourism and the Department of Climate Change and Energy Efficiency on issues relating to the data needed for regular SEEA based energy and greenhouse gas emissions accounts. At the state level the ABS is working closely with the Queensland and Victorian governments on the development of pilot land accounts, with a view to developing land accounts in other states as resources and data permit. The ABS is also contributing to the development of environmental accounting in the catchment management authorities as well as to research by academics into biodiversity, carbon and ecosystem accounting.

Internationally the ABS has been working with the international statistical community to develop the SEEA, chiefly through the process established by the United Nations Statistical Commission and the United Nations Committee of Experts on Environmental-Economic Accounting (UNCEEA). The UNCEEA is currently chaired by the ABS and has representatives from the national statistical offices of other countries as well as international agencies - Food and Agricultural Organisation, International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations Statistics Division, and World Bank.

The development of ecosystem accounts for the SEEA has been a focus of research in recent times. This work is building on the SEEA Central Framework as well as Australian and international experience. For example, the United Kingdom's National Ecosystem Assessment(footnote 3) , a range of work by the European Environment Agency(footnote 4) , the development of the Common International Classification of Ecosystem Services(footnote 5) , the Australia Ecosystem Services: Key Concepts and Applications(footnote 6) and others in Australia and elsewhere. Much of this experience was brought together at an Expert Meeting on Ecosystem Accounts, held in London 5-7 December 2011(footnote 7) .

1 Stiglitz, Sen and Fitoussi. 2009. Report of the Commission on the Measurement of Economic performance and Social Progress. <back
2 See Australian System of National Accounts, 2010-11 (cat. no. 5204.0). <back
3 UK National Ecosystem Assessment, 2011. <back
4 E.g. European Environment Agency, 2011. An Experimental framework for Ecosystem Capital accounting. <back
5 Haines–Young, R. 2010. Proposal for a Common Classification of Ecosystem Goods and Services (CICES) for Integrated Environmental and Economic Accounting. <back
6 Department of Environment, Water, Heritage and the Arts, 2009. <back
7 Expert Group Meeting on Ecosystem Accounts. London 5–7 December 2011. <back

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