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4628.0.55.001 - Completing the Picture - Environmental Accounting in Practice, May 2012  
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CHAPTER 4-SUSTAINABILITY

Introduction
Policy frameworks
The role of environment expenditure in sustainable development
The role of environmental taxes and subsidies in managing sustainable development
Physical environmental assets
Relationship to other reports on sustainability and wellbeing


INTRODUCTION

This chapter shows how the System of Environmental-Economic Accounting (SEEA) can be used to assess sustainability using a capital approach.

In August 2011 Martin Parkinson, the Secretary of the Treasury, said that:

"...Sustainable wellbeing requires that at least the current level of wellbeing be maintained for future generations. In this regard, we can consider sustainability as requiring, relative to their populations, that each generation bequeath a stock of capital - the productive base for wellbeing - that is at least as large as the stock it inherited. … Running down the stock of capital in aggregate diminishes the opportunities for future generations. In one way or another, eroding the productive base will lead to lower future wellbeing. Note, though, that drawing down any one part of the capital base may be reasonable as long as the economy's aggregate productive base is not eroded."(footnote 1)

Natural capital is generally recognised as being composed of: land (including soil and landscape features such as hills and mountains); subsoil assets (e.g. minerals and fossil fuels); water (fresh water and groundwater); oceans; the atmosphere; and, biological resources (e.g. forests, fish, other species and habitats). The System of National Accounts (SNA) includes estimates of the value of these resources where they fit the definition of an economic asset. An economic asset must have an identifiable owner and the owner must be able to hold or use these assets for economic gain.

The Australian Bureau of Statistics (ABS) currently includes experimental values for natural assets such as subsoil assets, timber in forests, fish and land on the National Balance Sheet(footnote 2) . The National Balance Sheet also includes the value of financial and produced assets (e.g. buildings, plant and machinery). The ABS is also investigating the valuation of other components of natural capital, for example water, carbon and biodiversity. The inclusion of these assets would provide a more complete assessment of Australia's natural capital and would complement the existing regularly produced estimates of the value of Australia's economic assets.

The capital approach to measuring sustainability may reasonably be extended to cover social and human capital. Existing estimates for these types of capital are considered experimental in nature and are discussed later in this chapter.

The notion that one form of capital can be substituted for another, provided the overall aggregate or total value of the capital base is not reduced is known as weak sustainability(footnote 3) .

Weak sustainability(footnote 3) is a normative sustainable development goal specifying that the total per capita value of all capital stocks, or total national wealth per capita, should not decline over time in real terms. Weak sustainability incorporates an assumption of perfect substitutability between the various types of capital. The depletion of one stock of capital - petroleum reserves, say - can be fully compensated by investment in another stock - perhaps human capital. So long as this compensation is always undertaken, then society is free to pursue whatever mix of capital stocks best suits its needs. A strong undercurrent in this view is that technological progress can, over time, eliminate constraints imposed by scarcity of any particular capital stock. It is, in other words, the world view of the technological optimist.

Strong sustainability(footnote 3) , on the other hand, assumes that substitution possibilities among capital stocks are limited, even in the face of technological progress, because of the critical nature of some assets and the services they produce. It therefore sets minimum levels for certain stocks of critical capital, below which they are not allowed to fall.

Strong sustainability recognises that the impact of humans on the environment is less marginal. Small changes in natural capital, even critical natural capital, may be reasonably easily dealt with through substitution or simply by accepting lower levels of ecosystem services. As changes become greater, however, we move closer to the point where substitution is a practical impossibility and where living with reduced service levels induces unbearable costs. The consequences of these non-marginal changes in natural capital are difficult to measure, in part because scientific knowledge of natural systems is not perfect. Careful tracking of natural capital stocks is therefore called for by the strong sustainability view. As noted, though, arguments can be made that critical forms of capital can be found in other categories, including social capital. Thus, the strong view of sustainable development should not be viewed as relevant only to environmental concerns.

If it is considered that capital stocks can be substituted for each other in order to deliver benefits to people, then a notion of weak sustainability is accepted. The practical implication of this notion for the measurement of sustainable development is that a single monetary aggregate, such as genuine savings or total national wealth, is a sufficient measure of sustainable development. Importantly, the SEEA can inform assessments of sustainability regardless of whether these are based on a weak or strong notion of sustainability.

The capital approach has some limitations for the measurement of sustainability(footnote 4) ,(footnote 5) . The limitations of a monetary capital approach are described in a report by the United Nations Economic Commission for Europe (UNECE)/Organisation for Economic Co-operation and Development (OECD)/Eurostat Working Group on Statistics for Sustainable Development (WGSSD):

"To reach its full potential, the capital approach requires measurement of all capital stocks using a common unit. The only obvious choice of unit - money - is problematic for two reasons. First, it is difficult to uniquely determine all of the ways in which capital contributes to well-being. Those that cannot be identified obviously cannot be valued. Second, even for those contributions we can identify, it is sometimes difficult to translate their value into dollars. This is partly because functioning markets rarely achieve the ideal conditions economists impose upon them in their valuation methods and partly because the methods themselves remain underdeveloped in some cases.

There is in addition to the debate over the economics of valuation a debate over its ethical underpinnings. Certain observers place a question mark after the right of humans to exploit nature in a destructive manner, even if this, at least in the short run, may increase total national wealth. Clearly, aggregating nature along with other forms of wealth as though humans are indifferent to its existence so long as their well-being is assured is at ethical odds with this view.

A third limitation on valuation is the degree of substitutability among capital types. It is generally accepted that the various components of national wealth cannot always and without difficulty be replaced with each other. It is not so, for instance, that ecosystem services, which may be considered as one of the dividends of natural capital, can easily and always be replaced by increased income, the dividend of financial, produced or human capital. Capital services for which no substitute can be found are said to flow from critical capital stocks. To the extent that some capital stocks are indeed critical, the possibility of using a single monetary aggregate to measure sustainable development disappears. It would be wrong to aggregate values for non-critical capital with those for critical capital into a single measure. In doing so, essential information for sustainable development would be lost."(footnote 6)


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.

4.1 Examples of policy frameworks and initiatives

Government Sustainability policy

Australian Sustainable Australia - Sustainable Communities Ecological Sustainable Development for Government Agencies
The Treasury’s strategic framework
Clean Energy Future
New South Wales Sustaining our environment
Victoria Our Environment Our Future
Queensland Toward Q2: Tomorrow’s Queensland - (Web page under review)
South Australia South Australia’s Strategic Plan 2007: Goal 3 - Attaining sustainability
Western Australia Hope for the Future: The Western Australian State Sustainability Strategy
Tasmania Tasmania Together
Northern Territory Territory 2030 plan
Australian Capital Territory People Place Prosperity: a policy for sustainability in the ACT



Here we examine the Commonwealth Treasury’s strategic framework(footnote 7) , which sets out five dimensions for the evaluation of policy:
  • The set of opportunities available to people. This includes not only the level of goods and services that can be consumed, but good health and environmental amenity, leisure and intangibles such as personal and social activities, community participation and political rights and freedoms.
  • The distribution of those opportunities across the Australian people. In particular, that all Australians have the opportunity to lead a fulfilling life and participate meaningfully in society.
  • The sustainability of those opportunities available over time. In particular, consideration of whether the productive base needed to generate opportunities (the total stock of capital, including human, physical, social and natural assets) is maintained or enhanced for current and future generations.
  • The overall level and allocation of risk borne by individuals and the community. This includes a concern for the ability, and inability, of individuals to manage the level and nature of the risks they face.
  • The complexity of the choices facing individuals and the community. Our concerns include the costs of dealing with unwanted complexity, the transparency of government and the ability of individuals and the community to make choices and trade-offs that better match their preferences."

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:
  • What is the value of Australia's capital base?
  • How much capital is available per person?
  • What is the income generated from capital?
  • How much is spent on maintaining or improving Australia's capital base compared to depletion of Australia's capital base?

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.
4.2 Australia's Capital Base, current prices - as at 30 Jun

2000-01
2005-06
2006-07
2007-08
2008-09
2009-10
Capital Estimate
$b
$b
$b
$b
$b
$b

Produced Capital(a)
2 251.2
3 271.5
3 554.0
3 843.4
4 048.0
4 227.9
Net Financial Assets with the rest of the world
-362.5
-528.7
-613.2
-658.5
-703.7
-776.9
Natural Capital(partial)
1 528.1
3 117.4
3 512.3
3 773.4
3 936.1
4 574.3
Human Capital
6 769.8
na
na
na
na
na
Social Capital
na
na
na
na
na
na

na not available
(a) Excludes plantation timber inventories, which are included under Natural Capital
Source: Australian System of National Accounts, 2010-11 (ABS cat. no. 5204.0)


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.

4.3 Australia's Capital Base, volume measures - as at 30 Jun

2000-01
2005-06
2006-07
2007-08
2008-09
2009-10
Capital Estimate
$b
$b
$b
$b
$b
$b

Produced Capital(a)
3 029.9
3 585.1
3 724.7
3 887.2
4 035.6
4 181.8
Net Financial Assets with the rest of the world
-437.4
-566.7
-638.6
-667.7
-703.6
-758.4
Natural Capital(partial)
4 151.8
4 421.8
4 483.9
4 552.8
4 619.5
4 678.2
Human Capital(b)
7 036.2
na
na
na
na
na
Social Capital
na
na
na
na
na
na

na not available
(a) Excludes plantation timber inventories, which are included under National Capital
(b) Human capital estimates are in 2001 constant prices
Source: Australian System of National Accounts, 2010-11 (ABS cat. no. 5204.0)


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%.
4.4 Human capital estimates, constant 2001 dollars

Closing stock
Per capita
$b
$

1981-86
4 945.5
309 000
1986-91
5 804.3
336 000
1991-96
6 486.7
354 000
1996-01
7 036.2
362 000

Source: Research Paper: Measuring Human Capital Flows for Australia: A Lifetime Labour Income Approach, 2010-11 (ABS cat. no. 1351.0.55.023)


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.

4.5 Estimates of Australia's Capital Base(a), volume measures, as at 30 June

2000-01
2005-06
2006-07
2007-08
2008-09
2009-10
Capital Estimate
$
$
$
$
$
$

Produced Capital(b)
156 000
173 000
177 000
184 000
188 000
192 000
Net Financial Assets with the rest of the world
-22 000
-27 000
-30 000
-31 000
-32 000
-34 000
Natural Capital(partial)
214 000
214 000
213 000
212 000
210 000
210 000
Total
348 000
359 900
360 000
362 000
361 000
364 000
National Net Savings per capita
1 668
3 175
3 352
3 848
4 987
4 067

(a) Where available
(b) Excludes plantation timber inventories, which are included in natural capital
Source: Australian System of National Accounts, 2010-11 (ABS cat.no. 5204.0)


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).

4.6 Per capita capital estimates, 2000-01 base year(a)
Graph: 4.6 Per capita capital estimates, 2000–01 base year(a)


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:
  • Rent on Natural Assets (2008 SNA) - is commonly described as royalties and is typically the return to the General Government sector in exchange for allowing exploitation of certain natural resources.
  • Resource Rent (2012 SEEA) - the net operating surplus earned from extracting a natural asset can be decomposed into: a return on produced capital; and the resource rent.
  • Return on Natural Assets (2012 SEEA) - composed of the difference between depletion of natural assets and resource rent.

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) .
4.7 Income generated from Australia's Capital Base

Total economy
Financial
Natural
Depletion adjusted Net Operating Surplus
Net primary income from non-residents
Rent on Natural Assets(a)
$b
$b
$b

2000-01
162.4
-19.5
2.7
2001-02
181.0
-20.2
2.7
2002-03
190.5
-22.3
2.8
2003-04
209.6
-24.3
2.6
2004-05
224.3
-34.1
3.6
2005-06
244.7
-38.6
4.8
2006-07
264.9
-48.4
5.2
2007-08
288.9
-50.0
5.8
2008-09
331.0
-46.1
9.5
2009-10
334.3
-47.8
7.7

(a) Unconsolidated, primarily general government.
Source: Australian System of National Accounts, 2010-11 (ABS cat.no. 5204.0)


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.

4.8 Income from subsoil assets

Resource Rent
Of which: Return on Natural Assets
$b
$b

2000-01
15.8
13.2
2001-02
16.8
13.8
2002-03
18.3
14.7
2003-04
20.2
16.1
2004-05
22.0
18.0
2005-06
25.4
21.1
2006-07
28.8
24.4
2007-08
35.2
30.2
2008-09
39.6
32.5
2009-10
44.1
38.4

Source: Australian System of National Accounts, 2010-11 (ABS cat. no. 5204.0); and based on data from ABS Year Book Australia, 2009-10 (ABS cat. no. 1301.0).


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.
4.9 Investment in capital, current prices

Produced
Produced
Financial
Natural
Gross fixed capital formation
Gross fixed capital formation
Transactions in Net International Investment Position
Protection and conservation expenditure(a)
$b
$b
$b
$b

2000-01
163.1
9.5
17.8
na
2001-02
181.6
11.2
20.2
na
2002-03
206.2
13.9
38.4
na
2003-04
226.5
15.5
46.7
na
2004-05
247.7
17.5
58.3
na
2005-06
277.5
27.9
54.6
na
2006-07
299.1
34.4
60.9
na
2007-08
336.4
44.2
72.2
na
2008-09
351.1
52.7
38.8
na
2009-10
356.0
49.4
55.1
na

na not available
(a) Mining and manufacturing spent $1.5 billion on environment protection in 2000-01, Australia spent $8.9 billion in 1996-97 (ABS cat. no. 4603.0).
Source: Australian System of National Accounts, 2010-11, (ABS cat. no. 5204.0)


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.

4.10 Depletion of capital

Produced
Natural
Consumption of fixed capital
Depletion(a)
$b
$b

2000-01
-113.1
-2.9
2001-02
-119.8
-3.4
2002-03
-126.0
-3.9
2003-04
-133.3
-4.4
2004-05
-143.8
-4.4
2005-06
-156.3
-4.7
2006-07
-170.7
-4.8
2007-08
-184.1
-5.3
2008-09
-198.5
-7.4
2009-10
-207.0
-6.1

(a) Includes value of soil depletion and lost profit due to soil degradation
Source: Australian System of National Accounts, 2010-11 (ABS cat. no. 5204.0); and ABS, Year Book Australia, 2009-10 (ABS cat. no. 1301.0).


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.

4.11 Depletion of capital, 2000-01 base year
Graph: 4.11 Depletion of capital, 2000–01 base year


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:
  • Who is financing environmental expenditure?
  • Who is spending resources on the environment?
  • Who produces goods and services for the environment? and,
  • How does environmental expenditure flow through the economy?

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 supply side of the table shows total domestic production and imports of environment specific goods and services.
  • The use side of the table shows consumption of environment specific goods and services, as inputs to production of other goods and services, as final consumption by households and government and as exports.
  • By definition, total supply is equal to total use.

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) :
  • Energy taxes - Includes taxes on energy products used for both transport and stationary purposes. Taxes on fuel used for transport purposes should be shown as a separate sub-category of energy taxes. Energy products for stationary use include fuel oils, natural gas, coal and electricity. Taxes on carbon are regarded as an energy tax.
  • Transport taxes - Includes taxes related to the ownership and use of motor vehicles, taxes on other transport equipment, related transport services and also taxes related to the use of roads.
  • Pollution taxes - Includes taxes on measured or estimated emissions to air and water, and the generation of solid waste.
  • Resource taxes - Includes taxes on water abstraction, extraction of raw materials and other resources (e.g. sand and gravel).

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.

4.12 Expected resource life of selected minerals, Five year moving average
Graph: 4.12 Expected resource life of selected minerals, Five year moving average

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

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