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ENVIRONMENTAL ASSETS
Land accounted for 84% of the value of Australia's environmental assets included in the national balance sheet as at June 2005. It almost tripled in the period 1997-2005 - an average annual growth of greater than 10%. Subsoil assets, which account for about 15% of the assets, more than tripled in value over the period and timber (native and plantation), which accounts for less than 1% of Australia's environmental assets, saw relatively modest growth.
The strong growth in Australia's environmental assets (table 24.38) was mainly due to rising prices. Over the period 1997-2005, average annual growth in volume or real terms was only 1.6%. Average annual growth in the volume of land was 1.2% in the period, while subsoil average annual volume growth was 3.7%. Table 24.39 indicates that real growth in the stock of environment assets has been quite modest over the period, and that the strong growth in values can be attributed mainly to price effects.
MEASURING DEPLETION Depletion is defined in the international System of National Accounts 1993 (SNA93) as the:
Physical depletion 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. (See Environment by Numbers: Selected Articles on Australia's Environment, 2003 (4617.0)). SUBSOIL ASSETS The 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 24.40 shows depletions are increasing at a relatively constant rate whereas 'additions' are erratic as subsoil discoveries can be both substantial and sporadic. 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. Subsoil 'additions' exceeded $5b in the three years to 2004-05, due mainly to increasing crude oil extractions rather than discoveries. The volume of extraction of crude oil has averaged about 26 GL per year over the last decade, and at the same time crude oil prices have increased, resulting in the recent strong growth in the value of depletions. LAND If land is used sustainably, it has an infinite life and therefore, no adjustment for 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 deducting price rises due to inflation. Changes in the value of agricultural 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 recent 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 $14.2b 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 $2.6b 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 24.41. 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 depletion of native forests are not available. However, given the value of native forests on the national balance sheet is $3b compared with $343b 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. ADJUSTING THE AUSTRALIAN NATIONAL ACCOUNTS 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. The experimental estimates derived for the value of depletions and discoveries 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 24.42. 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. The net saving levels are changed by the same amount as for NOS so the nation's net lending position is left unchanged.
Adjusting the Australian national accounts for depletion and additions of subsoil assets also affects growth rates. As table 24.43 shows, the adjustments have the largest impact on the growth rates of NDP and NOS in 2000-01, and 2002-03. The growth rates are changed significantly when the net depletion adjustment swings from positive (a depletion) to negative (an addition). The swing between 2001-02 and 2002-03 exceeded $2b due to the high increase in subsoil asset additions in 2002-03, resulting in a 0.3 point increase in the growth of NDP.
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