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1301.0 - Year Book Australia, 2012  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 24/05/2012   
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Environment

ACCOUNTING FOR THE ENVIRONMENT

Land and environment assets can be valued through traditional national accounting techniques. This allows these assets to be compared to other assets in a national accounting context, for example, the impact of their depletion on the ability to generate income and production in the future. While the System of Environmental-Economic Accounts (SEEA) recommends treatment of environment assets in both physical and monetary terms, land and other environment assets were consistently measured in the System of National Accounts and other frameworks prior to the development of the environment accounts. This section covers the existing treatment of environmental assets and the impact of their depletion on national accounts estimates of value added, income and savings. The special article in this chapter, Building a land account for Australia, describes land accounting and its relationship to the SEEA.


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. This damage is well documented in environmental literature and previously was not in scope of the national accounts. The 2008 System of National Accounts includes the impact of depletion on the value of natural assets that lie within the production boundary. These impacts are measured in the ‘Other changes in assets’ accounts, though not explicitly published in the Australian System of National Accounts. Therefore, while depletion occurs in the national balance sheet for Australia, it is often overridden by the value of new discoveries.

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 it does 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 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.

The next section discusses how the environment is treated in the Australian System of National Accounts and provides a broad overview of the environmental accounting activities undertaken by the ABS to capture certain economic costs to the environment.


ENVIRONMENTAL ASSETS IN THE AUSTRALIAN SYSTEM OF NATIONAL ACCOUNTS

For an asset to be included in the Australian System of 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 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. 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 that 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 $10,124 billion worth of assets at 30 June 2011, of which $4,421 billion (44%) were economic environmental assets (table 2.36). The value of environmental assets grew strongly in the period 2001 to 2011, with an average annual compound growth rate of 11%.


2.36 ASSETS(a), Current prices—30 June

2001
2011
Average annual compound growth rate
$b
$b
%

Financial
493.8
1 253.1
9.8
Buildings and structures
1 674.5
3 495.9
7.6
Machinery and equipment
334.0
552.3
5.2
Other produced
242.6
391.1
4.9
Other non-produced
8.2
11.2
3.2
Environmental
1 524.1
4 420.6
11.2
Total
4 277.1
10 124.1
9.0

(a) System of National Accounts 2008 basis.

Source:
Australian System of National Accounts (5204.0).


Land accounted for 86% of the value of Australia's environmental assets included in the national balance sheet as at June 2011 (table 2.37). The value of land nearly trebled in the period 2001 to 2011 – an average annual compound growth rate of 11%. Subsoil assets, which accounted for 14% of environmental assets in 2011, more than trebled in value over the period. In contrast, plantation standing timber saw relatively modest growth, while the value of native standing timber decreased slightly. Native and plantation standing timber together accounted for less than 1% of the value of Australia's environmental assets in 2011.


2.37 ENVIRONMENTAL ASSETS, Current prices—30 June

2001
2011
Average annual compound growth rate
$b
$b
%

Rural land
113.8
264.6
8.8
Other land
1 205.1
3 520.6
11.3
Oil and gas
98.4
234.9
9.1
Other subsoil
98.1
389.4
14.8
Plantation standing timber
6.8
9.6
3.5
Native standing timber
1.9
1.7
–1.1
Total
1 524.1
4 420.8
11.2

Source: Australian System of National Accounts (5204.0).


The strong growth in the value of Australia's environmental assets was mainly due to rising prices. In the period 2001 to 2011, the average annual compound growth rate in volume (or 'real') terms was only 1.3% (table 2.38).


2.38 ENVIRONMENTAL ASSETS, Volume/Real(a)—30 June

2001
2011
Average annual compound growth rate
$b
$b
%

Land
3 711.9
4108.2
1.0
Subsoil
426.1
592.7
3.4
Plantation standing timber
9.2
8.7
–0.6
Native standing timber
1.7
1.8
0.6
Total
4 148.9
4 711.4
1.3

(a) Reference year for chain volume measures is 2009–10.

Source:
Australian System of National Accounts (5204.0).


Measuring depletion

Depletion is defined across a number of accounts within the 2008 System of National Accounts, which defines depletion of natural resources as:
      "... depletion of natural resources covers the reduction in the value of deposits of subsoil assets as a result of the physical removal and using up of the assets... ... depletion of natural forests, fish stocks in the open seas and other uncultivated biological resources included in the asset boundary as a result of harvesting, forest clearance, or other use beyond sustainable levels of extraction should be included..."

Depletion is accounted for in the Other changes in volume accounts, which form an essential component of the national balance sheets. Australian practice is not to publish these estimates directly, although they are included in the annual national balance sheet estimates.

Depletion in an economic sense results because the value of the resource stock has been lowered through its use in a productive activity, and that 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.

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 2.39 shows that economic depletions of minerals and fossil fuels increased at a relatively constant rate, whereas 'additions' are erratic as subsoil discoveries can be both substantial and sporadic. Over the life of the additions and depletions estimates, most additions are consistent with depletions, which means that the values of environmental assets are largely driven through price changes.

2.39 Subsoil additions and depletions



Land

If land is used sustainably, it has an infinite life and 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 (Kemp and Connell, 2001; National Land and Water Resources Audit, 2002) used different approaches to measure economic losses due to land degradation. Kemp and Connell 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 billion in 1999. This represents the total accumulated value of losses in land value due to degradation. The National Land and Water Resources Audit used models to estimate the 'yield gap', the difference between profits with and without soil degradation. Lost profit at full equity due to salinity, sodicity and acidity was estimated as $3 billion 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 2.40.

2.40 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 that the value of native forests on the national balance sheet is $2 billion compared with $560 billion for subsoil assets, it is expected that depletion will have an 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.

Other uncultivated biological resource assets

Depletion in some of the more complex renewable resources is difficult to quantify and is not included in these depletion estimates. These would typically include estimates of any unsustainable extraction or harvesting of fish, native flora and fauna, unsustainable use of ecosystems and any other depletion of uncultivated biological resources. The ABS plans to research some of these estimates in the future.

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 national income (NNI) and national net saving (NNS). 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 national accounts.

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 2.41. 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 or income.


2.41 SELECTED NATIONAL ACCOUNTS ESTIMATES ADJUSTED FOR DEPLETION

2004–05
2005–06
2006–07
2007–08
2008–09
2009–10
2010–11
$m
$m
$m
$m
$m
$m
$m

Subsoil depletion
4 046
4 325
4 393
5 358
5 414
5 065
5 302
plus
Land degradation
346
362
380
397
418
421
447
equals
Gross depletion adjustment
4 392
4 687
4 772
5 755
5 832
5 486
5 749
GDP
920 899
994 803
1 083 060
1 175 949
1 252 218
1 293 380
1 401 168
less
Consumption of fixed capital
143 826
156 274
170 690
184 124
198 489
207 042
217 294
equals
NDP
777 073
838 529
912 370
991 825
1 053 729
1 086 338
1 183 874
less
Gross depletion adjustment
4 392
4 687
4 772
5 755
5 832
5 486
5 749
equals
Depletion adjusted NDP
772 681
833 842
907 598
986 070
1 047 897
1 080 852
1 178 125
Gross national income
886 835
956 161
1 034 662
1 125 963
1 206 140
1 245 564
1 344 337
less
Consumption of fixed capital
143 826
156 274
170 690
184 124
198 489
207 042
217 294
equals
Net national income
743 009
799 887
863 972
941 839
1 007 651
1 038 522
1 127 043
less
Gross depletion adjustment
4 392
4 687
4 772
5 755
5 832
5 486
5 749
equals
Depletion adjusted NNI
738 617
795 200
859 200
936 084
1 001 819
1 033 036
1 121 294
Gross saving
195 132
221 993
241 315
266 852
307 964
297 730
337 184
less
Consumption of fixed capital
143 826
156 274
170 690
184 124
198 489
207 042
217 294
equals
National net saving
51 306
65 719
70 625
82 728
109 475
90 688
119 890
less
Gross depletion adjustment
4 392
4 687
4 772
5 755
5 832
5 486
5 749
equals
Depletion adjusted net national saving
46 914
61 032
65 853
76 973
103 643
85 202
114 141
Depletion adjusted NNS as a % of GDP
5
6
6
7
8
7
8

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


Adjusting the national accounts for depletion will affect growth rates. As table 2.42 shows, the adjustments have impacts of similar magnitude (+/–0.1%) on the growth rates of NDP, NNI and NNS as a proportion of GDP.


2.42 CHANGES IN SELECTED NATIONAL ACCOUNTS ESTIMATES AFTER ADJUSTMENT FOR DEPLETION

2006–07
2007–08
2008–09
2009–10
2010–11
%
%
%
%
%
GDP
8.9
8.6
6.5
3.3
8.3
NDP
8.8
8.7
6.2
3.1
9.0
Depletion adjusted NDP
8.8
8.6
6.3
3.1
9.0
Net change in NDP growth
0.0
–0.1
0.1
0.0
0.0
GNI
8.2
8.8
7.1
3.3
7.9
NNI
8.0
9.0
7.0
3.1
8.5
Depletion adjusted NNI
8.0
8.9
7.0
3.1
8.5
Net change in NNI growth
0.0
–0.1
0.0
0.0
0.0
Gross saving
0.0
0.4
1.9
–1.6
1.1
NNS as a % of GDP
–0.1
0.5
1.7
–1.7
1.6
Depletion adjusted NNS as a % GDP
0.0
0.4
1.8
–1.7
1.5
Net change in NNS growth
0.1
–0.1
0.1
0.0
–0.1

Source: Australian System of National Accounts data on request.

 

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Statistics contained in the Year Book are the most recent available at the time of preparation. In many cases, the ABS website and the websites of other organisations provide access to more recent data. Each Year Book table or graph and the bibliography at the end of each chapter provides hyperlinks to the most up to date data release where available.

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