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The economy has a complex relationship with the environment. It provides the raw materials and energy for the production of goods and services that support our lifestyles, but the environment also sustains damage through the activities of households and businesses. The national accounts are sometimes criticised for including the value of goods and services produced and the income generated through the use of environmental assets, but not reflecting the economic cost of depleting environmental assets or the damage that arises from economic activity. Thus,
This section discusses how the environment is currently treated in the Australian national accounts (Australian System of National Accounts, 2000-01 (5204.0)), and gives a broad overview of the work being done by the ABS to extend the core national accounts in what could be called a satellite account for 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. Economic environmental assets 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 economic assets 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.
The environmental assets in the Australian national and sector balance sheets are land, significant subsoil assets, plantation timber, and native standing timber available for exploitation. Land valuations are available through administrative sources, and 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. Plantation standing timber is also considered an environmental asset and plantations are included in the balance sheet as inventories because timber growth is controlled. Water and fish stocks have not been included on the Australian national balance sheet due to a lack of available data.
The Australian national balance sheet recorded $3,797b worth of assets at 30 June 2002, of which $1,364b (36%) were economic environmental assets (table 24.36).
While land accounts for 81% of the value of Australia's economic environmental assets, the value of rural land accounts for only 12% of the total value of land (table 24.37). Subsoil assets account for 18% and timber (native and plantation) account for 1% of Australia's economic environmental assets. No values are included for other environmental assets. The value of environmental assets in current prices grew strongly during the 1990s, doubling between 30 June 1994 and June 30 2002. Much of this growth, however, was due to rising prices. Environmental assets grew in chain volume terms by 10% during the same period.
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. More detail of the theory and calculations used by the ABS are presented in Environment by Numbers, 2003 (4617.0).
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. A discovery occurs when previously unknown stocks of minerals are found and delineated. In the national accounts the value of a new discovery in itself is not considered as production or income because it is a gift of nature. Graph 24.38 shows that depletions are increasing at a relatively constant rate, whereas discoveries are erratic. The end result is that in some years more subsoil resources are found than are depleted, while in other years the reverse is true and in some years depletions and discoveries are more or less equal in value.
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). The details of this are presented in Environment by Numbers, 2003 (4617.0).
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 (Roberts 1997).
Two recent national studies used different approaches to measuring economic losses due to land degradation.
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 yet available. However, given the value of native forests on the national balance sheet is $3.1b compared with $246b for subsoil assets, it is expected that depletion will be relatively insignificant. 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 national accounts between the treatment of produced assets such as buildings, and plant and natural (non-produced) assets. Depreciation of produced assets (termed consumption of fixed capital in the national accounts (COFC)) is deducted to derive the 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 such deduction is made for natural 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 illustrated in table 24.40. 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, but 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, which may increase or decrease. As table 24.41 shows, the adjustments have the biggest impact on both NDP and NOS in 1994-95, due to the low value of subsoil asset additions in that year compared with the previous one.
Future work on environmental accounting
The work program on environmental satellite accounting is continuing. The ABS hopes to extend the depletion adjustment to include native forests. Other areas of work will be to highlight environmental protection expenditures and to look at extending the economic asset boundary to include the value of water and possibly fish. Work on the valuation of environmental damage (externalities associated with human and economic activity) is an undeveloped field of research at present.