4655.0.55.001 - Towards an integrated environmental-economic account for Australia, 2010  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 25/11/2010   
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High quality information is needed to inform decision-making. Environmental policy decisions are particularly complex because they typically involve consideration of many (often competing) values. Articulation and identification of these values is difficult, and of the elements which are measurable, resources have constrained the breadth and depth of information available.

Within Australia, and in many countries, responsibilities for environmental and economic policies are institutionally separated. So too are the information systems that inform those policies. Given that economic policies have environmental impacts and vice versa, policy-making suffers from the absence of an information system that can articulate these linkages. This paper describes the concept of environmental-economic accounting as a means of linking the environment and economy, and proposes a new set of work by the ABS to inform these linkages.

The Economic Information System

In 1953 the System of National Accounts (SNA) was released under the auspices of the United Nations (UN) as an international statistical standard for measuring economic activity. Based largely on the theories of John Maynard Keynes, John Hicks and Simon Kuznets, the SNA provides governments with effective ways of measuring economic activity, which in turn guides economic management through fluctuations in business cycles.

The SNA framework utilises the concept of stocks and flows to measure economic activity and wealth. It is underpinned by a framework that incorporates standard concepts and classifications, allowing countries to produce economic data that are consistent across time and place. The SNA has continued to evolve over time to reflect the changing world, with the most recent edition being released in 2008.

A full articulation of the SNA includes many aggregate measures, one of which is Gross Domestic Product (GDP). GDP growth has led to job creation and improved well-being for many people. As a result, many policy-makers simply equate GDP growth with enhanced wellbeing. This has profoundly impacted decision-making because GDP and other economic indicators were never intended to be definitive measures of wellbeing. In a 1934 speech to the US Congress, Kuznets (an originator of the SNA) warned that "the welfare of a nation can scarcely be inferred from a measurement of national income".

This is because GDP and national income do not capture many vital aspects of national wealth and well-being, such as changes in quality of health, extent of education, social connection, political voice, unpaid household work, and changes in quality and quantity of natural resources. Further, GDP actually includes ‘defensive expenditures’ such as spending on household security, health and environmental protection. This is because the SNA measures activity within ‘the market’.

It is well understood however, that much of what maintains and enhances wellbeing occurs outside the market. For example within the SNA, environmental goods and services are considered to be ‘non-market’, implicitly superabundant, free inputs to production. As a result, they are used as inputs to production, but not charged as costs of production.

    "A country could exhaust its mineral resources, cut down its forests, erode its soil, pollute its aquifers, and hunt its wildlife to extinction, but measured income would not be affected as these assets disappeared." (Repetto et al. 1989)

Therefore the key limitation of the economic information system is that it is not capable of answering the higher order questions policy-makers (and society) are asking. In particular, it does not describe the relationship between the environment and economy.

The Environmental Information System

It is widely recognised that the information used to support policy development and decision-making in relation to Australia’s environment is inadequate. The Commonwealth State of the Environment Report 2006 said:
    "The current environmental data reporting system has a plethora of players with little or no incentives for agencies and organisations to collaborate in the collection, management and sharing of specific data. The 2006 Australian State of the Environment Committee advised two Ministerial Council Standing Committees in September 2005 of the lack of access to environmental data that was hindering their attempts to report on the state of Australia’s environment. The committees found that for many environmental domains, data are still patchy or only available at either local or regional scales. The standing committees, comprising the chief executives of environment and heritage agencies, agreed that the system for environmental reporting did need to be improved."

Since then, others such as the Hawke Review of the Environment Protection and Biodiversity Conservation Act 1999, the ANAO and the Wentworth Group have also noted fundamental problems with the system.

Because Australia faces numerous environmental issues across a range of domains, there are many individuals and organisations collecting environmental information, often with a particular scientific, regulatory or administrative purpose in mind. This results in a highly fragmented set of data which suffers from a range of problems including:
    • inconsistent definitions and standards
    • independence from any framework which facilities data linkage or interconnectivity
    • inconsistent frequency and timing
    • poor spatial representation
    • low levels of visibility, discoverability and accessibility
    • lack of time series and therefore lack of stability over time
    • poor capacity to support modelling and forecasting

Accordingly, there is significant frustration when trying to articulate the state of the environment, or in trying to address particular environmental issues that span jurisdictions and regions. It also becomes extremely difficult to understand, model or forecast the impact of a policy intervention collectively across the environment, economy and society.

In order to address our environmental issues it is essential that there is comprehensive, high quality information. Information about the state of the environment, including change, is a vital component. The state of the environment relates to the bio-physical attributes of environmental domains and is essentially scientific in nature.

The quality and extent of bio-physical information on environmental issues is mixed. Comprehensive and good quality information exists for some aspects, such as temperature and rainfall. However, in other areas, particularly those relating to ecosystems, the scientific information base is patchy, lacks integration and ‘national’ data sets are typically unavailable. As a result, the Australian Government has identified a high priority need for additional investments in bio-physical information, and has commissioned the Bureau of Meteorology (BoM) to develop a National Plan for Environmental Information (NPEI) as an initial step towards improved monitoring of the state of Australia’s land, ocean, air and water resources.

Although responsibilities for managing natural resources and protecting the environment are institutionally separated from the economy, neither exists in isolation. Fundamental socio-economic forces drive human activities, which lead to pressures on the state of the environment. The state of the environment impacts on human well-being, and responses to manage the state have socio-economic consequences.

Therefore, a comprehensive analysis of environmental issues, and the policy responses to deal with these, must be informed by socio-economic information about drivers, pressures, impacts and responses. And this information should be integrated with the associated bio-physical information so that relationships and linkages can be properly understood.