1. Session 2: The SEEA revision; main features of the volume1 (SNA extension) Jean-Louis Weber Special Adviser on Economic Environmental Accounting European Environment Agency jean-louis.weber@eea.europa.eu CENTRAL INSTITUTE FOR ECONOMIC MANAGEMENT Project " Green GDP Index: Research for Methodology Framework Development" Training on “Green” national accounting: development of environmental-economic accounts at the international level Monday 27 February 2012 Venue: CIEM, 68 Phan Dinh Phung - Hanoi, Vietnam Several slides kindly supplied by Ricardo Martinez-Lagunes (UNSD, SEEA Water) have been used for this presentation

2. Historical background of the SEEA (1) Early works on environmental accounting: Henry Peskin, Robert Repetto (World Resource Institute), Salah El Serafy (World Bank), Roofie Hueting (The Netherlands statistical office), Anthony Friend and David Rapport (Statistics Canada), The Inter-ministerial Committee on Natural Patrimony Accounting (CICPN, France), Jose Manuel Naredo (CICPN, Spain), Per Arild Ganarjordet (Statistics Norway), Eurostat, OECD… 1992, UN Conference on Environment and Development (the Rio “Earth Summit”), Agenda 21 (UN 1992): recommendations recommended that countries implement environmental-economic accounts at the earliest date. In response, the United Nations Statistical Division (UNSD) published the handbook of national accounting – Integrated Environmental and Economic Accounting (UN 1993), commonly referred to as the SEEA. This handbook was issued as an “interim” version of work in progress since the discussion of relevant concepts and methods had not come to a final conclusion. Limited number of pilot applications of the SEEA 1993. In parallel, several developing and developed countries continued experimenting on the compilation of environmental and economic accounts. 2.2 Jean-Louis Weber, 27 February 2012

3. Historical background of the SEEA (2) In 1994, initiative by Statistics Canada, Eurostat and the Office of National Statistics of the UK to create a forum for practitioners to share their experiences on developing and implementing environmental-economic accounts: the London Group, placed under the auspices of the United Nations Statistical Commission (UNSC). In 1998, at its meeting in Fontevraud, France, the London Group decides of the revision of the SEEA 1993 in order to take stock of the ongoing developments and put in common knowledge on the best practices. 2003: interim publication of a revised SEEA under the stamps of United Nations, OECD, IMF, the World Bank and the European Commission. 2005: Decisions of the United Nations Statistical Commission (UNSC) to create the UN Committee of experts on Environmental and Economic Accounting (UNCEEA) 2007: UNSC decision to elevate the System of Environmental-Economic Accounts (SEEA) to an international statistical standard. 2007-2011: revision of the SEEA under the steering of an editorial board and the advice of the London Group. 2.3 Jean-Louis Weber, 27 February 2012

4. Historical background of the SEEA (3) In a first step, only those methodologies for which sufficient consensus and experience exist will be part of the statistical standard; they will be presented in the SEEA Volume 1. The Volume 1 will be accompanied by two related parts: SEEA Experimental Ecosystem Accounts, and SEEA Extensions and Applications. In parallel, continuous developments of environmental accounting: –in Europe, development steered by Eurostat (adoption of a European Strategy for Environmental Accounting (ESEA) in 2003 and a EU-wide statistical Regulation on environmental accounting in 2011, which covers as its first 3 areas air emissions, environmental taxes and material flows and will be expanded to forests and ecosystem services). Land and Ecosystem Accounts developed by the European Environment Agency (as part of ESEA) –Material Flow Accounts (Wuppertal Institute of Germany, National Institute of Environmental Studies of Japan, OECD and Eurostat, many countries…) –Many national activities (Australia, Canada, India, China, Russia, Colombia…) –2006: publication of the SEEA Water and series of international tests Decision of the UNCEEA to devote the SEEA volume 2 to experimental ecosystem accounts and start its drafting (steered by UNSD, EEA and World Bank) 2012: presentation of the SEEA volume 1 to the UNSC 34 th session (28 February – 2 March 2012) for adoption as a standard. 2.4 Jean-Louis Weber, 27 February 2012

5. UN manual for environmental-economic accounting: SEEA2003 Enlargement of SNA1993 (now 2008) RM HASSAN - UN The System of Environmental and Economic Accounting (UN 2003) - RANESA Workshop June 12-16, 2005 Maputo Volume 1 The SNA satellite accounts for the environment expenditure, taxes, hybrid accounts, physical flows, sub-soil, energy, water land, economic assets depletion Volume 2 Ecosystem approach to accounting Ecosystem stocks and quality, valuation options… Revision  SEEA2012/13 Negative feedbacks of ecosystem degradation on production and wellbeing Impacts on ecosystem capacity of delivering services/benefits Jean-Louis Weber, 27 February 2012

6. What is the System of Environmental - Economic Accounting Volume 1 (so-called Central Framework)? The System of Environmental - Economic Accounting (SEEA) volume 1 framework is a multi-purpose, conceptual framework that describes the interactions between the economy and the environment, and the stocks and changes in stocks of environmental assets. It brings together, in a single measurement system, information on water, minerals, energy, timber, fish, soil, land and ecosystems, pollution and waste, production, consumption and accumulation. Each of these areas has specific and detailed measurement approaches that are integrated to provide a comprehensive view. The concepts and definitions are designed to be applicable across all countries, regardless of their level of economic and statistical development, their economic structure, or the composition of their environment. The SEEA Volume 1 will be accompanied by two related parts: SEEA Experimental Ecosystem Accounts, and SEEA Extensions and Applications. 2.6 Jean-Louis Weber, 27 February 2012

7. Summary Table of Contents of the SEEA Volume 1 Chapter 1 Introduction to the SEEA Central Framework Chapter 2 Accounting structure Chapter 3 Physical flow accounts Chapter 4 Environmental activity accounts and related flows Chapter 5 Asset accounts Chapter 6 Integrating and presenting the accounts 2.7 Jean-Louis Weber, 27 February 2012

8. Chapter 2, “Accounting structure” Chapter 2, “Accounting structure”, outlines in some depth the key parts of the SEEA Volume 1 (Central Framework) and the accounting approach that is used. The accounting approach of the SNA is the base. Ch.2 aims to explain in a clear fashion the types of accounts and tables that are contained in the SEEA Volume 1 and the basic principles of accounting for stocks and flows, the definition of economic units, and the principles of recording and valuation. The accounting structure covers: –Physical flows accounts –Assets accounts (physical and valuation, depletion) –Expenditure accounts –Composite accounts, input-output analysis 2.8 Jean-Louis Weber, 27 February 2012

9. Chapter 3, “Physical flow accounts” In Chapter 3, the different physical flows - natural inputs, products and residuals - are placed in the structure of a physical supply and use table The second half of Chapter 3 describes in detail the structure of physical supply and use tables for energy (Section 3.4), water (Section 3.5) and various material flows, including tables for air emissions, water emissions and solid waste (Section 3.6). 2.9 Jean-Louis Weber, 27 February 2012

10. Physical Supply and Use Table 2.10 Jean-Louis Weber, 27 February 2012

11. Definition of flows Natural inputs are all physical inputs that are moved from their location in the environment as a part of economic production processes or are directly used in production. –They may be (i) natural resource inputs, such as mineral and energy resources or timber resources, (ii) inputs from renewable energy sources, such as solar energy captured by economic units, or (iii) other natural inputs such as inputs from soil (e.g. soil nutrients) and inputs from air (e.g. oxygen absorbed in combustion processes). Products are goods and services that result from a process of production in the economy. They are defined consistently with the definition of products in the SNA. Residuals are flows of solid, liquid and gaseous materials, and energy that are discarded, discharged or emitted by establishments and households through processes of production, consumption or accumulation. 2.11 Jean-Louis Weber, 27 February 2012

12. Typical list of residuals 2.12 Jean-Louis Weber, 27 February 2012

13. Difficulty of Aggregating Physical Supply and Use Tables “Of note is that, unlike monetary flows which are measured in currency units, physical flows are generally measured in different units depending on the material. Thus, while it is conceptually possible to compile a complete PSUT for all material flows in an economy using a single measurement unit (e.g. tonnes), it is not usual practice”. (SEEA2012, 2.47) 2.13 Jean-Louis Weber, 27 February 2012

14. Chapter 4, “Environmental activity accounts and related flows” Chapter 4, “Environmental activity accounts and related flows”, focuses on the identification of economic transactions within the SNA that may be considered environmental. They are firstly those transactions that relate to activities whose primary purpose is to reduce or eliminate pressures on the environment or to make more efficient use of natural resources. These types of transactions are summarised in Environmental Protection Expenditure Accounts (EPEA), and in statistics on the Environmental Goods and Services Sector (EGSS). This chapter also covers environmental taxes, environmental subsidies and similar transfers, and a range of other payments and transactions related to the environment. These transactions are all recorded in the SNA but are often not explicitly identified as related to the environment. Three accounts: Producers, Financing and Beneficiaries Methodology derived from the European SERIEE system; guidelines in: SERIEE – Environmental Protection Expenditure Accounts : Compilation Guide, (Eurostat, 2002). 2.14 Jean-Louis Weber, 27 February 2012

15. Classification of Environmental Activities 2.15 Jean-Louis Weber, 27 February 2012

16. National Expenditure on Environmental Protection 2.16 Jean-Louis Weber, 27 February 2012

17. Chapter 5, “Asset accounts” Chapter 5, “Asset accounts”, focuses on the recording of stocks and flows associated with environmental assets. The environmental assets covered in the SEEA Volume 1 comprise mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources, and water resources. In Sections 5.1-5.4, the chapter discusses asset accounting in general terms with a particular focus on the measurement of the depletion of natural resources and the valuation of environmental assets. Sections 5.5 – 5.11 of the chapter describe the measurement of stocks and flows for each of the individual environmental assets. For each asset type the measurement scope is defined and the accounting in physical and monetary terms is described. There are a number of annexes to Chapter 5 including a detailed explanation of the Net Present Value (NPV) approach to the valuation of environmental assets, and a discussion on discount rates which are an important component of the NPV formulation. 2.17 Jean-Louis Weber, 27 February 2012

18. Classification of Assets in the SEEA Volume 1 2.18 Jean-Louis Weber, 27 February 2012

19. Assets in SNA and SEEA 2.19 Jean-Louis Weber, 27 February 2012

20. Asset Account 2.20 Jean-Louis Weber, 27 February 2012

21. Example for forest land accounts in hectares 2.21 Jean-Louis Weber, 27 February 2012

22. Example for timber resource accounts in cubic metres 2.22 Jean-Louis Weber, 27 February 2012

23. Measuring natural assets depletion Both the SEEA Central Framework and the SNA recognise the change in the value of natural resources that can be attributed to depletion. Depletion, in physical terms, is the decrease in the quantity of the stock of a natural resource over an accounting period that is due to the extraction of the natural resource by economic units occurring at a level greater than that of regeneration (thus the natural growth of biological resources such as timber and fish is taken into account). Measures of depletion in physical terms can be valued to estimate the cost of using up natural resources due to economic activity. In the SNA, the value of depletion is shown in the other changes in the volume of assets account alongside flows such as catastrophic losses and uncompensated seizures. Thus, it is not recognised as a cost against the income earned by enterprises extracting natural resources. In the SEEA, the value of depletion is considered to be a cost against income and hence, in the sequence of economic accounts, depletion adjusted balancing items and aggregates are defined which deduct depletion from the measures of value added, income and saving. The measurement of degradation in physical and monetary terms is not pursued in the Volume 1  SEEA Experimental Ecosystem Accounts. 2.23 Jean-Louis Weber, 27 February 2012

24. The valuation of environmental assets The valuation of environmental assets is a complex measurement task. The SEEA Central Framework adopts the same market price valuation principles as the SNA. However, since observable market prices are usually not available for environmental assets, the SEEA Central Framework provides an extensive discussion of the techniques that may be applied in the valuation of these assets. This is particularly the case in relation to the description of the net present value approach (NPV) to valuation and in the discussion of discount rates. 2.24 Jean-Louis Weber, 27 February 2012

25. Chapter 6, “Integrating and presenting the accounts” Chapter 6, “Integrating and presenting the accounts”, highlights the integrated nature of the SEEA Central Framework and links the detailed measurement guidelines of Chapters 3-5 with the presentation of information for users. Of particular focus in Chapter 6 is the explanation of combined presentations of physical and monetary data (known also as NAMEA) and a range of examples of such presentations are described. The chapter also introduces the various types of indicators that may be compiled from SEEA Central Framework based data sets. 2.25 Jean-Louis Weber, 27 February 2012

26. Example: combined presentation for air emissions 2.26 Jean-Louis Weber, 27 February 2012

27. The SEEA Water 2006 Based on water accounts developed and tested in France, Spain, Chile, Australia, Moldova, Turkey, Canada… Tested since 2006 in circa 50 countries Water accounts for Europe, 27 countries to be released in March 2012 Presentation by courtesy of Ricardo Martinez-Lagunes, UNSD 2.27 Jean-Louis Weber, 27 February 2012

28. 28 In general, water policy objectives can be grouped in the following four quadrants: SEEA-Water and IRWS provide the concepts and methods for measuring progress towards the attainement of the objectives in each of the four quadrants, as well as higher level indicators linking water security and development. Water Security I. Improving drinking water and sanitation services II. Managing water supply and demand III. Mitigating water resources degradation/ Improving quality of water resources IV. Adapting to extreme hydro- meteorological events 2.28 Courtesy Ricardo Martinez-Lagunes, UNSD Jean-Louis Weber, 27 February 2012

29. 29 The four quadrants in plain English: Sustainable development requires good water and sanitation services for all, sharing water to maximize benefits, making sure we don’t exceed water’s carrying capacity, and getting ready for wet and dry years. Water Security I. Nature provides water, but not the pipes II. Water is enough, if it is well managed III. Water cleanses, but cannot absorb all our wastes IV. Too much, too little, better be prepared 2.29 Courtesy Ricardo Martinez-Lagunes, UNSD Jean-Louis Weber, 27 February 2012

30. The System of Environment-Economic Accounting for Water (SEEA-Water) is a conceptual framework for the integration of information related to water and the economy, coherent with the System of National Accounts. StatisticsIntegrated information SEEA-Water is based on a systemic approach, which concentrates on measuring all the “stocks” and “flows” relevant to water policy making. 2.30 Courtesy Ricardo Martinez-Lagunes, UNSD Jean-Louis Weber, 27 February 2012

31. Due to the complexities associated with measuring the atmospheric and oceanic stocks, it is more practical to use an open system model (with clouds showing the boundaries) …the water cycle can be described as a closed system where the law of mass conservation has to hold. For simplicity not all the flows are shown. 2.31 Courtesy Ricardo Martinez-Lagunes, UNSD Jean-Louis Weber, 27 February 2012

32. Inland Water Resource System Economy Evaporation Returns Sea Atmosphere Abstraction Imports Exports Returns Outflows Evaporation Precipitation for in situ use Precipitation Inflows Outflows Abstraction SEEA-Water is based on a stock-flow model comprising two main subsystems: the inland water resource system and the economy. Rest of the World Economy Outside territory of reference Rest of the World Economy 32 2.32 Jean-Louis Weber, 27 February 2012

33. Evaporation Sea Atmosphere Abstraction Imports Exports Evaporation Precipitation Economy Water supply Households Other industries (incl. Agriculture) Sewerage Collection of precipitation Inland Water Resource System Groundwater Soil water Surface water Natural transfers Abstraction Returns Return Outflows Inflows 33 The details of each subsystem are shown in the following diagram Outside territory of reference Rest of the World Economy 2.33 Jean-Louis Weber, 27 February 2012

34. Standard physical supply and use tables for water 2.34 Jean-Louis Weber, 27 February 2012

35. Physical Asset Account for Water Resource 2.35 Jean-Louis Weber, 27 February 2012

36. Emission accounts Sewerage Other industries AgricultureHouseholds Rest of the world Water resources and the sea 25 5 30 5 25 30 20 185185 9090 9595 Courtesy Jeremy Web, UNSD 2.36 Jean-Louis Weber, 27 February 2012

37. Thank you! Jean-Louis Weber Special Adviser on Economic Environmental Accounting European Environment Agency jean-louis.weber@eea.europa.eu jlweber45@gmail.com Jean-Louis Weber, 27 February 2012