1. Prepared for TF energy accounts meeting by:
Changes in ESA 2010 and their possible implications for the energy accounts Goods for processing Merchanting Global production
Prepared for TF energy accounts meeting by:
Maarten van Rossum
May 2010
Luxemburg

2. Content Reason for discussion on goods sent abroad for processing
Numerical examples for ‘processing’ using both SNA93 and SNA2008 concepts
Implications of following SNA 2008 for indicators of the energy accounts
Implications of following SNA 2008 for analysis, more specifically for I-O analysis
Reason for discussion on merchanting
How to proceed further? Conclusions and recommendations

3. Acknowledgement
This presentation is written from the perspective of the environmental accounts only

4. Reason for discussion on goods sent abroad for processing
The international organisation of production has changed considerably in recent years.
It used to be the case that when goods moved from one country to another, there would almost always be a change of ownership and this underlying reality reflected the position of the 1993 System of National Accounts (SNA). But increasingly, as the internalization of production networks has grown, this is no longer the case. In response to these new facts on the ground the 2008 SNA reflects a change from the 1993 SNA.
Source: “Impact of Globalisation on National Accounts: Practical Guidance”

5. Reason for discussion on goods sent abroad for processing
The 1993 SNA stipulates that in the absence of a change of ownership, a transaction must be imputed when measuring economic activity, that, in effect, assumes a change of ownership.
As firms are increasingly sending material abroad for further processing, many experts have raised concerns about the meaning of international transactions as recorded in the balance of payments and the SNA as the statistics become increasingly decoupled from the underlying and actual financial transactions.

6. Reason for discussion on goods sent abroad for processing
This discussion has led to a recommendation to no longer impute a value for goods sent for processing; which better reflects the size of international transactions and the type of transaction, namely a (processing) service rather than a good.
The nature of the production account, and the input-output account where the relationship between material inputs and production is central also changes. Under the new concept, emphasis is put on the contribution of each entity to the production process (or economic process) rather than on the physical technology

7. Numerical examples using both SNA 93 and SNA 2008 concepts

8. Questions raised due to change in SNA2008
How to account for supply and use in physical terms (kg/m3) in the energy accounts?
To whom belong the emissions? Dutch refinery? Owner of the input and output?

9. Numerical example: 100% of Dutch refineries are processing

10. Numerical example: 50% of Dutch refineries are processing

11. Implications of following SNA 2008 for energy accounts and indicators
Key hybrid indicators (energy-intensity and energy productivity) are dependent on legal agreements between principal and contractor
Changes in legal agreements over time lead to changes in key indicators over time. These changes in key indicators have nothing to do with a potential improvement/worsening of the physical transformation process of a particular industry. More difficult to interpret changes in indicators (‘real’ or ‘legal’ changes).
Key indicators are not comparable anymore in between countries. For example, Norway uses relatively more domestic crude oil and less imports for refinery purposes than the Netherlands does. The changes drawn up in SNA2008 only apply for import and exports. The ratio ‘intermediate energy consumption from domestic supply’ is different in between European countries.

12. Implications of following SNA 2008 for key indicators of energy accounts
KEY QUESTION: Does the SNA 2008 solution go along with the objectives of environmental accounting?
Harmonised and comparable set of indicators in between countries
Consistent key-indicators over time
KEY QUESTION: If one applies the SNA 2008 solution, does the environmental economist still monitor what it wants to monitor?

13. Implications of applying SNA2008 rules for analysis, I-O analysis for energy use and emissions to air
A significant analytical disadvantage posed by not imputing a financial transaction for goods sent for processing is that supply and use tables will no longer serve as the data source for exports and imports of goods that have been involved in the goods for processing phenomenon.
Forward and backward linkages articulated under the 1993 SNA treatment for processing industries would disappear under the 2008 SNA treatment. The processing units will be absent since the processed goods will not appear in the inputs or outputs of the industries concerned.

15. Implications of applying SNA2008 rules for analysis, I-O analysis for energy use
Energy losses are still attributed to the processor, i.e. the refinery (where the value added is created, assumption)
Domestic ratio ‘energy losses /production’ will grow
Exports will decline (processing services sold to foreign entity)
‘Domestic energy losses’ are not well attributed to final expenditures (consumption of households, exports, etc. (no transaction between domestic producer and final consumption categories)
In theory, problems do not arise once one extends the production chain to foreign countries in order to monitor both energy losses abroad and domestic energy losses. One can think here of analysis like energy losses per product on a global scale.

16. Reason for discussion on merchanting
the purchase of a good by a resident (of the compiling economy) from a non-resident and the subsequent resale of the good to another non-resident; during this process the good does not enter or leave the compiling economy

17. Reason for discussion on merchanting
SNA1993: only register the net services (i.e. transit margin) as export of services
SNA2008: register purchase of goods as negative exports. Sale of goods as positive exports

18. Numerical examples Merchanting

19. Discussion on merchanting
The SNA2008 change in registering merchanting activities has no severe implications for environmental accounting
A time lag between purchasing and selling goods can cause a potential practical problem

20. ‘Provisional’ conclusions
Goods sent for processing abroad:
Consistency of SEEA with SNA2008 leads to a change in key hybrid indicators. Change in ownership leads to a change in key-indicators. Also cross-country comparisons are difficult to interpret.
Consistency of SEEA with SNA2008 makes it impossible to attribute ‘domestic emissions/energy losses’ to final expenditures.
Consistency of SEEA with SNA2008 leads to difficulties in monitoring technical processes in energy intensive industries
The SNA2008 change in registering merchanting activities has no severe implications on environmental accounting

21. ‘Provisional’ recommendations
Energy losses and emissions should be attributed to the industry creating the value added
In presenting hybrid key indicators: always use value added, not production
SEEA and energy accounts should apply the rules of SNA1993 for registering physical information. This in order to keep track on physical developments (time series) and cross-country studies on energy efficiency.
Discussion on this issue in the next London Group meeting. All input is very welcome!