1. Extensions to the core system
Robin Lynch
National Accounts in Practice – Advanced course
Luxembourg, 2-11 October 2017
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. Core system
National accounts record transactions in the economy between the various institutional units.
These transactions can be valued at market prices, reflecting the quantity and prices involved
The national accounts also includes non-market transactions – they cannot be directly observed – values are estimated

3. Core system
In each transaction, the resource and use are registered at the same time and are of equal value
For each account, the sum of sources equals sum of uses, through the introduction of a balancing item which is a useful measure of economic behaviour
Concepts, definitions and classifications are described and applied internationally

4. Extensions to the core system
An important example of an extension to national accounts is the System of Economic and Environmental Accounts (SEEA)
They inform key policy issues such as
1. The effect of human activity on the environment
2. How continuing economic growth and human welfare depend on environmental benefits

5. Extensions to the core system
SEEA structure enables source data to be compared and facilitates the construction of economic and environmental indicators over time
The SEEA uses the accounting concepts, structures, rules and definitions of the System of National Accounts (SNA)
SEEA includes the compilation of supply and use tables in terms of physical quantities, functional accounts and balance sheets of assets

6. Extensions to the core system
The SEEA brings together information on
water, minerals, energy, timber, fish, soil, land and other natural resources
with measures of
waste, pollution, production, consumption and accumulation

7. Extensions to the core system
The power of SEEA is that it presents physical and monetary information together in a consistent conceptual framework
The SEEA Central Framework is an international statistical standard

8. Extensions to the core system
Core physical measures in the SEEA are of natural inputs, products and residuals
The production boundary of the SNA is used to distinguish between these categories

9. SEEA differs from NA methods
All transactions within an institutional unit leading to own-account goods and services with an environmental impact are recorded and displayed. In SNA terms, such ancillary production for further use within the business is recorded in the SEEA as own-account secondary production.
Goods sent abroad for processing should be recorded in physical terms according to the movement of the goods, and not according to change in ownership 2.

10. Stocks and flows of assets
The asset boundary in monetary terms is the same for SNA and SEEA – only assets (including natural resources and land) with economic value are recognised
In physical terms, the SEEA asset boundary is broader – it includes all natural resources and land that provide the capability and opportunity to carry out economic activity. So for example, clean air is recognised as a physical asset.

11. Extensions to the core system
SNA “natural resources” covers biological resources such as forests, mineral and energy resources, water resources and land
SEEA recognises land as a separate category of asset from natural resources – this enables its “space” character to be identified and measured separately from its soil and wild pasture character.

12. Valuation of environmental assets
SEEA adopts the same market price principles as the SNA, using comparable market prices to value when there are no observable transactions in the environmental assets
However, for many environmental assets there are no such comparable market prices or even transactions, and modelling techniques are necessary in these case to ascribe value.

13. Valuation of environmental assets
In SEEA, depletion (the reduction of the stock of a natural asset over time) is valued as a cost against income and shown as such in the environmental accounts
In SNA, the depletion is shown in the other changes in volume account, along with catastrophic events, to explain the difference between start and end of period stock of assets not accounted for in the current accounts

14. The benefits of presenting combined physical and monetary information
A single location for comparison of relevant data
Promotion of discussion between economists and environmental scientists
Clear derivation of associated indicators
Data base for modelling

15. SEEA accounting structure
It contains measures of the stocks and flows relevant to the analysis of environmental issues in economic terms
a. physical flows of materials and energy in economy and environment
b. stocks of environment assets
c. economic activity affecting the environment

16. The environment beyond the SNA economy
Environmental stocks include biophysical natural resources and ecosystems (e.g. natural (untamed) forest, atmosphere)
Flows between the economy and the environment cross the SNA production boundary
Flows from non-produced assets are flows outside the SNA boundary (e.g. losses of timber through forest fire)

17. Measurement of the environment
Physical units are used in SEEA to measure the flows of materials and energy within the economy, and those that enter and leave the economy
Flows from environment to economy are “natural inputs” – minerals, timber, water, fish.
Relevant flows within the economy are product flows – intermediate and final consumption and capital formation – e.g. fuel, goods, transport services, dams, etc.

18. Measurement of the environment
Flows from the economy to the environment are “residuals” – slag heaps, CO2, particulate emissions, waste water & sewage,

19. Extensions to the core system

20. SEEA-CF: Physical Supply and Use Table – extended to include the environment

21. SEEA-CF: Physical Supply and Use Table – extended to include the environment

23. Physical supply and use tables PSUTs
The PSUT adds a column for the environment
Two rows are added for
A. natural (non-produced) flows
B. residuals

24. Extensions to the core system
Consumption of government is consumption of government services generated by the “government industry”
So physical inputs are shown as a use in the government industry column, and not in final demand along with household final consumption
All inputs to household own account SNA production is contained in the industry part of the PSUT, and not household final consumption

25. Extensions to the core system
Within the PSUT, the supply and use identity is met in physical terms
This applies to products, natural flows and residuals

26. Extensions to the core system
The PSUT includes an additional identity
The sum of natural flows into the economy either accumulate in the economy or are returned to the environment
For example, energy (petrol, electricity) as a natural resource must be used in an industrial process, or stored as inventory, or released to the environment (loss of residual heat)

27. Extensions to the core system
The classifications used in both SUT and PSUT are the standard ones of the national accounts – ISIC (NACE) and the CPA (CN)
Other classifications Cn be used for specific environmental issues such as the Standard International Energy product Classification (SIEC)

28. Why Asset Accounts?
Extraction of subsoil assets may create considerable values for a country's society
Therefore it is of interest to have appropriate and solid methods to calculate the value of the remaining subsoil asset reserves
• The purpose of subsoil asset accounts are to capture the economic importance of these natural resources.
• Show the contribution of natural capital to national wealth

29. Asset account – physical units
Show start and end of period stock levels
And changes during period
Types of natural resource assets:
– Mineral and energy resources
Oil, natural gas, coal
Minerals – metallic and non-metallic
– Timber resources
– Aquatic resources

30. Opening stock level
plus
Growth
Discoveries
Upward reappraisals
Reclassifications
Less
Extractions
Normal loss
Catastrophic loss
Downward reappraisals
Gives
Closing stock of environmental assets

31. Asset account - monetary terms
AS for account in physical terms, but with one extra row at the bottom
Revaluation
This necessary to account for a change in asset price over the period

32. What is already in the SNA?
Environmental Protection Expenditure Accounts (demand)
Environmental Goods and Services (supply)
Policy instruments – taxes, subsidies, permits
Separate it from standard accounts to show who is spending what on environmental protection.

33. Economic information about environmental protection activities
Supply: Environment industry – environmental goods & services
Demand: environmental protection expenditure by industries and government
Environmentally related taxes, subsidies and permits

34. Industry – ISIC Section E – 2-digit
Potential data sources currently in your systems:
Industry – ISIC Section E – 2-digit
36 Water collection, treatment and disposal activities
37 Sewerage
38 Waste collection, treatment and disposal activities; materials recovery (ISIC 383)
39 Remediation activities and other waste management services

35. Government expenditure – COFOG 05 – 3-digit level:
051 Waste management
052 Wastewater management
053 Pollution abatement
054 Protection of biodiversity and landscape
055 R&D Environment protection
056 Environment protection n.e.c

36. Two major challenges in subsoil asset
accounting:
1. How to measure the level of subsoil stocks in
physical terms
2. How to place value on these

37. Changing physical units to monetary units
1. Using an indirect valuation method
→ SEEA recommends to calculate the monetary value of the oil and gas resources as the present value of the expected future net resource rent from oil and gas.
• What will the future prices be?
Recommends to use a constant unit rent per unit extracted..
• What is the appropriate discount rate to be applied to the earnings in the
future years?
• What will the future extraction levels be?
Eurostat recommends to use explicit forecasts!
- but difficult to get
- estimate is based on a constant level of extraction (same as current
year's extraction)

38. • What will the future extraction levels be?
Eurostat recommends to use explicit forecasts!
- but difficult to get
- estimate is based on a constant level of extraction (same as current year's extraction)

39. Economic Statistics – SNA
Supply and Use tables (product x industry)
Input – Output tables (industry x industry)
To find the «environment» component in the national accounts…
Need detailed products, industries, COFOG

40. Multi-purpose data collection – report figures once and use them many times – SEEA-CF uses existing data •
Keep the detail in the data systems
Keep industry classifications connected to the data collected
Keep product classifications connected to the data collected
Develop national accounts with as much detail as possible
Implement the SEEA-CF modules that are useful / important based on the characteristics and needs of your country