2. Depletion of renewable resources London Group Meeting, December 2007

3. Options for identifying the income element of resource rent SEEA Box 10.1 ƒA1. All resource rent represents income ƒA2. No resource rent represents income; it is all a decline in the value of the resource ƒA3. Part of the resource rent represents a decline in the value of the asset and part is income

4. Options for identifying the income element of resource rent Option A3 accepted in Johannesburg ƒbut how does this apply to renewable natural resources? ƒif depletion of natural resources reduces income, should growth of renewable natural resources be considered additions to income? ƒdoes depletion relate to the full amount of the harvest of the renewable natural resource, or just the net reduction in stock?

5. Renewable resources Characteristics ƒable to replace harvested stocks through natural growth ƒif used sustainably in production, will last in perpetuity ƒcan be exhausted if used unsustainably in production

6. Depletion of non-renewable resources SNA - in an economic sense, depletion is the reduction in the value of a resource as a result of physical removal and using up of the resource fairly straightforward when applied to non- renewable resources such as minerals and petroleum, etc.

7. Depletion of renewable resources SEEA - possible to integrate values of extraction (harvest) and natural growth into a more meaningful measure of sustainability 'adjusted' measures (of output, income etc.) could indicate whether a renewable resource is being depleted through its use in production no change to balance sheet treatment

8. Valuing SEEA depletion using SNA accounts as a template ƒvalue of net natural growth recorded as 'other non-market output' in the Production account ƒvalue of extraction recorded as 'consumption of natural capital (depletion) in Production account ƒ'excess' position represents an addition to (or subtraction from) value added ƒoperating surplus & saving change by 'excess' amount in income accounts ƒadditions and disposals of non-produced non- financial assets recorded in Capital account ƒnet lending is unchanged

9. Net natural growth of renewables – an addition to output? Natural growth (less natural mortality) –not output in strict SNA sense but see SNA cultivated assets –human influence over natural growth –often an expectation that natural growth will ultimately be harvested –symmetry with depletion of renewable natural resources

10. Depletion of renewable natural resources –is the decline in value of the resource stock due to extraction (harvest) –equivalent to consumption of natural capital –shown as a charge against production and income synonymous with SNA concept of consumption of fixed capital (COFC)

11. Depletion of renewable natural resources, continued… Depletion (consumption of natural capital) applies to both renewable and non- renewable natural resources

12. Measuring income the operating surplus of any unit using natural resources in production can be split into returns to the produced assets used and returns to non-produced assets the return to the owner of natural resources in production is resource rent (RR) RR can be further split into a return to the owner of the resource and a measure of depletion of the natural resource being used

13. Decomposing income: non- renewable natural resources

14. Decomposing income: renewable natural resources

15. (1) Calculating RR - SNA Current (SNA) treatment: RR of renewable natural resource used in production t1t2t3t4t5tn Physical data (tonnes) 1. Opening stock45,00042,60041,41541,15037,84935,795 2. Natural growth (a)3,6003,4083,3133,2923,0282,864 3. Natural mortality (a)2,5002,3432,2782,2632,0821,969 4. Harvest2,0003,0003,3003,3303,0002,940 5. Other volume changes-1,5007502,000-1,0000-500 6. Closing stock (1+2-3-4+5)42,60041,41541,15037,84935,79533,250 7. Expected asset lifeinfinite 8. Unit value (unit price-unit cost) $'000 (b)1.2 Monetary (SNA) data ($'000) 9. Depletion (harvest) (4x8)000000 10. Return to owner of natural resource2,4003,6003,9603,9963,6003,528 11. Resource rent2,4003,6003,9603,9963,6003,528

16. SNA treatment (1) Following do not appear in production account: –natural growth –natural mortality –charge for depletion

17. SNA treatment (1) Resource rent entirely attributed to income – no charge for depletion (CONC) –even though the renewable natural resource stock is diminishing.

18. when RR is adjusted to include net natual growth as output, and depletion (CONC) as a charge against income, a more informed picture of the income of the producer is provided Use of renewables - adjusted income

19. (2) proposed RR and income Proposed SEEA treatment: Adjusted RR of renewable natural resource used in production t1t2t3t4t5tn Physical data (tonnes) 1. Opening stock45,00042,60041,41541,15037,84935,795 2. Natural growth (a)3,6003,4083,3133,2923,0282,864 3. Natural mortality (a)2,5002,3432,2782,2632,0821,969 4. Harvest2,0003,0003,3003,3303,0002,940 5. Other volume changes-1,5007502,000-1,0000-500 6. Closing stock (1+2-3-4+5)42,60041,41541,15037,84935,79533,250 7. Expected asset life (years)47.321.418.216.417.416.3 8. Unit value (unit price-unit cost) $'000 (b)1.2 Monetary (SEEA) data ($'000) 9. Depletion (harvest) (4x8)2,4003,6003,9603,9963,6003,528 10. 'Unadjusted' resource rent (c )3,1543,0252,9722,8442,6512,486 11. Net natural growth ((2-3)x8)1,3201,2781,2421,2351,1351,074 12. Income to owner natural resource2,0747032558218732 13. Adjusted resource rent (10+11)4,4744,3034,2154,0783,7873,560

20. (2) proposed RR and income, continued… Adjusted resource rent incorporates: –net natural growth as an addition to output Adjusted resource rent split between: –depletion (harvest); and –income.

21. (2) proposed RR and income, continued… As harvest continues to exceed net natural growth, this is reflected as a negative adjustment to income. –i.e. a charge for using up renewable natural capital

22. Questions… For renewable natural resources, should SEEA accounts: –include net natural growth as an addition to output? –treat the value of harvest as consumption of natural capital (depletion)? –view (adjusted) resource rent as made up of income and depletion components?