Environmental Goods and Services Industry and Environmental Expenditures statistics

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1 Environmental Goods and Services Industry and Environmental Expenditures statistics Part I: ENVIRONMENTAL GOODS AND SERVICES INDUSTRY - Case study on the renewable energy sector 1 Introduction There is an increasing interest both in the environmental goods and services industry in general, as well as in the environmental technology portion of this industry, both in Norway and abroad. During the last years, Statistics Norway has carried out two projects on identifying parts of the environmental goods and services sector. In 2006, a first attempt was made to estimate economic figures for the sector using existing statistical data sources and primarily standard classification systems. This approach successfully identified a number of enterprises in the so-called core environmental industry. Some initial estimates for figures for the core industry were presented. The project also helped identify some methodological challenges with identifying non-core establishments, as well as some problems which may arise in identifying the environmental share of the larger enterprises. In the autumn 2007, Statistics Norway undertook a project financed by the Norwegian ministry of environment concerning environmental technology. The ministry was interested in an estimate of the turnover, employment and export of Norwegian environmental technology. As the resources and time available was limited, a case-study was agreed upon. The project estimated turnover, employment and export from producers of technologies that reduces pollution in the areas of wastewater and from producers of water purification technologies (Smith, 2008). In this project we wanted to expand the environmental domains covered by preliminary statistics, and to test further the methodology tried out in We decided to carry out a project focusing on renewable energy, including both producers of renewable energy and the producers of technology for renewable energy production. We managed to produce a preliminary estimate for turnover for the whole sector, but not for the other variables tested (employment, export and value added). 2 Definitions The definition on the environment industry used in this project, is the one of OECD/Eurostat: Environment-related activities are activities to measure, prevent, limit, minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems. This includes cleaner technologies, products and services that reduce environmental risk and minimise pollution and resource use. OECD/Eurostat (1999) In order to define if a technology, good or a service is part of the environmental industry, the environmental purpose must be the main purpose. This is identified mainly on the basis of the technical nature of the activity, i.e. regardless of the intention of the producers as well as the users. Relevant activities are therefore classified according to their characteristics and function. The types of production activities considered is this report is the production of renewable energy and the production of technologies whose main purpose is to produce renewable energy. In the production figures for technology production, we have included more efficient wood ovens. The reason for this is that wood is an important energy source for residential heating in Norway, and also the wood oven industry is important, including the development of more efficient and cleaner technology. 1

2 We mainly included only producers that are producing the final environmental goods. However, in some cases, Norwegian sub-providers who are exporting specialised components, e.g. components for windmills, have been included because of their importance nationally. Installation activities are included for companies specialised in installation of connected and adapted goods. Examples of such specialised producers are construction of facilities for environmental specific services and companies specialised in the construction of adapted and connected goods (e.g. the construction of passive/energy efficient buildings). 3 Methodology Although the objective of the above mentioned project (Smith, 2008) was to estimate certain figures for the water and wastewater domains, it also served as a pilot project for setting up a methodology that could be used for other environmental domains. After having established a population list using different sources like green business network, yellow pages etc., we tested wheat we call the Swedish methodology (SCB, 2006) to add economic information to the companies identified. This methodology makes use of data already available in the business register. As part of established the population list was to identify the organisation number, we could easily derive turnover and employment data from the business register. In practice, we could simply make use of existing statistics to gain information on some forms of renewable energy, like electricity production (NACE 40.11) and district heating (40.3). To calculate the employment related to the production of renewable energy within these sectors, we simply used the shares of renewable energy in the total production. For district heating we had to make use of factors to estimate sales income from the renewable fraction (68%) of energy from waste incineration. For other sectors, like ancillary production of energy in the mining and quarrying and manufacturing industry (NACE 10-37), we made use of production statistics in physical units and estimated a turnover value using shadow prices from the electricity statistics. For all producers of technology and also for producers of pellets, we used Swedish methodology as planned. Bioenergy production in the form of small and medium heating plants is only rarely commercially profitable unless investment support is granted from the government. To identify the populations of small producers of hot water and steam, we found that using government agencies application systems as data sources was a much more efficient, complete and reproducible way of identifying the populations, than using different sources like green business networks, yellow pages etc. We were able to obtain data from the two main Norwegian agencies that offer such financial support. While ENOVA mainly provides support for medium and small plants, the bioenergy program of Innovasjon Norge primarily targets the agricultural industry. We used the estimated production capacity figures from the applications which were granted funding, and derived an estimate of energy produced within these groups of producers. For an estimate of the economic value of this energy production, we used annual average prices for district heating taken from the official district heating statistics. One possible data source for economic value of certain renewable energy products like wood for sale, wood for own consumption, sawdust and wood waste and black liquor, is the national accounts. However, this data source was discovered quite late in the project process, and due to time limitations it has so far not been explored. We have not included district heating produced by electricity, even though nearly all Norwegian electricity is based on renewable energy sources. We excluded electricity for reasons of double counting. In principle double counting is not a problem as long as we only present turnover figures. However, as we do not have value added figures in addition, we made a choice to only calculate hot water and steam production which is based on other renewable sources than electricity, meaning biological resources only. Export and value added are not part of the variables included in the business register. Hence estimating these variables for the environmental industry sector is a much more challenging task. We 2

3 have considered making use of data from the export statistics, as supplementary figures on products (environmental goods). However, we do not have export data by company, and we can therefore not link the export data to the companies for which we already have turnover and employment data. 4 Preliminary estimates for the renewable energy sector We set up a coding system for producers of technology, divided into 6 environmental domains. These are presented in table 1. Not surprisingly, the solar energy sector is relatively large. It accounted for as much as 2/3 of the total turnover from renewable energy technology producers in Table 1. Preliminary estimates for turnover and employment within enterprises producing technology for renewable energy production. By type of energy Turnover Number of enterprises (mill. NOK) Employment TOTAL Water Wind Bioenergy Solar energy/tidal energy Heat pumps/thermal energy Incinerators with energy recovery Table 2 shows all results from different types of renewable energy and technology production. Different types of energy products are shown separately, while technology is presented with only the total in this table. Only for turnover were we able to estimate a total figure for the whole sector. For the other variables presented, we still have too little data available. Table 2. Preliminary estimates for the renewable energy sector NACE Turnover (mill NOK) Employment Value added (mill NOK) Exports (mill NOK) TOTAL** Electricity (net imports) Hot water and steam from bioenergy* - district heating medium/small plants ancillary production, of which in agriculture in the manufacturing, mining and quarrying industry Production of solid biofuels - pellets firewood** Technology * An area of refinement that should be considered is biogas. ** We have not been able to estimate figures for turnover of firewood production in the agriculture industry. We know, however, that the figures are not insignificant. Hence, the total calculated in this table is underestimated. 3

4 Part II ENVIRONMENTAL EXPENDITURE STATISTICS In part II of the project the plan was to carry out a budget analysis for 2005, investigating several statistical areas at the same time. One aim is to give input for improvement of the COFOG 05 (environmental protection expenditure), and divide COFOG 053 (pollution abatement) into the four included CEPA categories ( air/climate, soil and groundwater, noise and radiation ). Another aim is to identify expenditure for natural resource management. Finally, we need to identify environmentally related taxes on production to compile complete environmentally related taxes statistics. 1 Estimating public environmental protection expenditure improvement of methodology The budget analysis methodology has been tried out in earlier phases of the establishment of Norwegian Environmental and Economic Accounts. In the years we still considered to establish an own expenditure statistics in parallel to the COFOG (Classification of functions of Government) based one. However, for several reasons we later abandoned this idea and instead decided to base the public environmental expenditure statistics upon the existing COFOG based statistics. There were four main reasons for this: 1. the COFOG was made consistent with CEPA (Classification of Environmental Protection Activities and Expenditure) in the COFOG revision of doing proper budget analysis every year requires quite some resources 3. by establishing a good co-operation with the division on public finances, we can instead give input for improvement of the COFOG coding based on our partial budget analysis 4. we can focus on the division of COFOG 053 (Pollution abatement), to break it down by the four included CEPA categories This year s project treated issue 3 and 4 in this list. First, we wanted to test the possibilities for using the results from a former budget analysis as factors for doing the same breakdown of COFOG 053. In 2003, we carried out budget analysis for two different years within a Eurostat financed project (SSB, 2004). The project enabled us to report total figures for environmental protection expenditure within the public sector for the first time. Total figures where compiled for two years, 2001 and 2002, and reported in the joint OECD/Eurostat questionnaire in However, using the relative factors from earlier years budget analysis turned out to be quite difficult. This was due to the fact that the different CEPA categories accounted for quite different fractions of COFOG 053 for the two years for which we have earlier conducted thorough budget analysis. This was particularly true for the two environmental domains air/climate and soil and groundwater which changed place with regard to importance from one year to another. From this we concluded that we cannot simply use relative figures from earlier years as a method for breaking down COFOG 053 into the four CEPA classes it covers. We will need some kind of budget analysis to assign CEPA codes (1, 4, 5 and 7) to COFOG 53 records. 1 For 2005, there were 38 records in the central government accounts assigned COFOG 053. However, checking these records a bit more thoroughly, it turned out that about half of the records were actually assigned a wrong COFOG code, and should rather have been assigned another code within COFOG 05. We found that most of the records rather were environmental administration in general and hence should have been classified in COFOG Still for the years 2001 and 2002 we will use these percentages for splitting COFOG when reporting to the JQ-EPER. 4

5 This showed the need for doing a good job in assigning COFOG codes is a prerequisite for doing a good breakdown of COFOG 053. It also gives reason to believe that other environmental COFOG codes need to be examined, and that there is a need for improving the COFOG coding in general. In a former Eurostat financed project (SSB, 2006) estimates from a thorough budget analysis were more than twice as big as the environmental protection expenditure according to the COFOG statistics. The results from that project were use as input to (re)coding the functions in the COFOG statistics. However, our input didn t result in large changes. For quite a considerable amount of records, this was due to the fact that we had identified small percentages of many records in the state accounts. These percentages were too small to be taken into account in the COFOG statistics. There is a possibility to split some records into some few different functions, where the reason behind the split can clearly be well documented. This shows that environmental expenditure is to a large degree hidden within other government budget posts, and hard to identify when these small percentages are not taken into account. It seems that if we want to use COFOG statistics as a basis for EPE (environmental protection expenditure) statistics, we will have to accept this weakness. Another solution could be to use the results from the 2001 budget analysis (SSB, 2006) to weight the figures from the COFOG statistics. This would be done by multiplying the COFOG 05 expenditure by a factor of 2.44, which is the difference between COFOG and CEPA total in table 11. The option will be discussed as part of establishing public environmental protection expenditure as official statistics. 2 Expenditure for natural resource use and management definitions and methodological considerations Norway s economy is to a large degree based on natural resources, hence such statistics should be quite interesting from a national perspective. For identifying activities related to natural resource management and use, we made use of the Italian CRUMA (Classification of resource use and management activities). According to Falticelli (2008), natural resources expenditure can be distinguished in two categories: a) Resource use expenditure: expenditure relevant to activities whose goal is resource exploitation (expenditures for research, withdrawals, mobilisation); b) Resource management expenditure: expenditure relevant to activities whose goal is withdrawal reduction (recycling, recovery, raw materials, energy saving, substitution). From this classification, it seems quite clear that government activities relating to resources can be both of a resource use and a resource management character. This terminology is a bit different from the ordinary use of these concepts in Norway, where one would usually label government activities like issuing exploitation permits as resource management. e, using these terms a Norwegian context might be misleading. From our interpretation of the CRUMA, it seems to be relevant to include all expenditures of ministries dealing with natural resources. This means including all expenditures of the ministry of fisheries and the ministry of petroleum and energy, and a large part of the expenditure of the ministry of agriculture. We wonder whether this is really the purpose. Further, we interpret that most expenditure related to activities within the general government sector will fall within the administrative type of activity. In addition, there might be transfers from the central government sector to others for carrying out activities related to teaching and training and to research. We find that the lack of examples of implementation in the background paper for the draft classification of natural resource use and management (CRUMA), makes it difficult to apply. 5

6 Illustrative examples would have been very helpful to interpret the classification. Until now, it seems that Italy has only compiled expenditure statistics for the public water supply sector, and not tested the CRUMA for other government activities. We propose that the operationalisation issue should be a main focus in Eurostat s reflection group on resource management in the future, and that more practical examples form implementation are necessary before the CRUMA it is ready to be proposed as a standard. 3 Identifying environmentally related other taxes on production Environmentally related taxes was compiled and published for the first time in They were broken down by four environmental domains, but not by industry. In the latest years, the Statistics Norway (national accounts) has changed the sub-systems in such a way that it now allows for the identification of environmentally related taxes also by industry. Taxes on products had already been identified and codified within the national accounts system. What was left to be implemented to get the full picture of the environmental taxes, was to identify and code environmentally related other taxes on production (meaning: taxes levied according to industry). In this project we identified the environmentally related other taxes on production through the budget analysis. The budget analysis identified 8 environmentally related other taxes on production, which are presented in table 3. These taxes were then coded in the sub-system of the national accounts, which then allowed for compiling total environmental taxes broken down by industry. Table 3. Revenues from environmentally related other taxes on production, based on the Eurostat definition of environmentally related taxes Mill. NOK. Total environmentally related other taxes on production CO 2 Tax on the Petroleum Activity on the Continental Shelf Annual Vehicle Tax (paid by industries) Annual weight based tax on motor vehicles 347 Re-registration tax on motor vehicles Tax on Pesticides 49 Tax on Final Treatment of Waste 488 Tax on Trichloroethene 3 Tax on Tetrachloroethene 2 The results from this work, including a technical annex on the methodological issues related to other taxes on production, has been published in the attached report Environmentally related taxes in Norway Totals and divided by industry (Næss and Smith, 2009). So far, taxes broken down by industry are only available for However, as all environmentally related taxes are now coded within the national accounts, they can easily be identified in the future. Compiling time series backwards, on the other hand, will have to be done manually. The work of this project has been based on the Eurostat definitions on environmentally related taxes (Eursotat, 2001). In Norway, a public commission delivered an evaluation of Norwegian excise taxes in 2007 (NOU, 2007). In this report an environmental tax is defined more strictly, excluding several of the taxes defined as environmentally related by the Eurostat definition (Eurostat, 2001). This shows that definitions and classifications of environmentally related taxes are not straightforward. Hence, discussions are ongoing within Statistics Norway on how to define environmental taxes for the purpose of establishing them as part of official statistics. This issue is also described in more detail in the attached report. 6

7 Literature Eurostat (2001): Environmental taxes A statistical guide. Office for Official Publications of the European Communities, Luxembourg. Eurostat (1994): SERIEE 1994 Version, Theme Environment, Series Methods, Luxembourg. Falticelli, Federico (2008): Natural resource use and management expenditure accounts. Presented at the 13 th London group meeting in Brussels, October NOU (2007): En vurdering av særavgiftene. NOU 2007:8 (An evaluation of excise taxes). Næss, Eli Marie and Tone Smith (2009): Environmentally related taxes in Norway Totals and divided by industry. Documents 2009/5. Statistics Norway. OECD/Eurostat (1999): The Environmental Goods and Services Industry: manual for data collection and analysis. Paris, OECD. SCB (2006): Environmental goods and services sector in Sweden Statistics Sweden and Eurostat. Smith, Tone (2008): Statistikk for miljøteknologi. Case: vann- og avløpsteknolog [Statistics for environmental technology. Case: water- and wastewater technology]. Notater 2008/61, Statistisk sentralbyrå. SSB (2004): NOREEA 2003 Report to Eurostat (Grant Agreement N o ). SSB (2006): NOREEA 2005 Report to Eurostat (Grant Agreement N o ). United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development and World Bank (2003): Integrated Environmental and Economic Accounting