Introduction to environmental-economic accounting and its application to forests

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2 Introduction to environmental-economic accounting and its application to forests Forest ecosystem services forum integrating forest ecosystem services into decision making processes 8-9 May 2018 Te Papa, Wellington, New Zealand Dr. Michael Vardon Visiting Fellow Fenner School Australian National University 2

3 Outline of presentation What is environmental accounting Key environmental accounting concepts The System of Environmental-Economic Accounting (SEEA) Central Framework and Experimental Ecosystem Accounting Accounting for forests and their services Accounting and the information system and policy cycle 3

4 Foundations of environmental accounting Built from the concepts and knowledge from many areas multidisciplinary Where does your understanding start

5 What is accounting Recording of transactions between two entities (or parties) What are transactions Exchanges of goods and services (products) Distribution of income and wealth (e.g. wages, taxes) Who are the entities or parties Institutional units. E.g. natural persons or legal persons (corporations, NGOs, government) Grouped to industry according to common characteristics for national accounting

6 Three pairs of concepts for environmental accounting Stocks are measured at a point in time (e.g. 1 January) Flows are measured as a rate (e.g. megalitres per annum, dollars per year) Stocks and flows Physical and monetary measures Physical measures like kilograms, hectares, litres, parts per million Monetary measure like $,,,, etc. Benefits may be in SNA (e.g. in GDP) or non SNA (e.g. not in GDP) Beneficiaries are people of groupings of people (e.g. farmers, government, miners) Benefits beneficiaries

7 Evolution of business accounting (and corporate governance) 1494 Pacioli treatise on accounting s Rise of corporations E.g. East India Company 1934 US Securities Exchange Commission 1973 International Accounting Standards Committee Since 2001 International Accounting Standards Board 1994 King report on Corporate Governance 2002 King II and 2009 King III 1997 Global Reporting Initiative Draft Guidelines 1999, Versions 2000, Prince s Accounting for Sustainability Project (A4S) 2010 International Integrated Reporting Council six capitals 2011 Discussion paper 2013 Consultation draft of International Integrated Reporting Framework 2016 Natural Capital Protocol

8 Evolution of natural capital accounting 1929 The Great Depression 1936 Keynes Theory of employment, interest and money 1939 World War II 1953 System of National Accounts Updated1968, 1993, 2008 Rio 1992 Agenda System of Environmental-Economic Accounting SEEA Updated 2003, Standardised SEEA Experimental Ecosystem Accounting

9 System of Environmental Economic Accounting (SEEA) System of National Accounts Monetary measures Asset and production boundaries set by economics Production defined as being capable of being sold in markets Assets defined as being owned and capable of being used for economic gain SEEA Central Framework Physical quantity measures added to monetary measures Asset boundary expanded Assets no longer have to be owned or capable of being used for economic gain SEEA Experimental Ecosystem Physical quality (or condition) measures added Production boundary extended Production from ecosystems recognized and does not need to be sold in markets

10 Why use accounts or accounting Incompleteness of current economic accounts Don t incorporate many flows between economy and the environment or flows in physical terms Do not account effectively for the cost of the use of natural resources No clear or common definition of environmental activity Links to information required for assessing sustainability (SDGS, Green Growth, etc.) Provides a regular suit of integrated information Enabling regular reflection and identification of issues, tracking effectiveness of current policy and management (Accountability) Information source to analyze issues, assess policy options and implement policy and management decisions Synthesizes available information and improves data coherence and coordination 10

11 What do accounts look like

12 E.g. Percent native vegetation remaining 2006 No just tables spatial and time dimension

13 International recognition and use United Nations UN Statistical Commission, UN Environment Programme, UN Development Programme, Regional Commissions, UN Water World Bank WAVES program OECD Gaborone Declaration for Sustainable Africa Botswana, Rwanda Many countries Australia, Canada, European Union (e.g. Netherlands, Sweden, United Kingdom) Business 13

14 Australian recognition, adoption and implementation of environmental accounting and the SEEA Australia government Multiple policy commitments 1992 (NSESD), 1996 (NHT), 2010 (NPEI), 2012 (Asian Century) ABS production of accounts from DEWHA Ecosystem Services: Key Concepts 2012 Morton and Tinney 2013 BoM Guide to Environmental Accounting Year Review of Australia s Biodiversity Strategy 2016 and 18 Meeting of Environment Ministers 2018 Strategy and Action Plan Environmental Economic Accounting Others in Australia ACT, NSW and Vic governments, Wentworth Group, SEQ CMA, Australian National University, etc. 14

15 Example of the expanding scope of accounting in Australia ABS System of National of Accounts value of land ($4,268 billion) ABS Australian Environment Economic Accounts area of land (7.7 million km 2 ) by land cover type ABS Land Accounts Victoria, Experimental Estimates area of land by industry and land cover, value by industry, for three types of areas (administrative, biophysical and statistical) DELWP Victoria Experimental Ecosystem Accounts extent and condition and environmental benefits andenvironment/ecomarkets/ecomarkets science ANU Experimental Ecosystem Accounts for the Central Highlands of Victoria area, condition, economic contribution, ecosystem services highest%20quality.pdf

16 Coverage of SEEA Central Framework Stock Flows Physical Monetary Land x x x x Forest x x x x Water x x x x Minerals& energy Waste& Emissions x x x x x x x x EPE&EGSS x x x Taxes& subsides x x 16

17 Units, classifications and geographic scope Measurement units Use a single unit for each PSUT joules, cubic metres, tonnes Monetary current price, constant price, purchase price, producer price Classifications Industry classification (ISIC) > ANZSIC Sector classification, Business (financial/non-financial), Government, Not-forprofit (NPISH), Households Classification of natural inputs Central Product Classification (CPC) Standard International Energy product Classification (SIEC) Groups of residuals waste, wastewater, emissions, etc. Geographic scope Start with economic territory/country Record flows based on residence of economic units in the territory Flow not based solely on geographic location

18 The production boundary Production is an activity carried out by an institutional unit that uses inputs of labour, capital and goods and services to produce outputs of goods and services (2008 SNA, 6.24) Includes concealed and illegal activity Includes household production of goods for itself Agricultural products, fishing, fuelwood, clothes, furniture, water, energy Excludes household production of services for itself Except rent of owner-occupiers & wages of domestic staff Excludes things produced by natural processes Excludes things you do only for yourself

19 Flows in the SEEA Economy Enterprises Households Government Natural inputs (e.g. minerals, energy, timber, fish and water) Products Environment Mineral and energy resources Timber resources Fish resources Water resources Soil resources Land Residuals (e.g. air emissions, solid waste, return flows of water)

20 Supply and use account

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22 Key Wastewater Water Reuse water Australia physical water supply and use, (GL) 79 Sewerage Water Supply Agriculture Mining Manufacturing* Electricity Other industries Households Inland Water Resources The Sea * Note shown is the supply of distributed water and reuse water by mining and manufacturing, 25 GL in total. 1163

23 Key Wastewater Water Reuse water Australia monetary water supply and use, (million AUD$) 7 Sewerage ISIC Water Supply ISIC Agriculture ISIC 1 Mining* ISIC 5 9 Manufacturing* ISIC Electricity ISIC 35 Other ISIC 2,3,38,39, Households Inland Water Resources The Sea * Note shown is the supply of distributed water and reuse water by mining and manufacturing, 25 GL in total. No monetary available for these.

24 Monetary vs. physical use of distributed water (% of total) Australia Households All other Industries Electricity Water Supply Manufacturing Mining Agriculture Value of water Volume of water 0% 10% 20% 30% 40% 50% 60%

25 Accounting for Environmental Assets Environmental assets: Naturally occurring living and non-living components of the Earth, together comprising the bio-physical environment, that may provide benefits to humanity (SEEA Central Framework 2.17) Central Framework focus on individual components / resources Mineral & energy resources, land, soil resources, timber resources, aquatic resources (incl. fish), water resources Includes both natural and cultivated resources

26 Basic form of asset accounts

27 Opening Stocks Increases in stocks Returns from the economy Precipitation Inflows from upstream territories from other resources in t territory Decreases in stocks Abstraction of which Sustainable use Evaporation/Actual evapotranspiration Outflows to downstream territories to the sea to other resources in the territory Other changes in volume Closing Stocks Physical water assets EA.1311 Reservoirs Evaporation Sea/ocean EA.131 Surface water EA.1312 Lakes EA Rivers Transpiration EA.1314 Snow, Ice and Glaciers EA.132 Ground water Precipitation (dew, mist, rain, sleet, hail, snow) Groundwater (aquifers) EA.133 Soil water physical units Surface water (rivers, lakes, glaciers) Evaporation Total Soilwater Infiltratio n 27

28 Environmentally Related Economic Transactions SEEA Central Framework describes those flows within the standard economic accounts that may be considered environmentally related. Aspects covered include: Environmental protection and resource management activity and expenditure Connected and specific products Adapted goods Financing of environmental activity Environmental goods and services sector (EGSS) Classification of environmental activities Environmental taxes and subsidies Permits for use of the environment (e.g. emission permits)

29 Ecosystem accounting: key concepts Ecosystem assets Land Water Carbon Biodiversity Ecosystem extent, condition and capacity Service flow accounts Provisioning Regulating Cultural System of National Accounts Market and non-market goods and services Individuals (households) Public sector (government) Private sector (industry)

30 The place of accounting in the information system and policy process Review Issue Information system Basic data Accounts Analysis Monitoring Policy response Implementation Source: Vardon et al (2016). The accounting push and the policy pull. Ecol. Econ. 124:

31 Acknowledgements The presentation has built on a range material developed previously for the Australian National University, Australian Bureau of Statistics, World Bank, United Nations Statistics Division and other agencies. The material draws on material from a large number of individuals. Special thanks to JP Castaneda, Carl Obst, Steve May, Sarah Coleman, Rocky Harris, Lars Hein, Ricardo Martinez-Lagunes, Sofia Ahlroth, Xiochen Zhang and Peter Burnett