After reading this article you will learn about the general framework of the SNA.
Environmental analysis can be dealt with as a functionally oriented satellite account or in the context of a broadened framework by amending various concepts of the SNA to respond to the growing concern of incorporating environmental criteria in economic analysis.
ADVERTISEMENTS:
In the integrated economic and environmental satellite accounts, SNA aggregates are amended to treat natural resources as capital in the production of goods and services, to record the cost of using—i.e., depleting and degrading—those resources and to record the implicit transfers needed to account for the imputed cost and capital items.
Table 42.2 presents the structure of SNA as amended to include the environmental accounts. The flow and stocks of the SNA are shown in the shaded portion and the non-shaded portion shows the additional elements that are needed to supplement the SNA concepts for the purpose of integrated environmental account.
The use of the SEEA framework to present environmental accounting and the relationship to the SNA is convenient as the SEEA has been developed in immediate relationship to the SNA so that its concepts and classifications are linked to those of the SNA.
The environmental cost and capital elements included in the SEEA can be interpreted in physical terms as well as in monetary terms. However, in view of the controversial issues surrounding valuation of the environmental cost and capital, much caution need to be exercised in the use of these elements in monetary terms and in the corresponding derivation of environmentally adjusted aggregates.
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1993 SNA Framework:
The columns of the Table 42.2 related to flows are a column (1) for production, covering output (P), intermediate consumption (Ci), consumption of fixed capital (CFC) and the net domestic product (NDP); a column (2) for the rest of the world, which includes exports (X) minus imports (M) and a column (3) for final consumption.
The rows of the table referring to SNA flows are a row (ii) for supply, including outputs and imports; a row (iii) for economic uses, including elements of intermediate consumption, exports, final consumption and gross capital formation (Ig); a row (iv) for CFC and, finally, a row for (v) NDP which presents the elements that define the national accounts identity between NDP and the expenditure categories.
The SNA column (4) for asset balances of produced assets includes the opening and closing stocks of produced assets (KOp.ec & Klp.ec) and the elements explaining the changes between the two i.e., net capital formation (I – Ig – CFC) holding gains/losses on produced assets (Revp.ec) and other changes in volume of produced assets (Volp.ec).
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The asset balances in the SNA area cover all economic assets and therefore, include the assets covered by column (5) for non-produced natural assets.
The elements in this column, however, do not figure in the calculation of NDP as all changes in non-produced natural assets between opening and closing stocks (KOnp.ec & Klnp.ec) are explained in the SNA as holding gains/losses (Revnp.ec) and other changes in volume of assets (Volnp.ec).
SNA Framework extended to Environmental Accounts:
The non-shaded areas of Table 42.2 include the additional elements that are needed to supplement the SNA concepts with data in physical terms on environmental cost and capital. There are two types of additional elements.
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The first group is included in an additional column (6) which records the effects of economic activities on non-produced natural assets such as air, water and virgin forests that are not included as economic assets in the SNA.
The second group of elements is included in two additional rows (vi-vii) that include elements for the use of non-produced natural assets by depletion and degradation and for other accumulation of non-produced natural assets, which cover the transfer of natural assets to and between economic uses.
Another row (viii) is included to derive an environmentally adjusted net domestic product (EDP) and other environmentally adjusted concepts. This row is only relevant in the case of monetary environmental accounting when additional SEEA elements are specified in value terms.
In row (vi) related to the use of non-produced natural assets, an additional element Usenp has been included in the column for production.
This reflects the use of non-produced natural assets in production; it is sum of counterpart items in columns (5) and (6) representing respectively, the use of non-produced natural assets that are economic assets in the SNA sense, i.e. (-Usenp.ec) and the degradation of other natural assets that are not economic assets i.e., (Usenp.env).
The use of non-produced economic assets (-Usenp.ec) includes the depletion of minerals, extraction of timber from forests that are economic assets and the effects on productivity of those forests and agricultural land of soil erosion, acid rain, etc.
The deteriorating effects of air pollution on buildings and structures and the effects of soil erosion on roads and other degrading effects on produced assets are not included as they are assumed to be reflected in the CFC.
The use of non-produced natural assets that are not economic assets (Usenp.env) covers the non- sustainable extraction of fish stock from oceans and rivers, extraction of firewood and lumber from tropical and other virgin forests of hunting animals living in the wild and also the effects of emission of residues on the quality of air, water, fish stock, wild forests and the effect of other economic activities (recreation, agriculture, transport, etc.) on ecosystems and species habitat.
Other accumulations in row (vii) records in physical or monetary terms the transfer of natural assets to economic uses as a change in the stock of non-produced economic assets (Inp.ec). The counterpart of this increase in economic asset is the reduction of natural assets other than economic assets (-Inp.env)- .
Thus Inp.ec would include the transfer of land to economic uses, the net additions to proven mineral reserves, the conservation of wild forests to timber tracts or agricultural land and the conversion of fish stocks to economic control.
If the deterioration takes place at the same time that natural assets are incorporated as economic assets, the deterioration is not recorded in the other accumulation row, but is included as part of use of natural resources. If this deterioration takes place before the transfer, it is recorded as uses of natural resources that are economic assets (-Usenp.ec).
As the elements of row (vi) for use (i.e. depletion or degradation) of non-produced natural assets, and row (vii) for other accumulation are included in the SNA in other volume changes, the content of other volume changes is reduced in the SEEA as compared with the SNA.
If the additional SEEA elements are valued in monetary terms, the incorporation of the use of non-produced natural assets (Usenp) as additional cost in the column for production results in an EDP, presented in row (viii), which is lower than NDP. The elements in row (vii) for other accumulations do not affect EDP.
Corresponding to the monetary valuation of the additional SEEA elements, on the expenditure side a new concept called net accumulation is introduced in the SEEA to replace net capital formation in the SNA. It is presented in row (viii), separately for produced assets (Ap.ec), non-produced economic assets (Anp.ec), and other natural assets (Anp.env).
For produced assets, it is same as net capital formation (i.e., Ap.ec = I), for non-produced economic assets, it reflects the net effects of negative depletion and degradation and positive additions of natural assets that are transferred to economic uses (i.e., Anp.ec = – Usenp.ec + Inp.ec).
For natural assets other than economic assets it could be considered as the economic valuation of the impact of economic activities on the environment. It is, thus, sum of negative depletion and degradation effects (-Use v) and negative effects of incorporating natural assets as economic assets (i.e., –Usenp.env –Inp.env).
If net accumulation replaces net capital formation when the additional SEEA elements are valued in monetary terms, the national accounts identity between NDP and final expenditures changes.
In the SNA this identity, as reflected in row (v) of table 1 is:
Details of Environmental Amendments to SNA Framework, Concepts and Classifications:
Assets Boundary and Classification:
As per 1993 SNA the Natural Assets are included only if they provide economic benefits to the owner/controlling institution. This may mean explicit ownership and/ or availability of a market price, such assets are referred to in SNA as economic assets.
In SEEA, however, the asset boundary has been much widely defined and particularly include all the natural assets some of which may directly help in production while others may be affected by environmental impacts of economic activities.
The asset boundary of SNA includes only economic assets as dealt with in columns (4) and (5) of Table 42.2. The SEEA asset boundary comprises all natural assets including those that are economic assets and are covered in columns (4) and (5) and other natural assets that are represented by column (6).
Table 42.3 shows that some assets categories in the SNA and SEEA are identical, some are closely related with different coverage, and some are not at all included in the SNA but are included only in the SEEA. The asset categories with an identical coverage are cultivated assets—such as orchards and plantations—and work in progress on cultivated assets including agriculture crops and livestock, which are treated as inventories in both the systems.
Further, the sub-soil assets category is also identical in both the classifications. Air is one of the assets included in SEEA because it is affected by economic activities but is not included at all in the SNA. Land—although covered in both the systems—have widely different coverage in the systems in the sense that SNA land includes associated water surfaces such as lakes and rivers and, in some instances, also ground water.
Since the SEEA deals with the effects of economic activities on the quality of water in rivers and lakes as also on the quality and quantity of available ground water it excludes these categories of water resource from land and includes them as sub-categories under the category of water. Thus the category of water in SEEA is much broader than the SNA category.
The SNA category is mainly restricted to aquifers that are controlled by human activity while the SEEA land includes the ecosystem which are not explicitly included as economic assets in SNA.
This classification of natural assets for environmental accounting is required in order to fully cover depletion, degradation and other accumulations, i.e… transfer of natural assets to economic activities. This classification will go whether physical units or monetary values are used for Environmental Accounting.
Environmental Cost:
SEEA identifies two types of environmental cost, viz., imputed cost for degradation and depletion and actual cost in the form of environmental protection expenses.
These costs are explained as:
The Cost of Use of Non-Produced Natural Assets:
This cost has been introduced as an additional cost in SEEA and represents the cost of depletion and degradation in physical terms e.g., quantity of minerals extracted, quantity of timber cut. value of solid, liquid or gaseous wastes generated. Depletion is not restricted to economic assets only as in SNA and may cover depletion of uncontrolled forests for the purpose of firewood or the uncontrolled depletion of fish stocks.
In these cases the assets are considered as non-economic in the sense that the exploitation of assets is uncontrolled. In such cases a depletion allowance is calculated in the SEEA except if the depletion in the case of wild biota is within the bounds of natural growth and the depleted assets would be naturally replaced.
If expressed in monetary terms the depletion allowances could be considered as payments for the extraction of non-produced assets, such as minerals which are in stock either as economic assets or as Natural Assets. Depletion of non-produced natural assets is, therefore, considered in the SEEA as cost and, at the same time, treated as negative changes in inventories.
Degradation effects in physical or monetary terms are included as additional cost elements in physical or monetary terms no matter whether these affect natural assets that are economic assets or other non-economic natural assets. The affects of degradation may include the deterioration of natural assets as a result of their use as sink for residues or as a consequence of other degrading activities.
The deterioration of produced assets due to degradation is assumed to be reflected in CFC accounted for in the SNA. Environmental degradation by households is treated as a cost of internal household production activities and environmental degradation caused by fixed assets abandoned in the environment at the end of their useful economic life is allocated as cost of degradation to the producers owing those fixed assets.
Both adjustments reduce EDP as compared to NDP in monetary environmental accounting. Another convention of SEEA relates to environmental degradation “imported from” or “exported to” neighbouring countries. Net of these is treated as a further environmental cost element.
Environmental Protection Expenses:
Some actual expenses are incurred to avoid environmental degradation or to eliminate the effects after degradation takes place. Enterprises explicitly produce such services on a commercial basis. In many instances, however, the services are produced as ancillary activities. The ancillary activities are treated as separate establishment with an identifiable output and intermediate costs.
The externalization of ancillary environmental activities is done in order to measure and evaluate more comprehensively the efforts actually made to combat the environmental degradation and its effects.
In general, the SEEA considers only those environmental protection expenses which are in immediate response to the effects caused by production. It excludes environmental protection expenditure responding to other environmental impacts.
That is why household expenses for environmental protection are not considered—they respond to impacts borne by households and are dealt with in the SEEA in the same manner as in the SNA. An exception is made for environmental services produced as ancillary activities by government, which are included in the SNA as part of non-market output. They are identified in the SEEA as separate establishment.
Net Capital Accumulation:
Capital formation in the SNA includes changes in the stock of produced assets used in production that are caused by economic decisions. Capital accumulation in the SEEA includes not only capital formation but also changes in non-produced natural assets that are explicitly used in production and arc. thus, also related to economic decision.
Such changes include the reductions in the capital stock as a result of depletion and degradation and also the incorporation of natural assets as economic assets and the transfer of natural assets between economic uses as a result of economic decisions taken in connection with production activities.
Catastrophic losses due to events such as wars and natural disasters are not included in the concept of Net Capital Accumulation unless they are caused in connection with productive activities.
Valuation:
Three alternative valuation methods are available, viz., market prices, valuation cost, and contingent valuation.
In the SEEA the principles of market valuation are the same as in the SNA, they are applied to stocks of non-produced natural assets that are economic assets in the SNA, to changes therein as a result of uses of natural assets and also to the depletion of natural assets that are not economic- assets such as the extraction offish from the oceans and firewood from virgin forests.
Market valuation, however, has been more extensively elaborated in the SEEA insofar as natural resources are concerned.
The only difference between the SNA and the SEEA is that the use of non-produced natural economic assets is recorded in the SNA as other volume changes, while in the SEEA cost of degradation and depletion is reflected in capital accumulation and deducted in the derivation of EDP.
Opening and Closing stock of other non-produced natural assets which are non-economic assets in SNA are recorded in the SEEA in physical terms.
Degradation of air and water is not valued in either system as these are uses of non-produced natural assets that are non-economic assets. However, while the SNA excludes, the SEEA includes in its market valuation all uses of natural assets that are not economic assets like the depletion of fish stock from the ocean, the extraction of firewood from virgin forests as the fish and firewood have a market value.
Two valuation methods are used for depletion—one is net rent approach which values the units extracted on the basis of the difference between output and all costs including labour cost and a normal profit margin incurred as a result of depletion.
The other is user cost approach which values the units extracted on the basis of only a part of net rent, i.e., that part which, if reinvested, would generate a permanent income stream equal to the loss of income generation capacity through depletion. SEEA analyses the quality changes in assets, i.e., degradation, separately, deducting this value in principle from value added generated and capital accumulation.
The two other valuations used in the SEEA—viz., maintenance cost and contingency valuation- are only applied to uses and not to stocks of non-produced natural resources. Their use may, however, lead to a number of valuation inconsistencies within the SEEA.
However the effectiveness of economic valuation of environmental goods is, however, limited by the key methodological dilemmas:
i. It is very hard to measure environmental benefits;
ii. Values are affected to pay (as well as inherent willingness to pay); and
iii. Estimates of willingness to pay depend on respondents knowledge about the good.
A variety of evaluative methods is available for the estimation of quasi-market values for non- market environmental goods (Fig. 42.3).
