System of Environmental-Economic Accounting Introduction to Core Accounting

System of Environmental-Economic Accounting Introduction to Core Accounting

System of Environmental-Economic Accounting Introduction to Core Accounting Principles on SEEA and SNA Julian Chow United Nations Statistics Division SEEA Training Seminar for the ECA 2-5 February 2015 Addis Ababa System of Environmental-Economic Accounting Objectives of the Session Introduce and recall some fundamentals of national accounting Define the scope of measurement Defining the economy and the environment The production boundary Economic units sectors and industries Demonstrate the breadth of national accounting and the recording of stocks and flows SNA and SEEA as frameworks for organizing information System of Environmental-Economic Accounting Defining the Economy System of Environmental-Economic Accounting Defining the Economy Economic activities Production, Consumption, Accumulation Economic products

Goods and services Economic assets Produced, Non-produced, Financial assets Economic units Establishments, enterprises, households, governments Economic territory Residence, geographic coverage Domestic System Economy of Environmental-Economic Accounting Constituents of an Economy? tity capable Economic Territo ry: The Institutional unit: an en g geographic territory rrin ng assets, incuunits owniinstitutional of All administere residing in the economic territory ofd a ic

om on b ec y t th ou e government of the s, carrying liabilitie countryits country during the accounting period constitute l al on w s ith on si in which persons, activities taking deci goods, economy. d an a n

e d lif capital can circula aspects of economic te freely. r he ot ith w engaging in transactions unit has l a n o i t u t an insti h entities. NA] ic S h 8 w 0 in 0 2 y

[ r c territo interest i ic m o m n o o n c o The e ant ec in m o d e r of p its centre e unit. h t f o e c iden is the res

System of Environmental-Economic Accounting Residence Institutional units Determined by Individuals Residence of the household of which they form part Unincorporated enterprises If not a quasi-corporate, same residence as their owners Corporations and NPIs Normally the country of registration or where legally constituted. Branch in a different country quasi-corporate in the host economy (i) Owners of land, buildings & immovable structures (ii) extractors of subsoil resources. Deemed always to have a centre of economic interest in the country where they are located. Thus, for all land & buildings are owned by nonresidents a notional resident unit (with nonfinancial asset and direct investment liability) 6

SomeSystem Questions Domestic Economy of Environmental-Economic Accounting State whether TRUE of FALSE. 1. Foreign students staying for three years are considered residents. Q 1. FALSE 2. A branch of Citi Bank (an American bank) in Tokyo is a resident of Q 2. TRUE Japan. 3. Australian crew of a ship of a Japanese company are residents of Q 3. FALSE Japan. Q 4. TRUE 4. Non-residents are not considered to be owners of immovable assets . 5. All unincorporated businesses without separate accounts Q 5.(i.e. TRUE households run businesses whose accounts are mixed in with those of household) belong to household sector Q 6. TRUE 6. Branch of foreign NPI serving residents households is treated as a resident NPISH. Q 7. FALSE 7. Central Bank is part of the general government sector. Q 8. TRUE 8. A branch of a Japanese company in Thailand is resident of Thailand

Domestic System Economy of Environmental-Economic Accounting Institutional Sectors ized by n g o c e r ntities e l are a g h le ic h e r w a , e e Thes orporat c is a u

q economy des law. Inclu l entity. a g le a t no corporate Financial corporate sector General government Household sector Non-financial ich are h w ( corporate s it n ehold u s

u o h t sector es (not n is e r d p i r s e e t r n l l ted e es a includ orpora r c o n t i c n

e u s e ned by h t w l o l This a ) n d io n t orpora tities) a c n i e s l a a u g q le r not

ration o o p r o c s a classified them. NPISHs System of Environmental-Economic Accounting Enterprises, Establishments and Industries Enterprises Institutional units from the perspective of being producers of goods and services Establishments Enterprises in a single location performing a single or predominant type of productive activity Industries Groupings of establishments undertaking similar types of productive activity System of Environmental-Economic Accounting 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) In practice: Exclude things you do only for yourself Exclude household production of services for itself Except rent of owner-occupiers & wages of domestic staff Include household production of goods for itself Agricultural products, fishing, fuelwood, clothes, furniture, water, energy Include concealed and illegal activity System of Environmental-Economic Accounting Product Flows in the SEEA Environment Economy Enterprises Households Government Natural inputs (e.g. minerals, energy, timber, fish and water) Products Residuals (e.g. air emissions, solid waste, return flows of water) Mineral and energy resources Timber resources Fish resources Water resources Soil resources

Land System of Environmental-Economic Accounting Types of Output and Production Market output Transactions between economic units at market prices Non-market output Not transacted at market prices (government education, health) Valued at cost of production Own-account production in SNA (within establishments) For own final consumption (e.g. subsistence agriculture) : INCLUDED For own final capital formation (e.g. building own house) : INCLUDED For own intermediate consumption : EXCLUDED (except ancillary activity) System of Environmental-Economic Accounting Own accounting production recording in SNA and SEEA SNA recording is limited to the production of goods for own use i.e. exclude own intermediate consumption SEEA Record all own account and intra-establishment production and use of goods and services i.e. include own intermediate consumption Example Production of energy through the incineration of waste by

an establishment for own intermediate consumption is recorded in SEEA but not in SNA System of Environmental-Economic Accounting Key Messages Many aspects to defining the economy Measurement boundaries are important to understand Production boundary key determinant of the size of GDP Own- account activity needs special consideration Economic (institutional) units can be seen from two key perspectives Institutional sector: Similar economic behaviours / legal basis Industry: Similar productive activities System of Environmental-Economic Accounting Defining Environmental Assets System of Environmental-Economic Accounting Discussion: What Things Might be Considered Environmental Assets? System of Environmental-Economic Accounting Definition of Environmental Assets

Environmental assets are the naturally occurring living and non-living components of the Earth, together constituting the biophysical environment, which may provide benefits to humanity 2012 SEEA Central Framework 2.17 System of Environmental-Economic Accounting One Environment : Two Perspectives Individual environmental assets / resources Ecosystems Timber Forests Water Lakes Soil Agricultural areas Fish System of Environmental-Economic Accounting Scope of Individual Resources 1

1.1 1.2 1.3 1.4 1.5 2 3 4 4.1 4.2 5 5.1 5.2 6 7 7.1 7.2 7.3 Mineral and energy resources Oil resources Natural gas resources Coal and peat resources Non-metallic mineral resources (excluding coal and peat resources) Metallic mineral resources Land Soil resources Timber resources Cultivated timber resources Natural timber resources Aquatic resources Cultivated aquatic resources Natural aquatic resources Other biological resources (excluding timber resources and aquatic resources) Water resources

Surface water Groundwater Soil water System of Environmental-Economic Accounting Physical and Monetary Scope In principle, when accounting for environmental assets in physical terms include all environmental assets whether or not they have a monetary value All land in a country is included in physical land accounts Also timber resources, other biological resources, soil, inland water resources Mineral and energy resources scope is known deposits Aquatic resources scope is all resources within EEZ plus rights on high seas In practice limit to commercial stocks and subsistence System of Environmental-Economic Accounting Key Points and Boundary Issues Distinct treatment of land Account for its provision of space / area not the resources that are within it Include natural and cultivated biological resources Oceans and atmosphere excluded Stocks of potential energy from renewable sources excluded E.g. solar, wind, tidal power Slight exception for hydropower

System of Environmental-Economic Accounting Ecosystem Assets Areas comprising combinations of individual resources (timber, soil, water, etc) but also having ecological processes and characteristics Aim to assess Condition of the ecosystem within an area (i.e. how is it functioning, quality of processes) Flow of ecosystem services to economic and human activity Ecosystem asset accounting measures environmental impact rather than environmental pressures System of Environmental-Economic Accounting Economic and Environmental Assets ECONOMIC ASSETS Produced assets - Fixed assets & inventories ENVIRONMENTAL ASSETS - Cultivated biological resources Non-produced assets - Contracts, marketing - Natural resources assets, etc. & land

Financial assets Natural resources & land with no economic benefits (e.g. barren land, known mineral deposits without current economic value) System of Environmental-Economic Accounting Key Messages Environmental assets can be seen from two perspectives: individual resources & ecosystems Both natural and cultivated resources are included in scope Scope is generally broader in physical terms than in monetary terms Land is accounted for in terms of area/space System of Environmental-Economic Accounting Exercise: Defining the scope of measurement System of Environmental-Economic Accounting The Structure of Accounts System of Environmental-Economic Accounting

Sequence of Accounts Describes sequence of interconnected flow accounts linked to different types of economic activity taking place within a given period of time, together with balance sheets that record the values of the stocks of assets and liabilities held by institutional units or sectors at the beginning and end of the period Each flow relates to a particular kind of activity such as production, or the generation, distribution, redistribution or use of income Sequence ofEnvironmental-Economic Accounts System of Accounting Links between the Accounts Production Account GDP on i t c a s n a ts Tr n u o

c c A Income Accounts savings Opening Balance Sheet Capital Account (non-financial assets) Net lending/borrowing Financial Account (financial assets/ liabilities) Other Economic flows Closing Balance Sheet System of Environmental-Economic Accounting Organization of Accounts Current accounts Left hand side Uses Right hand side Resources

Accumulation accounts Left hand side Changes in assets Right hand side Changes in liabilities and net worth Balance sheets Left hand side Assets Right hand side Liabilities and net worth System of Environmental-Economic Accounting Sequence of Accounts (cont.) Production account Resources Uses Balancing item Output Intermediate consumption Gross value added Consumption of fixed capital Net value added Generation of income account Resources Uses

Balancing item Gross value added Compensation of employees Taxes less subsidies Gross operating surplus System of Environmental-Economic Accounting Sequence of Accounts (cont.) Allocation, distribution and use of income Resources Uses Balancing items Gross operating surplus Compensation of employees Taxes less subsidies Property income receivable Property income payable Balance of primary income Current transfers receivable

Current transfers payable Gross disposable income Final consumption expenditure Gross saving System of Environmental-Economic Accounting Sequence of Accounts (cont.) Capital account Resources Uses Balancing item Gross saving Gross fixed capital formation Change in inventories Sales of non-produced assets (incl. natural resources) Purchases of nonproduced assets (incl. natural resources) Capital transfers receivable

Capital transfers payable Net lending System of Environmental-Economic Accounting Sequence of Accounts (cont.) Asset account Opening stock Additions Reductions Produced assets Gross Fixed Capital Consumption of Formation fixed capital Non-produced assets Natural growth Natural losses Extraction Financial assets and liabilities Discoveries Catastrophic losses

Purchases of nonproduced assets Sales of nonproduced assets Financial transactions Financial transactions Closing stock Sequence ofEnvironmental-Economic Accounts System of Accounting Links between the Accounts Production Account GDP on i t c a s n a ts Tr n u o

c c A Income Accounts savings Opening Balance Sheet Capital Account (non-financial assets) Net lending/borrowing Financial Account (financial assets/ liabilities) Other Economic flows Closing Balance Sheet System of Environmental-Economic Accounting System of Environmental-Economic Accounts (SEEA) view Final demand Sectors

Industries Assets Financial and produced assets, opening balance Natural resource assets, opening balance Natural resource assets, opening balance Sectors Wastes Commodities Industrial output of goods and services Industrial intermediate demand Final demand Gross fixed capital formation Environmental protection expenditures

Environmental protection expenditures Capital expenditures for environmental protection Resource production by industries Resource production by households/govt Resource use by industries Resource use by households/govt Waste consumption by industries Waste consumption by households/govt Waste output by industries Waste output by households/govt Other changes in volume & holding gains/losses on financial & produced assets Changes in and holding

gains/losses on natural resource assets Changes in natural resource assets Financial and produced assets, closing balance Natural resource assets, closing balance Natural resource assets, closing balance System of Environmental-Economic Accounting Supply and Use Tables Matrices that record how supplies of different kinds of goods and services originate from domestic industries and imports and how those supplies are allocated between various intermediate or final uses, including exports Involve the compilation of a set of integrated production and generation of income accounts for industries by drawing upon detailed data from industrial censuses or surveys Provide an accounting framework within which the product flow

method of compiling national accounts, whereby the total supplies and uses of individual types of goods and services have to be balanced with each other, can be systematically exploited System of Environmental-Economic Accounting Accounting and balancing identities Supply and use identity Within the economy, the amount of a product supplied must also be used with the economy, most likely by a range of different economic units, or exported Total supply of natural inputs = Total use of natural inputs Total supply of products = Total use of products Total supply of residuals = Total use of residuals Input-output identity Over an accounting period, flows of materials into an economy must equal the flows of materials out of an economy plus any net additions to stock in the economy System of Environmental-Economic Accounting Basic Supply and Use Table Industries Households Government Accumulation Rest of Total the world Supply table

Products Output Imports Total supply Use table Products Intermediate Household final Government final Gross capital Exports Total use consumption consumption consumption formation (incl. expenditure expenditure changes in inventories) Value added Supply table show the flows relating to the production, generation, System of Environmental-Economic Accounting and supply of natural inputs, products and residuals by different economic units by different economic units or the environment Supply table Production; Generation of residuals Production; Generation of residuals by industries (incl. household production on own account) - classified by ISIC Accumulation Generation of residuals by households Flows from the rest of the world Residuals C. Output (incl. sale of recycled and reused products) I1. Residuals generated by industry (incl. natural resource residuals) J. Residuals generated by

household final consumption I2. Residuals generated following treatment Total A. Flows from the environment (incl. natural resource residuals) Total Supply of Natural Inputs (TSNI) Total Supply of Products (TSP) Total Supply of Residuals (TSR) Industries - classified by ISIC Natural inputs Products Flows from the environment D. Imports of products K1. Residuals from L. Residuals M. Residuals recovered from the scrapping and received from environment demolition of produced rest of the world

K2. Emissions from controlled landfill sites Total supply Use table Intermediate consumption of products; Use of natural inputs; Collection of residuals Industries - classified by ISIC Natural inputs Products Residuals B. Extraction of natural inputs B1. Extraction used in production B2. Natural resource residuals E. Intermediate consumption (incl. purchase of recycled and reused products) N. Collection and treatment of residuals (excl accumulation in controlled landfill sites) Final consumption* Accumulation Households Industries - classified by ISIC F. Household final consumption (incl. purchase of recycled and reused products)

G. Gross Capital Formation (incl. fixed assets and inventories) O. Accumulation of waste in controlled landfill sites Flows to the rest of the world Flows to the environment Total Use of Natural Inputs (TUNI) Total Use of Products (TUP) H. Exports of products P. Residuals sent to the rest of the word Total Q. Residual flows to the environment Total Use of Residuals (TUR) Q1. Direct from industry and households (incl. natural resource residuals & landfill emissions)

Q2.Following treatment Total use Use table show the flows relating to the consumption and use of nature inputs, products and residual by different economic units or the environment System of Environmental-Economic Accounting Connections between SUT and asset accounts Asset accounts (Physical and monetary terms) Industries Monetary Product-supply supply Product-use and use table Physical supply and use table Households Government Output Intermediate consumption Rest of the world Imports

Household final consumption expenditures Government final consumption expenditures Exports Natural inputssupply Natural inputsuse Productsupply Product-use Residualsupply Residuals-use Produced Environmental assets assets Opening stock Gross capital Extracted natural resources Imports of natural resources Output Intermediate

consumption Residuals generated by industry Collection & treatment of waste and other residuals Imports Household final consumption Residuals generated by household final consumption Exports Gross capital formation Residuals Residuals from received scrapping and from the demolition of rest of the produced world assets; Emissions from controlled landfills Residuals Accumulation

Residuals sent to the of waste in flowing to the rest of the controlled environment* world landfills Other changes in volume of assets (e.g. natural growth, discoveries, catastrophic losses) Revaluations Closing stock System of Environmental-Economic Accounting Key Messages All economic stocks and flows can be organized and placed in context National accounting is not only output and intermediate consumption One account is not sufficient different questions require a focus on different accounts and balancing items The accounting system is complete and internally consistent System of Environmental-Economic Accounting The SEEA Central Framework Accounts 1. Flow accounts: supply and use tables for products, natural inputs and residuals (e.g. waste, wastewater) generated by economic activities. physical (e.g. m2 of water) and/or monetary values (e.g. permits to access water, cost of wastewater treatment, etc.)

2. Stock accounts for environmental assets: natural resources and land physical (e.g. fish stocks and changes in stocks) and/or monetary values (e.g. value of natural capital, depletion) 3. Activity / purpose accounts that explicitly identify environmental transactions already existing in the SNA. e.g. Environmental Protection Expenditure (EPE) accounts, environmental taxes and subsidies 4. Combined physical and monetary accounts that bring together physical and monetary information for derivation indicators, including depletion adjusted aggregates System of Environmental-Economic Accounting Physical flows accounts Physical flow accounts Topics covered (detailed definition) Full set of supply and use tables for materials All resources and materials (energy, water, air emissions, water emissions, solid waste) (CF 3.45) Economy-wide material flow accounts (MFA) Supply and consumption of energy; air emissions, water emissions, and solid waste (CF 3.279)

Physical supply and use tables for water (PSUT water) Supply (precipitation) and consumption of water (CF 3.186) Physical supply and use tables for energy (PSUT energy) Supply and consumption of energy (CF 3.140) Air emissions accounts Air emissions (CO2, pollutants) (CF 3.233) Water emissions accounts Water emissions (CF 3.257) Waste accounts Solid wastes (CF 3.268) CF = Central Framework, white cover edition, refers to paragraph number System of Environmental-Economic Accounting Asset accounts Asset accounts Topics covered (detailed definition) Mineral and energy resources

Physical and monetary accounts for minerals and energy stocks (oil, natural gas, coal and peat, non-metallic minerals and metallic minerals) (CF 5.172) Land Physical and monetary accounts for land, land cover, land use and forest (CF 5.235) Soil resources Area and volume of soil resources (CF 5.318) Timber resources Physical and monetary accounts for timber resources (CF 5.343) Aquatic resources Physical and monetary accounts for fish, crustaceans, molluscs, shellfish and other aquatic organisms such as sponges and seaweed as well as aquatic mammals such as whales. (CF 5.393) (CO2, pollutants) (CF 3.233) Other biological resources Cultivated animals and plants including livestock, annual crops such as wheat and rice, and perennial crops such as rubber plantations, orchards and vineyards. (CF 5.462) Water resources Stock of water resources (CF 5.471) System of Environmental-Economic Accounting

Monetary flows accounts Monetary flow accounts Topics covered (detailed definition) Environmental protection expenditure accounts (EPEA) Output of EP services in economy and expenditures on EP goods and services by resident units (CF 4.45) Resource use and management accounts (RUMEA) Production, supply and use, expenditures on and financing of resource management (CF 4.121) Environmental goods and services sector (EGSS) Characteristics of all producers of products intended for environmental protection and resource management (CF 4.95) Environmentally related payments by government Environmental subsidies, social benefits to households, investment grants and other current and capital expenditures (CF 4.138) Environmentally related payments to government

Environmental taxes (taxes on products, production and income; other current taxes and capital taxes) and other payments to government (rent, sales of some goods and services, some fines and penalties) (CF 4.149, CF 4.159) Permits and licenses to use environmental assets Permits to extract and harvest natural resources (CF 4.174) Emissions permits Permits for the use of the environment as a pollution sink (emissions permits) (CF 4.182) Costs related to termination of fixed assets Environmental consequences of disposing of fixed assets (nuclear power plants, oil rigs and other equipment, landfills, mines, etc.) (CF 4.194) System of Environmental-Economic Accounting THANK YOU

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