Organisation for Economic Co-operation and Development Food and Agriculture Organization of the United Nations The World BankUnited Nations International Monetary Fund European Commission System of Environmental-Economic Accounting 2012 Central Framework  System of EnvironmentalEconomic Accounting 2012— Central Framework asdfUnited Nations New York, 2014 Copyright © 2014 United Nations European Union Food and Agriculture Organization of the United Nations International Monetary Fund Organisation for Economic Co-operation and Development The World Bank All rights reserved worldwide United Nations Document symbol: ST/ESA/STAT/Ser.F/109 Sales No.: E.12.XVII.12 ISBN: 987-92-1-161563-0 eISBN: 978-92-1-055926-3 European Union Catalogue No.: KS-01-14-120-EN-C ISBN: 978-92-79-35797-8 Catalogue No.: KS-01-14-120-EN-N ISBN: 978-92-79-35791-6 iii Foreword Comparable and reliable data supporting coherent analytical and policy frameworks are essential elements to inform debates and guide policy related to the interrelationships between the economy and the environment. The System of Environmental-Economic Accounting 2012—Central Framework (SEEA Central Framework) is a statistical framework consisting of a comprehensive set of tables and accounts, which guides the compilation of consistent and comparable statistics and indicators for policymaking, analysis and research. It has been produced and is released under the auspices of the United Nations, the European Commission, the Food and Agriculture Organization of the United Nations, the Organisation for Economic Co-operation and Development, the International Monetary Fund and the World Bank Group. The SEEA-Central Framework reflects the evolving needs of its users, new developments in environmentaleconomic accounting and advances in methodological research. Agenda 21, adopted at the 1992 United Nations Conference on Environment and Development held in Rio de Janeiro, Brazil, called for the establishment of a “programme to develop national systems of integrated environmental and economic accounting in all countries”. More recently, the outcome document of the United Nations Conference on Sustainable Development (Rio+20) held also in Rio de Janeiro, in 2012, reconfirmed that “integrated social, economic and environmental data and information … are important to decisionmaking processes.” In response to the policy demands from the World Commission on Environment and Development—or Brundtland Commission—(1983-1987) and, subsequently, Agenda 21 (1992), the 1993 Handbook of National Accounting: Integrated Environmental and Economic Accounting (SEEA 1993) was developed. Further development of the statistical framework, based on practical experience in implementing the SEEA 1993, was published in the Handbook of National Accounting: Intergrated Environmental and Economic Accounting 2003 (SEEA-2003). In view of the continued need for environmental and environmentaleconomic information, the United Nations Statistical Commission established the Committee of Experts on Environmental-Economic Accounting in 2005, composed of representatives from national statistical offices and international agencies with the mandate to revise the SEEA-2003 and the objective of establishing a statistical standard for official statistics. The Bureau of the Committee of Experts on Environmental-Economic Accounting, consisting of representatives elected among its members and acting under delegated authority from the Committee of Experts, managed and coordinated the revision of the SEEA. National statistical offices from countries throughout the world, as well as international organizations, made valuable contributions. Expert groups carried out research on the issues being reviewed. During the update work, the recommendations and the updated text were posted on the website of the United Nations Statistics Division for worldwide comment, thereby achieving full transparency in the process. System of Environmental-Economic Accounting 2012—Central Frameworkiv At its forty-third session, the Statistical Commission adopted the SEEA-Central Framework as the initial international statistical standard for environmental-economic accounting, to be implemented in a flexible and modular approach. We encourage all countries to compile their environmental-economic accounts on the basis of the SEEA-Central Framework, to report statistics derived from it and to continue to work together to address the remaining challenges in this domain to provide an even more comprehensive set of environmental-economic accounts. Nations Organisation for International United Nations Food and Agriculture Organization of the United Economic Co-operation and Development Monetary Fund The World Bank Group asdf v Preface by the Secretary-General of the United Nations The System of Environmental-Economic Accounting 2012—Central Framework is a multipurpose conceptual framework for understanding the interactions between the environment and the economy. By providing internationally agreed concepts and definitions on environmental-economic accounting, it is an invaluable tool for compiling integrated statistics, deriving coherent and comparable indicators and measuring progress towards sustainable development goals. The United Nations Statistical Commission adopted the System of EnvironmentalEconomic Accounting 2012—Central Framework as an international statistical standard at its forty-third session in 2012. Its implementation in developing and developed countries is timely given the importance placed on integrated information for evidence-based policymaking in the outcome document of the Rio+20 United Nations Conference on Sustainable Development. I commend this work to all countries working to compile environmentaleconomic accounts to support their pursuit of sustainable development. BAN KI–MOON Secretary–General vii Preface A. Introduction 1. The System of Environmental-Economic Accounting 2012—SEEA Central Framework (SEEA Central Framework), which was adopted as an international standard by the United Nations Statistical Commission at its forty-third session in March 20121 is the first international statistical standard for environmental-economic accounting. The SEEA Central Framework is a multipurpose conceptual framework for understanding the interactions between the economy and the environment, and for describing stocks and changes in stocks of environmental assets. It puts statistics on the environment and its relationship to the economy at the core of official statistics. This version of the SEEA is an outcome of much path-breaking work on extending and refining concepts for the measurement of the interaction between the economy and the environment. Some important measurement challenges remain and are included in the research agenda in annex 2. Regular compilation of environmental-economic accounts in countries as part of a programme of official statistics will foster international statistical comparability, provide policy-relevant information at national, regional and international levels, improve the quality of the resulting statistics and ensure a better understanding of the measurement concepts. 2. The SEEA Central Framework builds on previous versions of the SEEA, namely, the 1993 Handbook of National Accounting: Integrated Environmental and Economic Accounting (SEEA 1993) and the Handbook of National Accounting: Integrated Environmental and Economic Accounting 2003 (SEEA-2003). The SEEA 1993 emerged from ongoing discussions on assessing and measuring the concept of sustainable development. This topic received increased attention following the release of the report of the World Commission on the Environment and Development in 1987 and the adoption of Agenda 21 by the United Nations Conference on Environment and Development, held in Rio de Janeiro from 3 to 14 June 19922 the SEEA 1993 was issued as a work in progress, in recognition of the fact that conceptual discussion and the testing of methodologies needed to continue. 3. On the basis of the gains in practical experience in implementation achieved by countries and other methodological advances, the revised SEEA-2003 took a considerable step towards harmonizing concepts and definitions. However, in many cases, the methodologies remained a compilation of options and best practices. Recognizing the increasing importance of integrated information on the relationship between the economy and the environment, and the continued technical advancements in the field, the United Nations Statistical Com- 1 See Official Records of the Economic and Social Council, 2012, Supplement No. 4 (E/2012/24), chap. I.B decision 43/105, para. (c). 2 Report of the United Nations Conference on Environment and Development, Rio de Janeiro, 3-14 June 1992, vol. I, Resolutions Adopted by the Conference (United Nations publication, Sales No. E.93.I.8 and corrigendum), resolution 1, annex 11. System of Environmental-Economic Accounting 2012—Central Frameworkviii mission agreed at its thirty-eighth session in 2007 to initiate a second revision process, with the aim of elevating the SEEA Central Framework to an international statistical standard.3 4. The SEEA Central Framework is based on agreed concepts, definitions, classifications and accounting rules. As an accounting system, it enables the organization of information into tables and accounts in an integrated and conceptually coherent manner. This information can be used to create coherent indicators to be used to inform decision-making and to generate accounts and aggregates for a wide range of purposes. 5. The SEEA provides information related to a broad spectrum of environmental and economic issues including, in particular, the assessment of trends in the use and availability of natural resources, the extent of emissions and discharges to the environment resulting from economic activity, and the amount of economic activity undertaken for environmental purposes. 6. While the SEEA Central Framework provides guidance on the valuation of renewable and non-renewable natural resources and land within the System of National Accounts (SNA) asset boundary, it does not include guidance on valuation methods on these assets and related flows that go beyond values already included in the SNA. Full valuation of assets and flows related to natural resources and land beyond the valuation included in the SNA remains an outstanding issue. Addressing this issue in future revisions of the SEEA may provide further guidance in answering key questions such as the impact of environmental regulations on economic growth, productivity, inflation and jobs. 7. Given its multidisciplinary scope, the SEEA Central Framework was designed to be coherent with and complementary to other international standards, recommendations and classifications such as the System of National Accounts 2008, the Balance of Payments and International Investment Position, the International Standard Industrial Classification of All Economic Activities (ISIC), the Central Product Classification (CPC) and the Framework for the Development of Environment Statistics. 8. The SEEA Central Framework is complemented by two other publications, namely SEEA Experimental Ecosystem Accounting and SEEA Applications and Extensions. While SEEA Experimental Ecosystem Accounting is not a statistical standard, it provides a consistent and coherent synthesis of current knowledge regarding an accounting approach to the measurement of ecosystems within a model that complements the SEEA Central Framework. The SEEA Applications and Extensions presents various monitoring and analytical approaches which could be adopted using SEEA data sets and describes ways in which the SEEA can be used to inform policy analysis. It, too, is not a statistical standard. 9. It is also planned that the SEEA Central Framework will be supported by related publications which further elaborate the conceptual framework of the SEEA for specific resources or specific sectors, including, for example, the SEEA-Water and the SEEA-Energy. These specific publications may also be supported by international recommendations that provide guidance on data items, data sources and methods for developing the basic statistics that can be used, among other things, to populate the accounting tables. These guidance documents include International Recommendations for Water Statistics and International Recommendations for Energy Statistics (forthcoming). 10. It is expected that the SEEA Central Framework, like other international statistical standards, will be implemented incrementally, taking into account national statistical office resources and requirements. To support this, the SEEA Central Framework accommodates 3 See Official Records of the Economic and Social Council, 2007, Supplement No. 4 (E/2007/24), chap. I.B, decision 38/107. ixPreface a flexible and modular approach to implementation within national statistical systems which can be aligned with the particular policy context, data availability and statistical capacity of countries. At the same time, much of the benefit of the SEEA stems from its ability to compare and contrast relevant information from a range of countries. In this context, the adoption of the SEEA Central Framework for specific modules is encouraged, particularly with regard to environmental issues that are multinational or global in nature. 11. The SEEA Central Framework was prepared under the auspices of the United Nations Committee of Experts on Environmental-Economic Accounting (UNCEEA), as mandated by the United Nations Statistical Commission at its thirty-eighth session in 2007. The Committee of Experts is composed of senior representatives from national statistical offices and international organizations. It is chaired by a representative of one of the country members of the Committee. The United Nations Statistics Division serves as the Committee secretariat. Regular oversight of the project on the revision of the SEEA Central Framework was provided by the Bureau of the Committee. 12. The development of the technical input to the revision process was led by members of the London Group on Environmental Accounting, who outlined the key issues for the revision (which were subsequently endorsed by the Committee of Experts), drafted and discussed issue papers, and prepared outcome papers on the key revision-related issues. The recommendations provided in the outcome papers were subject to global consultation and the final recommendations were presented to the Statistical Commission at its forty-second session in 2011. 13. A SEEA Editorial Board was established in June 2010 to provide technical advice to the editor who had drafted the text. Initial draft chapters of the SEEA Central Framework were the subject of global consultation through 2011 and a final global consultation on the whole document was conducted in late 2011. Draft versions of the chapters were also presented to the Committee of Experts at it sixth meeting in June 2011. The extensive consultation on issue and outcome papers, draft recommendations, draft chapters and the complete document ensured that there were sufficient opportunities for comment from a wide range of stakeholders and led to an improvement in the overall quality of the document. B. New features and changes from the SEEA-2003 General coverage and style 14. Four significant changes to coverage and style were made in the SEEA Central Framework. First, in various places through SEEA-2003, in particular in chapters 9, 10 and 11, there was extensive discussion on environmental degradation and associated measurement issues, including on various approaches to the valuation of environmental degradation. Accounting for degradation and other measurement topics associated with ecosystems are not covered in the SEEA Central Framework. The relevant material is discussed in SEEA Experimental Ecosystem Accounting. 15. Second, the SEEA-2003 contained numerous country-based examples for different accounting areas. Such examples have not been included in the SEEA Central Framework. However, in most cases, the accounts described are supported by numerical examples for illustrative purposes and there is a searchable archive of country examples and related material on the SEEA website. 16. Third, in several places the SEEA-2003 incorporated a number of options for accounting treatments of specific issues. The process for preparing the revised text ensured discussion System of Environmental-Economic Accounting 2012—Central Frameworkx of and decisions on these options. Consequently, the SEEA Central Framework presents no options concerning accounting treatments. 17. Fourth, since the release of SEEA-2003, there has been a revision of the System of National Accounts (SNA). The relevant technical content and national accounting language used in the SEEA-2003 was based on the 1993 SNA while the SEEA Central Framework is based on the 2008 SNA. Readers are referred to annex 3 of the 2008 SNA, entitled “Changes from the 1993 System of National Accounts”, for more information on these changes. Changes relating to physical flows 18. There have been changes in the terms used to describe physical flows from the environment to the economy. In the SEEA-2003, these flows were referred to as natural resources and ecosystem inputs. In the SEEA Central Framework, all of these flows fall under the heading of natural inputs. In turn, natural inputs are divided into natural resource inputs, inputs of energy from renewable sources, and other natural inputs (including inputs from soil and inputs from air). 19. There is now a clearer delineation of the boundary of physical flows with respect to the production boundary of the SNA. In particular, (a) all cultivated biological resources are considered to be within the production boundary, (b) all flows to controlled landfill sites are treated as flows within the economy, and (c) there is a consistent treatment of so-called natural resource residuals (referred to in the SEEA-2003 as “hidden” or “indirect” flows). 20. In addition, flows relating to the inputs of energy from renewable sources are explicitly recognized in the SEEA Central Framework, and a definition of solid waste has been provided. 21. In presentational terms, the design of the physical supply and use tables (PSUT) has been based on an expansion of the monetary supply and use tables used in the SNA through the addition of columns and rows specifically for flows between the economy and the environment. The same design approach has been used in all specific physical supply and use tables, such as those for flows of water and energy. Changes relating to environmental activities and related transactions 22. The most significant change in this part of the SEEA entails the recognition of only two economic activities, namely, environmental protection and resource management as “environmental” activities. Recognition of environmental activities is restricted to those economic activities whose primary purpose is to reduce or eliminate pressures on the environment, or to make more efficient use of natural resources. Other economic activities considered to be environmental in the SEEA-2003, such as natural resource use and minimization of natural hazards, are no longer considered environmental activities, although information on these types of economic activities and their relationship to the environment may well be of interest. 23. An interim listing of classes relevant to the measurement of resource management activities and expenditure has been provided. In the SEEA-2003, only classes pertaining to environmental protection were described. 24. Reference to the net cost of environmental protection, which was the final extension of the environmental protection expenditure accounts (EPEA) presented in the SEEA-2003, has been removed in the SEEA Central Framework. 25. A description of the environmental goods and services sector (EGSS) in the SEEA Central Framework extends the discussion of the “environment industry” contained in the xiPreface SEEA-2003. The relationship between statistics on the environmental goods and services sector and those on the environmental protection expenditure accounts is described more rigorously. 26. The SEEA Central Framework has taken on the updated research and discussion in the 2008 SNA in the areas of decommissioning costs associated with fixed assets (including both terminal and remedial costs), treatment of tradable emission permits, and recording of expenditure on research and development. Changes relating to the measurement of environmental assets 27. The structure and detail of the discussion on the measurement of environmental assets in the SEEA Central Framework, compared with the SEEA-2003, have been streamlined in a number of areas. Of significance is the introduction of a definition of environmental assets, although it is noted that the definition is aligned in broad terms with the description of environmental assets in the SEEA-2003. 28. The description of environmental assets in the SEEA-2003 covered both natural resources and ecosystems and accepted the fact that, in the measurement of these different assets, there might be overlaps. In the SEEA Central Framework, the coverage of environmental assets is similar; however, a distinction has been made between an approach to the measurement of environmental assets that is based on the measurement of individual natural resources, cultivated biological resources, and land, and one based on to the measurement of ecosystems. These are seen as complementary approaches in the SEEA Central Framework. 29. The SEEA Central Framework includes all natural resources, cultivated biological resources and land within a country of reference (including resources within a country’s exclusive economic zone); hence, coverage of environmental assets either in terms of individual environmental assets, as well as coverage in terms of terrestrial and most aquatic ecosystems are both relatively common. 30. However, while the SEEA-2003 also included marine ecosystems and atmospheric systems within its scope of environmental assets, the SEEA Central Framework does not include oceans and the atmosphere as part of environmental assets, since their stocks are too large to be meaningful for analytical purposes. Thus, while some aquatic resources on the high seas are included as part of individual environmental assets (e.g., fish stocks attributable to countries on the basis of international agreements on access rights), the overall scope of the asset boundary in the SEEA Central Framework is narrower than that presented in the SEEA-2003. SEEA Experimental Ecosystem Accounting describes the measurement of ecosystems, including marine ecosystems and the atmosphere. 31. In the description of the standard asset account, the framework has been aligned more closely to the 2008 SNA, with a standard asset account structure being applied for all types of environmental assets in both physical and monetary terms. For each environmental asset, the measurement boundaries are explicitly described. 32. The discussion on the application of the net present value approach to the valuation of natural resources and the associated choice of discount rate has been developed. One consequence of further work in this area has been a change in the decomposition of the change in stock values over an accounting period. In the SEEA-2003, the various changes in stock were valued using the unit resource rent as the price. In the SEEA Central Framework, the price used is that of the resource “in the ground/in situ”. These two prices are related to each other, but are in fact different and have different implications for the accounting of changes in the values of environmental assets. System of Environmental-Economic Accounting 2012—Central Frameworkxii 33. The SEEA-2003 contained an extended examination of the accounting for nonrenewable resources, particularly mineral and energy resources, including a discussion on the allocation of resource rent between depletion and a return to environmental assets and between different economic units involved in extraction. A range of options was provided to handle the various accounting issues. The SEEA Central Framework has determined the treatment in each of the relevant areas and has concluded that: (a) The resource rent should be split between depletion and a return to environmental assets; (b) The costs of mineral exploration should be deducted in the determination of the resource rent; (c) The economic value of mineral and energy resources should be allocated between the extractor and the legal owner; (d) Additions to the stock of natural resources (for example, through discoveries) should be recorded as other changes in the volume of assets rather than as a consequence of a production process; (e) Depletion should be recorded as a deduction from income in the production accounts, generation of income accounts, allocation of primary income accounts and distribution of income accounts, in a manner similar to that in which the deduction for consumption of fixed capital is made in the SNA. 34. An important extension is the incorporation of discussions on the depletion of natural biological resources such as timber resources and aquatic resources, with particular mention of the use of biological models. The fact that depletion is both a physical and a monetary concept, and that without physical depletion of a natural resource there can be no monetary depletion, is clarified. 35. With regard to the measurement of some specific natural resources, the following changes are noted: (a) For mineral and energy resources, the relative likelihood of recovery of the resources is now determined by using the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources (UNFC-2009) rather than by following the logic inherent in the McKelvey box described in the SEEA- 2003. Consequently, terms such as “proven resources”, “probable resources” and “possible resources” are no longer used; (b) For land, interim classifications for both land use and land cover have been devel- oped; (c) For soil resources, a basic introduction to accounting for soil resources within the structure of the asset accounts of the Central Framework has been included. (Very little on accounting for soil resources was included in the SEEA-2003.) C. Future developments: the research agenda 36. The SEEA Central Framework, the first comprehensive international environmental accounting standard, is based on over 20 years of development of environmental accounting. Progressively, through the continued accumulation of experience in the implementation of the Central Framework, it is expected that text related to clarifications, interpretations and changes will be issued by the United Nations Committee of Experts on Environmental-Economic Accounting, as custodian of the Framework. At some point in time, these incremental xiiiPreface updates, along with new developments in environmental accounting and new needs of environmental policy, may warrant a more comprehensive review and revision of the international standard to ensure its overall coherence and consistency. 37. A large number of research issues were resolved during the preparation of the SEEA Central Framework and the recommended treatments are described. Evidently, the present version is based on the best practices and techniques available. In some cases, however, research was still under way while the Central Framework was being drafted, which suggests that as the result of ongoing research, some decisions may need to be revisited before the next update of the Framework. 38. The Committee of Experts identified a few specific areas of ongoing research at the conclusion of the revision process. A short description of each is presented in annex 2 of the present publication. 39. The Committee of Experts will be responsible for advancing the research on these issues (and any others of importance that emerge) and will rely on assistance from the countries and international organizations responsible for environmental accounting around the world. xv Acknowledgements 1. The SEEA Central Framework is the outcome of a process notable for its transparency and the wide involvement of the international statistical community and beyond. This was made possible by the innovative use of a project website as a communication tool. The process comprised six steps: (a) Identification of and obtaining of agreement on the issues to be considered during the revision of the SEEA Central Framework: (b) Research on those issues and presentation of proposals for addressing the issues; (c) Consideration of the issues by experts and agreement on provisional recommen- dations; (d) Consultations with countries on the recommendations (through the second half of 2010); (e) Presentation of a set of recommendations to the United Nations Statistical Commission in 2011; (f ) Incorporation of the agreed recommendations in the text of the SEEA Central Framework for adoption by the United Nations Statistical Commission as the international statistical standard for environmental-economic accounting. The United Nations Committee of Experts on Environmental-Economic Accounting (UNCEEA) and its Bureau 2. The process of revision of the SEEA involved the United Nations Committee of Experts on Environmental-Economic Accounting; other international, regional and nongovernmental organizations; project staff; agencies responsible for compiling official statistics in many countries; city groups; other expert groups; and individual experts in environmentaleconomic accounting and related fields from all regions of the world. As could be expected from a product of such a complex and sustained process, the SEEA Central Framework reflects many diverse contributions. 3. The Statistical Commission established the Committee of Experts at its thirty-sixth session in March 2005 with the mandate, among others, to oversee and manage the revision of the SEEA.4 The Committee is composed of representatives from national statistical offices and international agencies as members. 4. The Bureau of the Committee of Experts, whose members are elected from among the members of the Committee, acts under delegated authority from the Committee. The Bureau managed and coordinated the revision of the SEEA Central Framework. The Committee of Experts and its Bureau were chaired by Walter Radermacher (Germany), 2006-2008; and Peter Harper (Australia), 2009-2012. 4 Ibid., 2005, Supplement No. 4 (E/2005/24), chap. V, para. 7. System of Environmental-Economic Accounting 2012—Central Frameworkxvi 5. The following served as members of the Bureau of the Committee of Experts: Peter Harper (Australia), 2008-2012; Karen Wilson (Canada), 2008-2011; Art Ridgeway (Canada), 2012; Walter Radermacher (Germany), 2008; Peter van de Ven (Netherlands), 2008-2011; Geert Bruinooge (Netherlands), 2012; Olav Ljones (Norway; Chair, Oslo Group on Energy Statistics), 2008-2012; Estrella Domingo (Philippines), 2008-2009; Rashad Cassim (South Africa), 2008-2009; Joe de Beer (South Africa), 2010-2012; Pietro Gennari (FAO), 2011- 2012; Alessandra Alfieri, Paul Cheung, Ivo Havinga and Eszter Horvath (UNSD), 2008- 2012; Mark de Haan (Chair, London Group on Environmental Accounting), 2008-2012; Pieter Everaers (Eurostat), 2008; Pedro Diaz (Eurostat), 2009-2012; Glenn-Marie Lange (World Bank), 2010-2012; and Peter van de Ven (OECD), 2012. 6. The staff of the Economic Statistics Branch of the United Nations Statistics Division, under the overall responsibility of Ivo Havinga and with the assistance of Alessandra Alfieri, provided secretariat services to Committee of Experts and its Bureau. 7. The following country representatives served as members of the Committee of Experts: Peter Harper and Gemma van Halderen (Australia); Luiz Paulo Souto Fortes, Wadih Joao Scandar Neto and Eduardo Nunes (Brazil); Martin Lemire, Art Ridgeway and Robert Smith (Canada); Huaju Li and Yixuan Wang (China); Luz Amparo Castro, Monica Rodriguez Diaz, Carlos Eduarte Sepulveda Rico and Luz Dary Yepes Rubiano (Colombia); Ole Gravgård Pedersen, Bent Thage and Kirsten Wismer (Denmark); Miguel Jimenez Cornielle, Roberto Blondet Hernandez, Olga Luciano Lopez and Olga Diaz Mora (Dominican Republic); Leo Kolttola (Finland); Walter Radermacher, Michael Kuhn and Karl Schoer (Germany); Ramesh Chand Aggarwal, Jogeswar Dash and Shri V. Parameswaran (India); Slamet Sutomo (Indonesia); Corrado Carmelo Abbate and Cesare Costantino (Italy); Hida Fumikazu (Japan); Mark de Haan and Peter van de Ven (Netherlands); Torstein Bye and Olav Ljones (Norway); Khalaf Al-Sulaimani (Oman); Estrella Domingo and Raymundo Talento (Philippines); Sergey Egorenko, Igor Kharito and Andrey Tatarinov (Russian Federation); Joe de Beer and Anemé Malan (South Africa); Inger Eklund and Viveka Palm (Sweden), Rocky Harris (United Kingdom of Great Britain and Northern Ireland); and Dennis Fixler and Dylan Rassier (United States of America). 8. The following representatives of international organizations served as members of the Committee of Experts: Lidia Bratanova (ECE); Salvador Marconi and Kristina Taboulchanas (ECLAC); Joel Jere (ESCAP); Wafa Aboul Hosn (ESCWA); Jean-Louis Weber (European Environment Agency); Pedro Díaz Muñoz and Pieter Everaers (Eurostat); Pietro Gennari (FAO); Manik Shrestha (IMF); Myriam Linster (OECD); Linda Ghanimé, Maria Netto and Veerle van de Weerd (UNDP); Kathleen Abdalla, Tariq Banuri, Matthias Bruckner, Jean-Michel Chéné, Manuel Dengo, Liisa-Maija Harju and Mary Pat Silveira (UNDSD); Hussein Abaza, Derek Eaton, Maaike Jansen, Fulai Sheng, Guido Sonnemann and Jaap van Woerden (UNEP); Alessandra Alfieri, Ivo Havinga and Eszter Horvath (UNSD); and Kirk Hamilton, Barbro Elise Hexeberg, Glenn-Marie Lange and Marian S. delos Angeles (World Bank). 9. The following participants served as observers to the Committee: Brad Ewing and Pablo Muñoz (Global Footprint Network); Arnold Tukker (Organization for Applied Scientific Research); Yamil Bonduki (UNDP); Frederik Pischke and Friedrich Soltau (UNDSD); Molly Hellmuth (consultant to UNESCO); Haripriya Gundimeda (UNEP); Rolf Luyendijk (UNICEF); Francois Guerquin and Koen Overkamp (United Nations Secretary-General’s Advisory Board on Water and Sanitation); Martin O’Connor (l’Université de Versailles SaintQuentin-en-Yvelines); and Peter Cosier (Wentworth Group of Concerned Scientists, Australia). 10. The following experts in environmental-economic accounting from international organizations regularly provided substantive contributions: xviiAcknowledgements Brian Newson and Anton Steurer (Eurostat) Manik Shrestha and Kimberly Dale Zieschang (IMF) Paul Schreyer (OECD) Alessandra Alfieri and Ivo Havinga (UNSD) Glenn-Marie Lange (World Bank) 11. Other staff members of international organizations who contributed substantively were: Jean-Louis Weber (European Environmental Agency) Stephan Moll, Julio Cabeca and Marina Anda Georgescu (Eurostat) Antonio Di Gregorio, Greg Gong, John Latham, Valentina Ramaschiello, Sachiko Tsuji, Adrian Whiteman (FAO) Odd Andersen, Annette Becker, Ralf Becker, Daniel Clarke, Magdolna Csizmadia, Ilaria DiMatteo, Bram Edens, Robert Edwards, Vladimir Markhonko, Ricardo Martinez-Lagunes, Gulab Singh, Herman Smith, Sokol Vako, Michael Vardon and Jeremy Webb (UNSD). 12. Michael Brodsky of the Department for General Assembly and Conference Management copyedited the original publication. 13. The United Nations Statistics Division developed and maintained the project website (http://unstats.un.org/unsd/envaccounting/default.asp), which provides more information on the contributions summarized in the preface. Editorial Board 14. The SEEA Editorial Board consisted of Alessandra Alfieri (UNSD), Mark de Haan (Statistics Netherlands), Julie Hass (Statistics Norway), Brian Newson (Eurostat), Paul Schreyer (OECD), Manik Shrestha (IMF), Joe St. Lawrence (Statistics Canada), Michael Vardon (Australian Bureau of Statistics) and Kimberly Dale Zieschang (IMF) and was chaired by the Editor, Carl Obst. London Group on Environmental Accounting 15. The London Group on Environmental Accounting met eight times to discuss issues related to the SEEA, among other items. The London Group was chaired throughout the preparation of the SEEA Central Framework by Mark de Haan (Statistics Netherlands). The meetings were held: in June 2006 in New York, hosted by the United Nations Statistics Division; in March 2007 in Johannesburg, South Africa, hosted by Statistics South Africa; in December 2007 in Rome, hosted by the National Institute of Statistics of Italy (Istat); in September 2008 in Brussels, hosted by Eurostat; in April 2009 in Canberra, hosted by Statistics Australia; in November 2009 in Wiesbaden, Germany, hosted by the Federal Statistical Office of Germany (Destatis); in October 2010 in Santiago, hosted by the National Institute of Statistics of Chile; and in September 2011 in Stockholm, hosted by Statistics Sweden. 16. The following persons have participated in meetings of the London Group since 2006: Alessandra Alfieri, Jairo Arrow, Charles Aspden, Dominic Ballayan, Jose Miguel Barrios, Sacha Baud, Jean-Pierre Berthier, Wolfgang Bitterman, James Blignaut, Lidia Bratanova, System of Environmental-Economic Accounting 2012—Central Frameworkxviii Hanna Brolinson, Torstein Bye, Julio Cabeca, Pablo Campos, Alejandro Caparrós, Annica Carlsson, Juan Pablo Castañeda, Maja Cederlund, Jean-Michel Chéné, Peter Comisari, Sebastian Constantino, Jeff Cope, Cesare Costantino, Jackie Crafford, Valeriano da Conçeiçao Levene, Jogeswar Dash, Michel David, Joe de Beer, Mark de Haan, Roel Delahaye, Raul Figueroa Diaz, Ilaria DiMatteo, Estrella Domingo, Subagio Dwijosumono, Danuta Dziel, Mats Eberhardson, Bram Edens, Inger Eklund, Markus Erhard, Tammy Estabrooks, Pieter Everaers, Federico Falcitelli, Aldo Femia, Alessandro Galli, Jean-Yves Garnier, Ian Gazley, Chazhong Ge, Marina Anda Georgescu, Alfredo Gomez, Xiaoning Gong, Ryan Greenaway-McGrevy, Patrice Gregoire, Roy Haines-Young, Jorge Hanauer, Jane Harkness, Peter Harper, Rocky Harris, Julie Hass, Ivo Havinga, Wafa Aboul Hosn, Li Huaju, Elisabeth Isaksen, Christine Jasch, Matt Jones, Fredrik Kanlen, Aljona Karlõševa, Ester Koch, Kristine Kolshus, Michael Kuhn, Glenn-Marie Lange, Ursula Lauber, Sylvie Le Laidier, Martin Lemire, Kirsty Leslie, Myriam Linster, Donna Livesey, Olav Ljones, Sandre Jose Macia, Anemé Malan, Lars Marklund, Farid Matuk, Robert Mayo, Roeland Mertens, Stephan Moll, Elisabeth Mollgaard, Rainer Muthmann, Jukka Muukkonen, Michael Nagy, Frederic Nauroy, Wahid Neto, Brian Newson, Tea NõMann, Eduardo Nunes, Carl Obst, Martin O’Connor, Thomas Olsen, Sara Overgaard, Morrice Nyattega Oyuke, Viveka Palm, Jean-Louis Pasquier, Ole Gravgård Pedersen, Cristina Popescu, Walter Radermacher, Irene Ramashala, Ute Roewer, Jesus Romo y Garcia, Giovanni Ruta, Sjoerd Schenau, Karl Schoer, Paul Schreyer, Fulai Sheng, Manik Shrestha, Gabriel Kulomba Simbila, Robert Smith, Tone Smith, Joe St. Lawrence, Nancy Steinbach, Anton Steurer, Suresh Sukumarapillai, Khalaf Al Suleimani, Jana Tafi, Raymundo Talento, Peter Tavoularidis, Karen Treanton, Sachiko Tsuji, Angelica Tudini, Sokol Vako, Gemma van Halderen, Maarten van Rossum, Michael Vardon, Anders Wadeskog, Yixuan Wang, Jeremy Webb, Jean-Louis Weber, Adrian Whiteman, Fang Yu, Kimberly Dale Zieschang and Oliver Zwirner. 17. The papers prepared for consideration by the London Group, which constitute a substantial body of research, will continue to be available on the project website provided above. The authors included the following individuals: Luke Aki, Alessandra Alfieri, Odd Andersen, Carolina Ardi, David Bain, Jeff Baldock, Ralf Becker, James Blignaut, Torstein Bye, Julio Cabeça, Andrew Cadogan-Cowper, Maja Cederlund, Peter Comisari, Jackie Crafford, Mark de Haan, Roel Delahaye, Ilaria DiMatteo, Estrella Domingo, Mats Eberhardson, Bram Edens, Markus Erhard, Federico Falcitelli, Aldo Femia, Anda Marina Georgescu, Xiaoning Gong, Cor Graveland, Ole Gravgard Pedersen, Andrii Gritsevskyi, Jane Harkness, Peter Harper, Rocky Harris, Julie Hass, Ivo Havinga, Christine Jasch, Kristine Kolshus, Glenn Marie Lange, Sylvie Le Laidier, Kirsty Leslie, Olav Ljones, Edward Eugenio Lopez-Dee, Lynne Macdonald, Lars Gunnar Marklund, Jukka Muukkonen, Michael Nagy, Thomas Olsen, Sara Øvergaard, Viveka Palm, Ute Roewer, Sjoerd Schenau, Elizabeth Schmidt, Karl Schoer, Nancy Steinbach, Sachiko Tsuji, Dirk van den Bergen, Maarten van Rossum, Michael Vardon, and Jean-Louis Weber. Other expert groups 18. Other consultations also informed the process. These included meetings of OECD and Eurostat Environmental Accounts and Environmental Expenditure Statistics Working Groups and Task Forces, and the Oslo Group on Energy Statistics. Country contributions 19. National statistical offices, ministries responsible for the environment and other national agencies made significant in-kind contributions to the revision of the SEEA, particu- xixAcknowledgements larly through the provision of papers for discussion at various meetings and the transmission of comments during the global consultation processes. Over 50 countries and international organizations submitted comments during the round of global consultations on individual chapters (held from May to September 2011), and the round of global consultation on the final draft of the document, held in November and December 2011. Heads of the national statistical offices were involved through their participation in the work of the Statistical Commission which had mandated the formation of United Nations Committee of Experts on Environmental-Economic Accounting. 20. Last but not least, a number of national and international agencies supported the project through financial contributions. Financial contributions were received from Australia, Germany, India, the Netherlands, New Zealand, Norway, South Africa, Switzerland and the United Kingdom of Great Britain and Northern Ireland, and the Economic and Social Commission for Western Asia and Eurostat. xxi Contents Page Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Preface by the Secretary-General of the United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv List of abbreviations and acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii I Introduction to the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 What is the System of Environmental-Economic Accounting Central Framework? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Overview of the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Key features of the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.3.1 Relationship of the SEEA Central Framework to the System of National Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.3.2 Combining information in physical and monetary terms . . . . . . . . . . . . 8 1.3.3 Flexibility in implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 II Accounting structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2 Overview of the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.3 Main accounts and tables of the SEEA Central Framework . . . . . . . . . . . . . . . . 15 2.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3.2 Supply and use tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.3.3 Asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.3.4 The sequence of economic accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.3.5 Functional accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.3.6 Employment, demographic and social information . . . . . . . . . . . . . . . . 24 2.4 Combining physical and monetary data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.5 Accounting for flows and stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.5.2 Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.5.3 Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.6 Economic units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.6.2 Institutional sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 System of Environmental-Economic Accounting 2012—Central Frameworkxxii Page 2.6.3 Enterprises, establishments and industries . . . . . . . . . . . . . . . . . . . . . . . 29 2.6.4 Geographical boundaries for economic units . . . . . . . . . . . . . . . . . . . . . 30 2.6.5 Statistical units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.7 Accounting rules and principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.7.2 Recording rules and principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.7.3 Valuation rules and principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.7.4 Volume measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 III Physical flow accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.1.1 The physical flow accounting framework and subsystems . . . . . . . . . . . 38 3.1.2 Chapter structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.2 The physical flow accounting framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.2.1 The physical supply and use table approach . . . . . . . . . . . . . . . . . . . . . . 39 3.2.2 Definition and classification of natural inputs . . . . . . . . . . . . . . . . . . . . 44 3.2.3 Definition and classification of products . . . . . . . . . . . . . . . . . . . . . . . . 48 3.2.4 Definition and classification of residuals . . . . . . . . . . . . . . . . . . . . . . . . 49 3.3 Principles of physical flow accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.3.2 Gross and net recording of physical flows . . . . . . . . . . . . . . . . . . . . . . . . 56 3.3.3 Treatment of international flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.3.4 Treatment of goods for processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.4 Physical flow accounts for energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.4.2 Scope and definitions of energy flows . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3.4.3 Physical supply and use table for energy . . . . . . . . . . . . . . . . . . . . . . . . . 61 3.4.4 Energy statistics, energy accounts and energy balances . . . . . . . . . . . . . 68 3.4.5 Energy aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 3.5 Physical flow accounts for water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 3.5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 3.5.2 Scope of water flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 3.5.3 Physical supply and use table for water . . . . . . . . . . . . . . . . . . . . . . . . . . 70 3.5.4 Water aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 3.6 Physical flow accounts for materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 3.6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 3.6.2 Product flow accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3.6.3 Accounting for air emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 3.6.4 Accounting for emissions to water and associated releases to economic units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 3.6.5 Solid waste accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 3.6.6 Economy-wide material flow accounts (EW-MFA) . . . . . . . . . . . . . . . . 92 IV Environmental activity accounts and related flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 4.2 Environmental activities, products and producers . . . . . . . . . . . . . . . . . . . . . . . . 96 4.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 4.2.2 The scope and definition of environmental activities . . . . . . . . . . . . . . . 96 xxiiiContents Page 4.2.3 Other economic activities related to the environment . . . . . . . . . . . . . . 97 4.2.4 Classification of environmental activities . . . . . . . . . . . . . . . . . . . . . . . . 98 4.2.5 Environmental goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 4.2.6 Environmental producers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 4.3 Environmental activity accounts and statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 101 4.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 4.3.2 Environmental protection expenditure accounts . . . . . . . . . . . . . . . . . . 102 4.3.3 Environmental goods and services sector (EGSS) . . . . . . . . . . . . . . . . . . 111 4.3.4 Relationship between the EPEA and the EGSS . . . . . . . . . . . . . . . . . . . 115 4.3.5 Accounts for resource management expenditures . . . . . . . . . . . . . . . . . . 116 4.4 Accounting for other transactions related to the environment . . . . . . . . . . . . . . . 116 4.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4.4.2 Environmental payments by government . . . . . . . . . . . . . . . . . . . . . . . . 118 4.4.3 Environmental payments to government . . . . . . . . . . . . . . . . . . . . . . . . 120 4.4.4 Environmental transfers by non-government institutional units . . . . . . 124 4.4.5 Permits to use environmental assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 4.4.6 Transactions concerning fixed assets used in economic activities related to the environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 V Asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 5.2 Environmental assets in the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . 134 5.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 5.2.2 Scope of environmental assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 5.2.3 Valuation of environmental assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 5.3 The structure of asset accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 5.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 5.3.2 Conceptual form of the physical asset account . . . . . . . . . . . . . . . . . . . . 139 5.3.3 Conceptual form of the monetary asset account . . . . . . . . . . . . . . . . . . . 143 5.4 Principles of asset accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 5.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 5.4.2 Defining depletion in physical terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 5.4.3 Principles of asset valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 5.4.4 The net present value (NPV) approach . . . . . . . . . . . . . . . . . . . . . . . . . . 151 5.4.5 Approaches to estimating resource rent and net present values . . . . . . . . 153 5.4.6 Measurement of environmental assets in volume terms . . . . . . . . . . . . . 159 5.5 Asset accounts for mineral and energy resources . . . . . . . . . . . . . . . . . . . . . . . . . 160 5.5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 5.5.2 Definition and categorization of mineral and energy resources . . . . . . . 161 5.5.3 Physical asset accounts for mineral and energy resources . . . . . . . . . . . . 162 5.5.4 Monetary asset accounts for mineral and energy resources . . . . . . . . . . . 166 5.5.5 Other issues in the measurement of mineral and energy resources . . . . . 170 5.6 Asset accounts for land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 5.6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 5.6.2 Definition and classification of land . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 5.6.3 Physical asset accounts for land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 5.6.4 Physical asset accounts for forest and other wooded land . . . . . . . . . . . . 181 5.6.5 Monetary asset accounts for land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 System of Environmental-Economic Accounting 2012—Central Frameworkxxiv Page 5.6.6 Links to ecosystem accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 5.7 Accounting for soil resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 5.7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 5.7.2 Characterization of soil resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 5.7.3 Accounting for the area and volume of soil resources . . . . . . . . . . . . . . . 189 5.7.4 Other aspects in accounting for soil resources . . . . . . . . . . . . . . . . . . . . 191 5.8 Asset accounts for timber resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 5.8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 5.8.2 Scope and definition of timber resources . . . . . . . . . . . . . . . . . . . . . . . . 192 5.8.3 Physical asset accounts for timber resources . . . . . . . . . . . . . . . . . . . . . . 194 5.8.4 Monetary asset accounts for timber resources . . . . . . . . . . . . . . . . . . . . 196 5.8.5 Carbon accounts for timber resources . . . . . . . . . . . . . . . . . . . . . . . . . . 198 5.9 Asset accounts for aquatic resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 5.9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 5.9.2 Definition and classification of aquatic resources . . . . . . . . . . . . . . . . . . 200 5.9.3 Physical asset accounts for aquatic resources . . . . . . . . . . . . . . . . . . . . . 202 5.9.4 Monetary asset accounts for aquatic resources . . . . . . . . . . . . . . . . . . . . 206 5.10 Accounting for other biological resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 5.10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 5.10.2 Accounting for natural biological resources . . . . . . . . . . . . . . . . . . . . . . 210 5.11 Asset accounts for water resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 5.11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 5.11.2 Definition and classification of water resources . . . . . . . . . . . . . . . . . . . 212 5.11.3 Physical asset accounts for water resources . . . . . . . . . . . . . . . . . . . . . . . 213 5.11.4 Other water resource measurement issues . . . . . . . . . . . . . . . . . . . . . . . . 216 Annex A5.1  The net present value method for valuation of stocks and the measurement of depletion and revaluation for natural resources . . . . . . 219 Annex A5.2  Discount rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 Annex A5.3  Description of the United Nations Framework Classification for Fossil . Energy and Mineral Reserves and Resources 2009 (UNFC 2009) . . . . . 233 Annex A5.4  Catch concepts: a diagrammatic presentation . . . . . . . . . . . . . . . . . . . . 235 VI Integrating and presenting the accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 6.2 Integration within the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . 238 6.2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 6.2.2 Integration of supply and use tables in physical and monetary terms . . . 239 6.2.3 Integration of asset accounts and supply and use tables . . . . . . . . . . . . . 241 6.2.4 The sequence of economic accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 6.2.5 Functional accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 6.2.6 Employment, demographic and social information . . . . . . . . . . . . . . . . 247 6.3 Combining physical and monetary data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 6.3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 6.3.2 The concept of combining physical and monetary data . . . . . . . . . . . . . 249 6.3.3 Organization of information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 6.4 SEEA Central Framework aggregates and indicators . . . . . . . . . . . . . . . . . . . . . . 253 xxvContents Page 6.4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 6.4.2 Descriptive statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 6.4.3 Environmental asset aggregates and indicators . . . . . . . . . . . . . . . . . . . . 254 6.4.4 Aggregates related to financing and cost recovery of economic activity related to the environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 6.4.5 Environmental ratio indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 6.4.6 The SEEA Central Framework and international indicator initiatives . . 256 6.5 Examples of combined physical and monetary presentations . . . . . . . . . . . . . . . . 256 6.5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 6.5.2 General structure for combined presentations . . . . . . . . . . . . . . . . . . . . 257 6.5.3 Combined presentations for energy data . . . . . . . . . . . . . . . . . . . . . . . . 257 6.5.4 Combined presentations for water data . . . . . . . . . . . . . . . . . . . . . . . . . 259 6.5.5 Combined presentations for forest products . . . . . . . . . . . . . . . . . . . . . . 263 6.5.6 Combined presentations for air emissions . . . . . . . . . . . . . . . . . . . . . . . 265 Annex I  Classifications and lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 Annex II  Research agenda for the SEEA Central Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 TABLES 2.1 Basic form of a monetary supply and use table . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.2 Basic form of a physical supply and use table . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.3 Basic form of an asset account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.4 Connections between supply and use tables and asset accounts . . . . . . . . . . . . . . 21 2.5 Basic SEEA sequence of economic accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.6 Basic, producers’ and purchasers’ prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.1 General physical supply and use table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.2 Classes of natural inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.3 Examples of natural resource inputs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.4 Typical components for groups of residuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3.5 Physical supply and use table for energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 3.6 Physical supply and use table for water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 3.7 Air emissions account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3.8 Water emissions account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 3.9 Solid waste account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 4.1 Classification of Environmental Activities: overview of groups and classes . . . . . 99 4.2 Production of environmental protection specific services . . . . . . . . . . . . . . . . . . . 103 4.3 Supply and use of environmental protection specific services . . . . . . . . . . . . . . . . 105 4.4 Total national expenditure on environmental protection . . . . . . . . . . . . . . . . . . . 106 4.5 Financing of national expenditure on environmental protection . . . . . . . . . . . . . 110 4.6 Environmental goods and services sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 System of Environmental-Economic Accounting 2012—Central Frameworkxxvi Page 4.7 Comparison of the EPEA and the EGSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4.8 Selected payments to and from government and similar transactions . . . . . . . . . 118 4.9 Environmental taxes by type of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 4.10 Account for tradable emissions permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 5.1 Classification of environmental assets in the SEEA Central Framework . . . . . . . 135 5.2 General structure of the physical asset account for environmental assets . . . . . . . 142 5.3 Conceptual form of the monetary asset account . . . . . . . . . . . . . . . . . . . . . . . . . 144 5.4 Derivation of accounting aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 5.5 Relationships between different flows and income components . . . . . . . . . . . . . . 153 5.6 Categorization of mineral and energy resources . . . . . . . . . . . . . . . . . . . . . . . . . . 163 5.7 Stocks of mineral and energy resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 5.8 Physical asset account for mineral and energy resources . . . . . . . . . . . . . . . . . . . 165 5.9 Monetary asset account for mineral and energy resources . . . . . . . . . . . . . . . . . . 166 5.10 Entries for allocating the income and depletion of mineral and energy resources 171 5.11 Land use classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 5.12 Land cover classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 5.13 Physical account for land cover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 5.14 Land cover change matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 5.15 Physical asset account for forest and other wooded land . . . . . . . . . . . . . . . . . . . 183 5.16 Monetary asset account for land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 5.17 Physical asset account for area of soil resources . . . . . . . . . . . . . . . . . . . . . . . . . . 189 5.18 Physical asset account for volume of soil resources . . . . . . . . . . . . . . . . . . . . . . . . 190 5.19 Physical asset account for timber resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 5.20 Monetary asset account for timber resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 5.21 Classification of aquatic resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 5.22 Physical asset account for aquatic resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 5.23 Monetary asset account for aquatic resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 5.24 Classification of inland water bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 5.25 Physical asset account for water resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 6.1 Supply and use tables in physical and monetary terms . . . . . . . . . . . . . . . . . . . . 240 6.2 Connections between supply and use tables and asset accounts . . . . . . . . . . . . . . 242 6.3 SEEA Central Framework sequence of economic accounts . . . . . . . . . . . . . . . . . 243 6.4 Possible structure of and typical content for combined presentations . . . . . . . . . 258 6.5 Combined presentation for energy data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260 6.6 Combined presentation for water data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 6.7 Combined presentation for forest products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 6.8 Combined presentation for air emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 FIGURES 2.1 Physical flows of natural inputs, products and residuals . . . . . . . . . . . . . . . . . . . 13 3.1 Physical flows in relation to the production boundary of the economy . . . . . . . . 40 3.2 Flows in water emissions accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 5.1 Relationship between environmental and economic assets . . . . . . . . . . . . . . . . . 139 5.2 Stylized sustainable yield curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 5.3 Elements of the global hydrological system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 xxvii List of abbreviations and acronyms ASFIS Aquatic Sciences and Fisheries Information System BOD biological oxygen demand BPM Balance of Payments and International Investment Position Manual CEA Classification of Environmental Activities CFC chlorofluorocarbon CO2 carbon dioxide COD chemical oxygen demand COICOP Classification of Individual Consumption According to Purpose CPC Central Product Classification CPUE catch per unit effort CWP Co-ordinating Working Party on Fisheries Statistics ECE Economic Commission for Europe ECLAC Economic Commission for Latin America and the Caribbean EEZ exclusive economic zone EGSS environmental goods and services sector EP environmental protection EPEA environmental protection expenditure accounts ESCAP Economic and Social Commission for Asia and the Pacific ESCWA Economic and Social Commission for Western Asia Eurostat Statistical Office of the European Union EW-MFA economy-wide material flow accounts FAO Food and Agriculture Organization of the United Nations FRA FAO Global Forest Resources Assessment GDP gross domestic product GFCF gross fixed capital formation GFSM Government Finance Statistics Manual GOS gross operating surplus IMF International Monetary Fund IPCC Intergovernmental Panel on Climate Change System of Environmental-Economic Accounting 2012—Central Frameworkxxviii IRES International Recommendations for Energy Statistics IRWS International Recommendations for Water Statistics ISCAAP International Standard Statistical Classification of Aquatic Animals and Plants ISIC International Standard Industrial Classifications of All Economic Activities ISO International Organization for Standardization ISWGNA Intersecretariat Working Group on National Accounts ITQ individual transferable quota ITSQ individual transferable share quota K potassium LCCS Land Cover Classification System LCML Land Cover Meta Language LULUCF Land Use, Land-Use Change and Forestry N nitrogen NDP net domestic product n.e.c. not elsewhere classified NNI net national income NOS net operating surplus NPISH non-profit institutions serving households NPV net present value OECD Organization for Economic Cooperation and Development P phosphorus PCB polychlorinated biphenyl PEDS potentially environmentally damaging subsidies PM10 particulate matter of size 10 microns or smaller PSUT physical supply and use table R&D research and development RM resource management RR resource rent SEEA System of Environmental-Economic Accounting SEEA-Energy System of Environmental-Economic Accounting for Energy SEEAF System of Integrated Environmental and Economic Accounting for Fisheries SEEA-Water System of Environmental-Economic Accounting for Water SEEA-2003 Integrated Environmental and Economic Accounting 2003 xxixList of abbreviations and acronyms SERIEE European System for the Collection of Economic Information on the Environment (Système Européen pour le Rassemblement des Informations Economiques sur l’Environnement) SIEC Standard International Energy Product Classification SNA System of National Accounts UN United Nations UNCEEA United Nations Committee of Experts on Environmental-Economic Accounting UNCLOS United Nations Convention on the Law of the Sea of 10 December 1982 UNDP United Nations Development Programme UNDSD Division for Sustainable Development of the United Nations Secretariat UNEP United Nations Environment Programme UNESCO United Nations Educational, Scientific and Cultural Organization UNFC-2009 United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources, 2009 UNFCCC United Nations Framework Convention on Climate Change UNICEF United Nations Children’s Fund UNSC United Nations Statistical Commission UNSD United Nations Statistics Division VAT value added tax VPA virtual population analysis 1993 SNA System of National Accounts, 1993 2008 SNA System of National Accounts, 2008 1 Chapter I Introduction to the SEEA Central Framework 1.1 What is the System of Environmental-Economic Accounting Central Framework? 1.1 The System of Environmental-Economic Accounting 2012—Central Framework (SEEA Central Framework) is a multipurpose conceptual framework that describes the interactions between the economy and the environment, and the stocks and changes in stocks of environmental assets. 1.2 Using a wide range of information, the SEEA Central Framework, through its structure, enables source data to be compared and contrasted and allows for the development of aggregates, indicators and trends across a broad spectrum of environmental and economic issues. Particular examples include the assessment of trends in the use and availability of natural resources, the extent of emissions and discharges to the environment resulting from economic activity, and the amount of economic activity undertaken for environmental purposes. 1.3 At the heart of the SEEA Central Framework is a systems approach to the organization of environmental and economic information which covers, as completely as possible, the stocks and flows that are relevant to the analysis of environmental and economic issues. In applying this approach, the SEEA Central Framework utilizes the accounting concepts, structures, rules and principles of the System of National Accounts. In practice, environmental-economic accounting includes the compilation of physical supply and use tables, functional accounts (such as environmental protection expenditure accounts) and asset accounts for natural resources. 1.4 The integration of information concerning the economy and the environment requires an interdisciplinary approach. The SEEA Central Framework brings together, in a single measurement system, information on water, minerals, energy, timber, fish, soil, land and ecosystems, pollution and waste, production, consumption and accumulation. To each of these areas are assigned specific and detailed measurement approaches that are integrated in the SEEA Central Framework so as to provide a comprehensive view. 1.5 The concepts and definitions that constitute the SEEA Central Framework are designed to be applicable across all countries, regardless of their level of economic and statistical development, their economic structure, or the composition of their environment. 1.6 The SEEA Central Framework also provides a foundation for the development of related topic- and theme-specific statistical publications. There has already been substantial work on the topics of water, energy and fisheries. 1.7 The SEEA Central Framework is complemented by two publications: SEEA Experimental Ecosystem Accounting, and SEEA Applications and Extensions. Their content is outlined later in the present section. System of Environmental-Economic Accounting 2012—Central Framework2 Historical background of the SEEA Central Framework 1.8 The 1987 report of the Brundtland Commission, entitled Our Common Future (World Commission on Environment and Development, 1987), made clear the links between economic and social development and environmental capacity. In 1992, Agenda 21, one of the outcome documents of the United Nations Conference on Environment and Development (United Nations, 1993) recommended that countries implement environmental-economic accounts at the earliest date. 1.9 In response, the United Nations Statistical Division published the Handbook of National Accounting: Integrated Environmental and Economic Accounting (United Nations, 1993), commonly referred to as the SEEA. This handbook was issued as an “interim” version of work in progress, since the discussion of relevant concepts and methods had not been concluded. 1.10 Pursuant to the publication of the SEEA handbook, several developing and developed countries started to experiment with the compilation of SEEA-based data. The London Group on Environmental Accounting was created in 1993 under the auspices of the United Nations Statistical Commission to provide a forum where practitioners could share their experiences on developing and implementing environmental-economic accounts. Increased discussion on concepts and methods of environmental-economic accounting, accompanied with country experiences, led to an increasing convergence of concepts and methods for various modules of the SEEA. 1.11 The publication entitled Handbook of National Accounting: Integrated Environmental and Economic Accounting—An Operational Manual (United Nations, 2000), was published by the United Nations Statistical Division and the United Nations Environment Programme (UNEP) based on material prepared by the Nairobi Group (formed in 1995 as a group of experts from national and international agencies and non-governmental organizations). This publication, which reflected the ongoing discussion that followed the publication of the SEEA in 1993, provided step-by-step guidance on the implementation of the more practical modules of the SEEA and elaborated the uses of integrated environmental and economic accounting in policymaking. 1.12 In parallel with this work, international agencies in cooperation with the London Group worked on a revision of the 1993 SEEA. The revision process was carried out through a series of expert meetings and was built upon a wide consultation process. The updated Handbook of National Accounting: Integrated Environmental and Economic Accounting 2003 (SEEA-2003) produced by the United Nations, the European Commission, the International Monetary Fund, the Organization for Economic Cooperation and Development and the World Bank in 2003, represented a considerable step forward in terms of breadth of material and harmonization of concepts, definitions and methods in environmental and economic accounting. 1.13 However, the SEEA-2003 presented both a number of different methodological options and a range of country examples showing varying country practices. Because of this, the SEEA-2003 was never formally adopted as an international statistical standard and the SEEA was not recognized as a statistical system in its own right. Nonetheless, in general, the SEEA-2003 has provided a well-accepted and robust framework for the compilation of environmental and economic accounts—one that has been used by many countries around the world. 1.14 Recognizing the ever increasing importance of information on the environment and the need to place this information in an economic context understood by central policymakers, the Statistical Commission agreed at its thirty-eighth session, held in 2007, to start a 3Introduction to the SEEA Central Framework second revision process, with the aim of adopting the SEEA as an international statistical standard for environmental-economic accounting within five years. 1.15 This process was managed under the auspices of the newly formed United Nations Committee of Experts in Environmental-Economic Accounting (UNCEEA). It was recognized that the content of the SEEA-2003 was substantially agreed in terms of both scope and treatment and hence the focus of the revision was to remain largely on those specific areas of the SEEA-2003 in which the level of understanding and agreement needed to be increased and agreed treatments determined. The London Group was given carriage of the 21 issues identified for the revision of the SEEA. The newly formed Oslo Group on Energy Statistics was also involved in the discussion of issues pertaining to energy. The SEEA Central Framework represents the major outcome of the process. Publications related to the SEEA Central Framework 1.16 During the revision process, it became clear that there remained certain aspects of the SEEA-2003, in particular concerning the measurement of degradation and its valuation, on which it was unlikely that agreement could be achieved. Consequently, the Statistical Commission determined that the revision of the SEEA should first proceed with the development of a Central Framework covering those issues on which there had been general international agreement, and then proceed with the development of material covering those issues on which agreement was not likely to be reached within the timeframes available and on which ongoing research and discussion would be required. 1.17 The second area of work became focused on accounting for the environment from the perspective of ecosystems and the outcomes are presented in SEEA Experimental Ecosystem Accounting. This publication describes the measurement of the flow of services to humanity provided by ecosystems, and the measurement of ecosystem condition in terms of the capacity of ecosystems to provide services. While SEEA Experimental Ecosystem Accounting is not a statistical standard, it provides a consistent and coherent synthesis of current knowledge regarding an accounting approach to the measurement of ecosystems within a model that complements the SEEA Central Framework. SEEA Experimental Ecosystem Accounting provides a basis for countries to advance research into ecosystem accounting using terms and concepts that facilitate the comparison of statistics and the exchange of experiences. 1.18 SEEA Experimental Ecosystem Accounting describes the measurement of ecosystems in physical terms, and the valuation of ecosystems in so far as it is consistent with market valuation principles. It is to be noted that only those issues on which relatively broad directions have emerged are included. In accounting terms, many of the structures for ecosystem accounting are drawn from the structures in the SEEA Central Framework and, in this regard, the accounting conventions of the SEEA Central Framework are applied consistently. 1.19 Also during the revision process, a need emerged for material covering potential extensions and applications of SEEA-based data sets which would fulfil the aim of promoting and supporting the widespread adoption of the SEEA among official statisticians, researchers and policymakers. To this end, SEEA Applications and Extensions was developed. SEEA Applications and Extensions presents various monitoring and analytical approaches that could be adopted, and describes ways in which SEEA data can be used to inform policy analysis. It is not a statistical standard. 1.20 Topics covered include resource efficiency and productivity indicators, decomposition analysis, analysis of net wealth and depletion, sustainable production and consumption, input-output analysis and general equilibrium modelling, analysis using geospatially referenced data, and extensions designed to link SEEA-based information to household data sets. System of Environmental-Economic Accounting 2012—Central Framework4 Summaries of topics are included together with references to more detailed descriptions of the techniques. 1.21 The SEEA Central Framework is also supported by publications that further elaborate the conceptual framework of the SEEA for specific resources or activities. These include, for example, the SEEA-Water and the SEEA-Energy. These publications may also be supported by international recommendations that provide guidance on the data items, data sources, and methods to develop the basic statistics that, among other things, can be used for populating the accounting tables. These guidance documents include, for example, the International Recommendations for Water Statistics (IRWS) and the International Recommendations for Energy Statistics (IRES). Policy relevance and uses of the SEEA Central Framework 1.22 The effect of human activity on the environment has emerged as one of the most significant policy issues. On the one hand, there has been growing concern about the effect of each country’s economic activity upon the local and global environment. On the other hand, there has been increasing recognition that continuing economic growth and human welfare are dependent upon the benefits obtained from the environment. 1.23 Questions have been asked regarding how environmental endowments are being used. For example: Are resources being extracted too quickly with no prospect of replacement? Is economic activity generating a level of pollution that exceeds the absorptive capacity of the environment or affects human health and well-being? These types of conditions, should they exist, could be a threat to current or future economic development. Such questions could lead to the development of a variety of policy responses. 1.24 The SEEA is a multipurpose system and is relevant in a number of ways for policy development and evaluation as well as decision-making. First, the summary information (provided in the form of aggregates and indicators) can be applied to issues and areas of the environment that are the focus of decision makers. Second, the detailed information, which covers some of the key drivers of change in the environment, can be used to provide a richer understanding of the policy issues. Third, data contained in the SEEA can be used in models and scenarios designed to assess the national and international economic and environmental effects of different policy scenarios within a country, between countries and at a global level. 1.25 The benefits of SEEA data to policy- and decision-making processes can be seen in specific areas such as energy and water resource management; patterns of consumption and production and their effect on the environment; and the so-called green economy and economic activity related to adoption of environmental policies. The benefits are most broadly captured in relation to policies concerning sustainable development—one of the most pressing policy issues for current and future generations. 1.2 Overview of the SEEA Central Framework 1.26 The SEEA Central Framework comprises chapters II-VI of the present publication. Chapter II, entitled “Accounting structure”, outlines in some depth the key components of the SEEA Central Framework and the accounting approach that is employed. Using as its basis the accounting approach of the SNA, it aims to explain clearly the types of accounts and tables that are contained in the SEEA Central Framework and the basic principles of accounting for stocks and flows, the definition of economic units, and the principles of recording and valuation. 5Introduction to the SEEA Central Framework 1.27 An important aspect of chapter II is that it highlights the integrated nature of the SEEA Central Framework and the fact that all of the different components are encompassed within a common accounting structure. The content of that chapter is also applicable to publications related to the SEEA Central Framework such as SEEA Experimental Ecosystem Accounting. 1.28 Chapter III, entitled “Physical flow accounts”, explains in detail the recording of physical flows. The different physical flows—natural inputs, products and residuals—are placed within the structure of a physical supply and use table; and from this starting point, measurement of the physical flows can be expanded and reduced to enable focusing on a range of different materials or on specific flows. 1.29 The second half of chapter III describes in detail the structure of physical supply and use tables for energy (sect. 3.4), water (sect. 3.5) and various material flows, including tables for air emissions, water emissions and solid waste (sect. 3.6). 1.30 Chapter IV, entitled “Environmental activity accounts and related flows”, focuses on the identification of economic transactions within the SNA that may be considered environmental. Of particular interest are those transactions that relate to environmental activities, i.e., those economic activities whose primary purpose is to reduce or eliminate pressures on the environment or to make more efficient use of natural resources. These types of transactions are summarized in the environmental protection expenditure accounts (EPEA), and in statistics on the environmental goods and services sector (EGSS). 1.31 Chapter IV also covers the topics of environmental taxes, environmental subsidies and similar transfers, and a range of other payments and transactions related to the environment. These transactions are all recorded in the SNA but are often not explicitly identified as related to the environment. 1.32 Chapter V, entitled “Asset accounts”, focuses on the recording of stocks and flows associated with environmental assets. The environmental assets covered in the SEEA Central Framework comprise mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources, and water resources. Asset accounting in general terms, with a particular focus on the measurement of the depletion of natural resources and the valuation of environmental assets, is discussed in sections 5.1-5.4. 1.33 Sections 5.5-5.11 of the chapter describe the measurement of stocks and flows for each of the individual environmental assets. For each asset type, the measurement scope is defined and the accounting in physical and monetary terms is described. 1.34 The four annexes to chapter V include a detailed explanation of the net present value (NPV) approach to the valuation of environmental assets, and a discussion on discount rates, which are an important component of the NPV formulation. 1.35 Chapter VI, entitled “Integrating and presenting the accounts”, highlights the integrated nature of the SEEA Central Framework and links the detailed measurement guidelines of chapters III-V with the presentation of information for users. A particular focus in chapter VI is the explanation of combined presentations of physical and monetary data, including a description of a range of examples of such presentations. The chapter also introduces the various types of indicators that may be compiled from SEEA Central Framework–based data sets. 1.36 The SEEA Central Framework includes various tables and accounts with a view to providing an example of the types of accounts that might be compiled and helping explain the conceptual relationships described in the text. The tables do not provide a template for international reporting of environmental-economic accounting data, and their compilation is not mandatory. System of Environmental-Economic Accounting 2012—Central Framework6 1.37 The tables have been populated with illustrative data. Care has been taken to provide plausible orders of magnitude for each of the topics in recognition of the fact that individual countries can exhibit significant differences in terms of, for example, land size, population, GDP per capita, economic structure, endowment of natural resources (e.g., timber, oil and gas), etc. No data set was developed that was fully coherent across the different topics and chapters. Consequently, using these illustrative data in an analytical way across topics and chapters will not necessarily yield realistic results. 1.3 Key features of the SEEA Central Framework 1.3.1 Relationship of the SEEA Central Framework to the System of National Accounts 1.38 The System of National Accounts (SNA) is a measurement framework that has been evolving since the 1950s to embody the pre-eminent approach to the measurement of economic activity, economic wealth and the general structure of the economy. The SEEA Central Framework applies the accounting concepts, structures, rules and principles of the SNA to environmental information. Consequently, the SEEA Central Framework allows for the integration of environmental information (often measured in physical terms) with economic information (often measured in monetary terms) in a single framework. The power of the SEEA Central Framework comes from its capacity to present information in both physical and monetary terms coherently. 1.39 Because it uses the same accounting conventions, the SEEA Central Framework is, in general, consistent with the SNA. However, given the specific analytical focus of the SEEA Central Framework on the environment and its linkages with the economy, as well as its focus on the measurement of stocks and flows in physical and monetary terms, there are some limited differences between the SEEA Central Framework and the SNA. These differences are outlined below. Physical flows and monetary flows 1.40 Core to the measurement of physical flows in the SEEA Central Framework are the flows of natural inputs, products and residuals. The measurement boundary that is used to distinguish between these flows is defined by the production boundary described in the SNA. As a corollary, the definition of products aligns to the SNA definition of products as being those goods and services created through a production process and having economic value. 1.41 Also, from a geographical perspective, the measurement boundary for physical and monetary flows aligns to the economic territory of a country as defined in the SNA, and economic activity is attributed based on the residence of economic units rather than on the location of the economic units at the time of their production, consumption or accumulation. 1.42 The SEEA Central Framework approach to the recording of product flows diverges in two ways from the SNA. First, depending on the analytical scope of the account being compiled, all intra-enterprise flows, i.e., the production and use of goods and services on own account within enterprises are recorded. In the SNA, the recording of these types of flows is limited to the recording of the production of goods for own final use (e.g., own-account capital formation) and intra-enterprise flows related to ancillary activities. 1.43 Thus, for example, the recording of the production of energy (e.g., through the incineration of waste) and the abstraction of water by an establishment for own intermediate consumption is recommended. Similarly, in the functional accounts of the SEEA Central 7Introduction to the SEEA Central Framework Framework, it is recommended that all production of environmental goods and services be recorded by an establishment (both for environmental protection and for resource management, depending on the scope of the account) for own intermediate consumption. 1.44 The SEEA Central Framework also encourages the recording of own-account production and final consumption by households, for example, in relation to the abstraction of water or the production of energy. For such household own-account production, the production boundary used is the same as that delineated in the SNA. 1.45 In all cases of own-account and intra-establishment production recorded in the SEEA Central Framework, the valuation of flows is consistent with the SNA valuation of ownaccount and ancillary production. 1.46 Second, in situations where goods are sent to other countries for processing or repair, or in respect of merchanting, the SEEA Central Framework recommends recording the actual physical flows of goods in those cases where the ownership of those goods does not change but remains with a resident of the originating country. No change to the monetary recording of these flows is recommended. This variation is particularly applicable in recording physical flows associated with the processing of raw materials (e.g., oil refining), where the physical flows may be largely invariant with respect to the nature of the contractual relationships that are the focus of the recording of monetary flows in the SNA and the Balance of Payments Manual. Stocks and flows of assets 1.47 In monetary terms, the asset boundaries of the SEEA Central Framework and the SNA are the same. Thus, only those assets—including natural resources and land—that have an economic value following the valuation principles of the SNA are included in the SEEA Central Framework. 1.48 In physical terms, the asset boundary of the SEEA Central Framework is broader and includes all natural resources and areas of land of an economic territory that may provide resources and space for use in economic activity. Thus, the scope in physical terms is not limited to those assets with economic value. It is recommended that those environmental assets that have no economic value be clearly distinguished. 1.49 The SEEA Central Framework adopts slightly different terminology in relation to environmental assets compared with the SNA. In the SNA, the term “natural resources” is used to cover natural biological resources (e.g., timber and aquatic resources), mineral and energy resources, water resources and land, whereas in the SEEA Central Framework, land is separated from natural resources in recognition of its distinct role in the provision of space. Further, in the SNA, land and soil resources are considered a single asset type. In the SEEA Central Framework, two separate assets are recognized, again highlighting the role of land in the provision of space. Soil resources are included as part of natural resources. 1.50 This treatment of land permits a clearer articulation of the use of environmental assets, since the area of land does not generally change significantly over time (even if its use or cover changes), whereas the capacity of soil resources, and all other natural resources, to deliver benefits can diminish over time. 1.51 The valuation of environmental assets is a complex measurement task. The SEEA Central Framework adopts the same market price valuation principles as the SNA. However, since observable market prices are usually not available for environmental assets, the SEEA Central Framework provides an extensive discussion of the techniques that may be applied System of Environmental-Economic Accounting 2012—Central Framework8 in the valuation of these assets. This is particularly relevant with respect to the description of the net present value approach to valuation and in the discussion of discount rates. 1.52 Both the SEEA Central Framework and the SNA recognize the change in the value of natural resources that can be attributed to depletion. Depletion, in physical terms, is the decrease in the quantity of the stock of a natural resource over an accounting period that is due to the extraction of the natural resource by economic units occurring at a level greater than that of regeneration (thus, the natural growth of biological resources such as timber and fish is taken into account). Measures of depletion in physical terms can be valued to estimate the cost of using up natural resources due to economic activity. In the SNA, the value of depletion is shown in the other changes in the volume of assets account alongside flows such as catastrophic losses and uncompensated seizures. Thus, it is not recognized as a cost against the income earned by enterprises extracting natural resources. 1.53 In the SEEA Central Framework, the value of depletion is considered to be a cost against income; hence, in the sequence of economic accounts, the definition of depletionadjusted balancing items and aggregates entail deducting depletion from the measures of value added, income and saving. The depletion deduction is made in addition to the deduction of consumption of fixed capital for the cost of using fixed assets, which is already deducted from measures of value added, income and saving in the SNA. Depending on the arrangements underpinning the ownership of specific natural resources, this differing treatment of depletion in the SEEA Central Framework may require additional entries in the sequence of economic accounts at an institutional sector level. 1.3.2 Combining information in physical and monetary terms 1.54 One of the most important features of the SEEA Central Framework is its capacity to organize physical and monetary data that have common scope, definitions and classifications into combined presentations. The structure of combined presentations depends on the topic of measurement (e.g., water, energy, air emissions or forest products), the questions of interest, and the availability of data. Nonetheless, there are certain common features and benefits: • First, combined presentations allow users to find in a single location relevant information with statistical coherence and consistency already achieved through the confrontation of the source data in the SEEA Central Framework. • Second, combined presentations promote a discussion between those familiar with data organized within economic accounting structures and those conversant with information organized with reference to specific physical flows. • Third, combined presentations structure information in a manner that supports the derivation of combined indicators, for example, decoupling indicators which track the relationship between the use of resources and growth in production and consumption. • Fourth, combined presentations provide an information base for the development of models and for detailed analysis of interactions between the economy and the environment. 1.3.3 Flexibility in implementation 1.55 The SEEA Central Framework is a system conceived as an integrated, internally consistent series of accounts. At the same time, its design is such that it can be implemented equally well in part or as a whole. Depending upon the specific environmental issues faced, 9Introduction to the SEEA Central Framework a country may choose to implement only a selection of the accounts included in the SEEA Central Framework. Even if a country desires eventually to implement the full system, it may decide to focus its initial efforts on those accounts that are most relevant to current issues. 1.56 Resource-rich countries might develop asset accounts first as part of their overall management of these natural endowments. Focusing on resource depletion in relation to economic and environmental sustainability can provide a framework for policy development; and asset accounts can also provide information regarding the way in which government appropriates revenue from the extraction of natural resources. 1.57 Countries with high levels of material throughput might find it useful to build physical flow accounts for materials but, again, this may be done on a selective basis, for example, by working first on accounts for specific materials. 1.58 If a country imposes strict environmental standards, with significant cost to producers and consumers, then environmental protection expenditure accounts may be an early priority. Those countries where there is as yet little active environmental protection may prefer instead to concentrate on the measurement of flows of residuals in order to determine the urgency of environmental protection regulation. 1.59 These examples illustrate the flexibility in respect of implementation of the SEEA Central Framework, which its structure is intended to permit. It is important to bear in mind, however, that no matter which parts of the system are implemented, they should be implemented in such a way as to be internally consistent and complementary. 1.60 While there is flexibility available in the implementation of the system, much of the benefit of the SEEA Central Framework will be derived from its adoption as an international statistical standard. Consequently, the ability to compare and contrast relevant information from a range of countries represents a significant advantage, as supported by the widespread adoption of the SEEA Central Framework for specific modules, particularly as this relates to environmental issues that are multinational or global in nature. 11 Chapter II Accounting structure 2.1 Introduction 2.1 The System of Environmental-Economic Accounting (SEEA) Central Framework is a multipurpose conceptual framework for describing the interaction between the economy and the environment, and the stocks and changes in stocks of environmental assets. Utilizing a systems approach to organizing environmental and economic information, it covers, as completely as possible, the stocks and flows that are relevant to the analysis of environmental and economic issues. 2.2 In applying a systems approach, the SEEA Central Framework applies the accounting concepts, structures, rules and principles of the System of National Accounts (SNA). Because the SEEA Central Framework uses the same accounting conventions and structures as the SNA, it generally uses the same terminology and language as the national accounts as well. 2.3 At the same time, the SEEA Central Framework represents a melding of many disciplines (e.g., economics, statistics, energy, hydrology, forestry, fisheries and environmental science), each with its own concepts and structures. Thus, while the underlying structure is the same as that used in the national accounts, the SEEA Central Framework aims to integrate perspectives from other disciplines and, where relevant, provide an improved body of information for environmental-economic analysis. 2.4 The present chapter provides an overview of the accounting structure of the SEEA Central Framework and its rules and principles of recording. This overview places the various aspects of the economy and the environment in a measurement context. Using the broad description contained in section 2.2, section 2.3 presents the accounting structure which encompasses supply and use tables, asset accounts, the sequence of economic accounts, and functional accounts. Section 2.4 introduces one of the key outputs: combined presentations of physical and monetary data. 2.5 Section 2.5 introduces the measurement of stocks and flows in physical and monetary terms; section 2.6 describes the relevant economic units; and section 2.7 presents a range of specific accounting rules and principles which form the basis of recording and compilation. 2.2 Overview of the SEEA Central Framework 2.6 The Central Framework covers measurement in three main areas: (a) the physical flows of materials and energy within the economy and between the economy and the environment; (b) the stocks of environmental assets and changes in these stocks; and (c) economic activity and transactions related to the environment. Measurement in these areas is translated into a series of accounts and tables, as described in section 2.3. System of Environmental-Economic Accounting 2012—Central Framework12 2.7 Central to measurement in these areas are definitions of the economy and the environment. Measurement boundaries are defined with a view to ensuring that information can be organized in a consistent way over time, across countries and between different areas of analysis. 2.8 Broadly, the economy functions through the production and import of goods and services which, in turn, are consumed by enterprises, households or government; exported to the rest of the world; or accumulated to be consumed or used in the future. Accumulation in this context includes the storage of materials for use in the future and the acquisition of machines and other types of produced assets which are used on an ongoing basis. 2.9 For measurement purposes, the economy is represented by both stocks and flows. The measurement of flows centres on the economic activities of production, consumption and accumulation. With regard to these, it is the measurement boundary for production (the production boundary) that is the most significant, since all goods and services (products) that are regarded as being produced are effectively considered to be “inside” the economy. Flows between the economy and the environment are determined by whether they cross the production boundary. 2.10 Stocks of economic assets provide inputs to production processes and are a source of wealth for economic units, including households. While many economic assets are produced from economic activity (e.g., buildings and machines), many are non-produced (e.g., land, mineral resources and water resources). Both produced and non-produced assets provide inputs to the production of goods and services. 2.11 The economic value and quantity of stocks of assets (e.g., buildings, natural resources and bank deposits) change over time. These changes are reflected in flows, and are recorded either as transactions (such as the acquisition of buildings and land) or as other flows. Many flows relating to non-produced assets (e.g., discoveries of mineral resources, and losses of timber resources due to fire) are considered to be flows outside the production boundary, since the assets themselves are not the output from production processes undertaken by economic units (enterprises, households and government). 2.12 Environmental stocks and flows are considered holistically. From a stock perspective, the environment includes all living and non-living components that constitute the biophysical environment, including all types of natural resources and the ecosystems within which they are located. From the perspective of environmental flows, the environment is the source of all natural inputs to the economy, including natural resource inputs (minerals, timber, fish, water, etc.) and other natural inputs absorbed by the economy, for example, energy from solar and wind sources and the air used in combustion processes. 2.13 The remainder of the present section provides additional descriptions of the measurement of the economy and the environment in the Central Framework. The measurement of physical flows 2.14 A key focus of measurement is the use of physical units to record flows of materials and energy that enter and leave the economy and flows of materials and energy within the economy itself. These measures are called physical flows. In broad terms, the flows from the environment to the economy are recorded as natural inputs (e.g, flows of minerals, timber, fish and water).1 Flows within the economy are recorded as product flows (including additions to the stock of fixed assets) and flows from the economy to the environment are recorded as 1 It is noted that many residuals, for example, solid waste collected in controlled landfill sites also remain within the economy. 13Accounting structure residuals (e.g., solid waste, air emissions and return flows of water). This broad characterization is presented in figure 2.1. 2.15 Physical flows are recorded in physical supply and use tables. These tables are extensions of the monetary supply and use tables used for the recording of flows of products in monetary terms in the SNA. Section 2.5 and chapter 3 provide detailed descriptions of the measurement of physical flows. Figure 2.1 Physical flows of natural inputs, products and residuals Natural inputs (including mineral resources, timber resources, aquatic resources and water resources) Residuals (including air emissions and return flows of water) Environment Economy Products (goods and services produced and consumed in the economy) Industries Households Government The measurement of environmental assets 2.16 The use of natural inputs by the economy is linked to changes in the stock of environmental assets that generate those inputs. Asset accounts for environmental assets in both physical and monetary terms are an important feature of the SEEA. 2.17 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. Although they are naturally occurring, many environmental assets are transformed to varying degrees by economic activities. In the SEEA, environmental assets are considered from two perspectives. In the Central Framework, the focus is on individual components of the environment that provide materials and space to all economic activities. Examples include mineral and energy resources, timber resources, water resources and land. 2.18 This focus reflects the material benefits from the direct use of environmental assets as natural inputs for the economy by enterprises and households. However, this focus does not consider the non-material benefits from the indirect use of environmental assets (e.g., benefits from ecosystem services such as water purification, storage of carbon and flood mitigation). 2.19 The coverage of individual assets does not extend to the individual elements that are embodied in the various natural and biological resources referred to above. For example, the various soil nutrients are not explicitly considered individual assets. 2.20 A complete description of the measurement of environmental assets in terms of the various individual environmental assets is presented in chapter V. System of Environmental-Economic Accounting 2012—Central Framework14 2.21 The second perspective on environmental assets, which is described in SEEA Experimental Ecosystem Accounting, encompasses the same environmental assets but focuses on the interactions between individual environmental assets within ecosystems, and on the broad set of material and non-material benefits that accrue to the economy and other human activity from flows of ecosystem services. Ecosystems are a dynamic complex of plant, animal and microorganism communities and their non-living environment interacting as a functional unit.2 Examples are terrestrial ecosystems (e.g., forests and wetlands) and marine ecosystems. Often, there are interactions between different ecosystems at local and global levels. 2.22 For a given ecosystem or group of ecosystems, ecosystem accounting considers the capacity of living components within their non-living environment to work together to generate flows known as ecosystem services. Ecosystem services are the contributions of ecosystems to benefits used in economic and other human activity. Ecosystem services, which are supplied in many ways and vary from ecosystem to ecosystem, may be divided into three groups: (a) provisioning services (such as the provision of timber from forests); (b) regulating services (provided, for example, by forests when they act as a sink for carbon); and (c) cultural services (such as the enjoyment provided to visitors to a national park).3 Generally, provisioning services are related to the material benefits of environmental assets, whereas the other types of ecosystem services are related to the non-material benefits of environmental assets. 2.23 Degradation of ecosystems by economic and other human activity may mean that they are not able to generate the same range, quantity or quality of ecosystem services on an ongoing basis. A focus on ecosystems that includes both material and non-material benefits of environmental assets provides a basis for analysing the extent to which economic activity may reduce an ecosystem’s capacity to generate ecosystem services. The measurement of economic activity related to the environment 2.24 In addition to measuring stocks of environmental assets and flows between the environment and the economy, the Central Framework records flows associated with economic activities related to the environment. Examples of economic activity related to the environment include expenditures on environmental protection and resource management, and the production of environmental goods and services, such as devices to reduce air pollution. Using the measurement framework of the SNA, economic activity undertaken for environmental purposes can be separately identified and presented in what are known as functional accounts (such as environmental protection expenditure accounts). 2.25 The Central Framework provides a more complete view of the environmental aspects of the economy by considering environmental transactions such as taxes, subsidies, grants and rent. These transactions are recorded in the sequence of economic accounts and in functional accounts (such as environmental protection expenditure accounts). 2 United Nations (2001), Treaty Series, vol. 1760, No. 30619, Convention on Biological Diversity, article 2, Use of Terms. Available from http://treaties.un.org/doc/publication/UNTS/Volume%20 1760/v1760.pdf. 3 See, for example, Millennium Ecosystem Assessment (2003). 15Accounting structure 2.3 Main accounts and tables of the SEEA Central Framework 2.3.1 Introduction 2.26 The Central Framework organizes and integrates the information on the various stocks and flows of the economy and the environment in a series of tables and accounts. The Central Framework comprises the following types of tables and accounts: (a) supply and use tables in physical and monetary terms showing flows of natural inputs, products and residuals; (b) asset accounts for individual environmental assets in physical and monetary terms showing the stock of environmental assets at the beginning and the end of each accounting period and the changes in the stock; (c) a sequence of economic accounts highlighting depletion-adjusted economic aggregates; and (d) functional accounts recording transactions and other information about economic activities undertaken for environmental purposes. The analysis of these data can also be extended by linking the tables and accounts to relevant employment, demographic and social information. 2.27 The strength of the Central Framework stems from its consistent application of definitions and classifications for stocks, flows and economic units across different types of environmental assets and different environmental dimensions (e.g., across water and energy). Additional strength is derived from the consistent application of these various definitions and classifications in physical and monetary terms, as well as from their consistency with the same definition and classifications used in the SNA and economic statistics. 2.28 Implementation does not require compilation of every table and account for all environmental assets or environmental themes. Instead it can be modular, taking into account those aspects of the country’s environment that are most important. At the same time, the ambition should be to fully account for the environmental-economic structure of a country and to provide information on issues of global concern using a common measurement framework. 2.29 The present section introduces the different tables that are part of the Central Framework and demonstrates the nature of the integration between them. The explanation is stylized, as the reality is more complex, but the basic logic and intent of the approach examined in this section apply throughout the Central Framework. 2.3.2 Supply and use tables Monetary supply and use tables 2.30 Monetary supply and use tables record all flows of products in an economy between different economic units in monetary terms. They are compiled to describe the structure of an economy and the level of economic activity. Many of the flows of products recorded in monetary terms relate to the use of natural inputs from the environment (e.g., the manufacture of wood products) or to activities and expenditures associated with the environment (e.g., environmental protection expenditure). Highlighting the relevant flows in monetary terms and developing finer breakdowns, as required for analysis of specific topics, is therefore an important part of the Central Framework. 2.31 The recording of the products that flow within the economy entails the same process as that for the recording of these flows in the SNA. Products are “supplied” within the economy when they are: (a) Produced by industries in the national economy (a flow known as output); (b) Brought in from the rest of the world (a flow known as imports). System of Environmental-Economic Accounting 2012—Central Framework16 2.32 All products that are supplied must be recorded as being “used”. Use can occur in a number of ways, i.e., the products can be: (a) Used by other industries to make different products (a flow known as intermediate consumption); (b) Consumed by households (a flow known as household final consumption expend- iture); (c) Consumed by governments (a flow known as government final consumption expenditure); (d) Sold to the rest of the world (a flow known as exports); (e) Held as inventories for later use;4 or (f ) Used as assets (e.g., machines) over a longer period of time to produce other products (these longer-term uses are flows known as gross fixed capital formation). 2.33 As shown in table 2.1, these flows are classified by type of product in the rows and by type of economic unit (enterprises, households, government) and the rest of the world in the columns. Enterprises are classified to industries on the basis of their principal activity. The exception in the naming of the columns is “Accumulation”. Accumulation flows are recorded separately for the following reason: while they concern supply in the current accounting period, they are not used in the current period and instead accumulate for future use or sale by economic units and the rest of the world—in the form either of inventories or of fixed assets. 2.34 The monetary supply and use table is divided into two parts: the supply table and the use table. Overall, the total supply of each product must equal the total use of each product. This equality between the total supply and total use of each product is known as the supply and use identity, a fundamental identity in both the monetary supply and use tables and in the physical supply and use tables. 2.35 The row of the supply table shows that for each product total supply is equal to output plus imports. The row for the use table shows that total use is equal to intermediate consumption plus household final consumption expenditure plus government final consumption expenditure plus gross capital formation5 plus exports. Table 2.1 Basic form of a monetary supply and use table Industries Households Government Accumulation Rest of the world Total Supply table Products Output Imports Total supply Use table Products Intermediate consumption Household final consumption expenditure Government final consumption expendi- ture Gross capital formation (including changes in inventories) Exports Total use Value added Note:  Dark grey cells are null by definition. 4 When products are withdrawn from inventories in subsequent accounting periods, they are effectively resupplied to the economy at that time. By accounting convention, the change in inventories (additions to inventories less withdrawals) during an accounting period is recorded as a use of products. 5 Gross capital formation is equal to gross fixed capital formation plus changes in inventories. 17Accounting structure 2.36 One feature of monetary supply and use tables is that key economic aggregates can be derived using the various components. In particular, the aggregate value added by industry can be calculated as the difference between an industry’s output and its intermediate consumption. This aggregate forms the starting point for the sequence of accounts described in section 2.3.4. 2.37 Full details on the definitions of the different variables covered in the monetary supply and use tables are described in chapter 14 of the 2008 SNA. Physical supply and use tables (PSUT) 2.38 Physical flows are recorded by compiling supply and use tables in physical units of measurement. These tables, which are commonly known as physical supply and use tables (PSUT), are used to assess how an economy supplies and uses energy, water and materials, as well as to examine changes in production and consumption patterns over time. In combination with data from monetary supply and use tables, changes in productivity and intensity in the use of natural inputs and the release of residuals can be examined. 2.39 The PSUT structure is based on the monetary supply and use tables described above with extensions to incorporate a column for the environment, and rows for natural inputs and residuals. Table 2.2 sets out these extensions. Table 2.2 Basic form of a physical supply and use table Industries Households Accumulation Rest of the world Environment Total Supply table Natural inputs Flows from the environ- ment Total supply of natural inputs Products Output Imports Total supply of products Residuals Residuals generated by industry Residuals generated by final household consumption Residuals from scrapping and demolition of produced assets Total supply of residuals Use table Natural inputs Extraction of natural inputs Total use of natural inputs Products Intermediate consumption Household final consumption Gross capital formation Exports Total use of products Residuals Collection and treatment of waste and other residuals Accumulation of waste in controlled landfill sites Residual flows direct to environ- ment Total use of residuals Note:  Darkgreycellsarenullbydefinition.Blankcellsmaycontainrelevantflows,whichareexplainedindetailinchapterIII. 2.40 The column for government is removed in the formation of the PSUT because, in physical terms, government activity is completely recorded within the first column, industries; that is, the intermediate consumption associated with activities undertaken by government units is System of Environmental-Economic Accounting 2012—Central Framework18 incorporated in the estimates of these flows for the relevant industry, for example, as part of public administration, or water collection and supply. In the monetary supply and use table, the column for government final consumption expenditure reflects the acquisition by government of its own output which is a acquisition of services rather than a purchase of physical goods. 2.41 The column for households in the PSUT relates solely to the consumption activity of households. Many households also undertake a range of activity for own consumption, including the collection of water and fuelwood, and the generation of hot water through the use of solar energy. While this activity is often regarded as direct household consumption from the environment, in the SEEA, all products that are consumed must first be recorded as being produced. Hence, all of this production activity and the associated flows of natural inputs and products should be recorded in the first column, industries. The consumption activity of households recorded in the PSUT extends to the generation of solid waste and other residuals as a consequence of consumption. 2.42 While the broad structure and underlying principles of PSUT are the same regardless of whether the PSUT is measuring flows of energy, water or materials, for each of these subsystems of physical flows different rows and columns may be used. 2.43 Table 2.2 provides only an introduction to PSUT. There are a range of additions to and refinements of this basic PSUT required to cover all relevant flows of natural inputs, products and residuals. These are explained in detail in chapter III. 2.44 Within the PSUT, the supply and use identity that applies in monetary terms also applies in physical terms. Thus, for each product measured in physical terms (e.g., cubic metres of timber), the quantity of output and imports (total supply of products) must equal the quantity of intermediate consumption, household final consumption, gross capital formation and exports (total use of products). The equality between supply and use also applies to the total supply and use of natural inputs and the total supply and use of residuals. 2.45 In addition to the supply and use identity, the PSUT incorporates an additional identity concerning flows between the environment and the economy. This second identity, known as the input-output identity, requires that the total flows into the economy, or an enterprise or household, over an accounting period, either are returned to the environment or accumulate in the economy. For example, flows of energy into an enterprise in the form of electricity and petroleum products must be released to the environment after the energy has been used (as losses of residual heat); stored (as inventories for future use); or incorporated into non-energy products (e.g., petroleum products used to manufacture plastics). 2.46 Both the supply and use identity and the input-output identity are an integral part of the Central Framework. They are based on the law of the conservation of mass and energy which states that the mass and energy of a closed system will remain constant. The implication for accounting is that, in theory, mass and energy flows must balance across natural inputs, products and residuals. 2.47 Further details on the compilation of PSUT are presented in chapter III, including the presentation of specific PSUT for energy, water and various material flows (including flows of emissions and solid waste). However, unlike monetary flows which are measured in currency units, physical flows are generally measured in different units depending on the material. Thus, while it is conceptually possible to compile a complete PSUT for all material flows in an economy using a single measurement unit (e.g., tonnes), it is not the usual practice. Classifications for supply and use tables 2.48 In the compilation of supply and use tables in both physical and monetary terms, an important factor is the use of consistent classifications for the main economic units and 19Accounting structure products. Industries are consistently classified using the International Standard Industrial Classification of All Economic Activities (ISIC), products are classified using the Central Product Classification (CPC), and the determination of whether particular economic units are within a particular national economy is based on the concept of residence (explained further in sect. 2.6). The ISIC and the CPC are used not only in supply and use tables but also in other accounts and tables to classify industries and products. Other classifications, such as the Standard International Energy Product Classification (SIEC), may also be used in specific situations. 2.3.3 Asset accounts 2.49 The intent of asset accounts is to record the opening and closing stock of environmental assets and the different types of changes in the stock over an accounting period. One purpose of accounting for environmental assets is to assess whether current patterns of economic activity are depleting and degrading the available environmental assets. Information from asset accounts can be used to assist in the management of environmental assets; and valuations of natural resources and land can be combined with valuations of produced and financial assets to provide broader estimates of national wealth. 2.50 An asset account is structured as shown in table 2.3. It starts with the opening stock of environmental assets and ends with the closing stock of environmental assets. In physical terms, the changes between the beginning and the end of the accounting period are recorded as either additions to the stock or reductions in the stock and, wherever possible, the nature of the addition or reduction is recorded. In monetary terms, the same entries are made but an additional entry is included for the purpose of recording the revaluation of the stock of environmental assets. This entry accounts for the changes in the value of assets over an accounting period that are due to movements in the price of the assets. Table 2.3 Basic form of an asset account Opening stock of environmental assets Additions to stock Growth in stock Discoveries of new stock Upward reappraisals Reclassifications Total additions of stock Reductions of stock Extractions Normal loss of stock Catastrophic losses Downward reappraisals Reclassifications Total reductions in stock Revaluation of the stockª Closing stock of environmental assets a   Only applicable for asset accounts in monetary terms. 2.51 There are many and varied reasons for changes in the quantity and value of a stock of environmental assets over an accounting period. Many of these changes are due to interac- System of Environmental-Economic Accounting 2012—Central Framework20 tions between the economy and the environment in the context, for example, of the extraction of minerals or the planting of timber resources. Other changes in environmental assets are caused by natural phenomena, for example, losses of water from reservoirs due to evaporation or catastrophic losses of timber resources due to forest fires. 2.52 Some changes between the opening and closing stock are more accounting-related in nature and comprise those due to improved measurement (reappraisals) and those involving the categorization of the asset (reclassifications). The reassessment of the size and quality of mineral resources is an example of a reappraisal and the entries required to record changes in land use between agriculture and built-up areas reflect reclassifications. 2.53 Generally, asset accounts are compiled for individual types of environmental assets. In monetary terms, there may be interest in aggregating the values of all environmental assets at the beginning and the end of the accounting period. Such aggregations can be presented in balance sheets, and through their combination with the value of other assets (e.g., produced assets and financial assets) and liabilities, an overall measure of the net wealth of an economy can be obtained. 2.54 The capacity to account for and analyse the state of and changes in environmental assets is a fundamental component of the Central Framework. There are, however, many conceptual and practical measurement challenges, often unique to particular environmental assets. These measurement issues are discussed in detail in chapter V. The connections between supply and use tables and asset accounts 2.55 The different tables are compiled for different purposes and highlight different aspects of the relationship between the economy and the environment. At the same time, there are close links between the supply and use tables and the asset accounts as shown in table 2.4. These connections highlight the fact that the Central Framework is an integrated system. 2.56 The upper left-hand cells of table 2.4 encompass the supply and use of products measured in monetary terms. The cells below encompass the supply and use of natural inputs, products and residuals in physical terms. In both cases, the set of economic units are the same (i.e., enterprises represented in industries, households, government and the rest of the world). Thus, it can be seen that the supply and use of products is recorded in the Central Framework in both monetary and physical terms. 2.57 The major change in table 2.4 from a supply and use perspective, is that the flows recorded in the accumulation and environment columns of the supply and use tables have been reworked into an asset account framework. This is shown in the two right-hand columns. The distinction between produced assets and environmental assets highlights the difference in the recording of these flows in the supply and use tables, in particular the fact that the extraction of natural resources is recorded not in the monetary supply and use tables but in the PSUT as a flow of natural inputs. 2.58 The opening and closing stocks for a given period appear at the top and bottom of the table, respectively. Some of the changes in the stocks are also recorded in the supply and use tables. For example, gross capital formation and natural inputs are included in both the asset accounts and the supply and use tables. Some changes in stocks are not recorded in the supply and use tables and these are grouped together in the cell labelled “Other changes in volume of assets”. Examples of these changes include discoveries of mineral resources, losses of assets following catastrophic natural events and changes in the values of assets due to price 21Accounting structure Table 2.4 Connections between supply and use tables and asset accounts Asset accounts (Physical and monetary terms) Industries Households Government Rest of the world Produced assets Environmentalassets Opening stock Monetary supply and use table Product-supply Output Imports Product-use Intermediate consumption Household final consumption expenditures Government final consumption expenditures Exports Gross capital Physical supply and use table Natural inputs- supply Extracted natural resources Natural inputs-use Inputs of natural resources Product- supply Output Imports Product-use Intermediate consumption Household final consumption Exports Gross capital formation Residuals-supply Residuals generated by industry Residuals generated by household final consumption Residuals received from the rest of the world Residuals from scrapping and demolition of produced assets; emissions from controlled landfills Residuals-use Collection and treatment of waste and other residuals Residuals sent to the rest of the world Accumulation of waste in controlled landfills Residuals flowing to the environmentª Other changes in volume of assets (e.g., natural growth, discoveries, catastrophic losses) Revaluations Closing stock Note:  Dark grey cells are null by definition. Blank cells may contain relevant flows, which are articulated in detail in chap. III. a   While these residual flows (e.g., air emissions) are not flows of environmental assets, they may affect the capacity of environmental assets to deliver benefits. The changing capacity of environmental assets may also be reflected in other changes in the volume of assets. changes (revaluations). It is noted that some environmental assets may be restored through human activities (e.g., restoration of water bodies as aquatic habitats). 2.59 Special mention must be made of the final row concerning the use of residuals. Strictly speaking, neither the accumulation of waste in controlled landfills nor the flows of residuals to the environment are recorded in asset accounts for individual environmental assets. However, more broadly, the accumulation of waste in the economy does represent an increase in a stock, and flows of residuals to the environment may well affect the capacity of environmental assets to deliver benefits. 2.3.4 The sequence of economic accounts 2.60 In monetary terms, supply and use tables and asset accounts record much of the information of interest in the assessment of the interactions between the economy and the environment. However, there are a range of other transactions and flows that are of interest, such as payments of rent for the extraction of natural resources, payments of environmental taxes, and payments of environmental subsidies and grants from government units to other economic units to support environmental protection activity. System of Environmental-Economic Accounting 2012—Central Framework22 2.61 These flows are recorded in the sequence of economic accounts, which is compiled only in monetary terms because these accounts include transactions that do not have a direct underlying physical base, for example, interest payments. The sequence of economic accounts in the SEEA follows the broad structure of the sequence of accounts in the SNA. 2.62 A particular feature of the sequence of accounts is the presentation of balancing items. Typically, there is not a balance between relevant inflows and outflows. Thus, balancing items are introduced. These are measures of economic performance in their own right but also link the sequence of accounts together. Key balancing items include value added, operating surplus, saving and net lending/borrowing. Economy wide aggregates, such as gross domestic product (GDP) and gross national income (GNI), can also be constructed from balancing items. 2.63 Of particular importance is the derivation of depletion-adjusted balancing items and aggregates within the sequence of economic accounts. Depletion-adjusted measures go beyond the balancing items and aggregates measured in “net” terms in the SNA (i.e., after the deduction of consumption of fixed capital) and further deduct the cost of using up natural resources (i.e., depletion). The main balancing items and aggregates within the sequence of economic accounts are shown in broad terms in table 2.5. 2.64 The sequence of economic accounts starts in the production account that is formed using the entries of output and intermediate consumption from the monetary supply and use table. In the production account, the balancing item is value added (output less intermediate consumption). At an economy-wide level, the main related aggregate from the production account is GDP. Consumption of fixed capital and depletion are deducted from gross value added and GDP to form measures of depletion-adjusted net value added and depletionadjusted net domestic product. Table 2.5 Basic SEEA sequence of economic accounts Production account (elaborated in supply and use tables) Main entries Output, intermediate consumption, consumption of fixed capital, depletion Balancing items/aggregates Gross value added, gross domestic product, depletion-adjusted net value added, depletion-adjusted net domestic product Distribution and use of income accounts Main entries Compensation of employees, taxes, subsidies, interest, rent, final consumption expenditure, consumption of fixed capital, depletion Balancing items/aggregates Depletion-adjusted net operating surplus, depletion-adjusted net national income, depletion-adjusted net saving Capital account Main entries Acquisitions and disposals of produced and non-produced assets Balancing item/aggregate Net lending/borrowing Financial account Main entries Transactions in financial assets and liabilities Balancing item/aggregate Net lending/borrowing 2.65 The sequence continues in the distribution and use of income accounts. These accounts contain information on the manner in which value added, i.e., the income directly obtained from production, is allocated to economic units, as either compensation of employees or gross operating surplus, and on flows of other income and related payments such as flows of taxes, subsidies, interest and rent for the use of land or other environmental assets. A total amount of disposable income (all income received less all income paid) is available for final consump- 23Accounting structure tion expenditure. The balancing items for the income accounts are operating surplus (value added less compensation of employees and taxes less subsidies) and saving (disposable income less final consumption expenditure). 2.66 As in the production account, depletion can be deducted from the balancing items of net operating surplus and net saving. The key aggregates from these accounts in gross terms are gross national income (GNI) and gross national saving, both of which can be adjusted for depletion and consumption of fixed capital to form depletion-adjusted measures. 2.67 The next account to be considered is the capital account, which records how saving is used to acquire assets, including produced assets and environmental assets. Thus, it includes the acquisition and disposal of environmental assets, in particular transactions in land and cultivated biological resources such as plantations and livestock. If the expenditure on assets is less than the amount of saving, then an economy will have resources available to lend to the rest of the world. If the expenditure on assets is more than the amount of saving, then an economy will need to borrow from the rest of the world. The balancing item for the capital account is therefore known as net lending/borrowing. 2.68 The sequence of accounts is completed in the financial account which records the transactions involved in lending and borrowing. The financial account shows all transactions in financial assets and liabilities (e.g., deposits, loans, shares and equities). The balance of these transactions is net lending/borrowing, the same as the capital-account balancing item. 2.69 The sequence of accounts can be complemented by balance sheets that record the values of all assets and liabilities at the beginning and end of an accounting period. The balancing item for a balance sheet is net worth, representing the total value of all assets less the value of all liabilities. 2.70 A more detailed description of the sequence of accounts and the derivation of depletion-adjusted measures is presented in chapter VI. The definition and measurement of depletion is discussed in chapter V. 2.3.5 Functional accounts 2.71 While monetary supply and use tables can be used to organize and present certain types of transactions of particular relevance to the environment, identifying these transactions within supply and use tables usually requires additional disaggregation because the conventional industry and product classifications do not necessarily highlight environmental activities or products. 2.72 The first step in the approach taken is to define the activities, goods and services that have an environmental purpose (i.e., that have, as their primary purpose, to reduce or eliminate pressures on the environment or to make more efficient use of natural resources). In the second step, relevant information in scope of the monetary supply and use table and the sequence of economic accounts is reorganized to enable clear identification of the transactions associated with the environmental activities and environmental goods and services. 2.73 The highlighting of environmental activities and products enables information to be presented on the economic response to environmental issues. Particular flows of interest are the output of environmental goods and services, and expenditures on environmental protection and resource management, as well as environmental taxes and subsidies. 2.74 The construction of functional accounts and associated information is discussed in detail in chapter IV. System of Environmental-Economic Accounting 2012—Central Framework24 2.3.6 Employment, demographic and social information 2.75 The usefulness of the information in the various tables and accounts can be enhanced by relating different environmental and economic data to estimates of employment, estimates of population, various demographic breakdowns (such as age, household income levels and household characteristics related to material well-being) and measures of societal interest such as health and education. 2.76 Examples of the application of such data include the incorporation of employment data on the production of environmental goods and services, the use of socioeconomic groupings of households to assess water and energy use and access to resources, and the linking of information on health status to data on air emissions in particular regions. 2.77 Section 6.2 discusses further the use of these types of data in the context of the Central Framework, and the SEEA Extensions and Applications presents techniques and analytical approaches to linking SEEA-based data with various types of employment, demographic and social data. 2.4 Combining physical and monetary data 2.78 The presentation of information in a consistent format which combines integrated physical and monetary data is one of the strongest features of the Central Framework. This feature enables the provision of a wide range of information on specific themes (e.g., water, energy and air emissions), the comparison of related information across different themes, and the derivation of indicators that use both physical and monetary data. 2.79 Given the integrated accounting structures of physical and monetary accounts, it is logical to use these structures and the common underlying accounting rules and principles to present physical and monetary information at the same time. Such integrated formats have sometimes been referred to as “hybrid” presentations or accounts because they contain data in different measurement units. However, although the measurement units are different, the data sets are presented in accordance with common classifications and definitions; hence, these formats are referred to as combined physical and monetary presentations. 2.80 Combining physical and monetary data is governed at its core by the logic of recording physical flows in a manner compatible with economic transactions as presented in the SNA. This linkage ensures a consistent comparison of environmental burdens with economic benefits, or environmental benefits with economic costs. It can be examined not only at the national level but also at disaggregated levels, for example, in relation to regions of the economy, or specific industries, or for the purpose of examining the flows associated with the extraction of a particular natural resource or the emissions of a particular material. 2.81 Because these presentations combine physical data that may be of more immediate use to scientists, with monetary data familiar to economists, they also have the potential to form a bridge between these two groups and their respective concerns about the environment. 2.82 In combined presentations, it is legitimate to include only a limited set of variables, depending on the most urgent environmental concerns to be taken into consideration, and it is not necessary to construct an exhaustive physical supply and use table in order to be able to present combinations of physical and monetary data. 2.83 A combined physical and monetary presentation thus represents an analytical framework for showing which parts of the economy are most relevant to specific indicators and how changes in the economic structure influence the evolution of indicators over time. Further, because the accounts provide consistent environmental and economic indicators, the possible 25Accounting structure trade-offs, in environmental terms, between alternative environmental and economic strategies can be analysed. 2.84 At finer levels of disaggregation, combined presentations can provide the research community with access to a structured database for further research regarding the overall environmental performance of national economies. In particular, data sets with combinations of physical and monetary data may be of direct use in the development of environmentaleconomic models. 2.85 Different forms of combined physical and monetary presentations are possible and, indeed, there is no standard form for these presentations or accounts. Commonly, physical flow data are presented alongside information from monetary supply and use tables; but even for this basic structure, different combinations are possible. Ultimately, the structures of combined presentations of monetary and physical data are dependent on the availability of data and the questions under investigation. 2.86 While no standard structure can be defined, compiling and contrasting monetary and physical data in meaningful ways are at the heart of the SEEA philosophy. This section has provided a general introduction to combined physical and monetary presentations. Chapter VI discusses the compilation of these presentations and provides examples of potential presentations on particular themes, such as energy and water. More detailed presentations involving structures such as input-output tables, the full sequence of economic accounts or presentations that cover a particular theme or topic, for example, fisheries, are considered in SEEA Extensions and Applications and in targeted thematic publications (such as on water and energy). 2.5 Accounting for flows and stocks 2.5.1 Introduction 2.87 The compilation of supply and use tables, asset accounts, the sequence of economic accounts, and functional accounts, and the incorporation of demographic and employment information, requires an understanding of the concepts of stocks and flows in both physical and monetary terms. The present section presents the general framework for the recording of stocks and flows in both physical and monetary terms. 2.5.2 Flows Flows in physical terms 2.88 Physical flows are reflected in the movement and use of materials, water and energy. As noted earlier in this chapter, the three types of physical flows are natural inputs, products and residuals. All of these flows are defined in greater detail in section 3.2. 2.89 Natural inputs are all physical inputs that are moved from their location in the environment as a part of economic production processes or that are directly used in production. They may be (a) natural resource inputs, such as mineral and energy resources or timber resources, (b) inputs from renewable energy sources, such as solar energy captured by economic units, or (c) other natural inputs such as inputs from soil (e.g., soil nutrients) and inputs from air (e.g., oxygen absorbed in combustion processes). 2.90 During the extraction of some natural resource inputs, not all extraction is retained in the economy, for example, in fishing operations, there is an amount of discarded catch and in timber harvesting there is an amount of felling residues. The extraction that is not retained System of Environmental-Economic Accounting 2012—Central Framework26 in the economy is considered to have returned immediately to the environment. These flows are termed natural resource residuals. 2.91 Products are goods and services that result from a process of production in the economy. They are defined consistently with the definition of products in the SNA. Generally, the existence of a product is evidenced by a transaction of positive monetary value between two economic units (e.g., the production of a car and its sale by a manufacturer to a purchaser). For accounting purposes, generally, only flows of products between economic units are recorded and flows internal to the operation of an establishment are ignored. However, depending on the purpose and field of analysis, it may be relevant to record these intra-establishment flows. For example, in the analysis of energy flows, it may be relevant to record an establishment’s generation of energy by burning its own solid waste. 2.92 Residuals are flows of solid, liquid and gaseous materials, and energy, that are discarded, discharged or emitted to the environment (e.g., emission to air) by establishments and households through processes of production, consumption or accumulation but may also flow within the economy, as is the case when, for example, solid waste is collected as part of a waste collection scheme. 2.93 Physical flows are often separated into three categories: energy, water and materials. Materials themselves are often analysed by type of material or specific groups of materials, for example, flows of solid waste or carbon emissions. The three categories of physical flows form three distinct but related accounting subsystems, each of which has a different perspective on relevant physical flows. For example, analysis of coal and oil may focus on physical flows in terms of the energy content or the mass and volume of the materials. Thus, there are connections between the subsystems, which are described in more detail in chapter III. 2.94 Physical flows are also recorded in asset accounts where they represent changes in the stocks of assets between one period and another. These flows include flows of natural inputs, products and residuals as defined but other physical flows may also be recorded in asset accounts. For example, flows of evaporation from natural lakes and precipitation into natural lakes will alter the stock of water resources in the lakes and hence are recorded in the asset account. However, these natural processes are considered environment-to-environment flows and hence are not within the scope of the supply and use tables. 2.95 An important flow in physical terms that relates to environmental assets is depletion. Depletion refers to a physical using up of natural resources through extraction, abstraction and harvest by economic units that results in a reduced availability of the resource in the future at current extraction rates. Estimates of the flow of depletion must consider whether the natural resource is non-renewable (such as mineral and energy resources) or renewable (e.g., timber and aquatic resources). For non-renewable resources, the physical flow of depletion relates directly to the quantity of resource extracted. However, in the case of renewable resources, the capacity of the natural resource to regenerate over time must be taken into account. The measurement of depletion is discussed in detail in chapter V. Flows in monetary terms 2.96 Flows in monetary terms are recorded in a manner completely consistent with the SNA definition of economic flows. Two broad types of economic flows are defined in the SNA: transactions and other flows. A transaction is an economic flow that is an interaction between economic units by mutual agreement such as the sale of timber products or the purchase of environmental protection services. Other flows relate to changes in the value of assets and liabilities that do not result from transactions. Examples include new discoveries 27Accounting structure of assets or losses of assets due to natural disasters and the effect of price changes on the value of assets and liabilities. 2.97 Many transactions relate to exchanges of products between economic units. Products may be sold on markets for intermediate or final use, they may be produced for own final use by economic units (either for consumption or for investment purposes) or they may be services produced by governments that are not sold on markets. The products not sold on markets are called non-market products. 2.98 Product flows are recorded in monetary terms in the monetary supply and use table. Flows in monetary terms are also recorded in the asset accounts and the other accounts that make up the full sequence of economic accounts, following the application of certain valuation and other accounting rules. These rules are discussed in more detail in section 2.6. 2.5.3 Stocks Stocks in physical terms 2.99 In physical terms, stocks refer to the total quantity of assets at a given point in time. In the Central Framework, the measurement is focused on recording the physical stocks of individual environmental assets, such as tonnes of coal, cubic metres of timber and hectares of land. 2.100 Individual environmental assets comprise mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources and water resources. These assets are defined by their material content (e.g., the volume of timber or soil resources) without specific reference to their constituent elements (such as the carbon in timber and nutrients in soil resources). 2.101 Some biological resources (e.g., timber and aquatic resources) may be cultivated within a production process (as is the case for plantation timber and fish in aquaculture facilities). A distinction is made between environmental assets that are cultivated and those that are natural resources. Natural resources include all natural biological resources (including timber and aquatic resources), mineral and energy resources, soil resources and water resources. All cultivated biological resources and land are excluded from scope. The difference between cultivated and natural biological resources is discussed in section 5.2. 2.102 The volume of water in the ocean is not considered in scope of water resources because the stock of water is too large to be meaningful for analytical purposes. The exclusion of the ocean in terms of the volume of water resources does not in any way limit the measurement of ocean-related individual assets such as aquatic resources (including fish stocks on the high seas over which a country has harvesting rights) and mineral and energy resources on the ocean floor. 2.103 In principle, for each environmental asset, the measurement scope includes all stocks that may provide benefits to humanity; in practice, a specific measurement boundary is defined for each environmental asset. The relevant approaches to measurement of environmental assets in physical terms are discussed in detail in chapter V. Stocks in monetary terms 2.104 The measurement of stocks in monetary terms focuses on the value of individual environmental assets and changes in those values over time. In the Central Framework, the valuation of these assets focuses on the benefits that accrue to economic owners of environ- System of Environmental-Economic Accounting 2012—Central Framework28 mental assets. In this regard, the approach to measuring stocks of environmental assets in monetary terms aligns with the measurement of economic assets in the SNA. 2.105 In the Central Framework, a monetary value is not placed on all of the benefits that may accrue to current and future generations so as to provide what might be regarded as social valuations of environmental assets. The consideration of the value in monetary terms of a broader range of benefits from the environment is discussed in SEEA Experimental Ecosystem Accounts. 2.106 Since in physical terms, the conceptual scope for each individual component is broad and is extended to include all of the resources that may provide benefits to humanity, there may be some stocks recorded in physical terms that have a zero economic value. For example, all land within a country is within scope to allow for a full analysis of changes in land use and land cover, but in monetary terms some land may be considered to have zero value. 2.107 Following the SNA, the preferred approach to the valuation of assets is the use of market values. However, for many environmental assets there are few markets that buy and sell them in their natural state; hence, determining an asset’s economic value can be difficult. A number of approaches to estimating market prices are possible if observable market prices for assets do not exist. Most commonly in these cases, it is recommended that valuation be undertaken using the net present value (NPV) approach, which uses estimates of the expected economic benefits that can be attributed to an environmental asset—for example, profits from the sale of mineral resources—and then discounts the expected economic benefits to give them a value in the current period. The NPV approach is described in chapter V. 2.6 Economic units 2.6.1 Introduction 2.108 In addition to the definition of various stocks and flows, the key component in accounting for the interaction between the economy and the environment is the definition of the relevant economic units. 2.109 For the Central Framework, the relevant economic units are those that interact with each other and that are able to make decisions about the production, consumption and accumulation of goods and services. They are classified in different ways depending on the type of analysis being undertaken. The description of these economic units is the focus of the present section, which concludes with a discussion of the definition of units for statistical purposes. In this context, both economic units and “units” within the environment, for example, river basins and mineral deposits, are relevant subjects for consideration. 2.6.2 Institutional sectors 2.110 The starting point for considering economic units is a focus on the purposes, objectives and behaviours of individual economic units. An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in transactions and other economic activities with other entities. Institutional units may be either households, or legal or social entities (such as corporations) that are recognized independently of the people that own or control them. Groupings of institutional units that are similar in their purposes, objectives and behaviours are defined as institutional sectors. 2.111 Following the SNA, five types of institutional sector are recognised: households, nonfinancial corporations, financial corporations, general government and non-profit institutions serving households (NPISH). Although important in the context of the SNA, the distinction 29Accounting structure between non-financial and financial corporations is not significant in the Central Framework; hence, generally, they are presented as constituting one sector, namely, corporations. Chapter 4 of the 2008 SNA describes the different institutional sectors in detail. 2.112 Institutional sectors are of particular interest in the context of the ownership of environmental assets (an issue discussed in chap. V, with particular emphasis on the ownership of mineral and energy resources) and in the development of a full sequence of economic accounts. The full sequence of economic accounts records a range of transactions between economic units, for example, payments of rent on environmental assets, that are usefully analysed from the perspective of institutional sectors rather than by industry or activity. 2.113 A full accounting of transactions and flows requires consideration of flows to and from the rest of the world, including flows to and from international organizations. In theory, like a national economy, the rest of the world is composed of institutional sectors of the types listed above. Generally, however, the accounting framework defines the rest of the world as a single institutional sector for ease of compilation and presentation. 2.6.3 Enterprises, establishments and industries 2.114 An enterprise is the view of an institutional unit as a producer of goods and services. An enterprise may comprise one or more establishments and hence may be located across multiple locations within a single economy. An establishment is an enterprise, or part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out, or in which the principal productive activity accounts for most of the value added. 2.115 The ability to define and observe establishments and enterprises and determine the types of goods and services they produce is at the heart of supply and use accounting. Meaningful analysis can be undertaken at an aggregate level by grouping units that undertake similar types of productive activity and by grouping goods and services that display similar characteristics. 2.116 The groupings of establishments that undertake similar types of productive activity are referred to as industries. Industries cover, broadly speaking, agriculture, mining, manufacturing, construction and services. Ideally, an industry is composed of establishments that undertake the same activity and only that activity, i.e., the grouping would be homogeneous. In practice, many establishments undertake a variety of activities but must have a primary activity that can be used to classify them to a specific industry class. 2.117 In both physical and monetary terms, the activities undertaken within establishments are referred to as “own-account” activities. In the SNA, own-account activity covers activity undertaken for either the final consumption or the investment of the economic unit (ownaccount final use). A particular case of own-account activity in both physical and monetary terms concerns households. The activities of households, in both the use of natural resources (e.g., the collection of fuelwood and water) for own consumption and in the undertaking of environmental protection and resource management activity (e.g., the installation of solar panels on houses), are of interest in the Central Framework. As in the SNA, where the production activity is of significance, it is recorded together with that of other units undertaking the same activity. 2.118 The SNA allows the possibility of recording separately some own-account, intra-enterprise activity, described as ancillary activity, but this is limited to a specific set of activities.6 For some purposes of environmental-economic accounting, it may be relevant to identify 6 See 2008 SNA, paras. 5.35-5.45. System of Environmental-Economic Accounting 2012—Central Framework30 the secondary activities of an enterprise and also activities undertaken within an enterprise where output is not sold to other units. A particular example in this regard is accounting for physical flows of energy where measuring all transformations of energy products is likely to be of interest. 2.119 Also, in the compilation of functional accounts, it may be relevant to identify the secondary and other activities of enterprises that are being undertaken for environmental purposes in order that a complete description of relevant activity may be made. An example of such activity is the incineration of solid waste or biogas to produce electricity for use by an enterprise. For the compilation of functional accounts on environmental activities and environmental goods and services, the Central Framework aims to separately identify these types of activities. They are valued in monetary terms using information on the associated input costs, such as intermediate consumption of goods and services and compensation of employees. 2.120 Thus, in some circumstances, a wider coverage than that of the SNA is permitted for the recording of intra-enterprise activities (explained further below) but the same scope as that of the SNA is retained in relation to own-account activity of households undertaken for own-account final use. 2.6.4 Geographical boundaries for economic units 2.121 A key feature of the Central Framework is that it aims to account for the interaction between the economy and the environment at a national level. The geographical boundary that defines the scope of an economy is based on the concept of economic territory, which is the area under effective control of a single government. It includes the land area of a country, including islands, airspace, territorial waters and territorial enclaves7 in the rest of the world. Economic territory excludes territorial enclaves of other countries and international organizations located in the reference country. 2.122 A national economy comprises the set of all institutional units that are resident in an economic territory, i.e., the unit has its centre of predominant economic interest in a particular economic territory. In general, there will be a large overlap between those units that are resident and those units located within the geographically defined boundaries of a country. There are three primary exceptions: (a) Units intending to operate in a country for less than a year, for example, specialized construction firms or aid and relief agencies. These are considered residents of their home country; (b) Resident producing units that may operate outside of the national territory, for example, ships and aircraft, and fishing operations in international and other nations’ waters. In these cases, they are regarded as remaining residents of their national economy regardless of their location of operation; (c) Residents of a national territory that may stay temporarily in other countries for work or leisure. The consumption undertaken by such residents in other countries is considered to be resident consumption abroad, which is recorded as an import of the country in which the person is resident and an export of the country visited.8 7 Territorial enclaves include embassies, consulates and military bases and the operations of international organizations. For more details, see 2008 SNA, paras. 26.24-26.45. 8 For details regarding the specific treatment of households and individuals, see the 2008 SNA, paras. 26.37-26.39. 31Accounting structure 2.123 This conception of the geographical scope of the economy aligns with the scope of the economy as defined in the SNA, thus allowing a strong alignment between flows measured in physical and monetary terms. However, this geographical boundary is different from the one commonly used for certain important environmental statistics, such as air emissions and energy statistics. Where these statistics are an information source for the compilation of accounts, adjustments to the statistics are likely to be needed to account for differences in geographical coverage. 2.124 Accounting at subnational levels in both physical and monetary terms may be appropriate for specific environmental and economic accounting issues, for example, the management of water resources using information at the level of river basins. It is noted, however, that while physical data may be available for such geographical areas, corresponding economic data may not be readily available. 2.6.5 Statistical units 2.125 The discussion of economic units in this section has focused on the ability of those units to operate within an economy as active participants. In statistical terms, these units are often also the focus of measurement and in this context are referred to as statistical units. Depending on the structure of information within a country, economic data are likely to be available for different types of economic unit, particularly for enterprises and, in some cases, for individual establishments. Consequently, the economic unit and the statistical unit will align in scope. However, since the ownership structures of enterprises can vary significantly and since some enterprises may produce a range of different products, matching the information available to the ideal conceptual model of economic units may not be straightforward, and statistical units will need to be defined for measurement purposes. 2.126 In the physical supply and use table, the environment is added as an additional column alongside enterprises represented as industries, households, and the rest of the world. However, in the Central Framework, the environment is not considered an additional type of unit akin to economic units. Rather, the environment is seen as passive in respect of decisions being made by economic units regarding the supply of natural inputs to the economy and the receipt of residuals from the economy. 2.127 At the same time, the collection of information about the environment, particularly as it concerns environmental assets, requires consideration of appropriate statistical units for the environment, reflecting the parts of the environment for which statistics may be collected and presented. Examples include inland water bodies (lakes, rivers, etc.), specific deposits of mineral resources, forests and fish stocks. While, in some cases, it will be possible to align the environmental statistical unit and an associated economic unit, this should not be expected. 2.7 Accounting rules and principles 2.7.1 Introduction 2.128 The recording of accounting entries requires the use of a consistent set of accounting rules and principles. Without them, related transactions and flows may be recorded on different bases, at different times and with different values, thus making accounting and reconciliation difficult and the information far less useful. 2.129 The Central Framework follows the same accounting rules and principles as the SNA. The present section introduces the rules and principles of greatest relevance. Readers are encouraged to refer to chapter 3 of the 2008 SNA for more detail. System of Environmental-Economic Accounting 2012—Central Framework32 2.7.2 Recording rules and principles Double- and quadruple-entry accounting 2.130 A key feature of accounting is the consistency that is applied in the recording of transactions between different economic units. 2.131 In respect of a single economic unit, the principle of vertical double-entry accounting is applied. This requires that for each transaction there are two entries. There is an entry for output, consumption, investment, property income or transfer and a corresponding entry showing the increase or decrease in financial assets or liabilities. 2.132 For example, the purchase of fish by a household will be reflected as both an increase in consumption and a decrease in cash (assuming the purchase was paid for in this way). 2.133 Since the focus is not on accounting for individual units but rather on accounting for all units in the economy, the double-entry accounting principle must be extended to ensure that a single transaction is recorded consistently by both parties. This is known as quadrupleentry accounting. 2.134 Thus, the purchase of fish by a household entails an increase in consumption and a decrease in cash for the household and, at the same time, a decrease in inventory and an increase in cash for the fishing business. All four entries must be recorded to ensure that the accounting is complete and balanced. 2.135 While all of these entries are required for accounts in monetary terms, in physical terms the associated transactions in financial assets (cash in this example) are not recorded. Time of recording 2.136 One requirement of the double- and quadruple-entry accounting principles is that transactions and other flows must be recorded as occurring at the same point in time in the various accounts for both units involved. 2.137 In monetary accounts, the general principle is that transactions are recorded when ownership changes and the corresponding claims and obligations arise, or are transformed or cancelled. Transactions internal to one unit are recorded when economic value is created, transformed or extinguished. This approach to the time of recording is called an accrual approach. 2.138 The key factor to be monitored with respect to timing is that the time of the transactions under an accrual basis of recording may not align to the time the cash flow associated with the transaction occurs. For example, if a good is purchased and the purchaser is invoiced for payment within 30 days, the time of recording under an accrual approach is the date of the purchase, not the date when the invoice is paid. 2.139 Ideally, the time of the recording of physical flows should align with the time of recording of the flows in monetary terms using an accrual approach. However, in practice, environmental processes may operate with quite different cycles and time frames compared with the standard calendar and financial years used in monetary accounting. For example, in the case of water resources, the hydrological year does not correspond to a calendar year.9 Adjustments to account for different underlying cycles in physical and monetary terms should be made as required. 9 A hydrological year is a 12-month period where the overall changes in storage are minimal and carryover is reduced to a minimum (see UNESCO and WMO, International Glossary of Hydrology, 2nd ed., 1993). 33Accounting structure Units of measurement 2.140 For accounts compiled in monetary terms, all entries in the accounts must be measured in terms of money and therefore the components from which the entries are built up must be measured in terms of money. In most cases, the entries are the monetary values of the actual transactions. In other cases, the entries are estimated by reference to other equivalent monetary values (for own-account consumption) or valued at the cost of production (for non-market output). 2.141 For accounts compiled in physical terms, the unit of measurement will vary depending on the type of asset concerned. Thus, flows of energy are generally measured by energy content, such as joules; stocks and flows of water are generally measured by volume, such as cubic metres; and stocks and flows of other materials are generally measured in mass units such as tonnes. The details regarding the choice of measurement unit are outlined in the description of specific accounts. 2.142 A common principle is that within a single account in physical terms only one unit of measurement should be used so that aggregation and reconciliation is possible across all accounting entries. It is noted, however, that in combined presentations of physical and monetary data, a range of measurement units are likely to be used. 2.7.3 Valuation rules and principles Valuation at market prices 2.143 For accounts in monetary terms, the question of valuation is central. In the SEEA, as in the SNA, the values reflected in the accounts are, in principle, the current transaction values or market prices for the associated goods, services, labour or assets that are exchanged. 2.144 Strictly speaking, market prices for transactions are defined as amounts of money that willing buyers pay to acquire something from willing sellers. The exchanges should be made between independent parties on the basis of commercial considerations only, sometimes called “at arm’s length”.10 2.145 Defined in this way, a market price should be distinguished from a general market price which gives an indication of the “average” price for exchanges in a type of good, service or asset. In most cases, market prices based on the totality of transactions that actually occur will approximate the general “average” market prices just described. However, there are some prices for individual transactions where this is not the case, for example, in the case of transfer pricing between affiliated enterprises and concessional pricing by government units. Corrections should be considered in such situations in order to get closer to general market price equivalents. 2.146 When market prices are not observable, valuation according to market price equivalents should be used to provide an approximation to market prices. In particular cases, there may be a need to apply market price principles, for example, in the case of the valuation of goods and services produced and used on own account, or the valuation of non-market production. Following the SNA, the own-account production of market producers (including own-account capital formation) should be valued as the sum of the costs of production, namely: intermediate consumption, compensation of employees, consumption of fixed capital, a net return to fixed assets used in production, and other taxes less subsidies on production. The valuation of all non-market production follows the same approach except that, by convention, a net return to fixed assets used in production is excluded. 10 SNA 2008, para. 3.119. System of Environmental-Economic Accounting 2012—Central Framework34 2.147 In the SEEA, these valuation principles are applied slightly more broadly than in the SNA as the SEEA includes a wider range of intra-enterprise flows, in particular own-account production used for intermediate consumption by market producers (see sect. 2.6). Since intra-enterprise flows are not sold on the market, no net return to fixed assets used in production is included in the derivation of the value of this output. 2.148 There are special requirements associated with the application of the market price principle to the valuation of assets, particularly non-produced assets such as mineral and energy resources, natural aquatic resources and natural timber resources. A number of techniques are suggested in the SNA11 for the estimation of market prices of assets in situations where there are no developed asset markets. A full description of the different techniques and approaches relevant to environmental and economic accounting, including discussion on the use of net present value (NPV) approaches, is discussed in section 5.4. 2.149 The use of market prices in the SEEA must be separated from the potential to adopt social valuations in the pricing and valuation of environmental assets. Social valuations take into account a broader range of benefits and costs than are considered in the individual exchange level market prices used in the SEEA. The measurement of this broader set of social benefits and costs is not standardized and is not discussed directly in the Central Framework, although the issue does arise in the consideration of the choice of discount rate to be used in the application of the NPV approach. This is discussed in detail in annex A5.2. Basic, producers’ and purchasers’ prices 2.150 Transactions in products involve two economic units. Owing to a number of factors, the amount ultimately received by the producer or supplier of the product is likely to differ from the amount paid by the purchaser. These factors include the addition of taxes to the price of a product, the addition of delivering costs associated with the transport of the product from producer to final purchaser, the inclusion of wholesale and retail margins and the receipt of subsidies by the producer. To take these different factors into account, three different kinds of prices have been defined reflecting supply and use perspectives. The relationship among these three kinds of prices is shown in table 2.6. Table 2.6 Basic, producers’ and purchasers’ prices Basic prices plus Taxes on products excluding invoiced VAT less Subsidies on products equal Producers’ prices plus VAT not deductible by the purchaser plus Separately invoiced transport charges plus Wholesalers’ and retailers’ margins equal Purchasers’ prices 11 See chaps. 10 and 13 of the 2008 SNA. 35Accounting structure 2.151 Two kinds of prices are used within the context of supply, namely, basic prices and producers’ prices. The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output, minus any taxes payable on the product plus any subsidy receivable by the producer as a consequence of its production or sale. The basic price excludes any transport charges invoiced separately by the producer and any wholesale and retail margins that may be applicable. 2.152 The basic price measures the amount retained by the producer and is therefore the price most relevant for the producer’s decision-making. 2.153 The producers’ price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any VAT, or similar deductible tax, invoiced to the purchaser. The producers’ price excludes any transport charges invoiced separately by the producer. Unlike the basic price, the producers’ price includes any taxes on products other than a deductible VAT, and excludes any product subsidies. 2.154 The purchasers’ price is the amount paid by the purchaser, excluding any VAT or similar tax deductible by the purchaser, in order to take delivery of a unit of a good or service at the time and place required by the purchaser. The purchasers’ price of a good includes any transport charges paid separately by the purchaser to take delivery at the required time and place. This is the price most relevant for the purchaser. 2.155 The differences between the three sets of prices are most important in the context of the compilation of monetary supply and use tables. In the compilation of monetary supply and use tables in basic prices, the transport charges and wholesale and retail margins are allocated to the relevant services (transport, wholesale and retail services) rather than deducted from the table as a whole. Full details on the appropriate valuation approaches in the compilation of monetary supply and use tables, functional accounts, and the sequence of economic accounts are contained in chapter 14 of the 2008 SNA. 2.7.4 Volume measures 2.156 For estimates compiled in monetary terms, the changes over time in the values of goods and services can be decomposed into two components: changes in prices and changes in volumes. These volumes are not equivalent to measures of the physical volume of solids, liquids or gases but instead relate to an economic notion of volume which encompasses the changes in both quantity and quality of goods, services and assets. Thus, for example, the economic notion of volume would include increases in the number of cars produced (or their mass) as well as improvements in the quality of the cars. 2.157 The measurement of economic activity in terms of volumes rather than values is commonly referred to as measurement in “constant prices”. Volume measures are particularly important for the measurement of economic growth which is generally understood as the volume increase in key aggregates, such as gross domestic product. 2.158 The compilation of volume measures is generally undertaken by removing the effect of price change from a time series of transactions in products, income flows or asset values. Ideally, detailed data on the price changes of individual products or assets are weighted together to provide price indices that reflect changes in the prices of the specific products or assets of interest. Where such detail is not available, it is necessary to use general measures of price change, for example, measures of inflation, rather than specific price indices. Volume measures derived using general price indices are commonly referred to as “real” measures. Real measures are often derived in cases where it is necessary to remove the effects of changes in purchasing power from measures of income. System of Environmental-Economic Accounting 2012—Central Framework36 2.159 Volume measures, particularly those for production and consumption, are essential in the assessment of environmental-economic trends. They may help illustrate the extent to which the economy becomes more or less efficient in terms of resource inputs or residual outputs. More generally, such assessments may indicate to what extent economic growth is coupled to, or can be decoupled from, environmental pressures such as those stemming from the use of natural resources as inputs to economic production or emissions from production. 2.160 An important application of volume measures is in the derivation of volume measures of the value of stocks of environmental and other assets. The analysis of changes in total economic wealth is enhanced when the impact of price changes on the changing values of assets is excluded. 2.161 A general description of methods for deriving measures of assets in volume terms is provided in chapters V and VI. Details regarding their theoretical basis and compilation are presented in chapter 15 of the 2008 SNA and in international manuals on the compilation of consumer and producer price indices.12 12 See ILO, IMF, OECD, Eurostat, United Nations and World Bank, Consumer Price Index Manual: Theory and Practice (2004); and Producer Price Index Manual: Theory and Practice, ILO, IMF, OECD, ECE and World Bank, 2004. 37 Chapter III Physical flow accounts 3.1 Introduction 3.1 An economy cannot function without using natural resources and other inputs from the environment and using the environment to absorb the unwanted by-products of economic production. Measuring the flows of natural inputs into and releases of residuals from the economy can therefore provide instructive information. This measurement is generally carried out using physical units of measure. 3.2 The usefulness of accounting for physical flows is considerably strengthened when they are organized using the same framework used to assess economic flows in monetary terms. This allows for consistent analysis of the relationships between the flows of natural inputs and economic activity, the relationships between economic activity and the releases from the economy and, significantly, the relationships between the flows in physical and monetary terms. The organization and combined presentation of both physical and monetary flows on specific topics are discussed in chapter VI. 3.3 The framework for measuring physical and monetary flows is also aligned with the framework for the measurement of environmental assets as presented in chapter V. This is a particularly important connection for natural resource flows and for the assessment of production processes in extracting industries. Relevant flows are recorded both in the asset accounts and in physical supply and use tables. 3.4 The use of the SEEA framework allows robust indicators to be established for the consumption of resources relative to economic indicators such as output and value added, since there is a parallel in the underlying accounting principles. Indicators on energy use, water consumption and air emissions by industry are further evidence of the potential uses of data organized in a coherent and consistent manner. 3.5 The compilation of data on physical flows requires the use of a range of data sources and classifications. The present chapter provides an overall framework for this compilation work; more detailed guidance on specific topics, for example, energy, air emissions and water, can be found in other handbooks, manuals and guidelines. References to relevant publications are presented at the end of this publication. 3.6 At one level, measuring physical flows requires large amounts of basic data, consistent classifications and measurement units, and an agreed framework within which data can be structured at different levels of disaggregation. At another level, within the same framework, more aggregate measures of physical flows may be compiled, perhaps focusing only on specific types of flows (e.g., the use of energy by households for transport, or the abstraction of water for use in agriculture). 3.7 Therefore, while this chapter provides a comprehensive examination of the systems of physical flow accounting in common use, it should be recognized that a complete imple- System of Environmental-Economic Accounting 2012—Central Framework38 mentation of the accounts presented here is ambitious and by no means always necessary, since useful analysis can be conducted with any of the individual components of a full set of physical flow accounts. 3.1.1 The physical flow accounting framework and subsystems 3.8 The physical flow accounting framework presented in this chapter provides a set of accounting principles and boundaries within which a consistent recording of all types of physical flows relating to economic activity can be made. Most commonly, the recording of physical flows will focus on particular areas of interest, such as flows of energy or water, in part because physical flows may be measured in a variety of units which cannot necessarily be compared or aggregated. This is also due to the breadth and complexity of recording all relevant physical flows in a single account. Therefore, while this chapter presents a complete accounting framework for all physical flows, it is expected that compilers will focus on the application of the general principles in specific areas, such as the measurement of physical flows of energy, water, air emissions and solid waste. 3.9 The framework for the measurement of physical flows is based on the structure of the monetary supply and use tables used to measure economic activity. In broad terms, these tables show transactions in products between industries, households, government and the rest of the world. These tables are based on the principles outlined in the 2008 SNA and are introduced in chapter II. 3.10 The same structure can be used to record the underlying physical flows relating to the transactions between the different economic units. Further, flows to and from the environment can be linked in by adding relevant columns and rows to the monetary supply and use table. These additions yield a physical supply and use table (PSUT) that can record all physical flows: (a) from the environment, (b) within the economy and (c) back to the environment. 3.11 However, unlike transactions, it is not immediately obvious that all physical flows can simply be aggregated or that all physical flows should be recorded similarly. Consequently, three different subsystems have developed within the broad supply and use framework: material flow accounting,13 water accounts and energy accounts. 3.12 In all three subsystems, the scope of physical flow accounting includes flows from the environment to the economy, flows within the economy and flows back to the environment. However, in each subsystem, different measurement units are generally used. In material flow accounting, flows are measured in terms of mass (e.g., in tonnes).14 In water accounts, the unit of measurement is volume (e.g., cubic metres) and in energy accounts the unit of measurement is energy content (e.g., joules). While all three subsystems represent only part of the total physical flows, each subsystem is a complete and balanced system of flows. 3.13 Within each of these subsystems of physical flow accounting, greater refinements of focus can be undertaken consistent with the general principles of PSUT. This is especially the case for material flow accounts. At an aggregate national level, i.e., that summing all industries, economy-wide material flow accounts (EW-MFA) can be compiled. At the same time, it is also possible to focus on detailed accounts relating to individual products, or on the flows of specific types of residuals such as emissions to air or solid waste. 13 Material flow accounting includes the recording of physical flows of products, air emissions, solid waste and other residual flows. 14 Energy content is measured on a net calorific value basis. Energy accounts may also be measured in terms of the mass or volume of particular energy products but such accounts exclude the energy supplied from renewable sources, such as solar and wind energy, and are not discussed in this chapter. 39Physical flow accounts 3.14 Within all subsystems, there may also be interest in focusing on only one component of the physical flows, for example, energy use by industries and households, rather than on those flows in conjunction with all PSUT-related flows. Nonetheless, even in this narrower context, the same concepts, definitions and standards are applied so that the organization of data and the development of broader information systems can be supported. 3.1.2 Chapter structure 3.15 The physical supply and use approach is explained in section 3.2, including definitions of natural inputs, products and residuals. These definitions are fundamental in defining the boundaries between the environment and the economy and hence in constructing meaningful supply and use tables. 3.16 In section 3.3, a range of general accounting matters are discussed, including gross and net recording of flows and the treatment of flows between countries. 3.17 In the final three sections, the measurement of individual physical flow accounts is discussed: energy accounts in section 3.4, water accounts in section 3.5 and a number of material flow accounts, including air emission, water emission and solid waste accounts, in section 3.6. 3.2 The physical flow accounting framework 3.18 The present section applies the supply and use approach to physical flow accounting through the introduction of the broad framework and its underlying accounting principles, followed by definitions of the three key flows: natural inputs, products and residuals. 3.2.1 The physical supply and use table approach 3.19 As explained in chapter II, in the context of measuring physical flows related to supply and use, the economy is defined by the production boundary of the SNA. The production boundary comprises a specific set of economic activities carried out under the control and responsibility of institutional units in which inputs of labour, capital, and goods and services are used to produce outputs of goods and services (products).15 The SEEA recognizes that some of the inputs (natural inputs of materials and energy) come from the environment and that, as a result of the production, consumption and accumulation of products, a range of other physical flows occur that can result in the return of materials and energy to the environment. 3.20 Flows from the environment into the economy are natural inputs, flows within the economy consist of either products or residuals, and flows from the economy to the environment are residuals. This series of flows is represented in figure 3.1. Some natural inputs, after entering the economy, are recorded as immediately returning to the environment, as they are no longer required by the economy. Natural inputs that are not used in production, for example, mining overburden, mine dewatering and discarded catch in fishing, are called natural resource residuals. Also, some residuals remain in the economy instead of returning directly to the environment, for example, solid waste collected and stored in controlled landfills. 3.21 The underlying framework for the recording of physical flows follows the monetary supply and use tables for products as defined in the SNA and summarized in chapter II of the SEEA. The monetary supply and use table covers all flows of goods and services within the production boundary of the SNA. 15 The SNA production boundary is described in detail in paras. 6.32-6.48 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework40 3.22 The intent in physical flow accounting is to record the physical flows underpinning the transactions recorded in the monetary supply and use tables, primarily with respect to goods, and to then extend the monetary supply and use table to record physical flows from the environment to the economy (such as flows of natural resources) and physical flows from the economy to the environment (such as emissions to air and water). Figure 3.1 Physical flows in relation to the production boundary of the economy Natural inputs ENVIRONMENT Natural resource residuals Residuals ECONOMY Products Residuals treated or stored in the economy (e.g., landfill) 3.23 Conceptually, flows solely within the environment are out of scope of physical supply and use tables, although there may be instances where the recording of such flows is useful for analytical purposes. Examples of these flows include the evaporation and precipitation of water and soil moved through soil erosion. The asset accounts presented in chapter V include flows within the environment to the extent that the flows reflect changes in the stock of environmental assets. 3.24 This general framework of flows may be applied in the case of individual commodities or groups of commodities. For example, flows of the hazardous element mercury might be tracked from the point of its extraction from the environment through its circulation within the economy and release to the environment. Alternatively, there may be interest only in analysing physical flows into the economy or out of the economy without necessarily linking the two. For example, the analysis of solid waste will focus on flows within the economy (e.g., flows to waste treatment plants) and from the economy to the environment, but not on flows from the environment to the economy. 3.25 The general framework for the full articulation of physical flows is depicted in table 3.1 in the form of a physical supply and use table (PSUT). A full articulation of all flows is generally most relevant for energy and water, where all flows can be meaningfully expressed in a single unit, for example, joules or cubic metres.16 16 The approach to compiling a PSUT in the Central Framework through a focus on physical flows is quite distinct from an approach to estimating PSUT based on applying appropriate price indices to cells in monetary supply and use tables. A price index approach is not considered in the Central Framework and represents a narrower conceptualization of the recording of physical flows than is examined here. 41Physical flow accountsTable3.1 Generalphysicalsupplyandusetable Supplytable Production;generationofresidualsAccumulation Flowsfromtherestof theworld Flowsfromthe environmentTotal Production;generationofresidualsbyindus- tries(includinghouseholdproductiononown account),classifiedbyISICGenerationofresidualsbyhouseholds Industries—classified byISIC NaturalinputsA. Flowsfrom theenvironment (includingnatural resourceresiduals) Totalsupplyof naturalinputs (TSNI) ProductsC. Output(includingsaleofrecycledand reusedproducts) D. Importsof products Totalsupplyof products(TSP) ResidualsI1. Residualsgeneratedbyindustry(including naturalresourceresiduals) J. Residualsgeneratedbyhouseholdfinal consumption K1. Residualsfrom scrappinganddemoli- tionofproducedassets L. Residualsreceived fromrestoftheworld M. Residuals recoveredfromthe environment Totalsupplyof residuals(TSR) I2. ResidualsgeneratedfollowingtreatmentK2. Emissionsfrom controlledlandfillsites Totalsupply Usetable Intermediateconsumptionofproducts;use ofnaturalinputs;collectionofresiduals FinalconsumptionªAccumulation Flowstotherestof theworld Flowstothe environmentTotal Industries—classifiedbyISICHouseholdsIndustries—classified byISIC NaturalinputsB. Extractionofnaturalinputs B1. Extractionusedinproduction B2. Naturalresourceresiduals Totaluseofnatural inputs(TUNI) ProductsE. Intermediateconsumption(includingpur- chaseofrecycledandreusedproducts) F. Householdfinalconsumption(includ- ingpurchaseofrecycledandreused products) G. Grosscapitalforma- tion(includingfixed assetsandinventories) H. Exportsof products Totaluseof products(TUP) ResidualsN. Collectionandtreatmentofresiduals (excludingaccumulationincontrolledlandfill sites) O. Accumulationof wasteincontrolled landfillsites P. Residualssentto therestoftheword Q. Residualflows totheenvironment Totaluseof residuals(TUR) Q1. Directfrom industryand households (includingnatural resourceresiduals andlandfillemis- sions) Q2. Following treatment Totaluse a  Noentriesforgovernmentfinalconsumptionarerecordedinphysicalterms.Allgovernmentintermediateconsumption,productionandgenerationofresidualsisrecordedagainsttherelevantindustryinthefirst columnofthePSUT. System of Environmental-Economic Accounting 2012—Central Framework42 3.26 The rows of the table show the types of natural inputs, products and residuals. The rows for natural inputs and residuals represent an extension in the PSUT compared with the monetary supply and use table in the SNA. The top half of the table, the supply table, sets out the flows relating to the production, generation, and supply of natural inputs, products and residuals by different economic units or the environment. The bottom half of the table, the use table, sets out the flows relating to the consumption and use of natural inputs, products and residuals by different economic units or the environment. Each of these flows is defined and discussed in detail in this section. 3.27 The columns of the PSUT are structured to reflect both the activity underlying the flow (e.g., whether it is related to production, consumption or accumulation) and the economic units involved. The second column covers the use of natural inputs, the production and intermediate consumption of products, and the generation and receipt of residuals by all enterprises in the economy. It is classified by industry using the ISIC. 3.28 The third column covers the consumption of products by households and the generation of residuals from this consumption. The activity of households in extracting and collecting natural inputs from the environment for their own consumption is a productive activity; hence, this activity should be recorded in the second column under a relevant industry class. 3.29 Unlike the monetary supply and use table, no entries in physical terms are made in relation to government final consumption expenditure. Government final consumption expenditure represents the acquisition and consumption by governments of their own output and does not have any directly associated physical flow. All of the physical flows related to the intermediate consumption of governments, for example, paper and electricity, are recorded in the first column under the relevant industry class (commonly, public administration). The generation of residuals by governments in the production of their output is also recorded in the second column. 3.30 There may be analytical interest in distinguishing the non-market productive activity of households and governments from the market activity within particular industries (e.g., the abstraction of water on own account by households for final consumption). In these cases, alternative presentations of PSUT may be developed where the information on the relevant productive activity, which is an “of which” within a broader industry class, is rearranged and shown next to other flows associated with households (e.g., final consumption) or govern- ment. 3.31 The fourth column, entitled “Accumulation”, covers changes in the stock of materials and energy in the economy. From a supply perspective, this column records reductions in the physical stock of produced assets through, for example, demolition or scrapping. It also displays emissions from controlled landfill sites generated by materials discarded in previous accounting periods. From a use perspective, the accumulation column records additions to the physical stock of produced assets (gross capital formation) and the accumulation over an accounting period of materials in controlled landfill sites. Amounts of water, energy and materials that are incorporated into other products are also recorded in the accumulation column of the use table. 3.32 Accumulation flows may be classified by industry using the ISIC and, if so, can be combined with industry-level information from the second column to provide an overall assessment of flows of residuals by industry. At the same time, retaining the distinction between residuals from current activity (from the second column) and residuals from past activity (from the fourth column) may be important for some analyses. Alternatively, the accumulation flows may be classified by product, for example, by type of scrapped produced asset. Further discussion on the recording of scrapped and demolished produced assets is included later on in this section. 43Physical flow accounts 3.33 The fifth column recognizes the exchanges between national economies in the form of imports and exports of products and flows of residuals. Residuals received from the rest of the world and residuals sent to the rest of the world primarily relate to the movement of solid waste between different economies. Excluded from these flows are so-called transboundary flows, for example, polluted water flowing downstream into a neighbouring country or air emissions transferred into the atmosphere of other countries. Transboundary flows are considered flows within the environment and are hence out of scope of the PSUT framework. Where relevant, these flows may be recorded as supplementary items. They may also be relevant in broader assessments of the state of the environment, for example, assessments of the quality of water resources over time. 3.34 The sixth column is the significant addition to the monetary supply and use table structure. It is in this column that flows to and from the environment are recorded. Within the PSUT, the environment is a “passive” entity which does not undertake production, consumption or accumulation in the same way as units inside the economy. Nonetheless, the incorporation of the environmental column allows a full accounting for flows of natural inputs and residuals, which would otherwise not be possible. Accounting and balancing identities 3.35 The PSUT contains a range of important accounting and balancing identities. The starting point for the balancing of the PSUT is the supply and use identity, which recognizes that, within the economy, the amount of a product supplied must also be used within the economy, most likely by a range of different economic units, or exported. Thus (using references to the cells in table 3.1) Total supply of products (TSP) = Output (C) + imports (D) is identical to Total use of products (TUP) = Intermediate consumption (E) + household final consumption (F) + gross capital formation (G) + exports (H) 3.36 The supply and use identity for products also applies in the monetary supply and use table. In the PSUT, the supply and use identity is also applied to flows of natural inputs and residuals, i.e., the total supply of natural inputs must equal the total use of natural inputs (TSNI = TUNI) and the total supply of residuals must equal the total use of residuals (TSR = TUR). 3.37 When applied to all three types of physical flows these equalities also relate to the fundamental physical identities underpinning the physical supply and use tables, i.e., the conservation of mass and the conservation of energy. These physical identities imply the existence of material and energy balances for all individual materials within the system. 3.38 It can be shown that, 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. This is known as the input-output identity. The net additions to the stock comprise additions and deductions over an accounting period in (a) gross capital formation in investment goods and inventories of products; (b) physical flows of residuals to and from the rest of the world; (c) residuals recovered from the environment (e.g., oil collected following an oil spill); and (d) the accumulation of solid waste in controlled landfill sites (excluding emissions from these sites). 3.39 Thus, the input-output identity describing the physical flows between an economy and the environment (using references to the cells in table 3.1): System of Environmental-Economic Accounting 2012—Central Framework44 Materials into the economy = Flows from the environment (A) + imports (D) + residuals received from the rest of the world (L) + residuals recovered from the environment (M) is equal to Materials out of the economy = Residual flows to the environment (Q) + exports (H) + residuals sent to the rest of the world (P) plus Net additions to stock in the economy = Gross capital formation (G) + accumulation in controlled landfill sites (O) - residuals from produced assets and controlled landfill sites (K) 3.40 This identity may be applied at the level of an entire economy (as described) and also at the level of an individual industry or household, where notions of imports and exports relate to flows to and from the rest of the economy as well as to the rest of the world. 3.41 A number of stages in the flows of residuals need to be recognized. In the first stage, residuals are generated or come into the economy as reflected in cells (I1 and J-M) in table 3.1. These residuals are received by other units in the economy (N), accumulate in controlled landfills (O), are sent to other countries (P) or are returned to the environment (Q1). The residuals received by other units (N) may be treated or processed and then either sold as recycled or reused products (for example, reused water) or returned to the environment. If the residuals are sold as recycled or reused products, the production is recorded in (C) and the purchase in (E) or (F). The supply of the residual to the environment (possibly after treatment) is recorded in (I2) and the use in (Q2). 3.42 Natural resource residuals are shown as entering the economy from the environment (A and B2) and then as returning to the environment (I1 and Q1). Unlike natural inputs that are used in production, there are no flows of natural resource residuals in the products rows of the PSUT. 3.43 In practice, a complete PSUT is rarely compiled other than for energy and water. Nonetheless, these accounting identities and a common set of accounting principles can be applied even where only individual commodities or small groups of similar commodities are being recorded. In particular, clear boundaries in respect of the point of transition between the environment and the economy must be established. 3.44 The general definitions and boundary issues relating to natural inputs, products and residuals are presented directly below. 3.2.2 Definition and classification of natural inputs 3.45 Natural inputs are all physical inputs that are moved from their location in the environment as a part of economic production processes or are directly used in production. 3.46 The three broad classes of natural inputs are natural resource inputs, inputs of energy from renewable sources and other natural inputs as presented in table 3.2. This section discusses each of these classes and notes some specific measurement issues for natural resource inputs concerning the flows of resources affected by extraction processes but not used by the economy (i.e., natural resource residuals) and the treatment of cultivated biological resources. Natural resource inputs 3.47 Natural resource inputs comprise physical inputs to the economy from natural resources. Thus, natural resource inputs comprise inputs from mineral and energy resources, 45Physical flow accounts Table 3.2 Classes of natural inputs 1 Natural resource inputs 1.1 Extraction used in production 1.1.1 Mineral and energy resources 1.1.1.1 Oil resources 1.1.1.2 Natural gas resources 1.1.1.3 Coal and peat resources 1.1.1.4 Non-metallic mineral resources (excluding coal and peat resources) 1.1.1.5 Metallic mineral resources 1.1.2 Soil resources (excavated) 1.1.3 Natural timber resources 1.1.4 Natural aquatic resources 1.1.5 Other natural biological resources (excluding timber and aquatic resources) 1.1.6 Water resources 1.1.6.1 Surface water 1.1.6.2 Groundwater 1.1.6.3 Soil water 1.2 Natural resource residuals 2 Inputs of energy from renewable sources 2.1 Solar 2.2 Hydro 2.3 Wind 2.4 Wave and tidal 2.5 Geothermal 2.6 Other electricity and heat 3 Other natural inputs 3.1 Inputs from soil 3.1.1 Soil nutrients 3.1.2 Soil carbon 3.1.3 Other inputs from soil 3.2 Inputs from air 3.2.1 Nitrogen 3.2.2 Oxygen 3.2.3 Carbon dioxide 3.2.4 Other inputs from air 3.3 Other natural inputs n.e.c. soil resources, natural timber resources, natural aquatic resources, other natural biological resources and water resources. Natural resource inputs exclude the flows from cultivated biological resources. Cultivated biological resources are produced within the economy and hence are not flows from the environment. 3.48 For natural resources, the point at which they are recognized as entering the economy needs to be defined for each type of resource. It is recognized that some amount of economic production must be undertaken before a natural resource can be considered extracted and it therefore becomes a matter of determining the point at which the natural resource is best meaningfully described as extracted, and hence “enters the economy” as part of a longer production process. System of Environmental-Economic Accounting 2012—Central Framework46 3.49 All natural resource inputs are recorded as entering the economy from the environment. The majority of natural resource inputs that enter the economy (e.g., extracted minerals, removals of timber, water abstracted for distribution) become products. However, some natural resource inputs do not subsequently become products and instead immediately return to the environment. These flows are termed natural resource residuals. 3.50 There are three types of natural resource residuals: (a) Losses during extraction, which cover resources that the extractor would prefer to retain (e.g., losses of gas through flaring and venting); (b) Unused extraction, which covers resources in which the extractor has no ongoing interest (e.g., mining overburden, mine dewatering and discarded catch);17 (c) Reinjections. These flows cover natural resources that are extracted but are immediately returned to the deposit and may be re-extracted at a later time (e.g., water reinjected into an aquifer and natural gas reinjected into a reservoir). 3.51 Table 3.3 presents examples of different natural resource inputs. It separates the quantities of resource extracted into those amounts that are intended and available for use in the economy (i.e., extraction used in production) and those amounts that return to the environment (i.e., natural resource residuals). In general terms, the point of entry to the economy is the point at which the resource is available for further processing. The notion of processing includes the transportation of the resource; hence, the extraction point should be as close to the physical location of the resource as possible. Table 3.3 Examples of natural resource inputs Natural resource Extraction used in production Natural resource residual Mineral and energy resources Gross ore; crude oil; natural gas Mining overburden; flaring, venting at well head; reinjection of natural gas Soil resources Excavated soil used for agricultural, construction and land reclamation purposes Dredgings; unused excavated soil Natural timber resources Removals of timber Felling residues Natural aquatic resources Gross catch less discarded catch Discarded catch Other natural biological resources Harvest/capture Harvest/capture residues Water resources Abstracted water Mine dewatering 3.52 In some cases, there is a clear link between the class of natural resource that is extracted and the associated natural resource residual. For example, felling residues are in the same class of natural input as removals of timber resources. However, in other cases, the classes are different. For example, for soil and rock moved in the extraction of minerals, the total natural resource input will be a combination of the minerals extracted and the soil and rock moved (mining overburden). 3.53 In situations where a natural resource residual is subsequently sold, for example, felling residues for fuelwood, the flows are recorded as extraction used in production. The recording 17 In some cases, natural resource residuals can be collected and used for purposes other than the primary output of the extractor or by other economic units. Examples include the harvest of timber felling residues by households for fuelwood, or the use of mining overburden to provide materials for road construction. In these cases, the quantities collected should be recorded as extraction incorporated into products rather than under natural resource residuals flowing to the environment. 47Physical flow accounts of extractions used in production and natural resource residuals is consistent with the recording of extraction in the asset accounts described in chapter V. Biological resources 3.54 Biological resources require special consideration in the determination of the boundary between the environment and the economy. To ensure consistency with the production boundary, a distinction must be made between those resources that are considered to be cultivated as part of a process of production (cultivated biological resources) and those resources that are not produced (natural biological resources). 3.55 The criteria used to make the distinction include the extent of direct control, responsibility and management over the growth and regeneration of the biological resource. These criteria are discussed in greater detail in chapter V with regard to timber resources (sect. 5.8) and aquatic resources (sect. 5.9). A consistent application of the criteria should be maintained for the purposes of both asset accounts and physical flow accounts. 3.56 Applying the distinction is important because the accounting treatment varies depending on whether the resource is natural or cultivated. For natural biological resources, the resources are considered inputs to the economy at the time they are extracted, following the logic underlying the presentation in table 3.3. However, cultivated biological resources are not considered natural resource inputs and are instead treated as growing within the economy. 3.57 This difference in treatment has implications for the recording of other physical flows. For natural biological resources, the use of oxygen and nitrogen, and the uptake of soil nutrients and water are treated as flows within the environment and only the actual harvest of resources is considered to flow into the economy. 3.58 For cultivated biological resources, a complete accounting of physical flows requires the recording of the nutrients and other substances absorbed from the environment as natural inputs, since the biological resources themselves are already “in” the economy. The physical flows resulting from metabolism (e.g., photosynthesis and respiration) and transpiration either are embodied in products or return to the environment as residuals. Inputs of energy from renewable sources 3.59 Inputs of energy from renewable sources are the non-fuel sources of energy provided by the environment. These are increasingly important sources of energy for economies in many countries. Inclusion of these inputs provides a basis for a complete balance of the flows of energy between the environment and the economy when measured in terms of energy content (joules). Inputs of energy from renewable sources are classified by source. The different sources include, but are not limited to, solar, hydro, wind, wave and geothermal. Inputs of energy sourced from natural resources, such as natural timber resources, are not included under this heading, nor are energy inputs from cultivated timber resources, other cultivated biomass, or from solid waste. 3.60 Estimates of inputs of energy from renewable sources should reflect the amount of energy that can be harnessed by the technology put in place to collect the energy, for example, solar panels and wind turbines. Estimates should not be based on the total potential energy that might be harnessed, particularly where there is no equipment in place to capture the energy. In practice, estimates of inputs of energy from renewable sources will generally reflect the amount of energy actually produced, commonly but not exclusively, in the form of electricity. System of Environmental-Economic Accounting 2012—Central Framework48 3.61 Special consideration is required with regard to hydropower since, depending on the physical flow accounting involved, the relevant natural inputs may be recorded as inputs from renewable energy sources or as natural resource inputs. For the purposes of compiling energy accounts, the entries concerning the flows from the environment should be considered inputs from renewable energy sources equal to the electricity produced by the hydropower plant, measured in joules. For water accounts, the flows from the environment should be recorded as natural resource inputs of water resources equal to the volume of water that passes through a hydropower plant. No double-counting is implied, since each of these accounts is compiled separately in different units for different purposes. Other natural inputs (a) Inputs from soil 3.62 Inputs from soil comprise nutrients and other elements present in the soil that are absorbed by the economy during production processes. Inputs from soil include nutrients (e.g., nitrogen, phosphorus and potassium) absorbed by cultivated plants as they grow. By convention, the carbon bound in soil that is released to the environment as the result of cultivation is recorded as an input from soil in order to ensure a balance in the overall system. Only the amounts actually absorbed or released are considered natural inputs. Note that these inputs are distinct from the bulk extraction and movement of soil resources that is included under natural resource inputs. Inputs of soil water to the economy are recorded as part of water resources within natural resource inputs. (b) Inputs from air 3.63 Inputs from air comprise substances taken in by the economy from the air for purposes of production and consumption. They include the compounds and elements (including nitrogen, oxygen and carbon dioxide) used by cultivated biological resources and the substances absorbed during combustion and other industrial processes. They are part of the structure of PSUT, as they enable a balance of materials to be recorded in the system. 3.2.3 Definition and classification of products 3.64 Following the SNA, products are goods and services that result from a process of production in the economy. The scope of products included in physical flow accounts is limited to those with positive monetary value. 3.65 For an individual enterprise, different types of production may be recorded. Products that are sold to other economic units are considered to result from either the primary or secondary production of the enterprise, depending on the relative significance of the product. In principle, the enterprises that produce the same primary products are grouped to the same industry class. 3.66 In some cases, products are produced on own account. This occurs when they are not sold to other economic units but either are used directly for the final consumption of the producer (e.g., production of agricultural output consumed by farmers) or are a form of capital formation (e.g., own-account construction of a house). In both cases, the physical flows should be recorded to ensure consistency with the output and production boundaries of the monetary supply and use tables. 3.67 An enterprise may also undertake ancillary production, which generally involves the production of supporting services (such as accounting, employment, cleaning and transport services) that might be purchased from other enterprises but are produced in-house to support 49Physical flow accounts the production of primary and secondary products. The SNA recommends that only in cases where ancillary production is significant should distinct measures of output for the production of these different services be recorded. In such cases, separate establishments should be created that are treated as undertaking the ancillary production. However, in most cases, the production of these services is not recorded as a separate set of outputs; instead, the relevant inputs are recorded as constituting part of the overall inputs to the production of the enterprise’s primary and secondary products. 3.68 There are also some products that are used as part of production processes within an enterprise (intra-enterprise flows) that are not recognized by monetary transactions in the SNA. For example, electricity generated through the incineration of solid waste for use within a firm would not be recorded in monetary terms in the SNA. These intra-enterprise flows may be recorded for physical flow accounting, however, since there are physical flows that take place. However, the extent of recording should be consistent with the analytical purpose at hand. 3.69 There are many situations in which households undertake production involving the extraction or collection of natural resource inputs and then consume this production on own account. Examples include the collection of fuelwood, the abstraction of water, and catching fish in recreational fishing. In these cases, the production is recorded as part of the production of the relevant economic activity in the industry column of the PSUT. Consistently, the use of natural inputs by households is also recorded in the industry column. Depending on the significance of the activity, it may be useful to separate this production from that of other units undertaking the same activity. The corresponding household final consumption of own-account production is shown in the third column of the PSUT. 3.70 An important product flow in the PSUT framework is the flow of fertilizers, including those fertilizers produced on own account such as manure. The spreading of fertilizers on soil results in two flows. First, there are nutrients that are absorbed by the crops; this amount is considered a product flow, that is, it remains within the economy. Second, there are nutrients that are not absorbed; these are recorded as flows of residuals from the dissipative use of products. 3.71 Products may be either goods or services. In general, the product component of physical flow accounts will focus on goods that are transacted between economic units. However, in some cases—for example, the provision of wastewater treatment services—there may be an interest in comparing physical flows (e.g., the flow of wastewater into and out of a sewerage facility) with the associated payment for services. Classification of products 3.72 Generally, physical flows of products are classified using the Central Product Classification (CPC). For some specific accounts, for example, energy and solid waste accounts, specialized product classifications may be appropriate. These are discussed in the relevant sections. 3.2.4 Definition and classification of residuals 3.73 Residuals are flows of solid, liquid and gaseous materials, and energy that are discarded, discharged or emitted by establishments and households through processes of production, consumption or accumulation. 3.74 Residuals may be discarded, discharged or emitted directly to the environment or captured, collected, treated, recycled or reused by economic units. These various transforma- System of Environmental-Economic Accounting 2012—Central Framework50 tion processes may lead to the generation of new products that are of economic value to the unit undertaking the transformation even if the residual, when first discarded or emitted, has no economic value to the household or establishment discarding or emitting the residual. 3.75 In situations where the intent is to discard a product but the discarder receives money or other benefits in exchange for the discarded product, this is treated as a transaction in a product and not as a residual. These flows may be of particular interest in the compilation of solid waste accounts. 3.76 A distinction must be made between payments made by a generator of residuals to establishments that collect, treat or otherwise transform residuals, and the flows of the residuals themselves. The payments made are treated as payments for services and as transactions in products, while the flows of residuals are recorded separately. A specific case where this distinction applies relates to flows of solid waste between countries. The payments for the services provided for the transport and treatment of waste by other countries are recorded as imports and exports of services, while the physical flows of waste are separately recorded as flows of residuals. 3.77 Residuals should be recorded at the time the emission or discard event takes place. The timing of the emission or discard event may be quite distinct from the time of the acquisition, which is the appropriate time for recording the flow from the perspective of the monetary accounts. A specific case concerns consumer durables such as refrigerators, washing machines, cars and other products which households use over extended periods of time. In the monetary accounts, consumer durables are recorded as purchased and consumed in the same accounting period. This is in contrast with the treatment of fixed assets purchased by enterprises, which are recorded as consumed over the operating life of the asset. Emissions from consumer durables and discards of consumer durables should be recorded at the time they occur, even though the consumption activity will have been recorded in the monetary accounts in a previous period. 3.78 Controlled and managed landfill sites, emission capture and storage facilities, treatment plants and other waste disposal sites are considered to be within the economy. Therefore, flows of residuals into these facilities are regarded as flows within the economy rather than as flows to the environment. Subsequent flows from these facilities may either be directly to the environment as residuals or lead to the creation of other products or residuals. 3.79 Household or industrial waste may be dumped (possibly illegally) in open country or by the roadside. Similarly, tankers at sea may wash their tanks (also possibly illegally) or lose their cargo through wreckage. These flows should be recorded as residuals flowing from the economy to the environment. 3.80 Efforts might be made to recover residuals, including natural resource residuals, from the environment and bring them back into the economy either for treatment or for disposal at a landfill site. This is the only case where flows of residuals from the environment to the economy should be recorded. In numerical terms, the amount may be small but, in respect of particular incidents (e.g., the wreck of an oil tanker near a protected coast) or specific locations, there may be an advantage in identifying these flows explicitly. 3.81 The attribution of residuals to individual economies is consistent with the principles applied in the determination of the residence of economic units as outlined in chapter II. Residuals are attributed to the country in which the emitting or discarding household or enterprise is resident (for details, see sect. 3.3). The question whether the residual has been emitted or discarded into a national environment or into another country’s environment is not directly addressed in this recording, although it may be of interest in determining the change in the state of a national environment over time. 51Physical flow accounts 3.82 In principle, flows of residuals between the national environment and another environment are not recorded in the PSUT, as there are no flows out of or into an economy. Nonetheless, depending on the nature of the relationship between the different national environments, there may be interest in recording these flows. For example, countries at the downstream end of a river system may be interested in the flows of residuals generated by other countries and transported by a river or the deposition of acidification (“acid rain”) originating from acidifying emissions in other countries. Groups of residuals 3.83 There are a wide variety of different types of residuals, which are not usually accounted for as a single type of flow using mutually exclusive classes. Instead, different groups of residuals are analysed based on the physical nature of the flow, or the purpose behind the flow, or simply to reflect the balance of physical flows leaving the economy. Definitions of the most widely accepted groupings of residuals are presented below. (a) Solid waste 3.84 Solid waste covers discarded materials that are no longer required by the owner or user. Solid waste includes materials that are in a solid or liquid state but excludes wastewater and small particulate matter released into the atmosphere. 3.85 Solid waste includes all materials sent to or collected by waste collection or treatment schemes including landfill establishments. Solid waste also includes those same materials if they are discarded directly to the environment, whether legally or illegally. In addition, solid waste may include some discarded materials exchanged between economic units, for example, scrap metal, for which the discarder receives payment. In these circumstances, the solid waste is considered a product (since the solid waste has a positive value) rather than a residual. Further delineation of the distinction between solid waste residuals and products is contained in section 3.6, as part of the description of physical flow accounts for solid waste. (b) Wastewater 3.86 Wastewater is discarded water that is no longer required by the owner or user. Water discharged into drains or sewers, water received by water treatment plants and water discharged directly to the environment are all considered wastewater. Wastewater includes return flows of water which are flows of water direct to the environment, with or without treatment. All water is included regardless of the quality of the water, including returns from hydroelectric power generators. 3.87 Wastewater also includes reused water which is wastewater supplied to a user for further use, with or without treatment. Wastewater that is recycled within the same establishment is not recorded in SEEA accounts. (c) Emissions 3.88 Emissions are substances released to the environment by establishments and households as a result of production, consumption and accumulation processes. Generally, emissions are analysed by type of receiving environment (i.e., air, water bodies, soil) and by type of substance. 3.89 The major focus in accounting for emissions is on releases directly to the environment. In some cases, releases of substances by establishments and households may be collected and System of Environmental-Economic Accounting 2012—Central Framework52 contained within economic units (e.g., methane gas may be captured by landfill operations to generate electricity), or transferred between economic units for treatment or other use (e.g., substances in wastewater may be sent to sewerage facilities for treatment before the return of water to the inland water system), thus lessening the potential pressure on the environment. 3.90 The total quantity of releases of substances by establishments and households is referred to as gross releases. Gross releases comprise emissions to the environment, and substances captured within economic units or transferred to other economic units. 3.91 Emissions to air are gaseous and particulate substances released to the atmosphere by establishments and households as a result of production, consumption and accumulation processes. By convention, emissions to air exclude the release of steam or water through evaporation. Further details on accounting for emissions to air are presented in section 3.6. 3.92 Emissions to water are substances released to water resources by establishments and households as a result of production, consumption and accumulation processes. For any individual establishment or household, emissions to water are measured in terms of the additional substances that the establishment or household has added to water rather than in terms of the total quantity of substances in the water discharged by the establishment or household. In this way, substances that were already in the water received by the establishment or household are not attributed to that unit. 3.93 Emissions to water exclude those materials that cannot be carried by regular flows of water such as large items of solid waste. These materials are included in measures of solid waste. 3.94 Since a large proportion of gross releases of substances to water by establishments and households occur through sewerage systems, accounting for these releases generally covers both emissions to the environment and releases to economic units (largely sewerage facilities). Further details on accounting for emissions to water and associated releases to economic units are presented in section 3.6. 3.95 Emissions to soil are substances released to the soil by establishments and households as a result of production, consumption and accumulation processes. Some substances emitted to soil may continue to flow through the environment and enter the water system. In principle, flows of substances having been recorded as emissions to soil by an individual establishment should not also be recorded as emissions to water by the same establishment. (d) Dissipative uses of products 3.96 Dissipative uses of products covers products that are deliberately released to the environment as part of production processes. For example, fertilizers and pesticides are deliberately spread on soil and plants as part of agricultural and forestry practice, and in certain countries salt is spread on roads to improve road conditions for drivers. In these cases, a proportion of the amount of product released may be used or absorbed as part of the production process and hence becomes incorporated in new products. The remaining proportion will remain in the environment and should be recorded as a residual flow to the environment. (e) Dissipative losses 3.97 Dissipative losses are material residues that are an indirect result of production and consumption activity. Examples include particulate abrasion from road surfaces, abrasion residues from car brakes and tyres, and zinc from rain collection systems. These residues should be accounted for as dissipative losses, as part of ensuring an overall balance of flows from the economy to the environment. 53Physical flow accounts (f) Natural resource residuals 3.98 Natural resource residuals are natural resource inputs that do not subsequently become incorporated into production processes and, instead, immediately return to the environment. Natural resource residuals are recorded as a generation of residuals by natural resource extracting industries and as a flow of residuals directly to the environment. 3.99 Examples of natural resource residuals include the flaring and venting of natural gas, discarded catch in fishing and felling residues from the harvesting of natural timber resources. Excluded from natural resource residuals are residuals associated with the harvesting of cultivated biological resources such as crop residues, felling residues from cultivated timber resources, and manure from the farming of livestock. These residuals are recorded as solid waste. A more detailed discussion of natural resource residuals was presented in paragraphs 3.47-3.53 above. Losses 3.100 Residuals are also considered in terms of losses. This is of particular interest in the analysis of physical flows of energy and water. Four types of losses are identified according to the stage at which they occur through the production process. It is to be noted that some types of losses may be necessary for maintaining safe operating conditions, as is the case for flaring and venting in the extraction of natural gas, while others may be unwanted losses, as is the case for water evaporation from distribution channels. 3.101 The four types of losses are: (a) Losses during extraction, which are losses that occur during extraction of a natural resource before there is any further processing, treatment or transportation of the extracted resource. Losses during extraction exclude natural resources that are reinjected into the deposit from which they were extracted. This may be the case, for example, for natural gas reinjected into a reservoir, or water abstracted from groundwater and reinjected into an aquifer. Some losses during extraction may also be recorded as natural resource residuals; (b) Losses during distribution, which are losses that occur between a point of abstraction, extraction or supply and a point of use; (c) Losses during storage, which are losses of energy products and materials held in inventories. They include evaporation, leakages of fuels (measured in mass or volume units), wastage and accidental damage. Excluded from the scope of inventories are non-produced assets, even though they might be regarded as being stored. Thus, for example, the evaporation of water from artificial reservoirs is excluded from losses during storage. These reductions in the quantity of water resources are shown in asset accounts (chapt. V); (d) Losses during transformation refer to the energy lost, for example, in the form of heat, during the transformation of one energy product into another energy product. It is essentially an energy balance concept reflecting the difference in calorific value between the input and output commodities. Losses during transformation apply only to energy flows. 3.102 Losses should be recorded if there is a preference on the part of the economic unit to retain the physical quantities that return to the environment. Particularly in situations where resources are being extracted, some physical quantities of resources may be “lost” as part of the extraction process; but if these quantities are of no interest to the extractor, then they should not be considered losses. System of Environmental-Economic Accounting 2012—Central Framework54 3.103 From the perspective of suppliers of products, the amounts of water, electricity, other energy products and other materials that are illegally diverted from distribution networks or from storage may be considered losses due to theft. However, since in physical terms, the water, energy or other material is not lost to the economy, they are not considered losses in the SEEA. Nonetheless, there may be interest in compiling data concerning theft as a subset of overall use of water, energy and other materials. It should be noted that losses due to theft may be difficult to measure in practice and may often be included in losses in distribution. Classification of groups of residuals 3.104 There is no single classification of all residuals. A complication arises from the fact that the various groups of residuals overlap. In the context of organization of information suitable for answering different policy and research questions, there is no clear-cut approach that might be taken to resolve issues of double-counting. Such double-counting would arise if a complete classification was constructed based on the structure of the various groups of residuals just defined. 3.105 An example of the potential overlap is provided by the treatment of flaring and venting of natural gas at the well head. These flows of gas are considered natural resource residuals, losses during extraction and a component of air emissions. 3.106 Table 3.4 gives an indication of the types of materials that are commonly included in the different groupings of residuals to support analysis of residuals in terms of whether the focus is on the purpose behind the discard (e.g., disposal of solid waste), the destination of the substance (e.g., emissions to air) or the processes leading to the emission (e.g., dissipative losses). Table 3.4 Typical components for groups of residuals Group Typical components Solid waste (includes recovered materials)ª Chemical and health-care waste, radioactive waste, metallic waste, other recyclables, discarded equipment and vehicles, animal and vegetal wastes, mixed residential and commercial waste, mineral wastes and soil, combustion wastes, other wastes Wastewaterª Water for treatment and disposal, return flows, reused water Emissions to air Carbon dioxide, methane, dinotrogen oxide, nitrous oxides, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride, carbon monoxide, non-methane volatile organic compounds, sulphur dioxide, ammonia, heavy metals, persistent organic pollutants, particulates (e.g., PM10 dust) Emissions to water Nitrogen compounds, phosphorus compounds, heavy metals, other substances and (organic) compounds Emissions to soil Leaks from pipelines, chemical spills Residuals from dissipative use of products Unabsorbed nutrients from fertilizers, salt spread on roads Dissipative losses Abrasion (tyres/brakes), erosion/corrosion of infrastructure (roads, etc.) Natural resource residuals Mining overburden, felling residues, discarded catch a   This list of typical components for groups of residuals can also be applied to certain flows defined as products. 55Physical flow accounts Accumulation of residual flows 3.107 The environmental pressures imposed by residuals relate to residual flows from the current period as well as those from past periods, given the potential of residuals to accumulate. The effects of continuing the existing flow of residuals may differ significantly depending on the level already accumulated at the beginning of the period. The measurement of the effect of flows of residuals on the state and quality of the ecosystems that receive them is addressed in SEEA Experimental Ecosystem Accounting. 3.108 It is to be noted that the damage inflicted by the ambient concentrations of a residual often increases non-linearly with the amount of residual generated. However, the supply and use tables described in this section detail only the quantity of residuals generated in a single period and do not exhibit the consequences of cumulating this amount with past or future amounts of the same (or other) residuals. It is noted in this regard that the effect on the environment will vary depending on the type of residual and the type of environment. Recording of scrapped and demolished produced assets 3.109 The general physical supply and use table shown in table 3.1 includes an entry for residuals from scrapping and demolition of produced assets (cell K). The recording of these residuals under the column for accumulation highlights the fact that the assets being scrapped were produced in previous periods, in contrast to residuals that are the result of current-period production activity. 3.110 Many of these residuals will be collected and treated (and possibly recycled) by waste treatment and similar enterprises. In the use table, these residuals are shown as received by waste treatment enterprises (cell N), accumulated in controlled landfill (cell O), sent to the rest of the world (cell P) or flowing directly to the environment (cell Q). 3.111 Of particular interest in recording these residuals is to attribute the residuals to the users of the scrapped and demolished produced assets. A difficulty arises when the scrapped assets are sold to another economic unit (the scrapping unit), which then manages the process of final scrapping and demolition. Ideally, the residuals should always be attributed to the former user of the asset in production. 3.112 There are two approaches to recording flows associated with scrapped and demolished produced assets. The first entails classifying the flows in the accumulation column by industry and appropriately attributing the residual flows to the industry that had previously used the scrapped asset in production. These flows would then be shown as received by the waste treatment industry (cell N) or sent directly to a controlled landfill (cell O). Alternatively, if classifying the flows in the accumulation column in this way is not possible, then two additional entries may be recorded in the second column. One entry would be in cell N, reflecting the implicit use of the scrapped asset by the scrapping industry, and the second entry would be in cell I, reflecting the generation of residuals by the scrapping industry that are subsequently collected by the waste treatment industry or sent to controlled landfills. Two entries are required to maintain a balance of flows for the industry that is scrapping the produced asset. 3.113 In practice, there may be difficulties in attributing the scrapping and demolition of produced assets to the former user because assets, particularly buildings, may be sold just prior to scrapping or demolition. Hence, at the time the event generating the residual occurs, a different industry may be the owner and “user” of the produced asset. Where possible, the residual should be attributed to the industry that has most recently used the produced asset as a capital input to a production process. System of Environmental-Economic Accounting 2012—Central Framework56 3.3 Principles of physical flow accounting 3.3.1 Introduction 3.114 The application of the broad framework for physical flow accounting outlined in section 3.2 requires the adoption of a range of accounting principles and conventions. A number of these are explained in chapter II, including the principle of double-entry accounting, the units of measurement, and the definitions of economic units and industries. 3.115 The present section describes some specific recording principles relevant to physical flow accounting, namely, gross and net recording of physical flows, the treatment of international flows of goods and the treatment of goods for processing. 3.3.2 Gross and net recording of physical flows 3.116 The PSUT framework presented in section 3.2 records all flows between the environment and the economy, and between different economic units, and, where applicable, records flows within economic units. This recording of flows is referred to in the SEEA as gross recording. The key advantage of a gross recording approach is that a full reconciliation of all flows at all levels of the supply and use table, for example, by industry and by product, can be made. 3.117 However, recording all of these flows may hide some key relationships; hence, for analytical purposes, alternative consolidations and aggregations of flows have been developed. These alternative approaches are often referred to as net recordings, although the nature of the consolidations and aggregations varies and there is therefore no single application of net recording. 3.118 It is noted that the terms “gross” and “net” are used in a wide range of accounting situations. In the SNA, the term “net” is used to indicate that an accounting aggregate has been adjusted for consumption of fixed capital (depreciation). In other situations, the term “net” is used simply to express the difference between two accounting items. The terms “gross” and “net” are also used to describe aggregates that have related but different measurement scopes. 3.119 One of the common areas where gross and net recording is applied is that of energy accounts. Energy accounts compiled on a gross basis show all flows of energy between economic units; some of these are flows of energy products to energy producers (e.g., flows of coal to electricity producers) while others are flows to an end-user (e.g., flows of electricity to households). Net energy accounts exclude non-consumptive energy uses representing the transformation of one energy product into another product and hence allow a focus on the end use of energy. 3.120 Generally, care should be taken when using and interpreting the terms “gross” and “net” and clear definitions of inclusions and exclusions should be sought and provided. 3.3.3 Treatment of international flows 3.121 The treatment of physical flows to and from the rest of the world needs a careful articulation. An underlying principle applied in the SEEA is that relevant flows are attributed to the country of residence of the producing or consuming unit. This differs from the territory principle of recording, which is applied in a number of statistical frameworks. The territory principle attributes the relevant flows to the country in which the producing or consuming unit is located at the time of the flow. 57Physical flow accounts 3.122 In accordance with both the SNA and the Balance of Payments and International Investment Position Manual, 6th ed. (BPM6) (International Monetary Fund, 2009), the residence of an institutional unit is determined by the economic territory with which it has the strongest connection.18 In the majority of situations, the concepts of territory and residence are closely aligned; but there are important activities, in particular international transport, that need to be considered individually so that the appropriate treatment can be decided. This subsection discusses international transport, tourist activity and natural resource inputs. International transport 3.123 The appropriate recording of international transport activity is important, particularly for information concerning the use of energy and the associated release of emissions. The appropriate and consistent attribution of physical flows relating to international transport to individual countries is an important component of the SEEA. 3.124 To ensure consistency with other parts of the accounts, the treatment is centred on the residence of the operator of the transport equipment. Usually, this will be the location of the headquarters of the transport operator. Therefore—regardless of the distances travelled, the number of places of operation, whether the transport service is supplied to non-residents or whether the transport service is between two locations not within the resident country—all revenues, inputs (including fuel, wherever purchased) and emissions are attributed to the country of residence of the operator. 3.125 Once the determination of the residence of the operator of international transport equipment using standard SNA and BPM principles has been made, the appropriate accounting is carried out as illustrated by the following examples: (a) A ship, whose operator is a resident of country A, transports goods from country B to country C, and refuels in country C before returning home. In this case, purchases of fuel are attributed to country A (being exports of fuel from country C and imports of fuel by country A). Payments for transport service by country C are exports of services by country A. All emissions by the ship are attributed to country A; (b) A passenger aircraft, whose operator is a resident of country X, transports people from country X to country Y and returns to country X. The passengers are from countries X, Y and Z. In this case, any purchases of fuel are attributed to country X and are recorded as imports if purchased in country Y. Payments by the passengers are recorded as exports of services by country X if the passengers are resident in country Y or Z. All emissions by the aircraft are attributed to country X. 3.126 Special attention must be paid to the bunkering of fuel, primarily for ships and aircraft. Special arrangements may be entered into whereby a unit resident in a country stores fuel in another country while still retaining ownership of the fuel itself. Following the principles of the SNA and the BPM, the location of the fuel is not the primary consideration. Instead, the focus must be on the ownership of the fuel. Thus, if country A establishes a bunker in country B and transports fuel to that country in order to refuel a ship that it operates, then the fuel is considered to have remained in the ownership of country A and no export of fuel to country B is recorded. Thus, the fuel stored in country B is not necessarily all attributable to country B. This treatment is likely to differ from the recording utilized in international trade statistics; and adjustments to source data may therefore be needed to align recording to this treatment. 18 See paras 4.10-4.15 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework58 Tourist activity 3.127 The recording of tourist activity is consistent with the recording of international transport activity in that the concept of residence is central. Tourists include all those travelling outside their country of residence, including short-term students (i.e., those studying abroad for less than 12 months), people travelling for medical reasons and those travelling for business or pleasure. The consumption activity of a tourist travelling abroad is attributed to the tourist’s country of residence and not to the location of the tourist when the consumption is undertaken. Thus, purchases by the tourist in other countries are recorded as an export by the country visited and as an import of the country of residence of the tourist. 3.128 Solid waste generated by tourists will generally be attributed to local enterprises (e.g., hotels and restaurants). Emissions from local transport used by tourists in a foreign country (e.g., taxis and minibuses) are attributed to the local transport company and, as noted in regard to international transport, emissions from aircraft and other long-distance transport equipment are attributed to the country of residence of the operator. In neither case are the emissions attributed to the tourist. 3.129 Emissions from cars are also attributed to the country of residence of the operator (in this case, the driver of the car), whether the car is owned by the driver or hired from a car rental firm. Natural resource inputs 3.130 Natural resource inputs are physical inputs to the economy from natural resources. They derive from stocks of natural resources comprising mineral and energy resources, soil resources, natural timber resources, natural aquatic resources, other natural biological resources and water resources, all of which are considered to be owned by residents of the country in which the resources are located. By convention, natural resources that are legally owned by non-residents are considered to be owned by a notional resident unit and the nonresident legal owner is shown as the financial owner of the notional resident unit. Consequently, in general, the extraction of natural resource inputs must occur within a country’s economic territory by economic units that are resident in the country. 3.131 Where illegal extraction takes place—for example, when non-residents illegally harvest timber resources—the reduction in the country’s resources should be recorded in the asset account (see chap. V) as part of extractions of natural resources. However, the associated natural resource input in the PSUT should be shown only in the accounts of the country in which the illegal extractor is resident. No exports should be recorded. 3.132 The major exception to this kind of treatment occurs with respect to natural aquatic resources. Following accounting conventions, the harvest of aquatic resources is allocated to the residence of the operator of the vessel undertaking the harvesting rather than to the location of the resources. Thus, the amount of natural resource input that should be recorded for a country is equal to the quantity of aquatic resources caught by vessels whose operator is resident in that country, regardless of where the resources are caught. Natural resource inputs are not recorded for the harvest of aquatic resources by vessels operated by non-residents in national waters and neither are exports recorded in this situation. In the accounts of the country to which the non-resident operator is connected, there should be entries for natural resource inputs for aquatic resources caught in non-national waters but no reduction in national aquatic resources in the asset accounts for this harvest. 59Physical flow accounts 3.3.4 Treatment of goods for processing 3.133 It is increasingly common for goods from one country to be sent to another country for further processing before being (a) returned to the original country, (b) sold in the processing country or (c) sent to other countries. In situations where the unprocessed goods are sold to a processor in a second country, there are no particular recording issues. However, in situations where the processing is undertaken on a fee-for-service basis and there is no change of ownership of the goods (i.e., the ownership remains with the original country), the financial flows are unlikely to relate directly to the physical flows of goods being processed. 3.134 From a monetary accounts perspective, the enterprise processing the goods assumes no risk associated with the eventual marketing of the products and the value of the output of the processor is the fee agreed for the processing. This fee is recorded as an export of a service to the first country. A consequence of this treatment is that the recorded pattern of inputs for the enterprise that is processing goods on behalf of another unit is quite different from the pattern of inputs when the enterprise is manufacturing similar goods on its own account. 3.135 A simple illustration may be given in relation to the production of petroleum products. A firm that refines crude oil on own account engages in intermediate consumption of crude oil and other inputs, and output of refined petroleum products. A firm that is processing crude oil on behalf of another firm has, in physical terms, similar inputs and uses the same produced assets but, in its accounts, shows neither the intermediate consumption of crude oil nor the output of refined petroleum products. Instead, an output equal only to the processing fee is recorded. 3.136 For similar amounts of crude oil processed, the estimates of value added and other inputs (i.e., labour and produced assets) are likely to be comparable. However, by recording only the processing fee rather than the full value of the goods processed, the nature of the aggregate supply and use relationship is changed. 3.137 Although this treatment accords with that of the SNA and provides the most appropriate recording of the monetary flows, it does not correspond to the physical flows of goods. Consequently, a different treatment of goods for processing is recommended for physical supply and use tables. This entails recording the physical flows of goods, both as they enter into the country of the processing unit and as they leave that country. Tracking the physical flows in this way enables a clearer reconciliation of all physical flows in the economy and also provides a physical link to the recording of the environmental effects of the processing activity in the country in which the processing is being undertaken, including, for example, emissions to air. The same considerations apply to flows of goods for repair and merchanting. 3.138 Generally, information on the physical flow of goods between countries is available in international trade statistics. However, it is necessary to identify those flows of goods where the ownership has not changed and to apply a different treatment in monetary terms compared with that of the international trade data. 3.139 Depending on the products and industries that are of interest, reconciliation entries may be required if accounts combining physical and monetary data are to be compiled. 3.4 Physical flow accounts for energy 3.4.1 Introduction 3.140 Energy flow accounts record flows of energy, in physical units, from the initial extraction or capture of energy resources from the environment into the economy; the flows of System of Environmental-Economic Accounting 2012—Central Framework60 energy within the economy in the form of the supply and use of energy by industries and households; and, finally, the flows of energy back to the environment. 3.141 The compilation of energy flow accounts allows for a consistent monitoring of the supply and use of energy by energy type. Indicators of energy intensity, efficiency and productivity can be derived from the accounts in combination with monetary information. 3.142 Energy flow accounts are a subsystem within the general physical flow framework. Energy accounts data are compiled by converting physical measures of mass and volume such as tonnes, litres and cubic metres into a common unit representing energy content in net calorific terms. The use of the joule as a common measurement unit is recommended by the International Recommendations for Energy Statistics (IRES).19 3.4.2 Scope and definitions of energy flows 3.143 Energy flows consist of flows of (a) energy from natural inputs, (b) flows of energy products and (c) energy residuals. Flows of air emissions and solid waste generated by energy production and use are not included, although all types of waste used as inputs in the production of energy are included. 3.144 Energy from natural inputs encompasses flows of energy from the removal and capture of energy from the environment by resident economic units. These flows include energy from mineral and energy resources (e.g., oil, natural gas, coal and peat, and uranium), natural timber resources and inputs from renewable energy sources (e.g., solar, wind, hydro and geothermal). 3.145 Energy from cultivated biomass, including from cultivated timber resources, is treated as produced within the economy and is therefore first recorded as the flow of an energy product. However, to ensure a complete balance of energy flows in the PSUT, a balancing entry equal to the energy products from cultivated biomass is recorded as a component of energy from natural inputs in both the supply and the use tables. 3.146 Energy products are products that are used (or might be used) as a source of energy. They comprise (a) fuels that are produced/generated by an economic unit (including households) and are used (or might be used) as sources of energy; (b) electricity that is generated by an economic unit (including households); and (c) heat that is generated and sold to third parties by an economic unit.20 Energy products include energy from biomass and solid waste that are combusted for the production of electricity and/or heat.21 Some energy products may be used for non-energy purposes. 3.147 A distinction can be made between primary and secondary energy products. Primary energy products are produced directly from the extraction or capture of energy resources from the environment. Secondary energy products are the result of transformation of primary, or other secondary, energy products into other types of energy products. Examples include petroleum products from crude oil, charcoal from fuelwood and electricity from fuel oil. 3.148 Heat and electricity may be considered either primary or secondary products depending on the process of their production. For example, if heat is captured directly from the environment through solar panels, it is considered a primary energy product; it is considered a secondary energy product if produced from other energy products such as coal or oil. 19 United Nations Statistics Division, “International recommendations for energy statistics” (IRES), draft (2011), para. 4.29. 20 Ibid., para. 3.7. 21 Ibid., chap. 2.B. 61Physical flow accounts 3.149 Generally, physical and monetary flows of energy products should be classified using the Standard International Energy Product Classification (SIEC) presented in the IRES. Often, monetary flows will be classified using the CPC. Since there is not a one-to-one relationship between SIEC and CPC categories, a correspondence between these classifications will be needed for detailed analysis of combined physical and monetary data sets. 3.150 Energy residuals in physical terms comprise a number of components. Most focus is on energy losses which are defined consistently with the general definition of losses outlined in section 3.2. Particular examples of energy losses include losses through flaring and venting of natural gas and losses during transformation in the production of primary energy products from energy from natural inputs and in the production of secondary energy products. Energy losses during distribution may arise from the evaporation and leakages of liquid fuels, loss of heat during transport of steam, and losses during gas distribution, electricity transmission and pipeline transport. Energy residuals also include other energy residuals, particularly heat generated when end-users (either households or enterprises) use energy products for energy purposes (e.g., electricity). 3.151 In order to fully balance the energy PSUT, it is also necessary to record two other residual flows. The first is derived from the energy embodied in energy products used for nonenergy purposes, which is shown as leaving the energy system as a residual flow. Non-energy purposes include the use of energy products to manufacture non-energy products (e.g., the energy product naphtha is used in the manufacture of plastic, a non-energy product), and the direct use of energy products for non-energy purposes (e.g., as lubricants). The second additional residual flow results from the generation of energy from the incineration of solid waste. The energy embodied in solid waste is shown as entering the energy system as a residual flow before becoming an energy product. Neither of these residual flows is considered part of energy residuals. 3.4.3 Physical supply and use table for energy 3.152 Physical supply and use tables for energy record the flows of energy from natural inputs, energy products, energy residuals and other residual flows in physical units of measure. They are based on the principle that the total supply of each flow is equal to the total use of the same flow (i.e., total supply of energy products equals total use of energy products). 3.153 Table 3.5 represents the SEEA physical supply and use table for energy. The table encompasses flows of all energy from natural inputs and energy products, including those energy products that are transformed into other energy products. Therefore, the energy content of some products is counted more than once. Coal, for example, is used as input into a transformation process for obtaining electricity and heat, and the accounts record the energy content of the coal as well as the energy content of the resulting electricity and heat. 3.154 The columns of the energy supply and use table follow the structure of the general PSUT presented in table 3.1. The level of industry detail highlights those industries that most commonly play a significant role in energy production or use; but there is no restriction in the amount of industry detail that may be incorporated. The accumulation column records changes in the inventories of energy products that can be stored, for example, coal, oil and natural gas. Key components of the PSUT for energy 3.155 The key components of the PSUT for energy encompass (a) the supply and use of energy from natural inputs, (b) the supply of energy products, including energy products produced on own account; (c) imports and exports of energy products; (d) the transforma- System of Environmental-Economic Accounting 2012—Central Framework62 tion and end use of energy products; and (e) the supply and use of energy residuals and other residual flows. These five areas are discussed directly below. (a) Supply and use of energy from natural inputs 3.156 The first section of the energy supply table and the first section of the energy use table cover the flows of energy from natural inputs. The structure of these sections is analogous to the sections on natural inputs in the general PSUT represented by table 3.1. In the supply table, energy from natural inputs is shown as being supplied by the environment. In the use table, energy from natural inputs is shown as being used by the extracting industries. The total supply of each input must equal the total use of each input. 3.157 Flows of energy from natural inputs may be presented at varying levels of detail, which will depend on which inputs are of most relevance and on the extent of the interest in the country in developing an analytical focus. For those inputs that are types of mineral and energy resources (e.g., oil and natural gas), all of the extracted resource is recorded regardless of the ultimate purpose for the use of the extracted natural resource. On the other hand, for natural timber resources, only that amount extracted for fuelwood is recorded as energy from natural inputs. 3.158 In principle, the inputs of energy from renewable sources (solar, hydro, wind, wave and tidal, geothermal, etc.) should reflect the amount of energy incident on the technology put in place to collect the energy. In practice, inputs of energy from renewable sources are recorded in terms of the amounts of heat and electricity produced through the relevant technology. Consequently, in practice, losses of energy in the capture of energy from renewable sources are not included in the PSUT. Energy from hydroelectric schemes is recorded in terms of energy produced. 3.159 For those inputs that are types of mineral and energy resources, losses of energy during extraction are included in the total amount of resource extracted from the environment, in line with the general treatment of natural resource residuals and losses. Entries for losses during extraction should also be made in the bottom parts of the supply and use tables concerning energy residuals. (b) Supply of energy products 3.160 All energy products supplied from one unit to another, including between units within a single enterprise, are included in the flow accounts, regardless of whether the energy product is sold or exchanged as part of a barter transaction or provided free of charge. 3.161 Energy products are primarily produced by establishments classified to ISIC section B, Mining and quarrying; ISIC section C, Manufacturing; and ISIC section D, Electricity, gas, steam and air conditioning supply. For many countries, the main source of supply may be imported energy products. Energy products are classified following the Standard International Energy Product Classification (SIEC). 3.162 Energy products are produced as secondary production by many establishments and also for use within an establishment (i.e., for own-account production and use). Where it is possible to quantify the own account intra-establishment production and use of energy products, these flows should be recorded in the accounts as flows of energy for own use.22 In table 3.5, the flows relating to own-account production and use are not separately identified.23 22 Generally, these flows are not recorded in monetary supply and use tables. 23 System of Environmental-Economic Accounting for Energy (SEEA-Energy) (United Nations publication, forth-coming) provides a more detailed discussion of the recording of own-account production and use of energy products. 63Physical flow accounts 3.163 A special case in the supply of energy products is energy production by households. Households may purchase and install equipment for the generation of energy products (e.g., solar panels) and also may collect and use energy resources such as fuelwood to generate energy products. The energy produced is either consumed on own account or sold on the market (e.g., in the case of electricity sold to an electricity grid). 3.164 Following the general principles of recording production, all activity should be allocated to the relevant industry whether for own-account consumption or for sale. Distinct compilations of those amounts of energy produced by households for sale, compared with production for own use, may also be created. Energy produced for own-account consumption should be recorded as household final consumption in the use table. (c) Imports and exports of energy products 3.165 Imports and exports of energy products should be recorded when a change of ownership involving a resident and a non-resident unit occurs. Energy products in transit through the economic territory should generally not be included in imports and exports. However, for electricity and heat, it may be difficult to distinguish between transit flows and other flows and, in practice, all flows of electricity and heat into a country may be recorded as imports, and all outgoing flows may be recorded as exports. Energy products sent abroad for processing should be treated following the treatment of goods for processing described in section 3.3.4. 3.166 Energy use by resident units abroad, essentially covering tourists driving abroad and companies engaged in international transport activities, should be recorded in the accounts either as the use of the industries earning the value added from these activities or as a use of the households operating the transport equipment. All energy use by non-resident units within the national boundary (ships, planes, trucks and tourists) should be excluded. (d) Transformation and end use of energy products 3.167 The use of energy products is split into two sections in the use table. The first section, entitled “Transformation of energy products by SIEC class”, records the transformation of energy products into other energy products. For example, the mining and quarrying industry may be recorded as producing coal as an energy product in the supply table and its use in producing electricity would be shown under the transformation of energy products, as the use of coal by the electricity supply industry. 3.168 The second section, entitled “End use of energy products by SIEC class”, records the use of energy products in producing goods and services that are not energy products. These goods and services may be used for intermediate consumption, or for household final consumption, may represent a change in inventories of energy products, or may be used for export. The end use of energy products is shown in two parts: uses for energy purposes and uses for non-energy purposes. Non-energy uses of energy products include, for example, the use of oil-based products as lubricants or in the production of plastics. In table 3.5, while only the end use of energy products for energy purposes is shown as allocated by type of energy product, this allocation is also possible for end use for non-energy purposes. 3.169 In total, intermediate consumption includes the use of all energy products by industries as inputs in a production process, regardless of the nature of the production process, i.e., whether it is a process converting an energy product into another energy product for further use in the economy (transformation), or whether it is a process that ultimately uses the energy content of the energy product so that no further use of the energy is possible (end use) in some cases by incorporating the energy product in a non-energy product. System of Environmental-Economic Accounting 2012—Central Framework64 Physicalsupplytableforenergy Production(includinghouseholdproductiononownaccount);generationofresiduals Accumula- tion Flowsfrom therestof theworld Flows fromthe environ- mentTotalsupply Agriculture, forestry andfishing Mining and quarrying Manufac- turing Electricity, gas,steam andair condition- ingsupply Transporta- tionand storage Other industriesHouseholdsImports ISICAISICBISICCISICDISICH Energyfromnaturalinputs Naturalresourceinputs Mineralandenergyresources1161.01161.0 Timberresources5.05.0 Inputsofenergyfromrenewable sources Solar20.020.0 Hydro100.0100.0 Wind4.04.0 Waveandtidal Geothermal Otherheatandelectrical Othernaturalinputs Energyinputstocultivated biomass 2.02.0 Totalenergyfromnaturalinputs1292.01292.0 Table3.5 Physicalsupplyandusetableforenergy(joules:netcalorificunits) 65Physical flow accounts Production(includinghouseholdproductiononownaccount);generationofresiduals Accumula- tion Flowsfrom therestofthe world Flows fromthe environmentTotalsupply Agriculture, forestry and fishing Miningand quarrying Manufac- turing Electricity, gas,steam andair conditioning supply Transpor- tationand storage Otherindus- triesHouseholdsImports ISICAISICBISICCISICDISICH Energyproducts Productionofenergyproducts bySIECclass Coal225.0225.0 Peatandpeatproducts Oilshale/oilsands Naturalgas(extracted)395.0395.0 Naturalgas(distributed)369.1369.1 Oil(e.g.,conventionalcrudeoil)721.0721.0 Oil(oilproducts)347.0930.01277.0 Biofuels5.30.21.57.0 Waste39.054.516.9110.4 Electricity212.022.0234.0 Heat78.578.5 Nuclearfuelsandotherfuelsn.e.c. Totalenergyproducts44.31116.0401.7661.11193.93417.0 Energyresiduals Lossesduringextraction45.045.0 Lossesduringdistribution12.012.0 Lossesduringstorage6.06.0 Lossesduringtransformation7.0204.4211.4 Otherenergyresiduals50.33.2418.790.6632.096.0240.01530.8 Totalenergyresiduals50.348.2431.7307.0632.096.0240.01805.2 Otherresidualflows Residualsfromendusefornon-energy purposes51.051.0 Energyfromsolidwaste93.593.5 Totalsupply94.61164.2884.4968.1632.096.0240.093.51193.91292.06658.7 System of Environmental-Economic Accounting 2012—Central Framework66 Physicalusetableforenergy Intermediateconsumption;useofenergyresources;receiptofenergylosses Finalcon- sumption Accumulation Flowstothe restofthe world Flowstothe environmentTotaluse Agriculture, forestry and fishing Mining and quarrying Manufac- turing Electricity, gas,steam andair conditioning supply Transpor- tationand storage Other industriesHouseholdsExports ISICAISICBISICCISICDISICH Energyfromnaturalinputs Naturalresourceinputs5.01161.01166.0 Inputsofenergyfromrenewablesources124.0124.0 Othernaturalinputs0.30.21.52.0 Totalenergyfromnaturalinputs5.31161.00.2225.51292.0 Energyproducts TransformationofenergyproductsbySIECclass Coal223.0223.0 Peatandpeatproducts Oilshale/oilsands Naturalgas(extracted)395.0395.0 Naturalgas(distributed)87.087.0 Oil(e.g.,conventionalcrudeoil)360.0360.0 Oil(oilproducts)16.016.0 Biofuels Waste31.031.0 Electricity Heat Nuclearfuelsandotherfuelsn.e.c. Totaltransformationofenergyproducts360.0752.01112.0 Table3.5 Physicalsupplyandusetableforenergy(joules:netcalorificunits)(cont’d.) 67Physical flow accounts Intermediateconsumption;useofenergyresources;receiptofenergylosses Finalcon- sumption Accumulation Flowstothe restofthe world Flowstothe environmentTotaluse Agriculture, forestry and fishing Mining and quarrying Manufac- turing Electricity, gas,steam andair conditioning supply Transpor- tationand storage Otherindus- triesHouseholdsExports ISICAISICBISICCISICDISICH Energyproducts(cont’d) End-useofenergyproductsbySIECclass Coal2.00.117.01.0-21.01.91.0 Peatandpeatproducts Oilshale/oilsands Naturalgas(extracted) Naturalgas(distributed)2.039.00.112.026.02.0201.0282.1 Oil(e.g.conventionalcrudeoil)361.0361.0 Oil(oilproducts)34.02.0326.0621.049.0102.0-3.080.01211.0 Biofuels0.30.21.55.07.0 Waste3.00.14.037.01.033.00.31.079.4 Electricity7.01.022.050.010.015.029.0100.0234.0 Heat2.010.52.01.019.044.078.5 Nuclearfuelsandotherfuelsn.e.c.0.0 Totalend-useforenergypurposes50.33.2418.790.6632.096.0240.0-21.7744.92254.0 End-useofenergyproductsfornon-energypurposes51.051.0 Energyresiduals Lossesduringextraction45.045.0 Lossesduringdistribution12.012.0 Lossesduringstorage6.06.0 Lossesduringtransformation211.4211.4 Otherenergyresiduals1530.81530.8 Totalenergyresiduals1805.21805.2 Otherresidualflows Residualsfromendusefornon-energypurposes51.051.0 Energyfromsolidwaste39.054.593.5 Totaluse94.61164.2884.4968.1632.096.0240.029.3744.91805.26658.7 Note: Darkgreycellsarenullbydefinition. System of Environmental-Economic Accounting 2012—Central Framework68 3.170 Some energy products may be stored by industries for later transformation or end use. The net changes in the quantities stored are considered changes in inventories and are recorded in the accumulation column for each relevant energy product. Exports of energy products are also recorded as part of end use. 3.171 Final consumption refers to the consumption by households of energy products purchased or otherwise obtained from energy suppliers. All final consumption reflects the end use of energy and includes the energy products produced by the households themselves, e.g., energy produced from fuelwood gathered by households and electricity generated by windmills for own use. 3.172 The concept of final consumption of energy in the SEEA differs from the concept of final consumption used in energy balances as defined in IRES. In energy balances, final consumption relates to the total end use of energy by industries and households (excluding change in inventories and exports). It is therefore a broader measure than final consumption in the SEEA which relates only to end use by households. (e) Energy residuals and other residual flows 3.173 The bottom parts of the supply and use tables record entries associated with energy residuals and other residual flows. Different types of energy residuals are recorded: losses during extraction, losses during distribution, losses during transformation, losses during storage, and other energy residuals (including residuals from end use for energy purposes). The different energy residuals are recorded as being supplied by various industries and households in the supply table and received by the environment in the use table. 3.174 Losses of energy products are recorded as part of the intermediate consumption of the producer when the losses occur before a change of ownership from the producer to the user has taken place. However, losses of energy products after they have been delivered from the producer to the user of the product (e.g., from storage) should be recorded as part of intermediate or final consumption of the user. 3.175 For other residual flows, the energy embodied in energy products used for non-energy purposes is shown as supplied by various industries and households and, by convention, is recorded as being retained in the economy as an increase in accumulation in the use column. By convention, the energy from solid waste is shown as supplied from within the economy in the accumulation column and a matching positive entry is recorded in the use table in the column(s) for the industry incinerating the solid waste. 3.4.4 Energy statistics, energy accounts and energy balances 3.176 Energy statistics, energy accounts and energy balances all provide information on energy supply and energy use. Energy statistics result from collecting and compiling information on production, imports, exports and domestic use of energy products on the basis of specific surveys and from using, for example, business statistics and international trade statistics. Energy balances reorganize these basic statistics by confronting and consolidating supply and use, and by highlighting the transformation of energy within the economy. Similarly, energy accounts, which primarily use national accounts classifications and definitions, can be seen as a reorganization and broadening of scope of energy statistics. Both energy balances and energy accounts apply the principle that supply equals use; however, supply and use are defined in different ways in these two systems. 3.177 In contrast to the energy accounts, energy balances normally include only physical data on energy. Since one of the main purposes of energy accounts is to link physical and 69Physical flow accounts monetary data in a comparable way, this leads to different definitions and a different organization of energy data in physical terms so that they can be aligned with the data in monetary terms in the national accounts. 3.178 One main difference between the energy balances and the energy accounts is reflected in how activities are classified and the treatment of various activities within the national boundary. The energy accounts use the concept of residence to determine whether a specific energy flow should be included, for instance, as imports and whether it is to be included as part of energy use. The boundary of the energy balances follows the territory principle of recording. 3.179 One method of reconciling aggregates that are derived from energy accounts and energy balances is through the compilation of bridge tables. Bridge tables show the adjustments required to either energy accounts or energy balances to account for the conceptual differences between the approaches. A full description of the relationship between energy accounts and energy balances and associated bridge tables is included in “SEEA-Energy”. 3.4.5 Energy aggregates 3.180 Accounting for energy flows provides a framework for the assessment of energy production and consumption and related issues of resource use and air emissions. Two energy aggregates are defined in the SEEA that are appropriate in dealing with particular analytical and policy questions. Other aggregates and indicators may also be compiled using data contained in the energy PSUT, with differences in what is included and excluded based on what questions are of policy or analytical interest. 3.181 Gross energy input reflects the total energy captured from the environment, energy products that are imported and energy from residuals within the economy (e.g., from incinerated solid waste). It can therefore serve as an indicator of the pressures placed on the environment (or other countries’ environments) in the supply of energy to the economy. In terms of entries contained in the energy PSUT, gross energy input is equal to energy from natural inputs plus imports of energy products plus energy from waste. For analytical purposes, it may be useful to disaggregate energy from natural inputs into the energy from natural resource inputs, the energy from renewable sources and the energy inputs to cultivated biomass, since each of these types of natural inputs corresponds to different environmental pressures. 3.182 The second main energy aggregate is net domestic energy use. Net domestic energy use reflects the net amount of energy used in an economy through production and consumption activity and can be utilized to assess trends in energy consumption by resident units. Net domestic energy use is defined as the end use of energy products (including changes in inventories of energy products) less exports of energy products plus all losses of energy (losses during extraction, losses during transformation, losses during storage and losses during distribution). It is regarded as a “net” measure, since for energy products that are transformed into other energy products, only the transformation losses are included, not the total input of energy products into the transformation process. Separate analysis of the components of net domestic energy use (e.g., total end use of energy products less exports, and total energy losses) can also provide important information concerning energy use. 3.183 For the total economy, gross energy input and net domestic energy use differ only by the amount of energy products exported. Both aggregates may also be compiled for individual industries and for households by using the same definitions applying to the total economy but by focusing on the relevant columns in the PSUT. These and other aggregates and indicators can be linked to data in the economic accounts in physical and monetary terms, in order to derive measures of intensity and productivity in energy use. System of Environmental-Economic Accounting 2012—Central Framework70 3.5 Physical flow accounts for water 3.5.1 Introduction 3.184 Water flow accounts describe flows of water, in physical units, encompassing the initial abstraction of water resources from the environment into the economy, to the water flows within the economy in the form of supply and use by industries and households, and finally, flows of water back to the environment. The present section describes a complete PSUT for water flows, noting that individual components of the PSUT could be compiled separately. Related accounts for emissions to water (sect. 3.6) and asset accounts for water resources (sect. 5.11) are also relevant. 3.185 For the purposes of water resource management, the compilation of data for a river basin or other hydrologically relevant area may be appropriate. It is noted, however, that while physical data may be available for such geographical areas, corresponding economic data will generally be available only for administrative regions; therefore, these two geographical boundaries may not align. 3.5.2 Scope of water flows 3.186 Water is in continuous movement. Solar radiation and gravity keep water moving from land and oceans to the atmosphere in the form of water vapour (evaporation and transpiration) and falling back through precipitation. The focus of the SEEA is the inland water system, with provision for the inclusion of sea or ocean water abstracted for production and consumption (e.g., saline water for desalinization or cooling). 3.187 The inland water system comprises surface water (rivers, lakes, artificial reservoirs, snow, ice and glaciers), groundwater and soil water within the territory of reference. All flows associated with the inland water system are recorded in the asset accounts for water resources, including flows to and from accessible seas and oceans. The PSUT records the abstraction of water from the inland water system, and seas and oceans by economic units; the distribution and use of this water by various economic units; and the returns of water to the inland water system and seas and oceans. Flows such as the evaporation of water from lakes and artificial reservoirs and flows between water bodies are considered flows within the environment and are recorded in the asset accounts, as described in chapter V. 3.188 Emissions to water (e.g., pollution) are recorded in a separate PSUT which is discussed in section 3.6. The broader issue of the impact of economic activity on the quality of water requires an assessment of the quality of the stock of water resources. Water-quality accounts are discussed in more detail in SEEA-Water (United Nations, 2012 b). 3.5.3 Physical supply and use table for water 3.189 Physical supply and use tables can be compiled at various levels of detail, depending on the required policy and analytical focus and data availability. A basic PSUT for water contains information on the supply and use of water and provides an overview of water flows. The PSUT is divided into five sections which organize information on (a) abstraction of water from the environment; (b) distribution and use of abstracted water across enterprises and households; (c) flows of wastewater and reused water (between households and enterprises); (d) return flows of water to the environment; and (e) evaporation, transpiration and water incorporated into products. 3.190 Table 3.6 presents the SEEA physical supply and use table for water. The columns of the PSUT are structured in the same way as the general PSUT represented by table 3.1. 71Physical flow accounts 3.191 The breakdown of the economic activities, classified according to the ISIC, distinguishes the following groups: • ISIC divisions 01-03: Agriculture, forestry and fishing24 • ISIC divisions 05-33 and 41: Mining and quarrying; manufacturing; and construction, respectively • ISIC division 35: Electricity, gas, steam and air conditioning supply • ISIC division 36: Water collection, treatment and supply; sewerage, waste management and remediation activities • ISIC division 37: Sewerage • ISIC divisions: 38, 39 and 45-99: Other industries 3.192 Industry divisions ISIC 35, 36 and 37 are specifically identified because of their importance in the supply and use of water and provision of water-related services. ISIC division 35 covers users of water for hydroelectric power generation and cooling purposes. ISIC divisions 36 and 37 cover activities of the main industries for the distribution and treatment of water and wastewater. 3.193 Described directly below are the key components of the physical supply and use table for water. Abstraction of water 3.194 The abstraction of water is recorded in part I of the supply table, entitled “Sources of abstracted water”, as being supplied by the environment. The same volume of water is recorded in part I of the use table, “Sources of abstracted water”, by the industry that undertakes the abstraction. Water may be abstracted from artificial reservoirs, rivers, lakes, groundwater and soil water. The capture of precipitation through, for example, the capture of water from the roofs of houses in water tanks, is recorded as abstraction through precipitation. Precipitation direct to the inland water system is recorded not in the PSUT but in the asset account for water resources. 3.195 Abstraction is defined as the amount of water that is removed from any source, either permanently or temporarily, in a given period of time. Water used for hydroelectric power generation, is considered abstraction and is recorded as a use of water by the abstractor. Water abstracted but not used in production, such as water flows in mine dewatering, are recorded as natural resource residuals. Water abstraction is disaggregated by source and by industry. 3.196 Following the general treatment of household own-account activity, the abstraction of water by households for own consumption should be recorded as part of the activity of the water collection, treatment and supply industry (ISIC 36). In addition, there may be a range of different methods of water supply; for example, water supply to agricultural enterprises may be undertaken quite differently from water supply to urban areas. Additional columns may be included in the supply table in order to highlight different types of water abstraction covered under ISIC division 36. 3.197 Consistent with the treatment in the asset accounts for water resources, the water in artificial reservoirs is not considered to have been produced, i.e., it is not considered to have come into existence via a process of production. Consequently, abstraction from artificial reservoirs is recorded as abstraction from the environment and flows of precipitation into 24 For certain analytical purposes, it may be relevant to distinguish among the uses of water by these different industries. System of Environmental-Economic Accounting 2012—Central Framework72 Physicalsupplytableforwater Abstractionofwater;productionofwater;generationofreturnflows Flowsfrom therestof theworld Flowsfrom theenviron- ment Agriculture, forestryand fishing Miningand quarrying, manufac- turingand construc- tion Electricity, gas,steam andair condition- ingsupply Water collection, treatment andsupplySewerage Otherindus- triesHouseholdsImportsTotalsupply (I)Sourcesofabstractedwater Inlandwaterresources Surfacewater440.6440.6 Groundwater476.3476.3 Soilwater50.050.0 Total966.9966.9 Otherwatersources Precipitation101.0101.0 Seawater101.1101.1 Total202.1202.1 Totalsupplyabstractedwater1169.01169.0 (II)Abstractedwater Fordistribution378.2378.2 Forown-use108.4114.6404.213.9100.12.3743.5 (III)Wastewaterandreusedwater Wastewater Wastewatertotreatment17.9117.65.61.449.1235.5427.1 Owntreatment Reusedwaterproduced Fordistribution42.742.7 Forownuse10.010.0 Total17.9127.65.61.442.749.1235.5479.8 Table3.6 Physicalsupplyandusetableforwater(millionsofcubicmetres) 73Physical flow accounts Abstractionofwater;productionofwater;generationofreturnflows Flowsfrom therestof theworld Flowsfrom theenviron- ment Agriculture, forestryand fishing Miningand quarrying, manufac- turingand construc- tion Electricity, gas,steam andair condition- ingsupply Water collection, treatment andsupplySewerage Otherindus- triesHouseholdsImportsTotalsupply (IV)Returnflowsofwater Toinlandwaterresources Surfacewater300.052.50.20.5353.2 Groundwater65.023.547.3175.00.54.1315.4 Soilwater Total65.023.5300.047.3227.50.74.6668.6 Toothersources5.9100.0256.30.2362.4 Totalreturnflows65.029.4400.047.3483.80.74.81031.0 ofwhich:Lossesindistribu- tion 47.347.3 (V)Evaporationofabstracted water,transpirationand waterincorporatedinto products Evaporationofabstractedwater29.538.32.51.80.73.610.086.4 Transpiration40.21.241.4 Waterincorporatedintoproducts6.53.710.2 Totalsupply267.5314.8812.3442.6627.355.7250.31169.03939.5 Note: Darkgreycellsarenullbydefinition. System of Environmental-Economic Accounting 2012—Central Framework74 Physicalusetableforwater Abstractionofwater;intermediateconsumption;returnflows Finalcon- sumption Accumula- tion Flowstothe restofthe world Flowstothe environ- mentTotaluse Agriculture, forestryand fishing Miningand quarrying, manufac- turingand construc- tion Electricity, gas,steam andair condition- ingsupply Water collection, treatment and supplySewerage Other industriesHouseholdsExports (I)Sourcesofabstractedwater Inlandwaterresources Surfacewater55.379.7301.04.50.1440.6 Groundwater3.134.83.2432.92.3476.3 Soilwater50.050.0 Total108.4114.5304.2437.40.12.3966.9 Otherwatersources Precipitation1.0100.0101.0 Seawater100.01.1101.1 Total0.00.0100.02.1100.00.0202.1 Totaluseabstractedwater108.4114.5404.2439.5100.12.31169.0 (II)Abstractedwater Distributedwater38.745.03.90.051.1239.50.0378.2 Ownuse108.4114.6404.23.1100.12.310.8743.5 (III)Wastewaterandreusedwater Wastewater Wastewaterreceivedfrom otherunits427.1427.1 Owntreatment Reusedwater Distributedreuse2.040.742.7 Ownuse10.010.0 Total12.040.7427.1479.8 Table3.6 Physicalsupplyandusetableforwater(millionsofcubicmetres)(cont’d.) 75Physical flow accounts Abstractionofwater;intermediateconsumption;returnflows Finalcon- sumption Accumula- tion Flowstothe restofthe world Flowstothe environ- mentTotaluse Agriculture, forestryand fishing Miningand quarrying, manufac- turingand construc- tion Electricity, gas,steam andair condition- ingsupply Water collection, treatment and supplySewerage Other industriesHouseholdsExports (IV)Returnflowsofwater Returnsofwatertotheenviron- ment Toinlandwaterresources668.6668.6 Toothersources362.4362.4 Totalreturnflows1031.01031.0 (V)Evaporationofabstracted water,transpirationandwater incorporatedintoproducts Evaporationofabstractedwater86.486.4 Transpiration41.441.4 Waterincorporatedintoproducts10.210.2 Totaluse267.5314.8812.3442.6627.355.7250.310.21158.83939.5 Note: Darkgreycellsarenullbydefinition. System of Environmental-Economic Accounting 2012—Central Framework76 artificial reservoirs and flows of evaporation from the reservoirs are not recorded in the PSUT for water. These flows are recorded in the asset accounts for water resources as part of the overall accounting for the change in the stock of water resources over an accounting period. 3.198 Abstraction of soil water refers to the uptake of water by plants and is equal to the amount of water transpired by plants plus the amount of water that is embodied in the harvested product. Most abstraction of soil water is used in agricultural production and in cultivated timber resources but in theory the boundary extends to all soil water abstracted for use in production to include, for example, soil water abstracted in the operation of golf courses.25 Abstraction of soil water is calculated based on the area under cultivation using coefficients of water use. Different coefficients should be used for different plants and should take into consideration location effects (e.g., soil types, geography and climate). 3.199 In principle, an amount of abstracted water is retained at the end of each accounting period for use in the next accounting period, for example, in storage tanks. However, this volume of water is relatively small in comparison with the overall flows of water during an accounting period and is also small relative to the stock of water held in the total inland water system. Therefore, in practice and by convention, the net change in the accumulation of abstracted water over an accounting period is assumed to be zero. Distribution and use of abstracted water 3.200 Water that has been abstracted must be either used by the same economic unit that abstracts it (and in this case is referred to as abstracted water for own use) or distributed, possibly after some treatment, to other economic units (referred to as abstracted water for distribution). Most of the water for distribution is recorded under ISIC division 36, Water collection, treatment and supply. However, there may be other industries that abstract and distribute water as a secondary activity. 3.201 Part II of the supply table, entitled “Abstracted water”, shows the supply of abstracted water by the industries undertaking the abstraction, differentiating between water abstracted for distribution and water abstracted for own use. This part of the supply table also records imports of water from the rest of the world. The total of water abstracted for own use, water abstracted for distribution, and imported water represents the total water available for use in the economy. 3.202 The use of this water is shown in part II of the use table, entitled “Abstracted water”, where the water available for use is recorded under the intermediate consumption of industries, the final consumption of households and exports to economic units in the rest of the world. 3.203 The abstracted water received from other economic units is the amount of water that is delivered to an industry, households or the rest of the world by another economic unit. This water is usually delivered through systems of pipes (mains), but other means of transportation are also possible (such as artificial open channels and trucks). 3.204 Within the economy, water is often exchanged between water distributors before being delivered to users. These water exchanges are referred to as intra-industry sales. There are cases, for example, where the distribution network of one distributor does not reach the water user and hence water must be sold to another distributor in order for it to be delivered. In principle, all intra-industry sales should be recorded following standard accounting principles. However, these exchanges are not recorded in the PSUT, as this would increase the total flows recorded 25 Soil water abstracted by non-cultivated plants is not in scope of the PSUT but there may be interest in recording these flows, for example, in respect of natural timber resources. 77Physical flow accounts even though there may be no additional physical flows of water; that is to say, the intra-industry sales are transactions of water in situ and the same physical flow of water occurs whether intraindustry sales take place or not. Nonetheless, depending on the volumes of water involved, it may be useful to present these intra-industry flows in a supplementary table. Flows of wastewater and reused water 3.205 After accounting for the distribution and use of water, it is necessary to consider flows of wastewater between economic units. Wastewater is discarded water which is no longer required by the owner or user. Wastewater can be discharged directly into the environment (in which case it is recorded as a return flow), supplied to a sewerage facility (ISIC division 37) (in which case it is recorded as wastewater to sewerage) or supplied to another economic unit for further use (in which case it is recorded as reused water). Flows of wastewater include exchanges of wastewater between sewerage facilities in different economies. These flows are recorded as imports and exports of wastewater. 3.206 In situations where wastewater flows to a treatment facility or is supplied to another economic unit, flows of water are recorded in part III of the supply table, entitled “Wastewater and reused water”, and part III of the use table, entitled “Wastewater and reused water”. Flows of wastewater are generally residual flows between economic units, since it is usually the case that the flow of wastewater to a sewerage facility is also accompanied by a payment of a service fee to the sewerage facility, that is to say, the sewerage facility does not purchase the wastewater from the discarding unit. 3.207 Reused water is wastewater supplied to a user for further use with or without prior treatment, excluding the reuse (or recycling) of water within economic units. It is also commonly referred to as reclaimed wastewater. Reused water is considered a product when payment is made by the receiving unit. 3.208 Reused water excludes the recycling of water within the same establishment (on site). Information on these flows, although potentially useful for analysis of water-use efficiency, is not generally available. However, a reduction in the total volume of water used, while the same level of output is maintained, can provide an indication of an increase in water-use efficiency which, in turn, may be due to the reuse of recycled water within an industry. 3.209 Once wastewater is discharged into the environment (e.g., into a river), its re-abstraction downstream is considered not a reuse of water in the accounting tables, but rather a new abstraction from the environment. Return flows of water to the environment 3.210 All water that is returned to the environment is recorded as being supplied to the environment in part IV of the supply table, entitled “Return flows of water”. In some cases, these flows will comprise flows of wastewater direct to the environment from industries and households, i.e., flows of wastewater not sent to treatment facilities. In other cases, these flows will comprise flows of water from treatment facilities following treatment. In the supply table, such flows are shown as being supplied by the various industries and households either to the inland water system or to other sources, including the sea. Corresponding volumes of water are recorded in part IV of the use table, entitled “Return flows of water”, with the flows shown as being received by the environment. 3.211 Some return flows of water to the environment are losses of water. Consistent with the general definition of losses outlined in section 3.2, losses of water encompass flows of water that do not reach their intended destination or have disappeared from storage. The primary type of losses of water are losses during distribution. System of Environmental-Economic Accounting 2012—Central Framework78 3.212 Losses during distribution occur between a point of abstraction and a point of use or between points of use and reuse of water. These losses may be caused by a number of factors including evaporation (e.g., when water is distributed through open channels) and leakages (e.g., when water leaks from pipes or distribution channels, including rivers in some cases, into the ground). In practice, when losses during distribution are computed as a difference between the amount of water supplied and the amount received, they may also include problems associated with water meters and theft. 3.213 Urban run-off, a significant flow of water, is that portion of precipitation on urban areas that does not naturally evaporate or percolate into the ground, but flows via overland flow, underflow or channels, or is piped into a defined surface-water channel or a constructed infiltration facility. Urban run-off that is collected by a sewerage or similar facility is recorded as the abstraction of water from the environment (and, by convention, attributed to the sewerage industry (ISIC division 37)) in the supply table. It may then be treated before returning to the environment or it may be treated and distributed as reused water. Urban run-off that is not collected by a sewerage or similar facility but flows directly to the inland water system is not recorded in the PSUT. 3.214 Although separate estimates for urban run-off may be available in some countries, these flows generally cannot be measured directly. Estimates may be obtained by measuring the difference between the volumes of wastewater discharged by economic units (industries and households) into sewers and the volumes of wastewater collected by the sewerage system. Evaporation of abstracted water, transpiration and water incorporated into products 3.215 To fully account for the balance of flows of water entering the economy through abstraction and returning to the environment as return flows of water, it is necessary to record three additional physical flows: evaporation of abstracted water, transpiration and water incorporated into products. 3.216 Flows of evaporation are recorded when water is distributed between economic units after abstraction, for instance, during distribution via open channels or while in water storage tanks and similar structures. The transpiration of water occurs when soil water is absorbed by cultivated plants as they grow and is subsequently released to the atmosphere. 3.217 Amounts of water incorporated into products (e.g., water used in the manufacture of beverages) are shown as supplied by the relevant industry, commonly a manufacturing industry. 3.218 The supply and use of evaporation of abstracted water, transpiration and water incorporated into products is recorded in part V of the supply and use tables, entitled “Evaporation of abstracted water, transpiration and water incorporated into products”. Ideally, these flows would be recorded separately, with the flows of evaporation of abstracted water and transpiration shown as going to the environment from the relevant water user, and the flows of water incorporated into products shown as retained in the economy, in the accumulation column. In practice, direct measurement of these flows, particularly as it relates to the distinction between transpiration and the water incorporated into cultivated plants, is usually not possible and hence a combined flow may be recorded. 3.5.4 Water aggregates 3.219 Water accounting provides a useful tool for improved water management. Many aggregates and indicators can be derived from PSUT and, using the structured framework, these data can be linked to data from the economic accounts in physical and monetary 79Physical flow accounts terms, to derive measures of intensity and productivity of water use. Three water aggregates are defined in the SEEA that are suited to particular analytical and policy questions. Other aggregates and indicators may also be compiled using data contained in the water PSUT with differences in what is included and excluded based on what questions are of policy or analytical interest. 3.220 Gross water input reflects the total water that is abstracted from the environment or imported. It can therefore provide an indicator of the pressures placed on the environment (or other countries’ environments) through the supply of water to the economy. In terms of entries contained in the water PSUT, it is equal to total abstracted water plus imports of water. For analytical purposes, it may be useful to disaggregate gross water input by source (e.g., surface water, groundwater, soil water or other sources including precipitation and sea water). Gross water input can also be measured by industry. 3.221 Net domestic water use focuses on the use of water by resident units. This aggregate excludes all flows of water between economic units (and hence is a net measure) and also deducts all exports of water. It is most directly defined as the sum of all return flows of water to the environment plus evaporation, transpiration and water incorporated into products. Net domestic water use can be compiled for individual industries and for households. Where exports and imports of water are relatively small, there will be little difference between gross water input and net domestic water use at a national level. However, there may be interest in compiling this aggregate at an industry level, for example, for agriculture or for the water collection, treatment and supply industry, or for regions within a country between which imports and exports of water may be significant. 3.222 The third main aggregate is final water use (generally referred to as water consumption within water statistics). Final water use is a key indicator of environmental pressure with respect to water, since it allows for the fact that a large proportion of the water abstracted is returned to the environment and hence may be re-abstracted. Final water use is equal to evaporation, transpiration and water incorporated into products and reflects the quantity of water no longer available for use. 3.223 The aggregates and indicators just described do not cover all changes in the stock of water in inland water resources. Of particular interest may be losses of water through evaporation, particularly from artificial reservoirs. These losses are recorded in the asset accounts for water resources described in section 5.11. 3.6 Physical flow accounts for materials 3.6.1 Introduction 3.224 The third subsystem of physical flow accounting encompasses flows of materials. In contrast to energy and water, materials are a far more diverse set of natural inputs, products and residuals. Consequently, although in principle a complete accounting for material flows on the basis of the mass of each type of material may be accomplished, in practice accounting for materials tends to focus either on particular materials or on specific types of flows. 3.225 In addition, there is interest in focusing on particular parts of the overall material flow cycle. For example, in section 3.2, emissions were classified as a type of residuals and defined as substances that are released by establishments and households into the air, water or soil as a result of production, consumption and accumulation processes. The focus on accounting for emissions is therefore not on the complete cycle through the economy of the particular substances that constitute emissions but only on the flow from the economy to the environment. Similar considerations apply in accounting for solid waste. System of Environmental-Economic Accounting 2012—Central Framework80 3.226 The present section discusses the main areas in which development of physical flow accounting for materials has taken place: (a) product flow accounting, (b) accounting for air emissions, (c) accounting for emissions to water and associated releases to economic units, (d) accounting for solid waste and (e) economy-wide material flow accounting (EW-MFA). In all cases, the accounting systems work within the context of the principles and structures outlined in sections 3.2 and 3.3. 3.6.2 Product flow accounting 3.227 For the management of specific products, it may be useful to trace the physical flows of an individual material from the environment, through the economy, and back into the environment. At a very detailed level, it is possible to track flows of elements, such as mercury, that may be of interest due to their hazardous nature. Using similar methods, flows of nutrients in the soil might be tracked in terms of the uptake of the nutrients by crops and the embodiment of these nutrients in other products. 3.228 As materials flow through the economy, they may become embodied in products that are more complex. These material flows can be analysed by combining the physical flow data with the economic relationships in standard supply and use tables. In this way, it is possible to estimate the quantity of specific materials required to yield final products. Such information is relevant for demand-based analysis of material flows and for the calculation of the upstream requirements of production which are necessary for life-cycle analysis and related analytical techniques. 3.229 A particular example of this type of material flow accounting is the compilation of nutrient balances. Nutrient balances track the flows of soil nutrients (nitrogen (N), phosphorus (P) and potassium (K)) from the soil through various products. Nutrient balances, particularly if calculated at a broad scale, necessarily require the use of multiple coefficients for the estimation of not only the total quantity of inputs, but also the extractions of nutrients embodied in products (e.g., harvested crops and fodder used for livestock). 3.230 Three major types of physical flows are used to construct nutrient balances on a broad scale: (a) First, product flows of fertilizer products, which may be organic or inorganic and are measured in tonnes of nutrients; (b) Second, flows of other organic inputs, which include own-account production of nutrients on farms through use of manure, and nutrients from natural cycling processes, such as natural fixation, that occur during the accounting period. These other organic input flows are estimated in a variety of ways depending on the type of flow; (c) Third, nutrients removed from the system when crops are harvested and when other plants and grasses are used for grazing by livestock. These flows are also estimated by applying relevant coefficients to data on the physical supply of crops, grasses and fodder and taking into account farming practices. The difference between the total inputs and the removals is the nutrient balance and represents the surplus or deficit of nutrients resulting from production processes. 3.231 Nutrient balances are related to the dissipative use of products (primarily fertilizers) (described in sect. 3.2.4) in agricultural and forestry activities. Positive nutrient balances (meaning that there are residuals from the dissipative use of products) are not necessarily lost to the relevant production unit. Depending on a number of factors, some of the residuals could remain in the soil as a stock of nutrients which might be useful for crop production in 81Physical flow accounts the future. However, a proportion of the positive balance for a given nutrient also commonly leads to degradation of nearby surface water and groundwater as well as emissions to air, e.g., in the form of nitrous oxide (a greenhouse gas). The case of negative nutrient balances (i.e., where removals exceed inputs for N, P or K) can be an indicator of a lack of sustainability in production since, ultimately, the production of crops cannot continue without an appropriate balance of each of the major nutrient categories in the soil.26 There are no residual flows in this situation. 3.232 While product flow accounting may be undertaken following different accounting rules suited or tailored to an individual product, it is recommended that accounting be undertaken consistent with the boundaries and definitions outlined in sections 3.2 and 3.3. This permits a much broader range of linkages and analysis, especially with associated economic data. 3.6.3 Accounting for air emissions 3.233 Emissions to air are gaseous and particulate substances released to the atmosphere by establishments and households as a result of production, consumption and accumulation processes. The SEEA air emissions account records the generation of air emissions by resident economic units, by type of substance. 3.234 In some situations, the gaseous and particulate substances generated through economic activity may be captured for use in other production processes (e.g., methane gas may be captured in landfill sites to generate energy) or transferred between economic units for use in production or for storage (e.g., of carbon emissions). To fully account for the flows of particular gaseous and particulate substances, it may be of interest to record the flows of these substances within and between economic units, in addition to emissions to air. This extension is not described in this section but in accounting terms, it follows the same general principles outlined in this chapter. 3.235 Since the focus is on the generation and release of residuals, there is no requirement that a complete PSUT be constructed. Rather, emphasis is on determining an appropriate scope for the measurement of air emissions which aligns with the scope and boundaries used in the compilation of the economic accounts. 3.236 The SEEA air emissions account is presented in table 3.7. Its structure is a reduced and reoriented version of that of the general PSUT presented in table 3.1. The left-hand part is the supply table, which shows the generation of emissions by industries and households, by type of substance. For the purpose of accounting for emissions of carbon dioxide, it is recommended that, where possible, carbon dioxide emissions resulting from the burning of fossil fuels should be distinguished from carbon dioxide emissions from biomass. 3.237 The column for accumulation shows the release of air emissions from controlled landfill sites as these reflect a release of emissions from production, consumption and accumulation activity in earlier periods. These emissions should be attributed to the waste management units that operate the landfill sites. 3.238 Air emissions by households are broken down by purpose (transport, heating, other). Additional purposes may be added depending on analytical requirements and available infor- mation. 26 More information on and guidelines for calculating nutrient balances are available from FAO, OECD and Eurostat. See, for example, “Gross nitrogen balances handbook” (OECD and Eurostat, 2007a). System of Environmental-Economic Accounting 2012—Central Framework82 SupplytableforairemissionsUsetableforair emissions GenerationofemissionsAccumulation Totalsupplyof emissions Flowstothe environment Total useof emissions Industries—byISICHouseholds Emissionsfrom landfill Emissions releasedtothe environment Agriculture ISICA Mining ISICB Manufactur- ing ISICC Transport ISICHOtherTransportHeatingOther Typeofsubstance Carbondioxide10610.32602.241434.427957.082402.418920.517542.21949.1701.6204119.6204119.6204119.6 Methane492.034.115.80.821.92.415.51.7222.0806.3806.3806.3 Dinitrogenoxide23.73.50.82.61.00.20.10.132.032.032.0 Nitrousoxides69.46.037.9259.589.038.012.11.30.3513.6513.6513.6 Hydrofluorocarbons0.30.40.70.70.7 Perfluorocarbons Sulphurhexafluoride Carbonmonoxide41.02.5123.846.266.2329.151.25.71.1666.9666.9666.9 Non-methanevolatileorganic compounds5.26.540.016.427.234.529.43.20.9163.3163.3163.3 Sulphurdioxide2.70.428.062.48.10.40.40.10.0102.5102.5102.5 Ammonia107.91.70.20.92.311.41.20.2125.9125.9125.9 Heavymetals Persistentorganicpollutants Particulates (includingPM10anddust)7.00.18.59.34.46.02.80.50.038.538.538.5 Table3.7 Airemissionsaccount(tonnes) 83Physical flow accounts 3.239 The right-hand part of the table represents the use table which covers the release of emissions to the atmosphere. Issues in the measurement of air emissions (a) Economic boundary with respect to air emissions 3.240 Some air emissions will occur when economic units undertake activity in other countries. Consequently, while the majority of air emissions will be released into the national environment, some air emissions from resident economic units will be released into the environment of the rest of the world. Consistent with the general definition of the economic boundary using the concept of residence, air emissions accounts for a nation will exclude emissions released within a national territory by non-residents (such as tourists and foreign transportation operations), whereas the emissions abroad of resident economic units will be included. 3.241 The nature of air emissions means that it is quite possible for air emissions released in one country to be carried through the atmosphere into the territory of another country. While these flows may be of considerable interest in understanding the state and quality of the atmosphere of a national environment, they are out of scope of air emission accounts, as they occur within the environment. 3.242 Air emission accounts also do not record the extent of the capture or embodiment of gases by the environment, for example, carbon captured in forests and soil. (b) Other scope and boundary issues 3.243 Included within the scope of air emissions in the air emissions account is a range of other emissions that are the direct result of economic production processes, namely, the emissions from cultivated livestock due to digestion (primarily methane), and emissions from soil as a consequence of cultivation or of other soil disturbances, arising, for example, from construction or land clearance. Emissions from natural processes such as unintended forest and grassland fires and human metabolic processes which are not the direct result of economic production are excluded. (c) Environmental boundary with respect to air emissions 3.244 Secondary emissions occur when emissions from various economic processes combine in the atmosphere to create new substances. These new combinations should be considered changes occurring in the environment and excluded from air emissions accounts. 3.245 Flaring and venting of residual gaseous and particulate materials into the atmosphere are part of the process of extracting natural gas and crude oil. These releases are included in the air emissions accounts. 3.246 Emissions from manure collected and spread on agricultural land are within scope of the air emissions accounts. The use of manure is considered the dissipative use of a product and, following the general guidelines in section 3.2, the emissions from the manure are considered flows from the economy to the environment rather than flows within the environ- ment. 3.247 The air emissions generated by industries and households should be measured at the point at which they leave an establishment, that is to say, they should be measured after the substances have passed through any relevant filtering or emission reduction technology or process within the establishment. System of Environmental-Economic Accounting 2012—Central Framework84 3.248 For example, landfill sites may generate air emissions but may also capture these gases to produce other outputs—for example, energy from methane captured on site—thereby releasing different air emissions direct to the atmosphere. However, only those emissions that leave the establishment should be recorded and attributed to the waste management industry.27 (d) Attribution of air emissions 3.249 Air emissions are released due to production, consumption and accumulation processes of industries and households. In order to permit effective linking of physical flow data to monetary data, the physical flows of emissions should be classified using the same classifications used in the SNA. For household consumption, it is necessary to consider both the purpose of the consumption and the actual product being used by households. This requires consideration of data classified by the Classification of Individual Consumption According to Purpose (COICOP) and by CPC. 3.250 The attribution of air emissions is of particular relevance in the measurement of air emissions from durable goods such as cars. Air emissions accounts should attribute the emissions according to the nature of the activity for which the durable goods are being used rather than according to the characteristics of the durable good. Thus, emissions from a car used for private household transport should be attributed to households, while emissions from a car used for the delivery of goods by a retailer should be attributed to the retail industry. 3.251 In addition to air emissions that are released through the operation of durable goods, there may also be emissions that are leaked into the atmosphere both during the good’s operating life and after it has been discarded. These leakages should be recorded as they occur and attributed to the owner of the good at the time of the leakage. It may be that the “ownership” of the discarded good is a landfill site, in which case the leakages should be recorded as part of the overall air emissions from the landfill site and attributed to the waste management industry operating the site. 3.252 Usually, emissions from solid waste in landfill sites will not relate directly to inflows of solid waste and other materials to the site during the current accounting period but, instead, will be due to the accumulation of solid waste over time. For this reason, it may be of analytical interest to consider only those emissions generated through the day-to-day operation of the landfill sites (e.g., emissions from the burning of fuel for trucks and machines), as the emissions from solid waste cannot be directly related to broader measures of economic activity in the current period. 3.253 Following the general accounting treatment for the activity of general government units, air emissions generated by government are recorded against the relevant industry activity (e.g., public administration). It is noted that waste management units often operate as part of general government activity. It may be difficult to separate these operations from the broader general government unit by which they are managed. Nonetheless, given the importance of waste management activities in accounting for air emissions, it is recommended that all possible efforts be made to identify these activities separately within the broader suite of general government activities. 27 Emissions from landfill sites will include emissions both from accumulated solid waste and from equipment used to operate the site. 85Physical flow accounts The relationship between air emissions accounts and other accounting frameworks 3.254 There is significant policy interest in air emissions, particularly carbon dioxide and other greenhouse gas emissions. For different reasons, other accounting frameworks are of particular importance in relation to the SEEA air emissions accounts. 3.255 The first is the accounting for emissions inventories under the auspices of the United Nations Framework Convention on Climate Change (United Nations, 1994). Many countries compile relevant statistics on emission inventories on a regular basis and there are close parallels in the accounting for air emissions as described in the SEEA. The main adjustments required to create a bridge between SEEA air emissions accounts and data required for the Framework Convention involve the emissions of residents abroad and non-residents in the territory. The focus of these adjustments is on land, water and air transport and national fishing vessels operating abroad. 3.256 The second important framework is the energy accounts described in section 3.4. Because a significant source of carbon dioxide and greenhouse gas emissions is the burning of fossil fuels, there are important connections between the measurement of air emissions and the measurement of energy accounts. Indeed, it is common for relevant sections of air emissions accounts to be compiled based on data contained in energy accounts. 3.6.4 Accounting for emissions to water and associated releases to economic units 3.257 Emissions to water are substances released to water resources by establishments and households as a result of production, consumption and accumulation processes. Emissions to water resources can constitute a major environmental problem and cause the quality of water resources to deteriorate. Some of the substances emitted into water resources are highly toxic and thus affect negatively the quality of the receiving water resource. Similarly, the presence of other substances, such as nitrogen and phosphorus, can lead to eutrophication, and organic substances can have effects on the oxygen balance, thus affecting the ecological status of a water resource. 3.258 Within the SEEA framework, it is relevant to account for both emissions of substances to water resources and releases of the same substances to the sewerage system by establishments and households. These releases are received and treated by sewerage facilities before emissions to water resources occur. The accounting coverage is therefore gross releases of substances to water resources and the sewerage system by establishments and households. The relevant flows are depicted in figure 3.2. 3.259 Accounts for gross releases to water, commonly referred to as water emissions accounts, present information on the activities responsible for the emissions and releases, the types and amounts of substances, as well as the destination of the emissions (e.g., water resources or the sea). Water emissions accounts are a useful tool for designing economic instruments, including new regulations to reduce emissions into the inland water system or seas and oceans. When analysed in conjunction with the technology in place to reduce gross releases and treat wastewater, data from water emissions accounts can be used in impact studies concerning the efficiency of current technologies in reducing substances in the water and concerning the potential of new technologies. Coverage of water emissions accounts 3.260 Water emissions accounts record the quantity of substances added to water by establishments and households during an accounting period. The quantities are expressed in terms System of Environmental-Economic Accounting 2012—Central Framework86 Figure 3.2 Flows in water emissions accounts Industry (e.g., mining, manufacturing, etc.) Households Sewerage industry Environment (e.g., surface water, oceans and seas, etc.) of mass (kilograms or tonnes, depending on the substance under consideration). Water emissions accounts cover: (a) substances added to wastewater and collected in the sewerage system; (b) substances added to wastewater discharged directly to water bodies; and (c) substances from non-point sources, for example, emissions and releases from urban run-off and emissions from agriculture. The water emissions accounts thus provide a description of the wastewater flows described in the PSUT for water in section 3.5, in terms of substances resulting from economic activity. The direct dumping of waste into water bodies is not covered in water emissions accounts but in solid waste accounts. 3.261 Sources of water emissions and releases are classified as point sources or non-point sources. Point source water emissions and releases are those for which the geographical location of the discharge of the wastewater is clearly identified. They include, for example, water emissions and releases from sewerage facilities, power plants and other industrial establishments. Non-point (or diffuse) sources of water emissions and releases are sources without a single point of origin or a specific outlet into a receiving water resource. Water emissions from non-point sources include substances carried off the land by urban run-off and releases of substances that result from a collection of individual and small-scale activities which, for practical reasons, cannot be treated as point sources. By convention, the emissions and releases associated with urban run-off that pass through sewerage facilities are attributed to the sewerage industry. 3.262 Emissions relating to returns of irrigation water and rain-fed agriculture are described in terms of the substances that are added to the return flows of water from agricultural land, primarily fertilizer and pesticide residues in the soil which infiltrate groundwater or run-off to surface water. Strictly speaking, flows of substances from soil to water resources should be considered flows within the environment and hence out of scope of the system of physical flows recorded in PSUT. However, given the significant policy interest in these flows, they may commonly be incorporated into water emissions accounts. 87Physical flow accounts Water emissions account 3.263 The structure of the SEEA water emissions account is presented in table 3.8. Its structure is a reduced version of that of the general PSUT presented in table 3.1. The top half of the table, the supply table, shows the generation of water emissions and releases by industries and households, by type of substance, and the treatment of releases by the sewerage industry. The bottom half of the table, the use table, shows the collection of releases to wastewater for treatment by the sewerage industry and the emissions to the environment. 3.264 The level of industry detail in the table is dependent on data availability and analytical interest. Where focus is on a particular type of substance, the rows of the table may be structured to reflect the destinations of the emissions and releases generated. Thus, for any particular industry or household, it is possible to show the quantity of emissions that flow directly to the environment and releases that flow to sewerage facilities. The environment column may also be disaggregated to show releases to the inland water resources or to the sea. 3.265 For analytical reasons, it may be useful to reallocate the emissions of substances by the sewerage industry to the economic unit responsible for the original release. In this regard, it is often difficult to calculate, as the sewerage industry usually treats flows of wastewater coming from diverse users of the sewage system in aggregate. Therefore, in general, an allocation is obtained by applying treatment or abatement rates of the sewerage facility to all releases collected by the facility. For details, see System of Environmental-Economic Accounting for Water (United Nations, 2012b). 3.266 The exchange of relevant substances with the rest of the world (imports and exports) covers the exchanges of substances associated with the release of wastewater from one economy to a sewerage facility in another economy. Water emissions accounts do not include “imports” and “exports” of substances through natural flows of water resources. Thus, the quantity of relevant substances in rivers crossing country borders and/or flowing to the open sea are not recorded in the water emissions account. Table 3.8 Water emissions account (tonnes) Physical supply table for gross releases of substances to water Generation of gross releases to water Accumula- tion Flows with the rest of the world Flows from the environ- ment Total supply Sewer- age industry Other indus- tries House- holds Emissions from fixed assets Emissions by type of substance BOD/CODª 5 594 11 998 2 712 20 304 Suspended solids Heavy metals Phosphorus 836 1 587 533 2 956 Nitrogen 10 033 47 258 1 908 59 199 Releases to other economic units BOD/COD ª 7 927 8 950 16 877 Suspended solids Heavy metals Phosphorus 814 6 786 7 600 Nitrogen 15 139 30 463 45 602 System of Environmental-Economic Accounting 2012—Central Framework88 Table 3.8 Water emissions account (tonnes) (cont’d.) Physical use table for gross releases of substances to water Generation of gross releases to water Flows with the rest of the world Flows to the environ- ment Total Use Sewer- age industry Other indus- tries House- holds Emissions received by the environment BOD/CODª 20 304 20 304 Suspended solids Heavy metals Phosphorus 2 956 2 956 Nitrogen 59 199 59 199 Collection by other economic units BOD/CODª 16 877 16 877 Suspended solids Heavy metals Phosphorus 7 600 7 600 Nitrogen 45 602 45 602 Note:  Dark grey cells are null by definition. a   BOD (biological oxygen demand) and COD (chemical oxygen demand) are measures of substances that have an unfavourable influence on the oxygen balance. More specifically, BOD is the mass concentration of dissolved oxygen consumed under specific conditions in the biological oxidization of organic and/or inorganic matter in water; and COD is the mass concentration of oxygen consumed under specific conditions by the chemical oxidization with bichromate of organic and/ or inorganic matter in water. 3.267 Included in the accounts are emissions of relevant substances from fixed assets (such as vessels operating within a country’s water resources) due, for example, to corrosion or fuel leaks. These flows are recorded in the accumulation column. Finally, emissions due to activities undertaken in water resources or seas (e.g., dredging of waterways and ports) are included and recorded against the relevant industry. 3.6.5 Solid waste accounts 3.268 Solid waste accounts are useful in organizing information on the generation of solid waste and the management of flows of solid waste to recycling facilities, to controlled landfills or directly to the environment. Measures of the amount of waste in aggregate or of quantities of specific waste materials may be important indicators of environmental pressure. The construction of solid waste accounts allows these indicators to be placed in a broader context with economic data in both physical and monetary terms. The definition of solid waste 3.269 Following the definition provided in section 3.2, solid waste covers discarded materials that are no longer required by the owner or user. Where the unit discarding the materials receives no payment for the materials, then the flow is considered a residual flow of solid waste. Where the unit discarding the materials receives a payment but the actual residual value of the material is small—for example, in the case of scrap metal sold to a recycling firm—this flow is considered a product flow of solid waste. 89Physical flow accounts 3.270 Discarded materials sold as second-hand products—for example, a second-hand car or furniture—should be treated as flows of products and not treated as solid waste. In the determination of whether a material is a second-hand product, consideration may be given of the extent to which the receiving unit can reuse the product for the same purpose for which it was conceived. 3.271 In practice, in many countries, statistics on solid waste will be based on legal and administrative lists of materials determined to be solid waste. However, the principles above should provide a basis for the measurement of solid waste in countries where legal or administrative processes concerning waste do not exist or are limited in scope. These principles may also provide a basis for the establishment or amendment of lists of solid waste materials. Structure of the solid waste account 3.272 The structure of the solid waste account is presented in table 3.9 located on pages 90 and 91. It follows the logic of the general PSUT described in section 3.2. There is no standard international classification of solid waste but for illustrative purposes, the table includes an indicative listing of types of solid waste based on the statistical version of the European Waste Catalogue (EWC-Stat).28 3.273 The upper half of the table is the supply table, whose first part, covering “Generation of solid waste residuals”, shows the generation of solid waste by industries and households. It also shows the supply of solid waste from the rest of the world (recorded as imports) and also solid waste recovered from the environment (e.g., oil recovered following an offshore oil spill, debris collected following a natural disaster, or the excavation of soil from locations at which hazardous chemicals were used). 3.274 The bottom half of the table is the use table, whose first part, covering “Collection and disposal of solid waste residuals”, shows the collection and disposal of solid waste through various activities within the waste collection, treatment and disposal industry and through related activities in other industries. It also shows the flow of solid waste to the rest of the world as exports and the flow of solid waste direct to the environment. 3.275 The columns of the table highlight the various activities of the waste collection, treatment and disposal industry. These are landfill operation, incineration of solid waste (of which incineration of solid waste to produce energy is separately identified), recycling and reuse activities, and other treatment of solid waste. Other treatment includes the use of physical-chemical processes, the use of mechanical-biological processes, and the storage of radioactive waste. More industry detail may be provided depending on analytical requirements and available information. Of particular interest may be the identification of cases where the activities just listed are undertaken as secondary or own-account production within other industries. 3.276 So that all information on the waste collection, treatment and disposal industry can be presented as a single group, the accumulation of waste in landfill sites is not presented in a distinct accumulation column as in the general PSUT. 3.277 In the second part of the supply table, on “Generation of solid waste products”, and in the second part of the use table, on “Use of solid waste products”, the flows of solid waste that are considered products rather than residuals are recorded, following the distinction described above. The flows recorded here relate to cases where a solid waste product is identified at the time of disposal by the discarding unit. The flow is recorded in the second part of the supply 28 See also Guidance on classification of waste according to EWC-Stat categories (Eurostat, 2010). System of Environmental-Economic Accounting 2012—Central Framework90 Table 3.9 Solid waste account (tonnes) Physical supply table for solid waste Generation of solid waste Rest of the world Flows from the environment Total supply Waste collection, treatment and disposal industry Other industries Households Imports of solid waste Recovered residualsLandfill Incineration Recycling and reuse Other treat- mentTotal Of which: Incineration to generate energy Generation of solid waste residuals Chemical and health-care waste 160 1 830 20 140 2 150 Radioactive waste 5 5 Metallic waste 40 10 320 70 10 440 Non-metallic recyclables 30 2 720 2 100 130 4 980 Discarded equipment and vehicles 140 280 50 470 Animal and vegetal wastes 10 330 1 700 80 12 110 Mixed residential and commercial wastes 10 30 4 170 4 660 100 10 8 980 Mineral wastes and soil 300 29 100 570 170 30 140 Combustion wastes 4 050 2 000 1 550 240 5 840 Other wastes 460 40 500 Generation of solid waste products Chemical and health-care waste 160 160 Radioactive waste Metallic waste 1 600 100 1 700 Non-metallic recyclables 1 030 2 940 3 970 Discarded equipment and vehicles Animal and vegetal wastes 5 310 8 460 13 770 Mixed residential and commercial wastes Mineral wastes and soil 350 80 430 Combustion wastes 378 286 220 50 648 Other wastes 91Physical flow accounts Physical use table for solid waste Intermediate consumption; collection of residuals Final consumption Rest of the world Flows to the environment Total use Waste collection, treatment and disposal industry Other industries Households Exports of solid wasteLandfill Incineration Recycling and reuse Other treat- mentTotal Of which: Incineration to generate energy Collection and diposal of solid waste residuals Chemical and health-care waste 290 570 910 380 2 150 Radioactive waste 5 5 Metallic waste 10 200 200 30 440 Non-metallic recyclables 550 500 2 930 1 340 160 4 980 Discarded equipment and vehicles 30 10 370 60 470 Animal and vegetal wastes 30 830 630 8 310 150 2 180 610 12 110 Mixed residential and commercial wastes 730 6 450 2 300 1 070 10 630 90 8 980 Mineral wastes and soil 1 010 720 22 630 5 170 610 30 140 Combustion wastes 50 400 5 190 200 5 840 Other wastes 20 120 40 320 500 Use of solid waste products Chemical and health-care waste 50 110 160 Radioactive waste Metallic waste 30 150 1 520 1 700 Non-metallic recyclables 50 2 500 1 420 3 970 Discarded equipment and vehicles Animal and vegetal wastes 630 8 010 5 130 13 770 Mixed residential and commercial wastes Mineral wastes and soil 70 200 160 430 Combustion wastes 600 48 648 Other wastes Note:  Dark grey cells are null by definition. System of Environmental-Economic Accounting 2012—Central Framework92 table, matched by a use of solid waste products in the second part of the use table. Sales of scrap metal would be recorded in this way. 3.278 Sales of products manufactured from solid waste, or simply obtained from waste collection, should not be included. For example, paper discarded by households, which is collected by a charitable organization and subsequently sold in bulk to a paper recycling firm, is recorded in the solid waste account only in respect of the initial flow of solid waste from households to the charitable organization. 3.6.6 Economy-wide material flow accounts (EW-MFA) 3.279 The purpose of economy-wide material flow accounts (EW-MFA) is to provide an aggregate overview, in tonnes, of the material inputs and outputs of an economy, including inputs from the environment, outputs to the environment, and the physical amounts of imports and exports. EW-MFA and associated balances constitute the basis for derivation of a variety of material flow-based indicators. Given their generally close alignment with PSUT, EW-MFA may be a useful starting point for the development of a fully articulated PSUT for the whole economy. 3.280 EW-MFA are well aligned with the PSUT described in this chapter but they do not attempt to focus on the detail of physical flows, particularly as related to flows within the economy. They generally focus on the mass of material entering the economy from the environment—natural resources and other natural inputs—and the mass of residuals flowing to the environment. Given their economy-wide focus, EW-MFA also focus on physical flows of goods to and from the rest of the world. With a macropurpose in mind, some practical choices on treatment have been made so that flows within the EW-MFA system can be estimated more straightforwardly. These choices are outlined below. 3.281 A full description of EW-MFA accounting and the associated indicators can be found in Economy-wide Material Flow Accounts and Derived Indicators: A Methodological Guide (European Commission and Eurostat, 2001). Useful background information may also be found in the OECD publication entitled “Measuring material flows and resource productivity: OECD guidance manual” Vol. II: “A theoretical framework for material flow accounts and their applications at national level” (OECD, 2008). Differences in treatment between EW-MFA and PSUT 3.282 International trade. EW-MFA estimates of physical flows of imports and exports are typically based on international trade data. While some adjustments are made to account for significant items such as fuel purchases abroad by resident economic units, a full adjustment of the trade data to a residence basis of recording as used in the PSUT is not currently attempted in EW-MFA accounts. It is noted that in comparing the PSUT with EW-MFA, it is necessary to consider the treatment of goods for processing, goods for repair, and merchanting, as described in section 3.3. 3.283 Recording of flows associated with biological resources. In EW-MFA, the treatment of cultivated crops, trees and other harvested plants differs from the treatment in the PSUT in that the flow from the environment to the economy is recognized at the point of harvest rather than as growth occurs. Consistent with drawing the boundary in this way, the uptake of soil nutrients and water and the inputs associated with photosynthesis are considered flows within the environment (between the soil and atmosphere and the plant itself), whereas in the PSUT, the plants are considered to be already within the economy and hence these flows are considered inputs from the environment to the economy and are recorded as natural inputs (see sect. 3.2). In effect, by recording the amount harvested rather 93Physical flow accounts than the input flows from the soil and the atmosphere, EW-MFA assume that the quantities harvested embody all of the different natural inputs. Since the harvested amounts can be more easily measured at an aggregate level, this different boundary is appropriate for EWMFA purposes. 3.284 In respect of cultivated livestock, aquatic and other animal resources, the flows from the environment to the economy are treated in the same way in both EW-MFA and the PSUT. Thus, as explained in section 3.2, the growth of cultivated livestock and fish is recorded as it occurs rather than at the point of harvest or slaughter. 3.285 The treatment of natural biological resources, both plants and animals, is also the same in both approaches: all wild plants and animals are recorded as entering the economy at the point of harvest. 3.286 Because of the treatment of cultivated plant resources, many natural inputs are not directly recorded in the EW-MFA. However, some inputs from air are recorded in relation to the respiration of livestock and the inputs absorbed during combustion. These inputs are referred to as “input balancing items” in EW-MFA. 95 Chapter IV Environmental activity accounts and related flows 4.1 Introduction 4.1 An important component of environmental-economic accounting is the recording of transactions in monetary terms between economic units that may be considered environmental. Generally, these transactions concern activity undertaken to preserve and protect the environment. Further, there are a range of transactions, such as taxes and subsidies, that reflect efforts by governments, on behalf of society, to influence the behaviour of producers and consumers with respect to the environment. 4.2 Most of these environmental transactions are recorded within the core national accounts framework but many cannot be easily identified owing to the structure of the accounts or the types of classifications that are used. The present chapter describes approaches that have developed for recognizing these transactions and provides appropriate definitions and accounts for organizing information on environmental transactions. 4.3 A strong motivation for undertaking this work is to identify an environmental component within the key aggregates of the SNA. Further, in combination with information on the changing pressures on the environment, information on these transactions may be used to help assess whether economic resources are being used effectively to reduce pressures on the environment and maintain the capacity of the environment to deliver benefits. In addition, different policies may be compared and contrasted. 4.4 The general approach to identifying transactions related to a particular theme or topic is described in the SNA in its discussion of satellite accounts. A satellite account is formed through the adaptation and rearrangement of the core structures of the SNA to suit particular objectives. For the objective of identifying environmental transactions, the primary rearrangement is based on consideration of the purpose underlying each transaction and using so-called functional classifications. The compilation of accounts, known as functional accounts, using these alternative classifications requires that the underlying statistics also be capable of reorganization so as to provide the requisite information. 4.5 As explained in this chapter, the first task (carried out in sect. 4.2) is to define environmental activities and the associated products and producers. 4.6 Section 4.3 describes the compilation of two sets of information needed for the analysis of environmental transactions: the environmental protection expenditure account (EPEA) and statistics on the environmental goods and services sector (EGSS). Both the EPEA and the EGSS statistics provide information that assists in understanding society’s response to the challenge of environmental degradation and depletion of natural resources, and the potential for economic activity to be based on environmentally friendly and more resource-efficient activities. However, each set of information presents a different coverage of, and perspective on, environmental activities. Section 4.3 also explains that the structure of the EPEA may be applied in the assessment of expenditures associated with resource management activities. System of Environmental-Economic Accounting 2012—Central Framework96 4.7 Section 4.4 considers a range of other transactions, including environmental taxes and subsidies, and permits and licences to use environmental assets, and transactions relating to fixed assets used in economic activities related to the environment. 4.2 Environmental activities, products and producers 4.2.1 Introduction 4.8 The traditional industry and product classifications are not capable of identifying the economic activities, products and producers that are characteristic of the environment. Alternative classifications are needed to distinguish the products and industries frequently associated with the environment from those in other activities through consideration of the purpose of different activities. Using a purpose-based approach, the present section examines the environmental activities covered in the Central Framework and discusses their scope and classification. 4.9 A distinction is drawn between those economic activities that should be considered environmental, and other economic activities that are closely associated with the environment or that use the environment directly in their production processes, for example, the extraction of mineral and energy resources. These activities may be considered “environmentally related” but, to varying degrees, all economic activities require a functioning environment and interact with the environment in some way. Hence, an exhaustive categorization and description of all environmentally related activities are not pursued in the SEEA. 4.10 This section concludes with a presentation of the different sets of environmental goods and services that are relevant in measuring the extent of environmental activities and the associated groups of environmental producers. 4.2.2 The scope and definition of environmental activities 4.11 The scope of environmental activities encompasses those economic activities whose primary purpose is to reduce or eliminate pressures on the environment or to make more efficient use of natural resources. Examples of these activities are restoring polluted environments, conservation and resource management, and investing in technologies designed to prevent or reduce pollution. 4.12 These various activities are grouped into two broad types of environmental activity: environmental protection and resource management. Environmental protection activities are those activities whose primary purpose is the prevention, reduction and elimination of pollution and other forms of degradation of the environment. These activities include, but are not limited to, the prevention, reduction or treatment of waste and wastewater; the prevention, reduction or elimination of air emissions; the treatment and disposal of contaminated soil and groundwater; the prevention or reduction of noise and vibration levels; the protection of biodiversity and landscapes, including of their ecological functions; monitoring of the quality of the natural environment (air, water, soil and groundwater); research and development on environmental protection; and the general administration, training and teaching activities oriented towards environmental protection. 4.13 Resource management activities are those activities whose primary purpose is preserving and maintaining the stock of natural resources and hence safeguarding against depletion. These activities include, but are not limited to, reducing the withdrawals of natural resources (including through the recovery, reuse, recycling and substitution of natural resources); restoring natural resource stocks (increases or recharges of natural resource stocks); the gen- 97Environmental activity accounts and related flows eral management of natural resources (including monitoring, control, surveillance and data collection); and the production of goods and services used to manage or conserve natural resources. 4.14 Resource management activities may result in associated secondary environmental benefits, such as protection and restoration of wildlife and natural habitats. However, activities undertaken specifically for biodiversity or landscape protection (e.g., management of protected forests) and activities aimed at preserving certain functions or the quality of the natural environment should be treated as environmental protection. Determination of primary purpose 4.15 While some economic activities may be undertaken only for a single purpose, many activities are undertaken for a variety of purposes. Following general principles of classification, activities are deemed to be environmental activities only if the primary purpose of the activity is consistent with the definitions of the two types of environmental activity listed as environmental, i.e., environmental protection and resource management. In practice, the primary purpose must be attributed to particular transactions or groups of transactions as recorded in the accounts. 4.16 In determining the primary purpose, a variety of motivations for undertaking the activity may be relevant. The activity may be undertaken on a purely voluntary basis, or in order to comply with relevant legislation or regulation, or within the framework of a voluntary agreement. 4.17 In some situations, it is necessary to consider the suitability of various goods and services for achieving environmental purposes by considering the good or service in question from a technical perspective. This is particularly relevant in the assessment of whether certain goods are “cleaner” or more environmentally friendly than other, similar goods. The issues of determining primary purpose are discussed further in section 4.3. 4.2.3 Other economic activities related to the environment 4.18 Many economic activities may be considered to be related to the environment. Historically, two broad types of economic activity have been discussed in this context, in addition to environmental activities of environmental protection and resource management defined above. They are: natural resource use activities; and activities associated with the minimization of the impact of natural hazards. 4.19 Natural resource use activities involve the extraction, harvesting and abstraction of natural resources, including related exploration and development. These activities are not considered environmental but owing to the specific and direct effect of the production processes involved on the environment, they may be of particular interest in the assessment of environmental impacts and the development of environmental policy. 4.20 A specific focus of interest in the area of natural resource use activities is activity associated with the abstraction and distribution of water. Functional accounts that cover both the use and management of water resources have been developed. These accounts consider the investment in water abstraction, storage and distribution facilities and the associated economic activity of abstracting, managing and distributing water resources. 4.21 Often, information on natural resource use activities is contained in standard presentations of economic statistics and national accounts following the standard classifications of economic activity. However, the level of detail required to target only the natural resource use System of Environmental-Economic Accounting 2012—Central Framework98 activity may be hidden, owing to variation in the levels of integration of associated economic activity undertaken by the establishments involved (e.g., processing of fish caught at sea). Information on natural resource use activity is of particular importance in the compilation of asset accounts for environmental assets, as described in chapter V. 4.22 The second set of economic activities related to the environment comprises activities associated with the minimization of the impact of natural hazards on the economy and society. These activities could include research, observation and measurement networks; surveillance and administration of hazard warning systems; provisions for fighting the effects of floods, forest fires and other natural hazards (including equipment); provisions for the evacuation of the population; and the building of structures to prevent hazards (e.g., fire barriers in forests, avalanche prevention barriers, dams to slow down water flows, and structures associated with renaturalization of river banks and other landscapes). In some cases, the primary purpose of these activities may be environmental protection, in which case they should be recorded as part of environmental protection activities, as defined above. 4.23 The collection and organization of information on activities that minimize the impact of natural hazards may be of particular interest in understanding the economic response to natural hazards and may also provide indicators of the economic impacts of changes to landscapes and water systems, including environmental changes due to climate change. While economic activity associated with adaptation to climate change is not considered an environmental activity per se, it is recognized that information on this activity may be of particular interest. 4.24 At this stage, there has been little development of functional classifications or accounts relating to activities that minimize the impact of natural hazards. Consequently, no recommendations regarding measurement scope, classification or compilation of accounts are provided in the Central Framework. 4.25 Besides economic activities aimed at protecting the environment and managing natural resources, there are activities aimed at avoiding or treating damage resulting from an already polluted environment. Examples include expenditure associated with avoiding local noise or air pollution by changing residence or job; expenditure on cleaning and restoring buildings that have been dirtied or damaged by air pollution; and expenditure on hospital treatment for people adversely affected by poor-quality environments. The common focus of these activities and expenditures is on protecting and managing the impact of environmental changes on people and produced assets rather than on protecting and managing the environment itself. Consequently, these activities are not considered environmental activities and are not discussed further in the Central Framework. 4.26 Increasingly, there are enterprises operating within traditional industry structures that aim to produce the same outputs but through means that may be viewed as more environmentally or ecologically “friendly”, including ecotourism, resource-efficient manufacturing and organic agriculture. The activities of these enterprises are considered environmental activities in the SEEA only to the extent that they satisfy the definition of environmental protection activities or resource management activities. 4.2.4 Classification of environmental activities 4.27 Section 4.2.2 above described the environmental activities in scope of the Central Framework. The present section outlines the classification of these environmental activities within the structure of the Classification of Environmental Activities (CEA). 4.28 The CEA is a functional classification used to classify environmental activities, environmental products and environmental expenditures and other transactions. It covers the two 99Environmental activity accounts and related flows types of environmental activities (environmental protection activities and resource management activities). The broad structure for the CEA is presented in table 4.1. The structure of the first group—environmental protection activities—mirrors the structure of the existing Classification of Environmental Protection Activities and Expenditure (CEPA) (United Nations, 2000). In this group, the activities are classified by environmental domain, such as air, waste and water. The structure of the second group, resource management activities, is based on the different types of resources, such as mineral and energy resources, timber resources and aquatic resources. Within both activity groups, activities that are broad-ranging, such as those relating to management and research, are allocated to the last class. Detailed classes and associated definitions for group I are consistent with the CEPA. Detailed classes and definitions for activities in group II have been included in annex I of the present publication to provide a starting point for the compilation of relevant statistics. However, further testing and development of these classes is required. This work is part of the SEEA Central Framework research agenda (see annex II). Table 4.1 Classification of Environmental Activities: overview of groups and classes Group Classes I: Environmental protection (EP) 1 Protection of ambient air and climate 2 Wastewater management 3 Waste management 4 Protection and remediation of soil, groundwater and surface water 5 Noise and vibration abatement (excluding workplace protection) 6 Protection of biodiversity and landscapes 7 Protection against radiation (excluding external safety) 8 Research and development for environmental protection 9 Other environmental protection activities II: Resource management (RM) 10 Management of mineral and energy resources 11 Management of timber resources 12 Management of aquatic resources 13Managementofotherbiologicalresources(excludingtimberandaquaticresources) 14 Management of water resources 15 Research and development activities for resource management 16 Other resource management activities 4.29 A particular boundary issue concerns the treatment of activities associated with the production of energy from renewable sources and the treatment of activities associated with energy saving. To a large extent, the treatment is likely to depend on the structure of the energy supply in each country. The treatment should be determined on the basis of the primary purpose of the activity, i.e., whether it is for environmental protection, resource management, or the general production of energy. 4.30 Where activity related to energy saving and renewable energy sources is of considerable importance, the allocation of this activity to different classes in different situations may impact on the comparability of aggregates related to environmental protection and resource management over time and across countries. Countries should apply the principle of allocation of these activities based on primary purpose. However, in some cases, there may be analytical interest in classifying all such activities under resource management, regardless of the primary purpose, to facilitate international comparisons. System of Environmental-Economic Accounting 2012—Central Framework100 4.2.5 Environmental goods and services 4.31 Based on the definitions of environmental activities, it is possible to define environmental goods and services and environmental producers. Environmental goods and services are different from ecosystem services. “Ecosystem services” is the term used to describe the contributions of ecosystems to benefits used in economic and other human activity (e.g., extracted natural resources, carbon sequestration and recreational opportunities). In contrast, environmental goods and services in the SEEA comprise only flows of products within the economy. 4.32 Environmental goods and services include specific services, connected products and adapted goods. In practice, the definition and measurement scope of these different products vary depending on the type of account or set of statistics being compiled. Hence, the relevant scope and definition of environmental goods and services for measurement purposes are separately described for environmental protection expenditure accounts (EPEA) and statistics on the environmental goods and services sector (EGSS) in section 4.3. 4.2.6 Environmental producers 4.33 Relevant sets of environmental producers can also be defined but, as for environmental goods and services, the measurement scope varies depending on the type of account or set of statistics being compiled. The main type of producer recognized in the different accounts and statistics is the specialist producer whose primary activity is the production of environmental goods and services. Also separately identified are non-specialist producers (who produce environmental goods and services for sale, although this is not their primary activity) and own-account producers. The relevant definitions of environmental producers for measurement purposes are described separately for EPEA and statistics on EGSS in section 4.3. 4.34 Some general comments on environmental producers do apply, however. Ownaccount producers are units that produce environmental products but do not sell these products to other economic units; instead, they consume the outputs themselves. Examples of this type of production include depollution of exhaust gases and the own-account incineration of solid waste. Since the own-account production is not the primary activity of these units, they are not treated as specialist producers. 4.35 Following the SNA, own-account production is not normally separately identified and the costs of undertaking the activity are assumed to be part of the overall costs of producing the primary or secondary output of the establishment. However, in the SEEA, given the need to focus on specific environmental activities, wherever they may occur in the economy, it is recommended that own-account production activities be separately identified whenever possible. Separate identification allows for not only a complete coverage of environmental activities but also analysis of changes in the extent of outsourcing of these activities to other establishments compared with undertaking of the activities “in-house”. 4.36 Many producers of environmental goods and services are government units that may be either specifically established to deliver these outputs (and hence are considered specialist producers) or part of larger government agencies. Most government units are non-market producers. Since the output of non-market units is measured quite differently (as the sum of costs), it is recommended that all relevant government producers be clearly separated. 4.37 Many environmental protection and resource management activities are undertaken by household units. Where production is undertaken for sale, these units are treated in the same way as any other specialist or non-specialist producer. Where the production is undertaken on own account, the output should also be recognized in accordance with the measure- 101Environmental activity accounts and related flows ment of own-account production, as discussed above. In this case, the value of own-account production will be reflected as household final consumption or gross fixed capital formation, depending on the type of output produced. 4.3 Environmental activity accounts and statistics 4.3.1 Introduction 4.38 The present section describes two different sets of information concerning environmental activity. The first set concerns recording, within an accounting framework, expenditures and related national accounts flows for environmental activities. Accounts of this type have been developed in relation to environmental protection. These environmental protection expenditure accounts (EPEA) and supporting statistics on environmental protection expenditure are widely available. Similar accounts and statistics for resource management activities are not as developed but can be compiled following the same concepts and definitions associated with the EPEA. 4.39 The scope of the EPEA is defined from a demand perspective in terms of the expenditures undertaken by economic units for environmental protection purposes. In addition, for environmental protection specific services, which are considered characteristic or typical of this activity, both the supply and the use of these services are considered within the EPEA framework. Thus, while the EPEA does not provide a complete view of the supply side for relevant goods and services, it does provide information on the supply of some of the more important environmental protection services. A full EPEA therefore requires information from both purchasers and suppliers of environmental protection services. 4.40 The EPEA is a type of functional account, as described in the SNA.29 The construction of the EPEA closely follows the concepts, definitions and accounting rules of the core national accounts. However, some degree of deviation from the SNA is required when considering either environmental specificities or the measurement objectives of the EPEA, which are more targeted than the broader macroeconomic focus of the core national accounts. 4.41 The second set of information focuses on the supply of environmental goods and services and is composed of a set of statistics describing the environmental goods and services sector (EGSS). These statistics include information on the production of the range of environmental goods and services, including environmental protection and resource management specific services, environmental sole-purpose products, and adapted goods. Unlike the EPEA, statistics on the EGSS are not compiled in a full accounting format; however, the statistics that are included are defined and measured in a manner consistent with national accounts principles. 4.42 While there is a reasonable degree of overlap between the EPEA and EGSS statistics, there are important differences as well. Section 4.3.4 contains a description of the relationship between the EPEA and EGSS statistics. 4.43 The compilation of the EPEA and EGSS statistics requires the collection and organization of data from a variety of sources. This section does not provide details on how these data can be obtained; however, compilation guidance and additional detail regarding these two sets of information can be found in SERIEE Environmental Protection Expenditure Accounts: Compilation Guide (European Commission and Eurostat, 2002a) and The Environmental Goods and Services Sector: A Data Collection Handbook (European Commission and Eurostat, 2009). 29 See chap. 29 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework102 4.44 Section 4.3.5 introduces an account for resource management expenditures. Although not widely developed, the construction of these accounts can be undertaken following the approach used for the EPEA. Resource management expenditure accounts may be of particular relevance in assessing responses to climate change and the management of natural resources. 4.3.2 Environmental protection expenditure accounts Purpose of the EPEA 4.45 The purpose of establishing accounts for environmental protection expenditure is to enable identification and measurement of society’s response to environmental concerns through the supply of and demand for environmental protection services and through the adoption of production and consumption behaviour aimed at preventing environmental degradation. To this end, the EPEA provide information on the output of environmental protection specific services produced across the economy and on the expenditure of resident units on all goods and services for environmental protection purposes. 4.46 With this information, the EPEA can be used to analyse the extent of environmental protection activities and to assess how expenditure on environmental protection is financed. The accounts can also be used to derive indicators for highlighting change in key areas, such as the expenditure on pollution prevention and abatement, the contribution made by environmental protection activities to the economy, and the shift to pollution-preventing technologies. 4.47 Measuring the financial commitment of an economy to environmental protection may assist in evaluating the influence of environmental protection costs on international competitiveness, the execution of the polluter pays principles, and the cost-effectiveness of environmental control mechanisms. Monetary data may also be used to examine the extent to which different economic agents internalize the actual costs of environmental protection in their decision-making. In this regard, data on environmental taxes may provide useful complementary information (see sect. 4.4). 4.48 Additional analysis may also be supported by linking expenditure on environmental protection to physical data, such as the amount of waste treated or the quantity of air emissions. Models may be developed that link potential changes in environmental pressures, such as air emissions, to future economic activity, given particular amounts of expenditure on environmental protection. EPEA tables 4.49 There are four main, interlinked EPEA tables. The first table is a combined production and generation of income account which presents information on the production of characteristic environmental protection products, i.e., environmental protection specific services, by resident producers. The second is a supply and use table for these specific services, which displays the total supply of specific services from resident producers and the rest of the world and the use of environmental protection specific services by various economic units. 4.50 The third table broadens the scope of the EPEA to include connected products and adapted goods purchased by those undertaking environmental protection activities. It also includes capital formation for environmental protection activities by specialist, non-specialist and own-account producers, and relevant environmental protection transfers. The inclusion of these flows provides an estimate of the total outlays by an economy on environmental protection which is reflected in the aggregate: national expenditure on environmental protec- 103Environmental activity accounts and related flows tion. The fourth table is an extension of the third table designed to present the financing of national expenditure on environmental protection. 4.51 The EPEA tables are all couched within the broader sequence of economic accounts that defines relationships between various transactions. Using the structure of the sequence of accounts means that the various transactions related to environmental protection can be easily related to each other and to other transactions, following the same accounting conventions that apply in the SNA. 4.52 The transactions in environmental goods and services presented in the tables in this section can be further disaggregated by classifying the relevant production and expenditure according to the environmental protection classes of the Classification of Environmental Activities as presented in section 4.2. Production of environmental protection specific services 4.53 Environmental protection specific services are those products that are “characteristic” or typical of environmental protection activity. Hence, environmental protection specific services are environmental protection services produced by economic units for sale or own use. Examples of environmental protection specific services are waste and wastewater management and treatment services. 4.54 The production of environmental protection specific services is presented in table 4.2. The production of environmental protection services is broken down by specialist producers, non-specialist producers and own-account producers. In addition, government specialist producers are separately identified. Table 4.2 Production of environmental protection specific services (currency units) Producers Total Specialist producers Non-specialist producers Own-account producers Government producers Other specialist producers Output of environmental protection specific services 3 000 6 500 2 400 1 600 13 500 Intermediate consumption 2 000 3 000 600 400 6 000 Environmental protection specific services 1 800 1 500 500 300 4 100 Other goods and services 200 1 500 100 100 1 900 Gross value added 1 000 3 500 1 800 1 200 7 500 Compensation of employees 600 2 000 1 200 800 4 600 Taxes less subsidies on production Consumption of fixed capital 400 1 000 600 400 2 400 Net operating surplus 500 500 Supplementary items Labour input (hours worked) 4 000 10 000 4 500 4 000 22 500 Gross fixed capital formation 1 100 1 000 2 000 500 4 600 Acquisition less disposals of non-produced, non-financial assets 200 4.55 Specialist producers in the EPEA are establishments whose primary activity is the production of environmental protection specific services. Non-specialist producers are those System of Environmental-Economic Accounting 2012—Central Framework104 establishments that produce environmental protection specific services as secondary output but have a different primary activity. The EPEA does not present information on the producers of other environmental goods and services. 4.56 The table shows output of environmental protection specific services and goes on to show a full range of production-related variables including intermediate consumption, value added, and compensation of employees. Where possible, the intermediate consumption of these producers should be split into the intermediate consumption of environmental protection specific services and the intermediate consumption of other goods and services. 4.57 An additional entry is made for gross fixed capital formation and acquisitions less disposals of non-produced, non-financial assets (such as land) used in the production of environmental protection specific services. Gross fixed capital formation targeted towards the production of specific services of specialist as well as other producers should be included. 4.58 All of the values in table 4.2 are measured in a manner consistent with the accounting conventions of the SNA. Consequently, aggregates such as gross value added and net operating surplus can be meaningfully compared with macroeconomic aggregates such as gross domestic product (GDP) as derived from the core national accounts framework. 4.59 However, it is noted that the inclusion of own-account production extends the range of entries compared with that of the core national accounts and hence measures of output and intermediate consumption will be larger in the EPEA relative to the core accounts than it would be if this activity were not separately identified. For market producers, the valuation of own-account production depends on the nature of the use of the production within the producing unit. If the production is used as part of intermediate consumption, then the output is valued as the sum of intermediate consumption, compensation of employees, other taxes (less subsidies) on production, and consumption of fixed capital. If the production is used as own-account capital formation, the value of output is the sum of the costs as just listed plus a net return on the fixed assets used in production. For non-market producers, such as government units, the output is measured as the sum of costs listed above and, by convention, no net return on fixed assets is included. Supply and use of environmental protection specific services 4.60 The production of environmental protection specific services is supplemented by imports in order that a measure of total supply may be obtained. Total supply is used by other economic units in the economy and may also be exported. These flows are recorded in table 4.3. The top half of the table, the supply table, shows the supply of specific services from the output of resident producers and from imports, and the link between the output of specific services valued at basic prices and the valuation of this output at purchasers’ prices. This follows the standard valuation relationships as described in chapter II. 4.61 In the second half of the table, the use table, the total supply of specific services is shown as: (a) intermediate consumption by either specialist or other producers, (b) final consumption by households or governments, (c) gross fixed capital formation or (d) exports to the rest of the world. All entries in the use table are in purchasers’ prices. Expenditure for environmental protection purposes 4.62 Table 4.4 constitutes a table relevant for the assessment of expenditure for environmental protection purposes. The scope of information on expenditure for environmental protection purposes is not limited to the use of environmental protection specific services as presented in table 4.3. The scope covers expenditure on all goods and services used for environmental pro- 105Environmental activity accounts and related flows Table 4.3 Supply and use of environmental protection specific services (currency units) Supply table Output at basic prices Taxes less subsidies on products Trade and transport margins Output at purchasers’ prices Imports Total supply Environmental protection specific services 13 500 270 13 770 13 770 Use table Intermediate consumption Final consumption Gross fixed capital formation Exports Total use Specialist pro- ducers Other producers Households Government Environmental protection specific services 1 500 7 400 2 970 1 800 100 13 770 tection, including (a) expenditure on environmental protection specific services; (b) expenditure on environmental protection connected products; and (c) expenditure on adapted goods. 4.63 The expenditure may relate to intermediate consumption, final consumption or gross fixed capital formation. There is potential for gross fixed capital formation to be recorded for environmental protection specific services, for example, for environmental protection research and development (R&D) (to the extent that the R&D is considered capital formation in the SNA) or in cases where the expenditure leads to improvements in land which, following the SNA, are treated as gross fixed capital formation in land improvements. Exports are not included in table 4.4, as they represent expenditure by non-resident economic units. 4.64 In addition, the table includes the total gross fixed capital formation and acquisitions less disposals of non-produced, non-financial assets by specialist and other producers for the purposes of producing environmental protection specific services. Finally, the table includes subsidies and similar transfers to the extent that they are not included in the value of goods and services already recorded (e.g., subsidies that reduce the market price of products are added back in, and transfers to and from the rest of the world are included). 4.65 Environmental protection specific services have been defined above. Environmental protection connected products are products whose use directly serves environmental protection purposes but which are not environmental protection specific services or inputs into characteristic activities. Examples of connected products include septic tanks, maintenance services and other products for septic tanks, catalytic converters for vehicles, trash bags, bins, rubbish containers and compost containers. 4.66 For connected products, it is important to understand the production arrangements taking place within a country. For example, when estimating the expenditure associated with the use of bins, wheeled rubbish containers, etc., those purchased by households should be treated as connected products but those that are purchased by specialist producers engaged in collecting waste should not be treated as connected products but, instead, should be included in the intermediate consumption or gross fixed capital formation of the specialist producers. System of Environmental-Economic Accounting 2012—Central Framework106 4.67 Adapted goods are goods that have been specifically modified to be more “environmentally friendly” or “cleaner” and whose use is therefore beneficial for environmental protection. Examples of adapted goods include desulphurized fuels, mercury-free batteries and CFC-free products. Only the extra costs paid in order to acquire adapted goods are considered environmental protection expenditure. Some specific difficulties in measuring adapted goods are discussed further below. 4.68 In table 4.4, all resident users of environmental protection goods and services are included. These comprise producers of environmental protection specific services, other producers, households, general government and non-profit institutions serving households. In this table, the entries in the columns for households, general government, and non-profit institutions serving households relate only to their consumption of environmental protection products. Any production of environmental protection products by these institutional sectors, including own-account production, should be included in the relevant industry column. 4.69 While table 4.4 provides the broad framework for the calculation of total national expenditure on environmental protection, a number of factors need to be considered. Users Total Industry Households General government NPISHª Producers of environ- mental protection specific services Other producers Specialist producers Non-spe- cialist andown- account producers Type of expenditure by product Environmental protection specific services Intermediate consumption NI 4 000 3 400 7 400 Final consumption 2 970 1 800 4 770 Gross fixed capital formation NI 100 100 Connected products Intermediate consumption NI 200 200 Final consumption Gross fixed capital formation NI Adapted goods Intermediate consumption NI Final consumption 600 600 Gross fixed capital formation NI Capital formation for characteristic activities 2 100 2 500 4 600 Transfers for environmental protection not included above Environmental protection transfers to and from the rest of the world (net) 200 200 Total national expenditure on environmental protection 2 100 6 500 3 700 3 570 2 000 17 870 Note:  Dark grey cells are null by definition.   “NI” means “not included in the derivation of total national expenditure on environmental protection”. a  Non-profit institutions serving households. Table 4.4 Total national expenditure on environmental protection (currency units) 107Environmental activity accounts and related flows (a) Measurement of gross fixed capital formation 4.70 The expenditure on assets by specialist producers and other producers required for the production of environment specific services are recorded separately. To the extent that specialist producers engage in no significant non-environmental protection activities, all of their expenditure on assets, including the purchase of fixed assets to undertake the production and the acquisition less disposal of non-produced, non-financial assets, particularly land, is within scope of environmental protection expenditure. The inclusion of all expenditure on assets does not apply to non-specialist or own-account producers. 4.71 As the gross fixed capital formation for characteristic activities by specialist, nonspecialist and own-account producers is recorded in a separate row in table 4.4, in principle, any such expenditure that includes purchases of environmental protection goods and services should not be counted a second time. For specialist producers, the cell for gross fixed capital formation on environmental protection goods and services is labelled “NI” (not included) in table 4.4. For non-specialist and own-account producers, such expenditure should also be counted only once. 4.72 For non-specialist and own-account producers, two particular types of gross fixed capital formation for environmental protection can be distinguished: (a) Expenditure on “end-of-pipe” technologies used to treat, handle or dispose of emissions and wastes from production. This type of expenditure is normally easily identified even within the context of own-account activity because it is usually directed towards an “add on” technology which removes, transforms or reduces emissions and discharges at the end of the production process; (b) Expenditure on “integrated” investments, also called cleaner technologies. These are new or modified production facilities designed to ensure that environmental protection is an integral part of the production process, thereby reducing or eliminating emissions and discharges and thus the need for end-of-pipe equipment. 4.73 Depending on the nature of the integrated investment, expenditure can be estimated based on the cost of the modification of existing equipment or on the extra cost due to pollution control, energy savings and the like (i.e., the cost of “non-polluting or less-polluting” equipment is compared with that of “polluting or more-polluting” reference equipment). It is noted that estimating the expenditure on integrated investments requires consideration of the general concerns in respect of measuring adapted goods, as described below. (b) Measurement of adapted goods 4.74 While the general concept of adapted goods can be explained, there are significant measurement challenges in compiling estimates of adapted goods. The primary difficulty is that adapted goods must be defined in reference to a base or equivalent normal good. With this normal good in mind, it can be determined whether another similar good is cleaner or more environmentally friendly. Such assessments are difficult to make when reference goods no longer exist or when new goods present other advantages in addition to their beneficial effects on the environment. These advantages may include savings on, or substitution of, raw materials and higher productivity, which cannot be isolated in terms of cost. 4.75 The steady integration of environmental standards into equipment and processes makes it more difficult over time to distinguish between a cleaner good and the equivalent normal good. Given the variety of speeds at which new environmental standards are incorporated into different types of equipment in different countries, the ability to make comparisons of long time-series across industries and countries may be limited. System of Environmental-Economic Accounting 2012—Central Framework108 4.76 Once a set of adapted goods has been defined, the appropriate value of expenditure needs to be determined. For the EPEA, only the net or extra cost of the adapted goods is included since from the perspective of the purchaser, it is only the extra cost that is considered to represent the amount spent for environmental protection purposes. 4.77 Typically, the method used to estimate the expenditure associated with the purchase of adapted goods is based on physical information about market size (e.g., the amount of desulphurized fuels used). These estimates are then valued by the extra costs associated with environmental protection features. As extra costs can be difficult to survey directly, expert assessment and technical knowledge may be used to estimate them (e.g., the extra costs of producing desulphurized fuels or environmental adaptations of vehicles). 4.78 While these measurement difficulties do exist, a misleading picture of expenditure for environmental protection purposes would result if the value of adapted goods was ignored. To support the measurement of adapted goods, lists of relevant products have been developed to form a basis for that measurement.30 Although many adapted goods may exist, experience from countries that have compiled an EPEA suggests that only a few are quantitatively important and involve significant extra costs. Indeed, for many adapted goods, no extra costs exist. (c) Accounting for intermediate consumption 4.79 In general terms, intermediate consumption is equal to the expenditure on goods and services by establishments in the production of their output. The intermediate consumption of other producers recorded in table 4.4 therefore reflects the purchase of environmental protection goods and services (including specific services, connected products and adapted goods) as part of their production of other goods and services. These environmental protection goods and services are either supplied by specialist or non-specialist producers, or imported. 4.80 For own-account producers, their output of environmental protection goods and services is valued as the sum of the costs of producing the output. These costs will include the purchase of a range of goods and services (as intermediate consumption) as well as associated salaries and consumption of fixed capital. The amount to be recorded as intermediate consumption of environmental protection specific services by the producers in the column for non-specialist and own-account producers in table 4.4 is the total value of own-account output, since this is the amount that represents the value of the intermediate consumption of environmental protection services in the main activity of the establishment. 4.81 For specialist and non-specialist producers, since their output is sold to other establishments, the costs of producing the output, including intermediate consumption, do not need to be recorded separately, since the value is captured in the expenditure on environmental protection goods and services by other units. 4.82 Special consideration is required concerning the intermediate consumption of environmental protection goods and services. For specialist producers, in order to prevent doublecounting, the intermediate consumption of environmental protection goods and services must be excluded from total national expenditure on environmental protection, as it is also included in the expenditure of other units purchasing the environmental protection specific services from specialist producers. Hence, the relevant cells for intermediate consumption of environmental protection goods and services by specialist producers are labelled “NI” (not included) in table 4.4. 30 For example, see SERIEE Environmental Protection Expenditure Accounts: Compilation Guide European Commission and Eurostat (2002a). 109Environmental activity accounts and related flows 4.83 In principle, this adjustment should also be made in relation to the intermediate consumption of environmental protection goods and services used by non-specialist and ownaccount producers, to the extent that these products are used as inputs into characteristic activities, i.e., they are used for own-account activities or to produce and sell environmental protection goods and services on the market. In practice, it is assumed that these uses are not significant; therefore, this adjustment is not necessary for non-specialist and own-account producers. (d) Adjustments for transfers and financing by the rest of the world 4.84 There may be transfers between economic units that affect the level of spending on environmental protection but are not recorded in the earlier categories of expenditure shown in table 4.4. For example, if government subsidizes some environmental protection expenditure, then the extent of this subsidy will not be shown at purchasers’ prices in the expenditure recorded. Generally, these transfers relate to subsidies on production and, in many countries, are not significant flows within the EPEA. It is noted that significant transfers may also be paid to and received from the rest of the world. Entries related to these transfers are recorded in the relevant rows at the bottom of table 4.4. (e) Total national expenditure on environmental protection 4.85 With these considerations in mind, total national expenditure on environmental protection is defined as: • Final consumption, intermediate consumption, and gross fixed capital formation on all environmental protection goods and services (specific services, connected products and adapted goods), except intermediate consumption and gross fixed capital formation for characteristic activities • Plus gross fixed capital formation (and acquisition less disposal of non-produced, non-financial assets) for environmental protection characteristic activities • Plus environmental protection transfers by resident units not captured in the items above • Plus environmental protection transfers paid to the rest of the world; • Less environmental protection transfers received from the rest of the world Financing environmental protection 4.86 The estimates of national expenditure on environmental protection show expenditure as undertaken by different users, but may not show who is the direct bearer of the cost because of environmental protection transfers between units. Such information, however, provides valuable insight regarding the source of the funds that finance national expenditure on environmental protection and regarding how changing financing structures may influence expenditure decisions. For example, if an investment grant for environmental protection is not available, an enterprise may be much less likely to undertake the investment in environmental protection technology and processes. 4.87 The expenditure undertaken by the users shown in table 4.4 can be cross-classified to show which units are directly responsible for the expenditures and which bear directly the costs of financing them. This is shown in table 4.5. For both current and capital transfers related to environmental protection, the unit making the transfer has an increase in expenditure and the unit receiving the transfer has a reduction. System of Environmental-Economic Accounting 2012—Central Framework110 Table 4.5 Financing of national expenditure on environmental protection (currency units) Users Total Producers of environmental protection specific services Other producers Households Government NPISHª Rest of the worldFinancing units Specialist producers Non-specialist and own- account producers Government 1 300 1 100 1 700 300 4 400 Corporations Specialist producers 800 5 400 6 200 Other producers 3 700 3 700 Households 3 570 3 570 National expenditure 2 100 6 500 3 700 3 570 1 700 300 17 870 Rest of the world 100 100 Total uses of resident units 2 100 6 500 3 700 3 570 1 800 300 17 970 a Non-profit institutions serving households. 4.88 Many of the environmental protection transfers will be subsidies or investment grants where the government is the payer of the transfers and it is industries, households or NPISH that benefit. An example of a transfer benefiting households is a grant to improve house insulation. In these cases, the expenditure is shown against the government who is providing the funding rather than against the user or beneficiary. 4.89 Another type of financing arrangement for which an adjustment can be made concerns earmarked taxes. Earmarked taxes are recorded where a direct link exists between the tax revenue collected and expenditure on particular projects. Where the expenditure is for environmental protection purposes, the amount financed by earmarked taxes should be shown as being financed by the units paying the taxes.31 4.90 Relevant financing flows concerning the rest of the world correspond to the transfers for international cooperation in the field of environmental protection. These transfers can be financed either by the government, international organizations, corporations or by households through non-governmental organizations. 4.91 Making adjustments for these forms of transfers provides information on the source of funds but does not completely determine who ultimately bears the cost of environmental protection. Costs that are initially borne by enterprises are eventually passed on to their customers. This applies to both intermediate consumption and the costs of new capital formation. Further, all government expenditure is funded (at least in large part) by taxes and thus the cost is ultimately borne by those paying the taxes. However, further adjustments with a view to examining the net cost burden of environmental protection are not considered in the SEEA. 31 To come under the rubric of earmarked taxes, the payment must be considered a tax, following the definitions of the SNA; and there must be clear and unambiguous knowledge, often evidenced in legislation, that the tax revenue will be used for the specific purpose of environmental protection. Depending on their tax bases, earmarked taxes may also be considered environmental taxes (see sect. 4.4.). 111Environmental activity accounts and related flows 4.3.3 Environmental goods and services sector (EGSS) Purpose of the EGSS statistics 4.92 The environmental goods and services sector (EGSS) considers environmental activities from the supply perspective and EGSS statistics present information on the production of environmental goods and services in as much detail as possible. This information is important in understanding the economic response to the challenges of environmental degradation and the depletion of natural resources. EGSS statistics provide indicators of the production of environmental goods, services and technologies; the contribution of this production within the economy as a whole; and the extent of related employment, investment and exports from the sector. 4.93 EGSS statistics also provide an information source for assessing (a) the potential for economic activity and employment to be based on environmentally friendly and more resource-efficient activities and (b) the extent to which the economy is responding to various public policies and initiatives that have this objective in mind. Defining these statistics in an internationally comparable way also permits cross-country comparison and assessment of best practice. EGSS statistics may also provide valuable source data for the EPEA or resource management expenditure accounts. 4.94 In principle, there is a wide range of economic variables that might be considered within an EGSS context but, owing to the complexity of measurement in this area, focus in the Central Framework is on the variables that give an indication of the relative economic size and contribution of the EGSS. Thus, the main variables included are the output, value added, employment, exports, and gross fixed capital formation related to the production of environmental goods and services. At this stage, a full functional account for the EGSS has not been defined. Scope and definition of the EGSS 4.95 The EGSS consists of producers of all environmental goods and services. Thus, all products that are produced, designed and manufactured for purposes of environmental protection and resource management are within scope of the EGSS. This aligns with the intent of the EGSS to provide information on the extent to which the economy may become more environmentally friendly and resource-efficient. The types of environmental goods and services in scope of the EGSS are environmental specific services, environmental sole-purpose products, adapted goods and environmental technologies. The definitions of these goods and services are outlined directly below. 4.96 The first type of environmental goods and services in the EGSS is environmental specific services. These services comprise environmental protection and resource management products that are “characteristic” or typical of those activities. Hence, environmental specific services are environmental protection and resource management specific services produced by economic units for sale or own use. Examples of environmental specific services are waste and wastewater management and treatment services, and energy and water-saving activities. 4.97 Consistent with the definition of environmental protection and resource management activities (see sect. 4.2), environmental specific services are those services that have the main purpose of: (a) Preventing or minimizing pollution, degradation or natural resources depletion (including the production of energy from renewable sources); (b) Treating and managing pollution, degradation and natural resource depletion; System of Environmental-Economic Accounting 2012—Central Framework112 (c) Repairing damage to air, soil, water, biodiversity and landscapes; (d) Carrying out other activities such as measurement and monitoring, control, research and development, education, training, information and communication related to environmental protection or resource management. 4.98 The second type of environmental goods and services is environmental sole-purpose products. Environmental sole-purpose products are goods (durable or non-durable) or services whose use directly serves an environmental protection or resource management purpose and that have no use except for environmental protection or resource management. Examples of these products include catalytic converters, septic tanks (including maintenance services), and the installation of renewable energy production technologies (e.g., solar panels). 4.99 The third type of environmental goods and services is adapted goods. Adapted goods are goods that have been specifically modified to be more “environmentally friendly” or “cleaner” and whose use is therefore beneficial for environmental protection or resource management. For the purposes of the EGSS, adapted goods are either: (a) “Cleaner” goods, which help to prevent pollution or environmental degradation because they are less polluting at the time of their consumption and/or scrapping, compared with equivalent “normal” goods. Equivalent normal goods are goods that provide similar utility except for the impact on the environment. Examples include mercury-free batteries and cars or buses with lower air emissions; (b) “Resource-efficient” goods, which help to prevent natural resource depletion because they contain fewer natural resources in the production stage (e.g., recycled paper and renewable energy, heat from heat pumps and solar panels); and/or in the use stage (e.g., resourceefficient appliances and water-saving devices such as tap filters). 4.100 Adapted goods differ from environmental specific services and sole-purpose products because, while they serve an environmental protection or resource management purpose (through being cleaner or more resource-efficient), these are not the primary reasons for their production (e.g., the primary purpose for manufacturing buses with lower air emissions is transportation). 4.101 Compared with the definition of adapted goods in the EPEA, the scope of adapted goods in the EGSS is broader through the inclusion of goods beneficial for resource management and also because the full value of adapted goods is included rather than only the extra cost compared with that of the equivalent normal good. A consequence of these differences is that the number of adapted goods within scope of the EGSS is much larger. Some of the difficulties in measuring adapted goods as described in section 4.3.2 apply equally in the EGSS context. 4.102 The fourth type of goods and services is environmental technologies. Environmental technologies are technical processes, installations and equipment (goods), and methods or knowledge (services), whose technical nature or purpose is environmental protection or resource management. Environmental technologies can be classified as either: (a) End-of-pipe (pollution treatment) technologies, which are mainly technical installations and equipment produced for measurement, control, treatment and restoration/correction of pollution, environmental degradation, and/or resource depletion. Examples include plants within which to treat sewage, equipment for measuring air pollution, and facilities for the containment of high-level radioactive waste; (b) Integrated (pollution prevention) technologies, which are technical processes, methods or knowledge used in production processes that are less polluting and less resource-intensive 113Environmental activity accounts and related flows than the equivalent “normal” technology used by other producers. Their use is less environmentally harmful than that of relevant alternatives. 4.103 Note that some environmental technologies may be included in the earlier categories of sole-purpose products or adapted goods. 4.104 Excluded from the scope of environmental goods and services are goods and services produced for purposes that, while beneficial to the environment, primarily satisfy technical, human and economic needs or that are requirements for health and safety. Goods and services related to minimizing the impact of natural hazards and those related to the extraction, mobilization and exploitation of natural resources are also excluded. 4.105 In practice, the measurement of environmental sole-purpose products and adapted goods relies on the development of lists of relevant goods and services. For sole-purpose products, the purpose of goods or services is predominantly determined based on the technical nature of the product and its technical suitability for use in environmental protection or resource management. In certain boundary cases, where the technical nature of the product does not provide a definitive guide, consideration may be given to the intent of the producer of the product. For adapted goods, the lists are formed without reference to the primary purpose of the good but are formed based on an assessment of whether, by virtue of its technical nature, the good is environmentally friendly or cleaner. 4.106 Many of the products supplied by the EGSS are also recorded in the EPEA, described in section 4.3.2. The EPEA can be an important data source for the EGSS (and vice versa) and, in principle, the two systems can be fully reconciled. A reconciliation would need to take into account, for example, that the EPEA includes all of the gross fixed capital formation for environmental protection characteristic activities but that not all of the products used for this gross fixed capital formation can be identified as being specifically manufactured for environmental purposes in the EGSS. Hence, the EGSS output of capital goods designed for environmental protection will differ from the total gross fixed capital formation recorded in the EPEA. In practice, a full reconciliation is a complex operation that is rarely achieved. 4.107 In the EGSS, specialist producers are those producers whose primary activity is the production of environmental goods and services, including specific services, sole-purpose products, adapted goods and environmental technologies. This scope is broader than the scope of specialist producers in the EPEA which is limited to producers whose primary activity is the production of environmental protection specific services. 4.108 Government producers are separately recorded as an important type of specialist producer. Non-specialist and own-account producers, including households, are also separately identified in the EGSS. Own-account production is measured following the treatment outlined in section 4.2. 4.109 Because of the production focus of EGSS statistics, there may be interest in structuring information by type of economic activity following ISIC or by institutional sector (corporations, government, households, non-profit institutions serving households). Statistics on the EGSS 4.110 The basic structure of statistics concerning the EGSS follows the format presented in table 4.6. Each type of output of environmental goods and services may also be classified, following the relevant parts of the Classification of Environmental Activities, by allocating the value of output to relevant classes of environmental protection activity or resource management activity. System of Environmental-Economic Accounting 2012—Central Framework114 Table 4.6 Environmental goods and services sector (currency units) Producers Specialist producers Non-specialist producers Own-account producers Government producers Other specialist producers Output of environmental goods and services Environmental specific services Environmental protection 3 000 6 500 2 400 1 600 Resource management 3 100 4 500 300 1 600 Sole-purpose products Environmental protection 250 Resource management 400 Adapted goods Environmental protection 1 000 Resource management 3 000 End-of-pipe technologies Environmental protection 100 200 1 200 100 Resource management 100 300 1 500 Integrated technologies Environmental protection 800 Resource management 700 Total environmental goods and services produced 6 300 11 500 11 550 3 300 Intermediate consumption 3 800 6 500 6 700 1 450 Gross value added 2 500 5 000 4 850 1 850 Compensation of employees 2 100 4 200 4 300 1 500 Gross fixed capital formation 1 500 1 820 1 500 590 Exports of environmental goods and services 200 2 300 Employment (thousands of people) 120 210 220 80 4.111 The size of the EGSS is not equal to the total output of all of the producers within scope of the EGSS. Most EGSS producers will also produce a range of other goods and services and therefore the production of environmental goods and services may be only a relatively small component of their total output. This may be recognized through inclusion of data on the total output of other goods and services and derivation of the share of environmental goods and services in total output. 4.112 All variables are measured following standard national accounts conventions and principles. Variables other than output, such as intermediate consumption, gross value added, compensation of employees, employment, gross fixed capital formation and exports, should reflect amounts related only to an establishment’s production of environmental goods and services. Where direct estimates of these variables with respect to the production of environmental goods and services cannot be obtained, an estimation approach can be utilized, which entails multiplying the estimate of the variable (e.g., total intermediate consumption) by the output share for environmental goods and services. Since this assumes that the production function of the producer is the same for environmental goods and services and other goods and services, estimates obtained using this approach should be assessed in conjunction with expert advice, as available. This is particularly the case with regard to estimates of gross fixed capital formation, since the relationship between patterns of investment and the output of environmental goods and services may vary considerably. 115Environmental activity accounts and related flows 4.3.4 Relationship between the EPEA and the EGSS 4.113 While both the EPEA and the EGSS are focused on the measurement of environmental activities, they so do from different perspectives. Consequently, there are important differences between them. The main differences are described directly below and summarized in table 4.7. 4.114 Accounting structure. The EPEA follows a more complete functional accounting structure. It links the supply and use of environmental protection specific services with expenditure on connected products and adapted goods and other relevant environmental protection transactions (including taxes and subsidies) in the sequence of accounts. The EGSS, at this stage of its development, focuses only on statistics related to the production of environmental goods and services. 4.115 Coverage of environmental activities. The EPEA covers only environmental protection characteristic activities, while the EGSS covers production activity for both environmental protection and resource management. It is noted, however, that the accounting structure of the EPEA can be applied in the development of a resource management expenditure account. 4.116 Coverage of goods and services. Given its demand perspective, the EPEA includes all goods and services that are used in undertaking environmental protection activity, not all of which are environmental goods and services. For example, capital formation within environmental protection expenditure will include not only any specialized equipment purchased, but also the more general expenditure on buildings, cars, computers, etc., required by producers of environmental protection specific services. The EGSS, on the other hand, focuses on environmental goods and services from a production perspective and defines the scope of goods and services from a technical product-based perspective. 4.117 Coverage of environmental producers. In the EPEA, as the information concerning production is limited to environmental protection specific services, its specialist producers are only those establishments whose primary activity is the production of environmental protection specific services. In the EGSS, production is the main focus and in these statistics, specialist producers are those whose primary activity is the production of any environmental good or service. 4.118 Valuation of adapted goods. When valuing output, the EGSS includes the total value of adapted goods. For the EPEA, the focus is on the cost incurred for environmental protection purposes and therefore only the extra cost associated with the purchase of adapted goods is included. Thus, the expenditure on cleaner goods that are not more costly is not included in the EPEA. 4.119 Coverage relating to international trade. Both the EGSS and the EPEA record imports and exports of goods and services in a manner consistent with the national accounts. However, in the EPEA, the expenditure of residents includes imports from the rest of the world, while in the EGSS the production of resident producers includes exports sent to the rest of the world. Comparison of aggregate measures of expenditure and production from each set of statistics should take this difference into account. 4.120 Treatment of taxes and subsidies. When valuing output, the EGSS measures are valued at basic prices and hence exclude taxes on production and include subsides on production. Measures of expenditure in the EPEA are valued at purchasers’ prices, thus including taxes on production and excluding subsidies on production. Also, the measure of national expenditure on environmental protection includes any additional environmental protection related subsidies that are not already captured in the value of expenditure on environmental goods and services themselves, as well as transfers to and from the rest of the world. System of Environmental-Economic Accounting 2012—Central Framework116 Table 4.7 Comparison of the EPEA and the EGSS Area of difference EPEA EGSS Accounting structure Full functional account Table of production related statistics Coverage of environmental activities Environmental protection characteristic activities Production of goods services used for environmental protection and resource management Coverage of goods and services All environmental protection goods and services and expenditure on other goods and services for environmental protection purposes All environmental protection and resource management goods and services Coverage of environmental producers Producers included only in relation to environmental protection specific services Producers included in relation to all environmental goods and services Valuation of adapted goods Net/extra cost only Full value (at basic prices) Coverage relating to international trade Imports included in aggregate measures of expenditure Exports included in aggregate measures of production Treatment of taxes and subsidies Valuation of expenditure at purchasers’ prices Valuation of output at basic prices 4.3.5 Accounts for resource management expenditures 4.121 Although not widely developed in practice, it is possible to develop accounts for recording expenditures for resource management purposes following the same basic structure as outlined for the EPEA. Resource management expenditure accounts may thus comprise accounts encompassing the production of resource management specific services, the supply and use of resource management specific services, national expenditure on resource management, and the financing of national expenditure on resource management. Similar considerations concerning the measurement of expenditure also apply. 4.122 It may be relevant to compile resource management expenditure accounts for a specific type of resource (e.g., timber resources or water resources) rather than for all types of resources. Again, the same structure of accounts can be applied. 4.123 The development of resource management expenditure accounts may benefit from the development of EGSS statistics that encompass the production of resource management goods and services. 4.4 Accounting for other transactions related to the environment 4.4.1 Introduction 4.124 There is a wide range of transactions related to the environment that are recorded in the core framework of the national accounts. Many of these transactions have been discussed in the previous section, on the measurement of the EPEA and the EGSS. In that section, emphasis was placed on the purpose of the transaction from the perspective either of the producer or of the purchaser. The types of transactions considered primarily related to output, intermediate consumption, final consumption and gross fixed capital formation. 4.125 The present section focuses on other transactions in the core national accounts framework which may be of interest in the analysis of the economic aspects of the environment. Of particular interest in this regard are flows of environmental taxes and subsidies. 117Environmental activity accounts and related flows 4.126 The role of government in the interactions between the economy and the environment is of interest to many. For politicians and government officials, there is particular interest in determining whether various incentives or penalties can be effectively used to influence economic and human behaviour in relation to the environment. For households and enterprises, there is interest in knowing the costs and benefits involved in using natural resources (such as timber resources) and ecosystem services (such as the atmosphere, as a sink for pollution). 4.127 Many of the mechanisms by which economic behaviour is influenced so that environmental policy objectives can be met involve payments to government, most commonly in the form of taxes, permits and rent; and payments by government in the form of subsidies and other transfers. These transactions are recorded in the national accounts framework but are generally not separately identified as relating to the environment. This section describes the relevant definitions and boundary issues relevant to enabling the organization of information about these transactions and allowing comparisons over time and across countries. 4.128 Environmental taxes and subsidies must be considered within a broader framework of payments to and from government. This is required because under national accounting and government finance statistics guidelines, there is generally a focus on how the payment relates to the production or consumption process rather than on the purpose of the payment. Thus, for example, taxes on income are clearly distinguished from taxes on goods and services. 4.129 The SEEA records only taxes and subsidies for which an actual transaction takes place between institutional units. In some cases, there is interest in the value of so-called implicit subsidies, for example, through tax exemptions or preferential tax rates. However, as there are no transactions recorded in relation to these amounts following standard national accounts principles, no estimates of the values of these flows are included in the SEEA. 4.130 In addition to payments to and from government, there are other transactions of a similar nature recorded in the national accounts that may be of interest in the analysis of environmental matters. Examples are donations made by households and enterprises to nonprofit environmental groups. Table 4.8 describes a broader framework of payments to and from government and similar transactions between other sectors. 4.131 The final type of transactions discussed in the Central Framework are those transactions associated with the extraction and use of environmental assets (primarily natural resources) and transactions concerning fixed assets used in economic activities related to the environment. Transactions concerning the use of environmental assets include payments of rent, the granting of permits and licences, and other similar payments. A particular focus of discussion in this section is the appropriate accounting entries for recording permits for the use of environmental assets as a sink. 4.132 Transactions concerning fixed assets used in economic activities related to the environment primarily concern the accounting entries required to consider the full cost of fixed assets and, in particular, the cost of disposing of fixed assets at the end of their operational life and restoring the surrounding environment. 4.133 While the set of transactions covered in this section is broad-ranging, all of these transactions fit within the structure of the sequence of accounts, as described in section 6.2. The sequence of accounts highlights relationships between different types of transactions and ensures that all transactions can be related to particular economic aggregates and balancing items such as GDP, gross national income and net saving. System of Environmental-Economic Accounting 2012—Central Framework118 Table 4.8 Selected payments to and from government and similar transactions Payments received by Government Corporations Households NPISHa Rest of the world Payments made by Government Transfers between levels of government Subsidies and investment grants Current and capital transfers Subsidies; current and capital transfers Current and capital transfers Corporations Taxes, fines, fees, charges and rent Rent Rent Donations Donations to NPISH in rest of the world Households Taxes, fees, charges and fines Donations Donations NPISHª Taxes Current and capital transfers Current and capital transfers Current and capital transfers Rest of the world Taxes and current transfers Donations a   Non-profit institutions serving households. 4.134 Discussed below are payments by government; payments to government, primarily environmental taxes; payments for the extraction and use of environmental assets; and, finally, transactions in fixed assets used in economic activities related to the environment. 4.4.2 Environmental payments by government 4.135 Payments by government are recorded in a number of places in the national accounts and government finance statistics. The treatment largely depends on how the payments relate to production and consumption and whether they are considered to be current or capital in nature. 4.136 All of the payments considered in this section are transfers. A transfer is a transaction in which one institutional unit (in this case, the government) provides a good, service or asset to another unit without receiving from the latter any good, service or asset in return as a direct counterpart.32 Consequently, this section does not include payments by government for the purchase of goods and services. 4.137 Often, transfers by government are generically referred to as “subsidies”. However, in economic accounting, only certain transfers are treated as subsidies. The relevant definitions for the various transfers by governments are outlined directly below. Environmental subsidies and similar transfers 4.138 An environmental subsidy or similar transfer is a transfer intended to support activities that protect the environment or reduce the use and extraction of natural resources. It includes 32 See para. 8.10 of the 2008 SNA. 119Environmental activity accounts and related flows those transfers defined by the SNA as subsidies, social benefits to households, investment grants and other current and capital transfers.33 More specifically: • Subsidies are current unrequited payments that government units, including nonresident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods and services that they produce, sell or import. • Social benefits to households are current transfers received by households that are intended to provide for the needs that arise from certain events or circumstances, for example, sickness, unemployment, retirement, housing, education or family circumstances. • Investment grants consist of capital transfers made by governments to other resident units or non-resident units to finance all or part of the costs of their acquisition of fixed assets. • Other current transfers consist of all current transfers between resident institutional units, or between resident and non-resident units, other than current taxes on income, wealth, etc., social contributions and benefits, and social benefits in kind. They include transfers between levels of governments, between general government and foreign governments, and transfers to and from non-profit insti- tutions. • Other capital transfers consist of all capital transfers except capital taxes and investment grants. Examples include transfers from central government to units at lower levels of government; and legacies, large gifts and donations by households or enterprises to non-profit institutions intended to finance the purchase of fixed assets. 4.139 Determination of whether a particular transfer by government is environmental is based on consideration of the purpose of the transfer. From an analytical perspective, the primary focus is to determine how much expenditure is being allocated towards achieving environmental outcomes. Thus, a subsidy or similar transfer should be treated as environmental when the primary intent or purpose of the government is for resources to be used for either environmental protection or resource management purposes. 4.140 In principle, a decision on whether the primary purpose of a transfer is environmental should be made for each individual transfer. Then, once a decision on the primary purpose has been made, the total value of the transfer is treated as being for that primary purpose. 4.141 In practice, information on transfers by government is usually contained in budget and other government expenditure data. Generally, these data do not show individual transactions and more commonly will provide information by type of government programme, thus including a large number of individual transfers. It will usually be the case that such programmes have multiple purposes and hence determining the number and value of individual transfers that have a primary purpose of environmental protection or resource management may require additional information. 4.142 In these situations, it may be necessary to estimate the share of the value of transfers for a given government programme that reflects the value of individual transfers within the programme that have environmental protection or resource management as their primary purpose. 33 Detailed descriptions of these transfers are contained in paras. 7.98-7.106, 8.87-8.140 and 10.200- 10.212 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework120 4.143 The determination of primary purpose should not be based on whether the use of the resources by the recipient of the transfer results in positive outcomes for the environment. While it is reasonable to consider that the purpose of the government in making the transfer and the purpose of the recipient are the same, it may not be the case that the expenditure of the transferred resources results in beneficial environmental outcomes, even if this was the intent. 4.144 For analytical purposes, an aggregate measure of these different payments may be compiled. The aggregate measure of environmental subsidies and similar transfers paid by government is the summation of all those types of transfers listed above that are considered to be environmental, based on the primary purpose of the payment. (a) Classification of environmental subsidies and similar transfers 4.145 Since the definition of environmental subsidies and similar transfers is based on the assessment of environmental protection and resource management purposes, then, in principle, it is possible to classify these transfers using the Classification of Environmental Activities (CEA), part I (Environmental protection activities), and part II (Resource management activities). However, given the multipurpose nature of these transfers, fine levels of disaggregation may be difficult to compile in practice. 4.146 For accounting and analytical purposes, it is necessary to separate the transfers into those of a current and those of a capital nature following the definitions in the SNA.34 It may also be useful to classify the transfers by the industry or institutional sector of the recipients following ISIC or standard SNA institutional sector classifications. (b) Potentially environmentally damaging subsidies 4.147 The definition of environmental subsidies and similar transfers focuses on the government’s intention rather than on the effect on the environment arising from the use of the resources provided. Another perspective that may be taken is whether the size and structure of payments from governments are environmentally beneficial or environmentally damaging. A measure reflecting this perspective is the potentially environmentally damaging subsidy (PEDS), encompassing subsidies and similar transfers that support activities that are considered environmentally damaging. In some definitions, this measure also includes so-called implicit (or indirect) subsidies, such as preferential tax rates. A definition of PEDS is not included in the SEEA. 4.4.3 Environmental payments to government Environmental taxes 4.148 The majority of the different payments made to government are taxes. Taxes may be labelled in different ways and thus care must be taken to ensure that the underlying basis of the payment is well understood. 4.149 Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to government units.35 They are grouped in the following categories: (a) Taxes on products, which are taxes payable per unit of some good or service. Taxes on products include value added type taxes, taxes and duties on imports, and export taxes; 34 See para. 8.10 of the 2008 SNA. 35 For details on the definitions of the different types of taxes, refer to paras. 7.71-7.97, 8.52-8.64 and 10.207 of the 2008 SNA. 121Environmental activity accounts and related flows (b) Other taxes on production, which comprise all taxes except taxes on products that enterprises incur as a result of engaging in production. Examples include taxes payable on land, fixed assets or labour employed in the production process; (c) Taxes on income, which are taxes on incomes, profits and capital gains; (d) Other current taxes, which are current taxes on capital and miscellaneous current taxes (such as payments by households to obtain certain licences); (e) Capital taxes, which are taxes levied at irregular and infrequent intervals on the values of assets or net wealth owned by institutional units or on the values of assets transferred between institutional units as a result of legacies, gifts inter vivos or other transfers. 4.150 The decision on whether a payment regarded by the SNA as a tax is environmental is based on consideration of the tax base. Specifically, an environmental tax is a tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific, negative impact on the environment. In practice, this definition is applied by looking at all of the various taxes levied in a country and making an assessment regarding whether the tax base in each circumstance is something that has a negative environmental impact. 4.151 Since the application of this definition may vary across countries, for the purposes of international comparison of environmental taxes, lists of relevant tax bases that satisfy this definition have been developed by the Organization for Economic Cooperation and Development and Eurostat.36 4.152 The consideration of the tax base in the determination of the environmental status of a tax is an exception to the general approach to defining the environmental status on the basis of the purpose of the transaction. However, in the case of taxes, generally the taxpayer does not know in advance what the tax payment might be used for by the government, nor are the reasons for levying a tax, as stated by the legislator, a reliable basis for international comparisons. The primary purpose of taxation may sometimes be to create incentives to reduce environmental pressures, or to raise revenue for the purpose of financing environmental protection. However, in many cases, the specific reason may not be stated and often the primary purpose of taxation will be the raising of funds to pay for general social services such as health and education. 4.153 In cases where the use of the tax revenue is known, these taxes are considered “earmarked taxes”. Those taxes that are earmarked for environmental protection are relevant in the calculation of environmental protection expenditure and are discussed in section 4.3. 4.154 The approach taken to the definition of environmental taxes in the SEEA differs from the approach commonly found in the economics literature, where environmental taxes are defined with reference to taxing negative externalities, i.e., Pigovian taxes. These types of taxes are based on an assessment of the motive for setting rates of tax, i.e., the extent to which a particular tax rate will reduce the negative externality. Pigovian taxes do not include taxes collected for fiscally motivated reasons. Since determining the precise motivation for taxation involves a difficult measurement issue, the approach in the SEEA is to consider the underlying tax base. (a) Environmental tax bases and categories 4.155 There are four broad categories into which environmental taxes are generally grouped: energy, transport, pollution and resources, described below: 36 See Environmental Taxes: A Statistical Guide (European Commission and Eurostat, 2001). System of Environmental-Economic Accounting 2012—Central Framework122 (a) Energy taxes: (i) This category includes taxes on energy products used for both transport and stationary purposes. Taxes on fuel used for transport purposes should be shown as a separate subcategory of energy taxes. Energy products for stationary use include fuel oils, natural gas, coal and electricity; (ii) Taxes on carbon are included under energy taxes rather than under pollution taxes. If they are identifiable, carbon taxes should be reported as a separate subcategory within energy taxes. A special type of carbon taxes are payments for tradable emissions permits. The treatment of payments for these permits is discussed later in this section; (b) Transport taxes. This category includes mainly taxes related to the ownership and use of motor vehicles. Taxes on other transport equipment (e.g., planes), and related transport services (e.g., duties on charter or scheduled flights) are also included here, as are taxes related to the use of roads. The transport taxes may be “one-off” taxes related to imports or sales of the equipment or recurrent taxes such as an annual road tax. Taxes on petrol, diesel and other transport fuels are included under energy taxes; (c) Pollution taxes. This category includes taxes on measured or estimated emissions to air and water, and the generation of solid waste. Taxes on carbon are an exception and are included under energy taxes, as discussed above. Taxes on sulphur are included here; (d) Resource taxes. This category typically includes taxes on water abstraction, extraction of raw materials and other resources (e.g., sand and gravel). Consistent with the general scope of environmental taxes, payments to government for the use of land or natural resources are treated as rent and are therefore excluded from resource taxes. For a detailed discussion of the treatment of rent, see paragraphs 4.160-4.163. 4.156 Table 4.9 shows a possible recording of environmental taxes by type of tax. The types of taxes in the columns follow the higher-level structure of taxes in the SNA. Where other payments to government are of particular significance, they could be added within a table of Type of tax Total Taxes on products Other taxes on production Taxes on income Other current taxes Capital taxesType of environmental tax Corporations Households Energy taxes 10 800 1 500 300 12 600 Carbon taxes 4 600 4 600 Taxes on fuel used for transport 4 700 4 700 Other energy taxes 1 500 1 500 300 3 300 Transport taxes 2 600 800 1 400 100 4 900 Pollution taxes 400 500 200 1 100 Resource taxes 200 400 300 900 Total environmental taxes 14 000 3 200 1 900 400 19 500 Non-environmental taxes 79 000 15 400 23 000 74 000 5 800 1 600 198 800 Total taxes 93 000 18 600 23 000 74 000 7 700 2 000 218 300 Share of environmental taxes (percentage) 17.7 20.8 0.0 0.0 32.8 25.0 9.8 Table 4.9 Environmental taxes by type of tax 123Environmental activity accounts and related flows this type. For some types of environmental taxes, particularly energy taxes, a breakdown of payments by industry may be relevant. Ideally, an industry breakdown should be aligned to the breakdown used for the recording of related physical flows as shown in chapter III. For example, for energy taxes, an industry breakdown following the industry structure of the air emissions accounts may be relevant. (b) Treatment of value added taxes (VAT) 4.157 Generally, value added taxes are excluded from the definition of environmental taxes because it is considered that, unlike other taxes on environmental tax bases, they have no influence on relative prices (i.e., the VAT is levied on a broad range of goods and services regardless of their impact on the environment). This lack of direct influence is also reflected in the deductibility of the VAT for many taxpayers. 4.158 There is one, relatively specific, exception to this general treatment. In principle, where the VAT is calculated on a price that includes a duty or tax already determined to be an environmental tax, the relevant amount of non-deductible VAT (equal to the VAT rate multiplied by the amount of the environmental tax, excluding the part that is deductible by the taxpayer) can also be considered to be part of environmental taxes and classified based on the nature of the underlying tax base. Such a situation may occur when VAT on petrol/gasoline is calculated including the fuel duty paid on hydrocarbon oils. In practice, the ability to isolate this amount of the VAT may require additional information. Other payments to government 4.159 Only those payments that are considered to be taxes according to the definitions of the SNA are within scope of environmental taxes in the SEEA. At the same time, there may be particular interest in recording other payments to government such as payments of rent, some sales of goods and services, and some fines and penalties. In determining the environmental status of these payments, focus should remain on the basis for the payment rather than on either the name used to describe the payment or the purpose for which the revenue raised may be used. These other types of payments to government are described directly below (a) Rent 4.160 There are certain environmental assets, particularly mineral and energy resources, that are owned by government and payments to government by extractors are often required. These payments are treated as rent. Payments of rent in respect of mineral and energy resources are commonly referred to as royalties and, in resource-endowed countries, these payments may represent an important component of total government revenue. 4.161 Rent is the income receivable by the owner of an environmental asset for putting the asset at the disposal of another institutional unit. Rent is paid on the use in production of non-produced assets such as land and mineral and energy resources. Rent is distinct from rentals that are paid by users of fixed assets to the owners of those assets. Examples of rentals include payments for the hire of buildings or equipment and payments for the hire of cars for transport by tourists. Rentals are treated as payments for services. 4.162 Rent relates to a payment due for the use of an environmental asset for one accounting period. There may be a longer-term lease permitting the extractor to operate for an extended period of time but the payment of rent is usually set on an annual basis. Payments of rent usually depend on the level of output of the extractor, usually determined on the System of Environmental-Economic Accounting 2012—Central Framework124 basis of the value of sales of extracted resource (quantity extracted multiplied by the resource price). 4.163 As the government is the taxation authority, it is possible for different arrangements to be established by which the government collects the rent that is due to it as owner of the environmental asset. Some of these arrangements may be in the nature of taxes on profits, as defined in the SNA. In principle, amounts of taxes on profits that relate to the income earned from the extraction of environmental assets should be treated as rent. In practice, separating the taxes on profits that relate to income from extraction activity as opposed to other income earned by the extracting company may be difficult. Chapter V discusses the estimation of resource rent and the determination of the proportion that accrues to the different economic units. (b) Sales of goods and services 4.164 In a number of situations, the government undertakes a range of activities that provide goods and services to households and businesses. Such provision of goods and services constitute production by government units and payments that are made by users are often referred to as “fees”. A common situation is the payments made to general government units that operate collection schemes for the disposal of waste. In some cases, making the distinction between these payments as purchases of goods and services and as taxes can be difficult, since it must be determined whether the purchaser has received a service from the government in return for the payment. The general guidance in the SNA should be followed.37 (c) Fines and penalties 4.165 Fines and penalties are distinguished from taxes by being compulsory payments imposed on institutional units by courts of law or quasi-judicial bodies.38 These payments to governments are treated as miscellaneous current transfers. It may well be that some fines and penalties are related to illegal activities of interest, for example, polluting water bodies. The recording of fines and penalties also arises in the case of the use of environmental assets as sinks (see sect. 4.4.5). 4.4.4 Environmental transfers by non-government institutional units 4.166 While taxes and subsidies are flows that, by definition, are receivable or payable by government units, the other types of transfers outlined in this section can take place between other institutional units as shown in table 4.8. For example, households may donate money to conservation groups which are recorded as other current transfers. 4.167 Where information on these flows is of interest, the amounts to be recorded as environmental should follow the same principles as are applied in the case of government flows, i.e., transfers paid to other institutional units should be based on whether the primary purpose of the payment is environmental protection or resource management. 4.168 A particular instance of transfers between institutional units concerns flows between international organizations and national governments and other resident institutional units. In certain countries, these flows may be significant. In line with the general principles outlined here, transfers paid by international organizations to institutional units within a country should be considered environmental if the primary intent of the international 37 See paras. 7.80 and 8.64 of the 2008 SNA. 38 Ibid., para. 8.135. 125Environmental activity accounts and related flows organization is that the money be spent for environmental protection or resource management purposes. 4.4.5 Permits to use environmental assets 4.169 A common and important mechanism for managing the interaction between the economy and the environment is the use of permits and licences to access, extract or use environmental assets. In some cases, the permits and licences may relate to the physical removal of environmental assets, as in the case of fishing licences; in other cases, they may relate to the use of the environment as a sink for emissions. 4.170 Permits and licences relate to the general concept of property rights and, in this context, it is important to distinguish between the right to use an asset and the asset itself. The right to use, or exercise control over, an environmental asset may come about by a number of mechanisms. For example, property rights may arise through the recognition of traditional rights; the ownership of some environmental assets may come to be regulated by government who then allocates or sells rights to use or control; or the government may issue entitlements to use an asset for free or may auction or otherwise sell the asset. 4.171 In certain cases, the property rights obtained represent an asset of the holder. In order for the definition of an asset to be satisfied, the property rights must be conveyed for a period exceeding one year. In addition, there is a range of factors that should be taken into consideration in determining whether a particular arrangement represents an asset. These factors are discussed in detail in the 2008 SNA, chapter 17, part 5. 4.172 Payments for property rights through the purchase of permits, licences and similar arrangements are transactions and are important in the context of complete environmental and economic accounting. Increasingly, the permits that are granted can be traded in markets, thus creating potential benefits for the holders of the permits beyond the benefits that are obtained from the use of the environmental assets themselves. 4.173 The present subsection outlines the range of different arrangements that are generally encountered and describes the appropriate treatment of the payments following the treatments defined in the SNA. It is noted that compilers will often need to make on-balance decisions on the appropriate treatment depending on the precise nature of the way in which the permits and licences are granted and can be exercised. The section considers first payments to extract and harvest natural resources and then payments to use the environment as a sink for emissions. Permits to extract and harvest natural resources 4.174 The SNA outlines a range of general considerations that should be taken into account in determining an appropriate treatment.39 Considered below are the relevant issues that arise in the context of different types of natural resources and the common licensing and permit arrangements. (a) Mineral and energy resources 4.175 Mineral and energy resources differ from other natural resources in that all extraction necessarily reduces the amount of the resource available in the future. The owner (in many but not all circumstances, government) generally does not have a productive activity associated with the extraction and, commonly, payments of rent are made regularly based on the amount 39 See paras. 17.313-17.343 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework126 of the resource that is extracted. Payments of rent are discussed in paragraphs 4.160-4.163 and the appropriate asset and income account entries in respect of recording the ownership and use of mineral and energy resources are discussed in chapter V, section 5, entitled “Asset accounts for mineral and energy resources”. (b) Land 4.176 Land (and the associated natural resources) may be sold outright when the legal ownership is transferred from one institutional unit to another. Acquisitions and disposals of land should be recorded in the capital account. Land is also the type of asset most frequently subject to a lease. Commonly, farmers leasing land pay regular rent to the owner of the land and these flows are recorded in the allocation of primary income account. (c) Timber resources 4.177 It is common for logging to be allowed under strict limits with a fee payable per unit volume of timber removed. The limits are usually such that the harvest of timber satisfies conditions required for a sustainable or long-term yield (among other possible conditions); hence, the payments are recorded as rent in the allocation of primary income account. The acquisition and disposal of forest land, including the value of the timber resources, should be recorded in the capital account. (d) Aquatic resources 4.178 Fishing quotas established by national and international agreement may be allocated in perpetuity or for extended periods to particular institutional units. In such circumstances, the quotas may be transferable and, if so, there may be a well-developed market for them. Fishing quotas may therefore be considered permits to use a natural resource that are transferable and in these situations, the quotas are considered assets in their own right. 4.179 Under an alternative regime, a permit is issued for a strictly limited period of time, less than a year, to a nominated institutional unit, often a non-resident. This is a common practice in some islands in the South Pacific, for example. In these cases, the revenue from the licences should be recorded as rent in the allocation of primary income account. 4.180 A licence granted to a household for recreational fishing is considered, by convention, as payment of a tax. (e) Water resources 4.181 A body of water with an economic value can be sold in its entirety either as part of the land that surrounds it or as a separate asset. It is possible that the use of an area of water could be permitted under a long-term arrangement for recreational purposes, for example. The treatment of payments for such arrangements should be the same as that for land. Regular payments for the extraction of water (as opposed to the delivery of it) should be treated as rent. Permits for the use of the environment as a sink 4.182 The recording of transactions related to the use of the environment as a sink entails a separate set of considerations. Specifically, this relates to the right to use the environment, i.e., the soil, water, air and associated environmental assets, as a sink for emissions from economic activity. 127Environmental activity accounts and related flows 4.183 A number of treatments may apply, depending on the nature of the arrangements. The treatments align with the definitions of the various payments to government outlined above. The following scenarios and treatments are the most common: (a) The government may require payments to be made in situations where there are illegal emissions of substances beyond certain levels. If these payments are intended to reduce or inhibit discharges and emissions in the future, they should be treated as fines; (b) If the payments are linked to remedial action following the release of the emission or discharge, the payment is treated as a payment for a service, unless the amount charged is out of all proportion to the remedial costs involved, in which case the payment should be treated as a tax; (c) If a limited number of permits to discharge or emit are issued with the intent to ultimately restrict the overall quantity of discharges and emissions, the treatment of any payment associated with the permits depends on the ownership of the environmental asset into which the emission has been or will be released: (i) Where an economic asset exists following the principles of the SNA (most commonly, this occurs with land and soil) and the necessary conditions are met concerning the terms on which the discharge is permitted, then the payment for the permit should be treated in the same way as the payment for a licence to use an environmental asset; (ii) Where an economic asset does not exist following the principles of the SNA, then the payment for the permit should be treated as a tax, as is commonly the case with regard to the atmosphere, inland water resources and the seas, and this treatment generally applies to carbon emissions permit schemes. 4.184 In all of these scenarios, it is assumed that the permits issued are not tradable. Thus, the timing of recording of the payments and the economic units involved can be determined in a relatively straightforward manner using standard accounting principles. 4.185 Increasingly, permits are issued that are tradable and there is an active market in them. Permits concerning carbon emissions are the most significant for most countries. The potential to trade the permits generates a range of accounting complexities concerning the timing of recording, the treatment of changes in the value of permits and the specific economic units involved. SNA decisions on the appropriate accounting treatment are followed in the SEEA. The details of the SNA treatment of emissions permits are set out in SNA News and Notes (United Nations, 2012). 4.186 In summary, the key aspects of the accounting treatment are as follows: (a) The payments for emission permits, issued by governments under cap-and-trade schemes, should be recorded at the time the emissions occur as taxes on production on an accrual basis; (b) The timing difference between the payments received by government for the permits, and the occurrence of the emission, gives rise to a financial liability (accounts payable) for government and a financial asset (accounts receivable) for the permit holder. The difference between the prepaid tax value of the permit and the market value of the permit at any point in time represents a marketable contract (non-produced, non-financial asset) for the holder. The creation and disappearance of the non-produced, non-financial asset are recorded as other changes in the volume of assets; System of Environmental-Economic Accounting 2012—Central Framework128 (c) The approach to accruing payments for emission permits should be based on the underlying assumption that permits issued by a particular country are more likely than not to be surrendered in that country; (d) In the simple case of a pure national scheme, the taxes should be accrued in the following way: the tax recorded for any single permit surrendered in relation to emissions that occurred in period t is equivalent to the total stock of relevant other accounts payable for the government in relation to emission permits, divided by the total number of active permits issued (and remaining in circulation) at time t; 40,41 (e) For multinational schemes, the situation is more complex; as in any single country, more or fewer permits may be surrendered than the number that were originally allocated to the country. 4.187 The taxes paid for tradable emissions permits are treated as environmental taxes and categorized as energy taxes when the permits relate to emissions of carbon dioxide. Where possible, these taxes should be separately identified within energy taxes. When the tradable permits relate to other types of emissions, the taxes should be categorized as pollution taxes. 4.188 Table 4.10 presents the type of information that may be compiled regarding the quantity of emissions permits—expressed in terms of millions of tonnes of carbon dioxide. The table is structured along the lines of an asset account showing the opening and closing stock of permits and the various changes in the stock through new issues, purchases, sales and surrenders. Where possible, distinctions among flows of free permits, non-free permits and permits from multinational schemes should be recorded. Table 4.10 Account for tradable emissions permits (millions of tonnes of carbon dioxide) Institutional sector TotalCorporations General government Households NPISHª Opening stock of permits 1 133 225 5 1 363 Permits allocated free of charge 2 355 987 3 342 Permits purchased 1 851 616 2 467 Permits sold 925 1 169 2 094 Losses (cancelled permits) 9 2 11 Permits surrendered to offset emissions 3 612 144 3 756 Closing stock of permits 793 515 3 1 311 a  Non-profit institutions serving households. 4.189 Depending on the purpose of analysis and data availability, the columns in the table may reflect the holding of permits by industry (classified following the ISIC) or by institutional sector (as shown in table 4.10). While the focus of emission trading schemes is generally on governments and corporations, a significant proportion of permits may be purchased by non-profit institutions. 40 One permit represents the emission of one tonne of carbon dioxide or one tonne of carbon dioxide equivalent. 41 The relevant other accounts payable should in theory exclude any permits that were surrendered after time t in respect of permits that occurred before time t. In addition, the total number of permits active (and remaining in circulation) at time t should also exclude these permits. In practice, however, it can be assumed that the time at which the permit is surrendered is the same as the time when the emissions occur, as long as there is no significant lag between the two events and the lag time is constant. 129Environmental activity accounts and related flows 4.4.6 Transactions concerning fixed assets used in economic activities related to the environment 4.190 Fixed assets cover the range of produced assets that contribute to production processes over a number of accounting periods. They include buildings, machines, various types of equipment—including transportation equipment—land improvements, and intellectual property products such as software and research and development expenditure. Different economic activities will entail the use of different types of fixed assets. Often, there is interest in the fixed assets used to extract and harvest natural resources as well as in the amount of investment that takes place in fixed assets for environmental protection or resource management purposes. For example, information on the amount of investment in equipment to capture energy from renewable energy sources may be of interest. 4.191 There are no strict boundaries determining which fixed assets may be of interest; and no aggregate for environment-related fixed assets is defined in the SEEA. Rather, the measurement scope will depend on the economic activities of interest. For example, fixed assets related to environmental protection expenditure will cover any specialized equipment purchased and also the expenditure on more generic assets such as buildings, cars, computers, etc., required by specialist producers of environmental protection services. In all cases, the accounting treatment for fixed assets should follow the treatments outlined in the SNA. These assets are included in the accounts described in section 4.3. 4.192 It is noted that some fixed assets are also considered environmental assets. Both animals that produce outputs on an ongoing basis (such as various breeding stock, dairy cows producing milk and sheep producing wool) and plants that yield multiple outputs (as in vineyards, orchards and rubber plantations) are types of fixed assets that are also environmental assets. The accounting for these assets is explained in chapter V. 4.193 A particular issue in the case of environmental accounting is the appropriate accounting for the costs of the disposal of fixed assets, a process that can have significant environmental impacts. Because of its importance, this topic is covered in detail in the remainder of this section. Environmental consequences of disposing of fixed assets 4.194 To provide a complete accounting for fixed assets, it is necessary to consider the costs incurred to prevent environmental problems when production or operation ceases and use of fixed assets ends, for example, when: • Nuclear power plants are decommissioned and final storage of nuclear waste must be provided • Oil rigs and other mining equipment are dismantled and removed • Landfills are sealed, gas and leakage collection systems are closed, and monitoring equipment installed • Mines are closed and mining slag heaps are treated to minimize leaching 4.195 Costs incurred in these types of situations are referred to as decommissioning costs. Decommissioning costs may be divided into: terminal costs and remedial costs. Terminal costs are costs that can and should be anticipated during the production periods prior to closure; provision should be made for meeting them during the life of the fixed asset. Remedial costs are incurred when production has already ceased, with no provision having been made for the taking of remedial action while production was in progress. Examples are the rehabilitation System of Environmental-Economic Accounting 2012—Central Framework130 of sites contaminated by past activities, for example, fuel storage sites, and former landfill and abandoned mining sites. 4.196 The key distinction between terminal and remedial costs is based on the timing of the costs (see below) and on who incurs these costs, since the nature of the goods and services purchased may be very similar. Terminal costs are incurred by the enterprise that owns the associated fixed asset (oil rig, nuclear power plant, etc.) and form part of the link between the value of the fixed asset to the enterprise and the value of services rendered by the asset over its life. In principle, they should be anticipated by the owner of the asset, even if the expenditure takes place only at the end of the operating life of the asset. 4.197 On the other hand, remedial costs are incurred after operations at a site have ceased and, often, are incurred by a unit other than the operator of the site.42 (a) Consumption of fixed capital 4.198 As decommissioning costs are associated with measuring the use of fixed assets in the SNA, the present discussion commences with a short introduction to the concept of consumption of fixed capital and its links to the value of fixed assets. Broadly, the economic assumption is that the cost of purchasing an asset, at any stage of its useful life, is equal to the net present value of the expected stream of income arising from the use of the asset over the remainder of its asset life. 4.199 The using up of an asset over time through its use in production is accounted for by means of an allowance for consumption of fixed capital (commonly known as depreciation). This allowance should be deducted from income and recognized as a cost of production. (b) Treatment of terminal costs 4.200 In principle, once price changes and other changes in volume43 are taken into account, the difference between the acquisition and disposal values of a fixed asset should be equal to the value of consumption of fixed capital accumulated over the life of the asset. In the case of assets with actual costs at the time of disposal, this means that consumption of fixed capital should cover anticipated terminal costs, since these costs lower the disposal value. Terminal costs should therefore be written off over the whole life of the asset, regardless of the number of owners during the life of the asset. 4.201 Immediately before the disposal, the asset will have a negative value which returns to zero when the terminal costs incurred are treated as gross fixed capital formation. The apparent oddity of an asset with negative value reflects the fact that the owner not only could not sell the asset but will have to pay another unit to take over responsibility for the asset.44 4.202 To estimate anticipated terminal costs, it is necessary to estimate not only the extent of these costs, but also their likelihood. In this regard, terminal costs present a dual problem: (a) it is often difficult to anticipate their final amount and (b) the original owner or operator 42 There may be cases in which a particular operation ceases but the owner of the site remains the same (e.g.,the case where land is owned by government). The relevant costs should be considered remedial if they cannot be attributed financially to the original operation. 43 Other changes in volume are those changes in assets that are not due to transactions between economic units or consumption of fixed capital. Examples include losses due to catastrophic events, uncompensated seizures and the discovery of natural resources. These flows are recorded in the SNA under other changes in assets accounts (see 2008 SNA, chap. 12). 44 See para. 10.161 of the 2008 SNA. 131Environmental activity accounts and related flows may no longer be an active business able to cover the costs, if it has ceased business or declared bankruptcy or if an associated surety was based on underestimated terminal costs. 4.203 There is the added factor that, between the initial estimate of terminal costs and the time at which the terminal costs were actually incurred, community standards may have changed, meaning that the final terminal costs relate to standards different from those initially anticipated. This is especially true of operations conducted over lengthy time periods. 4.204 Nonetheless, there are a number of indications that terminal costs can reasonably be expected: (a) there is an upfront bond (or some other form of surety) that has been provided; (b) the enterprise is required to progressively put in place contributions to fund the final decommissioning activities; (c) indications based on the past record of the enterprise; and (d) there is a commitment to environmental restoration by the government of the country in which operations are taking place. 4.205 Terminal costs should be recorded as gross fixed capital formation only at the time incurred but the deduction of these costs from income through consumption of fixed capital should be made progressively over the life of the asset, that is, consumption of fixed capital should be charged against income before the disposal/terminal costs are incurred (or fully known). A practical difficulty in estimating terminal costs stems from the fact that the asset life of the underlying fixed asset may change over time, thus requiring changes in the estimates of terminal costs. 4.206 Since terminal costs must be estimated before being incurred, the following four accounting scenarios need to be considered: (a) In situations where the terminal costs ultimately incurred exceed the cumulated consumption of fixed capital allowance, the full costs are treated as gross fixed capital formation and any amount not already covered by consumption of fixed capital during the life of the asset is written off at the time the costs are incurred as additional consumption of fixed capital. This is a pragmatic recommendation and will lead to overstatement of net value added during the periods the asset is in use and understatement in the period when the remaining costs are incurred;45 (b) Where no estimates of terminal costs have been made during the life of the asset, any terminal costs should be treated as gross fixed capital formation and then immediately written off as consumption of fixed capital, provided that they are paid by the operator; (c) Where terminal costs are anticipated and a consumption of fixed capital allowance is recorded but the terminal costs are never actually incurred by the operator, the initial estimate of terminal costs must be removed from the balance sheet through the other changes in volume of assets account, thus leading to a rise in the value of the fixed asset on the balance sheet.46 Any subsequent decommissioning costs incurred by units other than the operator are treated as remedial costs; (d) If terminal costs are overestimated compared with actual terminal costs ultimately incurred, this overestimate is corrected through an entry in the other changes in volume of assets account, leading to a rise in the value of the fixed asset on the balance sheet. 45 See para. 10.162 of the 2008 SNA. 46 Ibid., chap. 12. System of Environmental-Economic Accounting 2012—Central Framework132 (c) Treatment of remedial costs 4.207 Costs of a remedial nature are often incurred after a site has been closed and the operator has left. There are two main types of remedial costs: (a) expenditures to restore land to allow its use for some other purpose; and (b) expenditures to ensure that no harmful emissions from deposits of pollutants and other residuals from past activity are able to leach into the surrounding environment and cause environmental damage. In both cases, the relevant expenditures should be treated as gross fixed capital formation and give rise to a fixed asset: land improvement. 4.208 For remedial costs, there is no special consideration required regarding the timing of reporting nor are there questions regarding whether the costs are anticipated, since, by definition, these costs are incurred after the operations at the site have ceased and are not incurred by the operator of the site who caused the need for the remediation. 4.209 In cases where environmental protection expenditures are incurred on an ongoing basis so that environmental damage is either inhibited or reduced on a continuing basis, then these expenditures should be treated as intermediate consumption or gross fixed capital formation of the owner at the time they are incurred and not recorded as either terminal or remedial costs. 133 Chapter V Asset accounts 5.1 Introduction 5.1 Assets are considered items of value to society. In economics, assets have long been defined as stores of value that, in many situations, also provide inputs to production processes. More recently, there has been consideration of the value inherent in the components of the environment and the inputs the environment provides to society in general and the economy in particular. The term “environmental asset” is used to denote the source of these inputs which may be measured in both physical and monetary terms. 5.2 One motivation for considering environmental assets is the concern that current patterns of economic activity are depleting and degrading the available environmental assets more quickly than those assets can be regenerated. Hence, there is also concern about their long-term availability. Current generations may thus be seen as “stewards” for the range of environmental assets on behalf of future generations. There is a general aim to improve the management of environmental assets, taking into account the sustainable use of resources and the capacity of environmental assets to continue to provide inputs to the economy and society. 5.3 This general aim is a key driver for the development of the SEEA and, in particular, for the measurement of assets and the compilation of asset accounts. In this context, the aim of asset accounting in the SEEA is to measure the quantity and value of environmental assets and to record and explain changes in those assets over time. 5.4 For environmental assets, the physical and monetary changes over the period include additions to the stock of environmental assets (due, e.g., to natural growth and discoveries) and reductions in the stock of environmental assets (due, e.g., to extraction and natural loss). Chapter structure 5.5 The present chapter describes accounting for environmental assets. Section 5.2 provides a detailed discussion of the concept of environmental assets in the Central Framework, working from the general definition of environmental assets outlined in chapter II. Section 5.3 describes the structure of the accounts and the accounting entries that are required to compile asset accounts, including opening and closing stocks, additions to stock, reductions in stock and revaluations. 5.6 Section 5.4 examines two key dimensions of the compilation of asset accounts: the principles of defining depletion of environmental assets in physical terms, with particular focus on the depletion of renewable environmental assets, such as aquatic and timber resources; and, in relation to monetary asset accounts, approaches to the valuation of environmental assets and, in particular, the net present value (NPV) approach. The annex to the chapter discusses NPV in greater depth. System of Environmental-Economic Accounting 2012—Central Framework134 5.7 Sections 5.5-5.11 outline asset accounting for the range of individual environmental assets. Detail is provided on the measurement scope for each of these assets, the structure of the asset accounts and other relevant conceptual and measurement issues. While there are general principles that can be applied across all environmental assets, each environmental asset has specific characteristics that must be considered individually. 5.2 Environmental assets in the SEEA Central Framework 5.2.1 Introduction 5.8 As defined in chapter II, 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. In the Central Framework, environmental assets are viewed in terms of the individual components that make up the environment, with no direct account taken of the interactions between these components as part of ecosystems. 5.9 The present section explains the general measurement boundary for environmental assets in the Central Framework, including a description of the classification of environmental assets and an articulation of the relationship between environmental and economic assets. 5.2.2 Scope of environmental assets 5.10 The scope of environmental assets in the Central Framework is determined through a focus on the individual components that make up the environment. This scope comprises those types of individual components that may provide resources for use in economic activity. Generally, the resources may be harvested, extracted or otherwise moved for direct use in economic production, consumption or accumulation. The scope includes land and inland waters that provide space for undertaking economic activity. 5.11 There are seven individual components of the environment that are considered environmental assets in the Central Framework. They are mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources (excluding timber and aquatic resources), and water resources. These individual components have been the traditional focus for the measurement of environmental assets through the development of specific asset or resource accounts. This chapter discusses asset accounts for each of these environmental assets and the relevant measurement boundaries in physical and monetary terms. 5.12 The coverage of individual components in the Central Framework does not extend to the individual elements that are embodied in the various natural and biological resources listed above. For example, carbon and nitrogen are not considered individual environmental assets in the Central Framework. 5.13 The measurement scope of the environmental assets of a country is limited to those contained within the economic territory over which a country has control. This includes all land areas, including islands; coastal waters including waters and seabeds within a country’s exclusive economic zone (EEZ); and any other water or seabeds in international waters over which the country has a recognized claim. The extension of geographical scope beyond environmental assets on land is of particular relevance in the measurement of stocks of aquatic resources and mineral and energy resources. 5.14 In physical terms, the measurement scope for each individual component is broad, extending to include all of the resources that may provide benefits to humanity. However, in Asset accounts 135 monetary terms, the scope is limited to those individual components that have an economic value based on the valuation principles of the SNA. For example, in physical terms, all land within a country is within scope of the SEEA so as to allow for a full analysis of changes in land use and land cover. However, in monetary terms, some land may have zero economic value and hence should be excluded. The broader scope applied in physical terms aims to account better for the environmental characteristics of the individual components. Issues concerning the valuation of environmental assets are described in more detail in section 5.2.3. Classification of environmental assets in the Central Framework 5.15 The classification of environmental assets in the Central Framework presented in table 5.1 focuses on individual components. For each of these environmental assets, a measurement boundary in physical and monetary terms must be drawn for the purposes of asset accounting. These boundaries are described in sections 5.5–5.11. Table 5.1 Classification of environmental assets in the SEEA Central Framework 1 Mineral and energy resources 1.1 Oil resources 1.2 Natural gas resources 1.3 Coal and peat resources 1.4 Non-metallic mineral resources (excluding coal and peat resources) 1.5 Metallic mineral resources 2 Land 3 Soil resources 4 Timber resources 4.1 Cultivated timber resources 4.2 Natural timber resources 5 Aquatic resources 5.1 Cultivated aquatic resources 5.2 Natural aquatic resources 6 Other biological resources (excluding timber resources and aquatic resources) 7 Water resources 7.1 Surface water 7.2 Groundwater 7.3 Soil water 5.16 The volume of water in the sea is not considered in scope of water resources in the Central Framework because the stock of water is too large to be meaningful for analytical purposes. The exclusion of the sea in terms of a volume of water resources does not in any way limit the measurement of sea-related individual components such as aquatic resources (including fish stocks on the high seas over which a country has harvesting rights) and mineral and energy resources on or under the seabed. The volume of air in the atmosphere is also not in scope of environmental assets in the Central Framework. 5.17 Although seas and the atmosphere are excluded, the measurement of exchanges and interactions with them is of interest. In this context, the interactions between the economy and the sea, and between the economy and the atmosphere, are recorded in the Central Framework in various ways. For example, measures of the abstraction of sea water are included System of Environmental-Economic Accounting 2012—Central Framework136 in the physical flow accounts for water, and measures of emissions from the economy to the atmosphere and seas are recorded in physical flow emission accounts. Natural resources 5.18 Natural resources are a subset of environmental assets. Natural resources include all natural biological resources (including timber and aquatic resources), mineral and energy resources, soil resources and water resources. All cultivated biological resources and land are excluded from scope. Land and other areas 5.19 For most environmental assets in the Central Framework, conceptualizing the supply of materials to economic activity—for example, in the form of fish, timber and minerals—is straightforward. The exception in this regard is land. 5.20 The primary role of land in the SEEA is to provide space. Land and the space it represents define the locations within which economic and other activity is undertaken and within which assets are situated. Although not physical, this role of land is a fundamental input to economic activity and can have significant value, as is most commonly observed in the varying valuations given to similar dwellings in locations that have different characteristics in terms of landscape, access to services, etc. This conceptualization of land can also be applied to marine areas over which a country has a recognized claim, including its exclusive economic zone. 5.21 The term “land” as applied in the SEEA also encompasses areas of inland water such as rivers and lakes. For certain measurement purposes, variations in this boundary may be appropriate, for example, when considering the use of marine areas for aquaculture, conservation or other designated uses. These considerations are discussed in section 5.6. 5.22 A clear distinction is made between land and soil resources. The physical inputs of soil are reflected in the volume of soil and its composition in the form of nutrients, soil water and organic matter. This distinction is discussed further in sections 5.6 and 5.7. 5.23 In the valuation of land, both the location of an area and its physical attributes (e.g., topography, elevation and climate) are important considerations. The valuation of land is discussed in Section 5.6. Timber, aquatic and other biological resources 5.24 Biological resources include timber and aquatic resources and a range of other animal and plant resources such as livestock, orchards, crops and wild animals. Like most environmental assets, they provide physical inputs to economic activity. However, for biological resources, a distinction is made between whether the resources are cultivated or natural, based on the extent to which there is active management over the growth of the resource. 5.25 Maintaining this distinction in the Central Framework is important for ensuring that clear linkages can be established to the treatment of these resources in the production accounts and asset accounts of the SNA. 5.26 The cultivation of biological resources can take a wide range of forms. In some cases, the management activity is highly involved, which is the case for battery farming of chickens and the use of greenhouses for horticultural production. In these situations, the unit undertaking the production creates a controlled environment, distinct from the broader biological and physical environment. Asset accounts 137 5.27 In other cases, there may be relatively little active management as is the case, for example, with broad-acre cattle farming and the growing of plantation timber. In these cases, the biological resource is exposed constantly to, and interacts as a part of, the broader biological and physical environment. There are also situations in which the cultivation of various areas over hundreds of years has transformed the natural environment. 5.28 In practice, it may be difficult to distinguish between cultivated and natural biological resources. Relevant considerations in relation to timber resources and aquatic resources are presented in sections 5.8 and 5.9. 5.29 Many cultivated biological resources may be grown and harvested over a short period of time. In cases where the cultivation occurs within an accounting period, there are no opening or closing stocks of those assets to be recorded. However, depending on the time of the growing and harvesting season relative to the times of the accounting period, there may be cultivated biological resources to be recorded and in such cases, they should be recorded as part of environmental assets. Forests 5.30 In the SEEA, forests are considered a form of land cover and forestry is considered a category of land use. Often, forests are seen predominantly in terms of timber resources, i.e., the volume of standing timber; however, forests are used in the production of a wide range of products, hence forests and timber resources should not be equated. It is also the case that timber resources are not found solely in forests: in many countries, other types of land cover, for example, other wooded land, contain timber resources. Given both the distinction between forests and timber resources, and the resource focus for environmental assets in the Central Framework, the classification of environmental assets in table 5.1 includes forests as a subcategory of land, and distinguishes the timber resources located on this land as a separate environmental asset. Asset accounts for forests and other wooded land are described in section 5.6 and asset accounts for timber resources, in section 5.8. 5.2.3 Valuation of environmental assets 5.31 In principle, all of the benefits delivered by environmental assets can be valued in monetary terms. However, many complexities are associated with undertaking these broad valuations, including the quantification of the benefits themselves and the consideration of the value of benefits to society as a whole rather than only to individuals. These measurement issues are not discussed further in the Central Framework. 5.32 In the Central Framework, consistent with the SNA, the scope of valuation is limited to the benefits that accrue to economic owners. An economic owner is the institutional unit entitled to claim the benefits associated with the use of an asset in the course of an economic activity by virtue of accepting the associated risks. Further, following the SNA, an asset is a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the entity over a period of time.47 Examples of economic assets include houses, office buildings, machines, computer software, financial assets, and many environmental assets. 5.33 The benefits underlying the definition of economic assets are economic benefits. Economic benefits reflect a gain or positive utility arising from economic production, consumption or accumulation. For environmental assets, economic benefits are recorded in the accounts in the form of operating surplus from the sale of natural resources and cultivated 47 See para. 10.8 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework138 biological resources, in the form of rent earned on permitting the use or extraction of an environmental asset, or in the form of net receipts (i.e., excluding transaction costs) when an environmental asset (e.g., land) is sold. 5.34 Economic assets in the SNA are classified as produced assets, non-produced assets or financial assets. The relevant concepts and measurement approaches to constructing estimates of economic assets are fully described in the SNA. Produced assets are assets that have come into existence as outputs of processes that fall within the production boundary of the SNA. Produced assets include fixed assets (e.g., buildings and machines); inventories (e.g., stores of wheat for future use); and valuables that are held as stores of value and expected to increase in value over time (e.g., artworks and precious metals). 5.35 Cultivated biological resources are a type of produced asset in the SNA and also a type of environmental asset in the SEEA. They may be either fixed assets (e.g., sheep for wool, breeding stocks of fish, and orchards) or inventories (e.g., livestock for slaughter and certain trees for timber). Other types of produced asset are often relevant to the measurement of economic activity related to the environment but they are not considered environmental assets (e.g., mining equipment, fishing vessels and dam walls for storing water). 5.36 Non-produced assets are assets that have come into existence in ways other than through processes of production. They include natural resources; contracts, leases and licences; and purchased goodwill and marketing assets. In the SNA, natural resources include all those assets considered to be natural resources in the SEEA. Land is also considered part of natural resources in the SNA.48 While some contracts, leases and licences, and purchased goodwill and marketing assets may be relevant in the assessment of economic activity related to the environment, none of these types of non-produced asset are also environmental assets. 5.37 Financial assets, and the corresponding financial liabilities, relate to claims to future payments, or series of payments between economic units. They are defined in detail in the SNA. While some financial assets may be relevant to assessment of economic activity related to the environment, there are no financial assets that are also environmental assets. Relationship between environmental and economic assets 5.38 Many environmental assets are also economic assets. In particular, natural resources and land are considered non-produced assets, and cultivated biological resources may be either fixed assets or inventories, depending on their role in production. Figure 5.1 displays the relationship between the classes of environmental assets and the high-level asset classes within the SNA. All environmental assets that are classed as cultivated must be recorded as either fixed assets or inventories. 5.39 In physical terms, the scope of environmental assets measured in the Central Framework may be greater than the scope of environmental assets measured in monetary terms following the SNA definition of economic assets. This is because there is no requirement in physical terms that environmental assets must deliver economic benefits to an economic owner. For example, remote land and timber resources should be included within the scope of the environmental assets of a country even if they do not currently or are not expected to deliver benefits to an economic owner. 48 The 2008 SNA also includes radio spectra within its scope of natural resources, as the utilization of the radio spectra generates significant income for various economic units. In the SEEA, radio spectra are not considered part of the biophysical environment and are excluded therefore from the scope of environmental assets. Asset accounts 139 5.40 Consequently, there may be environmental assets that are recorded in the Central Framework in physical terms which have no measured monetary value and are therefore excluded from environmental assets measured in monetary terms. Where such assets are recorded in physical terms, the quantities should be recorded separately from quantities of environmental assets that do deliver economic benefits to economic owners. Figure 5.1 Relationship between environmental and economic assets marketing assets, etc. Produced assets Fixed assets and Cultivated biological inventoriesª resources Non-produced assets Contracts, Natural resources and land Financial assets Natural resources and land with no economic benefits (barren land, known mineral deposits without current economic value) Economic assets Environmental assets ª  Other than cultivated biological resources. Economic assets used in activities related to the environment 5.41 There is interest in economic assets, primarily produced assets, that are used in activities related to the environment but are not themselves environmental assets. They include assets relevant to undertaking environmental protection and resource management activities and assets used in the extraction and harvest of natural resources such as water dams, fishing vessels, and cutting and drilling equipment for mining. A discussion of these types of assets is included in chapter IV primarily in the context of environmental protection expenditure accounts (EPEA). Produced assets for natural resource extraction are also important subjects of consideration in the calculation of resource rent and the valuation of environmental assets. Relevant measurement issues are discussed in section 5.4. 5.3 The structure of asset accounts 5.3.1 Introduction 5.42 Asset accounts record both the opening and the closing stock of assets and the changes over the accounting period. The present section outlines the basic form of asset accounts in physical and monetary terms and describes the relevant accounting entries. Sections 5.5-5.11 describe in more detail the relevant asset accounts for each type of environmental asset. 5.3.2 Conceptual form of the physical asset account 5.43 Physical asset accounts are usually compiled for specific types of assets rather than for a range of different assets because each asset will usually be recorded in different units. System of Environmental-Economic Accounting 2012—Central Framework140 This means that aggregation across different assets in physical terms is generally not possible. While aggregation is generally possible only in monetary terms, the asset account entries in physical terms are essential in the compilation of monetary estimates when no transactions of the environmental assets take place. 5.44 Ideally, estimates of the opening and closing stocks of an asset should be compiled with information pertaining to the reference dates of the accounting period. If information in respect of those dates is not directly available, relevant information may need to be time-adjusted. From time to time, new information will emerge that leads to a change in the assumptions underlying a set of estimates. When additional information is being incorporated, it is important that the estimates continue to reflect the quantities and values that could reasonably be expected at the reference dates. 5.45 The entries concerning the changes between opening and closing stocks of each asset are divided into: (a) additions to the stock and (b) reductions in the stock. However, within these broad categories, there are many different types of entries which are often labelled differently by type of asset. For example, the term “extraction” is generally used in relation to mineral and energy resources, while the term “abstraction” is generally used for water resources. Both terms, however, relate to removing environmental assets through processes of economic production. 5.46 Table 5.2 presents the range of accounting entries for physical asset accounts by type of asset. It provides an overview of the structure of physical asset accounts that are elaborated in detail for each asset in sections 5.5-5.11. 5.47 The table provides a complete listing of possible entries for each asset type. In practice, only certain entries are likely to be important and not all cells that reflect the possibility of an entry in table 5.2 should be shown separately in the published accounts for each type of asset. 5.48 There are four types of additions to the stock of an environmental asset: (a) Growth in stock. These additions reflect increases in the stock of resources over an accounting period due to growth. For biological resources the growth may be natural or cultivated and is often estimated net of normal losses of stock; (b) Discoveries of new stock. These additions concern the arrival of new resources to a stock and commonly arise through exploration and evaluation; (c) Upward reappraisals. These additions reflect changes due to the use of updated information that permits a reassessment of the physical size of the stock. The reassessments may also relate to changes in the assessed quality or grade of the natural resource, or changes in the economic viability of extraction (including those due to changes in extraction technology) that are not solely due to changes in the price of the natural resource. The use of updated information may require the revision of estimates for previous periods to ensure a continuity of time series; (d) Reclassifications. Reclassifications of environmental assets will generally occur in situations in which an environmental asset is used for a different purpose; for example, increases in forest land due to afforestation are recorded here. An increase in one category of an asset should be offset by an equivalent decrease in another category, meaning that, for the environmental asset as a whole, reclassifications have no impact on the total physical quantity of an individual asset type. Asset accounts 141 5.49 There are five types of reductions in the stock of an environmental asset: (a) Extraction. These are reductions in stock due to the physical removal or harvest of an environmental asset through a process of production. Extraction includes both those quantities that continue to flow through the economy as products and those quantities of stock that are immediately returned to the environment after extraction because they are unwanted, for example, discarded catch in fishing; (b) Normal reductions in stock. These reductions reflect expected losses of stock during the course of an accounting period. They may be due to natural deaths of biological resources or to accidental causes that are not significant enough to be considered catastrophic and might reasonably be expected to occur based on past experience; (c) Catastrophic losses. Losses due to catastrophic and exceptional events are recorded when large-scale, discrete and recognizable events occur that may destroy a significantly large number of assets within any individual asset category. Such events will generally be easy to identify. They include major earthquakes, volcanic eruptions, tidal waves, severe hurricanes, and other natural disasters; acts of war, riots and other political events; and technological accidents, such as major toxic spills or the release of radioactive particles into the air. Also included here are major losses of biological resources through drought or outbreaks of disease; (d) Downward reappraisals. These reductions reflect changes due to the use of updated information which permits a reassessment of the physical size of the stock. The reassessments may also relate to changes in the assessed quality or grade of the natural resource, or changes in the economic viability of extraction (including those due to changes in extraction technology) that are not solely due to changes in the price of the natural resource. The use of updated information may require the revision of estimates for previous periods to ensure a continuity of time series; (e) Reclassifications. Reclassifications of environmental assets will generally occur in situations in which an environmental asset is used for a different purpose; for example, decreases in forest land due to permanent deforestation are recorded here. A decrease in one category of an asset should be offset by an equivalent increase in another category meaning that, for the environmental asset as a whole, reclassifications have no impact on the total physical quantity of an individual asset type. 5.50 Entries related to changes in land cover and land use—for example, within an asset account for forest and other wooded land—are generally in the nature of reclassifications. Thus, for the analysis of changes in land cover and land use, it is often useful to record entries relating to different types of reclassifications. The relevant entries in the case of land accounts are described in section 5.6. 5.51 The depletion of natural resources concerns the physical using up of natural resources due to extraction which thereby limits the potential to extract amounts in the future. For non-renewable resources, the quantity depleted is the same as the quantity extracted but this is not the case for natural biological resources that can regenerate over time. The definition of depletion in physical terms is covered in detail in section 5.4. 5.52 It may not be possible to directly observe all of the accounting entries outlined in the conceptual form of the physical asset account in table 5.2. Consequently, some entries may need to be estimated using appropriate models or derived on the basis of other accounting entries. Depending on the particular entry and its importance in the overall accounting for System of Environmental-Economic Accounting 2012—Central Framework142 Table5.2 Generalstructureofthephysicalassetaccountforenvironmentalassets(physicalunits) Mineraland energyresources Land(including forestland)Soilresources TimberresourcesAquaticresources WaterresourcesCultivatedNaturalCultivatedNatural OpeningstockofresourcesYesYesYesYesYesYesYesYes Additionstostockofresources GrowthinstocknaYes*SoilformationGrowthNaturalgrowthGrowthNaturalgrowthPrecipitation SoildepositionReturnflows DiscoveriesofnewstockYesnananananaYes*Yes* UpwardreappraisalsYesYesYes*Yes*Yes*Yes*YesYes* ReclassificationsYesYesYesYesYesYesYesna Totaladditionstostock Reductionsinstockofresources ExtractionsExtractionsnaSoilextractionRemovalsRemovalsHarvestGrosscatchAbstraction NormalreductionsinstocknanaErosionNaturalNaturalNormalNormalEvaporation losseslosseslosseslossesEvapotranspiration CatastrophiclossesYes*Yes*Yes*YesYesYesYesYes* DownwardreappraisalsYesYesYes*Yes*Yes*Yes*YesYes* ReclassificationsYesYesYesYesYesYesYesna Totalreductionsinstock ClosingstockofresourcesYesYesYesYesYesYesYesYes Note: “na”meansnotapplicable. * Anasteriskindicatesthatthisentryisusuallynotsignificantfortheresourceoristypicallynotseparatelyidentifiedinthesourcedata.Inpractice,notallcellsthatreflectthepossibilityofanentryhereshouldbeshown separatelyinpublishedaccountsforeachtypeofresource. Asset accounts 143 changes in the stock of a resource, it may also be appropriate to combine some accounting entries for the purposes of preparing physical asset accounts for publication. 5.53 All of the details regarding the definition and measurement of these flows in relation to individual environmental assets are set out in Sections 5.5-5.11. Accounting entries for institutional sector accounts 5.54 The compilation of asset accounts by institutional sector may be desirable for particular types of environmental assets where the ownership of resources is of policy or analytical interest, including the attribution of mineral and energy resources between government units and extracting units, and the assessment of the ownership of land. 5.55 In constructing institutional sector accounts, two types of entries are required that are additional to those shown in table 5.2, for the purpose of accounting for transactions and other exchanges between sectors. These entries are: (a) Acquisition and disposals of environmental assets. These entries are recorded when transactions in environmental assets take place between institutional units in different sectors. The acquisition of environmental assets represents an addition to the stock of the acquiring sector and the disposal represents a reduction in the stock of the other sector; (b) Uncompensated seizures. These changes in stock occur when institutional units take possession of or remove environmental assets without providing appropriate compensation to the original owner. An addition to stock is recorded for the sector that takes ownership of the environmental asset and a corresponding reduction in stock is recorded for the sector that previously owned the asset. 5.56 It is also noted that reclassifications of environmental assets between sectors may be common entries in institutional sector accounts. 5.57 Although not common, it is also possible that entries are required at a national level for the acquisition and disposal or uncompensated seizure of environmental assets. This would arise in the case of transactions in land between countries or in situations in which political changes lead to changes in the overall area of a country. Since these entries are not commonly required they are not incorporated into the standard form of the physical asset account presented in table 5.2. 5.3.3 Conceptual form of the monetary asset account 5.58 The general form of the monetary asset account is presented in table 5.3. There are close links to the structure of the physical asset account. 5.59 The definitions of the entries presented in the monetary accounts align exactly with the same entries as defined in physical terms in paragraphs 5.48 and 5.49. Thus, the monetary account reflects a valuation of physical flows as recorded in the physical asset account, although it is to be noted that for some environmental assets, the measurement scope is broader in physical terms (e.g., timber resources not used for wood supply are included in physical terms but excluded in monetary terms). For most environmental assets, it will be the case that measurement requires the estimation of the physical flows followed by estimation of the monetary flows. 5.60 The only additional entry recorded in the monetary asset account compared with the physical asset account concerns revaluations. Revaluations relate to changes in the value of assets due solely to price changes and reflect nominal holding gains and losses on envi- System of Environmental-Economic Accounting 2012—Central Framework144 ronmental assets. The nominal holding gain for environmental assets is calculated as the increase in value accruing to the owner of the asset as a result of a change in its price over an accounting period. Table 5.3 Conceptual form of the monetary asset account (currency units) Opening stock of resources Additions to stock of resources Growth in stock Discoveries of new stock Upward reappraisals Reclassifications Total additions to stock Reductions in stock of resources Extractions Normal loss of stock Catastrophic losses Downward reappraisals Reclassifications Total reductions in stock Revaluation of the stock of resources Closing stock of resources 5.61 As discussed in section 2.7, changes in price should be distinguished from both changes in the quantity and changes in the quality of the relevant asset. For environmental assets, the quality of an asset, such as land or water resources, may change due to the effects of pollution or the treatment of previous environmental damage. Ideally, where the price of an asset changes in response to a change in quality, this should be considered a change in the volume of the asset rather than a revaluation. In effect, there has been a reclassification between different qualities of the same asset. 5.62 In addition to determining the nominal holding gain, it is interesting to know how the change in value compares with the general rate of inflation. If the value of an asset rises over an accounting period at the same rate as the general inflation rate, this gain is referred to as a neutral holding gain. The difference between the nominal holding gain and the neutral holding gain is referred to as the real holding gain. 5.63 Revaluations should incorporate changes in the value of environmental assets due to changes in the assumptions made in the valuation approaches that are often used to estimate the economic value of environmental assets, in particular the net present value approach. The assumptions that should be taken into account are those regarding future rates of extraction and natural growth, the length of the asset/resource life and the discount rate. Changes in the physical stock of resources due to discoveries, catastrophic losses, etc., that lead to changes in the expected asset life should be accounted for separately. 5.64 As with physical asset accounts, it may not be possible to directly estimate all of the accounting entries set out in the conceptual form of the monetary asset account in table 5.3. Consequently, some entries may need to be estimated using appropriate models or derived on the basis of other accounting entries. Depending on the particular entry and its importance in the overall accounting for changes in the stock of a resource, it may also be appropriate Asset accounts 145 to combine some accounting entries for the purposes of preparing monetary asset accounts for publication. Relationship to SNA accounting entries49 5.65 Rather than effecting a broad separation into additions and reductions in the stock, the SNA focuses on (a) changes due to transactions and (b) other changes in the volume of assets. As a means of supporting the links between the SEEA and the SNA, the relevant SNA entries may be appended to the monetary asset account; they can be derived directly from the information presented in the monetary asset account. These derivations are shown in table 5.4. 5.66 The SNA accounting entries are different depending on whether the environmental asset is produced or non-produced. In the SEEA, this distinction is reflected only in whether an environmental asset is cultivated (i.e., produced in SNA terms) or natural (i.e., non-produced in SNA terms). For SNA purposes a further distinction is needed for cultivated assets as to whether they are fixed assets or inventories.50 Table 5.4 Derivation of accounting aggregates Accounting aggregate Cultivated biological resources Natural environmental assets Fixed assets Inventories Gross fixed capital formation Growth in stock less extractions na na Changes in inventories na Growth in stock less extractions na Economic appearance na na Growth in stock plus discoveries of new stock plus upward reappraisals Economic disappearance na na Extractions plus catastrophic losses plus downward reappraisals Note:  “na “ means not applicable. 5.67 For fixed assets, the relevant accounting entry is gross fixed capital formation; for inventories, the relevant accounting entry is change in inventories. For natural environmental assets, the relevant SNA entries are economic appearance of non-produced assets and economic disappearance of non-produced assets. There are also SNA entries related to the range of other additions and reductions in stock. These entries are defined equivalently for the monetary asset account in table 5.3 and the SNA. 5.68 In addition to the accounting entries shown in tables 5.3 and 5.4, there are two entries, depletion and consumption of fixed capital, that relate to the physical using up of assets over time. Consumption of fixed capital relates to the using up of fixed assets and, in the context of cultivated biological resources, is reflected in the value of the normal reductions in stock, based on, for example, mortality rates of livestock.51 5.69 Depletion relates to the physical using up of natural resources through extraction. In monetary terms, it represents the decline in future income that can be earned from a resource due to extraction. Details on the definition and measurement of depletion are presented in section 5.4. 49 Detailed descriptions of the relevant accounting entries are contained in chapters 10, 12 and 13 of the 2008 SNA. 50 See also paras. 5.24-5.30. 51 For further discussion on consumption of fixed capital, see paras. 6.240-6.244 of the 2008 SNA. System of Environmental-Economic Accounting 2012—Central Framework146 Institutional sector accounts in monetary terms 5.70 Institutional sector asset accounts may also be compiled in monetary terms and may be of particular interest, since they can be related directly to the full sequence of institutional sector accounts as presented in the SNA. Key aggregates that can be compiled from a full recording of asset accounts by institutional sector are depletion-adjusted net saving and net worth. 5.71 The accounting entries required to compile monetary asset accounts by institutional sector are the same as those required to compile physical asset accounts by institutional sector, with the only addition being the inclusion of entries for revaluations (as outlined in para. 5.60). 5.4 Principles of asset accounting 5.4.1 Introduction 5.72 Accounting for changes in the stocks of environmental assets presents various measurement challenges, including accurately measuring the physical stock of environmental assets, all of which have their own unique characteristics, for example, in the case of biological resources, the capacity to regenerate over time. Understanding the population dynamics is therefore important in making a reasonable assessment of certain environmental assets. 5.73 In addition to estimates calculated in physical terms, estimates of the values of environmental assets in monetary terms should also be compiled. Aside from land and soil resources, few environmental assets are actively traded on markets before they are extracted; therefore, determining their in situ value is not a straightforward task. 5.74 Although there are challenges involved, a range of techniques and underlying concepts have developed that permit the compilation of asset accounts. Section 5.4.2 describes a key challenge in physical asset accounting; the measurement of depletion in physical terms. Sections 5.4.3 and 5.4.4 discuss the principles of asset valuation and the net present value approach, respectively. In section 5.4.5, the approaches to estimating resource rent and the main steps required to apply the NPV approach are explained. Details concerning the NPV approach are presented in annex A5.1 and a discussion of discount rates is presented in annex A5.2. Section 5.4.6 discusses the measurement of environmental assets in volume terms. Applications of the various definitions and principles of asset accounting are described for each environmental asset in sections 5.5-5.11. 5.4.2 Defining depletion in physical terms 5.75 In accounting for environmental assets, the measurement of depletion is often a particular focus. The depletion of environmental assets relates to the physical using up of environmental assets through extraction and harvest by economic units, including households, resulting in a reduced availability of the resource. Depletion does not fully account for all possible changes in the stock of an asset over an accounting period and hence should not be linked directly to measures of sustainability. Assessments of the sustainability of environmental assets should take into account a broader range of factors, such as the extent of catastrophic losses or discoveries and potential changes in the demand for inputs from environmental assets. 5.76 Depletion, in physical terms, is the decrease in the quantity of the stock of a natural resource over an accounting period that is due to the extraction of the natural resource by economic units occurring at a level greater than that of regeneration. Asset accounts 147 5.77 For non-renewable natural resources, such as mineral and energy resources, depletion is equal to the quantity of resource that is extracted because the stock of these resources cannot regenerate on human time-scales. Increases in the stock of non-renewable natural resources (e.g., through discoveries) may permit the ongoing extraction of the resources. However, these increases in volume are not considered regeneration, and hence do not offset measures of depletion. The increases should be recorded elsewhere in the asset account. 5.78 For natural biological resources, such as timber resources and aquatic resources, the equality in physical terms between depletion and extraction does not hold. The ability for these resources to regenerate naturally means that in certain management and extraction situations, the quantity of resources extracted may be matched by a quantity of resources that are regenerated and, in this situation, there is no overall physical depletion of the environmental asset. More generally, only the amount of extraction that is above the level of regeneration is recorded as depletion. Provided below is a more detailed outline of the measurement of depletion in physical terms for natural biological resources. 5.79 Depletion is not recorded when there is a reduction in the quantity of an environmental asset owing to unexpected events such as losses due to extreme weather or pandemic outbreaks of disease. These reductions are recorded as catastrophic losses. In contrast, depletion must be seen as a consequence of the extraction of natural resources by economic units. 5.80 Depletion can also be measured in monetary terms by valuing the physical flows of depletion using the price of the natural resource in situ. This step is explained in detail in annex A5.1. It is noted that the monetary value of depletion is equal to the change in the value of the natural resource that is due to physical depletion. Depletion of natural biological resources in physical terms 5.81 Natural biological resources are able to reproduce and grow over time. Thus, in the estimation of depletion, it is necessary to consider both the extraction and the regeneration of these resources. While the rates of extraction can be observed directly, measurement of the rates of regeneration can be complex and usually requires consideration of biological models. These models will usually account for both the structure and the size of populations; and exhibited by their general form, when the stock or population of the specific type of resource is small, the rate of growth will be small but, as the population increases, the rate of growth will also increase. Eventually, as the population within a given area reaches the carrying capacity of the area, i.e., as the density reaches a maximum, the rate of growth in the population will slow substantially. 5.82 Based on this general model, for any given population, it is possible to calculate the number of animals or volume of plants by age or size class that may be removed from the population without affecting the capacity of the population to regenerate itself (i.e., opening stock equals closing stock). In effect, there is a “surplus” or excess that can be harvested from the existing stock. In biological models, this surplus is known as the sustainable yield. 5.83 The level of the sustainable yield rises and falls in line with the overall size and structure of the population. For example, in populations where the growth rates are low, the sustainable yields are also low. These relationships are shown in figure 5.2, with population size being used as a proxy for both population size and structure. It is noted that the same level of extraction will have a different relationship to the sustainable yield depending on the population size. Referring to figure 5.2, a given level of extraction may be above, on or under the sustainable yield curve. 5.84 For a given population, if the amount of extraction is less than the sustainable yield, i.e., points under the curve in figure 5.2, no depletion should be recorded. In this situation, System of Environmental-Economic Accounting 2012—Central Framework148 assuming no catastrophic losses or other changes, it would be expected that the stock would increase over the accounting period. Figure 5.2 Stylized sustainable yield curve Carrying capacity Population size Harvest Minimum viable population 5.85 In principle, depletion is recorded wherever the amount of extraction is greater than the sustainable yield corresponding to the population size and structure. This is reflected by points above the curve in figure 5.2 and represents the case where quantities extracted are greater than the regeneration or growth for any given population. 5.86 However, for most populations of natural biological resources, the estimation of sustainable yield is difficult, as the natural processes of growth and death, the relationship to other species (including predators) and the impact of extraction are usually non-linear, variable (e.g., due to variations in climatic conditions) and often not fully understood in scientific terms. Thus, it is recommended that some year-on-year variation around an estimate of sustainable yield be considered normal. Consequently, in practice, depletion should be recorded when extraction is beyond the normal variation in sustainable yield for a particular population. 5.87 The estimation of the required variables will involve the use of biological models and assumptions regarding the growth, death and other changes in population. If such models are unavailable, other indicators of and changes in stock size may be used. Possible methods are discussed in relation to timber resources in section 5.8 and in relation to aquatic resources in section 5.9. The relationship between depletion and degradation 5.88 Although the measurement of degradation in physical and monetary terms is not pursued in the Central Framework, there are links with the definition and measurement of depletion that are explained in the Central Framework. The measurement of degradation is considered in the SEEA Experimental Ecosystem Accounting. 5.89 The focus in measuring depletion is on the availability of individual environmental assets in the future and changes in that availability due to extraction and harvest by economic units. There is a particular focus on the specific benefits that arise from the extracted materials, including the capacity of the extraction of the resources to generate income for the extractor. Asset accounts 149 5.90 Degradation considers changes in the capacity of environmental assets to deliver a broad range of contributions known as ecosystem services (e.g., air filtration services from forests) and the extent to which this capacity may be reduced through the action of economic units, including households. In this sense, since depletion relates to one type of ecosystem service, it can be considered a specific form of degradation. 5.91 The measurement of degradation is complicated because the capacity of environmental assets to deliver ecosystem services is not attributable solely to individual assets, and because individual assets may deliver a number of different ecosystem services. Further, while individual environmental assets, such as water and soil resources, may have been degraded over time, separating the degradation of an individual asset from the degradation of the overall ecosystem may not be straightforward. 5.92 The measurement of degradation in physical terms is also complicated inasmuch as it generally relies on a detailed assessment of the condition of ecosystems rather than the relatively simpler changes in the quantities of individual environmental assets that are used in the estimation of asset accounts in physical terms and in the estimation of depletion. For example, to assess whether a body of water has been degraded, assessments might be made of the various pollutants in the water as part of a broader assessment of the overall change in condition. While individual accounting for each of these pollutants might be undertaken, it will not be directly related to the volume of water in cubic metres that is used to account for water resources in an asset account. 5.93 Although separately identifying degradation in physical terms is complex, implicitly, the monetary value of individual environmental assets that have been degraded will be affected by the changing quality of the asset. Ideally, where the price of the asset changes to reflect a different quality, this should be considered a change in the volume of the asset rather than a revaluation. However, isolating the price change due to degradation from other causes of price change is likely to be difficult in practice. 5.4.3 Principles of asset valuation 5.94 One general advantage of applying valuation approaches is that different environmental assets can be compared using a common numeraire, which is not possible using purely physical data. Further, environmental assets can be compared against other assets in order to assess relative returns, national wealth and similar types of analysis. Since it is commonly the case that governments have a high level of ownership of or influence over the extraction of environmental assets, valuation of these assets in monetary terms may provide useful information for assessing future streams of income for government, for example, in the estimation of future government revenue from the extraction of oil and natural gas. 5.95 It is also the case that in business accounts, enterprises involved in extraction make assessments regarding their future income streams and in this regard, the ability to place these individual enterprise-based valuations in a broader, national context is of relevance. There is also increasing use of market-based mechanisms, such as quotas, to allocate access rights to environmental assets. These mechanisms may relate directly to aggregate valuations for environmental assets. 5.96 Since many environmental assets are not purchased in a marketplace and, unlike buildings and equipment, have not been produced, there are generally no observable prices for the value of the opening and closing stock of environmental assets or for the flows between these two dates. System of Environmental-Economic Accounting 2012—Central Framework150 5.97 Where market prices do not exist, the estimation of values requires the use of assumptions and models. Overall, these models have proved to be sound tools for the development of meaningful valuations for produced assets. At the same time, there are complexities involved in the application of these models, which compilers and users should be aware of before applying the models in practice. 5.98 Explained below are the principles for the valuation of assets and the approaches that can be used to estimate the values in monetary terms.52 Specific measurement issues relevant to individual environmental assets are addressed in later sections of this chapter. General principles of valuation 5.99 The prices at which assets are bought or sold on markets are a basis of decisions by investors, producers, consumers and other economic agents. Market prices are assessed by investors and producers in relation to their expectations of the flows of income they can derive from the assets. For example, investors in renewable energy infrastructure assets (such as wind turbines) and environmental assets (such as land) make decisions in respect of acquisitions and disposals of these assets in the light of their values in the market relative to the income they expect the assets to generate over time. 5.100 Ideally, observable market prices should be used to value all assets, and every item should be valued as if it were being acquired on the date to which the estimate of the stock relates. These two recommendations enable the values of different types of assets, including environmental, financial, and other economic assets, to be compared in meaningful ways, and allow the formation of opening and closing values of stocks that can be used to assess national and institutional sector estimates of wealth in monetary terms. 5.101 At the same time, market-based estimates of asset values will commonly not account for all aspects that may be considered to be relevant in forming a valuation for an asset. For example, the value of a second-hand car in the marketplace will often be less than the value that the current owner places on the benefits of utility and flexibility associated with car ownership. At the same time, the car’s value to its owner may not reflect the impact on the environment of emissions arising from operating the car. Thus, while the use of market prices allows comparison across asset types, those prices may not reflect the value of the asset from an individual or societal perspective. This aspect of market based prices is often mentioned in relation to the valuation of environmental assets. 5.102 An important additional consideration in the application of general principles of valuation to environmental assets is that the objective is to estimate the value of the asset in situ rather than after its removal. 5.103 The approaches described in the SEEA, in particular the net present value approach, provide reasonable proxies for observable market prices and consistency with the SNA, but do not take into account the full range of benefits (and costs) that might be considered relevant. Approaches to the valuation of assets 5.104 The ideal sources of market-price observations for assets are values observed in markets in which each asset traded is completely homogeneous, is often traded in considerable volume, and has its market price listed at regular intervals. Such markets yield data on prices that can be multiplied by indicators of physical stocks to enable computation of the total market value of different classes of assets. These types of price observation are available for 52 The principles of valuation explained here align fully to the SNA 2008 (see paras. 13.16-13.25). Asset accounts 151 most financial assets, newly purchased produced assets, including many types of transport equipment (such as cars and trucks), and livestock. 5.105 In addition to providing direct observations on the prices of assets actually traded, information from such markets may also be used to price similar assets that are not traded. For example, information on house and land sales may be used to estimate the value of houses and land that have not been sold. 5.106 When there are no observable prices because the items in question have not been purchased or sold on the market in the recent past, an attempt has to be made to estimate what the prices would be if a regular market existed and the assets were to be traded on the date to which the estimate of the stock relates. 5.107 One approach is to use the written-down replacement cost. The value of an asset will decline over time as the value at the time of acquisition, the acquisition price, is reduced by consumption of fixed capital (more commonly referred to as depreciation) over the asset’s life. Furthermore, the acquisition prices of equivalent new assets will change. In theory, the value of an asset at any given point in its life is equal to the current acquisition price of an equivalent new asset less the accumulated consumption of fixed capital over its life. When reliable directly observed prices for used assets are not available, this procedure gives a reasonable approximation of what the market price would be were the asset to be offered for sale. 5.108 In the context of environmental assets, this approach may be applied to estimate the value of the stock of cultivated biological resources that are fixed assets, for example, orchards. 5.109 A second approach is to use the discounted value of future returns. For many environmental assets, there are no relevant market transactions or set of acquisition prices that would permit the use of the previous two approaches. Thus, although prices can be found to value the output from extraction or harvest of an environmental asset, no values for the asset itself, in situ, are available. 5.110 In this situation, the discounted value of future returns approach, commonly referred to as the net present value (NPV) approach, uses projections of the future rate of extraction of the asset, together with projections of its price, to generate a time series of expected returns. Typically, these projections are based on the history of returns earned from the use of the environmental asset. Assuming that returns earned in the current period are worth more to the extractor than returns earned in the future, the stream of expected returns is discounted to reflect the value that a buyer would be prepared to pay for the asset in the current period. 5.111 The next section outlines the key components of the NPV approach. Additional details, including the relevant mathematical derivations related to the NPV approach, are provided in annex A5.1. 5.4.4 The net present value (NPV) approach 5.112 There are five key components of the NPV approach that require explanation: (a) the measurement of returns on environmental assets, (b) the determination of the expected pattern of resource rents based on expected extraction profiles and prices, (c) the estimation of the asset life, (d) the selection of a rate of return on produced assets and (e) the choice of discount rate. System of Environmental-Economic Accounting 2012—Central Framework152 The measurement of returns on environmental assets 5.113 In the SEEA, returns are defined using the concept of economic rent. Economic rent is best considered to be the surplus value accruing to the extractor or user of an asset calculated after all costs and normal returns have been taken into account. 5.114 The surplus value, referred to as resource rent in the context of environmental assets, can be taken to be the return attributable to the asset itself. The logic of the NPV approach requires estimating the stream of resource rents that are expected to be earned in the future and then discounting these resource rents back to the present accounting period. This provides an estimate of the value of the asset at that point in time.53 5.115 One common feature in definitions of resource rent is that the amount of resource rent is always derived relative to the returns earned by other firms on average over time, i.e., normal returns. Resource rent, as a residual, may be positive or negative. Economic theory suggests that, over the long term, resource rents should be positive. 5.116 The measurement of resource rent provides a gross measure of the return to environmental assets. As for produced assets, it is also relevant to consider the derivation of a net measure of the return by deducting depletion from resource rent, i.e., depletion-adjusted resource rent. For produced assets, the equivalent deduction is for depreciation. Depletion, as defined earlier in this section, reflects the change in the value of an environmental asset that is due to extraction in excess of regeneration. Putting aside any changes in expectations for future returns or differences between expected and realized outcomes, the measure of depletion-adjusted resource rent corresponds, in economic terms, to a net return to capital or net return to environmental assets. Further, it is shown in annex A5.1 that depletionadjusted resource rent is equal to the nominal (or overall) return to environmental assets less the expected revaluations of the environmental asset. 5.117 Resource rent and the net return to environmental assets can be derived within the national accounts framework through a focus on the operating surplus of extracting enterprises. In this context, the operating surplus earned by an enterprise is considered to comprise a return for the investment in produced assets and a return to the environmental assets used in production. 5.118 The relationships between the relevant variables are shown in table 5.5. The table presents the standard derivation of gross operating surplus based on the SNA using measures of output, intermediate consumption, compensation of employees, and other taxes on and subsidies for production. 5.119 Before deriving measures of resource rent, it is necessary to take into account the effects of any specific taxes and subsidies that relate to the extraction activity. Specific taxes and subsidies are those that apply solely to the extracting enterprises and are not generally applicable across the economy.54 Examples include subsidies provided based on the quantity of resources sold and taxes levied solely on inputs used in the extracting industries. The deduction of specific subsidies from and the addition of specific taxes to the standard national accounts measures of gross operating surplus are such that the resulting measure of resource rent is neutral to these flows; that is to say, while these flows affect the incomes of 53 There are a number of different theories concerning what factors drive the generation of resource rent accruing to the extractor or user of an asset. Examples of sources of resource rent include differential rent, scarcity rent and entrepreneurial rent. Different sources of resource rent are not mutually exclusive and consequently the estimates of resource rent that underpin the NPV estimates in the SEEA should not be regarded as emerging from any one particular source of resource rent. 54 Specific taxes exclude special payments of income taxes and rent that may be applicable for extracting industries. Asset accounts 153 the extracting industries, they are effectively redistributions within the economy and should not influence the estimated return to the underlying environmental asset. Table 5.5 Relationships between different flows and income components Output (sales of extracted environmental assets at basic prices, includes all subsidies on products, excludes taxes on products) Less Operating costs Intermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products) Compensation of employees (input costs for labour) Other taxes on production plus other subsidies on production Equals Gross operating surplus—SNA basisª Less Specific subsidies on extraction Plus Specific taxes on extraction Equals Gross operating surplus—for the derivation of resource rent Less User costs of produced assets Consumption of fixed capital (depreciation) + return to produced assets Equals Resource rent Depletion + net return to environmental assetsb a   Strictly speaking, this accounting identity also includes gross mixed income (the surplus earned by unincorporated enterprises) and should be adjusted for net taxes and subsidies on production. These details do not affect the logic of the explanation provided. b   In principle, the net return to environmental assets derived here also incorporates a return to other non-produced assets (e.g., marketing assets and brands), as these assets also play a role in generating the operating surplus. These returns are ignored in the formulation presented here. 5.120 Resource rent is thus derived from standard SNA measures of gross operating surplus by deducting specific subsidies, adding back specific taxes and deducting the user costs of produced assets (themselves composed of consumption of fixed capital and the return to produced assets). As noted above, resource rent is composed of depletion and the net return to environmental assets. 5.4.5 Approaches to estimating resource rent and net present values Approaches to estimating resource rent 5.121 In practice, there are three main approaches to estimating resource rent: the residual value method, the appropriation method and the access price method. 5.122 The most commonly applied method is the residual value method. Under this method, resource rent is estimated by deducting user costs of produced assets from gross operating surplus after adjustment for any specific subsidies and taxes. 5.123 Estimates of the value of gross operating surplus and specific subsidies and taxes may be obtained from national accounts data sets. Estimates of the user costs of produced assets are not generally available and must be constructed so that each period’s resource rent can be obtained. Estimates of the user costs of produced assets are composed of two variables: consumption of fixed capital of produced assets; and normal return on produced assets. Both variables may be estimated within national accounts models designed to estimate the value of the fixed capital stock and related variables for various purposes, including productivity analysis. If such models have not been developed, then each variable may be estimated using assumptions regarding depreciation rates, asset lives and rates of return on produced assets. System of Environmental-Economic Accounting 2012—Central Framework154 A full description of considerations and approaches relevant to the measurement of user costs is presented in Measuring Capital: OECD Manual—2009 (OECD, 2009). 5.124 A difficulty in estimating resource rents with this method is that one is rarely able, from using the source information, particularly national accounts data, to isolate only the extraction or harvesting activity; and in certain circumstances, multiple resources may be extracted at the same time, particularly in mining. Generally, data on gross operating surplus (GOS) for industries that extract and harvest environmental assets will capture some downstream processing, refinement or other value-added activity also undertaken by the extractor before sale. Since all of these additional activities require inputs of labour and capital, partitioning a firm’s GOS into pure extraction activity relating to a single resource is not always straightforward. Nonetheless, every effort should be made to isolate the specific GOS for the extraction activity of individual resources in the underlying data. 5.125 There may be concern that, in situations of over-exploitation of resources, the resulting gross operating surplus will generate a higher estimate of resource rent than can be sustained over the longer term. While this observation is correct, it does not invalidate the measurement approach. The aim of the approach is not to measure what might or should happen under ideal circumstances but to account for expected behaviour in respect of the environmental asset. Thus, if over-exploitation continues, it should be reflected in a shorter remaining asset life and in a greater amount of depletion (as a component of the higher resource rent) than might otherwise be the case. 5.126 The appropriation method estimates the resource rent using the actual payments made to owners of environmental assets. In many countries, governments are the legal owners of environmental assets on behalf of the country. As legal owners, governments could in theory collect the entire resource rent derived from extraction of the resources that they own. This amount would, in principle be equal to GOS less user costs of produced assets of the extractor, as defined. 5.127 The collection of resource rent is generally undertaken by governments through mechanisms such as fees, taxes and royalties. In practice, the fees, taxes and royalties actually collected tend to understate total resource rent, as the rates may be set with other priorities in mind, for example, encouraging investment and employment in extracting industries. These alternative motivations should be considered before use of the appropriation method. 5.128 The access price method is based on the fact that access to resources may be controlled through the purchase of licences and quotas, as is commonly observed in the forestry and fishing industries. When these resource access rights are freely traded, it is possible to estimate the value of the relevant environmental asset from the market prices of the rights. The economic logic parallels the residual value method, since it is expected that, in a free market, the value of the rights should be equivalent to the future returns from the environmental asset (after deducting all costs, including user costs of produced assets). 5.129 Where the resource access rights that are purchased provide a very long term or indefinite access to the assets, the market value of the rights should provide a direct estimate of the total value of the asset rather than simply an estimate of the resource rent. In this case, no discounting of future flows of resource rent is needed. If the rights are for a more limited period (e.g., for one year in the case of entitlements), this can provide a direct estimate of the resource rent for that period. 5.130 In practice, in many cases governments may give the access rights direct to extractors for free or do so at a price that is less than the true market value. Further, trading of the rights may be restricted or prohibited. In these cases, there is no directly observable market valuation. Asset accounts 155 Summary of methods to estimating resource rent 5.131 While, in theory, all of these methods will generate the same estimates of resource rent, it is the case that the application of the appropriation and access price methods are more heavily influenced by institutional arrangements in a country. For these reasons, estimates of resource rent based on the residual value method should be compiled and, where possible, reconciled with estimates obtained using the other methods. Indeed, there may be particular analytical interest in comparing the estimates of resource rent based on the different methods. Determination of the expected pattern of resource rents 5.132 The critical factor in the valuation of assets is not the past or current returns but the expected returns. An asset with no expected returns has no value in economic terms. Expected returns are, by definition, not observed and hence assumptions concerning these flows must be made. 5.133 Resource rents are a function of quantities of resources extracted, unit extraction costs and commodity prices. The starting point is generally the estimates of resource rent in the current period or the period of the immediate past. In the absence of any additional information on expected future price changes or likely changes in extraction rates, it is recommended that estimates of expected resource rent should be set based on current estimates of resource rent, thus assuming no price changes beyond the general level of inflation, and a realistic rate of resource extraction. 5.134 In general, there is too much volatility in unit resource prices for meaningful assumptions about future resource price changes to be incorporated. Also, in the absence of other information, it may be reasonable to assume that extraction will continue at the same rate as in the past, since this is the extraction rate for which an appropriate amount of produced assets has been acquired. At the same time, if, for example, it was known that the majority of the expected resource rent would be earned in years 5 to 10 over a total asset life of 30 years, then this timing of expected returns should be taken into account. 5.135 Special consideration is needed in situations where the extraction rates in any particular period might be considered abnormal, including where they fall to zero, or close to zero. In practice, this is possible in any given accounting period, for example, if the change in economic circumstances is such that extraction is no longer cost-effective, natural disasters make the resource inaccessible or unharvestable, or access to resources is restricted to allow the recovery of stocks. 5.136 If changes occur in the expected extraction schedule, the resulting NPV estimates may produce results that are difficult to interpret. However, this only highlights the fact that, when the expected extraction schedule changes for any reason, including simply the receipt of additional information, the NPV estimates must be re-estimated, since they should reflect a valuation based on all of the information available at that point in time. Estimates of the asset life 5.137 The asset life (or resource life) is the expected time over which an asset can be used in production or the expected time over which extraction from a natural resource can take place. Estimates of the asset life must be based on consideration of the available physical stock of the asset and assumed rates of extraction and growth, in the case of renewable resources. In a very simple case, the asset life can be calculated by dividing the closing physical stock by the excess of expected annual extractions over expected annual growth. However, especially for natural biological resources such as aquatic resources, it is necessary to consider biological System of Environmental-Economic Accounting 2012—Central Framework156 models and associated sustainable yields of biological resources in such a way as to ensure the impact of changing age and sex structures is taken into account in the determination of the asset life. A description of relevant considerations is contained in section 5.4.2. 5.138 It may be that, through the use of biological and economic models, optimal extraction paths can be calculated which effectively determine the asset life through alignment between the available stock and rates of extraction. Often implicit in the determination of such extraction paths, particularly for renewable natural resources, are assumptions regarding the sustainability of the resource, for example, that future management of fish stocks will ensure that extraction does not exceed growth. 5.139 For the SEEA, making such assumptions regarding sustainability is problematic, as it may ignore important environmental information and may imply the adoption of behaviour that may not have been adopted in the past. Unless there is evidence to the contrary, it is recommended that estimates of asset life be based on rates of extraction and growth that have occurred in the recent past rather than through the use of general assumptions on sustainability or intended management practice. 5.140 Estimates of the asset life are required to provide the time frame over which the NPV approach is applied. In practice, depending on the choice of discount rate, if asset lives are longer than about 20 years, the NPV estimates are relatively stable; that is, the values of the expected returns in later years are relatively small. The sensitivity of the NPV estimates to the choice of discount rate over varying asset lives is discussed in annex A5.2. Rate of return on produced assets 5.141 An expected rate of return on produced assets is required to estimate the user cost of the produced assets utilized in the extraction of the environmental asset. If this cost is not deducted, the resulting estimates of resource rent will be overstated. 5.142 Two approaches can be taken to estimating rates of return on produced assets: an endogenous approach and an exogenous approach. The endogenous approach sets the rate equal to the net operating surplus (gross operating surplus less consumption of fixed capital) divided by the value of the stock of produced assets. This approach implicitly assumes that there is no return attributable to non-produced assets, including environmental assets, and hence it is not recommended. It should, however, form an upper bound of the estimated rate of return on produced assets. 5.143 The exogenous approach is recommended in the SEEA. This approach assumes that the expected rate of return on produced assets is equal to an exogenous (external) rate of return. Ideally, the expected rate of return should relate to activity-specific returns, thus taking into account risks in investing in particular activities. However, in many cases, financial markets may not be sufficiently developed to provide robust estimates of these specific rates of return. 5.144 For this reason, a realistic approach is to use an economy-wide rate of return, perhaps based on government bond rates, where these exist.55 In all cases, a real rate of return should be used. While exogenous rates of return are unlikely to be perfect proxies for rates of return on individual produced assets, it is likely that they provide a reasonable reflection of normal returns for the derivation of estimates using the NPV approach. 55 It is also the case for technical reasons that a general rate of return is appropriate. If an activity-specific rate of return is used, it is also necessary to include activity-specific expectations in the derivation of the revaluation term in the NPV formula; in this way, the impact of using activity-specific rates of return is offset. Asset accounts 157 Choice of discount rate 5.145 Discount rates are required to convert the expected stream of resource rents into a current-period estimate of the overall value. A discount rate expresses a time preference—the preference of the owner of an asset to receive income now rather than in the future. It also reflects the owner’s attitude to risk. In general, individuals and enterprises will have higher rates of time preference than society; that is, individuals and enterprises will tend to demand a quicker return from ownership of an asset than will the society as a whole. Higher rates of time preference translate into higher discount rates. 5.146 The discount rate used in NPV calculations can be interpreted as an expected rate of return on the non-produced assets. In an enterprise where all assets are identified and measured accurately, and where conditions of perfect competition prevail, the discount rate and the rate of return should be equal. This is because the enterprise should invest only if the rate of return on all assets is aligned to its own time and risk preferences for receiving income. 5.147 To ensure a valuation that is aligned to the general concept of market prices, it is recommended that a market-based discount rate should be used equal to the assumed rate of return on produced assets (see above). 5.148 At the same time, there is also support for the use of social discount rates in the valuation of environmental assets. The rationale is that environmental assets are of broad and long-term value to society as a whole and should be valued in that light rather than solely in relation to their value to a present-day extractor. 5.149 One of the main arguments supporting the use of social discount rates is that, generally, social discount rates are lower than market-based discount rates and lower rates will place higher relative importance on income earned by future generations. From this, it is often inferred that estimates of NPV that use market-based discount rates do not value future generations and the total values obtained are too small, since they do not give sufficient weight to these future incomes. 5.150 Annex A5.2 presents an extended discussion on discount rates and their application, including a table illustrating the sensitivity of valuations based on NPV to the choice of discount rate. Calculation of net present value 5.151 Using these various components, estimates of the value of an environmental asset are obtained based on the following basic steps and assuming the employment of the residual value method to calculate resource rent: (a) Obtain estimates of GOS, specific subsidies and taxes on extraction, and the user cost of produced assets for the extractive activity, from relevant sources, most likely based on national accounts data, relevant activity-specific information and assumptions regarding rates of return on produced assets; (b) Estimate resource rent as GOS less specific subsidies plus specific taxes less user cost of produced assets; (c) Estimate the asset life based on physical assessment of the stock and projected rates of extraction and growth; (d) Project the estimate of resource rent over the life of the asset, taking into account any expected changes in extraction pattern; System of Environmental-Economic Accounting 2012—Central Framework158 (e) Apply the NPV formula using an appropriate discount rate: 1 (1 ) tN t t t RR V r τ τ τ + = = + ∑ where Vt is the value of the asset of time t; N is the asset life: RR is the resource rent; and r is a nominal discount rate (for details see annex A5.1) 5.152 Where possible, compilers are encouraged to compare results of NPV calculations that would be obtained using different estimates of the discount rate and also different approaches to the estimation of resource rent. This may be possible where tradable access rights are in existence or where payments of rent are recorded. These alternative estimates of resource rent may be substituted in the general NPV formulation to enable the derivation of alternative valuations. 5.153 If, after adjusting for specific taxes and subsidies, the derived expected resource rent is negative, then the estimated NPV of the asset should be assumed to be zero. This conclusion should not be based on single observations of negative resource rents but should take into account likely future patterns of operating surplus and specific taxes and subsidies. In some cases, the extraction may continue because the level of specific subsidies is sufficient to ensure a suitable income for the extractor. However, in these situations, the income should not be attributed to a return to the underlying environmental asset, but, instead, should be considered a redistribution of incomes within the economy. 5.154 Wherever actual market prices are available, for example, on the basis of actual transactions in environmental assets, this information should be used in preference to NPV-based valuations. In incorporating this information, appropriate adjustments for the scope and coverage of the transactions, compared with the scope of the estimation based on NPV, need to be made. 5.155 Ideally, calculation of NPV estimates should be undertaken for individual stocks, for example, a specific mineral deposit or fish stock. At this level of detail, changes in the stock can be more accurately considered and assumptions more accurately evaluated. More generally, every effort should be made to test assumptions used in the formulation of NPV valuations and, wherever possible, additional information about specific individual stocks should be taken into account—for example, large discoveries of mineral and energy resources or catastrophic losses of timber resources due to exceptional weather events. 5.156 Accounting for the change in the value of assets over an accounting period is a core part of asset accounting. Like the assessment of the value of an asset at the beginning and end of a period, the valuation of changes in the stock, such as discoveries and catastrophic losses, is also dependent on the impact that these changes have on expected returns. Since these changes are not usually evidenced in transactions in the assets themselves, their valuation requires the use of the NPV approach to ensure alignment between stock valuations and valuations of the changes in the stock. 5.157 A complete accounting for NPV and changes in NPV is presented in annex A5.1. The annex highlights the relationships between the quantities of the natural resource, the quantity extracted, the price received for extracted resources (after deduction of extraction costs), i.e., the unit resource rent, and the price of the resource in situ, i.e., before extraction. A key conclusion presented in the annex is that it is incorrect to use the unit resource rent to value the stock of natural resources; rather, the in situ price must be used. At the same time, there is a clear relationship between these two prices and it is therefore possible to estimate the in situ price based on measures of resource rent. Asset accounts 159 5.158 The second key conclusion discussed in the annex is that the valuation of all changes in the stock of a natural resource (e.g., depletion, extraction, discoveries and catastrophic losses) must also be valued using average in situ resource prices. Using these prices permits a balanced and complete accounting of changes in the value of natural resources over an accounting period. 5.159 Finally, annex A5.1 demonstrates that the valuation of both non-renewable and renewable natural resources can be undertaken within the same accounting framework. Thus, measures of the natural growth of natural biological resources can be accounted for within the NPV framework, and appropriate measures of depletion can be defined. 5.4.6 Measurement of environmental assets in volume terms 5.160 As explained in chapter II, volume measures of assets are not measures of quantities but rather estimates of changes in the value of assets after removing the effects of price change. Thus, volume measures encompass changes due to changes in quantities and changes in quality. 5.161 Volume measures of environmental assets are compiled to assist in the analysis of the changes in environmental assets over time. Removing the effect of price change may be undertaken for two primary reasons: first, to provide an indicator of the purchasing power of environmental assets, i.e., an estimate of the capacity of a set of environmental assets to be used to acquire a given set of goods and services; and second, to assess whether there has been a change in the underlying aggregate physical stock of a number of different environmental assets. Both of these rationales may be important considerations when undertaking an aggregate analysis of the wealth of a country and considering the relative importance of environmental assets compared with other economic and social assets. 5.162 For estimating the purchasing power of a set of environmental assets, the volume measure is equal to the total value of environmental assets divided by an estimate of the general rate of inflation, for example, the consumer price index. 5.163 To estimate changes in the aggregate physical stock, a rough assessment may be completed through analysis of the change in the physical stock of each type of environmental asset. However, this approach does not permit aggregation across assets since each will be measured in different physical units, for example, hectares (for land) and tonnes (for coal). 5.164 A number of different measurement approaches can be considered in respect of obtaining a volume measure reflecting the aggregate physical stock. First, a volume measure can be compiled that is the aggregation of the changes in physical stocks of each asset weighted by their relative values at a given point in time. The point in time is often the beginning or end of the accounting period but the relative values may also be calculated based on an average of beginning- and end-of-period values. 5.165 A second approach to the compilation of the volume of the aggregate physical stock can be applied in cases where the NPV formula has been used. This approach is to reestimate the NPV at the end of the period, for each environmental asset, using the same in situ resource price as was used at the beginning of the period. The sum of these re-estimated NPVs provides an estimate of the volume of environmental assets at the end of the period. This estimate can be compared with the value of the environmental assets at the beginning of the period to obtain an estimate of the change in volume. In effect, the physical stocks at the beginning and at the end of the period are all valued using the same set of prices; hence, any change reflects the volume change in environmental assets. System of Environmental-Economic Accounting 2012—Central Framework160 5.166 It is possible, with a time series of asset values, to use the in situ resource price from one reference period to re-estimate the value of assets at all other periods. This provides a time series of asset values at constant in situ resource prices. However, the use of constant prices may hide changes in prices and the associated resource rent that are due to changing technology and extraction costs. Hence, it is preferable to calculate the changes in volume between each period using in situ resource prices relevant to that period and then link the consecutive estimates of the changes in volume together to form a single time series. 5.167 A third approach to deriving asset volumes is to divide the individual asset values at the end of the period by an asset-specific price index. In many cases, this may be a price index relating to the sales of extracted products (e.g., a price index for coal used to deflate the value of stocks of coal). However, a more accurate result is obtained if the price index reflects changes in the in situ resource price. This requires taking into account not only the changing prices of the extracted products but also the changing costs of extraction. As for the second approach, the price index reflecting the changing costs of production should assume a constant technology so that these changes are captured in the volume change. 5.5 Asset accounts for mineral and energy resources 5.5.1 Introduction 5.168 Mineral and energy resources are a unique type of environmental asset in that they can be extracted and used in economic activity but cannot be renewed on any human timescale. Since they cannot be renewed, there is particular interest in understanding the rate at which these assets are extracted and depleted, the overall availability of these assets, and the sustainability of the industries that exploit them. 5.169 Asset accounts for mineral and energy resources organize relevant information, including the quantities and values of stocks of the resources and the changes in these over accounting periods. Flows of extraction, depletion and discoveries are central to the asset account and these, in turn, can provide valuable information regarding the availability of individual resources. 5.170 Valuing stocks and flows of mineral and energy resources allows important links to be made to monetary estimates of the value added and operating surplus of the extracting industries, such as through the derivation of depletion-adjusted value-added measures. Such measures provide a view of extraction activity that recognizes a more complete set of production costs. Monetary estimates of these assets may also be of interest in the determination of government taxation and royalty settings, given that, in many countries, the government is the collective owner of these assets on behalf of society. 5.171 The present section defines mineral and energy resources and the relevant measurement boundary for the Central Framework. It then presents asset accounts in physical and monetary terms, including a discussion on the estimation of resource rent. Further, this section discusses two specific measurement issues related to mineral and energy resources: (a) the allocation of income from the extraction of mineral and energy resources and (b) the recording of stocks and flows of energy from renewable sources. Asset accounts 161 5.5.2 Definition and categorization of mineral and energy resources 5.172 Mineral and energy resources include deposits of oil resources, natural gas resources, coal and peat resources, non-metallic minerals and metallic minerals. Since the resources are generally found underground (hence commonly referred to as subsoil assets), the quantity of resources that one might reasonably expect to be extracted is not known with any large degree of precision. Consequently, a key factor in the measurement of mineral and energy resources is the concentration and quality of the minerals and energy resources in the deposit, since this will influence the likelihood and cost of extraction and the degree of confidence regarding the quantity that can be extracted in the future. 5.173 Mineral and energy resources comprise known deposits of oil resources, natural gas resources, coal and peat resources, non-metallic minerals and metallic minerals. 5.174 The framework used to define the scope of known deposits is the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC- 2009) (United Nations, Economic Commission for Europe, 2010). The UNFC-2009 is a generic, flexible scheme for classifying and evaluating quantities of fossil energy and mineral resources. 5.175 Many countries have their own national classification systems based on, for example, systems developed by the Society of Petroleum Engineers (SPE, 2007), the Committee for Mineral Reserves International Reporting Standards (CRIRSCO, 2007) and the International Atomic Energy Agency/International Energy Agency (IAEA/IEA). Thus, it may be necessary to apply conversions to facilitate international comparisons.56 5.176 The UNFC-2009 categorizes mineral and energy resources through determining whether, and to what extent, projects for the extraction and exploration of the resources have been confirmed, developed or planned. The underlying resources are classified based on the maturity of the projects. UNFC-2009 is based on a breakdown of the resources according to three criteria affecting their extraction: • Economic and social viability (E) • Field project status and feasibility (F) • Geological knowledge (G) 5.177 Criterion E designates the degree of favourability of economic and social conditions in establishing the commercial viability of the project. Criterion F designates the maturity of studies and commitments necessary to implement mining plans or development projects, extending from early exploration efforts occurring before it has been confirmed that a deposit or accumulation exists, to projects involving extraction and sale of a product. Criterion G designates the level of certainty of geologic knowledge and of potential recoverability of quantities of the resource concerned. 5.178 Known deposits are categorized in three classes, each defined according to combinations of criteria derived from UNFC-2009: (a) Class A: Commercially recoverable resources. This class includes deposits for projects that fall in categories E1and F1 and where the level of confidence in the geologic knowledge is high (G1), moderate (G2) or low (G3); 56 To aid such conversions, mapping schemes have been developed showing the link between the UNFC- 2009 and the SPE and CRIRSCO classifications. A reference to the UNFC documents, including examples of application of the UNFC in selected countries and descriptions of mapping between other systems and the UNFC, is http://www.unece.org/energy/se/reserves.html. System of Environmental-Economic Accounting 2012—Central Framework162 (b) Class B: Potentially commercially recoverable resources. This class includes deposits for those projects that fall in the category E2 (or eventually E1) and at the same time in F2.1 or F2.2 and where the level of confidence in the geologic knowledge is high (G1), moderate (G2) or low (G3); (c) Class C: Non-commercial and other known deposits. These are resources for those projects that fall into category E3 and for which the feasibility is categorized as F2.2, F2.3 or F4 and where the level of confidence in the geologic knowledge is high (G1), moderate (G2) or low (G3). 5.179 deposits exclude potential deposits where there is no expectation of the deposits’ becoming economically viable and there is a lack of information needed to determine the feasibility of extraction or to have confidence in the geologic knowledge. Table 5.6 gives an overview of how the classes of resources are defined based on the UNFC criteria. UNFC is explained in more detail in annex A5.3. 5.180 The scope of known deposits is broader than the scope of deposits that underpins the measurement of mineral and energy resources in the SNA. In the SNA, the scope is limited to deposits that are commercially exploitable given current technology and relative prices.57 A broader scope of deposits is applied in the SEEA to ensure that as broad an understanding as possible is obtained on the availability of the stock of mineral and energy resources. Issues associated with the scope of the valuation of mineral and energy resources are discussed in section 5.5.4. Classification of mineral and energy resources 5.181 There are a number of different types of mineral and energy resources, such as oil, natural gas, coal and peat resources, non-metallic minerals and metallic minerals; but there is no internationally agreed detailed classification for mineral and energy resources suitable for statistical purposes. 5.5.3 Physical asset accounts for mineral and energy resources 5.182 Physical asset accounts for mineral and energy resources should be compiled by type of resource and include estimates of the opening and closing stock of mineral and energy resource and changes in the stock over the accounting period. 5.183 The measurement units used to compile and present the relevant information will vary by type of resource. They are likely to be in tonnes, cubic metres or barrels. For accounting purposes, the same measurement unit should be used, for a single resource, to record the opening and closing stocks and the changes in the stocks over an accounting period. 5.184 It is noted that a total for each class of deposit across different resource types cannot be meaningfully estimated owing to the use of different measurement units for different resources. For certain subsets of resources, for example, energy resources, an aggregate across certain resource types may be possible using a common measurement unit such as joules or other energy units. 57 See para 10.179 of the 2008 SNA. Asset accounts 163 Table 5.6 Categorization of mineral and energy resources SEEA classes Corresponding UNFC-2009 project categories E F G Economic and social viability Field project status and feasibility Geologic knowledge Known deposits A: Commercially recoverable resourcesa E1. Extraction and sale have been confirmed to be economically viable F1. Feasibility of extraction by a defined development project or mining operation has been confirmed Quantities associated with a known deposit that can be estimated with a high (G1), moderate (G2) or low (G3) level of confidence B: Potentially commercially recoverable resourcesb E2. Extraction and sale are expected to become economically viable in the foreseeable futurec F2.1 Project activities are ongoing to justify development in the foreseeable future Or F2.2 Project activities are on hold and/or where justification as a commercial development may be subject to significant delay C: Non-commercial and other known depositsd E3. Extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability F2.2 Project activities are on hold and/or where justification as a commercial development may be subject to significant delay Or F2.3 There are no current plans to develop or to acquire additional data at the time due to limited potential Or F4. No development project or mining operation has been identified Potential deposits (not included in SEEA) Exploration projects Additional quantities in place E3. Extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability F3. Feasibility of extraction by a defined development project or mining operation cannot be evaluated due to limited technical data Estimated quantities associated with a potential deposit, based primarily on indirect evidence (G4) Or F4. No development project or mining operation has been identified Notes a   Including on-production projects, projects approved for development and projects justified for development. b   Including economic and marginal development projects pending and development projects on hold. c   Potential commercial projects may also satisfy the requirements for E1. d   Including unclarified development projects, non-viable development projects, and additional quantities in place. Source: UNFC-2009, figures 2 and 3. System of Environmental-Economic Accounting 2012—Central Framework164 Measurement of opening and closing stocks 5.185 Ideally, opening and closing stocks of each mineral and energy resource should be classified by class of resource, i.e., class A: Commercially recoverable resources; class B: Potentially commercially recoverable resources; or class C: Non-commercial and other known deposits, following the structure in table 5.7. Table 5.7 Stocks of mineral and energy resources Type of mineral or energy resource Class of known deposit A: Commercially recoverable resources B: Potentially commercially recoverable resources C: Non-commercial and other known deposits Oil resources (thousands of barrels) 800 600 400 Natural gas resources (cubic metres) 1 200 1 000 1 500 Coal and peat resources (thousands of tonnes) 600 50 50 Non-metallic mineral resources (tonnes) 150 200 100 Metallic mineral resources (thousands of tonnes) 60 40 60 Note:  Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources. 5.186 It is not recommended that totals including all classes of individual types of resources be compiled. Because each class has a different likelihood of extraction, simple summation of the available resources for a specific resource (e.g., coal) may give a misleading indication of total available resources. 5.187 In this framework, it is important to specify those resources for which a monetary valuation is to be established. If this distinction is not made, a subsequent comparison between physical and monetary accounts for individual resources may provide misleading indicators of average prices and relative availability of individual resources. Physical asset account for mineral and energy resources 5.188 A basic physical asset account for mineral and energy resources is provided in table 5.8. Additions to and reductions in the stock of mineral and energy resources 5.189 The changes in the stock in physical terms should consider the following types of changes: (a) Discoveries. Discoveries should incorporate estimates of the quantity of new deposits found during an accounting period. To be recorded as a discovery, the new deposit must be a known deposit, i.e., in class A, B or C. Discoveries should be recorded by type and by class of resource; (b) Reappraisals. Reappraisals may be upward or downward. They should pertain only to known deposits. In general, reappraisals will relate to either additions or reductions in the estimated available stock of a specific deposit or to changes in the categorization of specific deposits between class A, B or C, based on changes in geologic information, technology, resource price or a combination of these factors; (c) Extraction. Estimates of extraction should reflect the quantity of the resource physically removed from the deposit. It should exclude mining overburden, i.e., the quantity of soil and other material moved in order to extract the resource. Asset accounts 165 Further, the quantity should be estimated before any refinement or processing of the resource is undertaken. Estimates of extraction should include estimates of illegal extraction, either by residents or non-residents, as these amounts reduce the availability of the resource. It is noted that for the extraction of natural gas, the measurement of the quantity extracted may be more difficult owing to the nature of the extraction process for some deposits. In cases where natural gas is found with oil, it is the pressure exerted by the natural gas that causes the oil (and some natural gas) to be expelled from the oil well. Some of the natural gas that is expelled may be flared rather than put to direct use. Some natural gas, especially after extraction has been continuing for some time, may be reinjected to increase the pressure on the remaining oil and thereby allow more oil to be expelled. In such cases, if the natural gas associated with the oil is being accounted for, an allowance must be made for reinjection; (d) Catastrophic losses. Catastrophic losses are rare in relation to most mineral and energy resources. Flooding and collapsing of mines do occur but the deposits continue to exist and can, in principle, be recovered: the issue is one of economic viability of extraction rather than actual loss of the resource itself. An exception to this general principle concerns oil wells that can be destroyed by fire or become unstable for other reasons, leading to significant losses of oil resources. Losses of oil and related resources in this situation should be considered catastrophic losses; (e) Reclassifications. Reclassifications may occur if certain deposits are opened or closed to mining operations owing to government decisions concerning the access rights to a deposit. All other changes in the quantity of known deposits should be treated as reappraisals. Reclassifications may also be recorded if asset accounts for mineral and energy resources are being compiled by the institutional sector. Type of mineral and energy resource (Class A: Commercially recoverable resources) Oil resources (thousands of barrels) Natural gas resources (cubic metres) Coal and peat resources (thousands of tonnes) Non- metallic minerals (tonnes) Metallic minerals (thousands of tonnes) Opening stock of mineral and energy resources 800 1 200 600 150 60 Additions to stock Discoveries 20 Upward reappraisals 200 40 Reclassifications Total additions to stock 200 40 20 Reductions in stock Extractions 40 50 60 10 4 Catastrophic losses Downward reappraisals 60 Reclassifications Total reductions in stock 40 50 120 10 4 Closing stock of mineral and energy resources 760 1 350 480 180 76 Table 5.8 Physical asset account for mineral and energy resources Note:  Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources. System of Environmental-Economic Accounting 2012—Central Framework166 5.190 Increasingly, there is interest in the capacity to supply various metals and other minerals through the recycling of produced goods (e.g., vehicles and computers). The implied stock of relevant metals and minerals within an economy is not within the scope of the asset accounts presented here. Nonetheless, depending on the extent of recycling undertaken in a country, information on recycled metals and other minerals may be compiled to provide a more complete picture of the availability of these resources and hence on the demands for the extraction of these resources from the environment. 5.5.4 Monetary asset accounts for mineral and energy resources 5.191 Asset accounts in monetary terms for mineral and energy resources are based on the availability of information on the physical stock of resources. The structure of the monetary asset accounts therefore largely parallels the structure of the physical asset accounts. The basic structure is shown in table 5.9. Table 5.9 Monetary asset account for mineral and energy resources (currency units) Type of mineral and energy resource (Class A: Commercially recoverable resources) Oil resources Natural gas resources Coal and peat resources Non-metallic minerals Metallic minerals Opening value of stock of resources 24 463 19 059 41 366 1 668 6 893 Additions to value of stock Discoveries 1 667 Upward reappraisals 3 100 391 Reclassifications Total additions to stock 3 100 391 1 667 Reductions in value of stock Extractions 1 234 775 4 467 98 333 Catastrophic losses Downward reappraisals 4 467 Reclassifications Total reductions in stock 1 234 775 8 934 98 333 Revaluations 412 - 972 5 945 - 442 -4 287 Closing value of stock of resources 23 641 20 412 38 377 1 519 3 940 5.192 The additional entry in the monetary asset account relates to the recording of revaluations which occur due either to changes in resource prices over the accounting period or to changes to assumptions underlying the NPV approaches that are typically used to value mineral and energy resources. 5.193 While the measurement boundary extends to all known deposits in physical terms, it may not be possible to value all of these deposits in monetary terms owing to degrees of uncertainty regarding expected extraction profiles and incomes. Consequently, the resource rents for deposits in classes B and C cannot be determined with confidence. It is therefore recommended that valuation be undertaken only for deposits in class A: Commercially recoverable resources. If valuation of deposits in classes B and C is undertaken, the values for each class should be clearly distinguished. In valuing deposits in each class, it is important that the Asset accounts 167 likelihood and timing of extraction be taken into account in determining expected patterns of extraction and resource rent. Valuation of stocks of mineral and energy resources 5.194 Because there are few transactions in mineral and energy resources in situ, the valuation of these assets requires the use of NPV approaches, as introduced in section 5.4. The calculations should be undertaken at the level of an individual resource type, ideally for specific deposits of a resource, and then summed over the range of different resources in order to obtain a total value of mineral and energy resources. 5.195 Application of NPV approaches to the valuation of mineral and energy resources requires consideration of a number of specific factors, most pertaining to the estimation of the resource rent. (a)  Estimation of resource rent 5.196 In general, the resource rent will be estimated based on information about the income and operating costs for the extraction industry. The aim is to define a resource rent that is specific to a given resource type, for example, coal. In the effort to achieve this aim, several factors should be borne in mind. 5.197 Scope of operations. Consistent with the definition of quantities extracted, the scope of the income and operating costs to be considered in the derivation of resource rent should be limited to the extraction process itself and should not include any additional income earned or costs incurred through further refinement and processing of the extracted resource. The extraction process is considered to include the activity of mineral exploration and evaluation and these costs should be deducted in the derivation of resource rent. 5.198 For some mineral and energy resources, a single deposit may contain several types of resources. For example, an oil well often contains gas and, frequently, silver, lead and zinc are extracted together. In these situations, the resource rent used in the calculation of the value of the resources should be allocated by commodity. However, since data are generally available only for a single extracting unit, derivation of estimates of resource rent by type of resource based on known extraction costs for each type of resource may not be possible except by using detailed industry knowledge or general rules of thumb to allocate total extraction costs. 5.199 Price fluctuations. While operating costs for extracting resources may not fluctuate significantly, it is likely that income earned from sales of extracted resources will fluctuate. Consequently, the resource rent (which is derived as a residual), may entail a quite volatile time series. In addition, the aggregate amount of resource rent in any one period may be affected by extraction rates that in turn may be affected by one-off events, for example, mine collapse. Since the objective is to define a resource rent that can be forecast, it is recommended: first, that unit resource rents be derived by dividing total resource rent for an individual resource by quantities extracted in a period; and second, that, in the absence of other information on future resource prices, a proxy of unit resource rents (e.g., regression-based estimates and moving averages) may be used as the basis for the estimation of future resource rents. To aid interpretation of the information, all assumptions regarding future expected prices and costs should be made clear. 5.200 Treatment of mineral exploration and evaluation. Mineral exploration is undertaken in order to discover new deposits of minerals and energy resources that may be exploited commercially. Such exploration may be undertaken on own account by enterprises engaged in mining activities. Alternatively, specialized enterprises may carry out exploration either for System of Environmental-Economic Accounting 2012—Central Framework168 their own purposes or for fees. The information obtained from exploration and evaluation influences the production activities of those who obtain it over a number of years. Hence, the expenditures are considered to be a form of gross fixed capital formation resulting in the production of an intellectual property product, a type of produced asset. 5.201 Mineral exploration and evaluation consists of the value of expenditures on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made.58 5.202 These expenditures include pre-licence costs, licence and acquisition costs, appraisal costs and the costs of actual test drilling and boring, as well as the costs of aerial and other surveys, transportation costs, etc., incurred to make it possible to carry out the tests. Reevaluations may be conducted after commercial exploitation of the resource has started and the cost of these re-evaluations is also included. 5.203 Consumption of fixed capital should be calculated for this asset, potentially using average service lives similar to those used by mining or oil corporations in their own accounts. 5.204 For the purpose of estimating resource rent, it is necessary to deduct the user costs of these produced assets, including both the consumption of fixed capital and a return to the produced asset. 5.205 It is recognized that an outcome from mineral exploration is the discovery of mineral and energy resources and hence the value of mineral and energy resources on the balance sheet may, in part, be considered to be due to mineral exploration. However, following the SNA, the output of mineral exploration activity is considered to be an intellectual property product, not a natural resource. The deduction of the user costs of mineral exploration and evaluation in the derivation of resource rent ensures that the recorded value of the mineral and energy resources reflects only the value of the non-produced environmental resource. 5.206 Mine and rig decommissioning costs. Consistent with the treatment in the 2008 SNA, it is recognized that, in many cases, costs are incurred by extractors at the end of the productive life of a deposit, generally to restore the natural environment around the extraction site. These costs, where they can be reasonably anticipated or estimated, should be considered to reduce the resource rent earned by the extractor over the operating life of the extraction site, even though the actual expenditure is likely to take place at the end of the operation of the assets. Details on accounting for these costs are discussed in chapter IV. 5.207 Aggregation of the same resource over different deposits. In the discussion so far, it has been implicitly assumed that the mineral and energy resources constitute a single deposit, so that any extractions and discoveries affect the resource life of all resources available to a country. In practice, of course, this is not the case: some oilfields will be exhausted in a relatively short time frame and extractors will then move to another. 5.208 Many reappraisals apply to established fields where extraction is already in progress. Upward revisions in quantities will extend the life of the resources and the addition to value will largely reflect the change between the previous and new resource lives, since without additional investment the extraction rate is likely to remain steady. 5.209 A somewhat different situation holds for a completely new discovery. Suppose a deposit is discovered with an expected life of, say, 20 years, equal by itself to the existing reserves of a country. It is not realistic to automatically assume that the resource in the new deposit will necessarily be extracted in years 21 to 40. On the other hand, neither is it realistic to automatically assume that it will be extracted in years 1 to 20 and thus double 58 See para. 10.106 of the 2008 SNA. Asset accounts 169 the total extractions in these years. For these reasons, it is desirable, if at all possible, to make projections of the impacts of discoveries and reappraisals separately and, ideally, on a deposit-by-deposit basis. (b)  Extraction rate 5.210 Independently of assumptions about the resource rent, an assumption must be made about the pattern of extraction to be followed in the future. The assumption most often used is that the extraction rate will stay constant in physical terms, but there is no reason why this should necessarily be so. As resources approach extinction, there may be a decline in output as some deposits become completely exhausted if there are no new deposits to take their place. Alternatively, an enterprise could adjust the rate of extraction to give the same total income every year, or could reduce the amount extracted as the resource diminishes, assuming that the price increased at the same time. There may be information available from government or from enterprises on projected levels of extraction that could be used, although these often tend to be based on conservative projections of the likely level of new discoveries and reap- praisals. 5.211 In the absence of more precise information, a reasonable assumption is that the rate of extraction is kept constant in physical terms, which, effectively, is the assumption that the efficiency of the extraction process remains steady and the stock of extraction-related produced assets remains steady in proportion to the available stock of the resource. (c)  Resource life 5.212 At any point in time, the life of a resource is equal to the stock at that time divided by the expected extraction rate. In the course of a year, the resource life will diminish by one year owing to extractions and will change by the quantity of discoveries and reappraisals during the period divided by the average extraction rate. If, on balance, there are more downward reappraisals than upward reappraisals and discoveries, then the resource life is further reduced. 5.213 The quantity of the stock used to calculate the resource life must be consistent with the quantity to be valued. Since only class A resources are to be valued, then the resource’s life must be calculated based only on class A resources and not on total known deposits for the resource (i.e., including also class B and class C resources). Valuation of flows of mineral and energy resources (a) Value of discoveries, reappraisals, extractions, depletion and catastrophic losses 5.214 The value of additions and reductions in the stock should be calculated using the average prices of the resource in situ over the period multiplied by the quantity discovered, reappraised, extracted, depleted or lost. This is consistent with the approach outlined in section 5.4 and explained in detail in annex A5.1. (b)  Acquisitions and disposals of mineral and energy resources 5.215 These transactions are likely to be rare but when they do occur they should be recorded. Estimates of the value of these transactions should take into account the costs of ownership transfer which should be recorded as the purchase of a produced asset: costs System of Environmental-Economic Accounting 2012—Central Framework170 of ownership transfer on non-produced assets. On the balance sheet, this produced asset is considered to be incorporated into the value of the underlying mineral and energy resource.59 5.5.5 Other issues in the measurement of mineral and energy resources Allocation of income from the extraction of mineral and energy resources 5.216 A general characteristic of mineral and energy resources is that the income earned from the extraction of the resources is shared between economic units. Most commonly, part of the income accrues to the extractor of the resources in the form of operating surplus and part of the income accrues to the government in the form of rent. The government earns this income, on behalf of the society, by allowing access to the resources. 5.217 Depending on the nature of the arrangements, often both the extractor and the government will have substantial assets in the form of expected future incomes from the extraction of the resources. Following the description in section 5.4, the expected incomes (which are equal in total to the resource rent) can be separated into two components: depletion and net return to environmental assets. Changes in the value of the assets for each unit will reflect declines due to depletion, while the return to environmental assets will be reflected in the generation and allocation of income accounts. 5.218 Within the SEEA, a specific objective is to show, within the general national accounts framework, how the incomes earned from the extraction of natural resources are impacted by the cost of depletion. In particular, the SEEA aims to define depletion-adjusted estimates of operating surplus, value added and saving at both an economy-wide level and for institutional sectors. Since there is only one amount of depletion for a given mineral and energy resource, it must be allocated between the relevant units within the accounting framework.60 5.219 In the circumstances outlined, accounting for these incomes and the associated depletion is problematic in the standard national accounts framework for two main reasons. First, the income flows are recorded in different accounts with the value added and operating surplus of the extractor recorded in the production and generation of income accounts, and the rent earned by the government recorded in the allocation of primary income account. Second, no cost of depletion is recorded against the income earned in the structure of the standard accounts (in contrast with the cost of produced assets, which is recorded as consumption of fixed capital). Instead, in the SNA, depletion is recorded in the other changes in the volume of assets account.61 5.220 The following accounting treatment is recommended for the SEEA: (a) Record the total cost of depletion in the production and generation of income accounts of the extractor as deductions from value added and operating surplus. This ensures that the analysis of extractive activity and economy-wide aggregates of operating surplus and value added fully account for the cost of depletion. Further, since the government has no operating surplus in regard to the extraction activity, not recording depletion in the production account of the government ensures that estimates of government output (which are calculated based on input costs) are not increased owing to depletion; 59 See para. 10.97 of the 2008 SNA. 60 Note that in cases where a government-owned unit undertakes extraction, it should be treated as a non-financial corporation earning operating surplus distinct from the general government which earns income in the form of rent. 61 See para. 12.26 of the 2008 SNA. Asset accounts 171 (b) Record the payment of rent from the extractor to the government in the allocation of primary income account. This entry is the standard national accounts entry; (c) Record an entry, entitled “Depletion borne by government”, in the allocation of primary income account to reflect (i) that the rent earned by the government includes the government’s share of total depletion which must be deducted to measure the depletion-adjusted saving of government; and (ii) that the depletionadjusted saving of the extractor would be understated if the total amount of depletion were deducted in the extractor’s accounts. Another way of viewing this entry is to consider that the rent earned by government must be recorded net of depletion (i.e., depletion-adjusted rent is derived) in the derivation of depletionadjusted saving for government. Table 5.10 Entries for allocating the income and depletion of mineral and energy resources Government Extractor Transaction Resources Uses Resources Uses Production account Output—sales from extraction 100 Intermediate consumption 50 Gross value added 50 Consumption of fixed capital -15 Net value added 35 Depletion -6 Depletion-adjusted net value added 29 Generation of income account Compensation of employees 20 Gross operating surplus 30 Consumption of fixed capital -15 Net operating surplus 15 Depletion -6 Depletion-adjusted operating surplus 9 Allocation of primary income account Depletion-adjusted operating surplus Rent 5 5 Depletion borne by government 3 3 Depletion-adjusted saving 2 7 5.221 These entries are shown in table 5.10. Importantly, they ensure that the sum of the institutional sector entries for depletion adjusted aggregates is equal to the same aggregates calculated at the economy-wide level. 5.222 The values of depletion shown for each unit should be consistent with the change in net worth of each unit in relation to the mineral and energy resources (assuming no other changes in the stock of resources such as discoveries). Thus, if government collects a 40 per cent share of the resource rent (through payment of rent by the extractor), then the depletion borne by government will be 40 per cent of the total measured depletion. In making this calculation, it is assumed that the government’s share of future resource rent remains constant. System of Environmental-Economic Accounting 2012—Central Framework172 If this share is expected to change in the future, then the rent earned and depletion borne by government should be adjusted to reflect these changes. 5.223 The associated balance-sheet entries may be made in different ways depending on the nature of the analysis and on the institutional arrangements within a country. In any presentation, the allocation of assets and the resulting estimates of institutional sector net worth should reflect the expected future income streams for each unit from the extraction of the resources. 5.224 This approach to the allocation of income and depletion from the extraction of mineral and energy resources can also be applied in compiling accounts for other natural resources subject to depletion. Treatment of energy from renewable sources 5.225 Energy from renewable sources is an important source of energy in many countries and, increasingly, is being seen as an alternative source of energy for those countries that have used energy primarily from non-renewable sources. Energy from renewable sources can be produced from many sources, including but not limited to, wind, hydropower (including run-of-river), solar and geothermal. A complete listing of renewable sources recognized in the SEEA is included in chapter III, table 3.2. 5.226 Renewable sources cannot be exhausted in a manner akin to fossil energy resources and, unlike biological resources, they are not regenerated. Thus, in an accounting sense, there is no physical stock of renewable sources of energy that can be used up or sold. 5.227 Therefore, the measurement scope of the SEEA in relation to these sources of energy relates to the amount of energy that is produced given current investment in relevant produced assets and associated technology. Excluded from scope are potential amounts of energy that could be produced from renewable sources if investment and technology were to increase in the future. 5.228 The presence of investments in renewable energy capture facilities and equipment affects the value of the land associated with those facilities. For example, land in a particularly windy area would be priced higher than similar land in a non-windy area, if investment was made in constructing windmills to capture the energy from the wind. Thus, opportunities to earn resource rent based on sources like wind, solar and geothermal should be expected to be reflected in the price of land. 5.229 In situations where the only income generated from the relevant land is from the generation of energy from renewable sources, the value of the land will, in theory, be equal to the net present value of the future income stream. However, it is also possible that other income is earned from the same area, for example, agriculture may be engaged in using wind farms. In these cases, the valuation of the land must also take into account the income generated from these other activities. Nonetheless, where possible, the value of the land should be partitioned to provide an estimate of the value of the land that is attributable to income arising from the generation of energy from renewable sources. The valuation of land with respect to energy from renewable sources is also discussed in section 5.6. 5.230 Special mention must be made of the valuation of future income streams from hydropower. In this case, it is more relevant to consider the income stream in relation to a stock of water rather than to an area of land. Thus, in the case of hydropower, it is the value of the water resource that should be partitioned to provide an estimate of the value of the water resource that is attributable to income arising from the generation of renewable energy from hydropower. The valuation of water resources with respect to hydropower is also discussed in section 5.11. Asset accounts 173 5.231 It is recognized that some investments in the capture of energy from renewable sources take place offshore (e.g., wind farms in the sea). By convention, the value of income streams from these sources are attributed to the value of land. 5.232 Generally, since the renewable sources themselves are not sold on markets, it is necessary to use NPV approaches for valuation purposes. In undertaking such valuations, all costs should be deducted, including the costs of fixed assets used in the capture of energy. 5.233 These accounting treatments do not apply in the case of energy sourced from timber and other biomass resources. Unlike the renewable sources of energy listed above, a stock of timber resources can be observed and measured. In concept, the volume and value of timber resources (considered in detail in sect. 5.8) encompasses all possible uses of the timber, including its use as an energy source. The recording of flows of energy from biomass is discussed further in section 3.4. 5.234 The various asset values related to the generation of energy may be combined to provide an overall value of environmental assets associated with energy production. Such an aggregate may include values of mineral and energy resources (e.g., coal, oil and natural gas), the value of land attributable to renewable sources of energy (e.g., wind, solar and geothermal), the value of timber resources used for energy, and the value of water resources used for hydropower. 5.6 Asset accounts for land 5.6.1 Introduction 5.235 Land is central to economic and environmental accounting. Some of the issues that can be considered in the context of land accounts, beyond an assessment of the ownership and use of land as part of economic production, include the impacts of urbanization, the intensity of crop and animal production, afforestation and deforestation, the use of water resources, and other direct and indirect uses of land. 5.236 While broad assessment of the changing shares of different land use and land cover within a country may provide useful indicators of change, increasingly the power of land accounts is reflected in the use of mapping technologies that can pinpoint areas of change. The classifications and structures outlined in the present section are designed to support work of this type. 5.237 Land also constitutes an important component in the assessment of national and institutional sector wealth. Land is bought and sold in combination with physical characteristics (buildings, soil, trees) and the composite value will incorporate a value for the space itself (location) as well as a value for the physical characteristics. 5.238 The present section is structured to define the scope of land accounts and define two primary aspects of land for environmental accounting purposes: land use and land cover. Categories and classes for the organization of data on land use and land cover are presented followed by a description of land accounts in physical terms. A particular focus is placed on physical land accounts for forest and other wooded land which complement the asset accounts for timber resources discussed in section 5.8. Land accounts in monetary terms are described next. The potential extension of land accounts towards ecosystem accounts building on the definitions of the land cover classes is discussed at the end of this section. System of Environmental-Economic Accounting 2012—Central Framework174 5.6.2 Definition and classification of land 5.239 Land is a unique environmental asset that delineates the space in which economic activities and environmental processes take place and within which environmental assets and economic assets are located. 5.240 While the term “land” is commonly meant to refer only to terrestrial areas, in the SEEA, the term may also apply to areas covered by water. Thus, the SEEA land accounts encompass areas covered by inland water resources such as rivers and lakes and, in certain applications, the land accounts may be extended to include areas of coastal water and a country’s exclusive economic zone (EEZ). Together, the areas of land, inland water and coastal water constitute the area of a country. The total country area should be defined as the area enclosed by all inland borders and, if applicable, the normal baselines (low-water mark) and straight baselines on the seaward side.62 5.241 Land area is analysed in many different ways. Most often, statistical analysis will be conducted by compiling data for administratively defined regions within a country. From an economic viewpoint, there may be interest in determining the areas of land owned by different institutional sectors, such as areas of government land, and land used by different industries. 5.242 From the perspective of environmental and economic accounting, there are several other factors that are of interest including topography (e.g., mountains and plains), elevation and land zoning (e.g., residential, industrial and conservation). The additional foci in the SEEA are land use and land cover. Classifications for land use and land cover are described in this section. Particularly for statistics organized on land cover, traditional administrative boundaries become less relevant while the relationship among the different features of the environment and the interaction between these features and the economy and society assume greater significance. 5.243 The patterns of countries will exhibit considerable difference in respect of land use and land cover types. For example, forest land may be of major or minor importance for a particular country and some land types, for example, deserts, may not be present in a particular country. Consequently, the categorizations presented in the SEEA may require the addition of more details for national purposes in order that particular features may be highlighted and information requirements may be met. 5.244 Of particular interest in respect of statistics on land use and land cover is the means by which data are collected. Broadly, two methods are used; field surveys and satellite images. Field surveys are important, as they can provide a high level of specificity regarding the land cover and, in particular, the land use in a particular area. Satellite images are also important, as they enable a broader assessment of all areas in a country and, over time, more detailed resolutions of the images are permitting new forms of analysis. Increasingly, data based on combinations of field surveys and satellite images are being compiled. In the SEEA, the classifications and accounting structures are defined and described independently of the means by which data are collected. However, in practice, the type of data and the level of detail that can be compiled may depend on the means by which data have been collected. 62 The boundaries between the land and the sea vary considerably between countries depending on the different geographical features of a country. The conventions by which country area is determined, in particular the definition of baselines, focus on the boundary between land and sea and have been agreed internationally in the United Nations Convention on the Law of the Sea of 10 December 1982 (United Nations, 1998). Asset accounts 175 Land use classification 5.245 Estimates of area classified by type of land use may be of considerable interest in understanding issues of agricultural production, forestry management and the spread of built-up areas. Additional benefit is gained through analysis of changes in land use over time. 5.246 Land use reflects both (a) the activities undertaken and (b) the institutional arrangements put in place for a given area for the purposes of economic production, or the maintenance and restoration of environmental functions. In effect, “use” of an area implies the existence of some human intervention or management. Land in use therefore includes areas, for example, protected areas, that are under the active management of institutional units of a country for the purpose of excluding economic or human activity from that area. 5.247 Not all land in a country is used following the definition above. Some areas are “not in use”, although they may have a use in supporting ecosystems and biodiversity. In order to provide a complete accounting for land use within a country, both land in use and land not in use must be included. 5.248 The scope of land use accounts comprises areas of land and inland water. For some analytical purposes, and depending on the composition of a country’s economic territory, the measurement boundary for land use may be extended to include coastal waters and areas within a country’s EEZ.63 Such a broader boundary is likely to be of relevance in the management of fishing rights, offshore mining and exploration, the protection of coral reefs, and the understanding of other marine issues. Particularly in cases where the area of a country’s coastal water and EEZ constitutes a large part of its economic territory, this extension of the analysis of land use is appropriate. 5.249 The SEEA land use classification is presented in table 5.11. At its highest level, it is classified by the primary types of surfaces: land and inland waters. The classification by type of surface reflects the primary use of the classification as a means of comparing alternative uses. Generally, the types of uses of inland water areas and land areas are quite distinct; and these different areas are likely to be managed in different ways. 5.250 For land, the classification consists of seven main categories of land use: agriculture, forestry, land used for aquaculture, use of built-up and related areas, land used for maintenance and restoration of environmental functions, other uses of land n.e.c. (not elsewhere classified), and land not in use. For inland waters, there are four main categories: inland waters used for aquaculture or holding facilities; inland waters used for maintenance and restoration of environmental functions; other uses of inland waters n.e.c.; and inland waters not in use. 5.251 Detailed descriptions for subcategories and classes of the land use classification are presented in annex I, including classes relevant for extended analysis of coastal waters and the EEZ. These descriptions provide a starting point for the compilation of relevant statistics. However, further testing and development of these classes are required. This work is part of the SEEA Central Framework research agenda (see annex 2). 5.252 Within each type of area, the classification comprises various categories of use. The categories are not defined on the basis of economic activity but rather pursuant to consideration of the general purpose and role of the user of the area. In many cases, this will align with the scope of the economic activity; but in some cases, particularly for forestry, the area considered to be in use may be larger than the area being used for economic production. 63 Following article 57 of the United Nations Convention on the Law of the Sea of 10 December 1982, a country’s EEZ may extend up to 200 nautical miles from the country’s normal baselines. System of Environmental-Economic Accounting 2012—Central Framework176 5.253 At the same time, for areas of forest not intended to be used for economic production (e.g., strictly demarcated nature reserves where there is no intention to harvest timber), their primary use is more likely to be maintenance and restoration of environmental functions or they may constitute land not in use, depending on the relevant designations associated with the area. 5.254 In some cases, an area may support multiple uses at the same time or, over an accounting period, the same area may have different uses at different times, and there may be interest in recording all uses for particular areas. In general, however, the principle of primary or dominant use should be employed to ensure that all of the area has been classified. Table 5.11 Land use classification 1 Land 1.1 Agriculture 1.2 Forestry 1.3 Land used for aquaculture 1.4 Use of built-up and related areas 1.5 Land used for maintenance and restoration of environmental functions 1.6 Other uses of land n.e.c. 1.7 Land not in use 2 Inland waters 2.1 Inland waters used for aquaculture or holding facilities 2.2 Inland waters used for maintenance and restoration of environmental functions 2.3 Other uses of inland waters n.e.c. 2.4 Inland waters not in use 5.255 As there may be strong analytical interest in understanding the range of multiple uses, compilers should take this interest into account in developing accounts for land. In such cases, it may be possible to classify smaller areas that are used for particular purposes. For example, if trees are planted in defined areas on a farm to reduce water erosion or improve water quality (e.g., on river banks), then, instead of the entire farm area’s being assigned to agriculture, the smaller area could be classified as an area used for the maintenance and restoration of environmental functions. 5.256 In some areas, particularly areas covered by water, there may be no clearly defined use for a given area; hence, a primary or dominant use will not be identifiable. For example, areas within harbours may be used to provide space for recreation, passenger and freight transport, and fishing. In order for an area to be defined as an area in use, there must be a significant degree of continuity in the use of the area. In general, areas of water will be considered “used” only where they have been clearly zoned or delimited for a specific use. Land cover classes 5.257 Land cover refers to the observed physical and biological cover of the Earth’s surface and includes natural vegetation and abiotic (non-living) surfaces. At its most basic level, it comprises all of the individual features that cover the area within a country. For the purposes of land cover statistics, the relevant country area includes only land and inland waters. The area of coastal waters is excluded. Asset accounts 177 5.258 The Food and Agriculture Organization of the United Nations (FAO) has developed an international standard classification system, the Land Cover Classification System, version 3 (LCCS 3) (FAO, 2009),64,65 which can be used to systematically record the biophysical characteristics of all areas of land within any territory. 5.259 Current land cover is a function of natural changes in the environment and of previous and current land use, particularly in agricultural and forestry areas. Although characteristics of vegetation (such as whether it is natural or cultivated) influence the land cover within an area, they are not inherent features of the land cover. Thus, a clear and systematic description of classes of land cover allows the land cover classification to be compared with that for types of land use, while maintaining pure land cover criteria. The FAO LCCS provides a theoretical basis for this approach. 5.260 There is an enormous number of different land cover features that can be created with the LCCS approach. For the purposes of standardization and harmonization across statistical data sets, a classification comprising 14 classes has been established, as presented in table 5.12. 5.261 The 14 classes constitute a comprehensive set of land cover types with clear boundaries based on definitions from the LCCS that are mutually exclusive and unambiguous. This land cover classification can be used at all scales, independently of the method of observation, thus allowing cross-referencing of local and regional maps with continental and global maps without loss of information. 5.262 The land cover classification is complemented with a set of basic rules of classification to allow translation of national data sets. These rules are set out in annex I. The rules reflect the logical structure of the LCCS and determine, as the first step, the main object (the “basic object”) to be considered when undertaking a translation of data. The basic objects are simple and intuitively discernible elements of land cover (such as trees, shrubs, buildings, etc.). The descriptions are supplemented by the inclusion of information on “properties” (such as height, cover, etc.) and “characteristics” (natural, cultivated, etc.) of the basic objects. Extended descriptions of the classes are also provided in annex I.66 64 The Land Cover Classification System (LCCS) provides a basis for defining and classifying any piece of land with a rigorous syntax and clear classification criteria, starting from a set of basic objects identified purely through physiognomic criteria, i.e., their overall appearance. When the land is vegetated, the basic objects described are the plants (divided into trees, shrubs and herbaceous vegetation). When the land has a non-vegetal cover, or no cover at all, the basic objects can be water, ice and snow, or the abiotic or artificial surface. The information in the LCCS can be supplemented with information on properties and characteristics of the basic objects. Properties are further physiognomic characterizations of basic objects such as height and cover. Characteristics are descriptive elements of the basic objects not directly related to their physiognomic aspects, which indicate, for example, whether an area is intended for agricultural purposes or is natural. 65 A higher level abstraction of the basic objects that compose land cover classes, as used in LCCS, the Land Cover Meta Language (LCML), has also been developed for use as a framework for classifying land cover and comparing systems internationally. This metalanguage allows the existing, well-established national and regional land cover systems to remain in place, while still allowing the data to be integrated into common world-level data sets following a common land cover standard. LCML is currently undergoing an approval process in order to become an ISO standard framework for classifying land cover and comparing systems internationally. 66 As part of the SEEA Central Framework research agenda (see annex II), the land cover classification presented in table 5.12 will be further tested to ensure its suitability for the standardization of statistical data sets at the international level. System of Environmental-Economic Accounting 2012—Central Framework178 Table 5.12 Land cover classification Category 1 Artificial surfaces (including urban and associated areas) 2 Herbaceous crops 3 Woody crops 4 Multiple or layered crops 5 Grassland 6 Tree-covered areas 7 Mangroves 8 Shrub-covered areas 9 Shrubs and/or herbaceous vegetation, aquatic or regularly flooded 10 Sparsely natural vegetated areas 11 Terrestrial barren land 12 Permanent snow and glaciers 13 Inland water bodies 14 Coastal water bodies and intertidal areas 5.6.3 Physical asset accounts for land 5.263 The objective of land accounts in physical terms is to describe the area of land and changes in the area of land over an accounting period. A range of different physical land accounts can be envisaged—for example, accounts for land use, land cover or landownership (by industry or institutional sector). The measurement units of land in physical terms are units of area such as hectares and square metres. 5.264 Generally, a country’s total area of land will remain unchanged from one period to the next. Hence, the changes between the opening and closing stock of land in physical terms will primarily encompass changes between different classes of land, for example, classes relating to landownership, land use or land cover. 5.265 However, there are situations where the area of land for a country may change. It may increase, for example, owing to reclamation of land through the construction of dykes and other barriers. It may also decrease, for example, owing to land subsidence or higher water levels. 5.266 Further, changes in the total area of land may occur owing to political factors. For example, the total area may increase or decrease as a result of war and associated events; in addition, commonly, there are areas of disputed territory, which can be responsible for change. The area that is within scope of land cover and land use statistics should be clearly defined to prevent confusion. Physical accounts for land cover 5.267 In the first instance, it is recommended that countries develop estimates of the total land area classified by land cover at the beginning and the end of each accounting period. This is because data on land cover from remote sensing (either aerial photography or satellite images) are usually available and require less interpretation than land use. It is noted that land cover and land use are interrelated. For example, agricultural production is closely aligned to crop area. However, while land use and land cover are closely related, this is not always the Asset accounts 179 case. For example, tree-covered areas can be used for forestry, or for the maintenance and restoration of environmental functions, or may not be used at all (constituting “land not in use”). 5.268 With data structured in an accounting format, it is possible to link land cover to land use, including through the presentation of matrices showing the changes in land cover and land use over an accounting period. In assessing land cover and land use change, it may be useful to determine the proportion of the opening stock of land whose cover or use has remained unchanged. To undertake this type of analysis, the data must be based on spatially referenced data sources. Scope of land cover accounts 5.269 The land area of a country defines the scope of the land cover account. For most purposes this will be the area of land and associated inland waters, as defined in the land cover classification shown in table 5.12. The account could be extended to coastal water bodies and intertidal areas. 5.270 A physical account for land cover is presented in table 5.13. It shows the opening and closing areas for different land cover types and various additions and reductions in those areas over the accounting period. The different additions and reductions are explained in the following paragraphs. Table 5.13 Physical account for land cover (hectares) Artificial surfaces Crops Grassland Tree- covered area Mangroves Shrub- covered area Regularly flooded areas Sparse natural vegetated areas Terrestrial barren land Permanent snow, glaciers and inland water bodies Coastal water and inter-tidal areas Opening stock of resources 12 292.5 445 431.0 106 180.5 338 514.0 214.5 66 475.5 73.5 1 966.5 12 949.5 19 351.5 Additions to stock Managed expansion 183.0 9 357.0 Natural expansion 64.5 1.5 Upward reappraisals 4.5 Total additions to stock 183.0 9 357.0 69.0 1.5 Reductions in stock Managed regression 147.0 4 704.0 3 118.5 9.0 1 560.0 1.5 Natural regression 1.5 64.5 Downward reappraisals 4.5 Total reductions in stock 147.0 4 704.0 3 118.5 10.5 1 629.0 1.5 Closing stock 12 475.5 454 641.0 101 545.5 335 395.5 204.0 64 846.5 72.0 1 966.5 12 949.5 19 353.0 Note:   Crops include herbaceous crops, woody crops, and multiple or layered crops. 5.271 Managed expansion represents an increase in the area of a land cover type due to human activity. For example, crop areas may be converted to tree-covered areas as a result of silvicultural measures such as planting and seeding, or tree-covered areas may be converted to crop or grassland following tree clearing. Generally, the managed expansion of one land cover type will also lead to the recording of a matching entry for managed regression of the reducing land cover types. A matching entry is not recorded if there is a managed expansion in the total area of land within scope of the account (e.g., in the case of land reclamation). System of Environmental-Economic Accounting 2012—Central Framework180 5.272 Natural expansion is an increase in area resulting from natural processes, including seeding, sprouting, suckering or layering. In the case of sparse natural vegetation and terrestrial barren land, the natural loss of vegetation from other vegetation types would lead to increases in these areas. Changes in the extent of permanent snow, glaciers and inland water bodies can also be due to natural variation, in rainfall, for example. Generally, the natural expansion of one land cover type will also lead to the recording of a matching entry for natural regression of the reducing land cover types. A matching entry is not recorded if there is a natural expansion in the total area of land within scope of the account (e.g., in the case where land is created through volcanic activity or landslide). 5.273 Managed regression represents a decrease in the area of a land cover type due to human activity. As for managed expansion, a matching entry is recorded in all cases of managed regression, except in cases where there is a managed regression in the total land area. 5.274 Natural regression should be recorded when the area of a land cover type reduces for natural reasons. As for natural expansion, a matching entry is recorded in all cases of natural regression, except in cases where there is a natural regression in the total land area (e.g., the loss of land due to erosion by the sea). 5.275 Reappraisals can be upward or downward and can reflect changes due to the use of updated information that permits a reassessment of the size of the area of different land covers, for example, from new satellite imagery or interpretation of satellite imagery. The use of updated information may require the revision of previous estimates to ensure a continuity of time series. 5.276 The land cover change matrix set out in table 5.14 shows land cover at two different points in time. It shows the area of different land cover types at the beginning of the reference period (opening area), the increases and decreases of this area according to the land cover type it was converted from (in the case of increases) or the type it was converted to (in the case of decreases) and, finally, the area covered by different land cover types at the end of the reference period (closing area). 5.277 Table 5.14 shows net changes, which may mask important information. For example, when natural forest is lost in one place but plantation forest is added elsewhere, no net change of tree-covered area would be shown. Similarly, when high-quality agricultural land is converted into built-up land, but, at the same time, less productive agricultural land is added through deforestation, total agricultural land cover will not change. Where these phenomenon are relevant, the format of table 5.14 can be extended to show increases and decreases in separate tables and thus allow more detailed analysis. 5.278 An additional step in the analysis of land cover change might be the construction of tables showing reasons for land cover change. For example, changes in land cover might be classified to show whether the change relates to urban growth and development of infrastructure (through conversion of crops or tree-covered area), intensification and industrialization of agriculture (through conversion of family farming and mosaic landscapes), extension of agriculture in general (through conversion of tree-covered land), drainage of regularly flooded areas (wetlands) for crops or artificial surfaces (urban land), deforestation (of tree-covered areas for timber production or agriculture development), and desertification (at the expense of formerly vegetated areas). 5.279 The structure of land use accounts could be similar to that of land cover accounts. An example of land use accounts for forest and other wooded land is contained in the next subsection. Asset accounts 181 Table 5.14 Land cover change matrix (hectares) Openingarea Increases (positive numbers) and decreases (negative numbers) from other land covers Netchange(increase- decrease) Closingarea Land cover Artificialsurfaces Crops Grassland Tree-coveredarea Mangroves Shrub-covered area Regularlyflooded areas Sparsenatural vegetatedareas Terrestrialbarren land Permanentsnow, glaciersandinland waterbodies Coastalwaterand intertidalareas Artificial surfaces 12 292.5 147.0 27.0 9.0 183.0 12 475.5 Crops 445 431.0 -147.0 4 677.0 3 118.5 1 560.0 1.5 9 210.0 454 641.0 Grassland 106 180.5 - 27.0 - 4 677.0 69.0 - 4 635.0 101 545.5 Tree-covered area 338 514.0 - 3 118.5 - 3 118.5 335 395.5 Mangroves 214.5 -9.0 -1.5 -10.5 204.0 Shrub-covered area 66 475.5 -1 560.0 -69.0 -1 629.0 64 846.5 Regularly flooded areas 73.5 -1.5 -1.5 72.0 Sparse natural vegetated areas 1 966.5 1 966.5 Terrestrial barren land Permanent snow, glaciers and inland water bodies 12 949.5 12 949.5 Coastal water and intertidal areas 19 351.5 1.5 1.5 19 353.0 Note:  Including herbaceous crops, woody crops and multiple or layered crops. 5.6.4 Physical asset accounts for forest and other wooded land Introduction 5.280 For particular land uses or types of land cover, it is also possible to construct basic physical asset accounts as established for other resources. The most developed example is for forest and other wooded land. Often, the compilation of physical asset accounts for forest and other wooded land is undertaken in conjunction with the compilation of asset accounts for timber resources as described in section 5.8. However, in principle, accounts for forest and other wooded land are a type of land account. 5.281 A key distinction between the physical asset account for forest and other wooded land and the asset account for timber resources is that the scope of timber resources is not limited to timber from forest and other wooded land. Thus, for example, depending on their significance, orchards would fall within scope of timber resources but are not considered areas of forest and other wooded land. 5.282 Another key distinction is that the asset account for timber resources is focused on the volume of timber resources rather than on the area of land covered by forests and other wooded land. Thus, the focus of the forest and other wooded land account is on changes in the area of land, for example, due to deforestation and afforestation, rather than on the quantity and value of timber removed from areas of forest and other wooded land. 5.283 Notwithstanding these clear distinctions in purpose and scope, there are strong connections between asset accounts for timber resources and asset accounts for forest and other System of Environmental-Economic Accounting 2012—Central Framework182 wooded land. This is because the majority of timber resources are found in areas of forest and other wooded land. Consequently, there are links between the two sets of accounts which should be considered in their compilation. Scope of the forest and other wooded land account 5.284 The scope of the forest and other wooded land account is defined consistent with the definition of this land in the FAO Global Forest Resources Assessment 2010.67 Forest land is defined as land spanning more than 0.5 hectares with trees higher than 5 metres and a canopy cover of more than 10 per cent, or trees able to reach these thresholds in situ. The scope of the forest and other wooded land account follows a land use perspective. Thus, it does not include land that is predominantly under agricultural or urban land use and is not strictly defined on the basis of changes in tree-covered areas. 5.285 Forest land is classified according to different types of forest. The primary distinction is between naturally regenerated forest and planted forest. Naturally regenerated forest is forest that is predominantly composed of trees established through natural regeneration. In this context, “predominantly” means that the trees established through natural regeneration are expected to constitute more than 50 per cent of the growing stock at maturity. 5.286 Two broad types of naturally regenerated forest are distinguished: (a) Primary forest is naturally regenerated forest of native species, where there are no clearly visible indications of human activities and the ecological processes are not significantly disturbed. Key characteristics of primary forests are that: (a) they show natural forest dynamics, such as natural tree species composition, occurrence of dead wood, natural age structure and natural regeneration processes; (b) the area is large enough to maintain its natural characteristics; and (c) there has been no known significant human intervention or the last significant human intervention occurred long enough in the past to have allowed the natural species composition and processes to have become re-established; (b) Other naturally regenerated forest is naturally regenerated forest with clearly visible indications of human activities. These include: (a) selectively logged-over areas, areas regenerating following agricultural land use and areas recovering from human-induced fires, etc.; (b) forests where it is not possible to distinguish whether they are planted or naturally regenerated; (c) forests with a mix of naturally regenerated trees and planted/seeded trees and where the naturally regenerated trees are expected to constitute more than 50 per cent of the growing stock at stand maturity; (d) coppice from trees established through natural regeneration; and (e) naturally regenerated trees of introduced species. 5.287 Planted forests are predominantly composed of trees established through planting and/or deliberate seeding. Planted/seeded trees are expected to constitute more than 50 per cent of the growing stock at maturity, including coppice from trees that were originally planted or seeded. 5.288 Other wooded land is land not classified as forest land, spanning more than 0.5 hectares; with trees higher than 5 metres and a canopy cover of 5-10 per cent, or trees able to reach these thresholds in situ; or with a combined cover of shrubs, bushes and trees above 10 per cent. It does not include land that is predominantly under agricultural or urban land use. 67 The following definitions are sourced or adapted from the “Global Forest Resources Assessment, 2010: specification of national reporting tables for FRA 2010” (FAO, 2007). Asset accounts 183 5.289 Where possible, accounts should be compiled reflecting these distinctions between types of forest and other wooded land. In addition, countries may be interested in compiling accounts based on the total area of different species of tree. 5.290 A physical asset account for forests is presented in table 5.15. It shows the opening and closing stock by area and changes in the area of forest and other wooded land. The area of forest and other wooded land should be measured inclusive of relevant access roads, rivers and streams. Table 5.15 Physical asset account for forest and other wooded land (hectares) Type of forest and other wooded land Total Primary forest Other naturally regenerated forest Planted forest Other wooded land Opening stock of forest and other wooded land 20 100 150 130 400 Additions to stock Afforestation 2 5 7 Natural expansion 3 3 Total additions to stock 5 5 10 Reductions in stock Deforestation 2 10 5 17 Natural regression 3 3 Total reductions in stock 2 10 0 8 20 Closing stock of forest and other wooded land 18 95 155 122 390 Additions to and reductions in the stock 5.291 Afforestation represents an increase in the stock of forest and other wooded land either due to the establishment of new forest on land that was previously not classified as forest land, or as a result of silvicultural measures such as planting and seeding. In particular, land previously classified as other wooded land may be converted to forest land as a result of silvicultural measures. 5.292 Natural expansion is an increase in area resulting from natural seeding, sprouting, suckering or layering. Where the expansion is into the area of another type of forest or other wooded land (e.g., natural expansion of other naturally regenerated forest into other wooded land), a corresponding entry for natural regression should be recorded. 5.293 Deforestation represents a decrease in the stock of forest and other wooded land due to the complete loss of tree cover and transfer of forest land to other uses (e.g., use as agricultural land, land under buildings or roads) or to no identifiable use. Removals of standing timber do not lead to decreases in forest and other wooded land if the use of the land does not change after felling. 5.294 Natural regression should be recorded when the stock of forest and other wooded land reduces for natural reasons. An entry for natural regression should be recorded together with an entry for natural expansion when there are natural changes in the areas of different types of forest and other wooded land (e.g., natural expansion of other naturally regenerated forest into other wooded land—i.e., a natural regression of other wooded land). System of Environmental-Economic Accounting 2012—Central Framework184 5.295 In the next subsection, monetary asset accounts for forest and other wooded land are not separately described but are covered as part of the monetary asset accounts for land. 5.6.5 Monetary asset accounts for land 5.296 The monetary asset account for land follows the structure outlined in table 5.16. Changes in the overall value of land will relate primarily to the revaluation of land, since the total area of land will remain largely unchanged. However, since at a more detailed level there will be changes in the purposes for which land is used (often due to purchases and sales of land between economic units), there are likely to be notable changes in the value of different types of land due to transactions and reclassifications. 5.297 Table 5.16 shows the value of land by type of land use. It may also be of interest to estimate the total value of land by institutional sector of ownership. In this case, transactions and reclassifications between sectors are likely to be important accounting entries. Table 5.16 Monetary asset account for land (currency units) Type of land use TotalAgriculture Forestry Land used for aquaculture Use of built-up and related areas Land used for maintenance and restoration of environmental functions Other uses of land n.e.c. Land not in use Inland water Opening value of stock of land 420 000 187 500 386 000 2 000 995 500 Additions to stock Acquisitions of land 3 500 3 500 Reclassifications 200 2 500 2 700 Total additions to stock 3 500 200 2 500 6 200 Reductions in stock Disposals of land 3 500 3 500 Reclassifications 1 250 200 1 450 Total reductions in stock 4 750 200 4 950 Revaluations 18 250 15 350 65 000 98 600 Closing value of stock of land 441 750 198 300 453 500 1 800 1 095 350 Valuation of land 5.298 While this is not the case for most environmental assets, there is, in most countries, an active market in the purchase and sale of land of all types, including residential, industrial and agricultural land. However, determining the value of the land itself is a complex task. 5.299 Generally, the market values of land encompass the value of the location, the value of the physical attributes of the land and the produced assets that may be located on the land (e.g., buildings). Separating these different components may be difficult. Further, although there is a market in land, a relatively small proportion of land is transacted in any year and thus observed prices may not be representative. Therefore, a comprehensive set of prices to cover all land types in all locations is seldom, if ever, available. Finally, some land will never be exchanged on the market. This may include designated public areas, land under traditional patterns of common ownership, and remote and inhospitable areas. Asset accounts 185 (a)  Composite assets 5.300 Several common situations in which assets are bundled with land need to be described and relevant accounting treatments defined. 5.301 Soil resources. Although land and soil are distinguished as separate environmental assets, in terms of valuation, land and soil are always considered jointly. Thus, the value of all land, especially agricultural land, implicitly includes the value of any associated soil. 5.302 Buildings and structures. The opening and closing values of the stock of land should be recorded excluding the value of buildings and structures on the land. 5.303 For land underlying buildings, the market will, in some instances, furnish data directly on the value of the land. More typically, however, such data are not available and a more usual method is to calculate ratios of the value of the site to the value of the structure (often using administrative data). Another approach is to use estimates of the depreciated value of the stock of dwellings and other buildings and structures which are often compiled for the purposes of the core national accounts and deduct this amount from the value of the composite asset. 5.304 When the value of the land cannot be separated from the building or structure sitting on it, the total value of the composite asset should be classified to the asset category representing the greater part of its value. 5.305 Land improvements. In addition to the effect of buildings and structures, there may be improvements to land due to activities such as land clearance, land contouring or the creation of wells and watering holes for agriculture that are integral to the land in question. These activities, collectively referred to as “land improvements”, are characterized by their outcome: they lead to major improvements in the productivity of a given area of land, potentially through the prevention of a deterioration in the quality of land. In principle, the value of land improvements should be recorded as a separate produced asset distinct from the value of the land as it existed before improvement. 5.306 If the value of the land improvements cannot be separated from the value of land in its natural state, the value of the land may be allocated to one category or the other depending on which is assumed to represent the greater part of the value. (For details regarding the accounting treatment for land improvements, refer to the 2008 SNA, paras. 10.79-10.81.) 5.307 Biological resources. As with the treatment of buildings and structures, the value of these environmental assets should, in principle, be separated from the land on which they are grown. For example, for forest land, the separation should be based on the value of the stock of timber resources (for details, see sect. 5.8). For cultivated biological resources other than timber resources, the range of techniques for making the distinction made for buildings and structures are also relevant. 5.308 Land under roads and public land. In principle, the land under roads, railways and other transportation routes should be valued in the same way as other land. However, given the shared characteristics of these assets, determining appropriate valuations may be difficult. 5.309 It is recommended that the valuations adopted for the purposes of government finance statistics be used to value land under roads and public land more generally. The value of the roads and rail lines, etc., should be determined separately, possibly on the basis of construction costs as required for the purposes of capital stock estimation in the national accounts. 5.310 Energy from renewable sources. As described in section 5.5, the value of some land may be influenced by the income earned from the generation of renewable energy (e.g., land System of Environmental-Economic Accounting 2012—Central Framework186 on which wind farms are based). The value arises due to the scarcity of the sites used for energy generation. Where possible, the value of the land should be partitioned to provide an estimate of the value of the land that is attributable to income arising from the generation of energy from renewable sources. The valuation should be based on calculation of expected income streams using standard NPV approaches, including deductions for the costs of fixed assets utilized to capture the energy. (b)  Changes in value due to changes in the quality of land 5.311 Changes in the value of land may be due to many factors, including changes in the quality of land. At times, there may be catastrophic losses in land quality, for example, as a result of contamination by radioactive waste or major flooding. Changes in the quality of land that lead to changes in the value of the land should not be recorded as revaluations even though the area of land does not change. Rather, the changes in value should be recorded as reclassifications (where the land use changes), reappraisals (where the land use remains the same) or catastrophic losses, as most appropriate. Accounting for transactions in land 5.312 Generally, all transactions in land are between resident economic units. In situations in which a non-resident purchases land, the accounting convention is to establish a notional resident unit that purchases the land and to show the non-resident as having the full financial ownership of the notional unit. There are at times exceptions to this treatment, such as when governments purchase land from other countries. These should be recorded as acquisition and disposals between countries. The treatment of costs of ownership transfer 5.313 Whenever land is sold, there are transaction costs involved. Typically, these arise from the involvement of the lawyers registering the change of ownership of the land and of the estate agents who bring the buyer and seller together. There may also be taxes payable in connection with the land purchase. The SNA refers to these expenses as the “costs of ownership transfer”. These costs are not recoverable by the new owner: any further sale will cover the underlying value of the land itself plus a new set of costs of ownership transfer. In the context of the transaction, the costs to the purchaser of the land are treated as the purchase of a fixed asset and they are written off over time by means of consumption of fixed capital. 5.314 In general, because they are treated as a separate asset, the costs of ownership transfer on land are not included in the valuation of land in the asset account. However, some refinements in respect of this general position need to be clarified. Where the transaction involves only land and land improvements (e.g., where the sale of buildings or forests is not involved), the costs of ownership transfer are allocated to the produced asset land improvements. Where the transaction involves both land and produced assets (such as buildings or cultivated biological resources), the costs are allocated to the specific produced assets involved. In both of these situations, the costs are also recorded against the opening and closing stock values for the relevant produced asset. 5.315 It is also noted that, where the costs of ownership transfer relate to a non-produced asset other than land (e.g., to the sale of mineral and energy resources or natural timber resources), the costs are capitalized against the produced asset “costs of ownership transfer on non-produced assets” but they are recorded on the balance sheet against the non-produced asset in question. Asset accounts 187 5.6.6 Links to ecosystem accounting 5.316 Ecosystem accounts are founded on consideration of the capacity of the environment to deliver ecosystem services as described in chapter II. It is the interactions between different environmental assets within a given area that generates ecosystem services. 5.317 To the extent that meaningful groupings of land areas can be defined, these areas may be used to provide a measurement basis for ecosystem accounting in a similar way to which statistical units, such as establishments, provide a basis for measurement in economic statistics. SEEA Experimental Ecosystem Accounting develops these ideas in detail to provide a framework for assessing the capacity of ecosystems to deliver ecosystem services. 5.7 Accounting for soil resources 5.7.1 Introduction 5.318 Soil resources are a fundamental part of the environment. They provide the physical base required to support the production and cycling of biological resources, provide the foundation for buildings and infrastructure, are the source of nutrients and water for agriculture and forestry systems, provide a habitat for diverse organisms, play an essential role in carbon sequestration, and fulfil a complex buffering role against environmental variability (ranging from dampening diurnal and seasonal change in temperature and water supply to the storage and binding of a range of chemical and biological agents). 5.319 Accounting for soil resources, therefore, has many dimensions. At one level, accounting for soil resources can provide information on the area and volume of soil resources lost due to soil erosion, or made unavailable by changes in land cover (e.g., soil covered by buildings or roads) and other causes (e.g., changes in soil structure due to compaction, acidity or salinity). More broadly, accounting for soil resources in terms of their types, nutrient content, carbon content and other characteristics is relevant for more detailed examination of the health of soil systems, and the connections between soil resources and production in agriculture and forestry. 5.320 The focus of asset accounting for soil resources in the SEEA is on the top layers (horizons) of soil that form a biological system. Thus, quantities of soil that are extracted for construction, land reclamation, engineering and similar purposes are not considered, except to the extent that such extraction reduces the area and volume of soil resources available to operate as a biological system. Quantities of soil extracted for landscaping and similar purposes, where the soil continues to operate as a biological system, are considered to be within the accounting framework. 5.321 Research into the quantity and quality of soil has been a long-standing undertaking in many countries. At an international level, there has been substantial effort to create harmonized systems for recording information on different soils; and more recently, there has been work carried out to facilitate a more complete record of information on soils in all countries, in recognition of the fundamental role that soil resources play in environmental and economic systems.68 5.322 At the same time, there have been few research findings that relate the changes in the physical volume and characteristics of soil to measures of economic activity using accounting frameworks like the SEEA. Work is advancing that considers changes in soil resources 68 See, for example, the Harmonized World Soil Database (FAO and others, 2009) and, at finer scale, the GlobalSoilMap (www.globalsoilmap.net) (International Union of Soil Sciences, 2009). System of Environmental-Economic Accounting 2012—Central Framework188 from a natural capital perspective,69 but up to now this work has not been translated into the SEEA framework. 5.323 Some aspects of accounting for soil resources fit easily into the broader asset accounting framework described in the Central Framework. Also, some of the physical flows associated with soil resources, for example, flows of nutrients, are within the framework of physical flows described in chapter III. More broadly, accounting for soil resources as a system providing multiple benefits is a part of the broader subject of ecosystem accounting and is described in SEEA Experimental Ecosystem Accounting. 5.324 The present section presents a brief characterization of soil resources and the associated information on soil. It then describes how the volume and area of soil resources can be accounted for within the asset accounts of the Central Framework. The section concludes by introducing the aspects of soil measurement that can be taken into consideration in other parts of the SEEA, including nutrient balances and measurement of soil resources as a system. 5.7.2 Characterization of soil resources 5.325 Different types of soil are defined in reference to their components and properties. Soil components reflect the biogeochemical composition of the soil: the minerals, liquids, gases and organic matter that are present in the soil. Soil properties reflect the physical, chemical and biological characteristics of the soil, e.g., porosity, texture, pH level and microbial biomass. 5.326 Various soil types can be defined using information on different combinations of soil components and properties. It is these various soil types (groupings) that can provide the basis for a generalized accounting for soil resources—not because soil types change, but because soils have different baselines and potentials. Soil types are necessary categories for understanding the importance of measured change and the potential for improvement. The Harmonized World Soil Database describes 28 major soil groupings that can be used to categorize and map soils at a broad global scale. Various national and regional groupings of soil types may be appropriate for national and subnational measurement. 5.327 Soil resources are measured through a series of inventory processes, known collectively as a soil survey. Typically, a soil survey produces maps of soil types, soil suitability for various purposes and hazard and degradation potential and, in some cases, maps of specific soil properties. Other important and complementary activities associated with soil resource accounting include site- or area-based measures of soil loss or erosion processes, and simulation modelling of the way in which soil types relate to various climate and land use settings. 5.328 Measures of soil quality or soil value can also be developed using a range of approaches. In most cases, soil suitability for specific purposes is assessed through a standardized indexing procedure. Most countries and regions have similar procedures optimized for implementation of their approach to soil mapping and soil classification. Soils are generally ranked in terms of their properties (e.g., carbon content), productive capacity (e.g., for agriculture) and/ or their tendency towards degradation over time. Simulation models that take into account local conditions may then be used to extrapolate from well-studied sites across the landscape to produce quantitative measures of yield, run-off and soil erosion. 5.329 The availability of this suite of measurements varies between and within countries. Overall, while most soil information has not been placed in an accounting framework, there 69 For an examination of this issue from a soil science perspective, see, for example, Dominati, Patterson and Mackay “A framework for classifying and quantifying the natural capital and ecosystem services of soils”, Ecological Economics, vol 69, No.9 (15 July 2010, pp.1858-1868). Asset accounts 189 is a strong potential for aggregate accounting frameworks to be populated using the data available. 5.7.3 Accounting for the area and volume of soil resources 5.330 A first stage of accounting for soil resources entails measurement of the area of different soil types within a country. This type of accounting is an extension of the land accounting described in section 5.6. An example of how an asset account for the area of soil resources can be structured is presented in table 5.17. The table presents the opening and closing stock of soil resources by type of soil and the additions and reductions in area of soil resources. In order for there to be a focus on soil resources that are available as a biological system, the scope of this account should be restricted to land used for agriculture and forestry and also volumes of soil extracted to be used as a biological system. In certain circumstances, there may be a focus on particular landscapes or land use systems that are under pressure. Table 5.17 Physical asset account for area of soil resources (hectares) Type of soil resource Total area Opening stock of soil resources Additions to stock Due to changes in land cover Due to changes in soil quality Due to changes in soil environment Total additions to stock Reductions in stock Due to changes in land use Due to changes in soil quality Due to changes in soil environment Total reductions in stock Closing stock of soil resources 5.331 In terms of accounting entries, the focus is on the area of different soil types at the beginning and end of an accounting period and on changes in the availability of different soil types used for agriculture and forestry. Different scopes of soil resources may be measured depending on the purpose of analysis. For example, for the analysis of carbon sequestration in soil, a very extensive coverage of soil resources within a country may be appropriate. 5.332 A distinction is made between additions and reductions due to changes in land cover (e.g., loss of soil resources for agriculture as a result of urban expansion, also known as soil alienation or soil sealing); those due to changes in soil quality (e.g., after compaction or acidification); and those due to changes in the soil environment (e.g., due to desertification or land clearing). In practice, distinguishing between these different types of changes may be difficult and the structure of the account should be based on highlighting the primary reasons and the changes of most environmental, economic or social interest. 5.333 In addition to an asset account such as presented in table 5.17, there may be interest in tabulating types of soil resources by type of land use or land cover at a particular point in time. Such information may help in determining whether various types of land use are being undertaken on high-quality or marginal soil and may hence provide a basis for assessment of System of Environmental-Economic Accounting 2012—Central Framework190 alternative land uses. Considerable analytical benefits would also be derived from mapping information on soil types, land use and land cover using data that are spatially referenced. 5.334 A second stage in accounting for soil resources entails measuring the volume of soil resources. Accounting for changing volumes of soil may enable assessment of the extent of erosion and the impact of major disasters such as flooding or drought, as well as provide information relevant to the assessment of soil depletion, i.e., the loss of soil resources due to economic activity. 5.335 An asset account for the volume of soil resources is shown in table 5.18. It is structured to show the opening and closing volumes of soil and the changes in the volume of soil. Increases in the volume of soil by natural processes (soil formation) are assumed to be very slow and, in this sense, soil may be considered a non-renewable resource. However, the movement of soil through natural means (e.g., wind and water) may mean that soil lost from one area of a country may be deposited in another area or in another country, or in the sea and ocean. The deposition is often deleterious (e.g., covering infrastructure or polluting coral reefs) but there are situations where a region benefits from sediment movement. Where benefits from soil deposition can be established, the flow should be considered part of the additions to stock; at the same time, soil erosion should be considered a reduction in stock. Table 5.18 Physical asset account for volume of soil resources (cubic metres) Type of soil resource Opening stock of soil resources Additions to stock Soil formation and deposition Upward reappraisals Reclassifications Total additions to stock Reductions in stock Extractions Soil erosion Catastrophic losses Downward reappraisals Reclassifications Total reductions in stock Closing stock of soil resources 5.336 The soil resources in table 5.18 are classified by type of soil, but it may also be meaningful to structure the changes in the volume of soil resources by geographical region or by type of land use or land cover. It is likely that different regions and land uses will have different impacts on and be differently impacted by soil erosion and soil deposition. 5.337 Changes in the volume of soil resources should also be recorded when soil is excavated and moved for various reasons. For example, soil may be excavated to build levies and dykes, for land reclamation, or for road and other construction. Since the intent of the soil resources account is to record changes in the volume of soil resources that can operate as a biological system, the loss of the top layers of soil resource due to this extraction should be recorded as permanent reductions in soil resources, unless the purpose is to create new biological soil systems in other locations. Losses in the accessibility of soil resources due to changing land Asset accounts 191 cover (e.g., as a result of urban expansion or permanent flooding, as is the case in the creation of artificial reservoirs) should be recorded as extractions. 5.338 Catastrophic losses of soil resources may occur in cases of major floods and other severe weather events. This may also lead to soil deposition, depending on the quality of soil transferred. Reappraisals of soil volume should be recorded when additional information is available, as for reappraisals of other environmental assets. 5.7.4 Other aspects in accounting for soil resources 5.339 In addition to the physical asset accounts proposed in this section, soil resources are accounted for in the physical supply and use tables described in chapter III. There are two main aspects to the PSUT entries for soil resources. First, the movement of soil resources for construction, land reclamation, landscaping and other such uses in the economy should be recorded as a natural resource input of soil resources from the environment to the economy. These entries should also record movement of soil as part of dredging operations in rivers and ports and movements of contaminated soil for treatment or disposal. 5.340 Second, the flows of individual elements in the soil, such as soil carbon and soil nutrients (nitrogen (N), phosphorus (P) and potassium (K)), can be recorded as part of material flow accounting. An introduction to net nutrient balances in the context of the SEEA is described in section 3.6. 5.341 The recording of nutrient balances considers issues related to the overall functioning of soil resources as a biological system and, further, those issues related to valuing soil resources and associated measures of soil depletion and soil degradation. However, the accounting framework presented in the Central Framework does not fully describe the overall state or condition of soil resources, changes in the health of soil resources, or their capacity to continue to provide the benefits that soil resources generate. 5.342 In the Central Framework, the value of soil resources is tied directly to the value of land, as described in section 5.6. In this context, connections may be made between changes in the combined value of land and soil and changes in the associated income earned from use of the soil resources. 5.8 Asset accounts for timber resources 5.8.1 Introduction 5.343 Timber resources are important environmental assets in many countries. They provide inputs for construction and the production of paper, furniture and other products, and are both a source of fuel and an important sink for carbon. 5.344 The compilation of timber resource asset accounts is one measurement tool that provides information for use in assessing and managing changes in timber resources and the services they provide. For a complete assessment of timber resources it is also relevant to construct asset accounts regarding the stock of land associated with timber resources, primarily forest and other wooded land. The changes in the stock of forest and other wooded land due to afforestation and deforestation may be of particular interest. These asset accounts are described in section 5.6. 5.345 The present section is structured to provide details on the definitions of timber resources and associated classification and boundary issues, including the relationship between timber resources and forest and other wooded land. An important aspect in this System of Environmental-Economic Accounting 2012—Central Framework192 regard is the delineation of the distinction between cultivated and natural timber resources. The section then presents a physical asset account and a monetary asset account for timber resources and concludes with an introduction to accounting for carbon in timber resources. This is an extension of the physical asset accounting for timber resources. 5.8.2 Scope and definition of timber resources 5.346 Timber resources may be found in a wide variety of places and may or may not be available to be felled and used as wood supply, i.e., to produce timber products or as fuelwood. Timber resources may not be available for wood supply due to the fact that the trees (i) are in areas in which logging operations are restricted or prohibited; (ii) are in areas that are inaccessible or remote and hence where logging is not economically viable; or (iii) do not, from a biological perspective, belong to a commercially useful species. 5.347 While the timber resources that are not available for wood supply do not have an economic value, these timber resources remain in scope of timber resources in the SEEA in physical terms, as they fulfil the definition of environmental assets and may provide benefits. However, since these timber resources do not have an economic value, they are not recorded in the asset accounts for timber resources in monetary terms. Consequently, the volume of these timber resources in physical terms should be clearly identified so that appropriate alignment can occur between asset accounts in physical and monetary terms. 5.348 Most commonly, timber resources are found in areas of forest land or other wooded land, which may often provide a good starting point for the compilation of data on timber resources. The areas that are classified as forest land and other wooded land for the purposes of measuring timber resources should be defined consistently with those same areas in the physical asset accounts for forest and other wooded land, as described in section 5.6.4. 5.349 Timber resources are also found in other areas such as in orchards, rubber plantations, along roadsides and train tracks, and in city parks. Conceptually, the timber resources in all of these areas are also within the measurement scope of the SEEA. In practice, countries should determine the scope of their timber resource accounts based on the relative importance of the types of areas that provide timber resources. Timber resources from different types of areas should be clearly differentiated. 5.350 Within the relevant areas, timber resources are defined by the volume of trees, living or dead, and include all trees regardless of diameter, tops of stems, large branches and dead trees lying on the ground that can still be used for timber or fuel. The volume should be measured as the stem volume over bark at a minimum breast height from the ground level or stump height up to the top. Excluded are smaller branches, twigs, foliage, flowers, seeds and roots.70 5.351 The thresholds for minimum breast height, tops of stem and branches may vary across countries. This variation reflects the variety of species, growing conditions and forestry management and harvesting practices that take place in different parts of the world. The precise specification of the volume of a conifer in northern Europe, for example, will differ from that of a teak tree in a tropical rainforest. The general principle that should be considered in determining the volume of timber resources is the volume that is commercially usable. All estimates of timber resources, including estimates of the monetary value of timber resources, need to take into account country-specific conditions and practices. 5.352 The volume of timber resources is often referred to as the volume of standing timber. This definition includes trees on the ground either because they have been felled but not 70 See “Global Forest Resources Assessment 2010: specification of national reporting tables for FRA 2010” (FAO, 2007). Asset accounts 193 yet removed from the area, or because they have fallen through natural causes (e.g., disease or lightning strike) but are still useful for timber products or fuel. The volume of standing timber also includes dead trees remaining standing. The volume of standing timber should be distinguished from the growing stock which relates to living trees and forms the basis for the calculation of the natural growth in timber resources over a period. The boundary between cultivated and natural timber resources 5.353 Determining whether timber resources are cultivated or natural is important in the application of the appropriate accounting treatment. The growth in cultivated timber resources is considered to be a process under the direct control, responsibility and management of institutional units. Consequently, the growth is recorded as occurring within the production boundary on an ongoing basis as an increase in inventories of those enterprises undertaking the cultivation. (The removal of cultivated timber resources is recorded as a decrease in inventories of timber resources and an equivalent amount of sales.) The growth of natural timber resources, on the other hand, is not considered to take place within the production boundary and is recorded as entering the production boundary only at the time the tree is removed from the forest or other land area. 5.354 The treatment of timber resources as either cultivated or natural depends on the management practices applied to the areas in which timber resources are found. For timber resources to be classed as cultivated, the management practices must constitute a process of economic production. This is likely to include activities such as (a) control of regeneration, for example, seeding, planting of saplings, thinning of young stands; and (b) regular and frequent supervision of trees to remove weeds or parasites, or to attend to disease. The level of these types of activity should be significant relative to the value of the timber resources and should be directly connected with the growth of the timber resources in question. 5.355 In practice, a common initial basis for the determination of whether timber resources are cultivated or natural is the type of land on which the timber resources are found. For example, for forest land, those timber resources within primary forests would generally be considered natural timber resources, whereas those timber resources in plantations would be generally considered cultivated timber resources. 5.356 However, the rules by which different areas of forest land are differentiated may not align neatly to the production boundary of the SEEA. For example, pursuant to applying the definitions of different forest land as presented in section 5.6.4: as soon as primary forest is logged for the first time, it becomes other naturally regenerated forest and hence falls into a category of forest land that is likely to be a mixture of land under active management and control, and land in which human intervention is relatively infrequent. Also, in some countries, there are large areas of planted forests that are not managed directly or frequently where the trees are left to grow until ready to harvest. These trees would be considered natural timber resources following the SEEA production boundary, even though the term “planted forests” may immediately suggest a high level of economic activity. 5.357 Given the potential for forestry management practices to vary considerably across and within countries, it is recommended that countries determine the status of their timber resources as either natural or cultivated based on application of the production boundary considerations listed above. This process is likely to require assessment by type of area in which timber resources are found, including forest land, other wooded land and other land with wood supply. System of Environmental-Economic Accounting 2012—Central Framework194 5.8.3 Physical asset accounts for timber resources 5.358 The physical asset account for timber resources records the volume of timber resources at the beginning and end of an accounting period and the change in this stock over the accounting period. Of particular interest is the analysis of the natural growth of timber resources compared with the removals. 5.359 A basic structure for a physical asset account for timber resources is presented in table 5.19. The asset account should distinguish between the types of timber resource, most importantly between cultivated timber resources and natural timber resources. For natural timber resources, a distinction should be made between those timber resources available for wood supply and those not available for wood supply, so as to ensure that the different scopes of the asset accounts in physical and monetary terms can be reconciled. Depending on the purpose of analysis and available data, accounts by species of tree may be compiled. Table 5.19 Physical asset account for timber resources (thousands of cubic metres over bark) Type of timber resource Cultivated timber resources Natural timber resources Available for wood supply Not available for wood supply Opening stock of timber resources 8 400 8 000 1 600 Additions to stock Natural growth 1 200 1 100 20 Reclassifications 50 150 Total additions to stock 1 250 1 250 20 Reductions in stock Removals 1 300 1 000 Felling residues 170 120 Natural losses 30 30 20 Catastrophic losses Reclassifications 150 150 Total reductions in stock 1 650 1 150 170 Closing stock of timber resources 8 000 8 100 1 450 Supplementary information Fellings 1 250 1 050 5.360 The focus of the asset accounts presented in the SEEA is on the timber resources found in areas of forest and other wooded land. There may be interest, however, in developing estimates of the volume of timber resources in other areas, depending on country circumstance. Additions to the stock 5.361 The stock of timber resources will increase due to natural growth. This is measured in terms of the gross annual increment, i.e., the volume of increment over the reference period of all trees with no minimum diameter. 5.362 The calculation of natural growth should be based on the timber resources available at the beginning of the accounting period. Increases in the area of forest land, other wooded Asset accounts 195 land and other areas of land that lead to increases in the volume of available timber resources should not be considered natural growth but should, instead, be recorded as reclassifications. Reclassifications may also occur as a result of changes in management practice that shift timber resources from cultivated to natural or vice versa. Reductions in the stock 5.363 The stock of timber resources will decrease over an accounting period through the removal of timber resources and natural losses. Removals are estimated as the volume of timber resources removed from forest land, other wooded land and other land areas during the accounting period. They include removals of trees felled in earlier periods and the removal of trees killed or damaged by natural causes. Removals may be recorded by type of product (e.g., industrial roundwood or fuelwood) or by species of tree (e.g., coniferous or broadleaved). 5.364 Removals constitute the relevant variable for measuring the extraction of timber resources because the definition of the stock of timber resources includes trees that have been felled and are on the ground but have not yet been removed. 5.365 To fully account for the change in the volume of timber resources over an accounting period, it is necessary to deduct felling residues. These residues are associated with the fact that, at the time of felling, a certain volume of timber resources is rotten, damaged or in excess in terms of the size requirements. Felling residues exclude small branches and other parts of the tree that are also excluded from the scope of timber resources. Estimates of felling residues may also provide important information on the nature of forestry practice. 5.366 Natural losses are the losses to the growing stock (i.e., living, standing trees) during an accounting period due to mortality from causes other than felling. Examples include losses due to natural mortality, insect attack, fire, wind throw or other physical damages. Natural losses should include only those losses that can be reasonably expected when considering the timber resources as a whole. Natural losses should be recorded only when there is no possibility that the timber resource can be removed. All timber removed should be recorded as removals. 5.367 Catastrophic losses should be recorded when there are exceptional and significant losses of timber resources due to natural causes. Catastrophic losses should be recorded only when there is no possibility that the timber resource can be removed. All timber removed should be recorded as removals. Depletion 5.368 Following the general definition of depletion, the depletion of natural timber resources is related to the sustainable yield of timber resources from the forest land, other wooded land and other land on which natural timber resources are found. More precisely, the sustainable yield of timber resources is the quantity of timber that can be harvested at the same rate into the future while ensuring that the productive potential is maintained. The sustainable yield will be a function of the structure of the growing stock and needs to take into account both the expected natural growth and the natural losses of trees. Various biological and forestry models will need to be taken into account in estimating sustainable yield. 5.369 Depletion of natural timber resources, in physical terms, is equal to removals less sustainable yield. As explained in section 5.4, some variation from year to year is to be expected in the relationship between estimates of sustainable yield and actual quantities of natural growth (less natural losses). Hence, depletion should be recorded only when removals are beyond normal year-on-year variations in quantities of natural growth. System of Environmental-Economic Accounting 2012—Central Framework196 5.370 It is noted that the concept of sustainable yield used to define depletion does not take into account the broader ecological sustainability of the surrounding ecosystems which may be affected by the felling and removal of timber resources. Fellings 5.371 While these entries fully account for the change in the volume of timber resources over an accounting period, there may be specific interest in the volume of trees felled during the period relative to the volume of timber resources removed. Annual fellings are equal to the volume of timber resources that is felled during an accounting period. Fellings include silvicultural and pre-commercial thinnings and cleanings. Where available, estimates of the volume of fellings may be added as supplementary information in the physical asset account. Timber resources as a source of energy 5.372 Timber resources are often used as a source of energy. The inputs of energy from both natural and cultivated timber resources are recorded in the physical supply and use table for energy (sect. 3.4). The basis for the recording is the measurement of the amount of energy actually sourced from timber resources rather than the measurement of the total energy that might be sourced from timber resources. In concept, the stock of timber resources measured in the asset accounts incorporates the volume and value of timber resources that may be used for energy purposes, but no separate estimates are made. Where there is analytical interest and where data are available, it would be possible to construct asset accounts for timber resources with a focus on timber resources used for energy purposes. In this context, the focus may be placed on those timber resources that are considered renewable sources of energy. 5.8.4 Monetary asset accounts for timber resources 5.373 Monetary asset accounts for timber resources consist in measuring the value of the opening and closing stock of timber resources and the changes in the value of the stock over an accounting period. The monetary asset account for timber resources is presented in table 5.20. 5.374 Most of the changes in the stock relate directly to changes recorded in the physical asset account; but there are also entries relating to the revaluation of timber resources, which are recorded when the prices for timber change during an accounting period. 5.375 It may be that not all timber resources are available for harvest because of forest legislation and/or for environmental and economic reasons. It is recommended that the volume of timber resources that cannot be harvested be separately identified and not form a part of the overall calculations of the value of timber resources. 5.376 Estimates are made for the value of natural growth and the value of removals. For cultivated timber resources, the natural growth is considered an increase in inventories and the removal of trees is treated as a decrease in inventories. Following the SNA, only the change in inventories would normally be recorded, but the entries are recorded on a gross basis in the SEEA. 5.377 For natural timber resources, the natural growth is not considered an increase in inventories, since the growth in the trees is not considered to be part of a production process. The removal of the timber resources represents the point at which the timber resources enter the economy and output is recorded at that point. Asset accounts 197 Table 5.20 Monetary asset account for timber resources (currency units) Type of timber resource Total Cultivated timber resources Natural timber resources (available for wood supply) Opening stock of timber resources 86 549 82 428 168 977 Additions to stock Natural growth 12 364 11 334 23 698 Reclassification 515 1 546 2 061 Total additions to stock 12 879 12 879 25 759 Reductions in stock Removals 13 395 10 303 23 698 Felling residues 1 752 1 236 2 988 Natural losses 309 309 618 Catastrophic losses Reclassification 1 546 1 546 Total reductions in stock 17 001 11 849 28 850 Revaluations 16 692 16 692 Closing stock of timber resources 82 428 100 150 182 578 Valuing the stock of timber resources 5.378 In line with its general definition (see sect. 5.4), resource rent on timber resources can be derived as the gross operating surplus from the harvest of timber resources (after taking into account specific taxes and subsidies) less the value of the user costs of produced assets used in the harvesting process. 5.379 Defined in this way, the resource rent will implicitly include a share that should be attributed to the land on which the timber stands. This reflects the composite nature of the overall asset as discussed in section 5.6. In many cases, owing to the location of the land or the quality of the soil, the return to the land may not be large compared with the return to the timber resource; but where relevant (e.g., where the land may be potentially of value for other purposes), an estimate of the resource rent attributable to land should be deducted for the purpose of deriving the estimate of resource rent on timber resources. 5.380 Resource rent can be estimated more directly by using estimates of the stumpage price, which is the amount paid per cubic metre of timber by the harvester to the owner of the timber resources. The stumpage price itself may also be derived by deducting various harvesting costs from roadside pickup prices (also called wood-in-the-rough or raw wood prices). The harvesting costs should include felling costs as well as costs of thinning (net of any receipts), other management costs and rent on land. For natural timber resources, these additional costs may be very low or even zero. Where timber resources are sold prior to felling, relevant contract prices may also be used, with appropriate adjustments for the scope and coverage of the prices to align them with the concept of resource rent. 5.381 Stumpage prices can then be multiplied by estimates of the expected volume of standing timber per hectare at the expected harvesting age to yield estimates of future receipts. These future receipts are then discounted (over the time from the current period to the expected harvest period) for the purpose of estimating a value per hectare for each age class. In turn, these values are multiplied by the total area of each age class and added to give the System of Environmental-Economic Accounting 2012—Central Framework198 value of the total stock of standing timber. This approach should ensure that trees harvested after reaching maturity are separately accounted for. A simplifying approach is to use the current age structure and assume that each tree of a particular age grows to maturity and is harvested at maturity. 5.382 The primary difficulty in applying these NPV approaches lies in the extent to which information is available on the age structure of the trees and how these trees will mature into the future. Where the necessary detail is available, these NPV approaches should be used, taking into account modelling of future timber resources. 5.383 If detailed information on the future age structure is not available, two methods are commonly applied. The stumpage value method multiplies the average stumpage price across all maturities of felling by an estimate of the current volume of timber resources. The consumption value method requires information on the current age structure of the timber resources and stumpage prices for different maturities of standing timber. 5.384 While these two methods are variants of the basic NPV approaches, the assumptions underpinning them may be restrictive, particularly in the case of a changing age structure of timber resources due either to over-exploitation or to active afforestation. 5.385 Other data sources for the price of timber resources may also be available. For timber resources in young forests, there may be valuations for insurance purposes, since at a young age there is a higher likelihood that forests will be destroyed. Also, in some countries, there are well-developed markets in the acquisition and disposal of forests. In these situations, pricing models have been established to provide appropriate valuations, taking into account the location, type and age structure of the trees, etc. Care should be taken in using these pricing models for the purpose of valuing timber resources, as the value of the forest may include estimates of the value of alternative land uses rather than estimates of only the future income stream from the timber resources. Valuation of removals, natural growth, depletion and other flows 5.386 In general terms, the valuation of flows of timber resources (including removals, natural growth, depletion and other flows) should be undertaken using the same in situ resource prices underlying the valuation of the opening and closing stock of timber resources. The relevant approaches are described in annex A5.1. 5.387 With respect to catastrophic losses, for example, due to wind throw or forest fire, when a catastrophic event does not fully destroy the wood, it is necessary to take into account the value of the wood that will be salvaged. Prices may rise following destruction of timber resources due to fire or they may fall if trees are killed but not destroyed in storms. The price changes will reflect the changes in the pattern of timber available to be supplied. Further, the stumpage value of the salvaged timber has to be accounted for in the value of the stock for the period until its removal from the forest, which, in some cases, may take a number of years. 5.388 Other changes that affect the value of stocks of standing timber as a resource for the logging industry are changes in use or status, for example, when forests are protected and logging is prohibited. In this case, the value of the standing timber, in terms of income from the sale of timber resources, is reduced to zero. 5.8.5 Carbon accounts for timber resources 5.389 The assessment of carbon sequestration is an increasingly important consideration. As part of a broader accounting of carbon sequestration and other carbon stocks and flows, estimates of the amount of carbon bound in timber resources and the changes in these amounts Asset accounts 199 over an accounting period can be derived using information on opening and closing volume of standing timber and the changes in volume. Estimates can be derived by applying relevant average coefficients for both the relationship between the volume of standing timber and the total biomass (including above- and below-ground biomass) and the relationship between the biomass and the quantity of carbon. These coefficients will vary with the species of the tree and other factors.71 5.390 A carbon account for timber resources can be developed based on the structure of the physical asset account for timber resources (see table 5.19). 5.391 It is noted that references to reductions in the stock of carbon in timber resources, for example, due to removals, do not imply that carbon has been released into the atmosphere. In general, carbon will remain bound in timber until the timber is burned or decomposes naturally and these releases of carbon will not be recorded in a carbon account for timber resources. 5.392 A complete articulation of carbon accounting, including, for example, carbon sequestration in soils, is beyond the scope of the Central Framework but is discussed in SEEA Experimental Ecosystem Accounting. This reflects the fact that calculation methods are still developing and that an ecologically grounded accounting approach is required to fully account for stocks and flows of carbon and provide information for policy in this area. At the same time, it is noted that the underlying accounting models in the Central Framework are sufficiently well developed for use in carbon accounting for timber and other stores of carbon. 5.9 Asset accounts for aquatic resources 5.9.1 Introduction 5.393 Aquatic resources are an important biological resource. They include fish, crustaceans, molluscs, shellfish and other aquatic organisms such as sponges and seaweed, as well as aquatic mammals such as whales. Aquatic resources are subject to harvest for commercial reasons as well as in the context of subsistence and recreational fishing activities. The abundance and health of natural aquatic resources in inland and marine waters are also increasingly affected by water pollution and by the degradation of habitats through the damming and diversion of rivers, restricted water release from reservoirs to rivers, clearance of mangroves, sedimentation, coral mining, deforestation in the hinterland, urbanization, and other activities. The dual impacts of high exploitation levels and habitat degradation result in the loss, or reduction, of the economic value of the goods and services provided by the aquatic ecosystems and a loss of biodiversity and genetic resources. 5.394 In most parts of the world, fishing capacity has reached a level where unrestricted fishing will result in over-exploitation and lead to smaller catches and economic benefits than would be possible if the catch was managed in such a way as to prevent over-exploitation. In extreme cases, there is the risk of commercial extinction of some aquatic resources with attendant impacts on the aquatic ecosystem. 5.395 Asset accounts for aquatic resources organize information on the stocks and changes in stocks of the quantity and value of aquatic resources within a country’s economic territory, including stocks within a country’s EEZ or on the high seas over which the country holds ownership rights. In principle, all aquatic resources are in scope of the asset accounts in the 71 See Good Practice Guidance for Land Use, Land Change and Forestry (IPCC, 2003); and Updated UNFCCC reporting guidelines on annual inventories following incorporation of the provisions of decision 14/CP.11(United Nations Framework Convention on Climate Change, 2006). System of Environmental-Economic Accounting 2012—Central Framework200 Central Framework; but in practice, the scope is limited to those aquatic resources that are subject to commercial activity. Asset accounts cover both cultivated aquatic resources and natural aquatic resources, thus enabling a comparison of trends in both resources. 5.396 The asset accounts presented in the present section do not cover the assessment of general aquatic ecosystems that support the various resources and provide a wide range of ecosystem services. The measurement of ecosystems is described in SEEA Experimental Ecosystem Accounting. 5.397 The present section provides a definition and classification of aquatic resources, including a discussion of the boundary between cultivated and natural aquatic resources. A physical asset account is then described with a particular focus on the measurement of resources of natural aquatic resources. The section concludes with the presentation of a monetary asset account, incorporating a discussion on the role of quotas and licences in estimating the value of aquatic resources. 5.9.2 Definition and classification of aquatic resources 5.398 The aquatic resources for a given country comprise those resources that are considered to live within the exclusive economic zone (EEZ) of a country throughout their life cycles, in both coastal and inland fisheries. Migrating and straddling fish stocks are considered to belong to a country during the period when those stocks inhabit its EEZ. 5.399 When exploitation control over migrating and straddling fish stocks, and fish stocks that complete their life cycle in international waters (high seas), has been established and the access rights of a country to them are defined in international agreements, that portion of agreed access rights to those aquatic resources can be considered to belong to the country. 5.400 In some cases, international agreements specify explicitly the share of total catches that should be allocated to each country. When this is the case, each country’s share of the stock of the common aquatic resource can be determined on the same basis. In the absence of specific information about the share of the common aquatic resource, the catch realized by a given country can be used as an indicator of the country’s share. 5.401 These aspects of the measurement boundary are defined with reference to the United Nations Convention on the Law of the Sea, and in particular to the Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks (United Nations, 2004) and the Code of Conduct for Responsible Fisheries (FAO, 1995). Together, these agreements create a legal framework for international fisheries management. Classification of aquatic resources 5.402 The high-level classification of aquatic resources is shown in table 5.21. Table 5.21 Classification of aquatic resources Aquatic resources Cultivated aquatic resources For harvest (inventories) For breeding (fixed assets) Natural aquatic resources Asset accounts 201 5.403 The Food and Agriculture Organization of the United Nations (FAO) and other fishery and aquaculture related institutions have collected data on capture and aquaculture production of aquatic resources, itemized at species level to the extent possible. The data include harvests of freshwater, brackish-water and marine species of fish, crustaceans, molluscs and other aquatic animals and plants, for all commercial, industrial, recreational and subsistence purposes. 5.404 The Aquatic Sciences and Fisheries Information System (ASFIS) list of species contains over 11,500 species, and is commonly used as the standard reference for fisheries production. It is linked to the FAO International Standard Classification for Aquatic Animals and Plants (ISCAAP) which divides commercial species into 50 groups on the basis of their taxonomic, ecological and economic characteristics.72 5.405 Aquatic resources can be further grouped into the following nine divisions. 1. Freshwater fishes 2. Diadromous fishes 3. Marine fishes 4. Crustaceans 5. Molluscs 6. Whales, seals and other aquatic mammals 7. Miscellaneous aquatic animals 8. Miscellaneous aquatic animal products 9. Aquatic plants 5.406 Diadromous fish are either those that normally live in salt water and spawn in freshwater (e.g., salmon) or those that normally live in freshwater and spawn in the sea (e.g., eels). Miscellaneous aquatic animal products encompass pearls, mother-of-pearl, shells, corals and sponges. Harvesting aquatic resources and the production boundary 5.407 Aquatic resources may be either cultivated or natural biological resources. Treatment depends on the degree to which the growth and regeneration of the biological resource are under the direct control, responsibility and management of an institutional unit. 5.408 The production boundary includes all activities carried out under the responsibility, control and management of a resident institutional unit in which labour and assets are used to transform inputs of goods and services into outputs of other goods and services. In the case of aquatic resources, the growth of fish in fish farms and other aquaculture facilities is treated as a process of production. 5.409 Aquaculture is defined by FAO as follows: Aquaculture is the farming of aquatic organisms, including fish, molluscs, crustaceans and aquatic plants. Farming implies some form of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc. Farming also implies individual or corporate ownership of the stock being cultivated. For statistical purposes, aquatic organisms that are harvested by an individual 72 The ISCAAP is maintained by the Coordinating Working Party on Fisheries Statistics (CWP). Details on CWP and ASFIS are available at www.fao.org/fishery. System of Environmental-Economic Accounting 2012—Central Framework202 or corporate body that has owned them throughout their rearing period contribute to aquaculture, while aquatic organisms that are exploitable by the public as a common property resource, with or without appropriate licences, are the harvest of the fisheries. 5.410 Following the FAO definition of aquaculture, all aquatic resources produced within aquaculture facilities are considered cultivated biological resources. All other aquatic resources harvested as part of capture production processes are considered natural biological resources. In some cases, the life cycle of aquatic resources may start in an aquaculture establishment before transfer to the wild. In other cases, fish are captured in the wild for further growth in aquaculture facilities. Following standard methods, the proportion of growth in the wild and the proportion of growth in aquaculture facilities should be separated and classified appropriately. 5.411 While all aquatic resources in aquaculture facilities are cultivated biological resources, not all aquaculture is undertaken in the same way. Some aquaculture is undertaken using netted areas in rivers or offshore; hence, there is an interaction between the fish and the aquatic environment in which it is situated. Other forms of aquaculture involve raising fish in tanks where they are entirely removed from a natural environment. Therefore, it may be the case that some cultivated aquatic resources should not be considered environmental assets. Nonetheless, information on this distinction between types of cultivated aquatic resources would be useful, given that the interactions between the environment and the economy are likely to be quite different. In practice, it may not be possible to distinguish between cultivated aquatic resources on the basis of the farming practice. 5.9.3 Physical asset accounts for aquatic resources 5.412 A physical asset account for aquatic resources shows the total biomass of all species that are subject to harvesting activity or cultivated within the national boundary, including within the country’s EEZ, and a portion of shared resources biomass to which a country has access rights either through traditional practice, international agreement or provision of part of the distribution areas. The scope of harvesting includes commercial sea- and freshwater operations, aquaculture, and subsistence and recreational harvesting of aquatic resources. Aquatic resources that exist within other countries’ EEZ but are harvested by operators that are resident in the reference country should not be included in the asset accounts. The physical asset account also shows the changes due to harvest, normal loss, growth (in size and in number) and other changes. 5.413 A basic asset account for aquatic resources in physical terms is presented in table 5.22. 5.414 In all cases, the units that are used to record the stock and changes in stock should be the same, although the measurement unit may vary by type of aquatic resource. It may be necessary to convert some estimates of the mass into number and vice versa. Conversion factors by species and size are required for this purpose. Cultivated aquatic resources 5.415 In the case of cultivated aquatic resources, it is reasonable to assume that the stock and changes in the stock can be estimated by the operator or owner of the resource. Accounts should be structured by species, as appropriate. Increases come from growth in stock (in both size and numbers) and decreases from harvesting and normal losses. 5.416 When natural aquatic resources are introduced either as seeds or as breeding stock, this should be recorded as a reclassification from natural to cultivated resources. In the case of Asset accounts 203 ranching and enhancement of aquatic resources, cultured seeds released into the wild should be recorded as a reclassification from cultivated to natural resources. A risk for aquaculture undertaken in rivers and marine environments is that the fish may escape into the external environment. These escapes should also be considered a reclassification from cultivated to natural aquatic resources in cases where the fish are able to integrate into natural fish stocks. Where this is not possible, the escapes should be recorded as normal or catastrophic losses. Table 5.22 Physical asset account for aquatic resources (tonnes) Type of aquatic resource Cultivated aquatic resources—fixed assets Cultivated aquatic resources—inventories Natural aquatic resources Opening stock of aquatic resources 406 150 1 393 Additions to stock Growth in stock 19 192 457 Upward reappraisals 33 Reclassifications 40 11 Total additions to stock 59 192 501 Reductions in stock Gross catch/harvest 183 321 Normal losses 37 5 183 Catastrophic losses 4 2 9 Uncompensated seizure 7 Downward reappraisals 5 Reclassifications 9 35 Total reductions in stock 55 190 555 Closing stock of aquatic resources 410 152 1 339 5.417 Unexpectedly large losses due to disease or natural catastrophic events should be considered catastrophic losses. 5.418 The majority of changes in the stock of cultivated aquatic resources should be accounted for as changes in inventories. However, there will be a proportion of the cultivated aquatic resources that are considered to be breeding stock. In principle, these resources should be considered fixed assets rather than inventories and their growth should be recorded as gross fixed capital formation with associated entries for consumption of fixed capital. Natural aquatic resources (a)  Measuring stocks and changes in stocks of natural aquatic resources 5.419 Asset accounts for natural aquatic resources should be compiled separately for freshwater aquatic resources, and marine aquatic resources within a country’s EEZ or that over which the country has ownership rights. A distinction between freshwater and marine aquatic resources may also be compiled. 5.420 Fishery biologists define a “stock” as a group of individuals from the same species that constitute a unit in breeding new offspring. If mating between members of different groups occurs to the level required to modify their gene pools in the long term, those groups should be regarded as belonging to one stock. The resource management should be System of Environmental-Economic Accounting 2012—Central Framework204 based on this concept of stock. The boundary of a stock in this sense does not correspond to national boundaries and when aquatic resources belonging to a stock move around multiple countries’ boundaries, international collaboration in management is needed and the national asset account of such stock can be defined based on the share of access to the stock. 5.421 There are several dimensions that should be considered in measuring the size of the resources. An important one is the measurement of the sexually mature part of the stock (i.e., the spawning stock or parental biomass). It is important because, commonly, a primary purpose of fishery management is to maintain an adequate level of spawning stock so as to be able to generate natural growth and to minimize the probability of collapse. Measures of the sexually mature stock should be complemented with measures of the immature stock to obtain a complete assessment of the stock. 5.422 Another relevant measurement dimension is the exploitable stock size. This corresponds to the proportion of the stock that is subject to harvesting activity, which ignores the cohorts that are younger than those being harvested about which little is known. In this regard, it is important to record separately the catch of mature resources and the catch of immature resources within the same species. Similarly, in cases where stocking with cultured seeds is regularly conducted, as commonly observed in freshwater resources, it is important to include the amount of released seeds as a reclassification from cultivated aquatic resources in order to assess their potential impacts on wild ecosystems and gene pools. 5.423 Various methods can be used by fishery biologists to estimate the absolute size of natural aquatic stocks, including virtual population analysis (VPA), tag-recapture analysis, and direct and indirect measurement with line-transect surveys or at randomly sampled areas (e.g., echo-sounders, trawl surveys and sighting surveys), according to the behaviour and distribution of the target species, the harvesting patterns, and available data. 5.424 However, estimates of the absolute size of stocks can be imprecise. In practice, little can be done to estimate the variability in births and survivals before the recruitment to the stock, the effects of environmental factors affecting the growth of the individual fish, or the rate of natural death from accidents, sickness, age, predators and so on. Further, small modifications in such parameters within assessment models and equations may result in substantial differences in the estimated size of a stock. It is therefore important to record the impact of changes in model parameters as reappraisals in the asset accounts to distinguish these changes from other physical changes in the stock size. 5.425 When scientific assessment of the absolute stock size is not available, an alternative approach is to measure the gross catch for a certain harvesting operation in relation to the amount of effort required to obtain the catch for a given species (e.g., days at sea, number and type of fishing gear, size and power of vessel, and expenditure on catch effort, including wages and fuel). The ratio of catch per unit effort (CPUE) may provide a good indicator of the relative change in stock size, assuming that population density and population size are closely correlated and that CPUE is higher at higher population densities. Importantly, not all species have the same ratios between population structure and the associated CPUE and this needs to be taken into account in using this technique. Further, CPUE measures may be affected by changes in quota and other administrative arrangements, and changes in technology. These types of factors should also be taken into account. Since the CPUE is derived based on information about activity over an accounting period, it provides an indicator of the stock at the midpoint of the accounting period. 5.426 Estimates may be available of stocks for individual species, since this is often the basis on which quotas are determined. However, it may be more applicable to focus on the size of the stock within a given area (or fishery), regardless of the number of species harvested in that Asset accounts 205 area. Commonly, particularly in tropical areas, multiple species may be harvested at one time, and accessing relevant indicators and models of the overall stock size consisting of multiple species that supports this harvest may be the most appropriate measurement approach. (b)  Accounting for the harvest of natural aquatic resources 5.427 In physical terms, all aquatic resources harvested and all efforts used to realize the harvest (e.g., in terms of fishing days multiplied by vessel power) should be recorded. Records should differentiate between species and the type of fishing/harvesting fleet (i.e., vessels operating in a similar way with similar gear). Further, the aquatic resources harvested in the open seas, coastal waters or inland waters by commercial, subsistence or recreational fishing should be counted as production at the time they are harvested, regardless of whether they are sold in the market or used for own consumption. 5.428 FAO has defined the different stages of the catch, extending from when fish encounter fishing gear to when they are landed. They are summarized here, with a complete depiction of the relationships presented in a diagram in annex A5.4. (a) Gross removal: the total live weight of fish caught or killed during fishing opera- tions; (b) Gross catch: the total live weight of fish caught (gross removal less pre-catch losses); (c) Retained catch: the total live weight of fish retained (gross catch less discarded catch); (d) Landings: the net weight of the quantities landed as recorded at the time of land- ing; (e) Nominal catch: the live weight equivalent of the landings. 5.429 The most common catch concept used in practice is that of “landings”. Landings are directly linked to the economic value of the product. However, this measure excludes the discards of organisms incidentally caught through harvesting activity (discarded catch) as well as the amount of the catch used for own consumption. For the SEEA, the measurement of discarded catch is an important contributory factor to a full understanding of the linkages between economic activity and the impact on aquatic resources. For this reason, it is recommended that the concept of “gross catch” be used to measure the extraction of fish resources. 5.430 Conceptually, “gross removal” is the most appropriate concept for measuring the impact on aquatic resources and the damage to aquatic ecosystems, e.g., to coral reefs, as a result of fishing activity. However, the measurement of gross removal is not possible in practice. (c) Depletion 5.431 In principle, depletion of natural aquatic resources is derived following the approach outlined in section 5.4 and annex A5.1, where depletion for renewable resources is shown to be equal to gross catch less sustainable yield. Since the drivers for changes in populations of aquatic resources can only be modelled, it may be difficult to obtain precise and consistent measures of sustainable yield over time. In these cases, it is recommended that estimates from biological models be compared with indicators of stock size, such as CPUE, and also that estimation be carried out on an ongoing basis so that the dynamics of the various populations (natural growth, natural losses, etc.) can be better understood. System of Environmental-Economic Accounting 2012—Central Framework206 5.432 With this information, a sustainable yield may be established to which the gross catch in any given period can be compared. As noted in section 5.4, some year-on-year variation in the actual changes in the population must be accepted as part of the accounting, and depletion should therefore be recorded only when the extraction is beyond a normal level of natural growth (less natural losses). (d)  Capture fishing by non-residents 5.433 Given the nature of aquatic resources and harvesting activity, there will be capture fishing undertaken by non-residents within another country’s EEZ. Following the principles of the SNA, the location of the aquatic resource is not the key determinant of the attribution of economic production. Production is allocated instead to the country of residence of the harvesting operation. 5.434 Therefore, in the assessment of the change in the aquatic resources belonging to a country over an accounting period, it is not sufficient or accurate to focus only on the catch by operations of residents of that country. This estimate will exclude changes in the national aquatic resource due to catch by non-residents and will include catch by residents in other countries. For the purposes of accounting for the national aquatic resource, the focus must be on the total catch from the country’s aquatic resources, including any resources on the high seas over which ownership rights exist, regardless of the residency of the harvesting operation. (e)  Illegal fishing 5.435 If residents harvest aquatic resources beyond the scope of their licence, they are harvesting illegally. Nonetheless, following the principles of the SNA, this harvest should still be recorded as production with an income accruing to the fisherman. 5.436 In cases where non-residents harvest aquatic resources illegally, either without a licence or by taking catch in excess of their allocated quota, the physical removals should be recorded. These flows should be recorded as uncompensated seizures. In recording such flows, care must be taken to exclude them from estimates of gross catch of the country in whose EEZ the fish were caught. (f)  Other physical flows 5.437 It is unlikely that direct information can be separately obtained regarding the growth and normal loss in natural aquatic resources. Consequently, the estimates of growth and normal loss should be derived based on estimates of the opening and closing stock of aquatic resources and the extent of harvest when estimates of the absolute stock size are available. Otherwise, the change in CPUE over accounting periods should provide an indication of whether the overall change (i.e., growth less gross catch less normal loss) is positive or nega- tive. 5.438 It is also likely that reappraisals of the quantity of aquatic resources, both upward and downward, will occur, most commonly owing to revisions in the parameters used in stock measurement models. 5.9.4 Monetary asset accounts for aquatic resources 5.439 A monetary asset account for aquatic resources records the opening and closing values of aquatic resources in an accounting period and the changes over the period in the form of additions to the stock, reductions in the stock and revaluations. Aside from revaluations, Asset accounts 207 all of the monetary flows in the asset account have a direct parallel with the physical flows recorded in the physical asset account. 5.440 A basic monetary asset account for aquatic resources is presented in table 5.23. Table 5.23 Monetary asset account for aquatic resources (currency units) Type of aquatic resource Total Cultivated aquatic resources—fixed assets Cultivated aquatic resources—  inventories Natural aquatic resources Opening stock of aquatic resources 3 250 1 125 9 750 14 125 Additions to stock Growth in stock 150 1 440 3 200 4 790 Upward reappraisals 0 0 250 250 Reclassifications 280 0 75 355 Total additions to stock 430 1 440 3 525 5 395 Reductions in stock Gross catch/harvest 0 1 375 2 250 3 625 Normal losses 275 35 1 460 1 770 Catastrophic losses 30 15 70 115 Uncompensated seizure 0 0 50 50 Downward reappraisals 35 0 0 35 Reclassifications 75 0 280 355 Total reductions in stock 415 1 425 4 110 5 950 Revaluations 160 50 480 690 Closing stock of aquatic resources 3 425 1 190 9 645 14 260 Valuation of cultivated aquatic resources 5.441 Aquatic resources farmed in an aquaculture facility are produced assets, either inventories or fixed assets (in the case of breeding stocks). In most cases, market prices can be obtained and used to estimate the value of the resources and the value of the flows of resources over an accounting period. Valuation of natural aquatic resources 5.442 Valuation of natural aquatic resources is complex. There are two main options. One is to value the aquatic resource using the value of long-term fishing licences and quotas where realistic market values are available. The other is to base the value on the net present value of the resource rent of the aquatic resources. Under the NPV approach, there are two principal means of estimating the resource rent: using information on annual licences, and using information from the national accounts following the residual value method (see sect. 5.4 for details). 5.443 If there is a perfectly functioning market for licences, if these licences cover the whole stock, and if resource rent can be accurately estimated, then these different valuation approaches should give the same result. However, because of market imperfections (barriers to entry in the form of specialized fixed assets, knowledge of fishing grounds, etc.), a lack of liquidity in the markets, and uncertainties in the statistical assumptions required for net present value calculations, this is unlikely to be exactly the case in practice. System of Environmental-Economic Accounting 2012—Central Framework208 Valuing natural aquatic resources using licence and quota information 5.444 In many countries, a licence issued by government is required in order to practise either freshwater or marine fishing. A licence may be issued for a right to fish in general, a right to fish with specific gear, or a right to catch specific species. If these licences apply for a period not exceeding one year, they are recorded in the SNA as taxes. For enterprises, they are treated as taxes on production; for private individuals fishing for pleasure, they are recorded as taxes on income. 5.445 Issuing quotas is an increasingly common approach to controlling marine aquatic resources so as to prevent over-harvesting. Quotas are portions of an overall allowable catch, either specified as percentages or as absolute quantities. They are usually issued by government (which is also responsible for ensuring their enforcement) and may apply both to harvesting within the waters of the country’s EEZ and to fishing on the high seas. Quotas typically apply to a particular species. 5.446 Quotas may be sold or assigned to certain designated enterprises, people or communities (e.g., people in locations where fishing is the main source of livelihood), or other groups. A quota may be valid for one year only or for a longer period—sometimes for the lifetime of the quota-holder. It may or may not be tradable to third parties. Even if not tradable, in certain circumstances, it may still be transferable, say, from one generation to the next. 5.447 If a quota can be sold by the holder to a third party, then the quota is recorded as an asset quite separately from the aquatic resources to which it relates. 5.448 When fishing/harvesting rights, evidenced by the existence of licences and quotas, are freely traded, it is possible to estimate the value of the aquatic resources from the market prices of these entitlements. In many cases, where the government hands the access rights to fishermen, trading in these access rights is prohibited and there is therefore no directly observable market valuation. In some cases, fishing rights may be tied to some asset (often a fishing vessel and, in some cases, land) that is freely traded. In these cases, it may be possible to infer market valuation of the access rights by comparing the prices of the associated assets when fishing rights are attached to them with prices of similar assets that do not encompass any such rights. 5.449 Two types of individual transferable quota (ITQ) systems are common. The most common type provides entitlement to a fixed share of a total that may itself be variable from year to year in accordance with, for example, international agreements. The other type provides entitlement to an absolute level of catch. 5.450 In theory, the value of the quota represents the NPV of the owner’s expected income using the quota over its period of validity. If the aquatic resource is managed with such quotas and the quotas are valid in perpetuity, then the value of all quotas, at the market price, should be equal to the value of the aquatic resource. 5.451 If the quotas are valid for a single year only, the total should give an approximation of the resource rent in that year. By projecting an estimate of the value of a single year quota, estimating the resource life, and applying an appropriate discount rate, an overall value of the aquatic resource can be derived using the NPV approach. 5.452 However, in most of those cases where ITQs and similar arrangements are used to manage aquatic resources, the markets in the quotas are not perfect and there may be various restrictions on the quotas (e.g., the quotas may be for a limited duration). Consequently, the access rights may not reflect the full value of the resource. Licences and quotas are often introduced when considerable excess capacity exists in the fishing/harvesting industry. Unless those setting the total level of the quotas do so based on knowledge of the maximum catch Asset accounts 209 consistent with preserving stocks, the earnings from the catch will not correspond to the level of income that maintains the aquatic resource intact. A total permissible catch resulting in earnings that are higher than this level will mean that some of those earnings should be regarded as depletion of the aquatic resources and not as income. Valuing natural aquatic resources using the NPV of expected resource rents (a)  Estimating resource rent 5.453 Following the approaches outlined in section 5.4 and annex A5.1, the operating surplus from harvesting natural aquatic resources can be used as a basis for the calculation of the resource rent of the resources. The total amount of gross operating surplus must be partitioned between that part representing the user costs of produced assets such as the ship, nets and other equipment used; and the part representing the resource rent of the aquatic resource. 5.454 There are a number of complications particular to the fishing industry that must be taken into account. One arises from the fact that artisanal fishing is very common, especially in developing countries. Here the generation of income account yields an item called “mixed income” as the balancing item rather than operating surplus. This item is so named because it represents not only a return to the produced assets used and the natural aquatic resources but also an element of remuneration to the self-employed fisherman. In this situation, an adjustment to remove this element of labour remuneration must be made. 5.455 It may also be difficult to separate harvesting and processing activities, both with respect to factory vessels and in cases where companies whose primary activity is land-based processing (that is, manufacturing) also have some harvesting operations. Although it is desirable to allocate the production and cost data to the relevant activity, this may be difficult in practice. 5.456 In addition, besides permitting harvest in excess of a sustainable level of catch, governments may sometimes subsidize fishing so that fishing continues even when the expected resource rent is negative. Following the treatment outlined in section 5.4, in these cases, the value of the aquatic resource should be assumed to be zero, as the income to the extractor is primarily a redistribution from within the economy rather than a return from the underlying natural resource. (b)  Estimating the asset life 5.457 Estimating the asset life of aquatic resources presents a difficult measurement challenge. If the aquatic resource is to be preserved in perpetuity, harvest should not exceed the renewal rate of a stable population, i.e., the sustainable yield. In general, questions regarding the sustainable yield of an aquatic resource are answered using biological models (as described in sect. 5.4) or through analysis of trends in relevant indicators such as gross catch, CPUE, and the species and size of the fish caught. In particular, a declining trend in the CPUE may be a signal that the rate of harvest is exceeding the renewal rate of the fish stock,73 and thus the asset life may be estimated by extrapolating the declining pattern of the CPUE to the point where the population is zero. More generally, focus should be placed on understanding the expected trajectories of population size relative to past and expected rates of harvest. 73 This may not be the case during the initial harvesting of a stock from carrying capacity down to a population size considered suitable for sustaining long-term yields. System of Environmental-Economic Accounting 2012—Central Framework210 Valuation of depletion and other changes in aquatic resources 5.458 The value of aquatic resources may change due to a wide range of factors. When it is not possible to identify separate reasons for changes in the size or value of stocks and to attribute the changes to natural causes or harvesting activity, it will be possible to prepare only a minimal asset account. For example, the physical asset accounts may consist of extractions (based on catch data) for a number of species but without corresponding stock estimates for all of the species.74 Thus, it may not be possible to value the stocks of individual species; hence, only a regional or national aggregate resource value will be produced. 5.459 The value of aquatic resources harvested should be based on the average price of the opening and closing stock of the relevant aquatic resources. Ideally, changes due to growth, normal loss, depletion and other changes should also be measured directly using the same prices. However, owing to data limitations, these flows may often be available only as a composite entry either measured as the difference between the value of resources harvested and the change between opening and closing stocks, or based around trends in CPUE. 5.10 Accounting for other biological resources 5.10.1 Introduction 5.460 Other biological resources are largely represented by cultivated animals and plants including livestock, annual crops such as wheat and rice, and perennial crops such as rubber plantations, orchards and vineyards. Together, these biological resources form the basis of food production in all countries. 5.461 While the vast majority of other biological resources are cultivated, there is a range of natural biological resources that provide inputs to the economy and also form an important part of local biodiversity. These resources may include wild berries, fungi, bacteria, fruits and other plant resources that are harvested for sale or own consumption. Alternatively, they may include wild animals such as deer, boar or moose that are killed for sale or own consumption. 5.462 Since the majority of other biological resources are cultivated, estimates relating to the production and accumulation of these resources are an integral part of estimates of gross domestic product. The asset accounting for these resources is covered in detail in the SNA. 5.463 The present section introduces asset accounting for natural biological resources. No tables are proposed because the compilation of accounts for these resources depends entirely on the resources of relevance in an individual country. 5.10.2 Accounting for natural biological resources 5.464 Natural biological resources are distinguished from cultivated biological resources because their natural growth and regeneration are not under the direct control, responsibility and management of an institutional unit. 5.465 As a consequence of not being under direct control of institutional units, natural biological resources are not easily accounted for. Aside from natural aquatic and natural timber resources, most animals and plants that provide significant economic benefits have become cultivated. Thus, while there are a range of animal and plant resources that are harvested that are not cultivated, there is typically active measurement only of the animals, plants 74 Further, many fishing operations harvest multiple species at the same time and it may not be possible to attribute CPUE to individual species. Asset accounts 211 and other biota for which access rights are controlled (e.g., through hunting licences) or for which there are other management or conservation arrangements in place. Further, many of the examples that might be considered pertain to harvest for own consumption or as part of subsistence farming. 5.466 At the same time, in certain countries there are particular species that support reasonably significant commercial operations, possibly illegal, and where there is significant extraction of animals and plants from the wild. Examples in this regard include the hunting of elephants for ivory (illegal) and hunting of kangaroos for meat (legal). There may therefore be interest in the organization of data and other information on the quantity and value of the available resources, the extraction rates and the possible extent of loss in animal or plant populations due to over-harvesting. 5.467 The structure and logic of the accounting for these resources are consistent with the accounting presented in sections 5.8 and 5.9 on timber resources and fish resources. 5.468 As natural biological resources form an important part of biodiversity and ecosystems in particular regions, there may be interest in compiling data on the availability and extraction of these resources at subnational spatial levels. Further, information on these resources may be able to form an input into broader measures of ecosystems that are discussed in SEEA Experimental Ecosystem Accounting. 5.11 Asset accounts for water resources 5.11.1 Introduction 5.469 Unlike other environmental assets, such as timber resources or mineral resources that are subject to slow natural changes, water is in continuous movement through the processes of precipitation, evaporation, run-off, infiltration and flows to the sea. The natural cycle of water, the hydrological cycle, involves connections between the atmosphere, the oceans, and land surface and subsurface, as shown in figure 5.3. 5.470 Asset accounts for water resources focus on the inflows and outflows of water to and from the land surface and subsurface, and on the destination of these flows. In conjunction with information on instream uses of water (e.g., fish breeding and run-of-the-river hydropower generation), seasonal variation of flows of water, and other factors, such a focus allows assessment of the availability of water to meet demands from the economy and to assess whether those demands are consistent with the longer-term sustainability of water supply. Figure 5.3 Elements of the global hydrological system Water in the atmosphere Water on land surface or subsurface Water in oceans and seas Liquid and solid flows, and precipitation Vapour flows including evaporation System of Environmental-Economic Accounting 2012—Central Framework212 5.471 The asset accounts themselves present information on the stock of water at the beginning and end of an accounting period, whether it is in artificial reservoirs, lakes or rivers, or stored as groundwater or soil water. The accounts then record the flows of water as it is abstracted, consumed, added to through precipitation, or changed through flows to and from other countries and returns to the sea. 5.472 The subject of water resources as assets is included in two places in the Central Framework environmental asset classification: as part of “Land and other areas” and as part of “Water resources”. As a component of land, it is the in situ or passive use of water that is being considered, for example, in the provision of space for transportation and recreation. Consequently, it is the area of water that is of interest. In the context of water resources, the focus is on the amount of water in the environment, its abstraction, and the use of water through the economy; hence, in this case, it is the volume of water and the changes over time that are of interest. 5.473 The present section defines water resources and the classes of water resources that are within scope of the asset accounts; presents the physical asset account for water resources and describes the relevant entries; and concludes with a discussion of related measurement issues, such as the measurement of the value of water resources. 5.11.2 Definition and classification of water resources 5.474 Water resources consist of fresh and brackish water in inland water bodies, including groundwater and soil water. Inland water bodies are classified as shown in table 5.24. 5.475 Freshwater is naturally occurring water having a low concentration of salt. Brackish water has salt concentrations lying between those of freshwater and marine water. The definition of brackish and freshwater is not clear-cut, as the salinity levels used in the definition vary among countries.75 Brackish water is included in the asset boundary on the grounds that this water is often used, with or without treatment, for some industrial purposes, for example, as cooling water, for desalination or irrigation of some crops. Countries may choose to present accounts by salinity levels or for freshwater only. Table 5.24 Classification of inland water bodies Inland water bodies 1 Surface water 1.1 Artificial reservoirs 1.2 Lakes 1.3 Rivers and streams 1.4 Glaciers, snow and ice 2 Groundwater 3 Soil water 5.476 The definition of water resources excludes water in oceans, seas and the atmosphere. At the same time, flows of water in oceans, seas and the atmosphere are recorded in the accounts in a number of places. For example, abstraction from the ocean and outflows to the ocean are recorded in the asset account and evaporation to the atmosphere from inland water 75 For further details, see International Glossary of Hydrology, 2nd ed. (United Nations Educational, Scientific and Cultural Organization and World Meteorological Organization, 1993). Asset accounts 213 resources is also recorded there. Flows to and from inland water resources are also recorded in the physical flow accounts for water (see chap. III). 5.477 Surface water comprises all water that flows over or is stored on the ground surface regardless of its salinity levels. Surface water includes water in artificial reservoirs, which are purpose-built reservoirs used for storage, regulation and control of water resources; lakes, which are, in general, large bodies of standing water occupying a depression in the earth’s surface; rivers and streams, which are bodies of water flowing continuously or periodically in channels; snow and ice, which include permanent and seasonal layers of snow and ice on the ground surface; and glaciers, which are defined as accumulations of snow of atmospheric origin, generally moving slowly on land over a long period. Overland flows, i.e., the flows of water over the ground before entering a channel, are also part of surface water but the stock of these flows at any one time is small and hence not separately recorded. 5.478 Although artificial reservoirs are not natural components of the earth’s surface, once in place, the stocks and flows of water are treated in the same way as the stocks and flows associated with natural stores of water, in particular natural lakes. Thus, flows of precipitation, abstraction and evaporation affect artificial reservoirs in the same way as they affect natural lakes, and artificial reservoirs therefore form one part of the hydrological system. They are separately identified in the classification of inland water resources, since, in many cases, the flows associated with artificial reservoirs, in particular evaporation, are of particular analytical interest. 5.479 Groundwater is water that collects in porous layers of underground formations known as aquifers. An aquifer is a geologic formation, group of formations, or part of a formation that contains sufficient saturated permeable material to yield significant quantities of water to wells and springs. It may be unconfined, by having a water table and an unsaturated zone, or may be confined when it is between two layers of impervious or almost impervious formations. 5.480 Soil water consists of water suspended in the uppermost belt of soil, or in the zone of aeration near the ground surface. Soil water can be discharged into the atmosphere by evapotranspiration (the process whereby a quantity of water is transferred from the soil to the atmosphere by evaporation and plant transpiration), absorbed by plants, flow to groundwater, or flow to rivers (run-off). Some part of transpiration and absorption of water by plants is used in production (e.g., the growing of crops). 5.11.3 Physical asset accounts for water resources 5.481 Physical asset accounts for water resources should be compiled by type of water resource and should account for both the stock of water at the beginning and end of the accounting period and the changes in the stock of water. The accounts are generally compiled in terms of millions of cubic metres of water. 5.482 Changes in the stock of water should consider additions to the stock, reductions in the stock and other changes in the stock. The structure of the physical asset account for water resources is shown in table 5.25. Defining the stock of water 5.483 The concept of a stock of surface water is related to the quantity of water in a territory of reference measured at a specific point in time (usually the beginning or end of the accounting period). The stock level of a river is measured as the volume of the active riverbed determined on the basis of the geographical profile of the riverbed and the water level. This quantity is usually very small compared with the total stock of water resources and the annual flows of rivers. System of Environmental-Economic Accounting 2012—Central Framework214 5.484 Stocks of groundwater and soil water are measured consistent with the definitions above. The measurement of soil water may extend to cover all soil but may also be limited (e.g., to soil water in agricultural and forestry areas), depending on the analytical purposes of the water account. The measurement scope of soil water should be clearly articulated in any asset account for water resources. 5.485 In countries where there is a consistent and regular hydrological year with a distinct dry period, the stock of soil water at the end of the hydrological year may be negligible in comparison with groundwater or surface water. While soil water can be distinguished from groundwater and surface water in theory, it may be difficult to measure it directly, although it can be estimated indirectly using a variety of data.76 Additions to and reductions in the stock of water resources 5.486 Additions to the stock of water resources consist of the following flows: (a) Returns, which represent the total volume of water that is returned to the environment by economic units into surface water, soil and groundwater during the accounting period. Returns can be disaggregated by type of water returned, for example, irrigation water, and treated and untreated wastewater. In this case, the 76 See International Recommendations for Water Statistics (United Nations, 2012a), para. 4.29. Type of water resource Total Surface water Groundwater Soil water Artificial reservoirs Lakes Rivers and streams Glaciers, snow and ice Opening stock of water resources 1 500 2 700 5 000 100 000 500 109 700 Additions to stock Returns 300 53 315 669 Precipitation 124 246 50 23 015 23 435 Inflows from other territories 17 650 17 650 Inflows from other inland water resources 1 054 339 2 487 437 0 4 317 Discoveries of water in aquifers Total additions to stock 1 478 585 20 240 752 23 015 46 071 Reductions in stock Abstraction 280 20 141 476 50 967 for hydropower generation for cooling water Evaporation and actual evapotranspiration 80 215 54 21 125 21 474 Outflows to other territores 9 430 9 430 Outflows to the sea 10 000 10 000 Outflows to other inland water resources 1 000 100 1 343 87 1 787 4 317 Total reductions in stock 1 360 335 20 968 563 22 962 46 188 Closing stock of water resources 1 618 2 950 4 272 100 189 553 109 583 Note:  Dark grey cells are null by definition. Table 5.25 Physical asset account for water resources (cubic metres) Asset accounts 215 breakdown should mirror that used to disaggregate the returns in the physical supply and use tables in chapter III; (b) Precipitation, which consists of the volume of atmospheric precipitation (rain, snow, hail, etc.) on the territory of reference during the accounting period before evapotranspiration takes place. The major part of precipitation falls on the soil. A proportion of this precipitation will run off to rivers or lakes and is recorded as an addition to surface water. Amounts retained in the soil should be recorded as additions to soil water. Some precipitation also falls directly onto surface-water bodies. It is assumed that water would reach aquifers after having passed through either the soil or surface water (rivers, lakes, etc.), thus no precipitation is shown in the asset accounts for groundwater. The infiltration of precipitation to groundwater is recorded in the accounts as an inflow from other water resources into groundwater; (c) Inflows, which represent the amount of water that flows into water resources during the accounting period. The inflows are disaggregated according to their origin: (i) inflows from other territories/countries; and (ii) inflows from other water resources within the territory. Inflows from other territories occur with shared water resources. For example, in the case of a river that enters the territory of reference, the inflow is the total volume of water that flows into the territory at its entry point during the accounting period. If a river borders two countries without eventually entering either of them, each country could claim a percentage of the flow to be attributed to its territory. If no formal convention exists, a practical solution is to attribute 50 per cent of the flow to each country. Inflows from other resources include transfers, both natural and man-made, between the resources within the territory. They include, for example, flows from desalination facilities and flows of infiltration and seepage; (d) Discoveries of water in new aquifers. These flows should be recorded in terms of the quantity of water in the newly discovered aquifer as distinct from the overall capacity of the aquifer. Increases in the volume of water in a known aquifer should be included as an inflow of water resources to groundwater. 5.487 Reductions in the stock of water resources consist of the following flows: (a) Abstraction, which is the amount of water removed from any source, either permanently or temporarily, in a given period of time. It includes the abstraction of water by households for own consumption, water used for hydroelectric power generation and water used as cooling water. Given the large volumes of water abstracted for hydroelectric power generation and for cooling purposes, these flows are separately identified as part of the abstraction of water. Abstraction also includes the abstraction of soil water by plants in areas of rain-fed agriculture and cultivated timber resources in line with the definition of abstraction for the water PSUT (see sect. 3.5). The water abstracted from soil water is either absorbed by the plants or returned to the environment through transpiration; (b) Evaporation and actual evapotranspiration, which constitute the amount of evaporation and actual evapotranspiration that occurs in the territory of reference during the accounting period, excluding amounts already recorded as abstracted from soil water. Evaporation refers to the amount of water evaporated from water bodies such as rivers, lakes, artificial reservoirs, etc. Actual evapotranspiration refers to the amount of water that evaporates from the land surface and is transpired by the existing vegetation/plants when the ground is at its natural moisture System of Environmental-Economic Accounting 2012—Central Framework216 content as determined by precipitation and soil properties. Actual evapotranspiration will typically be estimated using models;77 (c) Outflows, which represent the amount of water that flows out of water resources during the accounting period. Outflows are disaggregated according to the destination of the flow; i.e., (i) other water resources within the territory, (ii) other territories/countries and (iii) the sea/ocean. 5.11.4 Other water resource measurement issues Monetary asset accounts for water resources 5.488 The measurement of the stock of water in monetary terms is particularly difficult. The main problem is that, historically, water has often been made available free of charge as a public good supplied at less than the cost of production in order to support agricultural production; or supplied for a flat charge because it has been perceived not to be subject to scarcity. The monetary prices, therefore, have tended to be related to the fixed infrastructure costs of collecting and transporting water to designated outlets rather than to actual volume of water used, which may vary considerably. 5.489 Given this situation, the standard approaches to valuation of environmental assets, and in particular the net present value approach (described in sect. 5.4), do not work because the resource rent that is derived following standard definitions is negative. Estimates of negative resource rent arise when the income earned from the sale of abstracted water does not cover the costs of maintaining the produced assets required to distribute the water. Consequently, the value of the water resources themselves is considered to be zero. 5.490 There is a trend towards water pricing that reflects the full costs of managing, abstracting and distributing water resources. Consequently, there may be some instances where approaches such as the NPV approach can be applied. In these cases, these values should be incorporated as part of the overall monetary value of environmental assets and as part of the value of economic assets. 5.491 A specific case where there is potential for using NPV approaches effectively to value water resources is that where water is being used to generate energy using hydropower. For these water resources, future income streams from the sale of energy can be estimated following the standard NPV approaches outlined in section 5.4. Where such valuations can be made, the resulting asset values should be attributed to water resources. 5.492 Another approach to the valuation of water resources is to consider the value of water access entitlements which, in some countries, are traded in distinct markets. Often, the value of these entitlements may be closely connected to the value of the associated land, and determining the relevant proportion of the total value of land that can be attributed to the access entitlements may be a means of determining the value of the associated water. These approaches to valuation are likely to be most relevant in agricultural contexts where access to water by farmers is a significant consideration. Spatial and temporal detail 5.493 Water statistics can provide data for water management at many geographical levels, ranging from local levels and the level of river basins, to national and multinational levels. 77 Actual evapotranspiration differs from potential evapotranspiration, which is the maximum quantity of water capable of being evaporated in a given climate from a continuous stretch of vegetation that covers the whole ground and is well supplied with water. Asset accounts 217 The choice of spatial reference for the compilation of water accounts ultimately depends on the data needed by users and the resources available to data producers. The choice of spatial scale is important, as countries may experience significant geographical variation in the availability of water (e.g., areas of very high or very low rainfall) and national aggregates may not accurately reflect the issues facing particular countries. 5.494 It is recognized internationally that a river basin is the most appropriate spatial reference for integrated water resource management (see, e.g., Agenda 21 (United Nations, 1993); and the European Water Framework Directive (European Parliament and Council, 2000)). This is because the people and economic activities within a river basin will have an impact on the quantity and quality of water in the basin, and conversely the water available in a basin will affect the people and economic activities that rely on this water. In areas where groundwater is an important source of water, aquifers may also be appropriate spatial references for the compilation of water statistics. 5.495 Although data for specific spatial scales within a country are often more appropriate for the analysis of water resources, integration of physical data on water at relevant spatial levels, e.g., river basins, may not align with the available spatial detail for economic data (which are more commonly compiled based on administrative boundaries). In these situations, common areas of observation, accounting catchments, should be defined.78 5.496 When integrating or collecting water data, it is important that the reference periods for the different data items be aligned. In water and economic statistics, the calendar year is the recommended temporal reference. However, in practice, water and economic data may not be available for calendar years. For example, for national accounts some countries use a financial year, while for water statistics, they may use a hydrological year. Financial and hydrological years may be the same as or different from calendar years. It is also noted that in some cases high seasonal variability in the relationship between the demand and supply of water may mean that annual data (either on a financial or hydrological year) are insufficient and, instead, sub-annual data are required. 78 For details, see SEEA Water: System of Environmental-Economic Accounting for Water (United Nations, 2012b), paras. 2.90-2.91. 219Asset accounts Annex A5.1 The net present value method for valuation of stocks and the measurement of depletion and revaluation for natural resources Introduction A5.1 The present annex explains, in some detail, the assumptions and mathematical underpinnings relevant to the use of the net present value (NPV) approach in an accounting context, with a view to deriving valuations of the stock of natural resources and consistent flow measures of depletion, income and revaluation. In particular, the latter element is often neglected in presentations of the NPV approach. Also, it must be accepted that the NPV approach is not applied under conditions of perfect foresight. Hence, revisions in the set of information available to the compiler over an accounting period need to be accounted for. This annex does not describe a step-by-step guide to compilation although the logic and coherence of the method outlined here should underpin practical applications. Defining the unit resource rent A5.2 Consider an enterprise that harvests and sells timber resources from an uncultivated natural forest. The enterprise uses produced assets in the extraction process (lorries, saws, etc.) as well as labour and intermediate inputs (e.g., fuel). The enterprise receives income from the sale of timber and pays input costs for labour, produced assets and intermediate inputs. A5.3 The enterprise must also take into account the timber resources to be extracted. This variable is best understood as the price per unit of timber resources extracted that the enterprise would be charged if the timber resources were owned by another unit (e.g., the government). While in principle, this amount is observable, often it is not available in practice, in particular when the extracting enterprise is itself the owner of the resource. A5.4 This amount is commonly referred to as the resource rent ( )tRR and is equivalent to the total value of the natural resource input into the production process during an accounting period. It consists of two parts: (a) the quantity of timber extracted ( )tS and (b) the price per unit of timber extracted ( )StP . The variable StP is equivalent to the unit resource rent, i.e., the resource rent per extracted unit of timber resource. A5.5 Empirically, the resource rent can be measured ex post (i.e., at the end of the accounting period) as a residual, provided there is only one type of natural resource per enterprise or per industry. In this case, tRR equals gross operating surplus plus the non-labour component of mixed income less the user costs of produced assets. Alternatively, tRR may be observable from rent payments that extraction enterprises pay to the owners of a natural resource. (The various methods for estimating tRR are discussed in sect. 5.4.) Given tRR and tS , computation of the unit resource rent ( )StP is straightforward. A5.6 Once the unit resource rent has been estimated, two important tasks remain to be completed: first, the value of the stock of the natural resource needs to be established; and second, the period-to-period gross income attributed to the resource, tRR , needs to be split up into a part that represents the value of depletion and a part that represents net income. These tasks are directly related and need to be addressed consistently. Valuing the stock of a natural resource A5.7 To tackle the valuation of the stock of a natural resource, start with the fundamental asset market equilibrium condition or NPV that the value of an asset (the timber resources, System of Environmental-Economic Accounting 2012—Central Framework220 in this example) at the end of period t, tV  , equals the discounted flow of future resource rents ( )1,2,t tRR Nτ τ+ =  over tN periods. The estimate of the number of remaining periods of extraction may vary over time; therefore, tN depends on t. In the simplest case, and for a fixed finite period of exploitation, tN declines by one period as t progresses. If the exploitation of a natural resource is judged to be sustainable, tN will take an infinite value. It is assumed here that the resource rent accrues at the end of the accounting period.a The standard NPV condition is shown in equation (1). where tr is a nominal discount rate valid at time t, but not necessarily constant over time. A5.8 ( )1,2,t tRR Nτ τ+ =  is a nominal value of expected future resource rents and the projected time profile of the resource rent { }1 2, ,t tRR RR+ +  may be non-constant. Note that the sequence of resource rents { }1 2, ,t tRR RR+ +  is an expected sequence and that the expectation is formed at the end of period t. A5.9 As time goes on, information may change and a different sequence of resource rents may be expected. Similarly, the value of the stock at the beginning of period t may have been constructed with a different set of expectations about future resource rents or discount rates. Such a change in the set of information needs to be allowed for and will be addressed later. A5.10 tV is the value of the stock at the end of period t. In concept, this value is composed of a price and a quantity component: call them tP and tX . Indeed, without this price-quantity distinction, the meaning of “V” would be unclear. In the timber example, if   tV is the value of the timber resource, tP equals the price per cubic metre of the timber resources at the end of period t, and tX is the number of cubic metres of timber resources at the end of period t. (In the case of an oil field, tX would be the estimated quantity of oil in the ground.) Therefore, one has ttt XPV = (2) A5.11 To obtain an estimate of the price tP and consequently of tV , use the NPV condition from equation (1) together with the definition of the resource rent t St tRR P S= : ( )∑= ++ + == tN t tts ttt r SP XPV 1 , 1τ τ ττ (3) A5.12 Next, a hypothesis has to be formed concerning the future profile of extractions and the expected price change of StP . One simple possibility is to assume that the most recent quantity of extraction is the best estimate of future extractions so that ( )1,2,3,t t tS S Nτ τ+= =   . This is only one possibility and different assumptions could be made, for instance, if the extraction in year t was unusually large or small and unlikely to be occurring again in the future. Another possibility is to assume a constant rate of extraction, so that t tS Xτ τ+ + is constant a Preferably, resource rent should be assumed to accrue to the midpoint of the accounting period. The assumption made here is used to simplify the explanation and the associated notation and has no impact on the underlying relationships described. (1) 1 (1 ) tN t t t RR V r τ τ τ + = = + ∑ 221Asset accounts for tN,3,2,1=τ . For the expositional purpose at hand, a constant quantity of extraction is assumed. A5.13 Similarly, a hypothesis needs to be formed regarding the evolution of the price StP and the proposal here is to consider the long-run trend in the unit resource rent or, even more straightforwardly, to assume that StP evolves in line with an expected general rate of inflation, tρ . A5.14 Using these two hypotheses, the NPV condition can then be rewritten as ( ) ( ) ( ) ( ) ( ) ( ) 1 , 1 1 1 , , 1 1 1 1 1 (4) 1 1 (5) 1 t t t N s t t t t t t t N s t t s t t t t t t N t t P S V PX r P S P S RR r r τ τ τ τ τ τ τ τ τ ρ ρ ρ − + + = = = + = = + + = = Ω= Ω + + Ω = + ∑ ∑ ∑ A5.15 tΩ is a discount factor which links future resource rents to the present value of the asset. Equation (4) provides the desired estimate for the value of the stock, tV , as well as the price level for the unit value of the resource in/on the ground, t t t tP RR X= Ω . The above expression also shows the relationship between the unit resource rent StP and the price of the asset in/on the ground tP : the latter is the discounted value of the former, multiplied by the current extraction rate   tt XS : A5.16 One conclusion from this relationship is that it is incorrect to use the unit resource rent, StP as the price of the asset, i.e., for valuation of the stock of the resource. It is also useful to note that with the simplifying hypotheses made above, the main element of tΩ , ( ) ( )1 1t trρ+ + is the inverse of a real interest rate. In many countries, real interest rates tend to be relatively stable and should not be difficult to estimate. A5.17 The real interest formulation also relates to Hotelling’s rule for non-renewable resources. Hotelling’s rule states that under certain market conditions, non-renewable resource rents will rise at the rate of the nominal discount rate as the resource becomes scarce. Under these circumstances, the value of the resource stock can be calculated simply as the unit resource rent times the size of the stock. Because nominal resources rent rises over time at a rate that is exactly sufficient to offset the nominal discount rate, there is no need to discount future resource income. In terms of the notation at hand, this corresponds to a situation where t trρ = so that and t t St t tP N P S X= , the unit resource rent multiplied by the number of extraction periods. The application of Hotelling’s rule is not recommended for the valuation of environmental assets in the SEEA. t tttS t X SP P Ω = , (6) (4) (5) System of Environmental-Economic Accounting 2012—Central Framework222 Estimating the value of depletion, discoveries and losses for non-renewable natural resources A5.18 The next task consists in valuing the changes to the natural resource over the accounting period. The present section considers the flows associated with non-renewable natural resources. The following section considers accounting for renewable natural resources. A5.19 As before, it is assumed that the quantity of natural resources at the end of period t, tX , is known and that there is a projected sequence of extractions, based on the information available at the end of period t. At the end of period t, the quantity at the end of the preceding period, 1tX − is also known. Ex post, the difference between tX and 1tX − can be decomposed into three components: depletion, discoveries and other additions (referred to below as “discoveries”) and catastrophic losses and other reductions (referred to below as “catastrophic losses”). Ex ante, i.e., based on the information at the end of the preceding period t-1, discoveries and catastrophic losses will not be known. A5.20 To operationalize the measurement of these three components, it is necessary to distinguish between the information and expectations present at the end of period t-1 and those present at the end of period t. The notation used for this purpose is such that tX′ relates to the quantity of the natural resource at the end of period t, given the information available at the end of period t-1. Thus, for example, using this notation, 1 1t tX X− − ′ = , as no new information arises during period t about the stock at the end of period t-1. However, in general, it is not the case that t tX X′ =  or t tP P′=  , since over the course of period t, unforeseen events and additional information will arise. In this context,  tX ′  and tP′ represent expected quantities and prices. A5.21 With this notation it is now possible to define depletion, discoveries and catastrophic losses. Depletion, i.e., the regular and expected reductions from the stock of the asset, is defined as 1t t tS X X− ′ ′= − where tS is the extraction during period t. (As we are dealing with a non-renewable resource, depletion equals extraction.) Thus, depletion is the difference between the quantity of resource at the end of period t-1, 1tX − less the quantity of resource expected to be remaining in the ground at the end of period t, tX ′ (i.e., setting aside discoveries or catastrophic losses). A5.22 Discoveries constitute an unexpected addition to the natural resource during the accounting period. The main body of chapter V described, for each type of natural resource, which types of discoveries should be recognized as such. Catastrophic losses relate to unexpected and significant reductions in the natural resource during the period. They constitute exceptional and significant losses. The combined effect of discoveries and catastrophic losses can now be measured as t tX X′−  , i.e., the difference between actual and expected quantities at the end of the period. A5.23 To separately account for discoveries and catastrophic losses, let tI be the physical amount of discoveries and let tL be the physical amount of catastrophic losses, such that t t t tX X I L′− = − . Recall that 1 1t tX X− − ′ = , as no new information arises during period t about the natural resource at the end of period t-1. The same holds for prices and values of the asset: 1 1t tP P− − ′ = and 1 1t tV V− − ′ = . With these remarks in mind, the total physical changes in the nonrenewable resource between the beginning and the end of the accounting period are: ( ) ( ) ( ) tttttttttttt SLIXXXXXXXXX −−=−′+′−=∆≡′−=− −−− 111 (7) A5.24 Using equations (2) and (7), the change in the value of the natural resource between the beginning of period t, given the available information at that time, and the value of the 223Asset accounts natural resource at the end of the period, given the available information then, can be decomposed as follows: ( ) ( ) ( ) tttttttttttt PXXPXPXPVVVV ∆+∆=−=′−=− −−−−− 11111  (8) A5.25 In equation (8), the change in value of the natural resource ( )1t tV V −− has been decomposed into a quantity effect and a revaluation effect. The quantity effect 1t tP X− ∆ measures the change in the quantity of the resource valued at the price of the beginning of the period; the revaluation effect ( )1t t t t tX P X P P−∆= − captures the price change of the resource, multiplied by the quantity at the end of the period. A5.26 There is an alternative way to decompose the term ( )1 1t t t tPX P X− −− , namely, with a quantity t tP X∆ effect and a revaluation effect 1t tX P− ∆ . As neither is a priori superior to the other, an arithmetic average of the two effects can be employed: ( ) ( ) ( )[ ] ( )( ) ( )( ) ( ) ( )( ) ( ) ( ) )9(5.05.05.0 5.05.05.0 5.0 111 1111 111 tttttttttt ttttttttttt tttttttt PXXSPPLIPP PXXXXPPXXPP PXXXPPVV ∆+++−−+= ∆++′−′++′−+= ∆++∆+=− −−− −−−− −−− A5.27 The final expression for the value of discoveries is then ( )10.5 t t tP P I− + ; for the value of catastrophic ( )10.5 t t tP P L− + losses,  ; for the value of depletion, ( )10.5 t t tP P S− + ; and for revaluation, ( )10.5 t tX X P− + ∆ . It is of note that the valuation of depletion with the average price of the period is consistent with the rules in the SNA for the valuation of consumption of fixed capital. Also, discoveries and catastrophic losses are valued with midperiod prices, implying an assumption about these events occurring mid-year on average. Finally, it should be pointed out that tP , when estimated by applying the NPV method (4) at the end of period t, takes into account any modifications in the expected extraction profile { }( )11,2, ,t tS Nτ τ+ +=  that may have arisen as a consequence of discoveries or catastrophic losses during the accounting period. tP thus constitutes the correct valuation of the balance-sheet entry for the asset under consideration. tP will also reflect any other informational changes, for example, changes in the discount rate. Estimating the value of depletion for a renewable asset A5.28 Unlike non-renewable resources, natural plant and natural animal resources have the potential to reproduce and grow over time; and this natural growth enters as an additional flow which determines the evolution of the natural resource over the accounting period. Depletion, in physical terms, is the decrease in the quantity of a natural resource that is due to the extraction of the resource occurring at a rate that will not permit the same amount of resource to be extracted in all future periods. Depletion is thus determined as a relationship between extraction or harvest and sustainable yield, i.e., the largest amount that can be harvested for a given population size without reducing the long-term viability of the resource. In its simplest form, sustainable yield equals the natural growth of the asset. These issues are discussed in more detail in section 5.4. A5.29 For the purpose of this annex, it is assumed that an estimate of sustainable yield can be made and hence an estimate of depletion in physical terms is available. In what follows, sustainable yield in period t will be called tG . Physical depletion tD is then estimated as t t tD S G= − and consequently, 1t t t tX X S G− ′ ′− =− + the (expected) change in the stock that is not due to discoveries or catastrophic losses. Note that the depletion for non-renewable resources can be seen as a special case, where 0tG = . System of Environmental-Economic Accounting 2012—Central Framework224 A5.30 It is now possible to enhance expression (7) for the case of renewable natural resources: ( ) ( ) ( ) ttttttttttttt GSLIXXXXXXXXX +−−=−′+′−=∆≡′−=− −−− 111 (10) A5.31 Following the derivations for non-renewable natural resources, monetary depletion is physical depletion valued at average prices of the period, ( )10.5 t t tP P D− + . A5.32 In summary, the entries between the beginning and end of the accounting period, t, are as follows: Closing balance-sheet item of period t-1 based of information available at end of period t-1: 111 −−− ′′=′ ttt XPV + Discoveries (and other additions): ( ) ttt IPP +−15.0 - Depletion: ( )( )tttt GSPP −+− −15.0 Of which due to natural growth: ( ) ttt GPP +−15.0 Of which due to extraction: ( ) ttt SPP +− −15.0 - Catastrophic losses (and other reductions): ( ) ttt LPP +− −15.0 + Revaluation due to price changes: ( ) ttt PXX ∆+−15.0 = Closing balance-sheet item of period t based on information available at end of period t: ttt XPV == Net income and depletion A5.33 As a final step, the value of depletion can be subtracted from the resource rent to yield an expression for the depletion-adjusted resource rent: Depletion-adjusted resource rent = ( )( )10.5t t t t tRR P P S G−− + − (11) A5.34 The depletion-adjusted resource rent represents the net income generated by the natural resource. Putting aside any changes in expectations or differences between expected and realized variables, it corresponds to a return to capital or return to natural resources. This can be demonstrated as follows. Multiplying 1tV − ′ by ( )1 tr+ , subtracting tV′ (the expected value of the asset at the end of the period) and applying the NPV condition (1) yields ( ) tttt RRVrV ′=′−+′− 11 (12) A5.35 Note that all expressions are in terms of the information set at the end of period t-1 and therefore discoveries and catastrophic losses are ignored. Combining (12) with (9), one obtains ( ) ( ) ( )( )tttttttttttttt GSPPPXXVrVVVrRR −′+′+′∆′+′−′=′−′−′=′ −−−−− 11111 5.05.0 (13) A5.36 The depletion-adjusted resource rent is then ( )( ) ( ) tttttttttt PXXVrGSPPRR ′∆′+′−′=−′+′−′ −−− 111 5.05.0 (14) A5.37 Thus, net income consists of the nominal return to capital, 1t trV − ′ less (expected) revaluation of the asset. This does not imply that revaluation enters the measurement of income. It should be remembered that r relates to the returns that an investor or shareholder would expect from the use of an asset in production, i.e., it is a forward-looking rate. Whether, 225Asset accounts ultimately, these returns come from normal business operations or from holding gains/losses is irrelevant to the (financial) investor. Hence, conceptually, the expected rate of return r includes expected holding gains or losses. Therefore, to arrive at an income measure consistent with the definition of income in the national accounts,b revaluations must be subtracted. After subtraction, expression (14) shows the return from “normal business operations” excluding holding gains or losses. A5.38 The derivations above are valid for both renewable resources and the limiting case of non-renewable resources. When there is depletion, the term tt GS − will increase in absolute terms with a rising rate of depletion. In general, the quicker the resource is depleted, the higher will be the price change of the resource in the ground. When natural growth exceeds extraction, depletion should be recorded as zero and the excess amount added to additions of stock. A5.39 It should be noted that the specifications above leave no ambiguity about the valuation of stocks and flows, i.e.: • The input of natural resources into production, the extractions, should be valued at the unit resource rent StP • The value of the stock of natural resources, and flows concerning depletion, should be valued using the price of the asset in situ( )tP Volume measures A5.40 With the price, quantity and value of the natural resource in situ in hand, it is fairly straightforward to compute a volume measure of the stock of natural resources. In the case of a single homogeneous asset, the volume measure simply equals the evolution of the physical quantity in the ground,{ }tX . In the case of different types of natural resources, an aggregation procedure must be identified to construct a volume index across different types of natural assets. A5.41 The balance-sheet entry for the value of natural resources at the end of year t-1 in end-year prices of t-1 is simply if there are z different types of assets. Assuming a chain Laspeyres index as is customary in the national accounts, the volume change between t-1 and t is then given by: Volume change =  (15) b See Measuring Capital: OECD Manual; 2nd ed. (OECD, 2009), sect. 8.3.2, for a more detailed discussion in the context of produced assets. ∑= −− z ii i t i t XP 11 ∑ ∑ = −− = − z i i t i t z i i t i t XP XP 1 11 1 1 System of Environmental-Economic Accounting 2012—Central Framework226 Annex A5.2 Discount rates Introduction A5.42 In the SEEA, a discount rate is a rate of interest used to adjust the value of a stream of future flows of revenue, costs or income so that the value of future flows can be compared with the value of flows in the current period. A5.43 Underpinning the use of discount rates is the concept that the value of money in the future is not the same as the value of money now. A common explanation of this concept entails considering how much money would be needed now to purchase a given amount of goods and services in one year’s time. A5.44 This question may be answered by considering the interest rate at which a consumer should invest his or her money now in order to earn sufficient interest over one year to purchase the goods and services in one year’s time. The consumer may then make a choice as to whether he or she consumes the goods and services in the current period or waits, earns the interest from investing the money, and purchases the goods and services in one year’s time. In making this choice, the consumer indicates a time preference and the extent of the preference is given by the interest rate, or discount rate. A lower discount rate will apply if the consumer is relatively indifferent as regards receiving the benefits of consumption now or in one year’s time. A higher discount rate will apply if the consumer has a stronger preference for consumption in the current period. A5.45 When time preferences are seen from the perspective not of an individual consumer but of society as a whole, they call for comparisons of welfare across different generations. There is no immediate reason why the time preferences of individuals and society should coincide. A5.46 Discount rates are also affected by risk preferences, which raises the question whether consumption forgone in the current period will induce more or less utility in future periods. Again, these two factors may be valued differently by the individual and society as a whole. A5.47 The application of the general concept of a discount rate to economic issues has generated much discussion (as yet unresolved) by many economists (Arrow, Nordhaus and Stiglitz, among others). The choice of discount rate has become a focus of discussion in environmental economics because of the impact that the choice of discount rate has on models of economic outcomes over long periods of time, and because the choice of discount rates and the nature of the assumed preferences may be perceived as having ethics-related underpinnings. A5.48 The present annex explains, in broad terms, the key aspects of the discussion on discount rates and the logic of the choice of discount rate that aligns with the SEEA’s approach to valuation in monetary terms. Types of discount rates A5.49 There are two broad types of discount rates: individual discount rates and social discount rates, which are quite distinct in concept. An individual discount rate entails consideration of preferences from the perspective of an individual consumer or firm and is directly related to the prices for goods, services and assets confronting the individual. In addition, the preferences are generally considered within the normal decision-making time frames of an individual consumer or firm. Finally, the discount rate relevant to an individual consumer or firm needs to take into account the likelihood of earning interest (or, more generally, a return) so that consumption can be undertaken in the future. Put differently, if an individual faces 227Asset accounts a smaller likelihood of earning a return, then he or she should seek a higher discount rate to compensate for this risk. A5.50 A social discount rate reflects the time and risk preferences of a society as a whole. Unlike individuals, societies must consider future generations to a greater extent and must also balance the benefits accruing to different sections of society in current and future periods (i.e., the distribution of income and consumption). In addition, the risks of earning returns are far more dispersed and balanced at a societal than at an individual level and therefore the compensation for risk will usually be lower for a society as a whole. Often, social discount rates are applied in the context of a government in relation to its decision-making on behalf of a society. A5.51 The difference between individual and social discount rates may be characterized in terms of preferences with respect to both efficiency and equity. Generally speaking, individual discount rates take into account only aspects of efficiency in the allocation of resources over time from the perspective of an individual consumer or producer. On the other hand, social discount rates may consider only aspects of efficiency or they may take into consideration aspects of both efficiency and equity between societies or between generations. Most discussion on discount rates revolves around the equity aspects, either because they may not be taken into account at all (e.g., in individual discount rates) or because the philosophical basis for the assumptions concerning equity that underlie a social discount rate can be contested. A5.52 The difference between individual and social discount rates can also be characterized in terms of descriptive and prescriptive discount rates. A discount rate determined on a descriptive basis is based only on prices faced by individuals and governments or other measureable factors, whereas a prescriptive discount rate incorporates assumptions regarding the preferences of individuals and societies, particularly in respect of equity between and within current and future generations. Individual discount rates A5.53 The determination of discount rates for individuals requires a focus on information concerning the return needed by the individual consumer or firm to justify investment in the current period with the aim of receiving income or other benefits in the future. Relevant considerations are the expected returns that an individual may earn by investing in different assets and the degree of risk associated with different investments. Under pure market conditions, it would be expected that the price of an asset (e.g., a building) would reflect the expected returns to the purchaser over the life of the asset and would take into account the likelihood of earning the income (i.e., the degree of risk). Thus, there is a link between the choice of discount rates and the concept of market prices for assets. A5.54 In the SEEA, as in the SNA, the application of discount rates is to the valuation of assets not traded on markets. For these assets, market prices are not available and the technique of net present value (see annex A5.1) can be used to estimate market prices. This technique requires the choice of a discount rate. The selection of a descriptive discount rate that considers only the prices faced by an individual consumer or firm, relates to the expected returns, and accounts for the degree of risk associated with the investment, is the most appropriate discount rate in respect of aligning with the market price valuation principle used in the SEEA. A5.55 For individual consumers and firms, the relevance of a discount rate may be reflected in the cost of funds to the individual. Thus, the interest rate needed to finance an investment either through loans, equity issues or the issue of corporate bonds may be a discount rate appropriately reflecting the rate of return needed by the individual and also the degree of risk System of Environmental-Economic Accounting 2012—Central Framework228 in the investment as assessed on the market. However, at the more aggregate level at which the SEEA operates, taking into account the variety of ways in which investment is financed and targeting the financing method with respect to the valuation of specific non-traded assets makes the financing cost approach difficult to apply across individual firms within an industry, particularly if financial markets are not well developed within a country. It is also noted that returns to financial instruments, particularly equities, may be influenced by many external factors, thus limiting their appropriateness in the valuation of non-traded assets. A5.56 The other approach to the estimation of a discount rate is to consider information on the actual returns accruing to specific activities, for example, mining activity, where the related income streams all have similar risk profiles. This may be done by considering national accounts information on the operating surplus of relevant firms and the associated stock of produced assets. Underpinning this approach is the idea that the total operating surplus is the return to the firm for its use of a combination of produced assets, for example, mining equipment, and non-traded natural resources. A5.57 Ideally, if the value of the relevant natural resources was known, the implied rate of return (total operating surplus divided by total value of assets) would apply to both produced assets and natural resources. However, since the value of the natural resources is unknown, two alternatives must be considered. First, for a specific activity (e.g., coal mining), a rate of return equal to the total operating surplus divided by the value of the stock of produced assets can be calculated and the rate of return on natural resources and the discount rate can be set equal to this rate. By its very construction, this rate will overstate the rate of return, since the denominator (the value of the stock of produced assets) excludes the value of natural resources. At the same time, this rate of return does take into account the returns accruing to the specific activity and hence the associated risks. A5.58 The other alternative entails the assumption that the rate of return on produced assets should be equal to an external rate of return that the firm would have received if it had invested in alternative assets. This rate is then assumed to apply also to the natural resources. Since this rate of return takes into account investment in a broader range of assets across the economy, the industry-specific risks of investment are less likely to be taken into account. A5.59 Although neither of these relatively direct methods generates a discount rate that completely measures the desired concept, a comparison of both rates may yield useful information. In particular, a useful approach may be to use a general, external rate of return as a base rate and to adjust it utilizing industry-specific information to account for specific investment risk. Adjustments may be made on the basis of relative financing costs or of the relative difference in the return to produced assets in the target industry compared with an economy-wide return to produced assets. A5.60 It is noted that, in the valuation of assets owned by individual firms, the choice of external rate under the second approach should take into account some degree of risk, even if only general economy-wide risks of investment. Often, the use of relatively risk-free rates of return is suggested, such as the rate of return on long-term government treasury bonds, but these rates take no account of individual risks that are faced in determining consumption and investment preferences. Social discount rates A5.61 Social discount rates are used in the context of evaluating actions and assets that have value from the perspective of a society as a whole. Often, this is applied in the assessment of government decisions, and social discount rates are used to evaluate the costs and benefits of investment in public infrastructure since both the benefits and the costs are usually spread 229Asset accounts across many individuals and over long periods of time. However, social discount rates can also be used to provide social valuations of assets owned and operated by individuals and firms. A5.62 As noted above, both descriptive and prescriptive approaches may be taken to the determination of an appropriate social discount rate. A descriptive approach follows the same logic as that governing the determination of individual discount rates, in that the rate is determined through a focus on the prices and returns relevant to the society rather than through any explicit consideration of equity issues. A5.63 Prescriptive social discount rates that take into account equity considerations cannot be determined following the logic applied to individual discount rates. Rather, consideration must be given to the relative preferences of current and future generations and, ideally, to the relative preferences of different sections of society. A common approach used by economists to determining prescriptive social discount rates is the application of the Ramsey growth model (Ramsey, 1928) which takes specific account of consumption and saving choices for an economy as a whole. This model has underpinned many recent works on evaluating the impacts of environmental issues, in particular the 2006 Stern review in the United Kingdom of Great Britain and Northern Ireland of the economic impacts of climate change. A5.64 The formula for a prescriptive discount rate that emerges from the Ramsey model requires information or assumptions regarding (a) the “pure” rate of time preference, (b) the rate of growth in per capita consumption and (c) the extent to which the extra benefits to people from consumption decrease as their income increases (the marginal utility of income). The second and third terms are multiplied together and then added to the first term to derive the discount rate. A5.65 Much discussion on prescriptive social discount rates has focused on the first term, which asks the question whether the preferences of current generations are more important than those of future generations. If the value of the first term is set at zero, then the assumption is that all generations’ preferences have equal weight. This assumption is distinctly at odds with the underlying premise of individual discount rates in which there is an underlying assumption that it is the present year (let alone the present generation) that is always preferable (unless there is suitable return). The implications of choices for the pure rate of time preference are discussed in the next section. A5.66 A common misconception is that setting a zero “pure” rate of time preference implies a discount rate of zero. In fact, following the Ramsey model, there are two other assumptions that need to be considered. Generally, it is understood that as income rises, the extra or marginal benefits that a person receives from spending additional income decline. Put differently, someone on a low income gains greater benefit from spending a dollar than someone on a higher income. When the same concept is considered over time: if an individual in the future is assumed to have a higher level of income than someone today, then it would be the case that they would get relatively lower benefit from spending that additional income compared with someone spending the same amount today. Thus, even assuming that all peoples’ preferences are the same, there may still be an overall preference in consumption now because the marginal benefits from undertaking the same consumption in the future are lower (assuming growth in incomes). Different choices for the rates of growth in income and consumption and in the marginal utility of income will lead to different (non-zero) estimates of the social discount rate following the Ramsey model. A5.67 A different approach to taking into account the preferences of future generations is the use of declining discount rates. Different models may be used and there is mention in the literature of hyberbolic discount rates, gamma discounting and geometrically declining rates. System of Environmental-Economic Accounting 2012—Central Framework230 Simple step functions have also been proposed whereby the discount rate is set at progressively lower levels as one moves away from the current period. The general aim of declining discount rates is to counter an impact of constant rate discounting which implicitly fixes the relationship of the preferences across generations. Declining rates effectively give relatively larger preferences to future generations than would otherwise be implied (although the preferences of future generations generally have less weight than those of current generations). The exact relationship depends on the function assumed for the pattern of decline. Estimates of discount rates A5.68 In practice, the approaches to the selection of discount rates vary widely. Both prescriptive and descriptive approaches are often used, and within both approaches, a wide variety of solutions are adopted. While it seems generally to be the case that those rates determined on a more prescriptive basis are lower than rates determined on a descriptive basis, this is not always the case. A5.69 An important consideration is whether the discount rate should be in real or in nominal terms. A real discount rate is one that has been adjusted to remove the impact of inflation, whereas a nominal discount rate has not undergone any such adjustment. The choice depends on the assumptions made in relation to the future flows. If the future flows, say, of income, are measured in terms of the prices of the period to which they relate (e.g., an income flow for 2050 is in terms of 2050 prices), then the flow is said to be in nominal terms and a nominal discount rate should be used. A5.70 However, if the flows are expressed in terms of prices of the current period, then a real discount rate should be used. Since it is very difficult to project prices into the future, a common assumption is that the future flows are the same as the flows in the current period; and if this assumption is made, then a real discount rate should be used. A5.71 The choice of discount rate—however determined—can have a significant impact on the value of an asset. Table A5.1 illustrates the differences in the value of an asset at different discount rates for a different length of asset life. Assuming that the income flow is $100 per year, then over 10 years, the net present value (see annex A5.1) can range from $614 for a discount rate of 10 per cent to a value of $853 for a discount rate of 3 per cent. Over 100 years, the differences are even more stark, with an NPV of $1,000 for a discount rate of 10 per cent but an NPV of $3,160 for a discount rate of 3 per cent. A5.72 Of particular note is that for higher discount rates, increasing the asset life has little impact on the total current net present value of the asset; that is, there is relatively little difference in the NPV for an asset that has a life of 30 years and one of 100 years at higher discount rates. Table A5.1 Net present value (dollars) for constant income flow of 100 dollars over varying asset lives and at varying discount rates Discount rate (percentage) Asset life (years) 10 30 50 100  3 853 1960 2573 3160  5 772 1537 1826 1985  8 671 1126 1223 1249 10 614  943  991 1000 231Asset accounts Analytical implications of the choice of discount rate A5.73 The implications of the choice of a discount rate may be discerned in a number of ways. First, the choice of approach to selecting a discount rate may provide an area of concern for users. The selection of a descriptive approach consistent with market valuations may generate concern that equity issues—especially those across generations—are not being adequately considered. At the same time, the selection of a prescriptive approach may raise concern about the role of statisticians in selecting implicit societal preferences. A5.74 Second, various interpretations may be made concerning the estimates derived based on particular discount rates. For example, there may be concerns about the use of relatively high discount rates (usually attributed to the use of market-based approaches), since these give relatively lower values to long-lived assets, such as many natural resources, and this may imply a preference either for immediate use of the resources or for substitution with produced assets. A5.75 At the same time, the use of market-based approaches to the determination of the discount rate permits a stronger parallel to be drawn to the valuation of produced assets and therefore trade-offs between assets can be more consistently considered. In this regard, the estimation of concepts like national net worth can be consistently estimated across all asset types. Also, the use of market-based descriptive approaches does not necessarily ignore intergenerational and equity issues. They imply that the current generation’s attitudes to time preference and income inequality, as reflected in observed investment and saving rates, will continue into the future. A5.76 A general concern in respect of the use of market-based discount rates is that they tend to be relatively higher rates, which in turn tend to provide relatively low values in absolute terms beyond normal planning time frames, say, 30 years. Thus for long-lived and potentially everlasting resources, the use of relatively lower rates will tend to reflect the recognition of values for these resources into the future to a greater extent. Independent of any implied societal preferences, lower discount rates may therefore better reflect the likely values of these resources. Also, especially for environmental resources, the recognition of values over a longer time period may assist in understanding the problem that, while the benefits received from the environment tend to be received immediately, the costs to the environment may be evidenced only much later. The use of declining discount rates may be a way to deal with these issues. Conclusions A5.77 For the purposes of the SEEA, it is recommended that a discount rate be determined that is consistent with the general approach to valuation in the SEEA and the SNA, i.e., consistent with valuation at market prices. This suggests the choice of an individual discount rate that reflects the return needed by those undertaking an activity to justify investment in that activity. Consequently, the relevant rate should be descriptive and, ideally, should include any activity-specific risks. A5.78 The derivation of an activity-specific rate of return is difficult in the case of natural resources because the value of the natural resources is not known. Nonetheless, it should be possible to determine relevant discount rates on the basis of national accounts data and financial sector information. A5.79 Because judgements are required regarding societal preferences, it is not recommended that prescriptive approaches to the determination of discount rates be used for the purposes of official statistics. System of Environmental-Economic Accounting 2012—Central Framework232 A5.80 Different discount rates can be selected under any approach to the determination of discount rates for valuing environmental assets. Given the significance of the choice of discount rate, it is recommended that sensitivity analysis using different discount rates be undertaken in the compilation of valuations of environmental assets utilizing the net present value approach. The varying estimates may be published to provide users with information on the impact of the choice of discount rate. 233Asset accounts Annex A5.3 Description of the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC 2009) A5.81 United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC-2009) categorizes mineral and energy resources by looking at whether, and to what extent, projects for the extraction or exploration of the resources have been confirmed, developed or planned. The underlying natural resources are classified based on the maturity of the projects. UNFC-2009 is based on a breakdown of the resources according to three criteria affecting their extraction: • Economic and social viability (E) • Field project status and feasibility (F) • Geologic knowledge (G) A5.82 The first criteria (E) designates the degree of favourability of economic and social conditions in establishing the commercial viability of the project. The second criteria (F) designates the maturity of studies and commitments necessary to implement mining plans or development projects. These extend from early exploration efforts before a deposit or accumulation has been confirmed to exist through to a project that is extracting and selling a product. The third criteria (G) designates the level of certainty in the geologic knowledge and potential recoverability of the quantities. A5.83 Each of the three criteria is subdivided into categories characterizing the projects for exploring and extracting the resource. The categories for the economic and social criteria are numbered from E1 to E3: • Category E1 includes projects where extraction and sale are economically viable, i.e., the extraction is assumed to be economic on the basis of current market conditions and realistic assumptions of future market conditions. It includes considerations of prices, costs of the legal and fiscal framework, and various environmental, social and other non-technical factors that could directly impact the viability of a development project. The economic viability is not affected by short-term adverse market conditions provided that longer-term forecasts remain positive • For projects falling into category E2, extraction and sale have not yet been confirmed to be economic but on the basis of realistic assumptions of future market conditions, there are reasonable prospects for economic extraction and sale in the foreseeable future • For E3, extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability A5.84 The categories for project status and feasibility are numbered from F1 to F4 with further subcategories in some cases: • Category F1 includes projects where extraction is currently taking place (F1.1); or where capital funds have been committed and implementation of the development project or mining operation is under way (F1.2); or where sufficiently detailed studies have been completed to demonstrate the feasibility of extraction through implementation of a defined project or mining operation (F1.3) System of Environmental-Economic Accounting 2012—Central Framework234 • Both F2.1 and F.2.2 include projects where the feasibility of extraction is subject to further evaluation. For F2.1, project activities are ongoing to justify development in the foreseeable future; and for F2.2, project activities are on hold and/or justification is on hold, as commercial development may be subject to a significant delay. F2.3 indicates that there are no current plans to develop or to acquire additional data at the time owing to limited potential • F3 indicates that the feasibility of extraction by a defined development project or mining operation cannot be evaluated owing to limited technical data • F4 indicates that no development project or mining operation has been identified A5.85 The categories for geologic knowledge are numbered from G1 to G4. Quantities associated with a high level of confidence (or low level of uncertainty) are classified as G1, quantities associated with a moderate level of confidence are classified as G2 and quantities associated with a low level of confidence as G3. Quantities associated with a potential deposit based primarily on indirect evidence are classified as G4. 235Asset accounts AnnexA5.4 Catchconcepts:adiagrammaticpresentationaa Retainedcatch Thetotalliveweightoffishretained Unrecorded,rejectedordumped landings -Unrecordedlandingsdumpedatsea -Black-marketlandings -Unrecordedquantitieslandedforhome consumption,etc. Utilizationandlossespriortolanding -Consumptionbycrew -Useforbait -Spoilageandsubsequentdumping -Lossesinhandlingatseaandwhen landing Gainspriortolandings Gainoffluidcontent:additionofliquidsorsolids duringshipboardprocessing Landings Thenetweightofthequantitieslandedasrecordedatthetimeofthelandingof: -Wholeorevisceratedfish,fillets,livers,roesetc. -Fresh,iced,chilledorfrozen,curedorcannedproductsetc. -Fishmeals,liveroils,bodyoilsetc. -Otheredibleorinediblefisheryproductsetc. Nominalcatches=(landings+lossesduetodressing,handlingandprocessing–gainspriortolandings)×conversionfactors Nominalcatch Theliveweightequivalentofthelandings,i.e.: -Landingsonaround,freshbasis -Landingsonaround,wholebasis -Landingsonanex-waterweightbasis Lossesduetodressing,handlingand processing -Dumpedviscera,headsandotherparts -Lossoffluidcontent Fishencounteringfishinggear Grossremoval Thetotalliveweightoffishcaughtorkilled duringfishingoperation Liveescapement Thetotalweightoffishthatencounteredthe fishinggearbutescapedalive Pre-catchlosses Thetotalliveweightoffishthatdieasaresultoffishingoperation andthatarelostandnotcaught,includinglossescausedthrough gearlostduringfishing Grosscatch Thetotalliveweightoffishcaught Discardedcatch–live Thetotalliveweightofundersized,unsaleableor otherwiseundesirablewholefishdiscardedatthetime ofcaptureorshortlyafterwards Discardedcatch—dead Thetotalliveweightofundersized,unsaleableorotherwise undesirablewholefishdiscardedatthetimeofcaptureorshortly afterwards a Derivedfrom“Handbookofnationalaccounting:integratedenvironmentalandeconomicaccountingforfisheries”(UnitedNationsandFoodandAgricultureOrganizationoftheUnited Nations,2004). 237 Chapter VI Integrating and presenting the accounts 6.1 Introduction 6.1 Environmental and economic information is important in the assessment of a range of contemporary environmental and economic policy and research questions. Beyond the provision of relevant information, a primary motivation of the SEEA is the effective integration of the vast amount of environmental and economic data, and assistance with the integration of social data, such as demographic and labour statistics. 6.2 The present chapter shows the potential for the organization and integration of information within the Central Framework. Integration can take a number of forms. At a first level, it can mean the presentation of information using common formats and classifications; at a second level, the Central Framework can be used to provide a range of descriptive statistics and indicators of environmental pressures, states and responses; and at a third level, data integrated under the Central Framework can be used to construct analytical models for the analysis of consumption and production patterns, including, for example, consumption footprint-type indicators. 6.3 The chapter’s focus is on the first two levels of integration: the organization of information, in particular the compilation of combined physical and monetary accounts; and the presentation of descriptive statistics and indicators. The accounts in the Central Framework are built in such a way as to fully support analytical uses. SEEA Applications and Extensions discusses in more detail the use of information from the Central Framework to build analytical models and for other, similar purposes. 6.4 It is not necessary to complete an exhaustive physical supply and use table for every material, or to compile asset accounts for every environmental asset. The intention of the Central Framework is to enable supply and use tables, asset accounts, and other components to be used as an organizing framework, depending on the intended analysis and the availability of data. Therefore, for many applications, it is legitimate to integrate a limited set of information. 6.5 At the same time, several environmental concerns involve many countries and therefore the compilation of comparable data and accounts for common areas of concern is another important motivation for the development of this international standard. 6.6 The chapter commences with a description, in section 6.2, of the four key areas of integration within the Central Framework: physical and monetary supply and use tables, asset accounts, the sequence of economic accounts, and functional accounts. Also discussed are the potential linkages of SEEA-based data to employment, demographic and social data. 6.7 Section 6.3 introduces the general concept of combining physical and monetary data within the Central Framework to form combined physical and monetary presentations or System of Environmental-Economic Accounting 2012—Central Framework238 accounts. It then provides guidance on the basic organization and presentation of environmental and economic information. In this regard, it is noted that one motivation for the organization of information following the Central Framework is to improve data quality through data confrontation in an accounting framework. In particular, there can be benefits for data compilation through the confrontation of estimates measured in physical and monetary terms. 6.8 Section 6.4 provides guidance on the derivation of a range of descriptive statistics and environmental-economic indicators from information organized within the Central Framework. The scope of the statistics and indicators covered in this section is limited to those that are either aggregates or totals within the core accounts and tables, or that are easily derived from different parts of the Central Framework without the use of weighting or other complex assumptions. The statistics and indicators presented are not intended to constitute an exhaustive set, since, ultimately, the selection of statistics and indicators is dependent upon policy or research questions. 6.9 Section 6.5 sets out a general structure for combined presentations of physical and monetary data, including four examples of combined presentations, namely, for energy, water, forest products and air emissions. These examples give an indication of the potential of the Central Framework to provide information for analytical purposes. 6.10 This potential is further demonstrated in SEEA Applications and Extensions which provides introductory material on a number of different ways in which data from the SEEA can be used to support more detailed analytical techniques and specific thematic investigation. The areas covered in SEEA Applications and Extensions include input-output modelling, structural decompositions of environmental-economic information, and the analysis of sustainable production and consumption patterns. 6.2 Integration within the SEEA Central Framework 6.2.1 Introduction 6.11 The strength of the Central Framework arises from the consistent application of accounting rules, principles and boundaries in the organization of environmental and economic information in both physical and monetary terms. Consequently, the accounts and tables can add considerable value to the underlying statistical information. The nature of the integration of the various components is outlined in summary terms in chapter II. The present section provides additional detail on the integration across the four key areas of the Central Framework. 6.12 The first key area of integration is the link between measures of flows of goods and services in physical and monetary terms as reflected in monetary and physical supply and use tables. An important part of this integration entails recording physical flows of natural inputs from the environment and flows of residuals generated through economic activity. The use of common product and industry classifications, and consistent definitions and measurement boundaries is important in optimizing the potential for analysis. 6.13 The second key area of integration is the link between changes in the stock of environmental assets over an accounting period and the use of extracted natural resources as an input to economic production, consumption and accumulation. The connection between asset accounts and supply and use tables is of interest in this area. 6.14 The third key area of integration is the connection between the measures of production, consumption and accumulation in monetary terms and measures of flows of income 239Integrating and presenting the accounts between different sectors. These sectoral flows of income are reflected in a sequence of economic accounts and balancing items, such as value added and saving. Importantly, these balancing items can be adjusted for depletion so that estimates of the monetary cost of using up natural resources can be deducted from conventional economic aggregates such as GDP and saving to yield depletion-adjusted aggregates. 6.15 The fourth key area of integration concerns the identification of economic activities undertaken with an environmental protection or resource management purpose in functional accounts. Generally, these activities are not clearly identified using conventional classifications of industries and products. By identifying these activities within the conventional national accounting framework, it is possible to assess the significance of environmental activities in comparison with key economic aggregates such as GDP, value added, capital formation and employment. 6.2.2 Integration of supply and use tables in physical and monetary terms 6.16 The integration of supply and use tables in physical and monetary terms centres on the use of common classifications and terminology for the measurement of flows of products and the use of common boundaries between the economy and the environment. Consequently, flows recorded in monetary terms that focus on the exchanges of products between economic units are, in broad terms, the same set of flows of products measured in physical terms. Physical flows of natural input and residuals are not available in monetary terms but, since the measurement boundaries for these flows are aligned with measurement boundaries for product flows, the addition of natural input and residual flows in the supply and use table framework does not compromise the recording of flows relating to products. 6.17 The integration of supply and use tables in physical and monetary terms is the basis for the compilation of extended supply and use and input-output tables which are often used in environmentally extended input-output analysis. 6.18 As described in chapter III, there are some exceptions in respect of the general consistency of the recording of flows of products in physical and monetary terms: (a) In cases where goods are sent abroad for processing, the monetary supply and use tables record transactions related to the service provided by the processing country. In physical terms, the actual physical flows of the goods should be recorded. The same considerations apply to goods for repair and merchanting; (b) In some cases, it may be of interest to record physical flows of materials and energy, and their transformation into other products within an enterprise (intraenterprise flows). In monetary terms, only flows between enterprises are recorded (except for the limited recording of ancillary activities) and therefore the value of these flows are not shown in the monetary supply and use tables; (c) In monetary terms, there are often transactions in water between distributors within the water collection, treatment and supply industry. These are known as intra-industry sales. However, these transactions are not matched by actual physical flows of water, since the water is bought and sold in situ. Consequently, there are no physical flows recorded in the physical supply and use table for water corresponding to intra-industry sales. 6.19 The alignment of supply and use tables in physical and monetary terms is shown in table 6.1. This is an extension of the general physical supply and use table described in chapter III (table 3.1). The key areas of integration are the use of the same classifications for industries System of Environmental-Economic Accounting 2012—Central Framework240 Table6.1 Supplyandusetablesinphysicalandmonetaryterms Supplytableinmonetaryterms Production (includinghouseholdproductiononownaccount) Industries—classifiedbyISIC Flowsfromthe restoftheworldTotal ProductsOutputImports Total Usetableinmonetaryterms IntermediateconsumptionFinalconsumption Accumulation Flowstotherest oftheworldTotalIndustries—classifiedbyISICHouseholdsGovernment ProductsIntermediateconsumptionHouseholdfinal consumptionexpenditure Governmentfinalcon- sumptionexpenditure GrosscapitalformationExports Total Supplytableinphysicalterms Production;Generationofresiduals Accumulation Flowsfromthe restoftheworld Flowsfromthe EnvironmentTotal Industries(includinghouse- holdproductiononown account)—classifiedbyISIC Generationofresiduals byhouseholds NaturalinputsFlowsfromthe environment ProductsOutputImports ResidualsResidualsgeneratedby industry Residualsgeneratedby householdfinalconsump- tion Residualsfromscrappingand demolitionof producedassets Residuals receivedfrom restoftheworld Residualsrecov- eredfromthe environment Emissionsfromcontrolled landfillsites Total Usetableinphysicalterms Intermediateconsumption; useofnaturalinputs; collectionofresidualsFinalconsumption Accumulation Flowstotherest oftheworld Flowstothe environmentTotalIndustries—classifiedbyISIC NaturalinputsExtractionofnaturalinputs Products­IntermediateconsumptionHouseholdfinal consumption GrosscapitalformationExports ResidualsCollectionandtreatmentof residuals Accumulationofwastein controlledlandfillsites Residualssent totherestofthe world Residualflows tothe environment Total Note: Darkgreycellsarenullbydefinition. 241Integrating and presenting the accounts and products and the use of common groupings of economic units: enterprises (represented by industries), households and the rest of the world. 6.2.3 Integration of asset accounts and supply and use tables 6.20 The integration of information from asset accounts and supply and use tables is of particular relevance in the analysis of natural resources. For example, the assessment of the stock of fish resources will focus not only on extractions of fish relative to the available stock but also on the relationship between the extraction and other flows. Thus, there will be interest in so-called forward linkages which consider the extraction of fish in relation to the supply and use of fish products in the economy and associated international trade in fish products. Moreover, there will be interest in backward linkages for understanding the production processes associated with cultivated or natural fish resources, investment in boats and fishing gear by the fishing operators, and the extent of expenditure on resource management associated with fisheries. The integration of data from asset accounts and supply and use tables can provide information needed to examine these types of linkages. Similar considerations are relevant in the analysis of other natural resources. 6.21 Asset accounts present information on the stock of environmental assets at the beginning and end of an accounting period and on the changes in the stock over the period. The changes may be of many types. They may be due to economic activity (e.g., extraction of natural resources) or to natural flows (e.g., losses of environmental assets following natural disasters). 6.22 The relationship between these flows and the flows recorded in the supply and use tables is shown in table 6.2. Changes due to economic activity are recorded consistently in both the asset accounts and the supply and use tables, since extraction represents both a reduction in stock (an asset account entry) and a use of natural inputs (an entry in the physical supply and use table). For environmental assets, this consistency is ensured by defining individual natural resources for the purposes of asset accounting in the same way as natural resource inputs in the physical supply and use table. This table is described further in chapter II and the measurement issues associated with the individual flows are described in detail in chapters III and V. 6.2.4 The sequence of economic accounts 6.23 In monetary terms, monetary supply and use tables and asset accounts record much of the information of interest in the assessment of the interactions between the economy and the environment. However, there are a range of other monetary transactions and flows that are of interest, such as payments of rent for the extraction of natural resources, and subsidies and grants from government units to other economic units in support of environmental protection activity. The SNA records all of these flows in a presentation referred to as the sequence of economic accounts. The articulation of the SEEA Central Framework is made complete in a sequence of economic accounts that presents information on all environmentally related transactions and flows. 6.24 A particular feature of the sequence of economic accounts is the derivation of balancing items. Typically, there is not a balance between relevant inflows and outflows. Thus, a balancing item is introduced. The balancing items provide information in their own right but also link the sequence of accounts together. Key balancing items include value added, operating surplus, saving and net lending/borrowing. Economy-wide aggregates can also be constructed such as gross domestic product (GDP) and gross national income (GNI). System of Environmental-Economic Accounting 2012—Central Framework242 6.25 Balancing items are the key driver for the construction of a sequence of economic accounts in the Central Framework. They can be defined so as to take into account the depletion of natural resources. Thus, measures of depletion-adjusted net domestic product, depletion-adjusted net value added by industry, and depletion-adjusted net saving by institutional sector are defined as part of the full accounting framework. 6.26 The entries required at a sector level are basically the same as those at the national level except in situations in which a natural resource is considered to be jointly owned by two sectors. This situation most commonly occurs in respect of mineral and energy resources where, often, the extractor has a long-term lease over the resource from the government, and both sectors share the resource rent attributable to the mineral and energy resources. The appropriate accounting in these situations is undertaken within the sequence of accounts and is described in section 5.5. 6.27 Table 6.3 presents the SEEA sequence of economic accounts for institutional sectors, with a focus on depletion-adjusted balancing items and aggregates. The primary difference from the SNA sequence of accounts are the adjustments for depletion made to the balancing items of net value added, net operating surplus, balance on primary incomes, net disposable income and net saving. Table 6.2 Connections between supply and use tables and asset accounts Asset accounts (Physical and monetary terms) Industries Households Government Rest of the world Produced assets Environmental assets Opening stock Monetary supply and use table Product-supply Output Imports Product-use Intermediate consumption Household final consumption expenditures Government final consumption expenditures Exports Gross capital Physical supply and use table Natural inputs- supply Extracted natural resources Natural inputs-use Inputs of natural resources Product- supply Output Imports Product-use Intermediate consumption Household final consumption Exports Gross capital formation Residuals-supply Residuals generated by industry Residuals generated by household final consumption Residuals received from the rest of the world Residuals from scrapping and demolition of produced assets; emissions from controlled landfills Residuals-use Collection and treatment of waste and other residuals Residuals sent to the rest of the world Accumulation of waste in controlled landfills Residuals flowing to the environmentª Other changes in volume of assets (e.g., natural growth, discoveries, catastrophic losses) Revaluations Closing stock Note:  Dark grey cells are null by definition. Blank cells may contain relevant flows. These flows are articulated in detail in chapter III. a While these residual flows (e.g., air emissions) are not flows of environmental assets, they still may affect the capacity of environmental assets to deliver benefits. The chnaging capacity of environmental assets may also be reflected in other changes in the volume of assets. 243Integrating and presenting the accounts Table 6.3 SEEA Central Framework sequence of economic accounts (currency units) Institutional sectors Total economyAccounting entry Corporations General government Households NPISHª Production account Output 2 954 348 270 32 3 604 Taxes less subsidies on products na na na na 133 Less Intermediate consumption 1 529 222 115 17 1 883 Gross value added b 1 425 126 155 15 1 854 Less Consumption of fixed capital 169 27 23 3 222 Net value added 1 256 99 132 12 1 632 Less Depletion of natural resources 6 6 Depletion-adjusted Net value added 1 250 99 132 12 1 626 Generation of income account Gross value added 1 425 126 155 15 1 854 Less Compensation of employees payable 1 030 98 11 11 1 150 Less Other taxes less subsidies on production 57 1 -1 1 58 Less Taxes less subsidies on products na na na na 133 Gross operating surplus 338 27 145 3 513 Less Consumption of fixed capital 169 27 23 3 222 Less Depletion of natural resources 6 6 Depletion-adjusted Net operating surplus 163 122 285 Allocation of primary income account Depletion-adjusted Net operating surplus 163 122 285 Plus Compensation of employees receivable (households only) 1 154 1 154 Plus Taxes less subsidies on production receivable (general government only) 191 191 Plus Property income receivable (interest, dividends, rent) 245 22 123 7 397 Less Property income payable 302 42 41 6 391 Depletion-adjusted balance of primary income 106 171 1 358 1 1 636 Distribution of secondary income account Depletion-adjusted balance of primary income 106 171 1 358 1 1 636 Plus Current transfers receivable 347 367 420 40 1 174 Less Current Transfers payable 375 248 582 7 1 212 Depletion-adjusted Net disposable income 78 290 1 196 34 1 598 Use of disposable income account Depletion-adjusted Net disposable income 78 290 1 196 34 1 598 Less Final consumption expenditure 352 1 015 32 1 399 Depletion-adjusted Net saving 78 -62 181 2 199 System of Environmental-Economic Accounting 2012—Central Framework244 Table 6.3 SEEA Central Framework sequence of economic accounts (cont’d.) Institutional sectors Total EconomyAccounting entry Corporations General government Households NPISHª Capital account Depletion-adjusted Net saving 78 -62 181 2 199 Less Gross fixed capital formation 288 35 48 5 376 Less Changes in inventories 26 2 28 Less Acquisitions less disposals of valuables 2 3 5 10 Less Acquisition less disposals of natural resources and land -7 2 4 1 Less Acquisition less disposals of other non-produced, non financial assets Plus Capital transfers receivable 33 6 23 62 Less Capital transfers payable 23 34 5 3 65 Add back Consumption of fixed capital 169 27 23 3 222 Add back Depletion of natural resources 6 6 Net lending/borrowing -46 -103 163 -4 10 Note:  “na”-signifies that the item is not applicable. a   Non-profit institutions serving households. b   GDP equals gross value added for all institutional sectors plus taxes less subsidies on products. Description of the sequence of accounts 6.28 Each step of production, income distribution, income redistribution and use is described in a separate account. Each account has a name and leads to a balancing item which ensures that the sources and uses of funds are equal. These balancing items are of analytical interest in themselves and are often quoted in isolation from the underlying sequence of accounts. Examples of balancing items include value added, operating surplus and saving. Importantly, there are defined relationships between the balancing items in successive accounts and, usually, the balancing item for one account is the first entry in the following account. 6.29 Balancing items may be shown before or after deduction of consumption of fixed capital which is the deduction made to reflect the using up of fixed capital in the production process. Where consumption of fixed capital is not deducted, the name of the balancing item is preceded by the term “gross”. Where consumption of fixed capital has been deducted, the preceding term used is “net”. As noted, the key difference between the sequence of accounts of the SNA and the sequence of economic accounts of the Central Framework is the deduction of depletion of natural resources from balancing items measured in net terms (i.e., after the deduction of consumption of fixed capital). (a) Production account 6.30 In the sequence of accounts, the balancing item of the production account is value added, which is also the aggregate described in connection with the supply and use table. As in the supply and use tables, value added represents the difference between output and intermediate consumption. Value added summed across all productive activities plus taxes 245Integrating and presenting the accounts less subsidies on products constitutes GDP. Measures of net value added and net domestic product (NDP) are obtained by deducting consumption of fixed capital, and measures of depletion-adjusted net value added and depletion-adjusted NDP are obtained by further deducting estimates of depletion. (b) Generation of income account 6.31 The generation of income account shows how value added is allocated to the factors of production, i.e., labour and capital including both produced and non-produced assets. Amounts accruing to labour are shown as compensation of employees, while amounts accruing to capital are shown as operating surplus. This account also records gross mixed income which is the surplus accruing to unincorporated enterprises and implicitly contains a return to the owners for their labour and a return to capital. The balancing item in this account is termed “Operating surplus” in table 6.3 but strictly encompasses both operating surplus and gross mixed income. Taxes less subsidies on production must be deducted from value added to derive operating surplus. Following the approach taken in the production account, depletion is deducted from net operating surplus to derive depletion-adjusted net operating surplus, thus reflecting the using up of natural resources in the generation of income from production. (c) Allocation of primary income account 6.32 Compensation of employees, taxes less subsidies on production, and operating surplus are three types of primary income. The final type of primary income is property income comprising flows of interest, dividends and rent. Property income is received in exchange for putting financial assets and non-produced assets, such as land and mineral and energy resources, at the disposal of other economic units. At a sector level, the balancing item of all primary incomes is the balance of primary incomes. 6.33 At a national level, the net impact of property income flows reflects the balance of these flows to and from the rest of the world. There may also be flows of compensation of employees to and from the rest of the world (recorded in the generation of income account). At a national level, the aggregate of the allocation of primary income account is GNI. Net national income (NNI) is derived by deducting consumption of fixed capital and depletionadjusted NNI is derived by deducting depletion. 6.34 A key flow in the SEEA allocation of primary income account is rent on environmental assets, such as land and mineral and energy resources. This income reflects payments for the use of environmental assets between the extractor or user of the environmental assets and the legal owner. Usually, the rent on environmental assets represents one part of the income generated from extraction or use since, most commonly, the extractor/user will retain some operating surplus after the payment of rent to the legal owner. The details of the accounting treatment in these situations is outlined in section 5.5. (d) Distribution of secondary income account 6.35 The redistribution of primary income by means of transfers is shown in the distribution of secondary income account. These are payments made without a quid pro quo, i.e., payments made that are not related to an exchange between economic units. The largest types of transfers are taxes on income, wealth, etc., and social benefits paid by government, such as unemployment benefits and old-age pensions. The balancing item in the distribution of secondary income account is disposable income, which shows the amount available for expenditure on final uses (consumption and capital formation). System of Environmental-Economic Accounting 2012—Central Framework246 (e) Use of disposable income account 6.36 Disposable income must be used for current final consumption or saved. In the use of the disposable income account, the balancing item is saving derived by deducting consumption expenditure from disposable income. Most commonly, this balancing item is shown after the deduction of consumption of fixed capital, i.e., net saving. As for the production and allocation of income accounts, the balancing item net saving is adjusted in the SEEA sequence of economic accounts to deduct depletion. 6.37 Depletion-adjusted net saving has a particular interpretation in the Central Framework. In general terms, saving represents the resources available for investment, while net saving represents the resources available to increase the overall asset base after accounting for the cost of replacing the fixed assets that have been used up over the accounting period. 6.38 Extending this concept, depletion-adjusted net saving represents the resources available to increase the asset base after accounting for replacing the fixed assets and “replacing” environmental assets that have been used up in the accounting period. Although non-renewable environmental assets cannot be replaced, adjusting net saving for depletion can give an indication of the extent to which patterns of income and consumption are in alignment with changes in the overall asset base, including produced and environmental assets. (f) Capital and financial accounts 6.39 Income that is saved is used in a number of ways. It may be used for the acquisition of fixed capital, accounted for as a change in inventories, or for the acquisition of valuables, or it may be used to purchase financial assets (e.g., bank deposits) or reduce financial liabilities (e.g., repayments of home mortgages). The amount available for the acquisition of fixed capital and valuables may also be affected by capital transfers receivable and payable, and the net flow of these transfers is recorded in the capital account. 6.40 It is important to show that amounts of consumption of fixed capital that were effectively set aside in the derivation of balancing items in net terms in earlier accounts are in fact amounts that are available for the acquisition of fixed assets, since they are not an outlay in terms of current monetary expenditure. Hence, consumption of fixed capital is added back in the capital account. The same is essentially true of amounts of depletion, although the resources themselves cannot be “re-acquired”, as is the case with fixed assets. Nonetheless, the actual resources notionally set aside remain available for use; therefore, depletion is also added back in the capital account. 6.41 The balancing item of the capital account is net lending if the account is in surplus, or net borrowing if the account is in deficit. These terms are used, since any surplus must be lent to other units and any deficit must be financed by borrowing from other units, including from the rest of the world. 6.42 Net lending/borrowing is also the balancing item of the financial account which shows how the capital-account surplus or deficit is financed. If a country records a deficit in its capital account, then it must also show some amount of net borrowing from the rest of the world in the financial account (through either an increase in financial liabilities or a decrease in financial assets) that corresponds to the financing of that deficit. 6.43 In addition to completing the sequence of accounts, the capital and financial accounts are composed of transactions that reflect some of the changes between balance sheets at the beginning and end of an accounting period. In the SNA, other changes between balance sheets, for example, due to discoveries or catastrophic losses, are recorded in the other changes in volume of the assets account, or in the revaluation account. In the Central Framework, all 247Integrating and presenting the accounts changes in assets over an accounting period are recorded in asset accounts that incorporate all of these transactions and other flows. Asset accounts for environmental assets are described in detail in chapter V. 6.2.5 Functional accounts 6.44 The fourth area of integration concerns the identification of flows relating to environmental activity in monetary terms. These accounts are known as functional accounts, as they focus on economic activity undertaken for a particular function or purpose. The purposes of interest in the Central Framework are environmental protection and resource management. The two functional accounts that are described in chapter IV are the environmental protection expenditure account (EPEA) and statistics on the environmental goods and services sector (EGSS). 6.45 The basic organization of information for functional accounts follows the structure of the core monetary supply and use tables and the sequence of economic accounts. Within this structure, the objective is to identify all transactions with a specific environmental purpose. 6.46 The integrated aspects of functional accounts are based on the use of the core accounting structures, rules and principles of the national accounts. Consequently, information on environmental activities can be readily compared and contrasted with information on other activities within the economy. Further, environmental activities can be compared with other activities in relation to other economic variables, such as employment. 6.47 While the focus of functional accounts and statistics such as the EPEA and EGSS statistics is on flows in monetary terms, it is also possible to align the monetary estimates with relevant physical flows. This can be achieved, since the underlying accounting in these functional accounts is consistent in terms of the definition of economic units (enterprises represented by industries, households and governments) and the rest of the world, and the scope of products. It is possible, for example, to relate expenditure for environmental protection purposes by industries and households with quantities of air emissions by the same economic units. 6.2.6 Employment, demographic and social information 6.48 The usefulness of the information in the various tables and accounts of the Central Framework can be enhanced by relating different environmental and economic data to estimates of employment, estimates of population, various demographic breakdowns (such as age, household income levels, and household characteristics related to material well-being), and social measures, such as health and education. 6.49 Employment information, such as the number of people employed, the number of jobs, and the number of hours worked, may be used in the assessment of environmental activity from an industry perspective. In particular, there is likely to be interest in employment data related to the production of environmental goods and services as part of measures of the “green” economy. 6.50 Information on population and demographic breakdowns can be used in conjunction with information on the physical flows of water and energy to provide enhanced analysis of resource accessibility and availability, and changes in patterns of water and energy use. Demographic information used together with data on environmental protection expenditure may assist in understanding behaviours of different socioeconomic groups in relation to this type of environmental activity. 6.51 More generally, accounting for differences in population size and structure may be important for international comparisons of environmental and economic data. For example, System of Environmental-Economic Accounting 2012—Central Framework248 measures of changes in per capita air emissions may be of interest in addition to aggregate measures of air emissions. 6.52 Social measures, such as those relating to health and education, may be usefully related to certain components of the Central Framework. For example, measures of air emissions may be complemented by measures of health status. This may be particularly relevant if finer-level geographical areas are being considered. In this regard, it may also be of interest to incorporate measures of actual final consumption of households (i.e., including the transfer of individual benefits to households purchased by governments (e.g., water services provided by government)) in the comparison of consumption activity across countries.79 6.53 Demographic and employment information may need to be adjusted for purposes of consistency with the concepts, definitions and classifications of the Central Framework, in particular for alignment with the concept of residence. Relevant information can be found in chapter 19 of the 2008 SNA. Techniques and analytical approaches for linking SEEA-based data with various types of employment, demographic and social data are explored further in SEEA Applications and Extensions. 6.3 Combining physical and monetary data 6.3.1 Introduction 6.54 The presentation of information in a format that combines both physical and monetary data is one of the strongest features of the Central Framework. This enables the provision of a wide range of information on specific themes, the comparison of related information across different themes, and the derivation of indicators that require the use of both physical and monetary data. 6.55 Given the integrated accounting structures for physical and monetary accounts and statistics, it is logical to use these structures and the common underlying accounting rules and principles to present both physical and monetary information. Such integrated formats are sometimes referred to as “hybrid” presentations or accounts because they contain data in different units. However, even though the units are different, the data sets are presented according to common classifications and definitions: hence, these presentations are referred to as combined physical and monetary presentations. 6.56 Different forms of combined physical and monetary presentations are possible and, indeed, there is no standard form for these presentations or accounts. Commonly, physical flow data are presented alongside information from monetary supply and use tables, but even for this basic structure different combinations are possible. Ultimately, the structures of combined presentations of monetary and physical data are dependent on the availability of data and the question under investigation. 6.57 While no standard structure can be defined, compiling and contrasting monetary and physical data in meaningful ways is at the heart of the SEEA philosophy. The present section provides general guidance on the compilation of combined physical and monetary presentations. More detailed presentations involving structures such as input-output tables, the full sequence of economic accounts or presentations that cover a particular theme or topic, for example, fisheries, are considered in SEEA Applications and Extensions and in targeted thematic publications. 79 See paras. 9.112-9.121 of the 2008 SNA. 249Integrating and presenting the accounts 6.3.2 The concept of combining physical and monetary data 6.58 The logic behind the recording of physical flows in a manner compatible with economic transactions is at the core of combining physical and monetary data. The linkage of physical flows to economic transactions ensures a consistent comparison of environmental costs with economic benefits, or environmental benefits with economic costs. This linkage can be examined not only at the national level but also at disaggregated levels, for example, in relation to regions of the economy, or specific industries, or for the purpose of examining the flows associated with the extraction of a particular natural resource or the emissions of a particular substance. 6.59 Because these presentations combine physical data that may be of more immediate relevance to scientists, with monetary data familiar to economists, they also have the potential to serve as a bridge between both types of specialists in the context of their analysis of the environment. 6.60 It is to be stressed that it is legitimate to include only a limited set of variables, depending on the most urgent environmental concerns to be taken into consideration, and that it is not necessary to complete an exhaustive physical supply and use table in order to be able to present combinations of physical and monetary data. 6.61 A combined physical and monetary presentation thus represents an analytical framework showing which parts of the economy are most relevant to specific aspects of the environment, and how changes in the economic structure influence the environment. Further, because the accounts provide consistent environmental and economic indicators, the possible trade-offs in environmental terms between alternative environmental and economic strategies can be analysed. 6.62 At finer levels of disaggregation, combined presentations can provide the research community with access to a structured database for further research on the role of these indicators in monitoring the overall environmental performance of national economies and industries. For example, it is possible to convert estimates of resource use or environmental pressures by industry into estimates of resource use or pressures by product group. Also, data sets with combinations of physical and monetary data may be of direct use in the development of environmental-economic models. 6.3.3 Organization of information 6.63 It is important that the information in the accounts be effectively communicated to users and decision makers. The present section highlights some general considerations in the presentation and organization of data, especially with a view to aligning physical and monetary data for combined presentations. Time-series data 6.64 The tables in the Central Framework are designed to explain accounting concepts and relationships and therefore feature data only for a single time period. In practice, time series of the aggregates that show the trends in economic and environmental variables are also of interest to users. 6.65 Generally, time series should be compiled and presented over as long a period as possible with the periodicity determined based on the rate of change in the phenomenon under investigation and the needs of users. Often, in environmental and economic accounts, the length of time series may be short, as the source data may have been collected infrequently or only in recent years. System of Environmental-Economic Accounting 2012—Central Framework250 6.66 One difficulty in the creation of time series of accounting data is associated with the consistency with which source data are compiled over time. Changes in the classifications, coverage and definitions used in the collection of source data can require significant reworking by accountants in order that a consistent time series may be prepared. This may be especially problematic when the source data are compiled irregularly or infrequently. 6.67 It is recommended that accountants place emphasis on maintaining a continuity of time series, in part by being guided by the authority of the accounting framework which requires that meaningful balances and accounting identities be upheld. 6.68 One consequence of compiling accounting data in time-series fashion is that changes and additions to source data are likely to require the reassessment of data from previous accounting periods, and hence revisions in the time series may need to be implemented. Although, in principle, a compiler can wait until all possible data are available before releasing the accounts for one period, generally, a balance must be struck between the accuracy of the accounts and the timeliness of the information, and hence making revisions to the accounts should be considered standard practice. 6.69 At times, new information may not only highlight the need for revision to a specific time period but also suggest the need to reassess neighbouring time periods in order to retain the meaningfulness of the time series as a whole. The compiler plays an important role both in managing time series and in reassessing models and assumptions. 6.70 Since revisions are important but difficult to predict, they should be considered and implemented in a way that is explicable to users and can be meaningfully operationalized by compilers. In this regard, the best practice in formulating a revisions policy and undertaking analysis of revisions has been summarized in “Guidelines on revisions policy and analysis” (OECD, 2008a). Ideally, the revisions policies of national accounts and environmental accounts should be aligned. 6.71 It is important to ensure that the source data underpinning the physical and the monetary data relate to the same accounting period. Generally, monetary accounts will be compiled on a financial or calendar-year basis. Physical data may be compiled on a basis that aligns more closely with natural environmental patterns and seasons. Adjustments taking these differences into account may be needed. 6.72 Generally, the time frames considered in the Central Framework are annual but, in certain cases, the compilation of sub-annual time series may be appropriate, particularly cases where the physical flows or economic activity are seasonal in nature, for example, patterns of rainfall and electricity use. An understanding of required capacity in water and energy supply, or in the thresholds for various environmental pressures, will usually require knowledge of seasonal peaks and troughs rather than annual averages. 6.73 Some of the tables can be easily adapted to the presentation of data in time-series fashion. For others that are in a matrix-type format, for example, supply and use tables, choices need to be made regarding which variables should be highlighted. The ability to release data in non paper based format, for example, in databases, permits a greater flexibility in this regard. Institutional sector and subsector data 6.74 For some accounts and tables, the Central Framework describes the compilation of data by institutional sector. In principle, all accounts can be compiled at this level of detail, although the data and accounting requirements for the compilation of a complete set of institutional sector accounts may be quite extensive. 251Integrating and presenting the accounts 6.75 It is noted that the terms “industry” and “sector” refer to different groupings of economic units. Analysis by industry combines all economic units undertaking similar types of production whether they are corporations, household units or government units. Analysis by institutional sector, as is discussed here, focuses on groupings of units with similar objectives and behaviours. The distinction is explained in greater detail in section 2.6. 6.76 There may be particular instances where a broad focus on specific institutional sectors or subsectors is appropriate. For example, there may be particular interest in the environmental activities of government at different levels, i.e., at national, regional or local levels. To compile accounts of this type, the flows between these different levels of government also need to be recorded and balanced. 6.77 Another area of focus may be the household sector and, in particular, those divisions of the household sector that are commonly not observed in market transactions, for example, the collection of water and fuelwood by households, subsistence farming and other informal household sector activities. While in concept these activities are part of the economy, often the lack of market transactions makes them difficult to observe and estimate. Given the close relationship between these non-observed activities and the local environments on which they depend, the preparation of accounts specifically for these types of units may be desirable. 6.78 Generally, consumption expenditure is recorded for households and general government only as being equal to the amount of consumption purchased by each sector. An alternative perspective on consumption is to recognize that, often, the consumption of households is supported by expenditure by governments on behalf of the households in an economy, for example, through the provision of education. Thus, an aggregate of the “actual” consumption of households can be defined equal to household consumption expenditure plus the amount of government consumption expenditure that is classified as individual consumption. Individual consumption is to be distinguished from collective consumption, which is consumption that cannot be attributed to individuals or households, such as defence services or the services of a legal and justice system. 6.79 The measurement of actual consumption is useful for cross-country comparisons and long-term comparisons within a country, as it accounts for the manner in which a provision of services to households is organized. Data by geographical area 6.80 The initial consideration in the organization of information on a geographical basis concerns the application of the residence principle within all SEEA data sets. Consistent with the SNA, the accounts and tables of the Central Framework for a country are defined in terms of the economic residence of the economic units rather than of the location of the activity of the units. The distinction between residence and territory principles of recording is described in chapter II. 6.81 The main focus of the accounting descriptions and explanations is on accounting for a country as a whole. This aligns with the intent of the SNA and with the general purpose of the Central Framework, which is to serve as a national accounting tool rather than as a tool for accounting at the level of an economic unit. One of the motivations for retaining a higherlevel focus stems from the fact that for the accounting principles to be applied at finer levels of geographical detail, there is a need to understand both the flows in and out of the smaller regions and the area of predominant economic interest for each economic unit. Often, this type of information is difficult to establish at small geographical levels. 6.82 At the same time, the fact that there are likely to be both administrative boundaries within countries and different environmental and economic circumstances in different areas System of Environmental-Economic Accounting 2012—Central Framework252 of a country would suggest that the compilation of accounts by subnational geographical areas could be a sensible approach. The geographical areas relevant for environmental and economic accounting may not be the same as those resulting from the administrative breakdowns of regional areas. For example, water accounts are often compiled for river basins which are defined following hydrological concepts. 6.83 In principle, all accounts can be compiled at these finer levels but compilers should be aware that, in general, compilation will require additional assumptions, particularly regarding the location of economic units. 6.84 It may also be relevant to select specific variables, for example, output, employment or emissions; and to compile data relating to these variables at a regional level without compiling a full accounting framework. Provided the relationship between the variables is interpreted in the same way as in the broader accounting framework, meaningful information concerning the pressures and drivers in particular regions might be established without the need to compile a full set of supply and use tables and other accounts. Data in volume terms 6.85 For many environmental and economic indicators and statistics, it is important—and more useful—to present monetary data in terms of the changes in the underlying volumes. Volumes represent changes in the value of stocks, transactions and other flows after the effect of price changes has been removed. Volume changes comprise changes in quantity and changes in quality. Adjusting for the effects of price changes is particularly important when presenting time series of data. Commonly, these estimates of volumes are termed estimates in “constant prices”. 6.86 A discussion on the approach to compiling monetary data in volume terms is in chapters II and V. From an integration perspective, compiling data in volume terms can be an important part of data confrontation. For the compilation of conventional national accounts estimates, it is increasingly common for countries to compile monetary supply and use tables in volume terms by removing the effects of price change from the supply and use tables based on transaction values. In concept, estimates in “volume” supply and use tables should bear a reasonable resemblance in structure to the flows of products in the physical supply and use tables. 6.87 It is not necessary to compile complete supply and use tables and asset accounts in volume terms in order to develop indicators that use variables expressed in volume terms. Ideally, an estimate of price change that is specific to the target variable should be used but, depending on the analytical purpose, it may be sufficient to divide a time series of monetary values by a general estimate of price change in an economy, for example, by a consumer price index. Classifications 6.88 The monetary accounts and tables are compiled using a consistent set of classifications of products and industries as used in the SNA. For physical data, different classifications are often used for different topics and themes that are specifically developed for analysis of those topics. For example, detailed classifications for water and energy flows in physical terms have been developed. Any differences in classification need to be resolved before physical and monetary data are combined. Accounting adjustments 6.89 Section 6.2.2 describes the areas in which the compilation of physical accounts should, in concept, record different flows, as compared with the monetary accounts compiled fol- 253Integrating and presenting the accounts lowing the SNA. When combining physical and monetary data, these differences should be accounted for. 6.90 In concept, the measurement boundary relating to household production and consumption on own account (e.g., the collection of water and fuelwood for own consumption) is the same in physical and monetary terms. However, there may be more interest in fully describing physical flows associated with household production for own consumption for environmentally related analysis than would be the case in the compilation of monetary supply and use tables in monetary terms for general economic analysis. Consequently, where the detail concerning household own-account activity is of interest, it is important to ensure that the actual measurement scope in physical terms is aligned with that in monetary terms. 6.91 More generally, it is likely that the data sources used to compile estimates for monetary supply and use tables and physical flows will be different. It is therefore important, when combining monetary and physical data, to confirm that the implicit relationships between quantities and prices are meaningful and reasonable. A particular issue in this regard is the timing of recording of the flows in physical and monetary terms. It may be the case that the acquisition of products takes place in a different accounting period than that of their consumption (e.g., the purchase of heating oil for household use). When combining physical and monetary data, such timing issues should be taken into account. 6.4 SEEA Central Framework aggregates and indicators 6.4.1 Introduction 6.92 The Central Framework also lends itself to the derivation of important aggregates and indicators in the same way as the national accounts are well known for the important aggregates that are derived from the accounting structure, for example, GDP and NNI. 6.93 The breadth of the Central Framework enables many aggregates and indicators to be sourced from the component tables and accounts. The present section introduces the range of aggregates and indicators that are either embedded in the framework or easily derived as the ratio between variables within the framework. Data may also be used to compile more complex indicators that require a range of assumptions and weighting patterns for their derivation. Such indicators, however, are not discussed in this section. 6.4.2 Descriptive statistics Totals and aggregates 6.94 The Central Framework contains a range of totals (for the economy) and aggregates (balancing items) that may be of interest in monitoring changes in environmental and economic activity: (a) From the physical flow accounts, total physical flows such as total flows of water, energy, air emissions and solid waste, for the economy as a whole or for individual industries and households, can be obtained; (b) From asset accounts, total physical flows of natural resources, including extractions and natural losses, can be obtained, as well as total values of natural resources and any associated depletion; (c) From the sequence of economic accounts, the key monetary aggregates in the Central Framework are the depletion-adjusted balancing items such as depletionadjusted net value added and depletion-adjusted net saving; System of Environmental-Economic Accounting 2012—Central Framework254 (d) From the functional accounts, EPEA and EGSS statistics, totals such as national expenditure on environmental protection and total production, value added and employment of environmental goods and services may be obtained. 6.95 These various totals and aggregates are naturally obtained from the accounting structures that have been described in chapters III, IV and V. Structural statistics 6.96 Another type of descriptive statistics that can be obtained from the accounting structures are statistics on the structure of different physical and monetary flows and stocks. The fact that the accounting structures are complete in their coverage of economic units and geographical areas enables shares of different variables to be derived. For example, the share of total emissions by households and the share of water use by agriculture can be calculated in a straightforward manner from the relevant physical flow accounts. 6.97 Indicators related to land management, including land cover and land use indicators, are also considered structural statistics. These indicators may provide information on the share of total area being used for the maintenance and restoration of environmental function or the share of land owned by different industries. 6.98 Other examples of structural statistics include the share of environmental taxes in total taxes, the share of employment in the production of environmental goods and services in total employment, and the share of energy supply from renewable sources. 6.99 Specific mention is made of the ability to derive shares within functional accounts, since the totals relating to expenditure and production can be directly related to conventional national accounts aggregates, such as GDP and industry value added. 6.4.3 Environmental asset aggregates and indicators 6.100 Asset accounts in physical terms concerning individual environmental assets can provide indicators on the availability of these assets and changes in availability through the comparison of the amounts extracted with the remaining stock. Such information may be relevant in the management of demand and supply of environmental assets. 6.101 Asset accounts in monetary terms can be used to derive indicators for both individual environmental assets and for combinations of these assets, since summation across assets is possible in monetary terms. A summation can provide estimates of environmental asset wealth which in turn can be compared with estimates of the value of other assets, including produced and financial assets. Estimates of total national and institutional sector wealth can also be calculated. 6.102 The sequence of accounts can provide information on the depletion of environmental assets and also on the share of resource rent accruing to various sectors involved in the extraction of resources, particularly mineral and energy resources. 6.103 By combining these indicators with population statistics and descriptive statistics on households such as annual income, it is also possible to consider the use of resources on a per capita basis and the distribution and use of resources by different household types. 6.4.4 Aggregates related to financing and cost recovery of economic activity related to the environment 6.104 Data contained in the sequence of economic accounts can provide important insights on how economic activity related to the environment is financed and also on the full cost of 255Integrating and presenting the accounts providing access to resources, particularly water and energy. The financing aspects can be considered through analysis of subsidies and other transfers for environmental purposes, particularly flows from government and the rest of the world. It may also be relevant to consider the collection of environmental taxes as a means of supporting economic activity related to the environment. 6.105 Estimates of the full cost of supplying resources must incorporate the general operating costs such as intermediate consumption of materials and compensation of employees, and also other current and capital costs. These include payments of rent and interest, as applicable, and the costs of any relevant infrastructure and equipment. The estimation of capital costs should include both the consumption of fixed capital and the opportunity cost of investing in the assets which is equivalent to estimating a rate of return on the assets. The recognition of all costs is important in ensuring that investment decisions are taken with both short- and long-term costs in mind. All of the relevant variables for these estimates are contained in the sequence of economic accounts. 6.4.5 Environmental ratio indicators 6.106 The aggregates and indicators described directly above emerge from accounts and tables in either physical or monetary terms. There are also important indicators of environmental pressures and responses that can be derived from combined physical and monetary presentations. They are generically referred to here as environmental ratio indicators. The present subsection describes three main types of these combined indicators. Productivity and intensity indicators 6.107 Productivity and intensity indicators are important indicators that can be derived from environmental and economic accounting data. Productivity indicators represent the ratio of an economic aggregate, such as output or GDP, to a physical flow, such as the energy content of energy products used. Intensity indicators represent the ratio of a physical flow to an economic aggregate, i.e., they are the inverse of productivity indicators. All of these indicators focus on the production process and changes in the extent to which natural resources and natural inputs are being used by industries to produce goods and services. 6.108 In the derivation of these types of indicators, it is important that the economic aggregate used be measured in volume terms, if the intention is to measure changes over time. Otherwise, the picture presented of the degree of productivity or intensity may be misleading. Decoupling indicators 6.109 Decoupling indicators show the extent to which growth in income and consumption is occurring with a decreasing use of environmental resources, e.g., decreased energy use, or reduced emissions. They are derived by dividing a relevant economic aggregate (e.g., household consumption or GDP) by a relevant physical flow, for example, air emissions. These are essentially productivity indicators, but the focus is on the divergence of the environmental and economic aggregates. 6.110 As for productivity-type indicators, the economic aggregates should be measured in volume terms for time-series purposes. Also, in order to assess the relative significance of the decoupling, it is important to present decoupling indicators together with the values of the numerator and denominator. System of Environmental-Economic Accounting 2012—Central Framework256 Polluter pays indicators 6.111 Polluter pays indicators relate physical information on emissions to payments, primarily environmental protection expenditures and environmental taxes, that are made in relation to those emissions. These indicators help show the extent to which environmental protection costs are internalized, and whether taxation and other payment schemes are influencing the amount of emissions. An example of this type of indicator is the implicit tax rate for energy which is derived by dividing energy taxes (as defined in chapter IV) by joules of energy used. 6.4.6 The SEEA Central Framework and international indicator initiatives 6.112 For many years, there has been interest in the development of sets of indicators that offer insight into environmental and sustainable development issues. Examples of international indicator initiatives are those connected to the OECD project on green growth, the United Nations Environment Programme (UNEP) Green Economy initiative, the Beyond GDP initiative of the European Union, and the indicator work under the Convention on Biological Diversity.80 Many of the indicators that are of interest in these indicator sets can be found within the Central Framework. 6.113 Because of the strength of the underpinning accounting structure, particularly in terms of defining relationships between indicators and in providing a strong data compilation and confrontation framework, the Central Framework represents an important information base from which indicators can be chosen for use in populating different sets of indicators. 6.114 In addition, the strong connection between the Central Framework and the SNA provides links to core macroeconomic aggregates which allow environmentally focused indicators to be seen within a context more oriented towards economics, and hence accessible to a broader audience. This strong connection also allows for modelling and forecasting. 6.115 It is recommended that, in the development of sets of indicators that focus on environmental and sustainable development issues, the Central Framework be used as the basis for compiling indicators, wherever appropriate. 6.5 Examples of combined physical and monetary presentations 6.5.1 Introduction 6.116 The appropriate structure for combined physical and monetary presentations varies depending on the topic or theme under investigation and the scope and availability of data in physical and monetary terms. 6.117 The capacity to develop different structures allows information from different core accounting structures—for example, from supply and use tables, asset accounts, functional accounts and the sequence of accounts—to be combined. Such flexibility makes these presentations particularly appropriate for the organization of information on particular topics or themes. 6.118 For example, the compilation of asset accounts for fish resources may provide useful information in both physical and monetary terms. However, when these are combined with information on the supply and use of fish resources through the economy, information on 80 United Nations, Treaty Series, vol. 1760, No. 30619. 257Integrating and presenting the accounts employment in the fishing industry, information on the emissions generated by aquaculture, and information on any payments made for fishing quotas, a far more complete view of the fishing industry and associated activity is likely to be presented. The breadth of the Central Framework encompasses all of these types of information. 6.119 The present section presents a general structure that may be adopted for combining physical and monetary data, followed by four examples of combined presentations for particular themes. The themes are energy, water, forest products and air emissions. These examples should give a sense of the potential of the Central Framework for providing rich and integrated data sets on specific themes and also for supporting analytical activities through the development of its data. 6.120 It is also possible to combine information from a variety of different themes into a single presentation. For example, data on household energy use, water use, air emissions and other physical flows might be combined with data on household final consumption expenditure within a single presentation. Alternatively, information on a variety of environmental themes might be presented for a particular region within a country. An extended discussion of the analytical potential of SEEA data is presented in SEEA Applications and Extensions. 6.5.2 General structure for combined presentations 6.121 Although there are no standard presentations of combined physical and monetary data, there are some common areas that are generally included in combined presentations. At a broad level, these areas cover all of the content described in the Central Framework (chaps. III-V). 6.122 Table 6.4 sets out a possible structure and some typical content for the presentation of combined physical and monetary data. It has four sections, covering monetary flows, physical flows, stocks and flows of environmental and fixed assets, and relevant indicators. None of these are mandatory fields and additional variables and levels of detail may be added as data and information requirements allow. An important feature of the structure is that the column headings remain the same for each of the four sections, thus highlighting the ability of the structure to consider a range of different variables from the perspective of a consistent and commonly defined set of economic units. 6.123 The content presented in table 6.4 and the examples of combined presentations provided in the rest of the section relate only to a single time period. Often, it will be useful to present data over a longer time period and hence different structures will be required for presentation and publication purposes. 6.5.3 Combined presentations for energy data 6.124 Within energy accounts, there is particular interest in comparing the supply and use of energy products in monetary terms and in terms of energy content. A combined presentation of the supply and use of energy products in monetary and physical terms using the same industry and sector breakdowns may provide a useful comparison. 6.125 An example of a combined presentation for energy products is provided in table 6.5, which shows the supply and use of energy products by type of energy product in monetary terms (measured in currency units) and in physical terms (measured in joules). It is also extended to present related information on the relevant stocks of environmental assets; on flows of energy from natural inputs; and on gross fixed capital formation for the extraction of mineral and energy resources, the capture of energy from renewable sources, and the distribution of energy products. System of Environmental-Economic Accounting 2012—Central Framework258 Table 6.4 Possible structure of and typical content for combined presentations Industries (by ISIC divisions) Households Government Accumulation Flows with the rest of the world Total Monetary supply and use: flows (currency units) Supply of products Intermediate consumption and final use of products Gross value added Depletion-adjusted value added Environmental taxes, subsidies and similar transfers Physical supply and use: flows (physical units) Supply of: Natural inputs Products Residuals Use of: Natural inputs Products Residuals Asset stocks and flows Closing stocks of environmental assets (currency units and physical units) Depletion (currency units and physical units) Closing stocks of fixed assets (currency units) Gross fixed capital formation (currency units) Related socio-demographic data Employment Population Note:  Dark grey cells are null by definition. 6.126 Broadly, each entry for the supply of energy products in physical terms has a corresponding entry in monetary terms. The exception concerns energy produced and consumed within establishments and losses of energy. These physical flows are included only in specific rows in the supply and use tables in physical terms, as there are no associated monetary transactions. 6.127 Additional entries in the monetary supply table are required to convert estimates of supply measured in basic prices to estimates of supply in purchasers’ prices. Monetary estimates in purchasers’ prices are required, as they are the basis of valuation in the use table. 6.128 For each industry, the tables show the supply and use of energy products and include, in monetary terms only, a row for the total supply of products and the total intermediate consumption and final use of products, i.e., totals including energy and non-energy products. Inclusion of the supply and use of all products in these presentations makes it possible to derive the share of output of energy products in relation to the total output of products in the economy. Similarly, it is possible to see the role that energy plays in relation to other products in terms of intermediate consumption by industries, household and government consumption, and exports. 259Integrating and presenting the accounts 6.129 To reap the full benefits of such a supply and use comparison, the same classification of energy products should be used. Currently, there is not a clear relationship between categories of the Standard International Energy Product Classification (SIEC), which is designed for classifying energy products in physical terms, and the Central Product Classification (CPC), which is generally used to classify product-level data in monetary terms. Compilers must resolve these differences in classification, potentially by undertaking combined analysis at higher levels of aggregation which yield consistent commodity definitions. In table 6.5, an aggregation of SIEC has been used to present the energy products. 6.5.4 Combined presentations for water data 6.130 Within water accounting, the interest lies in linking the abstraction and use of water in physical terms with estimates of output and value added by industry and the total final consumption of households. The presentation of physical and monetary information in the same account allows for the derivation of consistent indicators for evaluating the impact on water resources of changes in the economy due, for example, to changes in economic structure. Using combined accounts in economic models permits the analysis of possible trade-offs between alternative water policies and economic strategies. 6.131 A basic combined supply and use table for water is presented in table 6.6. For the monetary part of the combined supply table, two water-related products are identified: natural water and sewerage services. Depending on data availability, other products may be incorporated, for example, those relating to irrigation water. The monetary part also includes estimates of total supply of products (i.e., including the output of non-water products) for each industry, thus providing an indication of the relative significance of the output of waterrelated products as part of total industry output. 6.132 The monetary part of the combined supply table records additional entries to illustrate the conversion of measures of output in basic prices to measures of output in purchasers’ prices. This step enables an accounting balance to be maintained with the use table in monetary terms. 6.133 The physical flows in the combined supply table reflect volumes of water supplied between economic units, including volumes of wastewater to sewerage (shown along an “of which” row), as well as total returns to the environment. The bulk of the supply of water appears in the columns corresponding to the Water collection, treatment and supply industry and the sewerage industry. Flows relating to hydropower are shown explicitly, reflecting the relative significance of these flows within the total physical flows of water. 6.134 The monetary part of the combined use table shows the intermediate consumption and final use of the two primary water-related products. Total intermediate consumption for each industry and total final consumption for households and government are also shown to provide an indication of the significance of the use of water as part of total consumption. 6.135 A distinction is made between the final consumption expenditure by households and the actual final consumption of households. The difference reflects expenditure by governments to provide goods and services (in this case, water supply) to households. Thus, although these goods and services are purchased by governments, the consumption is in fact that of households. This distinction allows an improved comparison of consumption over time and across countries, as it is not dependent on the arrangements in place to manage and finance water supply. System of Environmental-Economic Accounting 2012—Central Framework260Table6.5 Combinedpresentationforenergydata IndustriesbyISICsections Rest ofthe world Taxesless subsidieson products, tradeand transport margins Finalconsumption Capital formationTotal Agriculture, forestry and fishing Mining and quarrying Manufac- turing Electricity, gas,steam andair conditioning supply Transporta- tionand storage House- holds Govern- ment Other industries Total industry ISICAISICBISICCISICDISICH 1. Supplyofenergyproducts (currencyunits) Coal26125126126 Peatandpeatproducts Oilshale/oilsands Naturalgas461443128926389112817 Oil125896164187531723256236547 Biofuels22121616 Waste1111562679276 Electricity14414144149811322536 Heat665665665 Nuclearfuelsandotherfueln.e.c. 2. Totalsupplyofproducts(currencyunits)5978072669382883976530440166086407123543 3. Intermediateconsumptionand finaluse(currencyunits) Energyproducts100812451920512872614293256077334207273170633622150-5200667688 Total(energyandnon-energyproducts)5112162143327421835826933858699506303652491935163978 4. Grossvalueadded(currencyunits)86591052655462140735063738690819891819891 5. Depletionofnaturalenergyresources (currencyunits) Depletion-adjustedvalueadded86591003655462140735063738690819401819401 6. Employment1451487816537499211083110831 7. Supplyofenergyproducts(PJ) Coal225225 Peatandpeatproducts Oilshale/oilsands Naturalgas395369764764 Oil72134710689301998 Biofuels5277 Waste39559417110 Electricity21221222234 261Integrating and presenting the accounts IndustriesbyISICsections Rest ofthe world Taxesless subsidieson products, tradeand transport margins Finalconsumption Capital formationTotal Agriculture, forestry and fishing Mining and quarrying Manufac- turing Electricity, gas,steam andair conditioning supply Transporta- tionand storage House- holds Govern- ment Other industries Total industry ISICAISICBISICCISICDISICH Heat797979 Nuclearfuelsandotherfueln.e.c. 8. Enduseofenergyproducts(PJ) Coal2172021-212 Peatandpeatproducts Oilshale/oilsands Naturalgas2391253201262282 Oil342326621491032441102-31572 Biofuels2257 Wastea343714513379 Electricity712250101510510029234 Heat2112119354479 Nuclearfuelsandotherfueln.e.c. 9. Closingstocksofnaturalenergyresources (currencyunits/PJ) Oilresources8200082000 Naturalgasresources7600076000 Coalandpeatresources8400084000 Uranium20002000 10. Depletionofnaturalenergyresources (PJ) 11611161 11. Grossfixedcapitalformation (currencyunits) Forextractionofenergyresources26510265102651026510 Forsupplyofenergyproducts5204230475047504750 12. Closingstocksoffixedassetsforextrac- tionofenergyresources(currencyunits) Forextractionofmineralandenergy resources 238500190560429060429060 Forcaptureofenergyfromrenewable sources 143014301430 Fordistributionofenergyproducts62019022350802608513285132 Note: Darkgreycellsindicatezeroentriesbydefinition. System of Environmental-Economic Accounting 2012—Central Framework262Table6.6 Combinedpresentationforwaterdata Industries(byISICdivisions) Rest ofthe world Taxesless subsidieson products, tradeand transport margins Actualfinal consumption Capital formation01-03 05-33; 41-43353637 38,39, 45-99 Total industryHouseholds Govern- mentTotal 1. Supplyofwaterproducts(currencyunits) Naturalwater131657014766051-26604 Sewerageservices502250222145038 2. Totalsupplyofproducts1707372671431957696570503664782887123543 3. Intermediateconsumptionandfinaluse (currencyunits) Naturalwater 406 643 8810041001229347043074606608 Sewerageservices 3 229 11311406165333316665038 Otherproducts1455971251811806832360171858429906298529605817500961284442 4. Grossvalueadded(currencyunits) 24731141090 1499731933217632663819891819891 5. Employment 371 2211 61414382041093110931 6. Supplyofwater(millionsofcubicmetres) Supplyofwatertoothereconomicunits378378 Totalreturns6529400474841102651031 7. Useofwater(millionsofcubicmetres) Totalabstraction108115404440100211691169 ofwhich:Abstractionforownuse10811540450100278011791 Useofwaterreceivedfromother economicunits3945451139240378 8. Grossfixedcapitalformation (currencyunits) Forwatersupply58216819287242894289 Forwatersanitation287428742874 9. Closingstocksoffixedassetsforwater supply(currencyunits)611284987125347174143141431 10.Closingstocksoffixedassetsforwater sanitation(currencyunits)374573745737457 11.Waterconsumption (millionsofcubicmetres)7643321412810138 Note: Darkgreycellsindicatezeroentriesbydefinition. 263Integrating and presenting the accounts 6.136 It may be useful to incorporate in the monetary part of the combined use table, estimates of gross fixed capital formation (investment) for water supply and treatment operations. These entries are made for each relevant industry in additional rows in the table. 6.137 The physical part of the combined use table shows the volume of water abstracted from the environment, including amounts retained for own use, and amounts received by economic units. 6.138 Depending on the purpose of analysis, additional information, for example, concerning emissions to water by industry and household, or stocks of fixed assets used for water supply, can be included within the general combined supply and use table framework to provide a single reference point for relevant information. Additions such as these demonstrate the capacity of combined supply and use tables to incorporate additional information within a core structure. 6.5.5 Combined presentations for forest products 6.139 The following presentation for forest products provides an example of the types of data that might be compiled when considering flows related to environmental assets. Relevant flows include the physical flows of natural inputs and products, output and value added in monetary terms, stocks and flows of the relevant environmental assets, and stocks and flows associated with the extraction of natural resources. 6.140 Parts 1-6 of the combined presentation for forest products in table 6.7 record the supply and use of forest products such as timber and fuelwood. Within the supply and use structure, the flows of the products can be followed through the economy. Imports of these products should be recorded in the column entitled “Flows with the rest of the world”. In addition to flows of products, a more complete industry view of activity related to forests is obtained by including data relating to value added and employment. 6.141 Parts 7 and 8 present information relating to the stock of timber resources, i.e., the area of land with timber resources (both cultivated and natural), the volume of standing timber, and the extent of extraction and depletion. Data on the stock of timber resources will generally be recorded in the columns of the table on the far right. In this presentation, the area of land is broken down into that containing cultivated and that containing natural timber resources, but presentations by species may be appropriate. For some entries, it may also be relevant to record values in the columns for the forestry industry, for example, for removals. 6.142 An alternative presentation of data on stocks would entail structuring the right-hand columns in terms of type of forest land, for example, primary forests, other naturally regenerated forests, and planted forests. Information on the stock of forest animals or different food resources within forest areas might logically be included under such an alternative presentation. Data may be included in monetary and physical terms. 6.143 The final part of the table, part 9, presents information on the stock of fixed assets used to extract forest products. Additional information, for example, on gross fixed capital formation on these assets, may also be included as appropriate. 6.144 Overall, this presentation gives a sense of the breadth of information that can be combined from within the Central Framework to help discuss and analyse themes relating to environmental assets. System of Environmental-Economic Accounting 2012—Central Framework264 Table 6.7 Combined presentation for forest products Industries (by ISIC sections) Households Accumulation Flows with the rest of the world Type of timber resources A and B C D Other Cultivated Natural 1. Supply of forest products (currency units) Timber logged 135 680 1 200 1 800 5 400 Other goods (cork, gum, fodder, medicine, peat, etc.) 27 500 6 550 250 2. Supply of forest products (physical units) Timber logged (thousands of cubic metres) 2 250 20 30 Other goods (cork, gum, fodder, medicine, peat, etc.) (tonnes) 1 375 328 3. Intermediate consumption and final use of forest products (currency units) Timber logged 3 205 87 025 4 560 35 880 2 560 10 850 Other goods (cork, gum, fodder, medicine, peat, etc.) 590 29 575 2 175 1 860 100 4. Intermediate consumption and final use of forest products (physical units) Timber logged (thousands of cubic metres) 48 1 390 76 495 35 256 Other goods (cork, gum, fodder, medicine, peat, etc.) (tonnes) 30 1 465 106 95 7 5. Gross value added (currency units) 18 695 5 546 21 407 773 753 6. Employment (thousands of people) 293 78 165 10 295 7. Extraction and depletion of timber resources Removals (thousands of cubic metres) 2 250 20 30 1 300 1 000 Felling residues (thousands of cubic metres) 290 170 120 Depletion (thousands of cubic metres) 50 50 8. Closing stocks of timber resources (physical units) Area of land with timber resources (including forest and other wooded land) (thousands of hectares) 225 165 Volume of standing timber (thousands of cubic metres) 8 000 8 100 9. Closing stock of fixed assets for extraction of timber resources (currency units) 204 000 24 000 28 000 Note:  Dark grey cells indicate zero entries by definition. 265Integrating and presenting the accounts 6.5.6 Combined presentations for air emissions 6.145 Within air emission accounts, the interest is in presenting a range of physical and monetary information for industries and households using common classifications. Thus, a combined presentation can be constructed that allows comparison of air emissions by industry with the output and value added of those same industries measured in monetary terms. This combined presentation does not require compilation of a full supply and use table in physical terms. Rather, specific rows and columns within the full framework are selected. 6.146 A combined presentation for air emissions is presented in table 6.8. In parts 1-4 of the table, estimates of key economic variables are included, classified by industry. Since all industries produce air emissions, all industries are in scope of the combined accounts, although it may be of interest to focus on some specific industries, for example, electricity generation, steel manufacturing or transport industries, as these industries are often large emitters. 6.147 The choice of economic variables could extend to the full set of supply and use variables. The main variables by industry suggested in this presentation are measures of output, intermediate consumption, gross value added and employment. Each of these variables gives an indication of the relative size of each industry and hence assists in determining whether the associated emissions are significant factors for a specific industry and for the economy. 6.148 Part 1-4 also includes economic data on household final consumption expenditure (at the intersection of the row “Intermediate consumption and final use” and the column “Households”). The expenditure could be further classified to show the expenditure on products used for the purposes of transport and heating as these household activities are key sources of air emissions. 6.149 In parts 5 and 6, economic data on expenditure for environmental protection purposes and on environmental taxes are included. These data can be compared with the levels of emissions and can hence assist in assessing the effectiveness of industry, household and government responses to air emissions. 6.150 In parts 7 and 8 of the table, estimates of total air emissions broken down by type of substance are recorded. They are classified by industry and for households. The industry classification is the same as that used in the classification of the economic variables in parts 1-6. Note that following the general accounting principles, all emissions by government units are recorded against the relevant industry activity (e.g., public administration) rather than in the column entitled “Government” (see sect. 3.2 for details of this treatment). 6.151 A subset of total air emissions by industry relating to those due to transport activity is also shown in the table. Although transport activity will be most concentrated in the transport industry, all industries are likely to generate emissions owing to some extent to transport activity. The identification of transport emissions is important from a compilation perspective because adjustments are often needed to account for emissions from transport activity, for example, for that of households, and for resident and non-resident emissions. 6.152 In order to obtain the most benefit from the information on these various areas concerning air emissions, it is important to compile time series. Times series of information allow for an analysis of trends and also permit analysis of relationships between different variables that may not be evident in the assessment of data for a single time period. For example, it would not be expected that expenditure on environmental protection would lead to reductions in air emissions in the same accounting period. 6.153 Overall, this combined accounts framework for air emissions shows the benefits of the use of the same classifications and structures for the organization of different data. It permits the assessment of the relative importance of different air emissions, the derivation of relevant indicators for monitoring changes in air emissions, and the development of models based on the structured data set. 265 System of Environmental-Economic Accounting 2012—Central Framework266Table6.8 Combinedpresentationforairemissions Industries(byISICdivisions) HouseholdsGovernmentTotal01-0306-0910-333536-3941-4349-5645-47,58-99 1. Outputbyindustry(currencyunits)17073711647315814331957697691652652669633237593577123543 2. Intermediateconsumptionand finaluse(currencyunits) 14600610313115212471807726248251108461683331620974919351639786959565 3. Grossvalueadded(currencyunits)24731133426018614997144341544279499597260819891 4. Employment3711851865611056681001667510931 5. Environmentalprotection expenditure(currencyunits) Protectionofambientairandclimate175583515853705544192512 6. Environmentaltaxes (currencyunits) Carbontaxes3432211082314614212432588698512600 7. Generationofairemissions (tonnes) Carbondioxide106102121414345319794362299295171709338412204120 Methane492361642332520806 Dinitrogenoxide244121132 Nitrousoxides69638235152614551514 Hydrofluorocarbons32866211103 Non-methanevolatileorganic compounds 584018171767163 Particulates(includingPM10,dust)79292939 8. Airemissionsfromtransport activity(tonnes) Carbondioxide2673541065147718432774872971892159692 Methane123 Dinitrogenoxide112 Nitrousoxides285152603638380 Hydrofluorocarbons362167 Non-methanevolatileorganic compounds 412843552 Particulates(includingPM10,dust)11192619 Note: Darkgreycellsindicatezeroentriesbydefinition. 267 Annex I Classifications and lists Introduction A1.1 The SEEA Central Framework contains a range of classifications and lists to support understanding of the relevant concepts and compilation of relevant statistics. The present annex provides supporting material for selected classifications and lists contained in the SEEA Central Framework. None of the classifications and lists should be regarded as mandatory for reporting purposes. A1.2 The selected classifications and lists in the present publication are those for which more detailed descriptions of classes and categories are available. They are intended to provide a starting point for the compilation of relevant statistics. However, this material is not at the same level of sophistication in each case and certain classifications are labelled “interim”. Further testing and development of these classifications are required and this work is part of the SEEA Central Framework research agenda (see annex II). A1.3 A particular exception is the description of the classes relating to environmental protection in the Classification of Environmental Activities (CEA). The content relating to these classes is from the Classification of Environmental Protection Activities and Expenditure (CEPA) (United Nations, 2000), which has been an established international classification since 2000. A1.4 The classifications and lists covered in this supporting material are: (a) Classification of environmental activities: (i) Environmental protection; (ii) Resource management (interim); (b) Classification of land use (interim); (c) Land cover classification (interim); (d) List of solid waste. A. Classification of Environmental Activities (CEA) I. Environmental protection Environmental protection activities are those activities whose primary purpose is the prevention, reduction and elimination of pollution as well as any other degradation of the environment. This includes measures taken in order to restore the environment after it has been degraded due to the pressures from human activities. To be included under environmental protection, actions and activities must satisfy the primary-purpose criterion, i.e., that environmental protection is their primary objective. Actions and activities that have a favourable impact on the environment but which serve other goals do not come under environmental System of Environmental-Economic Accounting 2012—Central Framework268 protection. Hence, excluded from the field of environmental protection are activities that, while beneficial to the environment, primarily satisfy technical needs or the internal requirements for hygiene or security of an enterprise or other institution. Activities like the saving of energy or raw materials are generally excluded from environmental protection and included instead under resource management (see below). However, such activities are considered environmental protection activities to the extent that they mainly aim at environmental protection. 1 Protection of ambient air and climate Protection of ambient air and climate comprises measures and activities aimed at the reduction of emissions into the ambient air or ambient concentrations of air pollutants as well as measures and activities aimed at the control of emissions of greenhouse gases and gases that adversely affect the stratospheric ozone layer. Excluded are measures undertaken for cost-saving reasons (e.g., energy saving). 1.1 Prevention of pollution through in-process modifications Activities and measures aimed at the elimination or reduction of the generation of air pollutants through in-process modifications related to: • Cleaner and more efficient production processes and other technologies (cleaner technologies), • The consumption or use of “cleaner” (adapted) products. Cleaner technologies Prevention activities consist of replacing an existing production process by a new process designed to reduce the generation of air pollutants during production, storage or transportation, e.g., fuel combustion improvement, recovery of solvents, prevention of spills and leaks through improving airtightness of equipment, reservoirs and vehicles. Use of cleaner products Prevention activities consist of modifying facilities so as to provide for the substitution of raw materials, energy, catalysts and other inputs by non- (or less) polluting products, or of treating raw materials prior to their use in order to make them less polluting, e.g., desulfurization of fuel. Expenditure under this position also include the extra cost of the use of cleaner products (low sulphur fuels, unleaded gasoline, clean vehicles, etc.). 1.1.1 For the protection of ambient air 1.1.2 For the protection of climate and ozone layer 1.2 Treatment of exhaust gases and ventilation air Activities involving the installation, maintenance and operation of end‑of‑pipe equipment for the removal and reduction of emissions of particulate matter or other air-polluting substances either from the combustion of fuels or from processes: filters, dedusting equipment, catalytic converters, post-combustion and other techniques. Also included are activities aimed at increasing the dispersion of gases so as to reduce concentrations of air pollutants. 269Annex I Exhaust gases are emissions into the air, usually through exhaust pipes, stacks or chimneys, due to the combustion of fossil fuels. Ventilation air are exhausts of air conditioning systems of industrial establishments. 1.2.1 For the protection of ambient air 1.2.2 For the protection of climate and ozone layer 1.3 Measurement, control, laboratories and the like Activities aimed at monitoring the concentrations of pollutants in exhaust gases, the quality of air, etc. Included are measurement services of exhaust gases from vehicles and heating systems and the monitoring related to ozone layer, greenhouse gases and climate change. Weather stations are excluded. 1.4 Other activities All other activities and measures aimed at the protection of ambient air and climate. These include regulation, administration, management, training, information and education activities specific to CEPA 1, when they can be separated from other activities related to the same class and from similar activities related to other environmental protection classes. 2 Wastewater management Wastewater management comprises activities and measures aimed at the prevention of pollution of surface water through the reduction of the release of wastewater into inland surface water and seawater. It includes the collection and treatment of wastewater, including monitoring and regulation activities. Septic tanks are also included. Excluded are actions and activities aimed at the protection of groundwater from pollutant infiltration and the cleaning up of water bodies after pollution (see CEPA 4). Wastewater is defined as water that is of no further immediate value for the purpose for which it was used or in the pursuit of which it was produced, because of quality, quantity or time of its occurrence. 2.1 Prevention of pollution through in-process modifications Activities and measures aimed at reducing the generation of surface water pollutants and wastewater through in-process modifications related to: • Cleaner and more efficient production processes and other technologies (cleaner technologies) • The consumption or use of “cleaner” (adapted) products Cleaner technologies Prevention activities consist of replacing an existing production process by a new process designed to bring about a reduction of water pollutants or wastewater generated during production. These include separation of networks, treatment and reuse of water used in the production process, etc. System of Environmental-Economic Accounting 2012—Central Framework270 Use of cleaner products Prevention activities consist of modifying an existing production process so as to provide for the substitution of raw materials, catalysts and other inputs by non- (or less) water polluting products. 2.2 Sewerage networks Activities aimed at the operation of sewerage networks, i.e., the collection and transport of wastewater from one or several users, as well as rainwater, by means of sewerage networks, collectors, tanks and other means of transport (sewage vehicles, etc.), including maintenance and repair. Sewerage networks are the systems of collectors, pipelines, conduits and pumps designed to evacuate any wastewater (rainwater, domestic and other wastewater) from the points of generation to either a sewage treatment plant or to a point where wastewater is discharged into surface water. 2.3 Wastewater treatment Wastewater treatment designates any process for rendering wastewater fit to meet applicable environmental standards or other quality norms. Three broad types of treatment (mechanical, biological and advanced) are specified below. Alternative definitions of types of treatment may be used, e.g., based on removal rates for biological oxygen demand (BOD). Mechanical treatment of wastewater designates processes of a physical and mechanical nature that result in decanted effluent and separate sludge. Mechanical processes are also used in combination and/or in conjunction with biological and advanced unit operations. Mechanical treatment is understood to include at least such processes as sedimentation, flotation, etc. The activity is aimed at separating materials in suspension by the use of screens (large solids) or through sedimentation eventually assisted by chemicals or flotation (elimination of sand, oil, part of the sludge, etc.). Equipment includes screens for large solids, biological plants, equipment for filtration, flocculation, sedimentation; separation of oils and hydrocarbons; separation using inertia or gravity, including hydraulic and centrifugal cyclones, diaphragm floats, etc. Biological treatment of wastewater designates processes that employ aerobic or anaerobic microorganisms and result in decanted effluent and separate sludge containing microbial mass together with pollutants. Biological treatment processes are also used in combination and/or in conjunction with mechanical and advanced unit operations. This activity is designed to eliminate pollution from oxidizable materials through the use of bacteria: activated sludge technique or anaerobic treatment for specific concentrated wastewater. Biodegradable materials are treated with the addition of bacteria-enriched sludge in open or closed tanks. Treatment of wastewater by advanced technologies designates processes capable of reducing specific constituents in wastewater not normally achieved by other treatment options. Covers all unit operations that are not considered to be mechanical or biological. Includes, for example, chemical coagulation, flocculation and precipitation; break-point chlorinating; stripping; mixed media filtration; micro-screening; selective ion exchange; activated carbon absorption; reverse osmosis; ultrafiltration; electro-flotation. Advanced treatment processes may be used in combination and/or in conjunction with mechanical and biological unit operations. This activity is aimed at eliminating oxidizable non-biodegradable matter at a higher level, as well as metals, nitrate, phosphorus, etc., by using powerful biological or physical and chemical action. Special equipment is required for each depollution. 271Annex I Septic tanks are settling tanks through which wastewater is flowing and the suspended matter is decanted as sludge. Organic matters (in the water and in the sludge) are partly decomposed by anaerobic bacteria and other microorganisms. Maintenance services of septic tanks (emptying, etc.) and other products for septic tanks (biological activators, etc.) are included. 2.4 Treatment of cooling water Treatment of cooling water designates processes that are used to treat cooling water to meet applicable environmental standards before releasing it into the environment. Cooling water is used to remove heat.a Means, methods and facilities used may be: air cooling (extra cost compared with water cooling), cooling towers (to the extent they are required to reduce pollution, as distinct from technical needs), cooling circuits for processing water from worksites and for condensing released vapour, equipment for enhancing the dispersion of cooling water on release, closed cooling circuits (extra cost), and circuits for use of cooling water for heating purposes (extra cost). 2.5 Measurement, control, laboratories and the like Activities aimed at monitoring and controlling the concentration of pollutants in wastewater and the quality of inland surface water and marine water at the place wastewater is discharged (analysis and measurement of pollutants, etc.). 2.6 Other wastewater management activities All other activities and measures aimed at wastewater management. Includes regulation, administration, management, training, information and education activities specific to CEPA 2, when they can be separated from other activities related to the same class and similar activities related to other environmental protection classes. 3 Waste management Waste management refers to activities and measures aimed at the prevention of the generation of waste and the reduction of its harmful effect on the environment. Includes the collection and treatment of waste, including monitoring and regulation activities. It also includes recycling and composting, the collection and treatment of low-level radioactive waste, street cleaning and the collection of public litter. Waste are materials that are not prime products (that is, products made for the market) for which the generator has no further use for own purposes of production, transformation or consumption, and which he wants to dispose of. Wastes may be generated during the extraction of raw materials, during the processing of raw materials to intermediate and final products, during the consumption of final products, and during any other human activity. Residuals recycled or reused at the place of generation are excluded. Also excluded are waste materials that are directly discharged into ambient water or air. Hazardous waste is waste that owing to its toxic, infectious, radioactive, flammable or other character defined by the legislator, poses a substantial actual or potential hazard to human health or living organisms. For the purposes of this definition, “hazardous waste” a See Classification of Environmental Protection Activities and Expenditure (United Nations, 2000). Available from http://ec.europa.eu/eurostat/ramon/nomenclatures/index.cfm?TargetUrl=DSP_ NOM_DTL_VIEW&StrNom=CEPA_2000&StrLanguageCode=EN&IntPcKey=&IntKey=2999 213&StrLayoutCode=HIERARCHIC&IntCurrentPage=1. System of Environmental-Economic Accounting 2012—Central Framework272 comprises for each country all those materials and products that are considered to be hazardous in accordance with that country’s practices. Low-level radioactive waste is included, whereas other radioactive waste is excluded (see CEPA 7). Low-level radioactive waste is waste that, because of its low radionuclide content, does not require shielding during normal handling and transportation. Treatment and disposal of waste Treatment of waste refers to any process designed to change the physical, chemical or biological character or composition of any waste in order to neutralize it, render it non‑hazardous, safer for transport, amenable for recovery or storage, or to reduce it in volume. A particular waste may undergo more than one treatment process. Composting and recycling activities for the purpose of environmental protection are included. Often composting is a waste treatment method and the resulting compost provided free of charge or at a very low price. The manufacture of compost classified in division 24 of the International Standard Industrial Classification of All Economic Activities (ISIC)/Statistical Classification of Economic Activities in the European Community (NACE) (Manufacture of fertilizers and nitrogen compounds) is excluded. Division 37 of ISIC/NACE defines recycling as the processing of waste, scraps whether or not used, into a form feasible to be transformed in new raw materials. Typical is that, in terms of commodities, both input and output consist of waste and scrap, the input being sorted or unsorted but always unfit for further direct use in an industrial process whereas the output is made fit for further processing and is to be considered then as an intermediate good. A process is required, either mechanical or chemical.b The main purpose of activities classified in division 37 of ISIC/NACE is the manufacture of secondary raw materials but there may be important secondary waste management activities. Compost and secondary raw materials (as well as products made of secondary raw materials) are not considered environmental protection products. Their use is excluded. Disposal of waste is the final deposition of waste on the ground or underground in controlled or uncontrolled fashion, in accordance with the sanitary, environmental or security requirements. 3.1 Prevention of pollution through in-process modifications Activities and measures aimed at eliminating or reducing the generation of solid waste through in-process modifications related to: • Cleaner and more efficient production processes and other technologies (cleaner technologies) • The consumption or use of “cleaner” (adapted) products • Cleaner technologies Prevention activities consist of replacing an existing production process by a new process designed to reduce the toxicity or volume of waste produced during the production process, including by separation and reprocessing. b Ibid. 273Annex I Use of cleaner products Protection activities consist of modifying or adapting the production process or facilities so as to provide for the substitution of raw materials, catalysts and other intermediate inputs by new, “adapted” inputs, the use of which produces less waste or less hazardous waste. 3.2 Collection and transport Collection and transport of waste is defined as the collection of waste, either by municipal services or similar institutions or by public or private corporations, and their transport to the place of treatment or disposal. This includes the separate collection and transport of waste fractions so as to facilitate recycling and the collection and transport of hazardous waste. Street cleaning is included for the part referring to public litter and collection of garbage from the streets. Excluded are winter services. 3.3 Treatment and disposal of hazardous waste Treatment of hazardous waste comprises the processes of physical/chemical treatment, thermal treatment, biological treatment, conditioning of wastes, and any other relevant treatment method. Disposal of hazardous waste comprises landfill, containment, underground disposal, dumping at sea, and any other relevant disposal method. Thermal treatment of hazardous waste refers to any process for the high‑temperature oxidation of gaseous, liquid or solid hazardous wastes, converting them into gases and incombustible solid residues. The flue gases are released into the atmosphere (with or without recovery of heat and with or without cleaning) and any slag or ash produced is deposited in the landfill. The main technologies used in the incineration of hazardous waste are the rotary kiln, liquid injection, incinerator grates, multiple-chamber incinerators, and fluidized bed incinerators. Residues from hazardous waste incineration may themselves be regarded as hazardous waste. The resulting thermal energy may or may not be used for the production of steam, hot water or electric energy. Landfill is an activity concerning final disposal of hazardous waste in or on land in a controlled way, which meets specific geologic and technical criteria. Other treatment and disposal of hazardous waste may consist of chemical and physical treatment, containment and underground disposal. Chemical treatment methods are used both to effect the complete breakdown of hazardous waste into non-toxic gases and, more usually, to modify the chemical properties of the waste, e.g., to reduce water solubility or to neutralize acidity or alkalinity. Physical treatment of hazardous waste: includes various methods of phase separation and solidification whereby the hazardous waste is fixed in an inert, impervious matrix. Phase separation encompasses the widely used techniques of lagooning, sludge drying in beds, and prolonged storage in tanks, air flotation and various filtration and centrifugation techniques, adsorption/desorption, and vacuum, extractive and azeotropic distillation. Solidification or fixation processes, which convert the waste into an insoluble, rock‑hard material, are generally used as pretreatment prior to landfill disposal. These techniques employ blending of the waste with various reactants or organic polymerization reactions or the mixing of the waste with organic binders. Containment is the retention of hazardous material in such a way as to ensure that it is effectively prevented from dispersing into the environment, or is released only at an acceptable level. Containment may occur in specially built containment spaces. System of Environmental-Economic Accounting 2012—Central Framework274 Underground disposal includes temporary storage or final disposal of hazardous wastes underground that meets specific geologic and technical criteria. 3.3.1 Thermal treatment 3.3.2 Landfill 3.3.3 Other treatment and disposal 3.4 Treatment and disposal of non-hazardous waste Treatment of non-hazardous waste comprises the processes of physical/chemical treatment, incineration of waste, biological treatment, and any other treatment method (composting, recycling, etc.). Incineration is the thermal treatment of waste during which chemically fixed energy of combusted matters is transformed into thermal energy. Combustible compounds are transformed into combustion gases leaving the system as flue gases. Incombustible inorganic matters remain in the form of slag and fly ash. Disposal of non-hazardous waste comprises landfill, dumping at sea, and any other disposal method. 3.4.1 Incineration 3.4.2 Landfill 3.4.3 Other treatment and disposal 3.5 Measurement, control, laboratories and the like Activities and measures aimed at controlling and measuring the generation and storage of waste, their toxicity, etc. 3.6 Other waste management activities All other activities and measures aimed at waste management. These include administration, management, training, information and education activities specific to the class, when they can be separated from other activities related to the same class and from similar activities related to other environmental protection classes. 4 Protection and remediation of soil, groundwater and surface water Protection and remediation of soil, groundwater and surface water refers to measures and activities aimed at the prevention of pollutant infiltration, cleaning up of soils and water bodies and the protection of soil from erosion and other physical degradation as well as from salinization. Monitoring and control of soil and groundwater pollution are included. Excluded are wastewater management activities (see CEPA 2), as well as activities aimed at the protection of biodiversity and landscape (see CEPA 6). 4.1 Prevention of pollutant infiltration Activities and measures aimed at the reduction or elimination of polluting substances that may be applied to soil or that percolate into groundwater or into run-off to surface water. Included are activities related to sealing of soils of industrial plants, installation of catchment 275Annex I for pollutant run-offs and leaks, strengthening of storage facilities and transportation of pollutant products. 4.2 Cleaning up of soil and water bodies Processes to reduce the quantity of polluting materials in soil and water bodies either in situ or in appropriate installations. This includes soil decontamination at former industrial sites, landfills and other black spots, dredging of pollutants from water bodies (rivers, lakes, estuaries, etc.) and the decontamination and cleaning up of surface water following accidental pollution, e.g., through collection of pollutants or through application of chemicals, as well as the cleaning up of oil spills on land, inland surface waters and seas—including coastal areas. Excludes the liming of lakes and artificial oxygenation of water bodies (see CEPA 6). Excludes civil protection services. Activities may consist of: measures for separating, containing and recovering deposits, extraction of buried casks and containers, decanting and restorage, installation of off-gas and liquid effluent drainage networks, soil washing by means of degasification, pumping of pollutants, removal and treatment of polluted soil, biotechnological methods capable of intervening without affecting the site (use of enzymes, bacteria, etc.), physical chemistry techniques such as pervaporation and extraction using supercritical fluids, injection of neutral gases or bases to stifle internal fermentation, etc. 4.3 Protection of soil from erosion and other physical degradation Activities and measures aimed at the protection of soil from erosion and other physical degradation (compacting, encrusting, etc.). They may consist of programmes intended to restore the protective vegetal cover of soils, construction of anti-erosion walls, etc. Measures may also include subsidizing agricultural and grazing practices less harmful for soils and water bodies. Excluded are activities carried out for economic reasons (e.g., agricultural production or protection of settlements against natural hazards such as landslides). 4.4 Prevention and remediation of soil salinity Activities and measures aimed at the prevention and remediation of soil salinity. Concrete actions will depend on climatic, geologic and other country-specific factors. Included are actions to increase groundwater tables, e.g., through increased freshwater infiltration to avoid infiltration of seawater into groundwater bodies, lowering of groundwater tables (when groundwater contains high levels of salts) through long-term revegetation programmes, changes in irrigation practices, etc. Excluded are measures that respond to economic concerns (agricultural production, reclamation of land from the sea, etc.). 4.5 Measurement, control, laboratories and the like All activities and measures aimed at controlling and measuring the quality and pollution of soils, groundwater and surface water, measuring the extent of soil erosion and salinization, etc. Includes the operation of monitoring systems, inventories of “black spots”, maps and databases of groundwater and surface water quality, of soil pollution, erosion and salinity, etc. System of Environmental-Economic Accounting 2012—Central Framework276 4.6 Other activities All other activities and measures aimed at the protection and remediation of soil, groundwater and surface water. These include administration, management, training, information and education activities specific to the class, when they can be separated from other activities related to the same class and from similar activities related to other environmental protection classes. 5 Noise and vibration abatement (excluding workplace protection) Noise and vibration abatement refers to measures and activities aimed at the control, reduction and abatement of industrial and transport noise and vibration. Activities for the abatement of neighbourhood noise (soundproofing of dancing halls, etc.) as well as activities for the abatement of noise in places frequented by the public (swimming pools, etc.), in schools, etc., are included. Excluded is the abatement of noise and vibration for purposes of protection at the workplace. 5.1 Preventive in-process modifications at the source Activities and measures aimed at the reduction of noise and vibration from industrial equipment, vehicle motors, aircraft and ships engines, exhaust systems and brakes, or noise level due to tyre/road or wheel/rail surface contact. Includes the adaptation of equipment, vehicles (buses, trucks, or train and power units in the case of rail transport, aircraft and ships) in order to make them less noisy: soundproofing of hoods, brakes, exhaust systems, etc. Includes also plant modifications, specially conceived foundations to absorb vibrations, extra cost for regrouping of buildings and/or of facilities in the interest of noise abatement, special facilities in building construction or reconstruction, equipment and machines conceived or constructed for low noise or vibrations, low noise level flares and burners, etc. Other preventive activities consist of noise abatement through the modification of surfaces. As noise emissions from motors, engines, exhaust systems and brakes are lowered, those from other sources become more important and, in particular, noise that originates from the contact between tyres and road surfaces. Activities consist of replacing concrete with silent asphalt, multilayered surfaces, etc. 5.1.1 Road and rail traffic 5.1.2 Air traffic 5.1.3 Industrial and other noise 5.2 Construction of anti noise/vibration facilities Activities and measures aimed at the installation and management of anti-noise facilities. These may be screens, embankments or hedges. They may consist of covering sections of urban motorways or railroads. As concerns industrial and vicinity noise, they also consist of add-on facilities, covering and soundproofing of machines and piping, fuel regulation systems and sound absorption, noise screens, barriers, soundproofing of buildings, noise-protective windows, etc., in order to limit noise perception. 5.2.1 Road and rail traffic 277Annex I 5.2.2 Air traffic 5.2.3 Industrial and other noise 5.3 Measurement, control, laboratories and the like Activities and measures aimed at controlling the level of noise and vibration: installation and operation of stationary measurement and monitoring sites or mobile equipment in urban areas, observation networks, etc. 5.4 Other activities All other activities and measures aimed at noise and vibration abatement, including administration, management, training, information and education activities specific to the class, when they can be separated from other activities related to the same class and from similar activities related to other classes. This also includes, when separable, traffic management with noise abatement aspects (for example, lowering of speed limits, improvement of traffic flows), introduction of time and geographical restrictions for noisy vehicles, traffic detours at a distance from residential areas, creation of pedestrian areas, creation of constructionfree buffer zones, restructuring of modal split (improvement of public transportation, use of bicycles). This covers a potentially large set of administrative measures which raise serious identification problems given their incorporation in integrated programmes of traffic control and urban planning and the difficulty of separating that part of measures and expenditure that, in these programmes, concern noise and vibration abatement from expenditure related to air pollution control, improvement of the living environment or traffic security. In addition to regulation, other measures may consist of: financial incentives for the production and use of low-noise vehicles, labelling or information programmes for consumers so as to encourage the use of low-noise vehicles and the adoption of quiet driving behaviour. 6 Protection of biodiversity and landscapes Protection of biodiversity and landscape refers to measures and activities aimed at the protection and rehabilitation of fauna and flora species, ecosystems and habitats as well as the protection and rehabilitation of natural and semi-natural landscapes. Separating “biodiversity” from “landscape” protection may not always be practical. For example, maintaining or establishing certain landscape types, biotopes and ecozones and related issues (hedgerows, lines of trees to re-establish “natural corridors”) have a clear link to biodiversity preservation. Excluded is the protection and rehabilitation of historic monuments or predominantly built-up landscapes and the control of weed for agricultural purposes, as well as the protection of forests against forests fire when this responds predominantly to economic concerns. The establishment and maintenance of green spaces along roads and recreational structures (e.g., separating golf courses and other sports facilities) are also excluded. Actions and expenditure related to urban parks and gardens would not normally be included but may in some cases be related to biodiversity: in such cases, the activities and expenditure should be included. 6.1 Protection and rehabilitation of species and habitats Activities and measures aimed at the conservation, reintroduction or recovery of fauna and flora species, as well as the restoring, rehabilitation and reshaping of damaged habitats for the purpose of strengthening their natural functions. Includes conserving the System of Environmental-Economic Accounting 2012—Central Framework278 genetic heritage, recolonizing destroyed ecosystems, placing bans on exploitation, trade, etc., of specific animal and plant species, for protection purposes. Also includes censuses, inventories, databases, creation of gene reserves or banks, improvement of linear infrastructures (e.g., underground passages or bridges for animals at highways or railways), feeding of the young, and management of special natural reserves (botany conservation areas, etc.). Activities may also include the control of fauna and flora in order to maintain natural balances, including reintroduction of predator species and control of exotic fauna and flora that pose a threat to native fauna, flora and habitats. Main activities are the management and development of protected areas, whatever the denomination they receive, i.e., areas protected from any economic exploitation or in which the latter is subject to restrictive regulations whose explicit goal is the conservation and protection of habitats. Also included are activities for the restoration of water bodies as aquatic habitats: artificial oxygenation and lime-neutralization actions. When they have a clear protection of biodiversity purpose, measures and activities related to urban parks and gardens are to be included. Purchase of land for protection of species and habitats purposes is included. 6.2 Protection of natural and semi-natural landscapes Activities and measures aimed at the protection of natural and semi-natural landscapes so as to maintain and increase their aesthetic value and their role in biodiversity preservation. Included is the preservation of legally protected natural objects, expenditures incurred for the rehabilitation of abandoned mining and quarrying sites, renaturalization of river banks, burying of electric lines, maintenance of landscapes that are the result of traditional agricultural practices threatened by prevailing economic conditions, etc. For biodiversity and landscape protection related to agriculture, the identification of specific State aid programmes to farmers may be the only data source available. Protection of forests against forest fires for the purpose of landscape protection is included. Excluded are measures taken to protect historic monuments, measures to increase aesthetic values for economic purposes (e.g., relandscaping to increase the value of real estate), as well as protection of predominantly built-up landscapes. 6.3 Measurement, control, laboratories and the like Measurement, monitoring, analysis activities that are not classified under the preceding items. In principle, inventories of fauna and flora are not covered, since they are classified under protection of species. 6.4 Other activities All other activities and measures aimed at the protection of biodiversity and landscape. These include administration, training, information and education activities specific to the domain, when they can be separated from other activities related to the same domain and similar activities related to other classes. 7 Protection against radiation (excluding external safety) Protection against radiation refers to activities and measures aimed at the reduction or elimination of the negative consequences of radiation emitted from any source. Included is the handling, transportation and treatment of high-level radioactive waste, i.e., waste that, 279Annex I because of its high radionuclide content, requires shielding during normal handling and transportation. Excluded are activities and measures related to the prevention of technological hazards (e.g., external safety of nuclear power plants), as well as protection measures taken at workplaces. Also excluded are activities related to collection and treatment of low-level radioactive waste (see CEPA 3). Definition of radioactive waste Any material that contains or is contaminated with radionuclides at concentrations or radioactivity levels greater than the “exempt quantities” established by the competent authorities, and for which no use is foreseen. Radioactive wastes are produced at nuclear power plants and at associated nuclear fuel cycle facilities as well as through other uses of radioactive material, for example, the use of radionuclides in hospitals and research establishments. Other important wastes are those from mining and milling of uranium and from the reprocessing of spent fuel. 7.1 Protection of ambient media Protection of ambient media groups together activities and measures undertaken in order to protect ambient media from radiation. It may consist of protecting measures such as screening, creation of buffer zones, etc. 7.2 Transport and treatment of high-level radioactive waste Any process designed for the transport, conditioning, containment or underground disposal of high-level radioactive waste. Collection and transport of high-level radioactive waste consists of the collection of high-level radioactive waste, generally by specialized firms, and their transport to the place of treatment, conditioning storage and disposal. Conditioning of high-level radioactive waste consists of activities that transform highlevel radioactive waste into a proper and fit condition for transport and/or storage and/or disposal. Conditioning may occur as part of ISIC/NACE 23 (processing of nuclear fuels) activities.c Containment of high-level radioactive waste designates the retention of radioactive waste in such a way as to ensure that it is effectively prevented from dispersing into the environment, or is released only at an acceptable level. Containment may occur in specially built containment spaces. Underground disposal of high-level radioactive waste is the temporary storage or final disposal of high-level radioactive waste in underground sites that meet specific geologic and technical criteria. 7.3 Measurement, control, laboratories and the like Activities aimed at measuring, controlling and monitoring ambient radioactivity and radioactivity due to high-level radioactive waste by means of specific equipment, instruments and installations. c Ibid. System of Environmental-Economic Accounting 2012—Central Framework280 7.4 Other activities All other activities and measures aimed at the protection of ambient media against radiation and transport and treatment of high-level radioactive waste. These include administration, training, information and education activities specific to the domain, when they can be separated from other activities related to the same class and similar activities related to other environmental protection classes. 8 Research and development for environmental protection Research and development (R&D) comprises creative work undertaken on a systematic basis in order to increase the stock of knowledge and the use of this knowledge to devise new applications (see the Frascati Manual (OECD, 2002) in the field of environmental protection. The class regroups all R&D activities and expenditure oriented towards environmental protection: identification and analysis of sources of pollution and mechanisms of dispersion of pollutants in the environment, as well as their effects on human beings, the species and the biosphere. This heading covers R&D for the prevention and elimination of all forms of pollution, as well as R&D oriented towards equipment and instruments of pollution measurement and analysis. When separable, all R&D activities, even when referring to a specific class, have to be classified under this position. Environmental R&D is further classified in accordance with the 1993 Nomenclature for the Analysis and Comparison of Scientific Programmes and Budgets (NABS) (Eurostat, 1994). Excluded are R&D activities related to the management of natural resources. 8.1 Protection of ambient air and climate 8.1.1 Protection of ambient air 8.1.2 Protection of atmosphere and climate 8.2 Protection of water 8.3 Waste 8.4 Protection of soil and groundwater 8.5 Abatement of noise and vibration 8.6 Protection of species and habitats 8.7 Protection against radiation 8.8 Other research on the environment 281Annex I 9 Other environmental protection activities Other environmental protection activities refers to all environmental protection activities that take the form of general environmental administration and management activities or training or teaching activities specifically oriented towards environmental protection that encompass public information, when they are not classified elsewhere in CEPA. It also includes activities leading to indivisible expenditure, as well as activities not elsewhere clas- sified. 9.1 General environmental administration and management General administration of the environment designates any identifiable activity that is directed towards the general support of decisions taken in the context of environmental protection activities, whether by governmental or by non-governmental units. General administration of the environment, regulation and the like Any identifiable activity within general government and NPISH units that is directed towards the regulation, administration of the environment and the support of decisions taken in the context of environmental protection activities. When possible, such activities should be allocated to other classes. If this is impossible, they should be included under this position of the classification. Environmental management Any identifiable activities of corporations that are directed towards the general support of decisions taken in the context of environmental protection activities. These include the preparation of declarations or requests for permission, internal environmental management, and environmental certification processes (ISO 14000; and Eco-Management and Audit Scheme (EMAS) (European Union (EU)), as well as the recourse to environmental consultancy services. Activities of units specialized in environmental consultancy, supervision and analysis are included. When possible, such activities should be allocated to other CEPA classes. 9.1.1 General administration, regulation and the like 9.1.2 Environmental management 9.2 Education, training and information Activities that aim at providing general environmental education or training and disseminating environmental information. Included are high school programmes, university degree programmes or special courses specifically aimed at training for environmental protection. Activities such as the production of environmental reports and environmental communication are also included. 9.3 Activities leading to indivisible expenditure Environmental protection activities that lead to indivisible expenditure, i.e., that cannot be allocated to any other CEPA class. International financial aid may be a case in point, as it may be difficult for the donor countries to allocate international aid to individual classes. If international aid is important in volume and/or of specific political interest, a separate twodigit heading under CEPA 9 could be adequate for national purposes. System of Environmental-Economic Accounting 2012—Central Framework282 9.4 Activities not elsewhere classified This position groups together all these environmental protection activities that cannot be classified under other positions of the classification. II. Resource management (RM) (interim) Resource management includes all actions and activities that are aimed at preserving and maintaining the stock of natural resources and hence safeguarding against depletion. This includes actions and activities aimed at reducing the withdrawals of natural resources (recovery, reuse, recycling, substitution of natural resources) as well as restoring natural resource stocks (increases/recharges of natural resource stocks). To be included under resource management, actions and activities or parts thereof must satisfy the primary-purpose criterion, i.e., that resource management is their primary objective. Those activities whose primary purpose is environmental protection are therefore excluded. 10 Management of mineral and energy resources Includes the activities and actions aiming at minimizing the intake of mineral and energy resources through in-process modifications, the recovery, reuse, recycling, savings and use of substitute mineral resources, the production of energy from renewable sources and any other kind of measure. Activities and actions concerning measurement, control, laboratories and the like are also included, as well as education, training and information and administration and regulation activities. 10.1 Reduction of the intake of mineral and energy resources Reduction of the intake through in-process modifications related to the reduction of the input of non-renewable energy sources for the production process. This includes all the kinds of replacement or adjustment of production processes whose aim is to reduce the input of energy resources needed for producing a certain output. This category includes the production of energy from renewable sources when it has the primary purpose of reducing the exploitation of non-renewable energy sources (the production of energy from renewable sources mainly aimed at reducing air pollution is excluded → CEA 1.1). All kinds of renewables are included according to the International Energy Agency definition of renewables, i.e., hydropower, solar, wind, tidal, biogas, geothermal and biomass sources. The production of energy from the combustion of any kind of waste is included, except where the incineration of waste is carried out for the main purpose of waste treatment and disposal → CEA 3.3 or 3.4. Reduction of the intake through in-process modifications related to the reduction of the raw material input for the production process or the consumption or use of resourceefficient products. 10.2 Reduction of mineral use through the reduction of scraps and the production and consumption of recycled materials and products and reduction of heat and energy losses and energy savings Reduction of the use of non-renewable energy sources through the minimization of heat and energy losses and through energy savings (energy savings mainly aimed at reducing air pollution is excluded → CEA 1.1). 283Annex I Production and use of secondary raw materials or final products obtained from recovered and recycled materials and waste. This includes, for example: processing of waste and scrap into a form that is readily transformed into new raw materials, production of recycled goods (recycling activities insofar as they constitute waste collection, transport, treatment or disposal activities are excluded → CEA 3.2, 3.3 and 3.4). 10.3 Measurement, control, laboratories and the like related to mineral and energy resources Activities aimed at measuring, controlling and monitoring the use and the consistency of fossil energy stocks as well as the production of energy from renewable sources. These include, for example: assessment and reassessment of existing reserves; and assessment of the importance of the production of energy from renewable sources for total energy production. Activities aimed at measuring, controlling and monitoring the use and the consistency of mineral stocks. These include, for example: inventories and assessment of mineral stocks. 10.4 Other activities for the management of mineral and energy resources All other activities and measures aimed at the management of mineral and energy resources. These include regulation, administration, education, training and information activities specific to the class when they can be separated from other activities related to the same class and from similar activities related to other classes of the RM group, including, for example: release of licences for mining and quarrying activities; activities of general government units or part thereof that administer and regulate the exploitation of mineral resources or are responsible for material savings and recycling policies. Excluded are public or private bodies that manage, exploit and explore mineral resources. 11 Management of timber resources Includes the activities and actions aiming at minimizing the intake of natural timber resources through in-process modifications as well as recovery, reuse, recycling, savings and the use of substitutes of forest products. Replenishment activities like reforestation and afforestation are included when they concern natural forests. Activities and actions concerning measurement, control, laboratories and the like are also included, as well as education, training and information and administration and regulation activities. Exploitation and exploration activities of natural timber resources are excluded. 11.1 Reduction of the intake of timber resources Reduction of the intake through in-process modifications related to the reduction of the input of timber resources for the production process. This includes all the kinds of replacement or adjustment of production processes aimed at reducing the input of forest-related products (wood and non-wood) needed for producing a certain output. The substitution of forest products with other material and substances is included. 11.2 Reduction of the consumption of forest (wood and non wood)-related products Recycling, reuse or savings of forest products and by-products (wood, paper, etc.). System of Environmental-Economic Accounting 2012—Central Framework284 11.3 Reforestation and afforestation Replenishment of existing natural forest areas or development of new forest areas. Excluded are activities aimed at restoring or rehabilitating damaged habitats or ecosystems (→ CEA 6.1) 11.4 Forest fires Prevention and control of natural forest fires (concerning forest areas relevant mainly as economic resource and not as habitats → CEA 6.2). This includes, for example: development of fireballs, and mobilization of firefighting means or measures aimed at the prevention of fires in forest areas. 11.5 Measurement, control, laboratories and the like related to natural timber resources Activities aimed at measuring, controlling and monitoring the use and consistency of timber resource stocks. They include, for example, inventories and assessments of timber resources. Measurement, controlling and monitoring activities related to the protection of biodiversity and landscape are excluded, like, e.g., inventories of flora and fauna species living in natural forest areas → CEA 6.1 and census of natural forest protected areas → CEA 6.2. 11.6 Other activities for the management of timber resources All other activities and measures aimed at the management of natural timber resources, including regulation, administration, education, training and information activities specific to the class when they can be separated from other activities related to the same class and from similar activities related to other classes of the RM group. This includes, for example: the release of logging licences; and activities of general government units or part thereof that administer and regulate the use of natural forest resources or are responsible for forest management policies. 12 Management of aquatic resources Includes the activities and actions aiming at minimizing the intake of wild fish and other aquatic resources through in-process modifications as well as the use of alternative resources and any other kind of measure. Replenishment activities like repopulation of wild fish stocks are included when they aim at maintaining/increasing the consistency of stocks (not their biodiversity → CEA 6). Activities and actions concerning measurement, control, laboratories and the like are also included, as well as education, training and information and administration and regulation activities. The class includes all the activities and actions having the purpose of managing, maintaining and increasing the stock of aquatic resources. The protection of biodiversity of aquatic resources is excluded (→ CEA 6). 12.1 Reduction of the intake of aquatic resources Reduction of the intake through in-process modifications. This includes all the kinds of replacement or adjustment of production processes aimed at reducing the input of wild fish resources needed for producing a certain output. It includes, for example, vessel buy-back programmes for the introduction of more efficient fishing fleets and equipments. The use of alternative resources is included, i.e., the use of renewable resources or the substitution of natural inputs with alternative inputs. 285Annex I 12.2 Replenishment of aquatic resources stocks Increase of the number of individuals of aquatic resources stocks. This includes, for example, breeding for the replenishment of stocks for fishing (for restocking purposes and not for protection of biodiversity → CEA 6.1). 12.3 Measurement, control, laboratories and the like related to aquatic resources Activities aimed at measuring, controlling and monitoring the use and the consistency of aquatic resources, including, for example: inventories and assessment of aquatic resource stocks; control on the observance of licences, quotas, and temporary or permanent fishing bans. Measurement, controlling and monitoring activities related to the protection of biodiversity and landscape are excluded, like, e.g., inventories of threatened species → CEA 6.1. 12.4 Other activities for the management of aquatic resources All other activities and measures aimed at the management of aquatic resources. This includes regulation, administration, education, training and information activities specific to the class when they can be separated from other activities related to the same class and from similar activities related to other classes of the RM group. Included, for example, are: release of fishing licences, enforcement and administration of quotas, enforcement and regulation of temporary or permanent fishing bans; and general government units or part thereof that administer and regulate the exploitation of wild fish resources or are responsible for wild fish management policies. 13 Management of other biological resources (excluding timber and aquatic resources) Includes the activities and actions aiming at minimizing the intake of biological resources other than timber and aquatic resources through in-process modifications as well as the use of alternative resources and any other kind of measure. Replenishment activities like repopulation of wild flora and fauna stocks are included when aimed at maintaining/ increasing the consistency of stocks (not the biodiversity → CEA 6). Activities and actions concerning measurement, control, laboratories and the like are also included, as well as education, training and information and administration and regulation activities. Other biological resources are stocks and reserves of non-cultivated animals and plants (excluding timber and aquatic resources). The class includes all the activities and actions with the purpose of managing, maintaining and increasing the stock of the resources. Activities aimed at the protection of biodiversity of wild flora and fauna are excluded (→ CEA 6). 13.1 Reduction of the intake of biological resources (excluding timber and aquatic resources) Reduction of the intake through in-process modifications. This includes all the kinds of replacement or adjustment of production processes aiming at reducing the input of wild flora and fauna resources needed for producing a certain output. The use of alternative resources is included, i.e., the substitution of natural inputs with alternative inputs. System of Environmental-Economic Accounting 2012—Central Framework286 13.2 Replenishment of biological resources stocks (excluding timber and aquatic resources) Increase of the number of individuals of other biological resources stocks. This includes, for example, breeding for the replenishment of stocks for hunting (for restocking purposes and not for protection of biodiversity → CEA 6.1). 13.3 Measurement, control, laboratories and the like related to biological resources stocks (excluding timber and aquatic resources) Activities aimed at measuring, controlling and monitoring the use and the consistency of wild flora and fauna stocks. These include, for example: inventories and assessment of wild fauna stocks; control on the observance of licences, quotas and temporary or permanent hunting bans. Measurement, controlling and monitoring activities related to the protection of biodiversity and landscape are excluded, like, e.g., inventories of threatened species → CEA 6.1. 13.4 Other activities for the management of biological resources (excluding timber and aquatic resources) All other activities and measures aimed at the management of other biological resources. These include regulation, administration, education, training and information activities specific to the class when they can be separated from other activities related to the same class and from similar activities related to other classes of the RM group. They include, for example: release of hunting licences, enforcement and administration of quotas, and enforcement and regulation of temporary or permanent fishing/hunting bans; and general government units or part thereof that administer and regulate the exploitation of wild flora and fauna resources or are responsible for wild flora and fauna management policies. 14 Management of water resources Includes the activities and actions aimed at minimizing the intake of water resources through in-process modifications as well as reuse, recycling, savings and the use of substitutes of freshwater resources. Activities aiming at the replenishment of water stocks are included. Activities and actions concerning measurement, control, laboratories and the like are also included, as well as education, training and information and administration and regulation activities. Exploitation, exploration and distribution activities are excluded. 14.1 Reduction of the intake of water resources Reduction of the intake through in-process modifications related to the reduction of the water input for the production process. This includes all the kinds of replacement or adjustment of production processes aiming at reducing the water input needed for producing a certain output. Desalinization of seawater is included. 14.2 Reduction of water losses and leaks, water reuse and savings Reduction of water use through the reduction of water losses and leaks, the installation of facilities for water reuse and savings, etc. 14.3 Replenishment of water resources Increase of water available in water stocks. The following activities are included: recharge of groundwater bodies to increase/restore water stocks (not to improve water qual- 287Annex I ity or fight salinity → CEA 4.4); land improvement, development of vegetal cover in order to increase water infiltration and recharge phreatic water bodies (not for the protection of soil against erosion → CEA 4.3). 14.4 Measurement, control, laboratories and the like related to water resources Activities aimed at measuring, controlling and monitoring the use and the level of water stocks. The following activities are excluded: measurement, monitor and control of the concentration of pollutants in wastewater and the quality of the inland water and marine water at the place wastewater is discharged → CEA 2.5; measurement, monitor and control of the quality of surface water and groundwater → CEA 4.5. 14.5 Other activities for the management of water resources All other activities and measures aimed at the management of water resources. These include regulation, administration, education, training and information activities specific to the class when they can be separated from other activities related to the same class and from similar activities related to other classes of the RM group. They include, for example: information campaigns to encourage water savings; release of licences for water abstraction; and general government units or parts thereof that administer and regulate the use of water resources or are responsible for water saving policies. 15 Research and development activities for resource management Creative work undertaken on a systematic basis in order to increase the stock of knowledge and the use of this knowledge to devise new applications in the field of natural resource management and savings. Excluded are R&D activities related to environmental protection → CEA 8. 15.1 Mineral and energy resources R&D activities exclusively related to energy sources (non-renewable and renewable) and minerals. 15.2 Timber resources R&D activities exclusively related to natural timber resources. 15.3 Aquatic resources R&D activities exclusively related to aquatic resources. 15.4 Other biological resources R&D activities exclusively related to other biological resources (excluding timber and aquatic resources). 15.5 Water resources R&D activities exclusively related to water resources. 15.6 Other R&D activities for natural resource management Other R&D activities concerning other natural resources (not specified). System of Environmental-Economic Accounting 2012—Central Framework288 16 Other resource management activities 16.1 General administration of natural resources Any identifiable activity that is directed towards the general support of decisions taken in the context of natural resource management whether by governmental or by nongovernmental units. 16.1.1 General administration, regulation and the like Any identifiable activity within general government and NPISH units that is directed towards regulation, administration of the environment and the support of decisions taken in the context of natural resource management activities. When possible, such activities should be allocated to CEA classes 10-14 (within the “other activities for the management of” category). If this is impossible, they should be included under this position of the classification. If the general administration activities concern both environmental protection and management of natural resources, they should be broken down between this position and the corresponding CEA category of the EP group (→ CEA 9.1.1). If this is impossible, they should be classified in this position or, alternatively, in the one of the EP group according to the “main purpose” criterion; if this is impossible as well, they should be classified within the corresponding category of the EP group (→ CEA 9.1.1) 16.1.2 Environmental management Any identifiable activity of corporations that is directed towards the general support of decisions taken in the context of natural resource management activities. This includes the preparation of declarations or requests for permission, internal environmental management, and environmental certification processes (ISO 14000; EMAS), as well as the recourse to environmental consultancy services. Activities of units specialized in environmental consultancy, supervision and analysis are included. When possible, such activities should be allocated to CEA classes 10-14 (within the “other activities for the management of” category). If this is impossible, they should be included under this position of the classification. If the general administration activities concern both environmental protection and management of natural resources, they should be broken down between this position and the corresponding category of the EP group (→ CEA 9.1.2). If this is impossible, they should be classified in this position or, alternatively, in the one of the EP group according to the “main purpose” criterion; if this is impossible as well, they should be classified within the corresponding category of the EP group (→ CEA 9.1.2). 16.2 Education, training and information Activities that aim at providing general environmental education or training and disseminating information on natural resource management. Included are high school programmes, university degree programmes or special courses specifically aimed at training for natural resource management. Activities such as the production of environmental reports and environmental communication are also included. When possible, such activities should be allocated to CEA classes 10-14 (within the “other activities for the management of” category). If this is impossible, they should be included under this position of the classification. If the general education, training and information activities concern both environmental protection and management of natural resources, they should be broken down between this position and the corresponding category of the EP group (→ CEA 9.2). If this is impossible, they should be classified in this position or, alternatively, in the one of the EP 289Annex I group according to the “main purpose” criterion; if this is impossible as well, they should be classified within the corresponding category of the EP group (→ CEA 9.2). 16.3 Activities leading to indivisible expenditure Natural resource management activities that lead to indivisible expenditure, i.e., that cannot be allocated to any other class of the RM group. 16.4 Activities not elsewhere classified This class comprises all resource management activities that cannot be classified under other classes of the RM group. B. Classification of Land Use (interim) 1 Land 1.1 Agriculture The total of areas under “Land under temporary crops”, “Land under temporary meadows and pastures”, “Land with temporary fallow”, “Land under permanent crops”, “Land under permanent meadows and pastures”, and “Land under protective cover”. This category includes tilled and fallow land, and naturally grown permanent meadows and pastures used for grazing, animal feeding or agricultural purpose. Scattered land under farm buildings, yards and their annexes, and permanently uncultivated land, such as uncultivated patches, banks, footpaths, ditches, headlands and shoulders are traditionally included. 1.1.1 Land under temporary crops Land used for crops with a less-than-one-year growing cycle, which must be newly sown or planted for further production after the harvest. Some crops that remain in the field for more than one year may also be considered as temporary crops, e.g., asparagus, strawberries, pineapples, bananas and sugar cane. Excludes: Herbaceous forage crops. 1.1.1.1 Cereals Land used for the growing of cereals, e.g., wheat, rice, maize, sorghum, barley, rye, oats, millets. 1.1.1.2 Vegetables and melons Land used for the growing of vegetables and melons. 1.1.1.3 Temporary oilseed crops Land used for the growing of oilseeds crops, e.g., soya beans, groundnuts, castor bean, linseed, mustard seed, niger seed, rapeseed, safflower seed, sesame seed, sunflower seed, other oilseeds. 1.1.1.4 Root/tuber crops with high starch or inulin content Land used for the growing of roots and tubers, e.g., potatoes, sweet potatoes, cassava, yams. System of Environmental-Economic Accounting 2012—Central Framework290 1.1.1.5 Temporary spice crops Land used for the growing of temporary spices, e.g., chilies and peppers, anise, badian, fennel. 1.1.1.6 Leguminous crops Land used for the growing of leguminous crops, e.g., beans, broad beans, chickpeas, cowpeas, lentils, lupins, peas, pigeon peas. 1.1.1.7 Sugar crops Land used for the growing of sugar crops, e.g., sugar cane, sugar beet. 1.1.1.8 Other temporary crops Land used for the growing of other temporary crops not elsewhere classified. 1.1.2 Land under temporary meadows and pastures Land cultivated with temporary herbaceous forage crops for mowing or pasture. A period of less than five years is used to differentiate between temporary and permanent meadows. 1.1.3 Land with temporary fallow Agricultural land that is not seeded for one or more growing seasons. The maximum idle period is usually less than five years. Land remaining fallow for too long may acquire characteristics requiring it to be reclassified, such as under 1.7: “Land not in use”. This land may be in the form sown for the exclusive production of green manure. 1.1.4 Land under permanent crops Land cultivated with long-term crops that do not have to be replanted for several years (such as cocoa and coffee); land under trees and shrubs producing flowers (such as roses and jasmine); and nurseries (except those for forest trees, which should be classified under 0121: “Forest land”). Land under permanent meadows and pastures are excluded from “Land under permanent crops”. Excludes: herbaceous forage crops. 1.1.4.1 Fruit and nuts Land used for the growing of trees and bushes of fruit (e.g., grapes, tropical and subtropical fruits, citrus fruits, pome fruits, stone fruits) and nuts (almonds, cashew nuts, chestnuts, hazelnuts, pistachios, walnuts, etc.). 1.1.4.2 Permanent oilseed crops Land used for the growing of oleaginous fruits, e.g., coconuts, olives, oil palms. 1.1.4.3 Beverage and permanent spice crops Land used for the growing of beverage crops (coffee, tea, mate, cocoa, etc.) and of permanent spices (nutmeg, mace and cardamom, cinnamon, cloves, ginger, vanilla, etc.). 1.1.4.4 Other permanent crops Land used for the growing of other perennial crops (including rubber and Christmas trees). 1.1.5 Land under permanent meadows and pastures Land used to grow permanent (growth cycle of five years or more) herbaceous forage crops through cultivation or naturally (wild prairie or grazing land). Permanent meadows and 291Annex I pastures on which trees and shrubs are grown should be recorded under this heading only if the growing of forage crops is the most important use of the area. Measures may be taken to keep or increase productivity of the land (i.e., use of fertilizers, mowing or systematic grazing by domestic animals.) This class includes: • Grazing in wooded areas (agroforestry areas, for example) • Grazing in shrubby zones (heath, maquis, garigue) • Grassland in the plain or low mountain areas used for grazing: land crossed during transhumance where the animals spend a part of the year (approximately 100 days) without returning to the holding in the evening: mountain and subalpine meadows and similar; and steppes and dry meadows used for pasture 1.1.5.1 Cultivated permanent meadows and pastures Land under permanent meadows and pastures that is managed and cultivated. 1.1.5.2 Naturally grown permanent meadows and pastures Land under naturally grown permanent meadows and pastures used for grazing, animal feeding or agricultural purpose. 1.1.6 Agricultural land under protective cover Surfaces occupied by dwellings on farms, etc.: dwellings, operating buildings (hangars, barns, cellars, greenhouses, silos), buildings for animal production (stables, cowsheds, pig sheds, sheep pens, poultry yards), family gardens, farmyards. Excludes buildings for agro-food manufacture (→1.4.3) and buildings in rural areas for exclusive residential purpose (→1.4.8). 1.2 Forestry Land used for forestry. Excludes land that is predominantly under agricultural or urban use. 1.2.1 Forest land Land spanning more than 0.5 hectares with trees higher than 5 metres and a canopy cover of more than 10 per cent, or trees able to reach these thresholds in situ. Excludes land that is predominantly under agricultural or urban land use, and land that is predominantly used for maintenance and restoration of environmental function. Explanatory notes: • Forest land is determined both by the presence of trees and by the absence of other predominant land uses. The trees should be able to reach a minimum height of 5 metres in situ • Includes areas with young trees that have not yet reached but that are expected to reach a canopy cover of 10 per cent and tree height of 5 metres. It also includes areas that are temporarily unstocked owing to clear-cutting as part of a forest management practice or natural disasters, and that are expected to be regenerated within five years. Local conditions may, in exceptional cases, justify the use of a longer time frame • Includes forest roads, firebreaks and other small open areas System of Environmental-Economic Accounting 2012—Central Framework292 • May include forest land in national parks, nature reserves and other protected areas, such as those of specific environmental, scientific, historical, cultural or spiritual interest • Includes windbreaks, shelter belts and corridors of trees with an area of more than 0.5 hectares and width of more than 20 metres • Includes abandoned shifting cultivation land with a regeneration of trees that have, or is expected to reach, a canopy cover of 10 per cent and tree height of 5 metres • Includes areas with mangroves in tidal zones, regardless of whether this area is classified as land area or not • Includes areas with bamboo and palms provided that land use, height and canopy cover criteria are met • Some agroforestry systems such as the taungya system, where crops are grown only during the first years of the forest rotation should be classified as forest • Excludes: tree stands in agricultural production systems, such as fruit-tree plantations (→1.1.4.1), oil palm plantations, rubber and Christmas trees (→1.1.4.4) and agroforestry systems when crops are grown under tree cover (→1.1.5) 1.2.1.1 Primary regenerated forest Naturally regenerated forest of native species, where there are no clearly visible indications of human activities and the ecological processes are not significantly disturbed. Some key characteristics of primary forests: • They show natural forest dynamics, such as natural tree species composition, occurrence of dead wood, natural age structure and natural regeneration pro- cesses • The area is large enough to maintain its natural characteristics • There has been no known significant human intervention or the last significant human intervention was long enough ago to have allowed the natural species composition and processes to have become re-established 1.2.1.2 Other naturally regenerated forest Forest where there are clearly visible indications of human activities. Includes: • Selectively logged-over areas, areas regenerating following agricultural land use, areas recovering from human-induced fires, etc. • Forests where it is not possible to distinguish whether planted or naturally regen- erated • Forests with a mix of naturally regenerated trees and planted/seeded trees, and where the naturally regenerated trees are expected to constitute more than 50 per cent of the growing stock at stand maturity • Coppice from trees established through natural regeneration • Naturally regenerated trees of introduced species 293Annex I 1.2.1.3 Planted forest Forest predominantly composed of trees established through planting and/or deliberate seeding. This means that the planted/seeded trees are expected to constitute more than 50 per cent of the growing stock at maturity. This includes coppice from trees that were originally planted or seeded. Excludes: self-sown trees of introduced species, tree stands in agricultural production systems, such as fruit tree plantations, oil palm plantations and agroforestry systems when crops are grown under tree cover, and land that is predominantly under agricultural or urban use. 1.2.2 Other wooded land Land not classified as “Forest land”, spanning more than 0.5 hectares; with trees higher than 5 metres and a canopy cover of 5-10 per cent, or trees able to reach these thresholds in situ; or with a combined cover of shrubs, bushes and trees above 10 per cent. The definition above encompasses two options: (a) The canopy cover of trees is between 5 and 10 per cent; and trees should be higher than 5 metres or able to reach 5 metres in situ, or (b) The canopy cover of trees is less than 5 per cent but the combined cover of shrubs, bushes and trees is more than 10 per cent. Includes areas of shrubs and bushes where no trees are present. Includes: • Areas with trees that will not reach a height of 5 metres in situ and with a canopy cover of 10 per cent or more, e.g., some alpine tree vegetation types, arid zone mangroves. • Areas with bamboo and palms provided that land use, height and canopy-cover criteria are met Excludes land that is predominantly under agricultural or urban land use, and land that is predominantly used for maintenance and restoration of environmental function. 1.3 Land used for aquaculture Land used for aquaculture facilities and fish-farming activities. Aquaculture refers to the farming of aquatic organisms: fish, molluscs, crustaceans, aquatic plants, crocodiles, alligators, turtles and amphibians. Farming implying some form of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc. 1.3.1 Land used for hatcheries Housing facilities for breeding, nursing and rearing seed of fish, invertebrates or aquatic plants to fry, fingerling or juvenile stages. 1.3.2 Managed grow-out sites on land Land with aquaculture facilities other than “hatcheries”, e.g., ponds and tanks (artificial units of varying sizes constructed above or below ground level capable of holding and interchanging waters), raceways and silos (artificial units constructed above or below ground level capable of high rate of water interchange in excess of 20 changes per day). System of Environmental-Economic Accounting 2012—Central Framework294 1.4 Use of built-up and related areas Land affected or adapted by man, under buildings, roads, mines and quarries and any other facilities, including their auxiliary spaces, deliberately installed for the pursuit of human activities. Included also are certain types of open land (non built-up land), which are closely related to these activities, such as waste tips, derelict land in built-up areas, junkyards, city parks and gardens. Land under closed villages or similar rural localities are included. 1.4.1 Mining and quarrying Land mainly used for mining and quarrying including installations for the extraction of solid fuels, petroleum, natural gas, minerals, salt, construction stone, and sand and clay; including their associated areas (slag heaps, dumps and storage areas, loading and unloading sites, shafts or head gear). 1.4.2 Construction Land mainly used for construction, especially building sites. Includes abandoned areas (residential, industrial, commercial, infrastructures, and burned areas), tips and manmade wasteland. 1.4.3 Manufacturing Land used for activities of manufacturing including heavy industries. This category includes coking plants, cracking and refining of petroleum, installations for producing and processing of metals, installations producing non-metallic minerals; industrial installations in the field of basic chemistry, agrochemistry, the production of synthetic and artificial fibres and other products; and installations working in the fields of agro-food products, beverages and tobacco, textile manufacturing, leather, footwear and clothing manufacturing, wood, paper and production of paper articles, rubber and transformation of plastics, as well as construction companies and public works. Excludes: actual construction sites (→1.4.2) and harbour areas and their storage facilities (→1.4.5). 1.4.4 Technical infrastructure Land used for technical installations for the generation, distribution and transmission of electrical energy; the distribution of hydrocarbons, including oil and gas pipelines, and water; the recovery and purification of water; the collection and treatment of waste. Land used for telecommunications networks, such as relay stations, television aerials, radio telescopes, radars, and major protective works, e.g., water retention dams and protective dykes. Included is also the land used for related offices and other service buildings and installations, as well as any space needed, according to national practices, for the operation of such technical infrastructure. 1.4.5 Transport and storage Land used by infrastructure and service enterprises in the field of transport and storage. Includes transport infrastructures for road traffic; rail networks; airport installations; and installations connected with river and maritime transport. Included is also the land used for transport-related offices and other service buildings and installations, such as stations, airport buildings, storage facilities for equipment and repair workshops, space used for sidewalks, grass slopes along railways, windshelter belts along roads, and open noise abatement areas around airports, as well as any other space needed, according to national practices, for the provision of the related infrastructure. Excludes: military aerodromes (→1.4.6) and dockyards (→1.4.3) 295Annex I 1.4.6 Commercial, financial and public services Land mainly used for commerce, trade and related services, public administrations and judicial services, public order and safety services, social security and social work services, and professional and trade associations, including private roads and other auxiliary spaces located in the areas concerned. This category includes wholesale and retail trade; hotel and catering services; banks and insurance; personal services; installations for national defence; education and research/development; and land occupied by religious buildings. 1.4.7 Recreational facilities Land developed for and occupied by leisure or recreational purposes, including cultural sites: archaeological sites; historic sites, classified monuments, ruins and stately homes; museums, libraries and media centres; concert halls and theatres; cemeteries, and associated areas (water, wooded areas, lawns and gardens); sport facilities: public beaches and swimming pools, gymnasiums and sports halls; stadiums and games fields; assembly and dancing halls; golf courses; riding tracks; car racing circuits; green or leisure areas: urban parks, public gardens, zoological and botanical gardens and hobby gardens; major burial grounds used as walking places with considerable vegetation; facilities for tourism: camping and caravanning sites; amusement parks, circuses, youth hostels and country centres; marinas; secondary residences or vacation houses; and casinos. Excludes areas that can be used for recreation if this is not the main utilization. 1.4.8 Residential Land mainly used for residential buildings, irrespective of whether they are actually occupied or temporarily vacant, including residential land attached to private gardens and small green areas and parking facilities and small playgrounds mainly reserved and used by the inhabitants of the buildings. This category includes: • Continuous and dense residential areas (dense to very dense urban core where a large proportion of the buildings are higher than three stories) • Continuous residential areas of moderate density (suburban kind, found commonly in old villages attached to a town) • Discontinuous residential areas of moderate density (of the “housing area” type, formed by individual houses) • Isolated residential areas (hamlets, groups of a few houses, small villages, isolated buildings) • Collective residential areas (collective dwellings generally higher than three sto- ries) Excludes: land used for purposes specified elsewhere even if it is mainly used by the local population. 1.5 Land used for maintenance and restoration of environmental functions This class includes protected areas as defined by IUCN, International Union for Conservation of Nature, i.e., clearly defined geographical spaces, recognized, dedicated and managed, through legal or other effective means, to achieve the long-term conservation of nature with associated ecosystem services and cultural values. System of Environmental-Economic Accounting 2012—Central Framework296 Protected areas should aim, where appropriate, to: • Conserve significant landscape features, geomorphology and geology • Provide regulatory ecosystem services, including buffering against the impacts of climate change • Conserve natural and scenic areas of national and international significance for cultural, spiritual and scientific purposes • Deliver benefits to resident and local communities consistent with the other objectives of management • Deliver recreational benefits consistent with the other objectives of management • Facilitate low-impact scientific research activities and ecological monitoring related to and consistent with the values of the protected area • Use adaptive management strategies to improve management effectiveness and governance quality over time • Help to provide educational opportunities (including as regards management approaches) • Help to develop public support for protection 1.6 Other uses of land n.e.c. Land used for uses not elsewhere classified. 1.7 Land not in use Areas where there are no clearly visible indications of human activities or institutional arrangements put in place for the purpose of economic production or the maintenance and restoration of environmental functions and where ecological processes are not significantly disturbed. This category includes: • Land with trees not used for the purpose of agriculture and not classified as “Forest and other wooded land” • Bushes and shrubs not used for the purpose of agriculture and not classified as “Other wooded land” • Open areas with low vegetation of the herbaceous type, not used for agricultural purposes • Natural and non-built-up land surface with little or no vegetation, which precludes its inclusion in other categories of the classification; included are old quarries and abandoned sandpits and burned areas • Bare soils (areas where bedrock crops out) including rocks and scree, and dunes and sand and pebble beaches • Land covered by glaciers (generally measured at the time of their greatest expansion in the season) or eternal snow • Land flooded or likely to be so over a large part of the year by fresh, brackish or saline, or stagnating water, bearing a vegetation cover of the low shrub, semiwoody or herbaceous type (bogs and marshes); and occupied by intermediate 297Annex I zones between the solid and liquid state, among which blanket or raised peat lands, such as peat bogs (moors) Excludes: peat bogs in use for fuel harvesting (→1.4.1) and protected areas (→1.5). 2 Inland waters Inland waters are areas corresponding to natural or artificial water courses, serving to drain natural or artificial bodies of water, including lakes, reservoirs, rivers, brooks, streams, ponds, inland canals, dams, and other land-locked (usually freshwater) waters. The banks constitute limits whether the water is present or not. 2.1 Inland waters used for aquaculture or holding facilities Inland water areas that are used for aquaculture facilities including supporting facilities. Aquaculture refers to the farming of aquatic organisms: fish, molluscs, crustaceans, aquatic plants, crocodiles, alligators, turtles and amphibians. Aquaculture facilities include enclosures and pens (water areas confined by net, mesh and other barriers allowing uncontrolled water interchange), cages (open or covered enclosed structure constructed with net, mesh or any porous materials allowing natural water interchange), barrages (semi-permanent or seasonal enclosures formed by impervious man-made barriers and appropriate natural features) and rafts, ropes and stakes (raft, long lines or stakes used to culture shellfish and seaweeds). 2.2 Inland waters used for maintenance and restoration of environmental functions Protected inland water areas as defined in 1.5. This class includes enhanced areas (areas with enhancement including stocking, fertilization, engineering, predator control, habitat modifications and/or access limits.) The class excludes protected wetlands (→1.5) and protected coastal waters (→3.2). 2.3 Other uses of inland waters n.e.c. Inland water areas used for uses not elsewhere classified. 2.4 Inland waters not in use Inland water areas not used for human activities or for the maintenance and restoration of environmental functions. Classes for analysis of coastal waters and EEZ areas The following classes may be used if extended analysis of a country’s economic territory (i.e., beyond land and inland waters) is being undertaken. 3 Coastal waters Coastal waters equate to “Internal waters” as defined by the United Nations Convention on the Law of the Sea of 10 December 1982 (article 8) (United Nations, 1998), being waters of the sea on the landward side of the baseline used by national authorities of a coastal country to measure further seaward the width of the territorial sea and any adjacent marine System of Environmental-Economic Accounting 2012—Central Framework298 waters (e.g., the EEZ), whether salt, brackish or fresh in character. Such “internal” marine waters are found, for instance, when the baselines are drawn across the mouths of bays or along a “curtain” of islands lying close off the coast. This category includes: • Water surfaces in estuaries (the wide portion of rivers at their mouths subject to the influence of the sea into which the water course flows • Lagoons (cut off from the sea by coastal banks or other forms of relief with, however, certain possible openings) Excludes: ports (→1.4.5) and marinas (→1.4.7) 3.1 Coastal waters used for aquaculture or holding facilities Coastal waters that are used for marine aquaculture facilities including supporting facilities. Aquaculture refers to the farming of aquatic organisms: fish, molluscs, crustaceans, aquatic plants, crocodiles, alligators, turtles and amphibians. Aquaculture facilities include enclosures and pens (water areas confined by net, mesh and other barriers allowing uncontrolled water interchange), cages (open or covered enclosed structure constructed with net, mesh or any porous materials allowing natural water interchange), barrages (semi-permanent or seasonal enclosures formed by impervious man-made barriers and appropriate natural features), and rafts, ropes and stakes (raft, long lines or stakes used to culture shellfish and seaweeds). This category includes: • Oyster beds and other types of shellfish (mussels, clams, abalones and scallops) • Bodies of water used for seaweed production • Bodies of water used for fish rearing 3.2 Coastal waters used for maintenance and restoration of environmental functions Protected marine areas defined consistently with class 015. This class includes enhanced areas (areas with enhancement including stocking, fertilization, engineering, predator control, habitat modifications and/or access limits) 3.3 Other uses of coastal waters n.e.c. Coastal waters used for uses not elsewhere classified. 3.4 Coastal waters not in use Coastal waters not used for human activities or for the maintenance and restoration of environmental functions. 4 Exclusive economic zone (EEZ) “Exclusive economic zone”, defined by article 55 of the United Nations Convention on the Law of the Sea of 10 December 1982 (United Nations, 1998), and whose breadth is determined by article 57 of the Convention. The EEZ may extend up to 200 nautical miles from a country’s normal baseline. The EEZ is the sea area over which a State has special rights 299Annex I over the exploration and use of marine resources, including fishing, and production of energy from water and wind. 4.1 EEZ areas used for aquaculture or holding facilities Defined consistently with class 3.1. 4.2 EEZ areas used for maintenance and restoration of environmental functions Defined consistently with class 3.2. 4.3 Other uses of EEZ areas n.e.c. Defined consistently with class 3.3. 4.4 EEZ areas not in use Defined consistently with class 3.4. C. Land Cover Basic Rules and Classification (interim) Land cover basic rules Category Basic rule Artificial surfaces (including urban and associated areas) The category is composed of any type of artificial surfaces. Herbaceous crops The category is composed of a main layer of cultivated herbaceous plants. Woody crops The category is composed of a main layer of cultivated tree or shrub plants. Multiple or layered crops The category is composed of at least two layers of cultivated woody and herbaceous plants or different layers of cultivated plants combined with natural vegetation. Grassland The category is composed of a main layer of natural herbaceous vegetation with a cover from 10 to 100 per cent. Tree-covered areas The category is composed of a main layer of natural trees with a cover from 10 to 100 per cent. Mangroves The category is composed of natural trees with a cover from 10 to 100 per cent in aquatic or regularly flooded areas in salt and brackish water. Shrub-covered areas The category is composed of a main layer of natural shrubs with a cover from 10 to 100 per cent. Shrubs and/or herbaceous vegetation, aquatic or regularly flooded The category is composed of natural shrubs or herbs with a cover from 10 to 100 per cent in aquatic or regularly flooded areas with water persistence from 2 to 12 months per year. Sparsely natural vegetated areas The category is composed of any type of natural vegetation (all growth forms) with a cover from 2 to 10 per cent. Terrestrial barren land The category is composed of abiotic natural surfaces. Permanent snow and glaciers The category is composed of any type of glacier and perennial snow with persistence of 12 months per year. Inland water bodies The category is composed of any type of inland water body with a water persistence of 12 months per year. Coastal water bodies and intertidal areas The category is composed on the basis of geographical features in relation to the sea (lagoons and estuaries) and abiotic surfaces subject to water persistence (intertidal variations). System of Environmental-Economic Accounting 2012—Central Framework300 Description of land cover classes The following descriptions of different land cover types are based on the FAO Land Cover Classification System (LCCS). 01 Artificial surfaces (including urban and associated areas) The class is composed of any type of areas with a predominant artificial surface. Any urban or related feature is included in this class, for example, urban parks (parks, parkland and laws). The class also includes industrial areas, and waste dump deposit and extraction sites. 02 Herbaceous crops The class is composed of a main layer of cultivated herbaceous plants (graminoids or forbs). It includes herbaceous crops used for hay. All the non-perennial crops that do not last for more than two growing seasons and crops like sugar cane, where the upper part of the plant is regularly harvested while the root system can remain for more than one year in the field, are included in this class. 03 Woody crops The class is composed of a main layer of permanent crops (trees or shrub crops) and includes all types of orchards and plantations (fruit trees, coffee and tea plantation, oil palms, rubber plantation, Christmas trees, etc.). 04 Multiple or layered crops This class combine two different land cover situations: Two layers of different crops. A common case is the presence of one layer of woody crops (trees or shrubs) and another layer of herbaceous crop, e.g., wheat fields with olive trees in the Mediterranean area and intense horticulture, or oasis or typical coastal agriculture in Africa, where herbaceous fields are covered by palm trees. Presence of one important layer of natural vegetation (mainly trees) that covers one layer of cultivated crops. Coffee plantations shadowed by natural trees in the equatorial area of Africa are a typical example. 05 Grassland This class includes any geographical area dominated by natural herbaceous plants (grasslands, prairies, steppes and savannahs) with a cover of 10 per cent or more, irrespective of different human and/or animal activities, such as grazing or selective fire management. Woody plants (trees and/or shrubs) can be present, assuming their cover is less that 10 per cent. 06 Tree-covered areas This class includes any geographical area dominated by natural tree plants with a cover of 10 per cent or more. Other types of plants (shrubs and/or herbs) can be present, even with a density higher than that of trees. Areas planted with trees for afforestation purposes and forest plantations are included in this class. This class includes areas seasonally or permanently flooded with freshwater. It excludes coastal mangroves (→07). 07 Mangroves This class includes any geographical area dominated by woody vegetation (trees and/or shrubs) with a cover of 10 per cent or more that is permanently or regularly flooded by salt and/or brackish water located in the coastal areas or in the deltas of rivers. 08 Shrub-covered areas This class includes any geographical area dominated by natural shrubs having a cover of 10 per cent or more. Trees can be present in scattered form if their cover is less than 10 per cent. Herbaceous plants can also be present at any density. The class includes shrub-covered areas permanently or regularly flooded by inland fresh water. It excludes shrubs flooded by salt or brackish water in coastal areas (→07). 09 Shrubs and/or herbaceous vegetation, aquatic or regularly flooded This class includes any geographical area dominated by natural herbaceous vegetation (cover of 10 per cent or more) that is permanently or regularly flooded by fresh or brackish water (swamps, marsh areas, etc.). Flooding must persist for at least two months per year to be considered regular. Woody vegetation (trees and/or shrubs) can be present if their cover is less than 10 per cent. 10 Sparsely natural vegetated areas This class includes any geographical areas were the cover of natural vegetation is between 2 per cent and 10 per cent. This includes permanently or regularly flooded areas. 11 Terrestrial barren land This class includes any geographical area dominated by natural abiotic surfaces (bare soil, sand, rocks, etc.) where the natural vegetation is absent or almost absent (covers less than 2 per cent). The class includes areas regularly flooded by inland water (lake shores, river banks, salt flats, etc.). It excludes coastal areas affected by the tidal movement of saltwater (→14). 301Annex I 12 Permanent snow and glaciers This class includes any geographical area covered by snow or glaciers persistently for 10 months or more. 13 Inland water bodies This class includes any geographical area covered for most of the year by inland water bodies. In some cases, the water can be frozen for part of the year (less than 10 months). Because the geographical extent of water bodies can change, boundaries must be set consistently with those set by class 11, according to the dominant situation during the year and/or across multiple years. 14 Coastal water bodies and intertidal areas The class is defined on the basis of geographical features of the land in relation to the sea (coastal water bodies, i.e., lagoons and estuaries) and abiotic surfaces subject to water persistence (intertidal areas, i.e., coastal flats and coral reefs). D. List of solid waste The following listing of solid waste, which has been developed for explanation of the concepts in the SEEA, is based on the European Waste Classification: statistical presentation (EWC-Stat). It is not intended, however, as a reporting format for solid waste statistics. 01 Chemical and health-care waste This class includes: • Spent solvents • Acid, alkaline or saline wastes • Acid, alkaline or saline wastes (hazardous) • Used oils (hazardous) • Chemical wastes • Chemical wastes (hazardous) • Industrial effluent sludges • Industrial effluent sludges (hazardous) • Sludges and liquid wastes from waste treatment • Sludges and liquid wastes from waste treatment (hazardous) • Health-care and biological wastes • Health-care and biological wastes (hazardous) 02 Radioactive waste 03 Metallic waste This class includes: • Metallic wastes, ferrous • Metallic wastes, non-ferrous • Metallic wastes, mixed ferrous and non-ferrous 04 Non-metallic recyclables The class includes: • Glass wastes (hazardous) • Glass wastes • Paper and cardboard wastes • Plastic wastes • Wood wastes • Wood wastes (hazardous) • Textile wastes • Rubber wastes System of Environmental-Economic Accounting 2012—Central Framework302 05 Discarded equipment and vehicles This class includes: • Waste containing polychlorinated biphenyls (PCBs) (hazardous) • Discarded equipment (excluding discarded vehicles, batteries and accumulators wastes) • Discarded equipment (excluding discarded vehicles, batteries and accumulators wastes) (hazardous) • Discarded vehicles • Discarded vehicles (hazardous) • Batteries and accumulators wastes • Batteries and accumulators wastes (hazardous) 06 Animal and vegetal wastes This class includes: • Animal and mixed food waste • Vegetal wastes • Animal faeces, urine and manure 07 Mixed residential and commercial wastes This category refers to other ordinary wastes produced by households, offices and similar economic units. In principle, the waste classification suggested here is not a classification according to the origin or producer of the waste, but according to the material itself. However, this category corresponds with the mixed waste that is usually collected by municipal waste-collection schemes, mainly from households, though not exclusively. This mixed waste can originate as well from all economic activities. All wastes in this category are considered non-hazardous. Being mixed waste, it does not include separately collected waste fractions such as glass, plastic and paper. In summary, this category covers mixed municipal waste, bulky waste, street-cleaning waste and waste from markets, except separately collected fractions. The wastes originate mainly from households but can also be generated by all economic sectors, e.g., in canteens and offices, as consumption residues. This class includes: • Mixed municipal waste • Waste from markets • Bulky waste • Street-cleaning residues 08 Mineral wastes and soils This class includes: • Mineral waste from construction and demolition • Mineral waste from construction and demolition (hazardous) • Other mineral wastes • Other mineral wastes (hazardous) • Soils • Soils (hazardous) • Dredging spoils • Dredging spoils (hazardous) • Mineral wastes from waste treatment and stabilized wastes • Mineral wastes from waste treatment and stabilized wastes (hazardous) 09 Combustion wastes This class includes: • Combustion wastes • Combustion wastes (hazardous) 303Annex I 10 Other wastes This class covers all other wastes not covered elsewhere, including: • Mixed and undifferentiated materials • Mixed and undifferentiated materials (hazardous) • Sorting residues • Sorting residues (hazardous) • Common sludges 305 Annex II Research agenda for the SEEA Central Framework Introduction A2.1 The SEEA Central Framework provides a consistent accounting framework for delineating and measuring environmental and economic concepts. Data compiled on a SEEA basis are invaluable inputs for the evaluation of policy and analysis of environmental and economic issues. As the environment and the economy change, as understanding of the links between the environment and the economy develops, and as policy and analytical requirements evolve, the SEEA Central Framework must be reviewed to assess its ongoing relevance. A2.2 In addition, as implementation of the SEEA Central Framework occurs increasingly across the world, the range of experience gained will offer new insights that should be considered in the conceptualization of the environmental and economic accounts. A2.3 As the accounting basis for the SEEA is the System of National Accounts, developments in the accounting within the context of that international standard will also need to be considered. The research agenda for the System of National Accounts is presented in annex 4 of the 2008 SNA (United Nations and others, 2009). Of particular relevance in this regard, is the expanding range of new economic instruments that are being created and implemented as part of policies for managing the environment. The research agendas of the SEEA Central Framework and the SNA need to reflect these developments. A2.4 Also in relation to the SNA, it is recalled that there are some small differences between the SNA and the SEEA in the treatment of certain physical flows, for example, the treatment of goods for processing (see sect. 3.3). The ongoing development of the SEEA will need to consider the extent to which any differences with the SNA should be maintained. A2.5 The process for reviewing and updating the SEEA Central Framework will follow standard processes that have developed for the review of international standards. Thus, there will be consideration within the United Nations statistical system of (a) the relative importance of updating the standard to ensure its ongoing relevance; (b) the consequences of making any changes and the potential impact on implementation; and (c) the extent to which research into a proposed area of change has been completed. The process for selecting topics for investigation and determining the appropriate changes to the SEEA Central Framework will involve widespread consultation and involvement of compilers and users. A2.6 It is noted that, because the SEEA Central Framework is an integrated accounting system with links between different accounts, changing individual areas in response to specific concerns is likely to have broader ramifications. Hence, updating the standard must be completed in a coordinated and integrated fashion. System of Environmental-Economic Accounting 2012—Central Framework306 A2.7 Examined below are the major topics identified during the preparation of the SEEA Central Framework as being those that would benefit from further consideration within the international statistical community, i.e.: • Development of classifications • Development of consistent valuation techniques beyond the SNA in the absence of market prices • Definition of resource management • Accounts and statistics relating to the minimization of natural hazards and the effects of climate change • Depletion of natural biological resources • Accounting for soil resources • Valuation of water resources • Approaches to the measurement of adapted goods A2.8 The research topics outlined here do not cover topics related to the development of ecosystem accounting. The status of accounting for ecosystems will be presented in the publication of SEEA Experimental Ecosystem Accounting, which is currently under development. The SEEA Experimental Ecosystem Accounting will recognize the need for ongoing research and experimentation in ecosystem accounting. Particular areas in which ongoing research is likely to be required include accounting for overall ecosystem condition and capacity, accounting for biodiversity, carbon accounting, accounting for economic instruments used by government in relation to the management of ecosystems, and techniques for the valuation of ecosystems. A2.9 In addition, research and development in some of the areas included in the research agenda of the SEEA Central Framework might be usefully combined with work on ecosystem accounting. Specifically, research work on accounting for soil resources, the valuation of water resources, and the development of land cover and land use classifications might be considered within the context of research on ecosystem accounting. Topics included in the SEEA Central Framework research agenda Development of classifications A2.10 The development of standard definitions, concepts and structures related to environmental and economic accounting is important. However, for a more complete standardization of information, especially for international reporting and comparison purposes, it is also necessary to construct agreed classifications of relevant statistical concepts. The SEEA Central Framework contains a number of classifications that assist in explaining the breadth of various concepts and also serve as a basis for classifying different stocks and flows. A2.11 Generally, the classifications in the SEEA Central Framework are presented only at a relatively high or summary level. However, in some cases efforts have been made to describe finer-level classes with a view to assisting in the preparation of statistics and clarifying the treatment of some specific flows and stocks. A2.12 In the drafting process, it became clear that the detail for certain classifications would require further consideration. Specifically, further work and consultation are required on the land use classification and the resource management component of the Classification of Environmental Activities. The land cover classification would also benefit from testing and 307Annex II application for SEEA purposes, although its basis in the FAO Land Cover Classification System v. 3 provides a strong underpinning, from a classification perspective. Development of consistent valuation techniques beyond the SNA in the absence of market prices A2.13 The SEEA Central Framework calls for the recording of many stocks, flows and transactions that are related to the environment, but for which there are no directly observable or measurable values. As in the SNA, in this situation, imputed prices are required in order to record the value of the transaction. Such values are crucial to determining the economic importance of environmental stocks and flows and, more important, establishing the tradeoff between these and non-environmental stocks and flows. A2.14 In line with the SNA, the SEEA Central Framework outlines the valuation of some stocks and flows by using “near market” data, whereby the valuation is based on market transactions that are close (in an economic sense) to the imputed transaction. For example, one may value a stock of coal based on the observed income of the coal extractor. A2.15 The SEEA Central Framework does not address the valuation of stocks and flows that are neither “market” nor “near market”, but that fall within the measurement boundary in physical terms. A salient example is the full valuation of water stocks and flows, but may also include other environmental assets. Definition of resource management A2.16 The environmental activity of resource management is defined in chapter IV. The definition is built on early work on the concepts to be applied to the measurement of environmental activity first presented in SERIEE European System for the Collection of Economic Information on the Environment 1994 Version, 2nd ed. (European Commission and Eurostat, 2002b). Although defined some time ago, there has not been a significant amount of work on the measurement of resource management activity, especially in comparison with the other main environmental activity of environmental protection. Interest in resource management has been growing strongly in recent years, including in relation to renewable energy, climate change and recycling activities. A2.17 The finalization of the definition of resource management activity for the purposes of the Central Framework was complicated by a lack of clarity on the ideal scope of the resources that should be considered. In some circumstances, limiting consideration only to natural resources seemed appropriate, while in other cases, the inclusion of cultivated resources seemed relevant. A2.18 It is therefore recommended that a review of the scope of resource management activity be undertaken. This work may be completed in concert with a review of the provisional classification of resource management activities as presented in the Classification of Environmental Activities (see above). Accounts and statistics relating to the minimization of natural hazards and the effects of climate change A2.19 The SEEA Central Framework limits the scope of economic activities considered to be environmental to environmental protection and resource management activity. However, it is recognized that there are a number of other economic activities that are related to the environment which may be of particular interest for policy and analytical purposes (see sect. 4.2). A specific set of activities encompasses efforts to minimize the impact of natural hazards System of Environmental-Economic Accounting 2012—Central Framework308 (such as floods, cyclones and bush fires) and efforts to mitigate, or adapt to, the effects of climate change. A2.20 Accounts and statistics on these areas of economic activity can be compiled following standard approaches to satellite accounting for economic activities that are outlined in the SNA. Nonetheless, given the analytical and policy interest in these topics and the close link to the environment, the research and development of such satellite accounts may lie within the domain of environmental and economic accounts. It is recommended that work in these areas be considered to fall within the remit of the SEEA so that alignment of accounting conventions and links to other parts of the SEEA Central Framework can be properly established. Depletion of natural biological resources A2.21 The depletion of natural biological resources, in particular natural timber and aquatic resources, is an important flow described in some detail in the SEEA Central Framework (see sect. 5.4). The discussion on depletion considerably extends the discussion contained in the SEEA-2003. At the same time, the definition and measurement of depletion in the context of resources that can regenerate are not straightforward and do not have an equivalent in traditional economic accounting. A2.22 Significantly, the definition and measurement of depletion of natural biological resources require an integration of economic concepts and scientific information in the form of biological models. While the principles for the purposes of the SEEA Central Framework have been clearly outlined, there is a need for further research and application of these principles, and an assessment of the usefulness of the conceptualization in the SEEA for policy and analytical purposes. Accounting for soil resources A2.23 Accounting for soil resources is discussed in section 5.7, which offers a range of information on soil resources that might be organized within the general asset accounting structure of the SEEA Central Framework. At the same time, there is little evidence of soil accounting at a national level that is underpinned by the broad logic of environmental asset accounting. In part, this seems the result of a lack of clarity on the status of soil within accounting frameworks. In some situations, accounting for soil is combined with land and thus separate consideration of soil as a resource is mixed with analysis of changes in land cover and land use. In other situations, soil is seen as a complex biological system with multiple interacting components (e.g., nutrients, water and microorganisms) and therefore standard asset accounting seems inappropriate. A2.24 While it is appropriate to highlight both the connection of soil with land and the status of soil as a complex biological system, the SEEA shows that significant information with a broad scope can be usefully organized around the concept of soil as a separable environmental asset. However, more research and collaboration are needed in assessing the usefulness of soil asset accounts for the purposes of managing this fundamental resource. A2.25 Importantly, there is an emerging stream of analytical activity issuing from the scientific community which focuses on soil from a “natural capital” perspective. This work could be aligned well with the implementation of soil asset accounts. Part of the focus of the work will need to involve the development of spatially enabled data sets and there are a number of examples of work in this area at both national and international levels. 309Annex II Valuation of water resources A2.26 Asset accounting for water resources is covered in section 5.11, which outlines, in some detail, the appropriate accounting for water resources in physical terms. However, the valuation of water resources is not outlined in detail because the application of the general principles of valuation of environmental assets tends to be inappropriate for water resources. A2.27 Within the general scope of advancing water accounts, it is recommended that further investigation be undertaken to develop techniques and methods for the valuation of water resources consistent with the valuation principles in the SEEA Central Framework. Approaches to the measurement of adapted goods A2.28 Adapted goods are goods that have been specifically modified to be more “environmentally friendly” or “cleaner” and whose use is therefore beneficial for environmental protection or resource management. Examples include mercury-free batteries and recycled paper. As described in section 4.3, the production and use of adapted goods constitute a component of the framework of measurement of environmental protection expenditure and the production of environmental goods and services. A2.29 In concept, there is agreement on the inclusion of adapted goods in the scope of measuring environmental activity. However, in practice, measurement of adapted goods is a challenging task (as explained in sect. 4.3). Given this conceptual agreement, it is recommended that research be undertaken to further develop relevant measurement techniques and approaches for adapted goods that might be applied at a national and international levels. 311 Glossary A Abstraction is the amount of water that is removed from any source, either permanently or temporarily, in a given period of time. (3.195) Accumulation is an economic activity in which goods, services and financial resources are retained for use or consumption in future accounting periods. (2.8) Adapted goods are goods that have been specifically modified to be more “environmentally friendly” or “cleaner” and whose use is therefore beneficial for environmental protection (4.67) or resource management. (4.99) Afforestation is the increase in the stock of forest and other wooded land either due to the establishment of new forest on land that was previously not classified as forest land, or as a result of silvicultural measures such as planting and seeding. (5.291) Aquaculture is the farming of aquatic organisms, including fish, molluscs, crustaceans and aquatic plants. Farming implies some form of intervention in the rearing process to enhance production, such as regular stocking, feeding, protection from predators, etc. Farming also implies individual or corporate ownership of the stock being cultivated. (5.409) Aquatic resources comprise fish, crustaceans, molluscs, shellfish, aquatic mammals and other aquatic organisms that are considered to live within the boundaries of the exclusive economic zone (EEZ) of a country throughout their life cycles, including both coastal and inland fisheries. Migrating and straddling fish stocks are considered to belong to a given country during the period when those stocks inhabit its EEZ. (5.393, 5.398) Asset: a store of value representing a benefit or series of benefits accruing to an economic owner by holding or using the entity over a period of time. It is a means of carrying forward value from one accounting period to another. (5.32) Asset life (also known as the resource life) is the expected time over which an asset can be used in production or the expected time over which extraction from a natural resource can take place. (5.137) B Balancing item: an accounting construct obtained by subtracting the total value of the entries on one side of an account (resources or changes in liabilities) from the total value of the entries on the other side (uses or changes in assets). (2.62, 6.28) Basic price: the amount receivable by the producer from the purchaser for a unit of a good or service produced as output, minus any tax payable, and plus any subsidy receivable by the producer as a consequence of its production or sale. It excludes any transport charges invoiced separately by the producer and any wholesale and retail margins that may be applicable. (2.151) Biological resources include timber and aquatic resources and a range of other animal and plant resources (such as livestock, orchards, crops and wild animals), fungi and bacteria. (5.24) (See also Cultivated biological resources, Natural biological resources, Other biological resources.) 312 System of Environmental-Economic Accounting 2012—Central Framework C Capital transfers are unrequited transfers where either the party making the transfer realizes the funds involved by disposing of an asset (other than cash or inventories), relinquishing a financial claim (other than accounts receivable), or the party receiving the transfer is obliged to acquire an asset (other than cash) or both conditions are met. (4.138) Catastrophic losses are reductions in assets due to catastrophic and exceptional events. (5.49) Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and less the value of any recurrent losses of goods held in inventories during the accounting period. (5.67) Compensation of employees is the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period. (5.118) Consumption is the use of goods and services for the satisfaction of individual or collective human needs or wants. (2.8) Consumption of fixed capital is the decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage. (2.63, 4.198, 5.120) Corporations cover legally constituted corporations and also cooperatives, limited liability partnerships, notional resident units and quasi-corporations. (2.111) Cultivated biological resources cover animal resources yielding repeat products and tree, crop and plant resources yielding repeat products whose natural growth and regeneration are under the direct control, responsibility and management of an institutional unit. (5.24) Current transfers are transactions in which one institutional unit provides a good, service or asset to another unit without receiving from the latter any good, service or asset directly in return as counterpart and does not oblige one or both parties to acquire, or dispose of, an asset. (4.138) D Decommissioning costs relate to expenditures incurred at the end of the operating life of an asset to restore the surrounding environment. They comprise Terminal costs and Remedial costs. (4.194) Deforestation is the decrease in the stock of forest and other wooded land due to the complete loss of tree cover and transfer of forest land to other uses (e.g., use as agricultural land, land under buildings, roads, etc.) or to no identifiable use. (5.293) Degradation considers changes in the capacity of environmental assets to deliver a broad range of ecosystem services and the extent to which this capacity may be reduced through the action of economic units, including households. (5.90) Depletion, in physical terms, is the decrease in the quantity of the stock of a natural resource over an accounting period that is due to the extraction of the natural resource by economic units occurring at a level greater than that of regeneration. (5.76) Discount rate: a rate of interest used to adjust the value of a stream of future flows of revenue, costs or income to account for time preferences and attitudes to risk. (5.145) Discoveries are additions representing the arrival of new resources to a stock and commonly arise through exploration and evaluation. (5.48) Dissipative losses are material residues that are an indirect result of production and consumption activity. (3.97) Dissipative uses of products covers products that are deliberately released to the environment as part of production processes. (3.96) 313Glossary E Economic activity comprises the activities of production, consumption and accumulation. (2.8) (See also Accumulation, Consumption, Production.) Economic assets (see Asset). Economic benefits reflect a gain or positive utility arising from economic production, consumption or accumulation. (5.33) Economic owner: the institutional unit entitled to claim the benefits associated with the use of an asset in the course of an economic activity by virtue of accepting the associated risks. (5.32) Economic rent is the surplus value accruing to the extractor or user of an asset calculated after all costs and normal returns have been taken into account. (5.113) Economic territory: the area under effective control of a single government. It includes the land area of a country, including islands, airspace, territorial waters and territorial enclaves in the rest of the world. Economic territory excludes territorial enclaves of other countries and international organizations located in the reference country. (2.121) Economic units (see Institutional units). Ecosystems are areas containing a dynamic complex of biotic communities (e.g., plants, animals and microorganisms) and their non-living environment interacting as a functional unit to provide environmental structures, processes and functions. (2.21) Ecosystem services are the benefits supplied by the functions of ecosystems and received by humanity. (2.22) Emissions are substances released to the environment by establishments and households as a result of production, consumption and accumulation processes. (3.88) Emissions to air are gaseous and particulate substances released to the atmosphere by establishments and households as a result of production, consumption and accumulation processes. (3.91) Emissions to soil are substances released to the soil by establishments and households as a result of production, consumption and accumulation processes. (3.95) Emissions to water are substances released to water resources by establishments and households as a result of production, consumption and accumulation processes. (3.92) End-of-pipe (pollution treatment) technologies are mainly technical installations and equipment produced for measurement, control, treatment and restoration/correction of pollution, environmental degradation, and/or resource depletion. (4.102) Energy from natural inputs encompasses flows of energy from the removal and capture of energy from the environment by resident economic units. (3.144) Energy losses include energy losses during extraction, distribution, storage and transformation. (3.150, 3.101) Energy products are products that are used (or might be used) as a source of energy. They comprise (a) fuels that are produced/generated by an economic unit (including households) and are used (or might be used) as sources of energy; (b) electrictiy that is generated by an economic unit (including households); and (c) heat that is generated and sold to third parties by an economic unit. (3.146) Energy residuals comprise energy losses and other energy residuals (primarily heat generated when end-users use energy products for energy purposes). (3.150) Enterprise: the view of an institutional unit as a producer of goods and services. (2.114) 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. (2.17) 314 System of Environmental-Economic Accounting 2012—Central Framework Environmental goods and services sector (EGSS) consists of producers of all environmental goods and services, including environmental-specific services, environmental sole-purpose products, adapted goods and environmental technologies. (4.95-4.102) Environmental protection activities are those activities whose primary purpose is the prevention, reduction and elimination of pollution and other forms of degradation of the environment. (4.12) Environmental protection connected products are products whose use directly serves environmental protection purposes but which are not environmental protection-specific services or inputs into characteristic activities. (4.65) Environmental protection specific services are environmental protection services produced by economic units for sale or own use. (4.53) Environmental sole-purpose products are goods (durable or non-durable) or services whose use directly serves an environmental protection or resource management purpose and that have no use except for environmental protection or resource management. (4.98) Environmental specific services are environmental protection and resource management-specific services produced by economic units for sale or own use. (4.96) Environmental subsidies and similar transfers are transfers intended to support activities that protect the environment or reduce the use and extraction of natural resources. (4.138) Environmental taxes are taxes whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific negative impact on the environment. (4.150) Environmental technologies are technical processes, installations and equipment (goods), and methods or knowledge (services) whose technical nature or purpose is environmental protection or resource management. (4.102) Establishment: an enterprise, or part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out, or in which the principal productive activity accounts for most of the value added. (2.114) Evaporation and actual evapotranspiration constitute the volume of water that enters the atmosphere by vaporization of water into gas through evaporation from land and water surfaces, and transpiration from plants in the territory of reference during the accounting period excluding amounts already recorded as abstracted from soil water. (5.487) Exclusive economic zone (EEZ) of a country: the area extending up to 200 nautical miles from a country’s normal baselines as defined in the United Nations Convention on the Law of the Sea of 10 December 1982. (5.248 and related footnote) Exports of goods and services consist of sales, barter, or gifts and grants, of goods and services from residents to non-residents. (2.32) Extractions are reductions in stock due to the physical removal or harvest of an environmental asset through a process of production. (5.49) F Final water use is equal to evaporation, transpiration and water incorporated into products. (3.222) (Also referred to in water statistics as “water consumption”.) Financial assets consist of all financial claims, shares or other equity in corporations plus gold bullion held by monetary authorities as a reserve asset. (5.37) Financial corporations consist of all resident corporations that are principally engaged in providing financial services, including insurance and pension funding services, to other institutional units. (2.111) Fixed assets are produced assets that are used repeatedly or continuously in production processes for more than one year. (4.190, 5.34) 315Glossary G General government is the institutional sector consisting of mainly central, state and local government units together with social security funds imposed and controlled by those units. (2.111) General government final consumption expenditure consists of expenditure, including expenditure whose value must be estimated indirectly, incurred by general government on both individual consumption goods and services and collective consumption services. (2.32) Gross capital formation shows the acquisition less disposal of produced assets for purposes of fixed capital formation, inventories or valuables. (2.35) Gross domestic product (GDP) is an aggregate measure of gross value added for all resident institutional units. It can be measured in three conceptually equivalent ways: (a) Income measure of GDP. The income measure of gross domestic product (GDP) is derived as compensation of employees plus gross operating surplus plus gross mixed incomes plus taxes less subsidies on both production and imports; (b) Expenditure measure of GDP. The expenditure measure of gross domestic product (GDP) is derived as the sum of expenditure on final consumption plus gross capital formation plus exports less imports; (c) Production measure of GDP. The production measure of gross domestic product (GDP) is derived as the value of output less intermediate consumption plus any taxes less subsidies on products not already included in the value of output. (2.62, 6.30) Gross energy input reflects the total energy captured from the environment, energy products that are imported and energy from residuals within the economy. (3.181) Gross fixed capital formation is measured by the total value of a producer’s acquisitions, less disposals, of fixed assets during the accounting period plus certain specified expenditure on services that adds to the value of non-produced assets. (2.35) Gross mixed income is the surplus or deficit accruing from production by unincorporated enterprises owned by households before the deduction of consumption of fixed capital. It implicitly contains an element of remuneration for work done by the owner or other members of the household. (table 5.5; 6.31) Gross national income (GNI) is defined as GDP plus compensation of employees receivable from abroad plus property income receivable from abroad plus taxes less subsidies on production receivable from abroad less compensation of employees payable abroad less property income payable abroad and less taxes plus subsidies on production payable abroad. (2.62) Gross operating surplus is the surplus or deficit accruing from production before taking account of any interest, rent or similar flows payable or receivable and before the deduction of consumption of fixed capital. (2.65; table 5.5; 6.31) Gross releases comprise emissions to the environment and substances captured within economic units or transferred to other economic units. (3.90) Gross value added is the value of output less the value of intermediate consumption. (2.36) Gross water input reflects the total water that is abstracted from the environment or imported. (3.220) Groundwater is water that collects in porous layers of underground formations known as aquifers. (5.479) 316 System of Environmental-Economic Accounting 2012—Central Framework H Household: a group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food. (2.111) Household final consumption expenditure consists of the expenditure, including expenditure whose value must be estimated indirectly, incurred by resident households on individual consumption goods and services, including those sold at prices that are not economically significant and including consumption goods and services acquired abroad. (2.32) I Imports of goods and services consist of purchases, barter, or receipts of gifts or grants, of goods and services by residents from non-residents. (2.31) Individual environmental assets are those environmental assets that may provide resources for use in economic activity. They comprise mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources and water resources. (5.11) Industry consists of a group of establishments engaged in the same, or similar, kinds of activity. (2.116) Inland water system: comprises surface water (rivers, lakes, artificial reservoirs, snow, ice and glaciers), groundwater and soil water within the territory of reference. (3.187) Inputs from air comprise substances taken in by the economy from the air for purposes of production and consumption. (3.63) Inputs from soil comprise nutrients and other elements present in the soil that are absorbed by the economy during production processes. (3.62) Inputs of energy from renewable sources are the non-fuel sources of energy provided by the environment. (3.59) Institutional sector: a grouping of similar institutional units. An institutional unit can be allocated to only one type of institutional sector. (2.110) Institutional unit: an economic entity that is capable, in its own right, of owning assets, incurring liabilities and engaging in economic activities and in transactions with other entities. (2.110) Integrated technologies are technical processes, methods or knowledge used in production processes that are less polluting and less resource-intensive than the equivalent “normal” technology used by other national producers. Their use is less environmentally harmful than relevant alternatives. (4.102) Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. (2.32) Inventories are produced assets that consist of goods and services, which came into existence in the current period or in an earlier period, and that are held for sale, use in production or other use at a later date. (2.33, 5.34) L Land is a unique environmental asset that delineates the space in which economic activities and environmental processes take place and within which environmental assets and economic assets are located. (5.239) Land cover refers to the observed physical and biological cover of the Earth’s surface and includes natural vegetation and abiotic (non-living) surfaces. (5.257) 317Glossary Land use reflects both (a) the activities undertaken and (b) the institutional arrangements put in place for a given area for the purposes of economic production, or the maintenance and restoration of environmental functions. (5.246) Losses during distribution are losses that occur between a point of abstraction, extraction or supply and a point of use. (3.101) Losses during extraction are losses that occur during extraction of a natural resource before there is any further processing, treatment or transportation of the extracted resource. (3.101) Losses during storage are losses of materials, water and energy products held in inventories. (3.101) Losses during transformation refer to the energy lost, for example, in the form of heat, during the transformation of one energy product into another energy product. (3.101) M Market prices are defined as amounts of money that willing buyers pay to acquire something from willing sellers. (2.144) Mineral and energy resources comprise known deposits of oil resources, natural gas resources, coal and peat resources, non-metallic minerals and metallic minerals. (5.173) N National expenditure on environmental protection is defined as final consumption, intermediate consumption, and gross fixed capital formation on all environmental protection goods and services (except intermediate consumption and gross fixed capital formation for characteristic activities) plus Gross fixed capital formation (and acquisition less disposal of non-produced, non-financial assets) for environmental protection-characteristic activities plus Environmental protection transfers by resident units not captured in the items above plus Environmental protection transfers paid to the rest of the world less Environmental protection transfers received from the rest of the world. (4.85) Natural biological resources consist of animals, birds, fish and plants that yield both once-only and repeat products for which natural growth and/or regeneration is not under the direct control, responsibility and management of institutional units. (5.24) Natural expansion of forest and other wooded land is an increase in area of forest and other wooded land resulting from natural seeding, sprouting, suckering or layering. (5.292) Natural inputs are all physical inputs that are moved from their location in the environment as a part of economic production processes or are directly used in production. (2.89, 3.45) Natural regression of forest and other wooded land is a decrease in an area of forest and other wooded land that occurs for natural reasons. (5.294) Natural resource inputs comprise physical inputs to the economy from natural resources. (3.47) Natural resource residuals are natural resource inputs that do not subsequently become incorporated into production processes and, instead, immediately return to the environment. (3.98) Natural resources include all natural biological resources (including timber and aquatic resources), mineral and energy resources, soil resources and water resources. (2.101, 5.18) Naturally regenerated forest is forest that is predominantly composed of trees established through natural regeneration. In this context, “predominantly” means that the trees established through natural regeneration are expected to constitute more than 50 per cent of the growing stock at maturity. (5.285) Net domestic energy use is the end use of energy products less exports of energy products plus all losses of energy. (3.182) 318 System of Environmental-Economic Accounting 2012—Central Framework Net domestic water use is the sum of all return flows of water to the environment plus evaporation, transpiration and water incorporated into products. (3.221) Net lending is defined as the difference between changes in net worth due to saving and capital transfers and net acquisitions of non-financial assets (acquisitions less disposals of non-financial assets, less consumption of fixed capital). If the amount is negative it represents net borrowing. (2.68, 6.41) Net present value is the value of an asset determined by estimating the stream of income expected to be earned in the future and then discounting the future income back to the present accounting period. (5.110) Net worth is defined as the value of all the assets owned by an institutional unit or sector less the value of all its outstanding liabilities. (2.69) Non-financial corporations are corporations whose principal activity is the production of market goods or non-financial services. (2.111) Non-market output consists of goods and individual or collective services produced by non-profit institutions serving households (NPISHs) or government that are supplied free, or at prices that are not economically significant, to other institutional units or the community as a whole. (2.146) Non-produced assets are assets that have come into existence in ways other than through processes of production. (5.36) Non-profit institutions serving households (NPISHs) consist of non-market NPIs that are not controlled by government. (2.111) Non-specialist producers produce environmental goods and services for sale but not as their primary activity. (4.33) O Other biological resources comprise all biological resources, both cultivated and natural, other than timber resources and aquatic resources. (5.460, 5.461) Other changes in the volume of assets are those changes in assets, liabilities and net worth during an accounting period that are due neither to transactions nor to holding gains and losses. (5.65) Other naturally regenerated forest is naturally regenerated forest with clearly visible indications of human activities. These include (a) selectively logged-over areas, areas regenerating following agricultural land use and areas recovering from human-induced fires, etc.; (b) forests where it is not possible to distinguish whether they are planted or naturally regenerated; (c) forests with a mix of naturally regenerated trees and planted/seeded trees and where the naturally regenerated trees are expected to constitute more than 50 per cent of the growing stock at stand maturity; (d) coppice from trees established through natural regeneration; and (e) naturally regenerated trees of introduced species. (5.286) Other wooded land is land not classified as forest land, spanning more than 0.5 hectares; with trees higher than 5 metres and a canopy cover of 5-10 per cent, or trees able to reach these thresholds in situ; or with a combined cover of shrubs, bushes and trees above 10 per cent. It does not include land that is predominantly under agricultural or urban land use. (5.288) Output is defined as the goods and services produced by an establishment, excluding the value of any goods and services used in an activity for which the establishment does not assume the risk of using the products in production, and excluding the value of goods and services consumed by the same establishment except for goods and services used for capital formation (fixed capital or changes in inventories) or own final consumption. (2.31) Own-account activity consists of the production and use of goods and services within an establishment or household. (2.117) 319Glossary P Physical flows are reflected in the movement and use of materials, water and energy. (2.88) Planted forests are predominantly composed of trees established through planting and/or deliberate seeding. Planted/seeded trees are expected to constitute more than 50 per cent of the growing stock at maturity, including coppice from trees that were originally planted or seeded. (5.287) Primary forest is naturally regenerated forest of native species, where there are no clearly visible indications of human activities and the ecological processes are not significantly disturbed. Key characteristics of primary forests are that: (a) they show natural forest dynamics, such as natural tree species composition, occurrence of dead wood, natural age structure and natural regeneration processes; (b) the area is large enough to maintain its natural characteristics; and (c) there has been no known significant human intervention or the last significant human intervention occurred long enough in the past to have allowed the natural species composition and processes to have become re-established. (5.286) Primary incomes are incomes that accrue to institutional units as a consequence of their involvement in processes of production or ownership of assets that may be needed for purposes of production. (6.32) Principal activity of a producer unit: the activity whose value added exceeds that of any other activity carried out within the same unit. (2.114) Produced assets are assets that have come into existence as outputs of production processes that fall within the production boundary of the SNA. (5.34) Producers price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any VAT, or similar deductible tax, invoiced to the purchaser. It excludes any transport charges invoiced separately by the producer. (2.153) Products are goods and services (including knowledge-capturing products) that result from a process of production. (2.9, 2.91, 3.64) Production is an activity, carried out under the responsibility, control and management of an institutional unit, that uses inputs of labour, capital, and goods and services to produce outputs of goods and services. (2.9) Production boundary of the SNA includes the following activities: (a) the production of all goods or services that are supplied to units other than their producers, or intended to be so supplied, including the production of goods or services used up in the process of producing such goods or services; (b) the own-account production of all goods that are retained by their producers for their own final consumption or gross capital formation; (c) the own-account production of knowledgecapturing products that are retained by their producers for their own final consumption or gross capital formation but excluding (by convention) such products produced by households for their own use; (d) the own-account production of housing services by owner occupiers; and (e) the production of domestic and personal services by employing paid domestic staff. (2.9) Purchaser’s price: the amount paid by the purchaser, excluding any VAT or similar tax deductible by the purchaser, in order to take delivery of a unit of a good or service at the time and place required by the purchaser. The purchaser’s price of a good includes any transport charges paid separately by the purchaser to take delivery at the required time and place. (2.154) R Reappraisals reflect changes in the measured stock of assets due to the use of updated information that permits a reassessment of the size of the stock. (5.48, 5.49) Reclassifications are changes in assets that result from situations in which an asset is used for a different purpose. A reclassification of an asset in one category should be offset by an equivalent reclassification in another category. (5.48, 5.49) 320 System of Environmental-Economic Accounting 2012—Central Framework Remedial costs are incurred when production has already ceased with no provision having been made for the taking of remedial action while production was in progress. (4.194) Rent is the income receivable by the owner of natural resources or land (the lessor or landlord) for putting the natural resource or land at the disposal of another institutional unit (a lessee or tenant) for use of the natural resource or land in production. (4.161) Residence of an institutional unit: the economic territory with which it has the strongest connection, in other words, its centre of predominant economic interest. (2.122) Residuals are flows of solid, liquid and gaseous materials, and energy, that are discarded, discharged or emitted by establishments and households through processes of production, consumption or accumulation. (2.92, 3.73) Resource management activities are those activities whose primary purpose is preserving and maintaining the stock of natural resources and hence safeguarding against depletion. (4.13) Resource management-specific services are resource management services produced by economic units for sale or own use. (4.96) Resource rent is the economic rent that accrues in relation to environmental assets, including natural resources. (5.114) Rest of the world: consists of all non-resident institutional units that enter into transactions with resident units, or have other economic links with resident units. (2.121) Return flows of water comprise water that is returned to the environment. (3.210) Return to environmental assets: the income attributable to the use of environmental assets in a production process after deducting all costs of extraction including any costs of depletion of natural resources. (5.116, 5.117) Return to produced assets: the income attributable to the use of produced assets in a production process after deducting any associated consumption of fixed capital. (5.116, 5.141) Reused water is wastewater supplied to a user for further use with or without prior treatment, excluding the reuse (or recycling) of water within economic units. (3.207) Revaluations relate to changes in the value of assets due to price changes and reflect nominal holding gains and losses on environmental assets. The nominal holding gain for environmental assets is calculated in the same way as for non-financial assets, as the increase in value accruing to the owner of the asset as a result of a change in its price over a period of time. (5.60) S Soil resources comprise the top layers (horizons) of soil that form a biological system. (5.320) Soil water consists of water suspended in the uppermost belt of soil, or in the zone of aeration near the ground surface. (5.480) Solid waste covers discarded materials that are no longer required by the owner or user. (3.84) Specialist producers are those producers whose primary activity is the production of environmental goods and services. (4.33) Subsidies are current unrequited payments that government units, including non-resident government units, make to enterprises on the basis of the levels of their production activities or the quantities or values of the goods or services that they produce, sell or import. (4.138) Surface water comprises all water that flows over or is stored on the ground surface regardless of its salinity levels. Surface water includes water in artificial reservoirs, lakes, rivers and streams, snow and ice and glaciers. (5.477) Sustainable yield is the surplus or excess of animals or plants that may be removed from a population without affecting the capacity of the population to regenerate itself. (5.82) 321Glossary T Taxes are compulsory, unrequited payments, in cash or in kind, made by institutional units to government units. (4.149) Terminal costs are costs that can and should be anticipated during the production periods prior to closure of an operating asset. (4.194) Timber resources are defined, within the relevant areas, by the volume of trees, living or dead, and include all trees regardless of diameter, tops of stems, large branches and dead trees lying on the ground that can still be used for timber or fuel. (5.350) Transaction: an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is analytically useful to treat like a transaction, often because the unit is operating in two different capacities. (2.96) Transfer is a transaction in which one institutional unit provides a good, service or asset to another unit without receiving from the latter any good, service or asset in return as a direct counterpart. (4.136) U Unit resource rent is the resource rent per unit of resource extracted. (5.157) Unused extraction covers extracted natural resources in which the extractor has no ongoing interest (e.g., mining overburden, mine dewatering and discarded catch) (3.50) Urban run-off is that portion of precipitation on urban areas that does not naturally evaporate or percolate into the ground, but flows via overland flow, underflow, or channels, or is piped into a defined surface-water channel or a constructed infiltration facility. (3.213) User cost of produced assets: the sum of the consumption of fixed capital and the return to produced assets. (5.141) V Value added (gross) is the value of output less the value of intermediate consumption. Net value added is gross value added less consumption of fixed capital. (2.36) W Waste (see Solid waste). Wastewater is discarded water that is no longer required by the owner or user. (3.86) Water consumption (see Final water use). Water resources consist of fresh and brackish water in inland water bodies, including groundwater and soil water. (5.474) 323 323 References Introduction The following list of references covers all of those materials referred to in the text of the Central Framework. An extended bibliography and archive of papers and other materials associated with environmental-economic accounting are available on the Environmental Accounting web page of the United Nations Statistics Division. Also available though this link are the background papers and documents associated with the revision of the SEEA- 2003, in particular links to the papers and discussions of the London Group on Environmental Accounting. The structure of the list of references broadly follows the chapter structure of the SEEA Central Framework. A. Background and context Millennium Ecosystem Assessment (2003). Ecosystems and Human Well-being: A Framework for Assessment. Washington, D.C.: Island Press. Available from pdf.wri.org/ecosys- tems_human_wellbeing.pdf. United Nations (1993). Report of the United Nations Conference on Environment and Development, Rio de Janeiro, 3-14 June 1992, vol. I, Resolutions Adopted by the Conference. Sales No. E.93.I.8 and corrigendum. Resolution I, annex II (Agenda 21). Available from http://www.un.org/esa/dsd/agenda21/. ______ (1994). Treaty Series, vol. 1771, No. 30822. United Nations Framework Convention on Climate Change. World Commission on Environment and Development (1987). Our Common Future. New York, Oxford: Oxford University Press. B. Accounting framework Commission of the European Communities, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations and World Bank (1993). System of National Accounts 1993. Sales No. E.94.XVII.4. Available from http:// unstats.un.org/unsd/nationalaccount/docs/1993sna.pdf. European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations and World Bank (2003). Handbook of national accounting: integrated environmental and economic accounting 2003, Studies in Methods, Series F, No. 61, Rev. 1. Available from http://unstats.un.org/unsd/envac- counting/seea2003.pdf. _______(2009). System of National Accounts 2008. Sales No. E.08.XVII.29. Available from- http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf. System of Environmental-Economic Accounting 2012—Central Framework324 Eurostat (2000). Manual on the Economic Accounts for Agriculture and Forestry EAA/EAF 97 (Rev 1.1). Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-27-00- 782/EN/KS-27-00-782-EN.PDF. International Labour Organization, International Monetary Fund, Organisation for Economic Co-operation and Development, Statistical Office of the European Communities (Eurostat), United Nations and World Bank (2004). Consumer Price Index Manual: Theory and Practice. Geneva: International Labour Office. Available from http://www.ilo.org/public/english/bureau/stat/guides/cpi/index.htm. International Labour Organization, International Monetary Fund, Organisation for Economic Co-operation and Development, United Nations Economic Commission for Europe and World Bank (2004). Producer Price Index Manual: Theory and Practice. Washington, D.C.: International Monetary Fund. Available from https://www.imf. org/external/np/sta/tegppi/. International Monetary Fund (2001). Government Finance Statistics Manual 2001. Washington, D.C. Available from http://www.imf.org/external/pubs/ft/gfs/manual/. ______ (2009). Balance of Payments and International Investment Position: Sixth Edition (BPM6). Washington, D.C. Available from http://www.imf.org/external/pubs/ft/ bop/2007/bopman6.htm. Organisation for Economic Co-operation and Development/Eurostat (2008). Guidelines on revisions policy and analysis. Paris: OECD. Available from http://www.oecd.org/std/ oecdeurostatguidelinesonrevisionspolicyandanalysis.htm. Organisation for Economic Co-operation and Development (2009). Measuring Capital: OECD Manual-2009, 2nd ed. Paris. Available from http://www.oecd.org/datao- ecd/16/16/43734711.pdf. United Nations (1984). A Framework for the Development of Environment Statistics. Statistical Papers, Series M. No. 78. Sales No. E.84.XVII.12. Available from http://unstats. un.org/unsd/publication/SeriesM/SeriesM_78e.pdf. ______ (1993). Handbook of National Accounting: Integrated Environmental and Economic Accounting, Interim version. Studies in Methods, Series F, No. 61. Sales No. E.93. XVII.12. Available from http://unstats.un.org/unsd/publication/SeriesF/SeriesF_61E. pdf. ______(1999). Classifications of Expenditure According to Purpose: Classification of the Functions of Government (COFOG); Classification of Individual Consumption According to Purpose (COICOP); Classification of the Purposes of Non-Profit Institutions Serving Households (COPNI); Classification of the Outlays of Producers According to Purpose (COPP). Statistical Papers, Series M, No. 84. Sales No. E.00.XVII.6. Available from http://unstats.un.org/unsd/publication/SeriesM/SeriesM_84E.pdf. ______ (2000). Handbook of National Accounting: Integrated Environmental and Economic Accounting—An Operational Manual. Studies in Methods, Series F, No. 78. Sales No. E.00.XVII.17. Available from http://unstats.un.org/unsd/publication/SeriesF/ SeriesF_78E.pdf. ______(2001). Treaty Series, vol. 1760, No. 30619, Convention on Biological Diversity, article 2, Use of Terms. Available from http://treaties.un.org/doc/publication/UNTS/ Volume%201760/v1760.pdf. 325 ______ (2008). International Standard Industrial Classification of All Economic Activities (ISIC), Rev.4. Statistical Papers, Series M, No. 4/Rev.4. Sales No. E.08.XVII.25. Available from http://unstats.un.org/unsd/cr/registry/isic-4.asp. ______(2008a). Central Product Classification (CPC) Ver. 2. Available from http://unstats. un.org/unsd/cr/registry/cpc-2.asp. C. Physical flow accounts European Parliament and Council (2000). Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for community action in the field of water policy. “European Water Framework Directive”, Official Journal of the European Communities L 327, 22/12/2000 P.0001-0073. Available from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000L0 060:en:HTML. European Commission and Eurostat (2001). Economy-wide Material Flow Accounts and Derived Indicators: A Methodological Guide, 2000 ed. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat. ec.europa.eu/portal/page/portal/environmental_accounts/documents/3.pdf. ______ (2009). Manual for Air Emission Accounts, 2009 ed. Eurostat Methodologies and Working Papers. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/ KS-RA-09-004/EN/KS-RA-09-004-EN.PDF. Eurostat (2010). Guidance on Classification of Waste according to EWC-Stat Categories. Office for Official Publications of the European Communities, Luxembourg. Available from http://epp.eurostat.ec.europa.eu/portal/page/portal/waste/documents/ Guidance%20on%20EWCStat%20categories%202010.pdf. Intergovernmental Panel on Climate Change (IPCC) (2003). Good Practice Guidance on Land Use, Land-Use Change and Forestry, Jim Penman and others, eds. Hayama, Japan: Institute for Global Environmental Strategies for the IPCC. Available from http://www.ipcc-nggip.iges.or.jp/public/gpglulucf/gpglulucf_contents.html. Organisation for Economic Co-operation and Development (2008). Measuring material flows and resource productivity: OECD guidance manual. Vol.II: A theoretical framework for material flow accounts and their applications at national level. Draft in progress. Paris. LG/11/6. Available from http://unstats.un.org/unsd/envaccount- ing/londongroup/meeting11/LG11_9a.pdf. ______ and Eurostat (2007a). Gross nitrogen balances handbook. Paris. Available from http://www.oecd.org/greengrowth/sustainableagriculture/40820234.pdf. ______ (2007b). Gross phosphorus balances handbook. Paris. Available from http://www. oecd.org/greengrowth/sustainableagriculture/40820243.pdf. United Nations (2011). International recommendations for energy statistics (IRES). Draft. Available from http://unstats.un.org/unsd/energy/ires/default.htm. ______ (2012a). International Recommendations for Water Statistics. Statistical Papers, Series M, No. 91. Sales No. 10.XVII.15. Available from http://unstats.un.org/unsd/ envaccounting/irws/irwswebversion.pdf. ______(2012b). SEEA-Water: System of Environmental-Economic Accounting for Water. Statistical Papers, Series F, No. 100. Sales No. E11.XVII.12. Available from http://unstats. un.org/unsd/envaccounting/seeaw/seeawaterwebversion.pdf. References System of Environmental-Economic Accounting 2012—Central Framework326 ______ (forthcoming). System of Environmental-Economic Accounting for Energy (SEEA- Energy). United Nations Education, Scientific and Cultural Organization and World Meteorological Organization (1993). International Glossary of Hydrology, 2nd ed. Available from http://webworld.unesco.org/water/ihp/db/glossary/glu/aglu.htm. United Nations Framework Convention on Climate Change (2006). Updated UNFCCC reporting guidelines on annual inventories following incorporation of the provisions of decision 14/CP.11. Note by the secretariat. 18 August. Available from http://unfccc. int/resource/docs/2006/sbsta/eng/09.pdf. D. Environmental activity accounts and related flows European Commission and Eurostat (2001). Environmental Taxes: A Statistical Guide, 2001 ed. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-39-01-077/ EN/KS-39-01-077-EN.PDF. ______(2002a). SERIEE Environmental Protection Expenditure Accounts: Compilation Guide, 2002 ed. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE- 02-001/EN/KS-BE-02-001-EN.PDF. ______ (2002b). SERIEE European System for the Collection of Economic Information on the Environment: 1994 Version, 2nd ed. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ ITY_OFFPUB/KS-BE-02-002/EN/KS-BE-02-002-EN.PDF. ______ (2005). Environmental Expenditure Statistics: Industry Data Collection Handbook, 2005 ed. Methods and Nomenclatures. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ ITY_OFFPUB/KS-EC-05-002/EN/KS-EC-05-002-EN.PDF. ______ (2007). Environmental Expenditure Statistics: General Government and Specialised Producers Data Collection Handbook, 2007 ed. Eurostat Methodologies and Working Papers. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-RA-07- 012/EN/KS-RA-07-012-EN.PDF. ______ (2009). The Environmental Goods and Services Sector: A Data Collection Handbook, 2009 ed. Eurostat Methodologies and Working Papers. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp.eurostat. ec.europa.eu/cache/ITY_OFFPUB/KS-RA-09-012/EN/KS-RA-09-012-EN.PDF. Eurostat (1994). Nomenclature for the Analysis and Comparison of Scientific Programmes and Budgets (NABS). Luxemburg: Office for Official Publications of the European Communities. Available from http://bookshop.europa.eu/en/nabs-pbCA8594002/ downloads/CA-85-94-002-EN-C/CA8594002ENC_001.pdf;pgid=y8dIS7GUWMd SR0EAlMEUUsWb0000CBeBw_Nj;sid=iYhtqc9KhyNtqJ5bvg7zDq1vK0sR-ciZj1s= ?FileName=CA8594002ENC_001.pdf&SKU=CA8594002ENC_PDF&Catalogue Number=CA-85-94-002-EN-C. Organisation for Economic Co-operation and Development and Eurostat (1999). The Environmental Goods and Services Industry: Manual for Data Collection and Analysis. Paris. Available from http://unstats.un.org/unsd/envaccounting/ceea/archive/EPEA/EnvIn- dustry_Manual_for_data_collection.PDF. 327 United Nations (2000). Classification of Environmental Protection Activities and Expenditure (CEPA). Available from http://ec.europa.eu/eurostat/ramon/nomenclatures/ index.cfm?TargetUrl=LST_NOM_DTL&StrNom=CEPA_2000&StrLanguage Code=EN&IntPcKey=&StrLayoutCode=HIERARCHIC. ______ (2012). SNA News and Notes, No. 32/33 (March). Available from http://unstats. un.org/unsd/nationalaccount/sna/nn32-33-En.pdf. E. Asset accounts American Association of Petroleum Geologists, Society of Petroleum Engineers, World Petroleum Council and Society of Petroleum Evaluation Engineers (2007). Petroleum Resources Management System. Available from http://www.spe.org/industry/docs/ Petroleum_Resources_Management_System_2007.pdf. Committee for Mineral Reserves International Reporting Standards (CRIRSCO) and Society of Petroleum Engineers (SPE) – Oil & Gas Reserves Committee (2007). Mapping of Petroleum and Minerals Reserves and Resources Classification Systems: Joint Report submitted by the International Accounting Standards Board Extractive Activities Working Group. September. Available from http://www.crirsco.com/080314_map- ping_document.pdf. Dominati, Estelle, Murray Patterson and Alec Mackay (2010). A framework for classifying and quantifying the natural capital and ecosystem services of soils. Ecological Economics, vol. 69, No. 9 (15 July), pp. 1858-1868. European Commission and Eurostat (2002). The European Framework for Integrated Environmental and Economic Accounting for Forests: IEEAF, 2002 ed. Luxembourg: Office for Official Publications of the European Communities. Available from http://epp. eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-BE-02-003/EN/KS-BE-02-003-EN. PDF. Food and Agriculture Organization of the United Nations (1995). Code of Conduct for Responsible Fisheries. Available from http://www.fao.org/docrep/005/v9878e/ v9878e00.HTM. ______ (2000). The current International Standard Classification of Aquatic Animals and Plants (ISCAAP) in use from 2000. Rome. Available from ftp://ftp.fao.org/fi/ document/cwp/handbook/annex/AnnexS2listISSCAAP2000.pdf. ______(2007). Global Forest Resources Assessment 2010: specification of national reporting tables for FRA 2010. Forest Resources Assessment Programme working paper No. 135. Rome. Available from http://www.fao.org/forestry/fra/67094/en/. ______ (2008). Glossary of Aquaculture. Rome. Available from http://www.fao.org/fi/ glossary/aquaculture/pdf/glossary.pdf. ______(2010). Global Forest Resources Assessment, 2010: Main Report. FAO Forestry Paper No. 163. Rome. Available from http://www.fao.org/docrep/013/i1757e/i1757e.pdf. ______ Global Land Cover Network (2009). Land Cover Classification System v.3 (or Land Cover Meta Language): design criteria. Rome. Food and Agriculture Organization of the United Nations, International Institute for Applied Systems Analysis, International Soil Reference and Information Centre, Institute of Soil Science-Chinese Academy of Sciences, and Joint Research Centre of the Euro- References System of Environmental-Economic Accounting 2012—Central Framework328 pean Commission (2009). Harmonized World Soil Database v 1.2. Available from http://www.iiasa.ac.at/Research/LUC/External-World-soil-database/HTML/. International Union of Soil Sciences (2009). GlobalSoilMap. Initiative of the Digital Soil Mapping Group of IUSS. Available from http://www.globalsoilmap.net/. Organisation for Economic Co-operation and Development (2002). Frascati Manual: Proposed Standard Practice for Surveys on Research and Experimental Development—2002. Paris. Ramsey, F.P. (1928). A mathematical theory of saving. Economic Journal, vol. 38, No. 152 (December), pp 543-559. Stern, Nicholas (2007). The Economics of Climate Change: The Stern Review. Cambridge, United Kingdom: Cambridge University Press. United Nations (1998). United Nations Convention on the Law of the Sea of 10 December 1982. Treaty Series, vol. 1833, No. 31363. Available from http://www.un.org/Depts/ los/convention_agreements/convention_overview_convention.htm. ______(2004). Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks. Treaty Series, vol. 2167, No. 37924. Available from http://www.un.org/depts/los/ convention_agreements/convention_overview_fish_stocks.htm. ______ Economic Commission for Europe (2010). United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009. ECE Energy Series, No. 39. Available from http://www.unece.org/fileadmin/DAM/energy/se/pdfs/UNFC/ UNFC2009_ECE_EnergySeries39.pdf. United Nations and Food and Agriculture Organization of the United Nations (2004). Handbook of national accounting: integrated environmental and economic accounting for fisheries. Final draft. Available from http://unstats.un.org/unsd/envaccounting/ Fish_final_whitecover.pdf. 329 Index A Abstraction, 3.194, 5.487 Accumulation, 2.8-9 Adapted goods, 4.67, 4.74-78, 4.99 Aggregates Depletion-adjusted aggregates, 2.63, 6.25, 6.94 Energy, 3.180-183 Water, 3.219-223 Agriculture see Industries Air emissions see Emissions to air Allocation of primary income account, 2.60, 6.32-34 Ancillary activity, 2.118 Aquaculture, 5.409-411 Aquatic resources Aquaculture, 5.409-411 Asset accounting entries In monetary terms, 5.439-440 In physical terms, 5.412-426 Catch types, 5.428 Classification, 5.398-406 Gross catch, 5.428-429 Definition and scope, 5.393-396 Illegal fishing, treatment of, 5.435-436 Links to ecosystem accounting, 5.396, 5.430 Permits to use environmental assets, 4.178-180 Quotas (ITQs), 4.178, 5.445-452 Sustainable yield, 5.432 Valuation, 5.441-459 Virtual population analysis, 5.423 Wild fish, 5.419-426 ASFIS, 5.404 Asset accounts Description, 2.49-54 Entries, in monetary terms, 5.55, 5.59-64 Entries, in physical terms, 5.48-50, 5.55 Link to SNA, 5.65-69 Link to supply and use tables, 2.55-59, 6.20-22 Structure, in monetary terms, 5.58 Structure, in physical terms, 5.43-46 Asset boundary, 5.38-40 System of Environmental-Economic Accounting 2012—Central Framework330 Asset life, 5.137-140 Atmosphere, 5.16-17 B Balance sheet, 2.69 Balancing items, 2.62, 6.24, 6.28-29 Basic prices, 2.151 Biological resources Aquatic resources, 5.393 Description, 3.54-58, 5.24-29 Other biological resources, 5.460-46 Timber resources, 5.343 Bunkering, 3.126 C Capital account, 2.6, 6.39-43 Capital taxes, 4.149 Carbon accounting, 3.256, 5.389-392 Catastrophic losses, 5.49 Catch types, 5.428 CEA, 4.27-30, annex I.A CEPA, 4.28 Changes in inventories, table 6.3 Classifications Air emissions, 3.106 Aquatic resources, 5.398-406 COICOP, 3.249 CPC, 2.48, 3.72, 3.149 Economic units, industry (ISIC), 2.48 Energy products (SIEC), 2.48, 3.149 Environmental activities (CEA), 4.27-30, annex I.A Environmental assets, 5.15-17 Environmental protection (CEPA), 4.28 Inland water bodies, 5.474 Land cover, 5.260-262 Land Cover Classification System (LCCS), 5.258 Land use, 5.249-256 Mineral and energy resources, 5.181 Natural inputs, 3.46 Products, 3.72 Residuals, 3.104-106 Resource management, 4.27-30, annex I.A Solid waste, 3.106, annex I.D Supply and use tables, 2.48 UNFC, 5.174-180 Water resources, 5.474 COICOP, 3.249 Combined presentations Description, 2.78-86, 6.16-19, 6.54-62, 6.116-120 331Index Types Air emissions, 6.145-153 Energy, 6.124-129 Forest products, 6.139-144 Water, 6.130-138 Compensation of employees (COE), table 6.3 Commercially recoverable resources see Known deposits Composite assets, 5.300-310 Connected products, 4.65 Consumption, 2.9 Consumption of fixed capital, 4.198-199, table 6.3 Consumption value method, 5.383 Corporations see Institutional sector Costs of ownership transfer, 5.313-315 CPC, 2.48, 3.72, 3.149 CPUE, 5.425 Cross-border flows Bunkering, 3.126 Goods for processing, 3.133-139, 6.18 Merchanting, 3.137, 6.18 Cultivated biological resources Air emissions, treatment , 3.243 Aquaculture, 5.407-411 Economy-wide material flow analysis, treatment, 3.283-286 Livestock, 5.24-29, 5.35 Timber resources, 5.353-357 D Decommissioning costs Definition, 4.195-197 Remedial costs, 4.207-209 Terminal costs, 4.200-206 Decoupling indicators, 6.109-110 Degradation, 5.88-93 Depletion, 2.95, 5.75-87 Depletion-adjusted aggregates, 2.63, 6.25, 6.94 Discount rates, 5.145-150, annex A5.2 Discoveries, 5.48, 5.486 Dissipative losses, 3.97 Dissipative uses of products, 3.96 Distribution of secondary income account, 6.35 Double entry accounting, 2.130-135 E Earmarked taxes, 4.89, 4.153 Economic activity, 2.9 Economic appearance/disappearance, 5.66-67 System of Environmental-Economic Accounting 2012—Central Framework332 Economic assets, 5.32 Economic benefits, 5.32-33 Economic ownership, 5.32 Economic territory, 2.122 Economic units Definition, 2.110 Distinction from statistical units, 2.125 Enterprises, 2.114 Establishments, 2.114 Industry, 2.116 Institutional sectors Definition, 2.110 Types, 2.111 Economy-wide material flows analysis Cultivated biological resources, treatment, 3.283-286 Description, 3.279-281 Difference from physical supply and use tables, 3.280 International trade, treatment, 3.282 Ecosystem accounting, 1.17-18 Ecosystem assets, 2.21 Ecosystem services, 2.22 Efficiency indicators see Productivity indicators Emission permits Description, 4.182-189 Tradable emission permits, 4.185-187 Emissions, 3.88 Emissions to air Air emissions accounts, 3.233-239 Combined presentations for air emissions, 6.145-153 Definition and scope, 3.91, 3.233, 3.240-248 Energy accounts, links, 3.256 Physical supply and use table for air emissions, 3.236 Secondary emissions, 3.244 Specific emission sources Cultivation of soil, 3.243 Flaring and venting, 3.245 Landfill, 3.247-248, 3.251-252 Livestock, 3.243 Manure, 3.246 Storage of emissions, 3.234 Types of emissions, 3.106, 3.236 UNFCCC, 3.255 Emissions to soil, 3.95 Emissions to water Definition and scope, 3.92 Gross releases, 3.258-259 Non-point source emissions, 3.261 Physical supply and use table for emissions to water, 3.263-267 Point source emissions, 3.261 Sewerage/wastewater, treatment, 3.265 333Index Type of emissions to water, 3.106, 3.263 Urban run-off, 3.213, 3.260 Wastewater, 3.205, 3.260 Water sources, 3.262 Employment ,2.75, 6.48-53 Energy accounts see Energy—Physical supply and use table for energy Energy balances, 3.177 Energy Aggregates Gross energy input, 3.181 Net Domestic Energy Use, 3.182 Classification, 3.149, 3.161 Combined presentations for energy flows, 6.124-129 Energy balances, 3.177 Energy from natural inputs, 3.144-145 Energy from renewable sources, 3.59-61, 5.225-234, 5.310 Energy products, 3.146, 3.160-172 Energy residuals, 3.150, 3.173-175 Energy statistics, 3.176 Hydropower, 3.59, 3.158, 3.195, 5.225, 5.487 Physical supply and use table for energy, 3.152-175 Enterprises, 2.114 Environmental activities Classification and types, 4.28, annex I.A Definition, 4.11-14 Environmental protection, 4.12 Primary purpose, application of, 4.15-17 Related activities, minimization of natural hazards, 4.22-24 Related activities, resource use, 4.19-21 Resource management, 4.13 Environmental assets Atmosphere, treatment, 5.16-17 Classification, 5.15-17 Cultivated biological resources, 5.24-29 Definition, 2.17, 5.10-14 Degradation, 5.88-93 Depletion, 2.93, 5.75-87 Ecosystem assets, treatment, 2.21-22 Individual environmental assets, 2.17-19, 5.11-12 Link to economic assets, economic benefits, economic ownership, 5.38-41 Marine/oceans, treatment, 5.16-17 Measurement, in physical terms, 5.14 Measurement, in volume terms, 5.160-167 Natural resources, 2.101, 5.18 Permits to use environmental assets, 4.169 Sustainable yield, 5.82-87 Types Aquatic resources (fish stocks), 5.393 Land, 5.235 Mineral and energy resources, 5.168 System of Environmental-Economic Accounting 2012—Central Framework334 Other biological resources, 5.460 Soil resources, 5.318 Timber resources, 5.343 Water resources, 5.469 Environmental end-of-pipe technologies, 4.72, 4.102 Environmental goods and services sector (EGSS) Definition, 4.95-96 Relationship to EPEA, 4.113-120 Types of environmental goods and services Adapted goods, 4.99 Environmental end-of-pipe technologies, 4.102 Environmental integrated technologies, 4.102 Sole-purpose products, 4.98 Specific services, 4.97 Types of producers Non-specialist producers, 4.108 Own-account producers, 4.108 Specialist producers, 4.107 Environmental integrated technologies, 4.72, 4.102 Environmental payments to government Rent, 4.160-163 Sales of goods and services, 4.164 Fines and penalties, 4.165 see also Environmental taxes see also Permits to use environmental assets Environmental producers Description, 4.33-37 Types of producers Non-specialist producers, 4.33 Own-account producers, 4.34-35 Specialist producers, 4.33 Environmental protection activity Accounts (EPEA), 4.45 Classification (CEPA), 4.28 Definition, 4.12 Environmental protection expenditure accounts (EPEA) Financing of national expenditure on environmental protection, 4.86-91 Gross fixed capital formation End of pipe technologies, 4.72 Integrated investments, 4.72 Own-account production, treatment, 4.59 Relationship to EGSS, 4.113-120 Scope and purpose, 4.45-48 Total national expenditure on environmental protection, 4.85 Types of accounts/tables, 4.49-52 Types of producers Non-specialist producers, 4.55 Own-account producers, 4.59 Specialist producers, 4.55 Types of products Adapted goods, 4.67, 4.74-78 335Index Connected products, 4.65 Environmental protection specific services, 4.53 Environmental protection specific services, 4.53 Environmental subsidies and similar transfers Classification, 4.145-146 Definition, 4.138 Potentially Environmentally Damaging Subsidies (PEDS), 4.147 Scope Investment grants, 4.138 Other capital transfers, 4.138 Other current transfers, 4.138 Social benefits to households, 4.138 Subsidies, 4.138 Environmental taxes Alternative descriptions, 4.154 Categories of environmental taxes Energy taxes, 4.155 Pollution taxes, 4.155 Resource taxes, 4.155 Transport taxes, 4.155 Definition, 4.150 Earmarked taxes, 4.89, 4.153 Environmental tax bases see Environmental taxes, Categories of environmental taxes Scope Capital taxes, 4.149 Other current taxes, 4.149 Other taxes on production, 4.149 Taxes on income, 4.149 Taxes on products, 4.149 Value added tax, treatment, 4.157-158 Establishments, 2.114 Evaporation/Evapotranspiration, 3.216, 5.487 EW-MFA see Economy-wide material flow accounting Exclusive economic zone, 5.13, 5.248 Exports of goods and services, table 6.1 Extraction rate, 5.210-211 Extractions Mineral and energy resources, 5.189 Timber resources see Removals Soil resources, 5.337 Aquatic resources see Gross catch Water resources see Abstraction System of Environmental-Economic Accounting 2012—Central Framework336 F Fellings, 5.371 Felling residues, 5.365 Final water use, 3.222 Financial account, 6.42 Financial corporations see Institutional sector Financing of national expenditure on environmental protection, 4.86-91 Fines and penalties, 4.165 Fish resources/stocks see Aquatic resources Forests, 5.30, 5.280-295, 5.348, 5.356, 5.385 Functional accounts Description, 2.71-74, 6.44-47 EGSS, 4.92 EPEA, 4.45 G General government see Institutional sector Generation of income account, 6.31 Geographical boundaries Country area, 5.240 Economic territory, 2.121-124 Exclusive economic zone, 5.240, 5.248 Residence, 2.122 Territorial enclaves, 2.121 Geothermal energy, 3.59, 3.158, 5.225 Goods for processing, 3.133-139 Government final consumption expenditure (GFCE), table 6.2 Gross catch, 5.428-429 Gross domestic product (GDP), 2.62, 6.24 Gross energy input, 3.181 Gross fixed capital formation, table 6.1, table 6.3 Gross national income (GNI), 2.62, 6.24 Gross operating surplus (GOS), 6.31, table 6.3 Gross recording, 3.116 Gross releases, 3.90 Gross removals, 5.430 Gross value added (GVA), table 6.3 Gross water input, 3.220 Groundwater, 5.479 Growth in stock, 5.48 H Harvest see Extractions Holding gains and losses see Revaluations 337Index Household final consumption expenditure (HFCE), table 6.1 Households see Institutional sector Hydropower Energy flows, 3.59, 3.158, 5.225 Valuation, 5.491 Water flows, 3.195, 5.487 Illegal fishing, 5.435-436 Imports of goods and services, table 6.1 Indicators Description, 6.92-105 Types Decoupling, 6.109-110 Intensity, 6.107-108 Polluter pays, 6.111 Productivity, 6.107-108 Ratio, 6.106 Individual environmental assets, 2.17-19, 5.11-12 Industries Classification, 2.48 Definition, 2.116 Economic units, 2.110 Enterprises, 2.114 Establishments, 2.114 Inflows, 5.486 Inputs from soil, 3.62 Inputs for air, 3.63 Input-output identity, 3.37-40 Institutional sectors, 2.110-111 Intensity indicators, 6.107-108 Intermediate consumption, table 6.1, table 6.2, table 6.3 Investment grants, 4.138 ISIC, 2.48 K Known deposits, 5.173-180 L Land Accounting for soil resources, 5.301 Asset accounting entries In monetary terms, 5.296-297 In physical terms, 5.270-275 Costs of ownership transfer, 5.313-315 Description, 5.19-23, 5.235-238 Ecosystem accounting, 5.316-317 Forest and other wooded land, 5.280-295 Land cover Classification, 5.260-262 Definition, 5.257 System of Environmental-Economic Accounting 2012—Central Framework338 Land cover change matrix, 5.276-278 Land use Classification, 5.249-256 Definition, 5.246 Scope, 5.239-244 Valuation approaches, 5.298-311 Landfill Air emissions, 3.247-248, 3.251-252 Solid waste, 3.275-276 Landings, 5.428-429 LCCS, 5.258 LCML, 5.258 Livestock Air emissions, 3.243 Cultivated biological resources, 5.35, 5.460 Losses Definition, 3.100-103 Theft, 3.103 Types of losses Losses during distribution, 3.101, 3.173, 3.212 Losses during extraction, 3.101, 3.173 Losses during storage, 3.101, 3.173 Losses during transformation, 3.101, 3.173 M Marine/oceans, 5.16-17 Market prices, 2.143-149 Measurement units, 2.140-142 Merchanting, 3.137 Mineral and energy resources Allocation of income, 5.216-220 Asset accounting entries In monetary terms, 5.191-193 In physical terms, 5.182-190 Asset life, resource life, 5.212-213 Categorization of, 5.174-180 Classification of, 5.181 Definition and scope, 5.172-174 Depletion, 5.214 Energy from renewable sources, 5.225-234 Extraction rate, 5.210-211 Institutional sector accounts, 5.221-224 Link to SNA, 5.180 Permits to use environmental assets, 4.175 Resource rent, 5.196-209 Valuation, 5.194-215 Minimization of natural hazards, 4.22-24 Monetary supply and use tables Basic model, 2.35 Description, 2.30-37 see also Supply and use tables 339Index N Natural gas see Mineral and energy resources Natural inputs Classification, 3.46 Description, 3.45-63 Inputs from air, 3.63 Inputs from soil, 3.62 Inputs of energy from renewable sources, 3.59 Natural resource inputs, 3.47 Natural resources Definition, 2.101, 5.18 see also Mineral and energy resources, Soil resources, Timber resources, Aquatic resources, Water resources Natural resource residuals, 3.49-50 Net domestic energy use, 3.182 Net domestic product (NDP), table 6.3 Net domestic water use, 3.221 Net national income (NNI), 6.33 Net present value Components, 5.112, 5.151 Description, 5.109-111 Discount rates, 5.145-150 Formula, 5.151 Rate of return on produced assets, 5.141-144 Resource rent, 5.121-136 Net recording, 3.116 Non-financial corporations see Institutional sector Non-point source emissions, 3.261 Non-produced assets, 5.36 Non-profit institutions serving households (NPISH) see Institutional sector Non-specialist producers, 4.33, 4.55, 4.108 Normal reductions of stock, 5.49 Nutrient balances, 3.229-231 Nutrient flows see Nutrient balances O Oil see Mineral and energy resources Other biological resources Other cultivated biological resources, 5.460 Other natural biological resources, 5.464-468 Scope, 5.460-463 Other taxes on production, 4.149 Other wooded land, 5.280-295 Outflows, 5.487 Output, table 6.1 System of Environmental-Economic Accounting 2012—Central Framework340 Own-account producers, 4.34-35, 4.59, 4.108 Own-account production, recording, 2.117, 3.163, 3.196 Own-consumption, recording, 2.117, 3.163, 3.196 Own-use, recording, 2.117, 3.163, 3.196 Ownership of environmental assets, recording, 5.32 P Permits to use environmental assets Aquatic resources, 4.178-180 Emission permits, 4.185-187 Land, 4.176 Mineral and energy resources, 4.175 Permits to use the environment as a sink, 4.182-189 Timber resources, 4.177 Water resources, 4.181 Air emissions Physical flows Classification, 3.46, 3.72, 3.104-106 Description, 2.88-95 Emissions, 3.88 Energy flows, 3.140 Losses, 3.100 Natural inputs, 2.89, 3.45 Natural resource inputs, 3.47, 3.130 Nutrient balances, 3.229 Products, 2.91, 3.64-72 Residuals, 2.92, 3.73 Solid waste, 3.84 Water flows, 3.184 Physical supply and use tables Basic model, 2.43 Description, 2.38-47, 3.19-34 Difference from Economy wide-Material flow analysis, 3.280 Input-output identity, 3.37-40 Supply and use identity, 3.35-36 see also Supply and use tables Pigovian taxes, 4.154 Point source emissions, 3.261 Polluter pays indicators, 6.111 Pollution taxes, 4.155 Population, 2.75 Potentially Environmentally Damaging Subsidies (PEDS), 4.147 Prices Basic prices, 2.151-152 Link to volume measures, 2.156-161 Market prices, 2.143-149 Producers’ prices, 2.153 Purchasers’ prices, 2.154 Primary emissions see Air emissions 341Index Produced assets, 5.34-35 Producers’ prices, 2.153 Production, 2.9 Production account, 6.30 Production boundary, 2.9 Productivity indicators, 6.107-108 Profits see Gross operating surplus Purchasers’ prices, 2.154 Q Quotas (ITQs), 4.178, 5.445-452 R Ratio indicators, 6.106 Reappraisals, 5.48-49 Reclassification, 5.48-49 Remedial costs Definition, 4.195 Treatment, 4.207-209 Removals see Timber resources Renewable resources see Biological resources Rent, 4.160-163 Residence basis of recording, 2.122 Residuals Accumulation of residual flows, 3.107-108 Definition, 3.73 Dissipative losses, 3.97 Dissipative use of products, 3.96 Emissions to air, 3.91 Emissions to soil, 3.95 Emissions to water, 3.92 Energy residuals, 3.173-175 Losses, 3.100 Natural resources residuals, 3.49-50 Solid waste, 3.84 Wastewater, 3.86 Resource life, 5.137-140 Resource management activity Classification, 4.28 Definition, 4.13 Expenditure accounts, 4.121-123 Resource rent Approaches to measurement, 5.121-136 Aquatic resources (fish stocks), 5.453-456 Asset/resource life, 5.137-140 Definition, 5.113-115 System of Environmental-Economic Accounting 2012—Central Framework342 Mineral and energy resources, 5.196-209 Specific subsidies, 5.119 Specific taxes, 5.119 Timber resources, 5.378 Unit resource rent, 5.134 User costs, 5.141-144 Resource taxes, 4.155 Resource use activity, 4.19-21 Rest of the world see Institutional sectors Return flows, 3.210-211 Returns see Return flows Reused water, 3.205 Revaluation, 5.60-63 Royalties see Rent S Sales of goods and services, 4.164 Secondary emissions see Air emissions Secondary production, recording, 2.119, 3.162 Sector see Institutional sector Sequence of accounts Balancing items, 2.62, 6.24, 6.28-29 Description, 2.60-70, 6.23-43 Types of accounts Allocation of primary income account, 2.60, 6.32-34 Balance sheet, 2.69 Capital account, 2.60, 6.39-6.43 Distribution of secondary income account, 6.35 Financial account, 6.42 Generation of income account, 6.31 Production account, 6.30 Use of disposable income account, 6.36-38 Sewerage, 3.205 SIEC, 2.48, 3.149 Social benefits to households, 4.138 Soil resources Accounting entries, 5.330, 5.335 Area, 5.330-333 Characterization, 5.325-329 Components, 5.325 Description, 5.318-324 Depletion/degradation, 5.337, 5.341 Natural resource inputs, 5.339 Nutrient flows, 5.340 Properties, 5.325 343Index Valuation, 5.342 Volume, 5.334-338 Soil water, 5.480 Solar power, 3.59, 3.158, 5.225 Sole-purpose products, 4.98 Solid waste Account, 3.272-278 Classification, 3.106, annex I.D Collection, treatment, disposal, 3.274 Definition, 3.84-85, 3.269-271 Landfill, 3.275-276 Types of solid waste, 3.106, 3.272 Specialist producers, 4.33, 4.55, 4.107 Specific services, 4.53, 4.60-61 Specific subsidies, 5.119 Specific taxes, 5.119 Statistical units, 2.125-127 Stumpage price, 5.380 Stumpage value method, 5.383 Subsidies, 4.138 Subsoil assets see Mineral and energy resources Supply and use identity, 3.35-36 Supply and use tables Monetary tables, 2.30-37 Physical tables (PSUT), 2.38-47, 3.19-34 Types of PSUT, see Physical flows Surface water, 5.477 Sustainable yield, 5.82-87 T Taxes on income, 4.149 Taxes on products, 4.149 Terminal costs Definition, 4.195 Treatment, 4.200-206 Territorial enclaves, 2.121 Territory basis of recording, 3.178 Theft, 3.103, 3.212 Timber resources As a source of renewable energy, 5.372 Asset accounting entries In monetary terms, 5.373-388 In physical terms, 5.358-367 Carbon accounting, 5.389-392 Definition and scope, 5.346-352 Depletion, 5.368-370 Felling residues, 5.365 Link to forest land, 5.348 Permits to use environmental assets, 4.177 System of Environmental-Economic Accounting 2012—Central Framework344 Removals, 5.363-364 Valuation Composite assets, 5.307, 5.385 Consumption value method, 5.383 Resource rent, 5.378 Stumpage price, 5.380 Stumpage value method, 5.383 Time of recording, 2.136-139 Total national expenditure on environmental protection, 4.85 Tourism/tourist activity, 3.127-129 Tradable emission permits, 4.185-187 Transport International transport, 3.123-126 Energy flows, 3.166 see also Industries Transport taxes, 4.155 U UNFC, 5.174-178, annex A5.3 UNFCCC, 3.255 Unit resource rent, 5.134 Units of measurement, 2.140-142 Urban run-off, 3.213-214, 3.260 Use of disposable income account, 6.36-38 User costs, 5.141-144 V Valuation Approaches, 5.99-111 Asset life, 5.137-140 Basic prices, 2.151-152 Composite assets, 5.300-310 Discount rates, 5.145-150 Economic benefits, 5.32-33 Environmental assets Aquatic resources (fish stocks), 5.441-459 Land, 5.298-311 Mineral and energy resources, 5.194-215 Soil resources, 5.342 Timber resources, 5.378-388 Water resources, 5.488-492 Market prices, 2.143-149 Net present value, 5.112-120, 5.151-159 Producers’ prices, 2.153 Purchasers’ prices, 2.154 Rates of return, 5.141-144 Resource rent, 5.121-136 Value added tax Treatment in the context of environmental taxes, 4.157-158 345Index Virtual population analysis, 5.423 Volume measures, 2.156-161 W Wages and salaries see Compensation of employees Waste see Solid waste Waste treatment see Sewerage Wastewater, 3.86, 3.205-209, 3.260 Water supply, 3.201 Water accounts see Water flows Water consumption see Final water use Water emissions see Emissions to water Water flows Abstraction, 3.194, 5.487 Aggregates Final water use, 3.222 Gross water input, 3.220 Net domestic water use, 3.221 Water consumption, 3.222 Classification of inland water bodies, 5.476 Combined presentations for water flows, 6.130-138 Description, 3.186-188 Distribution of water, 3.200 Evaporation/transpiration, 3.216, 5.487 Groundwater, 5.479 Hydropower, 3.195 Losses during distribution, 3.212 Own-account abstraction, 3.196, 5.487 Physical supply and use table, 3.189-218 Precipitation, 3.194, 5.486 Return flows, 3.210, 5.486 Reused water, 3.205 Sewerage, 3.205 Soil water, 5.480 Surface water, 5.477 Theft, 3.212 Urban run-off, 3.213-214, 3.260 Wastewater, 3.205 Water incorporated into products, 3.217 Water resources Asset accounting entries, 5.481-487 Classification, 5.474 Definition and scope, 5.469-474 Groundwater, 5.479 System of Environmental-Economic Accounting 2012—Central Framework346 Permits to use environmental assets, 4.181 Soil water, 5.480 Surface water, 5.477 Valuation, 5.488-492 Wave and tidal power, 3.59, 3.158, 5.225 Wild fish, 5.419-426 Wind power, 3.59, 3.158, 5.225