Transcript Slide 1 - Eionet Projects

4.1
CENTRAL INSTITUTE FOR ECONOMIC MANAGEMENT
Project " Green GDP Index: Research for Methodology Framework Development"
Training on
“Green” national accounting:
development of environmental-economic accounts at the international level
Monday 27 February 2012
Venue: CIEM, 68 Phan Dinh Phung - Hanoi, Vietnam
Session 4: Open session on the development
of Green GDP accounting in Vietnam
Jean-Louis Weber
Special Adviser on Economic Environmental Accounting
European Environment Agency
[email protected]
[email protected]
4.2
“Green GDP”: where to go? how to start?
• Do we need to value Nature beyond economic assets? How far should we
try to put a price on free goods and services?
• Weak/ Strong sustainability
• NPV, usefulness and limitation for measuring natural assets depletion;
the El Serafy method as a simplest solution.
• Valuation of ecosystem services: many methods; micro vs. macro
perspectives
• Practical issues: “benefit transfers”.
• Ecosystem capital maintenance, depreciation and assessment of
remediation/restoration costs.
• Ecosystem and Human capital.
• Which adjustments of the national accounts are the more operational?
• True GDP or National Income? Final Consumption at Full price?
• Prices issues in national accounts: the GDP of the Poor paradigm
• Measuring ecological debts and assets (good ecosystem state)
Jean-Louis Weber, 27 February 2012
4.14
Valuation and national accounts
1. Consistency of “accounting prices”
•
•
Contingent valuations  marginal price, ex ante, which includes “consumer surplus”
(what we are ready to pay…)
Statistics  mean price, ex post observation, no “consumer surplus” (what we have
actually paid)
2. Production adjustment: depletion vs degradation (Vanoli)
•
•
Resource depletion is part of commodities prices  can be deducted from GDP (or from
National Income); it cannot be added to Final Consumption
Degradation is not paid  cannot be deducted from GDP, but additional capital
consumption can be deducted from NDP or Net National Income; it can be added to
Final Consumption
3. The past cannot be re-written, GDP adjustment is modelling future
•
GDP is the result of an economic equilibrium in which prices and consumption have
been established; national accounts record the past  we cannot change one price
without changing the complete consumption structure
 GDP adjustments are modelling, only valid for future (“what will be the GDP under
constraint of paying for additional environmental norms…”)
OR: balancing the “green” adjustment by ecological debts…
Jean-Louis Weber, 27 February 2012
4.15
Weak versus Strong Sustainability
• Weak Sustainability
– Maintain National Income by maintaining all forms of capital (Hartwick, Kirk
Hamilton…) (possible?)
– Maintain National Income against depletion of natural resources (El Serafy, SEEA)
• Strong Sustainability
– Maintain the ecosystems… not possible
– Maintain the ecosystem capacity to deliver services (+ maintain and improve man
made and human capitals)
• Aggregates :
–
–
–
–
GDP Adjusted from environmental damages (is it computable?) W
Net Adjusted Savings W or S ?
NDP or Net National Income Adjusted from 1) resource depletion W
NDP or Net National Income Adjusted from 2) ecosystem degradation (including
urban and agricultural systems) S
– Final Consumption (and Imports and Exports) at the full price (including unpaid
degradation) S
– Ecological debts (and assets) S
Jean-Louis Weber, 27 February 2012
4.7=1.32
Natural capital approach and GDP adjustment: the maintenance approach
Gross Domestic Product (GDP)
– or +
Natural capital
depreciation, what
National Accounts
should record:
adjustment of National
Income and Final
Consumption
Transfers with the Rest of World
=
Gross National Income (GNI)
_
Consumption of Fixed Capital
=
National Income (NI or NNP)
--
Depletion of subsoil assets
--
Final
Consumption
at Purchaser’s
Price
Consumption of (domestic)
ecosystem capital
+
=
Adjusted Real Net National Income
Jean-Louis Weber, 27 February 2012
+
Consumption of
ecosystem capital
embedded in Imports
(minus in Exports)
=
Final
Consumption at
Full Cost of
Commodities
4.3=3.9
What can we measure and value?
Invaluable asset
 no monetary value…
Paid
maintenance/
restoration costs
Quantities (surface, tons of
stones…) AND Qualities
(aesthetical, functional…)
Physical degradation
(not yet repaired) =
Physical debt
Estimated cost of repairs
(not yet paid) =
Capital depreciation =
Monetary debt
Jean-Louis Weber, 27 February 2012
Various services,
of which some are
valuable (e.g. tourism)
or not (e.g. religion)
4.4=3.6A
Ecosystems are altogether private and public goods
Excludable
Non-excludable
Rivalrous
Private goods
food, clothing, toys,
furniture, cars
Common goods /
(Common-pool
resources)
fish, hunting game,
water
Non-rivalrous
Club goods
satellite television
Public goods
national defense,
free-to-air
television, air
+
Good quality of water, air + Good
state of the ecosystems (soil,
biodiversity, resilience…)
From Chichilnisky (1997), Costanza, (2009)
Jean-Louis Weber, 27 February 2012
7
4.19
Valuation of ecosystem services: many possible methods, not all
compatible with National Accounts
 S, the Total Economic Value is a myth…
Jean-Louis Weber, 27 February 2012
The narrative behind Ecosystem Capital Accounts:
4.9=3.27
h.Ecosystem Capital should not be valued; ecosystem services can be
valued one by one but are not fully additive (functional analysis)
National Accounts =
the macro-economic picture
adjusted for natural capital depreciation
Benefits & Costs Assessments =
accounts for projects, sectors…
Ecosystem capital
Stocks & flows
Land cover
Biomass/Carbon
Soil
Biodiversity
Water catchments
Sea
Atmosphere
Health
Vigour
Organisation
Resilience
Autonomy
Healthy populations
1
2
3
4
5
n
Ecosystem services valuation
Bottom-up, individual preferences, market and shadow prices,
Costs-Benefits Analysis, General Equilibrium model
Service n
Service n value ??
Operation costs E.S n
Service 5: e.g. existence
Service 5 value ?
Operation costs E.S 5
Service 4: e.g. water regulation
Service 4 value
Operation costs E.S 4
Service 3: e.g. eco-tourism
Service 3 value
Operation costs E.S 3
Service 2:
2: e.g.
e.g. fish
fish provision
provision
Service
Service 2 value
Operation costs E.S 2
Service 1: e.g. timber provision
Service 1 value
Operation costs E.S 1
Ecosystem / public good protection (all services)
Ecosystem restoration costs
Top-Down, collective preferences, multi-criteria decision (economic & social
values, long term targets…), Consumption of Ecosystem Capital
Jean-Louis Weber, 27 February 2012
Ecological Taxes, Subsidies, Tradable
Offset Certificates / Depreciation...
4.10=3.28
The narrative behind Ecosystem Capital Accounts:
i. To address multiple scales, ecosystem capital accounts need to
integrate geographical information
Global scale:
International Conventions
Simplified accounts
Markets framing & regulation
National & regional
government:
Environmental agencies,
Ministries of economy,
Statistical offices,
Courts
SEEA 2013
Framework
Site level, case studies,
Projects,
Business
Jean-Louis Weber, 27 February 2012
Beyond GDP Accounting
Sector accounts
Green taxes
Clearing house mechanisms on
[1] ES prices & [2] ecosystem
mitigation costs
Impacts assessments, costs &
benefits
Action level:
Local scale, management,
Global trade of ecosystem
permits, IPES
Programmes assessment (e.g.
REDD+)
International financial standards
(for loans…)
Country contribution to
international organisations
Accounting guidelines,
norms, geographical data
Local government, Agencies
assessment
Corporate accounting results,
rating, trade
Markets of specific ecosystem
services, PES
Assets j
4.8=3.25
The narrative behind Ecosystem Capital Accounts:
f. Estimation of ecosystem capital depreciation can be derived from physical
degradation
t1
t2
t2 - t1
j
Physical accounts
of E-services
Flows
j j
(-)
j
Valuation of E-services
€
NPV & addition
Assets €
Calculation
of unit
costs
Valuation of E-services
€
Jean-Louis Weber, 27 February 2012
j
Account of
pressures
responsible of
degradation
Physical accounts
of E-services
j
€
Degradation of ecosystem capital
NPV & addition
(-)
t2 - t1
€
€
€
Estimation of ecosystem
capital depreciation…
…based on
remediation costs
…based on
assets values
Assessment of
remediation
costs by
issues
&
€
addition
4.5
Assets depletion: change in assets Net Present Value
vs. User Cost
•
•
•
•
Assets depletion is, according to the dominant economic theory equal to the Net Present Value of the
future benefits expected from the operation of this asset (net of operation costs). Inconveniences:
– Valid only in conditions of pure and perfect market, which doesn’t exist
– Natural resource prices (e.g. oil) are very volatile, so depletion calculated from NPV is very unstable
– The result depends on the choice of a discounting rate; no standard rule.
– Not all assets can be valued with the same parameters… additivity issues
El Serafy (1993, 1996) has proposed that the user cost of natural resource depletion be used to adjust
GDP. User cost is that portion of the receipts from selling a nonrenewable resource, net of extraction
costs, which must be reinvested in other assets in order to maintain a flow of future income after the
resource stock has been completely depleted. El Serafy demonstrates that user cost as a fraction of net
receipts equals 1/(1+r)n+1, where r is the interest rate for investment purposes and n the remaining life of
the resource stock at the current extraction rate. In general, this leads to a smaller negative adjustment
for resource depletion, since part of the income from sales of natural resources is considered "true“
income, to be included in GDP. However, El Serafy's method also greatly reduces the positive adjustments
to GDP resulting from discoveries of new resources.
In the WRI study of Indonesia, domestic output adjusted for resource depletion exceeded official GDP in
1974 by 35.7 percent because of significant discoveries of new oil reserves (Repetto et al. 1989:4, 39).
In the user cost method, the discovery of new reserves is not directly included in GDP, but will somewhat
reduce the user cost deduction because it extends the expected lifetime n of the reserve and thus reduces
the fraction 1/(1+r)n+1.
Jean-Louis Weber, 27 February 2012
4.20=2.24
The valuation of environmental assets
• 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 in the valuation of these assets.
• This is particularly the case in relation to the description of the net present value
approach (NPV) to valuation and in the discussion of discount rates.
Jean-Louis Weber, 27 February 2012
4.6
“User cost” calculation of economic natural assets depletion
The formula had as requirements only few variables: (a) an estimate of the size of reserves in physical
units; (b) the current year’s extraction, also reckoned in physical units; and (c) an interest rate,
indicated by the market, which would point to the income that can be earned by the extracting agent
if he or she invested part of the revenue in other assets in order to generate future income. From (a)
and (b) the life expectancy of the reserves may be estimated, thus indicating the durability (or
sustainability) of the resource if current practices are to continue (i.e. if the current rate of extraction
were not changed). Life expectancy (n) at the current extraction rate (before total extinction) is a
simple and eloquent indicator of sustainability. The formula, showed how much of the revenue (R)
from extraction in any one year can be estimated as ‘true income’ (X), that may be available for
consumption, while the rest, to be viewed as a capital element, (R - X) needs to be put aside and
reinvested at interest rate (r) to sustain future income at the same level as the estimated income (X)
of the current year, viz:
Revenue
R
10000
True Income
X
6410.576
interest rate
r
0.05
number of years of extraction n
20
Source: Salah El Serafy, 2002 - The “El Serafy” Method for Estimating Income from Extraction and its importance for Economic Analysis
Jean-Louis Weber, 27 February 2012
4.12
Conventional valuation of resource depletion is not appropriate for
ecosystem degradation
Conventional economic theory:
asset depreciation =
1. difference between asset values at two dates
2. cumulated loss of future benefits (financial approach, “Net Present Value”)
NB: 1. and 2. are assumed to be equivalent under the condition of “perfect market”
Financial value of natural assets = “Net Present Value” of expected future benefits
= NPV
Jean-Louis Weber, 27 February 2012
4.13
Ecosystem capital accounting: asset = “quantity*quality”
(physical measurement) only change is priced (imputed remediation costs)
Degradation
Restoration
Purchaser
price
Jean-Louis Weber, 27 February 2012
+
Remediation
cost
=
Final
Consumption at
the full cost
4.11
Concepts of Capital Maintenance and the Determination of Profit
“104. The concepts of capital in paragraph 102
give rise to the following concepts of capital
maintenance:
• (a) Financial capital maintenance. (...)
• (b) Physical capital maintenance.
Under this concept a profit is earned
only if the physical productive capacity
(or operating capability) of the
enterprise (or the resources or funds
needed to achieve that capacity) at the
end of the period exceeds the physical
productive capacity at the beginning of
the period, after excluding any
distributions to, and contributions
from, owners during the period.”
Jean-Louis Weber, 27 February 2012
4.16
GDP of the Poor: rationale (TEEB D1)
Adapted from Haripriya Gundimeda, Pavan Sukhdev et al., TEEB D1
• Many ecosystem services benefiting the rural poor are accounted for little or for
nothing in GDP:
– Side products of forestry (fuel wood, non timber forest products [NTFP]), non
commercial fisheries
– Functional ecosystem services: water quality and regulation, soil fertility, fish stocks
regulation
– Aesthetic & cultural elements of quality of life, attraction for tourism
• However, in case of ecosystem degradation and loss of services, a loss of 1 dollar
would hurt poor people more than 1 dollar to the rich:
– The marginal utility of 1 dollar is high for the poor – so is the disutility of losing 1
dollar
– The poor have little possibilities of replacing free ecosystem services with commercial
services
 with current accounting rules, such welfare losses of the poor will simply not be
recorded in the GDP
Jean-Louis Weber, 27 February 2012
4.17
GDP of the Poor, first estimations (TEEB D1)
Source:
THE ECONOMICS OF ECOSYSTEMS AND BIODIVERSITY
TEEB D1 for National and International Policy Makers (Coordinator: Patrick ten Brink), 2009
Chapter 3: Strengthening indicators and accounting systems for natural capital
3.5 Building a fuller picture: the need for ‘GDP of the Poor’
Haripriya Gundimeda, Pavan Sukhdev et al.
http://www.teebweb.org/LinkClick.aspx?fileticket=J3_lcRRutGw%3d&tabid=1019&language=en-US
Jean-Louis Weber, 27 February 2012
Thank you!
Jean-Louis Weber
Special Adviser on Economic Environmental Accounting
European Environment Agency
[email protected]
[email protected]