Transcript NEEDS WS3a WP5: Green Accounting - Some thoughts!

Bridging Economy and Environment:
Use of Environmental Accounting in
Local & Regional contexts
Alistair Hunt
University of Bath, UK
Inter-Regional GROW Conference:
Bologna, 20th June, 2007
EU Policy Context
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Lisbon (economic and social)
Gothenburg (environment)
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Climate change
Sustainable transport
Public health
Resource management
Green accounting links economic and
environmental objectives
Overview of Presentation
Green (environmental) accounting
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Rationale
Elements of Green Accounting: Theoretical
& conceptual basis
Empirical progress in different contexts
Conclusions for research and practical
applications.
Rationale for conventional accounting
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Measurement of economic activity production = GDP
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Often used as indicator of welfare
Two elements of accounts
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Changes in Stocks of Capital - Investment
Measurement of production/output –
Flows - Consumption
Standard National Accounts (SNA) framework
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NNP = C + I – D + X – M
Where:
NNP = Net National Product
C
= Consumption
I
= Investment
D
= Depreciation
X
= Exports
M
= Imports
Misleadingly used as measure of welfare: welfare not
proportionate to consumption of produced goods
Green accounting – rationale
“The effect of mankind’s activity upon the environment
has been an important policy issue throughout the
last part of the twentieth century….
increasing recognition that continuing economic growth
and human welfare are dependent upon the services
provided by the environment”
Source: The United Nations Handbook of National Accounting Integrated Environmental and Economic Accounting
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Economic – Environmental linkages have implications
for meso- and macro-economic management
Meso/macro-economic management more responsive
to environment if environmental indicators exist
Economic activity and environmental
impact
Elements of Green Accounting - Outline
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Environmental services
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Environmental damages
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Pollution flows e.g air & water quality
Defensive (environmental protection)
expenditures
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Ecosystem life support systems
Landscape
e.g. noise reducing windows & IPPC technologies
Resource depletion
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Non-renewables; renewables
Weak and Strong Sustainability
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Different types of capital:
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Manmade capital - K
Human Capital (Intellectual capital) - H
Social capital - SC
Natural capital - N
 Stocks of natural resources including oil, gas
forests and fisheries
 The earth’s life-support system
Weak and Strong Sustainability
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Weak sustainability: The sum of the
values of changes in capital stocks
must be positive.
E.g.
the
Hartwick
rule
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K  H  SC  N  0
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Strong sustainability: Each type of
capital stock must be maintained in its
own right. K  0, H  0,
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SC  0, N  0
Empirical progress in Environmental
Accounting in different contexts
– some evidence
UN initiative on Green Accounting – UNSEEA
(1993, 2000, 2003)
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System of integrated Environmental and Economic
Accounting (SEEA) – complements SNA method for
measuring economic activity
Adds environmental information to existing Input-Output
economic data
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Physical stock and flow tables
Hybrid (physical & monetary) stock and flow tables
Methodological guidance on resource depletion,
degradation, defensive expenditures
Physical & monetary stock and flow tables
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Often known as NAMEAs (National Accounting Matrix
including Environmental Accounts).
Physical flow accounts include four types of flow:
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products (produced in the economic sphere and used within
it),
natural resources (mineral, energy, biological),
ecosystem inputs (air and water) and
residuals (solid, effluent, emissions).
Each of these accounts is expressed in terms of
supply to, and use by, the economy.
i.e. tables represent the flows between the economy
and the environment.
Simple hybrid supply and use table
– Use in RAMEA/NAMEA
An indicator of weak sustainability:
genuine savings
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Genuine Savings = monetary savings less the
depreciation on manmade capital less the depletion
of natural capital. (From S = Iv identity)
Value of changes in economy’s overall capital stocks.
 Negative genuine saving corresponds to
unsustainability, since if depleting capital stock,
can receive lower welfare from it in future
Genuine Savings rates low or negative for SubSaharan Africa and for Middle East and North Africa.
Assumes all capital is substitutable
Genuine savings for Tunisia, as % of GDP
The Index of Sustainable Economic
Welfare (ISEW)
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ISEW (Daly and Cobb (1989))
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current welfare should be measured as the current
flow of services from all sources, rather than
current output of marketed goods
E.g.
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value for leisure time to correct for the fact that welfare
could increase while NNP decreases if people choose to
work less;
higher incomes of urban residents are compensation for
externalities connected with urbanisation and
congestion,  proportion of income should not be
included as welfare
The Index of Sustainable Economic
Welfare (ISEW)
ISEW =
Consumption + Investment + Extra-Market services + Consumer Durables
Services + Services of Roads + Public Health & Education – Consumer
Durables Expenditure – Private Defensive Expenditure on Health /Education –
Advertising – Commuting costs – Pollution costs – cost of loss of ecosystems –
resource depletion costs – Long term environmental damage
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Applications at national level: UK, Sweden, Netherlands,
Italy, Poland, Austria
Applications at local level: Siena (Pulselli et. al. 2006)
Problem – mixes sustainability and welfare issues in single
measure
Index of Consumption Corrected for
Environmental Damage (ICCED)
- EC Greensense project
ICCED developed:
 to demonstrate how well-being changes
over time if sustainability standards
imposed and effects of environmental
damage are accounted for.
 corrects for environmental damage and
expenditure incurred under sustainability
policies (similarities with local EcoBudget
initiatives e.g. Roma)
Sustainability targets analysed under the
GREENSENSE project
Environmental
Impact
Weak Sustainability
Air pollution
Invest the value of damage to capital Current legislation with Emission Ceilings
stocks due to air pollution.
Climate Change
Invest the NPV of the cost of current 550 ppmv by 2120
carbon emissions ($4/tonne current
estimate)
Invest the value of damage to capital Natura 2000 network to be preserved
stocks due to biodiversity loss
No further wetland loss or degradation
15% of agricultural area under management
contracts
No further deterioration of natural and seminatural forests
Energy: Invest % of resource rents
12% energy from renewables by 2010
Invest value of future price
Increases
Forestry: Invest value of future price
increases
Invest the value of damage to capital Concentration levels of lead and cadmium
stocks due to Toxic substances
given in EU Directives
Not applicable since only current Not applicable since only current welfare
welfare impacts
impacts
Biodiversity
Natural resources
Toxic Substances
Urban
Environmental
Problems (Noise)
Waste
Water Pollution
Invest the value of damage (e.g. land
converted for landfill) due to waste
Invest the value of any decline in water
resource stocks.
Intermediate sustainability target
Strong sustainability target
Medium Ambition GAP Closure
Emission Ceilings
/ Maximum Technical Feasible Solution
450 ppmv by 2120
+
20% of all land to be preserved in natural
condition
16-19% energy from renewables by 2010
(current estimate)
Future steady-state concentrations of lead
and cadmium
Not applicable since only current welfare
impacts
Landfill max. 35% of household waste; Land space availability
Recycle 25%
Satisfaction of the EC Water Framework Satisfaction of the EC Water Framework
Directive
Directive
Greensense: Environmental impacts on welfare (UK)
Total environmental Impacts
Air Pollution
Biodiversity
Resource Extraction
Toxic Substances - dioxins
Toxic Substances - heavy metals
Noise
Waste
Water Pollution
Total
Billions of (2000) Euros
1990
1998
24
13
-0.174
Intermediate
Strong
Sust. Target Sust. Target
2006
2006
6.6
5.5
-0.044
(.19)
0.5
1.8
0.06
2
(.18)
0.4
0.04
2.6
(.23)
0.2
25
17
9
0.3
2.6
0.2
8
Greensense: ICCED Measures - UK
Per capita (2000) Euros
UK
1990
GDP
13238
Final Consumption Expenditure
10910
Env. Damage
Env Damage as % Consumption
Env Damage as % GDP
Avoidance cost
ICCED
426
3.91
3.22
Intermediate
Target
1998
2006
22398
29523
18563
25313
294
1.58
1.31
Strong
Target
2006
29523
25313
161
0.64
0.55
143
0.56
0.48
0.2
25151
0.2
25170
Summary of Empirical initiatives
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NAMEA: includes environmental issues
within standard accounting framework
Genuine savings – sustainability-related
decision rule
ISEW – broader interpretation of
welfare
ICCED – includes welfare effects of
meeting sustainability targets
Conclusions on Green Accounting
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Recognition of need to address both current welfare
and sustainability issues from macro-perspective
National and international initiatives (e.g. UN SEEA,
2003) are developing improved methodologies
Variety of initiatives reflects lack of consensus on
priorities and methods
Local applications of methods can reflect regulatory
responsibilities but may be difficult to define
sustainability at this scale?
Applications very data-hungry and modelling
intensive