Georgy Fomenko, Marina Fomenko,
Konstantin Loshadkin, Anastasia Mikhailova,
Elena Arabova

Environmental-Economic Accounting
in Sustainable Resource Use

Theory and Practice

Author Team:

Georgy Fomenko, Doctor of Geography, Professor (Preface, Glossary, Chapters 1, 3, 4, Conclusion);

Marina Fomenko, Doctoral Candidate in Geography, Associate Professor (Chapters 1, 2, 3, Sections 4.1, 4.2); 

Konstantin Loshadkin, Doctoral Candidate in Geography, Associate Professor (Sections 1.3, 1.4, 2.2); 

Anastasia Mikhailova, Doctoral Candidate in Geography, Associate Professor (Sections 3.2, 3.4, 3.6);

Elena Arabova (Glossary, Sections 1.2, 1.3, 2.1)

Reviewed by 

Sergei Bobylev, Doctor of Economics, Professor, Member of the Russian Academy of Economic Science 

(Professor, Department of Environmental Economics, Faculty of Economics,
Moscow State University)

Renat Perelet, Doctoral Candidate in Economics, Associate Professor, Honorary Member of the Rome Club

(Senior Researcher, Systems Analysis Institute of the Russian Academy of Sciences)

Environmental-Economic Accounting in Sustainable Use of Natural Resources. Theory and Practice / Scientific. Ed. Georgy Fomenko – Costa Rica: Institute for Sustainable Innovation, 2019.– 394 p. 

The monograph considers the development of the System of Environmental-Economic Accounting (SEEA) that enables analysis of the interaction between the economy and the environment at different levels of territorial organization. It provides the philosophical and methodological framework for the SEEA establishment and development; shows the essence of the SEEA, including its origins, its place and role compared to other information systems, its institutional and organizational specifics; describes the experience of implementing the SEEA provisions in Russia. The monograph also provides a number of examples demonstrating the effect that the results of assessment of environmental resources and ecosystem services have on addressing complex issues of resource management and strategic planning of territorial development and describes the SEEA development paths.

The book is aimed at professionals from a wide range of backgrounds interested in environmental management and environmental protection.

© Georgy Fomenko, Marina Fomenko, Konstantin Loshadkin, Anastasia 

Mikhailova, Elena Arabova., 2017, 2019. All rights reserved.

No part of this book may be reproduced in any written, electronic, recording, or 

photocopying without written permission of the publisher or author. The exception 

would be in the case of brief quotations embodied in the critical articles or reviews 

and pages where permission is specifically granted by the publisher or author. 

Although every precaution has been taken to verify the accuracy of the information contained 

herein, the author and publisher assume no responsibility for any errors or omissions. 

No liability is assumed for damages that may result from the use of information contained within.

Interior & Cover Design: Susana Cardona <susanacardona.es>

Cover photography: «Batshevs/Shutterstock»

Publisher: Institute for Sustainable Innovation, Costa Rica.

ISBN: 978-0-9985796-4-1

ACKNOWLEDGEMENTS

The creative process is of course the prerogative of the authors. However, the outcome of this process could not have been as complete and as thoughtful without the knowledge and experience of people whose invaluable contribution helped to make the process meaningful, exact and relevant to readers.  Our vision of the spatial development of the System of Environmental-Economic Accounting (SEEA) and the related synthesis of concepts and ideas has taken shape since the mid-1990s. Over these years we have had the good fortune to take part in discussions of crucial scientific approaches to the evolution of modern information systems in the relationship between Society and Nature together with authors and academics. We therefore believe that it is important to mention those who have contributed to creating this treatise and bringing it to readers. 

We would like to express special thanks to:

Anil MARKANDYA, one of the creators of the concept of the “green” economy. 20 years ago he helped us to master SEEA approaches and methods for applying findings to improve environmental management and regional sustainability. We continue to draw on his forward-looking ideas and to attempt to put them into practice.  

Nikolai  LUKIANCHIKOV, an outstanding economist in the field of environmental economics, the last Deputy Minister of Ecology and Environmental Management of the USSR, who contributed much to introducing the basic principles of integrated environmental-economic accounting in Russia. 

Budimir POYARKOV, who suggested the idea of integrated territorial cadasters of natural resources based on diligent attention to regional and local levels of management.

Henrietta PRIVALOVSKAYA, leader of environmental research in the field of economic geography in Russia who has contributed greatly to the development of our team. Her participation in profound and many-sided discussions helped to clarify and articulate the foundations of our understanding of the territorial synthesis of economic and environmental information.  

Konstantin GOFMAN, whose short but highly meaningful and unforgettable talks in the early 1990s on various issues of environmental economics extended our horizons and helped us to embrace various methodological aspects of monetary estimates of environmental resources.

Sergei BOBYLEV, who provided valuable advice on the measurement of sustainable development and economic growth and supported our research in every way.

Renat PERELET, who introduced us to the theory of sustainable development in the early 1990s. and whose friendly support through the last two decades has been of inestimable value.

Vladimir ZAKHAROV, with whom we have had valuable interchanges regarding environmental health and the importance of the Earth Charter.

Miriam LINSTER, who offered numerous timely and highly fruitful recommendations on creating and developing green economy and green growth indices, drawing on OECD expertise.

Vim COFINO for insightful discussions on philosophy and sustainability measurement.

Alexander DUMNOV for valuable consultations on the basic methodology of environmental statistics and specifics of environmental-economic accounting. 

Alexander LYUTY, whose “language of maps” helped us finalize the methodological basis for creating behavioral maps integrated with the SEEA and formulating map legends with a focus on sustainable resource use and environmental protection.

We are also grateful to Yuli Lipets, Valery Pulyarkin, Enrid Alayev, Luisa Nochevkina, Vladimir Streletsky, Andrei Treivish, Irina Volkova, Tatyana Runova, Hans-JürgenTaurit, Lev Knyazkov and many other colleagues for their sympathetic and deep discussion of numerous ideas in the course of informal meetings.  

At various stages of the work our research was supported by leading experts of the Russian Ministry of Natural Resources and Environmental Protection, the Federal Service for National Statistics, Federal Service for Supervision of Natural Resources, as well as regional and municipal administrations in Kaliningrad, Kaluga, Kemerovo, Kostroma, Nizhny Novgorod, Ryazan, Saratov, Tomsk, Yaroslavl, Kamchatka and Krasnoyarsk Regions, the Republics of Buryatia, Karelia and other subjects of the Russian Federation. 

Our understanding of the SEEA principles was greatly expanded by regular participation in meetings on environmental statistics and environmental-economic accounting held by UNECE (Lidia Bratanova, Tiina Luigi, etc.), the UN Department for Statistics and the OECD, where we have refined our views of statistical environmental systems over a period of nearly 10 years. 

Our special thanks to Andrey Tatarinov, Natalia Shashlova, Marina Klevakina, Galina Romashkina, Mikhail Gordonov, Alexander Averchenkov, Anatoliy Shevchuk, Olga Medvedeva, Arkady Tishkov, Alexander Adam, Alexander Golub, Alla Shvets, Vladimir Revezensky, Mikhail Buyanov, Elena Bondarchuk, Valery Panov, Margarita Tsibulnikova, Vladimir Morozov and many others for their expert assistance at various stages of the research, on which the conclusions of this book are based.  

ABBREVIATIONS

GDP – Gross Domestic Product

GRP – Gross Regional Product 

WTO – World Trade Organization 

CEA – Classification of Environmental Activities 

IAEA – International Atomic Energy Agency 

RVM – Residual Value Method

ISIC – International Standard Industrial Classification of all Economic Activities 

IEA – International Energy Agency

UN – United Nations  

SPA – Special Protection Area

OECD – Organization for Economic Cooperation and Development 

SNA – System of National Accounts

EPEA – Environmental Protection Expenditure Accounts  

SEEA – System of Environmental-Economic Accounting 

SEEA-W – System of Environmental-Economic Accounting for Water

SDG – Sustainable Development Goals

NDP – Net Domestic Product  

NPV – Net Present Value

SEIS – Shared Environmental Information System 

GLOSSARY

Asset is a store of value representing a benefit or series of benefits accruing to the economic owner by ownership or use of the asset over a period of time.  It is the means of transferring value from one accounting period to another (Central Framework for the SEEA. UN, 2012). 

Man-made (physical) capital includes man-made means of production, such as machines, buildings, production infrastructure, which are involved in the production process without being materialized in the final product (Renat Perelet. Systems Management of Transition to Sustainable Development, 2009).

Return on Produced Assets is the income from the use of produced assets in the process of production after deduction of the fixed capital consumed in this process (Central Framework for the SEEA, UN, 2012). 

Return on Environmental Assets is the income attributable to the use of environmental assets in the production process after deducing all costs of extraction including any costs of depletion of natural resources (Central Framework for the SEEA. UN, 2012). 

Living System is a multiple interconnected network whose components continually change, are transformed and are replaced by other components. The network is characterized by exceptional flexibility and fluidity, which enables the system to respond in a specific way to disturbances or “stimuli” coming from the environment (Capra, F. The Web of Life. A New Scientific Understanding of Living Systems. Moscow: Sofia Publishing House, 2003).

Green Economy is the economy, which serves to improve human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.   The green economy is a system of economic activities related to the production, distribution and consumption of goods and services, which results in long-term improvement of human well-being without exposing future generations to significant environmental risks and ecological deficits; it is environmentally harmless, eco-friendly and socially fair   (Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication. UNEP, 2011).

Green Growth involves fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. This is achieved by catalyzing investment and innovation to underpin sustained growth and create new economic opportunities (Towards Green Growth. A Summary for Policy Makers. OECD, 2011).

Inclusive Growth is a new approach to understanding economic growth, focused on improving living standards and achieving more equitable distribution among social groups of benefits from increased well-being (All on Board. Making Inclusive Growth Happen. OECD, 2014).

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 (Central Framework for the SEEA. UN, 2012).

Use of Natural Resources is the exploitation of natural resources, their transfer to economic activity, including any way of affecting them in the process of economic or other activity (Federal Law of 10.01.2002 No. 7-FZ (as amended on 29.12.2015) “On Protection of the Environment”). 

Cultivated Biological Resources include animal resources yielding products on a regular basis, as well as timber, crop and plant resources yielding repeat products on a regular basis, whose natural growth and regeneration are under the direct control, responsibility and management of an institutional unit (Central Framework for the SEEA, UN, 2012) 

Best Available Technology is a technological process or technical method based on advanced scientific and technical achievements, which is aimed at reducing negative environmental impact of economic activities and has an established service life with due account for economic, technical, ecological and social factors (Amendment No.1 GOST P 521004-2003 Resource Saving Terms, Definitions approved by  Rosstandart Order of 30.11.2010 No.756-st)

Negative Environmental Impact is the effect of economic and other activities resulting in negative changes in the environment (Federal Law of 10.01.2002 No.7- FZ (as amended on 29.12.2015) “On Protection of the Environment”).

Non-Produced Assets are assets that have come into existence in ways other than through processes of production.  (Central Framework for the SEEA, UN, 2012). 

Environment is a complex of the components of the natural environment, natural, and part-natural, part-man-made objects as well as man-made objects (Federal Law of 10.01.2002 No. 7-FZ (as amended on 29.12.2015) “On Protection of the Environment”).

Fixed Assets are produced assets that are used repeatedly or continually in production processes over a period longer than one year. (Central Framework for the SEEA.   UN, 2012) 

Natural Resources are components of the natural environment, natural objects and part natural-part man-made objects which are used or can be used in economic or other activities as energy sources, production outputs and for consumption, and which have consumption value. (Federal Law of 10.01.2002 No.7-FZ (as amended on 29.12.2015 “On Protection of the Environment”).

Environmental Capital (in terms of the theory of economic growth) is the aggregate of natural resources, which can be used in production processes. Any environmental asset creating a flow of eco-services with economic value is environmental capital (Dictionary of Sustainable Development Terms, http://www.ustoichivo.ru)

Environmental Institutions are the “rules of the game” in a society, a certain framework of limitations that organize relations between individuals with due account for environmental factors. Such institutions are the products of collective effort; they generate incentives that induce people to comply with environmental restrictions and regulations. They reduce uncertainty by structuring everyday life or, in other words, they determine or limit the range of alternatives available to each individual in his or her relations with the natural environment. Environmental institutions make the behavior of people and communities in the environmental sphere more predictable, reducing the probability of destructive behavior and conflicts caused by it (Fomenko, G.A. Environmental Management: A Socio-Cultural Methodology. Institute for Sustainable Innovation, San Jose, 2017)

Produced Assets are assets that have come into existence as outputs of processes that fall within the production boundary of the SNA. (Central Framework for the SEEA. UN, 2012) 

System of National Accounts is an internationally coordinated standard set of recommendations to measure indicators of economic activities in accordance with strict rules of accounting and reporting at the macro level based on the principles of economic theory (System of National Accounts 2008. New-York, 2012 p. 64)

System of Environmental-Economic Accounting 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. (Central Framework for the SEEA. UN, 2012) 

Bifurcation Point is a critical state of the system when the system becomes unstable in respect of fluctuations and uncertainty arises whether the state of the system will become chaotic or whether it will ascend to a new, more differentiated and elevated level of regularity (Muzika, O.A. Bifurcation in Nature and Society: Natural-Science and Socio-Synergetic Aspect // Modern High Technologies 2011. №1 С. 87-91).

Sustainable Productivity is an excessive or surplus quantity of animals or plants, which can be absorbed from the population without affecting the capacity of this population for self-reproduction. (Central Framework for the SEEA. UN, 2012) 

Sustainable Development is development, which can meet the needs of the present generation without undermining the ability of future generations to meet their own needs (Our Common Future. Report of the International Committee on Environment and Development. 1987. Moscow: Progress, 1989)

Vulnerability of Environmental Systems is the inability of environmental systems (biological communities, landscapes, etc.) to withstand the impact of external forces (any forces, although man-made effects are of special significance). Vulnerable environmental systems can be easily disturbed; they can lose their structure and function, and may be rearranged in a harmful way (Malashevich Ye.V. Short Reference Dictionary on Environmental Protection. Minsk, 1987)

Environmental Assets are the naturally occurring living and non-living components of the Earth, together constituting the biophysical environment, which can provide benefits to humanity (Central Framework for the SEEA. UN, 2012) 

Environmental Risk is the probability of occurrence of an event having unfavorable consequences for the natural environment, caused by negative impact of economic or other activities, or by emergencies of an environmental or man-made character (Federal Law of 10.01.2002 No. 7-FZ (as amended on 29.12.2015) “On Environmental Protection”).

Ecosystems are geographical locations that host a dynamic complex of plant, animal and microorganism communities and their inorganic environment, interacting as a functional whole to generate environmental structures, processes and functions (the Central Framework for the SEEA.  UN, 2012) 

Ecosystem Services are the functions of ecosystems in providing benefits to the users of such services through the natural achievement of various kinds of regulating functions.  Users of the services may be at local level (individual enterprises), or at regional or global level, including entire countries and regions (Convention on Biological Diversity – International Agreement adopted in Rio de Janeiro on June 5, 1992).

FOREWORD

Unprecedented in terms of its historical importance, the adoption of universal global sustainable development goals (SDGs) has produced a corresponding demand for information and analytical support in achieving these goals. In instrumental terms, the comprehensive nature of SDGs requires a change in approaches to strategic environmental planning and program-oriented and goal-oriented management at all levels of territorial organization. In methodological terms, it means the enhancement of coverage and the goal-oriented shift of focus in addressing problems of territorial development at all stages of work with information resources, starting from data selection, generalization, analysis, interpretation and understanding, which, in fact, means a substantial change in approaches to creation and further development of information and analytical support. Alongside tackling data systematization and update challenges for the purposes of addressing management issues, a special emphasis should be placed on the goal-oriented synthesis of sustainable development and green economy indicators, environmental indicators and special socio-cultural measurements.

In our opinion, the nature of discussions around SDGs and how they can be achieved reflects the changes that are occurring in understanding of the use of natural resources and, more broadly, the very essence of nature, not only as a set of natural objects and resources but also in its system “integrity” (Cassirer, 2004). The importance of these discussions correlates with the fact that by the end of the 20th century, the “wholeness” of nature has been considerably rethought, primarily, in the context of phenomenological philosophy and sociology. Alfred Schütz submitted an important argument that a distinction must be drawn between nature as a discipline of natural sciences and nature as a “constructive element of the lifeworld” (Schutz, 2004). As a result, at the worldview level, it further justified the occurring changes in views on the reasonability of broad application, in the context of sustainable development, of the theory of utility and full economic value to natural resources and ecosystem services, which predetermined new information needs.

On the other hand, the adoption of the sustainable development goals (SDGs) itself has become possible due to the emergence and rapid development in the last years of instrumental methods for collecting and processing enormous amounts of empirical data (including those at the micro-level, including aggregation and disaggregation, various interpretations in accordance with the set objectives, etc.) accumulated by behavioral and social sciences and representing the characteristics of the described essences for the purpose of their identification, search, assessment and management (American Library Association, 1999). 

The key problem of environmental and economic measurements is that of measuring the sustainability of the use of natural resources (which, in fact, this book is addressing). We, the authors, proceed from the fact that the modern theory of sustainable development constitutes the most developed and acceptable methodological basis for maintaining Peace and preventing a global environmental disaster. Today, the System of Environmental-Economic Accounting (SEEA) provides the best way of measuring the key interactions between the economy and the environment.

As geographical scientists, we grew in the Russian cultural environment with its ambition for comprehensiveness and indivisibility of the world perception. These socio-cultural peculiarities of the vision (as well as the authors’ multifaceted work experience in management, production, design structures) allow perceiving naturally and to use the multidisciplinary approach to research that is quite productive in finding paths to sustainable development. It should be noted that our understanding of territorial planning and holistic accounting for natural resources and ecosystem services was formed by the Russian geographical school. It also must be mentioned that it was a good school of holistic territorial accounting for natural resources. However, behavioral specifics of communities, monetary relations, especially in the context of resource use preferences driven by socio-cultural factors, were significantly limited by the then dominating labor cost theory that hindered development of the behavioral economy and institutional geography.

In the early 1990s, it could be seen particularly well. The lack of monetary assessment of natural resources and the environment inherited from the state-planned and command system became one of the cornerstone problems of effective use of natural resources. In the new situation, when businesses no longer took into account the environmental and social requirements of territorial development of regions and settlements in locating their new manufacturing sites, the task of system accounting for natural resources to ensure multifaceted management and strategic planning of territorial development became more challenging.

Despite the economic difficulties in the Russian Federation, holistic environmental-economic accounting activities began in 1990s because information systems inherited from the state-planned and administrative system were set to collect information on key types natural resources and to address particular industrial issues. They did not allow conducting territorial analysis for comparing the real value of natural assets with income gained from their use, nor to conduct retrospective and forecasting research (including assessment of depletion of economically significant natural resources), nor to compare the value of various components of natural wealth (when planning investment). Moreover, the then existing information flows did not cover a wide range of natural resources; comparison of results was complicated due to the differences in collection, processing and visualization methods. Under such conditions, it is extremely difficult to justify and make effective management decisions on the multipurpose use, reproduction and protection of natural resources.

Our organization (Cadaster Institute), a scientific and production enterprise of cadasters of natural resources, was established by the Ministry of Environmental Protection and Natural Resources in the Russian Federation in 1992. Special attention in methodical and practical developments was paid to assessment of socially and environmentally dangerous exhaustibility due to extraction or quality deterioration of a resource as a result of economic activities (in physical and value, i.e. monetary, indicators); establishment of indicators of stocks and use of natural resources and ecosystem services not accounted in the existing statistical monitoring and departmental accounting systems; institutional aspects of the use of such indicators, including those driven by socio-cultural factors.

Today, we can identify the following stages of development of this area in the Russian Federation.

Stage One: the conduct of the federal experiment for improvement of accounting and socio-economic assessment of the natural resource potential (1993-1995). It was based on an attempt to develop and implement Integrated Territorial Natural Resources Inventories in environmental management practices. The experiment for developing Integrated Territorial Natural Resources Inventories was conducted under the guidance of the Ministry of Environmental Protection and Natural Resources of the Russian Federation in 35 constituent entities of the Russian Federation and was developing quite successfully. Two all-Russian meetings were conducted at the premises of Cadaster Institute in 1992 and 1994, where the experiment results were discussed.

Integrated Territorial Natural Resources Inventory was initially planned to contain data on natural resources in physical terms and could serve as a basis for their assessment in the structure of the regional and, ultimately, national system of environmental-economic accounting. Economic assessment was considered a necessary completing link in the system of holistic cadastral assessment of natural resources allowing inclusion of natural assets into assessment of economic activities. It was expected that such assessment would give an objective idea of the economic value of natural resources and allow justification of investment in their reproduction and protection and to select the most effective way of using such resources. In case of multipurpose use of natural resources, their monetary estimates could allow not only choosing how to use a particular resource (object) but also determining a strategy for sustainable use of the natural resource potential of the entire territory. Furthermore, they hoped that monetary estimates of natural resources could help optimize taxation of various types of natural resource use.

Stage Two: development of the regional environmental-economic accounting operations in accordance with the UN methodology (1996-2006). By that time, the flaws of the methodology of multipurpose territorial cadasters of natural resources had become apparent. They included the loss of the modern geographical science integrity: the unity of natural sciences and humanities in geography was split into many disciplines while physic-geographic and economic-geographic branches diverged substantially. Thus, in methodological terms, the very structure of measurements in the system Society-Nature that could allow creation of multifaceted geographical description within Integrated Territorial Natural Resources Inventory turned out to be weakly developed. During the development of Integrated Territorial Natural Resources Inventories, the static nature of most indicators reflected in them (stocks of natural resources, production, emissions and discharges, etc.) was discovered, which became an obstacle in analyzing the efficiency of regulation in natural resource use and environmental protection. The need has become obvious, not only in the system territorial approach allowing for economic comparison of natural resource use options but also in the dynamics — changes in raw material flows and ecosystem services, including in monetary terms.

Many other countries faced similar problems. It became possible to move forward owing to the System of National Accounts (SNA) and its satellite System of Environmental-Economic Accounting. The latter is a set of interrelated statistical indicators reflecting the state of natural capital (stocks, flows and other changes), allowing adequate determination of the value of natural resources and inclusion of it into the balance sheets of assets and liabilities within the framework of SNA. The System of Environmental-Economic Accounting is actively developing in many countries. A considerable contribution to establishment of the SEEA in the Russian Federation was made by the world-renowned scientist, Professor Markandya, one of creators of the very idea of “green economy” (Pearce, Markandya & Barbier, 1989); he personally consulted us during the initial stage of works in 1994-1999 (Fomenko, G., Fomenko, M., Markandya, & Perelet, 1997b). Development of the System of Environmental-Economic Accounting of the Yaroslavl Region should be deemed basic. As a result, based on the analysis of data on the availability and economic use of main natural resources (surface water, soil water collected from public water supply systems, ground water collected from wells, agricultural lands, timber and non-timber forest resources, recreational areas, hunting, fishing, mineral resources — sand and sand-gravel mix, bee resources), for the first time in Russia, the SEEA matrix was created, the amount of natural capital of the Yaroslavl Region was determined, the regional green GDP and NDP were calculated. As the research results has shown, the assessment of natural assets allows determination of the effectiveness of the current scenario of natural resource use (public water supply, forest, mineral resource complex, etc.) and to identify the most efficient areas of sustainable development.

Later, with the support of the Ministry of Natural Resources of the Russian Federation, the Federal Service for Supervision of Natural Resources Use and its territorial bodies as well as governmental and local self-regulation authorities of the Republic of North Ossetia-Alania, the Republic of Karelia, the Tomsk, Ryazan, Kaluga, Saratov, Kaliningrad and Kostroma Regions, the positive experience gained was used in other regions of the country. The emphasis was placed both on accounting for natural resources in physical terms and on economic assessment of natural resources. It was due to the extremely high role of the SNA/SEEA as a tool of analysis of socio-economic development in many countries.

Not only did the results of regional research confirm practical applicability of the UN methodological principles of environmental-economic accounting in Russia and demand for obtained results in environmental management but also detected gaps in statistical and departmental information. First of all, it was the lack of indicators characterizing stocks and flows of natural resources (quantitative and qualitative aspects). Ineffectiveness of the territorial analysis based only on the “top-down” approach has become apparent. In the course of the works, it was supplemented by the “bottom-up” approach implying clarification of regional indicators of availability and actual consumption of natural resources at the municipal district level (starting from local settlements and private households, with further aggregation of this data at higher levels of territorial organization).

Stage Three: work activation at the federal level based on the territorial approach (2007-2011). At this stage, we conducted a pilot study to assess the possibility of application of the SEEA basic methodology at the federal level. The study was conducted in accordance with the provisions of international methodological documents on accounting for the value of natural assets in national wealth. More than ten years of experience in monetary assessment of natural resources in accordance with the SNA/SEEA approaches enabled us to conduct in Russian regions the analysis of conceptual approaches to recording natural resources in the SNA as a part of financial assets and establishing a satellite system of environmental-economic accounting. The state statistical monitoring system in use of natural resources and environmental protection was analyzed in terms of compliance with the SNA principles, and the methodology for valuating natural resources was summarized in accordance with the SNA/SEEA requirements.

These studies allowed development of methodological principles of recording the monetary estimate of natural wealth in the statistical system. With the support of Rosstat (Federal State Statistics Service), the SEEA matrices were completed, for the first time, by constituent entities of the Russian Federation. In our opinion, for Russia, such disaggregation is crucial because timely identification of dangerous trends of natural capital depletion, in both monetary and physical terms, is especially important for regions. The results obtained visibly intensified activities of accounting for natural assets in national wealth within the framework of the Federal Target Program “Development of the State Statistics in 2007-2011.” This program envisaged improvement of statistical monitoring of the use and replenishment of natural resources and environmental protection based on the effective system of indicators and methodology of their establishment.

Stage Four: assessment of the country’s natural capital based on the industrial approach (2012 until present). The development of works in the Russian Federation was based on the following documents:

1) System of National Accounts, 2008, Central Framework of the System of Environmental-Economic Accounting, 2012, System of Environmental-Economic Accounting for Water, 2012;

2) Roadmap for Accession of the Russian Federation to the OECD Convention adopted at the 1163rd session of the OECD Council of November 30, 2007;

3) Decree of the Government of the Russian Federation (October 12, 2012 No.1911-r) on Making Amendments to the Federal Plan of Statistical Works Approved by the Government of the Russian Federation (May 6, 2008 No.671-р);

4) Action Plan to Perform Works Envisaged by the Decree of the Government of the Russian Federation (October 12, 2012 No.1911-r), in respect of the monetary estimates of natural resources and calculation of resource efficiency (Order of Rosstat of July 8, 2013 No.274).

Under the guidance of Rosstat, methodological recommendations were prepared on economic assessment of water, mineral resources, ground and water bio resources in the SNA. In this area, in 2014-2015, the Cadaster Institute developed “Methodological Recommendations for Economic Assessment of Forest and Hunting Resources (as Non-Cultivated Biological Resources),” covering the following:

1) key concepts of forest and hunting resources as non-cultivated biological resources in terms of their assessment as a part of natural capital in accordance with the SNA/SEEA principles;

2) the SNA/SEEA methodological approaches in relation to the general principles and peculiarities of assessment of these resources at the current market value in the institutional conditions and statistical reality of the Russian Federation;

3) procedure for conducting calculations in assessment of forest (timber and non-timber forest products) and hunting resources and calculation of the resource rent and discounted value of non-cultivated biological resources (Fomenko, G., Fomenko, M., Loshadkin & Arabova, 2016).

The work conducted is particularly topical due to the introduction of a range of statistical indicators of stocks of non-cultivated biological resources (timber and animals, in physical terms and current market prices as of the beginning and the end of the year), changes in non-cultivated biological resources starting from 2016 and indicators of the use of non-cultivated biological resources in the economy, in physical terms and current market prices, starting from 2019.

Our work on this book was designed to demonstrate our vision of ways and specific features of development of information systems in natural resource use and environmental protection using SEEA. For this purpose, we deemed necessary to provide the philosophical and methodological framework for establishing and developing the SEEA based on the theory of living self-organized systems; to show the essence of the SEEA, including its origins and development, its place and role compared to other information systems, its institutional and organizational peculiarities; to describe the experience of implementing the SEEA provisions in Russia; to demonstrate, on the example of a number of projects, the effect of the results of assessment of environmental resources and ecosystem service on addressing complex issues of natural resource management and strategic planning of territorial development; to describe the SEEA development paths. Our aim was to take into account the new requirements for SNA/SEEA development to the maximum extent possible, to present some of our conclusions and observations, to make the material useful for a wide circle of experts and practical specialists.

METHODOLOGICAL PREMISES. SIGNIFICANCE AND BASIC PROVISIONS OF SNA/SEEA

In today’s dynamic world the concept of sustainability increasingly implies, not so much stability, as the ability of systems to survive, adapt and develop under the impact of unpredictable changes or even catastrophic events. In order to achieve sustainable development, i.e., to attain well-being within the limits of the planet’s environmental potential, there has to be a radical change in existing patterns of production and consumption, which are the root cause of hazardous impact on the environment and climate.  Such changes depend upon profound transformation of principal public institutions, practical approaches, technologies, politics, lifestyle and thinking.

The attainment of a new level of stability requires green innovation, quality forecasting and new effective partnership between corporations, governments, territorial communities and other stakeholders.  Sustainable control by government over environmental, social and economic development depends on obtaining and analyzing relevant scientifically based and officially substantiated information timely. The required information includes, in addition to environmental indicators, data on the stocks of various kinds of natural resources, which are essential components of the environmental capital of a region or country, on the manner and intensity of their use in the economy, the yields obtained, etc.

The declaration of global goals of sustainable development in 2015 will entail change in approaches to strategic environmental planning and management by objectives at every level of territorial organization. Methodologically, this means expansion of scope and shift of focus at all stages of information handling, starting from the choice of required data, their generalization, analysis and interpretation, entailing the need for a new approach to the provision of information and analysis. In turn, that provision depends on a goal-oriented synthesis of the indicators of sustainable development and the green economy, of environmental indicators and specific socio-cultural measurements. The key element of the new information synthesis is a definition and substantiation of the core platform, which is adequate to the needs of today. 

Measurement has paramount importance in the theory of sustainable development. As early as the 15th century Nicholas of Cusa, who was a forerunner of the scientific perception of the world, believed that humans can cognize nature by means of their senses, imagination, reason and intellect. “Reason, from the moment that its nature admits speculation, perceives only the universal, the incorruptible and the unceasing.” In his treatise The Layman on Wisdom and the Mind he states the need to develop precise methods of measurement, particularly mathematical measurement (Nicholas of Cusa, 1979). Nicholas of Cusa believed correctly that the cognition of genuine essences is not possible, or can only be attained by more or less accurate conceptions. He advocated the concept of learned ignorance: even the deepest knowledge does not eliminate ignorance. 

Changing the World View.  The following points are important for an understanding of the nature of the changes now affecting information support for resource use and environmental protection.

First of all, at the start of the third millennium the world community is increasingly conscious of the global character of environmental problems and the real possibility of the occurrence of environmental crises (not just regional but also global), and also understands the responsibility of humankind for any such developments.  

Secondly, recognition of the threat of environmental catastrophe and the impossibility of preventing it by means of technology or economic mechanisms alone has led to a reconsideration of many conceptions, including those concerning the relationship between Society and Nature. Many outstanding thinkers and philosophers of the 20th century (Teilhard de Chardin, Vernadsky, Fromm, Jaspers, etc.) insisted that the development of society could not progress further without changes in the existing paradigm of the relationship between human and nature. It is no coincidence that the late 20th century saw the philosophy of environmental crisis develop into a separate branch of philosophical study. According to Hösle, “... the philosophy of environmental crisis must determine the place of this (environmental – Auth.) threat within the philosophy of the history of human culture.” 

Schelling’s subject-object approach, which introduces a perception of the essence of nature in its entirety and not just as a collection of natural objects and resources, is of particular importance for proper understanding of today’s world. We would note that nature as “wholeness” has been substantially reconsidered in phenomenological philosophy and the sociology of resource use.  Precisely the phenomenological view of nature, a new understanding of the basic difference between nature as a constituent element of the “world as experience” and as a store of resources had made it possible to methodologically substantiate the importance of evaluating natural resources and ecosystem services in their broadest sense. 

This perception of the world has been developed by the new systemic concept of life (Bogdanov, von Bertalanfi, Prigozhin, Maturana and Varela, Capra, Kuznetsov, Moiseev, etc.)  The new paradigm is often called holistic, which emphasizes its view of the world as an integrated whole. It focuses on the complexity of “systems” views and introduces new key concepts, such as self-organization, social communication networks, development as a systemic process.

In this concept the essential properties of an organism or a living system are properties related to the whole which are not inherent in any of its parts.  There has been a change in the conception of the relationship between parts and whole. In the systems approach, the properties of the parts can only be deduced from the organization of the whole. Accordingly, the systemic approach focuses on main principles of organization rather than on “building blocks.”  Capra noted that Systems Thinking is contextual thinking; and since to explain things in terms of their contexts is to explain them in terms of their environment, all systems thinking is a philosophy of the environment. Shifting focus from the parts to the whole can be seen as a transition from objects to relationships. According to the mechanistic world view, the world is a collection of objects. They inevitably interact with each other, hence there are relationships between them. However, the relationships here are secondary, as shown schematically in diagram A (Fig. 1.1). Systems thinking proceeds from the idea that objects themselves are networks of relationships included in bigger networks. For the systems thinker, relationships are primary. The boundaries of various patterns (“objects”) are secondary, as shown in diagram B (Fig. 1.1)  

Fig. 1.1 From diagram to background: from objects to relationships

Source: Capra, 2003

By presenting the living world as a network of relationships, network thinking (more elegantly, in German, vernetztes Denken) has become another key aspect of systems thinking (Capra, 2004). Such a philosophical and methodological position does not permit the human being to be thought of as a creature who has accidentally “fallen out” of the natural world that surrounds him or even become its natural adversary.  

The adoption of the global goals of sustainable development assumes the description of future events as “must do,” setting radically new methodological problems for environmental work (in a broad sense) , based on the goal-oriented synthesis of natural, humanitarian and technical expertise. This enhances the role of environmental ethics which, according to Jonas, must gradually become “future-oriented ethics” (Zukunftethik): the current situation requires “far-sighted forecasts, broad responsibility (for the future of humankind) and large-scale vison (the whole future essence of human) as well as ... harnessing the power of technology to the greatest possible extent” (Jonas, 2004).

Here, the ethics of preserving life acquire an ontological sense, as described by Kant, Fichte, Hegel and, in particular, Schelling, and renounce the strict opposition of subject and object . On the one hand, the human being is produced by nature and thus is an integral part of nature. On the other hand, the human is the only living being capable of cognizing the principles of its own existence and evolution as well as those of nature.  This duality, according to Schelling, is the enigma that any theory of the human-nature relationship has to address. Schelling was described by Bulgakov (2009) as a “philosopher of nature and objective reality.” Two profound and vital ideas put forward by Schelling are of the utmost importance today for the theory of sustainability: 

1) identity of subject and the object in their dynamic development;

2) understanding of nature as a living, evolving organism, corresponding to the concept of “Gaia,” when the Earth was treated as a living being.

E. Laszlo (1997) was therefore correct in stating that the environmental ethics of anyone who strives to enhance biosphere potential for supporting human life are inevitably anthropocentric.   A human being should not, however, be unreasonably anthropocentric, because people as a biological species are endowed with the natural capability (and hence the natural right) to strive for collective survival. Individual and social behavior must be oriented to complying with the paramount requirement: to maintain favorable conditions in the biosphere by enhancing people’s responsibility for their actions that affect the natural world. Recognition that nature itself has rights means that people must eliminate intended and unintended negative consequences of their actions for the natural world and be liable for their actions.

Schelling’s subject-object natural philosophy, which endows the natural world with its own dignity irrespective of the human self-development process, is of great significance for sustainable development today.  In this perspective the natural world appears as something meaningful, combining the true, the good and the beautiful, worthy of honor and love from human beings as an image of the absolute rather than as something, which they have constructed.   Methodological engagement with the interaction of ethics and economics in respect of environmental work is furthered by the ethical economics developed by Kozlovsky. His work offers a deeper insight into the role of ethical codes and religions as guarantors of an ethical approach to nature. Also of importance for understanding the humanistic essence of sustainable development are the views of Bulgakov, while works by Jonas and Hesle are of great significance for the philosophy of environmental crisis, particularly for substantiating the imperative of “responsible behavior.”

Admitting a Multivariate Future. Any human practice, and particularly that relating to the environment, focuses on a transition from the past to the future that appears reasonable to decision-makers. Possible alternative futures are determined by the synthesis of socio-cultural traditions and trends and tendencies spurred by modernization processes.  One of the shrewdest typologies of future scenarios was suggested by Lutz in 1988 (Table 1.1).

 

Table 1.1 Brief characteristics of main future scenarios

	Scenario 1. Computopia	Scenario 2. Space  colonies	Scenario 3. Ecotopia	Scenario 4. Chinization	Scenario 5. Findhorn	Scenario 6.  Dallas	Scenario 7.  Gaia
Who?	Nelson, Norris, McLuhan, Toffler, Glushkov	O’Neill,  Hubbard,  Leary,  von Puttkammer,  Fedorov,  Tsiolkovsky,	Cellenbach, Schumacher, Lovins	Ehrlich, Meier, Platt	Caddy, Ferguson, Spranger	Kahn,  Machiavelli, Wiener	Lovelock,  Brand,  Meadows, Vernadsky  Moiseev
What?	Universal communication, computerization, communication and production systems.	Self-contained Space stations in low-earth orbit.	Small decentralized and self-organizing eco-settlements and regions.	Metropolises with multibillion populations, “melting pots” of races and nations.	Religiously (or rather, spiritually) oriented communities.	Imperialized economy, supremacy of the “western” system; market orientation. Monopolized economy, “customized system” of market orientation without government regulation.	Earth ecosystem as a self-organizing lifestyle.
Why?	Overestimation of the role of communications, democracy, teleworking, universal automation.	Overestimation of the potential offered by industrialization and unified energy saving; production is prioritized; efforts are made to protect the environment.	Absolute priority given to environmental considerations, adaptation of production to meet the needs of lower-level natural systems, achieving a way of life in harmony with the surrounding world.	Extrapolation of the demographic explosion, preoccupation with the polyplanetarization of peoples.	Priority given to the interior life for physical and spiritual growth.	Excessive role of hyper-professionalization and competition (social Darwinism).	Understanding the need for new practice due to the interdependence of all living systems on Earth.
How?	Networking of existing systems and universal digitalization*.	Space flight and construction of space colonies, step-by-step agenda for building space stations.	Complete decentralization and the creation of environmentally friendly forms of life and production.	Promotion of tolerance and ethnic mixture as opposed to ghettoization.	Religious (spiritual) discipline and reorientation by individuals to “global,” universal values.	Priority given to the economy, self-regulated “free market,” re-industrialization.	Global coordination of all environment-oriented activities.
Who favors the scenario?	Computer industry	Space industry, military-industrial complex, giant corporations.	Environmentalists and people who support sustainability.	Advocates of social integration and intercultural exchange.	“Post-materialists” and new sensualists.	Big corporations, banks, industry, the capitalist aristocracy.	Those committed to the interests of humankind as a whole (currently all “victim” nations).
Who against the scenario?	The poor South, catch-up industrial economies.	The third and fourth world, which are excluded in this development course.	Transnational conglomerates and those who do not choose to live in poverty.	Nationalists, separatists and “anchorites.”	Materialists and pragmatists who fetishize the role of cost and pricing.	Opponents of private property and idealists who reject any form of conflict.	Nationalists and specialized industrial sectors.

* Digitalization means the conversion of information into discrete forms and its subsequent use to generate numerical indicators

Source: Lutz, R. Sieben Zukunftszenarien: [Plane fur eine menschliche Zukunft. hrsg. von Rudiger Lutz. Mit Beitr. von Manon Andreas Grisebach...] Weinheim; Basel: Beltz, 1988. pp. 291-300, supplemented by G. Fomenko

Even looking at the main conceptual trends very generally, substantial differences between their proponents and opponents are evident as regards priority goals, approaches and methods. There is clearly a broad variety of views on environmental priorities, the efficiency of environmental institutions, information support, etc.  

It is impossible to predict which scenario will be realized since too many factors are at play and some of them are a matter of chance. It is only possible to identify the causes that have led to the realization of a certain scenario and to discover its logic in retrospect. All that one can do when making forecasts is to list a range of possibilities, identify more and less probable options and determine which of the probable scenarios are particularly hazardous for specific countries and nations, and for mankind as a whole.  

The fundamental right of people to choose their own future must be acknowledged unless their choice is evidently destructive for mankind as a whole. For this reason all contemporary definitions of sustainable development, starting from the definition given by Bruntlann , proceed by stating what has to be done in order to avoid the most undesirable future scenarios. In other words, a range of acceptable solutions for a country or nation is determined by applying global indicators for human impact on the environment. 

Responsible behavior capable of preserving the life of present and future generations must focus on preventing global environmental catastrophe, mitigating risks and preventing conflicts in the sphere of environmental management at minimum cost. Devising and implementing approaches to sustainable development depends on finding ways forward and limitations in the regulation of social, natural and systems, and means of purposeful impact on these systems in response to growing development risks in a production-oriented society.  

Since spatiality is one of the fundamental dimensions of human existence, structuring our world outlook and action, it makes sense to speak of a space of risks, including environmental risks, at all levels of territorial organization (both explicit and implicit).   This is, essentially, a geographical space treated in terms of riskology and distinguished by territorial characteristics, generating an aggregate of relationships between geographical objects in a specific territory evolving over time (Environmental Institutions, 2010).  In this approach the measurement of environmental risks and respective indicators must be included in any evaluation of the territory’s natural capital. 

Changing the concept of “sustainable resource use.” Contemporary philosophy tends to affirm multiple forms of rationality. According to the concept of the unity of rationalities, scientific, philosophical, religious and other rationalities are not alternatives but aspects of a single and multifaceted mind. It is therefore wrong to be skeptical about other forms of rationality that are characteristic of other civilizations and nations, or of other historical periods. In particular, the idea of transformation of the natural world and its harnessing to human needs has prevailed in western culture in all periods of its history up to the present. However, the same idea is virtually absent in traditional cultures where the relationship of people to the world around them has been understood and evaluated from completely different positions: an inherent conservatism, slow rates of evolution of human action, and the predominance of traditional means of environmental regulation have constrained the transforming power of human beings.  

The most acute value-based conflicts arise from differences in the understanding of “rational behavior” as regards environmental management and nature conservation. In our view, in order to ensure sustainability and prevent conflicts escalating to a critical level, emphasis has to be placed on people’s responsibility for their own future and the future of mankind as a whole. Jonas maintains that the concept of homo sapiens (“reasonable human being”) should be substituted by that of homo responsabilis (“responsible human being”), and traditional ethical systems should be substituted by a new ethics – the ethics of responsibility.  The imperative addressed to the new types of actors must, according to Jonas, be “Act so that the effects of your action are compatible with the permanence of human life” (Kane & Osantowski, 1981).  This idea is in tune with the views of Ladd who suggested that responsibility should be considered the essential feature of a human being: “People are beings who understand their actions and who are responsible for the consequences of their actions” (Ladd, 1975). A person who bears responsibility for achieving the sustainable development goals of mankind , or of his or her country and local community needs adequate information about the state of the Society-Nature system and real development trends. 

Main implications for the SEEA arising from the systems concept of life, recognition of a multivariate future and multiplicity of rationalities. Changes happening in the world today point to a number of new ways, in which information can be usefully employed to support sustainable resource use and protection of the environment. 

1. Work to reform the information and statistical systems, which describe relationships in the complex non-linear Society-Nature system, must bear in mind that, in the systems approach, we must measure relationships rather than objects, and particularly relations between ecology and the economy at all levels of territorial organization. The SEEA can be described as an organizationally closed network, which is open to flows of energy and resources. It has a networked structure where the SEEAs of all levels of territorial organization (from global to local) are interconnected. According to Bateson , each individual SEEA can be regarded as a “metapattern,” which is a system-forming and structuring core for informational and territorial systems of resource use and environmental protection. 

   As a networked structure, the global SEEA (though as yet insufficiently structured) is gradually being assembled from similar but at the same time different (depending on broadly conceived geographical conditions) SEEAs from various levels of territorial organization (country, region, local territory). If the SEEA is viewed in terms of and through the tools of fractal geometry , one notices an amazing feature: in the development of environmental-economic accounting specific patterns are repeated over and again at descending levels, such that their parts at each level appear to be a whole. 

   The fundamental significance of an integrated approach, which is implied by the systems concept of Life, tends to elude the attention of researchers. This is seen, e.g., in the attempt to develop primarily industrial rather than territorial SEEAs. The former, despite their obvious topicality, fail to address the integrated development of territories and do not make it possible to select the best options for resource use (judged by environmental and economic criteria).

   Without an integrated territorial approach to the development of SEEAs, one cannot integrate them in the measurement of ecosystem service flows, the very concept of which, introduced in the report Ecosystem Evaluation on the Threshold of the Millennium (Millennium Ecosystem Assessment, 2005), substantially changed the tenor of ecological discussions, including discussions of biodiversity conservation. The evaluation of ecosystem services paves the way for implementation of a number of conceptual provisions that are critical for including the high economic value of specially protected areas (SPAs) in the natural capital of territories, so that the respective indicators can be accounted in the SEEA (Cadaster Institute, 2006b; 2011; 2012b; 2014; 2015a).  

   The understanding of the SEEA as a system-forming territorial core, a metapattern of information systems in the sphere of resource use and environmental protection, makes it methodologically untenable to assert that raising the quality of all indicators is a prior condition for the SEEA to be successful in any country. In reality, an attempt to raise the quality of indicators across the board leads to a lengthy and costly process of national statistics reform, postponing their systematic analysis. In our view, such an (essentially Cartesian) approach is at variance with the logic of the systems concept of Life and thus with the theory of sustainable development. So every country or region should, at the initial stage of work on an SEEA, systemically evaluate information sources as to the completeness, validity and accessibility of indicators. As practical experience has shown, the restricted character of traditional statistical systems makes it necessary to expand the range of data, which are handled, beyond official statistics, making use of administrative and expert data as well. It is particularly important to determine the trustworthiness of individual indicators and the system as a whole, identifying data gaps and finding ways to improve their quality (pilot field studies, calculations, adjustment of the available data, etc.) The process should begin with the preparation of basic territorial accounts (matrixes, which are the foundation of the SEEA), even if some indicators have to be accepted as expert assessments, and even if it is not possible to make a representative cost estimate. Completion of SEEA matrixes in physical terms provides useful information for comprehensive resource use and environmental management. 

   Our experience in multiple studies regarding the application of SEEA methodology at different government levels (federal, regional, municipal and micro-level) showed that the new systemic approach to obtaining and using indicators of natural capital and its components (even if the indicators were no more than expert assessments in some cases) broadens the potential for analyzing data on environmental resources and ecosystem services as a part of national, regional and even local wealth, and as an important factor for the sustainable development of territories. SEEA methodology can provide comprehensive information for appraising efficiency in the management of natural capital and efficiency of budgeting as applied to environmental management.  It also becomes possible to analyze dynamics of the environmental resource stock in a specific territory and measure to what extent the environmental capacity of the territory can meet the resource needs of its economy. 

2. Having acknowledged the multiplicity of possible futures, we need to identify and assess the different scenarios and trends based on criteria of sustainable development and determine which of them represent a hazard for human beings and ecosystems. Acceptance of the need and expediency of certain restrictions in order to avoid negative trends entails special importance of indicators that measure environmental impact and green growth (describing processes between the environment and the economy). Therefore, when estimating the amount and structure of natural capital for purposes of the SEEA, indicators are needed, which identify the risk of dangerous depletion, in both its environmental and social aspects. This highlights dangers timely and helps to find ways of meeting budget and public income shortfalls, thereby preventing conflicts in environmental management before they can become critical. Depletion of intensively exploited natural resources (mainly non-cultivated resources, such as fish and game, forest resources or mineral and energy resources, as well as water resources) can lead to substantial loss of household incomes, exacerbating environmental problems and conflicts. Resolving this problem is of crucial importance for sustainable development and it is specifically mentioned in the WTO regulations, which do not preclude measures for “the prevention of natural resource depletion.” It should, however, be possible to avoid such measures from becoming a “covert limitation on international trade” or a “discriminatory” measure; they must be applied alongside limitations on domestic production or consumption (art.XX(g) WTO/GATT Agreement)

3. Change in the concept of “sustainable resource use” by accepting its multifaceted character and, at the same time, the unity of forms of rationality expands our understanding of environmental-economic interrelationships as relations within an open, non-equilibrium system. Accepting the unity of rationalities makes it absolutely inappropriate to be skeptical about other forms of rationality (inherent to other civilizations and nations, or other historical periods), provided that such forms of rationality do not destroy the system of Life on Earth.  

   Adoption of the Sustainable Development Goals by the UN General Assembly 2015 should intensify the convergence of rationalities as regards environment management based on sustainability. This means that new system links are being formed, oriented to preserving Life on the Earth, which motivate and define how information systems can be created for sustainable resource use and environmental protection. 

   For many modern communities a change of tack towards sustainable development entails a shift in perception and transfer to systems thinking: from parts to the whole, from objects to relationships, from content to patterns. This evidently applies to the SEEA, which is an important element of sustainable development. At the same time, the importance of educating people about sustainable development becomes paramount, since implementation of the SDGs requires system changes in society, and that can only be achieved by nurturing a sense of responsibility among people and in communities. 

4. When measuring relationships in the Society – Nature system, the SEEA proceeds from the multiplicity of interconnections within communities.  To respect the sustainability of communities is to respect these relationships. According to Capra (2003), reintegration into the life web depends on the establishment and maintenance of sustainable communities, in which we can satisfy our needs and wants without detriment for future generations.

   Clearly, the establishment and maintenance of sustainable communities requires changes to information systems and indicators. Today, an SEEA is what makes it possible to measure various processes in territorial environmental-economic system and to measure socio-cultural specifics of different nations, which restrict and regulate useful institutional changes. This can be done with the help of the SEEA, using ethnometrics and humanization of monetary estimates of environmental resources (Fomenko G., 2014; 2017). The flexibility of the SEEA enables new Society-Nature measurements to be included into the systems analysis. We believe that alignment of the SEEA with socio-cultural measurements should be a research priority.  

   The SEEA methodology for preparing accounts permits extension of physical reporting on the use of natural resources to the sphere of the non-observable economy (by generating so-called “shadow” accounts), while the methodology of economic valuation (based on the theory of full economic value) enables researchers to discover subjective assessments of specific environmental resources and behavioral aspects of resource use. The latter expands the scope of economic evaluation in accordance with the actual value of natural resources for users, taking account of socio-cultural, non-economic values and thus providing important information for making effective managerial decisions. 

5. It is important, when developing an SEEA, to realize that the main conflict between the industrial economy and ecology stems from the fact that nature is cyclical while industrial systems are linear. According to the systems theory of Life, sustainable patterns of production and consumption must acquire a cyclical character, similar to that of natural processes (Capra & Luisi, 2014).  The European Environment – State and Outlook 2015 report discusses the problems of environmentally unbalanced systems of production and consumption and their long-term and often complex impact on the environment and on people’s health. The authors stress that society obtains many benefits but inflicts damage on the environment due to our linear economy based on the principle “buy – use – dispose,” our huge reliance on many natural resources, an “environmental footprint” that exceeds the planet’s capabilities, unfavorable impact on the environment of poorer countries and unequal distribution of the social and ecological benefits provided by globalization. It is clear that any long-term solution must be based on the transformation of major systems: transport, energy, utilities and food. 

   It has become clear that the achievement of sustainability depends almost completely on the creation of an economy of a special type, where growth of human well-being is combined with reduction of risks for the environment. Such an economy is called a “green” economy. The most common definition is the one given by UNEP: “the green economy is one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.”   The concept of effective resource use is directly associated with this.

   The SEEA has to be developed in a way that makes it responsive to the processes involved in transition to the green economy.  Firstly, there has to be support for various structures and functions of ecosystems (ecosystem sustainability) and ways must be found of reducing the use of resources in production and consumption and of mitigating their impact on the environment (resource efficiency) (Fomenko G., 2011). 

6. According to the systems theory, ecosystems and human communities are always at risk of destruction, should their fluctuations exceed the tolerable limits, so that the systems are unable to compensate. If, e.g., someone tries to maximize any individual or group variable, this will inevitably result in destruction of the system as a whole. Therefore, timely identification and warning of a dangerous state of the Society – Nature system is increasingly understood to be the crucial condition for the efficiency of information systems, including statistical systems. 

   Particular dangers arise if a bifurcation point  is passed, which is a critical state of the system, so that the system becomes unstable in its fluctuations and uncertainty arises whether the state of the system will turn chaotic or whether it will ascend to a new, more differentiated and elevated level of regularity.  Attention should be paid to the position of many leading experts whose opinion was voiced most coherently by Rotmans at the Green Growth and Sustainable Development Forum 2015 (Enabling the next industrial revolution: Systems innovation for green growth, OECD). In his report “Transition to a Low Carbon Economy: How to Accelerate the Transition?” Rotmans states that the transition to a new economy has today reached a critical point (Fig. 1.2) involving chaos, conflicts and the spread of hostilities in various regions , 

Fig. 1.2 Features and Dynamics of Transition to New Economy

Source: Jan Rotmans Presentation at the OECD Forum in December 2015. Green Growth and Sustainable Development Forum 2015, “Enabling the next industrial revolution: Systems innovation for green growth.”

The bifurcation point cannot be successfully passed unless the system has sufficient flexibility. According to the systems Life theory, all observable ecosystem variables (population density, access to nutrients, weather patterns, etc.) always fluctuate, as do the conditions of society and production.  The Life web is a flexible fluctuating network. The more variables are involved in fluctuations, the more dynamic and flexible the system is and the greater its ability to adapt to changing external conditions. Low flexibility of a system is manifested by stress; notably, stress arises when one or more variables characterizing development sustainability approach their extreme values, heightening the level of rigidity and stress throughout the system. According to Capra (2004), prolonged stress is harmful and destructive for the system, while temporary stress is an indispensable feature of life.   Environmental fluctuations in the stable state do not go beyond permissible limits even though disturbances in the Society – Nature system occur all the time and the network responds to them by recurrent fluctuations.  In the stable state measurement of processes occurring between the economy and nature is effective and helps to reveal trends by the application of linear prediction methods.  

When the world is passing through a bifurcation point related to technology transition to a new economy, we observe a crisis in measurability: the existing statistics and industrial information systems, which have been used to measure development trends in the departing era, miss the new growth trends and fail to identify threats to sustainable development.   This makes new demands on the SEEA methodology and its implementation, particularly for greater sensitivity to new growth features. Important criteria of SEEA efficiency are: 

1) flexibility, i.e., ability to “see” emerging new development trends in the Society – Nature system and to measure them;

2) ability to obtain necessary and sufficient information to control environmental and economic safety criteria, non-observance of which leads to destruction of the system, and to search for optimal values of the system’s variables. 

The System of National Accounts is an internationally coordinated standard set of recommendations to measure indicators of economic activities in accordance with strict rules of accounting and reporting at the macro level. The system is based on the principles of economic theory and in its general form is a detailed report on economic activities in a country and on the relationships between various economic actors and groups of actors in markets or outside markets. Those recommendations are worded as a system of concepts, classifications and rules of accounting, which make up an internationally coordinated standard for calculating gross domestic product (the most commonly used indicator of economic performance). The SNA methodology calculates and presents economic indicators in a format that is specially designed for the purposes of economic analysis, decision-making and the preparation of economic policies. The accounts contain a large amount of detailed information organized according to the principles of economic theory and approaches to functioning of the economy (SNA, 2012, chapter 1, paragraph 1.1).

The conceptual basis of the SNA consists of accounts that are:

• inclusive of all kinds of activities and their consequences for all economic actors; 
• mutually coordinated, since they use identical values and the same rules of accounting in order to establish the impact of one action on all parties involved in the economic process;
• integrated, because all consequences of the action of one subject are necessarily reflected in the resulting accounts, including balance sheets which show the influence of the actions of subjects on wealth measurement (SNA, 2012, chapter 1, paragraph  1.1).

In this way, the SNA fulfills an important informative and analytical function, structuring blocks of statistical information and answering the generalized questions: what happened in the economy? what actors participated and for what purposes? The SNA focuses on the measurement of production of goods and services (SNA, 2012, chapter 1, paragraph 1.6) and this predetermined its basic conceptual elements: institutional units and sectors; transactions and other flows; assets and liabilities (or stocks); products and units that produce them; goals. 

Assets and liabilities are components of the balance sheet for the economy as a whole and for institutional sectors.  The balance sheet shows stocks of assets and liabilities owned at a certain time by an individual unit or sector or by the economy as a whole. Balance sheets are usually prepared at the beginning and end of the reporting period although they can be prepared at any time.  Stocks arise from accumulation of the outputs of previous transactions and other flows and they are also affected by subsequent transactions and other flows. So stocks and flows are closely interrelated (SNA, 2012, Chapter 2, paragraph 2.33).

Generally, an asset is an accumulated stock of value providing the owner with economic benefits or a number of economic benefits that arise from its ownership or use during a certain period.  It is a means for the transfer of value from one reporting period to another.  All assets in the SNA are economic. (SNA, 2012, chapter 10, paragraph 10.8). The relevant assets are those in some form of ownership and whose economic benefits are obtained by their owners through owning them or using them in economic activities as stipulated in the SNA. Accordingly, durable consumer goods, human capital and environmental resources, which cannot provide economic benefits to their owners, are not included in the scope of assets in the SNA. 

Classification of assets at the first level distinguishes non-financial and financial assets (Fig. 1.3). Non-financial assets are mainly represented by items, which can be used in economic activity and which are simultaneously stocks of value.  Financial assets are mainly stocks of value. 

There are two categories of non-financial assets: 

• products created by production processes within the sphere of production defined in the SNA;
• non-financial assets, which have come into being by other means than production processes. Non-produced assets consist of three categories: environmental resources; contracts, lease agreements and licenses; and acquired goodwill and marketing assets (SNA, 2012, Chapter 10, paragraph 10.14). Environmental assets are resources of natural origin, such as land, water resources, forests and mineral resources, which have economic value (SNA, 2012, Chapter 10, paragraph 10.15).

Detailed examination of the methodological premises of the SNA 2008 on environmental resources shows that not all of them can be classified as economic resources. 

Fig. 1.3 General classification of assets in the SNA

Source: SNA, 2012.

Firstly, the SNA only records assets owned by institutional units , i.e., only resources with established ownership rights, the observance of which is ensured, are qualified as economic assets. It is important, in this respect, to distinguish between legal and economic ownership. A legal owner of items, such as goods and services, environmental resources, financial assets and liabilities, is an institutional unit having a statutory right to claim economic benefits related to those items.   By contrast, an economic owner of items, such as goods and services, environmental resources, financial assets and liabilities, is an institutional unit having the right to claim economic benefits related to the use of the above items in the course of economic activity by assuming the associated risks (SNA, 2012, Chapter 10, paragraph 10.5).

Environmental resources, being non-financial non-produced assets, can be owned by private, public and other owners.   Some of them, being public goods, cannot be recorded in the SNA because it is impossible to establish the ownership rights attaching to them (e.g., atmospheric air, oceans, etc.). This is also true of resources that cannot be actually owned by any specific institutional unit, notably, resources whose existence is unknown or which are known but are so remote and inaccessible that they are not effectively controlled by any institutional units. Numerous institutional studies in the sphere of natural resources and ecosystem services have found that serious difficulties in defining boundaries and evaluating assets are mainly due to the fact that ownership rights to natural resources are historically uncertain and not embedded in people’s minds (Fomenko G., Fomenko M., Arabova, Ladygina, 2013; Fomenko G., 2014).  Therefore, situations related to the use of environmental resources require an analysis of interest groups.

Secondly, in order to be defined as economic assets, environmental resources have to provide economic benefits to their owners, taking account of technology, scientific expertise, economic infrastructure, available resources and market conditions. Therefore known stocks of resources (e.g., mineral deposits or food resources), the use of which will not be commercially viable in the foreseeable future, are not considered in the SNA to be economic assets. That is the case, despite the possibility that such stocks may later become commercially viable due to some unforeseen technology breakthroughs or material change of market prices. Biological resources that are classified as rare or threatened with extinction, and which are under government protection and generally excluded from economic exploitation are also not considered being economic assets. 

So the System of National Accounts treats environmental resources as physical non-produced assets. They are reflected in accounts when they are owned (legally and economically) by institutional units and used by their owners for economic benefit. Data concerning such resources are reflected only in monetary terms; indicators of their stocks and use in physical terms (cubic meters of water and timber, wildlife populations, etc.) are ancillary and are employed in the SNA solely for obtaining monetary values. This approach inevitably reduces opportunities for analyzing the stock and use of environmental resources in all their variety and wealth; in particular, it fails to discover risks of depletion and, generally, cannot meet the needs of sustainable environmental management.  

The first attempts to include data on consumption of natural resources in economic analysis were undertaken as early as the 1930s when accounts were created that embrace all indicators of economic activity,  based on the theoretical work of Marshall, Keynes, Clark, Stone and others.  Later, in the late 1960s, the results of research enabled the formulation of radically new approaches to the construction and the functioning of statistical systems by uniting accounts based on different kinds of capital (economic, environmental, human). This signaled a new understanding of the need to include environmental assets in national accounting systems, reflecting their major role in sustaining human life and the economy.  

The UN Summit on sustainable development in 1992 proposed development of a system of integrated economic and environmental satellite accounting (Agenda 21, 1992) in furtherance of these pioneering works and in order to provide a more detailed record of environmental factors in the SNA, thus providing an adequate picture of relationships between the economy and the environment, which could be used as a basis for accumulating data on the available stock of environmental resources and their depletion through use.   The first set of guidelines for environmental-economic accounts, published in 1993, contained basic principles for implementation of a supplementary system of integrated economic and environmental accounting, describing relations between the environment and the economy. The following years saw intensive efforts to improve methodology and practical approaches to formation of the SEEA as a critical and integral part of the SNA; guidelines for economic and environmental evaluation of fish, water, energy resources and ecosystem services were developed and approved (UN, 2012b; SEEA, 2015). In its present form the SEEA has solid methodological foundations, despite certain deficiencies of a theoretical and applied character (UN, 2014).

The SEEA, as a set of satellite accounts, ensures that national statistical systems are more oriented to reflecting processes and obtaining indicators that demonstrate whether processes, relations and interactions between the economy and nature harmonize with the principles of sustainable development.   As far as existing philosophical limitations permit, the SEEA accounts provide the most consistent and complete recording and evaluation of the use of environmental resources and ecosystem services. Most importantly, considered from a methodological viewpoint and based on the theory of full economic value, the SEEA expands the scope of economic evaluation of environmental resources and ecosystem services, thus offsetting “market failures.” 

SEEA implementation has greatly expanded the range of environmental resources captured by statistical observation.   Special attention is paid to estimates in physical terms, which, for example, help to estimate and record depletion/degradation of assets, enabling respective adjustment of macroeconomic indicators. It therefore becomes possible to analyze interrelations between the economy and the environment, including expenditures on environmental protection, and to carry out ecosystem services accounting (Table 1.2). This content of the SEEA avoids many uncertainties and inaccuracies in obtaining estimated figures on stocks and flows of environmental resources and ecosystem services (in physical and monetary terms), thus preventing their underestimation. 

In this way the SNA, supplemented by the system of satellite environmental-economic accounts, ensures greater credibility of information on environmental resources and ecosystem services in capital accounts and balance sheets for subsequent adjustment of economic macro-indicators. This provides more adequate evaluation of natural capital as a part of national wealth. 

Table 1.2 Comparative features of the System of National Accounts and the System of Environmental-Economic Accounting 

	Criteria for accounting natural resources as assets	Forms of accounting	Accounting of “over-exploitation” of resources and pollution of the environment	Issues to be addressed
SNA	Ownership rights Actual economic income	Accounting in physical terms as a basis for monetary asset accounts	“Over-exploitation” is only recorded under “Other asset changes”	Recording of natural resources in capital accounts and the balance sheet
SEEA	Ownership rights are not obligatory. Potential opportunity to derive income  Existence of non-economic benefits	Physical accounting is necessary for all assets The goal is to identify asset depletion and/or degradation processes	Macroeconomic indicators are reduced by the amount of asset depletion and/or degradation	Analysis of mutual relationships between the economy and the environment Accounting of ecosystem services   Formation of indicators reflecting environmental activities

The SEEA satellite accounts supplement the main SNA accounts. They provide integrated accounts of environmental resources, which expand the scope of accounting of non-produced assets in the SNA without changing the boundaries of production processes. In this way, the accounts of stocks and flows of natural resources and ecosystem services in the SEEA are altered, but remain in agreement with SNA accounts. 

The decision on creating the SEEA was adopted by the UN (United Nations Organization, 1991, paragraph 154e; United Nations Organization, 1993, Resolution 1, Annex II, paragraph 8.42). The Handbook of National Accounting sets out the basic principles for preparing such accounts. These principles are widely used for the analysis of environmental management efficiency in a number of countries (Brazil, Canada, Costa Rica, France, Germany, the Netherlands and Norway; some efforts to develop integrated evaluation of natural capital have been made in Australia, Japan, India, Indonesia, Mexico, New Zealand, Papua New Guinea, Sweden, Great Britain, the USA, Zimbabwe and other countries). At present, management of natural resources through the system of integrated environmental-economic accounts is a highly important path for the development of environmental management in many countries (Insert 1.1) 

The Central Framework of the SEEA is a multipurpose conceptual basis for understanding relationships between the economy and the environment and for describing environmental assets. Based on agreed concepts, definitions, classifications and rules of accounting, the SEEA arranges information flows in an integrated and consistent form, thus providing interrelated indicators, which can be used for preparing statistical accounts and making reasonable decisions on a wide range of environmental management tasks (see Chapter 3). The SEEA thus provides information on a wide range of ecological and economic issues, including assessment of trends in use and availability of natural assets, scale of emissions and discharges to the environment caused by economic activities and the volume of economic activities intended to protect the environment. The Central Framework of the SEEA has a clear interdisciplinary character, uniting concepts and structures relating to the power engineering industry, subsoil management, forestry and water sectors, ecology, etc., and is closely linked to environmental and socio-economic statistics (Fig. 1.4).

 

 

 

 

 

Fig. 1.4 Formation of environmental-economic indicators showing the state of natural resource supply and use in the economy

 Source: Presentation by Ivo Havinga, “Introduction to the System of Environmental-Economic Accounting” UNECE Workshop “Follow-up to Rio+20: Measuring Sustainable Development and Implementing the System of Environmental-Economic Accounting (SEEA)” June 12-13, 2013, Geneva.

The Central Framework of the SEEA was developed to accord with other international standards, recommendations and classifications, including: the System of National Accounts 2008; Guidelines for Balance of Payments and International Investment Position; International Standard for Industrial Classification of all Economic Activities; Central Product Classification; Framework for Development of Environmental Statistics (these can be supplemented, if necessary). 

The SEEA Central Framework uses a number of basic provisions to organize and integrate information on the state and changes in various stocks and flows in the economy and the environment.

Firstly, measurements are made by transforming inputs into accounts and tables in three directions: 

1) physical flows of materials and energy inputs in the economy and between the economy and the environment; 

2) environmental assets and changes in these assets; 

3) economic activities and transactions related to the environment. 

The concepts of “economy” and “environment” are of great importance in this respect.  

Secondly, it is accepted that the economy operates by producing and importing goods and services, which are, respectively:

1) consumed by enterprises, households or government institutions; 

2) exported to other countries;

3) stored for future consumption or use. 

The economy is presented in the form of stocks and flows to enable its measurement in the SEEA. Measurement of flows is focused on economic activities such as production, consumption and accumulation. It is important to establish the boundaries of the production sphere: all produced goods and services (products)  are deemed to be factually “inside” the economy. Accordingly, flows between the economy and the environment are understood to be flows, which cross the production boundary. 

Thirdly, stocks of economic assets are used as inputs to production processes and as a source of material benefits for economic units, including households. Economic assets are divided into produced assets (arising from economic activities, e.g., buildings, equipment, etc.) and non-produced (which are not results of production, e.g., land, mineral deposits, water resources, etc.). 

The economic value and quantity of stocks of assets (e.g., buildings, natural resources and bank deposits) changes over time. Those changes are reflected in flows and recorded in accounts either as transactions (e.g., acquisition of buildings and land plots) or as other flows. 

Fourthly, stocks and flows of environmental assets are considered being an integrated whole. As stocks, environmental assets include all living and non-living components of the Earth, together constituting the biophysical environment, including all kinds of natural resources and the ecosystems in which they are situated. As flows, environmental assets constitute the source of all economic inputs, including natural resources (minerals, timber, fish, water, etc.) and other natural resources absorbed by the economy (e.g., the energy obtained from sun and wind and the air used in combustion processes).

Fifth, when measuring physical flows, special attention is paid to recording the flows of materials and energy resources which go into and out of the economy and the flows of materials and energy resources within the economy. In a broad sense, flows from the environment to the economy are recorded as coming from natural sources; flows within the economy are recorded as flows of products; while flows from the economy to the environment are counted as residuals (e.g., solid waste, atmospheric emissions and return flows of water)  (Fig. 1.5) 

Fig. 1.5 Main flows of natural inputs, products and residuals

Source: Modified version of the figure in System of Environmental–Economic Accounting 2012, above n 54. 

The boundary used to divide these flows is based on the production boundary.  From a geographical perspective, the measurement boundary corresponds to the economic territory of a country and economic activity is attributed based on the residence of economic units.

Six, the specifics of measurement of stocks are determined by the specific features of environmental assets which, in a most general form, are defined as naturally occurring living and non-living components of the Earth, together constituting the biosphere environment, and capable of providing benefits to human beings. 

Environmental assets are inevitably related to the economy: they are either engaged and transformed in the process of production activity or perform a supporting function, so they are to be viewed in two aspects. 

Firstly, environmental assets provide materials and space for all economic activities (e.g., mineral and energy resources, timber resources, water resources and land). This reflects material benefits from the direct use of environmental assets as natural inputs by enterprises and households. This does not take account of non-material benefits from the indirect use of environmental assets (e.g., ability of water to purify itself, to store carbon, etc.).  

Secondly, environmental assets are considered with focus on the interaction of individual assets within ecosystems and on the broad set of material and non-material benefits that accrue to the economy and other human activities from flows of services provided by ecosystems.    In this perspective, ecosystem accounts can be formed, which reflect the capacity of living components within their non-living environment to work together to generate flows known as ecosystem services. These services are defined as the contributions of ecosystems to benefits that are used in economic and other human activities. Despite their multifarious nature, ecosystem services can be divided into three groups:

- provisioning services (e.g., timber from forests);

- regulating services (provided, e.g., by forests when they act as carbon sinks);

- cultural services (such as the enjoyment provided to visitors to a national park) (see, e.g., Millennium Ecosystem Assessment, 2003). 

Degradation of ecosystems by economic and other human activity means that they may be not able to generate the same range, quantity or quality of ecosystem services on an ongoing basis. Therefore, the formation and maintenance of ecosystem accounts provides an information basis for analyzing the extent to which economic activity can reduce the ability of ecosystems to generate ecosystem services.

In addition to measuring the stock of environmental assets and flows between the environment and the economy the Central Framework SEEA 2012 records flows associated with economic activities related to the environment: expenditures on environmental protection and resource management, production of environmental goods and services (e.g., filters to reduce air pollution). So environmental-economic activity is distinguished and presented in the form of so-called functional accounts (e.g., accounts recording environmental protection expenditures). This ensures a more comprehensive view of environmental features of the economy in statistical systems. 

1.3.1. Main accounts of the Central Framework SEEA 2012 and their role in data generalization and formation of indicators showing the condition and changes in stocks of environmental assets and their use in the economy. 

The Central Framework SEEA 2012 organizes and integrates information on various stocks and flows in the economy and the environment in a series of tables and accounts and their combinations: 

- supply and use tables in physical and monetary terms showing flows of natural inputs, products and residuals; 

- 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 changes in the stock; 

- a sequence of economic accounts highlighting depletion-adjusted economic aggregates; 

- functional accounts recording transactions and other information about economic activities undertaken for environmental purposes. 

In order to diversify the generalizations and get a more detailed picture of relations between environmental-economic features and processes in the social sphere, the analysis of data contained in the tables and accounts can be extended by linking the tables and accounts to relevant employment, demographic and other information.

The Central Framework SEEA 2012 does not require compilation of every table and account for all environmental assets or environmental elements. Instead, it can be modular, taking into account those aspects in the country’s environment that are most important for the specific territory. At the same time, the ultimate goal is to obtain full accounting of the environmental-economic structure of the country and to provide information on issues of global concern using a common measurement framework.

1.3.1.1. Supply and Use Tables

Monetary supply and use tables in the SEEA record all flows of products in an economy between economic units in monetary terms. Many of the product flows may relate to the use of natural inputs from the environment (e.g., the manufacture of products from wood) or to activities and expenditures associated with the environment (e.g., clean-up of effluents). Products enter (“are supplied to”) the economy (become its inputs) when they are produced by industries in the national economy (a flow known as output) or brought in from the rest of the world (a flow known as imports).

A product can be used in a number of ways. For instance, products can be: 

1) used by other industries to make different products (a flow known as intermediate production); 

2) consumed by households (a flow known as household expenditures on final consumption); 

3) consumed by the government (a flow known as government expenditures on final consumption);  

4) sold to the rest of the world (a flow known as exports); 

5) held as inventories for later use;

6) used as assets (e.g., machines) over a longer period to produce other products (such longer-term uses are known as gross capital formation). 

The monetary supply and use table is divided into two parts: a supply table and a use table (Table 1.3). The listed 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 (it should be mentioned that accumulation flows are not recorded because, although they concern resources of the current accounting period, they are not used in the current period, but instead accumulate for future use or sale to economic units and the rest of the world in the form either of inventories or of fixed assets). Enterprises are classified by industry depending on their core activity. 

Table 1.3 Basic form of monetary resource and use table 

Note: Gray cells are null by definition.

Source: UN, 2012a, p. 16.

According to the SEEA methodological approach, when products are withdrawn from inventories in subsequent accounting periods, they are effectively resupplied to the economy at that time; the change in inventories (additions to inventories less withdrawal) during an accounting period is recorded as use of products. Overall, the total supply of each product must equal the total use of each product. This equality between the total resource supply and total use of each product is known as supply and use identity. It is the fundamental identity in both monetary supply and use tables and in physical supply and use tables.

The row of the supply table shows that for each product total supply of resources is equal to output plus imports. The row of the use table shows that total use is equal to intermediate consumption plus final consumption expenditure of households plus final consumption expenditure of government plus gross capital formation plus exports. 

Physical supply and use tables are used to assess how the economy supplies and uses natural resources and materials as well as to examine changes in production and consumption patterns over time. Combination with data from monetary supply and use tables enables the study of changes in productivity and intensity of the use of natural resources and the release of residuals. The structure of the physical supply and use tables is similar to the monetary supply and use tables; extensions are made to incorporate a column for the environment and rows for natural inputs and residuals (Table 1.4)

Although the broad structure and underlying principles of the physical supply and use tables are the same regardless of whether the table is measuring flows of energy, water, residuals or materials, different rows and columns may be used for each of these subsystems of physical flows. For example, the physical supply and use table for flows of residuals (as a part of the supply table) comprises several columns (collection and treatment of waste and other residuals; residual flows from the environment; the rest of the world; total supply) as well as two rows (solid waste formation and products based on solid waste by type).

Table 1.4 Basic form of a physical supply and use table

Supply table

	Production; residual generation		Accumulation	Flows from the rest of the world	Flows from the environment		Total
	Production; generation of residuals by industries (including production by households for their own consumption) by ISIC classification	Generation of residuals  by households	Industries classified by ISIC
Natural inputs					A. Flows from the environment  (including natural  resource residuals)		General resources from environmental sources
Products	C. Output (including sale of recycled and reused products)			D. Imports of products			Total product resources
Residuals	I1. Residuals generated  by industry (including  natural resource residuals) I2. Residuals generated  following treatment	J. Residuals  generated by  household final consumption	K1. Residuals from scrapping and  demolition of produced  assets K2. Emissions from controlled landfill sites	L. Residuals received  from the rest of the world	M. Residuals recovered from the environment		Total supply of residuals
Total supply
Use table
	Intermediate consumption of products; use of   natural inputs; collection of residuals	Final consumption	Accumulation	Flows to the rest of the world	Flows to the environment	Total
	Industries classified by ISIC	Households	Industries classified by ISIC
Natural inputs	B. Extraction of natural inputs B1. Extraction used  in production B2. Natural resource residuals		G. Gross capital formation (including fixed assets and inventories)
Products	E. Intermediate consumption (including purchase of recycled and reused  products)	F. Final consumption (including purchase of recycled and reused products)	O. Accumulation of waste in Controlled  landfill sites	H. Exports of products		Total use of products
Residuals	N. Collection and treatment of residuals (excluding accumulation of waste in controlled landfill sites)			P. Residuals sent to the rest of the world	Q1. Direct from industry and households (including natural resource residuals and  landfill emissions) Q2. Following treatment	Total use of residuals
Total use

Source: UN, 2012a, p. 17.

 

Within the tables, 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 meters 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.

In addition to the supply and use identity, the physical supply and use table incorporates an additional identity concerning flows between the environment and the economy (input-output identity), which requires that the total flows into the economy, or into an enterprise or household, over an accounting period, are either returned to the environment or accumulate in the economy. For example, flows of energy to an enterprise in the form of electricity or petroleum products must be released to the environment after the energy has been used (as losses of residual heat) or stored (as inventories for future use) or incorporated in non-energy products (e.g., petroleum products used to manufacture plastics).

Both the supply and use identity and the input-output identity are based on the law of 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.

Unlike monetary flows, which are measured in currency units, physical flows are generally measured in a variety of different units. While it is conceptually possible to compile a complete physical supply and use table for all material flows in an economy using a single measurement unit (e.g., tons), it is not the usual practice.

1.3.1.2. Asset accounts

Asset accounts are designed to record the opening and closing stock of environmental assets, primarily to assess whether the current patterns of economic activity are depleting and degrading the available environmental assets.  So they provide information for the efficient management of environmental assets. Also, monetary valuations of natural resources and land can be combined with valuations of produced assets and financial assets (in the SNA balance sheets) to provide broader estimates of national wealth. The structure of asset accounts starts with the opening stock of environmental assets and ends with the closing stock of environmental assets (Table 1.5)

Table 1.5 Basic format of asset account

Opening stock of environmental assets

Additions to stock

Growth in stock**

Discoveries of new stock**

Upward reappraisals**

Reclassification

Total additions to stock

Reductions of stock**

Extraction

Normal loss of stock

Catastrophic losses**

Downward reappraisals**

Reclassification

Total reductions of stock

Revaluation of stock*

Closing stock of environmental assets

* Only applicable for assets in monetary terms

** As applied to the research theme, growth in stocks may be due to the discovery of new deposits, natural increase in non-cultivated biological resources; discovery of new stocks can be due to the discovery of new deposits and assurance of their viability; upward and downward reappraisals occur due to price changes; catastrophic losses may be caused by natural or man-made crises; reduction of stocks may result from soil exhaustion. 

Source: UN, 2012a, p. 20. 

Changes between opening stock and closing stock in physical terms are recorded as either additions to stock or reductions of stock; the character of such addition or reduction is indicated, if possible. The same entries are included in monetary terms, with the addition of an entry to account for monetary revaluation of environmental assets. This entry shows changes in the value of assets over an accounting period, which are driven by movements in the current prices of those assets.

There are numerous and diverse reasons why the quantity and value of environmental assets change over an accounting period. Many of these changes are caused by interaction between the economy and the environment in the context, e.g., of extraction of minerals or the planting of timber resources. Other changes occur due to natural phenomena, e.g., natural increase of non-cultivated biological resources (forest and animals) or losses caused by catastrophic events, which may have natural or man-made causes. 

Some changes between the opening and closing stocks of a reporting period have more to do with the accounting practice, including changes caused by improved measurement (reappraisal) and those involving the assignment of assets to different categories (reclassification). Examples of reappraisal include the discovery of new mineral deposits, verification of their efficiency, and reappraisal of the size and quality of mineral reserves. Examples of reclassification would be entries recording changes in land use between agriculture and urban.

As a rule, asset accounts are compiled for individual types of environmental assets. In monetary terms, there may a need to aggregate the values of all environmental assets at the beginning and end of the accounting period. Such aggregates can be presented in the form of balance sheets, which can be combined with the value of other assets (e.g., produced assets and financial assets) and liabilities to obtain an overall measure of the net wealth of an economy.

There are close links between the supply and use tables and asset accounts, a fact which emphasizes the integrated nature of the Central Framework of the SEEA 2012 (Table 1.6). 

Table 1.6 Links between supply and use tables and asset accounts

Note: Dark gray cells are null by definition.

*Although residual flows (e.g., emissions into the atmosphere) are not flows of environmental assets, they can affect the capacity of environmental assets to deliver benefits. Change in the potential of environmental assets can also be recorded in the cell labeled “Other changes in volume of assets.”

Source: UN, 2012a, p. 22.

The main change in Table 1.6 from the point of view of supply and use is that the flows entered in the columns “Accumulation” and “Environment” of the supply and use tables are transferred to the asset accounts (two right-hand columns). The opening and closing stocks for a given period appear at the top and bottom of the table, respectively. Some 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 asset accounts and in supply and use tables. Some changes in stocks are not recorded in the supply and use tables, and they are grouped in the cell named “Other changes in volume of assets.” Examples of such changes include discoveries of mineral resources, losses of assets following catastrophic natural events and changes in the values of assets due to price changes (revaluation).  

Special attention should be paid to the row showing the use of residuals.

Neither the accumulation of residuals in controlled landfills nor the flow of residuals to the environment is recorded in asset accounts for individual environmental assets. However, more broadly, the accumulation of residuals in the economy does represent an increase in a stock, and the flow of residuals to the environment may affect the capacity of environmental assets to deliver benefits.

1.3.1.3. Sequence of economic accounts

In monetary terms, supply and use tables and asset accounts record much of the information used to assess interactions between the economy and the environment. However, a range of other monetary transactions and flows are also of interest (rent for the extraction of natural resources, environmental taxes and payments of environmental subsidies, grants from government units to other economic units to support environmental protection work, etc.). These flows are recorded in the sequence of economic accounts, which, understandably, are compiled only in monetary terms (these transactions do not have a direct underlying physical base). 

The sequence of economic accounts in the SEEA follows the broad structure of the sequence of accounts in the SNA. 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. That is why balancing items are introduced which, as well as being measures of economic activity in themselves, also help to align the whole sequence of accounts.  Derivation of depletion-adjusted balancing items and aggregates within the sequence of economic accounts is of particular importance. Depletion-adjusted measures are not part of the balancing items and aggregates measured in “net” terms in the SNA (i.e., after the deduction of fixed capital consumption) and they require additional calculation of the cost of exhausting natural resources. (Table 1.7) 

Table 1.7 Basic SEEA sequence of economic accounts

Production account (prepared in supply and use tables)
Main entries	Output, intermediate consumption, fixed capital consumption, natural resource 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	Remuneration of employees, taxes, subsidies, interest, rent, final consumption expenditure, fixed capital consumption
Balancing items/ aggregates	Depletion-adjusted net operating surplus, depletion-adjusted net national income, depletion-adjusted net savings
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

Source: UN, 2012a, p. 24.

The sequence of economic accounts starts from the production account, which is prepared using the output and intermediate consumption entries from the monetary supply and use table. The balancing item here is value added (output less intermediate consumption). At an economy-wide level, the main related aggregate from the production account is gross domestic product. Fixed capital consumption and depletion are deducted from gross value added and GDP to obtain measures of depletion-adjusted net value added and depletion-adjusted net domestic product.

The sequence continues with the distribution and use of income accounts, which contain information on how value added is allocated to economic units as either remuneration of employees or gross operating surplus, as well as information on flows of other income and related payments (flows of taxes, subsidies, interest and rent for the use of land or other environmental assets). The total amount of disposable income (all income received less all income paid) is available for final consumption expenditure. The balancing items for the income accounts are operating surplus (value added less compensation of employees and less taxes with deduction of subsidies) and savings (disposable income less final consumption expenditure). As in the production account, depletion of environmental resources can be deducted from the balancing items of net operating surplus and net savings. The key aggregates from these accounts in gross terms are gross national income and gross national savings, both of which can be adjusted for depletion and fixed capital consumption to form depletion-adjusted measures.

The next account to be considered is the capital account.  This account records how savings are used to acquire assets, including produced assets and environmental assets. It therefore includes the acquisition and disposal of environmental assets, and specifically transactions in land and cultivated biological resources such as plantations and livestock. If the expenditure on assets is less than the amount of savings, 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 savings, 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.

The sequence of accounts is completed by the financial account, which records transactions involved in lending and borrowing. The financial account shows all transactions with financial assets and liabilities (e.g., deposits, loans, shares and equities). The balance of these transactions is net lending/borrowing, as in the case of the capital account balancing item.

In the SEEA the sequence of economic accounts is oriented to the specific task of showing how incomes from the extraction of natural resources and the economy as a whole are impacted by the cost of depletion.   In particular, the SEEA provides depletion-adjusted estimates of operating surplus, value added and savings at both the economy-wide level and for institutional sectors.  Since there is only one amount of depletion for a given resource, it must be allocated between the relevant units in the accounting framework.  

The following accounting treatment is recommended for the SEEA:

a) Recording of 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 extractive 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. 

b) Recording the payment of rent by the extractor to the government in the primary income allocation account. This entry is standard for the SNA. 

c) Recording an entry entitled “Depletion borne by government” in the primary income allocation account to reflect:

1) that the rent earned by the government included the government’s share of total depletion, which must be deducted to measure the depletion-adjusted savings of government;  

2) that the depletion-adjusted savings of the extractor would be understated if the total amount of depletion was 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., as depletion-adjusted rent) in the derivation of depletion-adjusted savings of the government. 

An example of such entries is given in Table 1.8. It is important to note that this form ensures that the sum of the institutional sector entries for depletion-adjusted aggregates is equal to the same aggregates calculated at the economy-wide level. 

The values of depletion shown for each unit should be consistent with the change in net worth of each unit in relation to environmental resources (assuming the sustainable character or absence of other changes in the stock of resources). Thus, if government collects a 40 percent share of the resource rent (through payment of rent by extractors), then the depletion costs borne by government will be 40 percent of the total measured depletion. In making this calculation, it is assumed that the government’s share of future resource rent remains constant. 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.

Table 1.8  Entries for allocating income from nature resources and their depletion

Transaction	Government		Extractor
	Resources	Use	Resources	Use
Production account
Output – sales from extraction			100
Intermediate consumption				50
Gross value added			50
Fixed capital consumption			-15
Net value added			35
Depletion			-6
Depletion-adjusted value added			29
Generation of income account
Remuneration of employees				20
Gross operating surplus			30
Fixed capital consumption			-15
Net operating surplus			15
Depletion			-6
Depletion-adjusted operating surplus			9
Primary income distribution account
Depletion-adjusted operating surplus
Rent	5			5
Depletion borne by government		3	3
Depletion-adjusted saving		2		7

Source: UN, 2012a.

The associated balance-sheet entries may be made in different ways depending on the nature of the analysis and on the institutional arrangements in an administrative territory. 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 resources. 

1.3.1.4. Functional accounts

The conventional industry and product classifications used in compiling tables and accounts in the SEEA do not necessarily highlight environmental activities or products. It is therefore necessary to prepare functional accounts. The first step is to define the activities, goods and services that have an environmental purpose (i.e., whose main purpose is to reduce or eliminate pressures on the environment or to make more efficient use of natural resources).  In the second step, relevant information in the monetary supply and use tables and the sequence of economic accounts is reorganized to enable clear identification of transactions associated with environmental activities and environmental goods and services. 

Such identification of environmental activities and products helps to present information related to economic measures that respond to ecological challenges.  Flows reflecting output of environmental goods and services and expenditures on environmental protection and resource management are of particular interest as are flows of environmental taxes and subsidies.

1.3.2. Construction of basic SEEA accounts 

Supply and flow accounting is of key importance in the Central Framework of the SEEA 2012. Physical flows showing movement and use of materials, water and energy include natural inputs, products and residuals. 

Natural inputs are all physical inputs that are moved from their location in the environment as a part of economic processes or that are directly used in production.  They may be: 

- natural resource inputs (e.g., mineral and energy resources or timber resources); 

- inputs from renewable energy sources (e.g., solar energy captured by economic units); 

- other natural inputs such as inputs from the soil (e.g., soil nutrients) and inputs from the air (e.g., oxygen absorbed in combustion processes). 

In the extraction of some natural inputs, not all the extraction is retained in the economy (the discarded part of fishing catches, residues from timber felling).  The extraction that is not retained in the economy is considered having returned immediately to the environment and is called “natural resource residuals.”

Products are goods and services that result from a process of production in the economy. 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, only flows of products between economic units are recorded and flows internal to the operation of an establishment are ignored. However, in analyzing flows of energy it may be relevant to record the energy generated by an establishment when it burns its own solid waste. 

Residuals (often suitably described as “waste”) are flows of solid, liquid or gaseous materials and energy that are discarded, discharged or emitted to the environment (e.g., emissions to the atmosphere) by establishments and households through processes of production, consumption or accumulation.  Residuals can also flow within the economy as is the case when, e.g., solid waste is collected as part of a waste collection scheme.

Physical flows are divided into three categories (subsystems): energy, water and materials. Materials themselves are often analyzed by the type of material or specific group of materials, e.g., flows of solid waste or carbon emissions.  Physical flows are recorded in asset accounts where they represent changes in the stocks of assets between one period and another. Depletion is an important flow in physical terms characterizing the state of environmental assets. It occurs when natural resources are used up through their extraction, collection and harvesting by economic units, leading to reduced availability of the resources in the future if current extraction rates are maintained. A distinction must be made between renewable and non-renewable resources.

Flows in monetary terms are recorded in the form of transactions and as other flows. A transaction is an economic flow, which is an interaction between economic units based on mutual agreement (sale of timber products, purchase of environmental protection services). Other flows related to changes in the value of assets and liabilities that do not result from transactions include: new discoveries of assets or losses of assets due to natural disasters and the effect of price changes on the value of assets and liabilities.

In physical terms, stocks are the total quantity of assets at a given point in time (tons of coal, cubic meters of timber, hectares of land). Individual environmental assets include mineral and energy resources, land, soil resources, timber resources, water bioresources, 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 (e.g., the carbon in timber and nutrients in soil resources). A distinction is made between produced (cultivated) and non-produced environmental resources.  It is accepted that the volume of water in oceans is not considered because this stock of water is too large. This does not in any way limit the measurement of ocean-related individual assets such as aquatic bioresources or mineral and energy resources on the ocean floor. On the whole the scope of measurement for each environmental asset includes all stocks that may provide benefits to humanity.

The measurement of stocks in monetary terms focuses on the value of individual environmental assets and on changes in those values over time. The valuation of these assets focuses on the benefits that accrue to economic owners of environmental assets. Not all the benefits that may accrue to current and future generations are given a monetary value in order to provide what might be regarded as a social valuation of environmental assets. There may be some stocks recorded in physical terms that have zero economic value: all the land in a country is included in the scope of a full analysis of changes in land use and land cover, but some land may be considered having zero value in monetary terms.

It is recommended to use market values for the valuation of environmental assets. However, in the case of many environmental assets, there are only a few markets that buy and sell them in their natural state; so determining an asset’s economic value can be difficult. A number of approaches to estimating market prices are possible if there are no observable market prices (these issues are discussed in more detail in Chapter 1.4) 

1.3.2.1 Supply and Use Tables (residual accounts)

Most of the indicators in supply and use tables represent the basis for compiling environmental asset accounts and are presented in the next subsection.   Therefore, only those modules are given below, which refer to physical flows of residuals between the economy and the environment Residual accounts are formed in accordance with the structure of the physical supply and use table and include accounts of atmospheric emissions, emissions to water bodies and solid waste.  

The atmospheric emission account (Table 1.9) records emissions from economic units by types of substance. 

Table 1.9 Atmospheric emissions account (tons)

Supply table for atmospheric emissions Use table for atmospheric emissions

	Generation of emissions								Accumulation	Total supply  of emissions	Flows to the  environment	Total use  of emissions
	Industries					Households			Emissions from landfills		Emissions to the environment
	Agriculture	Mining	Manufacturing	Transport	Other	Transport	Heating	Other
Type of substance
Carbon dioxide	10,610.3	2,602.2	41,434.4	27,957.0	82,402.4	18,920.5	17,542.2	1,949.1	701.6	204,119.6	204,119.6	204,119.6
Methane	492.0	34.1	15.8	0.8	21.9	2.4	15.5	1.7	222.0	806.3	806.3	806.3
Dinitrogen oxides	23.7		3.5	0.8	2.6	1.0	0.2	0.1	0.1	32.0	32.0	32.0
Nitrous oxides	69.4	6.0	37.9	259.5	89.0	38.0	12.1	1.3	0.3	513.6	513.6	513.6
Hydrofluorocarbons			0.3		0.4					0.7	0.7	0.7
Perfluorocarbons
Sulfur hexafluoride
Carbon monoxide	41.0	2.5	123.8	46.2	66.2	329.1	51.2	5.7	1.1	666.9	666.9	666.9
Non-methane volatile organic compounds	5.2	6.5	40.0	16.4	27.2	34.5	29.4	3.2	0.9	163.3	163.3	163.3
Sulfur dioxide	2.7	0.4	28.0	62.4	8.1	0.4	0.4	0.1	0.0	102.5	102.5	102.5
Ammonia	107.9		1.7	0.2	0.9	2.3	11.4	1.2	0.2	125.9	125.9	125.9
Heavy metals
Persistent organic pollutants
Particles	7.0	0.1	8.5	9.3	4.4	6.0	2.8	0.5	0.0	38.5	38.5	38.5

Source: UN, 2012a, p. 88.

 

The left-hand part of the table shows the generation of emissions from industries and households by types of substance. For accounting of carbon dioxide emissions it is recommended, where possible, that carbon dioxide emissions from the burning of fossil fuels should be distinguished from carbon dioxide emissions from biomass.  The column for accumulation shows the release of atmospheric emissions from controlled landfill sites, since they reflect the release of emissions from production, consumption and accumulation in earlier periods.  These emissions should be attributed to the waste management units that operate the landfill sites.

Atmospheric emissions by households are broken down by purpose (transport, heating, other). Additional purposes can be added depending on analytical requirements and available information. 

The right-hand part of the table presents the use table for emissions to the atmosphere. Atmospheric emission accounts for a particular country exclude emissions released within a national territory by non-residents (e.g., tourists or foreign transportation operations), whereas the emissions abroad of resident economic units are included.  Atmospheric emission accounts do not record capture or absorption of gases by the environment (e.g., carbon captured in forests and soil).  Emissions from natural processes such as unintended forest and grassland fires are not included.

Atmospheric emissions generated by industries and households are measured at the point of release, i.e., after they have passed through any relevant filtering or emission-reduction technology or process within the relevant establishment.  The physical flows of emissions should be classified using the same classifications used in the SNA in order to permit effective linking of physical flow data to monetary data.

Water discharge accounts Emissions of substances to water resources and sewerage systems are accounted in the SEEA framework (Fig. 1.6).  

Sewerage

Environment (e.g., surface water, oceans and seas. etc.)

Industry (mining, manufacturing, etc.)

Households

Fig. 1.6 Water discharge accounts

Source: UN, 2012a, p. 91.

Water discharge accounts provide information about economic units releasing wastewater, types and amounts of substances, and points of release. Water discharge accounts are an efficient tool for developing economic instruments, including new regulatory standards to reduce the amount of emissions to inland water bodies, seas and oceans. When examined in conjunction with existing technologies, the data in the accounts can be used to estimate the efficiency of available technologies for the reduction of pollutants in water. 

Water discharge accounts record the amount of substances added to water by industries and households over an accounting period. This amount is measured in kilograms or tons. Thus, water discharge accounts provide a description of the wastewater flows included in the physical supply and use table from the point of view of substances generated in the course of economic activity. 

Sources of water discharges are classified as point sources and non-point sources. Point-source water discharges are those for which geographical location of the discharge of the wastewater is clearly identified, e.g. water discharges and releases from sewerage facilities, power plants and other industrial establishments. Non-point (or diffuse) sources of water discharge and releases are sources without a single point of origin or a specific outlet into the receiving water body. Water discharges 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. 

The SEEA account for water discharges (Table 1.10) is a reduced version of the general Physical Supply and Use Table format. 

Table 1.10 Water discharge accounts

Physical supply table for gross releases of substances to water  

	Generation of gross releases  to water			Accumulation	Flows from the rest of  the world	Flows from the environment	Total supply
	Sewerage industry	Other  industries	Households	Emissions from  fixed assets
Emissions by type of substance
BOD/COD	5,594	11,998	2,712				20,304
Suspended solids
Heavy metals
Phosphorus	836	1,587	533				2,956
Nitrogen		15,139	30,463				45,602
Releases to other economic units
BOD/COD
Suspended solids
Heavy metals
Phosphorus
Nitrogen
Physical use table for gross releases of substances to water
	Generation of gross releases  to water				Flows to the rest of  the world	Flows to the environment	Total use
	Sewerage industry	Other  industries	Households
Flows to the environment
BOD/COD						20,304	20,304
Suspended solids
Heavy metals
Phosphorus						2,956	2,956
Nitrogen						59,199	59,199
Collection by other economic units
BOD/COD	16,877						16,877
Suspended solids
Heavy metals
Phosphorus	7,600						7,600
Nitrogen	45,602						45,602

Note: Dark gray cells are null by definition.

Source: UN, 2012a, p. 93.

The top half of the table (the supply table) shows the generation of water discharges and leakages with a breakdown by industries and households and by type of substance, showing treatment of releases by sewerage systems. The bottom half of the table (the use table) shows releases of wastewater for treatment by sewerage services and releases to the environment. The level of industry detail in the table is dependent on data availability and analytical needs. Where the focus is on a particular type of substance, the rows of the table may be structured to reflect the destinations of discharges. 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 inland water bodies or to the sea.

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 country to a sewerage facility in another country. Water discharge accounts do not include “imports” and “exports” of substances through natural flows of water resources.  So the quantity of respective substances in rivers crossing national borders and/or flowing to the open sea is not recorded in the water discharge accounts.

These accounts do include discharges of relevant substances from capital goods (such as vessels operating on a country’s waterways) due, for example, to corrosion or fuel leaks. These flows are recorded in the accumulation column. Finally, discharges due to activities undertaken in water bodies or seas (e.g., dredging of waterways and ports) are included and recorded against the relevant industry. 

Solid waste accounts are useful when 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. The construction of solid waste accounts allows these indicators being placed in a broader context with economic data in both physical and monetary terms.  Discarded materials sold as used products, for example, a second-hand car or furniture, should be treated as flows of products and not as solid waste. 

In practice, in many countries statistics on solid waste are based on legally regulated administrative lists of materials deemed to be solid waste. The structure of solid waste accounts (Table 1.11) follows the logic of the general Physical Supply and Use Table. For illustration, the table includes an indicative listing of types of solid waste based on the statistical version of the European Waste Catalogue (EWC-Stat) .

Table 1.11 Solid waste account (tons) 

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 residuals
	Landfills	Incineration		Recycling  and reuse	Other  treatment
		Total	Of which: Incineration to generate energy
Generation of solid waste
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 waste						10,330	1,700	80		12,110
Mixed residential and commercial waste				10	30	4,170	4,660	100	10	8,980
Mineral waste and soil					300	29,100	570	170		30,140
Combustion waste		4,050	2,000			1,550		240		5,840
Other waste						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 waste						5,310		8,460		13,770
Mixed residential and commercial waste
Mineral waste and soil						350		80		430
Combustion waste		378	286			220		50		648
Other waste

Note: Dark gray cells are null by definition.

Physical use table for solid waste

	Intermediate consumption						Final consumption	Rest of the world	Flows to the environment	Total use
	Waste collection, treatment and disposal industry					Other industries	Households	Exports of solid waste
	Landfills	Incineration		Recycling  and reuse	Other  treatment
		Total	Of which: Incineration to generate energy
Collection and disposal of solid waste residuals
Chemical and health-care waste	290	570		910				380		1,290
Radioactive waste					5					5
Metallic waste	10			200		200		30		230
Non-metallic recyclables		550	500	2,930		1,340		160		3,090
Discarded equipment and vehicles	30	10		370				60		430
Animal and vegetal waste	30	830	630	8,310	150	2,180		610		9,070
Mixed residential and commercial waste	730	6,450	2,300	1,070		10		630	90	1,790
Mineral waste and soil	1,010	720		22,630		5,170		610		23,240
Combustion waste	50			400		5,190		200		600
Other waste	20	120		40				320		360
Use of solid waste products
Chemical and health-care waste				50				110		160
Radioactive waste
Metallic waste				30		150		1,520		1,550
Non-metallic recyclables				50		2,500		1,420		1,470
Discarded equipment and vehicles
Animal and vegetal waste				630		8,010		5,130		5,760
Mixed residential and commercial waste
Mineral waste and soil				70		200		160		230
Combustion waste						600		48		48
Other waste

Note: Dark gray cells are null by definition.

Source: UN, 2012a, p. 96-97.

 The upper half of the table is the supply table, the first part of which (“Generation of solid waste residuals”) shows the generation of solid waste with a breakdown by industries and households.  It also shows the supply of solid waste from the rest of the world (recorded as imports) as well as solid waste recovered from the environment (e.g., oil recovered following an offshore oil spill, debris collected following a natural disaster, or excavation of soil from locations where hazardous chemicals were used).

The bottom part of the table is the use table, the first part of which (“Collection and disposal of solid waste residuals”) shows the collection and disposal of solid waste through various activities included in 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.

The columns of the table highlight various activities in the waste collection, treatment and disposal industry: landfill operations, incineration of solid waste, recycling and reuse activities and other treatment of solid waste (e.g., use in physical-chemical processes, mechanical-biological processes, and the storage of radioactive waste).  More industry detail can be provided depending on analytical requirements and available information. Accumulation of waste in landfill sites is not presented in a distinct accumulation column as in the general Physical Supply and Use Table. This is because it is desirable to present all information on the waste collection, treatment and disposal industry as a single group.

The second part of the supply table (“Generation of solid waste products”) and the second part of the use table (“Use of solid waste products”) record flows of solid waste that are considered being products rather than residuals. The flows recorded here relate to instances 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 table and is matched by use of solid waste products in the second part of the use table.  Sales of scrap metal are recorded in this way.  Sales of products manufactured from solid waste or simply obtained from waste collection are not included in this table.

1.3.2.2. Asset accounts

The general methodological approaches and techniques for summarizing data and deriving indicators on the state and changes in stocks and use of environmental resources in the economy, described in the Central Framework of SEEA 2012, have specific features for different environmental assets: water resources, mineral and energy resource and non-cultivated biological resources (forest and animal resources).

Water resources

The main elements of the SEEA for water resources are monetary estimates, a compilation of asset accounts and inclusion of the respective estimates in the standard calculation of basic macroeconomic indicators at national and regional levels.  Formation of these elements is based on various tables, primarily physical supply and use tables. These tables provide the basis for subsequent compilation and modification of asset accounts. 

Physical supply and use tables for water resources 

The inland water system includes surface water (rivers, lakes, artificial reservoirs, glaciers, etc.), ground water and water in soil within a specific territory.  

Surface water comprises all water that flows over or is stored on the Earth’s surface. Instances of surface water include: artificial reservoirs (purpose-built reservoirs used for storage, regulation and control of water resources); lakes (large bodies of standing water occupying a depression in the earth’s surface); rivers and streams (bodies of water flowing continuously or periodically in channels); snow and ice (including permanent and seasonal layers of snow and ice on the surface of the Earth); and glaciers (accumulations of snow of atmospheric origin, generally moving slowly on land over a long period).  Overland flows, i.e., flows of water over the ground before entering a channel (or a reservoir), are also part of surface water but the stock of these flows at any time is small and hence not separately recorded.  

Groundwater is water that collects in porous layers of underground formations known as aquifers.  An aquifer is a geological formation, a group of formations, or part of a formation that contains sufficient saturated permeable material to yield significant quantities of water to wells and springs. An aquifer may be unconfined, i.e., having a water table and an unsaturated zone, or may be confined when it is between two layers of impervious or almost impervious formations.

 Soil water consists of water suspended in the uppermost belt of soil, or in the zone of aeration near the ground surface. This 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).

All flows related to inland water are recorded in asset accounts for water, including flows from adjacent seas and oceans and flows to those seas and oceans (run-off). The Physical Supply and Use Table for water includes: uptake of water from inland water system and from seas and oceans by various economic units; supply and use of this water by different economic units; and return discharge of wastewater to the inland water system and to seas and oceans.  Flows such as evaporation from lakes and artificial reservoirs and flows (cross-flows) between water bodies are considered being flows inside the environment and are only recorded in asset accounts. Waste discharge to water bodies is accounted in a separate table. 

A typical supply and use table for water contains information about water supply and use and covers all water flows (Table 1.12).

Table 1.12 Physical supply and use table for water (illustrative example, m³)

Supply table
		Uptake of water, use of water in production; generation (accumulation) of return flows														Flows from the rest of the world		Flows from the environment		Total supply
		Agriculture, forestry and fishing		Mining and quarrying, manufacturing and construction		Electricity, gas, steam and air conditioning supply		Water collection, treatment and supply		Sewerage		Other industries		Households		Imports
I. Sources of water uptake
Inland water bodies
Surface water																		440.6		440.6
Groundwater																		476.3		476.3
Soil water																		50.0		50.0
Total																		966.9		966.9
Other water sources
Precipitation																		101.0		101.0
Sea (ocean) water																		101.1		101.1
Total																		202.1		202.1
Total supply of water																		1,169.0		1,169.0
II. Water uptake																				378.2
For distribution								378.2
For own use		108.4		114.6		404.2		61.2		100.1		2.3								790.8
III. Wastewater and reused water
Wastewater
Wastewater for treatment		17.9		117.6		5.6		1.4				49.1		235.5						427.1
Own treatment of wastewater
Reused water produced
For distribution to third parties										42.7										42.7
For own use				10.0																10.0
IV. Return flows of water
To inland water resources
Surface water						300.0				52.5		0.2		0.5						353.2
Groundwater		65.0		23.5				47.3		175.0		0.5		4.1						315.4
Soil water
Total		65.0		23.5		300.0		47.3		227.5		0.7		4.6						668.6
To other water bodies				5.9		100.0				256.3				0.2						362.4
Total return flows		65.0		29.4		400.0		47.3		483.8		0.7		4.8						1,031.0
V. Evaporation of  water uptake, transpiration and incorporation of water in products
Evaporation of water uptake		7.2		43.2		2.5		1.8		0.7		3.6		10.0						138.0
Transpiration
Water incorporated in products
Total supply		267.5		314.8		812.3		489.9		627.3		55.7		250.3				1,169.0		3,986.8
Sub-table for use of water
	Uptake of water; intermediate consumption; return flows												Final consumption		Accumulation		Flows to the rest of the world		Flows to the environment	Total use
	Agriculture, forestry and fishing		Mining and quarrying, manufacturing and construction		Electricity, gas, steam and air conditioning supply		Water collection, treatment and supply		Sewerage		Other industries		Households				Exports
I. Sources of water uptake
Inland water bodies
Surface water	55.3		79.7		301.0		4. 5		0.1											440.6
Groundwater	3.1		34.8		3.2		432.9				2.3									476.3
Soil water	50.0																			50.0
Total	108.4		114.5		304.2		437.4		0.1		2.3									966.9
Other water sources
Precipitation							1.0		100.0											101.0
Sea (ocean) water					100.0		1.1													101.0
Total	0.0		0.0		100.0		2.1		100.0		0.0									202.1
Total use of water uptake	108.4		114.5		404.2		439.5		100.1		2.3									1,169.0
II. Water uptake																				378.2
For distribution	38.7		45.0		3.9						51.1		239.5
For own use	108.4		114.6		404.2		50.4		100.1		2.3		10.8							790.8
III. Wastewater and reused water
Wastewater
Wastewater received from other units									427.1											427.1
Own treatment	12.0		40.7																	52.7
Wastewater and reused water
Distributed reuse
For own use
Total	12.0		40.7						427.1											479.8
IV. Return flows of water
Returns of water to the environment
To inland water resources																			668.6	668.6
To other water bodies																			362.4	362.4
Total return flows																			1,031.0	1,031.0
V. Evaporation of  water uptake, transpiration and incorporation of water in products
Evaporation of water uptake																			138.0	138.0
Transpiration
Water incorporated in products
Total use	267.5		314.8		812.3		489.9		627.3		55.7		250.3						1,169.0	3,986.8

Note. Dark gray cells are null (no observable phenomena)

Source: UN, 2012a, p. 79-80.

The Physical Supply and Use Table comprises five sections which organize information on: uptake of water from the environment; distribution and use of water uptake across enterprises and households; flows of wastewater and reused water (between households and enterprises); return flows of water to the environment (discharged wastewater); water losses in the form of evaporation and transpiration during these uses and during incorporation of water into products. Table 1.12 is divided into two parts: supply table and use table. 

Section I of the supply table “Sources of water uptake” shows uptake of water from the environment. The same volume of water is recorded in Section I of the use table “Sources of water uptake” by industries that carry out the uptake. Water may be taken from artificial reservoirs, rivers, lakes, groundwater and soil water The capture of precipitation, e.g., the capture of water from the roofs of houses in water tanks, is recorded as precipitation,  However, precipitation direct to the inland water system is not recorded in the Physical Supply and Use Table, but in the asset account for water.

Water used for hydroelectric power generation is considered as uptake and is recorded as use of water by the party, which carries out such uptake. Water, which is taken but is not used in production (e.g., water obtained during dewatering of mines), is recorded as natural resource residuals. Water uptake is disaggregated by source and by industry.

Following the general treatment of household own-account activity, the uptake of water by households for own consumption should be recorded as part of the activity of the water collection, treatment and supply industry. In addition, there may a range of different modes of water supply; e.g., water supply to agricultural enterprises. Such a supply mode may be carried out quite differently from water supply to urban areas.  Accordingly, additional columns may be included in the supply table in order to highlight different types of water uptake in the general category of water supply. 

To record water supply consistently with the treatment of the asset accounts for water resources, water in artificial water bodies (e.g., reservoirs) is not considered having been produced. In other words, these resources are not considered having come into existence via a process of production. Consequently, uptake of water from artificial reservoirs is recorded as uptake from the environment. Flows of precipitation into artificial reservoirs and flows of evaporation from the reservoirs are not recorded in the Physical Supply and Use Table for water resources. As mentioned above, these flows are recorded in asset accounts for water resources as a part of the general system of macro-accounting for the change of the stock of water over an accounting period. 

Uptake of soil water refers to the absorption of water by plants. It is equal to the amount of water transpired by plants plus the amount of water that is contained in the harvested product . Most of soil water uptake is used in agricultural production and in cultivated timber resources. In theory, such use includes all soil water, which is taken up for use in production . According to the SEEA 2012, the amount of soil water, which is taken up, can be calculated on the basis of data about areas under cultivation using coefficients of water use. Different coefficients should be used for different crops. Other relevant factors should also be taken into consideration (e.g., soil types, geography and climate) (UN, 2014).

Water that has been taken up must either be used by the same economic units that take it (i.e., take water for their own use) or distributed (possibly after treatment) to other economic units for other applications. Most of the water for such distribution is recorded under ISIC classification as “Water collection, treatment and supply” However, there may be other industries that take and distribute water as their secondary activity.  

Part II of the supply sub-table entitled “Water uptake” shows the uptake of water by industries, differentiating between water taken for own use and for distribution.  This part of the supply sub-table also records imports of water from the rest of the world. The use of this water is shown in part II of the use sub-table.  In this part, the water available for use is recorded under intermediate consumption of respective industries and final consumption of households or exports to economic units in the rest of the world. 

Within the economy, water is often exchanged between water distributors before being delivered to specific (final) users. These water exchanges are referred to as intra-industry sales. An example is a situation where the distribution network of one distributor does not reach the water user, so that water must be sold to another distributor whose network reaches the said user and who can provide the required volumes of water to the user. In principle, all intra-industry sales must be recorded according to standard accounting principles. However, these transactions are not recorded in the Physical Supply and Use Table, as this would unreasonably increase the total flows recorded (i.e., considerable repeat accounting may occur).  So intra-industry sales are internal transactions, i.e., economic transactions with water resources in situ, i.e., the same physical flow of water occurs whether intra-industry sales take place or not. Meanwhile, depending on the volumes of water involved in distribution, sales and purchases, it may be useful to present these internal transactions (intra- and inter-industry flows) in a supplementary table. 

After statistical accounting for the distribution and use of water, flows of wastewater and effluents between economic units have to be considered. Wastewater is discarded water, which is no longer required by the owner or user. Wastewater can be discarded directly into the environment (in which case it is recorded as a return flow), supplied to a sewerage facility (recorded as wastewater to sewerage) or supplied to another economic unit for further use (recorded as reused water). Flows of wastewater can in principle include exchanges of wastewater between sewerage facilities in different economies, i.e., transfer of wastewater from sewerage systems of one country to similar systems of another country. These flows are recorded as imports or exports of wastewater.  

Part III of the supply sub-table, “Wastewater and reused water,” records wastewater flows to a treatment facility or supplied to another economic unit; the same flows are recorded in the respective section of the use sub-table.  Flows of wastewater are generally residual flows between economic units, since the flow of wastewater to a sewerage facility is generally accompanied by the payment of a service fee to the sewerage facility. In other words, sewerage facilities do not purchase wastewater discarded by an economic unit but rather provide paid services in wastewater disposal and treatment.

Reused water is wastewater supplied to a user for further use with or without prior treatment. This does not include the reuse (or recycling) of water within economic units themselves. Such reuse often occurs with wastewater from reclamation systems.  Reused water is considered being a product when payment is made by the receiving unit. Once wastewater is discharged into the environment (e.g., into a river), its re-uptake downstream is not considered being reuse of the water in the accounting sub-tables, but rather as a new uptake from the environment. 

Part IV of the supply table, “Return flows of water,” records all water that is returned to the environment as supplies to the environment. In some cases, these flows will comprise flows of wastewater direct to the environment from industries and households.  In other cases, these flows will comprise flows of water from treatment facilities following treatment. In the supply sub-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 sub-table as flows received by the environment.  

Some return flows of water to the environment are losses of water resources.   Such losses include flows of water that do not reach their intended destination or are lost (through evaporation, etc.) from storage. Losses during distribution occur between a point of uptake and a point of use or between points of use and reuse of water. These losses may be caused, e.g., by evaporation (when water is distributed through open channels) and leakages (when water leaks from pipes or from distribution channels during filtration). In practice, when losses during distribution are computed as a difference between the amount of water supplied and the amount received, problems may arise associated with accuracy in the measurement and evaluation of these volumes.  The reasons for this may include difficulties and accounting inconsistencies during water reception and transfer as well as illegal uptake of water and other factors. 

Urban run-off from surface water channels is that portion of precipitation on urban areas that does not naturally evaporate or sink into the ground. These volumes, as a rule, flow into overland flows, i.e., into water sources. That is to say, they are transported via pipes to a defined point of surface water channels or a constructed filtration facility (e.g., filtration fields).  Urban run-off that is collected by sewerage (storm-water drainage) or similar facilities is recorded as uptake of water from the environment (and, according to ISIC classification, is ascribed to the sewerage industry). The respective run-offs may then be treated before their return to the environment or may be treated and distributed as reused water. Urban run-off that is not collected by a sewerage system but flows directly to the inland water system is not recorded in the Physical Supply and Use Table. 

To fully account for the balance of flows of water entering an economy through uptake and returning to the environment as return flows of water, three additional physical flows need to be recorded: evaporation of water uptake, transpiration and water incorporated into products. 

Flows of evaporation are recorded when water is distributed between economic units after uptake, for instance, during distribution via open channels or while accumulating (collecting and storing) in open facilities and in various water storage tanks and reservoirs.  The transpiration of water occurs when soil water is absorbed by cultivated plants as they grow and is subsequently released into the atmosphere in the course of physiological processes taking place during vegetation. Amounts of water directly incorporated into products (e.g., water used in the manufacture of beverages) are shown as being supplied by the relevant industry, which is generally a manufacturing industry. 

The supply and use of water uptake that evaporates, is used in transpiration and is incorporated into products is recorded in Part V of the supply and use table.  

The results of the above macro-accounting of water resources provide a useful tool for improved water management. The relevant data can be coordinated with macroeconomic accounts in order to measure the intensity and productivity of water use. Generally, the SEEA envisages three main water aggregates that can be obtained on the basis of Physical Supply and Use Table data. 

1. Gross Water Input. This indicator reflects the total water that is taken up from the environment or imported. It characterizes the pressures placed on the environment of a specific country (or the environment of other countries) through the supply of water to the economy. Thus, in the Physical Supply and Use Table for water the said gross input is equal to the total water uptake plus imports of water resources. For analytical purposes, it may be useful to disaggregate gross water input by source (e.g., surface water, groundwater, soil water or other sources). Gross water input can also be grouped by types of economic activity. 

2. Net Domestic Water Use. This indicator focuses on accounting of the use of water by resident economic units. This aggregate excludes all flows of water between economic units (and hence is a net measure) and also deducts all exports of water. So the indicator is defined as the sum of all return flows of water to the environment plus evaporation, transpiration and water directly incorporated into products.  Net domestic water use can be presented as the sum of data on different industries and 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, this difference may be of interest in compiling the aggregates at an industry level, e.g., for agriculture, or for water collection, treatment and distribution of water. In the same way, this difference may be important in analyzing water use at a regional level, since water “imports” and “exports” in different regions of a country may be significant

3. Final Water Use is generally referred to in macro statistics as water consumption. This aggregate is a key indicator of environmental pressure (i.e., scale and impact) with respect to water. This is explained by the fact that a large proportion of the water uptake is returned to the environment and may therefore be taken up once more. So the amount of final water use is equal to evaporation and transpiration plus water incorporated into products. That is to say, this aggregate shows the quantity of water uptake, which is no longer available for use.  

The above-mentioned aggregates and indicators based on the Physical Supply and Use Table do not cover all flows, kinds and forms of changes in water stock in inland water resources. They do not include, e.g., losses of water due to evaporation from artificial reservoirs. As mentioned above, these losses are recorded in the asset accounts for water resources.  

Asset accounts for water resources in monetary terms.

Measuring water stock 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 below the cost of production in order to support agricultural production or supplied at a flat charge because it has been perceived that water cannot be subject to scarcity. The monetary prices, therefore, have tended to be related to the fixed infrastructure costs of collecting and transporting water to specific destinations rather than to the actual volume of water used, which may vary significantly. 

Given this situation, the standard approaches to valuation of water assets, and in particular the net present value approach, are not appropriate 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 water uptake 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 being zero. 

There is a trend towards water pricing that reflects the full costs of managing, uptake and distribution of water resources. Consequently, there may be some instances where such approaches as net present value (NPV) are applicable . In these cases, these values should be incorporated as part of the overall monetary value of environmental assets and a part of the value of economic assets. 

Use of water to generate hydropower is a specific case where there is potential for applying NPV approaches efficiently for the valuation of water resources.  In this case future income streams from water resources (from the sale of energy) can be estimated following the standard NPV approaches. Where such valuation can be made, the resulting asset values should be attributed to water resources. 

Another approach to valuation of water resources is to consider the value of water access entitlements, which, in some countries, are traded on a special market. Often, the value of these entitlements is closely connected to the value of the associated land. 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.

Water statistics can provide data for water management at many geographical levels, ranging from local level and the level of river basins, to national and multinational levels. The choice of a spatial reference for compiling 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). At the same time, national aggregates cannot accurately reflect the issues facing particular regions.  

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 have an impact on the quantity and quality of water in the basin, and conversely the water available in a basin affects the people and economic activities that rely on this water. However, in areas where groundwater is an important water source, aquifers may also be appropriate spatial references for compiling water statistics. 

Although data for specific spatial scales within a country are often 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 is more commonly compiled based on administrative boundaries) In these situations, common areas of observation (accounting catchments) should be defined. 

When integrating or collecting water data, it is important that the reference periods for the different data items are aligned. In water and economic statistics, the recommended temporal reference is the calendar year. However, in practice, water and economic data may not be available in a breakdown by calendar years. For example, some countries use a financial year for national accounts, while they may use a hydrological year for water statistics. Financial and hydrological years may coincide with or differ from calendar years. It is also to be noted that in some cases high seasonal variability in the relationship between demand and supply of water may mean that annual data (for either a financial or hydrological year) are insufficient and sub-annual data are required. 

Mineral and energy resources 

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 time-scale comparable with human lifetimes. For that reason, 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.

Asset accounts for mineral and energy resources determine the general structure of the relevant information, including the quantities and values of stocks of the resources and the changes in these stocks over accounting periods. Flows of extraction, depletion and discoveries are central to the asset accounts and these, in turn, can provide valuable information regarding the availability of individual resources.

Valuing stocks and flows of mineral and energy resources allows important links being made to monetary estimates of the value added and operating surplus of the extractive industries, e.g., 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 cases, the government is the collective owner of these assets on behalf of society. 

Mineral and energy resources comprise known deposits of crude oil resources, natural gas resources, coal and peat resources, non-metallic and metallic minerals.  Since the resources are usually 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 the cost of extraction and the degree of confidence regarding the quantity that can be extracted in the future. 

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), which is a generic, flexible scheme for classifying and evaluating quantities of fossil energy and mineral resources.  

Many countries have their own national classification systems based on, e.g., systems developed by the Society of Petroleum Engineers (SPE, 2007), the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) and the International Atomic Energy Agency/International Energy Agency (IAEA/IEA). It may therefore be necessary to apply conversion rates to facilitate international comparisons. 

The UNFC-2009 categorizes mineral and energy resources by determining whether, and to what extent, projects for the extraction and exploration of the resources have been confirmed, developed or planned (Table 1.13). 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)

The first criterion (E) designates the extent to which economic and social conditions are favorable for establishing the commercial viability of the project. The second criterion (F) designates the maturity of studies and commitments necessary to implement mining plans or development projects, extending from early exploration efforts before a deposit or accumulation has been confirmed through to a project that is extracting and selling a product. The third criterion (G) designates the level of certainty of geological knowledge and potential recoverability of the respective quantities.

Table 1.13 Categories of mineral and energy resources 

 Source: UNFC-2009, diagrams 2 and 3.

Known deposits are categorized in three classes, each defined according to combinations of criteria derived from UNFC-2009. 

Class A: Commercially recoverable resources. This class includes deposits for projects in categories E1 and F1 and where the level of confidence regarding geological knowledge is high (G1), moderate (G2) or low (G3).

Class B: Potential commercially recoverable resources. This class includes deposits for projects in categories E2 (or possibly E1) and also in F2.1 or F2.2 and where the level of confidence regarding geological knowledge is high (G1), moderate (G2) or low (G3). 

Class C: Non-commercial and other known deposits. These are resources in projects in category E3 and for which feasibility is categorized as F2.2, F2.3 or F4 and where the level of confidence regarding geological knowledge is high (G1), moderate (G2) or low (G3). 

Known deposits exclude potential deposits where there is no expectation of the deposits becoming economically viable and the information necessary to determine the feasibility of extraction or provide confidence regarding geological knowledge is not available.  

There is a large variety of different types of mineral and energy resources, including crude oil, natural gas, coal and peat, non-metallic and metallic minerals.  However, there is no internationally agreed detailed classification of mineral and energy resources, which would be suitable for statistical purposes. 

Physical asset accounts for mineral and energy resources

Physical asset accounts for mineral and energy resources should be compiled by type of resource and should include estimates of the opening and closing stock of mineral and energy resources and changes in the stock over the accounting period. 

The measurement units used to compile and present the relevant information can vary by type of resource.  They are most likely to be in tons, cubic meters 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. 

It should be noted that a total for each class of deposit combining different resource types cannot be meaningfully estimated owing to the use of different measurement units for different resources.  

Ideally, opening and closing stocks of each mineral and energy resource should be classified by classes of resource, i.e., class A: Commercially recoverable resources; class B: Potential commercially recoverable resources; class C: Non-commercial and other known deposits, following the structure in Table 1.14.

Table 1.14 Stock of mineral and energy resources 

Type of mineral or energy resource	Class of known deposit
	Class A: Commercially recoverable resources	Class B: Potential commercially recoverable resources	Class C: Non-commercial and other known deposits
Crude oil resources (thousands of barrels)	800	600	400
Natural gas resources (cubic meters)	1,200	1,000	1,500
Coal and peat resources (thousands of tons)	600	50	50
Non-metallic mineral resources (tons)	150	200	100
Metallic mineral resources (thousands of tons)	60	40	60

Note: Different physical units (e.g., tons, cubic meters and barrels) are used for different types of resources.

Source: UN, 2012a.

Compiling of totals for all classes of individual resource types is not recommended. Because each class has a different likelihood of extraction, simple summation of the available resources for a specific resource (e.g., coal) may produce a misleading estimate of total available resources.

In this framework, it is important to distinguish 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 a misleading indication of average prices and relative availability of individual resources.

The structure of a basic physical asset account for mineral and energy resources is provided in Table 1.15. 

Table 1.15 Physical asset account for mineral and energy resources 

	Type of mineral or energy resource  (Class A: Commercially recoverable resources)
	Oil resources (thousands of barrels)	Natural gas resources (cubic meters)	Coal and peat resources (thousands of tons)	Non-metallic mineral resources (tons)	Metallic minerals (thousands of tons)
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

Note: Different physical units (e.g., tons, cubic meters and barrels) are used for different types of resources.

Source: UN, 2012a.

The changes in stock in physical terms should include the following types of changes:

- Discoveries.  These include 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., refer to Class A, B or C. Discoveries should be recorded by type and class of resources.

- Reappraisals may be upward or downward. They should pertain only to known deposits. In general, reappraisals 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 Classes A, B or C, based on changes in geological information, technology, resource prices or a combination of these factors.

- Extraction. Estimates of extraction should reflect the quantity of the resources 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. Further, the quantity of extraction should be estimated before any refining 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 should be 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 at some deposits. In cases where natural gas is found with crude oil, the oil (and some natural gas) is expelled from the oil well by the pressure, which is exerted by the gas. Some gas that is expelled may be flared rather than put to direct use while another part (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 being extracted. In such cases, if the natural gas associated with the oil is being measured, allowance must be made to reflect the gas, which is reinjected. 

- Catastrophic losses are rare. Flooding and collapse may occur, but the deposits continue to exist and can 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. 

- Reclassifications may occur if certain deposits are opened or closed to mining operations owing to government decisions concerning 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. 

Monetary asset accounts for mineral and energy resources

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 account. The basic structure of such an account is shown in Table 1.16.

Table 1.16 Monetary asset accounts for mineral and energy resources (monetary units)

	Type of mineral or energy resource  (Class A: Commercially recoverable resources)
	Crude oil resources	Natural gas resources	Coal and peat resources	Non-metallic mineral resources	Metallic minerals
Opening stock of mineral and energy resources	24,463	19,059	41,366	1,668	6,893
Additions to stock
Discoveries					1,667
Upward reappraisals		3,100		391
Reclassifications
Total additions to stock		3,100		391	1,667
Reductions in 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 stock of mineral and energy resources	23,641	20,412	38,377	1,519	3,940

Source: UN, 2012a.

The additional entry in the monetary asset account relates to the recording of revaluations, which occur due to changes in resource prices over the accounting period or due to changes to assumptions underlying the Net Present Value (NPV) approaches that are typically used to value mineral and energy resources. 

While the measurement boundary extends to all known deposits in physical terms, it may not be possible to value 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 likelihood and timing of extraction be taken into account in determining expected patterns of extraction and resource rent. 

Because transactions with mineral and energy resources in situ are rare, the valuation of these assets requires the use of net present value approaches. 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 the total value of mineral and energy resources. 

Application of NPV approaches in the valuation of mineral and energy resources requires a number of factors to be taken into account, mainly pertaining to the estimation of resource rent. 

Estimation of resource rent.In general, the resource rent is estimated based on information about income and operating costs in the extraction industry. The aim is to define a resource rent that is specific to a given resource type, for example, coal. Several factors should be borne in mind for this purpose. 

1. 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 refining and processing of the extracted resource. The extraction process is considered including the activity of mineral exploration and evaluation. These costs should be deducted when deriving resource rent. 

In some cases, a single deposit may contain several types of resources. For example, an oil well often contains gas; and silver, lead and zinc are frequently 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 usually available only for the extracting unit as a whole, the 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.  

2. Price fluctuations.  While operating costs for the extraction of 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 the difference between income and costs) may entail a highly 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, e.g., 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 specific 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 estimation of future resource rents. To aid interpretation of this information, all assumptions regarding future expected prices and costs should be made clear. 

3. Treatment of mineral exploration and evaluation. Mineral exploration is undertaken in order to discover new deposits of minerals and energy resources, which could be commercially exploited. Such exploration may be undertaken by mining enterprises on their own account.  Alternatively, specialized enterprises may carry out exploration either for their own purposes or for payment. The information obtained from exploration and evaluation determines subsequent extraction work over a number of years. Hence, these expenditures are considered being one form of gross fixed capital formation serving as the basis for production of intellectual property, which is one type of produced asset. 

Mineral exploration and evaluation includes expenditures on exploration for crude oil and natural gas and for non-petroleum deposits and expenditures on subsequent evaluation of the discoveries made.

These expenditures include pre-license and acquisition costs, appraisal costs and costs of actual test drilling and boring, as well as the costs of aerial and other surveys, transportation costs, etc., incurred for purposes of the tests. Re-evaluation may be carried out after commercial exploitation of the resource has begun and the cost of such re-evaluation is also included in the expenditures just mentioned.

Fixed capital consumption should be calculated for a specific asset, using average service lives similar to those used by mining or oil corporations in their own accounts. When estimating resource rent, the user costs of the produced assets are to be deducted, including fixed capital consumption and a return on the produced asset. 

It is recognized that the outcome of mineral exploration is the discovery of mineral and energy resources, so the value of mineral and energy resources on the balance sheet may, in part, be considered being due to mineral exploration. However, following the SNA, the output of mineral exploration work is considered being an intellectual property product, not a natural resource. 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.

4. Mine and rig decommissioning costs. Consistent with 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 for restoring the natural environment around the extraction site.  These costs, where they can be reasonably anticipated or estimated, should be considered reducing 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 operation of the assets. 

5. 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 the resources of a country. In practice this is not the case: some oilfields will be exhausted in a relatively short time frame and extractors will move to other fields. 

Many reappraisals apply to established fields where extraction is already in progress. Upward revisions in estimates of stocks extend the life of the resources and the addition to value will reflect the change between the previous and new resource lives since without additional investments the extraction rate is likely to remain steady.  

The situation is somewhat different in the case of a completely new discovery. It may happen that a deposit is discovered, which has an expected life of20 years, and contains stocks equal to the country’s existing reserves. It is not realistic to assume that resources in the new deposit will necessarily be extracted in years 21 to 40.  Nor is it realistic, on the other hand, to assume that extraction will be completed in years 1 to 20, which would double the total national extraction in these years. It is desirable, therefore, to make projections of the impact of discoveries and reappraisals separately and, ideally, on a deposit-by-deposit basis. 

6. Extraction rate. 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 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 reduce the quantity extracted as the resource diminishes, assuming the price increases at the same time. There may be information available from government or from enterprises on projected levels of extraction, which could be used, although such information is often based on conservative projections of the likely level of new discoveries and reappraisals. 

In the absence of more precise information, a reasonable assumption is that the rate of extraction is kept constant in physical terms.  This amounts to an assumption that the extraction process remains steady and the stock of extraction-related produced assets remains steady in proportion to the available stock of the resource.

7. Resource life. At any point in time, the life of the 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 extraction and will change by the quantity of discoveries and reappraisals during the period divided by the average extraction rate. 

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, the resource life must be calculated based only on class A resources and not on total known deposits of the resource (i.e., including also class B and class C resources).

8. Value of discoveries, reappraisals, extractions, depletion and catastrophic losses. 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. 

9. Acquisitions and disposals of mineral and energy resources. 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 price of the produced asset. On the balance sheet this produced asset is considered being incorporated into the value of the underlying mineral and energy resources.

Non-cultivated biological resources (forests and animals)

While the vast majority of biological resources are cultivated, there is a range of natural (non-cultivated) biological resources that provide inputs to the economy and form an important part of local biodiversity. These resources include timber, wild berries, mushrooms, fungi, bacteria, fruit, medicinal plants and other plant resources that are harvested for sale or own consumption. They may also include wild animals, such as deer, boar or moose that are killed for sale or own consumption.

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. 

Because they are not under the 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 are now cultivated.  Thus, while there is a wide range of harvested animal and plant resources that are not cultivated, it is typically the case that active measurement is only applied to animals, plants and other biota, for which access rights are controlled (e.g., through hunting licenses) or for which there are other management or conservation arrangements in place. Further, many animals and plants are harvested for own consumption or as part of subsistence farming. 

At the same time, in certain countries there are particular species that support quite sizable 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).  It may therefore be beneficial to organize data and other information on the quantity and value of the available resources, extraction rates and the possible extent of loss of animal or plant populations due to over-hunting.

We will now examine the structure and logic of accounting of non-cultivated biological resources, as exemplified by the most common cases: timber and animal resources.

Asset accounts for timber resources

Timber resources are important environmental assets for the construction and production of paper, furniture and other products, while also representing a source of fuel and an important carbon sink. The preparation 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 useful 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. 

Timber resources can be found in a wide variety of locations.  They may or may not be available to be felled and used as wood supply, i.e., to produce timber products or for fuel. Timber resources may not be available for wood supply due to the fact that the trees are in areas where logging operations are restricted or prohibited, in areas that are inaccessible or remote and where logging is therefore not economically viable, or because they do not belong to a commercially useful species due to biological features of the trees.  

While timber resources that are not available for wood supply do not possess an economic value, these timber resources remain in the scope of timber resources in the SEEA in physical terms, as they meet the definition of environmental assets and may provide benefits. However, since these 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 terms and monetary terms. 

Timber resources are most commonly found in forests and on other wooded land, which can be regarded as basic territorial units for collecting and summarizing information inputs. These resources are also found in other areas such as orchards, rubber plantations, along roadsides and train tracks and in city parks.  Conceptually, timber resources in all of these areas are also within the measurement scope of the SEEA. In practice, the scope of measurement should be determined by the relative importance of the types of areas that provide timber resources (timber resources from different territories should be clearly differentiated).

The volume of these resources is often referred to as the volume of standing timber . This definition includes fallen trees; trees that have been felled but not removed from the area; and trees that have fallen from 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 that remain standing.

The volume of standing timber should be distinguished from the growing stock which relates to living trees and is the basis for calculation of the natural growth in timber resources over a period.

Physical asset accounts for timber resources 

The physical asset account for timber resources records the volume of timber resources at the beginning and end of the accounting period and the change in this stock over an accounting period. The analysis of natural growth of timber resources compared with their removal is of particular interest. 

The basic structure of a physical asset account for timber resources is presented in Table 1.17. The assets account should distinguish between the types of timber resources and, most importantly, between cultivated and natural timber resources.  For natural timber resources a distinction should be made between timber resources available for wood supply and those not available for wood supply, to ensure that the different scopes of the asset accounts in physical and monetary terms can be reconciled.  Accounts by tree species may be compiled depending on the purpose of analysis and available data.  

Table 1.17 Physical asset account for timber resources (thousands of cubic meters with bark)

	Natural timber resources
	Available for wood supply	Not available for wood supply
Opening stock of timber resources	8,000	1,600
Additions to stock
Natural growth	1,100	20
Reclassifications	150
Total additions to stock	1,250	20
Reductions in stock
Removals	1,000
Felling residues	120
Natural losses	30	20
Catastrophic losses
Reclassifications		150
Total reductions in stock	1,150	170
Closing stock of timber resources	8,100	1,450
Supplementary information
Felling	1,050

Source: UN, 2012a.

The asset accounts presented in the SEEA focus on timber resources found in forest areas and on other wooded land. It may, however, be of interest to develop estimates of the volume of timber resources in other areas.  

Additions to stock. The stock of timber resources increases 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. 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 land and other areas of land can lead to increases in the volume of available timber resources.  This is not considered being a natural growth and is recorded in 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. The stock of timber resources may decrease over an accounting period through removal and natural losses. Removals are estimated as the volume of timber resources removed from forest land and other wooded land 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 can be recorded by type of product (e.g., industrial round wood or fuel wood) or by species of tree (e.g., coniferous or broad-leaved). 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. 

Felling residues need to be deducted in order to fully account for the change in the volume of timber resources over an accounting period. These residues are associated with the fact that, at the time of felling, a certain volume of timber resources consists of trees that are rotten, damaged or exceed size requirements. Felling residues exclude small branches and other parts of the tree that are excluded from the scope of timber resources. Estimates of felling residues can provide important information on the nature of forestry practice.

Natural losses are the losses of growing stock (i.e., living, standing trees) during an accounting period due to mortality from causes other than felling: insect attack, fire, wind throw and other physical damage.  Natural losses only include losses that may be reasonably expected when considering timber resources as a whole.  They are recorded only when there is no possibility of removing timber. All timber removed should be recorded as removals 

Catastrophic losses occur and are recorded when there are exceptional and significant losses of timber due to natural causes. These losses can also occur when there is no possibility of removal.   All timber removed should be recorded as removals

Depletion. Depletion is related to the sustainable yield of timber resources from forest land and other wooded land. 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 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. 

In physical terms, depletion of natural timber resources is equal to removals less sustainable yield. As a rule, 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.

It should be noted that the concept of sustainable yield used to define depletions does not take into account ecological sustainability of the surrounding ecosystems, which may also be affected by the felling and removal of timber resources.

Felling. While the entries considered above 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 felling is equal to the volume of timber resources felled during an accounting period. Felling includes silvicultural and pre-commercial thinning and cleaning. Where available, estimates of the volume of felling may be included in the physical asset account as additional information. 

Timber resources as a source of energy Sources of energy provided by natural and cultivated timber resources are recorded in the physical supply and use table for energy (UN, 2012a, Section 3.4). The basis for recording is measurement of the total energy that is actually sourced from timber resources rather than measurement of the total energy that might be sourced from timber resources. Conceptually, the stock of timber measured in the asset accounts includes 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, which are used for energy purposes. In this context, there could be a focus on resources that are considered being renewable sources of energy.

Monetary asset accounts for timber resources

Monetary asset accounts for timber resources consist in measuring the value of opening and closing stocks of timber and changes in the value of the stock over an accounting period. (Table 1.18)

Table 1.18 The structure of monetary asset accounts for timber resources (currency units)

	Natural timber resource (available for wood supply)
Opening stock of timber resources	82,428
Additions to stock
Natural growth	11,334
Reclassifications	1,546
Total additions to stock	12,879
Reductions in stock
Removals	10,303
Felling residues	1,236
Natural losses	309
Catastrophic losses
Reclassification
Total reductions in stock	11,849
Revaluations	16,692
Closing stock of timber resources	100,150

Source: UN, 2012a.

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 prices for timber change during an accounting period. 

It may be that not all timber resources are available for harvest due to forest legislation and/or environmental and economic reasons. It is recommended that the volume of timber resources that cannot be harvested should be separately identified and should not be a part of overall calculations of the value of timber resources. 

Estimates are made for the value of natural growth and the value of removals. For cultivated timber resources natural growth is considered an increase in inventories and the removal is trees is treated as a decrease in inventories. Following the SNA, only the change in inventories is usually recorded, but entries are recorded on a gross basis in the SEEA.

For natural timber resources, natural growth is not considered being an increase in inventories, since the growth of trees is not considered being part of a production process.   The removal of timber resources represents the point at which timber resources enter the economy, and output is recorded at that point.

In line with its general definition (SEEA, 2012, section 5.4), resource rent can be derived as the gross operating surplus from the harvest of timber resources (after taking specific taxes and subsidies into account), less the value of the user cost of produced assets that are used in the harvesting process.  

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 this asset taken as a whole (UN, 2012a, section 5.6). In many cases, owing to the location of the land or the quality of the soil, the return on the land may not be large compared to the return on 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 the land should be deducted for deriving an estimate of resource rent on timber resources.  

Resource rent can be estimated more directly by using estimates of the value of the growing stock (stumpage price), which is the amount paid per cubic meter of timber by the harvester to the owner of the timber resources (government). The stumpage price itself may also be derived by deducting various harvesting costs from the 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 the land. For natural timber resources, these additional costs may be very low or even zero. When 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. 

The 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) in order to estimate 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 value of the total stock of standing timber.  This approach should provide separate accounting for the harvesting of mature trees.  A simplified 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.

The primary difficulty in applying these NPV approaches is the extent to which information is available on the age structure of trees and how these trees will mature into the future. Where the necessary detail is available, these NPV approaches should be used, taking the modeling of future timber resources into account. 

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.

While these two methods are variants of basic NPV approaches, the assumptions underpinning then may be very restrictive, particularly in case of a changing age structure of timber resources due either to over-exploitation or to active afforestation. 

In general terms, the valuation of flows of timber resources (including removals, natural growth, depletion, etc.) should be undertaken using the same in situ resource prices, which underlie the valuation of the opening and closing stock of timber resources. The relevant approaches are described in Annex A5.1 of the SEEA 2012.

 With respect to catastrophic losses, due, for example, to wind throws or forest fire, the value of the wood that is salvaged should be taken into account. Prices may rise following the 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 changes in the pattern of timber available for supply.  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.  

Other changes, which affect the value of stocks of standing timber as a resource for the logging industry, are changes in use or status (e.g., 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. 

An increasingly important consideration is the assessment of carbon sequestration. 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 this amount over an accounting period can be derived using information on the opening and closing volume of standing timber and 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 quantities of carbon. These coefficients will vary with the species of the tree and other factors. 

A carbon account for timber resources can be developed based on the structure of physical asset accounts for timber resources (see Table 1.17)

It should be noted that references to reductions in the stock of carbon in timber resources (e.g., 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. 

Asset accounts for animal resources

The structure and logic of accounting of animal resources is similar to timber resource accounts (Table 1.19). 

Table 1.19 Structure of a physical asset account for animal resources (thousands of individuals)

	Animal resources (by species)
Opening stock of animal resources	100
Additions to stock
Natural growth	15
Reclassification	-
Total additions to stock	15
Reductions in stock
Extractions	5
Natural losses	7
Catastrophic losses	2
Reclassification	-
Total reductions in stock	14
Closing stock of resources	101

There are several types of processes that may lead to an increase or decrease in the amount of animal resources, and they generally correspond to positions in natural resource accounts, subject to some adjustment and specification.  

Additions to stock  These refer to increases in stock of game over an accounting period as a result of actual growth and spread of animals due to: `

1) natural factors, excluding any human involvement;

2) special biotechnology measures to promote natural regeneration. 

An increase in stock may result from the reclassification of game assets in situations where certain species acquire the status of game. Reclassification may also be related to changes in the assets due to improvements of game husbandry, game use technologies, etc.

Reductions in the stock. The stock of animal resources may decrease during an accounting period as a result of physical extraction (shooting, catch, harvesting), natural and catastrophic losses.   Physical extraction refers to the volume of the stock of animal resources removed from hunting areas and other territories during an accounting period  Physical extraction can be recorded by families (e.g., hoofed, upland game, fur game, etc.) or by species (e.g., moose, wood grouse, sable, etc.). 

Natural losses represent a decrease in the number of game due to natural aging and death, losses caused by predators and diseases, by forced migration and other factors. These processes do not include events of a mass, large-scale and one-off nature, resulting from disasters and/or catastrophic events. Systematic natural decline can usually be forecast based on information about real conditions and processes, as well as on experience gained, and long-term gathering and analysis of relevant data. 

Catastrophic losses occur as a result of phenomena that are large-scale, one-off, anomalous and unpredictable (though actually accounted for) and lead to the destruction (death) of a considerable volume of resources.   As regards game resources, such losses may include:

- epidemics that kill many animals;

- losses due to earthquakes, volcanic eruptions, mud flows and avalanches (in mountain forests), catastrophic floods, acute frosts or prolonged drought, etc.

- consistent with the SEEA 2012 approach, such losses can also be caused by various man-made factors, such as warfare, oil spills in the course of extraction or transportation, significant radioactive emissions.

Reductions in stock can occur due to reclassification of game assets after certain species have been transferred to the category of rare and endangered animals whose hunting is prohibited.

The most suitable basis for valuation of animal resource assets and liabilities is the price at which they could be purchased on the market at the moment of valuation. Ideally, the prices used should be prices, which are observed on the market or which can be estimated by observing market prices. 

1.3.2.3. Functional accounts (environmental activity accounts)

The record of transactions (in monetary terms) related to activities intended to preserve and protect the environment represents an important element in environmental-economic accounting. The goal of identifying the environmental component in key SNA aggregates is adequate justification for keeping such records.  Further, information on these transactions may be used, in combination with information on the changing pressures on the environment, to help assess whether economic resources are being used effectively to reduce pressures on the environment and to maintain the capacity of the environment to provide ecosystem services.

The scope of environmental activity comprises 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 such activities include the reclamation of polluted territories, preservation and management of resources, as well as investments in technologies to prevent or mitigate environmental pollution.

These various activities are grouped into two broad categories: environmental protection and resource management (resource use). Environmental protection activities have the primary purpose of preventing, reducing and eliminating pollution and other forms of degradation of the environment.   Resource management activities have the primary purpose of preserving and maintaining the stock of natural resources and hence safeguarding against depletion.  

The general structure of classification of environmental activities is presented in Table 1.20. 

Table 1.20 Classification of Environmental Activities 

Group	Classes
I. Environmental  protection	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	1. Management of mineral and energy resources 2. Management of timber resources 3. Management of aquatic resources 4. Management of other biological resources (excluding timber resources and aquatic resources)  5. Management of water resources 6. Research and development work for resource management 7. Other resource management activities

Source: UN, 2012a, p. 106.

Environmental activity accounts include environmental protection expenditure accounts and resource management expenditure accounts. 

Environmental protection expenditure accounts (EPEAs) are functional accounts. Their purpose is to identify and measure society’s response to environmental concerns by estimating supply and demand for environmental protection services and by assessing production and consumption behavior, which prevents environmental degradation. EPEAs present information on the scope of environmental protection services across the economy and on the expenditure of resident units on all goods and services in this sphere.

There are four main, interlinked EPEA tables:

- production of environmental protection services;

- supply and use of these services;

- total amount of national expenditure on environmental protection;

- financing of national expenditure on environmental protection;

Information on provision of environmental protection services by resident producers is given in Table 1.21. These services are provided by economic units for sale or for their own use. Production of environmental protection services is presented with a breakdown between specialist producers, non-specialist producers and own-account producers. Government specialist producers are separately identified.

Table 1.21 Production of environmental protection services (monetary units)

	Producers				Total
	Specialist producers		Non-specialist producers	Own-account producers
	Government specialist producers	Other specialist producers
Output of environmental protection services;	3,000	6,500	2,400	1,600	13,500
Intermediate consumption	2,000	3,000	600	400	6,000
Environmental protection 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
Remuneration 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
Labor 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 disposal of non-produced, non-financial assets		200

Source: UN, 2012a, p. 111.

All amounts in Table 1.21 are measured in compliance with generally accepted SNA accounting practice. 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. Inclusion of own-account production extends the range of entries compared with that of the core national accounts. So measures of output and intermediate consumption will be larger in the EPEA relative to the core accounts than they would be if this activity were not separately identified. 

The supply and use table for environmental protection services (Table 1.22) reflects the total supply of specific services by resident producers and the rest of the world and the use of environmental protection services by various economic units. 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. In the second half of this table (the use table), the total supply of specific services is shown as:

a) intermediate consumption by a specialist or other producers;

b) final consumption by households or governments;

c) gross fixed capital formation 

d) exports to the rest of the world.

All entries in the use table are in purchasers’ prices.

Table 1.22 Supply and use of environmental protection services (monetary 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 services	13,500	270		13,770			13,770
Use table
	Intermediate consumption		Final consumption		Gross fixed capital formation	Exports	Total use
	Specialist producers	Other producers	Households	Government
Environmental protection services	{0}1,500	7,400	2,970	1,800	100		13,770

Source: UN, 2012a, p. 112.

The table of total national expenditure on environmental protection is important for the estimation of environmental protection spending. What is included is all expenditure on goods and services used for environmental protection as follows:

1) environmental protection services;

2) expenditure on connected products; 

3) expenditures on adapted goods.

The table also includes total fixed capital formation for environmental protection purposes by a specialist, non-specialist and own-account producers, and the respective transfers for environmental protection work.  Recording of these flows in the table ensures measurement of total spending in the economy for purposes that are reflected in the aggregate indicator of national expenditure on environmental protection. 

The following table which shows financing of environmental protection, is a continuation of the table on total national expenditure on environmental protection and is designed to show indicators for the financing of government expenditures on environmental protection.

Overall, the total amount of national expenditures on environmental protection is defined as follows: 

- final consumption, intermediate consumption and gross fixed capital formation for all environmental goods and services (specific services, connected products  and adapted goods), except intermediate consumption and gross fixed capital formation for typical activities;

- plus gross fixed capital formation (and acquisitions less disposal of non-produced non-financial assets) for typical environmental protection activities; 

- plus transfers by resident units that are connected with environmental protection and are not captured in the items above;

- plus transfers connected with environmental protection, which are paid to the rest of the world;

- minus transfers connected with environmental protection, which are received from the rest of the world. 

Resource management expenditure accounts include accounts covering supply of resource management services and use of resource management services, national expenditure on resource management and financing of national expenditure on resource management. It may be relevant to compile resource management expenditure accounts for a specific type of resource (e.g., timber resources or water resources) (UN, 2012a, Chapter 4).

1.3.2.4. Experimental ecosystem accounting

Experimental ecosystem accounting is an important element of the general system of environmental-economic accounting. Its basic methodological provisions are presented in the System of Environmental-Economic Accounting, 2012: Experimental Ecosystem Accounting.  Although experimental ecosystem accounts are not currently a statistical standard, they provide a consistent and coherent synthesis of current knowledge regarding an accounting approach to the measurement of ecosystems within a model that complements the SEEA 2012. The main purpose of developing an appropriate accounting system is to integrate information regarding the environment (including information on environmental protection) with economic information in order to weigh various options for taking management decisions.  Within this context, the more specific objectives in establishing an accounting structure are: 

• organizing information on the environment from a spatial perspective, describing, in a coherent manner, linkages between ecosystems, economics and other human activities; 
• applying a common, coherent and integrated set of concepts, classifications and terminology to enable coordinated work and consistent research;
• enabling connections with environmental-economic information obtained during implementation of the SEEA 2012. Such linkages would help to understand and assess the contribution of ecosystem services to economic activities (production, consumption and accumulation), establishing the specific linkage of degradation, restoration and development (enhancement) of ecosystems to specific economic units.  This also includes a broader and more comprehensive evaluation of national wealth;  
• identification of information gaps and key information requirements.

One of the main aspects of ecosystem accounting is a recognition of the fact that the ecosystem can provide a range of services that help to create the benefits that are used in the economy and other human activities. In some cases, ecosystem services can be enjoyed in combination and in harmony with other services, e.g., the preservation of wooded land also provides air filtration and opportunities for recreation and hiking. In other cases, ecosystem services can be of a competitive nature.  For instance, felling in a forest area accrues benefits in the form of a timber harvest. However, it also reduces opportunities for recreation. Ecosystem accounting allows these contradictions being examined in order to make efficient management decisions.

Experimental ecosystem accounting uses three interrelated categories (groups) of services

1. Provisioning services comprise material and energy contributions provided in or by ecosystems, e.g., fish resources or medicinal plants with pharmaceutical properties.  

2. Regulating services arise from the ability of ecosystems to influence climate regulation, hydrological and biochemical processes taking place on the earth, and various biological processes. Quite often, these services are territory specific.  For example, services for control (self-regulation) of floods, which are provided in wooded areas located upstream, are only significant for flood-prone areas located downstream from the wooded areas. 

3. Cultural services are shaped by physical features, location or a specific situation.  These factors produce intellectual and symbolic benefits that the population receives from ecosystems in the course of recreation, leisure and spiritual development. The benefits may also include actual visits to places that in some way support ecosystems (e.g., by showing films about nature) or help people to realize that ecosystems need to be preserved, since they contain important elements of biodiversity or cultural monuments. 

The SEEA experimental ecosystem accounts describe the measurement of ecosystems in physical terms and also in monetary terms to the extent that monetary measurement can be carried out in compliance with the principles of market value. Many of the structures for accounting of ecosystems are taken from the SEEA Central Framework and the SEEA 2012 accounting approaches are consistently applied. 

In the SEEA approach for deriving estimates of economic value of environmental resources and ecosystem services, based on the concept of total economic value, the value of a good or service is used as an indicator of its utility and is determined by its scarcity. What is plentiful and available to everyone does not have any economic value, however desirable it may be from ethical, esthetic and other points of view. Sunshine or a beautiful landscape does not have any value for so long as it is free and available to everybody. If they cease to be freely available, they acquire potential economic value.  If beautiful landscapes are ruined by urban development or if clean air is polluted, these benefits become scarce. People are beginning to discover their preferences in respect of environment quality. In this context, the “quality of the environment” is similar to a good that has become scarce.  Its value hypothetically increases as its scarcity increases, and the value can be estimated on the basis of what people are willing to pay for restoration of its quality or for protecting themselves by various methods from its further deterioration.  

If there is a market for the good or service, their scarcity is measured by price. In a simplified, timeless world, all goods are traded in perfect markets and market prices are truly socially weighted prices, which directly determine the distribution of resources for their most beneficial use. In real life, there are no perfect markets. With regard to environmental resources and ecosystem services, this means that only some of their value is reflected in market prices, while the remainder (their costs and benefits) cannot be identified in market processes. Since certain costs and benefits related to the environment are not accounted for in markets, their economic value is frequently ignored in the assessment of development projects and decisions.  

It should be noted that even in a developed market, existing prices only partially reflect the value of environmental resources and ecosystem services. As a result, misconceptions arise about their scarcity; socio-cultural views of the value and expediency of use of any particular resource are ignored. In other words, the market system in its current form is unable to distribute resources effectively, i.e., to assign just economic value to their destructive use. This is referred to as market failures (Insert 1.2).

According to the SEEA approach, current market estimates of the value of environmental resources should be adjusted to take account of all relevant value factors, thus neutralizing market failures and evaluating environmental resources and ecosystem services more adequately. This approach is based on the concept of total economic value of environmental resources in the context of links between the environment and the economy (Fig. 1.7).

Fig. 1.7 Typology of values of environmental resources and ecosystem services

Source: OECD, 1989; Turner, Bateman & Pearce, 1993.

 The breakdown of total economic value and the respective terminology may differ, but in the framework of the concept the value of a good or service is considered comprising: 

1) direct use value;

2) indirect use value; 

3) option values;

4) non-use value. 

The first three components constitute the integrated concept of the “use value.”

Direct use values refer to ecosystem goods and services that are directly used by people.  They include the value of consumption use, such as timber harvesting for construction and for fuel, procurement of medicinal plants and hunting for use in food; and the value of non-consumption use, such as cultural appreciation and recreation activities, which do not imply the extraction of material benefits. Most commonly, benefits of direct use are enjoyed by people visiting or inhabiting the respective ecosystem. 

Indirect use values are derived from ecosystem services that provide benefits outside the ecosystem itself. Examples may include wetlands that have a water filtration function, which is often beneficial for people living further downstream; mango groves protecting coasts against storms, with positive effect for coastal assets and infrastructure; and carbon absorption, which is beneficial for people everywhere as it slows down climate changes. These functions often impact activities whose value can be measured, making it possible to evaluate them as such.

Option value is understood as the retention of possible future use of goods and ecosystem services, which cannot be used at present:  by someone now (option value per se) or by other people/successors (bequest value) . Provisioning services as well as regulating and cultural services may together form a part of option value if they are not used in the present, but might be used in the future.

Non-use value refers to utility derived by people from knowing that a certain resource exists even if they will never enjoy it directly.  This value is often referred to as existence value or value of passive utilization.

A number of approaches to the valuation of different types of utility of environmental resources and ecosystem services are applied in order to derive a monetary estimate of all components of economic value.

1.4.1. Basic methods of economic evaluation of environmental resources and ecosystem services following the SEEA 2012

The concept of total economic value of environmental resources is based on the idea that these resources can have utility for people regardless of whetherthey are brought into circulation in the economy.  Therefore, the methods of economic valuation of environmental resources and ecosystem services within the SEEA framework are based, firstly, on an in-depth analysis of links between the environment and the economy (human activity) in physical terms and, secondly, on monetary estimate of all aspects of the utility, which these links generate for people. These approaches enable the fullest possible account of the economic value of environmental resources and ecosystem services

It should be noted that since the first edition of the UN handbook on national accounting (Integrated Environmental and Economic Accounting (1993)) was published, work for improvement of the methods of environmental-economic accounting has been continuing worldwide, drawing on the experience accumulated by various government units, research organizations and expert communities 

The main documents summarizing findings in this sphere are: Handbook of National Accounting: Integrated Environmental and Economic Accounting, 1993; Handbook of National Accounting: Integrated Environmental and Economic Accounting, 2003; and Central Framework of the SEEA, 2012. 

The SEEA-1993 was published as a work in progress because it was recognized that further conceptual discussions and testing of methodology were required. Drawing on the experience and major achievements obtained in various countries, the revised SEEA handbook showed significant progress in the unification of terms and definitions. Nevertheless, in many cases the methodology still retained the form of a collection of alternative approaches to implementation of the SEEA principles and of the latest experience in the sphere.  Recognizing the urgent importance of integrated information on linkages between the economy and the environment and based on technological achievements in that sphere, the United Nations Statistical Commission approved (at its 38th Session in 2007) the start of work on a second revision of the handbook in order to upgrade the Central Framework of the SEEA into an international statistics standard. 

The Central Framework of the SEEA, 2012 is based on agreed accounting concepts, definitions, classifications and rules. As an accounting system it allows all information being arranged in the form of tables and accounts in a conceptually consistent manner. This information helps to derive coordinated indicators that can be used in compiling accounts and addressing a wide range of issues. The focus is on market valuation tools as being most consistent with approaches to asset valuation in the SNA, particularly with regard to their specification and practical application. However, the conceptual basis of physical and monetary accounting of environmental resources and ecosystem services within the SEEA has remained unchanged.

The framework for deriving estimates of total economic value of environmental resources and ecosystem services in the SEEA-1993 combines a number of sets of methods. In the present section these methods are treated in conformity with the UN (1994b) classification.  Three basic approaches to deriving estimates of economic value of environmental resources and ecosystem services are applied in the framework of the SEEA:

• market valuation;
• direct non-market valuation (including willingness to pay)
• Indirect non-market valuation (including cost data on, for example, damage costs or costs incurred in meeting certain standards).

The general scheme for applying these methods in the valuation of specific environmental resources and ecosystem services is presented in Table 1.23.

Direct market valuation. Consistent with the guiding principles of the SEEA, the following approaches to market valuation of environmental resources can be distinguished:

• Factual market prices of environmental resources This type of valuation can be applied if market transactions involving this resource are sufficiently representative. Factual market prices are particularly relevant for transactions with land plots that do not have any special conservation status. However, environmental resources usually cannot be traded in this way;
• present (discounted) value of future net proceeds Future net proceeds are defined as the net operating surplus that could be associated with the use of environmental resources (less standard operating profit that could have been earned if the funds invested in the use of the assets concerned had been used for other activities that carry a similar degree of risk).  This approach can be used to determine the economic value of most environmental resources used in the economy (forest, water, etc.) 

There is some uncertainty regarding estimation of the standard profit element in net price, particularly when the operating surplus (before subtraction of standard operating profit) is already relatively small. In this case, the net price could become negative after the deduction of standard profit. However, it is important not to be misled by this result, as it may show that market prices of the resource are so low that even a standard return on invested capital cannot be achieved. The method of user cost is normally applied to evaluate depletion of mineral resources. This method avoids the application of negative net prices by dividing the actual operating surplus into two parts: user costs, which should be invested to achieve a constant flow of income in the future (even after the complete exhaustion of the resource), and a remaining true income element (Salah, 1989; 1991).

Table 1.23 Valuation and use of environmental resources

Type of valuation	Use of environmental resources
	Biological	Land (including ecosystems)	Subsoil	Water	Air
Market direct	Market prices (produced biota) Market valuation of net returns (wild biota)	Market prices	Market valuation (net return from exploitation)	Market prices (direct water use) Market valuation of net returns (water uptake)
Direct non-market	Existence values of animals and plants	Esthetic, recreational value of landscape Existence value of ecosystems		Evaluation of decrease in water quality (willingness to pay)  Evaluation of the existence value of aquatic ecosystems	Evaluation of decrease in air quality (willingness to pay)
Indirect non-market	Costs of balancing depletion and natural growth	Costs of preventing land degradation by pollution, agricultural or recreational use	Costs of providing alternative income sources	Costs of maintaining the average level of water bodies Costs of preventing reduction of the quality of water by pollution	Actual damage costs caused by reduced air quality Costs of preventing a reduction of air quality due to pollution

Source: United Nations, 1994a.

 

If environmental resource use is not associated with market transactions, non-market direct or indirect valuation must be applied. 

Direct non-market valuation Direct non-market valuation techniques (contingent valuation) may be applied especially for qualitative (and quantitative) use of the natural environment as a good for public consumption (Johansson, 1990; Pearce, Markandia & Barbier, 1989; Salah, 1989). Examples are value of the use of water and air or the value or recreational services provided by natural resources. It is often impossible to evaluate environmental resources as a whole; only the economic value of reductions or additions to the respective environmental services can be evaluated. One example is valuation of a unique landscape. The public may be asked how much they would be willing to pay to prevent the deterioration of the landscape. With certain allowances, this amount can be viewed as the value of decrease in quality of the landscape. 

The most common approaches in direct non-market valuation are based on willingness to pay and receive compensation. Other methods apply hedonic property prices, wage risk studies and travel cost approaches.  It should be mentioned that these methods can be applied, not only for valuation of the different functions of environmental resources but also to value natural and cultural heritage sites (e.g., historical monuments), which  have no market value. 

Direct non-market valuation has its critics. Many economists doubt whether it is really possible to determine monetary values for preferences in the absence of markets (Huenting, 1980). The usual arguments refer to intractable conceptual problems and an inadequate database. On the other hand, these valuation methods frequently offer the sole means of approximating the value of a wide range of functions of the natural environment. These valuation techniques are especially important for the design of environmental protection procedures at local level, when willingness to pay is a vital tool for determining the level of local charges and their differentiation.

Indirect non-market valuation Indirect non-market valuation of environmental resources uses actual or hypothetical cost data.  Actual costs comprise expenditures incurred for maintaining the resources of the natural environment. Examples are environmental protection costs or expenditures for the mitigation of damage (e.g., to human health or materials) caused by worsening of environment quality. Expansion of environmental protection work for the prevention or repair of degradation may indicate that a reduction in the quality of environmental assets due to economic activities has been avoided or made good. The valuation based on avoidance or repair cost may not be adequate, since the environmental protection activities might not be sufficient to offset the negative impacts of economic activities on the environment. The actual damage costs incurred are thus in general only a lower limit for valuing the reduction of environment quality. People may be assumed to be willing to pay at least the amount of their factual expenditures for countering the effects of worsening air and water quality. So these expenditures could be interpreted as the (minimum) value of the reduction of environment quality

It should be noted that the design of various techniques for the economic valuation of environmental resources and ecosystem services is an ongoing process, which presupposes the appearance of new approaches. Each of the techniques should be assessed by its applicability to environmental-economic accounting and in comparison with other methods.

Valuation of specific items should be in accordance with current and potential trends in their use, taking account of environmental issues that arise in the process. It is desirable to apply various approaches to the valuation of specific items in order to obtain more adequate and comprehensive information, which can be used as the basis for decisions on environmental management.

The features of specific territories are of critical importance when selecting methods for the economic valuation of environmental resources and ecosystem services. These features include the nature of environmental issues, the social and economic situation, and socio-cultural peculiarities.

1.4.2. Basic approaches of the System of Environmental-Economic Accounting (SEEA) for deriving the economic value of environmental resources and ecosystem services 

Consistent with the SEEA 2012, the most adequate approach to valuation of environmental assets is the net present value method (UN, 2012a). There are five components of this method for valuing environmental resources: 

1. Measurement of returns on environmental assets; 

2. Determination of the expected pattern of resource rent based on expected extraction (exploitation) profiles and prices;

3. Estimate of the lifetime (service life) of environmental assets;

4. Selection of a rate of return on produced assets, which are deployed in extraction (exploitation) of the environmental resource;

5. Choice of discount rate. 

Measurement of returns on environmental assets

In the SEEA, returns are defined using the concept of economic rent. This rent is best defined as the surplus value accruing to the extractor or user of an asset, calculated after all costs and standard returns have been taken into account.

The surplus value, referred to in the context of environmental resources as a resource rent, can be taken to be the return attributable to the asset itself. The logic of environmental resource valuation requires assessment of the resource rent flows that are expected in the future, after which these resource rent flows are discounted back to the current accounting period. This provides an estimate of the value of the asset at the given point of time.

The measurement of resource rent provides a gross measure of the return on environmental assets. With regard to these 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 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 on capital or net return on environmental assets.  

Resource rent and net return on environmental assets can be derived on the basis of the operating surplus earned by extracting enterprises. In this context, the operating surplus earned by an enterprise is considered comprising a return on investments in produced assets and a return on the environmental assets used in production. 

Table 1.24 presents the standard derivation of gross operating surplus based on the SNA and SEEA using measures of output, intermediate consumption, employee remuneration and other taxes on and subsidies for production. 

Table 1.24 Relations between different flows and income components

Output (sales of extracted environmental assets at basic prices, including all subsidies on products and excluding taxes on products)

Less Operating costs

- Intermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products)

- Employee remuneration (input costs for labor)

- Other taxes on production plus other production subsidies

Equals Gross operating surplus – on the SNA basis

Less Specific subsidies on resource extraction

Plus Specific taxes on resource extraction

Equals Gross operating surplus – for the derivation of resource rent 

Less User costs of produced assets =

= Consumption of fixed capital (depreciation) + return on produced assets

Equals Resource rent =

= Depletion + net return on environmental assets

Source: UN, 2012a, p. 167.

Before deriving measures of resource rent, account must be taken of any specific taxes relating to extraction. Specific taxes and subsidies are those that apply solely to extracting enterprises and are not generally applicable across the economy.  Examples include subsidies that are provided based on the quantity of resources sold and taxes levied on factors of production used in the extracting industries. The deduction of specific subsidies from and the addition of specific taxes to the standard national measures of gross operating surplus are such that the resulting measure of resource rent is neutral in respect of these flows: i.e., although these flows affect incomes of the extracting industries, they are effectively redistribution within the economy and should not influence the predicted return on the underlying environmental assets.

Thus, resource rent is derived from standard measures of gross operating surplus by deducting specific subsidies, adding back specific taxes and deducting the user costs of produced assets (which include consumption of fixed capital and return on produced assets). 

Estimation of resource rent and its expected dynamics

The SEEA 2012 framework offers three main approaches to estimating resource rent: the residual value method, the appropriation method and the access price method.  

The most commonly applied method is the residual value method.  Under this method, resource rent is estimated by deducting user cost of produced assets from gross operating surplus after adjusting for any specific subsidies and taxes.

Estimates of the values of gross operating surplus and specific subsidies and taxes can be obtained from national accounts data Estimates of the user costs of produced assets are not generally available and must be construed so that the resource rent for each period can be obtained. Estimates of the user costs of produced assets are composed of two variables: consumption of fixed capital of produced assets and standard return on produced assets. Both variables can be estimated within national account 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, each variable can be measured using assumptions about depreciation rates, asset lives and rates of return on produced assets. A full description of considerations and approaches relevant to the measurement of user costs is presented in Measuring Capital: OECD Manual – 2009.

A difficulty in estimating resource rents with this method is that it is only rarely possible, using the available source of information, to isolate the extraction or harvesting activities alone. In certain circumstances, multiple resources may be extracted and used at the same time, particularly in mining. Generally, data on gross operating surplus 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 labor and capital, partitioning a firm’s gross operating surplus into pure extraction activity relating to a single resource is not always straightforward. Nevertheless, every effort should be made to isolate the specific gross operating surplus for the extraction of individual resources in the underlying data. 

Besides, in situations of over-exploitation of resources the resulting gross operating surplus will generate a higher estimate of resource rent that can be sustained over the longer term. While this observation is correct, it does not invalidate the approach based on measurements of rent.   The aim of this approach is not to measure what might or should happen under ideal circumstances but to account for expected behavior in respect of a particular 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. 

The appropriation method estimates the resource rent using the actual payments made to the legal owner of environmental assets (government). As the legal owner of environmental assets, the government can collect the entire resource rent derived from extraction of the natural resources that it owns. This amount would in theory be equal to gross operating surplus less user costs of the produced assets of extractors. 

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 (apart from earning income), e.g., encouraging investment and employment in the extracting industries. These alternative motivations should be considered before use of the appropriation method. 

The access price method is based on the fact that access to resources may be controlled through the purchase of licenses 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 here 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 on the environmental asset (after deducting all costs, including user costs of the produced assets). 

Where the resource access rights that are purchased provide very long 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 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. In practice, governments may give the access rights direct to extractors for free or at a price that is less than the true market value. 

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 the 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. 

The critical factor in the valuation of assets is not past or current returns, but expected future returns. An asset with no expected returns has no value in economic terms. Expected returns are, by definition, unobservable, so assumptions have to be made in respect of them. 

Resource rent is a function of quantities extracted, unit extraction costs and commodity prices. The starting point is generally estimates of resource rent in the current period or in the immediate past.  In the absence of additional information on expected price changes or changes in extraction rates, it is recommended that estimates of resource rent should be set based on current estimates of resource rent, assuming no price changes beyond the general level of inflation and a realistic rate of extraction.

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 at which an appropriate amount of produced assets can be acquired. However, if, for example, it is known that the greater part of the expected resource rent will be earned in years 5 to 10 over a total asset life of 30 years, this timing of expected returns should be taken into account. 

Special consideration is needed in situations where the extraction rates in any particular period might be considered abnormal, including where they fall to zero. In practice, this is possible in any given accounting period, e.g., 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.

If changes occur in the expected extraction/use 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 estimates must be redone, since they need to reflect a valuation based on all the information that is available at that point of time. 

Estimates of environmental asset life 

The asset life (or resource life) is the expected time during which an asset can be used in production or the expected time during which extraction of a natural asset can be continued. With respect to renewable resources, estimates of asset life/exploitation are based on the available physical stock of the asset and the assumed rates of its extraction and growth. In a very simple case, the asset life can be calculated by dividing the opening physical stock by the excess of expected annual extraction over expected annual growth. 

Estimates of the asset life provide the time frame, during which measurements are made. In practice, depending on the choice of discount rate, if the asset life is longer than about 20 years, 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 SEEA 2012.

Rate of return on produced assets

An expected rate of return on produced assets is required in order to estimate the user cost of the produced assets that are utilized in the extraction of the environmental asset. If this cost is not deducted, the resulting estimates of resource rates will be overstated.

Two approaches can be used to estimate rates of return on produced assets: endogenous and exogenous.  The endogenous approach sets a 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 it is therefore not recommended.  It should, however, be used to obtain an upper bound of the estimated rate of return on produced assets.

The exogenous approach is recommended for calculations in the SEEA. It assumes that the expected rate of return of 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 the risks of 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. Therefore, the most realistic result can be obtained by an approach that uses the rate of return across the economy, possibly based on the rates on government treasury bonds, if any.   In all cases, a real rate of return should be used. While exogenous (external) 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 standard return for the derivation of value estimates of an environmental asset. 

Choice of discount rate

In order to convert the expected stream of resource rent into a current-period estimate of the overall value, we need to use a discount rate, which expresses a time preference – the preference of the owner of the asset to receive income now rather than in the future. It also reflects the owner’s attitude to risk. In general, individuals and enterprises have higher rates of time preference than society; that is, individuals and enterprises tend to demand a quicker return from ownership of an asset than society as a whole. Higher levels of time preferences translate into higher discount rates.

The discount rate can be interpreted as an expected rate of return on non-produced assets. At 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 only make investments if the rate of return on all assets is aligned to the time and risk preferences of the enterprise for receiving income. 

To ensure a valuation that is aligned to the general concept of market prices, it is recommended that market-based discount rates be used, which are equal to the assumed rate of return on produced assets. However, the use of social discount rates in the valuation of environmental assets also has its supporters. The rationale is that environmental assets have broad and long-term value for society as a whole and should be valued in that light rather than solely in relation to their value to a present-day extractor. 

One of the main arguments in favor of social discount rates is that they are generally lower than market-based discount rates and lower rates will place higher relative importance on income earned by future generations. That is to say, estimates that use market-based discount rates are believed to undervalue the interests of future generations, and the total values obtained are too small, since they do not give sufficient weight to these future incomes. 

Calculation of net present value

Estimates of the value of an environmental asset are obtained by the following procedure: 

a) obtaining estimates of gross operating surplus, specific subsidies and taxes on extraction, and the user cost of produced assets mobilized for the extractive activity (from relevant sources), and making assumptions about rates of return on produced assets; 

b) estimation of resource rent as gross operating surplus less specific subsidies plus specific taxes less the user costs of produced assets; 

c) estimation of asset life based on physical assessment of stock and projected rates of extraction and growth; 

d) forecast of resource rent over the life of the asset, taking account of any expected changes in the extraction schedule; 

e) applying the NPV formula to value the environmental asset using an appropriate discount rate.

If, after adjusting for specific taxes and subsidies, the derived expected rent is negative, then the value 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 account of the likely future patterns of operating surplus and specific taxes and subsidies. In some cases, 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 linked to the underlying environmental asset but, instead, should be considered as a redistribution of incomes within the economy. 

If the use of environmental assets does not involve market transactions, direct or indirect non-market valuation should be applied.