13a Environmental-Economic Accounting Introduction

• National income accounting: government bookkeeping system that measures a country's economic activity—offering insight into how an economy is performing.
• Double-entry booking: income and expenditures; assets (usually partial or incomplete) and liabilities
• Flows between the economy and the environment: some unmeasured, some not economically valuated
• Constraints of the SNA versus natural resources and environmental concerns:

  • Based on market transactions @ market prices: provisioning services
  • Informal economy under-recorded even for marketed g/s
  • Misses non-market goods and services specially from ecosystem services
  • Unmeasured depreciation of natural assets: renewable and non-renewable
  • Environmental expenditures to address damages increases GDP
• Constraints of the SNA versus natural resources and environmental concerns

  • Only measures wealth partially
  • Total (Real) Wealth = Natural capital, human capital, produced capital, social capital.
  • Financial capital is of a different genre.
  • Not designed to generate indicators of environmental sustainability
  • Only a partial measure of economic welfare and even less so, total well-being
• Types of physical flows

  • Natural inputs flows from natural capital into the economy
  • Products flow within the economy (includes waste disposal services)
  • Residuals – the undesired materials resulting from production and consumption activity – flow to the environment.
  • Regulating, support, and cultural services
• Between environment and economy: monetary and physical, SEEA

  • Production boundary
  • Flows of into production
  • Flows within production
  • Residual flows to environment
• Economic asset (SNA)

  • store of value representing an economic benefit or series of economic benefits accruing to the owner by holding or using an entity over a period of time.
  • savings, real estate, house, cars, equipment, jewelry
• Environmental asset (SEEA)

  • naturally occurring living and non-living components of the Earth, together comprising the biophysical environment, that are used in production and that deliver ecosystem services to the benefit of current and future generations.

  • mineral ore, soil, forest, lake, rivers, gene pool, fish stocks, animal stocks
• Joseph Stiglitz:

  “ We don’t judge a company solely on the basis of income statements — use both income and balance sheets (assets and liabilities).”

  “Why do we still assess country economic progress in terms of national income alone?"
• Measure progress in terms of:

  • income, income per capita, income distribution
  • well-being: health, amenities, security, reduced risk (financial, market, political, climate)
  • total wealth (all forms of assets)
• The source of income and well-being is wealth consisting of:

  • Manufactured capital

  • Natural capital

  • Human Capital

  • Social capital
• Economic and social development is a process of building wealth and managing this portfolio of assets:

  • Using revenue from exhaustible natural assets to build social capital and infrastructure thereby sustaining total income

  • Using revenue from renewable natural assets to invest in renewal and ensure perpetual income and flow of ecosystem services

  • Strong sustainability: Minimum levels of all assets are present because of imperfect substitutability among these assets

  • Weak sustainability: an irreplaceable asset is missing and is imperfectly substituted by another
• Two sides of the SEEA

  A) ECOSYSTEMS SERVICES ACCOUNTING

  B) CENTRAL FRAMEWORK

  C) Asset & Resources

  D) + Ecosystems services

  
• Ecosystem accounting area

  • country or region within a country, defines the scope of the set of ecosystem accounts.

  • considered to comprise multiple ecosystem assets

  • each ecosystem asset is considered a separable asset where the delineation of assets is based on mapping mutually exclusive ecosystem asset boundaries.
• Ecosystem condition

  • An ecosystem condition account for each ecosystem asset is structured to record the condition at specific points in time and the changes in condition over time.

  • Biodiversity is considered to be a key component in the measurement of ecosystem assets rather than being considered an ecosystem service in its own right.
• Supply of ecosystem services

  • (including provisioning, regulating and cultural services) to economic units, including businesses and households.

  • Final ecosystem services

  • Intermediate ecosystem services (flows of services between ecosystem assets)
• Basket of ecosystem services

  • The conceptual intent in accounting is to record the supply of all ecosystem services over an accounting period for each ecosystem asset within an ecosystem accounting area.
• Measurement Pathways

  A) Asset

  B) Condition

  C) Services

  D) Benefits

  E) Beneficiaries

  
• Natural Capital Accounting (NCA)

  1. bio-physical accounts: and monetary
  2. monetary: convert (1) into money terms by valuing ecosystem services
• Intangible wealth: human and social capital—dominates in all countries
• Natural capital is especially important in low income countries—averaging 36%, and in some countries more than 50% of wealth
• The per capita value of natural capital in high income countries is about 100 times that of low-income countries
• The challenge of development is to manage:

  1. Total volume of assets --- how much to save vs. how much to consume
  2. Composition of the asset portfolio --- how much to invest in different types of capital
  3. Natural capital - -- how to sustain various benefits throughout generations
• System of Environment-Economic Accounts (SEEA)

  
  

  ❖ What it is:

  o Enhanced national statistical information system,

  o Estimates of values are market based; focused on production

  o Current accounts

  o Capital Accounts

  o Causes of changes in extent (Opening Stock – Changes = Closing Stock

  
  

  ❖ Applications

  o Analysis of achievement of SDGs

  o Changes in natural capital

  o Jumping point for scenario analysis of project economic valuation based on market prices

  o Not a panacea
• “Greening” the National Accounts: Filling critical gaps for Natural Capital

  • Invisible natural capital
  • The value of ecosystem services may be partly in the SNA; but are implicit or wrongly attributed to other sectors (usually regulating services)
  • Forests protecting watersheds thereby contributing to water for agriculture, hydropower, freshwater fishery and households
  • Mangroves serving as natural infrastructure that protects aquaculture businesses and settlements from wind and storm surge
  • Non-market values
• Fuller environmental valuation studies are needed for tackling sub-national, ecosystem level decision-making and prioritization

  • Fuller economic valuation including consumer’s surplus
  • Reveal or unveil regulating services hidden in production values and production functions: P = p (K, L, La, ES)
  • Enhance environmental impact analysis with economic valuation
  • Enable scenario analysis, including various risks (climate)
  • Benefit-cost analysis with environmental valuation
  • Enable economic instruments to capture non-market values
  • Develop conservation financing approaches
• Importance of Natural Capital to the Economy:

  • Crucial for providing resources and services like clean air and water.
  • Total Economic Value (TEV) considers all economic aspects, highlighting its significance
• Sustainability of GDP Growth and Natural Capital:

  • Unsustainable growth can deplete natural resources.
  • "Living off our natural capital" poses long-term risks.
  • Balancing short-term gains with long-term sustainability is crucial.
• Investment in Conserving Ecosystem Services:

  • Essential for maintaining benefits from natural capital.
  • Investment should consider value, future benefits, and costs of degradation.
• Revenue from Environment and Natural Resource (ENR) Sectors:

  • ENR sectors generate significant revenue for sector management and governments.
  • Revenue from taxes, royalties, and permits.
  • Local governments benefit through revenue-sharing and local taxation.
• Environmental costs and benefits that are not reflected in the current accounts which are based on market transactions

  • Consumer’s surplus
  • Scarcity cost
  • Non-market environmental externalities
  • Option values
  • Non-use values
• Based on economic sustained yield analysisoverfishing caused subsistence and unemployment
• • Regulate fishing: alternative livelihood; Bantay Dagat; bans
  • Manage coastal and marine ecosystems
  • Ban additional commercial fishers
  • Restrict additional fishing by municipal fishers
• World Bank-assisted Pilot in the Philippines

  • Laguna Lake: Fisheries and Watershed Functions

  • Mangroves Protection Services

  • Southern Palawan Ecosystem Accounting

  • Mineral Resources Accounting
• Philippine examples: uses of site-specific, ecosystem accounting and potential refinement / follow-through by EEG researchers

  • EEPSEA regional WTP studies on marine turtles, Philippine eagle (needs scaling up and follow-through to develop payment mechanism)
  • Fines for damage: Marinduque mining accident (needs more comprehensive updates; Tubattaha ship coral reef grounding; Mindoro oil spill
  • Pollution management, LGU jurisdiction –
  • pollution-load based fees:
  • needs monitoring of impacts on receiving bodies, damage estimates
• Partners for ecosystem accounting

  1. Specialists in natural resources, ecology, geological & engineering sciences, GIS
  2. Specialists in economics (environmental economics and ecological economics)
  3. Sociologists, economic anthropologists, behaviorial scientists
  4. Academic and research institutions
  5. NGOs, CSOs
  6. Private sector
  7. Government bodies: PSA; DENR; DOT; NEDA; DTI, etc.
  8. LGUs
  9. International partners
  10. Funding institutions