Environmental Asset Accounts

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Environmental Asset Accounts

• Alessandra Alfieri
• United Nations Statistics Division

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Outline

• Definition and classifications of environmental
  assets
• Form of an asset account
• Valuation
• Asset accounts in monetary terms

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Definition in the SNA

• Economic assets are entities over which
  ownership rights are enforced by institutional
  units, individually or collectively, and from
  which economic benefits may be derived by their
  owners by holding them, or using them, over a
  period of time

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Definition in the SEEA

• Environmental assets are defined on the basis of
  the provision of environmental services they
  provide.These functions include
• Resource functions
• Sink functions
• Service functions
• ? Extension of the asset boundary
• Note Some environmental assets appear more than
  once in the classification (e.g. soil, land and
  ecosystems)

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Produced vs. non-produced assets

• Produced cultivated assets are defined as
  livestock, plantations of trees yielding repeat
  products whose natural growth and/or regeneration
  is under the direct control, responsibility and
  management of institutional units.
• Non-produced assets are assets for which there is
  some degree of management. They includes land,
  forest in the wilderness available for wood
  supply, fish in the sea which is likely to be
  exploited

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SEEA asset classification

• EA.1 Natural resources
• EA.11 Mineral and energy resources
• EA.12 Soil resources
• EA.13 Water resources
• EA.14 Biological resources
• EA.2 Land and associated surface water
• EA.21 Land underlying buildings
• EA.22 Agricultural land
• EA.23 Forest, wooded land
• EA.24 Major water bodies
• EA.3 Ecosystems
• EA.M Memorandum item - Intangible environ.
  assets

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Asset accounts

• Show how the stock of an asset at the beginning
  of an accounting period is increased and
  decreased during the period
• Describe the state of the asset at a certain
  point in time
• Physical and monetary

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Physical asset account

• Opening stock levels Increases in stocks Due
  to economic activity Due to regular natural
  processes Decreases in stocks Due to
  economic activity Due to regular natural
  processes Due to natural disasters (net
  decrease) Changes due to economic
  reclassification Closing stock levels Changes
  in environmental quality Due to natural
  processes Due to economic activity

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Why valuation?

• Allows for aggregation across asset classes and
  comparison with non-environmental assets in terms
  of contribution to national wealth
• Comparisons between the taxes and levies
  collected by the government and resource rent is
  an indicator of sustainability.

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Valuation methods

• Appropriation method
• taxesleviesroyalties collected by the
  government
• Net present value approach (NPV)
• It is the discounted value of future economic
  benefits from a given asset
• Net price method
• It is the difference between the market price of
  the raw material minus the marginal exploitation
  cost, including a normal return to capital.
• Assumption Rent rises in line with the rate of
  discount.

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Resource rent

• Is the part of the revenue from the sale of the
  resource which remains after having deducted the
  costs of extraction, including materials, labour
  and produced capital but excluding taxes and
  royalties and other costs not directly part of
  the costs of extraction
• return to natural capital

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Calculation of resource rent

• RRI TR - C - (rcK ?) (lower bound)whereRR
  resource rentTR total revenueC annual
  non-capital extraction costs (excluding taxes) ?
  annual rate of depreciation rcK return to
  produced capitalRRII TR - C - ? (upper bound)

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Negative rent

• Calculation problems
• Prices may fluctuate while costs remain constant
• The resource is subsidized

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Net present value

• T RRINPV ? --------
  t1 (1ri)TwhereT lifetime of the
  resource CS/Extraction ri discount rate

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Net Present Value - Issues

• For how many years into the future will the asset
  generate rent?
• What will be pattern of decline (if any) in the
  economic rent?
• What is the appropriate discount rate to be
  applied to the earnings in the future years?
• What will be the pattern of extraction in the
  future?

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Choice of discount rate

• It reflects
• time preferences
• risks (prices, costs, etc.)
• Social discount rate no time preference as it
  reflects intergenerational issues (small 3-4)
• Private discount rate reflects risks of future
  investments (higher ? 8)

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Monetary accounts (SNA assets)

• Stocks are valued on the basis of the net present
  value
• Changes in stocks are valued on the basis of
  changes in the net present value of the stock.
  Such changes have to be allocated to the causes
  of the changes in values (e.g. changes in volume
  due to human intervention, natural causes or
  changes in prices)

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An example - Forest accounts

• ASSET CLASSIFICATION
• EA.1 Natural resources
• EA.14 Biological resources
• EA.141 Timber resources
• EA.1411 Cultivated
• EA.1412 Non-cultivated
• EA.2 Land and surface water
• EA.23 Wooded land and associated surface water
• EA.231 Forest land
• EA.232 Other wooded land
• EA.3 Ecosystem
• EA.313 Forest ecosystem

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Definitions - Wooded land

• Forest land
• Land with tree crown of more than 10 and gt0.5
  ha. Includes parts temporarily unstocked.
• Other wooded land
• Land with tree crown of 5-10.
• National forest assessment and inventory
  definitions may differ!!

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Definitions - Forest land
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Physical account for forest land
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Monetary accounts - Forest land
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Timber accounts - Definitions

• Standing timber
• Volume of standing trees, living or dead, above
  stump measured over bark to top. Includes all
  trees with diameter over 0 cm d.b.h. (zero
  centimetres diameter at breast height includes
  any tree higher than breast height). Includes
  large branches dead trees lying on the ground
  which can still be used for fibre or fuel.
  Excludes small branches, twigs and foliage

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Timber accounts - Definitions 2

• Fellings
• Volume of trees that are felled during the
  reference period. Includes volume that are not
  removed from the forest.
• Note
• For flow accounts need to report the fellings
  removed from the forest.

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Cultivated versus non-cultivated forest

• Cultivated forest is under the direct ownership
  and control of an institutional unit and the
  forest characteristics are altered (not natural).
  These forests are part of inventories (work in
  progress), harvest is a withdrawal from
  inventories and natural growth is production. For
  non-cultivated forest, natural growth is an other
  volume change and only the harvest is production.

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Physical accounts - Timber
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Monetary accounts - Timber
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Valuation

• Several methods are available.
• The choice of valuation method depends on-
  primary data available- characteristics of the
  forests
• Need to separate the value of land from the value
  of timber often not possible
• Main methods are - transactions in forest real
  estates, - net present value (NPV),- stumpage
  and consumption value (for timber).

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Valuation 1 - transactions

• Theoretically the best basis.
• In practice there may be problems due to- lack
  of data- too few transactions in forests-
  actual transactions are not representative-
  other biases (e.g. real estate taxes)
• Ideally hedonic decomposition to separate the
  value of forest land from the value of timber -
  requires detail for each transaction (volume of
  timber, species, other uses)

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Valuation 2 - NPV

• Theoretically sound. Works best for optimally
  (T) managed forests.
• Based on NPV of stumpage price
• Stumpage price Price paid by the feller for the
  value of standing timber
• Costs of production include
• Thinning
• Other management costs (very low for
  non-cultivated forests)
• Rent on forest land

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NPV - Issues

• In practice there may be problems due to
• lack of data on costs (management - for
  cultivated - and felling costs) and intermediate
  receipts
• difficulties determining a good discount rate
• several assumptions are needed, including-
  successive identical rotations- competitive
  markets- no changes in the very long run

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Valuation 3 - Simplified methods

• Stumpage value
• S Volume of standing timber stumpage prices
• Identical to NPV if natural growth discount
  rate
• Stumpage value an average stumpage price (the
  value of trees while standing) is applied to the
  current stock, per main species if important.
  VQp
• Good if the current felling structure is constant
• Consumption value
• average stumpage prices are applied per age or
  diameter class. VSQtpt
• Good for old growth forest