Implementing an environmental-economic accounting framework

^{Mladen Kovac, Chief Economist, Office of Environment and Heritage
Nicholas Conner, Principal Conservation Economist, Office of Environment and Heritage}

Implementing an environmental-economic accounting framework to support environmental policy-making: a work-in-progress

Introduction to SEEA

Along with nearly all other countries, Australia produces a set of national economic accounts – the System of National Accounts (SNA).  The SNA provides information on economic activities in Australia, for income, expenditure, output, net worth and international transactions by households, businesses and governments.  Importantly, the SNA shows not only how economic activity changes over time, but also how changes in one sector flow through, and affect other sectors in the economy.  This information is routinely used by government policy makers to inform policy decisions, often supported by economic modelling showing trade-offs between different sectors of the economy under different policy options.

While it has long been recognised that stocks of natural resources and ecosystems provide flows of ecosystem services (such as providing food and water, regulating and controlling the effects of floods, storms and tides, maintaining nutrients and biodiversity, and providing recreational, spiritual and cultural benefits that depend on the environment), until recently most environmental assets and ecosystem services have not been explicitly shown in the SNA because they are not traded in conventional buyer-seller type markets.

In 2012, the United Nations Statistics Division released the Central Framework of the System of Environmental and Economic Accounting (SEEA), which expands the SNA to recognise the interdependence between the economy and the environment.  The SEEA has been adopted by the Australian Bureau of Statistics (ABS), and many jurisdictions are considering how to implement SEEA into their governance processes.

Implementing SEEA

In NSW, the Office of Environment and Heritage (OEH) is leading the implementation of SEEA.  This is not without its challenges, both technical and policy in nature.  Broadly, there are two options for implementing SEEA: a technically-driven approach, or a policy-driven approach.  While both approaches produce the same end outcome (i.e. an integrated set of environmental economic accounts), they differ in how quickly they deliver benefits to policy makers.

The technical approach systematically creates a suite of agreed environmental accounts which can be tracked over time.  The accounts selected are determined by: technical capabilities (not all ecosystem services can be adequately measured or quantified); the ease with which accounts can be tracked; and policy needs.  A significant amount of time and resources is needed to create a full suite of accounts.  The European Union framework of environmental accounts is an example of this approach.

The policy approach identifies critical environmental policy questions and develops accounts that can be used to answer these questions, subject to technical capability and cost constraints.  In this way, accounts provide immediate value to policy makers. A full set of relevant accounts can be developed over time, as more policy questions are addressed.  An additional benefit of the policy approach is that the value of implementing SEEA is immediately evident, resulting in increased demand and support for a full SEEA; the SEEA is seen to have practical application, rather than remaining an esoteric accounting concept.

NSW OEH is piloting the policy approach to implementing SEEA by seeking to answer the following types of questions with respect to national parks:

• Do different types of physical assets (e.g. walking tracks, accommodation) contribute to the recreational benefits provided by parks?  And if so, how many visitors are attracted because of specific types of assets?
• What value does the NSW community place on different characteristics of parks (e.g. physical assets, aboriginal cultural heritage, natural beauty)?
• What is the monetary value of recreational ecosystem services of individual parks in NSW?  What is the value across different regions or across NSW?

Results from the pilot are encouraging.  With nearly 40 million annual visits to parks demonstrating the high value of parks to the NSW community, researchers have estimated how the recreational value of the NSW parks estate relates to the ‘pulling power’ of different types of built assets, and to the natural characteristics of different parks.

The results of this pilot work are being prepared for peer-review publication and will contribute to improved strategic management of the NSW park estate.

Monetisation and SEEA

Monetisation is not strictly necessary for policy makers if the trade-offs between environmental outcomes and other government objectives (e.g. infrastructure development, employment) are clearly evident.  SEEA can demonstrate these trade-offs without the need for monetisation.

However, recognising that a lack of robust monetary values often disadvantages the environment relative to other sectors when resource allocation decisions are being made, SEEA provides the economic framework for monetisation that is understood and used by government treasury departments.

While beyond the scope of this article, an important consideration when ‘valuing nature’ is that estimating a ‘total economic value’ is often less useful to policy makers than estimating the change in economic value (marginal economic value) associated with implementation of policy initiatives.  SEEA has the flexibility to cope with both types of monetisation.

Conclusion

While still in its pilot phase, SEEA is demonstrating great potential to answer critical environmental policy questions, even in those cases where monetisation is not currently possible.  Given the results so far, OEH will continue to work through SEEA implementation issues and apply them to other policy questions of relevance to the environment.