21.1. The central framework of the SNA presents a number of characteristics which give it the advantages of an integrated accounting structure. It is exhaustive and consistent within the boundary of the economic activities it covers; that is to say, each unit, transaction, product and purpose is given a place, and only one, in the classifications and accounts of the System. Moreover, the set of concepts adopted by the System is fully coherent.

A. Introduction

  • 21.1. The central framework of the SNA presents a number of characteristics which give it the advantages of an integrated accounting structure. It is exhaustive and consistent within the boundary of the economic activities it covers; that is to say, each unit, transaction, product and purpose is given a place, and only one, in the classifications and accounts of the System. Moreover, the set of concepts adopted by the System is fully coherent.

  • 21.2. The counterpart of these benefits is that there are certain limitations as to what may be accommodated directly in the central framework. The central framework may be used in a flexible way, as explained in chapter XIX, in order to put greater or lesser emphasis on specific aspects of economic life, such as the public sector, households, or high inflation. However, the margins of flexibility allowed by the central conceptual framework do not permit conflicting approaches to be covered simultaneously.

  • 21.3. As already indicated in several earlier chapters, the SNA does not claim that its categories and concepts are in all cases the only right ones. Additional or different requirements necessitate the development of complementary or alternative categories and concepts.

  • 21.4. Satellite accounts or systems generally stress the need to expand the analytical capacity of national accounting for selected areas of social concern in a flexible manner, without overburdening or disrupting the central system. It is useful to preview in very summary form the characteristics of satellite accounts or systems, which will be elaborated throughout the chapter. Typically satellite accounts or systems allow for:

    • (a) The provision of additional information on particular social concerns of a functional or cross-sector nature;

    • (b) The use of complementary or alternative concepts, including the use of complementary and alternative classifications and accounting frameworks, when needed to introduce additional dimensions to the conceptual framework of national accounts;

    • (c) Extended coverage of costs and benefits of human activities;

    • (d) Further analysis of data by means of relevant indicators and aggregates;

    • (e) Linkage of physical data sources and analysis to the monetary accounting system.

  • 21.5. These characteristics, even in the summary form, point to important roles for satellite analysis and accounts. On the one hand, satellite accounts are linked with the central framework of national accounts (as will be spelled out at several points in the chapter) and through them to the main body of integrated economic statistics. On the other hand, as they are more specific to a given field or topic, they are also linked to the information system specific to this field or topic. They also call for better integration of monetary and physical data. Because they preserve close connections with the central accounts, they facilitate analyses of specific fields in the context of macro-economic accounts and analyses. Satellite accounts in various fields may, in addition, help to connect analyses between some of those fields. Satellite accounts are thus able to play a dual role, as tools for analyses and for statistical coordination.

  • 21.6. The objectives of the present chapter are threefold. First, it indicates, in section B, what kind of variants are or could be thought of in general when allowing for additional degrees of freedom. The approaches referred to may lead to various types of solutions, from just introducing some additional figures to redesigning the main concepts of the central framework. Secondly, in section C, the chapter presents a framework for functionally oriented satellite accounts, the goal of which is somewhere in between these two extreme types of solutions. Thirdly, in section D, the chapter presents environmental accounting in a SNA satellite accounting framework. Environmental accounting, which is of such importance as to deserve special consideration, is explained by reference to a generalized and extended version of the system of environmental economic accounts.

B. Satellite analysis

  • 21.7. In this section, a step-by-step approach is followed in order to illustrate by example various means of broadening the analyses. Production and products, primary incomes and transfers, uses of goods and services, assets and liabilities, purposes as well as aggregates are considered in turn.

1. Production and products

  • 21.8. Within the production boundary of the central framework of the SNA, producer units are establishments or, in a more refined analysis, units of homogeneous production, classified according to their principal economic activity. Both kinds of units are classified according to the International Standard Industrial Classification (ISIC).

  • 21.9. When establishments, and consequently industries, are not homogeneous at a given level of the ISIC, they undertake both a principal activity and one or more secondary activities. The output of these secondary activities is identified according to its nature, following a product classification, but the inputs of secondary activities are not separated from the ones of the principal activities. Ancillary activities, on the other hand, are not analysed and classified according to their own nature, but as part of the activities of the establishment(s) they serve. This means that ancillary activities are not undertaken by distinct producer units and the related products do not appear as autonomous products.

  • 21.10. When examining certain kinds of activity and products, it may be useful to separate secondary from principal activity, in order to get a full picture of the inputs (intermediate and factor inputs) corresponding to the activity being examined. This aspect is well-known in input-output analysis. In addition, it may be necessary to identify some ancillary activities and their output within the producer units.

  • 21.11. Take the example of transportation. The output of transportation activities in the central framework covers only transport services rendered to third parties. Own-account transportation is treated as an ancillary activity; its inputs are unidentified components of the costs of the producing units it serves. If one wants a broader picture of transportation activity, own-account transportation of producing units has to be identified and measured. With regard to health activities, some of them also are treated as ancillary activities, such as the on-site medical facilities provided by employers to their employees. Thus the cost of many activities includes an unidentified health component.

  • 21.12. More generally, inputs of producer units cover the direct cost of making the principal and secondary output and the cost of various internal functions which are, to varying degrees, indirect components of the total cost. In addition to the abovementioned activities, we could mention training, electronic data processing, accountancy and trade.

  • 21.13. Thus, for complete coverage of certain activities and products within the production boundary of the central framework, we have to deal with a number of elements:

    • (a) The establishments, or the units of homogeneous production, whose principal or single activity is the one we are interested in (the choice between these two types of units depending on the objectives pursued and the structure of the economy);

    • (b) If we are dealing with establishments, the relevant secondary output of other establishments, and the intra-establishment deliveries;

    • (c) The relevant ancillary activities and their output, presumably measured by their costs in general.

  • 21.14. In many cases this process is straightforward, because the specified activities and products appear as such in the classifications of the central framework, although, of course, additional data are necessary as regards (c) above. Naturally the relative magnitude of (c) may differ from one activity to another, being more crucial for transportation or data processing than for education, for instance.

  • 21.15. However, in some important cases, such as tourism and environmental protection activities, the process of identification is complex, because the relevant activities and products appear only to a small extent in the central framework classifications.

  • 21.16. An output is usually identified according to a list of observable products, independent of the use that is made of them. This is possible for part of tourism: the services rendered by travel agencies or hotels are typically tourism products. More generally, however, tourism activities are defined by the fact that the goods and services they produce are delivered to tourists—i.e., people who spend at least one night away from home, whatever the purpose of their travel. So, long distance transportation is clearly a tourist activity; short distance transportation may or may not be, depending on who is using it. The same is true for shops in tourist areas. Some activities, though clearly tourist in nature, are isolated only at very detailed levels of classifications, for which national accounts are not commonly available, or not identified at all. Consequently, delineating tourism activities raises a lot of difficulties. The approach in most cases is an indirect one, starting from analysing the structure of tourist expenditure by product and looking at what activities deliver these goods and services.

  • 21.17. The case of environmental protection activities and products is even more complex. Some establishments specialize in the production of environmental protection services for delivery to other units (e.g., waste disposal, sewage treatment) or goods which are used for environmental protection (e.g., filters). Others direct only part of their activity to delivering such goods and services to third parties. Moreover, an important part of environmental protection activities is internal to establishments. They are ancillary activities in the central framework and have to be externalized if one wants to measure the environmental activities more broadly. Again the purpose of the expenditure has to be considered in conjunction with the kind of activities undertaken and the goods and services used.

  • 21.18. The above-mentioned re-analyses take place within the limits of the central framework’s boundary of production. For certain objectives, however, the production boundary itself may be changed. This can be done in a rather global way, for example, by including services rendered by persons to other members of their household or/and voluntary work. It may also be done when trying to get a very broad picture of a given activity. For instance, to make an overall estimate of the transportation function in an economy, it might be useful to cover transport services rendered by households using their own cars and to try to value the time people spend using transport facilities. Generally speaking, the scope of non-market activities may be extended considerably.

2. Income

Primary incomes

  • 21.19. When the production boundary is extended, as suggested above, the magnitude of primary incomes is increased, income being imputed for the additional activities which are inserted within the boundary of production.

  • 21.20. Additional analyses are also possible. For example, one may try to separate the mixed income or entrepreneurial income of the household sector into an element of return to labour and an element of return to capital.

  • 21.21. In conditions of inflation, nominal interest may be judged not to be a convenient measure of the return to lent funds. Nominal interest includes an implicit or explicit (in case of indexation) component as compensation for the change inflation occasions in the real value of monetary assets and liabilities. This component may be analysed as a holding gain for the borrower and a holding loss for the lender, rather than as an element of property income (see chapter XIX for a possible parallel treatment of interest suitable for countries experiencing significant inflation).

Transfers and disposable income

  • 21.22. Several kinds of transfers in addition to those in the central framework may be delineated, if meaningful.

  • 21.23. First, transfers may appear in relation to ancillary activities when these activities are externalized, especially when their output is allocated to final consumers. Transfers internal to units may also cover the counterpart of the cost of production of non-market services produced by government when it is useful to distinguish the producing and the financing functions of government.

  • 21.24. Secondly, implicit transfers may be made explicit. Implicit transfers change the situation between units without any flow being treated as an imputed transfer in the central framework. For instance, tax benefits refer to the advantages or disadvantages economic units incur as a consequence of tax legislation by reference to a kind of average situation. Another, simpler example is the case of non-market services provided free of charge by government units to market producers. In the central framework these services are a collective consumption of government. If a further analysis treats them as an addition to intermediate consumption of market producers, a counterpart should be introduced, preferably in subsidies on production. This approach may be undertaken systematically to measure all types of transfers between government and particular sectors, such as agriculture. The implicit benefits resulting from tax concessions, equity participation, soft loans, differential exchange rates, differential domestic prices, etc., may then be added to subsidies, other current transfers, or capital transfers embodied in the central framework data.

  • 21.25. Externalities may give rise to a wide range of implicit transfers, when trying to depict and value advantages/disadvantages that are not accounted for in the value of monetary transactions between economic units or that result from actions of these units in the absence of any monetary transaction. The environment, of course, gives rise to many external effects (see section D). For example, pollution and nuisances created by producers may have negative effects on final consumers. These negative effects might be estimated, not very easily of course, and recorded as negative transfers from producers to households. In order to balance these negative transfers, one possibility might be to introduce a concept of production of externalities which would result in an output of negative or positive services and the corresponding final consumption.

  • 21.26. Thirdly, flows in the other changes in volume of assets account and the revaluation account of the central framework are candidates for enlarged concepts of transfers and disposable income. One could treat all of them as within an enlarged class of current transfers. The balancing item of the other changes in volume of assets account, i.e., “changes in net worth due to other changes in volume of assets”, and the balancing item “changes in net worth due to real holding gains/losses” in the revaluation account, would then appear as extraordinary (disposable) income, subsequently as extraordinary saving. In this hypothesis the resulting enlarged disposable income would approximate more closely the ex-post Hicksean income concept. Enlarged saving in effect would then become equal to changes in real net worth less net capital transfers received.

  • 21.27. However, one may think of making only limited steps in this direction. For instance, a country engaged in a war might find it useful to estimate an additional concept of disposable income by taking into account the destruction due to war. In countries where holding gains or losses on financial assets/liabilities are significant, real holding gains and losses on financial assets and liabilities could be added to disposable income in order to derive a broader measure of income.

  • 21.28. Naturally, changes in primary incomes of the type described above would also result in adjusted figures for disposable income. One possibility in that context would be to adjust the latter only for the component of nominal interest which compensates for inflation, or for the difference between nominal and real interest.

3. Uses of goods and services

  • 21.29. The coverage of uses of goods and services, either for intermediate or final consumption or capital formation, obviously changes as a result of enlarging the concept of production. For example, if services rendered to each other by members of the same household are included in production, they are finally consumed.

  • 21.30. The borderline between intermediate, final consumption and capital formation may also be modified in various ways. Two typical cases refer to human capital and consumer durables. When final consumption in education and health is, at least in part, treated as fixed capital formation, the corresponding central framework transactions are reclassified from consumption (mainly final, partly intermediate) to fixed capital formation which results in human capital assets. A less radical treatment is to capitalize only actual expenditures on education (and possibly part of expenditures on health) as intangible assets, so extending the scope of the latter. As an immediate consequence, the concept of consumption of fixed capital would be extended.

  • 21.31 An alternative to the inclusion of expenditures on consumer durables such as cars and furniture in household final consumption is to treat them as fixed capital formation. Only that part of the resulting fixed asset that is estimated as consumption of fixed capital then enters final consumption. Strictly speaking, this procedure implies enlarging the concept of production to include household services.

  • 21.32. As a consequence of the changes just considered, the concept of saving is extended.

4. Assets and liabilities

  • 21.33. The scope of assets, either tangible or intangible, is modified as a consequence of extending the concept of production or modifying the borderline between consumption and capital formation, as indicated in the previous paragraphs.

  • 21.34. The scope of financial assets and liabilities may also be broadened by including contingent assets and liabilities in the classification of financial instruments. In fact, this modification would be simply a formal one as presumably, following current corporate practice, equivalent amounts would be included in both the assets and liabilities of each sector involved, unless the present value of the net risk taken is estimated and recorded under other changes in volume of assets, for example.

  • 21.35. The scope of non-produced assets recorded in the balance sheets might be extended to other naturally occurring assets. In the central framework, natural assets are included in balance sheets only to the extent that they are owned and capable of bringing economic benefits to their owners. Of course, these criteria would apply to some additional natural assets if the services they provided were to be included in an enlarged concept of production. Moreover, attempts might be made to cover natural assets more widely to account for natural assets in general. In most cases, however, measurement is then usually only feasible in non-monetary terms.

5. Purposes

  • 21.36. In the central framework an analysis by purpose is applied to most transactions of general government and non-profit institutions serving households, to final consumption and some other transactions of households and to certain transactions of producers. (The classifications are described in chapter XVIII.) This approach may be extended in order to cover a broader range of transactions and transactors. Moreover, the functional approach may be more flexible than it is in the central framework.

  • 21.37. In the classifications by purpose used in the central framework, headings at a given level are mutually exclusive. A transaction classified under education may not also be classified under health, for example. In some cases, the part of expenditure missing when focusing on a given purpose may be significant and, therefore, a problem. In particular cases, purposes of current interest hardly feature in the existing general classifications because, for historical or other reasons, priority is given to the analysis of other purposes. For example, besides the fact that tourism does not appear as such as a main category in the classification of household goods and services by object, it is not even possible to reassemble the necessary pieces because not all of them are shown in the classification. The case of environment is similar with respect to various classifications.

  • 21.38. Consequently, when emphasis is given to a particular purpose, a reclassification of a number of transactions is often necessary. All programmes or transactions related to environmental protection, for example, may thus be identified and grouped into a specific purpose classification. Such specific classifications have to be designed to cover the various units concerned in a consistent way. Of course, once reorganized that way, transactions classified by purpose are no longer additive since some of them may appear simultaneously under education and health, defence and health, environment and agricultural or energy affairs, transport and tourism, etc.

6. Aggregates

Changes in the main aggregates shown in the central framework

  • 21.39. A number of the complementary or alternative analyses mentioned above may modify the main aggregates as shown in the central framework either directly or indirectly. Examples of direct modifications are the increase in output, value added and final consumption when household internal services are included within the boundary of production, or the increase in fixed capital formation if human capital is considered an economic asset. Other aggregates are indirectly modified: saving in the latter case, disposable income in the former one.

  • 21.40. Accounting for the use of natural resources and changes therein, such as subsoil mineral deposits, might also lead to the measurement of complementary or alternative aggregates (see section D). In fact, in these and similar cases, a new system of national accounts is explicitly or implicitly rebuilt, as the alternative aggregates might be introduced in a differently conceived central framework.

Introduction of aggregates by purpose
  • 21.41. In some types of analysis the objective is to focus on one specific field of concern, such as education or tourism. Changes in some concepts and aggregates of the central framework may be introduced, but this is not the primary intention, nor is it intended to give a different picture of the overall economic process.

  • 21.42. In this approach, one may wish to define and measure one or more aggregates to capture at a glance the magnitude of the resources an economy is devoting to the field of concern. In some cases the functional analysis of the central framework directly provides figures that are very close to those sought. For defence, for instance, the sum of collective consumption and capital formation corresponding to that purpose in general government accounts will normally give what we want to know. This means that national expenditure on defence is obtained directly as a part of national expenditure. Here the problem is easy to solve because only one institutional sector is involved and the object concerned appears as a specific heading in the classification of functions of government. Even in this simple case, one might argue that a full picture of defence expenditure would necessitate including other elements such as the opportunity cost of conscripts and volunteers, some expenditures related to internal order, research on military objectives carried out under non-defence heading, etc.

  • 21.43. In most cases, however, more than one sector is involved and the classifications do not directly contain the items of interest. In addition, the required aggregate is not necessarily composed only of final consumption and capital formation. A broader concept has therefore to be specifically defined, in order to cover all aspects of the national expenditure in the field of concern. This is further elaborated in section C.

7. Other aspects

  • 21.44. This section illustrated various ways and means of extending national accounts work. The examples given do not attempt to cover systematically all kinds of complementary or alternative solutions. For instance, different methods may be used to value economic flows, as well as assets and liabilities. Some of these methods are included in the central framework; others, such as opportunity cost or the net present value may be considered more broadly in satellite analyses. The labour content of flows of goods and services may also be studied. The underlying economic significance of certain arrangements such as, for instance, advertising expenditures by businesses that provide major support to newspapers and television programmes, might be examined.

8. From analyses to accounts

  • 21.45. Broadly speaking, two types of satellite analysis may be distinguished in their relationship with the central framework of the SNA. One type involves some rearrangement of central classifications and the introduction of complementary elements that differ from the conceptual central framework (such as the identification of the output of ancillary activities) without drastically diverging from the concepts on which the central framework is built. These constructs are not based on nor emphasize alternative concepts, even when they use some on a complementary basis. This first type of analysis mostly covers accounts specific to given fields such as education, tourism and environmental protection expenditures. Introducing their content into the central framework would overburden it and would not be totally possible; doing it in a specific, satellite, accounting framework allows additional margins of flexibility.

  • 21.46. The second type of satellite analysis is mainly based on concepts that are alternatives to the ones of the SNA. A different production boundary or enlarged concepts of consumption and capital formation may be introduced, or the scope of assets may be extended, the borderline between economic phenomena as covered by the central framework and natural phenomena may be altered, the links between income and wealth may be put in the context of a broader concept of wealth, including natural assets, etc. Often a number of alternative concepts are used at the same time. This second type of analysis may involve, like the first, changes in definitions or classifications, but in the second type the main emphasis is on the alternative concepts. Using those alternative concepts may give rise to partial complementary aggregates the purpose of which is to supplement the central system. Various efforts are also made to include some or all of them in an alternative system of national accounts. System of National Accounts 494

  • 21.47. The second type of research work is evidently more controversial than the first one, but it is important. It allows national accounts work to be extended beyond what is, or perhaps might be, included in the central system of the SNA. It provides useful results for economic analysis. It experiments with new concepts and methodologies, with of course a much wider margin of freedom than in current national accounts work. This research work may influence the development of the central national accounts themselves. The System does not make standardized recommendations as to this type of work, which by definition must remain open. Environmental accounting is considered in this context in section D. For explanatory purposes that section uses a version of an accounting framework called the system of environmental economic accounts, which should be considered work-in-progress and just one of the frameworks in which environmental account could be developed.

  • 21.48. On the other hand, the work already done in functionally oriented satellite accounts—the type of research work referred to in paragraph 21.45 above—refers to a family of satellite accounts for which it is possible to propose an accounting framework which could be used as a reference by people intending to build such accounts.

C. Framework for functionally oriented satellite accounts

  • 21.49. It is clear from the previous section, that satellite analysis may apply to various aspects of national accounts and pursue different objectives. One approach is to concentrate on one field to give a full picture of it, in a systematic way, by establishing a specific accounting framework, articulated with the central framework.

  • 21.50. As regards its relations with the central framework, such a specific, satellite framework does not aim at covering all economic life; it is a self-consistent framework in a partial domain. Escaping from some constraints of the central framework, which is mainly institutional in nature, a satellite framework or account is by hypothesis more functional.

  • 21.51. To put more emphasis on the functional point of view, such satellite accounts combine an extension of the kind of activity and product analysis and a generalization of the purpose approach. It is then possible to try to design an accounting framework to cover a wide variety of cases, all of them belonging to a family of functionally oriented satellite accounts. Such accounts are relevant for many fields, such as culture, education, health, social protection, tourism, environmental protection, research and development (R and D), development aid, transportation, data processing, housing and communications.

  • 21.52. Most of the fields just mentioned refer to services; they generally spread over a number of activities and they correspond in many cases to subjects that very often are of social concern. It should be noted at the outset that because the fields of functionally oriented satellite accounts sometimes overlap, the shares of national expenditure in those fields in relation with gross domestic product (GDP), for example, may not be strictly additive. Some activities/products/purposes may be classified in several places. Thus, if shares of overlapping fields have to be calculated, the denominator will normally have to be modified.

1. Scope of a functionally oriented satellite account

  • 21.53. To analyse a specific field in depth while preserving the possibility of calculating some significant aggregates such as national expenditure, the starting point is an analysis of the uses. This corresponds to the questions “how many resources are devoted to (education, transportation, tourism, environmental protection, data processing, etc.)?” or, identically, “how much is spent on (education, transportation, etc.)?”. In order to answer these questions, we have to decide upon:

    • (a) The goods and services that we will consider specific to this field, where national expenditure includes the uses (current or capital) of these specific products;

    • (b) The activities for which we will record capital formation;

    • (c) The transfers that we will consider specific to this field, recognizing that they will be a separate component of national expenditure only to the extent that they are not already included in the value of the uses of the specific products (otherwise, they will be analysed only in relation to financing).

  • 21.54. Depending on the field, the design of a given satellite account will emphasize:

    • (a) The detailed analysis of the production and uses of the specific goods and services (e.g., R and D or transportation);

    • (b) The detailed analysis of transfers (e.g., social protection);

    • (c) Both production/uses and transfers equally (e.g., education and health);

    • (d) Uses as such (e.g., tourism, environmental protection).

  • 21.55. When units which are the users, as actual consumers or investors, and units which ultimately bear the expenses coincide, figures for users tell us who finally bears the expenditure. This is the normal case for data processing and to a large extent transportation or tourism. On the other hand, ultimate users and ultimate bearers of the expenses may often differ, as is the case for education and health. In these cases, analysing the way the uses are financed is very important. When transfers represent all, or the main part of, national expenditure in a given field, this analysis is even more crucial.

  • 21.56. Analysing in detail who are the users, consumers, investors, or transfer recipients is thus an important part of what can be done in a satellite account. Even if the aggregate under study is called national expenditure, the users in this context are the units which actually acquire the goods or services (for actual final consumption, intermediate consumption or capital formation) or receive specific transfers which are not intended to finance these acquisitions of goods and services.

  • 21.57. Finally, as we focus attention on one field, it is useful to associate non-monetary figures to the monetary ones. Non-monetary figures relate to producing units and factors of production (labour, various kinds of assets) and users/beneficiaries.

  • 21.58. In short, a satellite account in a given field covers the analysis of uses or benefits out of the national expenditure, production and its factors, transfers and other ways of financing the uses, both in value terms and, when relevant, in physical quantities.

2. Uses/national expenditure

  • 21.59. The field of a given satellite account is essentially delineated by defining the content of the various types of uses to be included in the specific aggregates relevant to this field.

  • 21.60. Table 21.1 shows the components of national expenditure. It is convenient in the first instance to define and measure the uses of resident units. However, uses of resident units may be financed partly by non-resident units. This part has to be deducted in order to get a total that corresponds to the effort a nation is making in a given field out of its own resources.

Table 21.1.

Components of uses/national expenditure

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And their acquisition less disposals of non-produced non-financial assets.

3. Components of uses/national expenditure

  • 21.61. The first step is to define the goods and services that are considered specific to this field. It is convenient to distinguish two types of specific goods and services in this context: characteristic goods and services and connected goods and services. The first category covers the products which are typical for the field under study. We are interested in studying the way these goods and services are produced, what kinds of producers are involved, what kinds of labour and fixed capital they use and the efficiency of the production process and, hence, of the allocation of resources. For example, for health, characteristic products are health services, public administration services, education and R and D services in health.

  • 21.62. The second category, connected goods and services, includes products in whose uses we are interested because they are clearly covered by the concept of expenditure in a given field, without being typical, either by nature or because they are classified in broader categories of products. In health, for example, transportation of patients may be considered connected services; also pharmaceutical products and other medical goods, such as glasses, are very often treated as connected goods and services. For these connected goods and services, we are not primarily interested, when studying a given field, in their conditions of production. If we were, these products would have to be treated as characteristic goods and services. For example, pharmaceutical products might be considered characteristic in the account for health of a country at a first stage of developing a domestic industry. The precise borderline between characteristic and connected products depends on the economic organization in a given country and the purpose of a satellite account.

  • 21.63. The economic activities providing the two types of specific products are treated differently in a satellite account, as explained below.

  • 21.64. Specific goods and services generally appear at various levels and/or in various headings of the product classification used in the central framework. The headings in question are regrouped and additional details are introduced in order to build up the classification specific to a given satellite account. However, in order not to conflict with the requirements of statistical coordination, this specific classification remains strictly linked to the central classification of reference.

  • 21.65. Some services may appear in the specific classifications of two or more satellite accounts. For instance, research in health services in higher education institutions is a specific product of both R and D and education and health.

  • 21.66. Items 1 and 2 of the uses/expenditure table 21.1 relate to uses of the specific goods and services. In this table, and in following tables except table 21.5, characteristic products and connected products are not shown separately. This has been done only for the sake of simplification in the presentation of the tables. In actual satellite accounts it is necessary for analytical purposes to show the uses of characteristic goods and services and the uses of connected goods and services separately. Item 1 is consumption of specific goods and services. It covers actual final consumption (defined as in the central framework) and intermediate consumption. Market and non-market products are distinguished and, for the latter, individual and collective consumption. For the sake of simplicity, products for own final use and other non-market products are not shown separately in this chapter; they are both covered under non-market products. Similarly, producers for own final use and other non-market producers are both covered under non-market producers. The amounts are the same as in the central framework, unless the boundary of production is changed (for example, by including voluntary work in education and health) or a different type of valuation is adopted (see paragraph 21.75 below on consumption subsidies). Intermediate consumption generally has a broader coverage than in the central framework, as the output of the relevant ancillary activities is identified (while intra-establishment deliveries must be recorded). As a consequence, it covers (actual) intermediate consumption as defined in the central framework and internal intermediate consumption. In some cases, such as transport services, the last component may be important in size. Sometimes, it could be considered that this internal intermediate consumption is treated as final consumption and added to actual final consumption, as in the use of ancillary education and health services, thus broadening the scope of household actual final consumption. Also the scope of consumption may be narrowed, if the use of certain services is treated as fixed capital formation in a satellite account instead of intermediate or final consumption as in the central framework (see paragraph 21.67 below).

  • 21.67. Item 2 of table 21.1 is capital formation in specific goods and services. In an account for housing, for example, it covers fixed capital formation in residential buildings. In R and D, education and health, item 2 is empty if the related services are all included under consumption as in the central framework. Of course, if all or part of these services were treated as capital formation in a satellite account, the corresponding uses would appear under item 2.

  • 21.68. In addition to fixed capital formation, item 2 may cover changes in inventories. It may be so when specific goods are involved. As far as specific services are concerned, changes in inventories may relate to work-in-progress, for instance in software or some tourism services such as input costs already incurred in the preparation of tours not yet sold.

  • 21.69. In an account for culture, acquisitions less disposals of valuables, such as paintings, may be significant. In this case it is also a component of item 2.

  • 21.70. The definition of item 3, fixed capital formation of characteristic activities in non-specific products and their acquisitions less disposals of non-produced non-financial assets is a bit more complex:

    • (a) It does not cover the total fixed capital formation of these activities because that part consisting of specific products is already included in item 2;

    • (b) Only the fixed capital formation of activities whose output consists of characteristic goods and services is covered in item 3. (If the exclusion of capital formation of activities whose output consists of connected goods and services proves important, the products and activities in question may have to be redefined to be characteristic);

    • (c) An analysis based on establishments may give a broader coverage than normal because they may cover some secondary activities;

    • (d) Item 3 includes acquisitions less disposals of non-produced non-financial assets, mainly land. The acquisition of land may be important in such cases as education, health, tourism and housing.

  • 21.71. The fixed capital formation in item 3 may be studied using a classification adapted to a particular satellite account. For example, if considering education or health, fixed capital formation in schools or hospitals could be further classified by various kinds of educational structures, medical equipment goods, etc.

  • 21.72. The approach followed thus far when defining the content of items 1 to 3 of table 21.1 is relevant for most of the fields satellite accounts may cover. A more delicate approach is necessary, however, for environmental protection. As already stated, in this field, only some goods, services and activities in the usual sense may be considered characteristic and the relationship between products, activities and purposes is much looser than in the other fields previously referred to. Environmental protection expenditure is generally defined in terms of objectives pursued through actions or programmes related, for instance, to waste disposal, preservation of air quality, protection of other natural media, public administration in environmental affairs, etc. However, classifications currently proposed for environmental protection activities cover both economic activities in the SNA and ISIC sense and functions. In this context the definition of characteristic activities and of items 1 to 3 necessitate a specific analysis.

  • 21.73. Item 4—Specific current transfers (not the counterpart of item 1) and item 5—Specific capital transfers (not the counterpart of items 2 or 3) are the most important components of national expenditure in cases such as social protection or development aid. In the examples mentioned above, items 1 and 2 refer only to the administrative costs, both current and capital, of the agencies managing social protection or international aid. The core of the expenditure consists of transfers.

  • 21.74. In other fields, such as education and health, the major part of transfers (most of them in kind) are means of financing the acquisition by users of goods and services included in items 1 to 3. These transfers should not be counted twice in the expenditure. However, some transfers or parts of transfers are not used to counterbalance acquisition of products included in items 1 to 3. For example, student grants may serve to finance various outlays in addition to tuition fees or school books. This additional component of students grants is included under item 4.

  • 21.75. In some situations, there may be subsidies designed to reduce the prices paid by final consumers for certain goods or services, such as food, transport services, or housing services. They are commonly called consumption subsidies. In the central framework, when these goods and services are considered market products, they are included in final consumption at purchasers’ prices. In a satellite account there are two options: either consumption (item 1) is valued differently from the central framework in order to include the value of consumption subsidies or consumption is valued as it is in the central framework and specific current transfers (item 4) must include consumption subsidies. Subsidies included in item 4 may also be directed toward reducing the prices of intermediate consumption. Item 4 may also include other subsidies on production.

  • 21.76. In each field a classification of specific transfers has to be established. As it is used for analysing both uses and financing, this classification covers all specific transfers, independently of whether they are or are not counterparts of items 1 to 3.

  • 21.77. The total uses of resident units are the sum of the five components above. It is convenient to distinguish between current and capital uses financed by the rest of the world, in order to facilitate later on the calculation of current and capital national expenditure which is derived from the uses of resident units by deducting that part which is financed by the rest of the world by means of transfers or lending. National expenditure is thus equal to total uses of resident units financed by resident units. Total uses of resident units or national expenditure may in most cases be calculated either gross or net or both.

  • 21.78. National expenditure, as defined above, does not include transactions in financial instruments. However, for certain types of analysis, such as development aid, loans which are given or received at preferential conditions must be accounted for. Benefits or costs resulting from rates of interest lower than the market ones are clearly implicit transfers.

  • 21.79. Uses/national expenditure may be shown by type of products and transfers or by type of purpose (programmes). The main emphasis may be put on one or the other of these two alternatives, or they might be used jointly, depending on the field covered or the aim of the analysis pursued. The approach by programme is particularly relevant in the case of environmental protection or social protection.

  • 21.80. Table 21.2 indicates the usual coverage of national expenditure in various fields. As explained above, not all items are relevant in every case. Current uses of resident units include components 1 and 4, capital uses components 2, 3 and 5. Current national expenditure is equal to the sum of components 1 and 4, less item 6. Capital national expenditure is equal to the sum of components 2, 3 and 5, less item 7.

    Table 21.2.

    Coverage of national expenditure in various fields Research

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    And their acquisition less disposals of non-produced non-financial assets.

  • 21.81. Some explanation of the table is needed. Collective consumption for social protection and development aid refers to the current costs of managing agencies in these fields. Specific current transfers for tourism, transportation, housing and possibly education, health and culture cover subsidies on the relevant products unless they are included under item 1. In many fields they refer also to transfers to international organizations. Since financing by the rest of the world depends on specific circumstances, no crosses have been entered in table 21.2. For R and D, a satellite account allows expenditure to be treated either as consumption or capital formation or both. In certain cases, other aggregates are relevant and should be calculated. For instance, in the case of tourism, expenditure by tourists, both resident and non-resident, in the domestic market, is a significant aggregate. It is obtained, starting from item 1, by deducting expenditure abroad by resident tourists (imports) and adding expenditure by non-resident tourists in the domestic market (exports).

4. Users/beneficiaries

  • 21.82. For users or beneficiaries, the terminology used may differ from one satellite account to another. "Users" is more relevant to tourism or housing for example, “beneficiaries” to social protection or development aid, etc. In both cases, the terms refer to who is using the goods and services or benefiting from the transfers involved.

  • 21.83. At the most aggregated level, the classification of users/beneficiaries is simply a rearrangement of the central framework classification of institutional sectors and types of producers, in which production aspect and consumption aspect are separated. It may be as follows:

    • (a) Market producers;

    • (b) Non-market producers (producers for own final use; and other non-market producers);

    • (c) Government as a collective consumer;

    • (d) Households as consumers;

    • (e) Rest of the world.

  • 21.84. Various sub-categories of producers may be distinguished under each main group, either by industry and/or by institutional sub-sector in order to show explicitly the detailed links with the central framework as well as for analytical purposes. For actual consumption, general government is supposed to be the final consumer of collective services produced by itself, on behalf of society as a whole.

  • 21.85. Households, even individuals, as consumers are the most important type of users/beneficiaries in many satellite accounts. In order to be useful for social analysis and policy, a further breakdown of households is necessary. In the first instance this may be according to the various sub-sectors that are distinguished in the central framework or may use a more detailed or especially adapted socio-economic classification. Moreover, various criteria may be used according to different purposes, such as size of income, age, sex, location, etc. For analysis and policy-purposes, knowledge of the number of people concerned in each category is essential in order to calculate, for instance, the average consumption or transfer, the number of people who benefit very little or not at all from national expenditure in the field under study, etc.

  • 21.86. Cross-classifying components of national expenditure and types of users/beneficiaries leads to table 21.3. Crosses indicate cells which may be filled in, if relevant in a given field.

Table 21.3.

National expenditure by components and by users/beneficiaries

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And their acquisition less disposals of non-produced non-financial assets.

5. Financing

  • 21.87. Users do not always bear the expenses themselves so that it is necessary to analyse the financing units, i.e., the units which ultimately bear the expenses. For this purpose a classification derived from the central framework classification of institutional sectors, such as the following, may be used:

    • (a) Market producers;

    • (b) NPISHs;

    • (c) General government;

    • (d) Households;

    • (e) Financial enterprises;

    • (f) Rest of the world.

  • 21.88. It can be seen from this list that non-market producers are never considered ultimate financing units. All their costs, net of any secondary sales and possible transfers, are covered by their parent institutional units or by borrowed funds. Market producers refer to all institutional sectors in their capacity as producers for the market, as in the classification of users/beneficiaries. A separate category is introduced for financial enterprises covering financial corporations and, if any, unincorporated financial enterprises. It refers only to their function of providing other units with funds they gather through financial intermediation.

  • 21.89. Table 21.4 cross-classifies components of national expenditure and financing units.

    Table 21.4.

    National expenditure by components and financing unit

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    And their acquisition less disposals of non-produced non-financial assets.

  • 21.90. The identification of the ultimate bearer of the expenses is not always obvious. As the principle of the ultimate bearer of the expense is used in the central framework when attributing consumption expenditure to institutional sectors, one might think that it is a simple matter to apply the same solution here. In fact, the problem is more complicated. First, we have to analyse the financing of capital formation and transfers, not only consumption. Secondly, we have to take into account financing through capital transfers and borrowing. Thirdly, some refinements are needed, even for expenses made out of disposable income. In table 21.4, the following treatments are used:

    • (a) Market producers finance their intermediate consumption through their sales. Self-financing of capital formation by owners of market unincorporated enterprises not classified as quasi-corporations is considered financing by the owners themselves out of their saving or sale of assets. It is recorded in columns 2,3 and 4 respectively, whenever relevant; are treated as ultimate financing units, not the households who pay contributions to them;

    • (b) Non-profit institutions serving households (NPISHs)

    • (c) In general, general government is treated as the ultimate financing unit, not the units which pay taxes to it. However, in certain cases, when specific taxes or fees treated as taxes are levied by Government in relation with special concerns, such as environmental protection, it is necessary for sake of a better analysis to consider that the units paying these taxes are the ultimate financing units, not Government. Social contributions represent means of financing by households;

    • (d) Households are considered to be the financing units for all expenses made out of their income, except for transfers in kind received from the rest of the world and non-government/ NPISHs sectors. Components in kind of compensation of employees and entrepreneurial income are thus financed by households themselves. Social contributions, as part of compensation of employees, represent means of financing by households. As indicated above (see paragraphs 21.88 and 21.90 (a) above), households are the financing units for all current costs, less any receipts, of their non-market unincorporated enterprises, as well as for the part of the capital formation of their market or non-market unincorporated enterprises that they finance through their saving or sale of assets;

    • (e) Incurrence of liabilities is treated as a source of financing expenditure. When the counterpart of this incurrence of liabilities is a direct acquisition of assets by institutional units other than financial enterprises, the corresponding financing is recorded in the relevant columns 1 to 4 or 6. Acquisition of financial assets by financial enterprises through their intermediation function is considered financing by these enterprises, not the units that own the deposits, for example;

    • (f) Transfers in kind received from the rest of the world and possibly non-government/NPISHs sectors are treated as means of financing by the rest of the world (or non-government/ NPISHs sectors).

  • 21.91. In the table, actual final consumption of market products, which is always a use of households, may be financed by general government and NPISHs (transfers in kind), possibly the rest of the world and market producers (transfers in kind), financial enterprises (loans), or finally households themselves. Individual consumption of non-market products is financed by general government and NPISHs or households. Collective consumption is exceptionally financed by households (see paragraph 21.94 below).

  • 21.92. The financing of capital formation is complex. First take market producers—a case such as the building of a hotel by an unincorporated enterprise. If the government tries to encourage tourism activities, there may be a capital transfer receivable by the investor, or there may be capital transfers from the rest of the world. A second part may be financed by a loan made by a bank, for example. The residual represents self-financing by the owner of the unincorporated enterprise, through saving or sale of assets. These three components will appear in row 3 and columns 3 (possibly 6), 5 and 4 respectively. The problem is simplest when market producers in a given field correspond very closely to a set of institutional units whose economic activity is essentially a characteristic activity in this field. If big corporations involved in a lot of different activities are concerned, the problem is more difficult. At the limit, loans and self-financing may in some cases have to be grouped together, the total appearing as financed by market producers, either now or in the future, when repaying the loans. Repayments of previous loans raise a general problem. It seems relevant in most cases to consider only net loans (that is, new loans less repayments of loans) linked to the financing of a given field as financing provided by financial enterprises. Consequently, self-financing covers present self-finance plus repayments of previous loans.

  • 21.93. When capital formation by government units is involved, the analysis of the financing process may become even more complex, as a government may cover its overall deficit by issuing bonds, for example, which are not intended to finance specific programmes. However, especially in developing countries, loans given by the rest of the world are often specifically directed to identified investment programmes.

  • 21.94. In table 21.4, households appear as financing units under item 4, that is, specific current transfers. This covers social contributions which households pay to government or other sectors out of compensation of employees. A detailed analysis of households as beneficiaries of social benefits and households as financing social protection through social contributions makes it possible to analyse the redistributional effect of social protection schemes. A part of social contributions covers current cost and possibly capital outlays of social protection institutions; it appears on rows and 3. When tax benefits are estimated and included in social protection accounts in item 4, households are at the same time beneficiaries and financing units, as a redistribution process between various types of households is involved.

  • 21.95. In table 21.4, financing units are the ultimate bearers of the expenses. In more detailed analyses, transfers between initial, intermediary (if any) and ultimate financing units have to be shown in order to build up a complete set of accounts for the relevant managing agencies (social protection schemes in the case of social protection accounts).

  • 21.96. The table shows first how uses of resident units are financed. In some cases the rest of the world may be a source of finance (by means of transfers or net lending). This appears in the relevant rows and the column for the rest of the world. In order to get the financing of national expenditure, the corresponding amounts are deducted in rows 6 and 7.

  • 21.97. National expenditure is thus equal to the total outlays of resident financing units in the field under study. This is identical to total uses of resident units financed by resident units. In addition, it may be useful to cross-classify the total uses of resident units by type of users/beneficiaries (table 21.3) and type of financing units (table 21.4).

6. Production and products

  • 21.98. In a satellite account the main emphasis when looking at production is on the analysis of characteristic activities and producers. As explained earlier, characteristic goods and services are typical of the field under study. The activities in which they originate are called characteristic activities, and producers which carry out a characteristic activity are said to be characteristic producers.

  • 21.99. The way production units may be analysed in a satellite account has been dealt with in section B and is not repeated here. In a given field a list of characteristic activities has to be established. This list may include some activities which are also considered characteristic of other fields. Characteristic producers may be defined in various ways. Ideally, they are units of homogeneous production belonging either to establishments whose principal activity is a characteristic activity or to establishments which carry out a characteristic activity only as a secondary activity or to ancillary activities. They may also refer to an extension of the production boundary. For the sake of convenience, establishments whose principal activity is a characteristic activity may be covered totally, including their non-characteristic secondary activities. Market and non-market producers are distinguished.

  • 21.100. Production activity of characteristic producers is studied in detail. This covers the production and generation of income accounts, the analysis of output by kind of products and number of units produced, the destination of this output (consumption, capital formation, exports) and the labour and fixed assets used. As to labour, in addition to compensation of employees, which may be subdivided according to various criteria (such as skill and sex), the number of people employed is shown in detail, again according to various criteria. Fixed capital formation is covered. Stocks of fixed assets in monetary value and/or physical quantities (number of hospital beds, of primary schools, etc.) are essential.

  • 21.101. When relevant, the analysis of supply and use of specific goods and services may be inserted in an input-output framework. In that case, classifications of characteristic producers, characteristic products and connected goods and services are detailed, while classifications of other producers and products are compacted.

  • 21.102. Table 21.5, which is a re-arrangement of the supply and use table of the central framework, tentatively suggests how such a satellite analysis might be inserted in an input-output table. In principle, units of homogeneous production are considered for the characteristic activities. Characteristic producers and other producers are separated. Among characteristic producers, market producers cover units of homogeneous production belonging to principal producers (establishments whose principal activity is a characteristic activity), secondary producers (establishments whose principal activity is not a characteristic activity) and ancillary activities (whose output and input must be externalized) separately. The same distinction is made for non-market producers; in addition, a column "Others" under non-market producers refers to a possible extension of the production boundary. Other producers, from which secondary and ancillary activities characteristic of the field under study have been excluded, are grouped altogether (unless it is useful to show the main providers of intermediate inputs or fixed capital to characteristic producers, or suppliers of certain connected goods and services, separately).

    Table 21.5.

    Satellite input-output table (supply and use table)

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  • 21.103. As indicated above, for convenience, the establishments whose principal activity is a characteristic activity may be included in their totality. In this case the column for principal producers would include establishments. The column for secondary producers, and of course ancillary activities, should continue to refer to units of homogeneous production in order to limit the degree of heterogeneity of the group of characteristic producers. When secondary and/or ancillary output of characteristic products is not significant in size, it could be treated as secondary output of other producers.

  • 21.104. The supply of characteristic and connected products appears in the rows. The sources are imports and domestic output. The output corresponding to intra-establishment deliveries must be included. If some secondary producers are not included in the relevant column for characteristic producers, their output is shown in the column for other producers, where the output of connected goods and services also appears. Other products are grouped altogether (unless, again, it is useful to show some detail).

  • 21.105. In the lower part of the table, the use part of the production account and the generation of income account of producers is shown. At the bottom, three rows show gross fixed capital formation, stocks of fixed assets and labour inputs. In certain satellite accounts, a row for acquisitions less disposals of valuables may also have to be shown (see paragraph 21.69 above). Final uses are depicted in the relevant columns without any modification of presentation. Alternatively, the columns can be re-arranged and actual final consumption presented first.

7. Full accounts for characteristic producers

  • 21.106. When analysing a given field in a satellite account, it is generally worthwhile to establish complete accounts for characteristic producers. However, complete accounts may be established only for institutional units. This seeming impasse can be surmounted because in a given field many units of homogeneous production or establishments belong to institutional units whose principal productive activity is a characteristic activity in the same field. In order to extend the analysis, all these institutional units may be regrouped in a sector of characteristic producers. Their accounts may be shown using a simplified presentation, as shown in the example below (balance sheets may or may not be included):

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  • 21.107. As satellite accounts are functionally oriented, the sector of characteristic producers may also cover units which are characteristic producers in the field under study but belong to institutional units whose principal activity is not in this field. To balance the accounts, the operating surplus or mixed income, if any, of these producing units is transferred as property income to their parent institutional units. In the accumulation accounts, the capital formation of these producing units is balanced by an equivalent capital transfer coming from their parent institutional units.

  • 21.108. In fields such as social protection where distributing transfers is the main economic function involved, the production of services playing only a marginal role, the analysis of units managing the distribution and redistribution processes predominates. It is then simpler to group together all current accounts, the production part of them being simplified by showing administrative costs directly as uses and secondary sales, if any, as resources. If social protection institutions act as producers of health or welfare services and if a satellite account covers both production and redistribution functions, the above presentation of accounts remains relevant. In both cases, the analysis of transfers and their financing is given great importance.

  • 21.109. Transfers are analysed according to their nature (in cash, in kind, subdivided in various ways) and the type of risks (sickness, unemployment, etc.). A detailed classification of social protection schemes is also used (basic, complementary or supplementary schemes, subdivided between national, general, special or voluntary schemes for instance).

8. Non-monetary data

  • 21.110. A satellite account allows for the linkage of physical data to the monetary accounting system. In the central framework this kind of link remains generally implicit, being done only for population and labour inputs where these figures are necessary for calculating a number of per-person indicators such as income or consumption and indicators of productivity. Such physical data have been mentioned when going through the functionally oriented satellite account framework. It is worth recalling this kind of link here.

  • 21.111. As output is studied in much more detail than in the central framework, even when it includes a detailed supply and use/input-output table, it is generally possible to show meaningful data on the number of units produced or used: physician consultations by kind of physician, hotel-nights of various types, student years in various levels of education, etc. The labour force may be presented in detail: number of people employed in various categories, according to skill and sex, number of hours worked or equivalent person years, number of people in training, etc. Data on existing assets in physical terms are especially interesting in such fields as education, culture, health or housing. In conjunction with labour force data, they constitute well-known social indicators such as number of teachers, of hospital beds or of physicians per ten thousand inhabitants.

  • 21.112. Another important dimension of non-monetary data refers to users/beneficiaries of the goods and services and recipients of the transfers in question. Those data are especially meaningful in the fields of social concern such as education, health and social protection. They require information that is generally less developed than the ones on labour force and assets mentioned above. However, they are indispensable to assess the standard of living of various parts of the population and to look in depth at redistribution policy.

  • 21.113. Physical data are not to be considered a secondary part of a satellite account. They are essential components, both for the information they provide directly and in order to make the monetary data fully meaningful.

9. Links with the central framework.

  • 21.114. The tentative framework presented in this section departs little from the central framework standards. This resemblance might be more apparent than real if the amounts related to the various items are different from the ones attached to the same flows in the central framework—for example, where a satellite account is established independently from the central accounts themselves. Normally the assumption is that the same items are represented by the same figures in the central framework and in a functionally oriented satellite account.

  • 21.115. Many elements shown in a satellite account are invisible in the central accounts. Either they are explicitly estimated in the making of the central accounts, but they are merged for presentation in more aggregated figures, or they are only implicit components of transactions which are estimated globally. For each of the fields mentioned in paragraph 21.51 above, only a small number of figures appear in the central accounts, even when the latter are very detailed. Consequently the first role of a functionally oriented satellite account is to make explicit the implicit figures of the central framework.

  • 21.116. However, even in a satellite accounting framework as close to the central framework as the one presented above, some degrees of freedom are introduced. In a number of cases, classifications of economic activities, products and purposes have to be adapted to the field under study. This is mostly a problem of presentation. As the coverage of a given field sometimes extends beyond the corresponding aggregated positions in the central classifications (e.g, education and health, health and R and D) or is widely diffused (e.g, tourism or environmental protection), some re-arrangement of the positions of the central classifications has to be made when elaborating classifications for a given field. As a rule, all the links with the central classifications must remain visible. As explained earlier, the proposed classifications of users/beneficiaries and financing units follow this rule.

  • 21.117. Other degrees of freedom are used in this framework. For instance, the output and input of the relevant ancillary activities are externalized, which is a difference with the central framework. This element is always apparent in the list of components of uses (see item 1.2.2 internal intermediate consumption) and in the satellite supply and use table, table 21.5. The concept of national expenditure is broader—it may include intermediate consumption and transfers—and narrower—financing by the rest of the world is excluded—than in the central framework.

  • 21.118. In addition, the framework introduces a number of elements which are not in the central framework as such, but do not conflict with it. Above all, this refers to the introduction of the concepts of characteristic goods and services and connected goods and services, the total of which constitute the specific goods and services. The concept of characteristic producers is also introduced. Also gross fixed capital formation and consumption of fixed capital make the distinction between specific and non-specific products. Finally, physical data are introduced.

  • 21.119. A satellite account may use elements which have no equivalent in the central framework. Such elements have not been shown when presenting the satellite accounting framework, because they vary according to specific requirements of the fields. Examples of such elements are classifications of diseases (for consumption of health services and connected products) and of scientific disciplines (for R and D expenditures).

  • 21.120. The kind of satellite accounts studied in this section may also have recourse to alternative concepts, as was touched upon. The boundary of production could be changed in order to include housework and voluntary work (see the column "Others" in the supply and use table), which would affect, for example, education, health and social protection. All or part of R and D expenditures may be treated as gross fixed capital formation instead of current outlays. The satellite accounting framework presented in this section as a general orientation does not prevent the extension of some satellite accounts in the directions mentioned in this paragraph. On the contrary, these additional dimensions represent valuable enrichments of the analytical power of the national accounting approach.

10. Perspective on the framework

  • 21.121. The framework presented in this section may cover an important number of fields, as already seen from the illustrative list in paragraph 21.51 above. This framework for functional analyses may not fit all topics which one might like to study in connection with central national accounting. However, the general approach may give valuable inputs for other types of accounts. Specific parts of the functionally oriented satellite framework may also be relevant in other cases, even in the context of the central framework itself, such as the satellite supply and use table which is used, with terminological adjustments, for key activities and products.

D. Satellite system for integrated environmental and economic accounting

1. The scope of environmental accounting

  • 21.122. In the previous section, environmental analysis was dealt with as one of several topics that could be pursued as a functionally oriented satellite account. In this section, environmental analysis is dealt with in the context of a broadened framework that amends several concepts of the SNA to respond to the growing concerns of incorporating environmental criteria in economic analysis.

  • 21.123. This section deals with the general orientation, design, concepts and classifications of integrated economic and environmental satellite accounts. In these accounts, SNA aggregates are amended to treat natural resources as capital in the production of goods and services, to record the cost of using—i.e., depleting and degrading—those resources and to record the implicit transfers needed to account for the imputed cost and capital items. The explanations are based to a large extent on the system of environmental economic accounts (SEEA) that is presented in the handbook Integrated Environmental and Economic Accounting1. The presentation below should be considered as a description of the present state of the art of integrated economic and environmental accounting, which may evolve over time as a result of continuing discussions.

  • 21.124. The section is included to guide countries in responding effectively to the current emphases in policy-making and analysis on environmentally sound and sustainable economic growth and development and to help national accountants in elaborating environmental satellite studies which take the national accounts as a point of departure. The section shows how amended accounts could deal in a compatible manner with economic and environmental concerns and thus make operational the concepts of sustainable growth and development. The satellite studies should respond effectively to the two major drawbacks of conventional national accounting that are often mentioned: the neglect of new scarcities of natural resources which threaten the sustained productivity of the economy and the degradation of environmental quality and consequential effects on human health and welfare.

  • 21.125. Insofar as consensus has been reached, relevant parts of the central framework of the SNA take into account aspects of environmental accounting. In particular, many cost and capital items of accounting for natural resources are identified separately in the classifications and accounts dealing with stocks and other volume changes of assets. These features of the SNA facilitate the use of the System as a point of departure for environmental accounting. However, several elements of the SNA, particularly those in the account for other volume changes, need to be broken down further and reclassified, and other elements have to be added for the specific purposes of environmental accounting.

  • 21.126. In the SNA, only produced assets, including inventories, are explicitly taken into account in the calculation of net value added. The cost of their use is reflected in intermediate consumption and consumption of fixed capital. Non-produced natural assets—such as land, mineral resources and forests—are included in the SNA asset boundary insofar as they are under the effective control of institutional units. However, the cost of their use is not explicitly accounted for in production cost. This may either imply that the price of the products does not reflect such cost or, if it does—as may be the case for some depletion cost—such cost is not separately identified but lumped together with other unidentified elements in the residual derivation of operating surplus.

2. Alternative approaches to environmental accounting

  • 21.127. Most systems of environmental accounting now under discussion broaden SNA concepts of cost, capital formation and the stock of capital by supplementing these with additional data in physical terms in order to encompass environmental cost and the use of natural assets in production, or by amending them through the incorporation of these effects in monetary terms. However, within this general orientation, the several existing approaches differ considerably in terms of methodology and environmental concerns addressed. The SEEA synthesizes as far as possible the various approaches and integrates them into one comprehensive approach.

  • 21.128. There are now three main approaches to environmental accounting, and they complement and overlap each other. The first one, generally referred to as natural resource accounting, focuses on accounts in physical terms. The second approach, which is linked to national accounts and is in monetary terms, is generally called monetary satellite accounting. It identifies the actual expenditures on environmental protection and deals with the treatment of environmental cost to natural and other assets caused by production activities in the calculation of net product. Monetary satellite accounting is generally more limited in coverage of environmental concerns than physical resource accounting. The third approach is a welfare-oriented one. It deals with the environmental effects borne by individuals and by producers other than the producers causing these effects. The latter effects may often be much larger than the cost caused and do not affect net product but rather net income through transfers of environmental services.

  • 21.129. Of the three approaches, physical resource accounting is the most advanced in terms of practical implementation. Experience with monetary satellite accounting is much more recent, and many controversies still surround this approach, particularly with regard to valuation. The least consensus exists with regard to the welfare approach to environmental accounting.

Natural resource accounting in physical terms

  • 21.130. Natural resource accounting focuses on physical asset balances—i.e., opening and closing stocks and changes therein—of materials, energy and natural resources. Where applicable (for selected pollutants), it may also include changes in environmental quality of natural assets in terms of environmental (quality) indices. Several examples, developed by individual countries or sponsored by international organizations, now exist. Also, the multipurpose Framework for the Development of Environment Statistics, developed by the United Nations, includes the environment statistics elements from which the physical asset balances can be constructed, although it does not include the balances themselves. The SEEA, which shows the links between physical and monetary accounts, includes natural resource accounts as a module.

Environmental accounts in monetary terms

  • 21.131. Monetary environmental accounts in a restricted sense only separately identify within the national accounts the actual expenditures on environmental protection. In some instances, these expenditures are externalized by treating ancillary environmental protection activities as separate establishments. Monetary environmental accounts in this restricted sense would also include the functional approach to environmental accounting dealt with in the previous section.

  • 21.132. A broader interpretation of monetary environmental accounting may include the sort of environmental adjustments developed in projects carried out in several resource-oriented developing countries. In these studies, GDP is adjusted for selected environmental costs, including the cost of oil depletion, deforestation, depletion of fishstock and the cost of soil erosion. While these studies are based on detailed analyses in physical terms, distinguishing between a variety of species of timber, fish, and different types of soil based on geographical location and agricultural use, the ultimate focus is on the adjustment of GDP. The studies do not deal with an explicit allocation of the environmental adjustments between activity and expenditure components of GDP.

  • 21.133. A comprehensive approach to adjusting national accounts aggregates is followed in case studies based on the system of environmental economic accounts, which were carried out in two developing countries, and in another approach, using a SAM, prepared for a developed country. The comprehensive accounting approaches take the SNA as a point of departure and thus stay very close to the analytical orientation of economic analysis. At the same time, they emphasize the importance of recording physical flows and stocks in support of the monetary environmental economic analysis. The SEEA does not distinguish between depletion and degradation, but rather between quantitative and qualitative use of natural assets. In the first case reference is made to the use of environmental goods and in the second case to the use of environmental services. In order to be as close as possible to the concepts and terminology used in the SNA, it has been assumed in this section that depletion approximately coincides with the quantitative use and degradation with the qualitative use of natural assets. Even though the distinction between depletion and degradation is made, it should be understood that economic activities may result in depletion and degradation at the same time.

  • 21.134. The comprehensive accounting approaches allocate the environmental impacts of depletion and degradation to the separate economic activities causing these environmental impacts and to expenditure components reflecting the immediate effects corresponding to quantitative and qualitative changes in natural assets. The SEEA and the case studies mainly consider the effects on production analysis, identifying the environmental cost of depletion and degradation caused by different economic activities and showing the corresponding effects on natural and other assets. The SEEA furthermore introduces an enlarged concept of capital accumulation, which not only allows incorporation of depletion and degradation effects but also the transfer of natural resources to economic uses. The environmental SAM-based study mentioned earlier, in addition, considers the effects of present and past degradation borne in a concept of environmentally adjusted national income.

Welfare and similar approaches

  • 21.135. One welfare approach, instead of dealing with the cost caused by production activities and their effects on capital used in production, focuses on the environmental impacts of cost borne or, in a broader sense, on well-being. The approach considers the free environmental services provided by nature to producers and consumers and the subsequent damage borne by them. The environmental services provided free and the damage borne are implicitly considered as transfers by and to nature, which increase or decrease environmentally adjusted net national income.

  • 21.136. Another approach is based on the concept of environmental sustainability standards and on estimating the necessary avoidance or restoration costs to meet these standards. The approach does not deal with the immediate environmental impacts of production during the present accounting period, but rather with those impacts incurred over an unspecified length of time. The approach suggests that the cost should be charged to those industries that are able to absorb such cost given the price of their products; these are not necessarily the industries which caused the degradation in the first place.

3. General framework of environmental accounts and the SNA

  • 21.137. Table 21.6 shows SNA concepts together with the alternative concepts used in environmental accounts. For purposes of explanation, a generalized and simplified version of the SEEA is used to present environmental accounts. The use of the SEEA framework to present environmental accounting and the relationship to the SNA is convenient as the SEEA was developed in immediate relationship to the SNA so that its concepts and classifications are more closely linked to those of the SNA than is the case for any other environmental accounting system. Nevertheless, format, concepts and classifications of the SEEA should be considered as work-in-progress, as many of its elements continue to be discussed among national and environmental accountants.

    Table 21.6.

    Basic structure of the SEEA

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    21.138 As will be shown in the description of the SEEA framework below, environmental cost and capital elements included can be interpreted in physical terms as well as in monetary terms. However, in view of the controversial issues surrounding valuation of environmental cost and capital, much caution should be exercised in the use of these elements in monetary terms and in the corresponding derivation of environmentally adjusted aggregates. This does not reduce the usefulness of environmental accounting, however, as the approaches to environmental accounting described above have shown that analysis in physical terms is as useful as environmental accounting in monetary terms, as long as the analysis is carried out in the context of a well-defined framework of satellite accounts.

SNA framework

  • 21.139. The flow and stock items of the SNA are shown in the shaded area of table 21.6. The columns of the table related to flows are a column (1) for production, covering output (P), intermediate consumption (Ci), consumption of fixed capital (CFC) and net domestic product (NDP); a column (2) for the rest of the world, which includes exports (X) minus imports (M) and a column (3) for final consumption (C). The rows of the table referring to the SNA flows are a row (ii) for supply, including output and imports; a row (iii) for economic uses, including elements for intermediate consumption, exports, final consumption and gross capital formation (Ig); a row (iv) for CFC and, finally, a row (v) for NDP, which presents the elements that define the national accounts identity between NDP and the expenditure categories. The SNA column (4) for asset balances of produced assets includes the opening and closing stocks of produced assets (Kop.ec & K1p.ec) and the elements explaining the change between the two, i.e., net capital formation (I= Ig - CFC), holding gains/losses on produced assets (Revp.ec) and other changes in volume of produced assets (Volp.ec).

  • 21.140. The asset balances in the SNA area cover all economic assets, and therefore include the assets covered by column (5) for non-produced natural assets. The elements of this column, however, do not figure in the calculation of NDP as all changes in non-produced natural assets between opening and closing stocks (Konp.ec & K1np.ec) are “explained” in the SNA as holding gains/losses (Revnp.ec) and as other changes in volume of assets (Volnp.ec).

The SNA framework extended to environmental accounts

  • 21.141. The non-shaded areas of table 21.6 include the additional elements that are needed to supplement the SNA concepts with data in physical terms on environmental cost and capital, or amend the SNA concepts by valuing the physical data and incorporating the values in environmentally adjusted concepts of cost and capital. There are two types of additional elements. The first group is included in an additional column (6) which records the effects of economic activities on non-produced natural assets such as air, water and virgin forests that are not included as economic assets in the SNA. The second group of elements is included in two additional rows (vi-vii) that include elements for the use of non-produced natural assets by depletion and degradation, and for other accumulation of nonproduced natural assets, which covers the transfer of natural assets to and between economic uses. The SEEA elements in the additional column (6) and rows (vi) and (vii) can be interpreted in physical as well as monetary terms. Another row (viii) is included to derive an environmentally adjusted net domestic product (EDP) and other environmentally adjusted concepts. This row is only relevant in the case of monetary environmental accounting when additional SEEA elements are specified in value terms.

  • 21.142. In row (vi) related to the use of non-produced natural assets, an additional element (Usenp) has been included in the column for production. This reflects the use of non-produced natural assets in production; it is the sum of the counterpart items in columns (5) and (6) representing, respectively, the use of nonproduced natural assets that are economic assets in the SNA sense (-Usenp.ec) and the degradation of other natural assets that are not economic assets (-Usenp.env). The use of non-produced economic assets (-Usenp.ec) includes the depletion of minerals, the extraction of timber from forests that are economic assets and the effects on productivity of those forests and agricultural land of soil erosion, acid rain, etc. The deteriorating effects of air pollution on buildings and structures and the effects of soil erosion on roads and other degrading effects on produced assets are not included as they are assumed to be reflected in CFC. The use of natural assets that are not economic assets (-Usenp.env) covers the non-sustainable extraction of fishstock from oceans and rivers, extraction of firewood and lumber from tropical and other virgin forests or hunting of animals living in the wild and also the effects of emission of residuals on the quality of air, water, fishstocks, wild forests, and the effects of other economic activities (recreation, agriculture, transport, etc.) on ecosystems and species habitat.

  • 21.143. Other accumulation in row (vii) records in physical or monetary terms the transfer of natural assets to economic uses as a change in the stock of non-produced economic assets (Inp.ec). The counterpart of this increase in economic assets is the reduction of natural assets other than economic assets (-Inp.env)- Inp.ec would include the transfer of land to economic uses, the net additions to proven mineral reserves, the conversion of wild forests to timber tracts or agricultural land, and the conversion of fishstocks to economic control. If deterioration takes place at the same time that natural assets are incorporated as economic assets, the deterioration is not recorded in the other accumulation row, but is included as part of uses of natural resources. If this deterioration takes place before the transfer, it is recorded as the use of an asset in the environment (-Usenp.env), and if deterioration takes place after, it is recorded as uses of natural resources that are economic assets (- Usenp.ec).

  • 21.144 As the elements of row (vi) for use (i.e., depletion or degradation) of non-produced natural assets, and row (vii) for other accumulation are included in the SNA in other volume changes, the content of other volume changes is reduced in the SEEA as compared with the SNA.

  • 21.145. If the additional SEEA elements are valued in monetary terms, the incorporation of the use of non-produced natural assets (Usenp) as additional cost in the column for production results in an EDP, presented in row (viii), which is lower than NDP. The elements in row (vii) for other accumulation do not affect EDP. If the additional SEEA elements are expressed in physical terms, row (viii) is not relevant; in that case the additional information in rows (vi) and (vii) is only used to supplement NDP with information on environmental cost caused by economic activities.

  • 21.146. Corresponding to the monetary valuation of the additional SEEA elements, on the expenditure side a new concept called net accumulation is introduced in the SEEA to replace net capital formation in the SNA. It is presented in row (viii), separately for produced assets (Ap.ec), non-produced economic assets (Anp.ec) and other natural assets (-Anpe.nv). For produced assets, it is the same as net capital formation (i.e., Ap.ec = I). For non-produced economic assets, it reflects the net effects of negative depletion and degradation and positive additions of natural assets that are transferred to economic uses (i.e., Anp.ec = -Usenp.ec + Inp.ec). For natural assets other than economic assets, it could be considered as the economic valuation of the impact of economic activities on the environment and it is the sum of negative depletion and degradation effects (-Usenp.env) and negative effects of incorporating natural assets as economic assets (i.e., -Anp.env = -Usenp.env - Inp.env). If no monetary valuation is used, the additional elements (i.e., -Usenp.ec, Inp.ec, -Usenp.env and Inp.env) would supplement the SNA information on investments in produced assets (I) with information in physical terms on changes in natural nonproduced assets that together with investments (I) support the generation of economic activities.

  • 21.147. If net accumulation replaces net capital formation when the additional SEEA elements are valued in monetary terms, the national accounts identity between NDP and final expenditures changes. In the SNA this identity, as reflected in row (v) of table 21.6, is:

    • NDP = C + I + (X - M).

    If net capital accumulation in economic assets (Ap.ec + Anp.ec) replaces net capital formation (I), the identity as reflected in row (viii) becomes:

    • EDP = C + (Ap.ec + Anp.ec) - Anp.env + (X - M).

    In order to maintain the identity, the negative element for the economic counterpart of changes in natural assets other than economic assets (-Anp.env) is added. This implies that expenditures and, in particular, net capital accumulation of economic assets are only partly derived from net product of economic activities reflected in EDP; an important part of the expenditures may reflect the transfer of environmental assets and/or their services to economic activities. This can be shown more clearly by re-arranging the terms in the above EDP identity as follows:

    • EDP + Anp.env = C + (Ap.ec + Anp.ec) + (X - M).

4. Details on environmental amendments to SNA framework, concepts and classifications

  • 21.148. In the overview of the environmental accounting frameworks above and in the presentation of table 21.6, several new concepts were introduced. This section specifies these concepts more precisely, explains why they were introduced and presents alternatives used in the SEEA and other environmental accounting approaches. Where necessary, reference is made to the rows and columns of table 21.6.

Alternative frameworks for environmental accounts

  • 21.149. Alternative accounting approaches described earlier are reflected in different versions of the SEEA. For instance, resource accounting focuses mainly on recording information reflected in the asset balances of non-produced natural assets included in columns (5) and (6) of table 21.6, without explicitly entering into the counterpart cost calculations included in column (1). One of the approaches to monetary accounting mentioned above, on the other hand, focuses on the calculation of EDP as recorded in column (1), mainly taking into account depletion concerns. All other approaches cover the same ground as the SEEA, though their formats may differ. The SAM-based study used a matrix presentation of the SEEA framework of supply and use and asset balances of table 21.6. The welfare approaches fall outside the framework, as they deal with environmentally adjusted national income, which reflects transfers in kind of free environmental services received and damage incurred (transfers paid).

Asset boundary and classification

  • 21.150. The most important amendment introduced into environmental accounting as compared with the SNA is the extension of the asset boundary. In the SNA, natural assets are included only if they provide economic benefits to the owner, a characteristic that manifests itself through being controlled by an institutional unit. This often means explicit ownership, subject to government legislation in the case of natural forests, and/or availability of a market price. These assets are referred to in the SNA as economic assets. In the SEEA, the asset boundary is defined to be much wider. It includes in principle all natural assets; some may directly participate in production activities while others may be affected by environmental impacts of economic activities. (The SEEA does not include human capital.) The SNA asset boundary only includes economic assets as dealt with in columns (4) and (5) of table 21.6. The SEEA asset boundary comprises all natural assets including those that are economic assets and are covered in columns (4) and (5) and other natural assets that are represented by column (6) of the table. The SEEA, however, does not distinguish between natural assets that are economic assets and those that are not, focusing on environmental impacts irrespective of particular institutional arrangements of ownership and control.

  • 21.151. The main headings of the classification of natural assets in the SNA and the SEEA are presented in table 21.7, where they are related to each other. The two classifications are compatible, as they were developed in close coordination with each other. However, as the SNA includes a lesser number of natural assets, their detail and structure differ. Nevertheless, the SNA classification of natural assets can be used as a point of departure to arrive at the extended coverage and classification of natural assets in the SEEA.

    Table 21.7.

    Classification of natural assets in the SNA and the SEEA

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  • 21.152. Table 21.7 shows that some asset categories in the SNA and the SEEA are identical, some others are closely related but have a different coverage and still others are not included in the SNA but are included in the SEEA. The asset categories that have identical coverage are cultivated assets such as orchards and plantations, which are treated as fixed assets, and work-in-progress on cultivated assets including agricultural crops and livestock, which are treated as inventories in both systems. Also, the subsoil assets category is identical in both classifications. The coverage is based on the definition of proven reserves: “the estimated quantities at a specific date, which analysis of geological engineering data demonstrate, with reasonable certainty, to be recoverable in the future from known reservoirs under the economic and operational conditions at the same date”. The coverage of subsoil assets implied by this definition is the same as that implied by the definition of economic assets in the SNA. On the other extreme, air is included in the SEEA because it is affected by economic activities, but it is not included at all in the SNA as it does not satisfy the SNA criteria of economic assets.

  • 21.153. All other categories of non-produced natural assets, which are similar in the two systems but have different coverage fall between these two extremes. Land in the SNA includes associated water surfaces such as lakes and rivers, which are generally associated with recreational land, and in some instances also groundwater. As the SEEA deals with the effects of economic activities on the quality of water in rivers and lakes and on the quantity and quality of available groundwater, it excludes these categories from land and includes them as subcategories under the category of water. Consequently, the category of water in the SEEA is much broader than the SNA category AN.214 Water resources; the SEEA category includes (not shown in the table) sub-categories for groundwater, water of lakes, rivers, etc., coastal water, and ocean water. The SNA category is mainly restricted to aquifers that are controlled by human activities. On the other hand, in the SEEA land includes the eco-systems, which are not explicitly included as economic assets in SNA analysis, but which are aspects of land that are very important for environmental analysis as they deal with such effects as soil erosion and the effects of acid rain on the quality of forests and land in general. The coverage of non-cultivated biological resources in the SNA and wild biota in the SEEA is also different. Non-cultivated biological resources in the SNA would generally include forests, fishstocks and animal herds in the wild that are controlled by human activities. In the SEEA wild biota would, in principle, include all forests (including virgin forests), all fishstocks and all animal herds whether they are controlled by human activities or not, as all can be affected by human activities.

  • 21.154. The classification of natural assets such as that in the SEEA, which is presented in table 21.7, is needed in environmental accounting in order to fully cover depletion, degradation, and other accumulation i.e., transfer of natural assets to economic activities. It is applicable whether physical units or monetary values are used in the elaboration of environmental accounts. A more restricted coverage may be selected if the analysis is limited to environmental impacts that only affect specific natural assets. For instance, some studies have dealt only with oil exploitation, deforestation, depletion of fishstocks and land erosion. On the other hand, the case studies based on the SEEA mentioned earlier dealt with a wider range of natural assets and the environmental impacts on them, including groundwater depletion and air and water pollution. Of course, more selective environmental accounting could focus on only those natural assets that are economic assets; in that case the natural asset boundary would be the same as that of the SNA. One version of the SEEA in monetary values, which applies a market valuation approach deals explicitly with this case.

Environmental cost

  • 21.155. The SEEA identifies two types of environmental cost. The first is the imputed cost for degradation and depletion. The second is the actual cost incurred in the form of environmental protection expenses. The content and classification of both types are dealt with below.

Use of non-produced natural assets

  • 21.156. The use of non-produced natural assets is introduced as an additional cost in the SEEA when extending the SNA to environmental accounting. The additional cost elements are shown as the use of natural resources in row (vi) in table 21.6. They represent depletion and degradation in physical terms—e.g. quantity of minerals extracted, quantity of timber cut, volume of solid, liquid or gaseous wastes generated—or alternatively, monetary allowances for depletion and degradation.

  • 21.157. Before discussing the treatment of depletion and degradation, the reader should be reminded in this context that there is less consensus with regard to monetary approaches to environmental accounting than environmental accounting in physical terms, in view of difficulties of valuation. Within the monetary approaches, there is more consensus with regard to amendment of SNA concepts for depletion than degradation. The main reason for the latter is that depletion allowances already have found their way into commercial accounting practices and are thus implicitly reflected in the market prices of depleted assets. Commercial accounting practices generally have not been developed for externalities and consequently there is less consensus on this further amendment of the SNA in monetary environmental accounting. Equally in monetary environmental accounting, there is also less consensus with regard to the coverage of the concept of capital accumulation to replace the capital formation concept in environmentally sustainable growth analysis.

  • 21.158. Depletion and degradation of economic assets are recorded in the SNA in monetary terms in the items of other accumulation entries presented in the top panel of table 21.8. They refer to parts (which are separate building blocks in the SEEA) of SNA items K.3 Economic appearance of non-produced assets and K.62 Other economic disappearance of non-produced assets, and with regard to depletion, to the entire SNA item K.61 Depletion of natural assets. The extent to which these uses of natural economic assets—in particular, the degradation and quality effects included in items K.3 and K.62—are recorded in the SNA, depends on whether market prices of the assets identify these uses and whether they can be separated from other price changes in the assets. Uses of natural assets that are not economic assets are not recorded in the SNA. If the depletion and degradation elements included in row (vi) of table 21.6 are in physical terms, the values included in the SNA elements of other volume changes mentioned, should be eliminated in environmental accounting and replaced in row (vi) by the physical units in which depletion and degradation are expressed.

    Table 21.8.

    Other accumulation entries of the SNA related to use of non-produced natural assets

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  • 21.159. The depletion of natural assets included in row (vi) of table 21.6 covers mainly depletion of economic assets. The reason is that when an asset is being depleted to a major extent it would most probably satisfy either one or more of the SNA criteria concerning the asset boundary mentioned above—i.e., market prices would most probably develop, ownership would be enforced and consequently the asset might be considered as being controlled by human activities.

  • 21.160. Depletion, however, is not restricted to economic assets only. It may also include depletion of uncontrolled forests in some countries for the purpose of firewood collection; the firewood is often not sold nor ownership of the forests enforced. The same may apply to uncontrolled depletion of fishstocks. Also, lumber extraction associated with uncontrolled land clearance to acquire land for agriculture or urban settlements would lead to depletion of non-produced assets that are not economic assets at the time the land clearance takes place. In all these instances the assets may not be considered as economic assets in the SNA sense as the exploitation of the assets is uncontrolled; even though exploitation may be on a large scale, those assets still would be dealt with as other natural assets. In those instances a depletion allowance is calculated in the SEEA, except if the depletion in the case of wild biota is within the bounds of natural growth and the depleted assets would be naturally replaced.

  • 21.161. If expressed in monetary terms, the depletion allowances could be considered as payments for the extraction of non-produced assets (such as minerals) which are in stock either as economic assets or as natural assets outside the economic asset boundary. Depletion of non-produced natural assets is, therefore, considered in the SEEA as cost and at the same time treated as negative changes in inventories. Alternatively, it may be treated neither as cost nor output. The latter treatment is thought to be more appropriate by some as this treatment would result in an output value for extraction industries which would only include value of the extraction activity without including the value of the mineral being extracted.

  • 21.162. If monetary valuations are applied to stock changes in economic assets, such as mineral reserves and timber tracts which are under human control, the SNA rules on changes in inventories apply. Any change in the value of minerals extracted during the accounting period is reflected in changes in inventories of non-produced assets, in the same way as holding gains and losses of produced goods. On the other hand, if the stock changes are in natural assets other than economic assets, such as fishstock in the ocean or timber in wild forests, no price changes will be reflected in changes in inventories in the SNA because natural assets other than economic assets are not valued in the SNA.

  • 21.163. When depletion of non-produced economic assets such as minerals takes place, the mineral deposits are first transferred to economic uses (in row (vii) of table 21.6) before the use of non-produced natural assets is recorded. When natural assets that are not economic assets are depleted, such as catching of fish from rivers, lakes and oceans or collection of firewood from virgin forests, it is assumed that transfer to economic uses and depletion take place at the same time; the assets are incorporated as economic assets only for the amount of depletion and degradation at the moment of extraction or harvesting.

  • 21.164. Degradation effects in physical or monetary terms are included as additional cost elements in physical or monetary terms, no matter whether these affect natural assets that are economic assets such as land under cultivation and controlled forests or other natural assets such as virgin forests, water, air and land other than cultivated land. The effects of degradation may include the deterioration of natural assets as a result of their use as a “sink” for residues or as a consequence of other degrading activities, such as recreational uses. The deterioration of produced assets due to degradation is assumed to be reflected in consumption of fixed capital (CFC) which is already accounted for in the SNA.

  • 21.165. Degradation effects in table 21.6 have all been included as a cost of production in physical values or monetary terms in item Usenp in column (1). The justification for treating the disposal services of the environment as a cost of production is based on a number of specific treatments that are adopted in the SEEA.

  • 21.166. One convention of the SEEA concerns environmental degradation related to final demand. Environmental degradation by households of land, water and air through the use of fossil fuels, generation of garbage and as a consequence of recreational activities is treated in the SEEA as a cost of internal household production activities, which for this purpose are treated as part of an extended production boundary. Environmental degradation caused by fixed assets abandoned in the environment at the end of their useful economic life is allocated as cost of degradation to the producers owning those fixed assets. Both adjustments reduce EDP as compared to NDP in monetary environmental accounting.

  • 21.167. Another convention of the SEEA relates to environmental degradation “imported from” or “exported to” neighbouring countries. The net external degradation effect incurred by the country, resulting from the two flows, is treated in the SEEA as a further environmental cost element. An alternative method found, for example, in the SAM-based environmental study mentioned earlier, is to treat this net external environmental impact as the provision of free environmental disposal services to the rest of the world, which would only be deducted in the derivation of environmentally adjusted net (national) income aggregates. In this approach the net exports of environmental disposal services would be treated in a manner similar to the treatment in the central framework of the SNA of net imports of labour services, which are not deducted to arrive at NDP but taken into account in the derivation of national income.

Environmental protection expenses

  • 21.168. In addition to the disposal services provided by the environment “free of charge” in the case of degradation, actual expenses are incurred to avoid environmental degradation or eliminate the effects after degradation takes place. Increasingly, enterprises explicitly produce such services on a commercial basis. In many instances, however, the services are produced as the ancillary activities.

  • 21.169. The scope of environmental protection services is defined in table 21.9, which identifies the specific ISIC categories that are related to environmental protection activities. ISIC, however, does not include sufficient detail for the analysis of environmental protection and, therefore, a further tentative breakdown is proposed in the SEEA. Additional categories are included in the table and indicated with asterisks. More comprehensive classifications of environmental protection expenditures are being developed by international organizations and further modifications of the breakdown in table 21.9 may result.

    Table 21.9.

    Two digit ISIC categories that identify environmental protection services

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    Proposed SEEA breakdown.

  • 21.170. Environmental protection expenses made in the context of ancillary activities carried out by producers are externalized in one version of the SEEA, in the same manner as this was done in the functionally oriented satellite approach described in section C. The ancillary activities are treated as separate establishments with an identifiable output and intermediate costs. The externalization of ancillary environmental activities is done in order to measure and evaluate more comprehensively the efforts that have actually been made to combat environmental degradation and its effects. In terms of table 21.6 this would be reflected in a further breakdown of the production activities in column (1), identifying environmental protection services, and recording output and subsequent use of environmental protection products separately in the rows of supply (i) and economic use (ii). As a result, total output and intermediate consumption of the producers which carry out environmental protection activities as ancillary activities are adjusted upwards as compared with the SNA; NDP, however, is not affected by this treatment.

  • 21.171. In general, the SEEA only considers those environmental protection expenses which are in immediate response to the effects caused by production. It excludes environmental protection expenditures responding to other environmental effects. They would only be considered in welfare approaches which are not further elaborated in the SEEA. This is the reason why household expenses for environmental protection are not considered; they respond to impacts borne by households. They are dealt with in the SEEA in the same manner as in the SNA.

  • 21.172. An exception is made for environmental protection services produced as ancillary activities by government, which are included in the SNA as part of non-market output. They are identified in the SEEA as separate establishments. Their output is treated as government consumption if the government cleans up the effects of its own pollution, or alternatively as capital formation if such activity is interpreted as helping producers to remove the effects of degradation caused by them. This treatment applies to government environmental protection activities such as cleaning of lakes and rivers; restoring land polluted by industry, affected by mining operations and affected by military activities; etc., independently of whether the activities are aimed at eliminating the effects of degradation caused by others or by the government itself.

Net capital accumulation

  • 21.173. In the context of monetary environmental accounting, the SEEA introduces a capital accumulation concept as an alternative to capital formation in the SNA. Capital formation in the SNA includes changes in the stock of produced assets used in production that are caused by economic decisions. Capital accumulation in the SEEA includes not only capital formation but also changes in non-produced natural assets that are explicitly used in production which are thus also related to economic decisions. Such changes include the reductions in the capital stock as a result of depletion and degradation shown in the top panel of table 21.8, and in addition, the incorporation of natural assets as economic assets and the transfer of natural assets between economic uses as a result of economic decisions taken in connection with production activities.

  • 21.174. The middle of table 21.8 identifies additional entries: additions minus reductions in the level of subsoil resources (part of K.3 minus part of K.62), transfer of other natural assets, such as forests, to economic activities (also part of K.3) and classification changes due to economic decisions (part of K.12). The last item covers changes such as in the use of land (for example, between agricultural land and land for urban and rural settlements).

  • 21.175. The other accumulation entries not included in the SEEA concept of capital accumulation are in the lower panel of table 21.8. Catastrophic losses due to events such as wars and natural disasters are not included in the concept of net capita] accumulation unless they are caused in connection with productive activities; as they are not related to economic decisions, they remain with other accumulation entries in the lower part of the table. Nor is natural growth of non-cultivated biological resources included in net capital accumulation.


  • 21.176. For purposes of monetary accounting, valuation of the additional SEEA elements in column (6) and rows (vi) and (vii) of table 21.6 is needed, the environmentally adjusted elements in row (viii) of the table become relevant only in this case.

  • 21.177. While recognizing that valuation of environmental cost and capital is still a controversial issue, the SEEA deals in some detail with valuation principles. Three alternative valuation methods are distinguished: market prices, maintenance cost and contingent valuation. In the SEEA prices on the market are the central valuation and the principles of market valuation are the same as in the SNA. They are applied to stocks of non-produced natural assets that are economic assets in the SNA, to changes therein as a result of uses of natural assets, and also to the depletion of natural assets that are not economic assets, such as the extraction of fish from the oceans and firewood from virgin forests.

  • 21.178. Even though market valuation is the same in the SNA as it is in the SEEA, it has been more extensively elaborated in the SEEA insofar as natural resources are concerned. In the context of discussing amendments to the SNA to arrive at environmental accounts, it is worthwhile highlighting a number of selected aspects of the market valuation.

  • 21.179. Market values are used in the SNA and the SEEA to value stocks of economic non-produced natural assets. The valuation of depletion and degradation of natural assets that are economic assets in the SNA using prices on the market is consistent with the valuation of the stocks of the corresponding non-produced (natural) economic assets in both systems. The only difference between the SNA and the SEEA is that the use of non-produced natural economic assets is recorded in the SNA as other volume changes, while in the SEEA the cost of depletion and degradation is reflected in capital accumulation and deducted in the derivation of EDP.

  • 21.180. Opening and closing stocks of other non-produced natural assets that are not economic assets in the SNA are not valued in monetary terms in either system; they are recorded in the SEEA, but only in physical terms. Nor is degradation of air and water valued in either system, as these are uses of non-produced natural assets that are not economic assets. However, while the SNA excludes, the SEEA includes in its market valuation all uses of natural assets that are not economic assets. For instance, the depletion of fish stocks from the ocean or extraction of firewood from virgin forests as the fish and firewood have a market value. This implies that the item-Usenp.env in column (6) of table 21.6 has limited coverage in the monetary version of the SEEA, as it includes only depletion of natural assets that are not economic assets, but not degradation.

  • 21.181. In valuing the changes in the stock of non-produced assets at monetary terms, two valuation methods are utilized in practice, mainly in the context of depletion. One is the so-called net rent approach. It values the units extracted on the basis of the difference between output and all costs—including labour costs and a normal profit margin—incurred as a result of depletion. The other is the so-called user cost approach, which values the units extracted on the basis of only a part of net rent, i.e., that part which if reinvested would generate a permanent income stream equal to the loss of income generation capacity through depletion.

  • 21.182. Since the cost of depletion is more often reflected in prices than the cost of degradation, the SNA and the market valuation version of the SEEA incorporate depletion cost more fully than they do degradation. Insofar as the market recognizes the cost of degradation when specifying different prices for degraded natural assets such as contaminated land, the degradation cost is treated as other volume changes in the SNA. As it may be difficult in practice to separate these changes in the quality of assets due to degradation from price changes, SNA accounting may not attempt such separation. However, the SEEA—given its different analytical focus—identifies these quality changes in assets separately, deducting this value in principle from value added generated and capital accumulation.

  • 21.183. The two other valuations used in the SEEA, i.e., maintenance cost and contingency valuation, are only applied to uses and not to stocks of non-produced natural resources. The uses that are valued in this manner include uses of natural resources that are economic assets in the SNA sense as well as uses of other natural resources, such as contamination of air and water and depletion of fish stocks in the ocean. The maintenance valuation in these instances is based on the cost which would have been necessary to maintain natural assets at their level prior to depletion or degradation. The contingency valuation is based on the willingness-to-pay principle. It is used in the SEEA to value the environmental cost borne by households, which is deducted in the derivation of one of the alternatives of EDP. This differs from some other approaches, which deduct this cost outside the framework of table 21.6 in the derivation of environmentally adjusted national income instead of EDP.

  • 21.184. Use of other than market valuation leads to a number of valuation inconsistencies within the SEEA. To some extent these reflect potential disequilibria resulting from the use of prices that do not recognize environmental cost. One of these inconsistencies has been identified explicitly in the SEEA. It is the discrepancy caused by incompatibilities between the market valuation of opening and closing stocks of non-produced natural assets that are economic assets in the SNA sense and the valuation of the corresponding flows which include the non-market valuation of uses of these assets and other natural assets that are not economic assets, in terms of maintenance and contingency cost. The valuation discrepancy could be interpreted as the quality changes of all natural assets that are not taken into account in the market valuation of economic assets. The discrepancy will be less the better the quality changes in the assets due to degradation are reflected in sub-items of K.62 covering negative effects of degradation of land and other non-produced economic assets, as well as the positive effects due to restoration activities(seetable 21.8).

  • 21.185. Another inconsistency concerns the compatibility between the valuation of output that is based on market cost and the valuation of inputs that include not only economic uses but also environmental uses that are not taken into account in the valuation of output. Whether this incompatibility is important depends on whether some of the assumptions implicit in the SEEA treatment are realistic. The first assumption is that the additional environmental costs that are imputed would not affect the prices of output of the products concerned if these costs were explicitly taken into account in the prices charged to the purchaser. In the case of degradation, there is a further assumption that if restoration activities were actually carried out, the resources needed would be available in sufficient supply and would not compete with the resources available for the production of other goods and services. Based on these assumptions, additional expenditures imputed to account for the cost of depletion and degradation, therefore, reduce value added and EDP to the full extent without taking into account any effects resulting from changes in prices of output and intermediate inputs.

  • 21.186. The two assumptions are probably more realistic for depletion than for degradation. Producers of minerals and other products of depletable reserves, when calculating their profits and the part they would have to reserve in order to secure future income streams, may already have taken the depletion allowance into account. Incorporation in environmental accounts of such allowances would thus merely adjust net value added of the production in question to a more realistic level. However, even in case of pollution many corporations may have made allowances in their costs for possible liability for environmental contamination.



The present discussion is based on United Nations, “Integrated environmental and economic accounting (an interim report)”, (New York, 1992). This report has subsequently been issued as a United Nations publication, Sales No. E.93.XVII.12. It was prepared by the United Nations Statistical Division with the assistance of a consultant and in close coordination with the SNA.