Chapter II. Accounting structure
Author: United Nations, European Commission, Food and Agricultural Organization of the United Nations, International Monetary Fund, Organization for Economic Co-operation and Development, and World Bank
Language:
English
Keywords:
M&G; SEEA Central Framework; enterprise; basic price; monetary terms; enterprise flow; monetary value; enterprise activity; Consumption; Natural resources; Global
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Abstract

2.1 The System of Environmental-Economic Accounting (SEEA) Central Framework is a multipurpose conceptual framework for describing the interaction between the economy and the environment, and the stocks and changes in stocks of environmental assets. Utilizing a systems approach to organizing environmental and economic information, it covers, as completely as possible, the stocks and flows that are relevant to the analysis of environmental and economic issues.

2.1 Introduction

2.1 The System of Environmental-Economic Accounting (SEEA) Central Framework is a multipurpose conceptual framework for describing the interaction between the economy and the environment, and the stocks and changes in stocks of environmental assets. Utilizing a systems approach to organizing environmental and economic information, it covers, as completely as possible, the stocks and flows that are relevant to the analysis of environmental and economic issues.

2.2 In applying a systems approach, the SEEA Central Framework applies the accounting concepts, structures, rules and principles of the System of National Accounts (SNA). Because the SEEA Central Framework uses the same accounting conventions and structures as the SNA, it generally uses the same terminology and language as the national accounts as well.

2.3 At the same time, the SEEA Central Framework represents a melding of many disciplines (e.g., economics, statistics, energy, hydrology, forestry, fisheries and environmental science), each with its own concepts and structures. Thus, while the underlying structure is the same as that used in the national accounts, the SEEA Central Framework aims to integrate perspectives from other disciplines and, where relevant, provide an improved body of information for environmental-economic analysis.

2.4 The present chapter provides an overview of the accounting structure of the SEEA Central Framework and its rules and principles of recording. This overview places the various aspects of the economy and the environment in a measurement context. Using the broad description contained in section 2.2, section 2.3 presents the accounting structure which encompasses supply and use tables, asset accounts, the sequence of economic accounts, and functional accounts. Section 2.4 introduces one of the key outputs: combined presentations of physical and monetary data.

2.5 Section 2.5 introduces the measurement of stocks and flows in physical and monetary terms; section 2.6 describes the relevant economic units; and section 2.7 presents a range of specific accounting rules and principles which form the basis of recording and compilation.

2.2 Overview of the SEEA Central Framework

2.6 The Central Framework covers measurement in three main areas: (a) the physical flows of materials and energy within the economy and between the economy and the environment; (b) the stocks of environmental assets and changes in these stocks; and (c) economic activity and transactions related to the environment. Measurement in these areas is translated into a series of accounts and tables, as described in section 2.3.

2.7 Central to measurement in these areas are definitions of the economy and the environment. Measurement boundaries are defined with a view to ensuring that information can be organized in a consistent way over time, across countries and between different areas of analysis.

2.8 Broadly, the economy functions through the production and import of goods and services which, in turn, are consumed by enterprises, households or government; exported to the rest of the world; or accumulated to be consumed or used in the future. Accumulation in this context includes the storage of materials for use in the future and the acquisition of machines and other types of produced assets which are used on an ongoing basis.

2.9 For measurement purposes, the economy is represented by both stocks and flows. The measurement of flows centres on the economic activities of production, consumption and accumulation. With regard to these, it is the measurement boundary for production (the production boundary) that is the most significant, since all goods and services (products) that are regarded as being produced are effectively considered to be “inside” the economy. Flows between the economy and the environment are determined by whether they cross the production boundary.

2.10 Stocks of economic assets provide inputs to production processes and are a source of wealth for economic units, including households. While many economic assets are produced from economic activity (e.g., buildings and machines), many are non-produced (e.g., land, mineral resources and water resources). Both produced and non-produced assets provide inputs to the production of goods and services.

2.11 The economic value and quantity of stocks of assets (e.g., buildings, natural resources and bank deposits) change over time. These changes are reflected in flows, and are recorded either as transactions (such as the acquisition of buildings and land) or as other flows. Many flows relating to non-produced assets (e.g., discoveries of mineral resources, and losses of timber resources due to fire) are considered to be flows outside the production boundary, since the assets themselves are not the output from production processes undertaken by economic units (enterprises, households and government).

2.12 Environmental stocks and flows are considered holistically. From a stock perspective, the environment includes all living and non-living components that constitute the biophysical environment, including all types of natural resources and the ecosystems within which they are located. From the perspective of environmental flows, the environment is the source of all natural inputs to the economy, including natural resource inputs (minerals, timber, fish, water, etc.) and other natural inputs absorbed by the economy, for example, energy from solar and wind sources and the air used in combustion processes.

2.13 The remainder of the present section provides additional descriptions of the measurement of the economy and the environment in the Central Framework.

The measurement of physical flows

2.14 A key focus of measurement is the use of physical units to record flows of materials and energy that enter and leave the economy and flows of materials and energy within the economy itself. These measures are called physical flows. In broad terms, the flows from the environment to the economy are recorded as natural inputs (e.g, flows of minerals, timber, fish and water).1 Flows within the economy are recorded as product flows (including additions to the stock of fixed assets) and flows from the economy to the environment are recorded as residuals (e.g., solid waste, air emissions and return flows of water). This broad characterization is presented in figure 2.1.

Figure 2.1
Figure 2.1

Physical flows of natural inputs, products and residuals

2.15 Physical flows are recorded in physical supply and use tables. These tables are extensions of the monetary supply and use tables used for the recording of flows of products in monetary terms in the SNA. Section 2.5 and chapter 3 provide detailed descriptions of the measurement of physical flows.

The measurement of environmental assets

2.16 The use of natural inputs by the economy is linked to changes in the stock of environmental assets that generate those inputs. Asset accounts for environmental assets in both physical and monetary terms are an important feature of the SEEA.

2.17 Environmental assets are the naturally occurring living and non-living components of the Earth, together constituting the biophysical environment, which may provide benefits to humanity. Although they are naturally occurring, many environmental assets are transformed to varying degrees by economic activities. In the SEEA, environmental assets are considered from two perspectives. In the Central Framework, the focus is on individual components of the environment that provide materials and space to all economic activities. Examples include mineral and energy resources, timber resources, water resources and land.

2.18 This focus reflects the material benefits from the direct use of environmental assets as natural inputs for the economy by enterprises and households. However, this focus does not consider the non-material benefits from the indirect use of environmental assets (e.g., benefits from ecosystem services such as water purification, storage of carbon and flood mitigation).

2.19 The coverage of individual assets does not extend to the individual elements that are embodied in the various natural and biological resources referred to above. For example, the various soil nutrients are not explicitly considered individual assets.

2.20 A complete description of the measurement of environmental assets in terms of the various individual environmental assets is presented in chapter V.

2.21 The second perspective on environmental assets, which is described in SEEA Experimental Ecosystem Accounting, encompasses the same environmental assets but focuses on the interactions between individual environmental assets within ecosystems, and on the broad set of material and non-material benefits that accrue to the economy and other human activity from flows of ecosystem services. Ecosystems are a dynamic complex of plant, animal and microorganism communities and their non-living environment interacting as a functional unit.2 Examples are terrestrial ecosystems (e.g., forests and wetlands) and marine ecosystems. Often, there are interactions between different ecosystems at local and global levels.

2.22 For a given ecosystem or group of ecosystems, ecosystem accounting considers the capacity of living components within their non-living environment to work together to generate flows known as ecosystem services. Ecosystem services are the contributions of ecosystems to benefits used in economic and other human activity. Ecosystem services, which are supplied in many ways and vary from ecosystem to ecosystem, may be divided into three groups: (a) provisioning services (such as the provision of timber from forests); (b) regulating services (provided, for example, by forests when they act as a sink for carbon); and (c) cultural services (such as the enjoyment provided to visitors to a national park).3 Generally, provisioning services are related to the material benefits of environmental assets, whereas the other types of ecosystem services are related to the non-material benefits of environmental assets.

2.23 Degradation of ecosystems by economic and other human activity may mean that they are not able to generate the same range, quantity or quality of ecosystem services on an ongoing basis. A focus on ecosystems that includes both material and non-material benefits of environmental assets provides a basis for analysing the extent to which economic activity may reduce an ecosystem’s capacity to generate ecosystem services.

The measurement of economic activity related to the environment

2.24 In addition to measuring stocks of environmental assets and flows between the environment and the economy, the Central Framework records flows associated with economic activities related to the environment. Examples of economic activity related to the environment include expenditures on environmental protection and resource management, and the production of environmental goods and services, such as devices to reduce air pollution. Using the measurement framework of the SNA, economic activity undertaken for environmental purposes can be separately identified and presented in what are known as functional accounts (such as environmental protection expenditure accounts).

2.25 The Central Framework provides a more complete view of the environmental aspects of the economy by considering environmental transactions such as taxes, subsidies, grants and rent. These transactions are recorded in the sequence of economic accounts and in functional accounts (such as environmental protection expenditure accounts).

2.3 Main accounts and tables of the SEEA Central Framework

2.3.1 Introduction

2.26 The Central Framework organizes and integrates the information on the various stocks and flows of the economy and the environment in a series of tables and accounts. The Central Framework comprises the following types of tables and accounts: (a) supply and use tables in physical and monetary terms showing flows of natural inputs, products and residuals; (b) asset accounts for individual environmental assets in physical and monetary terms showing the stock of environmental assets at the beginning and the end of each accounting period and the changes in the stock; (c) a sequence of economic accounts highlighting depletion-adjusted economic aggregates; and (d) functional accounts recording transactions and other information about economic activities undertaken for environmental purposes. The analysis of these data can also be extended by linking the tables and accounts to relevant employment, demographic and social information.

2.27 The strength of the Central Framework stems from its consistent application of definitions and classifications for stocks, flows and economic units across different types of environmental assets and different environmental dimensions (e.g., across water and energy). Additional strength is derived from the consistent application of these various definitions and classifications in physical and monetary terms, as well as from their consistency with the same definition and classifications used in the SNA and economic statistics.

2.28 Implementation does not require compilation of every table and account for all environmental assets or environmental themes. Instead it can be modular, taking into account those aspects of the country’s environment that are most important. At the same time, the ambition should be to fully account for the environmental-economic structure of a country and to provide information on issues of global concern using a common measurement framework.

2.29 The present section introduces the different tables that are part of the Central Framework and demonstrates the nature of the integration between them. The explanation is stylized, as the reality is more complex, but the basic logic and intent of the approach examined in this section apply throughout the Central Framework.

2.3.2 Supply and use tables

Monetary supply and use tables

2.30 Monetary supply and use tables record all flows of products in an economy between different economic units in monetary terms. They are compiled to describe the structure of an economy and the level of economic activity. Many of the flows of products recorded in monetary terms relate to the use of natural inputs from the environment (e.g., the manufacture of wood products) or to activities and expenditures associated with the environment (e.g., environmental protection expenditure). Highlighting the relevant flows in monetary terms and developing finer breakdowns, as required for analysis of specific topics, is therefore an important part of the Central Framework.

2.31 The recording of the products that flow within the economy entails the same process as that for the recording of these flows in the SNA. Products are “supplied” within the economy when they are:

  • (a) Produced by industries in the national economy (a flow known as output);

  • (b) Brought in from the rest of the world (a flow known as imports).

2.32 All products that are supplied must be recorded as being “used”. Use can occur in a number of ways, i.e., the products can be:

  • (a) Used by other industries to make different products (a flow known as intermediate consumption);

  • (b) Consumed by households (a flow known as household final consumption expenditure);

  • (c) Consumed by governments (a flow known as government final consumption expenditure);

  • (d) Sold to the rest of the world (a flow known as exports);

  • (e) Held as inventories for later use;4 or

  • (f) Used as assets (e.g., machines) over a longer period of time to produce other products (these longer-term uses are flows known as gross fixed capital formation).

2.33 As shown in table 2.1, these flows are classified by type of product in the rows and by type of economic unit (enterprises, households, government) and the rest of the world in the columns. Enterprises are classified to industries on the basis of their principal activity. The exception in the naming of the columns is “Accumulation”. Accumulation flows are recorded separately for the following reason: while they concern supply in the current accounting period, they are not used in the current period and instead accumulate for future use or sale by economic units and the rest of the world—in the form either of inventories or of fixed assets.

Table 2.1.

Basic form of a monetary supply and use table

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Note: Dark grey cells are null by definition.

2.34 The monetary supply and use table is divided into two parts: the supply table and the use table. Overall, the total supply of each product must equal the total use of each product. This equality between the total supply and total use of each product is known as the supply and use identity, a fundamental identity in both the monetary supply and use tables and in the physical supply and use tables.

2.35 The row of the supply table shows that for each product total supply is equal to output plus imports. The row for the use table shows that total use is equal to intermediate consumption plus household final consumption expenditure plus government final consumption expenditure plus gross capital formation5 plus exports.

2.36 One feature of monetary supply and use tables is that key economic aggregates can be derived using the various components. In particular, the aggregate value added by industry can be calculated as the difference between an industry’s output and its intermediate consumption. This aggregate forms the starting point for the sequence of accounts described in section 2.3.4.

2.37 Full details on the definitions of the different variables covered in the monetary supply and use tables are described in chapter 14 of the 2008 SNA.

Physical supply and use tables (PSUT)

2.38 Physical flows are recorded by compiling supply and use tables in physical units of measurement. These tables, which are commonly known as physical supply and use tables (PSUT), are used to assess how an economy supplies and uses energy, water and materials, as well as to examine changes in production and consumption patterns over time. In combination with data from monetary supply and use tables, changes in productivity and intensity in the use of natural inputs and the release of residuals can be examined.

2.39 The PSUT structure is based on the monetary supply and use tables described above with extensions to incorporate a column for the environment, and rows for natural inputs and residuals. Table 2.2 sets out these extensions.

Table 2.2

Basic form of a physical supply and use table

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Note: Dark grey cells are null by definition. Blank cells may contain relevant flows, which are explained in detail in chapter III.

2.40 The column for government is removed in the formation of the PSUT because, in physical terms, government activity is completely recorded within the first column, industries; that is, the intermediate consumption associated with activities undertaken by government units is incorporated in the estimates of these flows for the relevant industry, for example, as part of public administration, or water collection and supply. In the monetary supply and use table, the column for government final consumption expenditure reflects the acquisition by government of its own output which is a acquisition of services rather than a purchase of physical goods.

2.41 The column for households in the PSUT relates solely to the consumption activity of households. Many households also undertake a range of activity for own consumption, including the collection of water and fuelwood, and the generation of hot water through the use of solar energy. While this activity is often regarded as direct household consumption from the environment, in the SEEA, all products that are consumed must first be recorded as being produced. Hence, all of this production activity and the associated flows of natural inputs and products should be recorded in the first column, industries. The consumption activity of households recorded in the PSUT extends to the generation of solid waste and other residuals as a consequence of consumption.

2.42 While the broad structure and underlying principles of PSUT are the same regardless of whether the PSUT is measuring flows of energy, water or materials, for each of these subsystems of physical flows different rows and columns may be used.

2.43 Table 2.2 provides only an introduction to PSUT. There are a range of additions to and refinements of this basic PSUT required to cover all relevant flows of natural inputs, products and residuals. These are explained in detail in chapter III.

2.44 Within the PSUT, the supply and use identity that applies in monetary terms also applies in physical terms. Thus, for each product measured in physical terms (e.g., cubic metres of timber), the quantity of output and imports (total supply of products) must equal the quantity of intermediate consumption, household final consumption, gross capital formation and exports (total use of products). The equality between supply and use also applies to the total supply and use of natural inputs and the total supply and use of residuals.

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

2.46 Both the supply and use identity and the input-output identity are an integral part of the Central Framework. They are based on the law of the conservation of mass and energy which states that the mass and energy of a closed system will remain constant. The implication for accounting is that, in theory, mass and energy flows must balance across natural inputs, products and residuals.

2.47 Further details on the compilation of PSUT are presented in chapter III, including the presentation of specific PSUT for energy, water and various material flows (including flows of emissions and solid waste). However, unlike monetary flows which are measured in currency units, physical flows are generally measured in different units depending on the material. Thus, while it is conceptually possible to compile a complete PSUT for all material flows in an economy using a single measurement unit (e.g., tonnes), it is not the usual practice.

Classifications for supply and use tables

2.48 In the compilation of supply and use tables in both physical and monetary terms, an important factor is the use of consistent classifications for the main economic units and products. Industries are consistently classified using the International Standard Industrial Classification of All Economic Activities (ISIC), products are classified using the Central Product Classification (CPC), and the determination of whether particular economic units are within a particular national economy is based on the concept of residence (explained further in sect. 2.6). The ISIC and the CPC are used not only in supply and use tables but also in other accounts and tables to classify industries and products. Other classifications, such as the Standard International Energy Product Classification (SIEC), may also be used in specific situations.

2.3.3 Asset accounts

2.49 The intent of asset accounts is to record the opening and closing stock of environmental assets and the different types of changes in the stock over an accounting period. One purpose of accounting for environmental assets is to assess whether current patterns of economic activity are depleting and degrading the available environmental assets. Information from asset accounts can be used to assist in the management of environmental assets; and valuations of natural resources and land can be combined with valuations of produced and financial assets to provide broader estimates of national wealth.

2.50 An asset account is structured as shown in table 2.3. It starts with the opening stock of environmental assets and ends with the closing stock of environmental assets. In physical terms, the changes between the beginning and the end of the accounting period are recorded as either additions to the stock or reductions in the stock and, wherever possible, the nature of the addition or reduction is recorded. In monetary terms, the same entries are made but an additional entry is included for the purpose of recording the revaluation of the stock of environmental assets. This entry accounts for the changes in the value of assets over an accounting period that are due to movements in the price of the assets.

Table 2.3

Basic form of an asset account

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Only applicable for asset accounts in monetary terms.

2.51 There are many and varied reasons for changes in the quantity and value of a stock of environmental assets over an accounting period. Many of these changes are due to interactions between the economy and the environment in the context, for example, of the extraction of minerals or the planting of timber resources. Other changes in environmental assets are caused by natural phenomena, for example, losses of water from reservoirs due to evaporation or catastrophic losses of timber resources due to forest fires.

2.52 Some changes between the opening and closing stock are more accounting-related in nature and comprise those due to improved measurement (reappraisals) and those involving the categorization of the asset (reclassifications). The reassessment of the size and quality of mineral resources is an example of a reappraisal and the entries required to record changes in land use between agriculture and built-up areas reflect reclassifications.

2.53 Generally, asset accounts are compiled for individual types of environmental assets. In monetary terms, there may be interest in aggregating the values of all environmental assets at the beginning and the end of the accounting period. Such aggregations can be presented in balance sheets, and through their combination with the value of other assets (e.g., produced assets and financial assets) and liabilities, an overall measure of the net wealth of an economy can be obtained.

2.54 The capacity to account for and analyse the state of and changes in environmental assets is a fundamental component of the Central Framework. There are, however, many conceptual and practical measurement challenges, often unique to particular environmental assets. These measurement issues are discussed in detail in chapter V.

The connections between supply and use tables and asset accounts

2.55 The different tables are compiled for different purposes and highlight different aspects of the relationship between the economy and the environment. At the same time, there are close links between the supply and use tables and the asset accounts as shown in table 2.4. These connections highlight the fact that the Central Framework is an integrated system.

Table 2.4

Connections between supply and use tables and asset accounts

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Note: Dark grey cells are null by definition. Blank cells may contain relevant flows, which are articulated in detail in chap. III.

While these residual flows (e.g., air emissions) are not flows of environmental assets, they may affect the capacity of environmental assets to deliver benefits. The changing capacity of environmental assets may also be reflected in other changes in the volume of assets.

2.56 The upper left-hand cells of table 2.4 encompass the supply and use of products measured in monetary terms. The cells below encompass the supply and use of natural inputs, products and residuals in physical terms. In both cases, the set of economic units are the same (i.e., enterprises represented in industries, households, government and the rest of the world). Thus, it can be seen that the supply and use of products is recorded in the Central Framework in both monetary and physical terms.

2.57 The major change in table 2.4 from a supply and use perspective, is that the flows recorded in the accumulation and environment columns of the supply and use tables have been reworked into an asset account framework. This is shown in the two right-hand columns. The distinction between produced assets and environmental assets highlights the difference in the recording of these flows in the supply and use tables, in particular the fact that the extraction of natural resources is recorded not in the monetary supply and use tables but in the PSUT as a flow of natural inputs.

2.58 The opening and closing stocks for a given period appear at the top and bottom of the table, respectively. Some of the changes in the stocks are also recorded in the supply and use tables. For example, gross capital formation and natural inputs are included in both the asset accounts and the supply and use tables. Some changes in stocks are not recorded in the supply and use tables and these are grouped together in the cell labelled “Other changes in volume of assets”. Examples of these changes include discoveries of mineral resources, losses of assets following catastrophic natural events and changes in the values of assets due to price changes (revaluations). It is noted that some environmental assets may be restored through human activities (e.g., restoration of water bodies as aquatic habitats).

2.59 Special mention must be made of the final row concerning the use of residuals. Strictly speaking, neither the accumulation of waste in controlled landfills nor the flows of residuals to the environment are recorded in asset accounts for individual environmental assets. However, more broadly, the accumulation of waste in the economy does represent an increase in a stock, and flows of residuals to the environment may well affect the capacity of environmental assets to deliver benefits.

2.3.4 The sequence of economic accounts

2.60 In monetary terms, supply and use tables and asset accounts record much of the information of interest in the assessment of the interactions between the economy and the environment. However, there are a range of other transactions and flows that are of interest, such as payments of rent for the extraction of natural resources, payments of environmental taxes, and payments of environmental subsidies and grants from government units to other economic units to support environmental protection activity.

2.61 These flows are recorded in the sequence of economic accounts, which is compiled only in monetary terms because these accounts include transactions that do not have a direct underlying physical base, for example, interest payments. The sequence of economic accounts in the SEEA follows the broad structure of the sequence of accounts in the SNA.

2.62 A particular feature of the sequence of accounts is the presentation of balancing items. Typically, there is not a balance between relevant inflows and outflows. Thus, balancing items are introduced. These are measures of economic performance in their own right but also link the sequence of accounts together. Key balancing items include value added, operating surplus, saving and net lending/borrowing. Economy wide aggregates, such as gross domestic product (GDP) and gross national income (GNI), can also be constructed from balancing items.

2.63 Of particular importance is the derivation of depletion-adjusted balancing items and aggregates within the sequence of economic accounts. Depletion-adjusted measures go beyond the balancing items and aggregates measured in “net” terms in the SNA (i.e., after the deduction of consumption of fixed capital) and further deduct the cost of using up natural resources (i.e., depletion). The main balancing items and aggregates within the sequence of economic accounts are shown in broad terms in table 2.5.

Table 2.5

Basic SEEA sequence of economic accounts

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2.64 The sequence of economic accounts starts in the production account that is formed using the entries of output and intermediate consumption from the monetary supply and use table. In the production account, the balancing item is value added (output less intermediate consumption). At an economy-wide level, the main related aggregate from the production account is GDP. Consumption of fixed capital and depletion are deducted from gross value added and GDP to form measures of depletion-adjusted net value added and depletion-adjusted net domestic product.

2.65 The sequence continues in the distribution and use of income accounts. These accounts contain information on the manner in which value added, i.e., the income directly obtained from production, is allocated to economic units, as either compensation of employees or gross operating surplus, and on flows of other income and related payments such as flows of taxes, subsidies, interest and rent for the use of land or other environmental assets. A total amount of disposable income (all income received less all income paid) is available for final consumption expenditure. The balancing items for the income accounts are operating surplus (value added less compensation of employees and taxes less subsidies) and saving (disposable income less final consumption expenditure).

2.66 As in the production account, depletion can be deducted from the balancing items of net operating surplus and net saving. The key aggregates from these accounts in gross terms are gross national income (GNI) and gross national saving, both of which can be adjusted for depletion and consumption of fixed capital to form depletion-adjusted measures.

2.67 The next account to be considered is the capital account, which records how saving is used to acquire assets, including produced assets and environmental assets. Thus, it includes the acquisition and disposal of environmental assets, in particular transactions in land and cultivated biological resources such as plantations and livestock. If the expenditure on assets is less than the amount of saving, then an economy will have resources available to lend to the rest of the world. If the expenditure on assets is more than the amount of saving, then an economy will need to borrow from the rest of the world. The balancing item for the capital account is therefore known as net lending/borrowing.

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

2.69 The sequence of accounts can be complemented by balance sheets that record the values of all assets and liabilities at the beginning and end of an accounting period. The balancing item for a balance sheet is net worth, representing the total value of all assets less the value of all liabilities.

2.70 A more detailed description of the sequence of accounts and the derivation of depletion-adjusted measures is presented in chapter VI. The definition and measurement of depletion is discussed in chapter V.

2.3.5 Functional accounts

2.71 While monetary supply and use tables can be used to organize and present certain types of transactions of particular relevance to the environment, identifying these transactions within supply and use tables usually requires additional disaggregation because the conventional industry and product classifications do not necessarily highlight environmental activities or products.

2.72 The first step in the approach taken is to define the activities, goods and services that have an environmental purpose (i.e., that have, as their primary purpose, to reduce or eliminate pressures on the environment or to make more efficient use of natural resources). In the second step, relevant information in scope of the monetary supply and use table and the sequence of economic accounts is reorganized to enable clear identification of the transactions associated with the environmental activities and environmental goods and services.

2.73 The highlighting of environmental activities and products enables information to be presented on the economic response to environmental issues. Particular flows of interest are the output of environmental goods and services, and expenditures on environmental protection and resource management, as well as environmental taxes and subsidies.

2.74 The construction of functional accounts and associated information is discussed in detail in chapter IV.

2.3.6 Employment, demographic and social information

2.75 The usefulness of the information in the various tables and accounts can be enhanced by relating different environmental and economic data to estimates of employment, estimates of population, various demographic breakdowns (such as age, household income levels and household characteristics related to material well-being) and measures of societal interest such as health and education.

2.76 Examples of the application of such data include the incorporation of employment data on the production of environmental goods and services, the use of socioeconomic groupings of households to assess water and energy use and access to resources, and the linking of information on health status to data on air emissions in particular regions.

2.77 Section 6.2 discusses further the use of these types of data in the context of the Central Framework, and the SEEA Extensions and Applications presents techniques and analytical approaches to linking SEEA-based data with various types of employment, demographic and social data.

2.4 Combining physical and monetary data

2.78 The presentation of information in a consistent format which combines integrated physical and monetary data is one of the strongest features of the Central Framework. This feature enables the provision of a wide range of information on specific themes (e.g., water, energy and air emissions), the comparison of related information across different themes, and the derivation of indicators that use both physical and monetary data.

2.79 Given the integrated accounting structures of physical and monetary accounts, it is logical to use these structures and the common underlying accounting rules and principles to present physical and monetary information at the same time. Such integrated formats have sometimes been referred to as “hybrid” presentations or accounts because they contain data in different measurement units. However, although the measurement units are different, the data sets are presented in accordance with common classifications and definitions; hence, these formats are referred to as combined physical and monetary presentations.

2.80 Combining physical and monetary data is governed at its core by the logic of recording physical flows in a manner compatible with economic transactions as presented in the SNA. This linkage ensures a consistent comparison of environmental burdens with economic benefits, or environmental benefits with economic costs. It can be examined not only at the national level but also at disaggregated levels, for example, in relation to regions of the economy, or specific industries, or for the purpose of examining the flows associated with the extraction of a particular natural resource or the emissions of a particular material.

2.81 Because these presentations combine physical data that may be of more immediate use to scientists, with monetary data familiar to economists, they also have the potential to form a bridge between these two groups and their respective concerns about the environment.

2.82 In combined presentations, it is legitimate to include only a limited set of variables, depending on the most urgent environmental concerns to be taken into consideration, and it is not necessary to construct an exhaustive physical supply and use table in order to be able to present combinations of physical and monetary data.

2.83 A combined physical and monetary presentation thus represents an analytical framework for showing which parts of the economy are most relevant to specific indicators and how changes in the economic structure influence the evolution of indicators over time. Further, because the accounts provide consistent environmental and economic indicators, the possible trade-offs, in environmental terms, between alternative environmental and economic strategies can be analysed.

2.84 At finer levels of disaggregation, combined presentations can provide the research community with access to a structured database for further research regarding the overall environmental performance of national economies. In particular, data sets with combinations of physical and monetary data may be of direct use in the development of environmental-economic models.

2.85 Different forms of combined physical and monetary presentations are possible and, indeed, there is no standard form for these presentations or accounts. Commonly, physical flow data are presented alongside information from monetary supply and use tables; but even for this basic structure, different combinations are possible. Ultimately, the structures of combined presentations of monetary and physical data are dependent on the availability of data and the questions under investigation.

2.86 While no standard structure can be defined, compiling and contrasting monetary and physical data in meaningful ways are at the heart of the SEEA philosophy. This section has provided a general introduction to combined physical and monetary presentations. Chapter VI discusses the compilation of these presentations and provides examples of potential presentations on particular themes, such as energy and water. More detailed presentations involving structures such as input-output tables, the full sequence of economic accounts or presentations that cover a particular theme or topic, for example, fisheries, are considered in SEEA Extensions and Applications and in targeted thematic publications (such as on water and energy).

2.5 Accounting for flows and stocks

2.5.1 Introduction

2.87 The compilation of supply and use tables, asset accounts, the sequence of economic accounts, and functional accounts, and the incorporation of demographic and employment information, requires an understanding of the concepts of stocks and flows in both physical and monetary terms. The present section presents the general framework for the recording of stocks and flows in both physical and monetary terms.

2.5.2 Flows

Flows in physical terms

2.88 Physical flows are reflected in the movement and use of materials, water and energy. As noted earlier in this chapter, the three types of physical flows are natural inputs, products and residuals. All of these flows are defined in greater detail in section 3.2.

2.89 Natural inputs are all physical inputs that are moved from their location in the environment as a part of economic production processes or that are directly used in production. They may be (a) natural resource inputs, such as mineral and energy resources or timber resources, (b) inputs from renewable energy sources, such as solar energy captured by economic units, or (c) other natural inputs such as inputs from soil (e.g., soil nutrients) and inputs from air (e.g., oxygen absorbed in combustion processes).

2.90 During the extraction of some natural resource inputs, not all extraction is retained in the economy, for example, in fishing operations, there is an amount of discarded catch and in timber harvesting there is an amount of felling residues. The extraction that is not retained in the economy is considered to have returned immediately to the environment. These flows are termed natural resource residuals.

2.91 Products are goods and services that result from a process of production in the economy. They are defined consistently with the definition of products in the SNA. Generally, the existence of a product is evidenced by a transaction of positive monetary value between two economic units (e.g., the production of a car and its sale by a manufacturer to a purchaser). For accounting purposes, generally, only flows of products between economic units are recorded and flows internal to the operation of an establishment are ignored. However, depending on the purpose and field of analysis, it may be relevant to record these intra-establishment flows. For example, in the analysis of energy flows, it may be relevant to record an establishment’s generation of energy by burning its own solid waste.

2.92 Residuals are flows of solid, liquid and gaseous materials, and energy, that are discarded, discharged or emitted to the environment (e.g., emission to air) by establishments and households through processes of production, consumption or accumulation but may also flow within the economy, as is the case when, for example, solid waste is collected as part of a waste collection scheme.

2.93 Physical flows are often separated into three categories: energy, water and materials. Materials themselves are often analysed by type of material or specific groups of materials, for example, flows of solid waste or carbon emissions. The three categories of physical flows form three distinct but related accounting subsystems, each of which has a different perspective on relevant physical flows. For example, analysis of coal and oil may focus on physical flows in terms of the energy content or the mass and volume of the materials. Thus, there are connections between the subsystems, which are described in more detail in chapter III.

2.94 Physical flows are also recorded in asset accounts where they represent changes in the stocks of assets between one period and another. These flows include flows of natural inputs, products and residuals as defined but other physical flows may also be recorded in asset accounts. For example, flows of evaporation from natural lakes and precipitation into natural lakes will alter the stock of water resources in the lakes and hence are recorded in the asset account. However, these natural processes are considered environment-to-environment flows and hence are not within the scope of the supply and use tables.

2.95 An important flow in physical terms that relates to environmental assets is depletion. Depletion refers to a physical using up of natural resources through extraction, abstraction and harvest by economic units that results in a reduced availability of the resource in the future at current extraction rates. Estimates of the flow of depletion must consider whether the natural resource is non-renewable (such as mineral and energy resources) or renewable (e.g., timber and aquatic resources). For non-renewable resources, the physical flow of depletion relates directly to the quantity of resource extracted. However, in the case of renewable resources, the capacity of the natural resource to regenerate over time must be taken into account. The measurement of depletion is discussed in detail in chapter V.

Flows in monetary terms

2.96 Flows in monetary terms are recorded in a manner completely consistent with the SNA definition of economic flows. Two broad types of economic flows are defined in the SNA: transactions and other flows. A transaction is an economic flow that is an interaction between economic units by mutual agreement such as the sale of timber products or the purchase of environmental protection services. Other flows relate to changes in the value of assets and liabilities that do not result from transactions. Examples include new discoveries of assets or losses of assets due to natural disasters and the effect of price changes on the value of assets and liabilities.

2.97 Many transactions relate to exchanges of products between economic units. Products may be sold on markets for intermediate or final use, they may be produced for own final use by economic units (either for consumption or for investment purposes) or they may be services produced by governments that are not sold on markets. The products not sold on markets are called non-market products.

2.98 Product flows are recorded in monetary terms in the monetary supply and use table. Flows in monetary terms are also recorded in the asset accounts and the other accounts that make up the full sequence of economic accounts, following the application of certain valuation and other accounting rules. These rules are discussed in more detail in section 2.6.

2.5.3 Stocks

Stocks in physical terms

2.99 In physical terms, stocks refer to the total quantity of assets at a given point in time. In the Central Framework, the measurement is focused on recording the physical stocks of individual environmental assets, such as tonnes of coal, cubic metres of timber and hectares of land.

2.100 Individual environmental assets comprise mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources and water resources. These assets are defined by their material content (e.g., the volume of timber or soil resources) without specific reference to their constituent elements (such as the carbon in timber and nutrients in soil resources).

2.101 Some biological resources (e.g., timber and aquatic resources) may be cultivated within a production process (as is the case for plantation timber and fish in aquaculture facilities). A distinction is made between environmental assets that are cultivated and those that are natural resources. Natural resources include all natural biological resources (including timber and aquatic resources), mineral and energy resources, soil resources and water resources. All cultivated biological resources and land are excluded from scope. The difference between cultivated and natural biological resources is discussed in section 5.2.

2.102 The volume of water in the ocean is not considered in scope of water resources because the stock of water is too large to be meaningful for analytical purposes. The exclusion of the ocean in terms of the volume of water resources does not in any way limit the measurement of ocean-related individual assets such as aquatic resources (including fish stocks on the high seas over which a country has harvesting rights) and mineral and energy resources on the ocean floor.

2.103 In principle, for each environmental asset, the measurement scope includes all stocks that may provide benefits to humanity; in practice, a specific measurement boundary is defined for each environmental asset. The relevant approaches to measurement of environmental assets in physical terms are discussed in detail in chapter V.

Stocks in monetary terms

2.104 The measurement of stocks in monetary terms focuses on the value of individual environmental assets and changes in those values over time. In the Central Framework, the valuation of these assets focuses on the benefits that accrue to economic owners of environmental assets. In this regard, the approach to measuring stocks of environmental assets in monetary terms aligns with the measurement of economic assets in the SNA.

2.105 In the Central Framework, a monetary value is not placed on all of the benefits that may accrue to current and future generations so as to provide what might be regarded as social valuations of environmental assets. The consideration of the value in monetary terms of a broader range of benefits from the environment is discussed in SEEA Experimental Ecosystem Accounts.

2.106 Since in physical terms, the conceptual scope for each individual component is broad and is extended to include all of the resources that may provide benefits to humanity, there may be some stocks recorded in physical terms that have a zero economic value. For example, all land within a country is within scope to allow for a full analysis of changes in land use and land cover, but in monetary terms some land may be considered to have zero value.

2.107 Following the SNA, the preferred approach to the valuation of assets is the use of market values. However, for many environmental assets there are few markets that buy and sell them in their natural state; hence, determining an asset’s economic value can be difficult. A number of approaches to estimating market prices are possible if observable market prices for assets do not exist. Most commonly in these cases, it is recommended that valuation be undertaken using the net present value (NPV) approach, which uses estimates of the expected economic benefits that can be attributed to an environmental asset—for example, profits from the sale of mineral resources—and then discounts the expected economic benefits to give them a value in the current period. The NPV approach is described in chapter V.

2.6 Economic units

2.6.1 Introduction

2.108 In addition to the definition of various stocks and flows, the key component in accounting for the interaction between the economy and the environment is the definition of the relevant economic units.

2.109 For the Central Framework, the relevant economic units are those that interact with each other and that are able to make decisions about the production, consumption and accumulation of goods and services. They are classified in different ways depending on the type of analysis being undertaken. The description of these economic units is the focus of the present section, which concludes with a discussion of the definition of units for statistical purposes. In this context, both economic units and “units” within the environment, for example, river basins and mineral deposits, are relevant subjects for consideration.

2.6.2 Institutional sectors

2.110 The starting point for considering economic units is a focus on the purposes, objectives and behaviours of individual economic units. An institutional unit is an economic entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in transactions and other economic activities with other entities. Institutional units may be either households, or legal or social entities (such as corporations) that are recognized independently of the people that own or control them. Groupings of institutional units that are similar in their purposes, objectives and behaviours are defined as institutional sectors.

2.111 Following the SNA, five types of institutional sector are recognised: households, non-financial corporations, financial corporations, general government and non-profit institutions serving households (NPISH). Although important in the context of the SNA, the distinction between non-financial and financial corporations is not significant in the Central Framework; hence, generally, they are presented as constituting one sector, namely, corporations. Chapter 4 of the 2008 SNA describes the different institutional sectors in detail.

2.112 Institutional sectors are of particular interest in the context of the ownership of environmental assets (an issue discussed in chap. V, with particular emphasis on the ownership of mineral and energy resources) and in the development of a full sequence of economic accounts. The full sequence of economic accounts records a range of transactions between economic units, for example, payments of rent on environmental assets, that are usefully analysed from the perspective of institutional sectors rather than by industry or activity.

2.113 A full accounting of transactions and flows requires consideration of flows to and from the rest of the world, including flows to and from international organizations. In theory, like a national economy, the rest of the world is composed of institutional sectors of the types listed above. Generally, however, the accounting framework defines the rest of the world as a single institutional sector for ease of compilation and presentation.

2.6.3 Enterprises, establishments and industries

2.114 An enterprise is the view of an institutional unit as a producer of goods and services. An enterprise may comprise one or more establishments and hence may be located across multiple locations within a single economy. An establishment is an enterprise, or part of an enterprise, that is situated in a single location and in which only a single productive activity is carried out, or in which the principal productive activity accounts for most of the value added.

2.115 The ability to define and observe establishments and enterprises and determine the types of goods and services they produce is at the heart of supply and use accounting. Meaningful analysis can be undertaken at an aggregate level by grouping units that undertake similar types of productive activity and by grouping goods and services that display similar characteristics.

2.116 The groupings of establishments that undertake similar types of productive activity are referred to as industries. Industries cover, broadly speaking, agriculture, mining, manufacturing, construction and services. Ideally, an industry is composed of establishments that undertake the same activity and only that activity, i.e., the grouping would be homogeneous. In practice, many establishments undertake a variety of activities but must have a primary activity that can be used to classify them to a specific industry class.

2.117 In both physical and monetary terms, the activities undertaken within establishments are referred to as “own-account” activities. In the SNA, own-account activity covers activity undertaken for either the final consumption or the investment of the economic unit (own-account final use). A particular case of own-account activity in both physical and monetary terms concerns households. The activities of households, in both the use of natural resources (e.g., the collection of fuelwood and water) for own consumption and in the undertaking of environmental protection and resource management activity (e.g., the installation of solar panels on houses), are of interest in the Central Framework. As in the SNA, where the production activity is of significance, it is recorded together with that of other units undertaking the same activity.

2.118 The SNA allows the possibility of recording separately some own-account, intra-enterprise activity, described as ancillary activity, but this is limited to a specific set of activities.6 For some purposes of environmental-economic accounting, it may be relevant to identify the secondary activities of an enterprise and also activities undertaken within an enterprise where output is not sold to other units. A particular example in this regard is accounting for physical flows of energy where measuring all transformations of energy products is likely to be of interest.

2.119 Also, in the compilation of functional accounts, it may be relevant to identify the secondary and other activities of enterprises that are being undertaken for environmental purposes in order that a complete description of relevant activity may be made. An example of such activity is the incineration of solid waste or biogas to produce electricity for use by an enterprise. For the compilation of functional accounts on environmental activities and environmental goods and services, the Central Framework aims to separately identify these types of activities. They are valued in monetary terms using information on the associated input costs, such as intermediate consumption of goods and services and compensation of employees.

2.120 Thus, in some circumstances, a wider coverage than that of the SNA is permitted for the recording of intra-enterprise activities (explained further below) but the same scope as that of the SNA is retained in relation to own-account activity of households undertaken for own-account final use.

2.6.4 Geographical boundaries for economic units

2.121 A key feature of the Central Framework is that it aims to account for the interaction between the economy and the environment at a national level. The geographical boundary that defines the scope of an economy is based on the concept of economic territory, which is the area under effective control of a single government. It includes the land area of a country, including islands, airspace, territorial waters and territorial enclaves7 in the rest of the world. Economic territory excludes territorial enclaves of other countries and international organizations located in the reference country.

2.122 A national economy comprises the set of all institutional units that are resident in an economic territory, i.e., the unit has its centre of predominant economic interest in a particular economic territory. In general, there will be a large overlap between those units that are resident and those units located within the geographically defined boundaries of a country. There are three primary exceptions:

  • (a) Units intending to operate in a country for less than a year, for example, specialized construction firms or aid and relief agencies. These are considered residents of their home country;

  • (b) Resident producing units that may operate outside of the national territory, for example, ships and aircraft, and fishing operations in international and other nations’ waters. In these cases, they are regarded as remaining residents of their national economy regardless of their location of operation;

  • (c) Residents of a national territory that may stay temporarily in other countries for work or leisure. The consumption undertaken by such residents in other countries is considered to be resident consumption abroad, which is recorded as an import of the country in which the person is resident and an export of the country visited.8

2.123 This conception of the geographical scope of the economy aligns with the scope of the economy as defined in the SNA, thus allowing a strong alignment between flows measured in physical and monetary terms. However, this geographical boundary is different from the one commonly used for certain important environmental statistics, such as air emissions and energy statistics. Where these statistics are an information source for the compilation of accounts, adjustments to the statistics are likely to be needed to account for differences in geographical coverage.

2.124 Accounting at subnational levels in both physical and monetary terms may be appropriate for specific environmental and economic accounting issues, for example, the management of water resources using information at the level of river basins. It is noted, however, that while physical data may be available for such geographical areas, corresponding economic data may not be readily available.

2.6.5 Statistical units

2.125 The discussion of economic units in this section has focused on the ability of those units to operate within an economy as active participants. In statistical terms, these units are often also the focus of measurement and in this context are referred to as statistical units. Depending on the structure of information within a country, economic data are likely to be available for different types of economic unit, particularly for enterprises and, in some cases, for individual establishments. Consequently, the economic unit and the statistical unit will align in scope. However, since the ownership structures of enterprises can vary significantly and since some enterprises may produce a range of different products, matching the information available to the ideal conceptual model of economic units may not be straightforward, and statistical units will need to be defined for measurement purposes.

2.126 In the physical supply and use table, the environment is added as an additional column alongside enterprises represented as industries, households, and the rest of the world. However, in the Central Framework, the environment is not considered an additional type of unit akin to economic units. Rather, the environment is seen as passive in respect of decisions being made by economic units regarding the supply of natural inputs to the economy and the receipt of residuals from the economy.

2.127 At the same time, the collection of information about the environment, particularly as it concerns environmental assets, requires consideration of appropriate statistical units for the environment, reflecting the parts of the environment for which statistics may be collected and presented. Examples include inland water bodies (lakes, rivers, etc.), specific deposits of mineral resources, forests and fish stocks. While, in some cases, it will be possible to align the environmental statistical unit and an associated economic unit, this should not be expected.

2.7 Accounting rules and principles

2.7.1 Introduction

2.128 The recording of accounting entries requires the use of a consistent set of accounting rules and principles. Without them, related transactions and flows may be recorded on different bases, at different times and with different values, thus making accounting and reconciliation difficult and the information far less useful.

2.129 The Central Framework follows the same accounting rules and principles as the SNA. The present section introduces the rules and principles of greatest relevance. Readers are encouraged to refer to chapter 3 of the 2008 SNA for more detail.

2.7.2 Recording rules and principles

Double- and quadruple-entry accounting

2.130 A key feature of accounting is the consistency that is applied in the recording of transactions between different economic units.

2.131 In respect of a single economic unit, the principle of vertical double-entry accounting is applied. This requires that for each transaction there are two entries. There is an entry for output, consumption, investment, property income or transfer and a corresponding entry showing the increase or decrease in financial assets or liabilities.

2.132 For example, the purchase of fish by a household will be reflected as both an increase in consumption and a decrease in cash (assuming the purchase was paid for in this way).

2.133 Since the focus is not on accounting for individual units but rather on accounting for all units in the economy, the double-entry accounting principle must be extended to ensure that a single transaction is recorded consistently by both parties. This is known as quadruple-entry accounting.

2.134 Thus, the purchase of fish by a household entails an increase in consumption and a decrease in cash for the household and, at the same time, a decrease in inventory and an increase in cash for the fishing business. All four entries must be recorded to ensure that the accounting is complete and balanced.

2.135 While all of these entries are required for accounts in monetary terms, in physical terms the associated transactions in financial assets (cash in this example) are not recorded.

Time of recording

2.136 One requirement of the double- and quadruple-entry accounting principles is that transactions and other flows must be recorded as occurring at the same point in time in the various accounts for both units involved.

2.137 In monetary accounts, the general principle is that transactions are recorded when ownership changes and the corresponding claims and obligations arise, or are transformed or cancelled. Transactions internal to one unit are recorded when economic value is created, transformed or extinguished. This approach to the time of recording is called an accrual approach.

2.138 The key factor to be monitored with respect to timing is that the time of the transactions under an accrual basis of recording may not align to the time the cash flow associated with the transaction occurs. For example, if a good is purchased and the purchaser is invoiced for payment within 30 days, the time of recording under an accrual approach is the date of the purchase, not the date when the invoice is paid.

2.139 Ideally, the time of the recording of physical flows should align with the time of recording of the flows in monetary terms using an accrual approach. However, in practice, environmental processes may operate with quite different cycles and time frames compared with the standard calendar and financial years used in monetary accounting. For example, in the case of water resources, the hydrological year does not correspond to a calendar year.9 Adjustments to account for different underlying cycles in physical and monetary terms should be made as required.

Units of measurement

2.140 For accounts compiled in monetary terms, all entries in the accounts must be measured in terms of money and therefore the components from which the entries are built up must be measured in terms of money. In most cases, the entries are the monetary values of the actual transactions. In other cases, the entries are estimated by reference to other equivalent monetary values (for own-account consumption) or valued at the cost of production (for non-market output).

2.141 For accounts compiled in physical terms, the unit of measurement will vary depending on the type of asset concerned. Thus, flows of energy are generally measured by energy content, such as joules; stocks and flows of water are generally measured by volume, such as cubic metres; and stocks and flows of other materials are generally measured in mass units such as tonnes. The details regarding the choice of measurement unit are outlined in the description of specific accounts.

2.142 A common principle is that within a single account in physical terms only one unit of measurement should be used so that aggregation and reconciliation is possible across all accounting entries. It is noted, however, that in combined presentations of physical and monetary data, a range of measurement units are likely to be used.

2.7.3 Valuation rules and principles

Valuation at market prices

2.143 For accounts in monetary terms, the question of valuation is central. In the SEEA, as in the SNA, the values reflected in the accounts are, in principle, the current transaction values or market prices for the associated goods, services, labour or assets that are exchanged.

2.144 Strictly speaking, market prices for transactions are defined as amounts of money that willing buyers pay to acquire something from willing sellers. The exchanges should be made between independent parties on the basis of commercial considerations only, sometimes called “at arm’s length”.10

2.145 Defined in this way, a market price should be distinguished from a general market price which gives an indication of the “average” price for exchanges in a type of good, service or asset. In most cases, market prices based on the totality of transactions that actually occur will approximate the general “average” market prices just described. However, there are some prices for individual transactions where this is not the case, for example, in the case of transfer pricing between affiliated enterprises and concessional pricing by government units. Corrections should be considered in such situations in order to get closer to general market price equivalents.

2.146 When market prices are not observable, valuation according to market price equivalents should be used to provide an approximation to market prices. In particular cases, there may be a need to apply market price principles, for example, in the case of the valuation of goods and services produced and used on own account, or the valuation of non-market production. Following the SNA, the own-account production of market producers (including own-account capital formation) should be valued as the sum of the costs of production, namely: intermediate consumption, compensation of employees, consumption of fixed capital, a net return to fixed assets used in production, and other taxes less subsidies on production. The valuation of all non-market production follows the same approach except that, by convention, a net return to fixed assets used in production is excluded.

2.147 In the SEEA, these valuation principles are applied slightly more broadly than in the SNA as the SEEA includes a wider range of intra-enterprise flows, in particular own-account production used for intermediate consumption by market producers (see sect. 2.6). Since intra-enterprise flows are not sold on the market, no net return to fixed assets used in production is included in the derivation of the value of this output.

2.148 There are special requirements associated with the application of the market price principle to the valuation of assets, particularly non-produced assets such as mineral and energy resources, natural aquatic resources and natural timber resources. A number of techniques are suggested in the SNA11 for the estimation of market prices of assets in situations where there are no developed asset markets. A full description of the different techniques and approaches relevant to environmental and economic accounting, including discussion on the use of net present value (NPV) approaches, is discussed in section 5.4.

2.149 The use of market prices in the SEEA must be separated from the potential to adopt social valuations in the pricing and valuation of environmental assets. Social valuations take into account a broader range of benefits and costs than are considered in the individual exchange level market prices used in the SEEA. The measurement of this broader set of social benefits and costs is not standardized and is not discussed directly in the Central Framework, although the issue does arise in the consideration of the choice of discount rate to be used in the application of the NPV approach. This is discussed in detail in annex A5.2.

Basic, producers’ and purchasers’ prices

2.150 Transactions in products involve two economic units. Owing to a number of factors, the amount ultimately received by the producer or supplier of the product is likely to differ from the amount paid by the purchaser. These factors include the addition of taxes to the price of a product, the addition of delivering costs associated with the transport of the product from producer to final purchaser, the inclusion of wholesale and retail margins and the receipt of subsidies by the producer. To take these different factors into account, three different kinds of prices have been defined reflecting supply and use perspectives. The relationship among these three kinds of prices is shown in table 2.6.

Table 2.6

Basic, producers’ and purchasers’ prices

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2.151 Two kinds of prices are used within the context of supply, namely, basic prices and producers’ prices. The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output, minus any taxes payable on the product plus any subsidy receivable by the producer as a consequence of its production or sale. The basic price excludes any transport charges invoiced separately by the producer and any wholesale and retail margins that may be applicable.

2.152 The basic price measures the amount retained by the producer and is therefore the price most relevant for the producer’s decision-making.

2.153 The producers’ price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any VAT, or similar deductible tax, invoiced to the purchaser. The producers’ price excludes any transport charges invoiced separately by the producer. Unlike the basic price, the producers’ price includes any taxes on products other than a deductible VAT, and excludes any product subsidies.

2.154 The purchasers’ price is the amount paid by the purchaser, excluding any VAT or similar tax deductible by the purchaser, in order to take delivery of a unit of a good or service at the time and place required by the purchaser. The purchasers’ price of a good includes any transport charges paid separately by the purchaser to take delivery at the required time and place. This is the price most relevant for the purchaser.

2.155 The differences between the three sets of prices are most important in the context of the compilation of monetary supply and use tables. In the compilation of monetary supply and use tables in basic prices, the transport charges and wholesale and retail margins are allocated to the relevant services (transport, wholesale and retail services) rather than deducted from the table as a whole. Full details on the appropriate valuation approaches in the compilation of monetary supply and use tables, functional accounts, and the sequence of economic accounts are contained in chapter 14 of the 2008 SNA.

2.7.4 Volume measures

2.156 For estimates compiled in monetary terms, the changes over time in the values of goods and services can be decomposed into two components: changes in prices and changes in volumes. These volumes are not equivalent to measures of the physical volume of solids, liquids or gases but instead relate to an economic notion of volume which encompasses the changes in both quantity and quality of goods, services and assets. Thus, for example, the economic notion of volume would include increases in the number of cars produced (or their mass) as well as improvements in the quality of the cars.

2.157 The measurement of economic activity in terms of volumes rather than values is commonly referred to as measurement in “constant prices”. Volume measures are particularly important for the measurement of economic growth which is generally understood as the volume increase in key aggregates, such as gross domestic product.

2.158 The compilation of volume measures is generally undertaken by removing the effect of price change from a time series of transactions in products, income flows or asset values. Ideally, detailed data on the price changes of individual products or assets are weighted together to provide price indices that reflect changes in the prices of the specific products or assets of interest. Where such detail is not available, it is necessary to use general measures of price change, for example, measures of inflation, rather than specific price indices. Volume measures derived using general price indices are commonly referred to as “real” measures. Real measures are often derived in cases where it is necessary to remove the effects of changes in purchasing power from measures of income.

2.159 Volume measures, particularly those for production and consumption, are essential in the assessment of environmental-economic trends. They may help illustrate the extent to which the economy becomes more or less efficient in terms of resource inputs or residual outputs. More generally, such assessments may indicate to what extent economic growth is coupled to, or can be decoupled from, environmental pressures such as those stemming from the use of natural resources as inputs to economic production or emissions from production.

2.160 An important application of volume measures is in the derivation of volume measures of the value of stocks of environmental and other assets. The analysis of changes in total economic wealth is enhanced when the impact of price changes on the changing values of assets is excluded.

2.161 A general description of methods for deriving measures of assets in volume terms is provided in chapters V and VI. Details regarding their theoretical basis and compilation are presented in chapter 15 of the 2008 SNA and in international manuals on the compilation of consumer and producer price indices.12

Within Same Series

Other IMF Content

Other Publishers Content

Cover System of Environmental-Economic Accounting 2012
System of Environmental-Economic Accounting 2012
Central Framework
Author: United Nations, European Commission, Food and Agricultural Organization of the United Nations, International Monetary Fund, Organization for Economic Co-operation and Development, and World Bank
ISBN:
9789211615630
ISSN:
2663-3744
Publication Date:
16 Apr 2017
Publisher:
United Nations
DOI:
https://doi.org/10.5089/9789211615630.069
Pages:
378

Physical flows of natural inputs, products and residuals

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