Chapter V. Asset accounts

United Nations; European Commission; Food and Agricultural Organization of the United Nations; International Monetary Fund; Organization for Economic Co-operation and Development; World Bank

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; timber resource; soil resource; natural resource; economic value; resource rent; Water resources; Stocks; Natural resources; Non-renewable resources; Global; energy resource

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Abstract

5.1 Assets are considered items of value to society. In economics, assets have long been defined as stores of value that, in many situations, also provide inputs to production processes. More recently, there has been consideration of the value inherent in the components of the environment and the inputs the environment provides to society in general and the economy in particular. The term “environmental asset” is used to denote the source of these inputs which may be measured in both physical and monetary terms.

5.1 Introduction

5.2 One motivation for considering environmental assets is the concern that current patterns of economic activity are depleting and degrading the available environmental assets more quickly than those assets can be regenerated. Hence, there is also concern about their long-term availability. Current generations may thus be seen as “stewards” for the range of environmental assets on behalf of future generations. There is a general aim to improve the management of environmental assets, taking into account the sustainable use of resources and the capacity of environmental assets to continue to provide inputs to the economy and society.

5.3 This general aim is a key driver for the development of the SEEA and, in particular, for the measurement of assets and the compilation of asset accounts. In this context, the aim of asset accounting in the SEEA is to measure the quantity and value of environmental assets and to record and explain changes in those assets over time.

5.4 For environmental assets, the physical and monetary changes over the period include additions to the stock of environmental assets (due, e.g., to natural growth and discoveries) and reductions in the stock of environmental assets (due, e.g., to extraction and natural loss).

Chapter structure

5.5 The present chapter describes accounting for environmental assets. Section 5.2 provides a detailed discussion of the concept of environmental assets in the Central Framework, working from the general definition of environmental assets outlined in chapter II. Section 5.3 describes the structure of the accounts and the accounting entries that are required to compile asset accounts, including opening and closing stocks, additions to stock, reductions in stock and revaluations.

5.6 Section 5.4 examines two key dimensions of the compilation of asset accounts: the principles of defining depletion of environmental assets in physical terms, with particular focus on the depletion of renewable environmental assets, such as aquatic and timber resources; and, in relation to monetary asset accounts, approaches to the valuation of environmental assets and, in particular, the net present value (NPV) approach. The annex to the chapter discusses NPV in greater depth.

5.7 Sections 5.5-5.11 outline asset accounting for the range of individual environmental assets. Detail is provided on the measurement scope for each of these assets, the structure of the asset accounts and other relevant conceptual and measurement issues. While there are general principles that can be applied across all environmental assets, each environmental asset has specific characteristics that must be considered individually.

5.2 Environmental assets in the SEEA Central Framework

5.2.1 Introduction

5.8 As defined in chapter II, 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. In the Central Framework, environmental assets are viewed in terms of the individual components that make up the environment, with no direct account taken of the interactions between these components as part of ecosystems.

5.9 The present section explains the general measurement boundary for environmental assets in the Central Framework, including a description of the classification of environmental assets and an articulation of the relationship between environmental and economic assets.

5.2.2 Scope of environmental assets

5.10 The scope of environmental assets in the Central Framework is determined through a focus on the individual components that make up the environment. This scope comprises those types of individual components that may provide resources for use in economic activity. Generally, the resources may be harvested, extracted or otherwise moved for direct use in economic production, consumption or accumulation. The scope includes land and inland waters that provide space for undertaking economic activity.

5.11 There are seven individual components of the environment that are considered environmental assets in the Central Framework. They are mineral and energy resources, land, soil resources, timber resources, aquatic resources, other biological resources (excluding timber and aquatic resources), and water resources. These individual components have been the traditional focus for the measurement of environmental assets through the development of specific asset or resource accounts. This chapter discusses asset accounts for each of these environmental assets and the relevant measurement boundaries in physical and monetary terms.

5.12 The coverage of individual components in the Central Framework does not extend to the individual elements that are embodied in the various natural and biological resources listed above. For example, carbon and nitrogen are not considered individual environmental assets in the Central Framework.

5.13 The measurement scope of the environmental assets of a country is limited to those contained within the economic territory over which a country has control. This includes all land areas, including islands; coastal waters including waters and seabeds within a country’s exclusive economic zone (EEZ); and any other water or seabeds in international waters over which the country has a recognized claim. The extension of geographical scope beyond environmental assets on land is of particular relevance in the measurement of stocks of aquatic resources and mineral and energy resources.

5.14 In physical terms, the measurement scope for each individual component is broad, extending to include all of the resources that may provide benefits to humanity. However, in monetary terms, the scope is limited to those individual components that have an economic value based on the valuation principles of the SNA. For example, in physical terms, all land within a country is within scope of the SEEA so as to allow for a full analysis of changes in land use and land cover. However, in monetary terms, some land may have zero economic value and hence should be excluded. The broader scope applied in physical terms aims to account better for the environmental characteristics of the individual components. Issues concerning the valuation of environmental assets are described in more detail in section 5.2.3.

Classification of environmental assets in the Central Framework

5.15 The classification of environmental assets in the Central Framework presented in table 5.1 focuses on individual components. For each of these environmental assets, a measurement boundary in physical and monetary terms must be drawn for the purposes of asset accounting. These boundaries are described in sections 5.5–5.11.

Table 5.1

Classification of environmental assets in the SEEA Central Framework

5.16 The volume of water in the sea is not considered in scope of water resources in the Central Framework because the stock of water is too large to be meaningful for analytical purposes. The exclusion of the sea in terms of a volume of water resources does not in any way limit the measurement of sea-related individual components such as aquatic resources (including fish stocks on the high seas over which a country has harvesting rights) and mineral and energy resources on or under the seabed. The volume of air in the atmosphere is also not in scope of environmental assets in the Central Framework.

5.17 Although seas and the atmosphere are excluded, the measurement of exchanges and interactions with them is of interest. In this context, the interactions between the economy and the sea, and between the economy and the atmosphere, are recorded in the Central Framework in various ways. For example, measures of the abstraction of sea water are included in the physical flow accounts for water, and measures of emissions from the economy to the atmosphere and seas are recorded in physical flow emission accounts.

Natural resources

5.18 Natural resources are a subset of environmental assets. 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.

Land and other areas

5.19 For most environmental assets in the Central Framework, conceptualizing the supply of materials to economic activity—for example, in the form of fish, timber and minerals—is straightforward. The exception in this regard is land.

5.20 The primary role of land in the SEEA is to provide space. Land and the space it represents define the locations within which economic and other activity is undertaken and within which assets are situated. Although not physical, this role of land is a fundamental input to economic activity and can have significant value, as is most commonly observed in the varying valuations given to similar dwellings in locations that have different characteristics in terms of landscape, access to services, etc. This conceptualization of land can also be applied to marine areas over which a country has a recognized claim, including its exclusive economic zone.

5.21 The term “land” as applied in the SEEA also encompasses areas of inland water such as rivers and lakes. For certain measurement purposes, variations in this boundary may be appropriate, for example, when considering the use of marine areas for aquaculture, conservation or other designated uses. These considerations are discussed in section 5.6.

5.22 A clear distinction is made between land and soil resources. The physical inputs of soil are reflected in the volume of soil and its composition in the form of nutrients, soil water and organic matter. This distinction is discussed further in sections 5.6 and 5.7.

5.23 In the valuation of land, both the location of an area and its physical attributes (e.g., topography, elevation and climate) are important considerations. The valuation of land is discussed in Section 5.6.

Timber, aquatic and other biological resources

5.24 Biological resources include timber and aquatic resources and a range of other animal and plant resources such as livestock, orchards, crops and wild animals. Like most environmental assets, they provide physical inputs to economic activity. However, for biological resources, a distinction is made between whether the resources are cultivated or natural, based on the extent to which there is active management over the growth of the resource.

5.25 Maintaining this distinction in the Central Framework is important for ensuring that clear linkages can be established to the treatment of these resources in the production accounts and asset accounts of the SNA.

5.26 The cultivation of biological resources can take a wide range of forms. In some cases, the management activity is highly involved, which is the case for battery farming of chickens and the use of greenhouses for horticultural production. In these situations, the unit undertaking the production creates a controlled environment, distinct from the broader biological and physical environment.

5.27 In other cases, there may be relatively little active management as is the case, for example, with broad-acre cattle farming and the growing of plantation timber. In these cases, the biological resource is exposed constantly to, and interacts as a part of, the broader biological and physical environment. There are also situations in which the cultivation of various areas over hundreds of years has transformed the natural environment.

5.28 In practice, it may be difficult to distinguish between cultivated and natural biological resources. Relevant considerations in relation to timber resources and aquatic resources are presented in sections 5.8 and 5.9.

5.29 Many cultivated biological resources may be grown and harvested over a short period of time. In cases where the cultivation occurs within an accounting period, there are no opening or closing stocks of those assets to be recorded. However, depending on the time of the growing and harvesting season relative to the times of the accounting period, there may be cultivated biological resources to be recorded and in such cases, they should be recorded as part of environmental assets.

Forests

5.30 In the SEEA, forests are considered a form of land cover and forestry is considered a category of land use. Often, forests are seen predominantly in terms of timber resources, i.e., the volume of standing timber; however, forests are used in the production of a wide range of products, hence forests and timber resources should not be equated. It is also the case that timber resources are not found solely in forests: in many countries, other types of land cover, for example, other wooded land, contain timber resources. Given both the distinction between forests and timber resources, and the resource focus for environmental assets in the Central Framework, the classification of environmental assets in table 5.1 includes forests as a subcategory of land, and distinguishes the timber resources located on this land as a separate environmental asset. Asset accounts for forests and other wooded land are described in section 5.6 and asset accounts for timber resources, in section 5.8.

5.2.3 Valuation of environmental assets

5.31 In principle, all of the benefits delivered by environmental assets can be valued in monetary terms. However, many complexities are associated with undertaking these broad valuations, including the quantification of the benefits themselves and the consideration of the value of benefits to society as a whole rather than only to individuals. These measurement issues are not discussed further in the Central Framework.

5.32 In the Central Framework, consistent with the SNA, the scope of valuation is limited to the benefits that accrue to economic owners. An economic owner is the institutional unit entitled to claim the benefits associated with the use of an asset in the course of an economic activity by virtue of accepting the associated risks. Further, following the SNA, an asset is a store of value representing a benefit or series of benefits accruing to the economic owner by holding or using the entity over a period of time.⁴⁷ Examples of economic assets include houses, office buildings, machines, computer software, financial assets, and many environmental assets.

5.33 The benefits underlying the definition of economic assets are economic benefits. Economic benefits reflect a gain or positive utility arising from economic production, consumption or accumulation. For environmental assets, economic benefits are recorded in the accounts in the form of operating surplus from the sale of natural resources and cultivated biological resources, in the form of rent earned on permitting the use or extraction of an environmental asset, or in the form of net receipts (i.e., excluding transaction costs) when an environmental asset (e.g., land) is sold.

5.34 Economic assets in the SNA are classified as produced assets, non-produced assets or financial assets. The relevant concepts and measurement approaches to constructing estimates of economic assets are fully described in the SNA. Produced assets are assets that have come into existence as outputs of processes that fall within the production boundary of the SNA. Produced assets include fixed assets (e.g., buildings and machines); inventories (e.g., stores of wheat for future use); and valuables that are held as stores of value and expected to increase in value over time (e.g., artworks and precious metals).

5.35 Cultivated biological resources are a type of produced asset in the SNA and also a type of environmental asset in the SEEA. They may be either fixed assets (e.g., sheep for wool, breeding stocks of fish, and orchards) or inventories (e.g., livestock for slaughter and certain trees for timber). Other types of produced asset are often relevant to the measurement of economic activity related to the environment but they are not considered environmental assets (e.g., mining equipment, fishing vessels and dam walls for storing water).

5.36 Non-produced assets are assets that have come into existence in ways other than through processes of production. They include natural resources; contracts, leases and licences; and purchased goodwill and marketing assets. In the SNA, natural resources include all those assets considered to be natural resources in the SEEA. Land is also considered part of natural resources in the SNA.⁴⁸ While some contracts, leases and licences, and purchased goodwill and marketing assets may be relevant in the assessment of economic activity related to the environment, none of these types of non-produced asset are also environmental assets.

5.37 Financial assets, and the corresponding financial liabilities, relate to claims to future payments, or series of payments between economic units. They are defined in detail in the SNA. While some financial assets may be relevant to assessment of economic activity related to the environment, there are no financial assets that are also environmental assets.

Relationship between environmental and economic assets

5.38 Many environmental assets are also economic assets. In particular, natural resources and land are considered non-produced assets, and cultivated biological resources may be either fixed assets or inventories, depending on their role in production. Figure 5.1 displays the relationship between the classes of environmental assets and the high-level asset classes within the SNA. All environmental assets that are classed as cultivated must be recorded as either fixed assets or inventories.

5.39 In physical terms, the scope of environmental assets measured in the Central Framework may be greater than the scope of environmental assets measured in monetary terms following the SNA definition of economic assets. This is because there is no requirement in physical terms that environmental assets must deliver economic benefits to an economic owner. For example, remote land and timber resources should be included within the scope of the environmental assets of a country even if they do not currently or are not expected to deliver benefits to an economic owner.

5.40 Consequently, there may be environmental assets that are recorded in the Central Framework in physical terms which have no measured monetary value and are therefore excluded from environmental assets measured in monetary terms. Where such assets are recorded in physical terms, the quantities should be recorded separately from quantities of environmental assets that do deliver economic benefits to economic owners.

Economic assets used in activities related to the environment

5.41 There is interest in economic assets, primarily produced assets, that are used in activities related to the environment but are not themselves environmental assets. They include assets relevant to undertaking environmental protection and resource management activities and assets used in the extraction and harvest of natural resources such as water dams, fishing vessels, and cutting and drilling equipment for mining. A discussion of these types of assets is included in chapter IV primarily in the context of environmental protection expenditure accounts (EPEA). Produced assets for natural resource extraction are also important subjects of consideration in the calculation of resource rent and the valuation of environmental assets. Relevant measurement issues are discussed in section 5.4.

5.3 The structure of asset accounts

5.3.1 Introduction

5.42 Asset accounts record both the opening and the closing stock of assets and the changes over the accounting period. The present section outlines the basic form of asset accounts in physical and monetary terms and describes the relevant accounting entries. Sections 5.5-5.11 describe in more detail the relevant asset accounts for each type of environmental asset.

5.3.2 Conceptual form of the physical asset account

5.43 Physical asset accounts are usually compiled for specific types of assets rather than for a range of different assets because each asset will usually be recorded in different units.

This means that aggregation across different assets in physical terms is generally not possible. While aggregation is generally possible only in monetary terms, the asset account entries in physical terms are essential in the compilation of monetary estimates when no transactions of the environmental assets take place.

5.44 Ideally, estimates of the opening and closing stocks of an asset should be compiled with information pertaining to the reference dates of the accounting period. If information in respect of those dates is not directly available, relevant information may need to be time-adjusted. From time to time, new information will emerge that leads to a change in the assumptions underlying a set of estimates. When additional information is being incorporated, it is important that the estimates continue to reflect the quantities and values that could reasonably be expected at the reference dates.

5.45 The entries concerning the changes between opening and closing stocks of each asset are divided into: (a) additions to the stock and (b) reductions in the stock. However, within these broad categories, there are many different types of entries which are often labelled differently by type of asset. For example, the term “extraction” is generally used in relation to mineral and energy resources, while the term “abstraction” is generally used for water resources. Both terms, however, relate to removing environmental assets through processes of economic production.

5.46 Table 5.2 presents the range of accounting entries for physical asset accounts by type of asset. It provides an overview of the structure of physical asset accounts that are elaborated in detail for each asset in sections 5.5-5.11.

Table 5.2

General structure of the physical asset account for environmental assets (physical units)

Note: “na” means not applicable.

^{^*}An asterisk indicates that this entry is usually not significant for the resource or is typically not separately identified in the source data. In practice, not all cells that reflect the possibility of an entry here should be shown separately in published accounts for each type of resource.

Table 5.2

General structure of the physical asset account for environmental assets (physical units)

					Timber resources		Aquatic resources
		Mineral and energy resources	Land (including forest land)	Soil resources	Cultivated	Natural	Cultivated	Natural	Water resources
Opening stock of resources		Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Additions to stock of resources
	Growth in stock	na	Yes*	Soil formation Soil deposition	Growth	Natural growth	Growth	Natural growth	Precipitation Return flows
	Discoveries of new stock	Yes	na	na	na	na	na	Yes*	Yes*
	Upward reappraisals	Yes	Yes	Yes*	Yes*	Yes*	Yes*	Yes	Yes*
	Reclassifications	Yes	Yes	Yes	Yes	Yes	Yes	Yes	na
	Total additions to stock
Reductions in stock of resources
	Extractions	Extractions	na	Soil extraction	Removals	Removals	Harvest	Gross catch	Abstraction
	Normal reductions in stock	na	na	Erosion	Natural	Natural	Normal	Normal	Evaporation
					losses	losses	losses	losses	Evapotranspiration
	Catastrophic losses	Yes*	Yes*	Yes*	Yes	Yes	Yes	Yes	Yes*
	Downward reappraisals	Yes	Yes	Yes*	Yes*	Yes*	Yes*	Yes	Yes*
	Reclassifications	Yes	Yes	Yes	Yes	Yes	Yes	Yes	na
	Total reductions in stock
Closing stock of resources		Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes

Note: “na” means not applicable.

Table 5.2

General structure of the physical asset account for environmental assets (physical units)

					Timber resources		Aquatic resources
		Mineral and energy resources	Land (including forest land)	Soil resources	Cultivated	Natural	Cultivated	Natural	Water resources
Opening stock of resources		Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Additions to stock of resources
	Growth in stock	na	Yes*	Soil formation Soil deposition	Growth	Natural growth	Growth	Natural growth	Precipitation Return flows
	Discoveries of new stock	Yes	na	na	na	na	na	Yes*	Yes*
	Upward reappraisals	Yes	Yes	Yes*	Yes*	Yes*	Yes*	Yes	Yes*
	Reclassifications	Yes	Yes	Yes	Yes	Yes	Yes	Yes	na
	Total additions to stock
Reductions in stock of resources
	Extractions	Extractions	na	Soil extraction	Removals	Removals	Harvest	Gross catch	Abstraction
	Normal reductions in stock	na	na	Erosion	Natural	Natural	Normal	Normal	Evaporation
					losses	losses	losses	losses	Evapotranspiration
	Catastrophic losses	Yes*	Yes*	Yes*	Yes	Yes	Yes	Yes	Yes*
	Downward reappraisals	Yes	Yes	Yes*	Yes*	Yes*	Yes*	Yes	Yes*
	Reclassifications	Yes	Yes	Yes	Yes	Yes	Yes	Yes	na
	Total reductions in stock
Closing stock of resources		Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes

Note: “na” means not applicable.

5.47 The table provides a complete listing of possible entries for each asset type. In practice, only certain entries are likely to be important and not all cells that reflect the possibility of an entry in table 5.2 should be shown separately in the published accounts for each type of asset.

5.48 There are four types of additions to the stock of an environmental asset:

(a) Growth in stock. These additions reflect increases in the stock of resources over an accounting period due to growth. For biological resources the growth may be natural or cultivated and is often estimated net of normal losses of stock;
(b) Discoveries of new stock. These additions concern the arrival of new resources to a stock and commonly arise through exploration and evaluation;
(c) Upward reappraisals. These additions reflect changes due to the use of updated information that permits a reassessment of the physical size of the stock. The reassessments may also relate to changes in the assessed quality or grade of the natural resource, or changes in the economic viability of extraction (including those due to changes in extraction technology) that are not solely due to changes in the price of the natural resource. The use of updated information may require the revision of estimates for previous periods to ensure a continuity of time series;
(d) Reclassifications. Reclassifications of environmental assets will generally occur in situations in which an environmental asset is used for a different purpose; for example, increases in forest land due to afforestation are recorded here. An increase in one category of an asset should be offset by an equivalent decrease in another category, meaning that, for the environmental asset as a whole, reclassifications have no impact on the total physical quantity of an individual asset type.

5.49 There are five types of reductions in the stock of an environmental asset:

(a) Extraction. These are reductions in stock due to the physical removal or harvest of an environmental asset through a process of production. Extraction includes both those quantities that continue to flow through the economy as products and those quantities of stock that are immediately returned to the environment after extraction because they are unwanted, for example, discarded catch in fishing;
(b) Normal reductions in stock. These reductions reflect expected losses of stock during the course of an accounting period. They may be due to natural deaths of biological resources or to accidental causes that are not significant enough to be considered catastrophic and might reasonably be expected to occur based on past experience;
(c) Catastrophic losses. Losses due to catastrophic and exceptional events are recorded when large-scale, discrete and recognizable events occur that may destroy a significantly large number of assets within any individual asset category. Such events will generally be easy to identify. They include major earthquakes, volcanic eruptions, tidal waves, severe hurricanes, and other natural disasters; acts of war, riots and other political events; and technological accidents, such as major toxic spills or the release of radioactive particles into the air. Also included here are major losses of biological resources through drought or outbreaks of disease;
(d) Downward reappraisals. These reductions reflect changes due to the use of updated information which permits a reassessment of the physical size of the stock. The reassessments may also relate to changes in the assessed quality or grade of the natural resource, or changes in the economic viability of extraction (including those due to changes in extraction technology) that are not solely due to changes in the price of the natural resource. The use of updated information may require the revision of estimates for previous periods to ensure a continuity of time series;
(e) Reclassifications. Reclassifications of environmental assets will generally occur in situations in which an environmental asset is used for a different purpose; for example, decreases in forest land due to permanent deforestation are recorded here. A decrease in one category of an asset should be offset by an equivalent increase in another category meaning that, for the environmental asset as a whole, reclassifications have no impact on the total physical quantity of an individual asset type.

5.50 Entries related to changes in land cover and land use—for example, within an asset account for forest and other wooded land—are generally in the nature of reclassifications. Thus, for the analysis of changes in land cover and land use, it is often useful to record entries relating to different types of reclassifications. The relevant entries in the case of land accounts are described in section 5.6.

5.51 The depletion of natural resources concerns the physical using up of natural resources due to extraction which thereby limits the potential to extract amounts in the future. For non-renewable resources, the quantity depleted is the same as the quantity extracted but this is not the case for natural biological resources that can regenerate over time. The definition of depletion in physical terms is covered in detail in section 5.4.

5.52 It may not be possible to directly observe all of the accounting entries outlined in the conceptual form of the physical asset account in table 5.2. Consequently, some entries may need to be estimated using appropriate models or derived on the basis of other accounting entries. Depending on the particular entry and its importance in the overall accounting for changes in the stock of a resource, it may also be appropriate to combine some accounting entries for the purposes of preparing physical asset accounts for publication.

5.53 All of the details regarding the definition and measurement of these flows in relation to individual environmental assets are set out in Sections 5.5-5.11.

Accounting entries for institutional sector accounts

5.54 The compilation of asset accounts by institutional sector may be desirable for particular types of environmental assets where the ownership of resources is of policy or analytical interest, including the attribution of mineral and energy resources between government units and extracting units, and the assessment of the ownership of land.

5.55 In constructing institutional sector accounts, two types of entries are required that are additional to those shown in table 5.2, for the purpose of accounting for transactions and other exchanges between sectors. These entries are:

(a) Acquisition and disposals of environmental assets. These entries are recorded when transactions in environmental assets take place between institutional units in different sectors. The acquisition of environmental assets represents an addition to the stock of the acquiring sector and the disposal represents a reduction in the stock of the other sector;
(b) Uncompensated seizures. These changes in stock occur when institutional units take possession of or remove environmental assets without providing appropriate compensation to the original owner. An addition to stock is recorded for the sector that takes ownership of the environmental asset and a corresponding reduction in stock is recorded for the sector that previously owned the asset.

5.56 It is also noted that reclassifications of environmental assets between sectors may be common entries in institutional sector accounts.

5.57 Although not common, it is also possible that entries are required at a national level for the acquisition and disposal or uncompensated seizure of environmental assets. This would arise in the case of transactions in land between countries or in situations in which political changes lead to changes in the overall area of a country. Since these entries are not commonly required they are not incorporated into the standard form of the physical asset account presented in table 5.2.

5.3.3 Conceptual form of the monetary asset account

5.58 The general form of the monetary asset account is presented in table 5.3. There are close links to the structure of the physical asset account.

Table 5.3

Conceptual form of the monetary asset account (currency units)

5.59 The definitions of the entries presented in the monetary accounts align exactly with the same entries as defined in physical terms in paragraphs 5.48 and 5.49. Thus, the monetary account reflects a valuation of physical flows as recorded in the physical asset account, although it is to be noted that for some environmental assets, the measurement scope is broader in physical terms (e.g., timber resources not used for wood supply are included in physical terms but excluded in monetary terms). For most environmental assets, it will be the case that measurement requires the estimation of the physical flows followed by estimation of the monetary flows.

5.60 The only additional entry recorded in the monetary asset account compared with the physical asset account concerns revaluations. Revaluations relate to changes in the value of assets due solely to price changes and reflect nominal holding gains and losses on environmental assets. The nominal holding gain for environmental assets is calculated as the increase in value accruing to the owner of the asset as a result of a change in its price over an accounting period.

5.61 As discussed in section 2.7, changes in price should be distinguished from both changes in the quantity and changes in the quality of the relevant asset. For environmental assets, the quality of an asset, such as land or water resources, may change due to the effects of pollution or the treatment of previous environmental damage. Ideally, where the price of an asset changes in response to a change in quality, this should be considered a change in the volume of the asset rather than a revaluation. In effect, there has been a reclassification between different qualities of the same asset.

5.62 In addition to determining the nominal holding gain, it is interesting to know how the change in value compares with the general rate of inflation. If the value of an asset rises over an accounting period at the same rate as the general inflation rate, this gain is referred to as a neutral holding gain. The difference between the nominal holding gain and the neutral holding gain is referred to as the real holding gain.

5.63 Revaluations should incorporate changes in the value of environmental assets due to changes in the assumptions made in the valuation approaches that are often used to estimate the economic value of environmental assets, in particular the net present value approach. The assumptions that should be taken into account are those regarding future rates of extraction and natural growth, the length of the asset/resource life and the discount rate. Changes in the physical stock of resources due to discoveries, catastrophic losses, etc., that lead to changes in the expected asset life should be accounted for separately.

5.64 As with physical asset accounts, it may not be possible to directly estimate all of the accounting entries set out in the conceptual form of the monetary asset account in table 5.3. Consequently, some entries may need to be estimated using appropriate models or derived on the basis of other accounting entries. Depending on the particular entry and its importance in the overall accounting for changes in the stock of a resource, it may also be appropriate to combine some accounting entries for the purposes of preparing monetary asset accounts for publication.

Relationship to SNA accounting entries⁴⁹

5.65 Rather than effecting a broad separation into additions and reductions in the stock, the SNA focuses on (a) changes due to transactions and (b) other changes in the volume of assets. As a means of supporting the links between the SEEA and the SNA, the relevant SNA entries may be appended to the monetary asset account; they can be derived directly from the information presented in the monetary asset account. These derivations are shown in table 5.4.

Table 5.4

Derivation of accounting aggregates

Note: “na “ means not applicable.

Table 5.4

Derivation of accounting aggregates

Accounting aggregate	Cultivated biological resources		Natural environmental assets
Accounting aggregate	Fixed assets	Inventories	Natural environmental assets
Gross fixed capital formation	Growth in stock less extractions	na	na
Changes in inventories	na	Growth in stock less extractions	na
Economic appearance	na	na	Growth in stock plus discoveries of new stock plus upward reappraisals
Economic disappearance	na	na	Extractions plus catastrophic losses plus downward reappraisals

Note: “na “ means not applicable.

Table 5.4

Derivation of accounting aggregates

Accounting aggregate	Cultivated biological resources		Natural environmental assets
Accounting aggregate	Fixed assets	Inventories	Natural environmental assets
Gross fixed capital formation	Growth in stock less extractions	na	na
Changes in inventories	na	Growth in stock less extractions	na
Economic appearance	na	na	Growth in stock plus discoveries of new stock plus upward reappraisals
Economic disappearance	na	na	Extractions plus catastrophic losses plus downward reappraisals

Note: “na “ means not applicable.

5.66 The SNA accounting entries are different depending on whether the environmental asset is produced or non-produced. In the SEEA, this distinction is reflected only in whether an environmental asset is cultivated (i.e., produced in SNA terms) or natural (i.e., non-produced in SNA terms). For SNA purposes a further distinction is needed for cultivated assets as to whether they are fixed assets or inventories.⁵⁰

5.67 For fixed assets, the relevant accounting entry is gross fixed capital formation; for inventories, the relevant accounting entry is change in inventories. For natural environmental assets, the relevant SNA entries are economic appearance of non-produced assets and economic disappearance of non-produced assets. There are also SNA entries related to the range of other additions and reductions in stock. These entries are defined equivalently for the monetary asset account in table 5.3 and the SNA.

5.68 In addition to the accounting entries shown in tables 5.3 and 5.4, there are two entries, depletion and consumption of fixed capital, that relate to the physical using up of assets over time. Consumption of fixed capital relates to the using up of fixed assets and, in the context of cultivated biological resources, is reflected in the value of the normal reductions in stock, based on, for example, mortality rates of livestock.⁵¹

5.69 Depletion relates to the physical using up of natural resources through extraction. In monetary terms, it represents the decline in future income that can be earned from a resource due to extraction. Details on the definition and measurement of depletion are presented in section 5.4.

Institutional sector accounts in monetary terms

5.70 Institutional sector asset accounts may also be compiled in monetary terms and may be of particular interest, since they can be related directly to the full sequence of institutional sector accounts as presented in the SNA. Key aggregates that can be compiled from a full recording of asset accounts by institutional sector are depletion-adjusted net saving and net worth.

5.71 The accounting entries required to compile monetary asset accounts by institutional sector are the same as those required to compile physical asset accounts by institutional sector, with the only addition being the inclusion of entries for revaluations (as outlined in para. 5.60).

5.4 Principles of asset accounting

5.4.1 Introduction

5.72 Accounting for changes in the stocks of environmental assets presents various measurement challenges, including accurately measuring the physical stock of environmental assets, all of which have their own unique characteristics, for example, in the case of biological resources, the capacity to regenerate over time. Understanding the population dynamics is therefore important in making a reasonable assessment of certain environmental assets.

5.73 In addition to estimates calculated in physical terms, estimates of the values of environmental assets in monetary terms should also be compiled. Aside from land and soil resources, few environmental assets are actively traded on markets before they are extracted; therefore, determining their in situ value is not a straightforward task.

5.74 Although there are challenges involved, a range of techniques and underlying concepts have developed that permit the compilation of asset accounts. Section 5.4.2 describes a key challenge in physical asset accounting; the measurement of depletion in physical terms. Sections 5.4.3 and 5.4.4 discuss the principles of asset valuation and the net present value approach, respectively. In section 5.4.5, the approaches to estimating resource rent and the main steps required to apply the NPV approach are explained. Details concerning the NPV approach are presented in annex A5.1 and a discussion of discount rates is presented in annex A5.2. Section 5.4.6 discusses the measurement of environmental assets in volume terms. Applications of the various definitions and principles of asset accounting are described for each environmental asset in sections 5.5-5.11.

5.4.2 Defining depletion in physical terms

5.75 In accounting for environmental assets, the measurement of depletion is often a particular focus. The depletion of environmental assets relates to the physical using up of environmental assets through extraction and harvest by economic units, including households, resulting in a reduced availability of the resource. Depletion does not fully account for all possible changes in the stock of an asset over an accounting period and hence should not be linked directly to measures of sustainability. Assessments of the sustainability of environmental assets should take into account a broader range of factors, such as the extent of catastrophic losses or discoveries and potential changes in the demand for inputs from environmental assets.

5.76 Depletion, in physical terms, is the decrease in the quantity of the stock of a natural resource over an accounting period that is due to the extraction of the natural resource by economic units occurring at a level greater than that of regeneration.

5.77 For non-renewable natural resources, such as mineral and energy resources, depletion is equal to the quantity of resource that is extracted because the stock of these resources cannot regenerate on human time-scales. Increases in the stock of non-renewable natural resources (e.g., through discoveries) may permit the ongoing extraction of the resources. However, these increases in volume are not considered regeneration, and hence do not offset measures of depletion. The increases should be recorded elsewhere in the asset account.

5.78 For natural biological resources, such as timber resources and aquatic resources, the equality in physical terms between depletion and extraction does not hold. The ability for these resources to regenerate naturally means that in certain management and extraction situations, the quantity of resources extracted may be matched by a quantity of resources that are regenerated and, in this situation, there is no overall physical depletion of the environmental asset. More generally, only the amount of extraction that is above the level of regeneration is recorded as depletion. Provided below is a more detailed outline of the measurement of depletion in physical terms for natural biological resources.

5.79 Depletion is not recorded when there is a reduction in the quantity of an environmental asset owing to unexpected events such as losses due to extreme weather or pandemic outbreaks of disease. These reductions are recorded as catastrophic losses. In contrast, depletion must be seen as a consequence of the extraction of natural resources by economic units.

5.80 Depletion can also be measured in monetary terms by valuing the physical flows of depletion using the price of the natural resource in situ. This step is explained in detail in annex A5.1. It is noted that the monetary value of depletion is equal to the change in the value of the natural resource that is due to physical depletion.

Depletion of natural biological resources in physical terms

5.81 Natural biological resources are able to reproduce and grow over time. Thus, in the estimation of depletion, it is necessary to consider both the extraction and the regeneration of these resources. While the rates of extraction can be observed directly, measurement of the rates of regeneration can be complex and usually requires consideration of biological models. These models will usually account for both the structure and the size of populations; and exhibited by their general form, when the stock or population of the specific type of resource is small, the rate of growth will be small but, as the population increases, the rate of growth will also increase. Eventually, as the population within a given area reaches the carrying capacity of the area, i.e., as the density reaches a maximum, the rate of growth in the population will slow substantially.

5.82 Based on this general model, for any given population, it is possible to calculate the number of animals or volume of plants by age or size class that may be removed from the population without affecting the capacity of the population to regenerate itself (i.e., opening stock equals closing stock). In effect, there is a “surplus” or excess that can be harvested from the existing stock. In biological models, this surplus is known as the sustainable yield.

5.83 The level of the sustainable yield rises and falls in line with the overall size and structure of the population. For example, in populations where the growth rates are low, the sustainable yields are also low. These relationships are shown in figure 5.2, with population size being used as a proxy for both population size and structure. It is noted that the same level of extraction will have a different relationship to the sustainable yield depending on the population size. Referring to figure 5.2, a given level of extraction may be above, on or under the sustainable yield curve.

5.84 For a given population, if the amount of extraction is less than the sustainable yield, i.e., points under the curve in figure 5.2, no depletion should be recorded. In this situation, assuming no catastrophic losses or other changes, it would be expected that the stock would increase over the accounting period.

5.85 In principle, depletion is recorded wherever the amount of extraction is greater than the sustainable yield corresponding to the population size and structure. This is reflected by points above the curve in figure 5.2 and represents the case where quantities extracted are greater than the regeneration or growth for any given population.

5.86 However, for most populations of natural biological resources, the estimation of sustainable yield is difficult, as the natural processes of growth and death, the relationship to other species (including predators) and the impact of extraction are usually non-linear, variable (e.g., due to variations in climatic conditions) and often not fully understood in scientific terms. Thus, it is recommended that some year-on-year variation around an estimate of sustainable yield be considered normal. Consequently, in practice, depletion should be recorded when extraction is beyond the normal variation in sustainable yield for a particular population.

5.87 The estimation of the required variables will involve the use of biological models and assumptions regarding the growth, death and other changes in population. If such models are unavailable, other indicators of and changes in stock size may be used. Possible methods are discussed in relation to timber resources in section 5.8 and in relation to aquatic resources in section 5.9.

The relationship between depletion and degradation

5.88 Although the measurement of degradation in physical and monetary terms is not pursued in the Central Framework, there are links with the definition and measurement of depletion that are explained in the Central Framework. The measurement of degradation is considered in the SEEA Experimental Ecosystem Accounting.

5.89 The focus in measuring depletion is on the availability of individual environmental assets in the future and changes in that availability due to extraction and harvest by economic units. There is a particular focus on the specific benefits that arise from the extracted materials, including the capacity of the extraction of the resources to generate income for the extractor.

5.90 Degradation considers changes in the capacity of environmental assets to deliver a broad range of contributions known as ecosystem services (e.g., air filtration services from forests) and the extent to which this capacity may be reduced through the action of economic units, including households. In this sense, since depletion relates to one type of ecosystem service, it can be considered a specific form of degradation.

5.91 The measurement of degradation is complicated because the capacity of environmental assets to deliver ecosystem services is not attributable solely to individual assets, and because individual assets may deliver a number of different ecosystem services. Further, while individual environmental assets, such as water and soil resources, may have been degraded over time, separating the degradation of an individual asset from the degradation of the overall ecosystem may not be straightforward.

5.92 The measurement of degradation in physical terms is also complicated inasmuch as it generally relies on a detailed assessment of the condition of ecosystems rather than the relatively simpler changes in the quantities of individual environmental assets that are used in the estimation of asset accounts in physical terms and in the estimation of depletion. For example, to assess whether a body of water has been degraded, assessments might be made of the various pollutants in the water as part of a broader assessment of the overall change in condition. While individual accounting for each of these pollutants might be undertaken, it will not be directly related to the volume of water in cubic metres that is used to account for water resources in an asset account.

5.93 Although separately identifying degradation in physical terms is complex, implicitly, the monetary value of individual environmental assets that have been degraded will be affected by the changing quality of the asset. Ideally, where the price of the asset changes to reflect a different quality, this should be considered a change in the volume of the asset rather than a revaluation. However, isolating the price change due to degradation from other causes of price change is likely to be difficult in practice.

5.4.3 Principles of asset valuation

5.94 One general advantage of applying valuation approaches is that different environmental assets can be compared using a common numeraire, which is not possible using purely physical data. Further, environmental assets can be compared against other assets in order to assess relative returns, national wealth and similar types of analysis. Since it is commonly the case that governments have a high level of ownership of or influence over the extraction of environmental assets, valuation of these assets in monetary terms may provide useful information for assessing future streams of income for government, for example, in the estimation of future government revenue from the extraction of oil and natural gas.

5.95 It is also the case that in business accounts, enterprises involved in extraction make assessments regarding their future income streams and in this regard, the ability to place these individual enterprise-based valuations in a broader, national context is of relevance. There is also increasing use of market-based mechanisms, such as quotas, to allocate access rights to environmental assets. These mechanisms may relate directly to aggregate valuations for environmental assets.

5.96 Since many environmental assets are not purchased in a marketplace and, unlike buildings and equipment, have not been produced, there are generally no observable prices for the value of the opening and closing stock of environmental assets or for the flows between these two dates.

5.97 Where market prices do not exist, the estimation of values requires the use of assumptions and models. Overall, these models have proved to be sound tools for the development of meaningful valuations for produced assets. At the same time, there are complexities involved in the application of these models, which compilers and users should be aware of before applying the models in practice.

5.98 Explained below are the principles for the valuation of assets and the approaches that can be used to estimate the values in monetary terms.⁵² Specific measurement issues relevant to individual environmental assets are addressed in later sections of this chapter.

General principles of valuation

5.99 The prices at which assets are bought or sold on markets are a basis of decisions by investors, producers, consumers and other economic agents. Market prices are assessed by investors and producers in relation to their expectations of the flows of income they can derive from the assets. For example, investors in renewable energy infrastructure assets (such as wind turbines) and environmental assets (such as land) make decisions in respect of acquisitions and disposals of these assets in the light of their values in the market relative to the income they expect the assets to generate over time.

5.100 Ideally, observable market prices should be used to value all assets, and every item should be valued as if it were being acquired on the date to which the estimate of the stock relates. These two recommendations enable the values of different types of assets, including environmental, financial, and other economic assets, to be compared in meaningful ways, and allow the formation of opening and closing values of stocks that can be used to assess national and institutional sector estimates of wealth in monetary terms.

5.101 At the same time, market-based estimates of asset values will commonly not account for all aspects that may be considered to be relevant in forming a valuation for an asset. For example, the value of a second-hand car in the marketplace will often be less than the value that the current owner places on the benefits of utility and flexibility associated with car ownership. At the same time, the car’s value to its owner may not reflect the impact on the environment of emissions arising from operating the car. Thus, while the use of market prices allows comparison across asset types, those prices may not reflect the value of the asset from an individual or societal perspective. This aspect of market based prices is often mentioned in relation to the valuation of environmental assets.

5.102 An important additional consideration in the application of general principles of valuation to environmental assets is that the objective is to estimate the value of the asset in situ rather than after its removal.

5.103 The approaches described in the SEEA, in particular the net present value approach, provide reasonable proxies for observable market prices and consistency with the SNA, but do not take into account the full range of benefits (and costs) that might be considered relevant.

Approaches to the valuation of assets

5.104 The ideal sources of market-price observations for assets are values observed in markets in which each asset traded is completely homogeneous, is often traded in considerable volume, and has its market price listed at regular intervals. Such markets yield data on prices that can be multiplied by indicators of physical stocks to enable computation of the total market value of different classes of assets. These types of price observation are available for most financial assets, newly purchased produced assets, including many types of transport equipment (such as cars and trucks), and livestock.

5.105 In addition to providing direct observations on the prices of assets actually traded, information from such markets may also be used to price similar assets that are not traded. For example, information on house and land sales may be used to estimate the value of houses and land that have not been sold.

5.106 When there are no observable prices because the items in question have not been purchased or sold on the market in the recent past, an attempt has to be made to estimate what the prices would be if a regular market existed and the assets were to be traded on the date to which the estimate of the stock relates.

5.107 One approach is to use the written-down replacement cost. The value of an asset will decline over time as the value at the time of acquisition, the acquisition price, is reduced by consumption of fixed capital (more commonly referred to as depreciation) over the asset’s life. Furthermore, the acquisition prices of equivalent new assets will change. In theory, the value of an asset at any given point in its life is equal to the current acquisition price of an equivalent new asset less the accumulated consumption of fixed capital over its life. When reliable directly observed prices for used assets are not available, this procedure gives a reasonable approximation of what the market price would be were the asset to be offered for sale.

5.108 In the context of environmental assets, this approach may be applied to estimate the value of the stock of cultivated biological resources that are fixed assets, for example, orchards.

5.109 A second approach is to use the discounted value of future returns. For many environmental assets, there are no relevant market transactions or set of acquisition prices that would permit the use of the previous two approaches. Thus, although prices can be found to value the output from extraction or harvest of an environmental asset, no values for the asset itself, in situ, are available.

5.110 In this situation, the discounted value of future returns approach, commonly referred to as the net present value (NPV) approach, uses projections of the future rate of extraction of the asset, together with projections of its price, to generate a time series of expected returns. Typically, these projections are based on the history of returns earned from the use of the environmental asset. Assuming that returns earned in the current period are worth more to the extractor than returns earned in the future, the stream of expected returns is discounted to reflect the value that a buyer would be prepared to pay for the asset in the current period.

5.111 The next section outlines the key components of the NPV approach. Additional details, including the relevant mathematical derivations related to the NPV approach, are provided in annex A5.1.

5.4.4 The net present value (NPV) approach

5.112 There are five key components of the NPV approach that require explanation: (a) the measurement of returns on environmental assets, (b) the determination of the expected pattern of resource rents based on expected extraction profiles and prices, (c) the estimation of the asset life, (d) the selection of a rate of return on produced assets and (e) the choice of discount rate.

The measurement of returns on environmental assets

5.113 In the SEEA, returns are defined using the concept of economic rent. Economic rent is best considered to be the surplus value accruing to the extractor or user of an asset calculated after all costs and normal returns have been taken into account.

5.114 The surplus value, referred to as resource rent in the context of environmental assets, can be taken to be the return attributable to the asset itself. The logic of the NPV approach requires estimating the stream of resource rents that are expected to be earned in the future and then discounting these resource rents back to the present accounting period. This provides an estimate of the value of the asset at that point in time.⁵³

5.115 One common feature in definitions of resource rent is that the amount of resource rent is always derived relative to the returns earned by other firms on average over time, i.e., normal returns. Resource rent, as a residual, may be positive or negative. Economic theory suggests that, over the long term, resource rents should be positive.

5.116 The measurement of resource rent provides a gross measure of the return to environmental assets. As for produced assets, it is also relevant to consider the derivation of a net measure of the return by deducting depletion from resource rent, i.e., depletion-adjusted resource rent. For produced assets, the equivalent deduction is for depreciation. Depletion, as defined earlier in this section, reflects the change in the value of an environmental asset that is due to extraction in excess of regeneration. Putting aside any changes in expectations for future returns or differences between expected and realized outcomes, the measure of depletion-adjusted resource rent corresponds, in economic terms, to a net return to capital or net return to environmental assets. Further, it is shown in annex A5.1 that depletion-adjusted resource rent is equal to the nominal (or overall) return to environmental assets less the expected revaluations of the environmental asset.

5.117 Resource rent and the net return to environmental assets can be derived within the national accounts framework through a focus on the operating surplus of extracting enterprises. In this context, the operating surplus earned by an enterprise is considered to comprise a return for the investment in produced assets and a return to the environmental assets used in production.

5.118 The relationships between the relevant variables are shown in table 5.5. The table presents the standard derivation of gross operating surplus based on the SNA using measures of output, intermediate consumption, compensation of employees, and other taxes on and subsidies for production.

Table 5.5

Relationships between different flows and income components

^{^a}Strictly speaking, this accounting identity also includes gross mixed income (the surplus earned by unincorporated enterprises) and should be adjusted for net taxes and subsidies on production. These details do not affect the logic of the explanation provided.

^{^b}In principle, the net return to environmental assets derived here also incorporates a return to other non-produced assets (e.g., marketing assets and brands), as these assets also play a role in generating the operating surplus. These returns are ignored in the formulation presented here.

5.119 Before deriving measures of resource rent, it is necessary to take into account the effects of any specific taxes and subsidies that relate to the extraction activity. Specific taxes and subsidies are those that apply solely to the extracting enterprises and are not generally applicable across the economy.⁵⁴ Examples include subsidies provided based on the quantity of resources sold and taxes levied solely on inputs used in the extracting industries. The deduction of specific subsidies from and the addition of specific taxes to the standard national accounts measures of gross operating surplus are such that the resulting measure of resource rent is neutral to these flows; that is to say, while these flows affect the incomes of the extracting industries, they are effectively redistributions within the economy and should not influence the estimated return to the underlying environmental asset.

5.120 Resource rent is thus derived from standard SNA measures of gross operating surplus by deducting specific subsidies, adding back specific taxes and deducting the user costs of produced assets (themselves composed of consumption of fixed capital and the return to produced assets). As noted above, resource rent is composed of depletion and the net return to environmental assets.

5.4.5 Approaches to estimating resource rent and net present values

Approaches to estimating resource rent

5.121 In practice, there are three main approaches to estimating resource rent: the residual value method, the appropriation method and the access price method.

5.122 The most commonly applied method is the residual value method. Under this method, resource rent is estimated by deducting user costs of produced assets from gross operating surplus after adjustment for any specific subsidies and taxes.

5.123 Estimates of the value of gross operating surplus and specific subsidies and taxes may be obtained from national accounts data sets. Estimates of the user costs of produced assets are not generally available and must be constructed so that each period’s resource rent can be obtained. Estimates of the user costs of produced assets are composed of two variables: consumption of fixed capital of produced assets; and normal return on produced assets. Both variables may be estimated within national accounts models designed to estimate the value of the fixed capital stock and related variables for various purposes, including productivity analysis. If such models have not been developed, then each variable may be estimated using assumptions regarding depreciation rates, asset lives and rates of return on produced assets.

A full description of considerations and approaches relevant to the measurement of user costs is presented in Measuring Capital: OECD Manual—2009 (OECD, 2009).

5.124 A difficulty in estimating resource rents with this method is that one is rarely able, from using the source information, particularly national accounts data, to isolate only the extraction or harvesting activity; and in certain circumstances, multiple resources may be extracted at the same time, particularly in mining. Generally, data on gross operating surplus (GOS) for industries that extract and harvest environmental assets will capture some downstream processing, refinement or other value-added activity also undertaken by the extractor before sale. Since all of these additional activities require inputs of labour and capital, partitioning a firm’s GOS into pure extraction activity relating to a single resource is not always straightforward. Nonetheless, every effort should be made to isolate the specific GOS for the extraction activity of individual resources in the underlying data.

5.125 There may be concern that, in situations of over-exploitation of resources, the resulting gross operating surplus will generate a higher estimate of resource rent than can be sustained over the longer term. While this observation is correct, it does not invalidate the measurement approach. The aim of the approach is not to measure what might or should happen under ideal circumstances but to account for expected behaviour in respect of the environmental asset. Thus, if over-exploitation continues, it should be reflected in a shorter remaining asset life and in a greater amount of depletion (as a component of the higher resource rent) than might otherwise be the case.

5.126 The appropriation method estimates the resource rent using the actual payments made to owners of environmental assets. In many countries, governments are the legal owners of environmental assets on behalf of the country. As legal owners, governments could in theory collect the entire resource rent derived from extraction of the resources that they own. This amount would, in principle be equal to GOS less user costs of produced assets of the extractor, as defined.

5.127 The collection of resource rent is generally undertaken by governments through mechanisms such as fees, taxes and royalties. In practice, the fees, taxes and royalties actually collected tend to understate total resource rent, as the rates may be set with other priorities in mind, for example, encouraging investment and employment in extracting industries. These alternative motivations should be considered before use of the appropriation method.

5.128 The access price method is based on the fact that access to resources may be controlled through the purchase of licences and quotas, as is commonly observed in the forestry and fishing industries. When these resource access rights are freely traded, it is possible to estimate the value of the relevant environmental asset from the market prices of the rights. The economic logic parallels the residual value method, since it is expected that, in a free market, the value of the rights should be equivalent to the future returns from the environmental asset (after deducting all costs, including user costs of produced assets).

5.129 Where the resource access rights that are purchased provide a very long term or indefinite access to the assets, the market value of the rights should provide a direct estimate of the total value of the asset rather than simply an estimate of the resource rent. In this case, no discounting of future flows of resource rent is needed. If the rights are for a more limited period (e.g., for one year in the case of entitlements), this can provide a direct estimate of the resource rent for that period.

5.130 In practice, in many cases governments may give the access rights direct to extractors for free or do so at a price that is less than the true market value. Further, trading of the rights may be restricted or prohibited. In these cases, there is no directly observable market valuation.

Summary of methods to estimating resource rent

5.131 While, in theory, all of these methods will generate the same estimates of resource rent, it is the case that the application of the appropriation and access price methods are more heavily influenced by institutional arrangements in a country. For these reasons, estimates of resource rent based on the residual value method should be compiled and, where possible, reconciled with estimates obtained using the other methods. Indeed, there may be particular analytical interest in comparing the estimates of resource rent based on the different methods.

Determination of the expected pattern of resource rents

5.132 The critical factor in the valuation of assets is not the past or current returns but the expected returns. An asset with no expected returns has no value in economic terms. Expected returns are, by definition, not observed and hence assumptions concerning these flows must be made.

5.133 Resource rents are a function of quantities of resources extracted, unit extraction costs and commodity prices. The starting point is generally the estimates of resource rent in the current period or the period of the immediate past. In the absence of any additional information on expected future price changes or likely changes in extraction rates, it is recommended that estimates of expected resource rent should be set based on current estimates of resource rent, thus assuming no price changes beyond the general level of inflation, and a realistic rate of resource extraction.

5.134 In general, there is too much volatility in unit resource prices for meaningful assumptions about future resource price changes to be incorporated. Also, in the absence of other information, it may be reasonable to assume that extraction will continue at the same rate as in the past, since this is the extraction rate for which an appropriate amount of produced assets has been acquired. At the same time, if, for example, it was known that the majority of the expected resource rent would be earned in years 5 to 10 over a total asset life of 30 years, then this timing of expected returns should be taken into account.

5.135 Special consideration is needed in situations where the extraction rates in any particular period might be considered abnormal, including where they fall to zero, or close to zero. In practice, this is possible in any given accounting period, for example, if the change in economic circumstances is such that extraction is no longer cost-effective, natural disasters make the resource inaccessible or unharvestable, or access to resources is restricted to allow the recovery of stocks.

5.136 If changes occur in the expected extraction schedule, the resulting NPV estimates may produce results that are difficult to interpret. However, this only highlights the fact that, when the expected extraction schedule changes for any reason, including simply the receipt of additional information, the NPV estimates must be re-estimated, since they should reflect a valuation based on all of the information available at that point in time.

Estimates of the asset life

5.137 The asset life (or resource life) is the expected time over which an asset can be used in production or the expected time over which extraction from a natural resource can take place. Estimates of the asset life must be based on consideration of the available physical stock of the asset and assumed rates of extraction and growth, in the case of renewable resources. In a very simple case, the asset life can be calculated by dividing the closing physical stock by the excess of expected annual extractions over expected annual growth. However, especially for natural biological resources such as aquatic resources, it is necessary to consider biological models and associated sustainable yields of biological resources in such a way as to ensure the impact of changing age and sex structures is taken into account in the determination of the asset life. A description of relevant considerations is contained in section 5.4.2.

5.138 It may be that, through the use of biological and economic models, optimal extraction paths can be calculated which effectively determine the asset life through alignment between the available stock and rates of extraction. Often implicit in the determination of such extraction paths, particularly for renewable natural resources, are assumptions regarding the sustainability of the resource, for example, that future management of fish stocks will ensure that extraction does not exceed growth.

5.139 For the SEEA, making such assumptions regarding sustainability is problematic, as it may ignore important environmental information and may imply the adoption of behaviour that may not have been adopted in the past. Unless there is evidence to the contrary, it is recommended that estimates of asset life be based on rates of extraction and growth that have occurred in the recent past rather than through the use of general assumptions on sustainability or intended management practice.

5.140 Estimates of the asset life are required to provide the time frame over which the NPV approach is applied. In practice, depending on the choice of discount rate, if asset lives are longer than about 20 years, the NPV estimates are relatively stable; that is, the values of the expected returns in later years are relatively small. The sensitivity of the NPV estimates to the choice of discount rate over varying asset lives is discussed in annex A5.2.

Rate of return on produced assets

5.141 An expected rate of return on produced assets is required to estimate the user cost of the produced assets utilized in the extraction of the environmental asset. If this cost is not deducted, the resulting estimates of resource rent will be overstated.

5.142 Two approaches can be taken to estimating rates of return on produced assets: an endogenous approach and an exogenous approach. The endogenous approach sets the rate equal to the net operating surplus (gross operating surplus less consumption of fixed capital) divided by the value of the stock of produced assets. This approach implicitly assumes that there is no return attributable to non-produced assets, including environmental assets, and hence it is not recommended. It should, however, form an upper bound of the estimated rate of return on produced assets.

5.143 The exogenous approach is recommended in the SEEA. This approach assumes that the expected rate of return on produced assets is equal to an exogenous (external) rate of return. Ideally, the expected rate of return should relate to activity-specific returns, thus taking into account risks in investing in particular activities. However, in many cases, financial markets may not be sufficiently developed to provide robust estimates of these specific rates of return.

5.144 For this reason, a realistic approach is to use an economy-wide rate of return, perhaps based on government bond rates, where these exist.⁵⁵ In all cases, a real rate of return should be used. While exogenous rates of return are unlikely to be perfect proxies for rates of return on individual produced assets, it is likely that they provide a reasonable reflection of normal returns for the derivation of estimates using the NPV approach.

Choice of discount rate

5.145 Discount rates are required to convert the expected stream of resource rents into a current-period estimate of the overall value. A discount rate expresses a time preference—the preference of the owner of an asset to receive income now rather than in the future. It also reflects the owner’s attitude to risk. In general, individuals and enterprises will have higher rates of time preference than society; that is, individuals and enterprises will tend to demand a quicker return from ownership of an asset than will the society as a whole. Higher rates of time preference translate into higher discount rates.

5.146 The discount rate used in NPV calculations can be interpreted as an expected rate of return on the non-produced assets. In an enterprise where all assets are identified and measured accurately, and where conditions of perfect competition prevail, the discount rate and the rate of return should be equal. This is because the enterprise should invest only if the rate of return on all assets is aligned to its own time and risk preferences for receiving income.

5.147 To ensure a valuation that is aligned to the general concept of market prices, it is recommended that a market-based discount rate should be used equal to the assumed rate of return on produced assets (see above).

5.148 At the same time, there is also support for the use of social discount rates in the valuation of environmental assets. The rationale is that environmental assets are of broad and long-term value to society as a whole and should be valued in that light rather than solely in relation to their value to a present-day extractor.

5.149 One of the main arguments supporting the use of social discount rates is that, generally, social discount rates are lower than market-based discount rates and lower rates will place higher relative importance on income earned by future generations. From this, it is often inferred that estimates of NPV that use market-based discount rates do not value future generations and the total values obtained are too small, since they do not give sufficient weight to these future incomes.

5.150 Annex A5.2 presents an extended discussion on discount rates and their application, including a table illustrating the sensitivity of valuations based on NPV to the choice of discount rate.

Calculation of net present value

5.151 Using these various components, estimates of the value of an environmental asset are obtained based on the following basic steps and assuming the employment of the residual value method to calculate resource rent:

(a) Obtain estimates of GOS, specific subsidies and taxes on extraction, and the user cost of produced assets for the extractive activity, from relevant sources, most likely based on national accounts data, relevant activity-specific information and assumptions regarding rates of return on produced assets;
(b) Estimate resource rent as GOS less specific subsidies plus specific taxes less user cost of produced assets;
(c) Estimate the asset life based on physical assessment of the stock and projected rates of extraction and growth;
(d) Project the estimate of resource rent over the life of the asset, taking into account any expected changes in extraction pattern;
(e) Apply the NPV formula using an appropriate discount rate:
$V_{t} = Σ_{τ = 1}^{N_{t}} \frac{R R_{t + τ}}{(1 + r_{t})^{τ}}$

where V_t is the value of the asset of time t; N is the asset life: RR is the resource rent; and r is a nominal discount rate (for details see annex A5.1)

5.152 Where possible, compilers are encouraged to compare results of NPV calculations that would be obtained using different estimates of the discount rate and also different approaches to the estimation of resource rent. This may be possible where tradable access rights are in existence or where payments of rent are recorded. These alternative estimates of resource rent may be substituted in the general NPV formulation to enable the derivation of alternative valuations.

5.153 If, after adjusting for specific taxes and subsidies, the derived expected resource rent is negative, then the estimated NPV of the asset should be assumed to be zero. This conclusion should not be based on single observations of negative resource rents but should take into account likely future patterns of operating surplus and specific taxes and subsidies. In some cases, the extraction may continue because the level of specific subsidies is sufficient to ensure a suitable income for the extractor. However, in these situations, the income should not be attributed to a return to the underlying environmental asset, but, instead, should be considered a redistribution of incomes within the economy.

5.154 Wherever actual market prices are available, for example, on the basis of actual transactions in environmental assets, this information should be used in preference to NPV-based valuations. In incorporating this information, appropriate adjustments for the scope and coverage of the transactions, compared with the scope of the estimation based on NPV, need to be made.

5.155 Ideally, calculation of NPV estimates should be undertaken for individual stocks, for example, a specific mineral deposit or fish stock. At this level of detail, changes in the stock can be more accurately considered and assumptions more accurately evaluated. More generally, every effort should be made to test assumptions used in the formulation of NPV valuations and, wherever possible, additional information about specific individual stocks should be taken into account—for example, large discoveries of mineral and energy resources or catastrophic losses of timber resources due to exceptional weather events.

5.156 Accounting for the change in the value of assets over an accounting period is a core part of asset accounting. Like the assessment of the value of an asset at the beginning and end of a period, the valuation of changes in the stock, such as discoveries and catastrophic losses, is also dependent on the impact that these changes have on expected returns. Since these changes are not usually evidenced in transactions in the assets themselves, their valuation requires the use of the NPV approach to ensure alignment between stock valuations and valuations of the changes in the stock.

5.157 A complete accounting for NPV and changes in NPV is presented in annex A5.1. The annex highlights the relationships between the quantities of the natural resource, the quantity extracted, the price received for extracted resources (after deduction of extraction costs), i.e., the unit resource rent, and the price of the resource in situ, i.e., before extraction. A key conclusion presented in the annex is that it is incorrect to use the unit resource rent to value the stock of natural resources; rather, the in situ price must be used. At the same time, there is a clear relationship between these two prices and it is therefore possible to estimate the in situ price based on measures of resource rent.

5.158 The second key conclusion discussed in the annex is that the valuation of all changes in the stock of a natural resource (e.g., depletion, extraction, discoveries and catastrophic losses) must also be valued using average in situ resource prices. Using these prices permits a balanced and complete accounting of changes in the value of natural resources over an accounting period.

5.159 Finally, annex A5.1 demonstrates that the valuation of both non-renewable and renewable natural resources can be undertaken within the same accounting framework. Thus, measures of the natural growth of natural biological resources can be accounted for within the NPV framework, and appropriate measures of depletion can be defined.

5.4.6 Measurement of environmental assets in volume terms

5.160 As explained in chapter II, volume measures of assets are not measures of quantities but rather estimates of changes in the value of assets after removing the effects of price change. Thus, volume measures encompass changes due to changes in quantities and changes in quality.

5.161 Volume measures of environmental assets are compiled to assist in the analysis of the changes in environmental assets over time. Removing the effect of price change may be undertaken for two primary reasons: first, to provide an indicator of the purchasing power of environmental assets, i.e., an estimate of the capacity of a set of environmental assets to be used to acquire a given set of goods and services; and second, to assess whether there has been a change in the underlying aggregate physical stock of a number of different environmental assets. Both of these rationales may be important considerations when undertaking an aggregate analysis of the wealth of a country and considering the relative importance of environmental assets compared with other economic and social assets.

5.162 For estimating the purchasing power of a set of environmental assets, the volume measure is equal to the total value of environmental assets divided by an estimate of the general rate of inflation, for example, the consumer price index.

5.163 To estimate changes in the aggregate physical stock, a rough assessment may be completed through analysis of the change in the physical stock of each type of environmental asset. However, this approach does not permit aggregation across assets since each will be measured in different physical units, for example, hectares (for land) and tonnes (for coal).

5.164 A number of different measurement approaches can be considered in respect of obtaining a volume measure reflecting the aggregate physical stock. First, a volume measure can be compiled that is the aggregation of the changes in physical stocks of each asset weighted by their relative values at a given point in time. The point in time is often the beginning or end of the accounting period but the relative values may also be calculated based on an average of beginning- and end-of-period values.

5.165 A second approach to the compilation of the volume of the aggregate physical stock can be applied in cases where the NPV formula has been used. This approach is to reestimate the NPV at the end of the period, for each environmental asset, using the same in situ resource price as was used at the beginning of the period. The sum of these re-estimated NPVs provides an estimate of the volume of environmental assets at the end of the period. This estimate can be compared with the value of the environmental assets at the beginning of the period to obtain an estimate of the change in volume. In effect, the physical stocks at the beginning and at the end of the period are all valued using the same set of prices; hence, any change reflects the volume change in environmental assets.

5.166 It is possible, with a time series of asset values, to use the in situ resource price from one reference period to re-estimate the value of assets at all other periods. This provides a time series of asset values at constant in situ resource prices. However, the use of constant prices may hide changes in prices and the associated resource rent that are due to changing technology and extraction costs. Hence, it is preferable to calculate the changes in volume between each period using in situ resource prices relevant to that period and then link the consecutive estimates of the changes in volume together to form a single time series.

5.167 A third approach to deriving asset volumes is to divide the individual asset values at the end of the period by an asset-specific price index. In many cases, this may be a price index relating to the sales of extracted products (e.g., a price index for coal used to deflate the value of stocks of coal). However, a more accurate result is obtained if the price index reflects changes in the in situ resource price. This requires taking into account not only the changing prices of the extracted products but also the changing costs of extraction. As for the second approach, the price index reflecting the changing costs of production should assume a constant technology so that these changes are captured in the volume change.

5.5 Asset accounts for mineral and energy resources

5.5.1 Introduction

5.168 Mineral and energy resources are a unique type of environmental asset in that they can be extracted and used in economic activity but cannot be renewed on any human time-scale. Since they cannot be renewed, there is particular interest in understanding the rate at which these assets are extracted and depleted, the overall availability of these assets, and the sustainability of the industries that exploit them.

5.169 Asset accounts for mineral and energy resources organize relevant information, including the quantities and values of stocks of the resources and the changes in these over accounting periods. Flows of extraction, depletion and discoveries are central to the asset account and these, in turn, can provide valuable information regarding the availability of individual resources.

5.170 Valuing stocks and flows of mineral and energy resources allows important links to be made to monetary estimates of the value added and operating surplus of the extracting industries, such as through the derivation of depletion-adjusted value-added measures. Such measures provide a view of extraction activity that recognizes a more complete set of production costs. Monetary estimates of these assets may also be of interest in the determination of government taxation and royalty settings, given that, in many countries, the government is the collective owner of these assets on behalf of society.

5.171 The present section defines mineral and energy resources and the relevant measurement boundary for the Central Framework. It then presents asset accounts in physical and monetary terms, including a discussion on the estimation of resource rent. Further, this section discusses two specific measurement issues related to mineral and energy resources: (a) the allocation of income from the extraction of mineral and energy resources and (b) the recording of stocks and flows of energy from renewable sources.

5.5.2 Definition and categorization of mineral and energy resources

5.172 Mineral and energy resources include deposits of oil resources, natural gas resources, coal and peat resources, non-metallic minerals and metallic minerals. Since the resources are generally found underground (hence commonly referred to as subsoil assets), the quantity of resources that one might reasonably expect to be extracted is not known with any large degree of precision. Consequently, a key factor in the measurement of mineral and energy resources is the concentration and quality of the minerals and energy resources in the deposit, since this will influence the likelihood and cost of extraction and the degree of confidence regarding the quantity that can be extracted in the future.

5.173 Mineral and energy resources comprise known deposits of oil resources, natural gas resources, coal and peat resources, non-metallic minerals and metallic minerals.

5.174 The framework used to define the scope of known deposits is the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC-2009) (United Nations, Economic Commission for Europe, 2010). The UNFC-2009 is a generic, flexible scheme for classifying and evaluating quantities of fossil energy and mineral resources.

5.175 Many countries have their own national classification systems based on, for example, systems developed by the Society of Petroleum Engineers (SPE, 2007), the Committee for Mineral Reserves International Reporting Standards (CRIRSCO, 2007) and the International Atomic Energy Agency/International Energy Agency (IAEA/IEA). Thus, it may be necessary to apply conversions to facilitate international comparisons.⁵⁶

5.176 The UNFC-2009 categorizes mineral and energy resources through determining whether, and to what extent, projects for the extraction and exploration of the resources have been confirmed, developed or planned. The underlying resources are classified based on the maturity of the projects. UNFC-2009 is based on a breakdown of the resources according to three criteria affecting their extraction:

Economic and social viability (E)
Field project status and feasibility (F)
Geological knowledge (G)

5.177 Criterion E designates the degree of favourability of economic and social conditions in establishing the commercial viability of the project. Criterion F designates the maturity of studies and commitments necessary to implement mining plans or development projects, extending from early exploration efforts occurring before it has been confirmed that a deposit or accumulation exists, to projects involving extraction and sale of a product. Criterion G designates the level of certainty of geologic knowledge and of potential recoverability of quantities of the resource concerned.

5.178 Known deposits are categorized in three classes, each defined according to combinations of criteria derived from UNFC-2009:

(a) Class A: Commercially recoverable resources. This class includes deposits for projects that fall in categories E1and F1 and where the level of confidence in the geologic knowledge is high (G1), moderate (G2) or low (G3);
(b) Class B: Potentially commercially recoverable resources. This class includes deposits for those projects that fall in the category E2 (or eventually E1) and at the same time in F2.1 or F2.2 and where the level of confidence in the geologic knowledge is high (G1), moderate (G2) or low (G3);
(c) Class C: Non-commercial and other known deposits. These are resources for those projects that fall into category E3 and for which the feasibility is categorized as F2.2, F2.3 or F4 and where the level of confidence in the geologic knowledge is high (G1), moderate (G2) or low (G3).

5.179 deposits exclude potential deposits where there is no expectation of the deposits’ becoming economically viable and there is a lack of information needed to determine the feasibility of extraction or to have confidence in the geologic knowledge. Table 5.6 gives an overview of how the classes of resources are defined based on the UNFC criteria. UNFC is explained in more detail in annex A5.3.

Table 5.6

Categorization of mineral and energy resources

Notes

^{^a}Including on-production projects, projects approved for development and projects justified for development.

^{^b}Including economic and marginal development projects pending and development projects on hold.

^{^c}Potential commercial projects may also satisfy the requirements for E1.

^{^d}Including unclarified development projects, non-viable development projects, and additional quantities in place. Source: UNFC-2009, figures 2 and 3.

Table 5.6

Categorization of mineral and energy resources

	SEEA classes	Corresponding UNFC-2009 project categories
		E	F	G
		Economic and social viability	Field project status and feasibility	Geologic knowledge
	A: Commercially recoverable resources^a	E1. Extraction and sale have been confirmed to be economically viable	F1. Feasibility of extraction by a defined development project or mining operation has been confirmed
	B: Potentially commercially recoverable resources^b	E2. Extraction and sale are expected to become economically viable in the foreseeable future^c	F2.1 Project activities are ongoing to justify development in the foreseeable future
			Or
			F2.2 Project activities are on hold and/or where justification as a commercial development may be subject to significant delay	Quantities associated with a known deposit that can be estimated with a high (G1), moderate (G2) or low (G3) level of confidence
Known deposits	C: Non-commercial and other known deposits^d	E3. Extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability	F2.2 Project activities are on hold and/or where justification as a commercial development may be subject to significant delay
			Or F2.3 There are no current plans to develop or to acquire additional data at the time due to limited potential
			Or F4. No development project or mining operation has been identified
Potential deposits (not included in SEEA)	Exploration projects Additional quantities in place	E3. Extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability	F3. Feasibility of extraction by a defined development project or mining operation cannot be evaluated due to limited technical data	Estimated quantities associated with a potential deposit, based primarily on indirect evidence (G4)
			Or
			F4. No development project or mining operation has been identified

Notes

^{^a}Including on-production projects, projects approved for development and projects justified for development.

^{^b}Including economic and marginal development projects pending and development projects on hold.

^{^c}Potential commercial projects may also satisfy the requirements for E1.

^{^d}Including unclarified development projects, non-viable development projects, and additional quantities in place. Source: UNFC-2009, figures 2 and 3.

Table 5.6

Categorization of mineral and energy resources

	SEEA classes	Corresponding UNFC-2009 project categories
		E	F	G
		Economic and social viability	Field project status and feasibility	Geologic knowledge
	A: Commercially recoverable resources^a	E1. Extraction and sale have been confirmed to be economically viable	F1. Feasibility of extraction by a defined development project or mining operation has been confirmed
	B: Potentially commercially recoverable resources^b	E2. Extraction and sale are expected to become economically viable in the foreseeable future^c	F2.1 Project activities are ongoing to justify development in the foreseeable future
			Or
			F2.2 Project activities are on hold and/or where justification as a commercial development may be subject to significant delay	Quantities associated with a known deposit that can be estimated with a high (G1), moderate (G2) or low (G3) level of confidence
Known deposits	C: Non-commercial and other known deposits^d	E3. Extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability	F2.2 Project activities are on hold and/or where justification as a commercial development may be subject to significant delay
			Or F2.3 There are no current plans to develop or to acquire additional data at the time due to limited potential
			Or F4. No development project or mining operation has been identified
Potential deposits (not included in SEEA)	Exploration projects Additional quantities in place	E3. Extraction and sale are not expected to become economically viable in the foreseeable future or evaluation is at too early a stage to determine economic viability	F3. Feasibility of extraction by a defined development project or mining operation cannot be evaluated due to limited technical data	Estimated quantities associated with a potential deposit, based primarily on indirect evidence (G4)
			Or
			F4. No development project or mining operation has been identified

Notes

^{^a}Including on-production projects, projects approved for development and projects justified for development.

^{^b}Including economic and marginal development projects pending and development projects on hold.

^{^c}Potential commercial projects may also satisfy the requirements for E1.

^{^d}Including unclarified development projects, non-viable development projects, and additional quantities in place. Source: UNFC-2009, figures 2 and 3.

5.180 The scope of known deposits is broader than the scope of deposits that underpins the measurement of mineral and energy resources in the SNA. In the SNA, the scope is limited to deposits that are commercially exploitable given current technology and relative prices.⁵⁷ A broader scope of deposits is applied in the SEEA to ensure that as broad an understanding as possible is obtained on the availability of the stock of mineral and energy resources. Issues associated with the scope of the valuation of mineral and energy resources are discussed in section 5.5.4.

Classification of mineral and energy resources

5.181 There are a number of different types of mineral and energy resources, such as oil, natural gas, coal and peat resources, non-metallic minerals and metallic minerals; but there is no internationally agreed detailed classification for mineral and energy resources suitable for statistical purposes.

5.5.3 Physical asset accounts for mineral and energy resources

5.182 Physical asset accounts for mineral and energy resources should be compiled by type of resource and include estimates of the opening and closing stock of mineral and energy resource and changes in the stock over the accounting period.

5.183 The measurement units used to compile and present the relevant information will vary by type of resource. They are likely to be in tonnes, cubic metres or barrels. For accounting purposes, the same measurement unit should be used, for a single resource, to record the opening and closing stocks and the changes in the stocks over an accounting period.

5.184 It is noted that a total for each class of deposit across different resource types cannot be meaningfully estimated owing to the use of different measurement units for different resources. For certain subsets of resources, for example, energy resources, an aggregate across certain resource types may be possible using a common measurement unit such as joules or other energy units.

Measurement of opening and closing stocks

5.185 Ideally, opening and closing stocks of each mineral and energy resource should be classified by class of resource, i.e., class A: Commercially recoverable resources; class B: Potentially commercially recoverable resources; or class C: Non-commercial and other known deposits, following the structure in table 5.7.

Table 5.7

Stocks of mineral and energy resources

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Table 5.7

Stocks of mineral and energy resources

Type of mineral or energy resource	Class of known deposit
Type of mineral or energy resource	A: Commercially recoverable resources	B: Potentially commercially recoverable resources	C: Non-commercial and other known deposits
Oil resources (thousands of barrels)	800	600	400
Natural gas resources (cubic metres)	1 200	1 000	1 500
Coal and peat resources (thousands of tonnes)	600	50	50
Non-metallic mineral resources (tonnes)	150	200	100
Metallic mineral resources (thousands of tonnes)	60	40	60

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Table 5.7

Stocks of mineral and energy resources

Type of mineral or energy resource	Class of known deposit
Type of mineral or energy resource	A: Commercially recoverable resources	B: Potentially commercially recoverable resources	C: Non-commercial and other known deposits
Oil resources (thousands of barrels)	800	600	400
Natural gas resources (cubic metres)	1 200	1 000	1 500
Coal and peat resources (thousands of tonnes)	600	50	50
Non-metallic mineral resources (tonnes)	150	200	100
Metallic mineral resources (thousands of tonnes)	60	40	60

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

5.186 It is not recommended that totals including all classes of individual types of resources be compiled. Because each class has a different likelihood of extraction, simple summation of the available resources for a specific resource (e.g., coal) may give a misleading indication of total available resources.

5.187 In this framework, it is important to specify those resources for which a monetary valuation is to be established. If this distinction is not made, a subsequent comparison between physical and monetary accounts for individual resources may provide misleading indicators of average prices and relative availability of individual resources.

Physical asset account for mineral and energy resources

5.188 A basic physical asset account for mineral and energy resources is provided in table 5.8.

Table 5.8

Physical asset account for mineral and energy resources

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Table 5.8

Physical asset account for mineral and energy resources

		Type of mineral and energy resource
		(Class A: Commercially recoverable resources)
		Oil resources (thousands of barrels)	Natural gas resources (cubic metres)	Coal and peat resources (thousands of tonnes)	Non-metallic minerals (tonnes)	Metallic minerals (thousands of tonnes)
Opening stock of mineral and energy resources		800	1 200	600	150	60
Additions to stock
	Discoveries					20
	Upward reappraisals		200		40
	Reclassifications
	Total additions to stock		200		40	20
Reductions in stock
	Extractions	40	50	60	10	4
	Catastrophic losses
	Downward reappraisals			60
	Reclassifications
	Total reductions in stock	40	50	120	10	4
Closing stock of mineral and energy resources		760	1 350	480	180	76

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Table 5.8

Physical asset account for mineral and energy resources

		Type of mineral and energy resource
		(Class A: Commercially recoverable resources)
		Oil resources (thousands of barrels)	Natural gas resources (cubic metres)	Coal and peat resources (thousands of tonnes)	Non-metallic minerals (tonnes)	Metallic minerals (thousands of tonnes)
Opening stock of mineral and energy resources		800	1 200	600	150	60
Additions to stock
	Discoveries					20
	Upward reappraisals		200		40
	Reclassifications
	Total additions to stock		200		40	20
Reductions in stock
	Extractions	40	50	60	10	4
	Catastrophic losses
	Downward reappraisals			60
	Reclassifications
	Total reductions in stock	40	50	120	10	4
Closing stock of mineral and energy resources		760	1 350	480	180	76

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Additions to and reductions in the stock of mineral and energy resources

5.189 The changes in the stock in physical terms should consider the following types of changes:

(a) Discoveries. Discoveries should incorporate estimates of the quantity of new deposits found during an accounting period. To be recorded as a discovery, the new deposit must be a known deposit, i.e., in class A, B or C. Discoveries should be recorded by type and by class of resource;
(b) Reappraisals. Reappraisals may be upward or downward. They should pertain only to known deposits. In general, reappraisals will relate to either additions or reductions in the estimated available stock of a specific deposit or to changes in the categorization of specific deposits between class A, B or C, based on changes in geologic information, technology, resource price or a combination of these factors;
(c) Extraction. Estimates of extraction should reflect the quantity of the resource physically removed from the deposit. It should exclude mining overburden, i.e., the quantity of soil and other material moved in order to extract the resource. Further, the quantity should be estimated before any refinement or processing of the resource is undertaken. Estimates of extraction should include estimates of illegal extraction, either by residents or non-residents, as these amounts reduce the availability of the resource. It is noted that for the extraction of natural gas, the measurement of the quantity extracted may be more difficult owing to the nature of the extraction process for some deposits. In cases where natural gas is found with oil, it is the pressure exerted by the natural gas that causes the oil (and some natural gas) to be expelled from the oil well. Some of the natural gas that is expelled may be flared rather than put to direct use. Some natural gas, especially after extraction has been continuing for some time, may be reinjected to increase the pressure on the remaining oil and thereby allow more oil to be expelled. In such cases, if the natural gas associated with the oil is being accounted for, an allowance must be made for reinjection;
(d) Catastrophic losses. Catastrophic losses are rare in relation to most mineral and energy resources. Flooding and collapsing of mines do occur but the deposits continue to exist and can, in principle, be recovered: the issue is one of economic viability of extraction rather than actual loss of the resource itself. An exception to this general principle concerns oil wells that can be destroyed by fire or become unstable for other reasons, leading to significant losses of oil resources. Losses of oil and related resources in this situation should be considered catastrophic losses;
(e) Reclassifications. Reclassifications may occur if certain deposits are opened or closed to mining operations owing to government decisions concerning the access rights to a deposit. All other changes in the quantity of known deposits should be treated as reappraisals. Reclassifications may also be recorded if asset accounts for mineral and energy resources are being compiled by the institutional sector.

5.190 Increasingly, there is interest in the capacity to supply various metals and other minerals through the recycling of produced goods (e.g., vehicles and computers). The implied stock of relevant metals and minerals within an economy is not within the scope of the asset accounts presented here. Nonetheless, depending on the extent of recycling undertaken in a country, information on recycled metals and other minerals may be compiled to provide a more complete picture of the availability of these resources and hence on the demands for the extraction of these resources from the environment.

5.5.4 Monetary asset accounts for mineral and energy resources

5.191 Asset accounts in monetary terms for mineral and energy resources are based on the availability of information on the physical stock of resources. The structure of the monetary asset accounts therefore largely parallels the structure of the physical asset accounts. The basic structure is shown in table 5.9.

Table 5.9

Monetary asset account for mineral and energy resources (currency units)

Table 5.9

Monetary asset account for mineral and energy resources (currency units)

		Type of mineral and energy resource
		(Class A: Commercially recoverable resources)
		Oil resources	Natural gas resources	Coal and peat resources	Non-metallic minerals	Metallic minerals
Opening value of stock of resources		24 463	19 059	41 366	1 668	6 893
Additions to value of stock
	Discoveries					1 667
	Upward reappraisals		3 100		391
	Reclassifications
	Total additions to stock		3 100		391	1 667
Reductions in value of stock
	Extractions	1 234	775	4 467	98	333
	Catastrophic losses
	Downward reappraisals			4 467
	Reclassifications
	Total reductions in stock	1 234	775	8 934	98	333
Revaluations		412	− 972	5 945	− 442	−4 287
Closing value of stock of resources		23 641	20 412	38 377	1 519	3 940

Table 5.9

Monetary asset account for mineral and energy resources (currency units)

		Type of mineral and energy resource
		(Class A: Commercially recoverable resources)
		Oil resources	Natural gas resources	Coal and peat resources	Non-metallic minerals	Metallic minerals
Opening value of stock of resources		24 463	19 059	41 366	1 668	6 893
Additions to value of stock
	Discoveries					1 667
	Upward reappraisals		3 100		391
	Reclassifications
	Total additions to stock		3 100		391	1 667
Reductions in value of stock
	Extractions	1 234	775	4 467	98	333
	Catastrophic losses
	Downward reappraisals			4 467
	Reclassifications
	Total reductions in stock	1 234	775	8 934	98	333
Revaluations		412	− 972	5 945	− 442	−4 287
Closing value of stock of resources		23 641	20 412	38 377	1 519	3 940

5.192 The additional entry in the monetary asset account relates to the recording of revaluations which occur due either to changes in resource prices over the accounting period or to changes to assumptions underlying the NPV approaches that are typically used to value mineral and energy resources.

5.193 While the measurement boundary extends to all known deposits in physical terms, it may not be possible to value all of these deposits in monetary terms owing to degrees of uncertainty regarding expected extraction profiles and incomes. Consequently, the resource rents for deposits in classes B and C cannot be determined with confidence. It is therefore recommended that valuation be undertaken only for deposits in class A: Commercially recoverable resources. If valuation of deposits in classes B and C is undertaken, the values for each class should be clearly distinguished. In valuing deposits in each class, it is important that the likelihood and timing of extraction be taken into account in determining expected patterns of extraction and resource rent.

Valuation of stocks of mineral and energy resources

5.194 Because there are few transactions in mineral and energy resources in situ, the valuation of these assets requires the use of NPV approaches, as introduced in section 5.4. The calculations should be undertaken at the level of an individual resource type, ideally for specific deposits of a resource, and then summed over the range of different resources in order to obtain a total value of mineral and energy resources.

5.195 Application of NPV approaches to the valuation of mineral and energy resources requires consideration of a number of specific factors, most pertaining to the estimation of the resource rent.

(a) Estimation of resource rent

5.196 In general, the resource rent will be estimated based on information about the income and operating costs for the extraction industry. The aim is to define a resource rent that is specific to a given resource type, for example, coal. In the effort to achieve this aim, several factors should be borne in mind.

5.197 Scope of operations. Consistent with the definition of quantities extracted, the scope of the income and operating costs to be considered in the derivation of resource rent should be limited to the extraction process itself and should not include any additional income earned or costs incurred through further refinement and processing of the extracted resource. The extraction process is considered to include the activity of mineral exploration and evaluation and these costs should be deducted in the derivation of resource rent.

5.198 For some mineral and energy resources, a single deposit may contain several types of resources. For example, an oil well often contains gas and, frequently, silver, lead and zinc are extracted together. In these situations, the resource rent used in the calculation of the value of the resources should be allocated by commodity. However, since data are generally available only for a single extracting unit, derivation of estimates of resource rent by type of resource based on known extraction costs for each type of resource may not be possible except by using detailed industry knowledge or general rules of thumb to allocate total extraction costs.

5.199 Price fluctuations. While operating costs for extracting resources may not fluctuate significantly, it is likely that income earned from sales of extracted resources will fluctuate. Consequently, the resource rent (which is derived as a residual), may entail a quite volatile time series. In addition, the aggregate amount of resource rent in any one period may be affected by extraction rates that in turn may be affected by one-off events, for example, mine collapse. Since the objective is to define a resource rent that can be forecast, it is recommended: first, that unit resource rents be derived by dividing total resource rent for an individual resource by quantities extracted in a period; and second, that, in the absence of other information on future resource prices, a proxy of unit resource rents (e.g., regression-based estimates and moving averages) may be used as the basis for the estimation of future resource rents. To aid interpretation of the information, all assumptions regarding future expected prices and costs should be made clear.

5.200 Treatment of mineral exploration and evaluation. Mineral exploration is undertaken in order to discover new deposits of minerals and energy resources that may be exploited commercially. Such exploration may be undertaken on own account by enterprises engaged in mining activities. Alternatively, specialized enterprises may carry out exploration either for their own purposes or for fees. The information obtained from exploration and evaluation influences the production activities of those who obtain it over a number of years. Hence, the expenditures are considered to be a form of gross fixed capital formation resulting in the production of an intellectual property product, a type of produced asset.

5.201 Mineral exploration and evaluation consists of the value of expenditures on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made.⁵⁸

5.202 These expenditures include pre-licence costs, licence and acquisition costs, appraisal costs and the costs of actual test drilling and boring, as well as the costs of aerial and other surveys, transportation costs, etc., incurred to make it possible to carry out the tests. Reevaluations may be conducted after commercial exploitation of the resource has started and the cost of these re-evaluations is also included.

5.203 Consumption of fixed capital should be calculated for this asset, potentially using average service lives similar to those used by mining or oil corporations in their own accounts.

5.204 For the purpose of estimating resource rent, it is necessary to deduct the user costs of these produced assets, including both the consumption of fixed capital and a return to the produced asset.

5.205 It is recognized that an outcome from mineral exploration is the discovery of mineral and energy resources and hence the value of mineral and energy resources on the balance sheet may, in part, be considered to be due to mineral exploration. However, following the SNA, the output of mineral exploration activity is considered to be an intellectual property product, not a natural resource. The deduction of the user costs of mineral exploration and evaluation in the derivation of resource rent ensures that the recorded value of the mineral and energy resources reflects only the value of the non-produced environmental resource.

5.206 Mine and rig decommissioning costs. Consistent with the treatment in the 2008 SNA, it is recognized that, in many cases, costs are incurred by extractors at the end of the productive life of a deposit, generally to restore the natural environment around the extraction site. These costs, where they can be reasonably anticipated or estimated, should be considered to reduce the resource rent earned by the extractor over the operating life of the extraction site, even though the actual expenditure is likely to take place at the end of the operation of the assets. Details on accounting for these costs are discussed in chapter IV.

5.207 Aggregation of the same resource over different deposits. In the discussion so far, it has been implicitly assumed that the mineral and energy resources constitute a single deposit, so that any extractions and discoveries affect the resource life of all resources available to a country. In practice, of course, this is not the case: some oilfields will be exhausted in a relatively short time frame and extractors will then move to another.

5.208 Many reappraisals apply to established fields where extraction is already in progress. Upward revisions in quantities will extend the life of the resources and the addition to value will largely reflect the change between the previous and new resource lives, since without additional investment the extraction rate is likely to remain steady.

5.209 A somewhat different situation holds for a completely new discovery. Suppose a deposit is discovered with an expected life of, say, 20 years, equal by itself to the existing reserves of a country. It is not realistic to automatically assume that the resource in the new deposit will necessarily be extracted in years 21 to 40. On the other hand, neither is it realistic to automatically assume that it will be extracted in years 1 to 20 and thus double the total extractions in these years. For these reasons, it is desirable, if at all possible, to make projections of the impacts of discoveries and reappraisals separately and, ideally, on a deposit-by-deposit basis.

(b) Extraction rate

5.210 Independently of assumptions about the resource rent, an assumption must be made about the pattern of extraction to be followed in the future. The assumption most often used is that the extraction rate will stay constant in physical terms, but there is no reason why this should necessarily be so. As resources approach extinction, there may be a decline in output as some deposits become completely exhausted if there are no new deposits to take their place. Alternatively, an enterprise could adjust the rate of extraction to give the same total income every year, or could reduce the amount extracted as the resource diminishes, assuming that the price increased at the same time. There may be information available from government or from enterprises on projected levels of extraction that could be used, although these often tend to be based on conservative projections of the likely level of new discoveries and reappraisals.

5.211 In the absence of more precise information, a reasonable assumption is that the rate of extraction is kept constant in physical terms, which, effectively, is the assumption that the efficiency of the extraction process remains steady and the stock of extraction-related produced assets remains steady in proportion to the available stock of the resource.

(c) Resource life

5.212 At any point in time, the life of a resource is equal to the stock at that time divided by the expected extraction rate. In the course of a year, the resource life will diminish by one year owing to extractions and will change by the quantity of discoveries and reappraisals during the period divided by the average extraction rate. If, on balance, there are more downward reappraisals than upward reappraisals and discoveries, then the resource life is further reduced.

5.213 The quantity of the stock used to calculate the resource life must be consistent with the quantity to be valued. Since only class A resources are to be valued, then the resource’s life must be calculated based only on class A resources and not on total known deposits for the resource (i.e., including also class B and class C resources).

Valuation of flows of mineral and energy resources

(a) Value of discoveries, reappraisals, extractions, depletion and catastrophic losses

5.214 The value of additions and reductions in the stock should be calculated using the average prices of the resource in situ over the period multiplied by the quantity discovered, reappraised, extracted, depleted or lost. This is consistent with the approach outlined in section 5.4 and explained in detail in annex A5.1.

(b) Acquisitions and disposals of mineral and energy resources

5.215 These transactions are likely to be rare but when they do occur they should be recorded. Estimates of the value of these transactions should take into account the costs of ownership transfer which should be recorded as the purchase of a produced asset: costs of ownership transfer on non-produced assets. On the balance sheet, this produced asset is considered to be incorporated into the value of the underlying mineral and energy resource.⁵⁹

5.5.5 Other issues in the measurement of mineral and energy resources

Allocation of income from the extraction of mineral and energy resources

5.216 A general characteristic of mineral and energy resources is that the income earned from the extraction of the resources is shared between economic units. Most commonly, part of the income accrues to the extractor of the resources in the form of operating surplus and part of the income accrues to the government in the form of rent. The government earns this income, on behalf of the society, by allowing access to the resources.

5.217 Depending on the nature of the arrangements, often both the extractor and the government will have substantial assets in the form of expected future incomes from the extraction of the resources. Following the description in section 5.4, the expected incomes (which are equal in total to the resource rent) can be separated into two components: depletion and net return to environmental assets. Changes in the value of the assets for each unit will reflect declines due to depletion, while the return to environmental assets will be reflected in the generation and allocation of income accounts.

5.218 Within the SEEA, a specific objective is to show, within the general national accounts framework, how the incomes earned from the extraction of natural resources are impacted by the cost of depletion. In particular, the SEEA aims to define depletion-adjusted estimates of operating surplus, value added and saving at both an economy-wide level and for institutional sectors. Since there is only one amount of depletion for a given mineral and energy resource, it must be allocated between the relevant units within the accounting framework.⁶⁰

5.219 In the circumstances outlined, accounting for these incomes and the associated depletion is problematic in the standard national accounts framework for two main reasons. First, the income flows are recorded in different accounts with the value added and operating surplus of the extractor recorded in the production and generation of income accounts, and the rent earned by the government recorded in the allocation of primary income account. Second, no cost of depletion is recorded against the income earned in the structure of the standard accounts (in contrast with the cost of produced assets, which is recorded as consumption of fixed capital). Instead, in the SNA, depletion is recorded in the other changes in the volume of assets account.⁶¹

5.220 The following accounting treatment is recommended for the SEEA:

(a) Record the total cost of depletion in the production and generation of income accounts of the extractor as deductions from value added and operating surplus. This ensures that the analysis of extractive activity and economy-wide aggregates of operating surplus and value added fully account for the cost of depletion. Further, since the government has no operating surplus in regard to the extraction activity, not recording depletion in the production account of the government ensures that estimates of government output (which are calculated based on input costs) are not increased owing to depletion;
(b) Record the payment of rent from the extractor to the government in the allocation of primary income account. This entry is the standard national accounts entry;
(c) Record an entry, entitled “Depletion borne by government”, in the allocation of primary income account to reflect (i) that the rent earned by the government includes the government’s share of total depletion which must be deducted to measure the depletion-adjusted saving of government; and (ii) that the depletion-adjusted saving of the extractor would be understated if the total amount of depletion were deducted in the extractor’s accounts. Another way of viewing this entry is to consider that the rent earned by government must be recorded net of depletion (i.e., depletion-adjusted rent is derived) in the derivation of depletion-adjusted saving for government.

5.221 These entries are shown in table 5.10. Importantly, they ensure that the sum of the institutional sector entries for depletion adjusted aggregates is equal to the same aggregates calculated at the economy-wide level.

Table 5.10

Entries for allocating the income and depletion of mineral and energy resources

Table 5.10

Entries for allocating the income and depletion of mineral and energy resources

		Government		Extractor
Transaction		Resources	Uses	Resources	Uses
Production account
	Output—sales from extraction			100
	Intermediate consumption				50
	Gross value added			50
	Consumption of fixed capital			−15
	Net value added			35
	Depletion			−6
	Depletion-adjusted net value added			29
Generation of income account
	Compensation of employees				20
	Gross operating surplus			30
	Consumption of fixed capital			−15
	Net operating surplus			15
	Depletion			−6
	Depletion-adjusted operating surplus			9
Allocation of primary income account
	Depletion-adjusted operating surplus
	Rent	5			5
	Depletion borne by government		3	3
	Depletion-adjusted saving		2		7

Table 5.10

Entries for allocating the income and depletion of mineral and energy resources

		Government		Extractor
Transaction		Resources	Uses	Resources	Uses
Production account
	Output—sales from extraction			100
	Intermediate consumption				50
	Gross value added			50
	Consumption of fixed capital			−15
	Net value added			35
	Depletion			−6
	Depletion-adjusted net value added			29
Generation of income account
	Compensation of employees				20
	Gross operating surplus			30
	Consumption of fixed capital			−15
	Net operating surplus			15
	Depletion			−6
	Depletion-adjusted operating surplus			9
Allocation of primary income account
	Depletion-adjusted operating surplus
	Rent	5			5
	Depletion borne by government		3	3
	Depletion-adjusted saving		2		7

5.222 The values of depletion shown for each unit should be consistent with the change in net worth of each unit in relation to the mineral and energy resources (assuming no other changes in the stock of resources such as discoveries). Thus, if government collects a 40 per cent share of the resource rent (through payment of rent by the extractor), then the depletion borne by government will be 40 per cent of the total measured depletion. In making this calculation, it is assumed that the government’s share of future resource rent remains constant. If this share is expected to change in the future, then the rent earned and depletion borne by government should be adjusted to reflect these changes.

5.223 The associated balance-sheet entries may be made in different ways depending on the nature of the analysis and on the institutional arrangements within a country. In any presentation, the allocation of assets and the resulting estimates of institutional sector net worth should reflect the expected future income streams for each unit from the extraction of the resources.

5.224 This approach to the allocation of income and depletion from the extraction of mineral and energy resources can also be applied in compiling accounts for other natural resources subject to depletion.

Treatment of energy from renewable sources

5.225 Energy from renewable sources is an important source of energy in many countries and, increasingly, is being seen as an alternative source of energy for those countries that have used energy primarily from non-renewable sources. Energy from renewable sources can be produced from many sources, including but not limited to, wind, hydropower (including run-of-river), solar and geothermal. A complete listing of renewable sources recognized in the SEEA is included in chapter III, table 3.2.

5.226 Renewable sources cannot be exhausted in a manner akin to fossil energy resources and, unlike biological resources, they are not regenerated. Thus, in an accounting sense, there is no physical stock of renewable sources of energy that can be used up or sold.

5.227 Therefore, the measurement scope of the SEEA in relation to these sources of energy relates to the amount of energy that is produced given current investment in relevant produced assets and associated technology. Excluded from scope are potential amounts of energy that could be produced from renewable sources if investment and technology were to increase in the future.

5.228 The presence of investments in renewable energy capture facilities and equipment affects the value of the land associated with those facilities. For example, land in a particularly windy area would be priced higher than similar land in a non-windy area, if investment was made in constructing windmills to capture the energy from the wind. Thus, opportunities to earn resource rent based on sources like wind, solar and geothermal should be expected to be reflected in the price of land.

5.229 In situations where the only income generated from the relevant land is from the generation of energy from renewable sources, the value of the land will, in theory, be equal to the net present value of the future income stream. However, it is also possible that other income is earned from the same area, for example, agriculture may be engaged in using wind farms. In these cases, the valuation of the land must also take into account the income generated from these other activities. Nonetheless, where possible, the value of the land should be partitioned to provide an estimate of the value of the land that is attributable to income arising from the generation of energy from renewable sources. The valuation of land with respect to energy from renewable sources is also discussed in section 5.6.

5.230 Special mention must be made of the valuation of future income streams from hydropower. In this case, it is more relevant to consider the income stream in relation to a stock of water rather than to an area of land. Thus, in the case of hydropower, it is the value of the water resource that should be partitioned to provide an estimate of the value of the water resource that is attributable to income arising from the generation of renewable energy from hydropower. The valuation of water resources with respect to hydropower is also discussed in section 5.11.

5.231 It is recognized that some investments in the capture of energy from renewable sources take place offshore (e.g., wind farms in the sea). By convention, the value of income streams from these sources are attributed to the value of land.

5.232 Generally, since the renewable sources themselves are not sold on markets, it is necessary to use NPV approaches for valuation purposes. In undertaking such valuations, all costs should be deducted, including the costs of fixed assets used in the capture of energy.

5.233 These accounting treatments do not apply in the case of energy sourced from timber and other biomass resources. Unlike the renewable sources of energy listed above, a stock of timber resources can be observed and measured. In concept, the volume and value of timber resources (considered in detail in sect. 5.8) encompasses all possible uses of the timber, including its use as an energy source. The recording of flows of energy from biomass is discussed further in section 3.4.

5.234 The various asset values related to the generation of energy may be combined to provide an overall value of environmental assets associated with energy production. Such an aggregate may include values of mineral and energy resources (e.g., coal, oil and natural gas), the value of land attributable to renewable sources of energy (e.g., wind, solar and geothermal), the value of timber resources used for energy, and the value of water resources used for hydropower.

5.6 Asset accounts for land

5.6.1 Introduction

5.235 Land is central to economic and environmental accounting. Some of the issues that can be considered in the context of land accounts, beyond an assessment of the ownership and use of land as part of economic production, include the impacts of urbanization, the intensity of crop and animal production, afforestation and deforestation, the use of water resources, and other direct and indirect uses of land.

5.236 While broad assessment of the changing shares of different land use and land cover within a country may provide useful indicators of change, increasingly the power of land accounts is reflected in the use of mapping technologies that can pinpoint areas of change. The classifications and structures outlined in the present section are designed to support work of this type.

5.237 Land also constitutes an important component in the assessment of national and institutional sector wealth. Land is bought and sold in combination with physical characteristics (buildings, soil, trees) and the composite value will incorporate a value for the space itself (location) as well as a value for the physical characteristics.

5.238 The present section is structured to define the scope of land accounts and define two primary aspects of land for environmental accounting purposes: land use and land cover. Categories and classes for the organization of data on land use and land cover are presented followed by a description of land accounts in physical terms. A particular focus is placed on physical land accounts for forest and other wooded land which complement the asset accounts for timber resources discussed in section 5.8. Land accounts in monetary terms are described next. The potential extension of land accounts towards ecosystem accounts building on the definitions of the land cover classes is discussed at the end of this section.

5.6.2 Definition and classification of land

5.239 Land is a unique environmental asset that delineates the space in which economic activities and environmental processes take place and within which environmental assets and economic assets are located.

5.240 While the term “land” is commonly meant to refer only to terrestrial areas, in the SEEA, the term may also apply to areas covered by water. Thus, the SEEA land accounts encompass areas covered by inland water resources such as rivers and lakes and, in certain applications, the land accounts may be extended to include areas of coastal water and a country’s exclusive economic zone (EEZ). Together, the areas of land, inland water and coastal water constitute the area of a country. The total country area should be defined as the area enclosed by all inland borders and, if applicable, the normal baselines (low-water mark) and straight baselines on the seaward side.⁶²

5.241 Land area is analysed in many different ways. Most often, statistical analysis will be conducted by compiling data for administratively defined regions within a country. From an economic viewpoint, there may be interest in determining the areas of land owned by different institutional sectors, such as areas of government land, and land used by different industries.

5.242 From the perspective of environmental and economic accounting, there are several other factors that are of interest including topography (e.g., mountains and plains), elevation and land zoning (e.g., residential, industrial and conservation). The additional foci in the SEEA are land use and land cover. Classifications for land use and land cover are described in this section. Particularly for statistics organized on land cover, traditional administrative boundaries become less relevant while the relationship among the different features of the environment and the interaction between these features and the economy and society assume greater significance.

5.243 The patterns of countries will exhibit considerable difference in respect of land use and land cover types. For example, forest land may be of major or minor importance for a particular country and some land types, for example, deserts, may not be present in a particular country. Consequently, the categorizations presented in the SEEA may require the addition of more details for national purposes in order that particular features may be highlighted and information requirements may be met.

5.244 Of particular interest in respect of statistics on land use and land cover is the means by which data are collected. Broadly, two methods are used; field surveys and satellite images. Field surveys are important, as they can provide a high level of specificity regarding the land cover and, in particular, the land use in a particular area. Satellite images are also important, as they enable a broader assessment of all areas in a country and, over time, more detailed resolutions of the images are permitting new forms of analysis. Increasingly, data based on combinations of field surveys and satellite images are being compiled. In the SEEA, the classifications and accounting structures are defined and described independently of the means by which data are collected. However, in practice, the type of data and the level of detail that can be compiled may depend on the means by which data have been collected.

Land use classification

5.245 Estimates of area classified by type of land use may be of considerable interest in understanding issues of agricultural production, forestry management and the spread of built-up areas. Additional benefit is gained through analysis of changes in land use over time.

5.246 Land use reflects both (a) the activities undertaken and (b) the institutional arrangements put in place for a given area for the purposes of economic production, or the maintenance and restoration of environmental functions. In effect, “use” of an area implies the existence of some human intervention or management. Land in use therefore includes areas, for example, protected areas, that are under the active management of institutional units of a country for the purpose of excluding economic or human activity from that area.

5.247 Not all land in a country is used following the definition above. Some areas are “not in use”, although they may have a use in supporting ecosystems and biodiversity. In order to provide a complete accounting for land use within a country, both land in use and land not in use must be included.

5.248 The scope of land use accounts comprises areas of land and inland water. For some analytical purposes, and depending on the composition of a country’s economic territory, the measurement boundary for land use may be extended to include coastal waters and areas within a country’s EEZ.⁶³ Such a broader boundary is likely to be of relevance in the management of fishing rights, offshore mining and exploration, the protection of coral reefs, and the understanding of other marine issues. Particularly in cases where the area of a country’s coastal water and EEZ constitutes a large part of its economic territory, this extension of the analysis of land use is appropriate.

5.249 The SEEA land use classification is presented in table 5.11. At its highest level, it is classified by the primary types of surfaces: land and inland waters. The classification by type of surface reflects the primary use of the classification as a means of comparing alternative uses. Generally, the types of uses of inland water areas and land areas are quite distinct; and these different areas are likely to be managed in different ways.

Table 5.11

Land use classification

5.250 For land, the classification consists of seven main categories of land use: agriculture, forestry, land used for aquaculture, use of built-up and related areas, land used for maintenance and restoration of environmental functions, other uses of land n.e.c. (not elsewhere classified), and land not in use. For inland waters, there are four main categories: inland waters used for aquaculture or holding facilities; inland waters used for maintenance and restoration of environmental functions; other uses of inland waters n.e.c.; and inland waters not in use.

5.251 Detailed descriptions for subcategories and classes of the land use classification are presented in annex I, including classes relevant for extended analysis of coastal waters and the EEZ. These descriptions provide a starting point for the compilation of relevant statistics. However, further testing and development of these classes are required. This work is part of the SEEA Central Framework research agenda (see annex 2).

5.252 Within each type of area, the classification comprises various categories of use. The categories are not defined on the basis of economic activity but rather pursuant to consideration of the general purpose and role of the user of the area. In many cases, this will align with the scope of the economic activity; but in some cases, particularly for forestry, the area considered to be in use may be larger than the area being used for economic production.

5.253 At the same time, for areas of forest not intended to be used for economic production (e.g., strictly demarcated nature reserves where there is no intention to harvest timber), their primary use is more likely to be maintenance and restoration of environmental functions or they may constitute land not in use, depending on the relevant designations associated with the area.

5.254 In some cases, an area may support multiple uses at the same time or, over an accounting period, the same area may have different uses at different times, and there may be interest in recording all uses for particular areas. In general, however, the principle of primary or dominant use should be employed to ensure that all of the area has been classified.

5.255 As there may be strong analytical interest in understanding the range of multiple uses, compilers should take this interest into account in developing accounts for land. In such cases, it may be possible to classify smaller areas that are used for particular purposes. For example, if trees are planted in defined areas on a farm to reduce water erosion or improve water quality (e.g., on river banks), then, instead of the entire farm area’s being assigned to agriculture, the smaller area could be classified as an area used for the maintenance and restoration of environmental functions.

5.256 In some areas, particularly areas covered by water, there may be no clearly defined use for a given area; hence, a primary or dominant use will not be identifiable. For example, areas within harbours may be used to provide space for recreation, passenger and freight transport, and fishing. In order for an area to be defined as an area in use, there must be a significant degree of continuity in the use of the area. In general, areas of water will be considered “used” only where they have been clearly zoned or delimited for a specific use.

Land cover classes

5.257 Land cover refers to the observed physical and biological cover of the Earth’s surface and includes natural vegetation and abiotic (non-living) surfaces. At its most basic level, it comprises all of the individual features that cover the area within a country. For the purposes of land cover statistics, the relevant country area includes only land and inland waters. The area of coastal waters is excluded.

5.258 The Food and Agriculture Organization of the United Nations (FAO) has developed an international standard classification system, the Land Cover Classification System, version 3 (LCCS 3) (FAO, 2009),^64,65 which can be used to systematically record the biophysical characteristics of all areas of land within any territory.

5.259 Current land cover is a function of natural changes in the environment and of previous and current land use, particularly in agricultural and forestry areas. Although characteristics of vegetation (such as whether it is natural or cultivated) influence the land cover within an area, they are not inherent features of the land cover. Thus, a clear and systematic description of classes of land cover allows the land cover classification to be compared with that for types of land use, while maintaining pure land cover criteria. The FAO LCCS provides a theoretical basis for this approach.

5.260 There is an enormous number of different land cover features that can be created with the LCCS approach. For the purposes of standardization and harmonization across statistical data sets, a classification comprising 14 classes has been established, as presented in table 5.12.

Table 5.12

Land cover classification

Table 5.12

Land cover classification

	Category
1	Artificial surfaces (including urban and associated areas)
2	Herbaceous crops
3	Woody crops
4	Multiple or layered crops
5	Grassland
6	Tree-covered areas
7	Mangroves
8	Shrub-covered areas
9	Shrubs and/or herbaceous vegetation, aquatic or regularly flooded
10	Sparsely natural vegetated areas
11	Terrestrial barren land
12	Permanent snow and glaciers
13	Inland water bodies
14	Coastal water bodies and intertidal areas

Table 5.12

Land cover classification

	Category
1	Artificial surfaces (including urban and associated areas)
2	Herbaceous crops
3	Woody crops
4	Multiple or layered crops
5	Grassland
6	Tree-covered areas
7	Mangroves
8	Shrub-covered areas
9	Shrubs and/or herbaceous vegetation, aquatic or regularly flooded
10	Sparsely natural vegetated areas
11	Terrestrial barren land
12	Permanent snow and glaciers
13	Inland water bodies
14	Coastal water bodies and intertidal areas

5.261 The 14 classes constitute a comprehensive set of land cover types with clear boundaries based on definitions from the LCCS that are mutually exclusive and unambiguous. This land cover classification can be used at all scales, independently of the method of observation, thus allowing cross-referencing of local and regional maps with continental and global maps without loss of information.

5.262 The land cover classification is complemented with a set of basic rules of classification to allow translation of national data sets. These rules are set out in annex I. The rules reflect the logical structure of the LCCS and determine, as the first step, the main object (the “basic object”) to be considered when undertaking a translation of data. The basic objects are simple and intuitively discernible elements of land cover (such as trees, shrubs, buildings, etc.). The descriptions are supplemented by the inclusion of information on “properties” (such as height, cover, etc.) and “characteristics” (natural, cultivated, etc.) of the basic objects. Extended descriptions of the classes are also provided in annex I.⁶⁶

5.6.3 Physical asset accounts for land

5.263 The objective of land accounts in physical terms is to describe the area of land and changes in the area of land over an accounting period. A range of different physical land accounts can be envisaged—for example, accounts for land use, land cover or landownership (by industry or institutional sector). The measurement units of land in physical terms are units of area such as hectares and square metres.

5.264 Generally, a country’s total area of land will remain unchanged from one period to the next. Hence, the changes between the opening and closing stock of land in physical terms will primarily encompass changes between different classes of land, for example, classes relating to landownership, land use or land cover.

5.265 However, there are situations where the area of land for a country may change. It may increase, for example, owing to reclamation of land through the construction of dykes and other barriers. It may also decrease, for example, owing to land subsidence or higher water levels.

5.266 Further, changes in the total area of land may occur owing to political factors. For example, the total area may increase or decrease as a result of war and associated events; in addition, commonly, there are areas of disputed territory, which can be responsible for change. The area that is within scope of land cover and land use statistics should be clearly defined to prevent confusion.

Physical accounts for land cover

5.267 In the first instance, it is recommended that countries develop estimates of the total land area classified by land cover at the beginning and the end of each accounting period. This is because data on land cover from remote sensing (either aerial photography or satellite images) are usually available and require less interpretation than land use. It is noted that land cover and land use are interrelated. For example, agricultural production is closely aligned to crop area. However, while land use and land cover are closely related, this is not always the case. For example, tree-covered areas can be used for forestry, or for the maintenance and restoration of environmental functions, or may not be used at all (constituting “land not in use”).

5.268 With data structured in an accounting format, it is possible to link land cover to land use, including through the presentation of matrices showing the changes in land cover and land use over an accounting period. In assessing land cover and land use change, it may be useful to determine the proportion of the opening stock of land whose cover or use has remained unchanged. To undertake this type of analysis, the data must be based on spatially referenced data sources.

Scope of land cover accounts

5.269 The land area of a country defines the scope of the land cover account. For most purposes this will be the area of land and associated inland waters, as defined in the land cover classification shown in table 5.12. The account could be extended to coastal water bodies and intertidal areas.

5.270 A physical account for land cover is presented in table 5.13. It shows the opening and closing areas for different land cover types and various additions and reductions in those areas over the accounting period. The different additions and reductions are explained in the following paragraphs.

Table 5.13

Physical account for land cover (hectares)

Note: Crops include herbaceous crops, woody crops, and multiple or layered crops.

Table 5.13

Physical account for land cover (hectares)

		Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Permanent snow, glaciers and inland water bodies	Coastal water and inter-tidal areas
Opening stock of resources		12 292.5	445 431.0	106 180.5	338 514.0	214.5	66 475.5	73.5	1 966.5	12 949.5	19 351.5
Additions to stock
	Managed expansion	183.0	9 357.0
	Natural expansion			64.5							1.5
	Upward reappraisals			4.5
	Total additions to stock	183.0	9 357.0	69.0							1.5
Reductions in stock
	Managed regression		147.0	4 704.0	3 118.5	9.0	1 560.0	1.5
	Natural regression					1.5	64.5
	Downward reappraisals						4.5
	Total reductions in stock		147.0	4 704.0	3 118.5	10.5	1 629.0	1.5
Closing stock		12 475.5	454 641.0	101 545.5	335 395.5	204.0	64 846.5	72.0	1 966.5	12 949.5	19 353.0

Note: Crops include herbaceous crops, woody crops, and multiple or layered crops.

Table 5.13

Physical account for land cover (hectares)

		Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Permanent snow, glaciers and inland water bodies	Coastal water and inter-tidal areas
Opening stock of resources		12 292.5	445 431.0	106 180.5	338 514.0	214.5	66 475.5	73.5	1 966.5	12 949.5	19 351.5
Additions to stock
	Managed expansion	183.0	9 357.0
	Natural expansion			64.5							1.5
	Upward reappraisals			4.5
	Total additions to stock	183.0	9 357.0	69.0							1.5
Reductions in stock
	Managed regression		147.0	4 704.0	3 118.5	9.0	1 560.0	1.5
	Natural regression					1.5	64.5
	Downward reappraisals						4.5
	Total reductions in stock		147.0	4 704.0	3 118.5	10.5	1 629.0	1.5
Closing stock		12 475.5	454 641.0	101 545.5	335 395.5	204.0	64 846.5	72.0	1 966.5	12 949.5	19 353.0

Note: Crops include herbaceous crops, woody crops, and multiple or layered crops.

5.271 Managed expansion represents an increase in the area of a land cover type due to human activity. For example, crop areas may be converted to tree-covered areas as a result of silvicultural measures such as planting and seeding, or tree-covered areas may be converted to crop or grassland following tree clearing. Generally, the managed expansion of one land cover type will also lead to the recording of a matching entry for managed regression of the reducing land cover types. A matching entry is not recorded if there is a managed expansion in the total area of land within scope of the account (e.g., in the case of land reclamation).

5.272 Natural expansion is an increase in area resulting from natural processes, including seeding, sprouting, suckering or layering. In the case of sparse natural vegetation and terrestrial barren land, the natural loss of vegetation from other vegetation types would lead to increases in these areas. Changes in the extent of permanent snow, glaciers and inland water bodies can also be due to natural variation, in rainfall, for example. Generally, the natural expansion of one land cover type will also lead to the recording of a matching entry for natural regression of the reducing land cover types. A matching entry is not recorded if there is a natural expansion in the total area of land within scope of the account (e.g., in the case where land is created through volcanic activity or landslide).

5.273 Managed regression represents a decrease in the area of a land cover type due to human activity. As for managed expansion, a matching entry is recorded in all cases of managed regression, except in cases where there is a managed regression in the total land area.

5.274 Natural regression should be recorded when the area of a land cover type reduces for natural reasons. As for natural expansion, a matching entry is recorded in all cases of natural regression, except in cases where there is a natural regression in the total land area (e.g., the loss of land due to erosion by the sea).

5.275 Reappraisals can be upward or downward and can reflect changes due to the use of updated information that permits a reassessment of the size of the area of different land covers, for example, from new satellite imagery or interpretation of satellite imagery. The use of updated information may require the revision of previous estimates to ensure a continuity of time series.

5.276 The land cover change matrix set out in table 5.14 shows land cover at two different points in time. It shows the area of different land cover types at the beginning of the reference period (opening area), the increases and decreases of this area according to the land cover type it was converted from (in the case of increases) or the type it was converted to (in the case of decreases) and, finally, the area covered by different land cover types at the end of the reference period (closing area).

Table 5.14

Land cover change matrix (hectares)

Note: Including herbaceous crops, woody crops and multiple or layered crops.

Table 5.14

Land cover change matrix (hectares)

			Increases (positive numbers) and decreases (negative numbers) from other land covers
Land cover		Opening area	Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Terrestrial barren land	Permanent snow, glaciers and inland water bodies	Coastal water and intertidal areas	Net change (increase-decrease)	Closing area
	Artificial surfaces	12 292.5		147.0	27.0		9.0							183.0	12 475.5
	Crops	445 431.0	−147.0		4 677.0	3 118.5		1 560.0	1.5					9 210.0	454 641.0
	Grassland	106 180.5	− 27.0	− 4 677.0				69.0						− 4 635.0	101 545.5
	Tree-covered area	338 514.0		− 3 118.5										− 3 118.5	335 395.5
	Mangroves	214.5	−9.0										−1.5	−10.5	204.0
	Shrub-covered area	66 475.5		−1 560.0	−69.0									−1 629.0	64 846.5
	Regularly flooded areas	73.5		−1.5										−1.5	72.0
	Sparse natural vegetated areas	1 966.5													1 966.5
	Terrestrial barren land
	Permanent snow, glaciers and inland water bodies	12 949.5													12 949.5
	Coastal water and intertidal areas	19 351.5					1.5							1.5	19 353.0

Note: Including herbaceous crops, woody crops and multiple or layered crops.

Table 5.14

Land cover change matrix (hectares)

			Increases (positive numbers) and decreases (negative numbers) from other land covers
Land cover		Opening area	Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Terrestrial barren land	Permanent snow, glaciers and inland water bodies	Coastal water and intertidal areas	Net change (increase-decrease)	Closing area
	Artificial surfaces	12 292.5		147.0	27.0		9.0							183.0	12 475.5
	Crops	445 431.0	−147.0		4 677.0	3 118.5		1 560.0	1.5					9 210.0	454 641.0
	Grassland	106 180.5	− 27.0	− 4 677.0				69.0						− 4 635.0	101 545.5
	Tree-covered area	338 514.0		− 3 118.5										− 3 118.5	335 395.5
	Mangroves	214.5	−9.0										−1.5	−10.5	204.0
	Shrub-covered area	66 475.5		−1 560.0	−69.0									−1 629.0	64 846.5
	Regularly flooded areas	73.5		−1.5										−1.5	72.0
	Sparse natural vegetated areas	1 966.5													1 966.5
	Terrestrial barren land
	Permanent snow, glaciers and inland water bodies	12 949.5													12 949.5
	Coastal water and intertidal areas	19 351.5					1.5							1.5	19 353.0

Note: Including herbaceous crops, woody crops and multiple or layered crops.

5.277 Table 5.14 shows net changes, which may mask important information. For example, when natural forest is lost in one place but plantation forest is added elsewhere, no net change of tree-covered area would be shown. Similarly, when high-quality agricultural land is converted into built-up land, but, at the same time, less productive agricultural land is added through deforestation, total agricultural land cover will not change. Where these phenomenon are relevant, the format of table 5.14 can be extended to show increases and decreases in separate tables and thus allow more detailed analysis.

5.278 An additional step in the analysis of land cover change might be the construction of tables showing reasons for land cover change. For example, changes in land cover might be classified to show whether the change relates to urban growth and development of infrastructure (through conversion of crops or tree-covered area), intensification and industrialization of agriculture (through conversion of family farming and mosaic landscapes), extension of agriculture in general (through conversion of tree-covered land), drainage of regularly flooded areas (wetlands) for crops or artificial surfaces (urban land), deforestation (of tree-covered areas for timber production or agriculture development), and desertification (at the expense of formerly vegetated areas).

5.279 The structure of land use accounts could be similar to that of land cover accounts. An example of land use accounts for forest and other wooded land is contained in the next subsection.

5.6.4 Physical asset accounts for forest and other wooded land

Introduction

5.280 For particular land uses or types of land cover, it is also possible to construct basic physical asset accounts as established for other resources. The most developed example is for forest and other wooded land. Often, the compilation of physical asset accounts for forest and other wooded land is undertaken in conjunction with the compilation of asset accounts for timber resources as described in section 5.8. However, in principle, accounts for forest and other wooded land are a type of land account.

5.281 A key distinction between the physical asset account for forest and other wooded land and the asset account for timber resources is that the scope of timber resources is not limited to timber from forest and other wooded land. Thus, for example, depending on their significance, orchards would fall within scope of timber resources but are not considered areas of forest and other wooded land.

5.282 Another key distinction is that the asset account for timber resources is focused on the volume of timber resources rather than on the area of land covered by forests and other wooded land. Thus, the focus of the forest and other wooded land account is on changes in the area of land, for example, due to deforestation and afforestation, rather than on the quantity and value of timber removed from areas of forest and other wooded land.

5.283 Notwithstanding these clear distinctions in purpose and scope, there are strong connections between asset accounts for timber resources and asset accounts for forest and other wooded land. This is because the majority of timber resources are found in areas of forest and other wooded land. Consequently, there are links between the two sets of accounts which should be considered in their compilation.

Scope of the forest and other wooded land account

5.284 The scope of the forest and other wooded land account is defined consistent with the definition of this land in the FAO Global Forest Resources Assessment 2010.⁶⁷ Forest land is defined as land spanning more than 0.5 hectares with trees higher than 5 metres and a canopy cover of more than 10 per cent, or trees able to reach these thresholds in situ. The scope of the forest and other wooded land account follows a land use perspective. Thus, it does not include land that is predominantly under agricultural or urban land use and is not strictly defined on the basis of changes in tree-covered areas.

5.285 Forest land is classified according to different types of forest. The primary distinction is between naturally regenerated forest and planted forest. Naturally regenerated forest is forest that is predominantly composed of trees established through natural regeneration. In this context, “predominantly” means that the trees established through natural regeneration are expected to constitute more than 50 per cent of the growing stock at maturity.

5.286 Two broad types of naturally regenerated forest are distinguished:

(a) Primary forest is naturally regenerated forest of native species, where there are no clearly visible indications of human activities and the ecological processes are not significantly disturbed. Key characteristics of primary forests are that: (a) they show natural forest dynamics, such as natural tree species composition, occurrence of dead wood, natural age structure and natural regeneration processes; (b) the area is large enough to maintain its natural characteristics; and (c) there has been no known significant human intervention or the last significant human intervention occurred long enough in the past to have allowed the natural species composition and processes to have become re-established;
(b) Other naturally regenerated forest is naturally regenerated forest with clearly visible indications of human activities. These include: (a) selectively logged-over areas, areas regenerating following agricultural land use and areas recovering from human-induced fires, etc.; (b) forests where it is not possible to distinguish whether they are planted or naturally regenerated; (c) forests with a mix of naturally regenerated trees and planted/seeded trees and where the naturally regenerated trees are expected to constitute more than 50 per cent of the growing stock at stand maturity; (d) coppice from trees established through natural regeneration; and (e) naturally regenerated trees of introduced species.

5.287 Planted forests are predominantly composed of trees established through planting and/or deliberate seeding. Planted/seeded trees are expected to constitute more than 50 per cent of the growing stock at maturity, including coppice from trees that were originally planted or seeded.

5.288 Other wooded land is land not classified as forest land, spanning more than 0.5 hectares; with trees higher than 5 metres and a canopy cover of 5-10 per cent, or trees able to reach these thresholds in situ; or with a combined cover of shrubs, bushes and trees above 10 per cent. It does not include land that is predominantly under agricultural or urban land use.

5.289 Where possible, accounts should be compiled reflecting these distinctions between types of forest and other wooded land. In addition, countries may be interested in compiling accounts based on the total area of different species of tree.

5.290 A physical asset account for forests is presented in table 5.15. It shows the opening and closing stock by area and changes in the area of forest and other wooded land. The area of forest and other wooded land should be measured inclusive of relevant access roads, rivers and streams.

Table 5.15

Physical asset account for forest and other wooded land (hectares)

Table 5.15

Physical asset account for forest and other wooded land (hectares)

		Type of forest and other wooded land
		Primary forest	Other naturally regenerated forest	Planted forest	Other wooded land	Total
Opening stock of forest and other wooded land		20	100	150	130	400
Additions to stock
	Afforestation		2	5		7
	Natural expansion		3			3
	Total additions to stock		5	5		10
Reductions in stock
	Deforestation	2	10		5	17
	Natural regression				3	3
	Total reductions in stock	2	10	0	8	20
Closing stock of forest and other wooded land		18	95	155	122	390

Table 5.15

Physical asset account for forest and other wooded land (hectares)

		Type of forest and other wooded land
		Primary forest	Other naturally regenerated forest	Planted forest	Other wooded land	Total
Opening stock of forest and other wooded land		20	100	150	130	400
Additions to stock
	Afforestation		2	5		7
	Natural expansion		3			3
	Total additions to stock		5	5		10
Reductions in stock
	Deforestation	2	10		5	17
	Natural regression				3	3
	Total reductions in stock	2	10	0	8	20
Closing stock of forest and other wooded land		18	95	155	122	390

Additions to and reductions in the stock

5.291 Afforestation represents an increase in the stock of forest and other wooded land either due to the establishment of new forest on land that was previously not classified as forest land, or as a result of silvicultural measures such as planting and seeding. In particular, land previously classified as other wooded land may be converted to forest land as a result of silvicultural measures.

5.292 Natural expansion is an increase in area resulting from natural seeding, sprouting, suckering or layering. Where the expansion is into the area of another type of forest or other wooded land (e.g., natural expansion of other naturally regenerated forest into other wooded land), a corresponding entry for natural regression should be recorded.

5.293 Deforestation represents a decrease in the stock of forest and other wooded land due to the complete loss of tree cover and transfer of forest land to other uses (e.g., use as agricultural land, land under buildings or roads) or to no identifiable use. Removals of standing timber do not lead to decreases in forest and other wooded land if the use of the land does not change after felling.

5.294 Natural regression should be recorded when the stock of forest and other wooded land reduces for natural reasons. An entry for natural regression should be recorded together with an entry for natural expansion when there are natural changes in the areas of different types of forest and other wooded land (e.g., natural expansion of other naturally regenerated forest into other wooded land—i.e., a natural regression of other wooded land).

5.295 In the next subsection, monetary asset accounts for forest and other wooded land are not separately described but are covered as part of the monetary asset accounts for land.

5.6.5 Monetary asset accounts for land

5.296 The monetary asset account for land follows the structure outlined in table 5.16. Changes in the overall value of land will relate primarily to the revaluation of land, since the total area of land will remain largely unchanged. However, since at a more detailed level there will be changes in the purposes for which land is used (often due to purchases and sales of land between economic units), there are likely to be notable changes in the value of different types of land due to transactions and reclassifications.

Table 5.16

Monetary asset account for land (currency units)

Table 5.16

Monetary asset account for land (currency units)

		Type of land use
		Agriculture	Forestry	Land used for aquaculture	Use of built-up and related areas	Land used for maintenance and restoration of environmental functions	Other uses of land n.e.c.	Land not in use	Inland water	Total
Opening value of stock of land		420 000	187 500		386 000	2 000				995 500
Additions to stock
	Acquisitions of land	3 500								3 500
	Reclassifications		200		2 500					2 700
	Total additions to stock	3 500	200		2 500					6 200
Reductions in stock
	Disposals of land		3 500							3 500
	Reclassifications		1 250			200				1 450
	Total reductions in stock		4 750			200				4 950
Revaluations		18 250	15 350		65 000					98 600
Closing value of stock of land		441 750	198 300		453 500	1 800				1 095 350

Table 5.16

Monetary asset account for land (currency units)

		Type of land use
		Agriculture	Forestry	Land used for aquaculture	Use of built-up and related areas	Land used for maintenance and restoration of environmental functions	Other uses of land n.e.c.	Land not in use	Inland water	Total
Opening value of stock of land		420 000	187 500		386 000	2 000				995 500
Additions to stock
	Acquisitions of land	3 500								3 500
	Reclassifications		200		2 500					2 700
	Total additions to stock	3 500	200		2 500					6 200
Reductions in stock
	Disposals of land		3 500							3 500
	Reclassifications		1 250			200				1 450
	Total reductions in stock		4 750			200				4 950
Revaluations		18 250	15 350		65 000					98 600
Closing value of stock of land		441 750	198 300		453 500	1 800				1 095 350

5.297 Table 5.16 shows the value of land by type of land use. It may also be of interest to estimate the total value of land by institutional sector of ownership. In this case, transactions and reclassifications between sectors are likely to be important accounting entries.

Valuation of land

5.298 While this is not the case for most environmental assets, there is, in most countries, an active market in the purchase and sale of land of all types, including residential, industrial and agricultural land. However, determining the value of the land itself is a complex task.

5.299 Generally, the market values of land encompass the value of the location, the value of the physical attributes of the land and the produced assets that may be located on the land (e.g., buildings). Separating these different components may be difficult. Further, although there is a market in land, a relatively small proportion of land is transacted in any year and thus observed prices may not be representative. Therefore, a comprehensive set of prices to cover all land types in all locations is seldom, if ever, available. Finally, some land will never be exchanged on the market. This may include designated public areas, land under traditional patterns of common ownership, and remote and inhospitable areas.

(a) Composite assets

5.300 Several common situations in which assets are bundled with land need to be described and relevant accounting treatments defined.

5.301 Soil resources. Although land and soil are distinguished as separate environmental assets, in terms of valuation, land and soil are always considered jointly. Thus, the value of all land, especially agricultural land, implicitly includes the value of any associated soil.

5.302 Buildings and structures. The opening and closing values of the stock of land should be recorded excluding the value of buildings and structures on the land.

5.303 For land underlying buildings, the market will, in some instances, furnish data directly on the value of the land. More typically, however, such data are not available and a more usual method is to calculate ratios of the value of the site to the value of the structure (often using administrative data). Another approach is to use estimates of the depreciated value of the stock of dwellings and other buildings and structures which are often compiled for the purposes of the core national accounts and deduct this amount from the value of the composite asset.

5.304 When the value of the land cannot be separated from the building or structure sitting on it, the total value of the composite asset should be classified to the asset category representing the greater part of its value.

5.305 Land improvements. In addition to the effect of buildings and structures, there may be improvements to land due to activities such as land clearance, land contouring or the creation of wells and watering holes for agriculture that are integral to the land in question. These activities, collectively referred to as “land improvements”, are characterized by their outcome: they lead to major improvements in the productivity of a given area of land, potentially through the prevention of a deterioration in the quality of land. In principle, the value of land improvements should be recorded as a separate produced asset distinct from the value of the land as it existed before improvement.

5.306 If the value of the land improvements cannot be separated from the value of land in its natural state, the value of the land may be allocated to one category or the other depending on which is assumed to represent the greater part of the value. (For details regarding the accounting treatment for land improvements, refer to the 2008 SNA, paras. 10.79-10.81.)

5.307 Biological resources. As with the treatment of buildings and structures, the value of these environmental assets should, in principle, be separated from the land on which they are grown. For example, for forest land, the separation should be based on the value of the stock of timber resources (for details, see sect. 5.8). For cultivated biological resources other than timber resources, the range of techniques for making the distinction made for buildings and structures are also relevant.

5.308 Land under roads and public land. In principle, the land under roads, railways and other transportation routes should be valued in the same way as other land. However, given the shared characteristics of these assets, determining appropriate valuations may be difficult.

5.309 It is recommended that the valuations adopted for the purposes of government finance statistics be used to value land under roads and public land more generally. The value of the roads and rail lines, etc., should be determined separately, possibly on the basis of construction costs as required for the purposes of capital stock estimation in the national accounts.

5.310 Energy from renewable sources. As described in section 5.5, the value of some land may be influenced by the income earned from the generation of renewable energy (e.g., land on which wind farms are based). The value arises due to the scarcity of the sites used for energy generation. Where possible, the value of the land should be partitioned to provide an estimate of the value of the land that is attributable to income arising from the generation of energy from renewable sources. The valuation should be based on calculation of expected income streams using standard NPV approaches, including deductions for the costs of fixed assets utilized to capture the energy.

(b) Changes in value due to changes in the quality of land

5.311 Changes in the value of land may be due to many factors, including changes in the quality of land. At times, there may be catastrophic losses in land quality, for example, as a result of contamination by radioactive waste or major flooding. Changes in the quality of land that lead to changes in the value of the land should not be recorded as revaluations even though the area of land does not change. Rather, the changes in value should be recorded as reclassifications (where the land use changes), reappraisals (where the land use remains the same) or catastrophic losses, as most appropriate.

Accounting for transactions in land

5.312 Generally, all transactions in land are between resident economic units. In situations in which a non-resident purchases land, the accounting convention is to establish a notional resident unit that purchases the land and to show the non-resident as having the full financial ownership of the notional unit. There are at times exceptions to this treatment, such as when governments purchase land from other countries. These should be recorded as acquisition and disposals between countries.

The treatment of costs of ownership transfer

5.313 Whenever land is sold, there are transaction costs involved. Typically, these arise from the involvement of the lawyers registering the change of ownership of the land and of the estate agents who bring the buyer and seller together. There may also be taxes payable in connection with the land purchase. The SNA refers to these expenses as the “costs of ownership transfer”. These costs are not recoverable by the new owner: any further sale will cover the underlying value of the land itself plus a new set of costs of ownership transfer. In the context of the transaction, the costs to the purchaser of the land are treated as the purchase of a fixed asset and they are written off over time by means of consumption of fixed capital.

5.314 In general, because they are treated as a separate asset, the costs of ownership transfer on land are not included in the valuation of land in the asset account. However, some refinements in respect of this general position need to be clarified. Where the transaction involves only land and land improvements (e.g., where the sale of buildings or forests is not involved), the costs of ownership transfer are allocated to the produced asset land improvements. Where the transaction involves both land and produced assets (such as buildings or cultivated biological resources), the costs are allocated to the specific produced assets involved. In both of these situations, the costs are also recorded against the opening and closing stock values for the relevant produced asset.

5.315 It is also noted that, where the costs of ownership transfer relate to a non-produced asset other than land (e.g., to the sale of mineral and energy resources or natural timber resources), the costs are capitalized against the produced asset “costs of ownership transfer on non-produced assets” but they are recorded on the balance sheet against the non-produced asset in question.

5.6.6 Links to ecosystem accounting

5.316 Ecosystem accounts are founded on consideration of the capacity of the environment to deliver ecosystem services as described in chapter II. It is the interactions between different environmental assets within a given area that generates ecosystem services.

5.317 To the extent that meaningful groupings of land areas can be defined, these areas may be used to provide a measurement basis for ecosystem accounting in a similar way to which statistical units, such as establishments, provide a basis for measurement in economic statistics. SEEA Experimental Ecosystem Accounting develops these ideas in detail to provide a framework for assessing the capacity of ecosystems to deliver ecosystem services.

5.7 Accounting for soil resources

5.7.1 Introduction

5.318 Soil resources are a fundamental part of the environment. They provide the physical base required to support the production and cycling of biological resources, provide the foundation for buildings and infrastructure, are the source of nutrients and water for agriculture and forestry systems, provide a habitat for diverse organisms, play an essential role in carbon sequestration, and fulfil a complex buffering role against environmental variability (ranging from dampening diurnal and seasonal change in temperature and water supply to the storage and binding of a range of chemical and biological agents).

5.319 Accounting for soil resources, therefore, has many dimensions. At one level, accounting for soil resources can provide information on the area and volume of soil resources lost due to soil erosion, or made unavailable by changes in land cover (e.g., soil covered by buildings or roads) and other causes (e.g., changes in soil structure due to compaction, acidity or salinity). More broadly, accounting for soil resources in terms of their types, nutrient content, carbon content and other characteristics is relevant for more detailed examination of the health of soil systems, and the connections between soil resources and production in agriculture and forestry.

5.320 The focus of asset accounting for soil resources in the SEEA is on the top layers (horizons) of soil that form a biological system. Thus, quantities of soil that are extracted for construction, land reclamation, engineering and similar purposes are not considered, except to the extent that such extraction reduces the area and volume of soil resources available to operate as a biological system. Quantities of soil extracted for landscaping and similar purposes, where the soil continues to operate as a biological system, are considered to be within the accounting framework.

5.321 Research into the quantity and quality of soil has been a long-standing undertaking in many countries. At an international level, there has been substantial effort to create harmonized systems for recording information on different soils; and more recently, there has been work carried out to facilitate a more complete record of information on soils in all countries, in recognition of the fundamental role that soil resources play in environmental and economic systems.⁶⁸

5.322 At the same time, there have been few research findings that relate the changes in the physical volume and characteristics of soil to measures of economic activity using accounting frameworks like the SEEA. Work is advancing that considers changes in soil resources from a natural capital perspective,⁶⁹ but up to now this work has not been translated into the SEEA framework.

5.323 Some aspects of accounting for soil resources fit easily into the broader asset accounting framework described in the Central Framework. Also, some of the physical flows associated with soil resources, for example, flows of nutrients, are within the framework of physical flows described in chapter III. More broadly, accounting for soil resources as a system providing multiple benefits is a part of the broader subject of ecosystem accounting and is described in SEEA Experimental Ecosystem Accounting.

5.324 The present section presents a brief characterization of soil resources and the associated information on soil. It then describes how the volume and area of soil resources can be accounted for within the asset accounts of the Central Framework. The section concludes by introducing the aspects of soil measurement that can be taken into consideration in other parts of the SEEA, including nutrient balances and measurement of soil resources as a system.

5.7.2 Characterization of soil resources

5.325 Different types of soil are defined in reference to their components and properties. Soil components reflect the biogeochemical composition of the soil: the minerals, liquids, gases and organic matter that are present in the soil. Soil properties reflect the physical, chemical and biological characteristics of the soil, e.g., porosity, texture, pH level and microbial biomass.

5.326 Various soil types can be defined using information on different combinations of soil components and properties. It is these various soil types (groupings) that can provide the basis for a generalized accounting for soil resources—not because soil types change, but because soils have different baselines and potentials. Soil types are necessary categories for understanding the importance of measured change and the potential for improvement. The Harmonized World Soil Database describes 28 major soil groupings that can be used to categorize and map soils at a broad global scale. Various national and regional groupings of soil types may be appropriate for national and subnational measurement.

5.327 Soil resources are measured through a series of inventory processes, known collectively as a soil survey. Typically, a soil survey produces maps of soil types, soil suitability for various purposes and hazard and degradation potential and, in some cases, maps of specific soil properties. Other important and complementary activities associated with soil resource accounting include site- or area-based measures of soil loss or erosion processes, and simulation modelling of the way in which soil types relate to various climate and land use settings.

5.328 Measures of soil quality or soil value can also be developed using a range of approaches. In most cases, soil suitability for specific purposes is assessed through a standardized indexing procedure. Most countries and regions have similar procedures optimized for implementation of their approach to soil mapping and soil classification. Soils are generally ranked in terms of their properties (e.g., carbon content), productive capacity (e.g., for agriculture) and/ or their tendency towards degradation over time. Simulation models that take into account local conditions may then be used to extrapolate from well-studied sites across the landscape to produce quantitative measures of yield, run-off and soil erosion.

5.329 The availability of this suite of measurements varies between and within countries. Overall, while most soil information has not been placed in an accounting framework, there is a strong potential for aggregate accounting frameworks to be populated using the data available.

5.7.3 Accounting for the area and volume of soil resources

5.330 A first stage of accounting for soil resources entails measurement of the area of different soil types within a country. This type of accounting is an extension of the land accounting described in section 5.6. An example of how an asset account for the area of soil resources can be structured is presented in table 5.17. The table presents the opening and closing stock of soil resources by type of soil and the additions and reductions in area of soil resources. In order for there to be a focus on soil resources that are available as a biological system, the scope of this account should be restricted to land used for agriculture and forestry and also volumes of soil extracted to be used as a biological system. In certain circumstances, there may be a focus on particular landscapes or land use systems that are under pressure.

Table 5.17

Physical asset account for area of soil resources (hectares)

Table 5.17

Physical asset account for area of soil resources (hectares)


		Total area
Opening stock of soil resources
Additions to stock
	Due to changes in land cover
	Due to changes in soil quality
	Due to changes in soil environment
	Total additions to stock
Reductions in stock
	Due to changes in land use
	Due to changes in soil quality
	Due to changes in soil environment
	Total reductions in stock
Closing stock of soil resources

Table 5.17

Physical asset account for area of soil resources (hectares)


		Total area
Opening stock of soil resources
Additions to stock
	Due to changes in land cover
	Due to changes in soil quality
	Due to changes in soil environment
	Total additions to stock
Reductions in stock
	Due to changes in land use
	Due to changes in soil quality
	Due to changes in soil environment
	Total reductions in stock
Closing stock of soil resources

5.331 In terms of accounting entries, the focus is on the area of different soil types at the beginning and end of an accounting period and on changes in the availability of different soil types used for agriculture and forestry. Different scopes of soil resources may be measured depending on the purpose of analysis. For example, for the analysis of carbon sequestration in soil, a very extensive coverage of soil resources within a country may be appropriate.

5.332 A distinction is made between additions and reductions due to changes in land cover (e.g., loss of soil resources for agriculture as a result of urban expansion, also known as soil alienation or soil sealing); those due to changes in soil quality (e.g., after compaction or acidification); and those due to changes in the soil environment (e.g., due to desertification or land clearing). In practice, distinguishing between these different types of changes may be difficult and the structure of the account should be based on highlighting the primary reasons and the changes of most environmental, economic or social interest.

5.333 In addition to an asset account such as presented in table 5.17, there may be interest in tabulating types of soil resources by type of land use or land cover at a particular point in time. Such information may help in determining whether various types of land use are being undertaken on high-quality or marginal soil and may hence provide a basis for assessment of alternative land uses. Considerable analytical benefits would also be derived from mapping information on soil types, land use and land cover using data that are spatially referenced.

5.334 A second stage in accounting for soil resources entails measuring the volume of soil resources. Accounting for changing volumes of soil may enable assessment of the extent of erosion and the impact of major disasters such as flooding or drought, as well as provide information relevant to the assessment of soil depletion, i.e., the loss of soil resources due to economic activity.

5.335 An asset account for the volume of soil resources is shown in table 5.18. It is structured to show the opening and closing volumes of soil and the changes in the volume of soil. Increases in the volume of soil by natural processes (soil formation) are assumed to be very slow and, in this sense, soil may be considered a non-renewable resource. However, the movement of soil through natural means (e.g., wind and water) may mean that soil lost from one area of a country may be deposited in another area or in another country, or in the sea and ocean. The deposition is often deleterious (e.g., covering infrastructure or polluting coral reefs) but there are situations where a region benefits from sediment movement. Where benefits from soil deposition can be established, the flow should be considered part of the additions to stock; at the same time, soil erosion should be considered a reduction in stock.

Table 5.18

Physical asset account for volume of soil resources (cubic metres)

Table 5.18

Physical asset account for volume of soil resources (cubic metres)

		Type of soil resource
Opening stock of soil resources
Additions to stock
	Soil formation and deposition
	Upward reappraisals
	Reclassifications
	Total additions to stock
Reductions in stock
	Extractions
	Soil erosion
	Catastrophic losses
	Downward reappraisals
	Reclassifications
	Total reductions in stock
Closing stock of soil resources

Table 5.18

Physical asset account for volume of soil resources (cubic metres)

		Type of soil resource
Opening stock of soil resources
Additions to stock
	Soil formation and deposition
	Upward reappraisals
	Reclassifications
	Total additions to stock
Reductions in stock
	Extractions
	Soil erosion
	Catastrophic losses
	Downward reappraisals
	Reclassifications
	Total reductions in stock
Closing stock of soil resources

5.336 The soil resources in table 5.18 are classified by type of soil, but it may also be meaningful to structure the changes in the volume of soil resources by geographical region or by type of land use or land cover. It is likely that different regions and land uses will have different impacts on and be differently impacted by soil erosion and soil deposition.

5.337 Changes in the volume of soil resources should also be recorded when soil is excavated and moved for various reasons. For example, soil may be excavated to build levies and dykes, for land reclamation, or for road and other construction. Since the intent of the soil resources account is to record changes in the volume of soil resources that can operate as a biological system, the loss of the top layers of soil resource due to this extraction should be recorded as permanent reductions in soil resources, unless the purpose is to create new biological soil systems in other locations. Losses in the accessibility of soil resources due to changing land cover (e.g., as a result of urban expansion or permanent flooding, as is the case in the creation of artificial reservoirs) should be recorded as extractions.

5.338 Catastrophic losses of soil resources may occur in cases of major floods and other severe weather events. This may also lead to soil deposition, depending on the quality of soil transferred. Reappraisals of soil volume should be recorded when additional information is available, as for reappraisals of other environmental assets.

5.7.4 Other aspects in accounting for soil resources

5.339 In addition to the physical asset accounts proposed in this section, soil resources are accounted for in the physical supply and use tables described in chapter III. There are two main aspects to the PSUT entries for soil resources. First, the movement of soil resources for construction, land reclamation, landscaping and other such uses in the economy should be recorded as a natural resource input of soil resources from the environment to the economy. These entries should also record movement of soil as part of dredging operations in rivers and ports and movements of contaminated soil for treatment or disposal.

5.340 Second, the flows of individual elements in the soil, such as soil carbon and soil nutrients (nitrogen (N), phosphorus (P) and potassium (K)), can be recorded as part of material flow accounting. An introduction to net nutrient balances in the context of the SEEA is described in section 3.6.

5.341 The recording of nutrient balances considers issues related to the overall functioning of soil resources as a biological system and, further, those issues related to valuing soil resources and associated measures of soil depletion and soil degradation. However, the accounting framework presented in the Central Framework does not fully describe the overall state or condition of soil resources, changes in the health of soil resources, or their capacity to continue to provide the benefits that soil resources generate.

5.342 In the Central Framework, the value of soil resources is tied directly to the value of land, as described in section 5.6. In this context, connections may be made between changes in the combined value of land and soil and changes in the associated income earned from use of the soil resources.

5.8 Asset accounts for timber resources

5.8.1 Introduction

5.343 Timber resources are important environmental assets in many countries. They provide inputs for construction and the production of paper, furniture and other products, and are both a source of fuel and an important sink for carbon.

5.344 The compilation of timber resource asset accounts is one measurement tool that provides information for use in assessing and managing changes in timber resources and the services they provide. For a complete assessment of timber resources it is also relevant to construct asset accounts regarding the stock of land associated with timber resources, primarily forest and other wooded land. The changes in the stock of forest and other wooded land due to afforestation and deforestation may be of particular interest. These asset accounts are described in section 5.6.

5.345 The present section is structured to provide details on the definitions of timber resources and associated classification and boundary issues, including the relationship between timber resources and forest and other wooded land. An important aspect in this regard is the delineation of the distinction between cultivated and natural timber resources. The section then presents a physical asset account and a monetary asset account for timber resources and concludes with an introduction to accounting for carbon in timber resources. This is an extension of the physical asset accounting for timber resources.

5.8.2 Scope and definition of timber resources

5.346 Timber resources may be found in a wide variety of places and may or may not be available to be felled and used as wood supply, i.e., to produce timber products or as fuelwood. Timber resources may not be available for wood supply due to the fact that the trees (i) are in areas in which logging operations are restricted or prohibited; (ii) are in areas that are inaccessible or remote and hence where logging is not economically viable; or (iii) do not, from a biological perspective, belong to a commercially useful species.

5.347 While the timber resources that are not available for wood supply do not have an economic value, these timber resources remain in scope of timber resources in the SEEA in physical terms, as they fulfil the definition of environmental assets and may provide benefits. However, since these timber resources do not have an economic value, they are not recorded in the asset accounts for timber resources in monetary terms. Consequently, the volume of these timber resources in physical terms should be clearly identified so that appropriate alignment can occur between asset accounts in physical and monetary terms.

5.348 Most commonly, timber resources are found in areas of forest land or other wooded land, which may often provide a good starting point for the compilation of data on timber resources. The areas that are classified as forest land and other wooded land for the purposes of measuring timber resources should be defined consistently with those same areas in the physical asset accounts for forest and other wooded land, as described in section 5.6.4.

5.349 Timber resources are also found in other areas such as in orchards, rubber plantations, along roadsides and train tracks, and in city parks. Conceptually, the timber resources in all of these areas are also within the measurement scope of the SEEA. In practice, countries should determine the scope of their timber resource accounts based on the relative importance of the types of areas that provide timber resources. Timber resources from different types of areas should be clearly differentiated.

5.350 Within the relevant areas, timber resources are defined by the volume of trees, living or dead, and include all trees regardless of diameter, tops of stems, large branches and dead trees lying on the ground that can still be used for timber or fuel. The volume should be measured as the stem volume over bark at a minimum breast height from the ground level or stump height up to the top. Excluded are smaller branches, twigs, foliage, flowers, seeds and roots.⁷⁰

5.351 The thresholds for minimum breast height, tops of stem and branches may vary across countries. This variation reflects the variety of species, growing conditions and forestry management and harvesting practices that take place in different parts of the world. The precise specification of the volume of a conifer in northern Europe, for example, will differ from that of a teak tree in a tropical rainforest. The general principle that should be considered in determining the volume of timber resources is the volume that is commercially usable. All estimates of timber resources, including estimates of the monetary value of timber resources, need to take into account country-specific conditions and practices.

5.352 The volume of timber resources is often referred to as the volume of standing timber. This definition includes trees on the ground either because they have been felled but not yet removed from the area, or because they have fallen through natural causes (e.g., disease or lightning strike) but are still useful for timber products or fuel. The volume of standing timber also includes dead trees remaining standing. The volume of standing timber should be distinguished from the growing stock which relates to living trees and forms the basis for the calculation of the natural growth in timber resources over a period.

The boundary between cultivated and natural timber resources

5.353 Determining whether timber resources are cultivated or natural is important in the application of the appropriate accounting treatment. The growth in cultivated timber resources is considered to be a process under the direct control, responsibility and management of institutional units. Consequently, the growth is recorded as occurring within the production boundary on an ongoing basis as an increase in inventories of those enterprises undertaking the cultivation. (The removal of cultivated timber resources is recorded as a decrease in inventories of timber resources and an equivalent amount of sales.) The growth of natural timber resources, on the other hand, is not considered to take place within the production boundary and is recorded as entering the production boundary only at the time the tree is removed from the forest or other land area.

5.354 The treatment of timber resources as either cultivated or natural depends on the management practices applied to the areas in which timber resources are found. For timber resources to be classed as cultivated, the management practices must constitute a process of economic production. This is likely to include activities such as (a) control of regeneration, for example, seeding, planting of saplings, thinning of young stands; and (b) regular and frequent supervision of trees to remove weeds or parasites, or to attend to disease. The level of these types of activity should be significant relative to the value of the timber resources and should be directly connected with the growth of the timber resources in question.

5.355 In practice, a common initial basis for the determination of whether timber resources are cultivated or natural is the type of land on which the timber resources are found. For example, for forest land, those timber resources within primary forests would generally be considered natural timber resources, whereas those timber resources in plantations would be generally considered cultivated timber resources.

5.356 However, the rules by which different areas of forest land are differentiated may not align neatly to the production boundary of the SEEA. For example, pursuant to applying the definitions of different forest land as presented in section 5.6.4: as soon as primary forest is logged for the first time, it becomes other naturally regenerated forest and hence falls into a category of forest land that is likely to be a mixture of land under active management and control, and land in which human intervention is relatively infrequent. Also, in some countries, there are large areas of planted forests that are not managed directly or frequently where the trees are left to grow until ready to harvest. These trees would be considered natural timber resources following the SEEA production boundary, even though the term “planted forests” may immediately suggest a high level of economic activity.

5.357 Given the potential for forestry management practices to vary considerably across and within countries, it is recommended that countries determine the status of their timber resources as either natural or cultivated based on application of the production boundary considerations listed above. This process is likely to require assessment by type of area in which timber resources are found, including forest land, other wooded land and other land with wood supply.

5.8.3 Physical asset accounts for timber resources

5.358 The physical asset account for timber resources records the volume of timber resources at the beginning and end of an accounting period and the change in this stock over the accounting period. Of particular interest is the analysis of the natural growth of timber resources compared with the removals.

5.359 A basic structure for a physical asset account for timber resources is presented in table 5.19. The asset account should distinguish between the types of timber resource, most importantly between cultivated timber resources and natural timber resources. For natural timber resources, a distinction should be made between those timber resources available for wood supply and those not available for wood supply, so as to ensure that the different scopes of the asset accounts in physical and monetary terms can be reconciled. Depending on the purpose of analysis and available data, accounts by species of tree may be compiled.

Table 5.19

Physical asset account for timber resources (thousands of cubic metres over bark)

Table 5.19

Physical asset account for timber resources (thousands of cubic metres over bark)

		Type of timber resource
		Cultivated timber resources	Natural timber resources
			Available for wood supply	Not available for wood supply
Opening stock of timber resources		8 400	8 000	1 600
Additions to stock
	Natural growth	1 200	1 100	20
	Reclassifications	50	150
	Total additions to stock	1 250	1 250	20
Reductions in stock
	Removals	1 300	1 000
	Felling residues	170	120
	Natural losses	30	30	20
	Catastrophic losses
	Reclassifications	150		150
	Total reductions in stock	1 650	1 150	170
Closing stock of timber resources		8 000	8 100	1 450
Supplementary information
Fellings		1 250	1 050

Table 5.19

Physical asset account for timber resources (thousands of cubic metres over bark)

		Type of timber resource
		Cultivated timber resources	Natural timber resources
			Available for wood supply	Not available for wood supply
Opening stock of timber resources		8 400	8 000	1 600
Additions to stock
	Natural growth	1 200	1 100	20
	Reclassifications	50	150
	Total additions to stock	1 250	1 250	20
Reductions in stock
	Removals	1 300	1 000
	Felling residues	170	120
	Natural losses	30	30	20
	Catastrophic losses
	Reclassifications	150		150
	Total reductions in stock	1 650	1 150	170
Closing stock of timber resources		8 000	8 100	1 450
Supplementary information
Fellings		1 250	1 050

5.360 The focus of the asset accounts presented in the SEEA is on the timber resources found in areas of forest and other wooded land. There may be interest, however, in developing estimates of the volume of timber resources in other areas, depending on country circumstance.

Additions to the stock

5.361 The stock of timber resources will increase due to natural growth. This is measured in terms of the gross annual increment, i.e., the volume of increment over the reference period of all trees with no minimum diameter.

5.362 The calculation of natural growth should be based on the timber resources available at the beginning of the accounting period. Increases in the area of forest land, other wooded land and other areas of land that lead to increases in the volume of available timber resources should not be considered natural growth but should, instead, be recorded as reclassifications. Reclassifications may also occur as a result of changes in management practice that shift timber resources from cultivated to natural or vice versa.

Reductions in the stock

5.363 The stock of timber resources will decrease over an accounting period through the removal of timber resources and natural losses. Removals are estimated as the volume of timber resources removed from forest land, other wooded land and other land areas during the accounting period. They include removals of trees felled in earlier periods and the removal of trees killed or damaged by natural causes. Removals may be recorded by type of product (e.g., industrial roundwood or fuelwood) or by species of tree (e.g., coniferous or broadleaved).

5.364 Removals constitute the relevant variable for measuring the extraction of timber resources because the definition of the stock of timber resources includes trees that have been felled and are on the ground but have not yet been removed.

5.365 To fully account for the change in the volume of timber resources over an accounting period, it is necessary to deduct felling residues. These residues are associated with the fact that, at the time of felling, a certain volume of timber resources is rotten, damaged or in excess in terms of the size requirements. Felling residues exclude small branches and other parts of the tree that are also excluded from the scope of timber resources. Estimates of felling residues may also provide important information on the nature of forestry practice.

5.366 Natural losses are the losses to the growing stock (i.e., living, standing trees) during an accounting period due to mortality from causes other than felling. Examples include losses due to natural mortality, insect attack, fire, wind throw or other physical damages. Natural losses should include only those losses that can be reasonably expected when considering the timber resources as a whole. Natural losses should be recorded only when there is no possibility that the timber resource can be removed. All timber removed should be recorded as removals.

5.367 Catastrophic losses should be recorded when there are exceptional and significant losses of timber resources due to natural causes. Catastrophic losses should be recorded only when there is no possibility that the timber resource can be removed. All timber removed should be recorded as removals.

Depletion

5.368 Following the general definition of depletion, the depletion of natural timber resources is related to the sustainable yield of timber resources from the forest land, other wooded land and other land on which natural timber resources are found. More precisely, the sustainable yield of timber resources is the quantity of timber that can be harvested at the same rate into the future while ensuring that the productive potential is maintained. The sustainable yield will be a function of the structure of the growing stock and needs to take into account both the expected natural growth and the natural losses of trees. Various biological and forestry models will need to be taken into account in estimating sustainable yield.

5.369 Depletion of natural timber resources, in physical terms, is equal to removals less sustainable yield. As explained in section 5.4, some variation from year to year is to be expected in the relationship between estimates of sustainable yield and actual quantities of natural growth (less natural losses). Hence, depletion should be recorded only when removals are beyond normal year-on-year variations in quantities of natural growth.

5.370 It is noted that the concept of sustainable yield used to define depletion does not take into account the broader ecological sustainability of the surrounding ecosystems which may be affected by the felling and removal of timber resources.

Fellings

5.371 While these entries fully account for the change in the volume of timber resources over an accounting period, there may be specific interest in the volume of trees felled during the period relative to the volume of timber resources removed. Annual fellings are equal to the volume of timber resources that is felled during an accounting period. Fellings include silvicultural and pre-commercial thinnings and cleanings. Where available, estimates of the volume of fellings may be added as supplementary information in the physical asset account.

Timber resources as a source of energy

5.372 Timber resources are often used as a source of energy. The inputs of energy from both natural and cultivated timber resources are recorded in the physical supply and use table for energy (sect. 3.4). The basis for the recording is the measurement of the amount of energy actually sourced from timber resources rather than the measurement of the total energy that might be sourced from timber resources. In concept, the stock of timber resources measured in the asset accounts incorporates the volume and value of timber resources that may be used for energy purposes, but no separate estimates are made. Where there is analytical interest and where data are available, it would be possible to construct asset accounts for timber resources with a focus on timber resources used for energy purposes. In this context, the focus may be placed on those timber resources that are considered renewable sources of energy.

5.8.4 Monetary asset accounts for timber resources

5.373 Monetary asset accounts for timber resources consist in measuring the value of the opening and closing stock of timber resources and the changes in the value of the stock over an accounting period. The monetary asset account for timber resources is presented in table 5.20.

Table 5.20

Monetary asset account for timber resources (currency units)

Table 5.20

Monetary asset account for timber resources (currency units)

		Type of timber resource
		Cultivated timber resources	Natural timber resources (available for wood supply)	Total
Opening stock of timber resources		86 549	82 428	168 977
Additions to stock
	Natural growth	12 364	11 334	23 698
	Reclassification	515	1 546	2 061
	Total additions to stock	12 879	12 879	25 759
Reductions in stock
	Removals	13 395	10 303	23 698

1	Mineral and energy resources
1.1		Oil resources
1.2		Natural gas resources
1.3		Coal and peat resources
1.4		Non-metallic mineral resources (excluding coal and peat resources)
1.5		Metallic mineral resources
2	Land
3	Soil resources
4	Timber resources
4.1		Cultivated timber resources
4.2		Natural timber resources
5	Aquatic resources
5.1		Cultivated aquatic resources
5.2		Natural aquatic resources
6	Other biological resources (excluding timber resources and aquatic resources)
7	Water resources
7.1		Surface water
7.2		Groundwater
7.3		Soil water

1	Mineral and energy resources
1.1		Oil resources
1.2		Natural gas resources
1.3		Coal and peat resources
1.4		Non-metallic mineral resources (excluding coal and peat resources)
1.5		Metallic mineral resources
2	Land
3	Soil resources
4	Timber resources
4.1		Cultivated timber resources
4.2		Natural timber resources
5	Aquatic resources
5.1		Cultivated aquatic resources
5.2		Natural aquatic resources
6	Other biological resources (excluding timber resources and aquatic resources)
7	Water resources
7.1		Surface water
7.2		Groundwater
7.3		Soil water

Output (sales of extracted environmental assets at basic prices, includes all subsidies on products, excludes taxes on products)
*Less* Operating costs
	Intermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products)
	Compensation of employees (input costs for labour)
	Other taxes on production plus other subsidies on production
Equals Gross operating surplus—SNA basis^a
*Less* Specific subsidies on extraction
*Plus* Specific taxes on extraction
Equals Gross operating surplus—for the derivation of resource rent
Less User costs of produced assets
	Consumption of fixed capital (depreciation) + return to produced assets
EqualsResource rent
	Depletion + net return to environmental assets^b

Output (sales of extracted environmental assets at basic prices, includes all subsidies on products, excludes taxes on products)
*Less* Operating costs
	Intermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products)
	Compensation of employees (input costs for labour)
	Other taxes on production plus other subsidies on production
Equals Gross operating surplus—SNA basis^a
*Less* Specific subsidies on extraction
*Plus* Specific taxes on extraction
Equals Gross operating surplus—for the derivation of resource rent
Less User costs of produced assets
	Consumption of fixed capital (depreciation) + return to produced assets
EqualsResource rent
	Depletion + net return to environmental assets^b

Topics

Countries

Series

About

Resources

Abstract

5.1 Introduction

Chapter structure

5.2 Environmental assets in the SEEA Central Framework

5.2.1 Introduction

5.2.2 Scope of environmental assets

Classification of environmental assets in the Central Framework

Natural resources

Land and other areas

Timber, aquatic and other biological resources

Forests

5.2.3 Valuation of environmental assets

Relationship between environmental and economic assets

Economic assets used in activities related to the environment

5.3 The structure of asset accounts

5.3.1 Introduction

5.3.2 Conceptual form of the physical asset account

Accounting entries for institutional sector accounts

5.3.3 Conceptual form of the monetary asset account

Relationship to SNA accounting entries49

Institutional sector accounts in monetary terms

5.4 Principles of asset accounting

5.4.1 Introduction

5.4.2 Defining depletion in physical terms

Depletion of natural biological resources in physical terms

The relationship between depletion and degradation

5.4.3 Principles of asset valuation

General principles of valuation

Approaches to the valuation of assets

5.4.4 The net present value (NPV) approach

The measurement of returns on environmental assets

5.4.5 Approaches to estimating resource rent and net present values

Approaches to estimating resource rent

Summary of methods to estimating resource rent

Determination of the expected pattern of resource rents

Estimates of the asset life

Rate of return on produced assets

Choice of discount rate

Calculation of net present value

5.4.6 Measurement of environmental assets in volume terms

5.5 Asset accounts for mineral and energy resources

5.5.1 Introduction

5.5.2 Definition and categorization of mineral and energy resources

Classification of mineral and energy resources

5.5.3 Physical asset accounts for mineral and energy resources

Measurement of opening and closing stocks

Physical asset account for mineral and energy resources

Additions to and reductions in the stock of mineral and energy resources

5.5.4 Monetary asset accounts for mineral and energy resources

Valuation of stocks of mineral and energy resources

(a) Estimation of resource rent

(b) Extraction rate

(c) Resource life

Valuation of flows of mineral and energy resources

5.5.5 Other issues in the measurement of mineral and energy resources

Allocation of income from the extraction of mineral and energy resources

Treatment of energy from renewable sources

5.6 Asset accounts for land

5.6.1 Introduction

5.6.2 Definition and classification of land

Land use classification

Land cover classes

5.6.3 Physical asset accounts for land

Physical accounts for land cover

Scope of land cover accounts

5.6.4 Physical asset accounts for forest and other wooded land

Introduction

Scope of the forest and other wooded land account

Additions to and reductions in the stock

5.6.5 Monetary asset accounts for land

Valuation of land

Accounting for transactions in land

The treatment of costs of ownership transfer

5.6.6 Links to ecosystem accounting

5.7 Accounting for soil resources

Relationship to SNA accounting entries⁴⁹