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Development of the SEEA 2003 and its implementation

Robert Smith

Environment Accounts and Statistics Division, Statistics Canada, 7-B, R.H. Coats Building, Ottawa, Canada K1A 0T6

A R T I C L E I N F O A B S T R A C T

The preparation of the System of Environmental and Economic Accounts 2003 marks an

important milestone in the world of official statistics. Just as the development of theoriginal

guidelines for national accounting in the 1950s was the first step toward today's robust,

internationally comparable economic statistics, the System of Environmental and Economic

Accounts 2003 offers hope to bring order and comparability to environmental statistics. How

the systemcame to be and why it is an important achievement are outlined.Thisis followed

by an overview of its accounting structure. A discussion of the implementation of the SEEA

2003, both in ideal terms and as actually practiced in statistical offices, concludes.

2006 Elsevier B.V. All rights reserved.

Article history:

Available online 17 November 2006

Keywords:

SEEA 2003

Environmental accounting

System of National Accounts

Natural capital

The preparation of the System of Environmental and Economic

Accounts 2003 (SEEA 2003) marks an importantmilestonein the

world of official statistics. Just as the development of the

original guidelines for national accounting in the 1950s wasthe first step toward today's robust, internationally compara-

ble economic statistics, the SEEA offers hope to bring order

and comparability to environmental statistics. In what

follows, we outline how the SEEA 2003 came to be and why

it is an important achievement. This is followed by an

overview of its accounting structure. We conclude with a

discussion of the implementation of the SEEA 2003, both in

ideal terms and as actually practiced in statistical offices.

1. The origin of the SEEA 2003

The SEEA 2003's origins can be traced directly back to theinternational discussions that led to the creation of the 1993

edition of the international guidebook on national accounting,

the System of National Accounts 1993 (SNA 93). The environment

was not a central consideration in the development of the

original system of national accounts in the 1940s and 1950s.

That this is so wasa sourceof concern, notleastamongnational

accountants, almost from the moment the first accounts

appeared. Despite this longstanding concern, it was not until

the preparation of the 1993 edition of the guidebook that any

serious consideration was given to dealing with the environ-

ment in the national accounts.

While some progress toward a more realistic view of theenvironment in relation to the economy can be noted in the

SNA 93 in particular in the extension of the system's asset

boundary to include some natural resources the handbook is

far from ideal in this regard. Among other gaps, it fails entirely

to account for the negative consequences of economic activity

through pollution emissions, it does not go far enough in

extending the asset boundary to include natural capital

particularly ecosystem assets and it fails to work the

extension of the asset boundary fully through all the potential

consequences for the accounting system, including the

possibility of adjusted figures for nationalproduct and savings.

Thatthe SNA 93 isonly a modeststepforwardin treatingthe

environment within the national accounts should not be takenas an indication that at least some of those who drafted it were

not interested in going further. Indeed, considerable time and

effort during drafting were devoted to discussing the environ-

ment and its proper treatment in the system. Yet, the drafters

failed to find sufficient common ground to go further than the

modest steps taken in the SNA 93. Recognizing the importance

of moving forward on this set of issues, which, even in the late

1980s, was already decades-old, the decision was made to

E C O L O G I C A L E C O N O M I C S 6 1 ( 2 0 0 7 ) 5 9 2 5 9 9

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prepare a separate handbookof national accountingto deal with

the integration of environment into the system. The United

Nations Statistics Division was tasked with the preparation of

the handbook, which appeared in 1993 as an interim

publication under the title of Handbook of National Accounting:

Integrated Environmental and Economic Accounting and with the

acronym SEEA 1993 (United Nations, 1993).1

The SEEA 1993 represented the first international hand-book on environmental accounting. As such, it was a

landmark achievement. Its preparation showed that the

international community was serious about the need to better

integrate environment into the national accounts. This

seminal work would not have been possible had it not been

for the pioneering efforts of a few countries in preparing their

own sets of environmental accounts in the 1970s and 1980s.

Notable among these early national efforts were those of

Norway (Alfsen et al., 1987; Alfsen and Graeker, this volume)

and France (Theys, 1989).

By the time the SEEA 1993 was being conceived in the early

1990s, there was a surge in environmental accounting activity

at the national level. The fewcountries that had pioneered the

effort were joined at this time by Australia, Canada, Denmark,

Finland, Germany, Indonesia, Italy, Japan, the Netherlands,

the Philippines, Sweden and the United Kingdom. The

accounts developed by these countries differed from one

another both conceptually and empirically, reflecting the

varied environmental challenges faced by them and the

differing expertise found in their statistical offices. Those

endowed with significant natural resource wealth, like

Australia and Canada, paid particular attention to the

development of resource stock accounts. Countries with

constraints on space for human activity, like Germany, were

leaders in the development of land use and land cover

accounting. Many countries devoted effort to compilation of

pollution emission accounts, pollution being an issue of

importance in nearly every nation. The Netherlands is often

pointed to as a leader in this regard, having developed the so-

called National Accounts Matrix including Environmental Accounts

(NAMEA) system (De Haan et al., 1993). This system, which

focused on the integration of economic statistics and pollution

emissions statistics through inputoutput matrices, was

widely promoted by the European Commission's statistical

office (Eurostat) during the 1990s. As a result, it has become

something close to a pan-European standard in pollution

accounting.

The appearance of the first version of the SEEA in 1993 did

not, as one might expect, have an immediate effect on most

national environmental accounting efforts. By 1993, many

countries had already established environmental accounting

programs anddecided upon their ownpriorities. They took note

of the SEEA 1993, but did not necessarily adjust their national

efforts toalignwith it.Moreover, theSEEA1993was publishedas

a set of international recommendations rather than as an

international standard. As such, no country was obliged to

follow it.2 Nonetheless, several major efforts were made at im-

plementing the SEEA 1993 in part or in whole. Japan and

Germany undertook some of the most far-reaching of these

efforts (Fukami, 1998; Brouwer et al., 1998).

By the early 1990s activity in environmental accounting

was advancing rapidly. Countries and international agencies

were developing new and sometimes diverging concepts and

methods and applying these in the elaboration of newaccounts. The SEEA 1993 had provided some coherence to

these efforts, but not enough in the opinion of many national

statistics offices. There also remained considerable reluctance

on the part of most national accountants to the adjustment of

the central measures of the SNA 93 most notably Gross

Domestic Product to account for environmental concerns.

Given the SEEA 1993's focus on such adjustments, many were

uncomfortable with pursuing its full implementation.

Seeing the need to provide a forum for the exchange of

country experience to encourage further development of

environmental accounting, the statistical offices of Canada

and the United Kingdom, along with Eurostat, proposed the

creation of an international groupon environmental accounting

in 1992. The group was to bring together the leading agencies in

the world on a voluntary basis to discuss and agree upon best

practice in the conceptsand methods.It met forthe first time in

London, England (Statistics Canada, 1994) and as a result came

to be known as the London Group on Environmental

Accounting.3

The London Group proved effective. All of the leading

national and international agencies involved in environmen-

talaccounting at thetime joined the group and have remained

members ever since. Given that most of the international

know-how in environmental accounting was found among its

members, it was logical that the international community

should look to the London Group when it came time in the late

1990s to reconsider the interim SEEA 1993. The United Nations

Statistical Commission, at its session in 1998, formally

requested the London Group to review the SEEA 1993 and to

provide recommendations for its revision. The group formally

began its review at its 1998 meeting in the French village of

Fontevraud. Over the next 5 years, its members worked

systematically to produce recommendations for a revised

version of the SEEA that would align more closely with

environmental accounting as it was practiced in national

statistical agencies. The services of an editor expert in both

national accounting and environmental accounting (Anne

Harrison of the OECD) were engaged in 2001 to take the

contributions of various national experts and turn them into a

1 We would be remiss if we did not recognize the threeindividuals most closely associated with this first version of theSEEA. These are Mr. Peter Bartelmus and Mr. Jan Van Tongeren,

both then of the United Nations Statistics Division and Mr.CarstenStahmer, then of the Federal Statistical Office of Germany.

2 In contrast, the System of National Accounts 1993 i s aninternational standard sanctioned by the United Nations andseveral other international agencies. Countries must follow itsguidelines if they wish their national accounts to be consideredlegitimate by the international community.3 The London Group is one of a number of similarcity groups

formed by statistical agencies since the late 1980s. Each of thesegroups treats a particular area of statistics. Although they areindependent bodies made up of countries that voluntarilycontribute their expertise and finance their own involvement,the city groups report annually on their work programmes to theUnited Nations Statistical Commission.

593E C O L O G I C A L E C O N O M I C S 6 1 ( 2 0 0 7 ) 5 9 2 5 9 9


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coherent handbook. The results of this collective effort,

approved by the UN Statistical Commission in 2003, are what

we know of today as the SEEA 2003.

The SEEA 2003 comprises four categories of accounts. The

first considers how physical statistics relating to flows of

materials and energy can be built into accounts compatible

with the SNA. Two types of accounts are described: exclusively

physical accounts constructed according to the structure of theSNA (e.g., physical inputoutput tables) and hybrid accounts

combining both physical and economic statistics. The accounts

of this category areoutlinedin chapters 3 and 4 of thehandbook.

The second category of accounts (chapters 5 and 6) takes

those elements of the existing SNA that are relevant to the good

management of the environment and shows how the environ-

ment-related transactions can be made more explicit. An

account of expenditures made by businesses, governments

andhouseholds toprotectthe environment is an example of the

accounts included in this category.

The third category of accounts in the SEEA comprises

accounts for environmental assets measured in physical and

monetary terms. For example, timber stock accounts showing

opening and closing timber balances and the related changes

over the course of an accounting period are an example. These

accounts are described conceptually in Chapter 7 of the

handbook; empirical examples are presented in Chapter 8.

The final category of SEEA 2003 accounts considers how the

economic accounts of the SNA might be adjusted to account for

the impact of the economy on the environment. Three sorts of

adjustments are considered; those relating to depletion, those

concerning so-called defensive expenditures and those relating

to degradation. Chapters 9 and 10 cover this material.

More is said about each of these four categories in the

section below dealing with implementation of the system.

2. Why the SEEA?

The collection and analysis of environmental statisticspresents

a challenge for developing and developed countries alike. Even

in developed countries with mature statistical systems, envi-

ronmental statistics can suffer from severe quality constraints.

Most importantly, environmental statistics are often incom-

plete.For some issues, they aremissing completely.4These gaps

prevent complete understanding of trends in the state of the

environment andof thehumanactivities linkedto these trends.

Even where gaps are not a major problem, other short-

comings can limit the usefulness of environmental statistics.

It may be difficult to access the statistics because govern-

ments pay inadequate attention to their management and

distribution. Sometimes governments are not the data custo-

dians at all, but researchers or corporations. In these cases,

access to the statisticsby thepublic andby researchersmay be

even more difficult.

Perhaps most frustrating for researchers, environmental

statistics are much more than their economic and social

cousins subject to inconsistency and incoherence. They are

inconsistent because they suffer from methodological and

conceptual changes over time. These changes, which are rarely

implemented backwards in time, limit the usefulness of

environmental statistics in analysis.

Environmental statistics are incoherent in that statistics on

different environmental issues say greenhouse gas emissions

and sulphur dioxide emissions cannot always be comparedeasily with one another. This is so for a number of reasons, the

most common being that the statistics are compiled using

different organizational structures and collection methods. In

addition to the incompatibility of environmental statistics

among themselves, their compatibility with economic and

social statistics is limited. Environmental statistics cannot

usually be combined easily with other statistics for example,

in modelling frameworks. This further restricts researchers'

ability to analyse the linkages between human activities and

environmental quality.

These limitations are such that environmental statistics

have generally failedto realizetheir fullimpact, especially in the

important world of public policy analysis. Before they will do so,

environmental statistics must be made more complete, more

readily accessible and more coherent, both among themselves

and with economic and social statistics. It is to this challenge

that environmentaleconomic accounting in general, and the

SEEA 2003 specifically, attempts to rise.

Rising to the challengeof integratedenvironmental statistics

requires first and foremost a conceptual framework. This is

what gives the information its internal logic and structure. In

the absence of a well-founded framework, data collection is

often ad hoc, being driven by the often narrowly focused

interests of those who sponsor it. Such ad hoc collection the

basis for most environmental statistics collection today may

meet the specific needs of its sponsors, but will not generally

meet the needs of a wide range of users. In contrast, statistics

collected on the basis of a sound conceptual framework are

more likely to be of wider relevance.

The conceptual framework explains in theory the

relationship between the variables measured in the system

and the exogenous variables of interest to data users. That is,

it offers a theoretically sound means of probing questions

about the nature of interaction among a defined set of

variables. It serves to explain why the variables found in an

informationsystem arethere. Equally, it serves to explain why

the system cannot be fully elaborated, and will not be fully

useful, if some variables are missing. Thus, the structure

provided by the framework gives the data compiler clear

direction as to where and how he should focus his data

collection efforts. This has the great advantage of ensuring

that users get the information they need from the system. Just

as importantly, it also ensures that they do not get informa-

tion they do not need.

The second challenge in creating integrated environmental

information is comprehensiveness. A system that is compre-

hensive is one in which variables are fully measured in all

their dimensions. Statistics with a regional dimension, for

example, must be measured for all regions represented in the

system. Statistics with an industrial dimension must be,

likewise, measured for all industries. Comprehensiveness is

a necessary precondition for relevance. If the statistics within

4 Obviously, the cases in which this is true differ from onecountry to the next. To name one example in Canada, there are

essentially no national data describing the extent or quality ofwetlands.

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the system do not cover all dimensions, they will be unable to

answer all the questions the system was designed to address.

Consistency is thethirdchallenge. It refersto theneedfor the

statistics within the system to be measured consistently over

time. Consistent measurement ensures that trends in the

statistics can be analysed meaningfully. Without consistency,

analysts cannot be certain that trends apparent in the statistics

represent real evolution of the variables in the system and notsimply arbitrary movements due to changes in measurement

methods. Of course, it is unavoidable that measurement

methods change over time. Indeed, they must change if

improvements in data quality are to be made. Such changes

should not be allowed to disrupt the integrity of times series

however. When they occur, effort is needed to revise and

republish statisticscompiledin earlierperiods to reflect thenew

methods. In this way, the comparability of the statistics over

time is maintained to the greatest extent possible.

The final challenge is coherence. Two dimensions are

relevant: coherence of statistics among themselves and their

coherence with other sorts of statistics. Both are important, but

the first is especially so. Internal coherence requires that the

statistics withinthe system be comparablewith eachother. This

in turn requires the use of consistent concepts and methods

across the statistics within the system. (Internal coherence is

really just another form of consistency.) For example, all

statistics within the system that have an industrial dimension

must be classified using the same classification of industries.

Such internal coherence is essential if the statistics are to truly

forma system; without it,theycannot aspire tomuch more than

what ad hoc datasets offer in terms of analytical potential.

External coherence is also a desirable, if not essential,

characteristic in an information system. It exists whenstatistics

from within the system can be meaningfully and easily

combined and compared with statistics from other systems.

Clearly, the challenge of creating integrated environmental

information is not insignificant. It is reasonable to question

whether the SEEA 2003, or any information system for that

matter, is up to the challenge. While there is no guarantee

that environmental statistics compiled according to the SEEA

2003will be perfectlyintegrated,therearereasonsto suggestthat

it offers considerable hope for improvement over the currently

fragmented environmental statistics found in most countries.

On theneed for a clear conceptual framework,the authors of

SEEA 2003are careful to note thatthe systemwas not created to

implement any particular framework. Nevertheless, they note

that it is well-suited to implementation of measurement based

on the concept of natural capital, which has emerged in the last

10 years as a rigorous and valuable framework for thinking

about the environmenthumanity relationship (see, among

many others, Pearce and Turner, 1990).

On the questions of comprehensiveness and consistency,

there is nothing in the SEEA 2003 per se that guarantees these

two qualities. Whether they exist or not is really a question of

the quality of implementation of the system. Two aspects of it

will tend to drive implementation toward comprehensiveness

and consistency however. One is simply the completeness of

the accounting framework itself. Because the framework lays

outveryclearly what a full setof accounts shouldlook like, it will

be very apparent to anyone who inquires whether a given

implementation is comprehensive or not. The other is the close

relationship between the SEEA 2003 and the SNA 93. Over many

decades of effort, national accountants have established a

record of preparing comprehensive and consistent statistics on

the economy. This serves as an encouragement to those who

implement environmental accounts to also strive for compre-

hensiveness and consistency in implementation.

On the last question of coherence, the SEEA 2003 is likely to

yield a considerable improvement over the current situation.Because of the internal logic and structure of the system, the

environmental statistics compiled within it should have a high

degree of coherence among themselves. As for external coher-

ence, the close structural links between the SEEA 2003 and the

SNA93 mean that the environmental statisticsof theformer will

be highly coherent with the economic statistics of the latter.

3. Implementation of the SEEA

The SEEA 2003 is a large and complex system. Its full

implementation is unlikely to be of interest to or within

reach of most national statistical agencies today. Indeed, no

country has implemented the complete system, although a

few countries (Australia, Canada, Denmark, Germany, Italy,

New Zealand and Norway) have implemented accounts that

cover many of the system's categories.

Thatno countryhas yet(or may ever)implement the whole of

the SEEA 2003 shouldnot be interpretedas a criticismor takenas

a reason for concern about its relevance. Many might be sur-

prised to learn that the SNA 93 is also not implemented in

anything like its entirety in most countries. Even among leading

statistical offices, some parts of the SNA 93 are implemented

only sketchily. This reflects the fact that economic conditions

vary among countries and the need for economic information

variesalongwiththem. Thesystemwasconceivedin itsentirety

because of the need to define in conceptual terms what a

complete, integrated national accounting system should look

likenotbecause many countriesactually need such a system.

Although each of its elements is of interest in at least some

countries, few countries have an interest in the whole system.5

The same is true of the SEEA 2003. Taken as a whole, it

presents a complete and integrated set of environmental

accounts for a nation. But the environmental and economic

conditions of only a handful of countries are such that the full

set of accounts is of interest. For this to be the case, a country

would have to enjoy a relatively complete set of national

accounts to begin with; have a large, diverse landmass; possess

significant natural resources; suffer from excessive material

consumption and/or pollution emissions; undertake significant

expenditures for environmental protection; and have an

interest in preparing environmentallyadjusted macroeconomic

aggregates. To date, the only country that might legitimately

5 It is worth noting that many countries fail to implement partsof the SNA 93 that are in theory important to them because of lackof statistical capacity. For example, relatively few countriescompile national balance sheet accounts, despite the obviousimportance in all nations of measuring national wealth and itsevolution. The one element of the system that no country ignoresis the income and expenditure accounts, as these are the basis forestimating the widely used economic indicator Gross DomesticProduct.



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respond positively on each of these fronts is, arguably, China,

and it has only recently begun to think seriously about building

environmental accounts (China Daily, 2004). For the majority of

countries, the value of the SEEA 2003 lies not in providing an

ultimate target to strive for in terms of implementation, but in

providing a complete and coherent portrait of the environment

and the economy from which to select pieces that respond to

national needs. Countries that follow the SEEA 2003 guidelineswill also benefit from the comparability of the accounts they

compile with those of other countries that have followed suit.

In spite of the advantages it offers, the publication of the

SEEA 2003 will not result in immediate convergence on

environmental accounting concepts and methods. As noted

above, environmental accounting has been practised in a

number of countriesfor many years nowand theseprogrammes

are well-ensconced with their own particular and sometimes

divergent characteristics. In spite of this, there are at least three

reasons why conceptual and methodological convergence can

be hoped for as a longer term consequence of the SEEA 2003.

First, the SEEA 2003 is a clearer reflection of environmental

accounting as it is practised in countries than was its

predecessor. While there remain areas of divergence among

country practices (e.g., water accounting, land accounting,

fisheries accounting), it is also so that a degree of convergence

in some areas of environmental accounting had already

occurred by the time the SEEA 2003 was drafted. The handbook

naturally adopted the concepts and methods as practised in

countries wherever there was such convergence. This means

that as newcountries begin compiling these accounts, there is a

good chance their efforts will immediately align with practice in

established accounting programmes. For example, the compi-

lation of inputoutput based material andenergy flow accounts

(along the lines of the Dutch NAMEA described earlier)has been

practised in a comparable fashion for some time now in a

number ofcountries. Thesameis true of assetaccountsfor fossil

fuels, minerals and timber. Environmental protection accounts

are also compiled more or less comparably by many countries.

Second, theSEEA 2003 is theresult of a collectiveefforton the

part of many national and international agencies, whereas the

SEEA 1993 was drafted by a small team of experts. As such, the

SEEA 2003 benefits from a high degree of initial buy-in from

many of those who will be asked to see to its implementation.

Finally, a decision has been taken recently by the newly

formed United Nations Committeeof Experts on Environmental

and Economic Accounting to elevate the SEEA 2003 to the level

of an international standard by 2010. As an international

standard, countries will face a higher degree of pressure from

within and without to conform to its concepts and methods.

Having discussed the challenges and promise of imple-

menting the SEEA 2003, we now turn to a more practical

discussion of theimplementation of the accountsin each of its

four categories.

3.1. Physical and hybrid flow accounts

The physical and, especially, hybrid flow accounts of chapters

3 and 4 of the SEEA 2003 are of wide interest in principle, since

material and energy flows are common to all economies.

Accounts expressed in purely physical terms provide a means

of considering economic activity that stands in stark contrast

to standard economic accounts. Rather than an industry's

importance being determined by the value of its output,

physical accounts reveal itsimpact in material terms.Sincean

economy's impact on the environment is determined in large

part by the scale and character of its material flows, such

accounts contain much information relevant to understand-

ing the relative contribution of different industries to envi-

ronmental degradation.These accounts form the basis for the calculation of

aggregate indices of material flows that have a growing

following, particularly in Europe and in Japan. The Wuppertal

Institute in Germany is most closely associated with the

development of these indices, which include measures of

total material requirements among others. To date, relatively

few countrieshave investedin theelaboration of purelyphysical

environmental accounts,Germany andJapanhaving among the

greatest experience (Moriguchi, 2001; Schoer and Schweinert,

2005). The OECD has recently embarked upon a programme of

work on material flow accounting that may result in their wider

implementationin thefuture (OECDCouncil,2004).Chiefamong

reasons for not compiling such accounts is ambiguity in

interpreting the results, especially for aggregate material flow

indices in which flows of all materials are added together

without weighting according to relative environmental impact.

Hybrid flow accounts those that combine physical and

monetary statistics are implemented more commonly. As

noted earlier, inputoutput based hybrid accounts similar to

the Dutch NAMEA system have been implemented in many

European countries. Their aim has been mainly the study of

the relationship between air pollution emissions and eco-

nomic activity. Another popular use of hybrid accounts is to

link energy use in physical terms with economic activity. The

accounts are flexible though and can be used to study a wide

range of issues. Essentially any raw material (or energy) input

or waste material (or energy) output for which physical

statistics are available can be analysed through hybrid flow

accounts. Because issues of resource use and waste output are

pervasive across economies, hybrid flow accounts are among

the most commonly implemented of environmental accounts.

Countries in which they exist include Australia, Canada,

Denmark, Germany, New Zealand, Norway and Sweden. A

common use of the accounts in these countries is measure-

ment ofdecoupling. This is the word used to describe what

happens when economic activity becomes less dependent on

material inputs or pollution outputs over time, a key issue in

assessing movement toward sustainability.

3.2. Environmental protection and management accounts

The second category of accounts in the SEEA 2003 (chapters 5

and 6) includes those devoted to measuring environmental

protection and management activities. As noted earlier, these

accounts take the environment-related transactions that are

already implicit in the SNA 93 and show how they can be made

more explicit. Examples of such transactions include invest-

ments in pollution control equipment, natural resource man-

agement expenses and environmental taxes. The accounts are

of interest primarily in countries in which businesses, govern-

ments or households undertake such transactions in a signif-

icant and regular fashion. In practice, the largest of these



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transactions tend to be those associated with industrial

pollution control, which makes the accounts of particular

interest in industrialised nations. Nations in which natural

resource management for example, operation of wildlife

preserves or silvicultural activities is a significant part of

economic activity will also find these accounts of interest.

In their fullest implementation, the environmental protec-

tion and management accounts measure both the costs and

benefits of reducing human impact on the environment. The

purchase of a pollution control system may be seen as a cost to

the industry that must install it, but it is a source of revenue to

the industry that produced it in the first place. Increasingly,

governments are looking to seize the potential for the develop-

ment of new markets, especially through exports to heavily

polluted economies like China and India, that production of

these environmental protection technologies represents.

Canada, for one, has identified this as an explicit goal of public

policy (Government of Canada, 2004).

In practice, the implementationof environmental protection

and management accounts to date has focused more on

measurement of costs than benefits. There are a number of

reasons for this. For one, it is generally considered easier to

measure costs than benefits.Firms or public agencies that incur

costs for protection or management of the environment are

generally able to identify these costs as such and give

reasonably accurate estimates of their extent. Grey areas do

exist, such as attribution of costs that have simultaneous

environmental and economic motivations, but careful attention

to wordingof survey questionscan minimise theproblems they

present. Measuring environmental revenues can be more

difficult. The problem with these is that firms that produce

generic products (pumps, for example) may have no idea what

uses their products are put to and whether any of them can be

considered environmental uses.

The second reason why measurement of costs is more

common is that there has been greater effort devoted to

development of the related techniques. The unquestioned

leader in this development is Eurostat, which produced the

definitive handbook on the topic (Eurostat, 1994). This hand-

book's existence, coupled with Eurostat's promotion of the

effort led to the development of environmental protection

expenditure accounts in many European nations during the

1990s. In addition, Australia, Canada, the United Kingdom and

several other European countries have long-standing programs

to measure environmental protection expenditures.

Implementation of accounts for environmental taxes is

much less common.

3.3. Asset accounts in physical and monetary terms

The environment can be thought of in natural capital terms as

a collection of assets of various types: natural resources, land

and ecosystems. Accounts for measuring these assets are

described and illustrated in chapters 7 and 8 of the SEEA 2003.

Of the three types of natural capital, the most fully articulated

concepts and methods are presented for natural resource

assets. Land and, especially, ecosystem accounts are still in

their relative infancy and are presented more by way of

suggested avenues for exploration in the handbook than as

clearly worked out recommendations.

The SEEA 2003 offers guidance on the construction of

environmental asset accounts in both physical and monetary

units. Physical accounts present statistics on stocks of environ-

mental assets using units of measure that are appropriate for

the asset in question. A physical account for timber resources,

for example, might portray the size of a country's timber stocks

in cubic metres of standing timber. A land account could

describe a country's land holdings in hectares. Accountsexpressed in physical units may have several benefits over

monetary accounts.Theyare generally easier to construct,since

they do not rely on complex and data-intensive valuation

methods. They are also less controversial, especially to users

from the scientific community, because they avoid the value-

laden debate over pricing the priceless. Finally, they are less

prone to the volatility that can be introduced in monetary

accounts due to the frequent and sizeable price swings that are

common for internationally traded natural resources.

At the same time, physical accounts suffer from one major

drawback at least in the eyes of users who view the world

through an economic lens: they offer very little chance for

aggregation. Timber accounts expressed in cubic metres are

not easily combined with accounts for mineral assets

expressed in tonnes. This incommensurability means that

accounts expressed exclusively in physical terms are not

especially helpful in studying tradeoffs among various forms

of capital. What if it is found that timber stocks are increasing

in physical terms while mineral stocks are decreasing? Is a

country getting better off under such conditions, or worse off?

Adding in the additional factor of comparing trends in physical

capital with trendsin produced capital makes thesituation even

more difficult to sort out. For this reason, many commentators

suggest that environmental assetaccountsdo notfind their true

value until they are expressed in monetary terms.

Monetary environmental assets accounts are portrayed

using monetary units of measure regardless of the asset in

question. They thus offer, at least in principle, the possibility

of comparing trends in different environmental assets on a

completely equal footing both among themselves and in

contrast to produced capital. This solves the problem of

incommensurability and allows questions about national

well-being in terms of environmental assets to be unambig-

uously answered. While there is obviously great attraction in

this promise, monetary accounts are also not without their

problems, both practical and conceptual. The practical pro-

blems are related mainly to the limitations of the methods

used to estimate environmental asset values and the difficulty

in obtaining the data required to implement them. The

conceptual challenges are numerous, ranging from lack of

appropriate valuation methods for complex assets like

ecosystems to philosophical and scientific debates over the

very legitimacy of the valuation approach.

One of the most vexing challenges is how to treat so-called

critical natural capital. Critical natural capital, it is argued, is

irreplaceable and therefore ought not be measured in mone-

tary terms lest the message be given that it can be traded off

with other forms of capital measured in monetary terms.

Others question the meaning of any value at all ascribed to

critical natural capital on thebasisof prevailing market prices.

Such prices are contingent upon the existence of critical

natural capital and would be rendered meaningless in the



7/8

event of any major disruption of it. They are, therefore,

inappropriate as thebasisfor the marginal valuation of critical

natural capital.

The SEEA 2003 makes no particular effort to resolve these

controversies, especially not in the chapters devoted to envi-

ronmentalasset accounts.It notes themand thechallenges they

present for the development of environmental asset accounts.

Where valuation methods arewell-developedand notespeciallycontroversial, the handbook presents them in considerable

detail, oftennotingmorethanone method where consensushas

yet to be reached. This is the case for methods applied to

traditional natural resources, such as energy, minerals and

timber. In the more complex areas of land and, especially,

ecosystem service valuation, the handbook is comparatively

silent. This is as it should be. The handbook is intended as a

guide to practitioners in a new and rapidly developing field. Its

role is to reflect the best practice in environmental accounting,

not to resolve the intellectual debates that afflict it today and

will likely do so for some time to come.

Environmental asset accounts are among the more widely

implemented of environmental accounts. Countries having

prepared them include Australia, Canada, Denmark, Norway,

and the United Kingdom. The most common assets to be

measured are energy resources coal, oil and natural gas.

Accounts for these are popular because of the economic

importance of the resources, because the underlying physical

statistics are of good quality and because the valuation

methods are well-established. Mineral and timber stocks are

the other two assets most commonly measured in environ-

mental accounts. A few countries make estimates for fish

(Australia, Indonesia, New Zealand) and water assets (Aus-

tralia, Morocco, France) as well.

A few countries (Australia, Canada, Denmark, Norway)

have started to include the value of environmental assets

alongside the measures of produced assets on their national

balance sheets. The resulting measures of national wealth

including natural capital are a much better reflection of the

actual asset base of these countries than traditional national

balancessheetsthat include only produced capital. The results

show that natural capital represents an important component

of total wealth in these countries. Themost recent statistics for

Canada, for example, indicate that a limited basket of envi-

ronmental assets energy, minerals, timber, farmland and

commercial land represented 39% of national wealth in

2005 (Statistics Canada, 2006). That Canada is one of the

handful of countries to haveincludedenvironmental assets on

its national balance is fitting in a little known way. It was

actually a noted Canadian resource economist, Anthony Scott

of the University of British Columbia, who made the earliest

explicit call in the economic literature in 1956 for the

inclusion of natural resource assets on the national balance

sheet (Scott, 1956).

4. Conclusion

The current state of environmental information around the

world is, by most accounts, unacceptable. Environmental

statistics are scattered among too many organizations. They

are not coherent with one another, let alone with other types of

statistics. They are incomplete and not consistent over time.

This situation greatly restricts national and international

capacity to develop and monitor progress toward environmen-

tal policy goals; for example, those associated with Goal 7 of the

UN MilleniumDevelopment Goals(United Nations, 2005).Asthe

need to pursue the harmonization of economic and environ-

mental goals becomes more urgent, this situation will become

increasingly untenable. Integrated environmental informationof the sort promised by the SEEA 2003 will become essential to

good public policy making.

Environmental accounting alone will not answer all ques-

tions that environmental policy makers and the public might

pose. It has been argued here, however, that integrated en-

vironmental information founded on a clear and rigorous

conceptual foundationand organized in parallel with economic

information is much better suited to today's needs than is

existing environmental information. Environmental accounts

are, we believe, a powerful response to the weaknesses that

prevent existing statistics from having the impact on public

policy that they should, and indeed, must have.

Acknowledgement

The opinions expressed herein are those of the author and

should not be taken as representative of those of Statistics

Canada. Thanks are due to Mr. Jan van Tongeren for useful

comments on an earlier draft of this paper. All remaining

faults of any sort are the responsibility of the author.

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