Write a short note on System of Integrated Environmental and Economic Accounting (SEEA):

Introduction:

Our national income data are useful indicator of economic health of a country. Gross Domestic Product measures the level of economic activity and indicates the variations in these activities. The national income data do not incorporate the environmental concerns in it. It is now believed that the development alone does not matter, it should be sustainable so that our posterity may live in the same comfort, which we had if not better.  System of National Accounting (SNA) has three main defects:

Defects:

a)     It neglects the depletion of natural capital such as land, forests, water, minerals etc.

b)     Environmental pollution is not reflected in the SNA.

c)      Expenditure incurred in facing the external effects of environmental degradation becomes the part of SNA.

In recent years, a new system of sustainable accounting, known as Green Accounting, has emerged. “It permits the computation of income for a nation by considering the economic damage and depletion in the natural resource base of an economy”.

Objectives of System of Integrated Environmental and Economic Accounting (SEEA):

It is obvious that the conventional economic accounts do not identify any of the environmental and natural resource inputs that re used for production. They are assumed as free gifts of nature and not priced in markets. In fact, the costs are external to the firm. This is one of the main cause of environmental depletion. The objective of SEEA is to extend the conventional accounts to includes depletion of natural assets.

1.      Segregation and Elaboration:The first objective of SEEA is segregation and elaboration of all environment related flows and stocks of assets, related to environmental issues. As a result, it is easier to estimate the total expenditure required for protection of environment. A further objective of this segregation is to identify that part of GDP that reflects the costs necessary to compensate for the negative impacts of growth., it is the defensive expenditure.

2.      Linkage: The second objective of the SEEA is the linkage of physical resource accounts with the monetary and environmental accounts and balance sheets. Physical resource accounts cover the total stock of the reserves of natural resources and changes there in even if those resources are not (yet) affected by the production process in the economic system.

3.      Assessment of Environmental costs and Benefits: In SEEA we also record use or depletion of natural resources in production or final consumption. The changes in the environmental quality is also taken into account.

4.      Accounting for the maintenance of the tangible wealth: In the environmental and economic accounting capital covers not only human made but also natural capital. Capital formation is correspondingly changed into a broader concept of capital accumulation allowing for the use and discovery of environmental assets.

5.      Calculation of modified macroeconomic aggregates:The consideration of the cost of depletion of natural resources and changes in the environmental quality permits the calculation of modified macroeconomic aggregates, notably an environmentally adjusted net domestic product (EDP). 

      How can we measure the Environmentally adjusted GDP

We have already studied the concept of national income where we have defined the Net Domestic product as;

NDP= C+I+G+(X-M)

To arrive at Green NDP the concept of net capital formation (I) is replaced to include non-produced capital assets and account for its depletion by subtracting the used non- produced assets from the initial stock.

Green NDP or EDP=EDP = + C + NAp. ec + (NAnp.ec - NAnp.n) +Net Exports(X-M)

Where;

Green NDP = Environmentally adjusted domestic product.

С = Final Consumption

NAp.ec = Net accumulation of produced economic assets.

NAnp.ec = Net accumulation of non-produced economic assets

NAnp.n = Net accumulation of non-produced natural 

Net Export(X-M) = Exports-imports

It is essential to maintain close links between the two systems of accounting to facilitate the direct comparision of conventional and environmentally adjusted indicators. This can be achieved by incorporating the produced and non-produced assets in the standard national income accounts which are eleborated and expanded in the system of integrated Environmental and Economic Accounting (SEEA) issued in the SNA handbook on Integrated Environmental and Economic Accounting (IEEA) issued by United Nations in 1993.

Table: System of Integrated Environmental and Economic Accounting (SEEA)

Supply and Use Accounts				Asset Balance by Type of Assets
ISIC				Produced Assets	Non-produced Assets
CPC	Output	Imports
Intermediate Consumption		Exports	Final consumption	Opening stock of produced assets	Opening stock of non-produced Economic Assets
Consumption of fixed capital: produced Assets				Gross Capital Formation
Value Added, Net/NDP				Consumption of Fixed capital
Asset balance by industry: Produced assets and Non-produced assets				Other changes in volume of produced assets	Other changes in volume of Non-produced assets
				Holdings Gains/ Losses on Produced Assets	Holdings Gains/ Losses on Non-Produced Economic Asset
				Closing stock of produced assets	Closing stock of Non-Produced Economic Assets
ISIC= International Standard Industrial classification of all Economic Activities, UnitesNations, (1990) CPC= Provisional Central product classification, United nations.

Table shows how the data systems for produced and non-produced (natural non-financial) assets can be integrated in to one table of supply and use and asset accounts.

Table introduces two classifications for the further break down of its supply and use blocks. The first classification is by industry, based on the International Standard Industrial Classification(ISIC) and is applied vertically to the blocks of output, intermediate consumption and value added. The second classification is by products, based on Central Product Classification(CPC) and is applied horizontally to the blocks of supply (output and Imports) and use (intermediate consumption, final consumption, capital formation and exports). In the conventional economic accounts those activities which produced the same output are grouped together. Once we consider that the environmental products which get generated during production must be accounted for, then the sectoral aggregation must be changed.  This is because the scale of production may lead to different levels of emissions and the techniques of production also affects theenvironment. The house hold and cottage industries must be treated separately in the accounting process. Similarly, based on techniques of production electricity production is a single activity in conventional accounting is accounted separately as hydro, coal, gas, atomic as they generate different types of pollution. The supply side identity holds for each product category that is distinguished in the supply and use rows of the table and the value-added identity holds for each industrial sector.

The production sector arguments also apply on the consumption side. Environmental changes also take place in the process of consumption. For example, when people travel by vehicles, air pollution takes place. The municipal waste generated by consumers has serious environmental problems. Moreover, not only the level of consumption but the manner of consumptionalso has environmental effects e.g. cookingwith cow dungor fuel wood. All these must be considered separately by the accounting authorities. This is done by Central Product Classification (CPC) and is applied horizontally to the blocks of supply and use. 

***