How the SEEA Experimental Ecosystem Accounting framework ... 2 Carl OBST PAPER.pdf · How the SEEA...

DRAFT FOR OECD EXPERT WORKSHOP

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How the SEEA Experimental Ecosystem Accounting framework

could be used for growth accounting and productivity analysis

Paper prepared for the OECD Expert Workshop on Measuring Environmentally Adjusted

TFP and its Determinants, 14-15 December, 2015

Carl Obst

Director, Institute for the Development of Environmental-Economic Accounting (IDEEA)

Honorary Fellow, Melbourne Sustainable Society Institute, University of Melbourne

December 2015

1. Introduction

In light of the ongoing realities of climate change and the increasing demand for food around

the world, understanding the capacity of the environment to support agricultural production is

of upmost concern. An important part of this understanding is the organization and analysis of

information about the link between the environmental assets and ecosystems that underpin

agricultural production and the production functions that describe the activities of the

economic units (including households) that are involved in that activity. Commonly,

environmental and economic analysis is not conducted in an integrated manner and the

available information does not generally support such analysis.

In this context, the measurement of productivity represents an important analytical and

monitoring tool. The explicit incorporation of environmental considerations into productivity

measures, especially for the agricultural industry, would support a more complete

understanding of the factors that drive output and inputs growth and hence support the

development of more integrated policy responses.

At national level, the standard approach to measuring multi- or total factor productivity

(MFP/TFP) that is used across OECD countries is known as growth accounting. The approach

uses the framework and data from the national accounts – i.e., the dataset that incorporates

gross domestic product (GDP) and associated measures of investment, wages and salaries,

profits and related variables. The national accounts themselves are compiled by all OECD

countries following the international standard, the System of National Accounts (SNA) (EC et

al, 2009).

Estimates for the agriculture industry are included in national measures of MFP. However,

notwithstanding the direct use of environmental assets by the agriculture industry, the

measurement of capital’s contribution to MFP growth in agriculture has commonly been

undertaken using the same methods as for other industries – i.e. including only produced (or

manufactured) capital. More recently, in some countries (e.g. Australia), a variation has been

adopted with the inclusion of the area of agricultural land as a capital input (ABS, 2014), but

no account is taken for the changing quality of land, for example through declines in soil

fertility and soil erosion.

Over the past 20 years there have been important advances in the measurement of natural

capital and environmental assets, encapsulated in the recent international standard, the System

of Environmental-Economic Accounting (SEEA) 2012 Central Framework (SEEA Central


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Framework) (UN et al., 2014a) which uses national accounting principles for the organization

and integration of environmental data.

In 2013, as an extension to the SEEA Central Framework, an additional perspective was

introduced to apply national accounting principles to the integration of information on

ecosystem condition and ecosystem services. This advance is referred to as ecosystem

accounting and is described in the SEEA 2012 Experimental Ecosystem Accounting (SEEA

EEA) (UN et al., 2014b).

In concept, ecosystem accounting provides information that can directly enhance the

measurement of MFP. In effect, measures of the ecosystem assets (i.e. the underlying natural

capital) that underpin agricultural activity can be included as a new factor of production in

deriving the volume of inputs – i.e. in addition to labour and produced capital. For

agriculture, the enhancement allows recognition of the changing quality of agricultural land

and surrounding ecosystems.

This paper articulates the way in which information on ecosystem services and ecosystem

assets might be incorporated into standard growth accounting measures of MFP. It also

provides a series of conceptual and measurement issues that remain to be further explored,

including the potential for ecosystem accounting approaches to be applied at both macro and

micro levels.

Since the integration proposed requires bringing together quite different streams of

measurement, particularly with regard to ecosystem accounting, the first half of the paper

provides some introductory and background descriptions of relevant material. Thus, in section

2, there is some background to the development of the SEEA; in section 3, the ecosystem

accounting model is described; and in section 4, an overview of the growth accounting

method is provided. All of this background is to provide a frame for the integration of

ecosystem information. Section 5 discusses in conceptual terms the way in which ecosystem

services could be integrated into the standard growth accounting framework. Section 6

describes the key research questions and section 7 concludes.

2. Overview of the SEEA framework and its development

Development of the SEEA1

The potential and need to better integrate measures relating to natural capital within the

national accounts framework emerged through the 1970s and 80s (see Bartelmus, 1987;

Ahmad et al., 1989). Consistent with a request from the first United Nations Conference on

Environment and Development held in Rio de Janeiro in 1992 (United Nations, 1993a), the

United Nations Statistical Division led the drafting of the first international document on

environmental-economic accounting (United Nations, 1993b). This document, Integrated

Environmental and Economic Accounting, became known as the System of Environmental-

Economic Accounting or SEEA. It was an interim document prepared by the world’s official

statistics community to propose ways in which the SNA might be extended to better take

natural capital into consideration.

Over the past 20 years there has been an important broadening of focus in SEEA related

work. Through the 1980s and early 1990s the primary focus was on extensions and

adjustments to GDP, for example measures of depletion and degradation adjusted GDP, and

recording environmental expenditures. Discussion considered the range of ways in which

depletion and degradation might be estimated, valued and subsequently incorporated within

the structure of the standard national accounts and its various measures of production,

income, saving and wealth.

1 This brief history is taken from Obst (2015) which summarises the longer description in UN, et. al.,

2014a


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Through the 1990s this specific focus started to broaden to consider ways in which

accounting approaches and structures may be useful in the organization of physical

information on environmental stocks and flows such as water, energy and waste. This broader

application of accounting, which has been expanded further in recent years through the

development of ecosystem accounting, confronts the common conception that adoption of

accounting approaches necessarily relies on the valuation of nature in monetary terms.

Certainly there are questions that cannot be answered unless valuation is undertaken, for

example adjusting measures of GDP, but there are some important advantages of applying

accounting principles in the organization of data in physical terms.

The SEEA family

The SEEA 2012 comprises three volumes: (i) the SEEA Central Framework; (ii) SEEA EEA;

and (iii) the SEEA 2012 Applications and Extensions (UN et. al., 2014c)2. In addition,

various thematic SEEA publications have been developed including a SEEA for Forestry

(Eurostat, 2000); a SEEA Fisheries (UN and FAO, 2004); and SEEA Water (UN, 2012).

Work is almost complete on the development of a SEEA Energy and a final consultation draft

is currently under review on a SEEA for Agriculture, Forestry and Fisheries (SEEA

Agriculture).

All of these various publications within the SEEA “family” are connected through their

common basis in the national accounting principles and structures of the international

standard for economic accounting – the System of National Accounts (EC, et. al., 2009)

(referred to here as the SNA). It is the SNA that defines the measure of GDP and many other

common economic aggregates that form the basis for much macro-economic assessment and

policy. Indeed, the logic driving the development of the SEEA is (i) that the SNA’s

accounting for the environment is insufficient and (ii) that highlighting the significance of the

environment may be best achieved by mainstreaming environmental information via the

standard framework for economic measurement. Thus the SEEA is envisioned as a

complementary system to the SNA rather than a competing or alternative approach.

2 The third volume focuses on ways in which data organized following the SEEA Central Framework

can be applied to the analysis of various policy questions and linked to other datasets. It is not

discussed further here.

Box 1: The SEEA Central Framework and SEEA Experimental Ecosystem Accounting

Initially developed in the early 1990s, the SEEA is conceived as a comprehensive approach for the

organization of information concerning the relationship between the environment and the economy.

To provide a suitable coverage and to ensure that more recent developments on ecosystem services

could be incorporated, a two volume approach to the development of the SEEA 2012 was applied.

The first volume, titled SEEA Central Framework, views the environment in terms of individual

environmental stocks and flows and hence provides standards to account for variables such as

stocks of timber, fish, mineral resources and land, and for flows of energy, water, emissions and

waste.

The second volume, titled SEEA Experimental Ecosystem Accounting, views the environment as a

set of ecosystems such as forests, wetlands, grasslands and agricultural land. The ecosystem

accounting model describes the measurement of the changes in condition and extent of the stock of

ecosystem “assets”; and the measurement of the ecosystem services that flow from those assets.

There are connections between the two volumes (for example between the measurement of the

stock of timber resources and the condition of forests). The intention is that the different

perspectives are seen as complementary rather than competing approaches to accounting for natural

capital.


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This approach of integrating with the SNA leads to some important choices in measurement,

for example concerning valuation concepts, that may be different from the ways in which

environmental economists have traditionally approached assessment of the links between the

economy and the environment.

The various SEEA publications cover five different aspects of accounting, although to

varying degrees within the thematic SEEAs. These five aspects are:

(i) physical flow accounts for substances such as water, energy, solid waste and

emissions

(ii) asset accounts for individual environmental assets, such as mineral and energy

resources, timber resources, soil resources, water resources and fish stocks

(iii) accounting for stocks and changes in stocks of land and ecosystems and their

services

(iv) accounting for environmental transactions (including environmental protection

expenditure, the production of environmental goods and services, and flows of

environmental taxes and subsidies)

(v) a sequence of accounts and balance sheets including accounting for depletion and

degradation and adjusting relevant economic aggregates (e.g. GDP, national saving,

net wealth).

The SEEA for Agriculture, Forestry and Fisheries (SEEA Agriculture) emerged from ongoing

interest in organizing information for the purpose of analyzing the relationship between the

economy and the environment for agriculture, forestry and fisheries activities. The work has

been led by the FAO who are the leading international agency concerning data on these

activities. The SEEA Agriculture is expected to be finalized in early 2016. A short summary

is provided in Annex 1.

3. The SEEA EEA ecosystem accounting model

The SEEA EEA was developed through 2011 and 2012 to provide an approach to the

measurement and integration of environmental degradation within the standard economic

accounts. The definition and measurement of degradation has been an area of discussion and

contention within national accounting circles for more than 20 years. The work on SEEA

EEA was able to take advantage of the more recent developments in the measurement of

ecosystem services, such as presented in the Millennium Ecosystem Assessment (MA, 2005)

and the original TEEB study (TEEB, 2010). The SEEA EEA represents a synthesis of

approaches to the measurement of ecosystems adapted to enable integration with standard

national accounting concepts and measurement boundaries.

The full ecosystem accounting model is described at length in SEEA EEA chapter 2 and

readers are referred to that document for a detailed description. For the purposes of discussion

here Figure 1 provides a depiction of the general model.


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Figure 1: General ecosystem accounting model (SEEA EEA Figure 2.2)

Source: UN et al, 2014a

Five key features are noted:

(i) The delineation of spatial areas. Ecosystem accounting is focused on accounting for

ecosystem assets, each delineated by a spatial area. In the case of agriculture this could equate

to a single farm or to a broader area, such as a rice farming area, with the understanding that

each spatial area would consist of a similar vegetation type and cover. From a measurement

perspective, defining the spatial boundaries is fundamental since without such boundaries it is

not possible to consistently measure the condition and changes in condition of the asset or to

appropriately attribute flows of ecosystem services.

In addition, the use of a spatial basis for accounting is the embodiment of a systems approach

to accounting wherein both economic and environmental stocks and flows are considered in a

holistic fashion. However, the delineation of an ecosystem asset should not be equated with

definition of a farming or agricultural system which would commonly be considered to also

encompass a range of socio-economic factors (e.g. markets, institutions, government policies,

etc). Further, it is likely that a complete agricultural system would comprise more than one

type of ecosystem asset. For example, in a rice production system there would be rice fields

as well as neighbouring water sources and perhaps forest ecosystems.

Finally, for the purposes of integrating ecosystem information about the defined spatial areas

with standard economic accounting and productivity measurement, it is most useful to

consider this asset as a type of quasi-producing unit additional to the standard economic units

such as industries and households.

(ii) Measuring the condition of ecosystem assets. Each ecosystem asset (e.g. a rice farm) has

numerous characteristics (climate, soil, vegetation, species diversity, etc) and performs

various ecosystem functions. The integrity and functioning of the asset is measured by its

condition. It is the decline in overall condition, in biophysical terms, that underpins the

measurement of ecosystem degradation. At this point there is no finalized view on precisely

which characteristics should be monitored for each ecosystem type in order to provide an

appropriate assessment of the overall condition (current state) and the change in condition of

an ecosystem asset. Accounts for ecosystem condition and ecosystem extent (i.e. the area of

the ecosystem asset) are described in SEEA EEA. These accounts are compiled in biophysical

terms only.


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(iii) Measuring the flow of ecosystem services. Based on both the ecosystem asset’s condition

and the use made of the ecosystem asset (e.g. for rice production), a basket of ecosystem

services will be supplied. The ecosystem services supplied are matched to users/beneficiaries,

i.e. economic units including businesses, households and governments. An ecosystem

services supply and use account is developed in ecosystem accounting. The coverage of

ecosystem services includes provisioning services (e.g. food, fibre, water), regulating services

(e.g. air filtration, water flow regulation, carbon sequestration) and cultural services (e.g.

tourism, spiritual connections).

The focus in SEEA EEA is on final ecosystem services following the approach taken in

TEEB (2010) and Boyd and Banzhaf (2012), among others. Consequently, ecosystem

services are considered contributions to benefits and in valuation a distinction is drawn

between the price of a marketed good such as rice and the value of the contribution of the

ecosystem. In this case the contribution would be estimated by deducting growing and

harvesting costs (e.g. labour, pesticides, fertilizer, machinery, etc) from total revenue.

In concept, by estimating the monetary value of all ecosystem services supplied by an

ecosystem asset, and then estimating the associated net present value of this basket of

services, the value of the ecosystem asset itself is derived. The value of ecosystem

degradation will be related to the change in the value of the ecosystem asset over an

accounting period, noting that the value of the asset may change for reasons other than a

decline in condition, e.g. through changes in land use; and that a loss in condition may not be

due to human activity (e.g. storm damage) and hence would be excluded from ecosystem

degradation for accounting purposes.3

(iv) Relating ecosystem services to standard measures of economic activity. The supply of all

ecosystem services is outside the production boundary of the SNA as they are considered

natural processes (see SNA 2008, 6.24). At the same time, many ecosystem services

contribute to the production of goods and services that are included in the SNA production

boundary, for example the contribution of soil nutrients to rice production. In this case the net

effect on GDP of recording the supply of ecosystem services is zero, since the ecosystem

services are considered outputs of the ecosystem asset and inputs to existing production.4

The SEEA EEA also goes an additional step by including the supply of ecosystem services

that are not inputs to current goods and services. For example, the carbon sequestration

service of plants. It is this additional output, and associated value added, that directly

increases measures of GDP.

(v) The use of exchange values. The ecosystem accounting model reflects relationships

between stocks and flows that exist without regard for the unit of measurement. Thus, in

concept, the accounting relationships can be reported in both physical and monetary units.

Measurement in monetary terms requires the use of various valuation techniques since prices

for ecosystem services and assets are not directly observed in markets as for standard

economic products.

Economists have developed many valuation techniques to support analysis of environmental

issues including the valuation of ecosystem services. For accounting purposes, some of these

3 In national accounting degradation, like the depreciation of manufactured assets, is considered a cost

against income from production and hence only the change in asset value that is attributable to the

production activity should be deducted. Other changes in value are recorded in the accounts but not as

a deduction from income. 4 Note that it is by recognizing ecosystem services as both outputs (of ecosystem assets) and inputs (to

farming units) that double counting is avoided. The treatment is exactly analogous to the treatment of

outputs and inputs through the standard supply chains recorded in the national accounts.


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techniques are appropriate as they estimate the exchange value of an ecosystem service, i.e.

the price at which a willing buyer and willing seller would complete a transaction. Exchange

values are required for accounting since they allow a balance between supply and demand to

be maintained in monetary terms. However, a number of valuation techniques measure

welfare values that reflect the value to an individual buyer or seller of undertaking a

transaction. Such valuations are not appropriate for accounting purposes although they may

be appropriate for various forms of economic analysis. Research is ongoing about the best

ways to utilize different valuation techniques for accounting purposes.

4. Background to the growth accounting approach to the measurement of MFP

Multifactor productivity (MFP) is a well accepted and broadly compiled estimate of

productivity that takes into account the extent to which the volume all of the inputs to

production (labour, capital and intermediate inputs) are changing in relation to the volume of

output. In short, MFP growth occurs when the growth in the volume of output is greater than

the combined volume of inputs. Under various assumptions, the so called MFP “residual”

reflects changes in technical progress – i.e. that part of the growth in output that cannot be

explained by the growth in inputs.

The measurement of MFP can be undertaken in many ways and has been compiled for

individual firms, industries and for countries as a whole. At national level, the standard

approach used across OECD countries is known as growth accounting. It was developed in

the 1950s and 60s by Robert Solow, Dale Jorgenson and others and has been continually

advanced since that time.

The approach uses the framework and data from the national accounts. Because national

accounts compiled by official statistical agencies are the basis for growth accounting, MFP

estimates, since the 1980s OECD countries have steadily been adopting and publishing

national MFP estimates as extensions from the core national accounts dataset.

Two approaches are commonly applied. The first involves measuring the change in the

volume of value added for each industry – i.e. output less intermediate inputs – and to

compare this to the change in the combined volume of the two factors of production – labour

and capital. Since the volume of value added by industry is the same measure used in the

derivation of GDP this information is readily available. The volumes of labour and capital are

weighted together using national accounts information on the cost shares of each namely

compensation of employees for labour inputs and gross operating surplus (GOS) for capital.

The second approach, known as KLEMS (capital, labour, energy, materials and services),

uses output by industry as the left hand side variable of interest and compares growth in

output with the combined growth in inputs of labour, capital and three categories of

intermediate inputs (energy, materials and services). Due to the use of the underlying national

accounting information to determine input cost shares, the resulting MFP estimates from

either approach can be mathematically related.

In practice, the measurement of MFP draws out complexities that arise in all of the variables

but the measurement of the volume of capital is generally considered the most complex.

Traditionally, across all industries the only capital that has been considered has been

produced capital – buildings, machines, transport vehicles, roads, and the like. Investment

flows on each asset type are incorporated in models and together with assumptions on asset

lives, depreciation rates and similar factors, measures of the flows of “capital services”

provided by produced capital can be estimated. As noted, the relative importance of capital,

its cost share, is reflected in the measure of gross operating surplus.

For the agricultural industry, it has long been recognised that consideration of only produced

capital is insufficient to obtain a meaningful estimate of MFP. Therefore, current best practice

is to include a measure of the area of agricultural land to reflect the importance of this form of


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capital in the production of agricultural output. While this does broaden the scope of capital

inputs being taken into account, the measure used takes no account of changes in the quality

of agricultural land. The potential to improve the measurement of capital inputs to MFP is the

entry point for the integration of ecosystem accounting and growth accounting. This is the

focus of the following section.

5. Integrating ecosystem accounting and growth accounting for agriculture

In concept, ecosystem accounting provides information that can directly enhance the

measurement of MFP. In effect, measures of the ecosystem assets (i.e. the natural capital) that

underpin agricultural activity can be included as an additional component of capital in

deriving the combined volume of inputs – i.e. in addition to labour and produced capital. The

addition is appropriate in either a value added based approach to measuring MFP or a

KLEMS based approach. In cases where land is already included as a capital input, the

enhancement provided through ecosystem accounting is to recognize changes in the quality of

agricultural land.

The basis for the enhancement lies in recognizing that the flows of ecosystem services from

agricultural land (in line with the flow of ecosystem services from ecosystem assets in Figure

1) are directly analogous, in accounting terms, to the capital services that flow from produced

capital. It has not been until the synthesis of ecosystem measurement and national accounting

that took place in the SEEA EEA that this apparently quite simple insight has emerged.

The incorporation of ecosystem services into MFP calculations can be undertaken in a

number of stages. The most straightforward inclusion concerns ecosystem services where

there is the direct use of an ecosystem by an agricultural unit. Examples include the

abstraction of water for irrigation, the pollination of crops by wild pollinators, native grasses

eaten by livestock and the absorption of soil nutrients in plant growth. For each of these types

of ecosystem service there is an associated physical flow that reflects the flow of capital

services in the growth accounting formulation.

There are two key challenges in incorporating these ecosystem services. First, there is

challenge of understanding and measuring the relationship between the physical flows of

ecosystem services and the associated agricultural outputs. Commonly, there are no simple

linear relationships involved with the supply of ecosystem services dependent on a range of

factors including the relative condition of the ecosystem asset, the weather patterns that may

arise in any given season and the extent of human inputs, for example the application of

fertilizer and pesticides. However, while the precise articulation of the link between

ecosystem services and agricultural output may be difficult, this is also the case for produced

capital (although perhaps to a lesser extent) whereby assumptions about the link between

assets and capital service flows are made following generalised models.

The second challenge lies in estimating the cost share relevant for these inputs. Since these

ecosystem services flow directly into the production of agricultural outputs that are included

in standard measures of industry value added, in concept the value of these inputs should be

incorporated implicitly in estimates of the gross operating surplus. It is therefore a matter of

partitioning the gross operating surplus between the return to produced capital and the return

to natural capital. This is akin to the measurement of resource rent as applied in standard

natural resource accounting.

The next stage in the incorporation of ecosystem services is recognizing the role that

ecosystems play in dealing with the residual flows generated as a result of agricultural

production. These services are often considered in economics in the context of negative

production externalities and represent the use of the environment as a “sink” for pollutants

and waste. Examples of relevant flows include GHG emissions and excess flows of nitrogen


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and phosphorous into local water catchments. In these cases the relevant ecosystems provide

a service to agricultural producers by capturing the residual flows. If the ecosystems were not

playing this role costs would be incurred by the producer. Whether or not the release of

residuals leads to a decline in the condition of the relevant ecosystem assets, a flow of

ecosystem services should be recorded as an input to agricultural production.

Unlike the previous case of direct use, it will be uncommon for the cost of these “sink”

ecosystem services to be incorporated in the market prices for the outputs from agricultural

production and hence the value of the services will not be incorporated into the operating

surplus that might serve as a base for estimating the cost share of these inputs. Thus from an

accounting perspective it becomes necessary to recognize additional outputs and inputs

related to these services. Further, where the release of residuals does lead to a decline in the

condition of ecosystem assets it is likely to be appropriate to allocate an amount of

degradation, i.e. a cost of natural capital. As noted in the following section, further research is

required to understand fully the accounting implications of these proposals.

In relation to these types of “sink” ecosystem services, a note is made of the recent OECD

work on environmentally adjusted MFP in which adjustments are made to account for GHG

emissions. In the work by Brandt, Schreyer and Zipperer (2014) the growth accounting

approach is used but rather than utilizing an ecosystem accounting logic to extend the

measures, an indicator of emissions is reflected as a negative output of production and an

associated environmentally adjusted GDP is derived. It may be that this approach can be

mathematically incorporated within the broader ecosystem accounting logic but further

examination is required.

The final stage of potential extension of the ecosystem accounting approach is recognizing

that there may be a range of positive externalities of agricultural production that could be

considered in understanding the full production function and relevant trade-offs. Thus, the

incorporation of ecosystem services could be extended to include the carbon sequestration

services of farms which provide benefits globally, it would be possible to recognize the role

that agricultural areas play in the regulation of water flows and the benefits obtained by the

tourism industry from the management of agricultural landscapes. As in the previous stage the

key challenge will be estimating the appropriate adjusted measure of agricultural output that

reflects the production of these additional services by ecosystem assets managed by the

agricultural industry.

Overall, the incorporation of ecosystem services into the MFP picture should support a more

extensive analysis of agricultural production processes. For example, tradeoffs between the

use of fertilizer and the maintenance of soil fertility (and hence obtaining nutrients from the

soil) should become explicit since both inputs are within scope of the system. Previously only

fertilizer was recognised as an input in the calculations. There is thus the potential to reflect,

in the measures of MFP, the effect of investments in best practice land management as part of

the productivity equation. This simply was not possible in the past.

6. Key research questions

It is considered that the broad approach of integrating ecosystem accounting and growth

accounting has considerable potential but there remain important measurement issues to

overcome. This section outlines some key research questions.

First, a much more detailed working through of the conceptual model is needed with regard to

the application to MFP measurement. In particular, it will be necessary to take the ecosystem

accounting concepts and blend them with the standard capital and growth accounting theory

and related index number approaches. An important aspect in this work will be considering


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the alignment between ecosystem accounting and the production and consumption theory that

underpins growth accounting. Indeed, it is likely that work in this area will have related

benefits in the ongoing research to develop valuation techniques for ecosystem services that

are appropriate for national accounting uses.

Second, there are many data that need to be brought together to form a basis for compilation

of environmentally adjusted MFP measures. Ecosystem accounting has not yet been

implemented on a large scale in any country although some important pilot work is being

undertaken in a number of locations. Experience to date suggests that progress on ecosystem

accounting will generally involve bringing together a wide range of existing data and there

would appear to be great potential to examine data that currently underpins the variety of

agricultural models that have been developed that incorporate information on physical and

ecological flows. Integrating these data within the accounting framework will be an important

step. Also relevant in the context of data, especially for international comparison purposes,

will be advances in the implementation of SEEA Agriculture and the associated coordination

of country data by the FAO.

Third, the most challenging area of measurement is likely to be the valuation of ecosystem

services such that relevant cost shares within an accounting framework can be determined.

Given that ecosystem services are not exchanged on markets, it will be important to advance

the testing and implementation of appropriate non-market valuation techniques. A particularly

interesting aspect here will be understanding the connections between values for agricultural

land and values for associated ecosystem services.

Fourth, an important aspect of the work will be considering spatial detail. Ecosystem

accounting builds up from different types of ecosystem assets and hence it is possible, in

theory, to consider the measurement of productivity for different regions and for different

types of farming operation – e.g. irrigated and rainfed agriculture, cropping and grazing.

Building the information set to integrate macro and micro measurements of agricultural MFP

would be a significant extension.

Overall, while these are challenging research tasks, the broadening of the MFP framework to

incorporate environmental adjustments would seem to provide an excellent platform for

describing an integrated research program that can utilize findings from many different areas

of work.

7. Conclusions

This paper provides an introduction to two important fields of national accounting - the

measurement of MFP through growth accounting approaches and the work on environmental-

economic accounting. To this point, these two fields have not been connected in any direct

sense. Given this lack of connection, the intent is this paper is to describe how recent

developments in ecosystem accounting, incorporating measurement of ecosystem condition

and ecosystem services, might be considered in an MFP context. Improved measurement of

agricultural MFP provides a very relevant test case given the direct use of ecosystems and

natural capital by the agricultural industry.

Conceptually, the accounting equivalence between ecosystem services from ecosystem

accounting and capital services utilized in standard MFP measurement, represents a

fundamental insight and the basis for the potential to extend standard MFP measures. At the

same time, there remain important research questions that must be advanced to consider this

extension in more depth and to test the approach in practice. An important factor in taking

forward this research is that ecosystem accounting can be applied at a relatively detailed

spatial level, for example at farm or landscape level, and hence finding suitable test cases may

be more straightforward compared to attempting to estimate the ecosystem accounting

extension at national level in the first instance.


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It is hoped that this introductory paper can provide a basis for further exchanges between

relevant experts. A key finding from work on the SEEA over the past 5 years has been the

need to bring together experts from a range of disciplines including economics, statistics,

accounting, ecology and geography. The further inclusion of agricultural specialists, such as

agronomists and soil scientists would be particularly relevant in the context of advancing

measures of environmentally adjusted agricultural MFP.


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Annex 1: SEEA for Agriculture Forestry and Fisheries (SEEA Agriculture)

The SEEA Agriculture describes an accounting approach to organize information across ten

main data domains – see Table 1. Base accounts are designed to organize relevant basic data

and statistics in each of these domains. Base accounts may be in the form of either supply and

use tables – e.g. the supply and use of agricultural products, the use of water, flows of

nutrients (nitrogen & phosphorous) and GHG emissions; or asset accounts which show the

stocks and changes in stocks of relevant environmental assets such as livestock, timber

resources, fish stocks, land and soil resources.

Table 1 Data domains of the SEEA Agriculture

1. Agricultural products and related environmental

assets (e.g. orchards, livestock)

6 Greenhouse Gas (GHG) emissions

2. Forestry products and related environmental assets

(e.g. timber resources)

7. Fertilizers, nutrient flows and pesticides

3. Fisheries products and related environmental

assets (e.g. fish stocks)

8. Land

4. Water resources 9. Soil resources

5. Energy 10. Other economic data

Using the information in the base accounts, combined presentations are developed which

present together different pieces of information related to a theme of interest, such as food

security, sustainability of production with respect to environment assets, bioenergy, or a

comparison of input functions. By way of example, a combined presentation on the

sustainability of wheat production might draw together information on the output of wheat,

wheat prices, intermediate costs (fuel, fertilizer, etc.), employment, manufactured assets

(tractors, etc.), profits, land use, soil condition, energy use and GHG emissions. In a final

step, information from the combined presentations can be used to derive indicators of various

types. For example, indicators of the output of wheat relative to water use or GHG emissions.

This series of steps is shown in Figure 1.

Figure 1 SEEA Agriculture framework for data flows and account connections

A particular feature of the SEEA Agriculture approach is the aim to provide detailed

environmental and economic information at the key product level. Key products are those

Basicsta s csanddata

Baseaccounts

Combinedpresenta onsbytheme(e.g.foodsecurity,sustainabilityofproduc on,bioenergy)

Indicators

Popula on&employment

AFFproduc onandconsump on

Inputsandresiduals

Naturalresources&environmentalassets

Economic

Supplyanduseaccounts(e.g.AFFproducts,water,energy,fer lizer)

Accountsforenvironmentalassets(e.g.land,soil,water, mber,fish)


13

considered to be the most important from the perspective of a country. Importance may be

determined with regard to a product’s contribution to agricultural value added, to exports, to

calorie intake, to the use of land and water resources, and similar variables.

Interest in the development of the SEEA Agriculture has proved very high from both

developed and developing countries. This interest stems from the increasing importance of

food security and the reality that the appropriate management of the environment is critical to

developing appropriate policy responses. The importance of the social dimension of

agriculture, forestry and fisheries activities is also keenly understood and is a driver for

improved understanding of the sector. Further, the inclusion of forestry and fisheries

alongside agriculture has also been welcomed as often these three activities are considered

distinct areas of policy and analysis. Overall, the drivers behind the interest in the SEEA

Agriculture are very similar to the drivers behind the TEEB AgFood [6].

While well advanced and well received to date, the statistical framework described in the

SEEA Agriculture remains a work-in-progress. Initial feasibility assessments on SEEA

Agriculture based on current FAO datasets and in four countries (Australia, Canada,

Guatemala and Indonesia) have indicated that data across many of the ten domains are

commonly available; albeit to differing degrees across countries and to different levels of

specificity. Work is now turning to the description of implementation approaches and

providing support to countries interested in developing SEEA Agriculture based datasets.

At this stage, it is not intended that the SEEA Agriculture incorporate information on

ecosystem services and changes in ecosystem condition. Thus, the SEEA Agriculture

represents an application of the SEEA Central Framework rather than the SEEA EEA.

Although not covered, the relevance of ecosystem accounting to the measurement of

environmental-economic linkages in agriculture is recognized and further development of this

aspect of the SEEA Agriculture is anticipated in due course. This work on connecting

ecosystem services with the measurement of agricultural MFP is one example of how this

work can be taken forward. Another example is present in work on the TEEB for Agriculture

and Food study (TEEB, 2015) currently underway.


14

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Bank (2014b) System of Environmental-Economic Accounting 2012 – Experimental

Ecosystem Accounting, United Nations, New York

How the SEEA Experimental Ecosystem Accounting framework ... 2 Carl OBST PAPER.pdf · How the SEEA...

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