An Overview of Istat’s in the Light of Eu Methodological Achievements Una visione d’insieme della contabilità ambientale dell’Istat alla luce di avanzamenti metodologici a livello europeo

Cesare Costantino Istat, Direzione Centrale Contabilità Nazionale, Via Ravà 150, Roma, [email protected]

Riassunto: La contabilità ambientale è una disciplina sviluppata nell’ambito degli organismi internazionali in relazione alle esigenze dello sviluppo sostenibile; essa trae origine dalla contabilità nazionale e si occupa in maniera sistematica e comprensiva del rapporto economia-ambiente. Una pluralità di conti, standardizzati in ambito europeo, consente di focalizzare aspetti specifici dell’interazione tra economia e ambiente, permettendo di confrontare i fatti economici e i fatti ambientali correlati attraverso un sistema coerente di definizioni e classificazioni. La produzione dell’Istat risponde alle esigenze conoscitive del paese e degli organismi internazionali, in particolare comunitari; in linea con la strategia europea per la contabilità ambientale, essa è a regime per quanto concerne la MFA, la NAMEA e l’EPEA, i conti a più elevata priorità.

Keywords: economy-environment interaction, SEEA, DPSIR, MFA, NAMEA, EPEA.

1. strategy and environmental accounting Sustainable development calls for a variety of changes in the functioning of society. Innovations are needed involving different aspects such as e.g. production and consumption patterns and mechanisms for determining social choices. New statistical information is needed as well, to support decisions by institutions, enterprises and individuals, being clear that it is essential to integrate the institutional, economic, social and environmental dimensions of sustainable development. In Italy the importance of integrating economic and environmental aspects has been emphasized in the political agenda since the ’nineties. According to the National plan for the implementation of Agenda XXI1, setting up a national system of environmental accounting is one of the actions needed in order to actually implement a strategy for sustainable development: this new tool includes, in a broad sense, both a new way of defining policies and a new kind of statistical information on the interactions between economy and environment. Environmental accounting is also mentioned – specifically understood as a system of integrated environmental and economic accounts within official statistics – among the main tools to achieve ecologically sustainable development in the Environmental action strategy for sustainable development2. Parallel to the action taken by the central government through the definition of the above mentioned strategies, a political debate is going on in the Italian Parliament on a

1 Adopted in 1993 by the Inter-Ministry Committee for Economic Planning (CIPE). 2 Adopted by CIPE in 2002.

– 29 – bill3 which aims at introducing the integration of economy and environment in political decisions at the different government levels. It is envisaged, in particular, that the central and the local governments regularly adopt ecological planning tools together with their traditional economic planning tools; the former should be supported by environmental accounts to be produced within the National Statistical System (Sistan), in the same way as the latter are currently supported by the economic national accounts as far as the national level is concerned. In a sustainable development perspective, then, there is a strong demand for a new kind of statistical information, which is characterised by having specific contents in terms of integration of environmental and economic aspects and by being part of official statistics. As far as the latter point is concerned, the debate on the bill on environmental accounting highlights, among other things, how important it is that the statistical information used by policy makers and the one available for the general public be the same. The environmental accounts developed by Istat are particularly appropriate to meet this demand of statistical information, being part of official statistics. These accounts, in fact, have to comply with quality standards concerning both the product and the production process; in particular, they are supposed to be transparent4, complete5, flexible6, referred to a coherent framework7, readily available to users8. Furthermore, they are supposed to be produced on a regular basis.

2. Background frameworks, accounting tools and value added of environmental accounting The accounting system developed by Istat to measure the interactions between economy and environment builds on two types of background frameworks: a) an analytical framework, so as to have a proper way to look at the real world under examination; b) a statistical accounting framework, so as to have a well established reference to organise the different pieces of statistical information. The DPSIR model, explained in Figure 1, is seen in this context as a significant representation of the economy-environment interaction circuit. It is therefore adopted as the background analytical framework, and the contents of the accounting system are specified in a way that reflects such model. For the statistical accounting framework, on the other side, the starting reference is the SNA9, which provides, among other things, general guidelines for satellite accounting, with a special focus on environmental accounting10.

3 See Giovanelli et alii (2000). 4 Through dissemination of meta-information. 5 Information that is partial is likely not to be neutral. 6 Suitable for use in different contexts. 7 Through classifications, schemes and concepts as much as possible common to the various areas covered. 8 Keeping information hidden or difficult to access is not providing a good service to the community. 9 United Nations (1993a). 10 See chapter XXI.

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Figure 1: The DPSIR model and the economy-environment interaction circuit

Driving forces Pressures Anthropic activities and processes generate Direct stresses from the anthropic system that cause pressures: production on the natural environment: release of (agriculture, industry, part of polluting substances (emissions to air, to transports…), consumption, water, waste...), radiation emissions, recreation outside the economic intake of natural resources, use of soil, system… eliminate, other changes of the natural environment reduce, modify, prevent influence, substitute, modify remove

restorate, Responses influence State Actions of the anthropic system to solve environmental problems: Conditions and tendencies in the and reduction activities, economic natural environment: air, water and “environmental damage” prevention and soil quality, global temperatures reduction, sustainable use of resources...° compensate, evolution pattern... mitigate

stimulate, Impacts provoke, ask for cause Effects on the anthropic system due to changes in the state of the natural environment: negative consequences on human health, economic loss in production activities, floods...§

In satellite environmental accounting the integration of economy and environment is realised by considering certain areas of interest and by making use of certain accounting tools for the statistical representation of the relevant phenomena. A simplified overview of the areas of interest is given in Table 1, where the phenomena taken into account are also classified according to the DPSIR concept. These are dealt with also in other systems of statistical information on the environment, but what is special here is the rationale followed, which is based on the concept of natural patrimony, thus paralleling the hand-made capital concept in economic accounting.

Table 1 – Main areas of interest in environmental accounting

Main areas of interest Main phenomena Types of Stage of the phenomena DPSIR circuit Amount and state of the natural Amount of the various natural resources (e.g. Stock State patrimony forests, subsoil assets, etc.); Qualitative state of the various natural resources and environmental media (e.g. forests, air, etc.). Use, degradation and depletion, Intake of natural resources; Flow Pressures of the natural patrimony Emission of pollutants. Defensive expenditures Prevention and reduction of quantitative use of Flow Responses natural resources and of pollution; Restoration of environmental damage.

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Figure 2: Structure of an asset account for a natural asset

Structure of an asset account Structure of an asset adjusted for a natural asset account Opening stock [+] Opening stock [+] Variations Variations Increases [+] Natural Decreases [ - ] Increases [+ ] Closing stock [=] Decreases [ - ] Anthropog.. How it becomes for a natural Increases [+] asset Decreases [ - ] Closing stock [=]

Figure 3: Structure of a national accounting matrix including environmental accounts

Economic aggregates Environmental Environmental pressures: pressures: intake of pollution natural resources Economic activities and household s s l

consumption ls r l sse e ra

Fina Wat Mine Emissions Emissions Bioma Production Fossil Fue Employment Atmospheric Value Added Consumption

Agriculture Industry Services Household consumption: transport heating other

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Figure 4: Structure of an economy-wide material flow balance sheet

Indirect flows associated to imports

Imports Exports

Raw Materials and semi- manufactured products Net addition to stocks Finished Products Transport infrastructure and buildings Machinery Domestic extraction Other durables of used materials Inventory changes Live animals Fossil fuels Minerals Emissions Biomasses Carbon dioxide Other atmospheric emission Emissions in water Input memorandum items Other gaseous outputs Water vapor from Air for combustion, combustion respiration of humans Carbon dioxide and and livestock, water vapor from decomposition respiration Drinking water for livestock Dissipative use of products and dissipative losses Statistical discrepancy Landfill waste Unused materials domestically extracted

Concerning the accounting tools that are used to develop the overall accounting system, they are largely based on existing accounting schemes taken from economic accounting, in a way that a variety of asset/ flow accounts, etc. are made available, in physical and monetary units. One main example is given by the case of an asset account, as shown in Figure 2. Another important example is the case of a national accounting matrix integrated with additional accounts for environmental pressures, as reported in Figure 3. An ad hoc accounting scheme is the one developed within material flow accounting, which allows to describe an economy-wide material flow balance, as shown in Figure 4. The use of accounting schemes such as those directly derived from national accounting, as well as others, and the adoption of an overall accounting framework are at the origin of certain distinctive features of environmental accounting, thus determining the value added of this discipline. This is briefly illustrated in Table 2.

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Table 2 – Distinctive features and value added of environmental accounting

Key features Connected elements of value added Accounting framework Helps structure existing data, making them consistent with each other: within a comprehensive framework every information finds its place and meaning; Provides balances to which a clear interpretation can be attached in an ecological sustainability perspective; Helps guide and develop environmental statistics so as to ensure greater coherence with economic and social statistics. Mathematical relationship between figures Enables to assess by calculation some phenomena for which data is missing. Systematic linkage between economic and Enables integrated consideration of economic and environmental environmental information phenomena connected to each other; (through the adoption of common frameworks, concepts and methods) Allows to use statistical information in integrated economic and environmental analysis and modelling.

3. International organisations’ environmental accounting frameworks The current state of environmental accounting has been determined by methodological work carried out within the main international organisations, in particular by the Statistics Division of the United Nations and Eurostat. At present the handbook “Integrated Environmental and Economic Accounting 2003” (SEEA2003)11 is the world-wide conceptual reference; it has been developed starting from the fundamental concepts of the above mentioned Chapter XXI of the SNA. The SEEA2003 actually provides an overall statistical accounting framework. It distinguishes three main areas of interest: a) the use of natural resources and ecosystems, and the generation of residuals by the economic system; b) the transactions connected with environmental protection and with the use and management of natural resources carried out by the different institutional sectors; c) stocks of natural resources and their variations. Correspondingly, the SEEA2003 deals with three main types of accounts: a) Physical and hybrid flow accounts; b) Economic accounts and environmental transactions; c) Asset accounts in physical and monetary terms. In addition to that, the handbook tackles the issue of monetary valuation for measuring environmental degradation and describes proposals for making “environmental adjustments” to the economic flow accounts. The overall accounting framework thus provided is understood as a systematic set of best practices in the field of environmental accounting rather than a recommended system of accounts to be implemented in detail. Following a first (“interim”) version of the SEEA handbook – which was issued in 199312 – the Commission of the Eu identified in 1994 a number of actions to be taken for developing environmental accounting Europe-wide. These were indicated in a Communication addressed by the Commission itself to the Council and the European Parliament13, which represents a milestone in terms of demand for environmental accounts expressed at the political level at European scale. In particular, the idea of

11 United Nations et alii (forthcoming). 12 United Nations (1993b). 13 Commission of the European Communities (1994).

– 34 – making “environmental adjustments” to GDP14 was rejected by the Commission, given the weakness of its scientific ground and the lack of consensus on the proposals made; instead, a plurality of accounting tools reflecting a single general analytical framework was recommended for integrating the economic and environmental dimensions of the development15. On the supply side, a milestone for environmental accounting in Europe is represented by the European Strategy for Environmental Accounting (ESEA), defined by an ad hoc task force which had its mandate by the Statistical Programme Commettee of Eurostat, as a follow up to the directions of the above mentioned 1994 Communication of the Commission16. The contents of the ESEA are consistent with the statistical accounting framework provided by the SEEA2003, but are of a more operational character. The priorities set up in the ESEA reflect: a) the consideration of the user needs and of the actual use of environmental accounts; b) the need to harmonise environmental accounting among Eu Member States; c) the identification within the SEEA2003 of the accounts deemed to be particularly relevant in the European context. In addition to the above, an important standardisation process has been put in practice within the European Statistical System, involving both methodological and practical implementation aspects. As a matter of fact, handbooks for specific types of environmental accounts, compilation guides and sets of standard tables for the collection of environmental accounting data in Europe have been developed by Eurostat in cooperation with Member States17. Furthermore, an important effort has been made to bring the majority of Member States to a stage were a common basis of accounts, with a common level of breakdown of the information provided, is regularly produced. As a result of this process, the environmental accounting methods developed within the European Statistical System (ESS) are actually the most standardised and widespread ones in the world18. In practice, then, a sound and quite operational environmental accounting framework is one that corresponds to environmental accounts actually developed within the ESS, considered as a whole: such a framework, while being consistent with both the SEEA2003 and the ESEA, also results from the standardisation process realised in the Eu. The key features of such a framework are synthesized in Table 3.

14 Or to GNP; as a matter of fact, the majority of the proposals made were in terms of “Green GDP”. 15 A similar approach had been adopted by Istat in the early ’nineties (Costantino C., 1996). 16 Eurostat (2002a). 17 Istat has been active in many task forces, including all the pioneering ones, starting from the late ’eighties. 18 It should be noted that specific environmental accounting modules developed in the Eu such as MFA, NAMEA and EPEA (see Table 3) are actually adopted even outside Europe (indeed they are part of the SEEA2003).

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Table 3 – Key features of the environmental accounting framework actually adopted in the ESS Main types of accounts Main objectives Economy-Wide Material To construct an economy-wide balance sheet inclusive of all material flows between Flow Accounting (MFA) the economic system and the natural system (in both directions), in order to quantify the extent to which the economy makes use – according to its own trends – of natural resources and environmental media, including those located abroad NAMEA19 type flow To account for the physical flows taking place between the economic system and the accounts natural system (atmospheric emissions, intake of natural resources, etc.) in correspondence with the specific economic activities that generate them, in particular – for a given activity – side by side to distinct economic flows such as production, value added, etc. Economic accounts for the To account for the economic transactions connected with the environment environment (SERIEE20 = (environmental protection expenditures, resource use and management expenditures, EPEA21 + RUMEA22) environmental taxes, etc.); to describe the economic activities that produce goods and services for the environment (“eco-industries”) Asset accounts in physical To construct an asset account in physical terms for a given natural resource (initial terms stock, increases and decreases during the accounting period – both natural and anthropogenic –, closing stock); quality aspects are taken into account as appropriate by means of indicators or by breaking down the account by quality classes Integrated environmental and To construct – for a given natural resource of interest (e.g. forests, subsoil assets, economic accounting for etc.) – an accounting system made up of NAMEA type flow accounts, Economic natural resources (NRIEEA) accounts for the environment (EPEA, RUMEA) and Asset accounts in physical terms

It should It should be noted that a clear correspondence holds between the environmental accounting framework actually adopted in the ESS and the SEEA2003 framework, as highlighted in Table 4.

Table 4 – The environmental accounting framework actually adopted in the ESS and the SEEA2003 framework ESS (ESEA + standardisation) SEEA2003 Economy-Wide Material Flow Accounting (MFA) Physical and hybrid flow accounts NAMEA type flow accounts Integrated environmental and Economic accounts for the environment Economic accounts and environmental economic accounting (EPEA, RUMEA) transactions for natural resources Asset accounts in physical terms (NRIEEA) Asset accounts in physical and monetary terms

It should be noted, finally, that in practice a relevant information quite often can be derived from a combination of data coming separately from the different environmental accounting modules shown in Table 3, which emphasizes the framework nature of the contents therein. An example of this is suggested by Figure 5.

19 National Accounting Matrix including Environmental Accounts. 20Système Européen de Rassemblement de l’Information Economique sur l’Environnement (Eurostat, 1994). 21 Environmental Protection Expenditure Account (see Eurostat, 1994 and 2002b). 22 Resource Use and Management Expenditure Account (see Eurostat, 1994).

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Figure 5: Complexity of information needs and articulation of answers from environmental accounting: an example

One complex question distinct answers

Does the economic growth depend strongly on the use of natural resources, it can be from … MFA in particular those located abroad … and decomposed so that are the most important economic sectors its distinct parts can => also those mostly depending on the use be met by from … NAMEA of natural resources … and how much do they spend to reduce their use of natural resources? from … EPEA

4. The current state of environmental accounting

At present environmental accounts produced on a regular basis according to the ESS framework are an example of implementation of the SEEA2003 which is unique in the world in terms of standardisation and spread. European standardised methods – e.g. handbooks for specific areas of interest, compilation guides, standard tables for the collection by Eurostat of environmental accounting data – are available for the MFA, NAMEA, EPEA, Forest, Water and Subsoil asset accounts. Among these, the MFA, NAMEA and EPEA accounts are those for which most countries have started production on a regular basis in Europe. The same three types of accounts are given the highest priority in Istat, and their main aggregates are regularly produced, with time series systematically updated. For the RUMEA – for which operational methodologies have not been developed yet by the international organisations – just a first pilot application is being developed. Due to lack of basic data and resources, integrated environmental and economic accounting for specific natural resources is much less advanced too: also in this area work is at the stage of first pilot applications. An overall picture of the current state of Istat’s environmental accounting is given in Table 5. For each of the different types of environmental accounts introduced above, specific reference is made to a breakdown which highlights the corresponding main environmental accounting products. In particular, for MFA: material flow indicators and balance sheets; for NAMEA: atmospheric emission, waste and emission to water23 accounts, and fossil fuel, mineral, biomass and water intake accounts; for EPEA and RUMEA: satellite accounts for the whole economy (all institutional sectors), statistics on environmental protection expenditures carried out by the different institutional sectors (enterprises, central and local government, households), statistics on environmental taxes and statistics on “eco-industries” (economic activities producing goods and services for the environment); for NRIEEA: accounts for forest, water, sub- soil assets, land and other natural resources (e.g. fish).

23 While in the cases of atmospheric emission and emission to water actual emission of pollutants is accounted for, in the case of waste the pollution is potential.

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Table 5 – The current state of Istat’s environmental accounting MFA

NAMEA – Emissions

NAMEA – intake of natural

Satellite accounts for the whole economy (all EPEA

RUMEA Satellite accounts for the whole economy (all

NRIEEA

: produced on a regular basis; : work in progress; : initial investigation, or work in stand-by for lack of resources (EPEA-households); : feasible in the nearest future.

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It should be noted that environmental accounting is developed in Istat fundamentally for the national scale, similarly to the rest of the Eu. In addition to that, however, given the focus on the local level of the Italian debate on ecologically sustainable development and the growing interest for the regional scale official statistics, further work has been launched at Istat for developing accounts by region, starting with pilot applications of EPEA and NAMEA. Table 5 includes, then, also a picture of Istat’s work on environmental accounting at the regional scale.

References

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