Environmental accounts - establishing the links between the environment and the economy

Environmental accounts are a statistical system bringing together economic and environmental information in a common framework to measure the contribution of the environment to the economy and the impact of the economy on the environment. They offer a means of monitoring the pressures exerted by the economy on the environment and of exploring how these might be abated. Environmental accounts organise environmental data from many domains using the same concepts and terminology as the national accounts, and thus they show the interaction between economic, household and environmental factors and consequently are more informative than national accounts alone.

Environmental accounts can be used to answer questions such as: Which industry is emitting most greenhouse gases? How do patterns of consumption and production affect the environment? What is the effect of economic policy measures, such as an environmental tax on the generation of waste or air emissions? How fast is the environmental economy growing and how does it compare with the rest of the economy?

European environmental accounts are used for EU policy making e.g., SDGs, circular economy, the 7th Environmental Action Programme, etc.

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Introduction to environmental accounting

Environmental accounts are a multipurpose data system encompassing a conceptual framework and tables which describes the interrelations between the economy and the environment in a way that is consistent with the national accounts. For instance, they shed light on the amount of pollution produced by industries and households and allow a comparison with the employment and value of output produced by these sectors, or with the expenditure made by these sectors to avoid pollution. Policy makers can use this information to decide where it is most efficient to act.

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Environmental accounts provide an integrated framework for data, indicators and analysis. Integrating environment-related data with the national accounts framework makes the resulting indicators more consistent among themselves and permits aligning also with the social aspects of sustainable development and the employment aspects of green growth.

The accounts allow the bringing together, in a single accounting framework, of information on a range of natural resources (for example water, minerals, energy, timber, fish, oil, land and ecosystems) and human activities (e.g., pollution and waste, production, consumption and accumulation). The European environmental accounts do not yet cover all these aspects, because the international standards from the System of Environmental-Economic Accounting 2012 are being implemented gradually (see next section about present developments).

Environmental accounts integrate existing data and provide coherence. The structure of the accounts enables a wide range of source information to be compared and contrasted to provide better estimates. The accounting system enables the organization of information into tables and accounts in an integrated and conceptually coherent manner. This information can be used to create coherent aggregates, indicators and trends across a broad spectrum of environmental and economic issues. From the viewpoint of compilation of estimates, one advantage of the environmental accounts is that they are (mostly) compiled by reorganising already existing data.

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One of the most important features of the environmental accounts is their capacity to organise and present coherently information in both physical terms (often for the environment) and monetary terms (often for the economy). A key focus of measurement is the use of physical units to record flows of materials and energy that enter and leave the economy and flows of materials and energy within the economy itself. These are called physical flows. Environmental accounts apply the accounting concepts, structures, rules, classifications and principles of the national accounts to environmental information. Particularly important is the alignment to the national accounts' production boundary and residence principle, i.e. adopting a scope based not on territory but on residence of the producer units, the scope used for Gross Domestic Product. This makes environmental accounts consistent, in general, with national accounts, and allows joint analysis.

In practice, the basic framework includes physical and monetary supply and use tables (which report what flows go in and what come out), functional accounts and asset accounts for natural resources (which report how the opening stock plus changes give the closing stock). The measurement of physical flows is structured around the flows of natural inputs from the environment to the economy, flows of products within the economy and flows from the economy to the environment i.e., residuals.

The range of applications of environmental accounts includes resource efficiency and productivity, decomposition analysis, analysis of net wealth and depletion, sustainable production and consumption. The accounts also provide an information base for the development of models e.g. input-output analysis and general equilibrium modelling.

The international standard is the System of Environmental-Economic Accounting 2012 – Central Framework (SEEA 2012 CF). It was produced and released under the auspices of the United Nations Statistics Division, the European Commission (Eurostat), the Food and Agriculture Organisation of the UN, the OECD, the International Monetary Fund and the World Bank group. It was endorsed as an international standard by the United Nations Statistical Commission in 2012. The SEEA 2012 CF builds on the previous versions, SEEA 2003 and 1993.

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European environmental accounts

The European environmental accounts are established in Regulation (EU) 691/2011. The Regulation provides a legal framework for a harmonised collection of comparable data from all EU Member States and EFTA countries. The European environmental accounts are consistent with the SEEA 2012 CF and are structured in modules. Only some parts of the SEAA 2012 CF are presently implemented. The Regulation includes six modules. Links to Statistics Explained articles reporting results of those accounts can be found at the bottom of this article. The following are the present modules:

1) Air emissions accounts (AEA) record the emissions to the atmosphere of six greenhouse gases including CO2 and seven air pollutants. AEA offer breakdowns by 64 emitting industries plus households and a coverage consistent with the residency principle of national accounts. These features are not available from national emission inventories under the international conventions CLRTAP and UNFCCC, making AEA suitable for integrated modelling, e.g. of carbon footprints and climate-change modelling scenarios. See figure 1.

Figure 1: Domestic and global CO2 emissions — consumption and production perspective, EU-27, 2018
(tonnes CO2 per inhabitant) - Source: Eurostat (env_ac_io10)

2) Economy-wide material flow accounts (EW-MFA) report the amounts of physical inputs into the economy, material accumulation in the economy and outputs to other economies or back to nature. Physical inputs are classified in 50 material categories of biomass, metal ores, non-metallic minerals and fossil energy materials. EW-MFA are used to estimate, among other things, resource extractions by the economies, material consumption, resource productivity, material footprints and the decoupling between economic growth and extraction of natural resources. See figure 2.

Figure 2: Resource productivity in comparison to GDP and DMC, EU-27, 2000-2019
(2000 = 100)
Source: Eurostat (nama_10_gdp), (env_ac_rp) and (env_ac_mfa)

3) Physical energy flow accounts (PEFA) report flows of energy (including natural inputs used to manufacture energy products and energy residuals) from the environment into the economy, within the economy and from the economy to the environment. Energy flows are reported with a breakdown by type of natural inputs, products and residuals as well as by supplier and user (64 industries plus households). PEFA can be used for energy productivity, analyses, modelling, etc.

Figure 3: Net domestic energy use and gross value added by 64 production activities (NACE)
European Union (EU-27), 2017
Source: Eurostat (env_ac_pefa04), (nama_10_64)
For list of NACE Rev 2 codes see here

4) Environmental taxes report environmental taxes (in four broad groups: energy, transport, pollution and resources) with a breakdown by 64 paying industries plus households. All tax figures are consistent with national accounts and can be compared with GDP, total taxes and social contributions, and other economic aggregates. See figure 3.

Figure 4: Total environmental tax revenue by type and total environmental taxes as share of TSC and GDP, EU-27, 2002–18
(billion EUR)
Source: Eurostat (env_ac_tax)

5) Environmental goods and services sector (EGSS) accounts report information on the production of goods and services that have been specifically designed and produced for the purpose of environmental protection or resource management. The EGSS accounts cover the following characteristics: output, exports of the produced products, related gross value added and employment. The accounts have a breakdown by 21 industries and by functional classifications of environmental protection and resource management (CEPA and CReMA). EGSS can be used to monitor the growth of the environmental economy, green jobs, etc. See figure 4.

Figure 5: Development of key indicators for the environmental economy and the overall economy, EU-27, 2000–2017
(2000 = 100)
Source: Eurostat (env_ac_egss1), (env_ac_egss2), (nama_10_gdp) and (nama_10_a10_e)

6) Environmental protection expenditure accounts (EPEA) report mostly from a demand perspective the expenditures undertaken by economic units for environmental protection purposes. EPEA collects output, intermediate consumption, imports & exports, investment (gross fixed capital formation) and transfers with a breakdown by four sectors and by functional classifications of environmental protection (CEPA). See figure 5.

Figure 6: National expenditure on environmental protection by institutional sector and as percentage of GDP, EU-27, 2006–2019
(EUR billion and % of GDP)
Source: Eurostat (env_ac_epneis) and (nama_10_gdp)

In addition to these 6 modules, there is work on other European environmental accounts with no EU legal basis:

Forest accounts cover, in principle, natural assets (wooded land, timber); economic aspects (value added, output and products of the forestry and logging industry) and environmental aspects (wood balances, carbon capture, residuals and defoliation). In practice, because the collection is voluntary, data are only complete or close to complete for the economic aspects.

Figure 7: Output of forestry and logging by type, 2017
(million EUR, current basic prices)
Source: Eurostat (for_sup_cp)

Environmental subsidies and similar transfers accounts record subsidies and other forms of Government support measures that help to protect the environment such as tax rebates, tax exemptions, tax credits, tax deferrals, etc. Measures that lower prices and stimulate consumption that can lead to an increase in congestion and air pollution are called potentially environmentally damaging subsidies. The accounts distinguish between current transfers (including subsidies), capital transfers and tax abatements. Data are broken down by receiving institutional sector and functional classifications of environmental protection and resource management (classifications CEPA and CReMA). This is a voluntary, annual data collection.

Finally, Eurostat is developing ecosystem accounts and has plans to develop water accounts, but no data are available yet for publication.

As can be seen, these modules and accounts are at different stages of maturity. The development of European environmental accounts is set out in the multi-annual European Strategy for Environmental Accounts, the latest of which covers the period 2019-2023.

Eurostat also produces environmental statistics, such as Waste statistics, Municipal waste statistics, Water statistics and Forestry statistics.

Policy relevance and uses of environmental account

The effect of human activity on the environment has emerged as an important policy issue. On the one hand, there is growing concern about the effect of economic activity upon the local and global environment. On the other hand, continued economic growth and human welfare are dependent upon the benefits obtained from the environment. In recent years European policies focused more and more on how the European economy can be developed in a sustainable direction, with a particular focus on (mitigation of and adaptation to) climate change.

Environmental accounts are well placed to support coherent analytical and policy frameworks to inform debates and guide policy related to the interrelationship between the economy and the environment. As an accounting system, they enable the organisation of information into tables and accounts in an integrated and conceptually coherent manner. This information can be used to create coherent indicators to be used to inform decision-making and to generate accounts and aggregates for a wide range of purposes. Given their multidisciplinary scope, the environmental accounts are designed to be coherent with and complementary to other international standards, recommendations and classifications such as National Accounts (ESA 2010), the Balance of Payments and International Investment Position, NACE, CPA, etc. Environmental accounts can be used for policy development and evaluation as well as decision-making in a number of ways. Firstly, the summary information (provided in the form of aggregates and indicators) can be applied to issues and areas of the environment which are the focus of decision makers. Secondly, the detailed information, which covers some of the key drivers of change in the environment, can be used to provide a richer understanding of the policy issues. Thirdly, environmental accounts data can be used in models and scenarios designed to assess the national and international economic and environmental effects of different policy scenarios within a country, between countries and at a global level.

The European environmental accounts are used for a growing number of EU policies. Indicators derived from the accounts are used for:

  • monitoring EU progress towards the sustainable development goals. Eurostat is called to regularly monitor progress towards the SDGs in an EU context. For this purpose it coordinated the development of the EU SDG indicator set and keeps it up to date. It also produces regular monitoring reports on progress towards the SDGs in an EU context. Some of the indicators in the EU indicator set are based on environmental accounts.
  • The 7th Environmental Action Programme, in particular priority objective 2 'To turn the Union into a resource-efficient, green and competitive low-carbon economy', priority objective 4 'To maximise the benefits of Union environment legislation by improving implementation', priority objective 5 'To improve the knowledge and evidence base for Union environment policy', priority objective 6 'To secure investment for environment and climate policy and address environmental externalities', priority objective 7 'To improve environmental integration and policy coherence' and priority objective 9 'To increase the Union’s effectiveness in addressing international environmental and climate-related challenges'
  • The Environmental Fiscal Reform studies provide empirical data or secondary sources on the potential economic and social benefits of environmental fiscal reform, to support the input in the European Semester process on environmental protection and resource efficiency for EU Member States. Data on environmental taxes are used as input in these studies.

Furthermore, there is policy demand for potential additional applications in the areas named above as well as in green growth and green jobs, climate change and energy union, natural capital, biodiversity, environmental taxation, transport policies, sustainable financing and bio-economy.

There are also initiatives beyond the EU, such as the UNEP Green Economy Initiative. This program was launched with the aim of providing macroeconomic arguments for shifting and mobilising investment at an economy-wide level towards green sectors and to the greening of brown sectors.

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