Chapter structure

5.5 The present chapter describes accounting for environmental assets. Section 5.2 provides a detailed discussion of the concept of environmental assets in the Central Framework, working from the general definition of environmental assets outlined in chapter II. Section 5.3 describes the structure of the accounts and the accounting entries that are required to compile asset accounts, including opening and closing stocks, additions to stock, reductions in stock and revaluations.

5.6 Section 5.4 examines two key dimensions of the compilation of asset accounts: the principles of defining depletion of environmental assets in physical terms, with particular focus on the depletion of renewable environmental assets, such as aquatic and timber resources; and, in relation to monetary asset accounts, approaches to the valuation of environmental assets and, in particular, the net present value (NPV) approach. The annex to the chapter discusses NPV in greater depth.

5.7 Sections 5.5-5.11 outline asset accounting for the range of individual environmental assets. Detail is provided on the measurement scope for each of these assets, the structure of the asset accounts and other relevant conceptual and measurement issues. While there are general principles that can be applied across all environmental assets, each environmental asset has specific characteristics that must be considered individually.

Classification of environmental assets in the Central Framework

5.15 The classification of environmental assets in the Central Framework presented in table 5.1 focuses on individual components. For each of these environmental assets, a measurement boundary in physical and monetary terms must be drawn for the purposes of asset accounting. These boundaries are described in sections 5.5–5.11.

Table 5.1

Classification of environmental assets in the SEEA Central Framework

Table 5.1

Classification of environmental assets in the SEEA Central Framework

1	Mineral and energy resources
1.1		Oil resources
1.2		Natural gas resources
1.3		Coal and peat resources
1.4		Non-metallic mineral resources (excluding coal and peat resources)
1.5		Metallic mineral resources
2	Land
3	Soil resources
4	Timber resources
4.1		Cultivated timber resources
4.2		Natural timber resources
5	Aquatic resources
5.1		Cultivated aquatic resources
5.2		Natural aquatic resources
6	Other biological resources (excluding timber resources and aquatic resources)
7	Water resources
7.1		Surface water
7.2		Groundwater
7.3		Soil water

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Table 5.1

Classification of environmental assets in the SEEA Central Framework

1	Mineral and energy resources
1.1		Oil resources
1.2		Natural gas resources
1.3		Coal and peat resources
1.4		Non-metallic mineral resources (excluding coal and peat resources)
1.5		Metallic mineral resources
2	Land
3	Soil resources
4	Timber resources
4.1		Cultivated timber resources
4.2		Natural timber resources
5	Aquatic resources
5.1		Cultivated aquatic resources
5.2		Natural aquatic resources
6	Other biological resources (excluding timber resources and aquatic resources)
7	Water resources
7.1		Surface water
7.2		Groundwater
7.3		Soil water

5.16 The volume of water in the sea is not considered in scope of water resources in the Central Framework because the stock of water is too large to be meaningful for analytical purposes. The exclusion of the sea in terms of a volume of water resources does not in any way limit the measurement of sea-related individual components such as aquatic resources (including fish stocks on the high seas over which a country has harvesting rights) and mineral and energy resources on or under the seabed. The volume of air in the atmosphere is also not in scope of environmental assets in the Central Framework.

5.17 Although seas and the atmosphere are excluded, the measurement of exchanges and interactions with them is of interest. In this context, the interactions between the economy and the sea, and between the economy and the atmosphere, are recorded in the Central Framework in various ways. For example, measures of the abstraction of sea water are included in the physical flow accounts for water, and measures of emissions from the economy to the atmosphere and seas are recorded in physical flow emission accounts.

Natural resources

5.18 Natural resources are a subset of environmental assets. Natural resources include all natural biological resources (including timber and aquatic resources), mineral and energy resources, soil resources and water resources. All cultivated biological resources and land are excluded from scope.

Land and other areas

5.19 For most environmental assets in the Central Framework, conceptualizing the supply of materials to economic activity—for example, in the form of fish, timber and minerals—is straightforward. The exception in this regard is land.

5.20 The primary role of land in the SEEA is to provide space. Land and the space it represents define the locations within which economic and other activity is undertaken and within which assets are situated. Although not physical, this role of land is a fundamental input to economic activity and can have significant value, as is most commonly observed in the varying valuations given to similar dwellings in locations that have different characteristics in terms of landscape, access to services, etc. This conceptualization of land can also be applied to marine areas over which a country has a recognized claim, including its exclusive economic zone.

5.21 The term “land” as applied in the SEEA also encompasses areas of inland water such as rivers and lakes. For certain measurement purposes, variations in this boundary may be appropriate, for example, when considering the use of marine areas for aquaculture, conservation or other designated uses. These considerations are discussed in section 5.6.

5.22 A clear distinction is made between land and soil resources. The physical inputs of soil are reflected in the volume of soil and its composition in the form of nutrients, soil water and organic matter. This distinction is discussed further in sections 5.6 and 5.7.

5.23 In the valuation of land, both the location of an area and its physical attributes (e.g., topography, elevation and climate) are important considerations. The valuation of land is discussed in Section 5.6.

Timber, aquatic and other biological resources

5.24 Biological resources include timber and aquatic resources and a range of other animal and plant resources such as livestock, orchards, crops and wild animals. Like most environmental assets, they provide physical inputs to economic activity. However, for biological resources, a distinction is made between whether the resources are cultivated or natural, based on the extent to which there is active management over the growth of the resource.

5.25 Maintaining this distinction in the Central Framework is important for ensuring that clear linkages can be established to the treatment of these resources in the production accounts and asset accounts of the SNA.

5.26 The cultivation of biological resources can take a wide range of forms. In some cases, the management activity is highly involved, which is the case for battery farming of chickens and the use of greenhouses for horticultural production. In these situations, the unit undertaking the production creates a controlled environment, distinct from the broader biological and physical environment.

5.27 In other cases, there may be relatively little active management as is the case, for example, with broad-acre cattle farming and the growing of plantation timber. In these cases, the biological resource is exposed constantly to, and interacts as a part of, the broader biological and physical environment. There are also situations in which the cultivation of various areas over hundreds of years has transformed the natural environment.

5.28 In practice, it may be difficult to distinguish between cultivated and natural biological resources. Relevant considerations in relation to timber resources and aquatic resources are presented in sections 5.8 and 5.9.

5.29 Many cultivated biological resources may be grown and harvested over a short period of time. In cases where the cultivation occurs within an accounting period, there are no opening or closing stocks of those assets to be recorded. However, depending on the time of the growing and harvesting season relative to the times of the accounting period, there may be cultivated biological resources to be recorded and in such cases, they should be recorded as part of environmental assets.

Forests

5.30 In the SEEA, forests are considered a form of land cover and forestry is considered a category of land use. Often, forests are seen predominantly in terms of timber resources, i.e., the volume of standing timber; however, forests are used in the production of a wide range of products, hence forests and timber resources should not be equated. It is also the case that timber resources are not found solely in forests: in many countries, other types of land cover, for example, other wooded land, contain timber resources. Given both the distinction between forests and timber resources, and the resource focus for environmental assets in the Central Framework, the classification of environmental assets in table 5.1 includes forests as a subcategory of land, and distinguishes the timber resources located on this land as a separate environmental asset. Asset accounts for forests and other wooded land are described in section 5.6 and asset accounts for timber resources, in section 5.8.

Relationship between environmental and economic assets

5.38 Many environmental assets are also economic assets. In particular, natural resources and land are considered non-produced assets, and cultivated biological resources may be either fixed assets or inventories, depending on their role in production. Figure 5.1 displays the relationship between the classes of environmental assets and the high-level asset classes within the SNA. All environmental assets that are classed as cultivated must be recorded as either fixed assets or inventories.

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Relationship between environmental and economic assets

^a Other than cultivated biological resources.

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5.39 In physical terms, the scope of environmental assets measured in the Central Framework may be greater than the scope of environmental assets measured in monetary terms following the SNA definition of economic assets. This is because there is no requirement in physical terms that environmental assets must deliver economic benefits to an economic owner. For example, remote land and timber resources should be included within the scope of the environmental assets of a country even if they do not currently or are not expected to deliver benefits to an economic owner.

5.40 Consequently, there may be environmental assets that are recorded in the Central Framework in physical terms which have no measured monetary value and are therefore excluded from environmental assets measured in monetary terms. Where such assets are recorded in physical terms, the quantities should be recorded separately from quantities of environmental assets that do deliver economic benefits to economic owners.

Economic assets used in activities related to the environment

5.41 There is interest in economic assets, primarily produced assets, that are used in activities related to the environment but are not themselves environmental assets. They include assets relevant to undertaking environmental protection and resource management activities and assets used in the extraction and harvest of natural resources such as water dams, fishing vessels, and cutting and drilling equipment for mining. A discussion of these types of assets is included in chapter IV primarily in the context of environmental protection expenditure accounts (EPEA). Produced assets for natural resource extraction are also important subjects of consideration in the calculation of resource rent and the valuation of environmental assets. Relevant measurement issues are discussed in section 5.4.

Accounting entries for institutional sector accounts

5.54 The compilation of asset accounts by institutional sector may be desirable for particular types of environmental assets where the ownership of resources is of policy or analytical interest, including the attribution of mineral and energy resources between government units and extracting units, and the assessment of the ownership of land.

5.55 In constructing institutional sector accounts, two types of entries are required that are additional to those shown in table 5.2, for the purpose of accounting for transactions and other exchanges between sectors. These entries are:

• (a) Acquisition and disposals of environmental assets. These entries are recorded when transactions in environmental assets take place between institutional units in different sectors. The acquisition of environmental assets represents an addition to the stock of the acquiring sector and the disposal represents a reduction in the stock of the other sector;

• (b) Uncompensated seizures. These changes in stock occur when institutional units take possession of or remove environmental assets without providing appropriate compensation to the original owner. An addition to stock is recorded for the sector that takes ownership of the environmental asset and a corresponding reduction in stock is recorded for the sector that previously owned the asset.

5.56 It is also noted that reclassifications of environmental assets between sectors may be common entries in institutional sector accounts.

5.57 Although not common, it is also possible that entries are required at a national level for the acquisition and disposal or uncompensated seizure of environmental assets. This would arise in the case of transactions in land between countries or in situations in which political changes lead to changes in the overall area of a country. Since these entries are not commonly required they are not incorporated into the standard form of the physical asset account presented in table 5.2.

Relationship to SNA accounting entries⁴⁹

5.65 Rather than effecting a broad separation into additions and reductions in the stock, the SNA focuses on (a) changes due to transactions and (b) other changes in the volume of assets. As a means of supporting the links between the SEEA and the SNA, the relevant SNA entries may be appended to the monetary asset account; they can be derived directly from the information presented in the monetary asset account. These derivations are shown in table 5.4.

Table 5.4

Derivation of accounting aggregates

Note: “na “ means not applicable.

Table 5.4

Derivation of accounting aggregates

Accounting aggregate	Cultivated biological resources		Natural environmental assets
	Fixed assets	Inventories
Gross fixed capital formation	Growth in stock less extractions	na	na
Changes in inventories	na	Growth in stock less extractions	na
Economic appearance	na	na	Growth in stock plus discoveries of new stock plus upward reappraisals
Economic disappearance	na	na	Extractions plus catastrophic losses plus downward reappraisals

Note: “na “ means not applicable.

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Table 5.4

Derivation of accounting aggregates

Accounting aggregate	Cultivated biological resources		Natural environmental assets
	Fixed assets	Inventories
Gross fixed capital formation	Growth in stock less extractions	na	na
Changes in inventories	na	Growth in stock less extractions	na
Economic appearance	na	na	Growth in stock plus discoveries of new stock plus upward reappraisals
Economic disappearance	na	na	Extractions plus catastrophic losses plus downward reappraisals

Note: “na “ means not applicable.

5.66 The SNA accounting entries are different depending on whether the environmental asset is produced or non-produced. In the SEEA, this distinction is reflected only in whether an environmental asset is cultivated (i.e., produced in SNA terms) or natural (i.e., non-produced in SNA terms). For SNA purposes a further distinction is needed for cultivated assets as to whether they are fixed assets or inventories.⁵⁰

5.67 For fixed assets, the relevant accounting entry is gross fixed capital formation; for inventories, the relevant accounting entry is change in inventories. For natural environmental assets, the relevant SNA entries are economic appearance of non-produced assets and economic disappearance of non-produced assets. There are also SNA entries related to the range of other additions and reductions in stock. These entries are defined equivalently for the monetary asset account in table 5.3 and the SNA.

5.68 In addition to the accounting entries shown in tables 5.3 and 5.4, there are two entries, depletion and consumption of fixed capital, that relate to the physical using up of assets over time. Consumption of fixed capital relates to the using up of fixed assets and, in the context of cultivated biological resources, is reflected in the value of the normal reductions in stock, based on, for example, mortality rates of livestock.⁵¹

5.69 Depletion relates to the physical using up of natural resources through extraction. In monetary terms, it represents the decline in future income that can be earned from a resource due to extraction. Details on the definition and measurement of depletion are presented in section 5.4.

Institutional sector accounts in monetary terms

5.70 Institutional sector asset accounts may also be compiled in monetary terms and may be of particular interest, since they can be related directly to the full sequence of institutional sector accounts as presented in the SNA. Key aggregates that can be compiled from a full recording of asset accounts by institutional sector are depletion-adjusted net saving and net worth.

5.71 The accounting entries required to compile monetary asset accounts by institutional sector are the same as those required to compile physical asset accounts by institutional sector, with the only addition being the inclusion of entries for revaluations (as outlined in para. 5.60).

Depletion of natural biological resources in physical terms

5.81 Natural biological resources are able to reproduce and grow over time. Thus, in the estimation of depletion, it is necessary to consider both the extraction and the regeneration of these resources. While the rates of extraction can be observed directly, measurement of the rates of regeneration can be complex and usually requires consideration of biological models. These models will usually account for both the structure and the size of populations; and exhibited by their general form, when the stock or population of the specific type of resource is small, the rate of growth will be small but, as the population increases, the rate of growth will also increase. Eventually, as the population within a given area reaches the carrying capacity of the area, i.e., as the density reaches a maximum, the rate of growth in the population will slow substantially.

5.82 Based on this general model, for any given population, it is possible to calculate the number of animals or volume of plants by age or size class that may be removed from the population without affecting the capacity of the population to regenerate itself (i.e., opening stock equals closing stock). In effect, there is a “surplus” or excess that can be harvested from the existing stock. In biological models, this surplus is known as the sustainable yield.

5.83 The level of the sustainable yield rises and falls in line with the overall size and structure of the population. For example, in populations where the growth rates are low, the sustainable yields are also low. These relationships are shown in figure 5.2, with population size being used as a proxy for both population size and structure. It is noted that the same level of extraction will have a different relationship to the sustainable yield depending on the population size. Referring to figure 5.2, a given level of extraction may be above, on or under the sustainable yield curve.

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Stylized sustainable yield curve

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5.84 For a given population, if the amount of extraction is less than the sustainable yield, i.e., points under the curve in figure 5.2, no depletion should be recorded. In this situation, assuming no catastrophic losses or other changes, it would be expected that the stock would increase over the accounting period.

5.85 In principle, depletion is recorded wherever the amount of extraction is greater than the sustainable yield corresponding to the population size and structure. This is reflected by points above the curve in figure 5.2 and represents the case where quantities extracted are greater than the regeneration or growth for any given population.

5.86 However, for most populations of natural biological resources, the estimation of sustainable yield is difficult, as the natural processes of growth and death, the relationship to other species (including predators) and the impact of extraction are usually non-linear, variable (e.g., due to variations in climatic conditions) and often not fully understood in scientific terms. Thus, it is recommended that some year-on-year variation around an estimate of sustainable yield be considered normal. Consequently, in practice, depletion should be recorded when extraction is beyond the normal variation in sustainable yield for a particular population.

5.87 The estimation of the required variables will involve the use of biological models and assumptions regarding the growth, death and other changes in population. If such models are unavailable, other indicators of and changes in stock size may be used. Possible methods are discussed in relation to timber resources in section 5.8 and in relation to aquatic resources in section 5.9.

The relationship between depletion and degradation

5.88 Although the measurement of degradation in physical and monetary terms is not pursued in the Central Framework, there are links with the definition and measurement of depletion that are explained in the Central Framework. The measurement of degradation is considered in the SEEA Experimental Ecosystem Accounting.

5.89 The focus in measuring depletion is on the availability of individual environmental assets in the future and changes in that availability due to extraction and harvest by economic units. There is a particular focus on the specific benefits that arise from the extracted materials, including the capacity of the extraction of the resources to generate income for the extractor.

5.90 Degradation considers changes in the capacity of environmental assets to deliver a broad range of contributions known as ecosystem services (e.g., air filtration services from forests) and the extent to which this capacity may be reduced through the action of economic units, including households. In this sense, since depletion relates to one type of ecosystem service, it can be considered a specific form of degradation.

5.91 The measurement of degradation is complicated because the capacity of environmental assets to deliver ecosystem services is not attributable solely to individual assets, and because individual assets may deliver a number of different ecosystem services. Further, while individual environmental assets, such as water and soil resources, may have been degraded over time, separating the degradation of an individual asset from the degradation of the overall ecosystem may not be straightforward.

5.92 The measurement of degradation in physical terms is also complicated inasmuch as it generally relies on a detailed assessment of the condition of ecosystems rather than the relatively simpler changes in the quantities of individual environmental assets that are used in the estimation of asset accounts in physical terms and in the estimation of depletion. For example, to assess whether a body of water has been degraded, assessments might be made of the various pollutants in the water as part of a broader assessment of the overall change in condition. While individual accounting for each of these pollutants might be undertaken, it will not be directly related to the volume of water in cubic metres that is used to account for water resources in an asset account.

5.93 Although separately identifying degradation in physical terms is complex, implicitly, the monetary value of individual environmental assets that have been degraded will be affected by the changing quality of the asset. Ideally, where the price of the asset changes to reflect a different quality, this should be considered a change in the volume of the asset rather than a revaluation. However, isolating the price change due to degradation from other causes of price change is likely to be difficult in practice.

General principles of valuation

5.99 The prices at which assets are bought or sold on markets are a basis of decisions by investors, producers, consumers and other economic agents. Market prices are assessed by investors and producers in relation to their expectations of the flows of income they can derive from the assets. For example, investors in renewable energy infrastructure assets (such as wind turbines) and environmental assets (such as land) make decisions in respect of acquisitions and disposals of these assets in the light of their values in the market relative to the income they expect the assets to generate over time.

5.100 Ideally, observable market prices should be used to value all assets, and every item should be valued as if it were being acquired on the date to which the estimate of the stock relates. These two recommendations enable the values of different types of assets, including environmental, financial, and other economic assets, to be compared in meaningful ways, and allow the formation of opening and closing values of stocks that can be used to assess national and institutional sector estimates of wealth in monetary terms.

5.101 At the same time, market-based estimates of asset values will commonly not account for all aspects that may be considered to be relevant in forming a valuation for an asset. For example, the value of a second-hand car in the marketplace will often be less than the value that the current owner places on the benefits of utility and flexibility associated with car ownership. At the same time, the car’s value to its owner may not reflect the impact on the environment of emissions arising from operating the car. Thus, while the use of market prices allows comparison across asset types, those prices may not reflect the value of the asset from an individual or societal perspective. This aspect of market based prices is often mentioned in relation to the valuation of environmental assets.

5.102 An important additional consideration in the application of general principles of valuation to environmental assets is that the objective is to estimate the value of the asset in situ rather than after its removal.

5.103 The approaches described in the SEEA, in particular the net present value approach, provide reasonable proxies for observable market prices and consistency with the SNA, but do not take into account the full range of benefits (and costs) that might be considered relevant.

Approaches to the valuation of assets

5.104 The ideal sources of market-price observations for assets are values observed in markets in which each asset traded is completely homogeneous, is often traded in considerable volume, and has its market price listed at regular intervals. Such markets yield data on prices that can be multiplied by indicators of physical stocks to enable computation of the total market value of different classes of assets. These types of price observation are available for most financial assets, newly purchased produced assets, including many types of transport equipment (such as cars and trucks), and livestock.

5.105 In addition to providing direct observations on the prices of assets actually traded, information from such markets may also be used to price similar assets that are not traded. For example, information on house and land sales may be used to estimate the value of houses and land that have not been sold.

5.106 When there are no observable prices because the items in question have not been purchased or sold on the market in the recent past, an attempt has to be made to estimate what the prices would be if a regular market existed and the assets were to be traded on the date to which the estimate of the stock relates.

5.107 One approach is to use the written-down replacement cost. The value of an asset will decline over time as the value at the time of acquisition, the acquisition price, is reduced by consumption of fixed capital (more commonly referred to as depreciation) over the asset’s life. Furthermore, the acquisition prices of equivalent new assets will change. In theory, the value of an asset at any given point in its life is equal to the current acquisition price of an equivalent new asset less the accumulated consumption of fixed capital over its life. When reliable directly observed prices for used assets are not available, this procedure gives a reasonable approximation of what the market price would be were the asset to be offered for sale.

5.108 In the context of environmental assets, this approach may be applied to estimate the value of the stock of cultivated biological resources that are fixed assets, for example, orchards.

5.109 A second approach is to use the discounted value of future returns. For many environmental assets, there are no relevant market transactions or set of acquisition prices that would permit the use of the previous two approaches. Thus, although prices can be found to value the output from extraction or harvest of an environmental asset, no values for the asset itself, in situ, are available.

5.110 In this situation, the discounted value of future returns approach, commonly referred to as the net present value (NPV) approach, uses projections of the future rate of extraction of the asset, together with projections of its price, to generate a time series of expected returns. Typically, these projections are based on the history of returns earned from the use of the environmental asset. Assuming that returns earned in the current period are worth more to the extractor than returns earned in the future, the stream of expected returns is discounted to reflect the value that a buyer would be prepared to pay for the asset in the current period.

5.111 The next section outlines the key components of the NPV approach. Additional details, including the relevant mathematical derivations related to the NPV approach, are provided in annex A5.1.

The measurement of returns on environmental assets

5.113 In the SEEA, returns are defined using the concept of economic rent. Economic rent is best considered to be the surplus value accruing to the extractor or user of an asset calculated after all costs and normal returns have been taken into account.

5.114 The surplus value, referred to as resource rent in the context of environmental assets, can be taken to be the return attributable to the asset itself. The logic of the NPV approach requires estimating the stream of resource rents that are expected to be earned in the future and then discounting these resource rents back to the present accounting period. This provides an estimate of the value of the asset at that point in time.⁵³

5.115 One common feature in definitions of resource rent is that the amount of resource rent is always derived relative to the returns earned by other firms on average over time, i.e., normal returns. Resource rent, as a residual, may be positive or negative. Economic theory suggests that, over the long term, resource rents should be positive.

5.116 The measurement of resource rent provides a gross measure of the return to environmental assets. As for produced assets, it is also relevant to consider the derivation of a net measure of the return by deducting depletion from resource rent, i.e., depletion-adjusted resource rent. For produced assets, the equivalent deduction is for depreciation. Depletion, as defined earlier in this section, reflects the change in the value of an environmental asset that is due to extraction in excess of regeneration. Putting aside any changes in expectations for future returns or differences between expected and realized outcomes, the measure of depletion-adjusted resource rent corresponds, in economic terms, to a net return to capital or net return to environmental assets. Further, it is shown in annex A5.1 that depletion-adjusted resource rent is equal to the nominal (or overall) return to environmental assets less the expected revaluations of the environmental asset.

5.117 Resource rent and the net return to environmental assets can be derived within the national accounts framework through a focus on the operating surplus of extracting enterprises. In this context, the operating surplus earned by an enterprise is considered to comprise a return for the investment in produced assets and a return to the environmental assets used in production.

5.118 The relationships between the relevant variables are shown in table 5.5. The table presents the standard derivation of gross operating surplus based on the SNA using measures of output, intermediate consumption, compensation of employees, and other taxes on and subsidies for production.

Table 5.5

Relationships between different flows and income components

^a Strictly speaking, this accounting identity also includes gross mixed income (the surplus earned by unincorporated enterprises) and should be adjusted for net taxes and subsidies on production. These details do not affect the logic of the explanation provided.

^b In principle, the net return to environmental assets derived here also incorporates a return to other non-produced assets (e.g., marketing assets and brands), as these assets also play a role in generating the operating surplus. These returns are ignored in the formulation presented here.

Table 5.5

Relationships between different flows and income components

Output (sales of extracted environmental assets at basic prices, includes all subsidies on products, excludes taxes on products)
Less Operating costs
	Intermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products)
	Compensation of employees (input costs for labour)
	Other taxes on production plus other subsidies on production
Equals Gross operating surplus—SNA basis a
Less Specific subsidies on extraction
Plus Specific taxes on extraction
Equals Gross operating surplus—for the derivation of resource rent
Less User costs of produced assets
	Consumption of fixed capital (depreciation) + return to produced assets
Equals Resource rent
	Depletion + net return to environmental assetsb

^a Strictly speaking, this accounting identity also includes gross mixed income (the surplus earned by unincorporated enterprises) and should be adjusted for net taxes and subsidies on production. These details do not affect the logic of the explanation provided.

^b In principle, the net return to environmental assets derived here also incorporates a return to other non-produced assets (e.g., marketing assets and brands), as these assets also play a role in generating the operating surplus. These returns are ignored in the formulation presented here.

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Table 5.5

Relationships between different flows and income components

Output (sales of extracted environmental assets at basic prices, includes all subsidies on products, excludes taxes on products)
Less Operating costs
	Intermediate consumption (input costs of goods and services at purchasers’ prices, including taxes on products)
	Compensation of employees (input costs for labour)
	Other taxes on production plus other subsidies on production
Equals Gross operating surplus—SNA basis a
Less Specific subsidies on extraction
Plus Specific taxes on extraction
Equals Gross operating surplus—for the derivation of resource rent
Less User costs of produced assets
	Consumption of fixed capital (depreciation) + return to produced assets
Equals Resource rent
	Depletion + net return to environmental assetsb

^a Strictly speaking, this accounting identity also includes gross mixed income (the surplus earned by unincorporated enterprises) and should be adjusted for net taxes and subsidies on production. These details do not affect the logic of the explanation provided.

^b In principle, the net return to environmental assets derived here also incorporates a return to other non-produced assets (e.g., marketing assets and brands), as these assets also play a role in generating the operating surplus. These returns are ignored in the formulation presented here.

5.119 Before deriving measures of resource rent, it is necessary to take into account the effects of any specific taxes and subsidies that relate to the extraction activity. Specific taxes and subsidies are those that apply solely to the extracting enterprises and are not generally applicable across the economy.⁵⁴ Examples include subsidies provided based on the quantity of resources sold and taxes levied solely on inputs used in the extracting industries. The deduction of specific subsidies from and the addition of specific taxes to the standard national accounts measures of gross operating surplus are such that the resulting measure of resource rent is neutral to these flows; that is to say, while these flows affect the incomes of the extracting industries, they are effectively redistributions within the economy and should not influence the estimated return to the underlying environmental asset.

5.120 Resource rent is thus derived from standard SNA measures of gross operating surplus by deducting specific subsidies, adding back specific taxes and deducting the user costs of produced assets (themselves composed of consumption of fixed capital and the return to produced assets). As noted above, resource rent is composed of depletion and the net return to environmental assets.

Approaches to estimating resource rent

5.121 In practice, there are three main approaches to estimating resource rent: the residual value method, the appropriation method and the access price method.

5.122 The most commonly applied method is the residual value method. Under this method, resource rent is estimated by deducting user costs of produced assets from gross operating surplus after adjustment for any specific subsidies and taxes.

5.123 Estimates of the value of gross operating surplus and specific subsidies and taxes may be obtained from national accounts data sets. Estimates of the user costs of produced assets are not generally available and must be constructed so that each period’s resource rent can be obtained. Estimates of the user costs of produced assets are composed of two variables: consumption of fixed capital of produced assets; and normal return on produced assets. Both variables may be estimated within national accounts models designed to estimate the value of the fixed capital stock and related variables for various purposes, including productivity analysis. If such models have not been developed, then each variable may be estimated using assumptions regarding depreciation rates, asset lives and rates of return on produced assets.

A full description of considerations and approaches relevant to the measurement of user costs is presented in Measuring Capital: OECD Manual—2009 (OECD, 2009).

5.124 A difficulty in estimating resource rents with this method is that one is rarely able, from using the source information, particularly national accounts data, to isolate only the extraction or harvesting activity; and in certain circumstances, multiple resources may be extracted at the same time, particularly in mining. Generally, data on gross operating surplus (GOS) for industries that extract and harvest environmental assets will capture some downstream processing, refinement or other value-added activity also undertaken by the extractor before sale. Since all of these additional activities require inputs of labour and capital, partitioning a firm’s GOS into pure extraction activity relating to a single resource is not always straightforward. Nonetheless, every effort should be made to isolate the specific GOS for the extraction activity of individual resources in the underlying data.

5.125 There may be concern that, in situations of over-exploitation of resources, the resulting gross operating surplus will generate a higher estimate of resource rent than can be sustained over the longer term. While this observation is correct, it does not invalidate the measurement approach. The aim of the approach is not to measure what might or should happen under ideal circumstances but to account for expected behaviour in respect of the environmental asset. Thus, if over-exploitation continues, it should be reflected in a shorter remaining asset life and in a greater amount of depletion (as a component of the higher resource rent) than might otherwise be the case.

5.126 The appropriation method estimates the resource rent using the actual payments made to owners of environmental assets. In many countries, governments are the legal owners of environmental assets on behalf of the country. As legal owners, governments could in theory collect the entire resource rent derived from extraction of the resources that they own. This amount would, in principle be equal to GOS less user costs of produced assets of the extractor, as defined.

5.127 The collection of resource rent is generally undertaken by governments through mechanisms such as fees, taxes and royalties. In practice, the fees, taxes and royalties actually collected tend to understate total resource rent, as the rates may be set with other priorities in mind, for example, encouraging investment and employment in extracting industries. These alternative motivations should be considered before use of the appropriation method.

5.128 The access price method is based on the fact that access to resources may be controlled through the purchase of licences and quotas, as is commonly observed in the forestry and fishing industries. When these resource access rights are freely traded, it is possible to estimate the value of the relevant environmental asset from the market prices of the rights. The economic logic parallels the residual value method, since it is expected that, in a free market, the value of the rights should be equivalent to the future returns from the environmental asset (after deducting all costs, including user costs of produced assets).

5.129 Where the resource access rights that are purchased provide a very long term or indefinite access to the assets, the market value of the rights should provide a direct estimate of the total value of the asset rather than simply an estimate of the resource rent. In this case, no discounting of future flows of resource rent is needed. If the rights are for a more limited period (e.g., for one year in the case of entitlements), this can provide a direct estimate of the resource rent for that period.

5.130 In practice, in many cases governments may give the access rights direct to extractors for free or do so at a price that is less than the true market value. Further, trading of the rights may be restricted or prohibited. In these cases, there is no directly observable market valuation.

Summary of methods to estimating resource rent

5.131 While, in theory, all of these methods will generate the same estimates of resource rent, it is the case that the application of the appropriation and access price methods are more heavily influenced by institutional arrangements in a country. For these reasons, estimates of resource rent based on the residual value method should be compiled and, where possible, reconciled with estimates obtained using the other methods. Indeed, there may be particular analytical interest in comparing the estimates of resource rent based on the different methods.

Determination of the expected pattern of resource rents

5.132 The critical factor in the valuation of assets is not the past or current returns but the expected returns. An asset with no expected returns has no value in economic terms. Expected returns are, by definition, not observed and hence assumptions concerning these flows must be made.

5.133 Resource rents are a function of quantities of resources extracted, unit extraction costs and commodity prices. The starting point is generally the estimates of resource rent in the current period or the period of the immediate past. In the absence of any additional information on expected future price changes or likely changes in extraction rates, it is recommended that estimates of expected resource rent should be set based on current estimates of resource rent, thus assuming no price changes beyond the general level of inflation, and a realistic rate of resource extraction.

5.134 In general, there is too much volatility in unit resource prices for meaningful assumptions about future resource price changes to be incorporated. Also, in the absence of other information, it may be reasonable to assume that extraction will continue at the same rate as in the past, since this is the extraction rate for which an appropriate amount of produced assets has been acquired. At the same time, if, for example, it was known that the majority of the expected resource rent would be earned in years 5 to 10 over a total asset life of 30 years, then this timing of expected returns should be taken into account.

5.135 Special consideration is needed in situations where the extraction rates in any particular period might be considered abnormal, including where they fall to zero, or close to zero. In practice, this is possible in any given accounting period, for example, if the change in economic circumstances is such that extraction is no longer cost-effective, natural disasters make the resource inaccessible or unharvestable, or access to resources is restricted to allow the recovery of stocks.

5.136 If changes occur in the expected extraction schedule, the resulting NPV estimates may produce results that are difficult to interpret. However, this only highlights the fact that, when the expected extraction schedule changes for any reason, including simply the receipt of additional information, the NPV estimates must be re-estimated, since they should reflect a valuation based on all of the information available at that point in time.

Estimates of the asset life

5.137 The asset life (or resource life) is the expected time over which an asset can be used in production or the expected time over which extraction from a natural resource can take place. Estimates of the asset life must be based on consideration of the available physical stock of the asset and assumed rates of extraction and growth, in the case of renewable resources. In a very simple case, the asset life can be calculated by dividing the closing physical stock by the excess of expected annual extractions over expected annual growth. However, especially for natural biological resources such as aquatic resources, it is necessary to consider biological models and associated sustainable yields of biological resources in such a way as to ensure the impact of changing age and sex structures is taken into account in the determination of the asset life. A description of relevant considerations is contained in section 5.4.2.

5.138 It may be that, through the use of biological and economic models, optimal extraction paths can be calculated which effectively determine the asset life through alignment between the available stock and rates of extraction. Often implicit in the determination of such extraction paths, particularly for renewable natural resources, are assumptions regarding the sustainability of the resource, for example, that future management of fish stocks will ensure that extraction does not exceed growth.

5.139 For the SEEA, making such assumptions regarding sustainability is problematic, as it may ignore important environmental information and may imply the adoption of behaviour that may not have been adopted in the past. Unless there is evidence to the contrary, it is recommended that estimates of asset life be based on rates of extraction and growth that have occurred in the recent past rather than through the use of general assumptions on sustainability or intended management practice.

5.140 Estimates of the asset life are required to provide the time frame over which the NPV approach is applied. In practice, depending on the choice of discount rate, if asset lives are longer than about 20 years, the NPV estimates are relatively stable; that is, the values of the expected returns in later years are relatively small. The sensitivity of the NPV estimates to the choice of discount rate over varying asset lives is discussed in annex A5.2.

Rate of return on produced assets

5.141 An expected rate of return on produced assets is required to estimate the user cost of the produced assets utilized in the extraction of the environmental asset. If this cost is not deducted, the resulting estimates of resource rent will be overstated.

5.142 Two approaches can be taken to estimating rates of return on produced assets: an endogenous approach and an exogenous approach. The endogenous approach sets the rate equal to the net operating surplus (gross operating surplus less consumption of fixed capital) divided by the value of the stock of produced assets. This approach implicitly assumes that there is no return attributable to non-produced assets, including environmental assets, and hence it is not recommended. It should, however, form an upper bound of the estimated rate of return on produced assets.

5.143 The exogenous approach is recommended in the SEEA. This approach assumes that the expected rate of return on produced assets is equal to an exogenous (external) rate of return. Ideally, the expected rate of return should relate to activity-specific returns, thus taking into account risks in investing in particular activities. However, in many cases, financial markets may not be sufficiently developed to provide robust estimates of these specific rates of return.

5.144 For this reason, a realistic approach is to use an economy-wide rate of return, perhaps based on government bond rates, where these exist.⁵⁵ In all cases, a real rate of return should be used. While exogenous rates of return are unlikely to be perfect proxies for rates of return on individual produced assets, it is likely that they provide a reasonable reflection of normal returns for the derivation of estimates using the NPV approach.

Choice of discount rate

5.145 Discount rates are required to convert the expected stream of resource rents into a current-period estimate of the overall value. A discount rate expresses a time preference—the preference of the owner of an asset to receive income now rather than in the future. It also reflects the owner’s attitude to risk. In general, individuals and enterprises will have higher rates of time preference than society; that is, individuals and enterprises will tend to demand a quicker return from ownership of an asset than will the society as a whole. Higher rates of time preference translate into higher discount rates.

5.146 The discount rate used in NPV calculations can be interpreted as an expected rate of return on the non-produced assets. In an enterprise where all assets are identified and measured accurately, and where conditions of perfect competition prevail, the discount rate and the rate of return should be equal. This is because the enterprise should invest only if the rate of return on all assets is aligned to its own time and risk preferences for receiving income.

5.147 To ensure a valuation that is aligned to the general concept of market prices, it is recommended that a market-based discount rate should be used equal to the assumed rate of return on produced assets (see above).

5.148 At the same time, there is also support for the use of social discount rates in the valuation of environmental assets. The rationale is that environmental assets are of broad and long-term value to society as a whole and should be valued in that light rather than solely in relation to their value to a present-day extractor.

5.149 One of the main arguments supporting the use of social discount rates is that, generally, social discount rates are lower than market-based discount rates and lower rates will place higher relative importance on income earned by future generations. From this, it is often inferred that estimates of NPV that use market-based discount rates do not value future generations and the total values obtained are too small, since they do not give sufficient weight to these future incomes.

5.150 Annex A5.2 presents an extended discussion on discount rates and their application, including a table illustrating the sensitivity of valuations based on NPV to the choice of discount rate.

Calculation of net present value

5.151 Using these various components, estimates of the value of an environmental asset are obtained based on the following basic steps and assuming the employment of the residual value method to calculate resource rent:

• (a) Obtain estimates of GOS, specific subsidies and taxes on extraction, and the user cost of produced assets for the extractive activity, from relevant sources, most likely based on national accounts data, relevant activity-specific information and assumptions regarding rates of return on produced assets;

• (b) Estimate resource rent as GOS less specific subsidies plus specific taxes less user cost of produced assets;

• (c) Estimate the asset life based on physical assessment of the stock and projected rates of extraction and growth;

• (d) Project the estimate of resource rent over the life of the asset, taking into account any expected changes in extraction pattern;

• (e) Apply the NPV formula using an appropriate discount rate:

  $V_t=\underset{\tau =1}{\overset{N_t}{\mathrm{\Sigma }}}\frac{R{R}_{t+\tau }}{(1+r_t{)}^{\tau }}$

where V_t is the value of the asset of time t; N is the asset life: RR is the resource rent; and r is a nominal discount rate (for details see annex A5.1)

5.152 Where possible, compilers are encouraged to compare results of NPV calculations that would be obtained using different estimates of the discount rate and also different approaches to the estimation of resource rent. This may be possible where tradable access rights are in existence or where payments of rent are recorded. These alternative estimates of resource rent may be substituted in the general NPV formulation to enable the derivation of alternative valuations.

5.153 If, after adjusting for specific taxes and subsidies, the derived expected resource rent is negative, then the estimated NPV of the asset should be assumed to be zero. This conclusion should not be based on single observations of negative resource rents but should take into account likely future patterns of operating surplus and specific taxes and subsidies. In some cases, the extraction may continue because the level of specific subsidies is sufficient to ensure a suitable income for the extractor. However, in these situations, the income should not be attributed to a return to the underlying environmental asset, but, instead, should be considered a redistribution of incomes within the economy.

5.154 Wherever actual market prices are available, for example, on the basis of actual transactions in environmental assets, this information should be used in preference to NPV-based valuations. In incorporating this information, appropriate adjustments for the scope and coverage of the transactions, compared with the scope of the estimation based on NPV, need to be made.

5.155 Ideally, calculation of NPV estimates should be undertaken for individual stocks, for example, a specific mineral deposit or fish stock. At this level of detail, changes in the stock can be more accurately considered and assumptions more accurately evaluated. More generally, every effort should be made to test assumptions used in the formulation of NPV valuations and, wherever possible, additional information about specific individual stocks should be taken into account—for example, large discoveries of mineral and energy resources or catastrophic losses of timber resources due to exceptional weather events.

5.156 Accounting for the change in the value of assets over an accounting period is a core part of asset accounting. Like the assessment of the value of an asset at the beginning and end of a period, the valuation of changes in the stock, such as discoveries and catastrophic losses, is also dependent on the impact that these changes have on expected returns. Since these changes are not usually evidenced in transactions in the assets themselves, their valuation requires the use of the NPV approach to ensure alignment between stock valuations and valuations of the changes in the stock.

5.157 A complete accounting for NPV and changes in NPV is presented in annex A5.1. The annex highlights the relationships between the quantities of the natural resource, the quantity extracted, the price received for extracted resources (after deduction of extraction costs), i.e., the unit resource rent, and the price of the resource in situ, i.e., before extraction. A key conclusion presented in the annex is that it is incorrect to use the unit resource rent to value the stock of natural resources; rather, the in situ price must be used. At the same time, there is a clear relationship between these two prices and it is therefore possible to estimate the in situ price based on measures of resource rent.

5.158 The second key conclusion discussed in the annex is that the valuation of all changes in the stock of a natural resource (e.g., depletion, extraction, discoveries and catastrophic losses) must also be valued using average in situ resource prices. Using these prices permits a balanced and complete accounting of changes in the value of natural resources over an accounting period.

5.159 Finally, annex A5.1 demonstrates that the valuation of both non-renewable and renewable natural resources can be undertaken within the same accounting framework. Thus, measures of the natural growth of natural biological resources can be accounted for within the NPV framework, and appropriate measures of depletion can be defined.

Classification of mineral and energy resources

5.181 There are a number of different types of mineral and energy resources, such as oil, natural gas, coal and peat resources, non-metallic minerals and metallic minerals; but there is no internationally agreed detailed classification for mineral and energy resources suitable for statistical purposes.

Measurement of opening and closing stocks

5.185 Ideally, opening and closing stocks of each mineral and energy resource should be classified by class of resource, i.e., class A: Commercially recoverable resources; class B: Potentially commercially recoverable resources; or class C: Non-commercial and other known deposits, following the structure in table 5.7.

Table 5.7

Stocks of mineral and energy resources

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Table 5.7

Stocks of mineral and energy resources

Type of mineral or energy resource	Class of known deposit
	A: Commercially recoverable resources	B: Potentially commercially recoverable resources	C: Non-commercial and other known deposits
Oil resources (thousands of barrels)	800	600	400
Natural gas resources (cubic metres)	1 200	1 000	1 500
Coal and peat resources (thousands of tonnes)	600	50	50
Non-metallic mineral resources (tonnes)	150	200	100
Metallic mineral resources (thousands of tonnes)	60	40	60

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

View Table

Table 5.7

Stocks of mineral and energy resources

Type of mineral or energy resource	Class of known deposit
	A: Commercially recoverable resources	B: Potentially commercially recoverable resources	C: Non-commercial and other known deposits
Oil resources (thousands of barrels)	800	600	400
Natural gas resources (cubic metres)	1 200	1 000	1 500
Coal and peat resources (thousands of tonnes)	600	50	50
Non-metallic mineral resources (tonnes)	150	200	100
Metallic mineral resources (thousands of tonnes)	60	40	60

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

5.186 It is not recommended that totals including all classes of individual types of resources be compiled. Because each class has a different likelihood of extraction, simple summation of the available resources for a specific resource (e.g., coal) may give a misleading indication of total available resources.

5.187 In this framework, it is important to specify those resources for which a monetary valuation is to be established. If this distinction is not made, a subsequent comparison between physical and monetary accounts for individual resources may provide misleading indicators of average prices and relative availability of individual resources.

Physical asset account for mineral and energy resources

5.188 A basic physical asset account for mineral and energy resources is provided in table 5.8.

Table 5.8

Physical asset account for mineral and energy resources

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Table 5.8

Physical asset account for mineral and energy resources

		Type of mineral and energy resource
		(Class A: Commercially recoverable resources)
		Oil resources (thousands of barrels)	Natural gas resources (cubic metres)	Coal and peat resources (thousands of tonnes)	Non-metallic minerals (tonnes)	Metallic minerals (thousands of tonnes)
Opening stock of mineral and energy resources		800	1 200	600	150	60
Additions to stock
	Discoveries					20
	Upward reappraisals		200		40
	Reclassifications
	Total additions to stock		200		40	20
Reductions in stock
	Extractions	40	50	60	10	4
	Catastrophic losses
	Downward reappraisals			60
	Reclassifications
	Total reductions in stock	40	50	120	10	4
Closing stock of mineral and energy resources		760	1 350	480	180	76

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

View Table

Table 5.8

Physical asset account for mineral and energy resources

		Type of mineral and energy resource
		(Class A: Commercially recoverable resources)
		Oil resources (thousands of barrels)	Natural gas resources (cubic metres)	Coal and peat resources (thousands of tonnes)	Non-metallic minerals (tonnes)	Metallic minerals (thousands of tonnes)
Opening stock of mineral and energy resources		800	1 200	600	150	60
Additions to stock
	Discoveries					20
	Upward reappraisals		200		40
	Reclassifications
	Total additions to stock		200		40	20
Reductions in stock
	Extractions	40	50	60	10	4
	Catastrophic losses
	Downward reappraisals			60
	Reclassifications
	Total reductions in stock	40	50	120	10	4
Closing stock of mineral and energy resources		760	1 350	480	180	76

Note: Different physical units (e.g., tonnes, cubic metres and barrels) will be used for different types of resources.

Additions to and reductions in the stock of mineral and energy resources

5.189 The changes in the stock in physical terms should consider the following types of changes:

• (a) Discoveries. Discoveries should incorporate estimates of the quantity of new deposits found during an accounting period. To be recorded as a discovery, the new deposit must be a known deposit, i.e., in class A, B or C. Discoveries should be recorded by type and by class of resource;

• (b) Reappraisals. Reappraisals may be upward or downward. They should pertain only to known deposits. In general, reappraisals will relate to either additions or reductions in the estimated available stock of a specific deposit or to changes in the categorization of specific deposits between class A, B or C, based on changes in geologic information, technology, resource price or a combination of these factors;

• (c) Extraction. Estimates of extraction should reflect the quantity of the resource physically removed from the deposit. It should exclude mining overburden, i.e., the quantity of soil and other material moved in order to extract the resource. Further, the quantity should be estimated before any refinement or processing of the resource is undertaken. Estimates of extraction should include estimates of illegal extraction, either by residents or non-residents, as these amounts reduce the availability of the resource. It is noted that for the extraction of natural gas, the measurement of the quantity extracted may be more difficult owing to the nature of the extraction process for some deposits. In cases where natural gas is found with oil, it is the pressure exerted by the natural gas that causes the oil (and some natural gas) to be expelled from the oil well. Some of the natural gas that is expelled may be flared rather than put to direct use. Some natural gas, especially after extraction has been continuing for some time, may be reinjected to increase the pressure on the remaining oil and thereby allow more oil to be expelled. In such cases, if the natural gas associated with the oil is being accounted for, an allowance must be made for reinjection;

• (d) Catastrophic losses. Catastrophic losses are rare in relation to most mineral and energy resources. Flooding and collapsing of mines do occur but the deposits continue to exist and can, in principle, be recovered: the issue is one of economic viability of extraction rather than actual loss of the resource itself. An exception to this general principle concerns oil wells that can be destroyed by fire or become unstable for other reasons, leading to significant losses of oil resources. Losses of oil and related resources in this situation should be considered catastrophic losses;

• (e) Reclassifications. Reclassifications may occur if certain deposits are opened or closed to mining operations owing to government decisions concerning the access rights to a deposit. All other changes in the quantity of known deposits should be treated as reappraisals. Reclassifications may also be recorded if asset accounts for mineral and energy resources are being compiled by the institutional sector.

5.190 Increasingly, there is interest in the capacity to supply various metals and other minerals through the recycling of produced goods (e.g., vehicles and computers). The implied stock of relevant metals and minerals within an economy is not within the scope of the asset accounts presented here. Nonetheless, depending on the extent of recycling undertaken in a country, information on recycled metals and other minerals may be compiled to provide a more complete picture of the availability of these resources and hence on the demands for the extraction of these resources from the environment.

Valuation of stocks of mineral and energy resources

5.194 Because there are few transactions in mineral and energy resources in situ, the valuation of these assets requires the use of NPV approaches, as introduced in section 5.4. The calculations should be undertaken at the level of an individual resource type, ideally for specific deposits of a resource, and then summed over the range of different resources in order to obtain a total value of mineral and energy resources.

5.195 Application of NPV approaches to the valuation of mineral and energy resources requires consideration of a number of specific factors, most pertaining to the estimation of the resource rent.

(a) Estimation of resource rent

5.196 In general, the resource rent will be estimated based on information about the income and operating costs for the extraction industry. The aim is to define a resource rent that is specific to a given resource type, for example, coal. In the effort to achieve this aim, several factors should be borne in mind.

5.197 Scope of operations. Consistent with the definition of quantities extracted, the scope of the income and operating costs to be considered in the derivation of resource rent should be limited to the extraction process itself and should not include any additional income earned or costs incurred through further refinement and processing of the extracted resource. The extraction process is considered to include the activity of mineral exploration and evaluation and these costs should be deducted in the derivation of resource rent.

5.198 For some mineral and energy resources, a single deposit may contain several types of resources. For example, an oil well often contains gas and, frequently, silver, lead and zinc are extracted together. In these situations, the resource rent used in the calculation of the value of the resources should be allocated by commodity. However, since data are generally available only for a single extracting unit, derivation of estimates of resource rent by type of resource based on known extraction costs for each type of resource may not be possible except by using detailed industry knowledge or general rules of thumb to allocate total extraction costs.

5.199 Price fluctuations. While operating costs for extracting resources may not fluctuate significantly, it is likely that income earned from sales of extracted resources will fluctuate. Consequently, the resource rent (which is derived as a residual), may entail a quite volatile time series. In addition, the aggregate amount of resource rent in any one period may be affected by extraction rates that in turn may be affected by one-off events, for example, mine collapse. Since the objective is to define a resource rent that can be forecast, it is recommended: first, that unit resource rents be derived by dividing total resource rent for an individual resource by quantities extracted in a period; and second, that, in the absence of other information on future resource prices, a proxy of unit resource rents (e.g., regression-based estimates and moving averages) may be used as the basis for the estimation of future resource rents. To aid interpretation of the information, all assumptions regarding future expected prices and costs should be made clear.

5.200 Treatment of mineral exploration and evaluation. Mineral exploration is undertaken in order to discover new deposits of minerals and energy resources that may be exploited commercially. Such exploration may be undertaken on own account by enterprises engaged in mining activities. Alternatively, specialized enterprises may carry out exploration either for their own purposes or for fees. The information obtained from exploration and evaluation influences the production activities of those who obtain it over a number of years. Hence, the expenditures are considered to be a form of gross fixed capital formation resulting in the production of an intellectual property product, a type of produced asset.

5.201 Mineral exploration and evaluation consists of the value of expenditures on exploration for petroleum and natural gas and for non-petroleum deposits and subsequent evaluation of the discoveries made.⁵⁸

5.202 These expenditures include pre-licence costs, licence and acquisition costs, appraisal costs and the costs of actual test drilling and boring, as well as the costs of aerial and other surveys, transportation costs, etc., incurred to make it possible to carry out the tests. Reevaluations may be conducted after commercial exploitation of the resource has started and the cost of these re-evaluations is also included.

5.203 Consumption of fixed capital should be calculated for this asset, potentially using average service lives similar to those used by mining or oil corporations in their own accounts.

5.204 For the purpose of estimating resource rent, it is necessary to deduct the user costs of these produced assets, including both the consumption of fixed capital and a return to the produced asset.

5.205 It is recognized that an outcome from mineral exploration is the discovery of mineral and energy resources and hence the value of mineral and energy resources on the balance sheet may, in part, be considered to be due to mineral exploration. However, following the SNA, the output of mineral exploration activity is considered to be an intellectual property product, not a natural resource. The deduction of the user costs of mineral exploration and evaluation in the derivation of resource rent ensures that the recorded value of the mineral and energy resources reflects only the value of the non-produced environmental resource.

5.206 Mine and rig decommissioning costs. Consistent with the treatment in the 2008 SNA, it is recognized that, in many cases, costs are incurred by extractors at the end of the productive life of a deposit, generally to restore the natural environment around the extraction site. These costs, where they can be reasonably anticipated or estimated, should be considered to reduce the resource rent earned by the extractor over the operating life of the extraction site, even though the actual expenditure is likely to take place at the end of the operation of the assets. Details on accounting for these costs are discussed in chapter IV.

5.207 Aggregation of the same resource over different deposits. In the discussion so far, it has been implicitly assumed that the mineral and energy resources constitute a single deposit, so that any extractions and discoveries affect the resource life of all resources available to a country. In practice, of course, this is not the case: some oilfields will be exhausted in a relatively short time frame and extractors will then move to another.

5.208 Many reappraisals apply to established fields where extraction is already in progress. Upward revisions in quantities will extend the life of the resources and the addition to value will largely reflect the change between the previous and new resource lives, since without additional investment the extraction rate is likely to remain steady.

5.209 A somewhat different situation holds for a completely new discovery. Suppose a deposit is discovered with an expected life of, say, 20 years, equal by itself to the existing reserves of a country. It is not realistic to automatically assume that the resource in the new deposit will necessarily be extracted in years 21 to 40. On the other hand, neither is it realistic to automatically assume that it will be extracted in years 1 to 20 and thus double the total extractions in these years. For these reasons, it is desirable, if at all possible, to make projections of the impacts of discoveries and reappraisals separately and, ideally, on a deposit-by-deposit basis.

(b) Extraction rate

5.210 Independently of assumptions about the resource rent, an assumption must be made about the pattern of extraction to be followed in the future. The assumption most often used is that the extraction rate will stay constant in physical terms, but there is no reason why this should necessarily be so. As resources approach extinction, there may be a decline in output as some deposits become completely exhausted if there are no new deposits to take their place. Alternatively, an enterprise could adjust the rate of extraction to give the same total income every year, or could reduce the amount extracted as the resource diminishes, assuming that the price increased at the same time. There may be information available from government or from enterprises on projected levels of extraction that could be used, although these often tend to be based on conservative projections of the likely level of new discoveries and reappraisals.

5.211 In the absence of more precise information, a reasonable assumption is that the rate of extraction is kept constant in physical terms, which, effectively, is the assumption that the efficiency of the extraction process remains steady and the stock of extraction-related produced assets remains steady in proportion to the available stock of the resource.

(c) Resource life

5.212 At any point in time, the life of a resource is equal to the stock at that time divided by the expected extraction rate. In the course of a year, the resource life will diminish by one year owing to extractions and will change by the quantity of discoveries and reappraisals during the period divided by the average extraction rate. If, on balance, there are more downward reappraisals than upward reappraisals and discoveries, then the resource life is further reduced.

5.213 The quantity of the stock used to calculate the resource life must be consistent with the quantity to be valued. Since only class A resources are to be valued, then the resource’s life must be calculated based only on class A resources and not on total known deposits for the resource (i.e., including also class B and class C resources).

Valuation of flows of mineral and energy resources

(a) Value of discoveries, reappraisals, extractions, depletion and catastrophic losses

5.214 The value of additions and reductions in the stock should be calculated using the average prices of the resource in situ over the period multiplied by the quantity discovered, reappraised, extracted, depleted or lost. This is consistent with the approach outlined in section 5.4 and explained in detail in annex A5.1.

(b) Acquisitions and disposals of mineral and energy resources

5.215 These transactions are likely to be rare but when they do occur they should be recorded. Estimates of the value of these transactions should take into account the costs of ownership transfer which should be recorded as the purchase of a produced asset: costs of ownership transfer on non-produced assets. On the balance sheet, this produced asset is considered to be incorporated into the value of the underlying mineral and energy resource.⁵⁹

Allocation of income from the extraction of mineral and energy resources

5.216 A general characteristic of mineral and energy resources is that the income earned from the extraction of the resources is shared between economic units. Most commonly, part of the income accrues to the extractor of the resources in the form of operating surplus and part of the income accrues to the government in the form of rent. The government earns this income, on behalf of the society, by allowing access to the resources.

5.217 Depending on the nature of the arrangements, often both the extractor and the government will have substantial assets in the form of expected future incomes from the extraction of the resources. Following the description in section 5.4, the expected incomes (which are equal in total to the resource rent) can be separated into two components: depletion and net return to environmental assets. Changes in the value of the assets for each unit will reflect declines due to depletion, while the return to environmental assets will be reflected in the generation and allocation of income accounts.

5.218 Within the SEEA, a specific objective is to show, within the general national accounts framework, how the incomes earned from the extraction of natural resources are impacted by the cost of depletion. In particular, the SEEA aims to define depletion-adjusted estimates of operating surplus, value added and saving at both an economy-wide level and for institutional sectors. Since there is only one amount of depletion for a given mineral and energy resource, it must be allocated between the relevant units within the accounting framework.⁶⁰

5.219 In the circumstances outlined, accounting for these incomes and the associated depletion is problematic in the standard national accounts framework for two main reasons. First, the income flows are recorded in different accounts with the value added and operating surplus of the extractor recorded in the production and generation of income accounts, and the rent earned by the government recorded in the allocation of primary income account. Second, no cost of depletion is recorded against the income earned in the structure of the standard accounts (in contrast with the cost of produced assets, which is recorded as consumption of fixed capital). Instead, in the SNA, depletion is recorded in the other changes in the volume of assets account.⁶¹

5.220 The following accounting treatment is recommended for the SEEA:

• (a) Record the total cost of depletion in the production and generation of income accounts of the extractor as deductions from value added and operating surplus. This ensures that the analysis of extractive activity and economy-wide aggregates of operating surplus and value added fully account for the cost of depletion. Further, since the government has no operating surplus in regard to the extraction activity, not recording depletion in the production account of the government ensures that estimates of government output (which are calculated based on input costs) are not increased owing to depletion;

• (b) Record the payment of rent from the extractor to the government in the allocation of primary income account. This entry is the standard national accounts entry;

• (c) Record an entry, entitled “Depletion borne by government”, in the allocation of primary income account to reflect (i) that the rent earned by the government includes the government’s share of total depletion which must be deducted to measure the depletion-adjusted saving of government; and (ii) that the depletion-adjusted saving of the extractor would be understated if the total amount of depletion were deducted in the extractor’s accounts. Another way of viewing this entry is to consider that the rent earned by government must be recorded net of depletion (i.e., depletion-adjusted rent is derived) in the derivation of depletion-adjusted saving for government.

5.221 These entries are shown in table 5.10. Importantly, they ensure that the sum of the institutional sector entries for depletion adjusted aggregates is equal to the same aggregates calculated at the economy-wide level.

Table 5.10

Entries for allocating the income and depletion of mineral and energy resources

Table 5.10

Entries for allocating the income and depletion of mineral and energy resources

		Government		Extractor
Transaction		Resources	Uses	Resources	Uses
Production account
	Output—sales from extraction			100
	Intermediate consumption				50
	Gross value added			50
	Consumption of fixed capital			−15
	Net value added			35
	Depletion			−6
	Depletion-adjusted net value added			29
Generation of income account
	Compensation of employees				20
	Gross operating surplus			30
	Consumption of fixed capital			−15
	Net operating surplus			15
	Depletion			−6
	Depletion-adjusted operating surplus			9
Allocation of primary income account
	Depletion-adjusted operating surplus
	Rent	5			5
	Depletion borne by government		3	3
	Depletion-adjusted saving		2		7

View Table

Table 5.10

Entries for allocating the income and depletion of mineral and energy resources

		Government		Extractor
Transaction		Resources	Uses	Resources	Uses
Production account
	Output—sales from extraction			100
	Intermediate consumption				50
	Gross value added			50
	Consumption of fixed capital			−15
	Net value added			35
	Depletion			−6
	Depletion-adjusted net value added			29
Generation of income account
	Compensation of employees				20
	Gross operating surplus			30
	Consumption of fixed capital			−15
	Net operating surplus			15
	Depletion			−6
	Depletion-adjusted operating surplus			9
Allocation of primary income account
	Depletion-adjusted operating surplus
	Rent	5			5
	Depletion borne by government		3	3
	Depletion-adjusted saving		2		7

5.222 The values of depletion shown for each unit should be consistent with the change in net worth of each unit in relation to the mineral and energy resources (assuming no other changes in the stock of resources such as discoveries). Thus, if government collects a 40 per cent share of the resource rent (through payment of rent by the extractor), then the depletion borne by government will be 40 per cent of the total measured depletion. In making this calculation, it is assumed that the government’s share of future resource rent remains constant. If this share is expected to change in the future, then the rent earned and depletion borne by government should be adjusted to reflect these changes.

5.223 The associated balance-sheet entries may be made in different ways depending on the nature of the analysis and on the institutional arrangements within a country. In any presentation, the allocation of assets and the resulting estimates of institutional sector net worth should reflect the expected future income streams for each unit from the extraction of the resources.

5.224 This approach to the allocation of income and depletion from the extraction of mineral and energy resources can also be applied in compiling accounts for other natural resources subject to depletion.

Treatment of energy from renewable sources

5.225 Energy from renewable sources is an important source of energy in many countries and, increasingly, is being seen as an alternative source of energy for those countries that have used energy primarily from non-renewable sources. Energy from renewable sources can be produced from many sources, including but not limited to, wind, hydropower (including run-of-river), solar and geothermal. A complete listing of renewable sources recognized in the SEEA is included in chapter III, table 3.2.

5.226 Renewable sources cannot be exhausted in a manner akin to fossil energy resources and, unlike biological resources, they are not regenerated. Thus, in an accounting sense, there is no physical stock of renewable sources of energy that can be used up or sold.

5.227 Therefore, the measurement scope of the SEEA in relation to these sources of energy relates to the amount of energy that is produced given current investment in relevant produced assets and associated technology. Excluded from scope are potential amounts of energy that could be produced from renewable sources if investment and technology were to increase in the future.

5.228 The presence of investments in renewable energy capture facilities and equipment affects the value of the land associated with those facilities. For example, land in a particularly windy area would be priced higher than similar land in a non-windy area, if investment was made in constructing windmills to capture the energy from the wind. Thus, opportunities to earn resource rent based on sources like wind, solar and geothermal should be expected to be reflected in the price of land.

5.229 In situations where the only income generated from the relevant land is from the generation of energy from renewable sources, the value of the land will, in theory, be equal to the net present value of the future income stream. However, it is also possible that other income is earned from the same area, for example, agriculture may be engaged in using wind farms. In these cases, the valuation of the land must also take into account the income generated from these other activities. Nonetheless, where possible, the value of the land should be partitioned to provide an estimate of the value of the land that is attributable to income arising from the generation of energy from renewable sources. The valuation of land with respect to energy from renewable sources is also discussed in section 5.6.

5.230 Special mention must be made of the valuation of future income streams from hydropower. In this case, it is more relevant to consider the income stream in relation to a stock of water rather than to an area of land. Thus, in the case of hydropower, it is the value of the water resource that should be partitioned to provide an estimate of the value of the water resource that is attributable to income arising from the generation of renewable energy from hydropower. The valuation of water resources with respect to hydropower is also discussed in section 5.11.

5.231 It is recognized that some investments in the capture of energy from renewable sources take place offshore (e.g., wind farms in the sea). By convention, the value of income streams from these sources are attributed to the value of land.

5.232 Generally, since the renewable sources themselves are not sold on markets, it is necessary to use NPV approaches for valuation purposes. In undertaking such valuations, all costs should be deducted, including the costs of fixed assets used in the capture of energy.

5.233 These accounting treatments do not apply in the case of energy sourced from timber and other biomass resources. Unlike the renewable sources of energy listed above, a stock of timber resources can be observed and measured. In concept, the volume and value of timber resources (considered in detail in sect. 5.8) encompasses all possible uses of the timber, including its use as an energy source. The recording of flows of energy from biomass is discussed further in section 3.4.

5.234 The various asset values related to the generation of energy may be combined to provide an overall value of environmental assets associated with energy production. Such an aggregate may include values of mineral and energy resources (e.g., coal, oil and natural gas), the value of land attributable to renewable sources of energy (e.g., wind, solar and geothermal), the value of timber resources used for energy, and the value of water resources used for hydropower.

Land use classification

5.245 Estimates of area classified by type of land use may be of considerable interest in understanding issues of agricultural production, forestry management and the spread of built-up areas. Additional benefit is gained through analysis of changes in land use over time.

5.246 Land use reflects both (a) the activities undertaken and (b) the institutional arrangements put in place for a given area for the purposes of economic production, or the maintenance and restoration of environmental functions. In effect, “use” of an area implies the existence of some human intervention or management. Land in use therefore includes areas, for example, protected areas, that are under the active management of institutional units of a country for the purpose of excluding economic or human activity from that area.

5.247 Not all land in a country is used following the definition above. Some areas are “not in use”, although they may have a use in supporting ecosystems and biodiversity. In order to provide a complete accounting for land use within a country, both land in use and land not in use must be included.

5.248 The scope of land use accounts comprises areas of land and inland water. For some analytical purposes, and depending on the composition of a country’s economic territory, the measurement boundary for land use may be extended to include coastal waters and areas within a country’s EEZ.⁶³ Such a broader boundary is likely to be of relevance in the management of fishing rights, offshore mining and exploration, the protection of coral reefs, and the understanding of other marine issues. Particularly in cases where the area of a country’s coastal water and EEZ constitutes a large part of its economic territory, this extension of the analysis of land use is appropriate.

5.249 The SEEA land use classification is presented in table 5.11. At its highest level, it is classified by the primary types of surfaces: land and inland waters. The classification by type of surface reflects the primary use of the classification as a means of comparing alternative uses. Generally, the types of uses of inland water areas and land areas are quite distinct; and these different areas are likely to be managed in different ways.

Table 5.11

Land use classification

Table 5.11

Land use classification

1	Land
1.1		Agriculture
1.2		Forestry
1.3		Land used for aquaculture
1.4		Use of built-up and related areas
1.5		Land used for maintenance and restoration of environmental functions
1.6		Other uses of land n.e.c.
1.7		Land not in use
2	Inland waters
2.1		Inland waters used for aquaculture or holding facilities
2.2		Inland waters used for maintenance and restoration of environmental functions
2.3		Other uses of inland waters n.e.c.
2.4		Inland waters not in use

View Table

Table 5.11

Land use classification

1	Land
1.1		Agriculture
1.2		Forestry
1.3		Land used for aquaculture
1.4		Use of built-up and related areas
1.5		Land used for maintenance and restoration of environmental functions
1.6		Other uses of land n.e.c.
1.7		Land not in use
2	Inland waters
2.1		Inland waters used for aquaculture or holding facilities
2.2		Inland waters used for maintenance and restoration of environmental functions
2.3		Other uses of inland waters n.e.c.
2.4		Inland waters not in use

5.250 For land, the classification consists of seven main categories of land use: agriculture, forestry, land used for aquaculture, use of built-up and related areas, land used for maintenance and restoration of environmental functions, other uses of land n.e.c. (not elsewhere classified), and land not in use. For inland waters, there are four main categories: inland waters used for aquaculture or holding facilities; inland waters used for maintenance and restoration of environmental functions; other uses of inland waters n.e.c.; and inland waters not in use.

5.251 Detailed descriptions for subcategories and classes of the land use classification are presented in annex I, including classes relevant for extended analysis of coastal waters and the EEZ. These descriptions provide a starting point for the compilation of relevant statistics. However, further testing and development of these classes are required. This work is part of the SEEA Central Framework research agenda (see annex 2).

5.252 Within each type of area, the classification comprises various categories of use. The categories are not defined on the basis of economic activity but rather pursuant to consideration of the general purpose and role of the user of the area. In many cases, this will align with the scope of the economic activity; but in some cases, particularly for forestry, the area considered to be in use may be larger than the area being used for economic production.

5.253 At the same time, for areas of forest not intended to be used for economic production (e.g., strictly demarcated nature reserves where there is no intention to harvest timber), their primary use is more likely to be maintenance and restoration of environmental functions or they may constitute land not in use, depending on the relevant designations associated with the area.

5.254 In some cases, an area may support multiple uses at the same time or, over an accounting period, the same area may have different uses at different times, and there may be interest in recording all uses for particular areas. In general, however, the principle of primary or dominant use should be employed to ensure that all of the area has been classified.

5.255 As there may be strong analytical interest in understanding the range of multiple uses, compilers should take this interest into account in developing accounts for land. In such cases, it may be possible to classify smaller areas that are used for particular purposes. For example, if trees are planted in defined areas on a farm to reduce water erosion or improve water quality (e.g., on river banks), then, instead of the entire farm area’s being assigned to agriculture, the smaller area could be classified as an area used for the maintenance and restoration of environmental functions.

5.256 In some areas, particularly areas covered by water, there may be no clearly defined use for a given area; hence, a primary or dominant use will not be identifiable. For example, areas within harbours may be used to provide space for recreation, passenger and freight transport, and fishing. In order for an area to be defined as an area in use, there must be a significant degree of continuity in the use of the area. In general, areas of water will be considered “used” only where they have been clearly zoned or delimited for a specific use.

Land cover classes

5.257 Land cover refers to the observed physical and biological cover of the Earth’s surface and includes natural vegetation and abiotic (non-living) surfaces. At its most basic level, it comprises all of the individual features that cover the area within a country. For the purposes of land cover statistics, the relevant country area includes only land and inland waters. The area of coastal waters is excluded.

5.258 The Food and Agriculture Organization of the United Nations (FAO) has developed an international standard classification system, the Land Cover Classification System, version 3 (LCCS 3) (FAO, 2009),^64,65 which can be used to systematically record the biophysical characteristics of all areas of land within any territory.

5.259 Current land cover is a function of natural changes in the environment and of previous and current land use, particularly in agricultural and forestry areas. Although characteristics of vegetation (such as whether it is natural or cultivated) influence the land cover within an area, they are not inherent features of the land cover. Thus, a clear and systematic description of classes of land cover allows the land cover classification to be compared with that for types of land use, while maintaining pure land cover criteria. The FAO LCCS provides a theoretical basis for this approach.

5.260 There is an enormous number of different land cover features that can be created with the LCCS approach. For the purposes of standardization and harmonization across statistical data sets, a classification comprising 14 classes has been established, as presented in table 5.12.

Table 5.12

Land cover classification

Table 5.12

Land cover classification

	Category
1	Artificial surfaces (including urban and associated areas)
2	Herbaceous crops
3	Woody crops
4	Multiple or layered crops
5	Grassland
6	Tree-covered areas
7	Mangroves
8	Shrub-covered areas
9	Shrubs and/or herbaceous vegetation, aquatic or regularly flooded
10	Sparsely natural vegetated areas
11	Terrestrial barren land
12	Permanent snow and glaciers
13	Inland water bodies
14	Coastal water bodies and intertidal areas

View Table

Table 5.12

Land cover classification

	Category
1	Artificial surfaces (including urban and associated areas)
2	Herbaceous crops
3	Woody crops
4	Multiple or layered crops
5	Grassland
6	Tree-covered areas
7	Mangroves
8	Shrub-covered areas
9	Shrubs and/or herbaceous vegetation, aquatic or regularly flooded
10	Sparsely natural vegetated areas
11	Terrestrial barren land
12	Permanent snow and glaciers
13	Inland water bodies
14	Coastal water bodies and intertidal areas

5.261 The 14 classes constitute a comprehensive set of land cover types with clear boundaries based on definitions from the LCCS that are mutually exclusive and unambiguous. This land cover classification can be used at all scales, independently of the method of observation, thus allowing cross-referencing of local and regional maps with continental and global maps without loss of information.

5.262 The land cover classification is complemented with a set of basic rules of classification to allow translation of national data sets. These rules are set out in annex I. The rules reflect the logical structure of the LCCS and determine, as the first step, the main object (the “basic object”) to be considered when undertaking a translation of data. The basic objects are simple and intuitively discernible elements of land cover (such as trees, shrubs, buildings, etc.). The descriptions are supplemented by the inclusion of information on “properties” (such as height, cover, etc.) and “characteristics” (natural, cultivated, etc.) of the basic objects. Extended descriptions of the classes are also provided in annex I.⁶⁶

Physical accounts for land cover

5.267 In the first instance, it is recommended that countries develop estimates of the total land area classified by land cover at the beginning and the end of each accounting period. This is because data on land cover from remote sensing (either aerial photography or satellite images) are usually available and require less interpretation than land use. It is noted that land cover and land use are interrelated. For example, agricultural production is closely aligned to crop area. However, while land use and land cover are closely related, this is not always the case. For example, tree-covered areas can be used for forestry, or for the maintenance and restoration of environmental functions, or may not be used at all (constituting “land not in use”).

5.268 With data structured in an accounting format, it is possible to link land cover to land use, including through the presentation of matrices showing the changes in land cover and land use over an accounting period. In assessing land cover and land use change, it may be useful to determine the proportion of the opening stock of land whose cover or use has remained unchanged. To undertake this type of analysis, the data must be based on spatially referenced data sources.

Scope of land cover accounts

5.269 The land area of a country defines the scope of the land cover account. For most purposes this will be the area of land and associated inland waters, as defined in the land cover classification shown in table 5.12. The account could be extended to coastal water bodies and intertidal areas.

5.270 A physical account for land cover is presented in table 5.13. It shows the opening and closing areas for different land cover types and various additions and reductions in those areas over the accounting period. The different additions and reductions are explained in the following paragraphs.

Table 5.13

Physical account for land cover (hectares)

Note: Crops include herbaceous crops, woody crops, and multiple or layered crops.

Table 5.13

Physical account for land cover (hectares)

		Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Terrestrial barren land	Permanent snow, glaciers and inland water bodies	Coastal water and inter-tidal areas
Opening stock of resources		12 292.5	445 431.0	106 180.5	338 514.0	214.5	66 475.5	73.5	1 966.5		12 949.5	19 351.5
Additions to stock
	Managed expansion	183.0	9 357.0
	Natural expansion			64.5								1.5
	Upward reappraisals			4.5
	Total additions to stock	183.0	9 357.0	69.0								1.5
Reductions in stock
	Managed regression		147.0	4 704.0	3 118.5	9.0	1 560.0	1.5
	Natural regression					1.5	64.5
	Downward reappraisals						4.5
	Total reductions in stock		147.0	4 704.0	3 118.5	10.5	1 629.0	1.5
Closing stock		12 475.5	454 641.0	101 545.5	335 395.5	204.0	64 846.5	72.0	1 966.5		12 949.5	19 353.0

Note: Crops include herbaceous crops, woody crops, and multiple or layered crops.

View Table

Table 5.13

Physical account for land cover (hectares)

		Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Terrestrial barren land	Permanent snow, glaciers and inland water bodies	Coastal water and inter-tidal areas
Opening stock of resources		12 292.5	445 431.0	106 180.5	338 514.0	214.5	66 475.5	73.5	1 966.5		12 949.5	19 351.5
Additions to stock
	Managed expansion	183.0	9 357.0
	Natural expansion			64.5								1.5
	Upward reappraisals			4.5
	Total additions to stock	183.0	9 357.0	69.0								1.5
Reductions in stock
	Managed regression		147.0	4 704.0	3 118.5	9.0	1 560.0	1.5
	Natural regression					1.5	64.5
	Downward reappraisals						4.5
	Total reductions in stock		147.0	4 704.0	3 118.5	10.5	1 629.0	1.5
Closing stock		12 475.5	454 641.0	101 545.5	335 395.5	204.0	64 846.5	72.0	1 966.5		12 949.5	19 353.0

Note: Crops include herbaceous crops, woody crops, and multiple or layered crops.

5.271 Managed expansion represents an increase in the area of a land cover type due to human activity. For example, crop areas may be converted to tree-covered areas as a result of silvicultural measures such as planting and seeding, or tree-covered areas may be converted to crop or grassland following tree clearing. Generally, the managed expansion of one land cover type will also lead to the recording of a matching entry for managed regression of the reducing land cover types. A matching entry is not recorded if there is a managed expansion in the total area of land within scope of the account (e.g., in the case of land reclamation).

5.272 Natural expansion is an increase in area resulting from natural processes, including seeding, sprouting, suckering or layering. In the case of sparse natural vegetation and terrestrial barren land, the natural loss of vegetation from other vegetation types would lead to increases in these areas. Changes in the extent of permanent snow, glaciers and inland water bodies can also be due to natural variation, in rainfall, for example. Generally, the natural expansion of one land cover type will also lead to the recording of a matching entry for natural regression of the reducing land cover types. A matching entry is not recorded if there is a natural expansion in the total area of land within scope of the account (e.g., in the case where land is created through volcanic activity or landslide).

5.273 Managed regression represents a decrease in the area of a land cover type due to human activity. As for managed expansion, a matching entry is recorded in all cases of managed regression, except in cases where there is a managed regression in the total land area.

5.274 Natural regression should be recorded when the area of a land cover type reduces for natural reasons. As for natural expansion, a matching entry is recorded in all cases of natural regression, except in cases where there is a natural regression in the total land area (e.g., the loss of land due to erosion by the sea).

5.275 Reappraisals can be upward or downward and can reflect changes due to the use of updated information that permits a reassessment of the size of the area of different land covers, for example, from new satellite imagery or interpretation of satellite imagery. The use of updated information may require the revision of previous estimates to ensure a continuity of time series.

5.276 The land cover change matrix set out in table 5.14 shows land cover at two different points in time. It shows the area of different land cover types at the beginning of the reference period (opening area), the increases and decreases of this area according to the land cover type it was converted from (in the case of increases) or the type it was converted to (in the case of decreases) and, finally, the area covered by different land cover types at the end of the reference period (closing area).

Table 5.14

Land cover change matrix (hectares)

Note: Including herbaceous crops, woody crops and multiple or layered crops.

Table 5.14

Land cover change matrix (hectares)

			Increases (positive numbers) and decreases (negative numbers) from other land covers
Land cover		Opening area	Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Terrestrial barren land	Permanent snow, glaciers and inland water bodies	Coastal water and intertidal areas	Net change (increase-decrease)	Closing area
	Artificial surfaces	12 292.5		147.0	27.0		9.0							183.0	12 475.5
	Crops	445 431.0	−147.0		4 677.0	3 118.5		1 560.0	1.5					9 210.0	454 641.0
	Grassland	106 180.5	− 27.0	− 4 677.0				69.0						− 4 635.0	101 545.5
	Tree-covered area	338 514.0		− 3 118.5										− 3 118.5	335 395.5
	Mangroves	214.5	−9.0										−1.5	−10.5	204.0
	Shrub-covered area	66 475.5		−1 560.0	−69.0									−1 629.0	64 846.5
	Regularly flooded areas	73.5		−1.5										−1.5	72.0
	Sparse natural vegetated areas	1 966.5													1 966.5
	Terrestrial barren land
	Permanent snow, glaciers and inland water bodies	12 949.5													12 949.5
	Coastal water and intertidal areas	19 351.5					1.5							1.5	19 353.0

Note: Including herbaceous crops, woody crops and multiple or layered crops.

View Table

Table 5.14

Land cover change matrix (hectares)

			Increases (positive numbers) and decreases (negative numbers) from other land covers
Land cover		Opening area	Artificial surfaces	Crops	Grassland	Tree-covered area	Mangroves	Shrub-covered area	Regularly flooded areas	Sparse natural vegetated areas	Terrestrial barren land	Permanent snow, glaciers and inland water bodies	Coastal water and intertidal areas	Net change (increase-decrease)	Closing area
	Artificial surfaces	12 292.5		147.0	27.0		9.0							183.0	12 475.5
	Crops	445 431.0	−147.0		4 677.0	3 118.5		1 560.0	1.5					9 210.0	454 641.0
	Grassland	106 180.5	− 27.0	− 4 677.0				69.0						− 4 635.0	101 545.5
	Tree-covered area	338 514.0		− 3 118.5										− 3 118.5	335 395.5
	Mangroves	214.5	−9.0										−1.5	−10.5	204.0
	Shrub-covered area	66 475.5		−1 560.0	−69.0									−1 629.0	64 846.5
	Regularly flooded areas	73.5		−1.5										−1.5	72.0
	Sparse natural vegetated areas	1 966.5													1 966.5
	Terrestrial barren land
	Permanent snow, glaciers and inland water bodies	12 949.5													12 949.5
	Coastal water and intertidal areas	19 351.5					1.5							1.5	19 353.0

Note: Including herbaceous crops, woody crops and multiple or layered crops.

5.277 Table 5.14 shows net changes, which may mask important information. For example, when natural forest is lost in one place but plantation forest is added elsewhere, no net change of tree-covered area would be shown. Similarly, when high-quality agricultural land is converted into built-up land, but, at the same time, less productive agricultural land is added through deforestation, total agricultural land cover will not change. Where these phenomenon are relevant, the format of table 5.14 can be extended to show increases and decreases in separate tables and thus allow more detailed analysis.

5.278 An additional step in the analysis of land cover change might be the construction of tables showing reasons for land cover change. For example, changes in land cover might be classified to show whether the change relates to urban growth and development of infrastructure (through conversion of crops or tree-covered area), intensification and industrialization of agriculture (through conversion of family farming and mosaic landscapes), extension of agriculture in general (through conversion of tree-covered land), drainage of regularly flooded areas (wetlands) for crops or artificial surfaces (urban land), deforestation (of tree-covered areas for timber production or agriculture development), and desertification (at the expense of formerly vegetated areas).

5.279 The structure of land use accounts could be similar to that of land cover accounts. An example of land use accounts for forest and other wooded land is contained in the next subsection.

Introduction

5.280 For particular land uses or types of land cover, it is also possible to construct basic physical asset accounts as established for other resources. The most developed example is for forest and other wooded land. Often, the compilation of physical asset accounts for forest and other wooded land is undertaken in conjunction with the compilation of asset accounts for timber resources as described in section 5.8. However, in principle, accounts for forest and other wooded land are a type of land account.

5.281 A key distinction between the physical asset account for forest and other wooded land and the asset account for timber resources is that the scope of timber resources is not limited to timber from forest and other wooded land. Thus, for example, depending on their significance, orchards would fall within scope of timber resources but are not considered areas of forest and other wooded land.

5.282 Another key distinction is that the asset account for timber resources is focused on the volume of timber resources rather than on the area of land covered by forests and other wooded land. Thus, the focus of the forest and other wooded land account is on changes in the area of land, for example, due to deforestation and afforestation, rather than on the quantity and value of timber removed from areas of forest and other wooded land.

5.283 Notwithstanding these clear distinctions in purpose and scope, there are strong connections between asset accounts for timber resources and asset accounts for forest and other wooded land. This is because the majority of timber resources are found in areas of forest and other wooded land. Consequently, there are links between the two sets of accounts which should be considered in their compilation.

Scope of the forest and other wooded land account

5.284 The scope of the forest and other wooded land account is defined consistent with the definition of this land in the FAO Global Forest Resources Assessment 2010.⁶⁷ Forest land is defined as land spanning more than 0.5 hectares with trees higher than 5 metres and a canopy cover of more than 10 per cent, or trees able to reach these thresholds in situ. The scope of the forest and other wooded land account follows a land use perspective. Thus, it does not include land that is predominantly under agricultural or urban land use and is not strictly defined on the basis of changes in tree-covered areas.

5.285 Forest land is classified according to different types of forest. The primary distinction is between naturally regenerated forest and planted forest. Naturally regenerated forest is forest that is predominantly composed of trees established through natural regeneration. In this context, “predominantly” means that the trees established through natural regeneration are expected to constitute more than 50 per cent of the growing stock at maturity.

5.286 Two broad types of naturally regenerated forest are distinguished:

• (a) Primary forest is naturally regenerated forest of native species, where there are no clearly visible indications of human activities and the ecological processes are not significantly disturbed. Key characteristics of primary forests are that: (a) they show natural forest dynamics, such as natural tree species composition, occurrence of dead wood, natural age structure and natural regeneration processes; (b) the area is large enough to maintain its natural characteristics; and (c) there has been no known significant human intervention or the last significant human intervention occurred long enough in the past to have allowed the natural species composition and processes to have become re-established;

• (b) Other naturally regenerated forest is naturally regenerated forest with clearly visible indications of human activities. These include: (a) selectively logged-over areas, areas regenerating following agricultural land use and areas recovering from human-induced fires, etc.; (b) forests where it is not possible to distinguish whether they are planted or naturally regenerated; (c) forests with a mix of naturally regenerated trees and planted/seeded trees and where the naturally regenerated trees are expected to constitute more than 50 per cent of the growing stock at stand maturity; (d) coppice from trees established through natural regeneration; and (e) naturally regenerated trees of introduced species.

5.287 Planted forests are predominantly composed of trees established through planting and/or deliberate seeding. Planted/seeded trees are expected to constitute more than 50 per cent of the growing stock at maturity, including coppice from trees that were originally planted or seeded.

5.288 Other wooded land is land not classified as forest land, spanning more than 0.5 hectares; with trees higher than 5 metres and a canopy cover of 5-10 per cent, or trees able to reach these thresholds in situ; or with a combined cover of shrubs, bushes and trees above 10 per cent. It does not include land that is predominantly under agricultural or urban land use.

5.289 Where possible, accounts should be compiled reflecting these distinctions between types of forest and other wooded land. In addition, countries may be interested in compiling accounts based on the total area of different species of tree.

5.290 A physical asset account for forests is presented in table 5.15. It shows the opening and closing stock by area and changes in the area of forest and other wooded land. The area of forest and other wooded land should be measured inclusive of relevant access roads, rivers and streams.

Table 5.15

Physical asset account for forest and other wooded land (hectares)

Table 5.15

Physical asset account for forest and other wooded land (hectares)

		Type of forest and other wooded land
		Primary forest	Other naturally regenerated forest	Planted forest	Other wooded land	Total
Opening stock of forest and other wooded land		20	100	150	130	400
Additions to stock
	Afforestation		2	5		7
	Natural expansion		3			3
	Total additions to stock		5	5		10
Reductions in stock
	Deforestation	2	10		5	17
	Natural regression				3	3
	Total reductions in stock	2	10	0	8	20
Closing stock of forest and other wooded land		18	95	155	122	390

View Table

Table 5.15

Physical asset account for forest and other wooded land (hectares)

		Type of forest and other wooded land
		Primary forest	Other naturally regenerated forest	Planted forest	Other wooded land	Total
Opening stock of forest and other wooded land		20	100	150	130	400
Additions to stock
	Afforestation		2	5		7
	Natural expansion		3			3
	Total additions to stock		5	5		10
Reductions in stock
	Deforestation	2	10		5	17
	Natural regression				3	3
	Total reductions in stock	2	10	0	8	20
Closing stock of forest and other wooded land		18	95	155	122	390