Valuation for Accounting Seminar
DEFRA-ONS
Glenn-Marie Lange
The World Bank
11 November, 2013
The 4 Papers
1.
Recognising and managing uncertainty in national and
environmental accounting (Michael Vardon)
– Data: how we establish confidence in the accounts
2.
Selecting discount rates for natural capital accounting (Jawed Khan
and Peter Greene)
– The perennial question in dealing with capital
3.
Towards a consistent approach for ecosystem accounting (Bram
Edens and Lars Hein)
– How ecosystem accounts are actually integrated in an SNA-consistent
framework. Some people here may not be familiar with the way SNA
actually organizes and presents data….
4.
Unnatural capital accounting (Colin Mayer)
– Discussion of the conceptual approach to valuing natural capital
1. Data Quality
• Environmental accounts held to high standards, perhaps
higher standards than SNA, but no formal processes yet
established
• Much can be learned from the well-established processes
for assessing and ensuring data quality in the SNA
• Basic principles
– Relevance
– Accuracy
– Timeliness
– Accessibility
– Interpretability
– Coherence
Also, transparency and independence
Lessons learned for assuring data quality in the
environmental & experimental ecosystem
accounts?
• ABS builds on well established practices for data quality
in the SNA—where were these practices modified for
the SEEA-CF or were different challenges faced,
especially wrt to subsoil assets or natural forest assets,
for which ABS has 20 (?) years’ experience.
• Is there anything inherently different with ecosystem
accounts that makes the data assessment more
challenging?
• What have been the reactions to the ABS experimental
ecosystem accounts and how the update of the
Queensland accounts has been informed by (any)
feedback on data quality?
2. Choosing the Discount Rate
Lots of discussion by economists (and others)
No consensus
Asks for advice on 3 alternatives, base don the purpose
or objective of the discounting
• Social discount rate if “…the purpose is sustainability of natural
capital and ecosystems…” Possibly at 3.5% or some other rate
• Market (private) discount rate if “…the purpose is to extend the
national accounts…” i.e., to be consistent with SNA, it should
adhere to decisions made by individuals and businesses.
But which market rate for which asset should be used? Guidance in
the SNA, SEEA is not clear on exactly what this should be
• Uniform discount rate using the Treasury Green book high social
discount rate of 3.5%.
3. Approaches to accounting for
ecosystems
Review of past environmental accounting
experiences
Two major components:
1. if one were to value ecosystem services, how
would they be integrated in the accounting
framework
2. how should ecosystems be valued, section called
“Defining and Measuring Degradation in
Ecosystem Accounts”
Part 1. Accounting for ecosystems: Key
challenges
Importance of avoiding double-counting of non-market ES
Two alternative approaches to recording stocks & flows
• Ecosystem as another asset contributing to
• Ecosystem as an independent producer, a new sector—quite a novel
approach
• Both approaches are valid—what I would challenge them to do is to look
at the alternative approaches through the lens of a user.
Challenge to the authors: the use of accounts should guide
development
• SNA is organized well to support multi-sectoral analysis/modeling that can
trace economy-wide linkages and impacts of changes (SUT, IO, SAM)
• What are the implications for policy use/mgmt/analytical work of the
alternative approaches?
What questions could be answered, or would be more difficult to answer
using one or the other of these approaches?
Part 2. Valuation of degradation
Why only degradation, not valuation more
broadly?
3 issues addressed
– Physical measures of degradation
– Economic measures of degradation
– Allocating degradation to different sectors (since
the agency causing degradation may not be the
same as the one suffering the loss)
Economic measures of degradation
Reviews arguments over the past 25+ years for
• Restoration costs or
• Change in (value of) capacity to supply
ecosystem services
SNA principle of valuing asset degradation is
consistent with change in the NPV of ecosystem
services
Further discussion of valuation approaches consistent
with SNA….
4th paper—Conceptual approaches to
valuing Natural Capital
• Extending the national accounts
• Welfare-based comprehensive/inclusive
wealth accounting
• Corporate natural capital accounting
Extending the National Accounts
What are we trying to measure
– “sunlight”
How to measure
– Substitution among assets and Ethical principles—
maintain natural capital intact
– Valuation principles for degradation/depletion
• Restoration/replacement costs vs
• Value of benefits
Restoration/replacement cost
Under what conditions would the
replacement/restoration costs provide a
reasonable estimate/lower bound on value?
• The same service is provided
• It is the least cost option
• There is strong evidence that the value of this
(substitute) service exceeds the cost of
producing the service, that is that MC<MB