Depletion of renewable
resources
London Group Meeting,
December 2007
Options for identifying the
income element of resource rent
SEEA Box 10.1
ƒ A1. All resource rent represents income
ƒ A2. No resource rent represents income; it is
all a decline in the value of the resource
ƒ A3. Part of the resource rent represents a
decline in the value of the asset and part is
income
Options for identifying the
income element of resource rent
Option A3 accepted in Johannesburg
ƒ but how does this apply to renewable natural
resources?
ƒ if depletion of natural resources reduces
income, should growth of renewable natural
resources be considered additions to income?
ƒ does ‘depletion’ relate to the full amount of the
harvest of the renewable natural resource, or
just the net reduction in stock?
Renewable resources
Characteristics
ƒ able to replace harvested stocks through
natural growth
ƒ if used sustainably in production, will last in
perpetuity
ƒ can be exhausted if used unsustainably in
production
Depletion of non-renewable
resources
SNA - in an economic sense, depletion is the
reduction in the value of a resource as a
result of physical removal and using up of
the resource
fairly straightforward when applied to nonrenewable resources such as minerals and
petroleum, etc.
Depletion of renewable
resources
SEEA - possible to integrate values of
extraction (harvest) and natural growth into a
more meaningful measure of sustainability
'adjusted' measures (of output, income etc.)
could indicate whether a renewable resource
is being depleted through its use in
production
no change to balance sheet treatment
Valuing SEEA depletion
using SNA accounts as a template
ƒ value of net natural growth recorded as 'other
non-market output' in the Production account
ƒ value of extraction recorded as 'consumption of
natural capital‘ (depletion) in Production account
ƒ 'excess' position represents an addition to (or
subtraction from) value added
ƒ operating surplus & saving change by 'excess'
amount in income accounts
ƒ additions and ‘disposals’ of non-produced nonfinancial assets recorded in Capital account
ƒ net lending is unchanged
Net natural growth of renewables –
an addition to output?
• Natural growth (less natural mortality)
– not output in strict SNA sense
• but see SNA ‘cultivated assets’
– human influence over natural growth
– often an expectation that natural growth
will ultimately be harvested
– symmetry with depletion of renewable
natural resources
Depletion of renewable natural
resources
• Depletion of renewable natural resources
– is the decline in value of the resource
stock due to extraction (harvest)
– equivalent to consumption of natural
capital
– shown as a charge against production
and income
• synonymous with SNA concept of
consumption of fixed capital (COFC)
Depletion of renewable natural
resources, continued…
• Depletion (consumption of natural capital)
applies to both renewable and nonrenewable natural resources
Measuring income
the operating surplus of any unit using
natural resources in production can be split
into returns to the produced assets used and
returns to non-produced assets
the return to the owner of natural resources
in production is resource rent (RR)
RR can be further split into a return to the
owner of the resource and a measure of
depletion of the natural resource being used
Decomposing income: nonrenewable natural resources
Decomposing income:
renewable natural resources
(1) Calculating RR - SNA
Current (SNA) treatment: RR of renewable natural resource used in production
t1
t2
t3
t4
t5
tn
45,000
42,600
41,415
41,150
37,849
35,795
2. Natural growth (a)
3,600
3,408
3,313
3,292
3,028
2,864
3. Natural mortality (a)
2,500
2,343
2,278
2,263
2,082
1,969
4. Harvest
2,000
3,000
3,300
3,330
3,000
2,940
5. Other volume changes
-1,500
750
2,000
-1,000
0
-500
6. Closing stock (1+2-3-4+5)
42,600
41,415
41,150
37,849
35,795
33,250
Physical data (tonnes)
1. Opening stock
7. Expected asset life
8. Unit value (unit price-unit cost) $'000 (b)
infinite
1.2
1.2
1.2
1.2
1.2
1.2
0
0
0
0
0
0
10. Return to owner of natural resource
2,400
3,600
3,960
3,996
3,600
3,528
11. Resource rent
2,400
3,600
3,960
3,996
3,600
3,528
Monetary (SNA) data ($'000)
9. Depletion (harvest) (4x8)
SNA treatment (1)
• Following do not appear in production
account:
– natural growth
– natural mortality
– charge for depletion
SNA treatment (1)
• Resource rent entirely attributed to
income – no charge for depletion
(CONC)
– even though the renewable natural
resource stock is diminishing.
Use of renewables - adjusted
income
when RR is adjusted to include net natual
growth as output, and depletion (CONC) as
a charge against income, a more informed
picture of the income of the producer is
provided
(2) proposed RR and income
Proposed SEEA treatment: Adjusted RR of renewable natural resource used in production
t1
t2
t3
t4
t5
tn
45,000
42,600
41,415
41,150
37,849
35,795
2. Natural growth (a)
3,600
3,408
3,313
3,292
3,028
2,864
3. Natural mortality (a)
2,500
2,343
2,278
2,263
2,082
1,969
4. Harvest
2,000
3,000
3,300
3,330
3,000
2,940
5. Other volume changes
-1,500
750
2,000
-1,000
0
-500
6. Closing stock (1+2-3-4+5)
42,600
41,415
41,150
37,849
35,795
33,250
7. Expected asset life (years)
47.3
21.4
18.2
16.4
17.4
16.3
1.2
1.2
1.2
1.2
1.2
1.2
9. Depletion (harvest) (4x8)
2,400
3,600
3,960
3,996
3,600
3,528
10. 'Unadjusted' resource rent (c )
3,154
3,025
2,972
2,844
2,651
2,486
11. Net natural growth ((2-3)x8)
1,320
1,278
1,242
1,235
1,135
1,074
12. Income to owner natural resource
2,074
703
255
82
187
32
13. Adjusted resource rent (10+11)
4,474
4,303
4,215
4,078
3,787
3,560
Physical data (tonnes)
1. Opening stock
8. Unit value (unit price-unit cost) $'000 (b)
Monetary (SEEA) data ($'000)
(2) proposed RR and income,
continued…
• Adjusted resource rent incorporates:
– net natural growth as an addition to output
• Adjusted resource rent split between:
– depletion (harvest); and
– income.
(2) proposed RR and income,
continued…
• As harvest continues to exceed net
natural growth, this is reflected as a
negative adjustment to income.
– i.e. a charge for using up renewable
natural capital
Questions…
• For renewable natural resources,
should SEEA accounts:
– include net natural growth as an addition
to output?
– treat the value of harvest as consumption
of natural capital (depletion)?
– view (adjusted) resource rent as made up
of income and depletion components?