Parliamentary Assembly
Assembl�e parlementaire

Environmental accounting as a sustainable development tool

Doc. 10071
11 February 2004

Report
Committee on the Environment, Agriculture and Local and Regional Affairs
Rapporteur: Mr Fausto Giovanelli, Italy, Socialist Group

For debate in the Standing Committee — see Rule 15 of the Rules of Procedure

Summary

Environmental accounting is a system for indexing, organising, managing and delivering data and information on the environment via physical or monetary indicators. It constitutes an indispensable tool for applying the sustainable development concept and now commands acceptance as a means of ensuring the preservation of the environment in Europe.

Conventional instruments of economic analysis do not in fact enable political decision-makers to measure reliably the effectiveness of the environmental policies implemented or the impact of economic policies on the environment. It is therefore necessary to adopt suitable environmental monitoring and information systems which can serve as a basis for political decisions.

By taking this step, political decision-makers would be able to report the environmental outcomes of their actions to the communities under their authority, relying on dependable data and constantly updated information on the state of the environment, to incorporate the variable “environment” into the official decision-making process at every tier of government and to make the environmental effects of policies more transparent.

I.          Draft recommendation [Link to the adopted text]

1.         At present, conventional economic analysis tools do not enable the decision-makers using them to reliably ascertain whether the environmental policies implemented are effective or what kinds of impact economic policies have on the environment.

2.         In particular, environmental costs - the costs that would have to be defrayed to maintain the pool of natural resources at the level corresponding to the start of the reference period - continue largely to be omitted from the economic analyses based on conventional accounting instruments.

3.         In 1992, the United Nations’ Conference on the Environment (Earth Summit in Rio de Janeiro) marked a decisive turning-point by approving Agenda 21 for sustainable development, which introduced the concept of environmental accounting as a tool for implementing coherent policies in this area.

4.         Environmental accounting is a system that can be used to list, organise, manage and supply data and information on the environment in physical and monetary units.

5.         On the same basis as all accounting systems, environmental accounting presents an objective picture of the state of, and changes in, the natural heritage, interactions between the economy and the environment, and expenditure on preventive measures, environmental protection and the repair of environmental damage.

6.         Environmental accounting is therefore an essential tool for implementing the concept of sustainable development, i.e. a style of development that does not jeopardise the resources needed for future generations’ life and development on earth.

7.         Over the last ten years, the increased impact of human activities on the environment at local and global level has shown that the environmental costs of development are no longer easily discounted factors, particularly in urban areas, and that it is necessary to use specific tools for measuring and managing them.

8.         Moreover, improved access to information has caused rising demand for environmental information on the part both of citizens and of politicians, bringing a need for better environmental governance.

9.         The Parliamentary Assembly notes with satisfaction that, since the Rio Earth Summit, the concept of environmental accounting has been widely recognised as an essential tool that is advocated by organisations such as the United Nations, the World Bank, the Organisation for Economic Co-operation and Development (OECD) and the European Union.

10.        It is also very pleased that many Council of Europe member states (such as France, Germany, Italy, the Netherlands, the United Kingdom) have studied and experimented with environmental accounting systems and that certain towns and cities – which are more directly accountable for the management and quality of their environments – have done the same, mainly using environmental indicators and adapting the methods developed to date to the urban setting.

11.        The Assembly underlines the need for all levels of government to adopt suitable environmental monitoring and information systems that can serve as a basis for policy decisions and strongly believes that environmental accounting is an essential tool of governance.

12.        The adoption of an environmental accounting system at all levels of government would enable political decision-makers to report to the communities governed on the environmental outcomes of the policies implemented on the basis of reliable data and constantly updated information on the state of the environment. This would also allow the “environment” variable to be incorporated into official decision-making processes at all levels of government and make the environmental effects of government policy more perceptible.

13.        Systems of this kind would permit greater accountability of decision-makers and interest groups committed to sustainable development goals, regular environmental monitoring and proper use of environmental data at decision-making level and vertical integration of sustainable development instruments and policies.

14.        The Assembly fully supports the efforts being made to develop environmental accounting and, above all, to move on from the experimental stage to that of standard practice. This would merely redirect current expenditure, without generating new costs but making better use of it. It emphasises the importance of carrying forward the relevant activities at European level.

15.        The Assembly believes that it is important for local and regional authorities to play a key role in the process and urges the Congress of Local and Regional Authorities of the Council of Europe to take into account these propositions and to make a corresponding contribution, notably by diffusing the concept of environmental accounting among European local and regional authorities.

16.        The Assembly therefore recommends that the Committee of Ministers

i.    prepare a recommendation to the member states on the introduction of environmental accounting at national, regional and local level;

ii.    incorporate the experience of European countries in the environmental accounting field into an approach which would combine these systems in a European standard;

iii.    call forthwith on member states to systematically include in all economic and social planning satisfactory assessments of the sustainability of development, drawing on existing databases, statistics and environmental indicators.

II.         Explanatory memorandum by Mr Giovanelli

CONTENTS

1.    General Introduction

2.    Environmental accounting: general context

3.    Environmental accounting in Europe

4.    Regulatory Frameworks and International agreements

5.    National experience

A.    The Satellite System for Integrated Environmental and Economic Accounting (SEEA)
B.    Environmental accounting in France
C.    Environmental accounting in the United Kingdom
D.    Environmental accounting in Germany
E.    Environmental accounting in Italy
F.    Economic accounting in the developing countries

6.    Local experience

A.    European Common Indicators
B.    The Clear-Life Project
C.    The Ecobudget Project
D.    The Cont.A.Re Project
E.    French Experimentation with an Environmental-Economic Accounting System
F.    Eco-Mayors
G.    The Pastille Project

7.    Conclusions

       Bibliography

1.         General introduction

1.         Environmental accounting must be viewed today as an essential management tool for the preservation and sustainability of Europe’s environment. As natural resources are affected by socio-economic development, they must be regarded as economic assets and therefore incorporated into an accounting system that will facilitate sound, effective and sustainable management of these resources.

2.         The Committee on the Environment, Agriculture and Local and Regional Affairs considers it important for the Council of Europe member countries to get used to the concept of environmental accounting and start – or continue – to apply it at every management level, especially that of local and regional authorities. That is why it viewed with interest the proposal to draw up a report on environmental accounting as a sustainable development tool and considers that it should be carried further.

3.         On 23 October 2003, while preparing the report, the Committee held a hearing on the subject in Paris, attended by Ms Maud Leli�vre, Deputy Mayor of Saint Denis (France), Ms Anne-Sophie Robin of the French association “Eco-Maires”, Ms Ilaria Di Bella, consultant for the Italian project CLEAR LIFE, and Mr Vicente Carabias-Hutter of the Centre for Sustainable Development at the University of Applied Sciences, Zurich. Presentations were given on the FEAT project (For an Environmental Accounting Tool), which was devised by the “Eco-Maires” association and the Fondation des Villes (Towns and Cities Foundation) and was awarded the LIFE-Environment prize in 2002, the CLEAR LIFE project (City and Local Environmental Accounting and Reporting) and the PASTILLE project (Promoting Action for Sustainability Through Indicators at the Local Level in Europe).

4.         The Rapporteur wishes to thank all those who took part in the hearing, as well as Ms Alessandra Vaccari, the methodology co-ordinator of the CLEAR project, who gave him a great deal of support in the drafting of the report and whose thorough knowledge of the issue was extremely useful to him.

2.         Environmental accounting: general context

5.         Environmental accounting as an object of research and interest came into being along with the concept and perspective of sustainable development.

6.         In order to implement policies for sustainable development, ie for a style of development that does not jeopardise future generations’ possibilities of life and well-being on earth, there is a need for new instruments to assess, analyse and direct economic and social policies relating to conservation of natural resources and ecological balance. Indeed, conventional means of economic analysis do not enable the decision-makers using them to ascertain whether the environmental policies implemented are effective and workable, or what kinds of impact economic policies have on the environment. Until a few years ago, governance was thought out and organised in a register of economic growth and reapportioning wealth and services management, but of balancing all these factors with the world’s natural resources.

7.         Environmental accounting is coming into its own on the plane of international statistics as a groundbreaking instrument for identifying, arranging and disseminating data on the environment. Keen interest has also grown up of late at the local level. The goal of sustainable development in fact requires that governance and its instruments be reformed at all tiers of authority. The need is more significantly felt by the public institutions most directly accountable for the organisation and quality of the areas under their control, i.e. the local authorities.

8.         Experience up to now records two main functions assigned to environmental accounting: a) to measure and evaluate the condition and fluctuations of the natural environment and of the impacts which human activities have on it; b) to reckon and evaluate the monetary and financial flows relating to the use of natural resources and to the effects of man’s interaction with the environment.

9.         The first of the above methodological profiles has generated physical accounts expressed in strictly physical units of measurement, while the second involves monetary accounts. There are also trials with the integration of the two different approaches. The range of environmental accounting instruments comprises three classes of instruments to date:

10.        These are very disparate instruments, also reflecting different concepts and conditions of use and producing considerably different results which may or may not suggest a substantial revision of the conventional economic and financial accounting structure.

11.        Traditional accounting systems such as the United Nations System of National Accounts (SNA) or the European Union’s European System of National Accounts (ESA), at least in their original versions, completely overlook all activities extraneous to the market such as housework, subsistence production, voluntary sector activities and consumption of all the functions performed by the environment. Examples of the latter are the value of the natural heritage and its upgrading, and the contribution made to the economic system by environmental goods and services including those for disposal of pollutants. The SNA appeared after World War II, and the ESA in the 1970s. Both make the theoretical assumptions firstly that natural resources are inexhaustible assets, and secondly that the world’s habitats have an infinite capacity to absorb the residue of production and other human activities. Though not stated outright, the forecast on which they are implicitly based is the possibility of economic growth without natural limits.

12.        These accounting systems, though only partially corrected to accommodate environmental factors, are actually still used as a basis for working out the principal economic aggregates (such as GDP, gross domestic product, and GNP, gross national product) intended to guide the economic policy choices made by the political decision-makers not only at national level but also at supranational level and in the international field. In particular, environmental costs continue to be substantially omitted from the scheme of the economic analyses based on conventional accounting instruments, as do the costs that would have to be defrayed to maintain the pool of natural resources at the level corresponding to the start of the reference period.

13.        In other words, there is total neglect of the sustainability concept understood as an economic system’s capacity to preserve intact the endowments of natural resources and not to jeopardise the well-being of future generations (Bartelmus 1989, 1992; Pearce et al., 1989, 1990; Daly 1989). It is to be emphasised that GDP, normally used as an estimate of a country’s prosperity, was really created to measure the parameter of economic transactions on the market. It therefore cannot register processes such as reduction of natural resources, their degradation due to economic activities, or even events like natural disasters that nonetheless have significant influences on the natural heritage. Its calculation leaves out all activities that do not come into the market, whether those solely concerning the natural heritage or those that have to do with human activity.

14.        The inexhaustible economic growth scenario was already called into question from the 1970s onwards, triggering the demand to develop more comprehensive, adapted and true-to-life instruments of economic analysis. The first attempts to devise macroeconomic indicators capable of measuring social well-being, and not only the state of the economy, date back to those years. In 1972, Nordhaus and Tobin perfected the MEW (Measure of Economic Welfare), an index of well-being based entirely on the benefit accruing from economic activities, which took account of factors left out of the national product such as the value of leisure time and housework, and reclassified items such as the types of expenditure borne for education and public health, ranging from consumption to investment in human capital. Nordhaus and Tobin succeeded in estimating a wage differential as a negative externality, necessary to survival in severely disadvantaged urban settings. Although their index did not comprise environmental costs, because the inventors were absolutely convinced that natural resources would not pose a problem for development, study of the trend of the MEW from 1929 to 1965 showed a significantly smaller increase than did GNP. There followed other attempts, some quite recent, to work out indices of social sustainability capable of supplanting GNP and GDP.

15.        In 1992 the UN Conference on the Environment in Rio de Janeiro marked a decisive turning-point by approving Agenda 21 for sustainable development which makes provision, among the actions to be implemented, for the use of environmental accounting in all countries.

The initial version of the United Nations handbook for the application of the System of Economic and Environmental Accounting (SEEA) dates from 1993. The SEEA, a later version of which was published in 1999, reckons environmental costs by computing the monetary value of natural resources and of pollution, and analyses the effects on the environment generated by activities of production, consumption and capital formation. The ultimate aim of the SEEA is to arrive at an index of sustainability, known as “Green GDP” constituted by the EDP (Environmentally Adjusted Domestic Product).

16.        In 1995, the European SEC system too was revised with an environmental slant. All the environmental accounting instruments currently in use and described later in this report were devised and introduced successively from 1992 onwards.

17.        In 1994 the European Commission, in a communication to the Council and the Parliament of the Union, emphasised the need to adopt, in the Community context, a system of integrated economic and environmental accounting to guide political decision-makers. The choice falls on “satellite accounts” and environmental indicators, given the shorter time needed to produce and apply instruments of this kind. The debate concerning “Green GDP” is in fact still open, and the theoretical premises and the available data are still too changeable and uncertain, especially when it comes to calculating the monetary equivalent of pollution factors and natural resources for which there is no valuation on the market.

18.        During the last ten years, as will be seen further on in this brief study, the effects of pollution at both local and global level have increased in severity, making the need to apply environmental accounting instruments more obvious. The environmental costs of development are no longer easily discounted factors, particularly in urban areas, while the increased facility of access to information of every kind has caused rising demand for environmental information on the part of citizens as well as politicians. The phenomena linked with globalisation of the markets bear closely on environmental issues, air pollution and greenhouse effect being just two examples. They have weighty implications for quality of life in the developed countries and for the chances of survival in the developing countries, at the local level too.

19.        This has prompted many States to examine and experiment with systems of environmental accounting, for the most part applying the models and instruments devised by the UN, the EU and the statistical agencies of the UN member countries. Towns have done the same, mainly using environmental indicators and adapting to the urban setting methodologies devised for other contexts.

20.        The UN Conference in Johannesburg also stressed the importance of adopting at all levels of government suitable systems for monitoring environmental information that provide backup for political decisions. Environmental accounting enhances the possibilities for setting a steady course of sustainability, because it can bring economy and ecology closer together and ensure more information, greater awareness, better transparency and increased responsibility of the political sphere towards the environment.

3.         Environmental accounting in Europe

21.        A number of environmental accounting methodologies have been developed and satisfactorily disseminated in Europe, chiefly in the realm of statistics. The most important of these is the SERIEE system (European System for the Collection of Economic Information on the Environment), developed by Eurostat in 1994.

22.        The SERIEE model seeks, via a series of satellite accounts, to isolate, determine and quantify the economic efforts sustained by a community for purposes of environmental protection. SERIEE produces data on environmental expenditure, on the entities and sectors that incur it, on the dynamics of the financial transactions linked with environmental expenditure, and lastly on the outcomes of activities aimed at environmental protection. Yet the model does not stop at an economic evaluation, as it attempts to integrate physical and economic data by resolving itself into a variety of modules. Generally speaking, the data which the module is intended to present are of the following types:

23.        SERIEE is a model created to be applied at the level of national statistics, although over the years it has formed the basis for various attempts at environmental accounting within narrower territorial contexts (municipalities and regions). Private organisations too have drawn inspiration from this model, particularly for classifying environmental expenditure. The environmental accounting model developed by Eurostat is based on 3 levels of analysis represented by a like number of modules:

a. EPEA: satellite account of expenditure for the protection of the environment.

b. Satellite account of natural resources utilisation and management.

c. System for registering eco-industries.

24.        The first two modules are satellite accounts collated and correlated with the system of national economic accounts, while the third as it stands has essentially informational purposes. The EPEA, alone among the three modules into which SERIEE is divided, has been developed in an articulated form.

25.        The EPEA satellite account is the SERIEE module for quantification of expenditure on environmental protection. It consists of a series of 5 accounts (tables) that give an ongoing analysis of expenditure, output and financial transactions connected with environmental protection activities. The indications which the EPEA account sets out to provide are manifold. Firstly it measures the energy expended by the economic system of a given territory to protect the environment, identifies the entities that sustain these efforts, and determines which production activities are generated by environmental protection. The EPEA accounting system is divided into 5 separate accounts, each represented by a table:

26.        The EPEA account makes it possible to effect a step-by-step conversion of the masses of data contained in the 5 tables into economic aggregates which provide concise indications of a community’s commitment to environmental protection:

a.         Amount of national expenditure on environmental protection, in order to quantify the effort which the economic system has devoted to environmental protection;

b.         Financial burden of environmental protection borne by the various institutional sectors (enterprises, families, public authorities and non-profit family aid institutions, in order to specify the extent to which each sector assists in protecting the environment;

c.         Amount of the production system’s resources devoted to the conduct of economic activities specifically created for environmental protection (or quantification of the output of typical environmental protection activities), in order to determine the nature and the scale of the production activities generated by the environmental protection requirement.

27.        SERIEE has been tested by means of pilot projects in 17 countries, chiefly in relation to the EPEA account. In the UK in 1995, the EPEA account underwent a feasibility study with reference to the outlay on environmental protection made by industry, also looking at the results achieved in terms of pollution abatement. It emerged from the study that the data which go into the EPEA account are readily discernible, although there is room for improvement in the collection system based principally on questionnaires for submission to enterprises. It also emerged that monetary data on expenditure need to be collated with physical indicators of pollution in order to register the efficaciousness and efficiency of spending.

28.        Apart from SERIEE, Eurostat has developed a system of physical indicators, the ESEPI (European System of Environmental Pressure Indices) also known as the DPSIR model (Driving Forces, Pressure, State, Impacts, Responses). The DPSIR model appeared as a development of the simpler PSR model proposed in 1994 by the OSCE and replicates its general structure, representing factors of environmental importance by means of a cohesive, structured system of indicators. The DPSIR system of indicators lays down a sequential procedure starting with the analysis of the processes causing environmental impacts (driving forces and pressures) and concluding with the present environmental situation (state and impacts) and the efforts made by the system to solve the problems pinpointed (responses). No standard form is prescribed for the application of the model, as it establishes a logical sequence and leaves the user to define the indicators that best match the particular conditions and to choose the form in which the results are presented (synoptic tables, narrative report, document for public disclosure or internal use, etc.).

29.        The DPSIR model consists of 5 modules interconnected by causal links, each being made up of indicators selected by the authority that adopts the model but identifiable with the following specifications:

30.        On balance, the various modules interlock to support the entire political and technical decision-making process. They are not to be regarded as distinctly segmented and sequential units but as a single, cohesive process that underpins and controls the framing and implementation of the policies of an authority or of a state.

31.        As regards the choice of indicators, Eurostat has produced on behalf of the European Commission a guide entitled Towards environmental pressure indicators which identifies 60 indicators that can be associated with the specified modules for pressures and response, divided into ten thematic areas (air pollution, climate change, etc.). More recently, the European Commission published a report Towards a Local Sustainability Profile - European Common Indicators proposing ten indicators for sustainability which, though not fitting into the DPSIR model, can complement it.

32.        Another environmental accounting instrument developed in Europe is the NAMEA matrix, put forward in 1994 by the Netherlands Statistical Institute CBS. The NAMEA matrix is an accounting system designed to represent the interactions between economy and environment by collecting together economic and environmental accounts of a physical type in a single framework. The two modules, the economic and the environmental, are directly connected with each other to allow cross-referencing between the principal aggregates (production, consumption, etc.), the institutional sectors of the national accounts (family, enterprises, public authorities) and the environmental pressures caused by them. The NAMEA system was devised for application at national level, and over the years has been tried out in different European countries (Denmark, Sweden, Netherlands, Italy, and elsewhere). In some cases, trials have been conducted in smaller territorial units (municipalities especially). Eurostat has a programme to bring some uniformity to the various experiments in order to arrive at a single methodology.

33.        NAMEA consists of two modules placed side by side to form a matrix:

a.         Economic module (NAM – National Accounting Matrix) showing the monetary data derived from the traditional economic accounts (eg. intermediate consumption, added value) replicating statistical classifications used in the ESA (European System of Accounts).

b.         Environmental module (EA – Environmental Accounts) giving information on the pressures generated by the same activities (production and consumption) as contemplated in the economic module. The environmental data are entered using measurement units of a physical type, and are represented in a regular system of accounts (eg the emissions account). The classes of pressures included in the reckoning may vary. The first matrices produced only covered atmospheric emissions. With time, trials were made for other elements, namely water (samples; consumption; discharge of pollutants into water) and waste, the latter with scant results.

34.        The NAMEA matrix can be formulated in various ways, as long as coherence is assured at all times between the data in the environmental module and those in the economic module. The general practice is to employ tables of supply and use. The “supply” table computes all resources, indicating those brought in from outside the area, while the “use” table show the mechanisms of intermediate consumption, the product added value, the end uses and the investments.

35.        A peculiarity of the NAMEA system is the possibility of making out an environmental budget using physical and monetary data already available, without new data being required. It is really a form of regrouping, in a matrix layout, of data from different sources (official statistics, environmental agencies, etc), so as to place the economic data sets beside the data for the corresponding environmental pressures. There is no doubt that the use of data not collected especially makes NAMEA inexpensive, but it brings in a critical element as the data come from a variety of sources and are often disparate.

36.        A method widely used, and not only in Europe, for some environmental accounting studies is emergetic analysis. This derives from the work of various scholars who, during the last century, studied the flows of energy associated with assets and available resources. The foundations of this analysis were laid by Lotka (1922), Von Bertalanffy (1968) and Odum (1983).

37.        Emergetic analysis is a technique which, by defining a set of indices, allows the natural resources and all the goods produced and consumed by a given economy to be measured in terms of energy flows. In practice, a physical study is made to measure the amount of energy, expressed as a solar energy equivalent, linked with the production and use of various goods, natural resources included. A method of analysis is thus determined, with a unit of measurement, joules of solar energy which are universally valid. They can be used equally to evaluate non-marketable natural resources such as virgin forests or the water of the oceans, natural resources whose extraction and distribution costs are the only value reckoned by the market. Examples are fossil fuels and wood, and all the goods and processes of economic production. On account of these characteristics, emergetic analysis has been used for environmental impact studies and environmental budgeting. From this standpoint, emergetic analysis presents itself as a valid alternative to economic environmental accounting, which uses currency as the unit of measurement for all goods and processes. In fact not all goods are directly currency-convertible for want of a specific market or because it is impossible to connect a process with economic mechanisms; for example, how can the environmental benefit that accrues from reduction of CO2 emissions be priced? Hence the need to introduce into environmental budgets and balances estimates which, while on the one hand allowing mutual comparison of quantities, otherwise impossible to compare, also bring in subjective elements that may impair the scientific value of the document as a whole. Emergetic analysis purports to overcome this limitation by permitting a homogeneous, coherent evaluation of different events and assets through study of the related energy flows.

38.        In its graphic form, emergetic analysis is based on the production of diagrams which encapsulate the entire economic system, and on representation of the energy flows into and out of the system by means of arrows. An extensive sign-language and a set of conventions have been perfected for graphic representation of economic systems, individual processes and energy flows. There is also a special emergetic algebra which lays down the methods and calculation formulae for the various stages of the analysis.

39.        Emergetic analysis applied to environmental accounting makes it possible to quantify the flows of energy linked to the world’s endowment of natural resources and to all the processes of transformation actuated by mankind in his activities. “Emergy” thus becomes a yardstick of the sustainability of a society. To illustrate the methodology, the essential steps in an emergetic analysis for environmental accounting purposes are mentioned:

40.        This method is flanked by a series of other instruments which may contribute meaningfully to building an environmental accounting system; these include the ecological footprint and the environmental management systems, particularly EMAS.

4.         Regulatory frameworks and international agreements

41.        Following the approval of Agenda 21 at the UN Conference in Rio de Janeiro (1992), environmental accounting has made its appearance in the legislation of supranational bodies and in international agreements as an instrument for sustainable development. It was while the Earth Summit was actually in progress that a document was released, providing for priority actions at both worldwide and local level to face the 21st century in a perspective of sustainability.

42.        The same year, the European Community approved the fifth Community action programme “Towards sustainability”, a whole chapter of which is devoted to the issue of the environmental costs of development, extraneous to the market and therefore hidden, held to be one of the basic causes of the exploitation of the planet and thus one of the main obstacles to the pursuit of sustainability. Among the proposed solutions, the Community recommends the adoption by policy-makers of decisional support instruments: “information on the state of the environment, appropriate indicators and tolerance capacities must be made available to policy makers in order to better define sustainable development parameters”. In the Fifth Programme, the EU also lays down an obligation to the effect that “environmentally adjusted (i.e. to take account of the natural resource stock of air, water, soil, landscape, heritage etc.) national accounts should be available on a pilot basis from 1995 onwards for all Community countries, with a view to formal adoption by the end of the decade”. Among the requisite measures, the programme mentions “extension and adaptation of the traditional tools of economic statistics on the basis of research at national and European level, including modification of key economic indicators, such as GNP, so as to reflect the value of natural and environmental resources in generating current and future incomes and to account for environmental losses and damage on the basis of assigned monetary values”.

43.        These assessments are critical of the way traditional public economic accounting is oriented, and mark out a course towards the adoption of environmental accounting systems in a similar manner to the UN’s SEEA experiment.

44.        Indeed, the fifth programme was followed by the Communication from the Commission of the European Communities COM (94) 670 final of 21 December 1994 and the European Parliament Resolution of 30 October 1995 concerning it.

45.        In the first of these documents, the European Commission recognised the need to adopt new policy-shaping instruments and established a European framework for “green accounting” with a view to (i) a European system of integrated economic and environmental indices (ESI), and much-needed direct integration of economic outputs and environmental pressures in a manner allowing comparison over 2-3 years; ii) more long-term and fundamental work on the “greening” of national accounts according to a scheme of satellite accounts (specifying the environmental expenditure, introducing accounts for natural resources, and improving methodological knowledge for the purposes of evaluating environmental damage and assigning a monetary value to it).

46.        It is acknowledged that the implementation of a “Green GDP” still raises many questions of a methodological nature, so much so as to rule out this option as unrealistic for the foreseeable future. The solution envisaged is therefore to make environment-related expenditure “visible”, to use indicators to quantify the depletion of resources and environmental degradation and, at a further stage, to arrive at monetary valuations while maintaining a separation between the various components of this European system of integrated environmental and economic accounting, referred to as the satellite scheme.

47.        In substance, the Commission sets 6 goals: 1) establishing a common framework to approach the issue, with the approval of a handbook on Green Accounting; 2) developing a European System of Environmental Pressure Indices (ESEPI)on the basis of priority physical indicators; 3) developing an integrated European system of economic and environmental pressure indices (ESI); 4) continuing research on Environmental Satellite Accounts in national accounting, such as environmental expenditure accounts and natural resources accounting; 5) improving the methodology and expanding environmental damage evaluation in monetary terms, with a view to incorporating the relevant information into the integrated accounting system; 6) ensuring horizontal co-ordination of the 5 foregoing activities.

48.        In 1995 the Parliament approved the Communication, describing it as an important step in the right direction towards the sustainable development model foreshadowed by the Treaty on European Union, the Fifth Action Programme and the Delors White Paper, and requested an increase in funding under the plan for the adoption of indicators and satellite accounts.

49.        The Sixth Action Programme of the European Union, approved in 2001, reinforces the cross-sectoral approach to the ecological perspective, with the emphasis on accommodating environmental issues in economic and social policies and making citizens and interested parties more responsible. With that end in view, to aid the decision-making process, the instruments deemed most expedient are environmental indicators; the financial resources of both the Union and the MemberStates are to be directed at collection of priority data without duplication or waste.

50.        Devising systems of environmental information truly useful to decision-makers is also emphasised as necessary in the Plan of Implementation approved in Johannesburg in September 2002 during the UN Conference organised to review sustainable development ten years on from Rio de Janeiro. The document draws attention to the need to collect information, compile statistics, draw up environmental accounts, carry out surface monitoring and apply instruments in support of political decisions on sustainable development, Agenda 21 among them. The Plan raises the fundamental questions of change in the production and consumption patterns of the capital-intensive countries and action to improve the living conditions of the developing countries. The instruments singled out are partnership and multilateral arrangements in co-operation for development, founded chiefly on accountability and on the involvement of private associations and enterprises in sustainability projects.

51.        In this context, where the greater part of the solutions are left for voluntary-sector instruments to effect, environmental information assumes a most important role, as do its availability and its basic functions in backing up decisions and building participation and responsibility for the shaping of sustainable development policies, plans and programmes not only at national and regional level but even more at local level in the developed and the developing parts of the world. Many paragraphs of the chapter “Means of implementation” accordingly deal with the need to produce environmental information, data and statistics and to devise new methods and instruments for monitoring the environmental impact of policies. This is an acknowledgement of the value and usefulness of environmental accounting in all of its forms.

5.         National experience

52.        There are many states which have carried out experiments, research and studies on national accounting, often conducted in accordance with the principles and guidelines contained in the United Nations System of National Accounts (SNA). At European level, these indications are taken on board by Eurostat and national statistical institutes in the handbook European System of Accounts (ESA).

53.        National accounting revolves around the concept of production, from which there follow directly the concepts of capital, income and expenditure; expenditure is apportioned between commodities and capital goods, and between intermediate and end uses. The development of a national accounting technique structured like this dates back to the period straddling the 1929 economic recession and World War II. The historical and economic context of that period, in particular the need to plan and manage the war and its economic implications, largely account for this orientation of national accounting according to a production concept tied to goods and services identified with a specific market, leaving aside those devoid of precise exchange value. This position proved valid in a macroeconomic environment, to a point where it asserted itself even after the hostilities as an instrument for evaluating not only production potential but also the prosperity level of an economy.

54.        Within this system there gradually emerged contestations relating, for instance, to the exclusion of non-market goods and services of human origin, for example own-account domestic services and services provided by the environmental capital used without payment, such as the capacity of the environment to absorb processing wastes or non-paying use of water or air.

55.        With time, a current of environmental criticism towards national schemes of accounting developed, underlining the above deficiencies and others besides. In fact the schemes of national accounting have revealed some jumbling or misplacing of items. The value of some non-reproducible environmental assets, for instance, is implicitly included in the value of final production, there being no market exchange to account for it, whereas it should be taken as intermediate consumption like the other factors of productivity purchased on the market. Next, there are forms of production which do not raise a community’s level of prosperity but merely serve to maintain the pre-existing level, as in the case of protective environmental expenditure. It is widely believed that quantification of the productive capacity of a given economy should not incorporate these types of production, or that they should at least be separated from those connected with an increase in the level of public welfare.

56.        The United Nations have tried, as the international statistical institutes have also done from a different angle, to remedy these limitations of national accounting by developing instruments. These are the satellite accounts, or accounting systems for statistical representation of specific areas of the economic system not already described exhaustively in the national accounts, for example tourism, social protection and environmental protection. Among the various satellite accounts developed at international level, some aim to retrieve the environmental dimension into national accounting.

A.         The Satellite System for Integrated Environmental and Economic Accounting (SEEA)

57.        The Satellite System for Integrated Environmental and Economic Accounting (SEEA) completed by the United Nations in 1993 is a satellite account which ties in directly with the structure of the SNA and is founded on several data sets whereby monetary flows and stocks of assets are defined in the light of the environmental implications. The monetary flows include computation of resources and uses, total production, final demand, formation of reproducible capital, and capital accumulation abroad. The stocks, however, are defined in terms of reproducible and non-reproducible capital, and of wealth. By means of specific data sets, the SEEA incorporates certain environmental elements into national accounting, in particular:

58.        Through these and other assessments, the SEEA defines economic aggregates consistent with those of national accounting under the SNA system but rectified in an environmental mode. An example is the “total production” aggregate which the SEEA calculates by subtracting from the equivalent aggregate used in conventional accounting the equivalent value of the non-reproducible natural resources consumed in the production processes.

59.        The SEEA makes it possible to single out and demonstrate the environment-related flows and stocks which are contained in the conventional accounts (such as environmental protection expenditure and reduction of natural resources), to include the accounts for resources produced using environmental resources, and to introduce an assessment of the negative impacts on natural resources resulting from human activities. The SEEA does not take into consideration all the natural process without an interactive effect on the economic system, or the effects of environmental degradation on human capital (expenditure for illness, reduction of productivity, lowering of quality of life).

60.        The SEEA has been applied in Colombia, Ghana, Indonesia, Japan, Mexico, Papua New Guinea, the Philippines, the Republic of Korea, Thailand and the United States. Mexico presents the most comprehensive study, carried out jointly by the United Nations Statistical Office (UNSO), the World Bank and the Mexican National Statistical Institute.

61.        Mexico’s traditional environmental accounting model has been supplemented by three satellite accounts covering reduction of oil reserves, deforestation and environmental degradation. The results showed how necessary it is in a country like Mexico, whose economy is heavily dependent on exploitation of natural resources, to adopt a system of environmental accounting which provides more realistic indicators as to the state of health of the economy as well as the environment and quality of life. In fact the environmentally adjusted macroeconomic indicators produced by the study (EDP1 and EDP2) displayed significant percentage reductions compared to the classical Net Domestic Product. A further application subsequently made under various pilot schemes demonstrated that the value of green NDP, calculated as NDP less the costs incurred for diminution of environmental assets, works out at 4% below the traditional NDP.

62.        Currently a new version of the SEEA is in the process of publication, ringing changes on the earlier handbook and incorporating further environmental elements at variance with normal national accounting.

63.        Virtually all European countries and also many developing countries have initiated projects for the creation of national environmental accounting systems. The benchmarks for such experiments are the methods and models produced by the United Nations and the European Union. According to a classification made by OECD (1994), national accounting approaches can be subdivided according to their relationship with conventional national accounting.

Approaches

Environmental categories considered

 

Accounting system features

A) Environmental and natural resources accounting

Stocks and flows, in physical terms, of natural resources

Physical and monetary flows associated with human use of natural resources

 

Independent from, and complementing, the conventional system of national accounting

A.1) Environmental and resources accounts

Economic-environmental multifunctionality of resources

A.2) Material resources accounts

Resources for individual use as economic inputs

Stocks and flows

 

B) Satellite accounts

Assessment of:

-environmental damage

-environmental services

-pool of natural capital

- environmental expenditure

Correspondence between stocks and flows in physical terms

Supplements, without alteration, the conventional system of national accounting

Consistent with the conventional accounting system

C) Integrated economic-environmental accounting

Assessment of:

--environmental damage

-environmental services

-pool of natural capital

-environmental expenditure

Alters the structure and limits of national accounting

Source: ANPA, CERADI Luiss (2002), modified by OECD (1994).

B.         Environmental accounting in France

64.        The French system of environmental accounting is markedly segmented and unfolds at 6 hierarchical levels. The first level is the one that concerns the production of a large mass of data on the environment, both for specific environmental fields and for socio-economic fields. The second level is for the production of environmental statistics per sector, relating to water resources, land use, flora and fauna, air and other natural elements. The third level is the one relating to the production of national and regional reports on the state of the environment, and other documents which compile the available information on environmental expenditure, cost of damage, and macroeconomic effect of environmental policies. The national reports on the state of the environment contain, besides the descriptive part, observations regarding public and private measures for environmental action and conservation. The fourth level is that of natural resources accounting, divided into physical accounts and satellite accounts for monetary valuation of environmental expenditure in particular.

65.        Accounts of natural assets represent a French speciality and relate to the principal environmental factors which enter into a relationship with the economy and are the object of property rights. The satellite accounts developed in France concern specific fields of environmental interest, which include management of inland waters, maritime waters, nature protection areas, hunting and waste. Level 5 comprises the phase of activity devoted to building forecasting models to estimate the effect of environmental policies on the economic aggregates, working from data provided by the satellite accounts and setting alternative development strategies against the recorded levels of pollution and exploitation of resources. Level 6 involves experimental efforts to arrive at the construction of quality of life indices and indicators. The French approach to national accounting is founded on the expediency, before any alteration is made to the national accounting system, of having a comprehensive informational system on the components of the natural heritage, the ecosystems and the interconnections with the economic system.

C.         Environmental accounting in the United Kingdom

66.        Here, both the principal environmental approaches are in use, the one geared to construction of satellite accounts and the one aimed at the integration of traditional accounting with monetary values assigned to flows and stocks of natural resources.

67.        The first of these approaches is the one applied by the Office of National Statistics (ONS), but the second is at the experimental stage, chiefly in the academic sphere.

68.        The first report by the Department of Environment concerning National Resource Accounting dates back to 1992 and concludes by suggesting the use of satellite accounts initially concentrating on energy resources. The same year, the ONS published an article which issued guidelines for monetary evaluation of the depletion of gas and oil reserves by correlation of the relevant data with the added value accruing to the national economy from the extraction industry, and described the procedures for defining protective environmental expenditure.

69.        In 1990 two simplified experimental versions of national environmental accounting were produced, one containing physical accounting units and the other monetary values besides. The experiment was nevertheless considered patchy and unduly problematic by the ONS which subsequently abandoned the integrated accounting route and has concentrated chiefly on devising the satellite account UKENA (United Kingdom Environmental Accounts).

70.        UKENA is arranged according to the sectoral analysis typical of satellite accounts. For each sector, data on performance in terms of emissions and contribution to issues of environmental importance are entered in the input-output matrix that forms the national economic accounting system. The initial UKENA scheme further includes the analysis of environmental expenditure, once again not implemented. The pilot study addresses, with reference to air pollution alone, the environmental issues of air quality, acid rain precursors and greenhouse gases. The conclusions make it possible to distinguish the percentage contribution of each industry both to variation in economic aggregates and to atmospheric emissions.

71.        Still using the analysis performed by means of input-output matrices, the application of UKENA has made it possible to calculate how many tonnes of a given pollutant are released by a production sector for every million pounds’ worth of goods produced by that sector. The matrices furthermore allow calculation of the intensity of a given sector’s direct and indirect emissions. Thus the analysts also manage to work out which production sectors are large consumers of electrical energy (indirect emissions) though not having a heavy direct environmental impact in terms of emissions (direct emissions). Similar calculations using the matrices have been made in England for the road transport sector and for emissions linked with final demand. Plainly, these matrices represent a most useful instrument for policy-makers, as they can steer policy towards sustainability. The ONS has also tried to construct a satellite type budget/balance sheet dealing with the depletion of natural resources, and another for water resources accounting. It can therefore be concluded that the United Kingdom is at an advanced stage in the construction of environmental budgeting systems.

D.         Environmental accounting in Germany

72.        In Germany, the system of environmental accounting which has been developed represents an application of the UN’s SEEA model albeit partial and modified,. This system bears the name of Umwelt�konomische Gesamtrechnungen (UGR) and incorporates various methodological approaches for collecting and processing data, such as the physical input-output tables, the Geographical Information System (GIS) and indicators of pressure per sector. For the practical implementation of the UGR, pursuant to a proposal by the Economic Affairs Committee of the Bundestag, a working group coming under the Federal Statistical Agency has been active since 1989. Within the Ministry of Environment too, a committee extended to representatives of the business, trade-union and environmental sectors operates to implement and amplify the UGR on a broad social base. The output is chiefly information on resources, impacts and environmental expenditure in relation to specific environmental concerns. The input-output tables describing flows of material, characteristic of the SEEA, are also paired with environmental indicators in the UGR.

E.         Environmental accounting in Italy

73.        In Italy, an “Operational Unit for Environmental Accounting” has been created within the National Statistical Institute (Istat). It functions under the relevant European Union strategy for the implementation of the Fifth Programme of Environmental Action in particular.

74.        Istat has carried out studies to prepare for the application of a NAMEA matrix for pollutant emissions and a first application of the EPEA account at State level.

75.        In 1997, co-operation by the Senate Environment Committee with the National Council for Economy and Labour (CNEL, a body set up under the Constitution to assist the Parliament, in which the trade unions, enterprise and the other social partners are represented) and with Istat resulted in the first bill on environmental accounting of municipalities, provinces, regions and the State. The bill, presented by your rapporteur and undersigned by majority and opposition members, was passed by the Senate in 1999 but has not completed the parliamentary process within the legislature and is currently under parliamentary discussion.

76.        The bill proposes to compel all levels of government in Italy to approve an environmental budget alongside the economic and financial one. For each tier of government, the accounting, statistical and technical instruments designated by the bill for producing environmental accounts are those adopted at Community and international level, specifically the NAMEA matrix for the national and regional level, the EPEA account for environmental expenditure, and the sectoral pressure indicators for use chiefly at municipal and provincial level.

77.        The presentation of the bill sparked intense debate in Italy. Pursuant to the many reports on the state of the environment presented by numerous regions, provinces and municipalities, as well as by the Minister for the Environment at national level, a group of local authorities has launched trial applications of the bill. The scheme, entitled CLEAR (City and Local Environmental Accounting and Reporting) was co-financed by the European Commission in the context of the LIFE-Environment programme and has led 18 Italian local authorities to adopt an environmental budget debated and approved by the elected council alongside the economic one.

F.         Economic accounting in the developing countries

78.        Developing countries’ interest in adopting environmental accounting systems is growing for a variety of reasons. It should firstly be emphasised that traditional macroeconomic aggregates, derived from the application of the SNA system of national accounts, are not capable of registering the real economic growth rate of these countries, especially the correlation with the scale of their non-market economic activities (consumption of own produce, supplying of own requisites, barter) and with the economic system’s high degree of dependence on exploitation of natural resources.

79.        Pilot studies concerning the application of environmental accounting systems have in fact highlighted progressions of environmentally adjusted economic aggregates that differ widely from the traditional ones. In particular, the launch of a scheme to apply the UN’s integrated economic-environmentalaccounts (SEEA) in Korea prompted comparison, over the period 1985-1992, of the environmentally adjusted net domestic product (EDP) and the plain net domestic product by compiling two satellite accounts to record the degradation and depreciation of natural resources, the conservation expenditure, environmental levies and subsidies, and the currents of import and export of wood, minerals and fisheries resources. The environmental components surveyed include air and water pollution and the related expenditure for protecting the environment, land use and depletion of stocks of forest resources, fisheries resources and some minerals.

80.        In the Philippines too, a pilot project is being conducted in order to examine the applicability of the SEEA system, and apparently indicates that the growth rate of the environmentally adjusted net domestic product is lower by one percentage point than that of the conventional net domestic product.

6.         Local experience

A.         European common indicators

81.        The initiative to monitor local sustainability, which led to the construction of the ECI (European Common Indicators) system of 10 common indicators was promoted by the European Commission with the aim of providing a practical instrument with which to assess and compare the sustainability of local government policies. The set of 10 indicators is non-exhaustive when it comes to representing the sustainability of a territorial unit, but should be placed side by side with other indicators defined on a local basis with a view to participation and sharing in local government choices. The common indicators have the characteristic of integrating environmental, social and economic aspects in that they transcend the sectoral approach which is often the limitation of monitoring systems based on sets of indicators.

82.        The system of European common indicators is made up of 5 main “obligatory” indicators to be used by all authorities, and 5 more specific “optional” indicators that probe and more effectively portray various aspects of the former. The main indicators are:

The optional indicators are:

83.        All the indicators listed incorporate social, economic and environmental aspects so as to furnish information directly or indirectly about environmental protection efforts, especially how far exploitation of natural resources and production of waste have been reduced, and efforts to preserve biodiversity.

84.        The common indicators have now been flanked by an eleventh indicator, the Ecological Footprint. This is a sustainability indicator for a human group (from one person to mankind as a whole) or for a territory. The very forceful name of the indicator discloses the intention to evaluate the imprint, or mark or trace, left on the environment by a society. By using an advanced method of calculation, it computes the productive area (farmland, pasture, forests, marine areas, etc.) needed to ensure sustainable production of the resources consumed by one or more persons and to absorb the resultant emissions. That is why the indicator is expressed in hectares, so as to make the environmental impact of an individual, a town or a state perceptible both intuitively and visually even to non-experts.

B.         The CLEAR-LIFE Project

85.        CLEAR (City and Local Environmental Accounting and Reporting), a European scheme of environmental accounting applied to local authorities, is carrying out trials under the LIFE-Environment programme with a process of accountability aimed at defining, within the scope of a single instrument (the environmental budget), the environmentally significant commitments and policies of the authorities, with an accompanying system of physical and monetary indicators. CLEAR develops the content of the first bill on government environmental accounting, presented in 1997 by your rapporteur, undersigned by all parliamentary groups, and passed by the Italian Senate during the previous legislature. The bill, currently before the Senate Environment Committee, takes up the recommendations contained in the European Union’s Fifth Programme of environmental action, which stresses the importance of environmental accounting and budgeting for sustainable development.

86.        The prime movers of CLEAR are 18 Italian local authorities that contrast considerably in their location, size and territorial features. In addition to the leading one, the Municipality of Ferrara, 11 municipalities are involved in the project (Bergeggi, Castelnovo ne’ Monti, Cavriago, Grosseto, Modena, Pavia, Ravenna, Reggio Emilia, Rovigo, Salsomaggiore, Varese Ligure) together with 6 provinces (Bologna, Ferrara, Reggio Emilia, Modena, Naples, Turin). These 18 partners applying the process experimentally are joined by the Emilia Romagna Region and the OSCE which ensure monitoring and comparison with like experiments in progress elsewhere.

87.        At its inception, CLEAR had the goal of setting in motion a process (initiated in April 2002) which at first involved the approval, by the municipal and provincial councils of the partner authorities, of an environmental budget in parallel with the process of approving the financial budget.

88.        According to the philosophy of the project, in fact, the environmental budget is a supporting instrument for local government decisions, and one of the reasons for its effectiveness lies in its adherence to the same procedures as are laid down for the financial budget.

89.        The experimental applications allow various requirements to be met:

90.        A second aim of CLEAR is the production of a handbook setting out the accounting principles, the “CLEAR Method”, to contain the procedures, models, best practices and the batteries of appropriate indicators for producing an actual environmental account for a municipality or a province. The phase of settling the “CLEAR Method” will be commenced in 2003, by turning to account the results (strengths and critical points) of the experiments.

91.        The project started in October 2001 and will finish in October 2003.

92.        In CLEAR, the local environmental audit is a document registering what happens to the environment of a given municipality or province in one year, for example how much waste is produced, how much water is consumed, what area of land has remained undeveloped, whether and how the shrinkage of green areas has increased, the air pollution level, how much energy has been produced and consumed, and how many resources have been tapped or made available. It includes not only numerical data (physical and/or financial) but also pointers for the environmental goals and policies of the public authorities.

93.        With time, there will be a final environmental balance sheet including results of implemented policies, and an anticipatory budget containing the information and forward analysis concerning future planning.

94.        There are numerous available data on the condition of the environment and on the relationship between economy and ecology, which are collected and processed according to various models and methods. CLEAR prompts local administrators to choose by common agreement the most significant and useful ones according to their specific requirements and adopt them to assess the liveable quality of the urban environment. To reach this target, CLEAR refers to a series of statistic tools which have been internationally validated and applied, such as sectoral pressure indicators, SERIEE, EPEA and the European Common Indicators, together with other indicators such as the Ecological Footprint.

C.         The EcoBudget Project

95.        This project sets out to formulate a budget of the natural resources managed by a local authority. Conceived and tested in Germany, it is now re-issued in the form of a project co-ordinated by ICLEA, an international network of local authorities, and financed under the LIFE-Environment programme in which the towns of Ferrara and Bologna participate for Italy.

96.        EcoBudget presupposes that securing the citizens’ quality of life is a priority objective of local government. This aim is normally associated with realisation that the resources for achieving it, whether financial, social or natural, are limited. However, although local authorities have had financial management instruments ever since they came into being, there are few instruments, and primitive ones at that, available to local administrations allowing proper management of natural resources. This is where “ecoBudget” environmental budgeting comes in, in synergy with the other instruments.

97.        EcoBudget is applied concurrently with the successive stages of the municipal budget. At the preparatory stage, an assessment of the initial situation (normally set out in the report on the state of the environment) is used as a basis for estimates of environmental expenditure which are made by the authority’s technicians and assist the administrators in drawing up the Master ecoBudget and the component budgets per sector. These documents are debated in the council, concentrating chiefly on the setting of short and medium term environmental expenditure targets and leading to the eventual approval of an environmental budget.

98.        The ecoBudget cycle then enters its executive phase, during which the management of the actions undertaken is kept under surveillance by means of the indicators, according to their values entered in the anticipatory budget.

99.        The cycle concludes with the third phase and a final environmental balance makes it possible to evaluate the achievement or otherwise of the set targets. This final balance is supplemented by two other important documents, the Summary of Environmental Assets in which suitable indicators make it possible to determine the amount of natural resources still available to the authority, and the Environment-Benefit Analysis, a set of indicators showing improvements or deteriorations (profits or losses) for the citizens’ quality of life which have occurred during the reference year of the environmental budget.

100.      The quality and effectiveness of the environmental budget greatly depends on the quality of the indicators selected to guide the action of the municipal apparatus during the year. This is why the ecoBudget method recommends administrations to adopt indicators with certain specified characteristics (clarity, scientific significance, comprehensibility, comprehensiveness, etc.).

101.      The basic ecoBudget documents are the anticipatory budget and the final balance. The former records the values for the reference years, the forecasts for the year ahead, and the target set with the pre-selected indicators, the choice of which (on political, legislative or scientific grounds) must be justified by a statement of reasons.

102.      Like the financial budget, the ecoBudget is accompanied by other documents: the Summary of Environmental Assets, allowing the effectiveness of the environmental budget to be assessed in terms of the local authority’s natural wealth, whose constant volume is the prime guarantee of sustainable development; the Environment-Benefit Analysis which registers the indirect impacts on the citizens’ quality of life, thus confirming or refuting the accuracy of the ecoBudget’s formulation.

103.      The ecoBudget environmental balance indicates the trend of consumption, conservation or regeneration of environmental resources, and how action programmes and precautionary measures can be planned ahead in circumstances of deterioration.

D.         The CONT.A.RE Project

104.      CONT.A.RE is an inter-regional project which has developed a method for assessing environmental policies based on integrated analysis of environmental accounting and evaluation of action. It is not strictly speaking an environmental accounting method but has taken over and co-ordinated various existing instruments (EPEA, NAMEA, ESEPI), linking them with the process of political decision.

105.      The CONT.A.RE project is conceived as an aid to political decision-makers and as a tool for planning, monitoring and verification of the quality and effectiveness of environmental expenditure at the level of the Regions, but can be extended to all territorial units.

106.      The model proposed by CONT.A.RE involves stimulating flows of information which identify and interconnect the various classes of quantitative information required in the evaluation process

107.      In CONT.A.RE the following are developed:

108.      The decisional support model is based on an integrated scheme combining the system of DPSIR indicators with the logical impact model. This combination gives rise to a model intended to link each impact and each result to the field of action, the objective and the policy concerned. In practice, each action is placed in the context of the referent environmental policy area.

109.      The CONT.A.RE model ties the DPSIR indicators to the process of programming goals, resources and delivery of responses. In this way a complete model is obtained, one which thanks to the pilot set of indicators follows the entire process of defining actions and evaluating results in the environmental field.

110.      The data for devising the basic indicators may come from various sources, both within and outside the authority concerned. The CONT.A.RE project has not envisaged obligatory indicators but confines itself to specifying their type.

E.         French experimentation with an environmental economic accounting system (Micro-economy of the urban environment: case of the Amiens, Lyon, Nantes and Poitiers conurbations)

111.      The experiment conducted by the municipalities of Amiens, Nantes, Lyon and Poitiers is an integral part of a research project initiated to determine the level of environmental expenditure and monitor its effectiveness at local level. In the course of research, the project has acquired the methodological profile of environmental economic accounting, especially in the definition of the so-called “evaluation conventions” fixing common criteria for the assignment of expenditure levels to the environment under a number of budgetary items.

112.      The study was carried out at district and inter-municipal level. The geographical area considered for each locality was demarcated according to service provision with an environmental impact (management of water supply, refuse, public transport, etc.) with a broader geographical reach not following the administrative boundaries.

113.      The research delves into the subject of an environmental accounting approach of the economic type, based on reclassification of the expenditure items contained in the economic-financial budgets of the local authorities concerned. The procedure followed to attain this objective is founded on the fixing of common areas of analysis and analytical criteria and on subsequent systematic analysis of the economic budgets of the local authorities and companies delivering environmental services, so as to record all items that comply with the harmonised criteria.

114.      The definition of the areas of analysis is a matter of determining the spatial perimeter of the conurbations, which has not always strictly followed the administrative boundaries, and of identifying the players involved in various capacities in environmental protection operations. The stakeholders identified are subdivided into four groups: municipalities and their groupings (districts, urban communities, etc.); semi-public companies with a substantial level of public shareholding; enterprises holding franchises for public services, and “satellite” associations of importance for measuring air quality.

115.      Expenditure of environmental relevance has been identified and reckoned by following an approach midway between a purely financial standard based on analysis of the budgets of public entities (water boards, utilities under municipal administration, etc.) keeping their own books from which the environmentally relevant heads can be obtained, and a technical standard based on prior identification of environmentally relevant activities and subsequent tracing of the expenditure items borne by the various entities involved in such activities. The two analytical approaches have been integrated, though without a set method being unequivocally established.

116.      From a technical standpoint, the most interesting feature of the French environmental accounting project is the criterion for allocating costs in uncertain situations where it is not possible to fix an objective level for a budgetary item to be allocated to the environment. The recommended procedure is based on apportionment among all the institutional and economic operators identified during the preliminary phase. A round of discussions among these entities has made it possible to arrive at certain evaluation conventions. This convention does not represent the best criterion but simply one of the possible criteria, rated by the entities concerned as the most appropriate in that specific situation. The evaluation conventions thus have a contextual value not admitting of general application, so that care must be taken to avoid comparisons between the expenses incurred by different bodies where they do not adopt the same convention.

117.      Among the evaluation conventions used in the French study, attention should be drawn to the one concerning the public transport sector. The convention adopted in this context is to assign to the objective of environmental protection the proportion of the costs relating to so-called unfettered users, or those who use public conveyances by free choice when they are able to use a private car. In practice, the classification “environmental” excludes all the expenditure relating to the amount of service pertaining to the category of persons compelled by their economic or social circumstances to use public transport or enjoying reduced fares (children, students, the elderly, indigents).

F.         Eco-Mayors

118.      The French “Eco Maires” association brings together over 600 mayors who regard environment and sustainable development as an absolute priority for their municipal administration. The common spirit that binds the Eco-mayors is the resolve to introduce environmental parameters and pursue follow sustainable development standards in all actions carried out. The association is directed at mayors in so far as the environmental quality which the citizens directly perceive depends more on municipal administrations than on the upper tiers.

119.      The association’s across-the-board membership takes in mayors belonging to all political formations and municipalities of every size from large conurbations to small rural villages.

G.                  The Pastille Project

120.      PASTILLE is a project run by a consortium formed for the purpose between 4 countries (United Kingdom, Austria, Switzerland and France). The co-ordinator of the whole project is the Geography and Environment Department of the London School of Economics and Political Science. Each country participates in the consortium through a network of partnership between a municipal administration and one or more research centres. The project has been financed by the European Union under the Fifth Framework Programme.

121.      The main aim of the project is to test the real utility of sustainability indicators in the process of political decision and reporting on the policies of local authorities. PASTILLE has also turned to account the possibility of adding on local sustainability indicators at the level of national and supranational political strategies. Among the multiple objectives of PASTILLE, the following should be mentioned:

122.      From the operative angle, the end product of the project was a “Practitioner’s Guide” for policy-makers and sustainable development professionals and a Pastille Test which, through an analytical evaluation of the sets of indicators, determines the expediency of using these within the decision-making processes of the local community. In practice the Test constitutes a tool for self-appraisal of the sets of local sustainability indicators, which each local administration can carry out to determine the suitability of the indicators used or choose the set most appropriate to its situation.

7.         Conclusions

123.      Today, environmental accounting systems are being experimented with, researched and utilised chiefly as statistical and informational systems.

124.      On the other hand, little definition or structure attaches as yet to the utilisation, in decisional procedures, democratic political channels and routine administration at governmental levels, of the outcomes and information derived from environmental accounting.

125.      It is therefore a matter of “moving from the laboratory to institutions”, ie from the experimental stage to that of standard practice.

126.      The adoption of environmental accounting systems at all levels of government would permit:

a)         reporting, by political decision-makers to the communities governed, of the environmental outcomes of the policies implemented, on a sound cognitive basis and supported by consistent, updated information on the environmental position;

b)         incorporation of the variable “environment” into official decision-making processes at all levels of government;

c)         making the environmental effects of government policy more perceptible;

d)         involvement and accountability of decision-makers and interest groups committed to sustainable development goals;

e)         regular environmental monitoring and proper use of environmental data at decisional level;

f)          vertical integration of sustainable development instruments and policies.

127.      Environmental accounting may become one of the principal instruments of reform to governance at all levels of authority because it encourages the steady pursuit of sustainable development. The instruments traditionally used to plan economic and development policies are not in fact capable of registering the environmental costs and therefore do not represent a suitable aid to the process of decision. They do not allow realistic measurement of growth in a country’s economic prosperity and well-being because they do not record important factors extraneous to the market such as value of natural resources and environmental assets, nor do they take account of the impacts made on the environment by pollution from human activities, especially production activities. To continue using instruments that originated in order to measure market activity in an economy without natural limits now means foregoing the possibility of ascertaining whether we are moving forwards or backwards on the road of sustainable development.

128.      Indeed, the concept of sustainability points to the further concepts of limits to the exploitation of natural resources and of change in lifestyles and living patterns, above all through the internationalisation, on the market, of the costs to be defrayed for preserving the natural and environmental heritage and maintaining natural and environmental balance.

129.      For the pursuit of this goal, the entire political process of decision needs to be reformed in the direction of greater accountability and transparency regarding environmental issues at every tier of government. The adoption of environmental accounting systems makes it possible to monitor in physical terms, but also on a monetary plane where feasible, the state of the environment and the main impacts of the policies implemented by the public authorities. In this way, political decision-makers on the one hand are able to incorporate the variable ”environment” into all policies and not only environmental ones, and on the other hand the citizens can be given a clear, aboveboard account of the results of the politicians’ administrative activity, besides information on the state of the environment and on factors of pressure. Indeed, reliable information and transparency actuate a beneficial spiral fostering the involvement of interest groups and the community at large, and consequently the shouldering of broad-based responsibility.

130.      Environmental accounting instruments can thus become a “toolbox” for political decision-makers to direct the process of reaching decisions towards sustainability. However, for this to come about, environmental accounting must not remain confined to an informational function but must have its uses and applications in the political sphere. As we have seen, to mention but one example, scientists are still engrossed in the discovery and application of an environmental and social sustainability index supplanting the traditional macroeconomic aggregates as a measure of prosperity. Although the UN has made endeavours in the realm of theory to arrive at a calculation of “Green GDP (EDP) in the context of applying an integrated economic and environmental accounting system, hitherto at least there has been no corresponding dissemination of the new index on a sufficiently extensive scale, whether because of implementation problems or owing to the cultural change that it would involve. On the other hand, especially in the developed countries, production of data on the various environmental aspects has now come to fruition and led to the compilation of reports on the state of the environment at all levels of government, though without often visibly affecting the political process. As the European Commission noted in 1994, nothing further can be expected; the instruments now available, however imperfect, must be used to reform government action and steer it towards sustainability. For that reason the Commission, while not discarding the idea of attaining an effective integrated system of accounting and consequently macro-indices of sustainability, has recommended as short and medium-term steps the consolidation of monitoring systems, the creation of ever more comprehensive databases on the natural heritage, and devising economic and environmental indices with the concomitant satellite accounts. This short cut allowing environmental accounting to get to grips with policy and policy to be gauged by environmental accounting, is the one already taken by many countries.

131.      The next move may be to adopt environmental budgets at all tiers of government, alongside the traditional economic and financial ones. It can be realistically presumed that the use of environmental accounting could at this juncture induce public authorities to keep satellite accounts and apply environmental indices on which to build proper environmental budgets, partial though they may be, following the same decisional sequence as the conventional budgets. This is a process presently at the experimental stage in some countries of the European Union, thanks inter alia to the financial support of the European Commission under the Life-Environment programme. Its dissemination may boost and deepen research on these subjects, lead to refinement of the statistical and accounting techniques, and above all promote wide-ranging reform of governance precisely on the basis of environmental issues.

132.      The environmental budget is indeed far more than a report on the state of the environment. It is a document with which political decision-makers, in a comparable manner to the procedure with economic budgets, accept precise responsibilities in respect of the development policies implemented and awaiting implementation and in respect of their impacts on the environment. The political community’s responsibility towards the environment, resources and the natural heritage, with the involvement of the community at all levels, is the key to sustainable development. Responsibility on the part of enterprises, families and other sectors of society follows from political accountability, transparency and information.

133.      As is now clearly established by the Rio de Janeiro Conference, it is necessary to “think globally and act locally” in relation to sustainability. In that sense, the adoption of environmental accounting systems and environmental budgets can help every community understand the global nature of environmental problems and the need for vertical integration not only of conservation policies but also of development policies. The chief environmental problems, evidenced by a decrease in quality of life in the developed countries and by poverty and death in the developing countries, do not admit of a strictly localised perspective. The adoption of environmental accounting systems and environmental budgets can give every community the proper perspective of belonging to a far wider concourse, thereby promoting commitment to sustainable development programmes, agreements and initiatives at all levels up to that of multilateralism.

134.      In this context, importance attaches to the Council of Europe’s role in activating, reforming and gradually harmonising statistical and informational systems, systems of environmental indicators and procedures for compiling and approving budgetary documents at all levels of government, in order that satisfactory assessments regarding the sustainability of development may be subsumed and systematically connected with acts of economic and social programming. The Council of Europe can promote gradual voluntary adoption by member states of environmental accounting systems and environmental budgeting at all levels of government. At the same time, it can promote joint research aimed at harmonising the statistical and accounting devices needed to construct communicating environmental accounting systems that produce comparable results, in a like manner to economic and financial accounting:

135.      In the light of the information gathered during the hearing it held in Paris in October 2003 and the discussions on the text proposed by the Rapporteur, the Committee on the Environment, Agriculture and Local and Regional Affairs expressed the firm belief that it was not only necessary but possible to move from the experimental phase to that of continent-wide practice. It repeatedly stressed that this development would simply mean reallocating current expenditure, without generating further outlay, and making better use of it.

136.      The widespread adoption of an environmental accounting system at all levels of government would enable policy-makers to report to national, regional and local authorities on the environmental results of the policies pursued, on the basis of reliable data and constantly updated information on the state of the environment, to incorporate the “environment” variable into the public decision-making process at all levels of government, and to increase transparency with regard to the impact of government policies on the environment.

137.      The Committee consequently wished the Committee of Ministers to prepare a recommendation to member States on the introduction of environmental accounting at national, regional and local level. It was also proposed that the member States be invited as of now to pool the different European countries’ experiences of environmental accounting in order to develop an approach that brings these systems together under a European standard, and to systematically combine social and economic planning activities with an accurate assessment of the sustainability of the development involved, using existing databases, statistics and environmental indicators.

BIBLIOGRAPHY

Fausto Giovanelli, Ilaria Di Bella, Roberto Coizet – La natura nel conto. Contabilit� ambientale: uno strumento per lo sviluppo sostenibile – Edizioni Ambiente, Milan 1999 (description of environmental accounting as a sustainable development tool).

ANPA, CEARDI LUISS – Approcci teorici ed applicazioni di metodologie di contabilit� ambientale nazionale – La Sapienza Editrice, Rome 2002 (theoretical approaches and applications of national environmental accounting).

ISTAT – Indicatori e conti ambientali: verso un sistema informativo integrato economico e ambientale – Annali di statistica, Rome 1999 (environmental indicators and accounts: towards an integrated economic and environmental information system).

CNEL – Politiche ambientali e territoriali per lo sviluppo sostenibile – Rome 1997 (environmental and territorial policies for sustainable development).

Reporting committee: Committee on the Environment, Agriculture and Local and Regional Affairs

Reference to committee: Doc. 9486 and reference No. 2745 of 24 June 2002

Draft recommendation adopted by the committee on 29 January 2004

Members of the committee: MM. Martinez Casa� (Chairman) (Alternate: Mr de Puig), Meale, Gubert, Schmied (Vice-Chairmen), MM. A�ikg�z, Mrs Agudo, MM. Akselsen, Andov, Annemans, Mrs Anttila, MM. Baura, Bruce (Aternate: Mr O’Hara), �avusoglu, Sir Sydney Chapman, Mrs Ciemniak, MM. Coifan, Cosarciuc, Dedja, Deittert (Alternate: Mr Wodarg), Delattre, Donabauer, Duivesteijn, Duka-Z�lyomi, Ekes, Etherington, Frunda, Giovanelli, G�tz, Graas, Grabowski (Alternate: Mr Giertych), Grachev, Gunnarsson, Mrs Hajiyeva, Ms Herczog, MM. Hladiy, H�gmark, Ilascu, Mrs J�ger, MM. Jakovljev, Jevtic, Juric, Mrs Kanelli, MM. Karapetyan, Klympush, Kortenhorst (Alternate: Mr Platvoet), Kužvart, Libicki, Livaneli, Lobkowicz, Loncle, Maissen (Alternate: Mr Dupraz), Masseret, Mauro (Alternate: Mr Nessa), Mrs Mesquita, MM. Meyer, Milojevic, Mrs Muizniece, Mr Nazar� Pereira, Mrs Ohlsson, MM. Oliverio, Opmann, Popov (Alternate: Mr Kovalev), Pullicino Orlando, Rattini, Salaridze, Mrs Schicker, MM. Sfyriou, Sizopoulos, Steenblock, Ms St�jberg, Mrs Stoyanova (Alternate: Mr Toshev), MM. Timmermans, Tulaev (Alternate: Mr Sudarenkov), Txueka Isasti, Vakilov, Velikov, Wright, Zhevago,

N.B. The names of those members present at the meeting are printed in italics.

Secretariat to the committee: Mr Sixto, Mr Torcatoriu and Ms Trevisan