COMMENTARY
Some remarks on the ‘System of Integrated Environmental and
Economic Accounting’ of the United Nations
Hans Werner Holub
a,*, Gottfried Tappeiner
a, Ulrike Tappeiner
baDepartment of Economics,Uni6ersity of Innsbruck,Institut fu¨r Wirtschaftstheorie,Innrain52,A-6020Innsbruck,Austria bDepartment of Science,Uni6ersity of Innsbruck,Institut fu¨r Botanik,Sternwartestr.15,A-6020Innsbruck,Austria
Received 24 March 1998; received in revised form 6 August 1998; accepted 7 August 1998
Abstract
The publication of the ‘System of Integrated Environmental and Economic Accounting (SEEA)’ by the United Nations marked a decisive advance in the discussion of environmental accounting and will have a great influence on the design of national environmental accounting systems. SEEA contains a great variety of definitions, methods and procedures. Before this important system will be adopted on a broad basis, it may be useful to point out certain basic problems connected with it. In this article we will concentrate on two main problem areas. First, the fundamental incompatibility of economic and ecological spatial and time scales and, second, the questionable emphasis placed on data artificially generated with the help of hypotheses rather than on data based on empirical observations. The following discussion leads to the consequence that monetary valuations of environmental facts should be avoided. Because of the incompatibility of economic and ecological scales, the authors propose to renounce to a large extent full integration of these two aspects. Instead one should concentrate on the two following aims: development of a classification for a systematic description of the anthropogenic alterations of environmental factors and a compilation of a variety of coordinated indicators which, at widely differing aggregation levels and with a wide range of methods and scales, would help to observe changes in environmental quality over time within at least a rough framework. © 1999 Elsevier Science B.V. All rights reserved.
Keywords: Environmental accounting; Green GDP; Data collection; Aggregation
* Corresponding author. Tel.: +43 512 5077363; fax: +43 512 5072980; e-mail: hans-werner.holub@uibk.ac.at
1. Introduction
The publication of the official interim version of the ‘System of Integrated Environmental and Economic Accounting (SEEA)’ by the United Na-tions marked a decisive qualitative advance in the discussion of environmental accounting. Prior to this publication a variety of environmental ac-counting systems were already in existence (Friend, 1993; Keuning, 1993) the majority of which were of an experimental character, often evoking intensive discussions with respect to their design.1
In contrast, SEEA is an official hand-book claiming to present a ‘comprehensive data system’, a synthesis of different approaches (United Nations, 1993, p. 1).
Experience with the previous ‘System of Na-tional Accounting (SNA)’ 1968 (United Nations, 1993) and other official handbooks of interna-tional organizations justify the conclusion that SEEA 1993 will also have a decisive influence on the design of national accounting systems. Since, as its authors state, ‘‘The present handbook is a work in progress’’ (United Nations, 1993, p. V), it may be useful to point out certain basic problems connected with this most important accounting system. In this article we will concentrate on two main problem areas. First, the fundamental in-compatibility of economic and ecological scales and, second, the questionable emphasis placed on data artificially generated with the help of hy-potheses rather than on data based on empirical observations.
2. The incompatibility of economic and ecological scales
The central element of ecological approaches is the analysis of mutual relationships between sin-gle organisms and environmental factors. Envi-ronmental factors are defined as all external biotic and abiotic factors and phenomena exerting an
influence on an organism. In the following text we concentrate on the accounting problems con-nected with the influence of those environmental factors on ecosystems. We do not discuss the problems of non-renewable resources.
Mere analysis of changes in environmental fac-tors alone, such as pollution from industrial pro-duction, obviously cannot be regarded as an ecological approach. Such analysis represents only the starting point for ecological analyses of the influence of environmental changes on the dynam-ics of an ecosystem. Ecosystems possess a limited capacity to tolerate changes in their physical envi-ronment caused by natural or anthropogenic fac-tors, and the magnitude of this capacity is decisive in determining the extent of the damage produced by different types of environmental pollution. The nature and degree of environmental pollution an ecosystem can bear depends on the type of ecosys-tem and on its previous stress load. The addi-tional stress tolerance of an ecosystem which is naturally exposed to high loads of stress (e.g. solar irradiation, drought, extreme temperature fluctuations) or in which anthropogenic stress loads have accumulated (e.g. pollutant accumula-tion in the soil) may be quite limited.
It is important to realize that in most cases useful analyses of ecosystems may be difficult to obtain on a macroscopic basis, e.g. for an entire forest, meadow, or river: in such cases useful information can only be expected from analyses of very small areas. The same holds true for existing stress loads; a difference of 200 m in altitude, a southern instead of a western exposure, or a difference of 20° in the steepness of a slope may substantially change the ecosystem impact of a given environmental change.
The appropriate spatial scale for analyzing the effects of environmental changes on ecosystems depends on the nature of this change. This leads to the conclusion that ecological research has to be based on widely differing spatial structures, ranging from global observations to areas of only a few square meters. The exclusive use of large geographical observation units, which is common in regional economics, is not appropriate in ecol-ogy. When using larger units the results not only become rougher, but for many ecological
tions, also useless. Thus ecologists are forced to employ simultaneously widely differing spatial aggregates.
It is typical of ecological research that ecosys-tems are regarded and evaluated as dynamic pro-cesses, one example of which is seen in the cumulative processes mentioned above, and a sec-ond in the decomposition processes so important for the tolerance of ecosystems to stress factors. Depending on the processes to be analyzed, an ecological approach may require different time scales, which may extend from decades in the case of problems of secondary succession, to very short time spans when analyzing acute consequences of severe isolated environmental damage. In such cases average values are not only very inaccurate indicators but are literally useless or, even worse, misleading. An average daily temperature gives no information as to whether night frost has oc-curred, nor does the average volume of water of a brook indicate whether there have been times of total dryness.
Thus, we can state that static descriptions of environmental conditions do not meet the require-ments of an ecological approach. Ecological as-sessments of processes in environmental systems not only require a strictly dynamic view but also a number of different time scales which, in addition, should mostly refer to less than yearly time spans. In this context average values may be of limited value.
A further source of incompatibility between economy and ecology lies in the necessity to use, in ecological approaches, widely differing units of quantity and quality which mostly cannot be use-fully aggregated. Certain stress loads can be meaningfully expressed only as stocks, others only as flows (e.g. pollutant depositions in waters), and still others only as concentrations (ozone loads in lower air layers). However, such dissimilar units of measure cannot simply be compared with each other. Because environmental damage can practi-cally never be attributed to a single cause (see also Harrison, 1989; United Nations, 1990, p. 57), but is rather the outcome of a combination of many non-linear influences, a multidimensional ap-proach is imperative. Additionally, the time inter-vals for the measurement of these factors cannot
be arbitrarily appointed but must be determined according to the type of ecosystem and the spe-cific inquiry.
The above problems are further intensified by the fact that, with respect to ecosystems, environ-mental factors often cannot be substituted. In many cases the quality of a whole ecosystem is not determined by the mean quality of all envi-ronmental factors but rather by the minimum quality of a central factor. A groundwater short-age in a heathland, for example, cannot be offset by a renunciation of timber utilization. Such in-terdependencies require that the single factors be monitored separately, because only thereby is an adequate determination of the influence of each factor possible. This implies that the classifica-tions employed are of decisive importance for the results of environmental accounting systems. We therefore conclude that for an accounting system to meet ecological demands the use of widely differing measuring units (stocks, flows, concen-trations) and appropriate classifications is imperative.
With these requirements in mind, a perusal of SEEA gives the following picture:
(1) instead of an accounting system capable of connecting different degrees of spatial aggrega-tion, SEEA only develops concepts which con-sider whole economies or, at best, regions as geographic units (United Nations, 1993, p. 25);
(2) instead of employing differentiated temporal units, SEEA explicitly or implicitly assumes calen-dar or business years without further question.
The structure of large parts of SEEA is mainly built on the system of economic accounting. This can be justified by the argument of compatibility
of environmental and economic accounting.
Whether this is reconcilable with the aims of ecological accounting systems is much less obvi-ous and certainly needs further clarification. This critical view is supported by the fact that SEEA contains only stocks and flows as measuring units, but does not employ genuine ecological measuring units like concentrations and intensities.
the integration of genuine ecological viewpoints. We cannot, therefore, agree with the statement that ‘‘Using the SNA as a starting-point for the SEEA does not necessarily lead to a purely eco-nomic view of environmental concerns. Rather, it permits the introduction of ecological elements into economic thinking…’’ (United Nations, 1993, S.23).
The apparent dominance of economics certainly cannot be explained as a disregard for ecology, but in fact results from the fundamental incom-patibility of the scales used in economics and ecology. If this fact is recognized, unfounded ex-pectations with regard to SEEA can be avoided.
3. The preponderance of artificially generated data
SEEA implicitly assumes comprehensive knowl-edge of economic and ecological facts and their mutual relations. Among other things it contains the following broad assumptions.
It is possible to attribute at least those immis-sions resulting directly from production and con-sumption to specific economic activities with sufficient exactness over longer periods of time:
(1) the relations between emissions and immis-sions are so precisely clarified that the transfer of pollution from its site of origin to the site of its effect can be clearly traced;
(2) the dynamics of ecosystems are so well understood that damage induced by pollution can be estimated with sufficient precision;
(3) it is even possible to estimate these damages with such precision that they can be expressed in monetary equivalents.
It is obvious that the above assumptions cannot be based on empirical observations but can only be artificially ‘constructed’ with the help of hy-potheses and models. The recognition of this fact leads to the fundamental question about the con-sequences of the existence of such model hypothe-ses in ex-post accounting systems.
Holub and Tappeiner (1997) have shown that SNA 1968 as well as SNA 1993, and all national accounting systems contain, besides directly ob-servable variables, many variables that are
gener-ated with the help of theoretical models. Such model-generated variables are used at micro lev-els, for instance micro data at the level of single units2, up to complex variables at higher
aggrega-tion levels, for instance coefficient matrices of input – output tables.3
In principle these artificially generated data could in some cases be observed but, because of the high costs engendered by unreliable informa-tion from respondents, they are only estimated. Some of these data cannot be observed, for in-stance information about regional imports or fac-tor incomes. The hypotheses applied extend from simple proportional estimates on the basis of key variables to incisive assumptions about produc-tion processes.
SEEA contains an even greater number of such hypothesis-generated variables than those in exist-ing national accounts.
(1) To connect environmental data directly with data of existing national accounts it is necessary to assign environmental pollution loads to the appropriate economic activities. On the one hand these activities must form the basis for environ-mental policies (United Nations, 1993, p. 25); on the other, the costs of avoiding pollution can only be determined if its origins are identifiable.
(2) Another problem concerns the connections between emissions and immissions. These connec-tions are indispensable for determining the rela-tionship between environmental pollution and environmental damage. In addition, without an understanding of these connections no spatially delimited accounting system can be developed. Because in many cases one special pollutant load may suffice to severely influence a whole ecosys-tem regardless of the quantities of other pollu-tants, and because of the regeneration potential in nature, as well as our ignorance of the decomposi-tion pathways of many factors in environmental
2For instance, the production of small firms is artificially estimated with the help of key variables derived from produc-tion data of larger firms.
pollution, the gap between necessary information and observable facts is practically insurmountable and has therefore to be bridged by modeling assumptions.
A further point refers to the connections be-tween immissions and environmental decay. This connection is the basis of every assignment of restoration costs to the economic activities re-sponsible. However, this connection is obscured by at least four problem areas. For many types of environmental damage the causes are not clear. Examples are provided by hazards to almost all impairments of human health induced by pollu-tion levels below currently established thresholds. Secondly there is the problem of multi-causality: if several pollution factors are necessary for dam-age to occur, the assignment of this damdam-age must be highly arbitrary. A third problem arises from the fact that some of the consequences of environ-mental pollution only become visible after a long delay (for instance, genetic consequences of ra-dioactive pollution). Consideration of only the immediate consequences would lead to false prior-ities in environmental policies. Fourthly, the visi-ble consequences of cumulative pollution factors do not necessarily increase monotonically with the cumulation process. An impressive example of this is seen in the considerable temporal deviation in forest damage resulting from diverse natural causes.
However, most strongly dependent on theoreti-cal assumptions in SEEA are the valuations (for evaluation see Hueting, 1991). Prevention and restoration costs and especially contingent valua-tions based on surveys are exclusively theoretical constructions. They are only valid against the background of a special and rather arbitrary model world.
Why does the existence of model-generated data in an accounting system like SEEA pose such problems? The most cogent argument against model-generated data is that the hypothe-ses used to generate these data may be incorrect. This implies that the resulting data are subject to errors which differ fundamentally from the well-known errors in empirical surveys (deficient defin-itions, sample errors, etc.). Moreover, the extent of these errors cannot be adequately assessed by
users. As a result of the implicit theoretical as-sumptions of hypotheses contained in the data, users lose degrees of freedom for their own theo-rizing. In any case, the results of personal model-ing cannot be adequately interpreted.
In most cases users of the data have no means of eliminating the effects of built-in hypotheses, nor can their impact on the data be estimated with the help of sensitivity analyses. Thus obser-vation and fiction can no longer be separated. The problem becomes even worse when model-gener-ated data are aggregmodel-gener-ated with empirically ob-served data into an inhomogeneous conglomerate which users are unable to sort out.
4. The danger of a misuse of SEEA data
The misinterpretation of variables of national accounts and especially of GNP has long been a subject of discussion and controversy. The follow-ing statements suggest that the misuse of environ-mental accounting systems will be even greater.
(1) There is no simple justifiable valuation sys-tem for environmental accounting, such as the market prices employed for SNA. For different aspects of environmental problems different valu-ation procedures are used: prevention and restora-tion costs, contingent valuarestora-tions, etc. The results of these different valuations can be great (Pearce et al., 1989; Hausman, 1993), so that the choice of valuation system totally dominates the results. As each of these valuation systems is only appropri-ate for the analysis of certain specific questions, the mixing of different systems results in signifi-cant problems with regard to interpretation.
(3) Environmental conditions expressed in monetary variables implicitly give the impression that they are easily comparable with other mon-etary variables, such as yields of economic
in-vestments. However, due to the fictitious
character of monetized environmental variables, such comparisons necessarily lead to serious mis-understandings.
(4) Finally, a monetization of variables and the consequent concentration on only a few ag-gregates results in such a drastic reduction of the analytical potential of the accounting system that it cannot possibly be of use for policy-mak-ing (see also Lintott, 1996).
The advocates of monetization of environmen-tal variables argue that in present-day society only monetary terms attract sufficient attention: ‘‘Information in physical units is scarcely ab-sorbed in economic policy and literature. As we are living in a monetary society, it seems as if only monetary terms play a role in economic decision making with respect to our environmen-tal problems. Politicians can only deal with monetary numbers…’’ (Richter, 1991, p. 9).
These considerations point directly to the fun-damental problem of SEEA. SEEA is a politi-cally important accounting system, focusing international attention on the necessity to take into consideration environmental damages as well as to maintain environmental quality. Such a politically motivated system is invariably a compromise between differing opinions and rec-ommendations. In addition, the system is ex-pected to allow acceptable entries for countries with different quality levels of national statistics.
These merits of SEEA are undisputed.
Nonetheless, criticism of an important account-ing system, propagataccount-ing the valuable idea of en-vironmental protection, is justifiable if, from a scientific point of view, the method chosen seems to be misleading or even dangerous. The argument that it is better to have a problematic system with the right intention than to have no system at all, is just as unacceptable as saying that it is better to have wrong data than no data.
5. What can be done?
The critical aspect of SEEA is the causal link between the sources of the diverse pollutants and their effects on ecosystems. The problem ar-eas described in Sections 2 and 3 of this paper concentrate on this point. The part of the ac-counting system that deals with pollutants re-quires fundamentally different aggregation levels than the part that documents environmental damages. Knowledge of functional connections between the two aspects is largely missing and has therefore to be intensively supplemented by model approaches.
For SEEA this means that one should re-nounce integration of the two aspects and con-centrate instead on the two following aims:
(1) development of a classification for a sys-tematic description of the anthropogenic alter-ations of environmental factors (Environmental Pollution Load Balance (EPLB));
(2) compilation of a variety of coordinated indicators which, at widely differing aggregation levels and with a wide range of methods and scales, would help to observe changes in envi-ronmental quality over time within at least a rough framework (environmental status report (ESR)4).
Within the framework of the Environmental Pollution Load Balance, changes in environmen-tal factors caused by human activities should be systematically depicted. This can serve as a basis for appropriate links with economic variables (for example in the form of linkage approaches). At first sight this seems to be a fairly simple task. But a vast new territory in economic statis-tics emerges if the following points are
consid-ered. A functional categorization must be
developed for different types of pollution loads. The categorization must encompass the polluting activities of production and consumption sec-tions. Current categorization approaches
rization of economic activities) must be reexam-ined and probably supplemented by components such as a nomenclature of applied technologies. This will inevitably have an effect on the defini-tion of appropriate units of observadefini-tion.
Though an Environmental Pollution Load Bal-ance is not an ecological balBal-ance, the introduction of diverse substances into the environment will always be problematic from an ecological point of view. An accounting system which consistently connects origin and emission of such substances with the underlying production and consumption activities, would be of great value. If the data are available at the lowest possible level of aggrega-tion, more demanding statistical procedures, such as panel investigations, become possible. This also represents a necessary first step for later integra-tion with the Environmental Status Report.
It is imperative that an Environmental Pollu-tion Load Balance be supplemented by a strongly disaggregated Environmental Status Report. At the same time it is especially important to conduct thorough area inventories (registration and map-ping of biotopes, extensive forest status reports, water quality and noise mapping, etc.) at regular intervals. Within the framework of such a system most dimensions of environmental quality can be taken into consideration. The point of intersection with Environmental Pollution Load Balance would be simply the same classification for pollu-tion load factors, as far as they appear in the Environmental Status Report.
The multi-dimensionality of an Environmental Status Report entails a series of disadvantages as well. Especially when comparing two time periods there is no way of detecting whether ‘total envi-ronmental quality’ has improved or deteriorated. This complicates an overall evaluation of policy. But as measures easily match up to single indica-tors this is not a serious disadvantage, especially if one considers that a ‘total environmental quality’ is logically questionable anyway.
On the other hand a multi-dimensional system of indicators promotes awareness that the envi-ronment is a differentiated, many-faceted system. From an ecological point of view such a differen-tiated perspective is indispensable. In constructing both proposed systems one can go back to the
important preliminary works of SEEA on the condition that no conceptual integration of both systems and no global monetary evaluation is intended.
If it is true that in a political context only aggregated monetary variables bear any weight, the correct response does not lie in delivering more such variables but rather in providing infor-mation on the associated problems and in a subse-quent reorientation.
Together, the two reporting systems form an efficient basis for further investigations of causal connections. Regarding their properties, the two systems should not be seen independently but should rather refer to one another. Although co-ordination between the two reports is desirable, it should by no means interfere with the profes-sional accuracy of the individual reports (for ex-ample, by use of inappropriate units in order to imply a superficial compatibility).
6. Conclusions
Although to a large extent the authors of SEEA acknowledge the problems associated with the suggested valuations and imputations (for exam-ple see United Nations, 1993, p. 113), this ac-knowledgement has not resulted in abandonment of problematic methods of valuation. In particu-lar, valuation in monetary terms is largely re-tained. We suggest that monetary valuations of environmental facts should be avoided as far as possible. Consequently the aggregation of mone-tary variables into a ‘Green GDP’ should also be dropped. As these constructions are particularly open to interpretative misuse, but are largely use-less for concrete environmental policies, this seems to be an acceptable request. In view of the importance of environmental problems and be-cause experience with prevailing accounting sys-tems has demonstrated the dangers of misuse, all possible efforts should be made to avoid foresee-able errors in future development.
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