Transcript SEEAW – Asset Accounts and Valuation Regional Workshop on Water Accounting Santo Domingo, Dominican Republic 16-18 July 2007 Michael Vardon United Nations Statistics Division.

SEEAW – Asset Accounts and Valuation
Regional Workshop on Water Accounting
Santo Domingo, Dominican Republic
16-18 July 2007
Michael Vardon
United Nations Statistics Division
1
Outline
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What do Asset accounts measure?
Basic definitions
Asset classification
SEEAW standard tables
Supplementary tables/information
• Breakdown of water flows
• Matrix of flows within the environment
What do asset accounts measure?
Asset Accounts describe in physical units
• The stocks of water resources
• The changes in stocks that occur during the
accounting period (natural and
anthropogenic changes)
They link information on abstraction and returns
with information on the stocks of water
resources
Hydrological cycle and water
balance
W ater in the atm o sp here
W ater o n land surface
and sub -surface
W ater in o ceans
and seas
L iq u id /so lid flo w s - p recip itatio n
V ap o ur flo w s - evap o ratio n, transp iratio n
Precipitation = Evapotranspiration + runoff +/- changes in storage
Basic structure
Opening Stocks
Increases in stocks
due to human activities
due to natural processes
Decreases in stocks
due to human activities
due to natural processes
Closing Stocks
1993 SNA Asset classification
“Aquifers and other groundwater resources to the
extent that their scarcity leads to the
enforcement of ownership and/or use of rights,
market valuation and some measure of
economic control”.
Thus only a small portion of the water resources
in a country is included in the 1993 SNA.
SEEAW
Water resources include water found in fresh and
brackish surface and groundwater bodies within
the national territory that provide direct use
benefits now or in the future (option benefits)
through the provision of raw material and may
be subject to quantitative depletion through
human use.
SEEAW asset classification
EA.13 Water Resources (measured in cubic
metres)
EA.131 Surface water
EA.1311 Artificial Reservoirs
EA.1312 Lakes
EA.1313 Rivers and streams
EA 1314 Glaciers, Snow and Ice
EA 132 Groundwater
EA.133 Soil Water
Asset accounts
Millions cubic metres
EA.131 Surface water EA.1314
EA.1311
Snow, Ice
EA.132 EA.133
Artificial EA.1312 EA.131
and Groundwat
Soil
Reservoirs
Lakes 3 Rivers
Glaciers
er
water
1. Opening Stocks
Increases in stocks
2. Returns from the economy
3. Precipitation
4. Inflows
4.a. from upstream territories
4.b. from other resources in
Decreases in stocks
5. Abstraction
6. Evaporation/Actual
7. Outflows
7.a to downstream territories
7.b to the sea
7.c to other resources in the
8. Other changes in volume
9. Closing Stocks
Total
Water resources
Surface water: water which flows over, or is stored on
the ground surface. It includes: artificial reservoirs,
lakes, rivers and streams, glaciers, snow and ice.
Groundwater: water which collects in porous layers of
underground formations known as aquifers
Soil water: water suspended in the uppermost belt of soil,
or in the zone of aeration near the ground surface, that
can be discharged in to the atmosphere by
evapotranspiration
Water in oceans, seas and
atmosphere
…..not recorded in terms of stocks but only in
terms of flows.
For example, abstraction from the seas, collection
of precipitation, outflows to the seas,
evaporation/evapotranspiration etc.
Fresh and non-fresh water
Water resources include fresh and brackish
water.
Brackish water can be used with or without
treatment for some industrial uses or for
irrigation purposes for some specific crops
Water resources can be further disaggregated
into fresh and brackish water
Stocks for rivers
It is not easy to define.
The stock of a river should be measured as the
volume of the active riverbed determined on
the basis of the geographic profile of the
riverbed and the water level.
This quantity is usually very small compared to
the total stocks of water resources and the
annual flows of rivers.
It can be avoided computing the stocks of rivers
Matrix of transfers within the
environment
Destination:

Origin 
EA.1311 Reservoirs
EA.1312 Lakes
EA.1313 Rivers
EA.1314 Snow, Ice and
Glaciers
EA.132 Groundwater
EA.133 Soil water
nflows
from
other
esources in the territory
EA.131 Surface water
Outflows
to other
EA.1314
EA.133 resources
Snow,
EA.1311 EA.1312 EA.1313 Ice and
EA.132
Soil
in the
Reservoirs
Lakes
Rivers
territory
Glaciers Groundwater water
Valuation of Environmental
Assets
• Why value environmental assets?
• Definitions of environmental assets
• Asset boundary between SNA and SEEA
• SNA asset classification
• SEEA asset classification
• Methods of valuation
• Net present value
• Other methods
• Example: Valuing Water
Why value environmental
resources?
Efficient and equitable allocation of resources among
competing users, both
• within the present generation
• between present and future generation
Efficient and equitable infrastructure investment in the
resource sector (how much, where, when)
Design of economic instruments: pricing, property
rights, taxes on depletion and degradation
Helps to ensure that the environment is included in
decision-making
Assets in the SNA
For an asset to be included in the SNA it must
have:
• An identifiable owner who enforces
ownership rights
• Be able to produced economic benefits for
the owner by using or holding them
AN.1 Produced assets
AN.11 Fixed assets
AN.111 Tangible fixed assets
AN.1114
SNA
Environmental
Assets
Cultivated assets
AN.11141
Livestock for breeding, dairy, draught etc.
AN.11142
Vineyards, orchards and other plantations
AN.112 Intangible fixed assets
AN.1121
Mineral exploration
AN.12 Inventories
AN.122 Work in progress
AN.1221
Work in progress on cultivated assets
AN.2 Non-produced assets
AN.21 Tangible non-produced assets
AN.211 Land
AN.2111
Land underlying buildings and structures
AN.2112
Land under cultivation
AN.2113
Recreational land and associated surface water
AN.2119
Other land and associated surface water
AN.212 Subsoil assets
AN.2121
Coal, oil and natural gas reserves
AN.2122
Metallic mineral reserves
AN.2123
Non-metallic mineral reserves
AN.213 Non-cultivated biological resources
AN.214
Water resources
AN.22 Intangible non-produced assets
AN.222 Leases and other transferable contracts
Assets in SEEA
• SEEA expands the definition in the SNA to
cover all environmental assets used whether
they are owned or not provided
EA.1 Natural resources
EA.11 Mineral and energy resources (cubic metres, tons, tons of oil equivalents, joules)
EA.12 Soil resources (cubic metres, tons)
EA.13 Water resources (cubic metres)
EA.14 Biological resources
EA.141 Timber resources (cubic metres)
SEEA
EA.142 Crop and plant resources, other than timber (cubic metres, tons, number)
Environmental
Assets
EA.144 Animal resources, other than aquatic (number)
EA.143 Aquatic resources (tons, number)
EA.2 Land and surface water (hectares)
EA.21 Land underlying buildings and structures
EA.22 Agricultural land and associated surface water
EA.23 Wooded land and associated surface water
EA.24 Major water bodies
EA.25 Other land
EA.3 Ecosystems
EA.31 Terrestrial ecosystems
EA.32 Aquatic ecosystems
EA.33 Atmospheric systems
Memorandum items: Intangible assets related to environmental issues (extended SNA codes)
AN.1121 Mineral exploration
AN.2221 Transferable licences and concessions for the exploitation of natural resources
AN.2222 Tradable permits allowing the emission of residuals
How to value
SNA is very clear
• Market price should be the basis of
valuation
• Where market prices are unobservable or do
not exist then economic theory may be used
to determine a “shadow price”
Shadow price
• The true economic PRICE of an activity: the
OPPORTUNITY COST. Shadow prices can be
calculated for those goods and SERVICES that do
not have a market price, perhaps because they are
set by GOVERNMENT. Shadow pricing is often
used in COST-BENEFIT ANALYSIS, where the
whole purpose of the analysis is to capture all the
variables involved in a decision, not merely those
for which market prices exist.
Source: The Economist
www.economist.com/research/Economics/alphabetic.cfm?letter=S#shadowprice
Options for valuation –
SNA and SEEA
SNA
• Market price
• Net present value
• Cost of production (provides a lower bound)
SEEA describes
• SNA methods
• Revealed preferences
• Stated preferences
Net present value
The net present value of future expected
earning can be used to determine asset
values
Net present value calculation
• Net present value (NPV) of expected future
income streams
n
RR
t=1
(1+r)n
Vt = Σ
Where V=NPV, RR = resource rent, r = discount rate, n =asset life
Net present value calculations:
resource rent
• Resource rent – the value of the flow of
capital services provided by a natural asset.
• RR = (p-c)*Q
Where RR = resource rent, p = unit price, c = unit cost
(including wages, intermediate costs, normal return to
produced capital, and taxes), Q = quantity extracted
Net present value calculations:
asset life
• This is the amount of time that the asset will
continue to exist, given current rates of extraction
Asset life =
Volume of stock t1
Volume extracted t0 – t1
Net present value calculations:
discount rate
• Choosing an appropriate discount rate
is crucial to the NPV calculation. An
area of debate
• Rate used differs between countries
• The higher the discount rate, the lower
the NPV
Concerns about using ‘non-market
valuation’ techniques
1. Accuracy of values and cost of
valuation
2. Consistency of value concepts with
SNA
3. Aggregation: scaling up site-specific
values
Accuracy of non-market
valuation
• Data requirements are very high, so valuation is
costly
• Value is often uncertain, very sensitive to
assumptions
• Results are often presented as a range of values
rather than a point estimate, a single value
• Values are most reliable for water used as input to
• agriculture,
• hydroelectric power and other uses where
water is a major component of production costs
Concepts of value
Consistent with the SNA?
In principle, SNA measures market values, or
sometimes cost of production
Many valuation techniques were developed for CostBenefit Analysis of projects (not national
economy):
• CBA often tries to measure of economic
welfare (total economic value) not market price
• Programming models measure values in an
optimizing economy which usually differs from
actual economy
Aggregation and national
accounts
• Some values highly site-specific, dependent
on local uses, as well as season, water quality
and reliability
• Values are not amenable to ‘benefits
transfer’—using an estimate from one case
study for another area
• Little experience scaling up local values to the
national level
Revealed Preference
(based on observed market preferences)
Residual value
Marginal contribution of water to output, measured by
subtracting all other costs from revenue
Production function approach
Marginal contribution measured as the change in output
from a unit increase in water input in a given sector
Optimization models and programming
Marginal contribution measured as the change in
sectoral output from reallocation of water across the
entire economy
Hedonic pricing
Price differential paid for land with water resources
Opportunity Cost
Price differential for alternative (example: replacing
hydroelectric power with coal-fired electricity)
Stated Preference
(based on surveys of willingness to pay)
Contingent Valuation Method
• Survey of users, especially household water
use and recreational services
Valuing water and treating it an
economic good has strong support
• In Integrate Water Resource management
• 2002 World Summit on Sustainable
Development in Johannesburg
• 2003 Third World Water Forum
• 2006 World Water Development Report
• Human Development Report 2006
Beyond scarcity: power, poverty and the
global water crisis
SNA values water at price of
transaction. There are some prices
for water, so why may it be
inappropriate use these?
• Because the price charged by water suppliers—if any—is
often unrelated to value of water, and may be too low
• ‘Bulky’ commodity (very high transport costs relative to
value inhibiting trade)
• Water price often does not even reflect full costs of water
supply
• Water is not supplied by competitive markets due to
natural characteristics
• Necessary for human survival
• Natural monopoly
• Characteristics of public good
• Property rights not always well defined for multiple use
or sequential use
Some markets for trading water
rights are developing
• Australia,
• California
• Chile
• but still uncommon, local
Price of tradable water rights does not yet provide a reliable
indicator of value because markets too ‘thin’ (too few
traders)
So we must estimate or impute economic value of water
Most commonly used water
valuation techniques
Agriculture
Frequency of
water valuation
studies
Most common
application
Manufacturing
Uncommon
Hydroelectric power
Consumer good
Waste assimilation
services
Common
Common
Common
Most common methods used
Residual value (and variations)
Production function
Programming models
Production function, programming
Programming models, opportunity
cost
CVM, programming models
Cost of prevention, Benefits from
damages averted
Residual Value (Value Marginal Product)
The easiest & most commonly applied valuation
technique
TVP 
pw 

piqi  p w q w
TVP   p i q i
qw
where
TVP = Total Value of the commodity Produced
piqi = the opportunity costs of non-water inputs to
production
pw = value of water (its marginal product)
qw = the cubic meters of water used in production
Non-water inputs include:
intermediate inputs, labor, capital costs, land
Challenges to Implementing
Residual Value Technique
• Is the quantity of water measured accurately?
• Is labor cost accurate—how to value unpaid family labor?
• Value of land—minus water rights
• Capital costs
• Are all capital costs accounted for accurately?
• What rate of return to capital should be used?
• Are there other inputs that have not been included?
• Do the prices of output & all inputs reflect true economic
value, or are they distorted?
Example: Agricultural water use in
Namibia (Stampriet area)
Farm revenue & costs (in 1999 Namibia $)
Data source
Gross farm income
$ 601,543
Output x market prices from survey
Inputs of goods and services
$ 242,620
Inputs x prices from survey
Value-added, of which:
$ 358,923
Compensation of employees
$ 71,964
Gross operating surplus, of
which:
$ 286,959
Imputed value of farmers’
labour
Wages paid + in-kind payments from survey
$ 48,000
Imputed based on average salary of hired farm
manager
Depreciation
$ 66,845
Depreciation rates x Farmers’ estimated cost of
capital in survey
Cost of working capital
$ 17,059
Imputed as % of the value of fixed capital
Cost of fixed capital including
land, 3% -7%
$75,739 to $176,724
Based on farmers’ estimated cost of capital
reported in survey
Residual value of water
$79,316 to -$21,669
Amount of water used (m3)
Residual value N$/m3
154,869
$0.51 to -$0.14
Farmers’ “best guess;” water is not metered
Net present value of hydropower
& geothermal in New Zealand
4,000
Geothermal
3,500
Hydropower
3,000
2,500
2,000
1,500
1,000
500
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
0
1987
Million NZ$
4,500
Approach Environmental Valuation
Cautiously
Value consistent with SNA: include all values
but indicate type of value and robustness
Accuracy/uncertainty: start with major uses
that are easiest to value & indicate range of
values
Aggregation: implement valuation at
local/river basin level
Asset value: begin with resources with single
or few uses that can be easily valued
Acknowledgement
Many thanks to Glenn-Marie Lange for allowing me to use some material from
her presentations
Glenn-Marie Lange
Senior Research Scholar
The Earth Institute at Columbia University
Center for Economy, Environment and Society
2910 Broadway, Room 110
New York, New York 10025
Cell phone: 1-718-290-0454
Phone: 1-212-854-3533
Fax: 1-212-854-6309
http://www.earthinstitute.columbia.edu/cgsd/lange.html