Speaker ： Dr. Chang-Erh Chou November 5, 2009

1. International Symposium on Green Technology and Professional CultivationEnvironmental Accounting: National and Corporate Perspectives Speaker： Dr. Chang-Erh Chou November 5, 2009

2. Contents Introduction The National Accounts –SNA The 2003 SEEA Corporate Environmental Accounting Reasons for Developing Corporate Environmental Accounting Scope of Corporate Environmental Accounting Linkage between National and Corporate Environmental Accounting Concluding Remarks

3. Introduction In the past few decades, there were increasing concerns about the sustainability of the environment, and about the impact of the economy on the environment. Since then efforts have been made in integrating the environmental and economic statistics at both of macro- and micro- levels.

4. Introduction Environmental accounts at macro level or national level are also known as green national accounts. Green national accounts are the information systems that link environmental and economic data at the national level.

5. Introduction Despite of various terms for the environmental accounts at the micro level or corporate level, it has become common to refer to as the corporate environmental management accounting (EMA). Corporate level of environmental accounting can help companies better track the costs and benefits associated with their environmental performance.

6. Introduction According to International Federation of Accountants, EMA is “the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices. While this may include reporting and auditing in some companies, environmental management accounting typically involves life-cycle costing, full-cost accounting, benefits assessment, and strategic planning for environmental management.”

7. The National Accounts – SNA The national income accounts (the System of National Accounts, SNA) are a system of economic data to show the performance of the economy as a whole. Indicators such as gross domestic product (GDP), national income (NI), personal income (PI) are calculated in the SNA.

8. The National Accounts – SNA In fact, GDP and other macroeconomic indicators are measures of economic output, but they are used as if they measured welfare. Some believe that conventional macroeconomic measures send incorrect signals because they do not take into account the impacts of economic activities on the environment (see the figure on next page).

9. The National Accounts – SNA Air Emissions Air Emissions The Economy Labor Production Consumption Man-Made Capital Products Intermediate Inputs Natural Resources Wastewater, Solid Waste, Hazardous Waste, etc. Wastewater, Solid Waste, Hazardous Waste, etc. The Environment

10. The National Accounts - SNA Some argue that the SNA should be modified so that the importance of the environment to the economy and the impact of the economy on the environment can be clearly shown.

11. The National Accounts - SNA Although, it is possible to develop environmental accounts independent of the SNA. However, after many efforts, economists found it will be easier to disaggregate environment-related expenditures (for example, environmental protection expenditures) within the conventional national accounts system . In doing so, an economy as a whole can calculate the environmental protection cost, and make environmental policy decisions base on these information.

12. The National Accounts - SNA Other experts are more interested in the physical data of the environment, instead of monetary data of existing environmental activities. Thus external satellite accounts are built in parallel with the SNA. The external satellite accounts can show the physical quantities of natural resources used and the quantities of pollution emitted in the economy.

13. The 2003 SEEA Environmental accounts at the national level were constructed by Norway in the 1970s, and were adopted by other European countries such as Netherlands, France. Due to the concerns of their natural resources, the early environmental accounts are developed to track use of natural resources (forests, fisheries, energy, and land).

14. The 2003 SEEA Base on the concept discussed earlier, the conventional national accounts have been expanded to incorporate the environment. It is known as “the System of Integrated Environmental and Economic Accounting (SEEA)”. The 1993 SEEA was the first environmental accounting work built from the outset consistency with the SNA.

15. The 2003 SEEA The 1993 SEEA was published due to the efforts put by the United Nations Environment Program (UNEP) and the World Bank. Later the 1993 SEEA was revised by the London Group, a technical body consisting of national statisticians, and UN Statistical Commission. The revised version is known as the 2003 SEEA.

16. The 2003 SEEA The SEEA is a satellite account to the SNA. The 2003 SEEA consists of two major account systems, internal and external satellites. The internal satellite accounts show the transactions related to the environment, which are covered by the existing SNA.

17. The 2003 SEEA The internal satellite accounts particularly interested in economic activities and products associated with the environment. The activities of interest specified in the internal satellites are as follows: • Environmental protection activities • Natural resources management and exploitation activities • Environmentally beneficial activities • Minimization of natural hazards

18. The 2003 SEEA The external satellite accounts are the main components of green national accounts representing and organizing the environmental statistics. The external satellite accounts go beyond the current national accounting system by including various flow and asset accounts for natural resources and residuals (such as air pollutants, water pollutants, solid wastes).

19. The 2003 SEEA The first group of accounts in the external satellites is the physical supply and use tables for natural resources and residuals. The external satellite accounts not only provide the physical amount of natural resources and residuals, but also provide the value of environmental degradation, natural resources depletion, and natural resources services.

20. The 2003 SEEA One of the main uses of the external accounts is to use these values to generate environmentally adjusted aggregates. In principle, Green GDP = GDP - degradation - depletion + natural resource services

21. Corporate Environmental Accounting Environmental awareness and regulation require firms conducting more environmental protection activities. In order to improve environmental performance and to control costs, firms need more environmentally related information to make decision. Conventional accounting cannot provide the needed information, thus the corporate environmental accounting has been established since 1990s.

22. Reasons for Developing Corporate Environmental Accounting Many stakeholders are concerned about the impact of corporate activities on the environment. For example, internal stakeholders (employees and managers) might be affected by pollution in the work place, or could affect the company’s activities. Another example, large companies require their supplier to comply with international environmental regulation.

23. Reasons for Developing Corporate Environmental Accounting The environmental pressure is forcing companies to look for cost-efficient methods to manage and minimize environmental impacts. Environmental compliance costs are large and are increasing for many firms. In order to improve the environmental performance, firms need information systems for tracking the associated costs.

24. Scope of Corporate Environmental Accounting According to Japan Environmental Accounting Guidelines (2005), elements considered in their corporate environmental accounting are as follows: 1. Environmental Conservation Costs 2. Environmental Conservation Benefits. 3. Economic Benefit Associated with Environmental Conservation Activities

25. Scope of Corporate Environmental Accounting Scope of Japan Corporate Environmental Costs Source: Environmental Accounting Guidelines 2005, Japan

26. Scope of Corporate Environmental Accounting Base on UN “Environmental Management Accounting Procedures and Principles”, Environmental costs and revenues are categorized as follows: 1. Waste and emission treatment (depreciation for related equipment, maintenance and operating materials and services, related personnel, fees, taxes, charge, fines and penalties, insurance for environmental liabilities,provisions for clean up costs, remediation)

27. Scope of Corporate Environmental Accounting 2. Prevention and environmental management (external services for environmental management, personnel for general environmental management activities, research and development, extra expenditure for cleaner technologies, other environmental management costs) 3. Material purchase value of non-product output (raw materials, packaging, auxiliary materials, operating materials, energy, water) 4. Processing costs of non-product output (sum of different environmental expenditures) 5. Environmental revenues (subsidies, awards, other earnings)

28. Linkage between National and Corporate Environmental Accounting National Level Green National Income Accounting Environmental Accounting Natural Resource Management and Exploitation Expenditure Environmental Protection Expenditure Corporate Environmental Management Accounting Corporate Level Corporate Environmental Financial Accounting

29. Concluding Remarks The internal satellite accounts of green national accounts record the economic activities related to environment. These statistics are provided by firms and households. Firms need corporate environmental accounting to collect accurate information. The cost of natural resources management and exploitation at firm level should be included into the corporate environmental accounting. Thus the accounting system of macro- and micro- levels can be consistent.

30. Thank You for Your Attention Dr. Chang-Erh Chou d9166@tier.org.tw