Depletion of renewable resources

2. Depletion of renewable resources London Group Meeting, December 2007

3. Options for identifying the income element of resource rent • SEEA Box 10.1 • A1. All resource rent represents income • A2. No resource rent represents income; it is all a decline in the value of the resource • A3. Part of the resource rent represents a decline in the value of the asset and part is income

4. Options for identifying the income element of resource rent • Option A3 accepted in Johannesburg • but how does this apply to renewable natural resources? • if depletion of natural resources reduces income, should growth of renewable natural resources be considered additions to income? • does ‘depletion’ relate to the full amount of the harvest of the renewable natural resource, or just the net reduction in stock?

5. Renewable resources • Characteristics • able to replace harvested stocks through natural growth • if used sustainably in production, will last in perpetuity • can be exhausted if used unsustainably in production

6. Depletion of non-renewable resources • SNA - in an economic sense, depletion is the reduction in the value of a resource as a result of physical removal and using up of the resource • fairly straightforward when applied to non-renewable resources such as minerals and petroleum, etc.

7. Depletion of renewable resources • SEEA - possible to integrate values of extraction (harvest) and natural growth into a more meaningful measure of sustainability • 'adjusted' measures (of output, income etc.) could indicate whether a renewable resource is being depleted through its use in production • no change to balance sheet treatment

8. Valuing SEEA depletion • using SNA accounts as a template • value of net natural growth recorded as 'other non-market output' in the Production account • value of extraction recorded as 'consumption of natural capital‘ (depletion) in Production account • 'excess' position represents an addition to (or subtraction from) value added • operating surplus & saving change by 'excess' amount in income accounts • additions and ‘disposals’ of non-produced non-financial assets recorded in Capital account • net lending is unchanged

9. Net natural growth of renewables – an addition to output? • Natural growth (less natural mortality) • not output in strict SNA sense • but see SNA ‘cultivated assets’ • human influence over natural growth • often an expectation that natural growth will ultimately be harvested • symmetry with depletion of renewable natural resources

10. Depletion of renewable natural resources • Depletion of renewable natural resources • is the decline in value of the resource stock due to extraction (harvest) • equivalent to consumption of natural capital • shown as a charge against production and income • synonymous with SNA concept of consumption of fixed capital (COFC)

11. Depletion of renewable natural resources, continued… • Depletion (consumption of natural capital) applies to both renewable and non-renewable natural resources

12. Measuring income • the operating surplus of any unit using natural resources in production can be split into returns to the produced assets used and returns to non-produced assets • the return to the owner of natural resources in production is resource rent (RR) • RR can be further split into a return to the owner of the resource and a measure of depletion of the natural resource being used

13. Decomposing income: non-renewable natural resources

14. Decomposing income: renewable natural resources

15. (1) Calculating RR - SNA

16. SNA treatment (1) • Following do not appear in production account: • natural growth • natural mortality • charge for depletion

17. SNA treatment (1) • Resource rent entirely attributed to income – no charge for depletion (CONC) • even though the renewable natural resource stock is diminishing.

18. Use of renewables - adjusted income • when RR is adjusted to include net natual growth as output, and depletion (CONC) as a charge against income, a more informed picture of the income of the producer is provided

19. (2) proposed RR and income

20. (2) proposed RR and income, continued… • Adjusted resource rent incorporates: • net natural growth as an addition to output • Adjusted resource rent split between: • depletion (harvest); and • income.

21. (2) proposed RR and income, continued… • As harvest continues to exceed net natural growth, this is reflected as a negative adjustment to income. • i.e. a charge for using up renewable natural capital

22. Questions… • For renewable natural resources, should SEEA accounts: • include net natural growth as an addition to output? • treat the value of harvest as consumption of natural capital (depletion)? • view (adjusted) resource rent as made up of income and depletion components?