Noritoshi Ariyoshi Faculty of Environmental Studies Nagasaki University The Development of Japanese NAMEA International Workshop for Interactive Analysis on Economy and Environment Cabinet Office, Government of Japan, 4 March 2006 The Purpose of Accounting is not Compilation itself but Application to Policy

2 CONTENTS 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan 2. Japanese SEEA : Outline and the controversial points 3. Japanese NAMEA : Outline, Features, and Indicators 4. Issues for the Future

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4  92 ～ 00: Trial Estimation on Japanese SEEA based on version Ⅳ.2 of UN’s SEEA93*, (maintenance cost approach) *SEEA is an acronym for System for Integrate Environmental and Economic Accounting. *See United Nations (1993) for SEEA93 *See United Nations (2003) for SEEA Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan (see Table 1)

5  98 ～ 03 ： Trial Estimation of Japanese EPEA* based on SERIEE-1994 Version (98-00),and Supply and Use Table for Environmental Protection Services based on Chapter 5 of UN’s SEEA2003* (00 ～ 03) *EPEA is an acronym for Environmental Protection Expenditure Account *See Eurostat (1994) and Chapter 5 of United Nations (2003), for EPEA 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan (see Table 1) (continued)

6  01 ～ 03 ： Design and Trial Estimation on Japanese NAMEA based on original NAMEA* by the Netherlands. *NAMEA is an acronym for National Accounting Matrix including Environmental Accounts. *See de Haan M. and S.J. Keuning (1996) and Chap. 2, 4 etc. of United Nations (2003) 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan (see Table 1) (continued)

7  04 ～ 06: 1) Application of Japanese NAMEA to Policy Analysis (research on interactive analysis on economy and environment) 2) Pilot Study on Regional (Prefectural) NAMEA 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan (see Table 1) (continued)

8 CONTENTS 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan 2. Japanese SEEA : Outline and the controversial points 3. Japanese NAMEA : Outline, Features, and Indicators 4. Issues for the Future

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10 1)It’s based on version Ⅳ.2 (Maintenance cost approach) of UN’s SEEA93, 2)Maintenance cost approach is indirect valuation method which evaluates environmental pressure by imputed cost needed if some environmental measure is taken. (1) Outline of Japanese SEEA 2. Japanese SEEA : an Outline and the Controversial Points

11 3)Maintenance cost approach chooses one of possible environmental measures, and calculates imputed environmental cost as follows: 4)Imputed environmental costs ＝ (maintenance costs / eliminated environmental pressures)× national total of environmental pressures. 5)EDP ＝ NDP － Imputed environmental costs. (EDP: Environmentally adjusted net Domestic Products) (1) Outline of Japanese SEEA (continued)

12 1)If NDP has larger growth rate than imputed environmental cost, EDP is increasing while imputed environmental cost is increasing. Therefore, EDP is not adequate indicator for sustainability. 2)We need other indicators such as OECD’s decoupling indicator. (2) What does EDP indicate?  Does Larger EDP bring more sustainable economy ?

13 1)Choice of environmental measures : Different imputed environmental costs are derived by what kinds of environmental measures are chosen. 2)Zero-emission principle : Imputed environmental costs are calculated from a point of view of zero-emission principle. (3) What kinds of problems does maintenance cost approach cause?

14 3)Simple calculation by cost-per-elimination: It does not take account of increasing cost caused by increasing volume of elimination. 4)Maintenance cost approach as a model : This approach is a model and different from ordinary data estimation. If imputed environmental costs are actually paid by producers and consumers, various economic data would be affected Greened economy GDP! From Japanese SEEA to Japanese NAMEA ! (3) What kinds of problems does maintenance cost approach cause? (continued)

15 1)It gives a sketch of actual environmental cost which producers and consumers have to pay if abatement policy for environmental pressure is actually taken 2)Japanese SEEA using maintenance cost approach is an economic accounting which incorporates the response of producers and consumers to environmental policy. (4) What do imputed environmental cost calculated by maintenance cost approach mean ? (I thank Prof. Sakuma for his helpful suggestions)

16 3)It gives an interesting policy analysis to simulate influences on various economic activities when producers and consumers pay actually imputed environmental cost in response to environmental policy. * See Ariyoshi, Sakuma and Taniguchi, 2006 (4) What do imputed environmental cost calculated by maintenance cost approach mean ? (continued)

17 CONTENTS 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan 2. Japanese SEEA : Outline and the controversial points 3. Japanese NAMEA : Outline, Features, and Indicators 4. Issues for the Future

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20 1) It is based on the original NAMEA* by the Netherlands, estimates for 90, 95, and 00 * NAMEA : National Accounting Matrix including Environmental Accounts. 2) It has twofold parallel structure: national accounting matrix (NAM) at monetary term and environmental accounts (EA) at physical term. 3) It has twofold structure of EA : substance accounts and environmental problem accounts. 3. Japanese NAMEA : Outline, Features, and the Problem (1) Outline of Japanese NAMEA

21 (2)Features of Japanese NAMEA to original NAMEA 1)It attaches the stock accounts to capital accounts and records the various social capitals and environmental protection plants. 2)It estimates the emission of pollutions not only by households, but also by the government. 3)It introduces the land use accounts. 4)It adds coal, forests, water, and fish to the category of natural resources.

22 (2)Features of Japanese NAMEA to original NAMEA 5)It records the depletion of natural resources in the rest of the world caused by imports. 6)It records the hidden material flows induced by domestic activities and imports. 7)It attaches the stock accounts to parts of the environmental theme accounts. Damage from environment to us is caused by deteriorated environmental assets. See page 11 of my paper (continued)

23 1) Stock accounts 7) Stock accounts 3) Land use accounts 4) Natural resources accounts 5) Depletion by imports 2) Emission of pollution by household and government 6) Hidden material flows Features of Japanese NAMEA to original NAMEA

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25 (3)Remarks on Japanese NAMEA 1)EA (environmental accounts) part of NAMEA is recorded in physical term. Therefore, it includes no problems on monetary valuation. 2)Does EA give sufficient information to make environmental policy? In order to adequately understand environmental problems and those priority and to make environmental policy, is it unnecessary to estimate the monetary costs to eliminate environmental pressures and the monetary damage cost caused by environmental pressures?

26 (3)Remarks on Japanese NAMEA 2)(continued) For example, Physical data on the environmental pressure not necessarily represent the seriousness of the environmental issue See page 12 of my paper 3)It would be important to have both physical and monetary environmental data (continued)

27 EP: Environmental Pressures DF: Driving Forces ( ex. GDP ) Closing DF ／ Opening DF Closing EP ／ Opening EP ) X 100 EEII ＝（１ －  EEII ≧ 0 ⇒ EP’s growth rate ≦ DF’s growth rate ⇒ ”Environmental efficiency is improving”  EEII ＜ 0 ⇒ EP’s growth rate ＞ DF’s growth rate ⇒ ”Environmental efficiency is deteriorating” (4)Environmental Efficiency Improvement Index (EEII)

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29 (5)Remarks on EEII 1)EEII represents the relationship between economic activities and environmental pressures. 2)OECD calls this type of index "decoupling indicator." 3)EEII does not represent strong sustainability because environmental pressures may be larger than sustainable flow level even if environmental efficiency is improving.

30 (5)Remarks on EEII 4)EEII is flow indicator and not stock indicator. Stock of EP (environmental pressures) is increasing as long as EP occurs every year, even if EP’s growth rate is on the downward trend ( EEII is on the upward trend) year by year. 5)Therefore, the stock of EP probably increases over the sustainable stock level of EP. EEII is efficiency indicator, not necessarily adequate indicator for sustainability. (continued)

31 (6)Hicks’ Income and Indicator for Sustainability 1)Hicks’ Income is a maximum of weekly outlay which the economic situation at week beginning can be still sustained at the week end. It is ex- ante concept and give a guideline for prudent behavior. 2)Hicks’ Income suggests, as a sustainable indicator, a maximum of National Income which the environmental stocks at beginning of year can be still sustained at end of year.

32 (6)Hicks’ Income and Indicator for Sustainability 3)Can we calculate, at beginning of the year, a maximum use of environmental stocks as a sink of pollutants and as a source of natural resources which the environmental stocks at beginning of year can be still sustained at end of year? 4)Use of environmental stocks is a debt for environmental stocks. We have to use environmental stocks according to plan, as same as financing (borrowing and repaying) on bank (continued)

33 CONTENTS 1. Overview of Research Activities on Environmental Accounting in Cabinet Office of Japan 2. Japanese SEEA : Outline and the controversial points 3. Japanese NAMEA : Outline, Features, and Indicators 4. Issues for the Future

34 4. Issues for the future 1)Further improvements of the precision of estimation on Japanese NAMEA. 2)Development of regional version of Japanese NAMEA. Pilot study of Regional NAMEA starts from )Development of stock indicators which represent strong sustainability. 4)Application of Japanese NAMEA to policy analysis. Purpose of Japanese NAMEA is not compilation itself but application to policy.

35  International exchange of information and experiences is extremely useful.  In this respect, I would extend my best thanks to the ESRI and JRI (Japan Research Institute) for organizing this workshop and giving me the opportunity of this presentation. Closing remarks