Environmental protection expenditure: Sources and methods

Environmental protection expenditure The environmental protection expenditure account (EPEA) presents information on the amount of expenditure by central and local government on activities whose primary purpose is the prevention, reduction, and elimination of pollution and other forms of degradation of the environment (United Nations, 2014, para 4.12). The estimates currently produced are experimental, as further work is required to align available data to the conceptual framework of SEEA. The account is also partial, as the scope of the account needs to be expanded to cover the market sector. EPEA is an environmental activity account. A fully developed EPEA closely follows the concepts, definitions, and accounting rules and structure of the core national accounts to facilitate comparisons with economic statistics. EPEA aims to enable identification and measurement of society’s response to environmental concerns through the supply of and demand for environmental protection services, and through the adoption of production and consumption behaviour aimed at preventing environmental degradation. EPEA provides information on the output of environmental-protection-specific services produced across the economy. EPEA can therefore be used to analyse the extent of environmental protection activities and to assess how expenditure on environmental protection is financed. The accounts can also be used to derive indicators for highlighting change in key areas, such as the expenditure on pollution prevention and abatement, the contribution made by environmental protection activities to the economy, and the shift to pollution-preventing technologies. Analytical extensions of EPEA include evaluating the influence of environmental protection costs on (domestic or international) competitiveness, implementing the ‘polluter pays’ principles, and determining the cost-effectiveness of environmental control mechanisms. EPEA may also be analysed alongside the environmental taxes account to examine the extent to which different economic agents internalise the actual costs of environmental protection in their decision-making, and the extent to which different economic instruments prevent environmental degradation. The analytical value of EPEA can be enhanced by comparing it to biophysical data, such as the amount of waste treated or the quality or quantity of air emissions. Central government Central government environmental protection expenditure is sourced from the government finance statistics produced by Stats NZ. Data are based on departmental expenditure (obtained via the Crown Financial Information System (CFIS)) for those departments whose primary purpose is to provide environmental protection. Government expenditure in the government finance statistics is classified according to the Classification of Function of Government. Central government EPE cannot be disaggregated by type of environmental protection as the data is fit for purpose only at the total environmental protection expenditure level. Government final consumption expenditure for units whose primary purpose is to provide environmental protection is used as a measure of environmental protection expenditure for central government. As output is performed on a non-market basis, it is valued as the sum of costs in the absence of a market price. Final consumption expenditure has been calculated as the sum of intermediate consumption, compensation of employees (which includes salaries and wages, Accident Compensation Corporation (ACC) levies, employer superannuation contributions, and fringe benefits), indirect taxes, and accounting depreciation. Measuring non-market output, or output for own use, requires excluding non-production expenditure items such as interest, grants, and subsidies that are in the government finance statistics. Gross fixed capital formation is the additions less disposals of fixed assets. It includes, among other items, furniture, computer software and hardware, land improvements, transport equipment, non-residential buildings, other construction, and plant, machinery, and equipment. Estimates are in current prices, exclusive of GST, and therefore reflect increases in unit costs as well as real output. Local government Final consumption expenditure and gross fixed capital formation are compiled using the same definitions used for central government environmental protection expenditure. Estimates are in current prices, exclusive of GST, and therefore, reflect increases in unit costs as well as real output. Information on these five environmental protection categories are included. Wastewater includes sewerage network (including mains), reticulation of sewage, sewerage treatment: oxidation ponds and on land disposal, stormwater (the water that runs off surfaces such as roads, driveways, footpaths, and rooftops). Also includes culverts and open drains. Excludes land drainage in non-urban areas as this should be included in land and soil management. Solid waste/refuse includes collection and disposal (aftercare, landfill operations, street and roadside rubbish bins), and recycling collection and recovery (recycling centres, reusable materials depots, and roadside recycling). Air and water quality includes any measurement and analysis of air and/or water quality and education. Land and soil management and river control includes shelter belts, management of contaminated sites, and soil conservation to reduce erosion. For non-urban areas, includes any drainage of the land (eg, run off), flood protection schemes and river control functions, maintenance, works, and monitoring. Pest management includes both animal and plant. Pests are defined as organisms that are capable of causing, at some time, a serious adverse and unintended effect on people and/or the environment and can include rabbits, stoats, birds, possums, feral goats, wasps, and invasive weeds and pest plants. Local government financial information is collected by ‘activity’ (eg, stormwater, environmental protection, solid waste) through the local authority census (LAC). This activity data, for the categories described above, are available for both final consumption expenditure and gross fixed capital formation. Final consumption expenditure includes: consultants, experts, and legal advice insurance premiums employee costs (salaries and wages, ACC levies, and superannuation contributions) depreciation and amortisation purchases and other operating expenditure indirect taxes. The estimates of depreciation and amortisation from LAC are based on financial accounting concepts. Under SEEA, economic depreciation should be used. However, we expect the effect of this to be small. The concepts being applied to the environmental-accounting estimates differ from those applied to local authority statistics. LAC’s definition of environmental protection includes non-production expenditure items, such as interest payments, subsidies, and grants, which are excluded for environmental accounting purposes. The local government component includes data from regional councils, unitary authorities, city councils, and district councils. Data are based on June years available from 2009, reflecting the availability of data by environmental protection category. References United Nations (2014). System of Environmental-Economic Accounting 2012 – Central framework (PDF, 4.40MB). en-NZ