ENVIRONMENTAL ACCOUNTING IN THE PHILIPPINES

By Romulo A. Virola, Sylvia M. De Perio and Eduardo T. Angeles

Presented during the Users Forum on Environmental Accounting Skytop, Hotel Intercontinental Makati City 29 June 2000

TABLE OF CONTENTS

LIST OF FIGURES

I.

INTRODUCTION .............................................................................................................1 1.1 1.2 1.3 What is Environmental Accounting? .....................................................................2 Rationale for Environmental Accounting ...............................................................2 Environmental Efforts in the Philippines: The ENRAP and ENRA Projects .......................................................................................................4

II.

THE SNA AND ENVIRONMENTAL ACCOUNTING ....................................................6 2.1 2.2 2.3 Overview of the SNA ..............................................................................................6 Production and Consumption Activities and the Environment ............................8 Valuation of Environmental Goods and Services .................................................8

III.

THE ASSET ACCOUNTS ..............................................................................................9 3.1 3.2 Physical Accounts ................................................................................................10 Monetary Accounts ..............................................................................................10

IV.

THE ECONOMIC ACTIVITY ACCOUNTS ..................................................................11 4.1 4.2 Emission Accounts ...............................................................................................11 Valuation of Emissions ........................................................................................11

V.

APPLICATIONS AND POLICY USES OF ENVIRONMENTAL ACCOUNTING ..............................................................................................................12 5.1 5.2 Asset Accounts ....................................................................................................12 Economic Activity Accounts ................................................................................17

VI.

INSTITUTIONALIZATION OF ENVIRONMENTAL ACCOUNTING IN THE PHILIPPINE STATISTICAL SYSTEM AND OTHER FUTURE ACTIVITIES....................................................................................................21 6.1 6.2 6.3 Institutionalization..................................................................................................21 PEENRA Framework ............................................................................................22 Improvement in Methods ......................................................................................22

REFERENCES

LIST OF FIGURES Figure 1. Figure 2. Figure 3. Figure 4. Figure 5. Figure 6. Figure 7. Figure 8. Figure 9. Resource rent and taxes from forestry, fishery and gold mining in the Philippines, 1988-1993. .................................................................................14 Resource rent and taxes from forestry in the Philippines, 19881993. .........................................................................................................................15 Resource rent and taxes from fishery in the Philippines, 19881993. .........................................................................................................................15 Resource rent and taxes from gold mining in the Philippines, 1988-1993. ...............................................................................................................16 Emission of particulate matters by industry in the Philippines, 1993 ..........................................................................................................................17 Cost of reducing particulate emissions by industry in the Philippines, 1993......................................................................................................18 BOD emission by industry in the Philippines, 1993 ...............................................19 Costs of reducing BOD emissions by industry in the Philippines, 1993 ..........................................................................................................................19 Economic contribution and environmental burden by industry in the Philippines, 1993................................................................................................20

ENVIRONMENTAL ACCOUNTING IN THE PHILIPPINES1 By Romulo A. Virola, Sylvia M. de Perio and Eduardo T. Angeles2

I.

INTRODUCTION

Human development paradigms seek to enlarge human choices. But these choices must not compromise the development of future generations. In the pursuit of progress, therefore, man who is dependent on the environment to provide the raw materials and energy to produce goods and services, the sink for the absorption of waste from human activities and other amenities such as landscape and natural habitat must learn to strike a balance between the degradation of the environment and the depletion of natural resources on the one hand and economic growth and development on the other.

Deforestation, soil erosion and pollution are some of the problems brought forth by human activities undertaken for economic growth and development. To address worsening environmental problems and foster integrated environmentally sound development, international organizations like the United Nations (UN) organized fora such as the Conference on the Human Environment in 1972, the World Commission on Environment and Development (WCED), or the Brundtland Commission created in 1987, and the first International Conference on Environment and Development, or the Earth Summit participated in by more than 100 heads of state in Rio de Janeiro, Brazil in 1992. During the summit, the assembled leaders adopted Agenda 21, a 300-page plan for achieving sustainable development in the 21st century. One of the objectives of Agenda 21 is to

integrate environmental issues to development policies. Specifically, it seeks to consider the effects of economic activities on the environment and the cost of environmental degradation and depletion. In short, Agenda 21 stresses that economic policies should be held accountable for whatever it brings to the environment. It emphasizes the importance of integrating natural resources constraints and environmental damages in measures of economic development. This requires that environmental and economic problems be

Presented during the Users Forum on Environmental Accounting held on 29 June 2000 at the Skytop, Hotel Intercontinental, Makati City, Philippines. Secretary General, Division Chief and Analyst, respectively, of the National Statistical Coordination Board, Philippines

analyzed within a common framework, such as that provided by an environmental and natural resources accounting framework. 1.1 What is environmental accounting? Environmental Accounting is short for environmental and natural resource accounting (ENRA). It is also referred to as green accounting, resource accounting, and integrated environmental and economic accounting. It refers to the compilation of data relating to the environment and natural resources into an accounting framework organized in terms of stocks and flows, and the interpretation and reporting of these data.

The production of goods and services is made possible through the use of assets or capital such as land, equipment, etc. Environmental accounting is a relatively new concept which aims to include in the traditional measurement of economic development the cost for using the environment as inputs to production and as a sink for wastes. From the point of view of environmental accounting, land, water, and other natural resources are treated as inputs and assets in the production of goods and services of a country. Environmental

accounting therefore estimates the cost of the use of natural resources and its environmental functions and segregates the portion of total expenditures of the various economic sectors spent for protecting and preventing the decline in the quality of the environment. ENRA seeks to track changes in the quantity as well as in the quality of natural resources and the environment over a specified period of time. These changes may be estimated both in physical and monetary terms. Environmental accounting also allows the estimation of environmentally adjusted product and income accounts although some countries like Canada (Statistics Canada 1997) have decided not to calculate environmentally-adjusted net domestic product because further data development, research and professional discussion are needed before environmentally adjusted aggregates gain credibility. Rationale for Environmental Accounting3 The Philippines is gifted with a wide area of dense forests, home to a wide variety of fauna and flora, providing for clean water and fresh air. Through the years, rapid economic development, industrialization, creeping urbanization and rising population gave rise to the demand for forest products. Areas classified as forest were quickly exploited and others were converted to other uses to support the demands of the economy and the population. What used to be clean environment became polluted. Elsewhere, similar stories can be told.

1.2

This section draws from the NSCB pamphlet: The Economy, the Environment and Sustainable Development.

The unabated exploitation of earths natural resources and the resulting degradation of its environment created a heightened level of awareness and concern for the environment among many nations. A paradigm shift subsequently occurred and national policies and programs gave more emphasis on sustainable development, the monitoring of which requires indicators generated by a framework on environmental and natural resources accounting.

The traditional way of measuring the economic growth of a country is through the Gross National Product4 (GNP) and Gross Domestic Product5 (GDP). Guidelines for the compilation of these traditional measures are provided in the System of National Accounts (SNA)6 which has been adopted by many countries. However, the macro-economic indicators generated by the core accounts of the SNA do not reflect the costs of using the environment nor the depletion and/or degradation of a countrys natural assets. In recognition of this shortcoming, the latest version of the guidelines, the 1993 SNA, provides for the compilation of satellite accounts on the environment through which the traditional measures may be enhanced to reflect the interrelationship between the economy and its environmental and natural resources.

With environmental accounting, the state of the environment can be assessed how much resources are available to us, how much renewable resources are being consumed, how fast nonrenewable resources are being depleted, the quality of the environment and the remaining resources, their economic importance/value and how much is spent by man for the protection of the environment. Through environmental accounting, it is possible to reveal economic distortions in the production and consumption activities resulting from subsidies granted to economic activities that are heavily dependent on the environment for waste absorption and natural resources for raw materials.

GNP is an estimate of the total value of goods and services produced during a given period of time by the nations residents, regardless of where these are produced. GDP is the total market value of all final goods and services produced within a country in a given period. The 1993 SNA is the latest of such guidelines prepared under the auspices of the InterSecretariat Working Group on National Accounts of the Commission of the European Communities - Eurostat, the International Monetary Fund, the Organization for Economic Co-operation and Development, the United Nations and the World Bank.

The environmental accounts can be used to develop sound and sustainable national polices. Economic policies, for example, can be formulated with due consideration to the capacity of the environment to supply the demand for raw materials; pollutive industries could be regulated while those that are not pollutive could be prioritized and given trade incentives. Environmental accounting would also provide indicators on how much the

government is earning by way of taxes for the use of our natural resources and how much of it goes directly to the private sector as profit.

Environmental accounting is thus a necessary tool to attain a balance between economic progress and the preservation of the environment and our natural resources. Concern for this balance will ensure the formulation of economic policies and programs geared towards the sustainability of our development aspirations. 1.3 Environmental Efforts in the Philippines: The ENRAP and ENRA Projects Compared to many other countries, environmental accounting in the Philippines has had a long history. The Philippines is thus one of the pioneers in this field and with its accomplishments to date (Virola and De Perio 2000), is clearly way ahead of most countries in the Asia Pacific region.

ENRAP: Pioneers of environmental accounting in the Philippines

Environmental accounting in the Philippines started in 1991 when the US Agency for International Development approved the Natural Resource Accounting Project (ENRAP), a four-phased project of the Department of Environment and Natural Resource. The first phase of the project developed the forest accounts; the second assessed the importance of households as a major source of air and water pollution, with implications on the investment required for managing solid waste disposal; the third revealed a higher degree of depreciation for renewable rather than non-renewable resources and the need for a concerted pollution management effort involving not only various sectors of society but several agencies as well; while the last phase concentrated on the institutionalization and policy use and application of environmental accounts.

The National Statistical Coordination Board was a partner in the implementation of the project by providing technical support specifically on the SNA concepts and methods, doing some of the ENRAP estimates, attending the training and discussions on environmental account estimates conducted by the project, acting as resource persons on

the UN System of Integrated Environmental and Economic Accounting (SEEA)7 framework and serving as consultant to the project. The NSCB expertise on environmental accounting was clearly enhanced by its participation in ENRAP.

IEMSD-ENRA: Pilot of the SEEA in the Philippines

At the end of 1994, the Integrated Environmental Management for Sustainable Development (IEMSD) Programme, funded by the United Nations Development Programme (UNDP), was launched. Environmental accounting, using the SEEA framework, was one of the main sub-programmes of the project. The NSCB was the lead agency on environmental accounting and led the development of the Philippine version of the SEEA, known as the Philippine System of integrated Environmental and Economic Accounting (PSEEA). Among the many achievements of the subprogramme is the compilation and subsequent publication (NSCB 1998a and NSCB 2000) of environmental accounts covering five resources (fishery, forest, minerals, land and water resources) and fourteen economic activities in agriculture, fishery and forestry (4), manufacturing (7), mining (1), electricity generation (1) and land transport services (1). The compilation of these environmental accounts was made possible through intensive training workshops aimed at developing and enhancing the capabilities of the NSCB Staff and other concerned government agencies. The said accounts were

presented on more than one occasion to various stakeholders from the government, private and non-government organizations for comments and suggestions. In addition, the project has produced a draft Manual on Sources and Methods for the PSEEA (NSCB 1998b). ENRA II Project: Institutionalization of the PEENRA System Following the gains achieved during the ENRA Subprogramme, the second phase of the project was launched in June 1998. The project focuses on the continuous development and enhancement of capabilities to conduct environmental accounting in areas of data generation, planning and policy making and institutionalization the projects foremost objective. Achievement of these goals would create greater awareness and the eventual acceptance and mainstreaming of environmental accounting and the indicators generated from it. The potential of these accounts to contribute greatly to policy formulation and

economic-environmental planning would also be realized upon institutionalization.

The SEEA was developed by the UN Statistical Division (UNSD) to serve as the operational framework for the development of satellite environmental accounts to the SNA.

Aside from the efforts to compile the environmental accounts at the national level, the NSCB has embarked on pilot activities at the sub-national level. Regional and provincial environmental accounts are currently being developed in the Cordillera Administrative Region (CAR) under the NSCB Regional Unit and Palawan through the Palawan Council for Sustainable Development Staff (PCSDS), respectively. These accounts would provide better economic-environmental indicators and a much clearer picture of the state of the environment at the regional and provincial levels. In these efforts, the collaboration among the NSCB, the PCSDS and the provincial government of Palawan has been an inspiring experience on the strength that synergy synthesizes.

Definitely one of the highlights of the ENRA II Project is the International Workshop on Environmental and Economic Accounting to be held in September 2000 in Manila. This activity which is being organized by the NSCB with funding support from the United Nations Statistics Division, New York and the United Nations Development Programme, Manila, will provide a forum for the sharing of experiences on environmental accounting among ASEAN countries as well as other countries within the Asia-Pacific region. The workshop will

culminate with the organization of the Manila Group which would facilitate discussion of issues towards the development of environmental accounting in the region.

II.

THE SNA AND ENVIRONMENTAL ACCOUNTING As has been emphasized earlier, to fully understand the relationship of the economy

and the environment and the desired balance between the two, it is necessary to develop additional indicators to complement the macroeconomic aggregates provided by the central framework of the SNA.

2.1

Overview of the SNA The SNA is a comprehensive accounting framework based on internationally

accepted definitions, classifications and accounting rules (United Nations 1993). As a set of consistent, coherent and integrated macroeconomic accounts, balance sheets and tables, it allows for the compilation and presentation of economic data for purposes of economic analyses, decision making and policy formulation. Aside from presenting information on economic activities, the SNA also provides the level of an economys productive assets and wealth at any particular point of time.

These capabilities notwithstanding, there are certain limitations of the central framework of the SNA.

An inherent limitation of the SNA is its inability to account for natural assets that fall outside its asset boundary. In the SNA, natural assets are included only if they provide economic benefits to the owner through the control of an institutional unit.8 This would mean explicit ownership that is subject to government regulations and availability of market price. Under this restriction, naturally occurring assets such as land, mineral deposits, forests, flora and fauna can be included in the balance sheets provided that institutional units are exercising ownership rights over them and economic benefits could be derived. Similarly occurring natural assets, where ownership rights cannot be enforced and where only noneconomic benefits could be derived are not included in the SNA, disregarding the potential of these natural resources in an ecological point of view as well as their contribution to the wealth of a nation. Services provided by the environment, such as fresh air, sink for wastes, natural filtration and detoxification of soil, water and air, are likewise not covered by the SNA.

In environmental accounting the asset boundary is defined to be much wider. In principle, all natural assets are accounted for including those needed in the production activities and those that may be affected by economic activities. The SEEA (United Nations 1999), for example, does not distinguish between natural assets that are economic assets as defined in the SNA and those that are not, focusing on environmental impacts regardless of institutional ownership and/or control.

Effectively, the SEEA asset boundary differs in two ways from that of the SNA. First, the SEEA recognizes a much broader range of land and natural resources than the SNA. In the SNA, only those land areas and natural resources that bring economic benefits to the current population are recognized as assets. In contrast, the SEEA considers the future benefits that could be derived from a particular resource in identifying assets, whether for the current or for future generations. This way, the SEEA effectively incorporates the basic principle of sustainable development - the needs of the future should not be compromised as a result of the decisions made today. This would imply that, for example, possible or

speculative sub-soil reserves would be considered as environmental assets under the SEEA, whereas the SNA recognizes only the proven sub-soil reserves as assets. Likewise, the SEEA explicitly considers all land on the basis that it might one day provide benefits

In the 1993 SNA, the institutional sectors are financial corporations, non-financial corporations, general government, non-profit institutions serving households and households.

even if it does not today, compared to the SNA which limits natural land assets to those areas over which ownership has been established and that can be put to economic use.

The second way in which the SEEA asset boundary is distinguished from the SNA is the extension to include ecosystems in addition to land and natural resources. Ecosystems are included because they provide a variety of services that bring indirect benefits to humans such as cleansing of polluted air and water.

2.2

Production and Consumption Activities and the Environment The SNA records the value of all production and consumption activities of man for a

given period of time. The environmental accounts are concerned with these human activities which are associated with either production or consumption or both and its effect on the environment. It is important to note that environmental accounts do not extend the boundaries of the production and consumption activities in the same manner as it extends the asset boundary. Rather, environmental accounts record and measure the contributions of the environment (through environmental goods and services) to the economy and the impacts of human activities to the environment. As such, environmental accounts would establish a direct linkage between the environment and mans economic activities.

2.3

Valuation of Environmental Goods and Services One of the salient points of environmental accounting is the valuation of

environmental goods and services, which is not done in the central framework of the SNA. The market value-approach, which the SNA uses to value all economic transactions, covers only natural assets that have an economic value and does not cover the environmental assets that provide environmental services, nor the environmental functions of the economic assets for which there is no market price.

In the SEEA, the effects of the degradation and depletion of the environment and natural resources which form part of the social costs of economic growth and development, are given monetary values using three valuation approaches: market valuation of natural resources as followed by the SNA, maintenance valuation of environmental assets and contingent valuation of environmental services.

The market valuation used in giving value to the depletion of natural resources and their degradation identifies changes in the market value of these assets which are accounted

for in the conventional asset accounts of the SNA as other changes in volume. Thus, the SEEA shifts these volume changes from other volume changes in the asset accounts to the production accounts. While market valuation can be applied to stocks of non-produced but marketed tangible assets such as land, it may not be applicable to stocks of many depletable scarce natural assets such as subsoil assets which are rarely sold or bought and therefore have no clear market price. In these cases, the SEEA (United Nations 1999) offers three approaches: the net present value method, the net-price method and the user-cost allowance.

Market valuation does not apply to non-economic assets (in the SNA sense), i.e. , to environmental assets which provide environmental services. For these assets, maintenance cost valuation is used. Maintenance cost is defined as the cost that one would have to incur for a certain period of time in order to avoid current and future environmental deterioration from the impacts caused by economic activities during that period. It can be preventive in nature, measuring the cost of implementing measures to prevent environmental degradation or curative, measuring the cost of treating wastes. It should be noted, however, that maintenance cost does not refer to the actual environmental damage caused by an economic activity.

While the hypothetical maintenance cost of keeping environmental assets intact focuses on the direct impact of production, contingent valuation approaches measure the loss of environmental services or environmental damage from the demand side. They account for the costs borne by economic agents and the welfare effects borne by households due to environmental degradation. Contingent cost measures willingness to pay for potential environmental benefits or for the avoidance of their loss. Among various efforts in this direction, the ENRAP approach of the Philippines goes the farthest in integrating valuation of non-marketed services of the environment (Hecht 1998).

III.

THE ASSET ACCOUNTS Environmental assets are natural assets that function as source of materials and

energy and/or provide environmental services for waste absorption, ecological functions (e.g. habitat, flood and climate control) and other non-economic functions such as for health or aesthetic values. This definition of environmental assets greatly extends the asset

boundary prescribed in the SNA to include all natural assets that are within the national territory or Exclusive Economic Zone (EEZ) of a country. The environmental assets in the

environmental asset accounts are expressed in physical and/or monetary terms.9 The asset accounts refer to the balance sheets of natural assets, highlighting the reasons for the changes in the stocks. These changes are classified into two main categories, those

resulting from economic decisions and those resulting from non-economic or natural reasons.

The asset accounts provide a means to measure or estimate depletion or nonsustainable use of natural assets and, whenever possible, the degradation of these resources due to production and consumption activities. Depletion of renewable resources occurs when the rate of logging (for forest) or harvesting (for fishery) exceeds the sustainable level of the resource stock. For non-renewable resources such as sub-soil assets, depletion refers to the amount of resources (minerals) extracted. On the other hand, degradation would refer to the deterioration in quality of natural assets, beyond safe absorption or regeneration by environmental media.

3.1

Physical Accounts Natural assets may be described in physical quantities using physical units of

measurements (e.g. hectares, tons, etc.). The physical accounts include records of changes in quantity and, to some extent, changes in the quality of resources - indicators of depletion and degradation. Physical accounts can be used to show the efficiency (or inefficiency) of economies in using the resources available to them and how these resources have changed through production and consumption activities. When combined with other indicators, such as the contribution of a particular sector to the economy and other environmental indicators, a set of environmental-economic profiles and eco-efficiency tables can be developed. Moreover, the physical accounts serve as basis for the valuation of environmental goods and services.

3.2

Monetary Accounts The monetary asset accounts are derived by the application of monetary unit values,

either market prices or estimated/imputed values, to the physical accounts. It records the value and the changes of the value of natural assets through time and the cost of environmental degradation. When the economic value of natural assets is compared with

The National Accounting Matrix including Environmental Accounts (NAMEA) framework of the Netherlands covers only physical data for environmental degradation.

10

other indicators, such as produced capital, it can address various concerns regarding sustainability and diversity of a nations wealth.

IV. 4.1

THE ECONOMIC ACTIVITY ACCOUNTS Emission Accounts Emission accounts record emissions, including discharges of wastes, from various

polluting sectors of the economy in physical terms. It is an integral part of quantifying and assessing the environmental degradation caused by various economic activities/sectors. Polluting sectors include industries, government, households including non-profit institutions and the rest of the world. The latter is introduced in the SEEA to capture the transboundary pollution transmitted through the pathways of air and water, or transported over land (and legally or illegally dumped abroad).

Through the Emission accounts, the most pollutive activities/industries and their wastes can be identified. These accounts can be expressed in physical and/or monetary terms. For the physical emission accounts, total emissions are obtained rather than the ambient concentration of pollutants. This is important to allow for the proper allocation of environmental costs, which is recorded in the monetary accounts, to the sectors that caused them.

4.2

Valuation of Emissions As with the valuation of environmental goods and services, maintenance cost

valuation is used to estimate the cost of emissions by applying the cost per unit of pollutant to the total emission recorded in the physical accounts. Through maintenance valuation, the most efficient (least-cost) practices and technologies used to mitigate or abate current emissions are reflected. Among the many indicators that may be derived from the monetary accounts, the cost of environmental degradation is useful in providing a wide range of possible tools for policy applications.

11

V.

APPLICATIONS AND POLICY USES OF ENVIRONMENTAL ACCOUNTING Environmental accounting was triggered by the realization of the inherent weakness

of the SNA to generate indicators useful in monitoring the sustainability of a countrys development gains. It can play two broad roles (Lange 2000): a. a purely technical role, providing essential information to technical experts for monitoring and policy analysis; and, b. a broader, institution-building role by providing the framework and information system for more effective dialogue throughout government and society about environmental-economic possibilities.

Environmental accounts thus carry strong potentials as a policy tool, but being in an inchoate stage of methodological development, the foundation of environmental accounting is statistically weaker than the conventional SNA. Nonetheless, it is crucial to disseminate environmental accounts to explore important policy questions, to create additional political and social support for institutionalizing the accounts and to improve the data support (IUCN).

5.1

Asset Accounts Policy application of the asset accounts can be exhibited in three major areas: (1)

resource use management, (2) environmental policy and regulation; and, (3) fiscal policy.

Resource Use Management The asset accounts depict the state of the environment and natural resources. It gives an estimate of the value of forest, land, mineral, fishery and water resources, and of the changes in these values over time. The value of all natural assets can be summed over all resources to provide an indicator of the total natural capital in the country which can be compared with the manufactured capital of the country and, together with the measure of the annual cost of depletion will allow one to monitor how fast non-renewable resources are being used up and whether renewable resources are being used sustainably.

Through the information provided by the asset accounts, we can formulate appropriate policies and regulations for sustainable resource management practices without which, the greed of man will guarantee the over-exploitation and eventual exhaustion of our natural resources.

Using environmental accounts in resource use management could therefore help in two ways: (1) as a systems approach, it helps understand the interdependence of activities,

12

of economic and environmental considerations, and consequently of trade-offs; and, (2) in a pro-active approach, it is a useful indicator in determining the proper choice among different alternative courses of action (Lange 2000).

Environmental Policy and Regulation Effective environmental policies can be formulated using the asset accounts. Among them, are policies that guarantee sustainable management by prescribing limits to the amount that can be harvested and by levying fees to discourage over-exploitation.

Environmental accounts provide the basic data and framework with which to model a system-wide environmental policy. It can help in two ways; (1) reform environmental policies; and, (2) evaluate environmental policy effects.

Fiscal Policy Asset accounts can play a big role in governments revenue generation. First, given the economic value of resources, the economic cost of depletion and degradation of natural assets by different sectors of the economy would give information on the sustainability of these resources and the revenues that can be generated from such economic activities. That information in economics is called economic or resource rent the excess profit generated by individuals due to scarcity of resources, or the return to resource. Resource rent for a given asset is defined empirically as the difference between total revenue generated from extraction of the resource and all costs incurred during the extraction process, including the cost of produced capital, but excluding taxes, royalties and other costs that are not directly part of the cost of physical extraction (United Nations, etc. 2000).

Figures 1 to 4 (recalculated from Lange 2000) show the rent and recovery of rent through taxes in three resources, namely, forest, fishery and minerals. In all cases, very little rent is being recovered through taxes and other applicable fees (e.g. forest charges, rentals, etc.), except for mining in 1991 and 1992 (Figure 4).

The forestry sector dominates the generation of resource rent from 1988 to 1991. However, there has been a significant decline in the amount of rent generated since the implementation of the selective logging ban in 1992 (Figure 2). The decline in rent was such that taxes generated in 1992 and 1993 exceeded the rent generated through the forestry sector.

13

30,000

25,000

Total Rent Total Taxes

15,000

10,000

5,000

1988 1989 1990 1991 1992 1993

Figure 1. Total Resource rent and taxes from forestry, fishery and gold mining in the Philippines, 1988-1993. In Figure 3, an increasing amount of rent was generated from the fishery sector mainly due to an increasing amount of fish harvested. However, successful recovery of rent through taxes was not attained. Aside from this, the increase in rent poses questions on sustainability wherein total fish harvest may have exceeded the sustainable level. In Figure 4, a rapid decline in the resource rent generated from mining was observed from 1991 to 1992, a reaction attributed to the decline of the price of gold in the world market. Although the rent recovered through taxes has been very little, there was an

increasing trend from 1988 to 1993. As with the forest sector, taxes generated in 1992 and 1993 exceeded the rent generated.

14

25,000

20,000

million pesos

Forest Rent Forest Taxes

10,000

5,000

1988 1989 1990 1991 1992 1993

Data Source: NSCB 1998

Figure 2. Resource rent and taxes from forestry in the Philippines, 1988-1993.

6,000

Fishery Rent Fishery Taxes

million pesos

4,000

3,000

2,000

1,000

1988 1989 1990 1991 1992 1993

Figure 3. Resource rent and taxes from fishery in the Philippines, 1988-1993.

15

400 350 300 million pesos 250 200 150 100 50 1988 1989 1990 1991 1992 1993
Data Source: NSCB 1998

Mineral Rent Mineral Taxes

Figure 4. Resource rent and taxes from gold mining in the Philippines, 1988-1993.

Information on the amount of resource rent generated and subsequently recovered can help the government determine the level of taxes or subsidies that it could apply to various economic sectors. This is very important because revenue generation measures using economic instruments which do not benefit from the information provided by rent generation/recovery, can discourage investments. With information provided by the asset accounts, the resource rent generated can be used to attract investments. A portion of the rent generated could be reinvested in activities that would help generate profit once resources become exhausted or highly scarce10. On the other hand, taxes recovered can be used to provide abatement measures to protect the environment or in the form of subsidies to support other ventures. In this case, subsidies are meant to provide incentives to

encourage economic sectors to seek ways to lessen the impact on the environment of the wastes generated by production and consumption activities.

10

Non-renewable resources like minerals or renewable resources like fisheries that are harvested unsustainably will eventually be exhausted and the employment and income they generate will end.

16

5.2

Economic Activity Accounts The activity accounts may be used to show the use of resources by economic

activities by sector, the level of pollutants and degradation of the environment and expenditures for environmental protection services. Through these accounts, one can monitor the time trend of resource use, pollution emissions, the cost of environmental degradation and environmental protection expenditures. It helps resolve issues regarding the most effective measures to confront identified environmental problems. It will also help in assessing the relative importance of the various economic sectors in relation to its contribution to environmental degradation, through environmental-economic profile

indicators, called Eco-efficiency profiles.

An eco-efficiency profile provides ways of

comparing economic performance vis-a-vis environmental degradation by showing various indicators such as value-added, employment, cost of environmental degradation, etc.

In Figure 5, emission of particulate matter by industry is shown. The chart shows that the highest level of particulate matter emission in 1993 was recorded for cement and electric power generation. The lowest level of emission was recorded for tuna, textile and paint manufacturing.
80,000 70,000

metric tons of particulates

60,000 50,000 40,000 30,000 20,000 10,000 -

Tuna Canning

Textiles

Paint

Sugar

Cement Petroleum

Road

Electric Power

Household Transport

Note: Emissions of the Cement and Electric power industries were truncated at 80,000 in the graph; actual figures are 866,000 and 7,066,051 MT, respectively.

Source: Lange, G. M., 2000

Figure 5. Emission of particulate matters by industry in the Philippines, 1993

17

The cost of reducing emissions was estimated for five of these industries as illustrated in Figure 6. Comparing Figures 5 and 6 indicates that, excluding Electric power generation, the two largest sources of particulate matter emissions, Cement and Sugar, also provide the cheapest opportunities for reducing emissions. Industries that showed the lowest levels of emissions, such as Textile and Paint, entail a much higher cost to reduce emissions.

thousands of pesos per MT of particulates

7.00

6.00

5.00

4.00

3.00

2.00

1.00

Tuna Canning

Textile Industry

Paint Industry

Sugar Industry

Cement Industry

Source: Lange, G. M., 2000

Figure 6. Cost of reducing particulate emissions by industry in the Philippines, 1993 Similar figures for BOD are provided in Figures 7 and 8. In the said figures, the two largest sources of BOD, Aquaculture and Hog raising, also provide the cheapest opportunities for reducing BOD pollution.

In Figure 9, a picture of the overall economic contribution and environmental burden posed by each industry is shown. It shows the percentage contribution to total value-added of the industries covered, representing 15% of the total GDP in 1993 or P 225 billion, as well as their percentage contribution to environmental degradation. It can be seen that, percentage wise, the economic contribution is greater than the environmental burden in Fisheries, Food processing, Petroleum refining, and Road transportation sectors. On the other hand, environmental burden is greater than economic contribution for Gold mining, and Cement. The remaining industries show more or less equal percentage shares of economic contribution and environmental degradation.

18

600,000

500,000

MT of BOD

400,000

300,000

200,000

100,000

Palay Farming

Aquaculture

Hog Industry

Tuna Canning

Textile Industry

Leather Tanning

Sugar Industry

Source: Lange, G. M., 2000

Figure 7. BOD emission by industry in the Philippines, 1993

50 45 40 35 30 25 20 15 10 5 Aquaculture Hog Industry Tuna Canning Textile Industry Leather Tanning Sugar Industry

thousands of pesos per MT of BOD

Source: Lange, G. M., 2000

Figure 8. Costs of reducing BOD emissions by industry in the Philippines, 1993

19

60%

50%

% of Degradation % of GDP

40%

30%

20%

10%

0% Agriculture Fishery

Food Processing

Gold Mining

Textile

Tanning

Petroleum Refining

Paint

Cement

Source: Lange, G. M., 2000

Figure 9. Economic contribution and environmental burden by industry in the Philippines, 1993 In setting priorities for decision making, policy makers need to know not only the major sources of pollution, but also where limited resources will be most effective, i.e. where the greatest benefit from reducing pollution can be achieved for the least cost. Also,

information about relative economic contribution and environmental burden is essential for policy makers when identifying industries that will play a key role in the development strategy. If this information were not available, incentives to promote the growth of a specific industry, such as subsidies to the Cement industry, may result in levels of environmental damage that far outweigh apparent economic contributions. If the true cost is taken into account, that is, considering environmental cost, other industries might appear to be more economically efficient targets for preferential treatment unless existing technologies are replaced by more environment-friendly ones.

Road Transport

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VI.

INSTITUTIONALIZATION OF ENVIRONMENTAL ACCOUNTING PHILIPPINE STATISTICAL SYSTEM AND OTHER FUTURE ACTIVITIES Institutionalization

IN

THE

6.1

The NSCB plays a vital role in the institutionalization of environmental accounting in the Philippines. Being the agency mandated to develop, maintain and compile the national accounts, Executive Order No. (EO) 406 entitled Institutionalization of the Philippine Economic-Environmental and Natural Resources Accounting (PEENRA) System, signed on March 21, 1997, designated the NSCB to lead in the development and compilation of environmental accounting. Since then, the PEENRA Steering Committee (SC) and the PEENRA Inter-Agency Committee (IAC) have been meeting on a regular basis to implement EO 406.

Unfortunately,

the

manpower

and

financial

resources

needed

for

the

institutionalization of PEENRA by the NSCB and the other agencies where PEENRA Units would be established under EO 406 have not been provided.

In the meantime, the NSCB is spearheading the continuous development of environmental accounts covering several resources and various economic activities. Previous estimates compiled during the ENRA Subprogramme are currently being refined in accordance with current developments in environmental accounting. Also, capability building activities are being conducted to enhance the skills needed by the different agencies to compile the environmental accounts.

As part of the institutionalization process, NSCB shall also incorporate the regular publication of environmental accounts in the annual National Accounts Publication and recommend the incorporation of the environmental accounts in the system of designated statistics when the appropriate time comes. NSCB shall likewise integrate the relevant indicators coming from the environmental accounts to the other existing NSCB publications/ frameworks such as the Economic and Social Indicators (ESI) and the Philippine Framework for the Development of Environment Statistics (PFDES).

NSCB shall also continue its role in coordinating the PEENRA SC and IAC, as a venue towards further improvement of the PEENRA, as well as to popularize the use and applications of the PEENRA. In the same manner, NSCB shall keep on participating in the activities of the PCSD.

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6.2

PEENRA Framework The development of the PEENRA framework has only just begun. In this regard, the

NSCB shall be guided by the sentiment expressed during the London Group meeting in Canberra, and which has been strongly emphasized by ENRAP, on the need to transcend from a bookkeeping or descriptive accounting system towards a set of more managementoriented accounts which would provide a better-targeted basis for making decisions to improve the management of the environment.

Other aspects to consider in the development of the PEENRA framework are the availability of the SEEA 2000, which will be published in 2001 as the joint responsibility of four international agencies, the United Nations (UN), Organization of European Countries for Development (OECD), Eurostat and the World Bank, and the other features of the PEENRA framework as stated in the IRR of the EO 406.

The linkage with the local groups on environmental accounting such as ENRAP as well as with international groups such as the London Group, the soon to be organized Manila Group, and other international organizations such as the UNSD, ESCAP and FAO will be fully utilized in soliciting inputs towards the development and finalization of the PEENRA framework.

6.3

Improvement in Methods In our efforts towards the improvement of the PEENRA, we shall take into

consideration the experience of the international community particularly in the area of official statistics generated by statistical offices as well as the capability of the Philippine Statistical System to provide the data support needed. In this regard, we shall bear in mind the following problems associated with the constantly evolving concept of environmental accounting (Statistics Queensland):

A great deal of international disagreement about the correct way to prepare environmental accounts A great deal of international disagreement about methods for valuing natural resources in monetary and supposedly non-subjective terms and A lack of data currently available to feed into environmental accounts, and it is often an expensive task to define, collect and calculate the data required.

22

In the generation of environmental accounts there are two important outputs, the physical accounts and the monetary accounts, unlike the SNA which only produces the monetized accounts. Though there is already difficulty in computing the physical estimates of the environmental accounts due to non-availability of most of the required parameters, it is more difficult to come up with the monetary estimates. Most of the environmental goods and, especially services, are non-market output, hence valuation is a most contentious issue. It is for this reason that countries like Canada and the Netherlands opt to limit monetary valuation to natural assets and only the physical accounts are compiled for the environmental effects of production and consumption activities.

But, valuation has its uses and it is an added information tool for policy making. Hence, despite the controversies in valuing environmental goods and services, there is now a concerted effort towards the development of valuation methods. More studies and discussions are being conducted to analyze the different valuation methods available. A specific example is in valuing environmental goods such as forest, minerals, fisheries and water. Whereas the net price method used to be a favored methodology, now there is greater consensus in the international scene that the asset value method (or net present value) is a better methodology. This methodology was recommended by ENRAP even at the start of the implementation of the ENRA Subprogramme. In a workshop in 1996 attended by both NSCB and ENRAP representatives, it was agreed that NSCB would also apply the present value method to be able to compare the results of the two methodologies. Such activity will be undertaken after year 2000.

Development in other valuation methods such as contingent valuation is also ongoing. At the moment, there is apprehension on the part of the national accountants to use contingent valuation methodologies and they prefer alternative indirect methodologies such as the maintenance cost valuation. In the meantime, NSCB will consciously consider other methodologies towards the institutionalization of the PEENRA.

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REFERENCES Environment and Natural Resources Accounting Project (ENRAP) 1999. ENRAP Searchable Hyperlinked Electronic Library of Files (SHELF). Version 1. Hecht, Joy E. 1998. Environmental Accounting: Where are we now, where are we heading? Found at: http://www.iucn.org/places/usa/gai-wherehead.html. Access date: June 12, 2000. International Union for the Conservation of Nature. ___. Whats it all about. A pamphlet. Lange, G. M. 2000. Policy Uses of the PSEEA. Unpublished. National Statistical Coordination Board. 1998a. Philippine Asset Accounts: Forest, Land/Soil, Fishery, Mineral and Water Resources National Statistical Coordination Board 1998b. Philippine System of Integrated Environmental and Economic Accounting. Draft Manual on Sources and Methods. National Statistical Coordination Board. 1999. Sustainable Development. A pamphlet. The Economy, The Environment and Environmental Accounting:

National Statistical Coordination Board. 2000. Environmental Degradation due to Selected Economic Activities. Statistics Canada. 1997. Econnections. Linking the Environment and the Economy. Concepts, Sources and Methods of the Canadian System of Environmental and Resource Accounts. Statistics Queensland. Office of Economics and Statistical Research. Environmental Accounting. Queensland Government, Australia. Found at: http://www.statistics.qld.gov.au. Access date: June 8, 2000. United Nations. 1993. System of National Accounts. United Nations. 1999. Integrated Environmental and Economic Accounting an Operational Manual. Department of Economic and Social Affairs, Statistics Division. New York. United Nations, Eurostat, WB, OECD, and IMF (Draft) 2000. System of Environmental and Economic Accounts. Unpublished. Virola, R. A. and de Perio, S.M. 2000. ENRAP, NSCB and Integration of Environmental and Economic Accounts in the Philippine Statistical System. A paper presented during the Final ENRAP Conference February 3-4, 2000. Unpublished.