Better budgeting with environmental accounting

The Australian Bureau of Statistics has produced national accounts data for more than 50 years and it provides consistent statistics for tracking of the health of the economy and informing decision-making including the federal Budget.

But there’s a crucial piece of the puzzle missing: data on the health of our environment is not included in national accounts. And we are all poorer for it.

A good system that needs improvement

On May 12 the federal budget will be delivered by treasurer Joe Hockey. This technically and politically complex task is supported by large amounts of economic and social information and a battery of analysts.

At the heart of the economic information is the National Accounts – which, among other things, gives us the aggregate of GDP.

National accounts data provides detail on how particular industries are performing (for instance, mining and agriculture) as well as how income is distributed and used –- whether money is spent on consumption, invested or saved.

These accounts are supported by the regular collection of primary data and are complemented by other information, such as employment and inflation, and conforms to a general macro-economic theory. Some information on society comes from the national accounts (for example, the incomes and wealth of people) and this is augmented with other metrics, such as population growth and sector-specific measures, like waiting times in the emergency departments of hospitals.

Analysts in Treasury and elsewhere examine the economy and society determining where things can be improved via government intervention and the funding of particular policy initiatives. The Department of Finance estimates the cost of different policies examining impacts on income and outlays.

In the end, analysts, bean counters and politicians come together to hammer out what will be included in the budget. A system informed by information and analysis with political judgement used to assess the inevitable trade-offs.

All things considered a good system.

But it does not consider the environment.

While the productivity of particular parts of the economy – take agriculture for example – is dependent on the health of the environment, changes in environment health are invisible in the national accounts.

Similarly impacts of the economy on the environment or human health due to pollution, are also hidden.

Piecemeal data scattered across the system

Data do exist on water quality, land cover, biodiversity, air pollution and so on, but it is scattered across the public, private and academic sectors and are seldom brought together.

The five-yearly State of the Environment Reports are weighty tomes but are too infrequent to support policy fine-tuning and the data included in the reports varies enormously from report to report.

It does not have to be this way.

Environment information can be integrated with economic and social information via national accounts. This is increasingly being done by business through “integrated reporting” and, since 2012, is something the UN has urged through the System of Environmental-Economic Accounting. International standardisation was a long time coming, with the process beginning in 1992, but it is important. It means that technical details are no longer a barrier to adoption and use.

Indeed, environmental accounting has been touted in a range of government reports and in 2013 the SEEA was recommended by the Bureau of Meteorology in the Guide to Environmental Accounting in Australia. Others such as the Wentworth Group of Concerned Scientists and Sustainable Business Australia are also supporting accounting approaches.

Significantly, earlier this month the Australian Bureau of Statistics published the second edition of the Australian System of Environmental-Economic Accounts. These accounts are imperfect and are not yet comprehensive. For example, they do not show how the condition of the environment is changing and what impacts this is having on national wealth and income. They do, however, contain a range of environmental information linked to economic information and the picture painted is mixed, as this figure shows:

Most startling is the massive increase in the generation of solid waste compared to other measures of environmental pressure. Waste levels in 2012-13 were one and half times greater than in 1996-97 and grew faster than the OECD average and the Australian economy as measured by GDP.

This deserves more analysis but it immediately points to waste generation being a standout issue. The increase is much more than a headache for landfill operators. It implies inefficiency in resource use and unnecessary emissions of greenhouse gases. A shame then that the ABS has had to discontinue its work on waste.

The Clean Energy Regulator produces data on the amount of greenhouse gas emissions prevented from going into the atmosphere through the Direct Action reverse auctions that began this month. The cost-effectiveness of this approach for reducing greenhouse gases in the atmosphere compared to alternatives is already a key topic of discussion. Comprehensive environmental accounts could reveal not only the benefits and costs of carbon sequestration but also other possible changes, for example to water quality and biodiversity conservation. This would help priority-setting and also allow future polices to be designed to deliver a range of environmental benefits.

Environmental accounting is still developing but work to date shows that it is possible to produce linked environmental, economic and social information.

With the groundwork done, there is now a significant opportunity to populate the accounts fully and factor the environment into the budget along with economic and social information. With a well-designed user interface, environmental accounts can provide clear and consistent information to better inform a multitude of government and business decisions.

Until this happens, important decision-making processes such as the Commonwealth Budget will continue to take insufficient account of the environment and its role in the economy and society. Almost certainly we will be worse off for it.

Michael Vardon was employed by the Australian Bureau of Statistics and has consulted to the United Nations and World Bank on environmental accounting. He is a member of the World Bank's Policy and Technical Expert Committee supporting the Wealth Accounting and Valuation of Ecosystem Services (WAVES) project.

Peter Burnett is a member of the Australian and New Zealand Society for Ecological Economics (ANZSEE), a branch of the International Society for Ecological Economics (ISEE).