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a v a i l a b l e a t w w w. s c i e n c e d i r e c t . c o m

w w w. e l s e v i e r. c o m / l o c a t e / e c o l e c o n

Development of the SEEA 2003 and its implementation

Robert Smith
Environment Accounts and Statistics Division, Statistics Canada, 7-B, R.H. Coats Building, Ottawa, Canada K1A 0T6

AR TIC LE I N FO
Article history: Available online 17 November 2006 Keywords: SEEA 2003 Environmental accounting System of National Accounts Natural capital

ABS TR ACT
The preparation of the System of Environmental and Economic Accounts 2003 marks an important milestone in the world of official statistics. Just as the development of the original guidelines for national accounting in the 1950s was the first step toward today's robust, internationally comparable economic statistics, the System of Environmental and Economic Accounts 2003 offers hope to bring order and comparability to environmental statistics. How the system came to be and why it is an important achievement are outlined. This is followed by an overview of its accounting structure. A discussion of the implementation of the SEEA 2003, both in ideal terms and as actually practiced in statistical offices, concludes. 2006 Elsevier B.V. All rights reserved.

The preparation of the System of Environmental and Economic Accounts 2003 (SEEA 2003) marks an important milestone in the world of official statistics. Just as the development of the original guidelines for national accounting in the 1950s was the first step toward today's robust, internationally comparable economic statistics, the SEEA offers hope to bring order and comparability to environmental statistics. In what follows, we outline how the SEEA 2003 came to be and why it is an important achievement. This is followed by an overview of its accounting structure. We conclude with a discussion of the implementation of the SEEA 2003, both in ideal terms and as actually practiced in statistical offices.

1.

The origin of the SEEA 2003

The SEEA 2003's origins can be traced directly back to the international discussions that led to the creation of the 1993 edition of the international guidebook on national accounting, the System of National Accounts 1993 (SNA 93). The environment was not a central consideration in the development of the original system of national accounts in the 1940s and 1950s. That this is so was a source of concern, not least among national accountants, almost from the moment the first accounts appeared. Despite this longstanding concern, it was not until
Tel.: +1 613 951 2810. E-mail address: robert.b.smith@statcan.ca.

the preparation of the 1993 edition of the guidebook that any serious consideration was given to dealing with the environment in the national accounts. While some progress toward a more realistic view of the environment in relation to the economy can be noted in the SNA 93 in particular in the extension of the system's asset boundary to include some natural resources the handbook is far from ideal in this regard. Among other gaps, it fails entirely to account for the negative consequences of economic activity through pollution emissions, it does not go far enough in extending the asset boundary to include natural capital particularly ecosystem assets and it fails to work the extension of the asset boundary fully through all the potential consequences for the accounting system, including the possibility of adjusted figures for national product and savings. That the SNA 93 is only a modest step forward in treating the environment within the national accounts should not be taken as an indication that at least some of those who drafted it were not interested in going further. Indeed, considerable time and effort during drafting were devoted to discussing the environment and its proper treatment in the system. Yet, the drafters failed to find sufficient common ground to go further than the modest steps taken in the SNA 93. Recognizing the importance of moving forward on this set of issues, which, even in the late 1980s, was already decades-old, the decision was made to

0921-8009/$ - see front matter 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2006.09.005

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prepare a separate handbook of national accounting to deal with the integration of environment into the system. The United Nations Statistics Division was tasked with the preparation of the handbook, which appeared in 1993 as an interim publication under the title of Handbook of National Accounting: Integrated Environmental and Economic Accounting and with the acronym SEEA 1993 (United Nations, 1993).1 The SEEA 1993 represented the first international handbook on environmental accounting. As such, it was a landmark achievement. Its preparation showed that the international community was serious about the need to better integrate environment into the national accounts. This seminal work would not have been possible had it not been for the pioneering efforts of a few countries in preparing their own sets of environmental accounts in the 1970s and 1980s. Notable among these early national efforts were those of Norway (Alfsen et al., 1987; Alfsen and Graeker, this volume) and France (Theys, 1989). By the time the SEEA 1993 was being conceived in the early 1990s, there was a surge in environmental accounting activity at the national level. The few countries that had pioneered the effort were joined at this time by Australia, Canada, Denmark, Finland, Germany, Indonesia, Italy, Japan, the Netherlands, the Philippines, Sweden and the United Kingdom. The accounts developed by these countries differed from one another both conceptually and empirically, reflecting the varied environmental challenges faced by them and the differing expertise found in their statistical offices. Those endowed with significant natural resource wealth, like Australia and Canada, paid particular attention to the development of resource stock accounts. Countries with constraints on space for human activity, like Germany, were leaders in the development of land use and land cover accounting. Many countries devoted effort to compilation of pollution emission accounts, pollution being an issue of importance in nearly every nation. The Netherlands is often pointed to as a leader in this regard, having developed the socalled National Accounts Matrix including Environmental Accounts (NAMEA) system (De Haan et al., 1993). This system, which focused on the integration of economic statistics and pollution emissions statistics through inputoutput matrices, was widely promoted by the European Commission's statistical office (Eurostat) during the 1990s. As a result, it has become something close to a pan-European standard in pollution accounting. The appearance of the first version of the SEEA in 1993 did not, as one might expect, have an immediate effect on most national environmental accounting efforts. By 1993, many countries had already established environmental accounting programs and decided upon their own priorities. They took note of the SEEA 1993, but did not necessarily adjust their national efforts to align with it. Moreover, the SEEA 1993 was published as a set of international recommendations rather than as an international standard. As such, no country was obliged to

follow it.2 Nonetheless, several major efforts were made at implementing the SEEA 1993 in part or in whole. Japan and Germany undertook some of the most far-reaching of these efforts (Fukami, 1998; Brouwer et al., 1998). By the early 1990s activity in environmental accounting was advancing rapidly. Countries and international agencies were developing new and sometimes diverging concepts and methods and applying these in the elaboration of new accounts. The SEEA 1993 had provided some coherence to these efforts, but not enough in the opinion of many national statistics offices. There also remained considerable reluctance on the part of most national accountants to the adjustment of the central measures of the SNA 93 most notably Gross Domestic Product to account for environmental concerns. Given the SEEA 1993's focus on such adjustments, many were uncomfortable with pursuing its full implementation. Seeing the need to provide a forum for the exchange of country experience to encourage further development of environmental accounting, the statistical offices of Canada and the United Kingdom, along with Eurostat, proposed the creation of an international group on environmental accounting in 1992. The group was to bring together the leading agencies in the world on a voluntary basis to discuss and agree upon best practice in the concepts and methods. It met for the first time in London, England (Statistics Canada, 1994) and as a result came to be known as the London Group on Environmental Accounting.3 The London Group proved effective. All of the leading national and international agencies involved in environmental accounting at the time joined the group and have remained members ever since. Given that most of the international know-how in environmental accounting was found among its members, it was logical that the international community should look to the London Group when it came time in the late 1990s to reconsider the interim SEEA 1993. The United Nations Statistical Commission, at its session in 1998, formally requested the London Group to review the SEEA 1993 and to provide recommendations for its revision. The group formally began its review at its 1998 meeting in the French village of Fontevraud. Over the next 5 years, its members worked systematically to produce recommendations for a revised version of the SEEA that would align more closely with environmental accounting as it was practiced in national statistical agencies. The services of an editor expert in both national accounting and environmental accounting (Anne Harrison of the OECD) were engaged in 2001 to take the contributions of various national experts and turn them into a

1 We would be remiss if we did not recognize the three individuals most closely associated with this first version of the SEEA. These are Mr. Peter Bartelmus and Mr. Jan Van Tongeren, both then of the United Nations Statistics Division and Mr. Carsten Stahmer, then of the Federal Statistical Office of Germany.

2 In contrast, the System of National Accounts 1993 is an international standard sanctioned by the United Nations and several other international agencies. Countries must follow its guidelines if they wish their national accounts to be considered legitimate by the international community. 3 The London Group is one of a number of similar city groups formed by statistical agencies since the late 1980s. Each of these groups treats a particular area of statistics. Although they are independent bodies made up of countries that voluntarily contribute their expertise and finance their own involvement, the city groups report annually on their work programmes to the United Nations Statistical Commission.

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coherent handbook. The results of this collective effort, approved by the UN Statistical Commission in 2003, are what we know of today as the SEEA 2003. The SEEA 2003 comprises four categories of accounts. The first considers how physical statistics relating to flows of materials and energy can be built into accounts compatible with the SNA. Two types of accounts are described: exclusively physical accounts constructed according to the structure of the SNA (e.g., physical inputoutput tables) and hybrid accounts combining both physical and economic statistics. The accounts of this category are outlined in chapters 3 and 4 of the handbook. The second category of accounts (chapters 5 and 6) takes those elements of the existing SNA that are relevant to the good management of the environment and shows how the environment-related transactions can be made more explicit. An account of expenditures made by businesses, governments and households to protect the environment is an example of the accounts included in this category. The third category of accounts in the SEEA comprises accounts for environmental assets measured in physical and monetary terms. For example, timber stock accounts showing opening and closing timber balances and the related changes over the course of an accounting period are an example. These accounts are described conceptually in Chapter 7 of the handbook; empirical examples are presented in Chapter 8. The final category of SEEA 2003 accounts considers how the economic accounts of the SNA might be adjusted to account for the impact of the economy on the environment. Three sorts of adjustments are considered; those relating to depletion, those concerning so-called defensive expenditures and those relating to degradation. Chapters 9 and 10 cover this material. More is said about each of these four categories in the section below dealing with implementation of the system.

2.

Why the SEEA?

The collection and analysis of environmental statistics presents a challenge for developing and developed countries alike. Even in developed countries with mature statistical systems, environmental statistics can suffer from severe quality constraints. Most importantly, environmental statistics are often incomplete. For some issues, they are missing completely.4 These gaps prevent complete understanding of trends in the state of the environment and of the human activities linked to these trends. Even where gaps are not a major problem, other shortcomings can limit the usefulness of environmental statistics. It may be difficult to access the statistics because governments pay inadequate attention to their management and distribution. Sometimes governments are not the data custodians at all, but researchers or corporations. In these cases, access to the statistics by the public and by researchers may be even more difficult. Perhaps most frustrating for researchers, environmental statistics are much more than their economic and social
4 Obviously, the cases in which this is true differ from one country to the next. To name one example in Canada, there are essentially no national data describing the extent or quality of wetlands.

cousins subject to inconsistency and incoherence. They are inconsistent because they suffer from methodological and conceptual changes over time. These changes, which are rarely implemented backwards in time, limit the usefulness of environmental statistics in analysis. Environmental statistics are incoherent in that statistics on different environmental issues say greenhouse gas emissions and sulphur dioxide emissions cannot always be compared easily with one another. This is so for a number of reasons, the most common being that the statistics are compiled using different organizational structures and collection methods. In addition to the incompatibility of environmental statistics among themselves, their compatibility with economic and social statistics is limited. Environmental statistics cannot usually be combined easily with other statistics for example, in modelling frameworks. This further restricts researchers' ability to analyse the linkages between human activities and environmental quality. These limitations are such that environmental statistics have generally failed to realize their full impact, especially in the important world of public policy analysis. Before they will do so, environmental statistics must be made more complete, more readily accessible and more coherent, both among themselves and with economic and social statistics. It is to this challenge that environmentaleconomic accounting in general, and the SEEA 2003 specifically, attempts to rise. Rising to the challenge of integrated environmental statistics requires first and foremost a conceptual framework. This is what gives the information its internal logic and structure. In the absence of a well-founded framework, data collection is often ad hoc, being driven by the often narrowly focused interests of those who sponsor it. Such ad hoc collection the basis for most environmental statistics collection today may meet the specific needs of its sponsors, but will not generally meet the needs of a wide range of users. In contrast, statistics collected on the basis of a sound conceptual framework are more likely to be of wider relevance. The conceptual framework explains in theory the relationship between the variables measured in the system and the exogenous variables of interest to data users. That is, it offers a theoretically sound means of probing questions about the nature of interaction among a defined set of variables. It serves to explain why the variables found in an information system are there. Equally, it serves to explain why the system cannot be fully elaborated, and will not be fully useful, if some variables are missing. Thus, the structure provided by the framework gives the data compiler clear direction as to where and how he should focus his data collection efforts. This has the great advantage of ensuring that users get the information they need from the system. Just as importantly, it also ensures that they do not get information they do not need. The second challenge in creating integrated environmental information is comprehensiveness. A system that is comprehensive is one in which variables are fully measured in all their dimensions. Statistics with a regional dimension, for example, must be measured for all regions represented in the system. Statistics with an industrial dimension must be, likewise, measured for all industries. Comprehensiveness is a necessary precondition for relevance. If the statistics within

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the system do not cover all dimensions, they will be unable to answer all the questions the system was designed to address. Consistency is the third challenge. It refers to the need for the statistics within the system to be measured consistently over time. Consistent measurement ensures that trends in the statistics can be analysed meaningfully. Without consistency, analysts cannot be certain that trends apparent in the statistics represent real evolution of the variables in the system and not simply arbitrary movements due to changes in measurement methods. Of course, it is unavoidable that measurement methods change over time. Indeed, they must change if improvements in data quality are to be made. Such changes should not be allowed to disrupt the integrity of times series however. When they occur, effort is needed to revise and republish statistics compiled in earlier periods to reflect the new methods. In this way, the comparability of the statistics over time is maintained to the greatest extent possible. The final challenge is coherence. Two dimensions are relevant: coherence of statistics among themselves and their coherence with other sorts of statistics. Both are important, but the first is especially so. Internal coherence requires that the statistics within the system be comparable with each other. This in turn requires the use of consistent concepts and methods across the statistics within the system. (Internal coherence is really just another form of consistency.) For example, all statistics within the system that have an industrial dimension must be classified using the same classification of industries. Such internal coherence is essential if the statistics are to truly form a system; without it, they cannot aspire to much more than what ad hoc datasets offer in terms of analytical potential. External coherence is also a desirable, if not essential, characteristic in an information system. It exists when statistics from within the system can be meaningfully and easily combined and compared with statistics from other systems. Clearly, the challenge of creating integrated environmental information is not insignificant. It is reasonable to question whether the SEEA 2003, or any information system for that matter, is up to the challenge. While there is no guarantee that environmental statistics compiled according to the SEEA 2003 will be perfectly integrated, there are reasons to suggest that it offers considerable hope for improvement over the currently fragmented environmental statistics found in most countries. On the need for a clear conceptual framework, the authors of SEEA 2003 are careful to note that the system was not created to implement any particular framework. Nevertheless, they note that it is well-suited to implementation of measurement based on the concept of natural capital, which has emerged in the last 10 years as a rigorous and valuable framework for thinking about the environmenthumanity relationship (see, among many others, Pearce and Turner, 1990). On the questions of comprehensiveness and consistency, there is nothing in the SEEA 2003 per se that guarantees these two qualities. Whether they exist or not is really a question of the quality of implementation of the system. Two aspects of it will tend to drive implementation toward comprehensiveness and consistency however. One is simply the completeness of the accounting framework itself. Because the framework lays out very clearly what a full set of accounts should look like, it will be very apparent to anyone who inquires whether a given implementation is comprehensive or not. The other is the close

relationship between the SEEA 2003 and the SNA 93. Over many decades of effort, national accountants have established a record of preparing comprehensive and consistent statistics on the economy. This serves as an encouragement to those who implement environmental accounts to also strive for comprehensiveness and consistency in implementation. On the last question of coherence, the SEEA 2003 is likely to yield a considerable improvement over the current situation. Because of the internal logic and structure of the system, the environmental statistics compiled within it should have a high degree of coherence among themselves. As for external coherence, the close structural links between the SEEA 2003 and the SNA 93 mean that the environmental statistics of the former will be highly coherent with the economic statistics of the latter.

3.

Implementation of the SEEA

The SEEA 2003 is a large and complex system. Its full implementation is unlikely to be of interest to or within reach of most national statistical agencies today. Indeed, no country has implemented the complete system, although a few countries (Australia, Canada, Denmark, Germany, Italy, New Zealand and Norway) have implemented accounts that cover many of the system's categories. That no country has yet (or may ever) implement the whole of the SEEA 2003 should not be interpreted as a criticism or taken as a reason for concern about its relevance. Many might be surprised to learn that the SNA 93 is also not implemented in anything like its entirety in most countries. Even among leading statistical offices, some parts of the SNA 93 are implemented only sketchily. This reflects the fact that economic conditions vary among countries and the need for economic information varies along with them. The system was conceived in its entirety because of the need to define in conceptual terms what a complete, integrated national accounting system should look like not because many countries actually need such a system. Although each of its elements is of interest in at least some countries, few countries have an interest in the whole system.5 The same is true of the SEEA 2003. Taken as a whole, it presents a complete and integrated set of environmental accounts for a nation. But the environmental and economic conditions of only a handful of countries are such that the full set of accounts is of interest. For this to be the case, a country would have to enjoy a relatively complete set of national accounts to begin with; have a large, diverse land mass; possess significant natural resources; suffer from excessive material consumption and/or pollution emissions; undertake significant expenditures for environmental protection; and have an interest in preparing environmentally adjusted macroeconomic aggregates. To date, the only country that might legitimately
It is worth noting that many countries fail to implement parts of the SNA 93 that are in theory important to them because of lack of statistical capacity. For example, relatively few countries compile national balance sheet accounts, despite the obvious importance in all nations of measuring national wealth and its evolution. The one element of the system that no country ignores is the income and expenditure accounts, as these are the basis for estimating the widely used economic indicator Gross Domestic Product.
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respond positively on each of these fronts is, arguably, China, and it has only recently begun to think seriously about building environmental accounts (China Daily, 2004). For the majority of countries, the value of the SEEA 2003 lies not in providing an ultimate target to strive for in terms of implementation, but in providing a complete and coherent portrait of the environment and the economy from which to select pieces that respond to national needs. Countries that follow the SEEA 2003 guidelines will also benefit from the comparability of the accounts they compile with those of other countries that have followed suit. In spite of the advantages it offers, the publication of the SEEA 2003 will not result in immediate convergence on environmental accounting concepts and methods. As noted above, environmental accounting has been practised in a number of countries for many years now and these programmes are well-ensconced with their own particular and sometimes divergent characteristics. In spite of this, there are at least three reasons why conceptual and methodological convergence can be hoped for as a longer term consequence of the SEEA 2003. First, the SEEA 2003 is a clearer reflection of environmental accounting as it is practised in countries than was its predecessor. While there remain areas of divergence among country practices (e.g., water accounting, land accounting, fisheries accounting), it is also so that a degree of convergence in some areas of environmental accounting had already occurred by the time the SEEA 2003 was drafted. The handbook naturally adopted the concepts and methods as practised in countries wherever there was such convergence. This means that as new countries begin compiling these accounts, there is a good chance their efforts will immediately align with practice in established accounting programmes. For example, the compilation of inputoutput based material and energy flow accounts (along the lines of the Dutch NAMEA described earlier) has been practised in a comparable fashion for some time now in a number of countries. The same is true of asset accounts for fossil fuels, minerals and timber. Environmental protection accounts are also compiled more or less comparably by many countries. Second, the SEEA 2003 is the result of a collective effort on the part of many national and international agencies, whereas the SEEA 1993 was drafted by a small team of experts. As such, the SEEA 2003 benefits from a high degree of initial buy-in from many of those who will be asked to see to its implementation. Finally, a decision has been taken recently by the newly formed United Nations Committee of Experts on Environmental and Economic Accounting to elevate the SEEA 2003 to the level of an international standard by 2010. As an international standard, countries will face a higher degree of pressure from within and without to conform to its concepts and methods. Having discussed the challenges and promise of implementing the SEEA 2003, we now turn to a more practical discussion of the implementation of the accounts in each of its four categories.

to standard economic accounts. Rather than an industry's importance being determined by the value of its output, physical accounts reveal its impact in material terms. Since an economy's impact on the environment is determined in large part by the scale and character of its material flows, such accounts contain much information relevant to understanding the relative contribution of different industries to environmental degradation. These accounts form the basis for the calculation of aggregate indices of material flows that have a growing following, particularly in Europe and in Japan. The Wuppertal Institute in Germany is most closely associated with the development of these indices, which include measures of total material requirements among others. To date, relatively few countries have invested in the elaboration of purely physical environmental accounts, Germany and Japan having among the greatest experience (Moriguchi, 2001; Schoer and Schweinert, 2005). The OECD has recently embarked upon a programme of work on material flow accounting that may result in their wider implementation in the future (OECD Council, 2004). Chief among reasons for not compiling such accounts is ambiguity in interpreting the results, especially for aggregate material flow indices in which flows of all materials are added together without weighting according to relative environmental impact. Hybrid flow accounts those that combine physical and monetary statistics are implemented more commonly. As noted earlier, inputoutput based hybrid accounts similar to the Dutch NAMEA system have been implemented in many European countries. Their aim has been mainly the study of the relationship between air pollution emissions and economic activity. Another popular use of hybrid accounts is to link energy use in physical terms with economic activity. The accounts are flexible though and can be used to study a wide range of issues. Essentially any raw material (or energy) input or waste material (or energy) output for which physical statistics are available can be analysed through hybrid flow accounts. Because issues of resource use and waste output are pervasive across economies, hybrid flow accounts are among the most commonly implemented of environmental accounts. Countries in which they exist include Australia, Canada, Denmark, Germany, New Zealand, Norway and Sweden. A common use of the accounts in these countries is measurement of decoupling. This is the word used to describe what happens when economic activity becomes less dependent on material inputs or pollution outputs over time, a key issue in assessing movement toward sustainability.

3.2.

Environmental protection and management accounts

3.1.

Physical and hybrid flow accounts

The physical and, especially, hybrid flow accounts of chapters 3 and 4 of the SEEA 2003 are of wide interest in principle, since material and energy flows are common to all economies. Accounts expressed in purely physical terms provide a means of considering economic activity that stands in stark contrast

The second category of accounts in the SEEA 2003 (chapters 5 and 6) includes those devoted to measuring environmental protection and management activities. As noted earlier, these accounts take the environment-related transactions that are already implicit in the SNA 93 and show how they can be made more explicit. Examples of such transactions include investments in pollution control equipment, natural resource management expenses and environmental taxes. The accounts are of interest primarily in countries in which businesses, governments or households undertake such transactions in a significant and regular fashion. In practice, the largest of these

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transactions tend to be those associated with industrial pollution control, which makes the accounts of particular interest in industrialised nations. Nations in which natural resource management for example, operation of wildlife preserves or silvicultural activities is a significant part of economic activity will also find these accounts of interest. In their fullest implementation, the environmental protection and management accounts measure both the costs and benefits of reducing human impact on the environment. The purchase of a pollution control system may be seen as a cost to the industry that must install it, but it is a source of revenue to the industry that produced it in the first place. Increasingly, governments are looking to seize the potential for the development of new markets, especially through exports to heavily polluted economies like China and India, that production of these environmental protection technologies represents. Canada, for one, has identified this as an explicit goal of public policy (Government of Canada, 2004). In practice, the implementation of environmental protection and management accounts to date has focused more on measurement of costs than benefits. There are a number of reasons for this. For one, it is generally considered easier to measure costs than benefits. Firms or public agencies that incur costs for protection or management of the environment are generally able to identify these costs as such and give reasonably accurate estimates of their extent. Grey areas do exist, such as attribution of costs that have simultaneous environmental and economic motivations, but careful attention to wording of survey questions can minimise the problems they present. Measuring environmental revenues can be more difficult. The problem with these is that firms that produce generic products (pumps, for example) may have no idea what uses their products are put to and whether any of them can be considered environmental uses. The second reason why measurement of costs is more common is that there has been greater effort devoted to development of the related techniques. The unquestioned leader in this development is Eurostat, which produced the definitive handbook on the topic (Eurostat, 1994). This handbook's existence, coupled with Eurostat's promotion of the effort led to the development of environmental protection expenditure accounts in many European nations during the 1990s. In addition, Australia, Canada, the United Kingdom and several other European countries have long-standing programs to measure environmental protection expenditures. Implementation of accounts for environmental taxes is much less common.

3.3.

Asset accounts in physical and monetary terms

The environment can be thought of in natural capital terms as a collection of assets of various types: natural resources, land and ecosystems. Accounts for measuring these assets are described and illustrated in chapters 7 and 8 of the SEEA 2003. Of the three types of natural capital, the most fully articulated concepts and methods are presented for natural resource assets. Land and, especially, ecosystem accounts are still in their relative infancy and are presented more by way of suggested avenues for exploration in the handbook than as clearly worked out recommendations.

The SEEA 2003 offers guidance on the construction of environmental asset accounts in both physical and monetary units. Physical accounts present statistics on stocks of environmental assets using units of measure that are appropriate for the asset in question. A physical account for timber resources, for example, might portray the size of a country's timber stocks in cubic metres of standing timber. A land account could describe a country's land holdings in hectares. Accounts expressed in physical units may have several benefits over monetary accounts. They are generally easier to construct, since they do not rely on complex and data-intensive valuation methods. They are also less controversial, especially to users from the scientific community, because they avoid the valueladen debate over pricing the priceless. Finally, they are less prone to the volatility that can be introduced in monetary accounts due to the frequent and sizeable price swings that are common for internationally traded natural resources. At the same time, physical accounts suffer from one major drawback at least in the eyes of users who view the world through an economic lens: they offer very little chance for aggregation. Timber accounts expressed in cubic metres are not easily combined with accounts for mineral assets expressed in tonnes. This incommensurability means that accounts expressed exclusively in physical terms are not especially helpful in studying tradeoffs among various forms of capital. What if it is found that timber stocks are increasing in physical terms while mineral stocks are decreasing? Is a country getting better off under such conditions, or worse off? Adding in the additional factor of comparing trends in physical capital with trends in produced capital makes the situation even more difficult to sort out. For this reason, many commentators suggest that environmental asset accounts do not find their true value until they are expressed in monetary terms. Monetary environmental assets accounts are portrayed using monetary units of measure regardless of the asset in question. They thus offer, at least in principle, the possibility of comparing trends in different environmental assets on a completely equal footing both among themselves and in contrast to produced capital. This solves the problem of incommensurability and allows questions about national well-being in terms of environmental assets to be unambiguously answered. While there is obviously great attraction in this promise, monetary accounts are also not without their problems, both practical and conceptual. The practical problems are related mainly to the limitations of the methods used to estimate environmental asset values and the difficulty in obtaining the data required to implement them. The conceptual challenges are numerous, ranging from lack of appropriate valuation methods for complex assets like ecosystems to philosophical and scientific debates over the very legitimacy of the valuation approach. One of the most vexing challenges is how to treat so-called critical natural capital. Critical natural capital, it is argued, is irreplaceable and therefore ought not be measured in monetary terms lest the message be given that it can be traded off with other forms of capital measured in monetary terms. Others question the meaning of any value at all ascribed to critical natural capital on the basis of prevailing market prices. Such prices are contingent upon the existence of critical natural capital and would be rendered meaningless in the

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event of any major disruption of it. They are, therefore, inappropriate as the basis for the marginal valuation of critical natural capital. The SEEA 2003 makes no particular effort to resolve these controversies, especially not in the chapters devoted to environmental asset accounts. It notes them and the challenges they present for the development of environmental asset accounts. Where valuation methods are well-developed and not especially controversial, the handbook presents them in considerable detail, often noting more than one method where consensus has yet to be reached. This is the case for methods applied to traditional natural resources, such as energy, minerals and timber. In the more complex areas of land and, especially, ecosystem service valuation, the handbook is comparatively silent. This is as it should be. The handbook is intended as a guide to practitioners in a new and rapidly developing field. Its role is to reflect the best practice in environmental accounting, not to resolve the intellectual debates that afflict it today and will likely do so for some time to come. Environmental asset accounts are among the more widely implemented of environmental accounts. Countries having prepared them include Australia, Canada, Denmark, Norway, and the United Kingdom. The most common assets to be measured are energy resources coal, oil and natural gas. Accounts for these are popular because of the economic importance of the resources, because the underlying physical statistics are of good quality and because the valuation methods are well-established. Mineral and timber stocks are the other two assets most commonly measured in environmental accounts. A few countries make estimates for fish (Australia, Indonesia, New Zealand) and water assets (Australia, Morocco, France) as well. A few countries (Australia, Canada, Denmark, Norway) have started to include the value of environmental assets alongside the measures of produced assets on their national balance sheets. The resulting measures of national wealth including natural capital are a much better reflection of the actual asset base of these countries than traditional national balances sheets that include only produced capital. The results show that natural capital represents an important component of total wealth in these countries. The most recent statistics for Canada, for example, indicate that a limited basket of environmental assets energy, minerals, timber, farmland and commercial land represented 39% of national wealth in 2005 (Statistics Canada, 2006). That Canada is one of the handful of countries to have included environmental assets on its national balance is fitting in a little known way. It was actually a noted Canadian resource economist, Anthony Scott of the University of British Columbia, who made the earliest explicit call in the economic literature in 1956 for the inclusion of natural resource assets on the national balance sheet (Scott, 1956).

statistics. They are incomplete and not consistent over time. This situation greatly restricts national and international capacity to develop and monitor progress toward environmental policy goals; for example, those associated with Goal 7 of the UN Millenium Development Goals (United Nations, 2005). As the need to pursue the harmonization of economic and environmental goals becomes more urgent, this situation will become increasingly untenable. Integrated environmental information of the sort promised by the SEEA 2003 will become essential to good public policy making. Environmental accounting alone will not answer all questions that environmental policy makers and the public might pose. It has been argued here, however, that integrated environmental information founded on a clear and rigorous conceptual foundation and organized in parallel with economic information is much better suited to today's needs than is existing environmental information. Environmental accounts are, we believe, a powerful response to the weaknesses that prevent existing statistics from having the impact on public policy that they should, and indeed, must have.

Acknowledgement
The opinions expressed herein are those of the author and should not be taken as representative of those of Statistics Canada. Thanks are due to Mr. Jan van Tongeren for useful comments on an earlier draft of this paper. All remaining faults of any sort are the responsibility of the author.

REFERENCES
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4.

Conclusion

The current state of environmental information around the world is, by most accounts, unacceptable. Environmental statistics are scattered among too many organizations. They are not coherent with one another, let alone with other types of

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