Parliamentary Assembly

Assemble parlementaire

Environmental accounting as a sustainable development tool

Doc. 10071
11 February 2004

Report
Committee on the Environment, Agriculture and Local and Regional Affairs
Rapporteur: Mr Fausto Giovanelli, Italy, Socialist Group

For debate in the Standing Committee see Rule 15 of the Rules of Procedure

Summary

Environmental accounting is a system for indexing, organising, managing and delivering

data and information on the environment via physical or monetary indicators. It constitutes
an indispensable tool for applying the sustainable development concept and now commands
acceptance as a means of ensuring the preservation of the environment in Europe.

Conventional instruments of economic analysis do not in fact enable political decision-

makers to measure reliably the effectiveness of the environmental policies implemented or
the impact of economic policies on the environment. It is therefore necessary to adopt
suitable environmental monitoring and information systems which can serve as a basis for
political decisions.

By taking this step, political decision-makers would be able to report the environmental
outcomes of their actions to the communities under their authority, relying on dependable
data and constantly updated information on the state of the environment, to incorporate the
variable environment into the official decision-making process at every tier of government
and to make the environmental effects of policies more transparent.

I. Draft recommendation [Link to the adopted text]

1. At present, conventional economic analysis tools do not enable the decision-makers
using them to reliably ascertain whether the environmental policies implemented are
effective or what kinds of impact economic policies have on the environment.

2. In particular, environmental costs - the costs that would have to be defrayed to

maintain the pool of natural resources at the level corresponding to the start of the
reference period - continue largely to be omitted from the economic analyses based on
conventional accounting instruments.

3. In 1992, the United Nations Conference on the Environment (Earth Summit in Rio
de Janeiro) marked a decisive turning-point by approving Agenda 21 for sustainable
development, which introduced the concept of environmental accounting as a tool for
implementing coherent policies in this area.

4. Environmental accounting is a system that can be used to list, organise, manage

and supply data and information on the environment in physical and monetary units.

5. On the same basis as all accounting systems, environmental accounting presents an

objective picture of the state of, and changes in, the natural heritage, interactions between
the economy and the environment, and expenditure on preventive measures, environmental
protection and the repair of environmental damage.

6. Environmental accounting is therefore an essential tool for implementing the

concept of sustainable development, i.e. a style of development that does not jeopardise
the resources needed for future generations life and development on earth.

7. Over the last ten years, the increased impact of human activities on the
environment at local and global level has shown that the environmental costs of
development are no longer easily discounted factors, particularly in urban areas, and that it
is necessary to use specific tools for measuring and managing them.

8. Moreover, improved access to information has caused rising demand for

environmental information on the part both of citizens and of politicians, bringing a need for
better environmental governance.

9. The Parliamentary Assembly notes with satisfaction that, since the Rio Earth
Summit, the concept of environmental accounting has been widely recognised as an
essential tool that is advocated by organisations such as the United Nations, the World
Bank, the Organisation for Economic Co-operation and Development (OECD) and the
European Union.

10. It is also very pleased that many Council of Europe member states (such as France,
Germany, Italy, the Netherlands, the United Kingdom) have studied and experimented with
environmental accounting systems and that certain towns and cities which are more
directly accountable for the management and quality of their environments have done the
same, mainly using environmental indicators and adapting the methods developed to date
to the urban setting.

11. The Assembly underlines the need for all levels of government to adopt suitable
environmental monitoring and information systems that can serve as a basis for policy
decisions and strongly believes that environmental accounting is an essential tool of
governance.

12. The adoption of an environmental accounting system at all levels of government

would enable political decision-makers to report to the communities governed on the
environmental outcomes of the policies implemented on the basis of reliable data and
constantly updated information on the state of the environment. This would also allow the
environment variable to be incorporated into official decision-making processes at all
levels of government and make the environmental effects of government policy more
perceptible.

13. Systems of this kind would permit greater accountability of decision-makers and
interest groups committed to sustainable development goals, regular environmental
monitoring and proper use of environmental data at decision-making level and vertical
integration of sustainable development instruments and policies.

14. The Assembly fully supports the efforts being made to develop environmental
accounting and, above all, to move on from the experimental stage to that of standard
practice. This would merely redirect current expenditure, without generating new costs but
making better use of it. It emphasises the importance of carrying forward the relevant
activities at European level.

15. The Assembly believes that it is important for local and regional authorities to play
a key role in the process and urges the Congress of Local and Regional Authorities of the
Council of Europe to take into account these propositions and to make a corresponding
contribution, notably by diffusing the concept of environmental accounting among European
local and regional authorities.

16. The Assembly therefore recommends that the Committee of Ministers

i. prepare a recommendation to the member states on the introduction of environmental

accounting at national, regional and local level;

ii. incorporate the experience of European countries in the environmental accounting field
into an approach which would combine these systems in a European standard;

iii. call forthwith on member states to systematically include in all economic and social
planning satisfactory assessments of the sustainability of development, drawing on existing
databases, statistics and environmental indicators.

II. Explanatory memorandum by Mr Giovanelli

CONTENTS

1. General Introduction

2. Environmental accounting: general context

3. Environmental accounting in Europe

4. Regulatory Frameworks and International agreements

5. National experience

A. The Satellite System for Integrated Environmental and Economic Accounting (SEEA)
B. Environmental accounting in France
C. Environmental accounting in the United Kingdom
D. Environmental accounting in Germany
E. Environmental accounting in Italy
F. Economic accounting in the developing countries

6. Local experience

A. European Common Indicators

B. The Clear-Life Project
C. The Ecobudget Project
D. The Cont.A.Re Project
E. French Experimentation with an Environmental-Economic Accounting System
F. Eco-Mayors
G. The Pastille Project

7. Conclusions

Bibliography

1. General introduction

1. Environmental accounting must be viewed today as an essential management tool

for the preservation and sustainability of Europes environment. As natural resources are
affected by socio-economic development, they must be regarded as economic assets and
therefore incorporated into an accounting system that will facilitate sound, effective and
sustainable management of these resources.

2. The Committee on the Environment, Agriculture and Local and Regional Affairs
considers it important for the Council of Europe member countries to get used to the
concept of environmental accounting and start or continue to apply it at every
management level, especially that of local and regional authorities. That is why it viewed
with interest the proposal to draw up a report on environmental accounting as a sustainable
development tool and considers that it should be carried further.

3. On 23 October 2003, while preparing the report, the Committee held a hearing on
the subject in Paris, attended by Ms Maud Lelivre, Deputy Mayor of Saint Denis (France),
Ms Anne-Sophie Robin of the French association Eco-Maires, Ms Ilaria Di Bella, consultant
for the Italian project CLEAR LIFE, and Mr Vicente Carabias-Hutter of the Centre for
Sustainable Development at the University of Applied Sciences, Zurich. Presentations were
given on the FEAT project (For an Environmental Accounting Tool), which was devised by
the Eco-Maires association and the Fondation des Villes (Towns and Cities Foundation) and
was awarded the LIFE-Environment prize in 2002, the CLEAR LIFE project (City and Local
Environmental Accounting and Reporting) and the PASTILLE project (Promoting Action for
Sustainability Through Indicators at the Local Level in Europe).

4. The Rapporteur wishes to thank all those who took part in the hearing, as well as
Ms Alessandra Vaccari, the methodology co-ordinator of the CLEAR project, who gave him a
great deal of support in the drafting of the report and whose thorough knowledge of the
issue was extremely useful to him.

2. Environmental accounting: general context

5. Environmental accounting as an object of research and interest came into being

along with the concept and perspective of sustainable development.

6. In order to implement policies for sustainable development, ie for a style of

development that does not jeopardise future generations possibilities of life and well-being
on earth, there is a need for new instruments to assess, analyse and direct economic and
social policies relating to conservation of natural resources and ecological balance. Indeed,
conventional means of economic analysis do not enable the decision-makers using them to
ascertain whether the environmental policies implemented are effective and workable, or
what kinds of impact economic policies have on the environment. Until a few years ago,
governance was thought out and organised in a register of economic growth and
reapportioning wealth and services management, but of balancing all these factors with the
worlds natural resources.

7. Environmental accounting is coming into its own on the plane of international

statistics as a groundbreaking instrument for identifying, arranging and disseminating data
on the environment. Keen interest has also grown up of late at the local level. The goal of
sustainable development in fact requires that governance and its instruments be reformed
at all tiers of authority. The need is more significantly felt by the public institutions most
directly accountable for the organisation and quality of the areas under their control, i.e. the
local authorities.

8. Experience up to now records two main functions assigned to environmental

accounting: a) to measure and evaluate the condition and fluctuations of the natural
environment and of the impacts which human activities have on it; b) to reckon and
evaluate the monetary and financial flows relating to the use of natural resources and to the
effects of mans interaction with the environment.

9. The first of the above methodological profiles has generated physical accounts
expressed in strictly physical units of measurement, while the second involves monetary
accounts. There are also trials with the integration of the two different approaches. The
range of environmental accounting instruments comprises three classes of instruments to
date:

accounting systems that combine economic and environmental accounts;

what are called satellite accounts, produced for the purpose of collation with the
conventional economic accounts without changing their structure;
environmental indicators which describe in physical terms the state of the
environment and register the human pressures and the results of measures to
combat pollution and depletion of resources.

10. These are very disparate instruments, also reflecting different concepts and
conditions of use and producing considerably different results which may or may not
suggest a substantial revision of the conventional economic and financial accounting
structure.
11. Traditional accounting systems such as the United Nations System of National
Accounts (SNA) or the European Unions European System of National Accounts (ESA), at
least in their original versions, completely overlook all activities extraneous to the market
such as housework, subsistence production, voluntary sector activities and consumption of
all the functions performed by the environment. Examples of the latter are the value of the
natural heritage and its upgrading, and the contribution made to the economic system by
environmental goods and services including those for disposal of pollutants. The SNA
appeared after World War II, and the ESA in the 1970s. Both make the theoretical
assumptions firstly that natural resources are inexhaustible assets, and secondly that the
worlds habitats have an infinite capacity to absorb the residue of production and other
human activities. Though not stated outright, the forecast on which they are implicitly based
is the possibility of economic growth without natural limits.

12. These accounting systems, though only partially corrected to accommodate

environmental factors, are actually still used as a basis for working out the principal
economic aggregates (such as GDP, gross domestic product, and GNP, gross national
product) intended to guide the economic policy choices made by the political decision-
makers not only at national level but also at supranational level and in the international
field. In particular, environmental costs continue to be substantially omitted from the
scheme of the economic analyses based on conventional accounting instruments, as do the
costs that would have to be defrayed to maintain the pool of natural resources at the level
corresponding to the start of the reference period.

13. In other words, there is total neglect of the sustainability concept understood as an
economic systems capacity to preserve intact the endowments of natural resources and not
to jeopardise the well-being of future generations (Bartelmus 1989, 1992; Pearce et al.,
1989, 1990; Daly 1989). It is to be emphasised that GDP, normally used as an estimate of
a countrys prosperity, was really created to measure the parameter of economic
transactions on the market. It therefore cannot register processes such as reduction of
natural resources, their degradation due to economic activities, or even events like natural
disasters that nonetheless have significant influences on the natural heritage. Its calculation
leaves out all activities that do not come into the market, whether those solely concerning
the natural heritage or those that have to do with human activity.

14. The inexhaustible economic growth scenario was already called into question from
the 1970s onwards, triggering the demand to develop more comprehensive, adapted and
true-to-life instruments of economic analysis. The first attempts to devise macroeconomic
indicators capable of measuring social well-being, and not only the state of the economy,
date back to those years. In 1972, Nordhaus and Tobin perfected the MEW (Measure of
Economic Welfare), an index of well-being based entirely on the benefit accruing from
economic activities, which took account of factors left out of the national product such as
the value of leisure time and housework, and reclassified items such as the types of
expenditure borne for education and public health, ranging from consumption to investment
in human capital. Nordhaus and Tobin succeeded in estimating a wage differential as a
negative externality, necessary to survival in severely disadvantaged urban settings.
Although their index did not comprise environmental costs, because the inventors were
absolutely convinced that natural resources would not pose a problem for development,
study of the trend of the MEW from 1929 to 1965 showed a significantly smaller increase
than did GNP. There followed other attempts, some quite recent, to work out indices of
social sustainability capable of supplanting GNP and GDP.
15. In 1992 the UN Conference on the Environment in Rio de Janeiro marked a decisive
turning-point by approving Agenda 21 for sustainable development which makes provision,
among the actions to be implemented, for the use of environmental accounting in all
countries.

The initial version of the United Nations handbook for the application of the System of
Economic and Environmental Accounting (SEEA) dates from 1993. The SEEA, a later version
of which was published in 1999, reckons environmental costs by computing the monetary
value of natural resources and of pollution, and analyses the effects on the environment
generated by activities of production, consumption and capital formation. The ultimate aim
of the SEEA is to arrive at an index of sustainability, known as Green GDP constituted by
the EDP (Environmentally Adjusted Domestic Product).

16. In 1995, the European SEC system too was revised with an environmental slant. All
the environmental accounting instruments currently in use and described later in this report
were devised and introduced successively from 1992 onwards.

17. In 1994 the European Commission, in a communication to the Council and the
Parliament of the Union, emphasised the need to adopt, in the Community context, a
system of integrated economic and environmental accounting to guide political decision-
makers. The choice falls on satellite accounts and environmental indicators, given the
shorter time needed to produce and apply instruments of this kind. The debate concerning
Green GDP is in fact still open, and the theoretical premises and the available data are still
too changeable and uncertain, especially when it comes to calculating the monetary
equivalent of pollution factors and natural resources for which there is no valuation on the
market.

18. During the last ten years, as will be seen further on in this brief study, the effects
of pollution at both local and global level have increased in severity, making the need to
apply environmental accounting instruments more obvious. The environmental costs of
development are no longer easily discounted factors, particularly in urban areas, while the
increased facility of access to information of every kind has caused rising demand for
environmental information on the part of citizens as well as politicians. The phenomena
linked with globalisation of the markets bear closely on environmental issues, air pollution
and greenhouse effect being just two examples. They have weighty implications for quality
of life in the developed countries and for the chances of survival in the developing countries,
at the local level too.

19. This has prompted many States to examine and experiment with systems of
environmental accounting, for the most part applying the models and instruments devised
by the UN, the EU and the statistical agencies of the UN member countries. Towns have
done the same, mainly using environmental indicators and adapting to the urban setting
methodologies devised for other contexts.

20. The UN Conference in Johannesburg also stressed the importance of adopting at all
levels of government suitable systems for monitoring environmental information that
provide backup for political decisions. Environmental accounting enhances the possibilities
for setting a steady course of sustainability, because it can bring economy and ecology
closer together and ensure more information, greater awareness, better transparency and
increased responsibility of the political sphere towards the environment.

3. Environmental accounting in Europe

21. A number of environmental accounting methodologies have been developed and
satisfactorily disseminated in Europe, chiefly in the realm of statistics. The most important
of these is the SERIEE system (European System for the Collection of Economic Information
on the Environment), developed by Eurostat in 1994.

22. The SERIEE model seeks, via a series of satellite accounts, to isolate, determine
and quantify the economic efforts sustained by a community for purposes of environmental
protection. SERIEE produces data on environmental expenditure, on the entities and sectors
that incur it, on the dynamics of the financial transactions linked with environmental
expenditure, and lastly on the outcomes of activities aimed at environmental protection. Yet
the model does not stop at an economic evaluation, as it attempts to integrate physical and
economic data by resolving itself into a variety of modules. Generally speaking, the data
which the module is intended to present are of the following types:

quantitative, comprising data and indicators relating to the availability and use of
environmental resources;
qualitative, comprising data and indicators on environmental protection activities
grappling with processes of pollution and degradation.

23. SERIEE is a model created to be applied at the level of national statistics, although
over the years it has formed the basis for various attempts at environmental accounting
within narrower territorial contexts (municipalities and regions). Private organisations too
have drawn inspiration from this model, particularly for classifying environmental
expenditure. The environmental accounting model developed by Eurostat is based on 3
levels of analysis represented by a like number of modules:

a. EPEA: satellite account of expenditure for the protection of the environment.

b. Satellite account of natural resources utilisation and management.

c. System for registering eco-industries.

24. The first two modules are satellite accounts collated and correlated with the system
of national economic accounts, while the third as it stands has essentially informational
purposes. The EPEA, alone among the three modules into which SERIEE is divided, has been
developed in an articulated form.

25. The EPEA satellite account is the SERIEE module for quantification of expenditure
on environmental protection. It consists of a series of 5 accounts (tables) that give an
ongoing analysis of expenditure, output and financial transactions connected with
environmental protection activities. The indications which the EPEA account sets out to
provide are manifold. Firstly it measures the energy expended by the economic system of a
given territory to protect the environment, identifies the entities that sustain these efforts,
and determines which production activities are generated by environmental protection. The
EPEA accounting system is divided into 5 separate accounts, each represented by a table:

Table A - National expenditure, distributed by components and by users/beneficiaries

Table B Output of typical services
Table B1 Supply and consumption of typical services
Table C Financing of national expenditure on environmental protection
Table C1 Environment-related financial burden
26. The EPEA account makes it possible to effect a step-by-step conversion of the
masses of data contained in the 5 tables into economic aggregates which provide concise
indications of a communitys commitment to environmental protection:

a. Amount of national expenditure on environmental protection, in order to quantify

the effort which the economic system has devoted to environmental protection;

b. Financial burden of environmental protection borne by the various institutional

sectors (enterprises, families, public authorities and non-profit family aid institutions, in
order to specify the extent to which each sector assists in protecting the environment;

c. Amount of the production systems resources devoted to the conduct of economic

activities specifically created for environmental protection (or quantification of the output of
typical environmental protection activities), in order to determine the nature and the scale
of the production activities generated by the environmental protection requirement.

27. SERIEE has been tested by means of pilot projects in 17 countries, chiefly in
relation to the EPEA account. In the UK in 1995, the EPEA account underwent a feasibility
study with reference to the outlay on environmental protection made by industry, also
looking at the results achieved in terms of pollution abatement. It emerged from the study
that the data which go into the EPEA account are readily discernible, although there is room
for improvement in the collection system based principally on questionnaires for submission
to enterprises. It also emerged that monetary data on expenditure need to be collated with
physical indicators of pollution in order to register the efficaciousness and efficiency of
spending.

28. Apart from SERIEE, Eurostat has developed a system of physical indicators, the
ESEPI (European System of Environmental Pressure Indices) also known as the DPSIR
model (Driving Forces, Pressure, State, Impacts, Responses). The DPSIR model appeared as
a development of the simpler PSR model proposed in 1994 by the OSCE and replicates its
general structure, representing factors of environmental importance by means of a
cohesive, structured system of indicators. The DPSIR system of indicators lays down a
sequential procedure starting with the analysis of the processes causing environmental
impacts (driving forces and pressures) and concluding with the present environmental
situation (state and impacts) and the efforts made by the system to solve the problems
pinpointed (responses). No standard form is prescribed for the application of the model, as
it establishes a logical sequence and leaves the user to define the indicators that best match
the particular conditions and to choose the form in which the results are presented (synoptic
tables, narrative report, document for public disclosure or internal use, etc.).

29. The DPSIR model consists of 5 modules interconnected by causal links, each being
made up of indicators selected by the authority that adopts the model but identifiable with
the following specifications:

D Driving Forces (determinants): factors influencing the variables that characterise

the society in question; examples of indicators which can be used to describe the
determinants are the number of cars in use, industrial production and GDP. These
indicators are important both for calculating and selecting pressure indicators and as
an aid to official decision-makers who can frame their policies thanks to this
demonstration and quantification of a territorial units most significant features,
particularly those that generate environmental pressures.
 P Pressure; this category contains the indicators relating to the direct causal
factors of environmental problems such as emissions of pollutants and production of
wastes. These elements are directly correlated to the state of the environment
undergoing analysis, as they are responsible for it. At the decisional level, these
indicators are essential for setting the priorities of policy action and at the same time
measure the effectiveness of the responses actuated, together with the attainment of
the goals set at the stage when the action is planned.
S State: this module describes the condition of the environment resulting from the
pressures to which it is subjected. State indicators such as concentration of
pollutants in the air and water, or the soils level of acidification, mirror the effects of
the pressures exerted on an area as well as being the final indicators of the
effectiveness of the responses adopted. It should be noted in this connection that
indicators of state are generally slow to respond to variations in environmental
pressure and so cannot be used to assess the validity of the policies in the short
term, eg at the end of a legislatures life; it is not possible, for instance, to gauge the
effectiveness of measures and policies to reduce CO2emissions by the fluctuations in
the greenhouse effect since these occur over a period of many years and are
influenced by global factors not ascribable to the action of any one agency.
Nonetheless, indicators of state are fundamental because they allow the actual
condition of the environment at a given time to be represented.
I Impact; these indicators describe the changes in the state of the environment
appearing, for instance, in the form of impairment of ecosystems or health
repercussions. These indicators are still slower than state indicators to respond to
variations in pressure, for example the variation in the lung cancer rate in proportion
to the number of catalytic converter equipped cars. Impact indicators also have the
limitation of not generally lending themselves to correlation with the other indicators
since they are influenced by multiple factors, some even outside the models range
of analysis; consider how many factors interact in the spread of certain diseases
which have pollution as only one of their causal factors.
R Response; these indicators register the actions entered upon to remedy the
environmental problems identified and quantified thanks to the other modules.
Response indicators effectively record the changes brought about by the decisions
taken, and efficiently describe and quantify such changes. Indicators of this type are
selected in such a way that they also readily provide pointers to aid the activity of
decision-makers and instant feedback as to the validity of the measures adopted.
Response indicators may be, for instance, the number of electrically powered
vehicles, the amount of energy produced from renewable sources, R&D investment
for products with a low environmental impact, etc.

30. On balance, the various modules interlock to support the entire political and
technical decision-making process. They are not to be regarded as distinctly segmented and
sequential units but as a single, cohesive process that underpins and controls the framing
and implementation of the policies of an authority or of a state.

31. As regards the choice of indicators, Eurostat has produced on behalf of the
European Commission a guide entitled Towards environmental pressure indicators which
identifies 60 indicators that can be associated with the specified modules for pressures and
response, divided into ten thematic areas (air pollution, climate change, etc.). More
recently, the European Commission published a report Towards a Local Sustainability Profile
- European Common Indicators proposing ten indicators for sustainability which, though not
fitting into the DPSIR model, can complement it.
32. Another environmental accounting instrument developed in Europe is the NAMEA
matrix, put forward in 1994 by the Netherlands Statistical Institute CBS. The NAMEA matrix
is an accounting system designed to represent the interactions between economy and
environment by collecting together economic and environmental accounts of a physical type
in a single framework. The two modules, the economic and the environmental, are directly
connected with each other to allow cross-referencing between the principal aggregates
(production, consumption, etc.), the institutional sectors of the national accounts (family,
enterprises, public authorities) and the environmental pressures caused by them. The
NAMEA system was devised for application at national level, and over the years has been
tried out in different European countries (Denmark, Sweden, Netherlands, Italy, and
elsewhere). In some cases, trials have been conducted in smaller territorial units
(municipalities especially). Eurostat has a programme to bring some uniformity to the
various experiments in order to arrive at a single methodology.

33. NAMEA consists of two modules placed side by side to form a matrix:

a. Economic module (NAM National Accounting Matrix) showing the monetary data
derived from the traditional economic accounts (eg. intermediate consumption, added
value) replicating statistical classifications used in the ESA (European System of Accounts).

b. Environmental module (EA Environmental Accounts) giving information on the

pressures generated by the same activities (production and consumption) as contemplated
in the economic module. The environmental data are entered using measurement units of a
physical type, and are represented in a regular system of accounts (eg the emissions
account). The classes of pressures included in the reckoning may vary. The first matrices
produced only covered atmospheric emissions. With time, trials were made for other
elements, namely water (samples; consumption; discharge of pollutants into water) and
waste, the latter with scant results.

34. The NAMEA matrix can be formulated in various ways, as long as coherence is
assured at all times between the data in the environmental module and those in the
economic module. The general practice is to employ tables of supply and use. The supply
table computes all resources, indicating those brought in from outside the area, while the
use table show the mechanisms of intermediate consumption, the product added value,
the end uses and the investments.

35. A peculiarity of the NAMEA system is the possibility of making out an

environmental budget using physical and monetary data already available, without new data
being required. It is really a form of regrouping, in a matrix layout, of data from different
sources (official statistics, environmental agencies, etc), so as to place the economic data
sets beside the data for the corresponding environmental pressures. There is no doubt that
the use of data not collected especially makes NAMEA inexpensive, but it brings in a critical
element as the data come from a variety of sources and are often disparate.

36. A method widely used, and not only in Europe, for some environmental accounting
studies is emergetic analysis. This derives from the work of various scholars who, during the
last century, studied the flows of energy associated with assets and available resources. The
foundations of this analysis were laid by Lotka (1922), Von Bertalanffy (1968) and Odum
(1983).

37. Emergetic analysis is a technique which, by defining a set of indices, allows the
natural resources and all the goods produced and consumed by a given economy to be
measured in terms of energy flows. In practice, a physical study is made to measure the
amount of energy, expressed as a solar energy equivalent, linked with the production and
use of various goods, natural resources included. A method of analysis is thus determined,
with a unit of measurement, joules of solar energy which are universally valid. They can be
used equally to evaluate non-marketable natural resources such as virgin forests or the
water of the oceans, natural resources whose extraction and distribution costs are the only
value reckoned by the market. Examples are fossil fuels and wood, and all the goods and
processes of economic production. On account of these characteristics, emergetic analysis
has been used for environmental impact studies and environmental budgeting. From this
standpoint, emergetic analysis presents itself as a valid alternative to economic
environmental accounting, which uses currency as the unit of measurement for all goods
and processes. In fact not all goods are directly currency-convertible for want of a specific
market or because it is impossible to connect a process with economic mechanisms; for
example, how can the environmental benefit that accrues from reduction of CO2 emissions
be priced? Hence the need to introduce into environmental budgets and balances estimates
which, while on the one hand allowing mutual comparison of quantities, otherwise
impossible to compare, also bring in subjective elements that may impair the scientific value
of the document as a whole. Emergetic analysis purports to overcome this limitation by
permitting a homogeneous, coherent evaluation of different events and assets through
study of the related energy flows.

38. In its graphic form, emergetic analysis is based on the production of diagrams
which encapsulate the entire economic system, and on representation of the energy flows
into and out of the system by means of arrows. An extensive sign-language and a set of
conventions have been perfected for graphic representation of economic systems, individual
processes and energy flows. There is also a special emergetic algebra which lays down the
methods and calculation formulae for the various stages of the analysis.

39. Emergetic analysis applied to environmental accounting makes it possible to

quantify the flows of energy linked to the worlds endowment of natural resources and to all
the processes of transformation actuated by mankind in his activities. Emergy thus
becomes a yardstick of the sustainability of a society. To illustrate the methodology, the
essential steps in an emergetic analysis for environmental accounting purposes are
mentioned:

Recognition and classification of all goods and processes to be entered in the balance
sheet. The system analysed is represented by a diagram showing all the energy
flows connected with the natural resources, activities and goods produced.
Analysis of the energy flows in the system; all inputs into the system are listed, as
are the corresponding transformity values (usually taken from special tables), the
emergy derived from the product of the first two elements, and the origin of the flow
(whether inside or outside the system).
Working out the data with which to obtain the emergy specific to each of the
processes, hence the transformity and emergy of the various goods and products.
Comparison of the emergetic data with the economic data (eg GDP).

40. This method is flanked by a series of other instruments which may contribute
meaningfully to building an environmental accounting system; these include the ecological
footprint and the environmental management systems, particularly EMAS.

4. Regulatory frameworks and international agreements

41. Following the approval of Agenda 21 at the UN Conference in Rio de Janeiro
(1992), environmental accounting has made its appearance in the legislation of
supranational bodies and in international agreements as an instrument for sustainable
development. It was while the Earth Summit was actually in progress that a document was
released, providing for priority actions at both worldwide and local level to face the
21st century in a perspective of sustainability.

42. The same year, the European Community approved the fifth Community action
programme Towards sustainability, a whole chapter of which is devoted to the issue of the
environmental costs of development, extraneous to the market and therefore hidden, held
to be one of the basic causes of the exploitation of the planet and thus one of the main
obstacles to the pursuit of sustainability. Among the proposed solutions, the Community
recommends the adoption by policy-makers of decisional support instruments: information
on the state of the environment, appropriate indicators and tolerance capacities must be
made available to policy makers in order to better define sustainable development
parameters. In the Fifth Programme, the EU also lays down an obligation to the effect that
environmentally adjusted (i.e. to take account of the natural resource stock of air, water,
soil, landscape, heritage etc.) national accounts should be available on a pilot basis from
1995 onwards for all Community countries, with a view to formal adoption by the end of the
decade. Among the requisite measures, the programme mentions extension and
adaptation of the traditional tools of economic statistics on the basis of research at national
and European level, including modification of key economic indicators, such as GNP, so as to
reflect the value of natural and environmental resources in generating current and future
incomes and to account for environmental losses and damage on the basis of assigned
monetary values.

43. These assessments are critical of the way traditional public economic accounting is
oriented, and mark out a course towards the adoption of environmental accounting systems
in a similar manner to the UNs SEEA experiment.

44. Indeed, the fifth programme was followed by the Communication from the
Commission of the European Communities COM (94) 670 final of 21 December 1994 and
the European Parliament Resolution of 30 October 1995 concerning it.

45. In the first of these documents, the European Commission recognised the need to
adopt new policy-shaping instruments and established a European framework for green
accounting with a view to (i) a European system of integrated economic and environmental
indices (ESI), and much-needed direct integration of economic outputs and environmental
pressures in a manner allowing comparison over 2-3 years; ii) more long-term and
fundamental work on the greening of national accounts according to a scheme of satellite
accounts (specifying the environmental expenditure, introducing accounts for natural
resources, and improving methodological knowledge for the purposes of evaluating
environmental damage and assigning a monetary value to it).

46. It is acknowledged that the implementation of a Green GDP still raises many
questions of a methodological nature, so much so as to rule out this option as unrealistic for
the foreseeable future. The solution envisaged is therefore to make environment-related
expenditure visible, to use indicators to quantify the depletion of resources and
environmental degradation and, at a further stage, to arrive at monetary valuations while
maintaining a separation between the various components of this European system of
integrated environmental and economic accounting, referred to as the satellite scheme.
47. In substance, the Commission sets 6 goals: 1) establishing a common framework
to approach the issue, with the approval of a handbook on Green Accounting; 2) developing
a European System of Environmental Pressure Indices (ESEPI)on the basis of priority
physical indicators; 3) developing an integrated European system of economic and
environmental pressure indices (ESI); 4) continuing research on Environmental Satellite
Accounts in national accounting, such as environmental expenditure accounts and natural
resources accounting; 5) improving the methodology and expanding environmental damage
evaluation in monetary terms, with a view to incorporating the relevant information into the
integrated accounting system; 6) ensuring horizontal co-ordination of the 5 foregoing
activities.

48. In 1995 the Parliament approved the Communication, describing it as an important

step in the right direction towards the sustainable development model foreshadowed by the
Treaty on European Union, the Fifth Action Programme and the Delors White Paper, and
requested an increase in funding under the plan for the adoption of indicators and satellite
accounts.

49. The Sixth Action Programme of the European Union, approved in 2001, reinforces
the cross-sectoral approach to the ecological perspective, with the emphasis on
accommodating environmental issues in economic and social policies and making citizens
and interested parties more responsible. With that end in view, to aid the decision-making
process, the instruments deemed most expedient are environmental indicators; the financial
resources of both the Union and the MemberStates are to be directed at collection of priority
data without duplication or waste.

50. Devising systems of environmental information truly useful to decision-makers is

also emphasised as necessary in the Plan of Implementation approved in Johannesburg in
September 2002 during the UN Conference organised to review sustainable development
ten years on from Rio de Janeiro. The document draws attention to the need to collect
information, compile statistics, draw up environmental accounts, carry out surface
monitoring and apply instruments in support of political decisions on sustainable
development, Agenda 21 among them. The Plan raises the fundamental questions of change
in the production and consumption patterns of the capital-intensive countries and action to
improve the living conditions of the developing countries. The instruments singled out are
partnership and multilateral arrangements in co-operation for development, founded chiefly
on accountability and on the involvement of private associations and enterprises in
sustainability projects.

51. In this context, where the greater part of the solutions are left for voluntary-sector
instruments to effect, environmental information assumes a most important role, as do its
availability and its basic functions in backing up decisions and building participation and
responsibility for the shaping of sustainable development policies, plans and programmes
not only at national and regional level but even more at local level in the developed and the
developing parts of the world. Many paragraphs of the chapter Means of implementation
accordingly deal with the need to produce environmental information, data and statistics
and to devise new methods and instruments for monitoring the environmental impact of
policies. This is an acknowledgement of the value and usefulness of environmental
accounting in all of its forms.

5. National experience
52. There are many states which have carried out experiments, research and studies
on national accounting, often conducted in accordance with the principles and guidelines
contained in the United Nations System of National Accounts (SNA). At European level,
these indications are taken on board by Eurostat and national statistical institutes in the
handbook European System of Accounts (ESA).

53. National accounting revolves around the concept of production, from which there
follow directly the concepts of capital, income and expenditure; expenditure is apportioned
between commodities and capital goods, and between intermediate and end uses. The
development of a national accounting technique structured like this dates back to the period
straddling the 1929 economic recession and World War II. The historical and economic
context of that period, in particular the need to plan and manage the war and its economic
implications, largely account for this orientation of national accounting according to a
production concept tied to goods and services identified with a specific market, leaving aside
those devoid of precise exchange value. This position proved valid in a macroeconomic
environment, to a point where it asserted itself even after the hostilities as an instrument
for evaluating not only production potential but also the prosperity level of an economy.

54. Within this system there gradually emerged contestations relating, for instance, to
the exclusion of non-market goods and services of human origin, for example own-account
domestic services and services provided by the environmental capital used without
payment, such as the capacity of the environment to absorb processing wastes or non-
paying use of water or air.

55. With time, a current of environmental criticism towards national schemes of

accounting developed, underlining the above deficiencies and others besides. In fact the
schemes of national accounting have revealed some jumbling or misplacing of items. The
value of some non-reproducible environmental assets, for instance, is implicitly included in
the value of final production, there being no market exchange to account for it, whereas it
should be taken as intermediate consumption like the other factors of productivity
purchased on the market. Next, there are forms of production which do not raise a
communitys level of prosperity but merely serve to maintain the pre-existing level, as in
the case of protective environmental expenditure. It is widely believed that quantification of
the productive capacity of a given economy should not incorporate these types of
production, or that they should at least be separated from those connected with an increase
in the level of public welfare.

56. The United Nations have tried, as the international statistical institutes have also
done from a different angle, to remedy these limitations of national accounting by
developing instruments. These are the satellite accounts, or accounting systems for
statistical representation of specific areas of the economic system not already described
exhaustively in the national accounts, for example tourism, social protection and
environmental protection. Among the various satellite accounts developed at international
level, some aim to retrieve the environmental dimension into national accounting.

A. The Satellite System for Integrated Environmental and Economic

Accounting (SEEA)

57. The Satellite System for Integrated Environmental and Economic Accounting
(SEEA) completed by the United Nations in 1993 is a satellite account which ties in directly
with the structure of the SNA and is founded on several data sets whereby monetary flows
and stocks of assets are defined in the light of the environmental implications. The
monetary flows include computation of resources and uses, total production, final demand,
formation of reproducible capital, and capital accumulation abroad. The stocks, however,
are defined in terms of reproducible and non-reproducible capital, and of wealth. By means
of specific data sets, the SEEA incorporates certain environmental elements into national
accounting, in particular:

the quantitative and qualitative use of non-reproducible natural capital: this capital
consists of a component defined as economic in so far as it is directly linked with
market transactions (for example minerals, fossil fuels, wood from commercially
exploited forests) and of a non-economic component, unfettered by any monetary
exchange, as in the case of land not used productively.
transfer of resources from the natural capital to the economic capital, as occurs when
unworked land is purchased for economic uses.

58. Through these and other assessments, the SEEA defines economic aggregates
consistent with those of national accounting under the SNA system but rectified in an
environmental mode. An example is the total production aggregate which the SEEA
calculates by subtracting from the equivalent aggregate used in conventional accounting the
equivalent value of the non-reproducible natural resources consumed in the production
processes.

59. The SEEA makes it possible to single out and demonstrate the environment-related
flows and stocks which are contained in the conventional accounts (such as environmental
protection expenditure and reduction of natural resources), to include the accounts for
resources produced using environmental resources, and to introduce an assessment of the
negative impacts on natural resources resulting from human activities. The SEEA does not
take into consideration all the natural process without an interactive effect on the economic
system, or the effects of environmental degradation on human capital (expenditure for
illness, reduction of productivity, lowering of quality of life).

60. The SEEA has been applied in Colombia, Ghana, Indonesia, Japan, Mexico, Papua
New Guinea, the Philippines, the Republic of Korea, Thailand and the United States. Mexico
presents the most comprehensive study, carried out jointly by the United Nations Statistical
Office (UNSO), the World Bank and the Mexican National Statistical Institute.

61. Mexicos traditional environmental accounting model has been supplemented by

three satellite accounts covering reduction of oil reserves, deforestation and environmental
degradation. The results showed how necessary it is in a country like Mexico, whose
economy is heavily dependent on exploitation of natural resources, to adopt a system of
environmental accounting which provides more realistic indicators as to the state of health
of the economy as well as the environment and quality of life. In fact the environmentally
adjusted macroeconomic indicators produced by the study (EDP1 and EDP2) displayed
significant percentage reductions compared to the classical Net Domestic Product. A further
application subsequently made under various pilot schemes demonstrated that the value of
green NDP, calculated as NDP less the costs incurred for diminution of environmental
assets, works out at 4% below the traditional NDP.

62. Currently a new version of the SEEA is in the process of publication, ringing
changes on the earlier handbook and incorporating further environmental elements at
variance with normal national accounting.
63. Virtually all European countries and also many developing countries have initiated
projects for the creation of national environmental accounting systems. The benchmarks for
such experiments are the methods and models produced by the United Nations and the
European Union. According to a classification made by OECD (1994), national accounting
approaches can be subdivided according to their relationship with conventional national
accounting.

Approaches Environmental categories Accounting system features

considered

A) Environmental and natural Stocks and flows, in physical

resources accounting
A.1) Environmental and
resources accounts
A.2) Material resources
accounts
terms, of natural resources
Independent from, and
Physical and monetary flows complementing, the
associated with human use of conventional system of national
natural resources accounting
Economic-environmental
multifunctionality of resources
Resources for individual use as
economic inputs

Stocks and flows

B) Satellite accounts Assessment of: Supplements, without

alteration, the conventional
-environmental damage system of national accounting

-environmental services Consistent with the

conventional accounting system
-pool of natural capital

- environmental expenditure

Correspondence between stocks

and flows in physical terms
C) Integrated economic- Assessment of: Alters the structure and limits
environmental accounting of national accounting
--environmental damage

-environmental services

-pool of natural capital

-environmental expenditure
Source: ANPA, CERADI Luiss (2002), modified by OECD (1994).

B. Environmental accounting in France

64. The French system of environmental accounting is markedly segmented and

unfolds at 6 hierarchical levels. The first level is the one that concerns the production of a
large mass of data on the environment, both for specific environmental fields and for socio-
economic fields. The second level is for the production of environmental statistics per
sector, relating to water resources, land use, flora and fauna, air and other natural
elements. The third level is the one relating to the production of national and regional
reports on the state of the environment, and other documents which compile the available
information on environmental expenditure, cost of damage, and macroeconomic effect of
environmental policies. The national reports on the state of the environment contain,
besides the descriptive part, observations regarding public and private measures for
environmental action and conservation. The fourth level is that of natural resources
accounting, divided into physical accounts and satellite accounts for monetary valuation of
environmental expenditure in particular.

65. Accounts of natural assets represent a French speciality and relate to the principal
environmental factors which enter into a relationship with the economy and are the object
of property rights. The satellite accounts developed in France concern specific fields of
environmental interest, which include management of inland waters, maritime waters,
nature protection areas, hunting and waste. Level 5 comprises the phase of activity devoted
to building forecasting models to estimate the effect of environmental policies on the
economic aggregates, working from data provided by the satellite accounts and setting
alternative development strategies against the recorded levels of pollution and exploitation
of resources. Level 6 involves experimental efforts to arrive at the construction of quality of
life indices and indicators. The French approach to national accounting is founded on the
expediency, before any alteration is made to the national accounting system, of having a
comprehensive informational system on the components of the natural heritage, the
ecosystems and the interconnections with the economic system.

C. Environmental accounting in the United Kingdom

66. Here, both the principal environmental approaches are in use, the one geared to
construction of satellite accounts and the one aimed at the integration of traditional
accounting with monetary values assigned to flows and stocks of natural resources.

67. The first of these approaches is the one applied by the Office of National Statistics
(ONS), but the second is at the experimental stage, chiefly in the academic sphere.

68. The first report by the Department of Environment concerning National Resource
Accounting dates back to 1992 and concludes by suggesting the use of satellite accounts
initially concentrating on energy resources. The same year, the ONS published an article
which issued guidelines for monetary evaluation of the depletion of gas and oil reserves by
correlation of the relevant data with the added value accruing to the national economy from
the extraction industry, and described the procedures for defining protective environmental
expenditure.

69. In 1990 two simplified experimental versions of national environmental accounting

were produced, one containing physical accounting units and the other monetary values
besides. The experiment was nevertheless considered patchy and unduly problematic by the
ONS which subsequently abandoned the integrated accounting route and has concentrated
chiefly on devising the satellite account UKENA (United Kingdom Environmental Accounts).

70. UKENA is arranged according to the sectoral analysis typical of satellite accounts.
For each sector, data on performance in terms of emissions and contribution to issues of
environmental importance are entered in the input-output matrix that forms the national
economic accounting system. The initial UKENA scheme further includes the analysis of
environmental expenditure, once again not implemented. The pilot study addresses, with
reference to air pollution alone, the environmental issues of air quality, acid rain precursors
and greenhouse gases. The conclusions make it possible to distinguish the percentage
contribution of each industry both to variation in economic aggregates and to atmospheric
emissions.

71. Still using the analysis performed by means of input-output matrices, the
application of UKENA has made it possible to calculate how many tonnes of a given pollutant
are released by a production sector for every million pounds worth of goods produced by
that sector. The matrices furthermore allow calculation of the intensity of a given sectors
direct and indirect emissions. Thus the analysts also manage to work out which production
sectors are large consumers of electrical energy (indirect emissions) though not having a
heavy direct environmental impact in terms of emissions (direct emissions). Similar
calculations using the matrices have been made in England for the road transport sector and
for emissions linked with final demand. Plainly, these matrices represent a most useful
instrument for policy-makers, as they can steer policy towards sustainability. The ONS has
also tried to construct a satellite type budget/balance sheet dealing with the depletion of
natural resources, and another for water resources accounting. It can therefore be
concluded that the United Kingdom is at an advanced stage in the construction of
environmental budgeting systems.

D. Environmental accounting in Germany

72. In Germany, the system of environmental accounting which has been developed
represents an application of the UNs SEEA model albeit partial and modified,. This system
bears the name of Umweltkonomische Gesamtrechnungen (UGR) and incorporates various
methodological approaches for collecting and processing data, such as the physical input-
output tables, the Geographical Information System (GIS) and indicators of pressure per
sector. For the practical implementation of the UGR, pursuant to a proposal by the Economic
Affairs Committee of the Bundestag, a working group coming under the Federal Statistical
Agency has been active since 1989. Within the Ministry of Environment too, a committee
extended to representatives of the business, trade-union and environmental sectors
operates to implement and amplify the UGR on a broad social base. The output is chiefly
information on resources, impacts and environmental expenditure in relation to specific
environmental concerns. The input-output tables describing flows of material, characteristic
of the SEEA, are also paired with environmental indicators in the UGR.

E. Environmental accounting in Italy

73. In Italy, an Operational Unit for Environmental Accounting has been created
within the National Statistical Institute (Istat). It functions under the relevant European
Union strategy for the implementation of the Fifth Programme of Environmental Action in
particular.
74. Istat has carried out studies to prepare for the application of a NAMEA matrix for
pollutant emissions and a first application of the EPEA account at State level.

75. In 1997, co-operation by the Senate Environment Committee with the National
Council for Economy and Labour (CNEL, a body set up under the Constitution to assist the
Parliament, in which the trade unions, enterprise and the other social partners are
represented) and with Istat resulted in the first bill on environmental accounting of
municipalities, provinces, regions and the State. The bill, presented by your rapporteur and
undersigned by majority and opposition members, was passed by the Senate in 1999 but
has not completed the parliamentary process within the legislature and is currently under
parliamentary discussion.

76. The bill proposes to compel all levels of government in Italy to approve an
environmental budget alongside the economic and financial one. For each tier of
government, the accounting, statistical and technical instruments designated by the bill for
producing environmental accounts are those adopted at Community and international level,
specifically the NAMEA matrix for the national and regional level, the EPEA account for
environmental expenditure, and the sectoral pressure indicators for use chiefly at municipal
and provincial level.

77. The presentation of the bill sparked intense debate in Italy. Pursuant to the many
reports on the state of the environment presented by numerous regions, provinces and
municipalities, as well as by the Minister for the Environment at national level, a group of
local authorities has launched trial applications of the bill. The scheme, entitled CLEAR (City
and Local Environmental Accounting and Reporting) was co-financed by the European
Commission in the context of the LIFE-Environment programme and has led 18 Italian local
authorities to adopt an environmental budget debated and approved by the elected council
alongside the economic one.

F. Economic accounting in the developing countries

78. Developing countries interest in adopting environmental accounting systems is

growing for a variety of reasons. It should firstly be emphasised that traditional
macroeconomic aggregates, derived from the application of the SNA system of national
accounts, are not capable of registering the real economic growth rate of these countries,
especially the correlation with the scale of their non-market economic activities
(consumption of own produce, supplying of own requisites, barter) and with the economic
systems high degree of dependence on exploitation of natural resources.

79. Pilot studies concerning the application of environmental accounting systems have
in fact highlighted progressions of environmentally adjusted economic aggregates that differ
widely from the traditional ones. In particular, the launch of a scheme to apply the UNs
integrated economic-environmentalaccounts (SEEA) in Korea prompted comparison, over
the period 1985-1992, of the environmentally adjusted net domestic product (EDP) and the
plain net domestic product by compiling two satellite accounts to record the degradation
and depreciation of natural resources, the conservation expenditure, environmental levies
and subsidies, and the currents of import and export of wood, minerals and fisheries
resources. The environmental components surveyed include air and water pollution and the
related expenditure for protecting the environment, land use and depletion of stocks of
forest resources, fisheries resources and some minerals.
80. In the Philippines too, a pilot project is being conducted in order to examine the
applicability of the SEEA system, and apparently indicates that the growth rate of the
environmentally adjusted net domestic product is lower by one percentage point than that
of the conventional net domestic product.

6. Local experience

A. European common indicators

81. The initiative to monitor local sustainability, which led to the construction of the
ECI (European Common Indicators) system of 10 common indicators was promoted by the
European Commission with the aim of providing a practical instrument with which to assess
and compare the sustainability of local government policies. The set of 10 indicators is non-
exhaustive when it comes to representing the sustainability of a territorial unit, but should
be placed side by side with other indicators defined on a local basis with a view to
participation and sharing in local government choices. The common indicators have the
characteristic of integrating environmental, social and economic aspects in that they
transcend the sectoral approach which is often the limitation of monitoring systems based
on sets of indicators.

82. The system of European common indicators is made up of 5 main obligatory

indicators to be used by all authorities, and 5 more specific optional indicators that probe
and more effectively portray various aspects of the former. The main indicators are:

Citizen satisfaction regarding the local community

Local contribution to global climatic change
Local mobility and passenger transport
Availability of green areas and local services for citizens
Air quality

The optional indicators are:

Pupils travel to and from school

Sustainable management of local authorities and local enterprises
Noise pollution
Sustainable use of municipal land
Products conducive to sustainability

83. All the indicators listed incorporate social, economic and environmental aspects so
as to furnish information directly or indirectly about environmental protection efforts,
especially how far exploitation of natural resources and production of waste have been
reduced, and efforts to preserve biodiversity.

84. The common indicators have now been flanked by an eleventh indicator, the
Ecological Footprint. This is a sustainability indicator for a human group (from one person to
mankind as a whole) or for a territory. The very forceful name of the indicator discloses the
intention to evaluate the imprint, or mark or trace, left on the environment by a society. By
using an advanced method of calculation, it computes the productive area (farmland,
pasture, forests, marine areas, etc.) needed to ensure sustainable production of the
resources consumed by one or more persons and to absorb the resultant emissions. That is
why the indicator is expressed in hectares, so as to make the environmental impact of an
individual, a town or a state perceptible both intuitively and visually even to non-experts.

B. The CLEAR-LIFE Project

85. CLEAR (City and Local Environmental Accounting and Reporting), a European
scheme of environmental accounting applied to local authorities, is carrying out trials under
the LIFE-Environment programme with a process of accountability aimed at defining, within
the scope of a single instrument (the environmental budget), the environmentally
significant commitments and policies of the authorities, with an accompanying system of
physical and monetary indicators. CLEAR develops the content of the first bill on
government environmental accounting, presented in 1997 by your rapporteur, undersigned
by all parliamentary groups, and passed by the Italian Senate during the previous
legislature. The bill, currently before the Senate Environment Committee, takes up the
recommendations contained in the European Unions Fifth Programme of environmental
action, which stresses the importance of environmental accounting and budgeting for
sustainable development.

86. The prime movers of CLEAR are 18 Italian local authorities that contrast
considerably in their location, size and territorial features. In addition to the leading one,
the Municipality of Ferrara, 11 municipalities are involved in the project (Bergeggi,
Castelnovo ne Monti, Cavriago, Grosseto, Modena, Pavia, Ravenna, Reggio Emilia, Rovigo,
Salsomaggiore, Varese Ligure) together with 6 provinces (Bologna, Ferrara, Reggio Emilia,
Modena, Naples, Turin). These 18 partners applying the process experimentally are joined
by the Emilia Romagna Region and the OSCE which ensure monitoring and comparison with
like experiments in progress elsewhere.

87. At its inception, CLEAR had the goal of setting in motion a process (initiated in April
2002) which at first involved the approval, by the municipal and provincial councils of the
partner authorities, of an environmental budget in parallel with the process of approving the
financial budget.

88. According to the philosophy of the project, in fact, the environmental budget is a
supporting instrument for local government decisions, and one of the reasons for its
effectiveness lies in its adherence to the same procedures as are laid down for the financial
budget.

89. The experimental applications allow various requirements to be met:

a political and strategic requirement linked with the renewal and enhancement of
the processes of local governance, with the assertion of Local Agenda 21 and the
new cognitive approach to planning, and with subsidiarity issues;
a regulatory requirement, with reference to the Giovanelli bill and to the EMAS
Regulation;
a managerial requirement regarding reduction of costs, greater
efficiency/efficaciousness of decisional processes, more intersectoral co-ordination
and overall improvement to the integration of policies and the targeting of decision-
making.

90. A second aim of CLEAR is the production of a handbook setting out the accounting
principles, the CLEAR Method, to contain the procedures, models, best practices and the
batteries of appropriate indicators for producing an actual environmental account for a
municipality or a province. The phase of settling the CLEAR Method will be commenced in
2003, by turning to account the results (strengths and critical points) of the experiments.

91. The project started in October 2001 and will finish in October 2003.

92. In CLEAR, the local environmental audit is a document registering what happens to
the environment of a given municipality or province in one year, for example how much
waste is produced, how much water is consumed, what area of land has remained
undeveloped, whether and how the shrinkage of green areas has increased, the air pollution
level, how much energy has been produced and consumed, and how many resources have
been tapped or made available. It includes not only numerical data (physical and/or
financial) but also pointers for the environmental goals and policies of the public authorities.

93. With time, there will be a final environmental balance sheet including results of
implemented policies, and an anticipatory budget containing the information and forward
analysis concerning future planning.

94. There are numerous available data on the condition of the environment and on the
relationship between economy and ecology, which are collected and processed according to
various models and methods. CLEAR prompts local administrators to choose by common
agreement the most significant and useful ones according to their specific requirements and
adopt them to assess the liveable quality of the urban environment. To reach this target,
CLEAR refers to a series of statistic tools which have been internationally validated and
applied, such as sectoral pressure indicators, SERIEE, EPEA and the European Common
Indicators, together with other indicators such as the Ecological Footprint.

C. The EcoBudget Project

95. This project sets out to formulate a budget of the natural resources managed by a
local authority. Conceived and tested in Germany, it is now re-issued in the form of a
project co-ordinated by ICLEA, an international network of local authorities, and financed
under the LIFE-Environment programme in which the towns of Ferrara and Bologna
participate for Italy.

96. EcoBudget presupposes that securing the citizens quality of life is a priority
objective of local government. This aim is normally associated with realisation that the
resources for achieving it, whether financial, social or natural, are limited. However,
although local authorities have had financial management instruments ever since they came
into being, there are few instruments, and primitive ones at that, available to local
administrations allowing proper management of natural resources. This is where
ecoBudget environmental budgeting comes in, in synergy with the other instruments.

97. EcoBudget is applied concurrently with the successive stages of the municipal
budget. At the preparatory stage, an assessment of the initial situation (normally set out in
the report on the state of the environment) is used as a basis for estimates of
environmental expenditure which are made by the authoritys technicians and assist the
administrators in drawing up the Master ecoBudget and the component budgets per sector.
These documents are debated in the council, concentrating chiefly on the setting of short
and medium term environmental expenditure targets and leading to the eventual approval
of an environmental budget.
98. The ecoBudget cycle then enters its executive phase, during which the
management of the actions undertaken is kept under surveillance by means of the
indicators, according to their values entered in the anticipatory budget.

99. The cycle concludes with the third phase and a final environmental balance makes
it possible to evaluate the achievement or otherwise of the set targets. This final balance is
supplemented by two other important documents, the Summary of Environmental Assets in
which suitable indicators make it possible to determine the amount of natural resources still
available to the authority, and the Environment-Benefit Analysis, a set of indicators showing
improvements or deteriorations (profits or losses) for the citizens quality of life which have
occurred during the reference year of the environmental budget.

100. The quality and effectiveness of the environmental budget greatly depends on the
quality of the indicators selected to guide the action of the municipal apparatus during the
year. This is why the ecoBudget method recommends administrations to adopt indicators
with certain specified characteristics (clarity, scientific significance, comprehensibility,
comprehensiveness, etc.).

101. The basic ecoBudget documents are the anticipatory budget and the final balance.
The former records the values for the reference years, the forecasts for the year ahead, and
the target set with the pre-selected indicators, the choice of which (on political, legislative
or scientific grounds) must be justified by a statement of reasons.

102. Like the financial budget, the ecoBudget is accompanied by other documents: the
Summary of Environmental Assets, allowing the effectiveness of the environmental budget
to be assessed in terms of the local authoritys natural wealth, whose constant volume is
the prime guarantee of sustainable development; the Environment-Benefit Analysis which
registers the indirect impacts on the citizens quality of life, thus confirming or refuting the
accuracy of the ecoBudgets formulation.

103. The ecoBudget environmental balance indicates the trend of consumption,

conservation or regeneration of environmental resources, and how action programmes and
precautionary measures can be planned ahead in circumstances of deterioration.

D. The CONT.A.RE Project

104. CONT.A.RE is an inter-regional project which has developed a method for assessing
environmental policies based on integrated analysis of environmental accounting and
evaluation of action. It is not strictly speaking an environmental accounting method but has
taken over and co-ordinated various existing instruments (EPEA, NAMEA, ESEPI), linking
them with the process of political decision.

105. The CONT.A.RE project is conceived as an aid to political decision-makers and as a

tool for planning, monitoring and verification of the quality and effectiveness of
environmental expenditure at the level of the Regions, but can be extended to all territorial
units.

106. The model proposed by CONT.A.RE involves stimulating flows of information which
identify and interconnect the various classes of quantitative information required in the
evaluation process
107. In CONT.A.RE the following are developed:

a decisional support model;

an evaluation methodology

108. The decisional support model is based on an integrated scheme combining the
system of DPSIR indicators with the logical impact model. This combination gives rise to a
model intended to link each impact and each result to the field of action, the objective and
the policy concerned. In practice, each action is placed in the context of the referent
environmental policy area.

109. The CONT.A.RE model ties the DPSIR indicators to the process of programming
goals, resources and delivery of responses. In this way a complete model is obtained, one
which thanks to the pilot set of indicators follows the entire process of defining actions and
evaluating results in the environmental field.

110. The data for devising the basic indicators may come from various sources, both
within and outside the authority concerned. The CONT.A.RE project has not envisaged
obligatory indicators but confines itself to specifying their type.

E. French experimentation with an environmental economic accounting

system (Micro-economy of the urban environment: case of the Amiens, Lyon,
Nantes and Poitiers conurbations)

111. The experiment conducted by the municipalities of Amiens, Nantes, Lyon and
Poitiers is an integral part of a research project initiated to determine the level of
environmental expenditure and monitor its effectiveness at local level. In the course of
research, the project has acquired the methodological profile of environmental economic
accounting, especially in the definition of the so-called evaluation conventions fixing
common criteria for the assignment of expenditure levels to the environment under a
number of budgetary items.

112. The study was carried out at district and inter-municipal level. The geographical
area considered for each locality was demarcated according to service provision with an
environmental impact (management of water supply, refuse, public transport, etc.) with a
broader geographical reach not following the administrative boundaries.

113. The research delves into the subject of an environmental accounting approach of
the economic type, based on reclassification of the expenditure items contained in the
economic-financial budgets of the local authorities concerned. The procedure followed to
attain this objective is founded on the fixing of common areas of analysis and analytical
criteria and on subsequent systematic analysis of the economic budgets of the local
authorities and companies delivering environmental services, so as to record all items that
comply with the harmonised criteria.

114. The definition of the areas of analysis is a matter of determining the spatial
perimeter of the conurbations, which has not always strictly followed the administrative
boundaries, and of identifying the players involved in various capacities in environmental
protection operations. The stakeholders identified are subdivided into four groups:
municipalities and their groupings (districts, urban communities, etc.); semi-public
companies with a substantial level of public shareholding; enterprises holding franchises for
public services, and satellite associations of importance for measuring air quality.

115. Expenditure of environmental relevance has been identified and reckoned by

following an approach midway between a purely financial standard based on analysis of the
budgets of public entities (water boards, utilities under municipal administration, etc.)
keeping their own books from which the environmentally relevant heads can be obtained,
and a technical standard based on prior identification of environmentally relevant activities
and subsequent tracing of the expenditure items borne by the various entities involved in
such activities. The two analytical approaches have been integrated, though without a set
method being unequivocally established.

116. From a technical standpoint, the most interesting feature of the French
environmental accounting project is the criterion for allocating costs in uncertain situations
where it is not possible to fix an objective level for a budgetary item to be allocated to the
environment. The recommended procedure is based on apportionment among all the
institutional and economic operators identified during the preliminary phase. A round of
discussions among these entities has made it possible to arrive at certain evaluation
conventions. This convention does not represent the best criterion but simply one of the
possible criteria, rated by the entities concerned as the most appropriate in that specific
situation. The evaluation conventions thus have a contextual value not admitting of general
application, so that care must be taken to avoid comparisons between the expenses
incurred by different bodies where they do not adopt the same convention.

117. Among the evaluation conventions used in the French study, attention should be
drawn to the one concerning the public transport sector. The convention adopted in this
context is to assign to the objective of environmental protection the proportion of the costs
relating to so-called unfettered users, or those who use public conveyances by free choice
when they are able to use a private car. In practice, the classification environmental
excludes all the expenditure relating to the amount of service pertaining to the category of
persons compelled by their economic or social circumstances to use public transport or
enjoying reduced fares (children, students, the elderly, indigents).

F. Eco-Mayors

118. The French Eco Maires association brings together over 600 mayors who regard
environment and sustainable development as an absolute priority for their municipal
administration. The common spirit that binds the Eco-mayors is the resolve to introduce
environmental parameters and pursue follow sustainable development standards in all
actions carried out. The association is directed at mayors in so far as the environmental
quality which the citizens directly perceive depends more on municipal administrations than
on the upper tiers.

119. The associations across-the-board membership takes in mayors belonging to all

political formations and municipalities of every size from large conurbations to small rural
villages.

G. The Pastille Project

120. PASTILLE is a project run by a consortium formed for the purpose between 4
countries (United Kingdom, Austria, Switzerland and France). The co-ordinator of the whole
project is the Geography and Environment Department of the London School of Economics
and Political Science. Each country participates in the consortium through a network of
partnership between a municipal administration and one or more research centres. The
project has been financed by the European Union under the Fifth Framework Programme.

121. The main aim of the project is to test the real utility of sustainability indicators in
the process of political decision and reporting on the policies of local authorities. PASTILLE
has also turned to account the possibility of adding on local sustainability indicators at the
level of national and supranational political strategies. Among the multiple objectives of
PASTILLE, the following should be mentioned:

to define the roles that local sustainability indicators can play and the variation in
processes of indicator development;
to examine the processes of indicator development and use in the participating
communities and to relate these to the specific context of each case;
to identify the role of local sustainability indicators in processes of public policy
decision making and implementation within each partner city and to assess their
impact and effectiveness;
to disseminate research results in order to facilitate more effective local governance
and European policies more geared to subsidiarity.

122. From the operative angle, the end product of the project was a Practitioners
Guide for policy-makers and sustainable development professionals and a Pastille Test
which, through an analytical evaluation of the sets of indicators, determines the expediency
of using these within the decision-making processes of the local community. In practice the
Test constitutes a tool for self-appraisal of the sets of local sustainability indicators, which
each local administration can carry out to determine the suitability of the indicators used or
choose the set most appropriate to its situation.

7. Conclusions

123. Today, environmental accounting systems are being experimented with, researched
and utilised chiefly as statistical and informational systems.

124. On the other hand, little definition or structure attaches as yet to the utilisation, in
decisional procedures, democratic political channels and routine administration at
governmental levels, of the outcomes and information derived from environmental
accounting.

125. It is therefore a matter of moving from the laboratory to institutions, ie from the
experimental stage to that of standard practice.

126. The adoption of environmental accounting systems at all levels of government

would permit:

a) reporting, by political decision-makers to the communities governed, of the

environmental outcomes of the policies implemented, on a sound cognitive basis and
supported by consistent, updated information on the environmental position;

b) incorporation of the variable environment into official decision-making processes

at all levels of government;
c) making the environmental effects of government policy more perceptible;

d) involvement and accountability of decision-makers and interest groups committed

to sustainable development goals;

e) regular environmental monitoring and proper use of environmental data at

decisional level;

f) vertical integration of sustainable development instruments and policies.

127. Environmental accounting may become one of the principal instruments of reform
to governance at all levels of authority because it encourages the steady pursuit of
sustainable development. The instruments traditionally used to plan economic and
development policies are not in fact capable of registering the environmental costs and
therefore do not represent a suitable aid to the process of decision. They do not allow
realistic measurement of growth in a countrys economic prosperity and well-being because
they do not record important factors extraneous to the market such as value of natural
resources and environmental assets, nor do they take account of the impacts made on the
environment by pollution from human activities, especially production activities. To continue
using instruments that originated in order to measure market activity in an economy
without natural limits now means foregoing the possibility of ascertaining whether we are
moving forwards or backwards on the road of sustainable development.

128. Indeed, the concept of sustainability points to the further concepts of limits to the
exploitation of natural resources and of change in lifestyles and living patterns, above all
through the internationalisation, on the market, of the costs to be defrayed for preserving
the natural and environmental heritage and maintaining natural and environmental balance.

129. For the pursuit of this goal, the entire political process of decision needs to be
reformed in the direction of greater accountability and transparency regarding
environmental issues at every tier of government. The adoption of environmental
accounting systems makes it possible to monitor in physical terms, but also on a monetary
plane where feasible, the state of the environment and the main impacts of the policies
implemented by the public authorities. In this way, political decision-makers on the one
hand are able to incorporate the variable environment into all policies and not only
environmental ones, and on the other hand the citizens can be given a clear, aboveboard
account of the results of the politicians administrative activity, besides information on the
state of the environment and on factors of pressure. Indeed, reliable information and
transparency actuate a beneficial spiral fostering the involvement of interest groups and the
community at large, and consequently the shouldering of broad-based responsibility.

130. Environmental accounting instruments can thus become a toolbox for political
decision-makers to direct the process of reaching decisions towards sustainability. However,
for this to come about, environmental accounting must not remain confined to an
informational function but must have its uses and applications in the political sphere. As we
have seen, to mention but one example, scientists are still engrossed in the discovery and
application of an environmental and social sustainability index supplanting the traditional
macroeconomic aggregates as a measure of prosperity. Although the UN has made
endeavours in the realm of theory to arrive at a calculation of Green GDP (EDP) in the
context of applying an integrated economic and environmental accounting system, hitherto
at least there has been no corresponding dissemination of the new index on a sufficiently
extensive scale, whether because of implementation problems or owing to the cultural
change that it would involve. On the other hand, especially in the developed countries,
production of data on the various environmental aspects has now come to fruition and led to
the compilation of reports on the state of the environment at all levels of government,
though without often visibly affecting the political process. As the European Commission
noted in 1994, nothing further can be expected; the instruments now available, however
imperfect, must be used to reform government action and steer it towards sustainability.
For that reason the Commission, while not discarding the idea of attaining an effective
integrated system of accounting and consequently macro-indices of sustainability, has
recommended as short and medium-term steps the consolidation of monitoring systems,
the creation of ever more comprehensive databases on the natural heritage, and devising
economic and environmental indices with the concomitant satellite accounts. This short cut
allowing environmental accounting to get to grips with policy and policy to be gauged by
environmental accounting, is the one already taken by many countries.

131. The next move may be to adopt environmental budgets at all tiers of government,
alongside the traditional economic and financial ones. It can be realistically presumed that
the use of environmental accounting could at this juncture induce public authorities to keep
satellite accounts and apply environmental indices on which to build proper environmental
budgets, partial though they may be, following the same decisional sequence as the
conventional budgets. This is a process presently at the experimental stage in some
countries of the European Union, thanks inter alia to the financial support of the European
Commission under the Life-Environment programme. Its dissemination may boost and
deepen research on these subjects, lead to refinement of the statistical and accounting
techniques, and above all promote wide-ranging reform of governance precisely on the
basis of environmental issues.

132. The environmental budget is indeed far more than a report on the state of the
environment. It is a document with which political decision-makers, in a comparable manner
to the procedure with economic budgets, accept precise responsibilities in respect of the
development policies implemented and awaiting implementation and in respect of their
impacts on the environment. The political communitys responsibility towards the
environment, resources and the natural heritage, with the involvement of the community at
all levels, is the key to sustainable development. Responsibility on the part of enterprises,
families and other sectors of society follows from political accountability, transparency and
information.

133. As is now clearly established by the Rio de Janeiro Conference, it is necessary to

think globally and act locally in relation to sustainability. In that sense, the adoption of
environmental accounting systems and environmental budgets can help every community
understand the global nature of environmental problems and the need for vertical
integration not only of conservation policies but also of development policies. The chief
environmental problems, evidenced by a decrease in quality of life in the developed
countries and by poverty and death in the developing countries, do not admit of a strictly
localised perspective. The adoption of environmental accounting systems and environmental
budgets can give every community the proper perspective of belonging to a far wider
concourse, thereby promoting commitment to sustainable development programmes,
agreements and initiatives at all levels up to that of multilateralism.

134. In this context, importance attaches to the Council of Europes role in activating,
reforming and gradually harmonising statistical and informational systems, systems of
environmental indicators and procedures for compiling and approving budgetary documents
at all levels of government, in order that satisfactory assessments regarding the
sustainability of development may be subsumed and systematically connected with acts of
economic and social programming. The Council of Europe can promote gradual voluntary
adoption by member states of environmental accounting systems and environmental
budgeting at all levels of government. At the same time, it can promote joint research
aimed at harmonising the statistical and accounting devices needed to construct
communicating environmental accounting systems that produce comparable results, in a
like manner to economic and financial accounting:

135. In the light of the information gathered during the hearing it held in Paris in
October 2003 and the discussions on the text proposed by the Rapporteur, the Committee
on the Environment, Agriculture and Local and Regional Affairs expressed the firm belief
that it was not only necessary but possible to move from the experimental phase to that of
continent-wide practice. It repeatedly stressed that this development would simply mean
reallocating current expenditure, without generating further outlay, and making better use
of it.

136. The widespread adoption of an environmental accounting system at all levels of

government would enable policy-makers to report to national, regional and local authorities
on the environmental results of the policies pursued, on the basis of reliable data and
constantly updated information on the state of the environment, to incorporate the
environment variable into the public decision-making process at all levels of government,
and to increase transparency with regard to the impact of government policies on the
environment.

137. The Committee consequently wished the Committee of Ministers to prepare a

recommendation to member States on the introduction of environmental accounting at
national, regional and local level. It was also proposed that the member States be invited as
of now to pool the different European countries experiences of environmental accounting in
order to develop an approach that brings these systems together under a European
standard, and to systematically combine social and economic planning activities with an
accurate assessment of the sustainability of the development involved, using existing
databases, statistics and environmental indicators.

BIBLIOGRAPHY

Fausto Giovanelli, Ilaria Di Bella, Roberto Coizet La natura nel conto. Contabilit
ambientale: uno strumento per lo sviluppo sostenibile Edizioni Ambiente, Milan 1999
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ANPA, CEARDI LUISS Approcci teorici ed applicazioni di metodologie di contabilit

ambientale nazionale La Sapienza Editrice, Rome 2002 (theoretical approaches and
applications of national environmental accounting).

ISTAT Indicatori e conti ambientali: verso un sistema informativo integrato economico e

ambientale Annali di statistica, Rome 1999 (environmental indicators and accounts:
towards an integrated economic and environmental information system).

CNEL Politiche ambientali e territoriali per lo sviluppo sostenibile Rome 1997

(environmental and territorial policies for sustainable development).
Reporting committee: Committee on the Environment, Agriculture and Local and Regional
Affairs

Reference to committee: Doc. 9486 and reference No. 2745 of 24 June 2002

Draft recommendation adopted by the committee on 29 January 2004

Members of the committee: MM. Martinez Casa (Chairman) (Alternate: Mr de

Puig), Meale, Gubert, Schmied (Vice-Chairmen), MM. Aikgz, Mrs Agudo, MM. Akselsen,
Andov, Annemans, Mrs Anttila, MM. Baura, Bruce (Aternate: Mr OHara),
avusoglu, Sir Sydney Chapman, Mrs Ciemniak, MM. Coifan, Cosarciuc, Dedja,
Deittert (Alternate: Mr Wodarg), Delattre, Donabauer, Duivesteijn, Duka-Zlyomi,
Ekes, Etherington, Frunda, Giovanelli, Gtz, Graas, Grabowski (Alternate: Mr Giertych),
Grachev, Gunnarsson, Mrs Hajiyeva, Ms Herczog, MM. Hladiy, Hgmark, Ilascu, Mrs Jger,
MM. Jakovljev, Jevtic, Juric, Mrs Kanelli, MM. Karapetyan, Klympush,
Kortenhorst (Alternate: Mr Platvoet), Kuvart, Libicki, Livaneli, Lobkowicz, Loncle,
Maissen (Alternate: Mr Dupraz), Masseret, Mauro (Alternate: Mr Nessa), Mrs Mesquita, MM.
Meyer, Milojevic, Mrs Muizniece, Mr Nazar Pereira, Mrs Ohlsson, MM. Oliverio, Opmann,
Popov (Alternate: Mr Kovalev), Pullicino Orlando, Rattini, Salaridze, Mrs Schicker,
MM. Sfyriou, Sizopoulos, Steenblock, Ms Stjberg, Mrs Stoyanova (Alternate: Mr Toshev),
MM. Timmermans, Tulaev (Alternate: Mr Sudarenkov), Txueka Isasti, Vakilov, Velikov,
Wright, Zhevago,

N.B. The names of those members present at the meeting are printed in italics.

Secretariat to the committee: Mr Sixto, Mr Torcatoriu and Ms Trevisan