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Outline of Trial Estimates for Japan's Integrated Environmental and Economic Accounting

July 1998
Dept. of National Accounts
Economic Research Inst.
Economic Planning Agency

This report gives an explanation of "Trial Estimates for Integrated Environmental and Economic Accounting," which were released by the Economic Planning Agency, government of Japan, in July 1998.

For further details, please contact:

Masahito Fukami

Senior Officer for Environmental Accounts

Address: Economic Planning Agency, Tokyo 100-8970, Japan

Fax: 81-3-3581-0516

Email: masahito.fukami@epa.go.jp

(Contents)

1.Background and History

2. Outline of the Accounting System

3. Definitions for Rows and Columns of the SEEA Matrix, and Items Estimated

4. Estimation Method for Imputed Environmental Costs, and Items Estimated

5. Long-term Time Series Estimates and Physical Data Tables

6. Outline of the Results of Trial Estimates

(1)Economic activities and environment-related external diseconomies in 1990

(2)Long-term time series comparison

7. Future Issues

Table 1 The Matrix of Integrated Environmental and Economic Accounting

Tables 2-7 Results of Trial Estimates(1970-1995) of SEEA at Current Prices

Tables 8-13 Results of Trial Estimates(1970-1995) of SEEA at Constant Prices

Tables14-19 Physical Data Tables(1970-1995) Appended to SEEA Matrix

Diagram 20 Economic Activities and Environment-related External

Diseconomies in 1990 at Current Prices

Table 21 Long-term Time Series Comparison

Diagram 22 Succession of Environmental Protection Activities and

Imputed Environmental Costs

1. Background and History





There is a comprehensive statistical system called the "System of National Accounts" (SNA) whereby the flow and stock of a country's economic activities are systematically recorded using a standard format. Things such as GDP are calculated based on this system.

However, it is difficult to use the SNA to gain a detailed understanding of the state of affairs of environmental protection activities that form part of the economic activities. Neither is it possible to gain an understanding of the deterioration of the environment (external diseconomy) that goes hand in hand with economic activities. Because of this, there is a call to integrate the environment and the economy, and to establish, from the viewpoint of realizing "sustainable development", a statistical system that enables an understanding of the interrelationship between the environment and the economy.

 

With this in mind, the introduction of the "Satellite System for Integrated Environmental and Economic Accounting" (SEEA) in the form of an SNA satellite account was proposed when the United Nations revised the SNA in 1993. The concept and composition of SEEA were presented in the revised SNA manual, as well as in the "Handbook of National Accounts, Integrated Environmental and Economic Accounting, Interim Version" (hereafter referred to as the "UN Handbook") that was published by the Statistical Division of the United Nations in 1993.

The Economic Planning Agency has been carrying out research and development into the System for Integrated Environmental and Economic Accounting as a medium to long-term project since 1991. In 1995, the Agency created a trial SEEA matrix in line with the ideas in the UN Handbook, and published the results of these trial estimates. Then, based on these results, a second period of research (this time three years) was planned, with the results being announced in July 1998.

During the second research period, the researchers continued to use the SEEA matrix that had been created during the first research period. However, during this second research period, the accuracy of estimates resulting from the first estimates was improved, the number of environmental items included in the matrix was increased, and long-term time series estimates were made.

 

This research was all carried out at the Japan Research Institute under the request of the Economic Planning Agency. While carrying out the research, the Japan Research Institute held a workshop attended by academics, and also sought the cooperation of expert statisticians working in industry. All of the results obtained during the second research period were assembled, and presented as the "FY 1997 Survey Carried Out for the Economic Planning Agency: Report on Research into Integrated Environmental and Economic Accounting Estimates."

The academics mentioned above were:

Kimio Uno (Dean, Faculty of Policy Management, Keio University)

Hiroya Ono (Professor, International School of Economics and Business

Administration, Reitaku University)

Kenichi Akao (Assistant Professor, Faculty of Social Science,

Waseda University)

(Kimio Uno was the Chairman of the Workshop)

The expert statisticians mentioned above were:

Yasuharu Nakazawa and Hideto Miyachika

(System Research Center Co.,Ltd.)

2. Outline of the Accounting System

The Trial Estimates for Integrated Environmental and Economic Accounting released by the Economic Planning Agency attempts to follow the UN Handbook as faithfully as possible.

The UN Handbook describes many versions of the SEEA. The current trial estimates were carried out based on the following versions:

1. Version II, which gives SNA statistics and is divided into two sections, "Environment-related" and "Others".

2. Version IV.2, which expresses imputed environmental costs for the load on the environment caused by economic activities in monetary terms. This is done using the maintenance costs valuation method.

Furthermore, in Version V.6, internal environmental protection activities by industries (activities carried out in the workplace such as those to prevent pollution, for example water treatment) were externalized, and gross outputs were calculated; however, there is no description given of intermediate investment of the output into the industries" production activities. Statistical tables of physical data related to imputed environmental costs were also provided, but when these were created, due consideration was not given to the physical accounting of Version III.

The UN Handbook proposes the representation of the SEEA in the form of a matrix containing both flow accounts and asset accounts. In accordance with this, in the current trial estimates a form of a matrix was adopted. This SEEA matrix was created by integrating the Supply and Disposition of Commodities Matrix of the SNA and the Non-Financial Assets Matrix, and then rearranging.

Table 1 The Matrix of Integrated Environmental and Economic Accounting

3. Definitions for Rows and Columns of the SEEA Matrix, and Items Estimated

Following are the definitions of the rows and columns of the SEEA matrix used in the current trial estimates, along with a description of the items included in the estimations.

1."environment-related goods and services"(rows 3-6)

Whether goods and services are "environment-related" or not is decided according to whether those goods and services are produced by so-called "environment-related activities."

These "environment-related activities" are as defined in the UN Handbook. (They comprise "preventative environmental protection," "reactive environmental protection," "avoidance of damages from repercussions of environmental deterioration" and "treatment of damages caused by environmental repercussions.")

However, the things actually included in the estimates of "environment-related goods and services" are as follows: industrial waste disposal services, recycled products (recycling of steel and aluminum cans, glass cullets, paper recycling, plastic and rubber recycling,) and environmental assessment services (= row 4:"environment-related goods and services provided by industries"); environmental administration services, waste disposal services and sewage treatment services provided by the government (= row 5:"environment-related services provided by the government"). There were no "private non-profit institutions serving households" that could be included in the estimates.

2."environmental protection activities"(columns 7 and 12)

"Environmental protection activities" are as defined in the UN Handbook. (They comprise "preventative environmental protection" and "reactive environmental protection.")

The items estimated in the column 8 "external environmental protection activities by industries" are those activities that involve the production of the "environment-related goods and services by industries" of row 4. Specifically, these are production activities carried out by industries and related to the following: waste disposal services, recycled products, and environment assessment services.

The items estimated in the column 9 "internal environmental protection activities by industries" are activities related to pollution control such as exhaust gas treatment, wastewater disposal and waste disposal, that industries carry out by themselves within the workplace. In SNA, these items are included in the intermediate input for production activities by industries.

The items estimated in the column 12 "environmental protection activities by the government" are sewage treatment and publicly-managed waste disposal.

3."environmental protection assets"(row 14 and column 23)

"Environmental protection assets" are defined as produced assets that are used for environmental protection activities. Accordingly, figures of "consumption of environmental protection assets" are included in the "environmental protection activities" columns.

Estimates of environmental protection assets of industries (column 24) have been made for assets used in environmental protection activities by industries. Specifically, these estimates relate to waste disposal facilities operated by industries and various types of pollution control facilities that are used in the workplace. In the case of production facilities for recycled products and assets used in environmental assessment, it is difficult to estimate stocks, and so these were left out of the estimates.

Estimates of environmental protection assets of the government (column 25) have been made for assets used in environmental protection activities by the government. Specifically, these estimates relate to sewage facilities and publicly managed waste- disposal facilities. In this column, the opening and closing stocks are values of gross assets. For this reason, the data is not included in the consumption of fixed capital.

4."imputed environmental costs"(rows 16-21 and so on)

Rows 16 to 21 show the consumption that accompanies the use of "natural assets" namely, imputed environmental costs that are not included in the SNA estimate. This corresponds to the consumption of fixed capital that accompanies the use of "produced assets". In other words, these rows show a monetary evaluation of the deterioration of the environment.

Row 17 (Discharge of residuals) shows the imputed environmental costs related to the degradation of natural assets caused by environmental pollution that results from the discharge of residuals into the environment through economic activities. The items included in the estimation are air pollution and water pollution.

Row 18 (Use of land and timber etc.) shows the imputed environmental costs related to the depletion and the degradation of natural assets that accompany the use of land, timber etc. The items estimated are land development (degradation) and deforestation (depletion).

Row 19 (Depletion of resources) shows the imputed environmental costs related to the depletion of natural assets that occurs when these natural assets are taken by humans. The item estimated is the depletion of subsoil resources.

Row 20 (Effects on the global environment) shows the imputed environmental costs related to the influence of economic activities on the global environment. The item estimated is global warming caused by CO2emissions.

Row 21 (Other use of natural assets) shows the imputed environmental costs related to the use of natural assets other than those mentioned above. An estimate for this is not included in the current trial estimates.

Row 22 (Restoration of natural assets) shows the costs in the form of imputed environmental costs related to work carried out to improve the environment after it has deteriorated. Such work includes the removal of pollutants and the restoration of the ecosystem. This is the opposite of what was done in the case of imputed environmental costs related to the use of natural assets. As a result, this row gives a monetary evaluation of improvements in the environment.

Row 23 is "Shift of imputed environmental costs."In the UN Handbook, with regard to "shifts in environmental costs", imputed environmental costs of final use are transferred to domestic production of industries. These transfers are necessary for calculating the EVA (eco value added for industries while at the same time maintaining the conventional costs and value added of SNA.

If the above ideas are followed, then, in this row, the imputed environmental costs included in the "final consumption expenditure" of the government and households should be shifted to "other production activities by industries." However, in the current estimates, this kind of shift was not carried out for the reasons below; instead, only the shift described in 2) below (which serves a different purpose) was carried out.

1)The reason for shifting the imputed environmental costs included in the "final consumption expenditure" of the government and households to "other production activities by industries" is supposedly that the values calculated will then be consistent with to the wording "environmentally-adjusted net domestic product". However, the figures of "EVA for industries" that are calculated as a result will actually lead to yet greater misunderstanding.

2)In the current trial estimates, the imputed environmental costs related to the discharge of dirty water during sewage treatment carried out by the government are included in the form of imputed environmental costs for environmental protection activities by the government. At the very least, such imputed environmental costs should be shifted to households and industries, since it is households and industries that cause the dirty water to be generated in the first place. However, if such a shift is carried out at the same time as the shift mentioned in 1) above, then the meaning of these shifts will become unclear.

The result of the above is that imputed environmental costs are still included in final consumption expenditure, thus:

"Environmentally-adjusted net domestic products"

"is equal to "net domestic products - total of imputed environmental costs"

"is not equal to total of EVA by kind of production activities"

This means that the wording of the term "environmentally-adjusted net domestic product" becomes contradictory to its definition.

5."Environmentally-adjusted net domestic product"(row 25)

Within row 25, environmentally-adjusted net value added (the net value added for each production activity minus the imputed environmental costs for that production activity) is shown in each of the "production activities" columns. The total of all these, i.e. the environmentally-adjusted net domestic product, is shown in row 25, column 5.

As described above, this environmentally-adjusted net domestic product (= net domestic product (row 26, column 5) minus imputed environmental costs incurred during production activities (row 33, column 5)) is different than the standard environmentally-adjusted net domestic product (= net domestic product minus total imputed environmental costs ([row 33, column 5] + [row 33, column 15])). Because of this, special entry has been made in the accounting matrix. There is in column 1, rows 25, and show the standard environmentally-adjusted net domestic product (= net domestic product minus total imputed environmental costs). This is equivalent to carrying out the "shift" described in the UN Handbook.

However in the accounting matrix based on constant prices, because official constant prices do not exist for net domestic product, gross domestic product is shown in place of net domestic product in row 26, column 1. Accordingly, row 25, column 1 shows environmentally-adjusted gross domestic product at constant prices.

4. Estimation method for imputed environmental costs, and items estimated

The so-called "Maintenance Costs Valuation Method" was used as the basis of the method for estimating imputed environmental costs.

The Maintenance Costs Valuation Method is a method whereby an indirect evaluation is made by estimating the costs necessary to maintain the state of the environment, for which qualitative and quantitative changes have occurred, at a certain level. For example, in the case of actually occurring air pollution, an estimate is made of the amount of money required to prevent the occurrence of pollutants.

To rephrase the above, an estimate is made of the cost of hypothetical measures to prevent environmental deterioration that has already occurred. It is important to note that this estimate does not represent the value of the damage caused by the environmental deterioration.

The environmental items included in the trial estimates and the specific method of carrying out the estimations are as follows:

1. Discharge of residuals

In the case of air pollution, items considered in the estimates were SOx and NOx; in the case of water pollution, items considered were the BOD or COD organic contamination indices, along with N and P, both of which cause eutrophication. It is thought that the same measures can be adopted for reducing discharges in the case of both BOD and COD. Because of this, after imputed environmental costs had been estimated for each, the larger of the two values was taken as the imputed environmental cost for water pollution. In the case of agents that cause eutrophication, there were doubts about estimating the imputed environmental costs based on the volume of discharge of the national base. Because of this, the results of estimates for N and P have not been included in the accounting matrix.

The method of estimating the imputed environmental costs related to the discharge of residuals was the common variable for all of the environmental items. For each residuals source, first the "cost per unit" for reducing the discharge of residuals (the cost of reducing the residuals discharged by one unit) was calculated. For each source, this was then multiplied by the number of units of residuals discharged from that source, thus resulting in an estimate of the imputed environmental costs for the source. These estimates were then totaled over all of the sources to give the total imputed costs related to the discharge of the type of residuals in question. Note however that with regard to producing accurate imputed environmental costs (i.e. an accurate estimate of the costs of environmental measures), there are many problems with the estimation method used on this occasion.

2. Use of land, timber etc.

In the case of land development, the imputed environmental costs included in the accounting matrix under "developed land" were based on the area of land for which the land use changed from agricultural, wooded, or reclaimed land to developed land. The imputed environmental costs included under "agricultural and wooded land" were based on the area of land for which the land use changed from wooded or reclaimed land to agricultural land. The imputed environmental costs included under "conservation regions" were based on the reduction of the area of conservation regions. Accordingly, the items "developed land" and "agricultural and wooded land" show not the environment influenced, but rather the cause (the "development of developed land" or the "development of agricultural land") of the environmental deterioration.

In the case of deforestation, imputed environmental costs were estimated with regard to the degree by which the amount of deforestation exceeded the amount of natural growth of the forests.

With regard to the method of estimating the imputed environmental costs in the above cases, the lost profit in the case of abandoning the land development or deforestation was taken as the imputed environmental cost. For example, in the case of land development, the following relationship was used:

Lost profit in abandoning the land development

= Value added in the case that the land development had been carried out

= Cost of land development construction work

3. Depletion of resources

Subsoil resources consist of fossil fuels, non-metallic ores, and metallic ores. For these groups, the items for which production is highest in Japan are coal, limestone, and zinc, in that order. Imputed environmental costs for these three items were included in the estimates.

The estimation method used was the "User Cost Method" proposed by El Serafy. This method considers the case where part of the income obtained in each term from the mining of a resource is invested in other assets in such a way that the same income (permanent income) can be obtained after the resource has been exhausted. The imputed environmental costs for each term are then taken as the difference between the income in that term and the permanent income.

Imputed environmental costs = R - X = (1/(1+i)n)R

R: income in the current term; X: permanent income; i: interest rate of 5%;

n: number of years before the subsoil resources are exhausted

4. Effects on the global environment

Estimates were made for the imputed environmental costs related to the emission of CO2. CO2was chosen because it is one of the substances that cause global warming, and furthermore because, of the greenhouse gases emitted by Japan, it causes about 95% of the total greenhouse effect.

When carrying out the estimates, consideration was first given as to what constitutes a sustainable environmental standard with regard to global warming caused by the emission of CO2. It was decided to estimate the portion attributable to Japan of the amount of CO2that is absorbed by nature (i.e. by the ocean, trees etc.), and to take this to represent the amount of CO2emissions that would not cause global warming. Of the total amount of CO2that is absorbed by nature, statistical data is available on the portion attributable to Japan of the amount that is absorbed by forests. The amount of CO2that is absorbed by the oceans and other land-based absorbers is larger than the amount that is absorbed by forests, but it is not possible to calculate by scientific means the portion of this attributable to Japan. Because of this, the total amount of CO2absorbed throughout the world was allocated to different countries, based on relative population in the case of absorption by the oceans, and based on relative land area in the case of land-based absorbers other than forests. By doing this, it was then possible to calculate the portion attributable to Japan.

As a result of the above estimates, 24% of the total 1990 emissions of CO2from Japan (74 million tC) was regarded as being absorbed by nature attributable to Japan, leaving an excess of 76% (233 million tC) to be considered in the calculation of imputed environmental costs. (The latter figure is referred to below as the "excess amount of CO2emissions".)

The imputed environmental costs thus had to be calculated as the cost of measures to reduce CO2emissions by 233 million tC. However, it is evident that, even if all the currently available techniques for reducing CO2emissions were combined, it would not be possible to achieve a reduction of this magnitude. One might think, of course, that the imputed environmental costs could be estimated by following the ideas shown in the UN Handbook; that is, by estimating the reduction in NDP corresponding to the cutback in economic activities necessary to bring about the desired reduction in CO2emissions , and then taking this estimate to be the imputed environmental costs. However, it is not easy to calculate the correlation between the reduction in CO2emissions and the reduction in NDP. Because of this, it was concluded that, as technological measures do not exist to reduce CO2emissions by the excess amount, it is not possible to calculate the corresponding imputed environmental costs. Accordingly, no figures are included in the accounting matrix.

5. Restoration of natural assets

Various types of undertakings are carried out in Japan with the aim of restoring natural assets. However, because statistical data is available on the costs of dredging and water-channeling work carried out on polluted rivers, and on the costs of work carried out to improve contaminated soil on agricultural land, it is these costs that were used as the imputed environmental costs in the current accounting matrix.

5. Long-term time series estimates and physical data tables

As the results of the trial estimates, SEEA Matrices at current prices were created for 1970, 1975, 1980, 1985, 1990 and 1995. When making these long-term time series estimates, there is a lot of basic data missing. Thus, assumed values were created for such missing data through means such as linear interpolation. In particular, for 1995, there was a lot of basic data that is not yet assembled and published, and so the values for this year are merely provisional trial calculation values.

Tables 2 -7: Results of trial estimates (1970-1995) of SEEA at current prices

In order to make it possible to compare time series, SEEA matrices at constant prices were created. These were based on SEEA matrices at current prices, and were created using existing SNA deflators and inflators of the linked input-output tables. 1990 was taken as the base year.

Tables 8-13: Results of trial estimates (1970-1995) of SEEA at constant prices

When SEEA matrices were created, the physical data relating to the environment that formed the basis of the estimates of imputed environmental costs were also arranged in the form of physical data tables. On the other hand, little physical data relating to the environment exists that can be related to environmental protection activities, and so such data has not been included in the physical data tables.

Tables 14-19: Physical data tables (1970-1995) appended to SEEA matrices.

6. Outline of the results of trial estimates

(1)Economic activities and environment-related external diseconomies in 1990 (at current prices; Diagram 20)

Here we give an explanation of the results of trial estimates in 1990. 1990 is the year for which the most complete basic data was available, and was used as the base year for constant prices.

1. Environmental protection activities

The gross value added for external environmental protection activities by industries (waste disposal, recycling and environmental assessment) was 2.72 trillion yen, that for internal environmental protection activities by industries (activities to control pollution undertaken by industries within the workplace) was 0.32 trillion yen, and that for environmental protection activities by the government (waste disposal and sewage treatment) was 1.47 trillion yen. The grand total of gross value added for these three categories (i.e. including internal environmental protection activities by industries) was thus 4.51 trillion yen, which is 1.0% of the GDP (430 trillion yen).

2. Environment-related goods and services

Looking now at environment-related goods and services, the gross output (purchasers' values) of industries was 3.66 trillion yen (waste disposal, recycling and environmental assessment), while that of the government was 2.43 trillion yen (environmental administration, waste disposal and sewage treatment). This gives a total of 6.08 trillion yen, which is 0.7% of the gross output (865 trillion yen).

For environment-related goods and services, the intermediate consumption was 3.93 trillion yen (3.56 trillion yen for industries and 0.34 trillion yen for the government). This is 1.0% of the total intermediate consumption. The final consumption was 2.15 trillion yen (1.61 trillion yen for the government and 0.55 trillion yen for households). This is 0.8% of the total final consumption.

3. Environmental protection assets

The gross fixed capital formation of the environmental protection assets held by industries (waste disposal facilities and pollution control facilities) was 0.32 trillion yen, while that of environmental protection assets held by the government (waste disposal facilities and sewage facilities) was 2.65 trillion yen. This gives a total of 2.97 trillion yen, which is 2.2% of the total gross fixed capital formation for all man-made assets (135 trillion yen).

The value of the closing stocks of environmental protection assets held by industries was 2.35 trillion yen, while that of environmental protection assets held by the government was 32.52 trillion yen. This gives a total of 34.87 trillion yen, which is 3.3% of the total value of the closing stocks for all man-made assets (1,052 trillion yen).

By the way, the value of the closing stocks of timber was 41 trillion yen, that of other cultivated assets (livestock, orchards and fisheries) was 4 trillion yen, that for land was 2,376 trillion yen, and that of subsoil resources was 0.7 trillion yen.

4. Imputed environmental costs

The total imputed environmental costs were 4.19 trillion yen, which is 1.0% of the GDP (1.1% of the NDP).

Looking at these imputed environmental costs according to the cause of the environmental deterioration, the imputed environmental costs for production activities by industries were 2.42 trillion yen, while those for final consumption by households were 1.77 trillion yen.

Now looking at the same imputed environmental costs according to the natural assets that deteriorated, these costs were 2.4 trillion yen for air, 0.65 trillion yen for water, and 1.14 trillion yen for land.

5. Environmentally-adjusted net domestic product (EDP)

Subtracting the imputed environmental costs (4.19 trillion yen) from the NDP (366.87 trillion yen) gives an EDP of 362.69 trillion yen.

(2)Long-term time series comparison (at constant prices; Table 21 and Diagram 22)

Based on SEEA matrices at constant prices for 1970, 1975, 1980, 1985, 1990 and 1995, we will now look at long-term changes in the economy and the environment. Note however that there is still insufficient basic data available for 1995, and so the values for this year are merely provisional trial calculation values.

 

1. Environmental protection activities

The gross value added for environmental protection activities in1995 was 5.6 times that of 1970 (7.7 times for industries only, 3.6 times for the government only). The growth in environmental protection activities was particularly large for industries. During this period, GDP increased by only 2.5 times, meaning that the percentage of environmental protection activities for GDP rose from 0.5% in 1970 to 1.1% in 1995.

2. Environment-related goods and services

The gross output of environment-related goods and services in 1995 was 5.6 times that of 1970 (6.3 times of industries only, 4.9 times of the government only). During this period, total gross output increased by only 2.4 times, meaning that the percentage of output of environment-related goods and services for total gross output rose from 0.4% in 1970 to 0.9% in 1995.

The intermediate consumption of environment-related goods and services in 1995 was 7.8 times that of 1970(7.3 times of industries only, 40.6 times of the government only. The percentage of environment-related goods and services for total intermediate consumption rose from 0.3% in 1970 to 1.0% in 1995.). The final consumption of environment-related goods and services in 1995 was 3.9 times that of 1970 (4.3 times for the government only, 3.0 times for households only. The percentage of environment-related goods and services rose from 0.6% in 1970 to 1.0% in 1995.).

The growth of the government was large in the cases of both intermediate consumption and final consumption.

3. Environmental protection assets

The closing stock of environmental protection assets of 1995 was 11.9 times that of 1970 (6.8 times of industries only, 12.4 times of the government only). During the same period, total man-made assets increased by only 4.5 times, meaning that the percentage of environmental protection assets for total man-made assets rose from 1.3% in 1970 to 3.4% in 1995.

By the way, the closing stock of timber assets of 1995 was 1.7 times that of 1970. It is thought that this increase was mainly due to the natural growth of trees. The percentage of timber for total value produced assets dropped from 8.3% in 1970 to 3.3% in 1995.

4. Imputed environmental costs

The total imputed environmental costs were highest in 1975 at 6.18 trillion yen, and lowest in 1990 at 4.19 trillion yen. The overall trend is that imputed environmental costs were high in the 1970s, before dropping and then going sideways in the 1980s and the 1990s.

The imputed environmental costs as a percentage of GDP were highest in 1970 at 3.1%. This figure dropped rapidly in the 1970s, reaching 1.5% in 1980. The values for 1990 and 1995 were both 1.0%.

Looking now at the imputed environmental costs according to the cause of the environmental deterioration, in 1970 production activities by industries accounted for 76% of the total imputed environmental costs, while final consumption by households accounted for 21%. The percentage accounted for by production activities by industries fell gradually in subsequent years, while that accounted for by final consumption by households rose; by 1995 these percentages had reached 52% and 48% respectively.

Looking now at the same imputed environmental costs, but this time from the point of view of natural assets that deteriorated, in 1970 air accounted for 72% of the imputed environmental costs, while land accounted for 18%, and water for 6%. The percentage for air decreased gradually in subsequent years, while that for land remained more-or-less constant, and that for water increased.

By 1995, the percentages for air, land, and water had reached 55%, 26%, and 20% respectively.

5. Environmentally-adjusted gross domestic product

Finally, we turn to environmentally-adjusted GDP, which is calculated by subtracting the imputed environmental costs from the GDP. This environmentally-adjusted GDP rose by a factor of 2.56 from 179.72 trillion yen in 1970 to 460.35 trillion yen in 1995. Because imputed environmental costs dropped over this period, while GDP rose, the growth in environmentally-adjusted GDP (2.56 times) is larger than that in GDP (2.51 times)

7.Future issues

The current trial estimates were carried out as part of research, the aim of which is to establish a system for integrated environmental and economic accounting. The specific aims of the trial estimates were to verify the basic statistics that can be used, to investigate the methods for estimating the various values used in the account, and, along with this, to examine the possibility of using the estimated values in policy-making.

While conducting the research, it became clear that there are aspects of the estimation method that need improving. For this reason, it is not yet possible to use the results of the current trial estimates as basic data for policy-making. On behalf of the Economic Planning Agency, we therefore intend to continue this kind of research into the future, with the aim of creating a system for integrated environmental and economic accounting that can actually be used in policy-making. This will be done while considering international trends in research and development.

Cabinet Office, Government of JapanEconomic and Social Research Institute
1-6-1 Nagata-cho, Chiyoda-ku, Tokyo 100-8914, Japan.