Secondary Trial Estimation of the Environmental Protection Expenditure Account and the Trial Estimation of the Waste Account in Japan

June, 2000
Department of National Accounts
Economic Research Institute
Economic Planning Agency (EPA)
Japan

The Economic Planning Agency (EPA) has been conducting a study of the System of Environmental and Economic Accounting (SEEA; a satellite account for the System of National Accounts), a statistical system developed to clarify the relationship between the environment and the economy.

The first results of the trial estimation of Japan's Environmental Protection Expenditure Account for 1990 were reported as part of the study of SEEA in 1999. Based on recent additional data, the first results were revised and the trial estimation for 1995 is published below in Part I "Secondary Trial Estimation Results on Environmental Protection Expenditure Account."

Among various environmental issues, a study on "Waste Account" focusing on waste and recycling conducted in FY 1998 - FY 1999 is introduced in Part II "Trail Estimation Results on Waste Account" below.

I Secondary Trial Estimation Results on Environmental Protection Expenditure Account

1. The Environmental Protection Expenditure Account

"Environmental Protection Expenditures" are those expenditures spent on economic activities for environmental protection, for example, costs paid by businesses for treatment of industrial waste to treatment firms and the sewage bills households pay to the local authorities. "The Environmental Protection Expenditure Account" macro-economically summarizes such costs into statistical data. These statistics are researched and developed as a part of the "the European System for the Collection of Economic Data on the Environment" (SERIEE) by Eurostat.

The Environmental Protection Expenditure Account is referred to as the statistics indicating the responses of society to environmental problems. Namely, measuring the financial exposure of each economy for environmental protection helps to evaluate the influence of environmental protection costs on international competitiveness, the execution of the Polluter's Pay Principle, and cost-effect analyses of environmental control measures. Furthermore, measuring the production and consumption of goods and services for environmental protection provides the basic data to promote economic policies concerning the so-called environmental industries. Presumably, it contributes more for the apprehension and analysis of the economic aspects of environmental measures than for environmental issues.

2. National Expenditure for Environmental Protection

One effort the Environmental Protection Expenditure Account makes is to calculate an index for the "National Expenditure for Environmental Protection."

Roughly speaking, "National Expenditure for Environmental Protection" is the sum of the consumption of environmental protection services (for example, waste water treatment and waste treatment services) and of the gross capital formation to produce environmental protection services (e.g., construction costs of waste water treatment facilities). Hence, national expenditure are constructed in the similar way as gross domestic product. The national expenditure aggregate indicates the amount spent by the nation in a given year for environmental protection. Therefore, the GDP ratio may contribute toward evaluating the relative national efforts for environmental protection.

However, this is an evaluation based on monetary units and does not indicate that environmental control measures are sufficient when the GDP ratio is high. On the other hand, this may signify that the social structure of the economy is such that it requires huge environmental control measure expenditures, or that the unit cost required for the environmental control measures is high. The development of physical data related to environmental protection is also required to analyze the cost effects of environmental control measures.

3. The Concept of the EPEA and Subjects for Trial Estimation

1) Characteristic Services

Production activities for environmental protection (production activities attempting to prevent, abate, or eliminate environmental degradation) are called "Characteristic Activities" for the purpose of the Environmental Protection Expenditure Account. These activities produce as their output "Characteristic Services (i.e. Environmental Protection Services). The following Characteristic Services are included in this trial estimation.

• Industry-related services: Private waste treatment services

  Services provided by the pollution-prevention activities

  in business establishments (ancillary production)

• Government-related services: Public waste treatment services

  Sewage treatment services

  Environmental administration

Furthermore, gross domestic fixed capital formation for "Characteristic Services" include the construction costs for such facilities to produce the Characteristic Services as mentioned above. The gross fixed capital formation for private waste treatment, pollution prevention activities in business establishments, public waste treatment and sewage treatment are subject to trial estimation.

2) Connected/Adapted Products

"Connected Products" are those products directly used for environmental protection; but which are not Characteristic Services or intermediate inputs for characteristic activities, like rubbish bins, septic tanks, and anti-noise windows. From this trial estimation, "combined treatment type septic tanks" and "catalyst for vehicle exhaust treatment (not catalytic converters for the lack of basic data. Figures of catalyst for vehicle exhaust treatment are estimated based on the shipment value of catalyst itself, not on that of converter devices.)" have become subject to trial estimation.

Products such as desulfurized fuel and lead-free gasoline, which are advantageous for purposes other than environmental protection and are environmentally attractive and effective compared to other products, are called "Adapted Products." Though there were no products subject to this trial estimation, "low-benzene gasoline" was included in the trial estimation for its characteristic similitude.

The consumption of Connected/Adapted Products by households adds to the total economic resources a country devotes to environmental protection and may be considered environmental protection services produced by households. Therefore, the sum of Connected/Adapted Products and Characteristic Services is helpful to give a better view of the nation-wide execution of environmental protection activities.Therefore, Characteristic Services and Connected/Adapted Products are defined as "Specific Products."

3) Specific Transfers

Unilateral transfers of expenditures that contribute to finance the production of Characteristic Services or the consumption of Specific Products are called "Specific Transfers." Specific transfers are divided into current transfers and capital transfers. Transfers which are not included in the consumption value of Specific Products nor in the gross capital formation for characteristic activities are reported as specific transfers, and are considered items of the national expenditure for environmental protection (for example, subsides that reduce the statistically recorded prices or costs of production of environmental services).

Subsidies to industries for private waste treatment activities and for pollution prevention activities in business establishments and subsidies to households for the installation of a combined treatment type septic tank, (of which are current transfers), are subject to this trial estimation.

4) The Introduction of the 1993 Revised SNA Concept

The Environmental Protection Expenditure Account is based on the new SNA standards revised in 1993, and differs from the SNA revised in 1968 that Japan uses now. Such new concepts as market outputs, non-market outputs, collective consumption and actual final consumption are introduced.

It must be especially noted that "collective consumption by the government" and "actual final consumption by households" are different from the traditional final consumption expenditure.

4. Results of Trial Estimation

The results for the trial estimation of the Environmental Protection Expenditure Account of Japan in 1990 and 1995 are presented in "National Expenditure by Components and by Users/Beneficiaries (Table A)" (Table I-1,2), and "Production of Characteristic Services (Table B)" (Table I-3,4). The basic data for the trial estimations are referenced from the "Input-Output Tables" (Management and Coordination Agency) and the "Survey on Capital Investment into Pollution Control" (Ministry of International Trade and Industry).

Table A gives the amount of expenditure of the users/beneficiaries for each environmental protection expenditure to calculate the "National Expenditure for Environmental Protection." Table B gives the output structure of the Characteristic Services according to the producer of such Characteristic Service, and it becomes the basic data to prepare Table A.

In the system of the Environmental Protection Expenditure Account, there are also "Supply and Use Table for Characteristic Services (Table B1)," "Financing of National Expenditure (Table C)" and "Environment-related Financial Burden (Table C1)." However, they have not been prepared for the lack of basic data.

(1) Outline of the trial estimation (Table and DiagramI-5,6,7,8)

The outline of the Environmental Protection Expenditure Account for Japan in 1995 is as follows:

The "National Expenditure for Environmental Protection" was 11.52 trillion yen(45% increase over 1990), a 2.38% (1.84% in 1990) of the GDP (483.22 trillion yen). The breakdown: current expenditure 6.68 trillion yen (structural proportion 58%, 35% increase over 1990), and capital expenditure 4.84 trillion yen (structural proportion 42%, 62% increase over 1990).

As from the results, the Environmental Protection Expenditure in Japan is considerably high, showing a strong increase over the past five years (an upswing of the governmental expenditure for environmental protection can be read from the breakdown). On the other hand, there are various Environmental Protection Expenditure that cannot be specified in the trial estimation, and the specification of such expenditure may potentially increase the National Expenditure for Environmental Protection in Japan.

Expenditure by environmental domains are, 5.235 trillion yen (structural proportion 45.5%, 45% increase over 1990) for waste water management, 4.17 trillion yen for waste management (structural proportion 36.2%, 36% increase over 1990), 900 billion yen for the protection of ambient air (structural proportion 7.8%, 19% increase over 1990), and 1.21 trillion yen for other domains (structural proportion 10.5%, 146% increase over 1990).

The reasons for the large structural proportions for waste water management and waste management are not only because the scale of operations for sewage and waste treatment are large but also because the percentage of prehension of the domains are relatively high compared to other domains. On the other hand, since there is little data on the protection of ambient air, the structural proportion may be smaller than the actual state. The upswing figure of other domains reflects the drastic increase in the environmental administrative budget.

Consumption of Specific Products is 6.65 trillion yen , within which the final consumption is 3.53 trillion yen (structural proportion 53%), and the intermediate consumption is 3.12 trillion yen (structural proportion 47%). The final consumption for waste water management and waste management are 1.14 trillion yen (structural proportion 17%) and 1.36 trillion yen (structural proportion 20%) respectively and the intermediate consumption of waste management by industries is 1.29 trillion yen (19%). This breakdown shows that the expenditures for treatment of domestic waste water, domestic waste, and industrial waste account for a large proportion.

Expenditures for connected products such as the combined treatment type septic tank and catalyst for vehicle exhaust treatment are 76 billion yen and 31 billion yen respectively and do not account for a large proportion of the Environmental Protection Expenditure.

Since the cost (19 billion yen) burdened by the oil refineries for producing low-benzene gasoline is not shifted onto the price of gasoline, low-benzene gasoline is not considered an adapted product. Therefore, the cost is reported as the expenditure for ancillary environmental protection activities by the oil refining industry.

The gross capital formation for characteristic activities was 4.83 trillion yen , of which the capital formation made by the government for waste water management was 3.4 trillion yen (structural proportion 70%), reported as the sewage construction cost.

The Environmental Protection Expenditure for 1990 (7.9338 trillion yen) reported this year is smaller than the Expenditure for 1990 (9.7549 trillion yen) reported last year by 1.82 trillion yen. This is because the intermediate consumption of waste water management and waste management by industries proved to be substantially lower by the re-aggregation of the data and because the environmental assessment expenditures in which the data lack credibility were removed from the estimates.

(2) Comparison with Germany and Australia (TableI-9,10,11)

Germany and Australia are examples of foreign nations estimating the Environmental Protection Expenditure Accounts in 1995. A comparison of the trial estimation results in Japan and the estimation results of Germany and Australia are given below. However, there is a wide discrepancy among nations for the range subject to estimation for the Environmental Protection Expenditure. Furthermore, it must be noted that the estimation results for Japan are still in the trial stage estimation and there is little significance in simple comparison of the numeric values.

The characteristics of the structural proportion of Environmental Protection Expenditures by domain show that the structural proportions of the protection for nature conservation (18%) in Australia and of protection for ambient air (including noise abatement and other environmental protection; 18%) in Germany are large. This seems to reflect the differences in the priority of environmental issues in each nation. The relatively high share of "protection of ambient air, noise and other" in Germany is based mainly on air protection measures in industry branch (about 90% of the expenditure) reflecting the different environmental acts in Germany.

For the structural proportion of current expenditure/capital expenditure, the structural proportion of the capital expenditure in Japan is comparatively high, resulting from the sewage construction cost (capital expenditure for waste water management) accounting for 30% of the total. The sewage construction cost is included in the accounts of Germany and Australia. In Australia, however, it is possible that the estimates of capital expenditure for waste water management are conservative due to the estimation techniques used. It may also be that the relative costs of sewage construction are lower due to the fact that a lot of Australia's sewerage infrastructure is already in place and adequate for the low population size.

The gross amount and per capita amount of the Environmental Protection Expenditure is highest in Japan, but the percentage of the GDP is highest in Germany. Though Australia shows the lowest figures among the nations, this should not be interpreted that environmental protection measures are being neglected in Australia. The low amount of Environmental Protection Expenditures may mean that the nation does not have many environmental issues in the first place.

It is necessary to handle the Environmental Protection Expenditures together with physical data concerning the environment. The interpretations, however, still need to be discussed.

Acknowledgements

We would like to acknowledge the help of Mr. Anton Steurer (Eurostat), Mr. Gerard Gie, Mr. Wolfgang Rieg-Wcislo (German Federal Statistical Office), Mr. Bob Harrison, Ms. Sarah Coleman, Mr. Barb Vernon, Mr. Peter Meadows, Ms. Mary Patton (mention above, Australian Bureau of Statistics), who offered useful commentary on an earlier draft.

References

Gerard Gie and Anton Steuer (1998)

A Comparison of Frameworks for Environmental Expenditure Accounting

Prepared for the London Group Meeting in Fontevraud, France

Anton Steurer (Statistical Office of the European Communities) (1995)

The Environmental Protection Expenditure Account of Eurostat's SERIEE

Prepared for the London Group Meeting in Washington D.C.

Wolfgang Riege-Wcislo (German Federal Statistical Office) (1999)

Implementation of SERIEE in Germany; Reporting year 1995

Prepared for Eurostat and DG Environment

Australian Bureau of Statistics (1999)

Environment Protection Expenditure; Australia; 1995-96 and 1996-97

---

II Trial Estimation Results on Waste Account

1. The Waste Account

Because a wide range of environmental issues were subject to the studies of the "System of Environmental and Economic Accounts," there were limitations in the availability of accounts for individual environmental issues.

Therefore, a study on the Waste Account that focused on waste/recycling under the concepts of the SEEA was made in FY 1998 -- FY 1999 to develop a more detailed relation between specific environmental issues and the economy.

The Waste Account is comprised of macro-economic statistics that describe actual production /consumption activities of waste treatment and recycling in accordance with the SNA concept, and monetary valuing of the environmental load caused by waste disposal.

2. Creating a Waste Account

The Waste Account Matrices were created as a "Basic Matrix" (omitted) that separates and clarifies the enumeration related to waste/recycling from the "SEEA Matrix." They were also created as a "Matrix on Waste Treatment and Recycling by kind of Economic Activity" (Table II-1, 2(Excel Format)) which indicates the details of the enumeration according to the categories of the economic activities.

Basic data for account estimations are all referenced from disclosed data mainly given in "Input-Output Tables" (Management and Coordination Agency), "Waste Treatment in Japan" (Ministry of Health and Welfare) and "Survey on Capital Investment into Pollution Control" (Ministry of International Trade and Industry).

The periods of estimation in which the Input-Output Tables data are available are 1990 and 1995.

(1) Production/Consumption Activities in Waste Treatment and Recycling

Data for production/consumption of waste treatment services (waste treatment businesses and waste treatment operations by local authorities) are referenced from the "waste treatment (industries)" and "waste treatment (public)" data given in the Input-Output Tables.

Since basic data referring to the conditions of recycling are scarce, the Input-Output data for "recyclable goods" such as scrap glass, recyclable paper, scrap iron, and non-ferrous metal scrap given in the "Table on Scrap and By-products" of the Input-Output Tables are referenced.

The "intermediate consumption waste treatment services" is the cost of production activities and the "output of recyclable goods" is the sales of products. The two trade-off each other conceptually. (If the output of recyclable goods is large, the volume of waste to be sent to the waste treatment services should decrease. However, since the composition of recyclable goods and materials sent to waste treatment are quite different, a clear trade-off relation is not performed.) Therefore, simply stated, by decreasing the consumption of waste treatment services by increasing the output of recyclable goods, the producer will be able to gain more profit. The "Matrix on Waste Treatment and Recycling by kind of Economic Activity" accounts for the difference in the two by type of economic activity.

(2) Monetary Valuation of the Environmental Load Caused by Waste Disposal

The monetary valuation of the environmental load caused by waste disposal is estimated by the "Maintenance Cost Valuation" with reference to the "Integrated Environmental and Economic Accounting ?An Operational Manual? " published by the United Nations in 1999.

Namely:

1) Apprehending the environmental load caused by waste disposal (for example, the amount of final disposal) through physical data.

2) Estimating the cost spent for the measures practiced for the reduction of environmental loads and the calculation of unit cost required to reduce the environmental load by one unit (the unit reduction cost of waste for the final disposal of waste).

3) Monetary valuation will be made by multiplying the amount of environmental load (final disposal amount) and the unit cost (unit cost for reduction of final disposal amount).

The significance of the monetary value of the environmental load by maintenance cost valuation is to denote a rough image of the amount of costs required for the reduction of the environmental load by weighing the environmental load with the unit reduction cost (in other words, the costs to internally economize the external diseconomies. However, since this method is very rough, the costs may be very different from the actual costs required.), and to make it possible to compare the costs required to reduce different environmental loads (for example, computing the amount of final disposal and the carbon dioxide emission into the cost required for the reduction measures to compare whichever measure is more costly).

The monetary value of the environmental load caused by waste disposal may be called the "additional waste treatment cost expected to be spent" in relation to the "waste treatment costs actually spent" (= consumption of waste treatment services).

(3) Physical Table

The above figures are monetary indications, size does not necessarily reflect the conditions of the environment. The value of the monetary indication that may be called the economic enumeration related to the environment will be useful for environmental/economic analysis when it is combined with the physical data of the environment.

Therefore, a Physical Table (Table II-3, 4(Excel Format)) containing physical data related to waste treatment and recycling was made.

3. Trial Estimate Results

An overview of the results of the trial estimation is given below (Diagram II-5). However, since basic data is insufficient, it must be noted that the credibility of the values is low. For example, the main source of data, the Input-Output Tables, themselves are processed statistics. Though the credibility is considered to be high, it is doubtful whether the accuracy is compatible with the analysis of very small domains of concern.

One of the biggest problems revealed by the trial estimation is that basic data to create environmental/economic statistics are insufficient even when focusing on a specific environmental domain. The collection, maintenance and disclosure of basic data by relevant parties are required to utilize the economic analysis in environmental/economic policies.

(1) Waste Treatment Services

The total consumption of waste treatment services in 1995 was 3.9 trillion yen (17% increase over 1990). The breakdown of suppliers were industry-related services: 1.87 trillion yen (structural proportion 60%, 18% increase over 1990), and government-related services: 1.22 trillion yen (structural proportion 40%, 15% increase over 1990). However, 90% (approximately 1.11 trillion yen, structural proportion 36%, 16% increase over 1990) of government-related services are unpaid by the beneficiary. They must, therefore, be paid from tax collected.

For the breakdown of demand, the intermediate consumption of production activities accounts for 56% of the total, of which the "Services and Others" accounted for 630 billion yen (structural proportion 20%). The "Producers of Government Service" accounted for 440 billion yen (structural proportion 14%), and the "Manufacturing" for 210 billion yen (structural proportion 7%). Furthermore, the final consumption of Government and Households showed approximately 1.36 trillion yen, of which Households accounted for 250 billion yen (structural proportion 8%). Since the Government final consumption is the self-consumption of the government-related waste treatment services, the total of the final consumption indicates the treatment cost of domestic waste.

The consumption of waste treatment services is larger in the service industries and in households, where goods are mainly consumed, than in the manufacturing industries, where goods are produced. This is also related to the output of recyclable goods by manufacturing industries mentioned later. However, the figures for the waste treatment made by the industry itself are not reflected in the figures of waste treatment services. The self-treatment costs of waste for the industry, estimated separately, is approximately 40 billion yen ; not a very large figure.

Combining the monetary data given above with the physical data, the total amount of industrial waste output in accordance with production activities is 394 million tons, and the treatment cost is approximately 1.74 trillion yen. Therefore, the treatment cost will be approximately 4,400 yen per ton. On the other hand, the total amount of domestic waste is approximately 50.7 million tons and the treatment cost is 1.36 trillion, giving a treatment cost of approximately 26,800 yen per ton. However, since the incredibility of both the monetary and physical data has a tendency to accumulate, the analysis must be handled with prudence.

(2) Recyclable Goods

The total amount of output of recyclable goods in 1995 was approximately 650 billion yen , one fifth of the total amount of consumption of the waste treatment services. The majority was output from the "fixed capital formation by industries" (generation of scrap metal involved in the renewal of fixed capital, approximately 315 billion yen , 48% of the structural proportion) and from "Manufacturing" (approximately 230 billion yen, structural proportion 36%).

In the manufacturing industries, the amount of recyclable goods output exceeds the amount of waste treatment services consumed (approximately 210 billion yen ); the amount of the surplus was 20 billion yen. Though this figure is very small compared to 119 trillion yen -- the gross value added for the manufacturing industries, it may be noted that recycling is contributing toward promoting reduction in production costs.

For "Households" and "Services and Others" where the consumption of waste treatment services were high, the output of recyclable goods was one digit smaller than that of "Manufacturing." The output of "Households" was 35 billion yen , while that of "Services and Others" was 38 billion yen.

However, the breakdown of the output of recyclable goods was scrap iron 305 billion yen (structural proportion 47%), non-ferrous scrap metal 258 billion yen (40%), scrap glass 83 billion yen (13%), and recyclable paper 3 billion yen (0.5%). It must be noted that the composition significantly influences the output by kind of economic activities.

The 1995 aggregate amount for the output of recyclable goods decreased 33% from 975 billion yen of 1990. This is due to the decrease in output of scrap iron, non-ferrous scrap metal. The causes of decline are unknown, but it may be assumed that the change in market price also influences the aggregate amount as well as the amount of recyclable goods.

(3) The Monetary Valuation of the Amount for the Final Disposal of Waste

An attempt was made to make an estimation for the final disposal of waste, protection of ambient air and the emission of carbon dioxide for the monetary valuation of the environmental load caused by waste disposal. The following introduces the monetary valuation of the final disposal of waste in which the basic data of unit cost was comparatively valid, and an estimation by kind of economic activity can be made.

The monetary value of the 1995 final disposal of waste was approximately 950 billion yen (10% increase over 1990), which was one third of the consumption of the waste treatment service of the year. (This means that it is necessary to increase the waste treatment expense by 30% to reduce the amount of final disposal. However, it must be noted that the credibility of the monetary value is extremely low and the figures may only be considered a guidepost.)

The breakdown of the source of waste, waste from households final consumption (namely, domestic waste) is approximately 620 billion yen (structural proportion 66%, 24% increase over 1990), waste from production activities (namely, industrial waste) is approximately 330 billion yen (structural proportion 34%, 9% decrease from 1990). The breakdown within production activities is "Manufacturing" 110 billion yen (structural proportion 11%, 20% decrease from 1990) and others less than 100 billion yen each.

Investigating the physical data for the amount of the final disposal of waste, the amount of final disposal for industrial waste (69 million tons) is five times that of domestic waste (13.6 million tons). However, since the unit cost for the reduction of industrial waste (4,751yen/t) is approximately one tenth of domestic waste (45,854yen/t), the monetary value is less than one half.

Compared to 1990, the amount of final disposal of waste in 1995 declined in both domestic waste and industrial waste (domestic waste: -19%, industrial waste: -22%). The unit cost increase of domestic and industrial waste in 1995, in comparison with 1990, was 53% and 18% respectively, resulting in a discrepancy in the monetary value of domestic and industrial waste. That is to say, the increase in the monetary value for the final disposal of domestic waste reflects the sharp increase in unit cost for reduction.