Depletion of Non-Renewable Resources Report on London Group outcomes UNCEEA meeting, New York, July 2007 Peter Comisari Gemma Van Halderen Australian Bureau.

Depletion of Non-Renewable Resources

Report on London Group outcomes

UNCEEA meeting, New York, July 2007

Peter Comisari

Gemma Van HalderenAustralian Bureau of Statistics

London Group, depletion and the updated SEEA

London Group has commenced work on the recommended treatment of depletion of non-renewable natural resources within an updated SEEA

Key fundamental decisions on two aspects of depletion taken at the March 2007 London Group meeting in Johannesburg

This session reports on the Johannesburg outcomes

SEEA-2003

Characterised by multiple treatment options for some issues

If SEEA is to become an international statistical standard, these ‘options’ must be reconstituted as clear accounting recommendations

SEEA 2003 Chapter 10: sections

Depletion

Defensive expenditure

Degradation

SEEA 2003 Depletion

Depletion:

Five sets of options

Two sets of options targeted for resolution at March 2007 London Group meeting

Two issues for resolution

1. How best to view resource rent associated with the extraction of natural resources?

2. How best to view the discovery of mineral and energy resources ie subsoil assets?

i.e. what is the relationship between mineral exploration and new discoveries of mineral and energy resources (subsoil assets)?

Issue 1

How best to view resource rent associated with the extraction of natural resources?

How to define the income element of resource rent?

SEEA 2003 presented three options

A1. Entire resource rent = income

A2. No resource rent = income

A3. Resource rent = part income and part depletion

London Group Recommendation: A3 resource rent = part income, part depletionOption A1 implies that natural resources are

infinitely abundant – evidently not true for many resources.

Option A2 ignores often substantial income earned by these industries – base for tax revenue etc.

Option A2 provides no indication of why owners invest in extractive industries i.e. where is the economic return to the owners?

A3 resource rent = part income, part depletion, continued

Option A3 has resource rent split into: income and depletion components

Recognizes that natural resources have greater economic value when extracted – this additional value is reflected as income associated with the extraction process

A3 resource rent = part income, part depletion, continued

SEEA is an integrated environmental and economic accounting system

Extractive industries will not exist without an economic return to the owners

As natural resource becomes scarcer, income share of resource rent falls and depletion share increases -- an appropriate message to policymakers

How to define the income element of resource rent?

London group unanimously recommended

A1. Entire resource rent = income

A2. No resource rent = income

A3. Resource rent = part income and part depletion

Second issues for resolution

How best to view the discovery of mineral and energy resources ie subsoil assets?

i.e. what is the relationship between mineral exploration and new discoveries of mineral and energy resources (subsoil assets)?

How best to view discovery of mineral energy resources?

B1. Use independent sources, neither based on resource rent of the deposit, to separately value mineral exploration and mineral resources

B2. Valuation of mineral deposit according to NPV of resource rent, calculated to exclude value of mineral exploration

B3. Same values as option B2, but combine mineral exploration and mineral resource and attribute to a ‘developed natural asset’

Option B1: use independent sources, not linked to resource rent of the deposit

generally: SNA requires market prices

mineral resources rarely sold on market, especially in countries where they are owned by the government

and market values for mineral resources tend to reflect combined value of mineral resources and associated mineral exploration i.e. risk of double counting

Option B2: valuation of mineral exploration according to NPV of resource rent

SNA93 Rev.1 generally recommends market values but suggests use of NPV where returns are spread over lengthy periods (e.g. for mineral resources)

NPV systematically links resource rent with values of mineral resources and mineral exploration

-- value of mineral exploration excluded from resource rent used to value the mineral resource

Option B3: mineral exploration ‘producing’ new discoveries of mineral resources?

Implies mineral exploration somehow transform inputs in order to ‘produce’ new discoveries?

not valid -- can mineral resources be thought of as ‘produced’, in any sense?

Option B3: mineral exploration ‘producing’ new discoveries of mineral resources? continued…

Output of mineral exploration = knowledge asset (information about the mineral resource)

Value of this output is the price paid to the exploration company

-- mineral exploration (knowledge) asset is used in the subsequent extraction process

London Group rejected option B3: instead, combined elements of options B1 and B2…

Record the value of mineral exploration based on either market prices or costs depending on whether it is carried out by a contractor or on own account.

The value of the mineral deposit ie the subsoil asset should be based on observed market value or, where this is unavailable, on NPV of the resource rent. In either case, the value of the mineral deposit should be calculated to exclude the value of mineral exploration.

In summary, London Group decisions and

UNCEEA…

• London Group cognisant of UNCEEA’s objectives, i.e.:– ‘mainstreaming’ SEEA– elevating SEEA to international

statistical standard– advancing SEEA’s global

implementation

London Group decisions and UNCEEA, continued…

• Decisions on depletion are:– consistent with 1993 SNA and draft

SNA93Rev.1– consistent with long-term thinking

within London Group– implementable within statistical

agencies, including developing countries…

London Group decisions and UNCEEA, continued…

• London Group decisions on depletion were unanimous

London Group decisions and UNCEEA

• Recommend UNCEEA endorse the outcomes achieved by London Group

SEEA 2003 Revision ProcessIssue 13 Recording of non renewable

natural resourcesIssue London Group UNCEEA

13.1 Identifying income element of resource rent

Unanimous agreement on treatment

Endorsement sought July 2007

13.2 Mineral exploration and mineral deposits

Unanimous agreement on treatment

Endorsement sought July 2007

13.3 Additions to and subtractions from stock of environmental assets

For discussion next London Group meeting

Seek endorsement July 2008

13.4 Ownership of mineral-related assets

For discussion next London Group meeting

Seek endorsement July 2008

13.5 Recording Depletion For discussion next London Group meeting

Seek endorsement July 2008