Depletion of renewable resources London Group Meeting, December 2007.

Depletion of renewable resources

London Group Meeting, December 2007

Options for identifying the income element of resource rent

SEEA Box 10.1ƒ A1. All resource rent represents incomeƒ A2. No resource rent represents income; it is

all a decline in the value of the resourceƒ A3. Part of the resource rent represents a

decline in the value of the asset and part is income

Options for identifying the income element of resource rent

Option A3 accepted in Johannesburgƒ but how does this apply to renewable natural

resources? ƒ if depletion of natural resources reduces

income, should growth of renewable natural resources be considered additions to income?

ƒ does ‘depletion’ relate to the full amount of the harvest of the renewable natural resource, or just the net reduction in stock?

Renewable resources

Characteristicsƒ able to replace harvested stocks through

natural growthƒ if used sustainably in production, will last in

perpetuityƒ can be exhausted if used unsustainably in

production

Depletion of non-renewable resources

SNA - in an economic sense, depletion is the reduction in the value of a resource as a result of physical removal and using up of the resource

fairly straightforward when applied to non-renewable resources such as minerals and petroleum, etc.

Depletion of renewable resources

SEEA - possible to integrate values of extraction (harvest) and natural growth into a more meaningful measure of sustainability

'adjusted' measures (of output, income etc.) could indicate whether a renewable resource is being depleted through its use in production

no change to balance sheet treatment

Valuing SEEA depletion

using SNA accounts as a templateƒ value of net natural growth recorded as 'other

non-market output' in the Production accountƒ value of extraction recorded as 'consumption of

natural capital‘ (depletion) in Production accountƒ 'excess' position represents an addition to (or

subtraction from) value addedƒ operating surplus & saving change by 'excess'

amount in income accountsƒ additions and ‘disposals’ of non-produced non-

financial assets recorded in Capital accountƒ net lending is unchanged

Net natural growth of renewables – an addition to output?

• Natural growth (less natural mortality)

– not output in strict SNA sense• but see SNA ‘cultivated assets’

– human influence over natural growth

– often an expectation that natural growth will ultimately be harvested

– symmetry with depletion of renewable natural resources

Depletion of renewable natural resources

• Depletion of renewable natural resources

– is the decline in value of the resource stock due to extraction (harvest)

– equivalent to consumption of natural capital

– shown as a charge against production and income• synonymous with SNA concept of

consumption of fixed capital (COFC)

Depletion of renewable natural resources, continued…

• Depletion (consumption of natural capital) applies to both renewable and non-renewable natural resources

Measuring income

the operating surplus of any unit using natural resources in production can be split into returns to the produced assets used and returns to non-produced assets

the return to the owner of natural resources in production is resource rent (RR)

RR can be further split into a return to the owner of the resource and a measure of depletion of the natural resource being used

Decomposing income: non-renewable natural resources

Decomposing income: renewable natural resources

(1) Calculating RR - SNACurrent (SNA) treatment: RR of renewable natural resource used in production

  t1 t2 t3 t4 t5 tn

Physical data (tonnes)            

1. Opening stock 45,000 42,600 41,415 41,150 37,849 35,795

2. Natural growth (a) 3,600 3,408 3,313 3,292 3,028 2,864

3. Natural mortality (a) 2,500 2,343 2,278 2,263 2,082 1,969

4. Harvest 2,000 3,000 3,300 3,330 3,000 2,940

5. Other volume changes -1,500 750 2,000 -1,000 0 -500

6. Closing stock (1+2-3-4+5) 42,600 41,415 41,150 37,849 35,795 33,250

7. Expected asset life infinite

8. Unit value (unit price-unit cost) $'000 (b) 1.2 1.2 1.2 1.2 1.2 1.2

Monetary (SNA) data ($'000)            

9. Depletion (harvest) (4x8) 0 0 0 0 0 0

10. Return to owner of natural resource 2,400 3,600 3,960 3,996 3,600 3,528

11. Resource rent 2,400 3,600 3,960 3,996 3,600 3,528

SNA treatment (1)

• Following do not appear in production account:–natural growth–natural mortality–charge for depletion

SNA treatment (1)

• Resource rent entirely attributed to income – no charge for depletion (CONC)– even though the renewable natural

resource stock is diminishing.

when RR is adjusted to include net natual growth as output, and depletion (CONC) as a charge against income, a more informed picture of the income of the producer is provided

Use of renewables - adjusted income

(2) proposed RR and incomeProposed SEEA treatment: Adjusted RR of renewable natural resource used in production

  t1 t2 t3 t4 t5 tn

Physical data (tonnes)            

1. Opening stock 45,000 42,600 41,415 41,150 37,849 35,795

2. Natural growth (a) 3,600 3,408 3,313 3,292 3,028 2,864

3. Natural mortality (a) 2,500 2,343 2,278 2,263 2,082 1,969

4. Harvest 2,000 3,000 3,300 3,330 3,000 2,940

5. Other volume changes -1,500 750 2,000 -1,000 0 -500

6. Closing stock (1+2-3-4+5) 42,600 41,415 41,150 37,849 35,795 33,250

7. Expected asset life (years) 47.3 21.4 18.2 16.4 17.4 16.3

8. Unit value (unit price-unit cost) $'000 (b) 1.2 1.2 1.2 1.2 1.2 1.2

Monetary (SEEA) data ($'000)            

9. Depletion (harvest) (4x8) 2,400 3,600 3,960 3,996 3,600 3,528

10. 'Unadjusted' resource rent (c ) 3,154 3,025 2,972 2,844 2,651 2,486

11. Net natural growth ((2-3)x8) 1,320 1,278 1,242 1,235 1,135 1,074

12. Income to owner natural resource 2,074 703 255 82 187 32

13. Adjusted resource rent (10+11) 4,474 4,303 4,215 4,078 3,787 3,560

(2) proposed RR and income, continued…

• Adjusted resource rent incorporates:– net natural growth as an addition to output

• Adjusted resource rent split between:– depletion (harvest); and

– income.

(2) proposed RR and income, continued…

• As harvest continues to exceed net natural growth, this is reflected as a negative adjustment to income.– i.e. a charge for using up renewable

natural capital

Questions…

• For renewable natural resources, should SEEA accounts:– include net natural growth as an addition

to output?

– treat the value of harvest as consumption of natural capital (depletion)?

– view (adjusted) resource rent as made up of income and depletion components?