Proposal for new modules for inclusion in Regulation 691/2011 Environmental Protection Expenditure module

EUROPEAN COMMISSION EUROSTAT Directorate E: Sectoral and regional statistics Unit E2: Environmental accounts and climate change Doc. ENV/ACC-EXP/WG/6.1 (2012) Point 6.1 of the agenda Proposal for new modules for inclusion in Regulation 691/2011 Environmental Protection Expenditure module Eurostat Unit E2 Joint meeting of the Working Groups Environmental Accounts and Environmental Expenditure Statistics Joint Eurostat/EFTA group Meeting of 27 March 2012 BECH Building Room Quetelet

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This document presents a revised proposal for a module on environmental protection expenditure (EPE) for inclusion into Regulation 691/2011 on European environmental economic accounts. A first draft of the proposal 1 was presented at the joint meeting of the task forces on environmental transfers and RUMEA on 19 October 2011 in Stockholm. The proposal was amended following the comments received from TF members and a revised draft was sent for written consultation to the WG on 10 January 2012. Main improvements made to the first draft were described in the document sent for written consultation. During the written consultation, Eurostat received comments from 24 countries. The comments and suggestions received were very valuable and allowed for further simplification and improvement of the proposal. The DIMESA Preparatory meeting that took place on 14 February 2012 was informed about the comments received. A summary of the comments received is presented in section 1, simplification and improvement actions are described in section 2, and the final draft legal text in section 3. Sections 4 to 9 present the information that was already part of the written consultation version of the proposal (history; principles for developing the EPE module; comparison of the 2009 EPE proposal with the present one; data sources available; an example for the use of data; links to other areas of monetary environmental accounts). Members of the Working Groups are asked to approve the legal text presented in section 3 or provide further comments and/or suggestions. The final draft will be submitted to the DIMESA for its meeting of 24-25 April 2012. 1. Overview of comments received during the written consultation The following table gives a summary overview of the comments received from countries. 1 http://circa.europa.eu/public/irc/dsis/envirmeet/library?l=/meetings_2011_archive/environmentally-related/ertrumea_version2pdf/_en_1.0_&a=d 1

Table 1: Summary of comments made by countries during the written consultation (January February 2012) Legend: Yes / Agrees / available Maybe / partly available No / does not agree / not available No answer / information not available AT BE BG CH CZ DE DK EE GR ES FR IT LT LV NL NO PT RO SE SI SK IE CY UK A GENERAL OPINION 2 3 4 (1) Meeting the demand of EPE data? (2) Maintain link with NA? 5 (3) Data by sector should sum up to an aggregate? (4) Use only existing sources? B SIMPLIFICATIONS 6 7 8 9 10 11 (1) Reduced CEPA detail (2) Focus on production (3) Assumptions for ancillary activities (4) No adapted and connected goods C DATA AVAILABILITY (2) Data for NACE Rev. 2 divisions 37, 38 and 39: Output broken down by market/non market? 37-39 No IU S11 Pr/pp 37-39 37-39 Intermediate consumption? 37-39 No IU S11 Pr/pp 37-39 37-39 GFCF? 37-39 No IU Pr/pp 37-39 37-39 (3) Supply-use tables include: 12 13 Secondary output for waste, wastewater, soil? 37-39 37-39 Pr/pp 37-39 37-39 Import and exports for waste, wastewater, soil? 37-39 37-39 Pr/pp 37-39 Non deductible VAT for waste, wastewater, soil? 37-39 Pr/pp 37-39 37-39 2 DE: burden still too big in terms of estimations and extra budget analysis needed. 3 DK: would agree only if the burden was considerably reduced. 4 NO: demand for EPE data is low and quality of current data is low. The module is too complex and the burden would be too big. 5 UK: in principle the aggregates should be comparable with NA aggregates. In practice a solution such as simplified JQ would be preferable. 6 BE would further simplify by reducing the transfers to be collected, eliminating employment and compensation of employees 7 ES would further simplify the module eliminating transfers. 8 FR would further simplify the module eliminating transfers. 9 IT would further simplify the module by eliminating the details for CEPA 1 (break down into air and climate protection), employment and compensation for employees. 10 SI would further reduce the number of CEPA classes. 11 UK would further simplify CEPA breakdown (by not splitting CEPA 1 for example). 12 BE: some limitations occur on the environmental domains covered. 13 LV: no SUT exists 2

AT BE BG CH CZ DE DK EE GR ES FR IT LT LV NL NO PT RO SE SI SK IE CY UK GG and HH final consumption of waste, No No 37-39 37-39 Pr/pp 37-39 37-39 wastewater, soil remediation? GG soil Intra-industry intermediate consumption? 37-39 Pr/pp 37-39 37-39 (4) COFOG includes: 14 Non market output of GG? GCF of GG? Current transfers and specific transfers? No HH Too exp (5) Further breakdown of COFOG 5.3 is possible? Too Too Too exp exp exp (6) Include green job estimates? Only EGSS EGSS EGSS EGSS EGSS EGSS SP (7) Breakdown of transfers by receivers? IU IU IU IU IU IU IU IU 2d IU Currcap Numbers in brackets refer to the number of the question in the template. 37-39: only data for aggregate of NACE 37, 38 and 39 available Too exp: too expensive for NSIs Only SP: only for specialised producers Pr/pp: no breakdown by NACE, only distinction between public/private specialised producers No soil: not available for soil remediation Curr-cap: often no distinction between current and capital transfers No HH/GG: not available for households/general government IU: Institutional sectors only 2d: only NACE 2 digits 14 BG: only COFOG 5.01, 5.02 and 5.06 3

2. Improvement actions The comments received from countries allowed to have a more precise view of the availability of the data for in the EPE module. Furthermore the comments provided several suggestions for further simplification of the module. The following improvements actions come directly from the analysis of the comments. They are aimed at simplifying the module, reducing the burden to NSIs to the minimum necessary to obtain sectoral and national expenditure aggregates for EP expenditure which will be coherent with the national accounts and across countries. The main improvements are the following: Making some detailed breakdowns voluntary Stronger orientation of data requirements towards the way the source (SBS, COFOG, etc.) data are structured Elimination of the part on employment Reduced coverage of ancillary activities Massive reduction of the part on transfers Reduced CEPA detail Clearer description and better explanation of the module Making some detailed breakdowns voluntary A number of countries (especially smaller countries) cannot provide certain detailed breakdowns. On the other hand, a number of countries do have this extra breakdown. Therefore, the legal proposal has been further reduced in its requirements for detailed breakdowns (details are presented below). The extra data will be collected on a voluntary basis. Stronger orientation of data requirements towards the structure of the source data Where possible, the data requirements have been structured in the way they are available from the sources (SBS and business register, national accounts, COFOG etc.). Elimination of the part on employment (leave to EGSS) Some countries think that to decrease the burden for NSIs employment and compensation of employees should be removed from the proposal. Employment should be collected by the EGSS module only. Action: the characteristics employment and compensation of employees have been dropped from the proposal. 4

Ancillary activities reduce coverage to NACE sections B to E as in SBS The simplifications already implemented for ancillary activities were accepted by almost all countries. Some countries proposed covering only ancillary activities of the mining, manufacturing and electricity and water supply industries as they do not have any data for other parts of NACE. In other words, the coverage of ancillary activities should be made consistent with the SBS environmental variables. Action: for the ancillary activities the coverage was reduced to the same coverage as the SBS environmental variables i.e. covering NACE Rev. 2 sections B to D and division 36 (water supply) only. The reporting for the remaining NACE sections (i.e. agriculture and ) will be voluntary. Massive reduction of the part on transfers Almost all countries will not be able to produce data on environmental transfers in a detailed breakdown by receiving NACE categories. Most countries think they would be able to produce transfers received data in a breakdown by institutional sector (government, corporations, households, rest of the world) only. Transfers received by households and transfers to the rest of the world are needed for calculating national expenditure for EP. The distinction between current transfers and capital transfers needs to be kept. Furthermore, data for transfers paid would generally only be available for government but not for any other sector. Action: the proposal no longer asks for any NACE breakdown of transfers by receivers but just for the institutional sectors corporations, households and rest of the world. No detail is requested for specialised producers. Data are required only for transfers provided by government in a breakdown by COFOG 2-digits. Implicit subsidies and earmarked taxes will not be covered by the legal proposal but it will be possible to report these voluntarily. Imports and exports Some countries state the data sources for trade of environmental protection are very weak or not available. Conceptually, import and exports are needed to calculate the output available for national uses. However, experience from Member States suggests that the amount of imports and exports of EP is usually quite small and only occurs for waste and in a few cases for wastewater 15 and soil decontamination. Action: the categories were maintained but it is clear that if no data are available for imports and exports then the assumption imports and exports of EP are zero is realistic. Reduced CEPA detail Several countries asked for a reduction of the breakdown by CEPA classes or reported they cannot make certain breakdowns. In particular in most countries for government a breakdown of COFOG 5.3 will not be possible. Countries also stated they cannot break down CEPA 1 (protection of ambient air and climate) into its two components (protection of ambient air and protection of climate and ozone layer). For ancillary producers some countries cannot go 15 For AT for example imports and exports of EP are less than 1% of the output of EP. However, some small countries may not have specialised treatment facilitates for certain types of waste so the export of waste (i.e. the import of waste treatment ) can be significant. 5

beyond the breakdown of the SBS Regulation. Some countries also stated that the coverage of specialist producers should be clarified. Action: a further simplification of the CEPA breakdown has been made, as follows: For government and for the part on transfers only the COFOG breakdown will be requested: CEPA 2 Wastewater (corresponding to COFOG 5.1) CEPA 3 Waste (corresponding to COFOG 5.2) CEPA 1 + 4 + 5 + 7 Pollution abatement (corresponding to COFOG 5.3) CEPA 6 Biodiversity (corresponding to COFOG 5.4) CEPA 8 + 9 R&D and other expenditure (corresponding to COFOG 5.5 and 5.6) For ancillary activities only the SBS breakdown 16 will be requested: CEPA 1 Protection of ambient air and climate CEPA 2 Wastewater management CEPA 3 Waste management CEPA 4 + 5 + 6 + 7 + 8 + 9 Other environmental protection activities For specialist producers and for households only the environmental domains which are easily identifiable by NACE and CPA are requested: CEPA 2 Wastewater management (NACE Rev. 2 division 37) CEPA 3 Waste management (NACE Rev. 2 division 38) CEPA 4 Protection and remediation of soil, groundwater and surface water (NACE Rev. 2 division 39) Table 2 summarises the breakdown by environmental domains asked for in the new proposal. Table 2: Summary of environmental domains asked for by the EPE module General Government Ancillary activities Specialist producers Households (final consumption) Transfers CEPA 2 CEPA 3 CEPA 1 CEPA 4 CEPA 5 CEPA 7 CEPA 6 CEPA 8 CEPA 9 Legend CEPA classes are aggregated CEPA classes are not asked for 16 http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2008:097:0013:0059:en:pdf 6

Deadline for data transmission and relationship with other modules or sources Some countries use EGSS as a source for the EPE module and vice versa. Hence the deadline for transmitting data under EPE should be the same as the deadline for EGSS. Some sources needed for the module only become available at T+21 (e.g. national accounts data, SBS data), therefore any deadline at T+21 would be too early. Action: the deadline for transmitting data was made the same for the EPE and EGSS modules and set at T+24. Clearer description and better explanation A more detailed description of the module with an explicit presentation of derivable data and the actual tables for collecting data was asked for by some countries. Some concepts should be better explained. This is the case for example of other capital uses and the measurement of ancillary output. Actions: clarify terminology in the legal text and harmonise concepts with the national accounts. Specific issues are described below. Explain better the measurement of ancillary output. Currently the SBS "current expenditure" variable covers both operating expenditure (in-house expenditure) and the purchase of external EP. For several countries the share of fees and purchases in total current expenditure is high - a typical order of magnitude is 50%. Therefore, the best approximation of ancillary output is in-house expenditure. Consequently, the SBS variable must be broken down into its two components. Nearly all countries already separately identify the in-house expenditure and the purchases of external EP in the Joint Questionnaire - see table in Annex 1. Dropping the public/private split for specialised producers. The headings of the synoptic table in the previous proposal referred to institutional sectors (e.g. households), producers (e.g. specialised producers), specific transactions (e.g. non-market or secondary output) etc. A simplification is to use the institutional sectors as main headings (see the new synoptic table). In this table general government market output and the public specialised producers of the GG institutional sector are grouped together as it is proposed in the EPEA Compilation guide. Furthermore the secondary output column was removed. Secondary output is placed after specialised producers' output (in the JQ the secondary EP output is reported together with the output of specialised producers). In this way there is no longer a distinction into public and private specialised producers. The data on transfers, which are to be reported by institutional sector only, now fully match the correct columns (institutional sectors). 7

3. Draft EPE module for Regulation 691/2011 legal text AMENDMENTS TO ARTICLES Article 2 (4) 'environmental protection expenditure' means the economic resources devoted by resident units to environmental protection. Environmental protection includes all activities and actions which have as their main purpose the prevention, reduction and elimination of pollution as well as any other degradation of the environment. This includes measures taken in order to restore the environment after it has been degraded. Activities which, while beneficial to the environment, primarily satisfy technical needs or the internal requirements for hygiene or security of an enterprise or other institution are excluded. Article 3 (d) a module for environmental protection expenditure accounts, as set out in Annex IV. TEXT OF NEW ANNEX IV Section 1 Objectives Environmental protection expenditure accounts present data, in a way that is fully compatible with the data reported under ESA, on the expenditure for environmental protection, i.e. the economic resources devoted by resident units to environmental protection. The accounts allow compiling the national expenditure for environmental protection (EP) which is defined as the sum of uses of EP by resident units, gross capital formation for EP activities, and transfers for EP which are not a counterpart of previous items, less financing by the rest of the world. The environmental protection expenditure accounts should make use of the already existing information from the national accounts (production and generation of income accounts; GFCF by NACE, supply and use tables; data according to COFOG), structural business statistics (SBS), business register and other sources. This Annex defines the data to be collected, compiled, transmitted and evaluated for environmental protection expenditure accounts by the Member States. 8

Section 2 Coverage Environmental protection expenditure accounts have the same system boundaries as ESA and show environmental protection expenditure for principal, secondary and ancillary activities of: General government (including Non-Profit Institutions serving Households) and corporations as institutional sectors producing EP. Specialist producers produce EP as their principal activity. Households, general government and corporations as consumers of EP. The rest of the world as beneficiary or origin of transfers for environmental protection. Environmental protection expenditure is presented according to the Classification of Environmental Protection Activities (CEPA), which distinguishes nine classes: CEPA 1 - Protection of ambient air and climate CEPA 2 - Wastewater management CEPA 3 - Waste management CEPA 4 - Protection and remediation of soil, groundwater and surface water CEPA 5 - Noise and vibration abatement CEPA 6 - Protection of biodiversity and landscapes CEPA 7 - Protection against radiation CEPA 8 Environmental research and development CEPA 9 - Other environmental protection activities. Section 3 List of characteristics Member States shall produce environmental protection expenditure accounts according to the following characteristics which are defined in accordance with ESA: Output of environmental protection. Market output, non-market output and output of ancillary activities are distinguished. The output of ancillary activities can be approximated by the amount of in-house current expenditure, i.e. compensation of employees plus intermediate consumption for environmental protection other than the intermediate consumption of environmental protection. 9

Intermediate consumption of environmental protection by specialist producers Imports and exports of environmental protection VAT and other taxes less subsidies on environmental protection Gross capital formation and acquisitions less disposals of non-financial non-produced assets for the production of environmental protection Final consumption of environmental protection Environmental protection transfers (received/paid). Environmental protection transfers comprise subsidies, investment grants, social benefits and other current and capital transfers, including transfers to and from the rest of the world. All data shall be reported in million national currency. Section 4 First reference year, frequency and transmission deadlines 1. Statistics shall be compiled and transmitted on a yearly basis. 2. Statistics shall be transmitted within 24 months of the end of the reference year. 3. In order to meet user needs for complete and timely datasets, the Commission (Eurostat) shall produce, as soon as sufficient country data becomes available, estimates for the EU-27 totals for the main aggregates of this module. The Commission (Eurostat) shall, wherever possible, produce and publish estimates for data that have not been transmitted by Member States within the deadline specified in point 2. 4. The first reference year is the year in which this Regulation enters into force. 5. In the first data transmission, Member States shall include annual data from 2011 to the first reference year. 6. In each subsequent data transmission to the Commission, Member States shall provide annual data for the years n-4, n-3, n-2, n-1 and n, where n is the reference year. Section 5 Reporting tables For the characteristics referred to in Section 3, data shall be reported in a breakdown by: Types of producers/consumers of environmental protection as defined in section 2. Classification of Environmental Protection Activities (CEPA) as listed in section 2 aggregated as follows: 10

For general government and for transfers: CEPA 2 CEPA 3 Sum of CEPA 1 + 4 + 5 + 7 CEPA 6 Sum of CEPA 8 + 9 For ancillary activities: CEPA 1 CEPA 2 CEPA 3 Sum of CEPA 4 + 5 + 6 + 7 + 8 + 9 For specialised producers and for households CEPA 2 CEPA 3 CEPA 4 The following NACE codes for the ancillary production of EP : NACE Rev. 2 B, C, C divisions, D, division 36. Data for section C shall be presented by divisions. Divisions 10-12, 13-15 and 31-32 shall be grouped together. Illustrative overview table: an illustrative synoptic table is shown starting on the next page to give an overview. The table has 4 main parts: production of EP, information on capital formation, final consumption expenditure and environmental transfers. This table is not part of the legal proposal but illustrates which data would be obligatory (further broken down by the CEPA groupings indicated in the legal proposal). The table makes references to corresponding variables of JQ-EPER for ease of understanding. Reporting questionnaires will include also voluntary variables and will be developed with the Member States as part of the implementation of the new module. 11

Synoptic overview table (italic text refers to the JQ-EPER) EP output at basic prices Intermediate consumption of EP by specialist producers Imports, Exports, nondeductible VAT and other taxes on EP EP output at purchasers prices available for national uses Investments for the production of EP Final consumption of EP EP transfers paid/received General government Corporations Households Rest of the world Total Non market producers (JQ table 1) and any specialist producers classified under GG (part of JQ table 4A) 1 Specialist producers of market EP (JQ table 4B and producers of table 4A classified as corporation) 2 Ancillary production of EP by NACE Rev. 2 B, C, C divisions, D, division 36 O1 EP output EP output EP output 3 EP output O11 O12 EP market output (=sales of EP products including partial payments) Non-market output (= internal current expenditure) EP market output (=sales of EP products including partial payments) Output of ancillary activities (= internal current expenditure) EP market output EP nonmarket and ancillary output O13 Secondary output of EP IC Intermediate consumption of EP by specialist producers I Imports of EP E Exports of EP V Nondeductible VAT and other taxes less subsidies on EP O.2 EP output available for national uses (= O.1 IC + I E + V) G F Gross capital formation and purchase of land for EP activities (=investment) Final consumption of EP (= O.12 + fees and purchases) T.1 Current and capital transfers paid T.2 Current transfers received (subsidies/transfers received) 4 T.3 Investment grants and other capital transfers received (subsidies/transfers received) 4 Gross capital formation and purchase of land for EP activities (=investment) Gross capital formation + purchase of land for EP activities (=investment Current transfers received (subsidies/transfers received) 4 Investment grants and other capital transfers received (subsidies/transfers received) 4 Final consumption of EP (fees and purchases) Transfers received by households (subsidies/transf ers received) 4 Current and capital transfers paid Current transfers received (subsidies/transfers received) 4 Investment grants and other capital transfers received (subsidies/transfers received) 4 Gross capital formation + purchase of land for EP activities Final consumption of EP 12

Footnotes: 1 This category comprises (a) units classified within the general government sector which provide market EP (such units could be public producers not recognised as independent legal entities, without autonomy of decision, which are not quasi-corporation and remain an integral part of the unit which controls them; general Government units which subcontract the production of EP and, at the same time, recover more than 50% of their cost of production (purchase of subcontracted plus management cost) through revenues from users or beneficiaries, whatever the name given to these payments) and (b) general government non-market producers (including their output sold on the market). 2 This category includes all nonfinancial corporations and quasi-corporations that are subject to control by government units classified within the corporation sector according to ESA. 3 In the JQ-EPER the internal current expenditure are available. In order to obtain properly the value of ancillary EP output one should add consumption of fixed capital and other taxes less subsidies on production to these internal expenditure. However, as a simplification, the legal proposal does not require adding these items. 5 The JQ adds together current and capital transfers when asking for subsidies/transfers received. 13

The following tables are an alternative (step by step) presentation of the synoptic table which illustrates uses of the data and the links to other modules. Production of EP and associated investment General government Corporations Total EP output at basic prices Investments for the production of EP Non market producers and any specialist producers classified under GG Specialist producers of market EP Ancillary production of EP by NACE Rev. 2 B, C, C divisions, D, division 36 EP output EP output EP output EP output EP market output EP market output EP market output Non-market output Secondary output of EP Gross capital formation and purchase of land for EP activities Secondary output of EP Gross capital formation and purchase of land for EP activities Output of ancillary activities (= internal current expenditure) EP non-market and ancillary output Secondary output of EP Gross capital formation + purchase of land for EP activities Transition from domestic production of EP at basic prices to availability for national use Total EP output (at basic prices) Less Intermediate consumption of EP by specialist producers* Plus imports Less exports Plus non-deductible VAT and other taxes on EP Less subsidies on EP Equals EP output at purchasers prices available for national uses * This special 'intra-industry' intermediate consumption of EP by the EP specialist producers would lead to double counting and is therefore removed here. It can be quite large. An example is the payments waste collection companies make to landfill operators or operators of waste incinerators for the treatment and disposal of the waste these companies collected. EP available for national use by user categories Total EP output at purchasers prices available for national uses Less final consumption of EP by government (collective consumption) Less final consumption of EP by households (JQ table 3) Equals intermediate consumption of EP (other than EP used by specialist producers to produce EP ) Environmental transfers by institutional sectors General Government: Corporations Households Rest of the world Transfers by paying category Current transfers by receiving sector Capital transfers by receiving sector Current and capital transfers paid Current transfers received (incl. imputed implicit subsidies) Investment grants and other capital transfers received Current transfers received Investment grants and other capital transfers received Transfers received by households Current and capital transfers paid Current transfers received Investment grants and other capital transfers received 14

4. History of the legal proposal In November 2008 the Statistical Programme Committee (SPC 17 ) approved the European Strategy for Environmental Accounting (ESEA 2008) and endorsed the development of a legal base for environmental accounting. This strategy identified environmental expenditure accounts as a priority for implementation in the near future. In June 2009 the Directors Meetings on Environmental Statistics and Accounts (DIMESA) discussed the inclusion of an EPE module in the Regulation on European environmental economic accounts which was under development at that time. A majority of countries was in favour of using the Environmental Protection Expenditure Account (EPEA) rather than the Eurostat/OECD Joint Questionnaire on Environmental Protection Expenditure and Revenues (JQ-EPER) as a starting point for such a module. In November 2009, the DIMESA discussed a proposal for the Regulation on European environmental economic accounts. This draft included an EPE module based on the 3 main EPEA tables from the European System for the Collection of Economic Information on the Environment (SERIEE) manual. The main issues raised in the discussions were: the high costs of producing the full EPEA tables, in particular for countries with only limited data collection on environmental expenditure; elements of the data on environmental protection activities and expenditure are already legally required. The Structural Business Statistics (SBS) Regulation foresees variables on environmental expenditure (annual for investment, 3-yearly for current expenditure) to be submitted to Eurostat for all divisions of NACE Rev. 2 sections B to E (except divisions 37 to 39). A number of variables for government expenditure COFOG division 5 (environmental expenditure) are part of the national accounts transmission programme. A majority of countries was not in favour of this detailed module based on the EPEA. The module was thus removed from the draft Regulation that was submitted for approval to the European Statistical System Committee (ESSC). In March 2011, the Working Groups on Environmental Accounts and on Environmental Expenditure Statistics discussed a reflection paper on monetary environmental accounts. This paper proposed to develop a simpler EPE module for future inclusion into the legal base. Delegates welcomed the proposal. Several countries underlined that a full EPEA should be the longer-term target. Countries already having a full EPEA in place stressed that the added value of such a system is high as it ensures consistency and enhances data quality. However, many countries could not currently afford the resources to compile a full EPEA and to collect all the data needed for this. A clear majority was in favour of developing a simple EPE module for the legal base. International comparability of the data was considered important. Eurostat committed to prepare a proposal for such a simple module. 17 See document CPS 2008/68/7/EN. The SPC is the predecessor of the European Statistical System Committee (ESSC) established by Regulation 223/2009 on European statistics. 15

Regulation 691/2011 on European environmental economic accounts was adopted on 6 July 2011. 18 It makes reference to EPE as a future area for inclusion: Article 4 Pilot studies 1. The Commission shall draw up a programme for pilot studies to be carried out by Member States on a voluntary basis in order to develop reporting and improve data quality, establish long time series and develop methodology. The programme shall include pilot studies to test the feasibility of introducing new environmental economic account modules. (..) 2. The findings of the pilot studies shall be evaluated and published by the Commission, taking into account the benefits of the availability of the data in relation to the cost of collection and the administrative burden of responding. These findings shall be taken into account in the proposals for introducing new environmental economic account modules that the Commission may include in the report referred to in Article 10. Article 10 Report and review By 31 December 2013 and every 3 years thereafter, the Commission shall submit a report on the implementation of this Regulation to the European Parliament and the Council. That report shall evaluate in particular the quality of the data transmitted, the data collection methods, the administrative burden on the Member States and on the respondent units, as well as the feasibility and effectiveness of those statistics. The report shall, if appropriate and taking into account the findings referred to in Article 4(2), be accompanied by proposals: for introducing new environmental economic account modules, such as Environmental Protection Expenditure and Revenues (EPER)/Environmental Protection Expenditure Accounts (EPEA), Environmental Goods and Services Sector (EGSS), Energy Accounts, Environmentally Related Transfers (subsidies), Resource Use and Management Expenditure Accounts (RUMEA), Water Accounts (quantitative and qualitative),(.). 5. Principles for developing the new EPE module The proposal was developed on the basis of the following criteria: The costs of data collection and compilation. These costs are to be evaluated taking into account the already existing information from other sources which can be used, the needs of extending existing data collection schemes, the complexity of the data collection requirements, the time needed for compiling accounts and tables, etc. 18 Regulation (EU) No 691/2011 of the European Parliament and of the Council of 6 July 2011 on European environmental economic accounts, OJ L 192 of 22 July 2011. 16

The quality of the outcome. This is to be evaluated by analysing the completeness of the resulting information at EU level, the coherence with environmental and national accounting principles and the degree to which the resulting tables will meet user demands for information in this field. The following had to be taken into account when drafting the proposal: The demand for EPE data comes mainly from 3 purposes: the need of policy makers to assess environmental policies on the basis of sound cost/benefit analysis, the need for implementing the polluter pays principle and the growing need of assessing opportunities in terms of 'green' growth and 'green' jobs. For more detail on user needs see the background document. In recent years there has been a shift in data demand from assessing the cost of compliance to environmental policy and applying the polluter pays principle to assessing the potential of green growth in terms of productivity, employment, competitiveness. This means that any EPE data collection should (1) ensure a large coverage of both economic sectors and environmental domains where expenditure is made and (2) be able to be used as a reliable source of data for green activities. Regulation 691/2011 establishes a common framework for the collection, compilation, transmission and evaluation of European environmental economic accounts to be set up as satellite accounts to ESA. Therefore, modules proposed for inclusion under Regulation 691/2011 should be based on an accounting approach. The OECD/Eurostat joint questionnaire on environmental protection expenditure and revenues (JQ-EPER) is the standard tool for the collection of data on environmental expenditure. The JQ-EPER has failed in providing all the information which would be needed for having a complete picture of environmental expenditure in most countries. Due to incomplete data the two main aggregates of the JQ-EPER 'Expenditure I' according to the abater principle and 'Expenditure II' according to the financing principle cannot be calculated for most JQ sectors in most countries. The data as collected by the JQ are not fully comparable to the NA aggregates (GDP and other expenditure aggregates). The proposed EPE module is closer to the EPEA framework: on one side this allows for information to be coherent with ESA and on the other side it gives more detailed information directly usable for statistics on the environmental goods and sector (EGSS), which is foreseen as well as a module to be added to Regulation 691/2011. Since the full EPEA framework is quite expensive in terms of resources to be set up, this document proposes significant simplifications which nevertheless still allow reaching the objective of having a measure of the EPE, also for the whole economy, comparable with the national accounts. 6. Comparison of old (November 2009) and new proposal In November 2009, the DIMESA discussed a proposal for the Regulation on European environmental economic accounts. This draft included an EPE module based on the following breakdown (in total 27 tables): 17

Production, national expenditure and financing (the 3 tables from SERIEE) 9 environmental domains (all CEPA 2000 classes) Production by industry (A*64 breakdown) for ancillary producers The new proposal includes a significantly reduced level of breakdown: Focus on production Maximum of 5 environmental domains (see section 1 for detail). The same breakdown of economic activities as in the JQ-EPER with a total of 22 categories for ancillary production. The focus of the module is on production and use. No breakdown of costs of production is required for calculating output. For ancillary activities major simplifications apply (no inclusion of consumption of fixed capital and of taxes and subsidies) in order to further reduce the burden of data collection. Furthermore for ancillary activity the coverage is reduced to only NACE sections covered by SBS regulation. No data are required on employment and on connected and adapted products. Transfers are asked only at institutional level and cover only transfers provided by government and by the rest of the world. Earmarked taxes and implicit subsidies are not required. 7. Data sources available for completing the reporting tables The main sources of data are presented below. National accounts - production and generation of income accounts (Table 3 of ESA transmission programme) and supply and use tables (Tables 15 and 16 of ESA transmission programme) Production and generation of income accounts provide data on specialist producers of EP. Secondary EP output (for example wastewater sold by the water supply industry) may be identified in supply and use tables. With the adoption of NACE Rev. 2 it is now easier to identify specialist producers, as for example Soil decontamination activities are separated from other waste activities. Supply and use tables may provide also imports, exports and value added data for specialist producers of EP as well as final consumption expenditure of households for important EP products. SBS statistics and business register SBS statistics are the principal sources of data for ancillary production of EP for most economic activities. The SBS Regulation requires investments for the production of EP ancillary and total current expenditure, including purchases of EP provided by other producers. Some countries collect separately internal current expenditures (which is more properly a proxy of the ancillary output) and purchases of EP. SBS statistics 18

and information from the business register can also help in estimating output of specialist producers. National accounts general government expenditure by function (COFOG) (Table 11 of ESA transmission programme) COFOG data is the main source of data for environmental protection expenditure of the general government. Although the groups of COFOG division 5 (environmental protection) do not allow for separate distinction of CEPA 1, 4, 5 and 7 which are included under COFOG group 05.3 pollution abatement, countries have often the possibility to use the databases behind COFOG statistics to extract data relevant for the EPE module. COFOG is also a key source for data on subsidies and other transfers. Analysis of financial budgets and accounts Budget analysis is useful for detailing EP expenditure activities already recorded in a more aggregated way under COFOG statistics (as it is the case of COFOG 05.3). Household expenditure surveys Depending on the country, items relating to the use of EP may be separately provided or be covered in wider expenditure categories of household expenditure surveys. For example, wastewater removal may be included in the water bill. R&D Statistics R&D statistics classified according to the Statistical Classification of Socio-economic Objectives (NABS) provides data on research activities/expenditure in NABS Chapter 3 Control and care of the environment which is consistent with the CEPA. R&D Statistics by NABS are produced only for general government expenditure. Data on R&D for environmental protection are provided also by COFOG statistics, in particular group 05.5. Ad hoc surveys Ad hoc surveys are implemented to collect data on EP expenditure for own internal use but also household expenditure, specific transfers etc. In some countries also ad hoc surveys on the environmental goods and sector exist. These surveys can give information on the output of EP producers as well as their exports and labour input. Analysis of data availability in the JQ-EPER The analysis of the data (and their sources) already made available by countries through the JQ-EPER suggests that countries already have the basic data needed to meet the requirements of the draft module. See the background document for more detail on data available from the JQ-EPER. For specialist producers the national accounts production and generation of income accounts make available relevant data on EP produced by EP specialist producers (those classified within NACE Rev. 2 divisions 37, 38 and 39). 19

Countries already have the required information for NACE Rev. 2 sections B, C and D in the role as ancillary producer. For these sections the SBS survey already collects some EPE variables. Several countries have specialist surveys that provide more detail. For the JQ-EPER's other business sector (i.e. ) and the agriculture sectors no survey exists at the European level to collect data on their environmental protection expenditure. When no other sources are available at national level, estimation methods should be employed. An option is to use counterpart information from environmental transfers paid by government. 8. Uses of data - example The EPE module s main objective is to assess the economic resources a nation devotes to environmental protection. As for national accounts in general, one of the final aggregates (the national expenditure for environmental protection) is mainly useful for international comparisons. More useful for policy analysis are the various components of the national expenditure, the national expenditure by environmental domain, and the changes over time. Table 1 below presents some EP indicators derived from Austrian JQ-EPER data that were converted into the framework for the EPE module presented above. Table 1: National EP expenditure by categories of users/beneficiaries, Austria, 2007, million euro Indicator Sum ( ) EP output at basic prices for the whole economy 9205,5 EP output at purchasers' prices for national uses (=total uses of EP ) 8455,9 Total GFCF for EP activities 1535,4 National expenditure for environmental protection* 9991,3 GDP 274019,8 National expenditure for environmental protection*, % of GDP 3,65 Total final consumption of EP 3489,5 Total intermediate consumption of EP including ancillary activities 4966,4 * it does not include specific transfers to households and to the rest of the world Key aggregates are national current and capital expenditure, by categories of users/beneficiaries (see figure 1) and financing units (see figure 2), and by environmental domains. 20

Figure 1: National EP expenditure by categories of users/beneficiaries, Austria, 2007, million euro Public specialised producers of market EP 2739.41; 27% 964.53; 10% 637.21; 6% 413.37; 4% 1703.35; 17% Private Specialised producers of EP Ancillary production of EP : NACE Rev. 2 A, B, C, C divisions, D, F, G to U Corporation sector other than characteristic producers General government (non market output) Households 3634.17; 36% Figure 2: Financing of national EP expenditure, Austria, 2007, million euro 2681.53; 27% 231.71; 2% 379.64; 4% 1582.91; 16% Public specialised producers of market EP Private Specialised producers of EP Ancillary production of EP : NACE Rev. 2 A, B, C, C divisions, D, F, G to U Corporation sector other than characteristic producers General government (non market output) 1582.07; 16% 3634.17; 35% Households The EPE module aggregates are closely comparable with national accounts aggregates so that ratios may be calculated that are true shares, e.g.: national expenditure/gdp, capital expenditure/gfcf, household expenditure/household final consumption, government expenditure/collective consumption. Other indicators that can be derived from the EPE module concern the supply of EP e.g. EP output/total output of the economy, EP employment/total employment. Other important information can be derived from the breakdown of the EP aggregates by environmental domain and by industries. For example, it is interesting to present the 21

expenditure of non-specialist market producers by industry. For the various industries, current expenditure (intermediate consumption of market and ancillary output) may be related to the output as an indication of the proportion in which current environmental protection expenditure raises the input costs. In the same way, capital expenditure may be compared with gross fixed capital formation. Since these indicators result from an accounting structure they ensure completeness and avoid double counting and other biases. For effective interpretation, the EPE indicators could be related to data on physical pressures (e.g. air emissions, waste generation, etc.), the state of the environment (e.g. quality of air or water bodies) and general economic development. 9. Links to other areas of environmental monetary accounts The transactions highlighted by the EPE module are only a part of all environment transactions within the ESA that are of interest for environmental accounting. Work is ongoing to develop other areas of monetary environmental accounts and it is important to ensure full coherence across different modules. A draft legal module for the Environmental Goods and Sector is being proposed at the same time as the EPE module. In addition, modules under development include environmental subsidies and similar transfers as well as resource management expenditure accounts. The table below illustrates the connections between the different areas. 22

Table: Environmental transactions and modules of environmental monetary accounts: overview Groups of producers and sectors Variables Public/private specialist producers of EP Secondary production of EP Ancillary production of EP General Government non market EP output Households Producers of EP connected goods Producers of EP adapted goods Producers of EP end of pipe and integrated technologies Public/private specialist producers of RM Secondary production of RM Ancillary production of RM General Government non market RM output Households Producers of RM connected goods Producers of RM adapted goods Producers of RM end of pipe and integrated technologies Output O.1 Imports I Exports E VAT (nd) and taxes-subsidies V Investments G Final consumption F Current transfers (paid/received) T.1 Investments grants (paid/received) T.2 Implicit subsidies T.3 Full time equivalents L.1 Compensation of employees L.2 Other types of transfers (e.g. tax credits) Value added Legend: EPE module EGSS module RME module* Environmental transfers module* * module not yet fully developed 23

Annex 1: Industry total current expenditure, in-house current expenditure, fees and purchases from the JQ Data at least available for one year and at least one industrial subsector of the JQ, i.e. NACE Rev. 1 C, D or E (1 = data available; 0 = data not available) Total Air Wastewater Waste Soil Noise Biodiversity Other AT Current expenditure 1 1 1 1 1 1 1 1 AT In-house current expenditure 1 1 1 1 1 1 1 1 AT Fees and purchases 1 1 1 1 1 1 1 1 BE Current expenditure 1 1 1 1 1 1 0 1 BE In-house current expenditure 1 1 1 1 1 0 0 1 BE Fees and purchases 1 1 1 1 1 0 0 1 BG Current expenditure 1 1 1 1 1 1 1 1 BG In-house current expenditure 1 1 1 1 1 1 1 1 BG Fees and purchases 1 1 1 1 1 1 1 1 CY Current expenditure 1 1 1 1 1 1 1 1 CY In-house current expenditure 1 1 1 1 1 1 1 1 CY Fees and purchases 1 1 1 1 1 1 1 1 CZ Current expenditure 1 1 1 1 1 1 1 1 CZ In-house current expenditure 1 1 1 1 1 1 1 1 CZ Fees and purchases 1 1 1 1 1 1 1 1 DE Current expenditure 1 1 1 1 0 1 0 0 DE In-house current expenditure 1 1 1 1 0 1 0 0 DE Fees and purchases 1 1 1 1 0 1 0 0 DK Current expenditure 0 0 0 0 0 0 0 0 DK In-house current expenditure 0 0 0 0 0 0 0 0 DK Fees and purchases 0 0 0 0 0 0 0 0 EE Current expenditure 1 1 1 1 1 1 1 1 EE In-house current expenditure 1 1 1 1 1 1 1 1 EE Fees and purchases 1 1 1 1 1 1 1 1 ES Current expenditure 1 1 1 1 0 0 0 1 ES In-house current expenditure 1 1 1 1 0 0 0 1 ES Fees and purchases 1 0 1 1 0 0 0 1 FI Current expenditure 1 1 1 1 1 1 0 1 FI In-house current expenditure 1 1 1 1 1 1 0 1 FI Fees and purchases 1 1 1 1 1 1 0 1 FR Current expenditure 1 1 1 1 1 1 1 1 FR In-house current expenditure 1 1 1 1 1 1 1 1 FR Fees and purchases 0 0 0 0 0 0 0 0 GR Current expenditure 0 0 0 0 0 0 0 0 GR In-house current expenditure 0 0 0 0 0 0 0 0 GR Fees and purchases 0 0 0 0 0 0 0 0 HU Current expenditure 1 1 1 1 1 1 1 1 HU In-house current expenditure 1 1 1 1 1 1 1 1 HU Fees and purchases 1 0 1 1 0 0 0 1 IE Current expenditure 1 1 1 1 1 1 1 1 IE In-house current expenditure 0 0 0 0 0 0 0 0 IE Fees and purchases 0 0 0 0 0 0 0 0 IT Current expenditure 1 0 0 0 0 0 0 0 IT In-house current expenditure 1 0 0 0 0 0 0 0 IT Fees and purchases 1 0 0 0 0 0 0 0 LT Current expenditure 1 1 1 1 1 1 1 1 LT In-house current expenditure 1 1 1 1 1 1 1 1 LT Fees and purchases 1 1 1 1 1 1 1 1 LU Current expenditure 0 0 0 0 0 0 0 0 LU In-house current expenditure 0 0 0 0 0 0 0 0 LU Fees and purchases 0 0 0 0 0 0 0 0 LV Current expenditure 1 1 1 1 1 0 1 1 LV In-house current expenditure 1 1 1 1 1 0 1 1 LV Fees and purchases 1 1 1 1 1 0 1 1 24