Environmental protection expenditure of public sector

Ref. Ares(2013)137833-04/02/2013 1(14) Environmental protection expenditure of public sector Contents ENVIRONMENTAL PROTECTION EXPENDITURE OF PUBLIC SECTOR... 1 Contents... 1 Preface... 2 Executive summary... 2 1. Introduction... 3 1.1. Purpose, need and background... 3 1.2. Project organisation... 4 2. Environmental protection expenditures in the public sector... 4 2.1. Expenditures of the central government and local government... 4 2.2. Investments and current expenditures... 5 2.3. Subsidies and transfers... 6 2.4. Expenditures by environmental domain... 6 3. Data sources... 7 3.1. Bookkeeping documents of the central government... 7 3.2. Data for further defining the bookkeeping data... 7 3.3. Economic accounts of municipalities... 8 4. Compiling methods... 9 4.1. Data selection and retrieval... 9 4.2. Aggregation of data... 10 4.3. Combining the data... 10 4.4. Data management... 10 5. Analysing interactions... 11 6. Conclusions and suggestions for improvements... 13 Appendix... 14

2(14) Preface The project on Environmental protection expenditure of public sector started in January 2012. The project was accomplished in the Environment and Energy unit of Statistics Finland. The project was partly funded by the European Commission. Senior Statistician acted as the project leader. Both the project group and the steering group consisted of experts on environmental accounts as well as public finance and municipal statistics. This report was compiled by, who also developed the revised method for calculating the expenditure in the public sector. The project leader wishes to thank the project group and the steering group for their competent input to the project. Special thanks are due to Anu Heikkilä for helping with public finance issues and SAS programming, and to Virva Terho for acting as an external expert on questions concerning agricultural environmental subsidies. Executive summary Statistics on environmental protection expenditure in the public sector are already available in Finland for the years 1994 to 2006. In this project, a revised method was developed and data acquisition was reorganised to enable compiling of the accounts in future. A time series was compiled for the years 2007 to 2010. These accounts, together with the statistics on environmental expenditure in industry, comprise the major part of the total environmental protection expenditure in Finland, and will be used for meeting the requirements posed by the module on environmental protection expenditure accounts to be added to the regulation on environmental accounts in the EU. A regular production of these statistics will be possible based on the method developed in the project. The resulting system, especially the revised method of data management, enables resource-efficient yearly compilation of statistics. Quality and reliability depend mainly on the measures of finding and selecting the relevant source data, which should be verified on a regular basis. Accounts for the years 2007 to 2010 were compiled on the environmental protection expenditure in the public sector in Finland. The expenditures are expressed at current prices and have gradually increased. The consolidated expenditures vary from EUR 1420 million to EUR 1565 million. During this period, wastewater management constituted the greatest proportion, nearly one half, of the total environmental expenditures, administration and other environmental protection activities roughly one fourth, the rest being spent on research and development, waste management and nature protection. The percentage allocation of environmental expenditures is quite similar for all the years 2007 to 2010.

3(14) 1. Introduction 1.1. Purpose, need and background A general objective of the action was to extend the statistics on Finnish environmental expenditures to cover again the public sector of the Finnish economy. These statistics were available until the year 2006, but because of certain changes in the registers, the relevant data had not been received after that. The full coverage would support the usability of environmental expenditure statistics in environmental/economic analyses together with other Finnish modules of monetary and physical environmental accounts (EGSS, taxes, air emissions, material flows). The specific objective was to create a system for a regular collection of data on environmental investments and current expenditures of the central government and municipalities. This system was planned to be used for the compilation of the time series 2007-2010. Environmental protection expenditures in the public sector consist of investments, operating expenditure, depreciation, revenues, investment grants given, investment grants received, and other transfers given. Environmental domains for the expenditures are wastewater management, waste management, nature protection, administration and other environmental protection activities. In addition, total environmental expenditures on research and development were planned to be estimated. The project group was organised and the action was carried out by the Environment and Energy unit at Statistics Finland. Both the project group and the steering group consisted of members from the unit of Environment and Energy and from the Department of Economic Statistics. The project started officially at the beginning of 2012 and it was scheduled to last for 12 months. Statistics Finland received a grant from the European Commission for partly funding this project. The rest of the budget is paid by Statistics Finland. The project was due to make the compiling of the statistics on environmental protection expenditure in the public sector possible so that Statistics Finland would be able to resume publishing those statistics.

Expenditures (EUR million) Environment and Energy 1.2. Project organisation 4(14) Members of the project group:, project leader Niina Autio, expert on environmental accounts Anna Piirainen, expert on environmental accounts Tuula Kyllönen, expert on environmental taxes Anu Heikkilä, expert on national accounts and municipal statistics The project group was supported by the steering group: Leo Kolttola, chair of the steering group Jukka Muukkonen, expert on environmental accounts Ville Vertanen, head of Environment and Energy Statistics Matti Okko, head of Government and Sector Accounts The project group had five meetings and the steering group also had five meetings. In addition to the regular project group meetings, several additional smaller meetings were held for discussing more specific issues and for planning detailed measures. The meetings followed the usual practice established at Statistics Finland. The issues treated and decisions made were written in the minutes by the project leader and made available to the members. 2. Environmental protection expenditures in the public sector 2.1. Expenditures of the central government and local government 1000 800 600 400 200 0 2007 2008 2009 2010 Central government Local government Figure 1. Total environmental protection expenditures of the central government and local government, non-consolidated data.

Expenditures (EUR million) Environment and Energy 5(14) The consolidated environmental protection expenditures in the public sector in Finland varied from EUR 1420 million to EUR 1565 million during the years 2007 to 2010. Consolidated results are presented in the Appendix. Without consolidating, the environmental expenditures varied between EUR 780 and 880 million for the central government and from EUR 640 to 720 million for the local government, the central government being responsible for 53 to 57 % of these expenditures depending on the year in question. 2.2. Investments and current expenditures The operating expenditure constituted the biggest part of the environmental expenditure in the public sector each year during the period 2007 to 2010. More than one half of the operating expenditure was expenditures of the local government allocated mainly to wastewater management and waste management. Municipalities can, however, cover the operating expenditures with the revenue from sewage and waste management. The operating expenditure of the central government environment protection consisted mostly of administrative expenditure. Investments varied between EUR 230 million and EUR 290 million during the period 2007 to 2010. A major part of the investments was directed to wastewater management and waste management by the local government. 1200 1000 800 600 400 200 0 2007 2008 2009 2010 Investment Operating expenditure Figure 2. Investment and operating expenditures in the public sector for environmental protection in Finland. R&D not included.

Expenditures (EUR million) Environment and Energy 6(14) 2.3. Subsidies and transfers The central government paid out, on average, EUR 380 million as investment and other grants to other sectors each year during the period 2007 to 2010. A major part of that was paid to the agricultural sector as agroenvironmental grants, and smaller parts were paid to enterprises and municipalities. 2.4. Expenditures by environmental domain During the period 2007 to 2010, nearly one half of the total environmental protection expenditures in the public sector was allocated to wastewater management and 25 to 30 % to administration and other environmental protection activities. Smaller shares of the expenditures were spent on waste management, research and development activities and nature protection. 1800 1600 1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 Research and development Administration, other environmental protection Nature protection Waste management Wastewater management Figure 3. Total environmental protection expenditure in the public sector by environmental domain, during the years 2007 to 2010. Since 2007, the proportion of the public sector environmental expenditures allocated to wastewater management has been higher than in the earlier years, as can be seen in the time series in Fig. 4. This increase is due to the new programme for agricultural environmental subsidies, in which a higher percentage of the subsidies is directed to wastewater management after 2007 than before. Correspondingly, the share of administration and other environmental protection activities has decreased.

7(14) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1994 1996 1998 2000 2002 2004 2006 2008 2010 Research and development Administration, other environmental protection Nature protection Waste management Wastewater management Figure 4. Total environmental protection expenditure in the public sector as percentage values by environmental domain, time series 1994 to 2010. 3. Data sources 3.1. Bookkeeping documents of the central government The data containing the bookkeeping documents of the central government are received by the Department of Economic Statistics at Statistics Finland monthly for compiling the national accounts and certain statistics on the public sector. For the purposes of the statistics on environmental protection expenditure in the public sector, annual data are required. This is met so that the cumulative annual data are provided by the Department of Economic Statistics to be accessible for Environment and Energy. In the future, fewer formalities are expected to be necessary after the organisational changes in 2013. The data contain variables which can be used for selecting data for the compilation of the statistics. The main criterion for selecting data is the item in the budget. 3.2. Data for further defining the bookkeeping data The types of the items in the budget for which additional information is needed, are the following: 1) Items which comprise of expenditures directed to several environmental domains 2) Items which are partly relevant for the statistics on environmental protection expenditure

8(14) 3.3. Economic accounts of municipalities The first type includes the agricultural environmental subsidies which are fairly substantial and spread over several environmental domains. For this part of the data on environmental protection expenditure, data received from the Ministry of Agriculture and Forestry are used, instead of applying the data in this particular budget item contained in the bookkeeping data. For the items in the budget which are partly relevant for the statistics on environmental protection expenditure, the proportion of expenses spent on environmental protection purposes must be determined. These kinds of items are, for instance, the employment appropriation, which contains appropriations directed to environmental protection activities, and the operational expenses of the regional governmental offices, which contain expenses of the regional environmental administration and controlling units. The required information for use in connection with the bookkeeping data is available on request from the Ministry of Finance, the Ministry of Employment and the Economy, and the Ministry for Foreign Affairs. The estimated expenditure on research and development is, in principle, based on the information derived from the items in the budget of the central government. This estimated expenditure is now received from the Statistical Methods unit at Statistics Finland. In the future, the estimation could possibly be made in the unit of Environment and Energy. In that case, the compilation would follow the procedure 2) mentioned above: items which are partly relevant for the statistics on environmental protection expenditure. Information on the relevant part of the expenses in each selected item should be received from the ministries or other organisations responsible for the research and development activities. Data concerning the local government can be derived from the economic accounts of municipalities collected by Statistics Finland. These accounts include three relevant items for environmental expenditure statistics: waste management, water management, and environmental management, which can be selected from the register. The required economic variables are also obtainable. This register is made available to Environment and Energy. In the future, fewer formalities are expected to be necessary after the organisational changes in 2013.

4. Compiling methods 9(14) 4.1. Data selection and retrieval Central government The cumulated annual bookkeeping data are the basic data source for the expenditures of the central government. The main criterion for selecting data is the item in the budget. The COFOG classification is not practical as such, because some budget items contain relevant information only partly, and therefore are not classified in classes under environmental protection. The relevant items in the budget must be found by manually studying the government budget. The items may change yearly, as new issues are included in the administrative activities or the structures of the ministries or administrative agencies are reorganised. The selected items of the budget are classified into CEPA classes manually, or, alternatively, the COFOG classification can be applied for those items which are consistent with the CEPA classification. For the agricultural environmental subsidies, a separate data file is prepared based on the data originating from the Ministry of Agriculture and Forestry. For the years in question in this project, the data have been received free of charge. The data file is supplemented with CEPA classes and the needed economic classification. This file is used to substitute the data concerning the budget item for agricultural environmental subsidies. For the items which are partly relevant for these statistics, coefficients are received from the ministries in question, to be used for calculating the relevant share of the budget items in basic data to be included in the statistics on environmental protection expenditure of the public sector. Local government The economic accounts of municipalities collected by Statistics Finland are the basic data source for the expenditure of the local government. The main criterion for selecting data is the domain. Three domains are selected, namely waste management, water management, and environmental management. For those domains both the types of expenditures, current expenditures and investments are selected. Of the organisational types, all four types are included: municipalities, joint municipal authorities, and the public-service companies of both of these organisational types. With the mentioned criteria, the required economic variables are selected. One of the domains, water management, is not relevant for these statistics as such, but approximation has to be done for determining the share of wastewater management. Certain coefficients, based on earlier studies, are used to multiply all the economic variables.

10(14) 4.2. Aggregation of data The retrieved and edited data are aggregated based on both the economic variables, i.e. the relevant transactions, and the environmental variables, i.e. the applied CEPA/COFOG classes or environmental domains, which are all available in the edited data. The data are processed so as to be suitable for presentation in the form outlined as the objective, shown in Table 1. Table 1. The tabulated form of the accounts outlined as the objective of the project. Environmental protection expenditure of public sector. Million euro Years 2007-2010 Waste water management Waste management Nature protection Administration and other environmental protection Research and development, estimate Investment x x x x Operating expenditure x x x x Depreciation x x x x Revenue x x x x Investment grants given x x x x Investment grants received x x x x Other transfers given x x x x Total Expenditure x x x x x Income x x x x 4.3. Combining the data 4.4. Data management Data for the central government and local government are retrieved, edited and aggregated separately. Separately calculated tables contain transactions from the central government to local government and vice versa. In order to eliminate these internal transactions, they have to be calculated in detail for each domain in each transaction and subtracted from the final combined expenditure. The resulting final integrated accounts of the public sector contain consolidated data on both the central government and local government. Data management is based on SAS programming and SAS files. The basic data are available as SAS files for data selection and retrieval. Specific programs have been made for the data retrieval and calculation for the central government and for the local government, and a main program for combining these two including a method for consolidating the expenditures. In order to apply for various reporting purposes, the programs can be slightly edited to meet the different reporting requirements. The new method of data management enables resource-efficient yearly compilation of statistics.

Percent (%) Expenditures (EUR million) Environment and Energy 5. Analysing interactions 11(14) 1000 900 800 700 600 500 400 300 200 100 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 Public sector Industry Figure 5. Investment and operating expenditure for environmental protection in Finland. In the expenditures shown, R&D, transfers given, and calculated amounts (depreciations and interests) are not included. The environmental protection expenditure in the public sector is often compared and presented with the environmental protection expenditure in industry. Together these two sectors cover the major part of the total environmental protection expenditure in Finland. Fig. 5 shows the investment and operating expenditure for environmental protection of both of these sectors. 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1994 1996 1998 2000 2002 2004 2006 2008 2010 Figure 6. Environmental protection expenditures in the public sector and in industry as a proportion of GDP in Finland. R&D is not included in the environmental expenditures.

EUR million Environment and Energy 12(14) The proportion of environmental protection expenditure of gross domestic product (GDP) is a common indicator used for international comparisons of environmental protection expenditure. In Finland, the proportion including expenditures in both the public sector and industry has stayed between 1.0 and 1.2 per cent since 1999 (Fig. 6). 6000 5000 4000 3000 2000 1000 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 Environmental protection expenditure Energy and transport taxes Pollution taxes Charges Figure 7. Environmental protection expenditure in the public sector and environmentally-related taxes, fees and charges in Finland. R&D is not included in the environmental expenditures. Charges include water and wastewater charges and waste management charges. Certain environmentally-related taxes and charges are shown with the environmental protection expenditures in Fig. 7. This presentation is for illustrating the order of magnitude of these particular monetary items paid and received by the public sector, the contents of the items shown not necessarily being comparable with each other.

13(14) 6. Conclusions and suggestions for improvements In this project, a revised method was developed and data acquisition was reorganised to enable compiling of the accounts in future. The basic data are available at Statistics Finland, and the additional data required can be found from certain ministries and government offices. These accounts, together with the statistics on environmental expenditure in industry, comprise the major part of the total environmental protection expenditure in Finland, and will be used for meeting the requirements posed by the module on environmental protection expenditure accounts to be added to the regulation on environmental accounts in the EU. A regular production of these statistics will be possible based on the method developed in the project. The resulting system, especially the revised method of data management, enables resource-efficient yearly compilation of statistics. For various reporting purposes, the programs could be slightly edited to meet the different reporting requirements. Quality and reliability depend largely on the measures of finding and selecting the relevant source data. This applies especially to the agricultural environmental subsidies, which constitute a substantial part of the total expenditure. More generally, the additional data needed for further defining the basic data are not constant but change yearly or every few years, and it is important that they will be verified on a regular basis.

Appendix 14(14) Wastewater Waste Nature Administration and Research and management management protection other environmental development protection estimate 2007 EUR million EUR million EUR million EUR million EUR million Investment 148.9 50.0 4.3 36.4 Operating expenditure 230.6 117.1 6.9 270.4 Depreciation 98.6 14.4 0.0 1.8 Revenue 383.6 156.4 0.0 53.1 Investment grants given 6.7 0.0 27.3 2.4 Investment grants received 17.2 0.1 0.0 0.0 Other transfers given 267.5 2.5 13.0 66.5 Total expenditure 653.7 169.6 51.4 375.7 172.0 Total income 400.8 156.5 0.0 53.0 2008 Investment 207.4 31.9 6.5 42.0 Operating expenditure 253.2 126.7 5.0 298.4 Depreciation 102.7 15.1 0.0 1.4 Revenue 392.1 164.1 0.0 60.9 Investment grants given 5.6 0.0 19.7 10.5 Investment grants received 16.5 1.0 0.0 0.0 Other transfers given 272.9 0.8 12.8 47.7 Total expenditure 739.1 159.4 44.0 398.6 180.0 Total income 408.5 165.1 0.0 59.2 2009 Investment 142.3 41.9 15.7 34.2 Operating expenditure 251.6 129.9 5.5 322.7 Depreciation 107.7 15.6 0.0 1.7 Revenue 393.1 161.2 0.0 63.7 Investment grants given 6.0 0.0 22.6 3.7 Investment grants received 10.3 0.1 0.0 0.0 Other transfers given 285.7 0.1 13.3 51.9 Total expenditure 685.7 171.9 57.1 412.5 184.0 Total income 403.4 161.3 0.0 62.5 2010 Investment 187.2 30.2 14.4 41.8 Operating expenditure 249.6 138.5 6.4 315.9 Depreciation 115.4 19.4 0.0 1.5 Revenue 411.2 169.8 0.0 58.7 Investment grants given 5.8 0.0 20.7 3.9 Investment grants received 7.7 1.5 0.0 0.6 Other transfers given 293.8 0.0 13.9 53.5 Total expenditure 736.3 168.8 55.3 415.1 188.0 Total income 418.9 171.2 0.0 59.3