What is Economic Accounting of Water?
Economic Accounting of Water (EAW) is defined as a conceptual framework for organising economic and hydrological information in a way that permits a consistent and coherent method for analysing the contribution of water to the economy and the impact of the economy on water resources (UNSD 2006).
Objective of EAW
To monitor and evaluate whether a Country or River Basin is managing its water resources in an Efficient, Equitable, and Environmentally sustainable manner.
Main Features of EAW
EAW has two distinct features:
It is a satellite account of the System of National Accounts (SNA), which is the standard system for the compilation of economic statistics and derivation of economic indicators such as the Gross Domestic Product (GDP); and
It shares the same structure, concepts, classification and definitions with the SNA, thus enabling a direct link between the water sector and the national economy.
The EAW Framework is discussed briefly below and in detail in the Methodology Report.
Source: Hetherington 2009
The Framework for Economic Accounting of Water
Water is life. It is essential for basic human needs, for socio-economic development and for environmental integrity. Water is an input in almost all economic activities and it provides several essential services to people and the environment.
The EAW Framework presented in the Figure provides an integrated information ‘system’ that traces the various flows of water:
Within the environment. The natural flow of water between surface, soil and ground water;
From the environment to the economy. The abstraction of water from the environment for production and consumption purposes in the economy. However, the economy can also use water without physically removing it from the environment; e.g. fishing, navigation and recreation;
Within the economy. The flow of water in physical and monetary terms, from water supply agencies (water utilities) to agriculture, industry, mining, manufacturing, and households; and
From the economy back to the environment. After using water, the economy discharges wastewater back to the environment (return flow), either into rivers and lakes, or directly into the ocean. EAW traces the flow of water from economic units back to the environment in physical and monetary terms (i.e. m³ of wastewater discharged, as well as tariffs paid for wastewater treatment).
Flows of water between the environment and the economy.
Source: UNSD 2006
Definitions and Classifications
One of the most beneficial characteristics of EAW is that it directly links water accounts with national accounts by applying the same concepts, definitions and classifications as those applied in the internationally adopted System of National Accounts (SNA), which Ministries of Finance in SADC countries currently use to present the state of national economies.
The following are a series of important definitions commonly used in EAW:
Enterprise: An economic unit in its capacity as a producer of goods and services. An enterprise may operate one or more establishments, and may produce a variety of goods and services.
Establishment: An enterprise or part of an enterprise that is situated in a single location and in which only a single (non-ancillary) productive activity is carried out, or in which the principal productive activity accounts for most of the value added. Establishments are classified into industries using the International Standard Industrial Classification (ISIC Rev. 4) on the basis of their principal productive activity. Establishments also include governments (i.e. a government office is an establishment).
Industry: A group of the establishments within the economy that are engaged in the same, or similar kinds, of production activity (i.e. the type of activity undertaken to produce certain goods or services).
Household: A group of persons who share the same living accommodation, who pool some, or all, of their income and wealth and who consume certain types of goods and services collectively, mainly housing and food.
Residence principle: The residence principle is used to allocate economic units to an economic territory. While each unit will have a physical locationthat can be assigned to a spatial reference (e.g. a geo-code, administrative area, country, river basin or accounting catchment), it is also necessary to determine if the unit is a part of a country’s economic territory. The residence of each unit is the economic territory within which it has the strongest connection, in other words, its centre of predominant economic interest.
The International Standard Industrial Classification (ISIC)
The ISIC distinguishes the following groups which are important for water accounting:-
ISIC 1-3 Agriculture, Forestry and Fishing
ISIC 5-33, Mining and quarrying
ISIC 41-43 Manufacturing and construction
ISIC 35 Electricity, gas steam and air conditioning supply
ISIC 36 Water collection, treatment and supply
ISIC 37 Sewerage
ISIC 38, 39, 45-99 Service industries
Linking Economic Accounting of Water with the System of National Accounts (SNA)
The System of National Accounts (SNA) is the internationally agreed standard set of recommendations on how to measure economic activities within a country. Standard concepts, definitions, classifications and accounting rules are applied to measure indicators, such as Gross Domestic Product (GDP), the most frequently quoted indicator of economic performance (UNSD 2008). All Southern African Development Community (SADC) Member States have National Accounts and report annually statistics on GDP to international institutions such as the International Monetary Fund (IMF). EAW is a satellite account of the System of National Accounts (SNA) in the sense that it expands the analytical capacity of national accounts by addressing water-related concerns in detail without over-burdening or disrupting the national accounting process. As a satellite account of national accounts, EAW has a similar structure to the SNA as it uses concepts, definitions and classifications consistent with the SNA, while not violating the fundamental concepts and principles of hydrology.
Advantages of linking EAW to the SNA
Closely linking economic accounting for water with the SNA has a number of advantages:
SNA is an internationally accepted standard for compiling economic accounts and has been adopted by SADC Member States. It provides a set of internationally agreed concepts, definitions and classification thus allowing for international comparison;
Fitting EAW into the SNA framework improves the analysis of the relationship between the water sector and the economy;
The system of national accounts has a number of equations (identities), which can be used to check for consistency of data;
The accounting structures used also allow for the calculation of a number of indicators, which are precisely defined, consistent and closely linked with each other, because they are derived from a consistent data system; and
It allows evaluation of environment-economy tradeoffs, not by analysing sectoral policies in isolation, but in a comprehensive economic and environmental context.
EAW expands the SNA in several ways:
Expanding the national accounts asset boundary to include groundwater, water in dams and river, and glaciers as water assets and explicitly identifying infrastructure (produced assets) for mobilising water resources;
Expanding the system of national accounts by comparing physical information to the monetary accounts. EAW allows for the compilation of the accounts in both physical and monetary terms;
Introducing information on the relationship between the economy and the environment in terms of water abstractions, returns and pollution, thus allowing for the analysis of the impact in terms of quantity and quality of water caused by production and consumption activities of economic units; and
Separately indentifying expenditures for the protection and management of water resources including taxes, subsidies and the financing mechanisms.