The evolution and enlightenment of water resources accounting from accounts to balance sheet

FuHui Jian, XiaoYu Song, LiLi Li, WenQi Gao

1. Key Laboratory of Eco-hydrology and River Basin Science, Cold and Arid Regions Environmental and Engineering Research Institute, Chinese Academy of Sciences, Lanzhou, Gansu 730000, China

2. Gansu's Economic Research Institute, Lanzhou, Gansu 730000, China

3. University of Chinese Academy of Sciences, Beijing 100049, China

4. Lanzhou University of Finance and Economics, Lanzhou, Gansu 730020, China



The evolution and enlightenment of water resources accounting from accounts to balance sheet

FuHui Jian1,2,3, XiaoYu Song1*, LiLi Li2, WenQi Gao4

1. Key Laboratory of Eco-hydrology and River Basin Science, Cold and Arid Regions Environmental and Engineering Research Institute, Chinese Academy of Sciences, Lanzhou, Gansu 730000, China

2. Gansu's Economic Research Institute, Lanzhou, Gansu 730000, China

3. University of Chinese Academy of Sciences, Beijing 100049, China

4. Lanzhou University of Finance and Economics, Lanzhou, Gansu 730020, China

ABSTRACT

The Third Plenary Session of the 18th Central Committee of the Communist Party of China has proposed an important national strategic decision: to explore and establish the balance sheet of natural resources, to implement leaders' of-office auditing system about natural resources assets. Water is one of the most essential nature resources of human beings; water resources accounting, as an important water resources management tool, is an essential part of compiling the natural resources balance sheet. In this paper, we provide a summary of the historic evolution of water resources accounting and analyze its application in some typical countries. Although water resources accounting and water resources balance sheet reflect different implications and focus, both require water resources accounts as the basis in system establishment.

water resources; water accounts; water accounting; water balance sheet

1　Introduction

Under the current high-speed regional economic growth in China, the political promotion tournament model has brought serious resources and environmental problems. The Third Plenary Session of 18th CPC Central Committee issued a decision of "accelerating the process of setting up a unified national economic accounting system, formulating national and local balance sheets, implementing leaders' of-office auditing system of natural resources assets, and establishing ecological damage liability lifelong accountability system" (The Third Plenary Session of the 18th CPC Central Committee, 2013). The natural resources asset balance sheet will be linked to natural resources conservation and officeholder's achievement, as reform performance assessment model, strengthens the "green constraint" practical basis (Feng et al., 2015). Thus, establishment of the natural resources asset balance sheet can optimize the government's macro accounting system, guide environmental damage and ecological benefit into the evaluation system of social development. This system is important for solving problems in the current national economic accounting system. Setting up the resources sub-categories is an effective way to objectively obtain resources quantity, quality, and utilization conditions, and to evaluate resources depletion and envi-ronmental degradation caused by resources development and utilization (Gan, personal communication, 2015; Xue et al., 2015). Water resources balance sheet can record water resources stock assets and changes, comprehensively account for possession, use and consumption for each economic individual, and reflect recovery and value-added water resources assets during a certain period (Feng et al., 2014). On this basis, the balance sheet can evaluate water resources assets changes in respect to physical and monetary measures, and reflect the degree of ecological environment destruction or restoration (Gan et al., 2014; Chen et al., 2015). In this paper, we introduce the concept and function of the System of Environmental Economic Accounting for Water (SEEAW), then describe the evolution of SEEAW in detail. Finally, the relationship between water resources accounting and water resources balance sheet account is explored, and some principles and key issues on compiling the water balance sheet are put forward for promoting and optimizing the water resources balance sheet system.

2　The definition and function of SEEAW

The system of environmental economic accounting for water (SEEAW) provides a link between economic information and hydrological information by compiling water resources and water economy accounts, providing users with a valuable conceptual framework agreement, comprehensive analysis tools, and the basis platform for macro decision establishment (Gan and Gao, 2008). SEEAW is based on a set of interrelated accounts, including physical supply use tables, water assets, emission, water quality, mixed and economic accounts, reflecting national economic sectors of water use, water supply, water sewage, water waste treatment, as well as national economic output and input associated with water supply (Deng and Gan, 2009). These accounts established a direct relationship between the Chinese economy and water resources physical quantity, providing a detailed overall database for water resources and national economic activity (Qin and Gan, 2010).

3　International and domestic practice of SEEAW

3.1International practice

3.1.1Water accounting framework in United Nation

The most widely used water resources accounting system was published by the United Nations Statistics Division, which was based on System of Integrated Environmental Economic Accounting (SEEA). In the beginning, SEEA-1993 version did not include the contents of water accounting, mainly focusing on the more complex statistics on natural and social economic duality property of water resources, but lacked unified research definitions and classifications of nations (United Nation, 1993). In order to solve these problems, the UN Statistical Division established the London Group on water environmental accounting packets in November 2003, to prepare the water environmentaleconomicaccountingaccounts (United Nation, 2003). With efforts of the working group, "the water environmental economic accounting system" was published in 2007 (United Nation, 2006a,b, 2007). SEEAW of UN was constantly being improved through the SEEA Central Framework. The United Nations Statistics Division and the London Group on Environmental Accounting jointly compiled "SEEA–Water (2012)" in 2012. In comparison with the previous versions, this version published in 2012 had more clear accounting ideas to meet the format and requirements of economic accounting, and had more objective measuring methods to better reflect the relationship among environment, ecology and economy. Results of the UN research were divided into two standard categories: universal and below-universal, which has further increased the operability of water resources accounting (United Nation, 2012).

Figure 1 clearly shows the SEEAW accounting framework of UN. The white rectangles represents monetary accounts (account measured with monetary unit), which were adopted into the SNA system directly or indirectly; the shaded rectangles were involved in the SEEAW accounting framework but were not in the SNA system. With SEEAW, the situation of initial water stock is well understood based on water resources assets accounting, economic and social water resources exploitation based on current water supply and utilization accounting, sewage and pollution emission based on information of discharge and recycling. In combination with information of precipitation, evaporation, inflow and outflow processes, we can obtain the end water resources stock, further achieving integration with the SNA system. The water resources account system in UN framework includes two categories of accounts, physical and monetary accounting accounts (Figure 2; United Nation, 2012).

3.1.2Water accounting system in Australia

Compared with other countries, Australia has two management systems in water environmental economic accounting: one is Australia Environmental-Economic Accounts for Water based on SEEAW, formulated by the Australian Bureau of Statistics (ABS), for policy application and macroscopic decision, the latest version is AEEAW2014; the other isAustralia Water Accounting Standard (AWAS), formulated by the Australian Bureau of Meteorology (BOM), mainly focusing on the target of water management and promoting water accounting standards.

1) Water accounting system of ABS

This framework is based on the development of SEEAW in the United Nations. There are two components: the first part is the best way of consensus reached by the international practical experience, including global consensus, definitions, classifications, accounts and tables; the second part is in accordance with relevant policies, and is in the experimental stage because the best acceptable international practice has not yet appeared. AEEAW does not entirely follow the traditional quantization table of SEEAW, where the water accounting framework format considers the physical characteristics of Australian water in nature (Australian Bureau of Statistics, 2004, 2006, 2007, 2008, 2014). Currently, the Australian Water Accounting Bureau of Statistics still focuses on physical accounting and less on value calculation.

2) Water accounting system of BOM

AWAS needs all water use sectors to provide their relative accounts so as to disclose their water assets, water debt, and water flux conditions during the accounting period. The accounting period here can be days, weeks, or years; each sector's water statistics can be progressively added, finally, producing a general accounting statements of a province and nation (Australian Bureau of Meteorology, 2009). In October 2010, the latest "water resources accounting standard" was published for accounting the stock and flow of water resources in financial accounting (Australian Bureau of Meteorology, 2010). At present, only Australia has taken it into consideration the physical volume of water resources in the balance sheet, which reflects water ownership within economies, but does not response the debt relationship between economy and environment (Australian Bureau of Meteorology, 2014).

Figure 1　SEEAW framework of UN

3.1.3Water accounting system in Netherlands

The Netherlands water accounting system has become an important basis for social welfare indicators. At the beginning of formulating water accounting system, the European Union drew many lessons from the concepts and definitions of social and economic water resources accounting of the Netherlands. Water resources accounting mainly includes human consumption of various quality of water resources, economic sectors' discharge into the water environment and its measurable influence on water quality, as well as waste water treatment and resulting costs (Keuning et al., 1999). This accounting system not only pays attention to the relationship of transformation between natural water resources and social economic water resources, but also focuses on the impact of human activity on the natural water resources environment.The Netherlands accounts system for water accounting, including 12 tables, are represented by physical units other than monetary units, by which the data of integrated water resources and its utilization, waste water emission, and production payment price are calculated (Huang and Zhao, 2015).

Figure 2　The system of water resources accounts in the United Nations

3.2Domestic practice of SEEAW

3.2.1In theory

The theoretic research of SEEAW in China was initiated during the late 1980s. The Chinese Ministry of Geology and Mineral Resources associated with Jilin University developed a study on resources accounting in 1987, including water resources accounting and sub-national economic accounting system research. JinChang Li (1991) put forward a theoretical resources accounting framework. WenLai Jiang (1998) discussed the constitution of water resources price from different angles. ShuMan Wang (2001) illustrated that water quality was the core of water resources value accounting. DongJing Chen et al. (2003) made a simple economic environmental accounting for water resources in the Zhangye City, and had established physical, value, industrial allocation of depletion cost, and integrated industry accounts. AiHua Long (2004) established the Heihe River water accounts at the irrigation and farmland scales. YanQin Lv (2004) provided an accounting framework model for water resources in an arid region from macro and micro angles. Hong Gan et al., in 2008, 2011, 2012, and 2014, had enriched and improved the water resources accounting system of China, conducted an exploratory study on water resources depletion and environmental degradation costs, and put forward an environmental and economic accounting framework of water resources of China. In addition, numerous researchers had made similar studies in China (Qin and Gan, 2010; Zhao, 2010; Jia, 2012; Ma et al., 2012, 2013).

With the deepening of water resources accounting in China, related theories and methods are becoming more advanced. From the view of water accounting content, domestic studies focus mainly on water resources account construction and the estimation of water resources physical accounting, but value accounting of water resources is still waiting for exploration. At present, water accounting seldom emphases the aspects of water assets liability and how to build a link between water resources accounting and water assets liability. From the aspect of accounting methods, physical accounting is the foundation, while value accounting is the core issue of water resources accounting system. Also, there are various valuation methods such as shadow price, supply and demand pricing, fuzzy comprehensive evaluation, and the CGE model. Due to the lack of standardized accounting methods, physical accounting is more frequently used than value accounting for current research.

3.2.2In practice

With the technical assistance of the United Nations Statistics Division, China Institute of Water Resources and Hydropower Research, early in 2005, jointly launched a research project on Water Accounting. Based on the SEEAW accounting framework of UN, the National Bureau of Statistics and the Renmin University of China, in combination with other departments, choosing Beijing and Shanghai as two pilot areas, the Haihe River and the Taihu Lake as two pilot basins, established a water resources environmental economic accounting framework (Gan and Gao, 2008; Ruan et al., 2012; Figure 3). The framework included water supply and use, mixing, emission, water stock and water flux, water managementand economic accounts. Based on these accounts, water accounting was carried out with physical and monetary accounts. The results not only provided basic information support for promoting water statistics and implementing the most stringent water resources management, but also provided practical experience reference for other departments (Xing and Dai, 2014). Nevertheless, at present, a unified accounting system and method has not been set up. Hopefully, the Third Plenary Session of 18th CPC Central Committee has made decisions "to speed up the establishment of unified national economic accounting system, to formulate local and national balance sheet of natural resources, to set up the ecological damage liability lifelong accountability system," which opens up new opportunities for promoting research on water resources accounting of assets and liabilities.

Figure 3　Water resources accounting framework in China

4　Discussion and conclusions

1) From the historical evolution of SEEAW in UN and some typical countries, water resources accounting could be divided into three stages: (1) 1990–2003, the so-called infancy stage, focused on the establishment of natural resources accounting accounts; (2) 2003–2011, the foundation stage, developed from theory to practice, especially the publishing of SEEAW-2003, water accounting began to interact with natural resources accounting and traditional national economic accounting system; (3) since 2012, the practical stage, considering SEEAW-2012 as a symbol, the United Nations began to carry out the establishment of water accounting with international standards, and recommended adoption by other countries.

2) From the aspect of accounting framework, water accounting system has been initially formed into a theoretical system, practical experience constantly revised and optimized. The framework of each country was almost similar with UN, the system is especially systematic in Australia, which is carried out every four years from the beginning of 2000 and gradually formed a standard system. China has expanded the water accounting theoretical framework and method, and has put forward water environmental economic accounting, water resources depletion costs, and water environmental degradation. Other aspects that require further study include the reduction of water consumption and the negative effect of environmental water degradation into the national economic accounting.

3) The water resources balance sheet is the sub-table of the natural resources balance sheet, which aimed to provide water assets and water balance information for natural resources balance sheet in a country or region (Gan et al., 2014). A substitute or subordinate relationship does not exist between water resources accounting and water resources balance sheet, both of which are intended to gather important water resources information and reveal their changes during the accounting period. They also have different implications and foci. Water resources balance sheet reveals a situation of water resources within a certain time for a particular region or country, analyze dynamic changes of water resources assets, reflect the ecological construction level for considering the relationship between water assets and liabilities, and lay particular stress on accounting according to the ac-counting equation. Water accounting mainly reflects a concept of water flow in a period of time, adjusts the GDP accounting after the consideration of resources depletion and environmental degradation, and lay particular stress on data statistics indicators. Water resources balance sheet or the water resources accounting system both require a physical measure of water resources accounts, and monetary measure are an important theoretical basis and data source (Huang and Zhao, 2015). The relationship among water accounting accounts, water accounting system and water balance sheets are presented in Figure 4.

Figure 4　The relationship of water accounts, water accounting system and water balance sheets

4) Whether domestic or foreign, compiling water resources balance sheet is a new field. According to search results from Springer, Elsevier and other full-text databases, direct reference theory, methods and experience are limited, and documents where the water resources balance sheet precisely match is scarce. At present, most of the water resources accounting in China and abroad are water assets accounting, which require study and discuss on how to define water liability items. In addition, water assets accounting is not a unified system for the water resources value method, which is one of the difficulties for preparation of the water resources balance sheet. Scientific research is also greatly affected to a large extent by liabilities of the assets property rights system in China.

5) Due to water resources renewability, randomness, mobility and other characteristics, the quantity and quality of water resources are changing in a particular time and space interact. Therefore, based on the national, hydrological, water accounting conditions in China, compiling water resources balance sheet should observe the following principles: firstly, let the physical accounting ahead to the value accounting, and provide assets accounting before liability accounting, from exploration and research to program establishment, from pilot case studies to overall implementation, from standard formulation to developing institutional arrangements; at the same time, pay attention to strengthening basic data collection and technical method optimization. Physical accounts of water resources assets have been firstly established, under the premise to ensure a scientific index system and complete data, should provide value accounts in pilot areas and continuously optimize value accounting system of the water balance sheet.

Acknowledgments:

This study was supported by the Chinese Science Academy STS Program: Natural Resources Balance Sheet Research and Application (KFJ-EW-STS-001); National Natural Science Funds Key Project (Grant No. 91125019); National Natural Science Youth Foundation (Grant No. 41401645). We would like to thank the editors and anonymous reviewers for helpful improvements.

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Jian FH， Song XY， Li LL， et al.， 2016. The evolution and enlightenment of water resources accounting from accounts to balance sheet. Sciences in Cold and Arid Regions， 8（2）： 0156-0162.

10.3724/SP.J.1226.2016.00156.

*Correspondence to: XiaoYu Song, doctoral candidate of Cold and Arid Regions Environmental and Engineering Research Institute, Chinese Academy of Sciences. No. 320, West Donggang Road, Lanzhou, Gansu 730000, China. E-mail: songxy@lzb.ac.cn

August 30, 2015Accepted: December 30, 2015