**2.1. General considerations about the SEEA**

These activities have accompanied the development of man from the early stages of civilization. To such an extent that the stages of civilization have been named by the prominent resource that supported the era: bronze, iron, coal, and oil Ages. When nature was abundant, the side effects were not taken into account. However, the intense technological development

In this ambition, environmental economists have developed methods to evaluate the economic effect that has the use of natural resources to support our economic activities. They convert physical assets and impacts on ecosystems into monetary accounts, which are added or subtracted from the aggregated accounts, and finally, from the gross domestic product (GDP). The advantage of using monetary units is that it allows comparing among other environmental assets and aggregating them to look for their contribution of the wealth of a

However, as an agreement among economists is difficult to attain, and it is of paramount importance to yearly account for the human appropriation and use of nature, the United Nations proposed to develop a System of Environmental-Economic Accounts (SEEA). It consists of a satellite account system for reflecting the environmental deterioration proposed to adjust the System of National Accounts (SNAs). This is an optimum reference framework to follow in the description of economic valuation methods.<sup>1</sup> In fact it is an important tool to manage appropriate resources and thus ensure sustainable consumption and production as advocated by the UN Sustainable Development Goal Number 12.

This chapter explains the capabilities and drawbacks of the system of environmental and economic accounts. Subsequently, we describe an alternative approach for assessing abiotic resource depletion through the second law of thermodynamics. Finally, a proposal for

"The System of Environmental-Economic Accounts (SEEA) is the United Nations statistical framework that provides internationally agreed concepts, definitions, classifications, accounting rules and standard tables for producing internationally comparable statistics on the environment, and its relationship with the economy. The SEEA framework follows a similar accounting structure as the 'System of National Accounts' (SNAs) and uses concepts, definitions, and classifications consistent with the SNA in order to facilitate the integration of environ-

from a manual of best practices to an international statistical standard on par with the System of National Accounts. For attaining this objective, an iterative revision process was initiated by the United Nations Statistical Committee, relying on a broad global experts' consultation. The revised SEEA is organized into three main parts: the Central Framework, Experimental

See https://www.un.org/sustainabledevelopment/sustainable-consumption-production/ [Accessed: June 2018].

See http://unstats.un.org/unsd/envaccounting/seea.asp [Accessed: June 2018].

The international community agreed to elevate the SEEA-2003

accounting depletion based on the organized structure of the SEEA is provided.

of the twentieth century has forced society to realize them.

country.

60 Sustainability Assessment and Reporting

**2. SEEA accounts**

1

2

mental and economic statistics."2

In particular, the Central Framework of SEEA intends to be a universal single measurement system information on water, energy, minerals, timber, soil, land, ecosystems, pollution and waste, production, and consumption of all interactions that society makes with nature. It recommends presenting the yearly accounts for these interactions in an organized manner parallel to the System of National Accounts. The basis consists of defining and systematically accounting the concept of "environmental assets," which are defined as "the naturally occurring living and non-living components of the Earth, together comprising the biophysical environment that may provide benefits to humanity." These assets are presented in both physical and monetary data. The Central Framework claims that it facilitates comprehension of data by scientists and economists and brings a bridge between them.

Universally organized statistics is perhaps the main value of the SEEA, and economists have developed well established procedures to rely on them. To start with, the economists define flows and stocks.

Natural inputs are physical flows moving from the environment to production processes. They are mineral, energy or timber resources, also renewable energy resources and finally inputs from soil, water, and air resources. At the same time we produce products, we produce wastes. These are flows discarded, discharged or emitted in the production processes, and absorbed by the environment in the form of solid, liquid or gaseous materials and energy.

Stocks, in physical terms, refer to the total quantity of individual environmental assets at a given point in time. "These assets are defined by their material content without specific reference to their constituent elements." This is a major drawback since tons of a given metal do not tell about its wealth. Its mineral composition, ore grade, accompanying minerals or burden for instance can be very variable.

The physical units of these flows and stocks vary with their type and are measured according to the System of International units, mass, length, volume, joules, etc.

The way the physical flow is accounted follows the structure of monetary and use supply tables that are used to show transactions in products between different economic entities like industries, households, government, and the rest of the world. The structure of the physical supply and use tables (PSUT) adds another entity: the environment. This is made by adding columns and rows that consider the flows going into and leaving from it. In addition, the tables show separate accounts for materials flows, water and energy sub-systems.

Energy and water flows are accounted in physical units in a cradle-to-grave way. The physical flow accounts for materials are a complex subject for SEEA; this is because of its diversity as compared to energy and water flows. The SEEA uses the mass basis for each type of material.

Insofar as materials can react and mix with other materials to produce new materials, the trace of physical flows may be very complex in its cradle-to-grave description. In some cases, it is possible to track flows of elements such as mercury because of their hazardous nature.

The SNA limits its scope to commercially exploited deposits, whereas SEEA opens the scope

Accounting for Mineral Depletion Under the UN-SEEA Framework

http://dx.doi.org/10.5772/intechopen.77290

63

Notwithstanding this, these criteria consider the mining wealth in an economically simplified and present-day view. It misses the fact that geology is more complex than what statistics reflect. Consequently, there is no internationally agreed detailed classification for mineral and energy resources suitable for statistical purposes. For instance, there are many types of minerals and combinations of them with specific geological structures. In addition, the exploitation may result in recovering burden, tailings, and residues that were previously discarded as a

Thus SEEA simply proposes a compilation of the physical asset accounts for mineral and energy resources by type of resource including estimates of the opening and closing stock and changes in the stock over the accounting period. The type of measuring units indicates the roughness of the accounting system. They are measured in tons, cubic meters, or barrels. There is neither homogeneity in units nor specificity in the type of mineral. In fact, "it is noted that a total for each class of deposit across different resource types cannot be meaningfully estimated due to the use of different physical units for different resources. For certain sub-sets of resources, for example, energy resources, an aggregate across certain resource types may

As explained previously, all mining activities, either for extraction of mineral or energy resources impact on environment. Their effects are on air, waters and soils in form of pollution and degradation of environmental reservoirs. They also affect the landscapes, the ecosystems, and the local human settlements. The SEEA tries to organize these costs into a framework that allows valuating and yearly trace these impacts. In theory, the revenues caused by mining should overcome the temporal or permanent loss of environment. The only way to know that is by monitoring and accounting all these impacts in an organized and standardized way. This is the highest contribution of SEEA. Unfortunately, the loss of (i) landscapes, (ii) ecosystems supporting particular biotas, or (iii) local communities, might not be captured by these impassive accounting systems. Another problem is the lack of single and universal

The structure of the monetary asset accounts largely parallels the structure of the physical asset accounts. "The valuation of the stocks uses of NPV approach at the level of each individual resource type, and ideally for specific deposits of the resource, and then summed over the range of different resources in order to obtain a total value of mineral and energy resources."

The application of NPV approach requires specific considerations in the estimation of the resource rent. First, the resource rent should be limited to the extraction process itself excluding the refinement and processing of the extracted resource. Accordingly, the extraction process includes the typical mining activities like mineral exploration, evaluation, mining, and beneficiation. Commonly, the mineral deposit contains several types of resources. For example, an oil well containing gas or, nickel sulfide deposits often found with copper ores, where cobalt is also obtained as a by-product. In that case, the resource rent should be allo-

for having a broader picture on the availability of the stock of these resources.

be possible using a common unit such as joules or other energy units."

function of market demand, for instance.

measuring units.

cated by commodity.

To provide an aggregate overview in tons, the economy-wide material flow accounts (EW-MFA) are used. These accounts describe the materials input-output of an economy including the environment and the rest of the world as subsystems.

Converting these units into money allows, in theory, comparison among different assets. The preferred approach of SEEA to the valuation of assets is the use of market values. "Strictly, market prices are defined as amounts of money that willing buyers pay to acquire something from willing sellers."

However, valuating assets at market prices have an important problem since there are "few markets that buy and sell the assets in their natural state and hence determining an asset's economic value can be difficult." Therefore, the central framework recommends using the net present value (NPV) approach for estimating market prices for non-marketed assets. This approach also named as the discounted value of future returns approach, "uses projections of the future rate of extraction of the asset together with projections of its price to generate a time series of expected returns."

### **2.2. Asset accounts for mineral and energy resources in the SEEA**

Mineral and energy resources are non-renewable resources whose extraction leads to depletion, and subsequently, the end of the industrial activity. Therefore, their asset accounts must organize the information about stocks, flows of extraction, depletion, and discoveries, as well as of monetary estimates of the value added, operating surplus of the extracting companies, and depletion adjusted value-added measures. This is briefly described here.

Known deposits of mineral and energy resources are classified by SEEA according to the United Nations Framework Classification for Fossil Energy and Mineral Reserves and Resources 2009 (UNFC-2009)<sup>3</sup> . The UNFC-2009 classifies deposits with triple dimension criteria: economic and social viability (E), field project status and feasibility (F), and geological knowledge (G). The first criterion (E) establishes the commercial viability of the project. The second criterion (F) indicates where the technical extraction project is on the road from exploration to market. The third criterion (G) designates the level of certainty in the geological knowledge and potential recoverability of the quantities. Each criterion is further numbered as high (1), moderate (2), and low (3) or very low (4).

Besides of that, known deposits are categorized into three classes: class A for commercial projects with recoverable Resources, i.e., the case of E1 deposits and projects F1; class B for potentially commercial projects with recoverable resources when deposits fall in the category E1 or E2 and projects in F2; and class C for non-commercial, and other known deposits. In these three classes, the geological knowledge may be G1, G2, or G3.

<sup>3</sup> See http://www.unece.org/fileadmin/DAM/energy/se/pdfs/UNFC/UNFC2009\_ECE\_EnergySeries39.pdf [Accessed: June 2018].

The SNA limits its scope to commercially exploited deposits, whereas SEEA opens the scope for having a broader picture on the availability of the stock of these resources.

Insofar as materials can react and mix with other materials to produce new materials, the trace of physical flows may be very complex in its cradle-to-grave description. In some cases, it is possible to track flows of elements such as mercury because of their hazardous nature.

To provide an aggregate overview in tons, the economy-wide material flow accounts (EW-MFA) are used. These accounts describe the materials input-output of an economy

Converting these units into money allows, in theory, comparison among different assets. The preferred approach of SEEA to the valuation of assets is the use of market values. "Strictly, market prices are defined as amounts of money that willing buyers pay to acquire something

However, valuating assets at market prices have an important problem since there are "few markets that buy and sell the assets in their natural state and hence determining an asset's economic value can be difficult." Therefore, the central framework recommends using the net present value (NPV) approach for estimating market prices for non-marketed assets. This approach also named as the discounted value of future returns approach, "uses projections of the future rate of extraction of the asset together with projections of its price to generate a

Mineral and energy resources are non-renewable resources whose extraction leads to depletion, and subsequently, the end of the industrial activity. Therefore, their asset accounts must organize the information about stocks, flows of extraction, depletion, and discoveries, as well as of monetary estimates of the value added, operating surplus of the extracting companies,

Known deposits of mineral and energy resources are classified by SEEA according to the United Nations Framework Classification for Fossil Energy and Mineral Reserves and

teria: economic and social viability (E), field project status and feasibility (F), and geological knowledge (G). The first criterion (E) establishes the commercial viability of the project. The second criterion (F) indicates where the technical extraction project is on the road from exploration to market. The third criterion (G) designates the level of certainty in the geological knowledge and potential recoverability of the quantities. Each criterion is further numbered

Besides of that, known deposits are categorized into three classes: class A for commercial projects with recoverable Resources, i.e., the case of E1 deposits and projects F1; class B for potentially commercial projects with recoverable resources when deposits fall in the category E1 or E2 and projects in F2; and class C for non-commercial, and other known deposits. In

See http://www.unece.org/fileadmin/DAM/energy/se/pdfs/UNFC/UNFC2009\_ECE\_EnergySeries39.pdf [Accessed:

. The UNFC-2009 classifies deposits with triple dimension cri-

including the environment and the rest of the world as subsystems.

**2.2. Asset accounts for mineral and energy resources in the SEEA**

and depletion adjusted value-added measures. This is briefly described here.

from willing sellers."

62 Sustainability Assessment and Reporting

time series of expected returns."

Resources 2009 (UNFC-2009)<sup>3</sup>

3

June 2018].

as high (1), moderate (2), and low (3) or very low (4).

these three classes, the geological knowledge may be G1, G2, or G3.

Notwithstanding this, these criteria consider the mining wealth in an economically simplified and present-day view. It misses the fact that geology is more complex than what statistics reflect. Consequently, there is no internationally agreed detailed classification for mineral and energy resources suitable for statistical purposes. For instance, there are many types of minerals and combinations of them with specific geological structures. In addition, the exploitation may result in recovering burden, tailings, and residues that were previously discarded as a function of market demand, for instance.

Thus SEEA simply proposes a compilation of the physical asset accounts for mineral and energy resources by type of resource including estimates of the opening and closing stock and changes in the stock over the accounting period. The type of measuring units indicates the roughness of the accounting system. They are measured in tons, cubic meters, or barrels. There is neither homogeneity in units nor specificity in the type of mineral. In fact, "it is noted that a total for each class of deposit across different resource types cannot be meaningfully estimated due to the use of different physical units for different resources. For certain sub-sets of resources, for example, energy resources, an aggregate across certain resource types may be possible using a common unit such as joules or other energy units."

As explained previously, all mining activities, either for extraction of mineral or energy resources impact on environment. Their effects are on air, waters and soils in form of pollution and degradation of environmental reservoirs. They also affect the landscapes, the ecosystems, and the local human settlements. The SEEA tries to organize these costs into a framework that allows valuating and yearly trace these impacts. In theory, the revenues caused by mining should overcome the temporal or permanent loss of environment. The only way to know that is by monitoring and accounting all these impacts in an organized and standardized way. This is the highest contribution of SEEA. Unfortunately, the loss of (i) landscapes, (ii) ecosystems supporting particular biotas, or (iii) local communities, might not be captured by these impassive accounting systems. Another problem is the lack of single and universal measuring units.

The structure of the monetary asset accounts largely parallels the structure of the physical asset accounts. "The valuation of the stocks uses of NPV approach at the level of each individual resource type, and ideally for specific deposits of the resource, and then summed over the range of different resources in order to obtain a total value of mineral and energy resources."

The application of NPV approach requires specific considerations in the estimation of the resource rent. First, the resource rent should be limited to the extraction process itself excluding the refinement and processing of the extracted resource. Accordingly, the extraction process includes the typical mining activities like mineral exploration, evaluation, mining, and beneficiation. Commonly, the mineral deposit contains several types of resources. For example, an oil well containing gas or, nickel sulfide deposits often found with copper ores, where cobalt is also obtained as a by-product. In that case, the resource rent should be allocated by commodity.

An important problem in valuation is the frequent fluctuation of the market price of mineral commodities while operating costs are quite foreseeable. Consequently, the resource rent may be composed of a quite volatile time series. Mineral exploration and evaluation costs are treated as a form of gross fixed capital formation. Moreover, decommissioning costs reduce the resource rent earned by the extractor over the operating life of the extraction site.

**3. Closing material's cycles: the view "down the rainbow" (DTR)**

are efficient enough to assess the depletion of natural resources.

We have seen in the previous section that SEEA accounts for physical flows in a cradle-to-grave perspective. However, in the cradle-to-grave path, there is information that these accountancy systems will never supply: depletion. Neither the economic nor physical accounting systems

Accounting for Mineral Depletion Under the UN-SEEA Framework

http://dx.doi.org/10.5772/intechopen.77290

65

Something lacks in a global view: the mineral endowment and the non-renewable resources of the Earth are constantly decreasing. Each time non-renewable resourcesare extracted and not replaced we lose them irreversibly. And the only thing we can measure is its yearly decrease, not its lost value. There is no way of appraising what valuable things mankind is losing forever. Scarcity and the effort needed to replace non-renewable resources is absent in conventional accounting methodologies. Indicators for Materials recycling, substitution and consumption decrease also lack in the credit list. It could be argued that having an indicator of scarcity per chemical element could be enough to solve the problem. However, the myriad of inorganic products we can extract from mine Earth and the huge amount of chemical products that these materials can be converted into, makes impossible to have a decent accounting of the material cycles of all chemical elements. In our view, there is a lack of theory rather than a lack of indicators. Partial or total cradleto-grave assessments are the half part of the cycle. We name them "over the rainbow" (OTR) accounting methodologies. They lack the other side: the grave-to-cradle assessment. In the same way that imaginary numbers can hardly be explained in the real space, some phenomena like depletion may be better explained in the "down the rainbow" (DTR) approach [1].

The planet works in cycles driven by solar energy: carbon, oxygen, nitrogen, phosphorus, sulfur, and water have their cycles but, to our knowledge, there are no postulated cycles for metals and chemical elements in general. Those elements related with life have short closing cycle times even if they have reset times measured in geological scale times. However, such elements that do not form part of biological life will hardly be reset. They are constituents of our exosomatic organs, and they are in danger of being scarce for future organs because of dispersion. In practical terms, both types of chemical elements must have their own cycle. And the human being must allocate a major effort to close and accelerate their closure. Sustainable development requires the closing of all chemical elements in the planet either for endo or for exo-somatic organs. Their closing cycle velocity, and the effort required must be a function of how intense is their use with respect

to their physical scarcity. If man alters the cycles, closing them corresponds to man.

then recycle it, we would be using it temporarily.

By extracting the ore from a mine, the exergy (i.e. physical utility) of the ore increases, even though we spent a lot of exergy (i.e. useful energy) to remove it. From the standpoint of future generations having the raw material in a store instead of having it in a mine would be a good inheritance. All environmental costs would be a matter of the past. This is something similar to leaving for the future the pyramids or the cathedrals. Clearly, if we use this raw material and

The problem arises with dispersion. What is dispersed and, of course, the increase in demand needs to be replaced with more extraction. That increases the size of the cycle to be closed, and the energy debit increases over and down the rainbow. The over the rainbow part is a

The physical extraction rate is usually constant along the life of the resource if there are no reappraisals. However, as resources approach depletion, there will be a decline in the ore grades and the environmental and energy costs associated with extraction will increase, thus avoiding extraction of yearly constant quantities. Even the central framework of SEEA warns that there is no reason why the extraction rate should necessarily be constant. In practical terms an important physical fact is ignored: the extinction of the mine is not constant along the extraction period but follows the law of diminishing returns.

### **2.3. Final comments on the SEEA**

We find two main objections to the SEEA. First, dividing nature into assets does not reflect all interactions among natural systems themselves. For instance, converting a forest into a stock of timber does not reflect other benefits coming from it, like floods protection, clean air, being a life-supporting system, or even its recreational purposes. Numbers will never reflect causality and may provoke greed for rapid exploitation of natural resources. For the SEEA central framework, the whole is exactly the sum of its parts. It resigns holism in favor of reductionism.

Second, SEEA and SNA are firmly based on market price methods. Even if money has the power of easy comparisons among different issues, it reflects social values rather than objective values. They vary with time and from nation to nation. Money reflects the purchasing power of man in society. We pay people, not nature, and if nature claims nothing for its services, the monetary accounting system will only reflect present man´s interests. The implicit paradigm behind is: if we could extract and use all present environmental capital and convert it into money, it would be better than having physical assets not yet exploited. This is an absurd reductionism, and only the impossibility of having enough money to extract and convert nature into money inhibits that insanity. On the other hand, if everything is converted into money, the value of money itself would depreciate. Therefore, those that have retained their resources would become the wealthiest. The willingness to pay weakens with abundance and strengthens with scarcity. Yet the lack for a better numéraire excuses the use of money.

In fact, an important problem in SEEA is that it uses physical accounts without homogeneity in units or specificity in the type of mineral/material. This makes very confusing the trace of physical flows throughout its life cycle since materials react, mix, and decompose. Converting these units into exergy values would facilitate materials trace analyses through Sankey diagrams.

That said, the SEEA constitutes an impressive initiative for putting numbers to the man-nature interactions in a rational and global way. Universally organized statistics is perhaps the main value of the SEEA, and economists have developed well established procedures to rely on them.

In what follows, we present an alternate method for assessing natural non-renewable resources from a thermodynamic perspective.
