WAVES Natural Capital Accounting Natural Capital Accounting in Action Dec 2014 in Action Sweden’s carbon accounting In brief informs its carbon tax policy • Sweden has been compiling ‘CO2 emission accounts’ for all As Swedish policymakers put together a climate bill, economic sectors since 1993. they relied on economic models to pinpoint policies that would reduce greenhouse gas emissions while minimizing • The accounts are categorized in the same way as national costs to GDP, employment and growth. At the heart of this economic data, helping analysis was Sweden’s sector-by-sector accounting of researchers to model the economic impacts of policies CO2 emissions and energy use, in parallel with standard aimed at reducing emissions. economic accounts. The emissions and energy accounts enabled detailed modeling of alternative proposals, • Such modeling has shown the government how to improve the which led to a finely tuned policy package with cost-efficiency of a proposed significant cost savings. carbon tax policy. The new policy is expected to save Sweden has long been a climate A central factor was the amount 700,000 tonnes more CO2 policy pioneer, adopting its first of emissions from each economic annually while costing the carbon tax in 1991. But a sector, and fortunately the economy 25% less than the original proposal. parliamentary group government had this data. “ commissioned in 2008 to Sweden has been compiling ‘CO2 propose a timetable and strategy emission accounts’ for all sectors The emissions for slashing the country’s since 1993. It was one of the first accounts are very greenhouse gas emissions, faced countries to adopt the System of useful in our daily work. Our uncharted territory. Environmental-Economic model [based on the Accounting, a method for accounts] is used in most The new Climate Committee had climate policy analyses tracking environmental impacts to work out how to slow pollution commissioned by the that uses the same classifications without harming the economy. government.” as the System of National Which strategy would be most Accounts. Eva Samakovlis, head of research, effective: should the emissions National Institute of Economic cuts be within Sweden’s borders Integrating environment Research (NIER), Sweden or should Sweden pay for and economy reductions in other countries? How much could the country Using national accounts increase taxes in the already categories to gather data on heavily taxed transport sector? greenhouse gases adds value And how would the Swedish compared to general economy as a whole respond to environmental statistics because targets for 25, 30 or 40 per cent the emissions are linked to lower emissions by 2020? specific economic activities. The www.wavespartnership.org Wealth Accounting and the Valuation of Ecosystem Services data can be plugged into models to assess the economic effects of environmental policies. The Climate Committee based its discussions in part on macroeconomic models of a type known as computable general equilibrium (CGE) models, relying on fairly disaggregated statistics. Labor, capital and monetary value of materials are all included as separate inputs in 25 economic sectors, along with taxes and subsidies. The committee reviewed CGE modeling studies of different emissions targets. By combining the CO2 accounts data on the carbon intensity of industries with other national accounts data, it was possible to assess impacts of greenhouse gas cuts on the national Iggesund, Sweden (netzanette/Flickr) budget, GDP, employment and sector-by-sector growth. range of industries affected, among other factors. The researchers estimated that the changes could Would emissions cuts affect exports? lower emissions about 50 per cent more — avoiding A key concern was damage to the export industry, an extra 700,000 tonnes of CO2 — while reducing as Sweden’s small, open economy is highly costs by nearly one quarter. If the improved carbon dependent on trade. The modeling considered tax were combined with emissions cuts overseas, whether putting a domestic price on carbon would the cost would fall ninefold, saving US$1.1 billion. affect exports. The resulting GDP changes were These kinds of calculations can only be done if a important in determining how much to reduce country’s environmental and economic statistics are Swedish emissions as opposed to supporting integrated. “If we didn’t have the emissions and decarbonization overseas. energy accounts, we couldn’t use the general The government then asked the National Institute of equilibrium models,” explains Samakovlis. “And Economic Research (NIER) to evaluate the Climate without the general equilibrium perspective, we Committee’s policy proposals and provide miss the interaction effects that occur in the additional analysis. The model developed includes economy.” more detail on use of different energy sources An increase in the carbon tax was incorporated into (electricity, fossil fuels and wood) in each economic the government’s 2009 climate bill, along with other sector. This allowed for more refined analysis of the recommendations from NIER. The legislation, now in costs and economic consequences of carbon taxes, effect, promises that greenhouse gas emissions fuel standards and energy efficiency policies. from part of the economy in 2020 will be 40 per cent below 1990 levels. So far, emissions have fallen More cost-efficient policy by 10 megatons annually, around half of the By accounting for emissions and energy, Sweden reduction needed to reach the target. And the same gained a stronger evidence base for policy and CO2 and energy accounts that shaped Sweden’s significant cost savings. For example, NIER’s climate plan will also help keep it on track. Economic modeling based on the accounts led to changes to projections from NIER’s model are used by other the carbon tax policy proposed by the Climate Swedish agencies to produce regular forecasts of Committee. NIER recommended broadening the energy use and emissions. What is natural capital accounting? A set of objective data showing how natural resources contribute to the economy and how the economy affects natural resources. The accounts are an extension of the System of National Accounts. Natural capital accounting integrates natural resources and economic analysis, providing a broader picture of development progress than standard measures such as GDP. Further resources can be found at www.wavespartnership.org Facilitated by the World Bank, Wealth Accounting and the Valuation of Ecosystem Services is a global partnership that aims to promote sustainable development by ensuring that the national accounts used to measure 1818 H Street, NW, and plan for economic growth include the value of natural resources Washington, DC 20433 USA