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eurostat

STATISTICAL OFFICE OF THE EUROPEAN COMMUNITIES

ACCT-EXP/99/4.2.5Item 4.2 of the agenda

B1 - National accounts methodology,statistics for own resources Luxembourg, November 1999

The Istat methodology for calculating General Government expenditure

on environmental protection

M. Bombana, C. Costantino, F. Falcitelli, A. Femia,C. Segatori, A. Tudini, M. Vannozzi

Istat - Environmental Accounting Unit

Joint meeting of the

Working Party ‘ECONOMIC ACCOUNTS FOR THE ENVIRONMENT’and the Sub-Group ’ENVIRONMENTAL EXPENDITURE STATISTICS’

Meeting of 6 and 7 December 1999

BECH building – Room ‘Quételet’

The Istat methodology for calculating General Government expenditure on environmental protection

Manuela Bombana, Cesare Costantino(*), Federico Falcitelli, Aldo Femia, Claudio Segatori, Angelica Tudini, Miriam Vannozzi

Contents(**)

1. Objectives_________________________________________________________2. The Istat Methodology___________________________________________2.1 Budget analysis as a tool for data collection: general problems___________2.2 How to counteract the problems of budget analysis: the main features

of Istat's methodology and operational tools____________________________42.2.1 The two stages of data collection___________________________________________42.2.2 Intermediate groups of expenditure items and aggregates_______________42.2.3 The causa finalis criterion of SERIEE and budget analysis________________82.2.4 The decision tree for selecting expenditure items and including them in

the intermediate groups______________________________________________________92.2.4.1 Criteria________________________________________________________________________92.2.4.2 Formal criteria_______________________________________________________________102.2.4.3 Substantial criteria: the three information levels available from the budget___132.2.4.4 Hierarchical arrangement of the substantial criteria__________________________142.2.4.5 The decision tree in detail____________________________________________________152.2.5 An operational tool for classifying the selected expenditure items

under CEPA___________________________________________________________________242.2.5.1 CEPA: not only a classification tool but also a check list for selecting of

environmental protection expenditure items__________________________________242.2.5.2 Rules for applying CEPA: general principles and critical issues________________272.2.5.3 CEPA operational tables for selecting classifying the expenditure items_______312.2.5.4 Two examples of the CEPA operational tables________________________________35

2.2.5.4.1 CEPA operational table 1 - Ambient air and climate protection________________________352.2.5.4.2 CEPA operational table 2 - Waste Water Management_______________________________39

3. Three approaches______________________________________________443.1 The Istat approach compared to other options: critical issues and

perspectives___________________________________________________________443.2 Critical issues to consider in the evaluation of the alternative

approaches: an overview______________________________________________47Bibliography_______________________________________________________48

* Head of Istat Environmental Accounting Unit

** The contributions of the individual authors are arranged as follows: M. Bombana wrote § 1; C. Costantino wrote §§ 2.2.4.3 and 2.2.5.1; F.o Falcitelli wrote §§ 2.1, 2.2.1, 2.2.2, 2.2.3, 2.2.4.4, 2.2.5.2, 2.2.5.3 and 3.1; A. Femia wrote §§ 2.2.4.1, 2.2.4.2 and 2.2.4.5; C. Segatori wrote § 2.2.5.4.1; A. Tudini wrote § 3.2 and M. Vannozzi wrote § 2.2.5.4.2.

Our thanks to Dott.ssa Paola Mariani of the Ragioneria Generale dello Stato (Ministry of the Treasury, Budget & Economic Planning) for her collaboration.

Istat - Environmental Accounting Unit


1. ObjectivesThe purpose of the work of collection and quantification of environmental-protection expenditure incurred by General Government is to produce base data for use in constructing the satellite Environmental Protection Expenditure Account (EPEA), in application of the European guidelines on implementation of the SERIEE system of satellite accounts (Eurostat, 1994a).

The EPEA satellite account gives an accounting representation of expenditure on environmental protection incurred by economic units from all institutional sectors of the economy: General Government, Corporations, Households and Non-Profit Institutions serving Households (NPISHs). Therefore, the collection and quantification of expenditure on environmental protection incurred by General Government is only one of the inputs needed in the construction of the EPEA, where we have to collect and quantify the corresponding expenditure incurred by the other institutional sectors.

For the purpose of collecting environmental-protection expenditure, it is above all necessary to take account of the structure of the EPEA, which is arranged as a series of accounting tables (Eurostat, 1994a, §§ 2168 sqq) and a series of sub-accounts (Eurostat, 1994a, Chapters III-IX). Provision is made for the construction of 5 types of accounting tables (Tables A, B, B1, C and C1) to account for separate aspects of environmental protection and thus to quantify different aggregates.

The EPEA is also arranged in respect of the purpose of the transactions recorded: the EPEA provides not only for the construction of the 5 accounting tables referring to all expenditure incurred by the economy for environmental protection but also for these tables to be constructed with reference to the separate “classes”1 of the CEPA classification (Classification of Environmental Protection Activities), adopted in the context of the EPEA for classifying expenditure on protection of the environment (these classes are given in Table 1 below).

Table 1 - CEPA classes of characteristic activitiesClasses of characteristic activities1. protection of ambient air and climate2. waste water management3. waste management4. protection of soil and groundwater5. noise and vibration abatement6. protection of biodiversity and landscape7. protection against radiation8. research and development for environmental protection9. other environmental protection activities

This creates an arrangement of the system as “sub-accounts”. Specifically, the sub-accounts to be constructed are those listed in Table 2 below.

1 This is the first level (i.e. the highest aggregation) of the CEPA classification (see Eurostat, 1994a, Annex 1)

Istat - Environmental Accounting Unit 1


Table 2 - EPEA sub-accounts

EPEA sub-accounts1. ambient air and climate protection account (class 1)2. waste water management account (class 2)3. waste management account(class 3)4. protection of soil and groundwater account (class 4)5. noise and vibration abatement account (class 5)6. protection of biodversity and landscape account (class 6)7. other environmental protection activities account (classes 7, 8 and 9)

Summing up, the EPEA is configured as a system of accounts comprising:

the 7 sub-accounts listed in Table 2, each organised into the mentioned 5 accounting tables;

an overall account obtained by consolidating the 7 sub-accounts, this also being structured into the 5 separate tables2.

Because of the structure of the EPEA - presented here in an extremely summary fashion - the collection and quantification of expenditure for environmental protection incurred by General Government, and also by economic units operators within any other institutional sector, in theory involves three logical steps; they allow to identify in increasing detail the area within which to record expenditure within the EPEA (on this, see Table 3 below).

Table 3 - The three steps needed to collect information from a generic economic unit to build the EPEA

The output of each step Use in the EPEA building process1) Identification/selection of environmental

protection expenditure within the budget of the economic unit

To identify the expenditure to be recorded in the EPEA

2) Classification of the selected expenditure under CEPA

To identify the relevant EPEA sub-account where environmental protection expenditure

has to be recorded3) Analysis and identification of relevant

features of the selected expenditure, e.g. the role of the units involved in the environmental protection transactions (characteristic producer, beneficiary, etc.), the type of environmental protection expenditure (production costs for characteristic activities, purchase of specific products, specific transfers, etc.)

To identify the accounting Table (or Tables) of the sub-account where environmental

protection expenditure has to be recorded and the specific position of each item within the

Table

2 The total number of accounting tables to be implemented is 40.



2. The Istat methodology2.1 Budget analysis as a tool for data collection: general problems

The approach used at Istat for collecting and quantifying expenditure on environmental protection by General Government is currently centred on gathering the base data for implementation of the EPEA: at this stage the work is chiefly aimed at identifying and selecting the General Government expenditure that falls within the field of analysis of the EPEA and at classifying this in terms of the CEPA (that is, step 1 and step 2 in Table 3 above).

Of the possible methods for collecting the data recommended at the European level (Eurostat, 1994b, page 15), the option which Istat has adopted — after evaluation of the experiments previously conducted in Italy as regards environmental expenditure by General Government3 and the methods adopted in the other European countries — is to analyse the accounts of general government: this analysis involves scrutinising each item of expenditure included within each account4, in order to establish from the information available (description of the item of expenditure, law cited in the description of the item of expenditure, position of the item of expenditure within the structure of the account):

whether the item of expenditure falls within the field of analysis of the EPEA (the stage of identifying and selecting expenditure);

the CEPA class within which to classify the item of expenditure (stage of classifying expenditure).

In developing Istat’s methodology we have tried to counteract the general problems of the data collection method adopted; these can be summarised as follows:

I. problems due to the information source (General Government budget accounts):

A. one single expenditure item can include environmental protection and non-environmental protection expenditures;

B. environmental protection expenditures in the same item can belong to different CEPA categories;

C. the information on the expenditure item may not be enough to decide whether the expenditure item includes environmental protection expenditures;

II. problems due to the risk of introducing subjective criteria in the choice when different people analyse accounting items and decide whether or not they have to be included in the scope of EPEA and how they are to be classified under CEPA.

3 See, for example, Cesaretti, 1996, and Ministero del Tesoro, 19914 In this work the wording “budget accounts”, “budget”, “public accounts”, “General Government budget accounts” and similar ones, always refer to the accounting documents produced at the end of the year.



2.2 How to counteract the problems of budget analysis: the main features of Istat’s methodology and operational tools

2.2.1 The two stages of data collection

The major features of Istat's methodology derive from the solutions adopted to counteract the specific problems of budget analysis.

First of all, under Istat's methodology the work of data collection is subdivided into two stages:

1. first step: “sift” the budget in order to:

• exclude the expenditure items that definitely DO NOT include environmental protection expenditures;

• select and classify the expenditure items that definitely DO include environmental protection expenditures and are homogeneous enough to be classified under CEPA without problems;

• identify the expenditure items which are:

(a) non homogeneous with respect to the expenditure, i. e. which include both environmental protection expenditures and non-environmental protection expenditures;

(b) uncertain, i.e. for which there is not enough information to exclude/select them;

2. second step: look for additional information to:

• quantify and classify the environmental protection expenditures extracted from non homogenous expenditure items;

• exclude/select and, where appropriate, classify the uncertain expenditure items;

2.2.2 Intermediate groups of expenditure items and aggregates

The key to this two-stage arrangement is to identify certain “intermediate groups of expenditure” within which to place the items of expenditure examined, during the first stage: these groups — illustrated in Figure 1 and defined in Table 4 — are known as “intermediate” because they are not directly of use for the recording of expenditure within EPEA, but rather to “put away” all those items of expenditure where analysis can be terminated at the first stage and “identifying” those expenditure items where it is necessary to gather additional information in the second stage.

In practice the first stage of the approach is intended to make a partition of the universe of items of expenditure in terms of the groups shown in Figure 1 and defined in Table 4. This partition is exhaustive: for all expenditure, whatever the information supplied by the public accounts and whatever the level of aggregation within the items, we succeed in finding one (and only one) position, although in some instances it might not be final.



Figure 1 - Intermediate groups of expenditure items

Total Expenditure: all the expenditure items included in a given General Government budget

(TE)


Non-Environmental Protection Expenditure:

Expenditure items which definitely include non-EPE only

(NEPE)Non-Homogeneous

Expenditure:Expenditure items which include EPE together with

non-EPE (NHE)

Uncertain Expenditure:

Expenditure items which, given the available information, can be

neither definitely included within EPE, nor definitely excluded from EPE (UE)

Purely Environmental Protection Expenditure:Expenditure items which definitely include EPE only(PEPE)

Multi-purpose Environmental Protection Expenditure:

Expenditure items which definitely include expenditure having at the same

time an environmental protection goal and at least one other different

purpose(MEPE)

Environmental Protection Expenditure (EPE)


All items of expenditure regarded as NEPE are excluded from the analysis at the first stage. Items of expenditure allocated to the PEPE and MEPE groups are immediately and definitively “put away” - i.e. included within the field of analysis of EPEA. Items which include environmental protection expenditure combined with non-environmental protection expenditure (NHE) are in the first stage (provisionally) included entirely within the EPEA field of analysis, pending the more detailed phase in the second stage when they can be divided proportionately between the PEPE and/or MEPE groups and the NEPE groups. Items for which the information available is found to be so generalised that we cannot decide whether to put them inside or outside the field of analysis (i.e. belonging to UE) are in the first stage (provisionally) included within the field of analysis until, on the basis of the outcome of the more detailed phase in the second stage, they can be excluded or be re-allocated to PEPE or MEPE as appropriate.

Table 4 - Definitions of the Intermediate groups of expenditure itemsNEPE Non-Environmental Protection Expenditure: expenditure incurred for activities and actions not

intended for environmental protection

PEPE Purely Environmental Protection Expenditure: expenditure incurred for activities and actions exclusively intended for environmental protection

MEPE Multi-purpose Environmental Protection Expenditure: expenditure incurred for activities and actions which simultaneously and in combination serve multiple purposes including that of environmental protection; for such activities, attainment of the purpose of environmental protection necessarily includes attainment of the other purposes or is included in it5.

NHE Non-Homogeneous Expenditure: expenditure incurred for multiple activities and actions among which some but not all are definitely intended for environmental protection (exclusively or in combination).

UE Uncertain Expenditure: expenditure incurred for activities and actions which might be entirely or partly intended for environmental protection.

It should be noted that each of the NHE and UE groups is a basket that can hold both environmental-protection expenditure and expenditure that has nothing to do with environmental protection. At aggregate level, the only difference is that only the former always, with mathematical certainty, includes environmental-protection expenditure.

5 This means expenditure financing activities or actions which, by their nature or because of the manner of implementation, are not capable of pursuing environmental-protection objectives without at the same time meeting other purposes directly and immediately. The inclusion of such expenditure within the field of analysis stems from the instructions given in Chapter XXI of the SNA93 manual in Section C: “functionally oriented satellite accounts”. In particular, § 21.56 specifies that, where one activity (or action) serves at the same time various separate purposes for which separate satellite accounts are desired, the activity (action) is to be considered for the purposes of all the accounts to which it is relevant (United Nations, 1993b). The expenditure relating to this is therefore to be shown in full in each of those accounts (which will therefore not be additive), and not assigned to one or other of these, nor divided between them (either of these approaches would be arbitrary) (Istat, 1999a). The environmental protection group of expenditure – EPE – therefore consists of two sub-sets: EPE = PEPE + MEPE.



After the first stage of data collection, it is still not possible to produce a single estimate of General Government expenditure on environmental protection, and only an interval can be calculated.

In order to make such a calculation, we have to define an intermediate aggregate called “Enlarged Environmental Protection Expenditure” (EEPE), as follows (Figure 2):

EEPE - Enlarged Environmental Protection Expenditure:

EEPE = EPE (= PEPE + MEPE) + NHE + UE

Thus the unknown aggregate (i.e. the whole of General Government expenditure on environmental protection) is included in the following interval:

.

Figure 2 - Intermediate aggregates

Total-Expenditure (TE)

The aggregate EPE (Figure 2) represents the minimum certain amount of expenditure on environmental protection, since it only includes expenditure which is definitely so at the first stage. The EPE aggregate is therefore the lower end of the interval referred to above. The upper end of this interval is given by the aggregate EEPE, since from it is


Non Environmental Protection Expenditure (NEPE)

Non-Homogeneous Expenditures (NHE) and Uncertain Expenditures (UE)

Environmental Protection Expenditure (EPE = PEPE+MEPE)

Enlarged Environmental Protection Expenditure

(EEPE)


excluded only expenditure which definitely has no purpose of environmental protection6. The aggregates EPE and EEPE therefore give the lower and upper limits between which expenditure on environmental protection will necessarily be found. The range of the margin of uncertainty, EEPE – EPE, is of course equal to NHE + UE.

The point estimate of expenditure on environmental protection is calculated after completion of the second stage. This stage relates to items of expenditure which are allocated to the NHE and UE groups at the first stage. The way in which any item is examined further differs according to the group in which it belongs. Here are two types of further examination:

1. for items belonging to NHE we have to quantify the amount of expenditure for environmental protection, since each item also includes expenditure for other purposes and therefore not coming within the field of analysis of the EPEA;

2. for items belonging to UE, we first have to establish whether they have to be put inside or outside the field of analysis of the EPEA (that is, whether they include expenditure on environmental protection); then, if they are included, we have to quantify the amount of expenditure for environmental protection (since they might be only partially expenditure for environmental protection or they might, after further examination, be found to belong to the NHE set).

Thus the two stages of data collection in practice comprise:

1. Filling up the intermediate groups of expenditure (NEPE, NHE, UE, PEPE and MEPE); and

2. Emptying the NHE and UE groups.

In practice, the second stage is accomplished by:

“discarding” expenditure items below a given threshold (to be specified);

looking for further information on expenditure items above the threshold.

2.2.3 The “causa finalis” criterion of SERIEE and budget analysis

Under the SERIEE, “environmental protection” is defined as follows (Eurostat, 1994a, § 2006):

• “Environmental protection groups together all actions and activities that are aimed at the prevention, reduction and elimination of pollution as well as any other degradation of the environment”.

Environmental protection actions and activities have to be identified in accordance with the “end purpose” criterion defined as follows (Eurostat, 1994a, § 2007):

• “The definition retained implies that to be included under environmental protection, actions and activities or parts thereof must satisfy the end purpose criterion (causa finalis), i.e. that environmental protection is their prime objective”.

The definition of environmental protection and the “end purpose” criterion relate to actions and activities and not to expenditure. No direct link is established between the expenditure and the purpose of environmental protection and, necessarily, the

6 I.e.: EEPE = TE - NEPE



“mediation” of activities or actions is always required. Therefore the “conceptual chain” shown in Figure 3 applies.

Figure 3 - End purpose, activities and actions, expenditure: the “conceptual chain”

The “conceptual chain” means that, in order to establish whether an item of expenditure includes expenditure for protection of the environment, we need in fact to know whether the activities and/or actions financed by that expenditure have environmental protection as their principal aim.

In this type of analysis, we find a source of aid in the CEPA and CEPF classifications and in the lists/examples of adapted and connected products contained in the SERIEE manual: these classifications and lists represent a sort of check list in identifying those activities and actions which are definitely intended for protection of the environment (see § 2.2.5)

The CEPA classification is a list of activities which definitely have environmental protection as their principal aim: to acknowledge that an item finances activities included in the CEPA is to confirm that the corresponding expenditure is for environmental protection. However, the fact that the activities financed by a given item of expenditure are not among those listed in the CEPA does not allow us automatically to exclude the corresponding expenditure from the field of analysis: the CEPA is an “open” classification (it includes item 9.4 – “Activities not elsewhere specified”): this means that, using the end-purpose criterion, it is possible to identify activities which are intended for protecting the environment but are not explicitly listed in the CEPA.

A very similar approach applies to the CEPF and to lists/examples of adapted and connected products: to acknowledge that an item finances the purchase and hence the use of capital goods included in the CEPF or of adapted or connected goods is to confirm that the corresponding expenditure is for environmental protection; not acknowledging it, however, does not allow us to exclude such expenditure from the field of analysis.

2.2.4 The decision tree for selecting expenditure items and including them in the intermediate groups

2.2.4.1 Criteria

A further leading characteristic of the Istat approach in collecting and quantifying EPEs by General Government is the decision tree which is to be used at the first stage, for allocating the items of expenditure within the various intermediate groups (see Figure 4 in § 2.2.4.2 for a synoptic presentation, and Figure 6 in § 2.2.4.5 for a detailed


ExpendituresEnvironmental protection end

purpose

Activities and/or actions

finance have


presentation). Using the decision tree, we analyse the following in order: (1) the description of the item of expenditure as shown in the public account; (2) any law cited in the description of the item; (3) the section of the public account which contains the item of expenditure. Starting from one element (1 or 2), we continue to a later element (2 or 3) only if the information provided by that element is not sufficient to establish whether the item concerned includes expenditure for environmental protection. Depending on which information is used (1; 1 and 2; 1, 2 and 3) to establish which expenditure group a particular item belongs to, the analysis of the item of expenditure by means of the decision tree gives a different outcome. The development of this decision tree is related to the need to standardise the process as far as possible in order to contain the danger of bringing in subjective and arbitrary elements in analysing the items of expenditure.

The decision tree is based on:

some formal criteria (see § 2.2.4.2);

some substantial criteria i.e. the three information levels from the budget of General Government (see § 2.2.4.3);

the hierarchical order of the substantial criteria (see § 2.2.4.4).

2.2.4.2 Formal criteria

The principle underlying the structure of the decision tree is identification of sufficient conditions (CSs) to allocate an item of expenditure to a clearly defined intermediate group other than the residual group UE: in this latter group are put those items of expenditure for which no sufficient condition has been found to establish whether they include expenditure for environmental protection, even if only in part. The CSs identified have been arranged hierarchically, so avoiding situations of uncertainty that might otherwise arise when there are conflicting indications triggered by CSs regarded as of equal rank. The Istat decision tree is such that the presence of a higher-ranking CS results in complete disregard of the conditions of lower hierarchical rank. It is also in the nature of the decision tree however that if we do examine elements of information of a lower rank, that does not in principle mean disregarding the information gathered at the higher levels: the final outcome results from simultaneous consideration of the information provided by elements at differing levels, and we can never come at a more advanced level of the process to a conclusion which contradicts elements gathered at the earlier levels.



Figure 4: The decision tree: synoptic presentation

PRINCIPAL LEVELSPOSSIBLE OUTCOMES (homogenous groups of items of

expenditure)

Analyse description of

content of item of expenditure.

A Non-Environmental Protection Expenditure(if the description of the item shows that this definitely and solely relates to non-environmental protection activities and/or actions)

B Purely Environmental Protection Expenditure(if the description of the item shows that this entirely and only relates to environmental protection activities and/or actions)

C Multi-purpose Environmental Protection Expenditure(if the description of the item shows that this relates to activities and/or actions with environmental protection purposes and also other purposes not attainable separately from that of environmental protection)

D Non-Homogeneous Protection Expenditure(if the description of the item shows that this partly relates to activities and/or actions with environmental protection purposes and partly to activities and/or actions not for environmental protection)

Consider law referred to in description of

item of expenditure

(If the description of the item does not allow a definite

decision whether or not the expenditure is for

environmental protection activities and/or actions)

E Purely Environmental Protection Expenditure(if the law indicates purposes entirely and only of environmental protection)

F Multi-purpose Environmental Protection Expenditure(if the law indicates environmental protection purposes not attainable separately from other purposes)

Analyse position of item within

structure of public account

(If the description of the item and the examination of the law

does not allow a definite decision whether or not the

expenditure is for environmental protection activities and/or actions)

G Non-Environmental Protection Expenditure(if consideration of the law and the position of the item within the structure of the public account shows that this definitely and solely relates to non-environmental protection activities and/or actions)

H Purely Environmental Protection Expenditure(if consideration of the law and the position of the item within the structure of the public account shows that this entirely and only relates to environmental protection activities and/or actions)

I Multi-purpose Environmental Protection Expenditure(if consideration of the law and the position of the item within the structure of the public account shows that this relates to activities and/or actions with environmental protection purposes and also other purposes not attainable separately)

L Non-Homogeneous Protection Expenditure(if consideration of the law and the position of the item within the structure of the public account shows that this partly relates to activities and/or actions with environmental protection purposes and partly to activities and/or actions not for environmental protection)

M Uncertain Expenditure(if even consideration of the law and the position of the item within the structure of the public account fails to show definitely which type of activity they relate to)



The possible outcomes of the process are identified in Figure 4 and Figure 6 with upper-case letters of the Italian alphabet (A to M); in Figure 6 the outcomes are also represented by rectangles (see § 2.2.4.5). It is possible for several alternative routes and the consequent outcomes to lead to the same result as regards identifying the group to which to allocate the items of expenditure concerned, because it is possible to determine that different items belong to the same group on the basis of different combinations of the items of information (different CSs). Istat’s methodology thus takes account of whichever route leads to allocating an item of expenditure to this or that intermediate group.

Using the decision tree for a given item of expenditure involves responding to an organised set of questions (see Figure 6 in § 2.2.4.5).

These questions are organised hierarchically into three “blocks”, (as shown in the synoptic presentation of Figure 4) each corresponding to the analysis of one of the three principal levels of information on expenditure that can be found in the public accounts.

Along the main branch of the decision tree (i.e. the one leading from one “block” to another) are questions so formulated that only with an affirmative response is there definite confirmation of a CS7, while the opposite always means there may be no CS. Thus this latter possibility includes the answer “not known” or rather, more properly, the answer “at this level there is not sufficient information to decide on the nature of the expenditure” (it is therefore always possible to answer the questions).

The uncertain status is shown by the use of a “double filter”, that is, by a first question to find whether we are certain one way and, if appropriate, by a second question immediately following, only after a negative response, to check whether we are certain the other way: answering “No” also to this question also is equivalent to saying that we cannot choose either of the alternatives specified.

Figure 5 - Double logical filter used in the decision treeFirst question

Second question

Only where there is uncertainty regarding a given CS (that is, where we answer “No” to both questions in the double filter) do we proceed to look for further elements of information and continue along the main branch of the decision tree. When the information given by the account is used up without any CS being confirmed (that is, when we go along the entire main branch without going down any side branch8, we reach outcome “M”, which is therefore equivalent to answering “don’t know” at every stage of the process.

2.2.4.3 Substantial criteria: the three information levels available from the budget

7 But there is an exception, given by Question 4 in Figure 6 (see § 2.2.4.5)8 Or else by returning to the main route after going down a side branch, in the only case when that

is possible (see Question 4 in Figure 6, in § 2.2.4.5).


CERTAINTY THAT A GIVEN CONDITION “a” EXISTS

CERTAINTY THAT CONDITION “a” DOES NOT EXIST

UNCERTAINTY WHETHER CONDITION “a” EXISTS OR NOT

no

no

yes

yes


The decision tree is based on consideration of three levels of information that can be derived from the public account (corresponding to the three “blocks” shown in Figure 4) and can be used for allocating the items of expenditure to the various intermediate groups.

1. the description of the content of the item of expenditure as shown in the account;

2. any law cited in the description of the item of expenditure;

3. the section of the account in which the item of expenditure is found.

The information supplied by the description of the content of the item of expenditure is the most important and the first to be considered, since it is most directly related to the activities and/or actions conducted by means of the expenditure listed in the item; the other elements give only indirect information on the actual activities and/or actions financed from the expenditure listed in the item. The first block of questions in the decision tree is therefore intended to identify, solely on the basis of the description, which activities and/or actions have been financed using the item of expenditure concerned, or what are the purposes of those activities and/or actions, in order to establish immediately and directly whether the item includes expenditure for environmental protection as defined in SERIEE and, if so, to decide which intermediate group to place the item in (outcomes B, C and D).

The analysis of the information found in the description of the item of expenditure is an evaluation of the information at the “technical and scientific” level, that is, whether the activities and/or actions financed by the item of expenditure essentially correspond to the definition of environmental protection in SERIEE.

Only where the description of the item is not sufficiently clear or detailed – and that happens frequently, although generally the description does not entirely lack useful information – can we go on and consider further information: primarily that to be found in the law as cited in the description itself.

The purpose of the second block of questions is to supplement the details found at the first level - where these are not sufficient for a definite allocation of the item to one of the intermediate groups - with the details on the activities and actions financed by the item of expenditure that can be found from the law concerned.

The analysis of the law is an examination of the information at the “legal” level. In the first block of questions, the only information used was that directly provided by the description of the content of the item of expenditure. In the second block of questions, account is taken also of the fact that such expenditure has been made in accordance with a clearly specified law. Not only may the law be capable of identifying with sufficient precision which activities or actions are financed from the expenditure: in accordance with the principle of “end purpose” as established by SERIEE, an evaluation of the object of the law is a further important means of assessment.



A third element of information is provided in practice by the title of the section of the public account in which the item is found.

Examination of this latter element is an analysis at the “administration and bureaucracy” level, since the titles of the portions of the public account within which the items are grouped may reveal the general purposes intended, by those holding political and administrative responsibility for the account, for the expenditure brought together in each part. For example, the structure of the account often reflects the internal organisational structure of the Body to which it refers; at other times the account is organised by spending programmes. The programme within which the expenditure is made, or the organisational unit within the body managing it (that is, generally, the heading under which it is combined with others) are all information which can be used for the purposes of deciding to allocate the item of expenditure to one of the intermediate groups. These elements doubtless give “weaker” and less direct information than that given by the law, but it may happen that it is exactly these additional elements, taken together with the others gathered at the earlier levels, which give certainty that a given CS exists.

The third block of questions therefore serves to incorporate additional information into the decision. Like the analysis of the law, this analysis of the section of the account within which the item of expenditure is placed is not conducted considering only the information relating to the “administrative” level, but rather by cumulating such information with that already found at the two earlier levels. Since this is the last element of the information considered in the decision tree, inadequate information means assigning it to the set of “Uncertain Expenditure” (UE).

2.2.4.4 Hierarchical arrangement of the substantial criteria

As regards the hierarchy established among the three levels of information considered, firstly the “legal” level is subordinate to the “technical and scientific” level. This makes for an important feature distinguishing the Istat approach from previous Italian experiments in quantifying public expenditure for the environment, which generally took legislative programmes as the starting point in defining the field of analysis for “environmental” spending. In Istat’s methodology, law does not contribute to defining the field of analysis of the expenditure (which is given by the definitions and classifications in SERIEE), but only to identify those which come within the field of analysis already defined.

In fact, the definition of environmental protection provided in the SERIEE manual can turn out to be very different from the view of environmental protection held by the lawmaker i.e. from the definition implicitly contained in the national law on the environment. The lawmaker’s view can also alter rapidly over time (sometimes under the pressure of specific events), whereas the “statistical” definition of environmental protection is more general and more stable than the evolution of environmental law.

In the hierarchy, therefore, the “technical and scientific” level stands above the “legal” level, primarily in order to ensure that the information is compatible at the European level (“national” definition vs “European” definition) and that the information is relatively stable over time (definition in “law” vs definition in “statistics”).



Therefore, on the basis of Istat’s methodology, expenditure made under a given law is included in the EPE set only where the purpose of the law is compatible with the definition of “environmental protection” in SERIEE, regardless of whether the lawmaker so regards it.

The law under which the expenditure is made is not always referred to in the description of the item of expenditure; and, if it is referred to, it is not always easy to trace 9. Often the law referred to also consists of a multiplicity of laws, not necessarily inter-linked. Sometimes relevant laws are not cited directly but are referred to in those cited, or which make general provision for the subject, and the expenditure may therefore be related without this being made explicit.

It should be stressed that the law may indicate only purposes, without specifying the activities whereby those purposes are to be attained, or it may relate to particular activities and/or actions to be created for those purposes. In this latter case only is the information which the law provides fairly convincing, providing a strong basis for possible inclusion in the EPE group. In the (more frequent) case that the law states only purposes, it provides only indirect information on the nature of the activities to which the expenditure relates: if the expenditure is financed on the basis of law which has only purposes of environmental protection as defined by SERIEE, these purposes are regarded as automatically transferred to the activities; but, where the law does not have such intentions, this does not rule out the hypothesis that by means of this particular expenditure activities or actions with an environmental protection purpose are also pursued. For these reasons, the “legal” block of questions allows as outcomes only those including the whole of the expenditure within EPE, permitting no more than the distinction of whether the purpose is exclusive or combined with others. This therefore excludes the possibility of concluding from the additional information provided by law that expenditure is not environmental protection or it is so only in part.

Finally, the third and last level of the decision tree is subordinate to the two above: it is used only in cases where the information acquired at the two preceding levels has turned out to be insufficient for allocating the item of expenditure to one of the intermediate groups. As we said above (see § 2.2.4.3), the information given by the title of the section in the account within which the item of expenditure is listed is intrinsically “weaker” than the information considered at the earlier levels but, in some cases, it may nonetheless be decisive when added to that, in including the item of expenditure in one of the intermediate sets.

2.2.4.5 The decision tree in detail

The organised group of questions comprising the decision tree shown in Figure 6 is analysed here in detail, retaining the fundamental distinction among the three blocks of questions corresponding to the three levels of information that are considered.

All the questions are so formulated that only the answers “Yes” and “No” are possible.

9 This may be the case, for example, with laws made by local authorities.



FIRST BLOCK – ANALYSIS OF DESCRIPTION OF ITEM

1. Does the description of the item allow to rule out the possibility that this is (wholly or partly) expenditure for environmental protection?

ANSWER CONSEQUENCE NO go to question 2YES include in NEPE (outcome A)

The CEPA, CEPF and lists of adapted and connected products included in the SERIEE manual are back-up check lists for answering this question: if the item description shows that it finances activities included within the CEPA or expenditure for purchase of products included within the CEPF or in the lists of adapted and connected products, then the item necessarily includes expenditure for environmental protection. If the expenditure financed by the item cannot be linked with these classifications or lists, however, it may not necessarily be concluded that it does not include EPE: there may be expenditure meeting the definition of “environmental protection” in SERIEE not explicitly specified in these classifications and lists.

The formulation of the question is equivalent to asking whether we are certain that the item does not include expenditure for environmental protection. This certainty is clearly a CS which, if satisfied, requires the item to be immediately and definitively excluded from the field of analysis of the EPEA, i.e. to be allocated in NEPE (Outcome A), and it is completely out of play.

This question therefore provides a first filter which makes it possible to “skim” the items of expenditure, separating those which might be of interest to us and deserve at least further consideration from all the others, of no interest at all.

2. Since we are not certain that the item relates only to expenditure entirely without environmental protection purposes, does the description of the item in fact definitely show that it relates to at least one activity or action with environmental protection purposes?

YES go to question 2.1 (with one possible exception)

NO go to question 3 (second block)



Figure 6: The decision tree in detail



We are now asked (again on the basis of the description of the expenditure) if we are certain that this expenditure – at least in part – finances activities and/or actions which have the purpose of environmental protection, using the “double filter” approach described above. If the activity financed is in the CEPA, or if the equipment purchased is in the CEPF, or if the products purchased are in the lists of adapted and connected products, that is a sufficient condition for answering “Yes”.

This question is a second “skimming”, isolating the items of expenditure which without further inquiry fall within the field of analysis of the EPEA, since at least in part they include environmental protection expenditure. Other details may help in allocating these items between the two possibilities available at this point: that they belong to EPE or NHE, and, in the first case, deciding between PEPE and MEPE; but the presence of environmental protection expenditure has been confirmed.

If the response is “No”, however, we are still uncertain. Having removed the certainty that environmental protection expenditure is absent (Question 1) and that it is at least partly present (Question 2) — the “double filter” — we have thus isolated the cases where the first level of information (the “technical and scientific” level) is not enough to reach a decision and where we have to go on to consider the “legal” level.

There is one special case where, having established from the description that a part of the item finances activities and/or actions with a definite environmental protection purpose, we are not in a position to make an equally definite decision as regards the remainder of the item of expenditure. In this case, as shown in the note to Figure 6, we have to answer “No”.

2.1 Among the activities and/or actions to which the item relates is there definitely at least one that has no environmental protection purpose?

YES include it in NHE (Outcome D)

NO (include it in EPE and) go to question 2.1.1

Having established definitely that at least one part of the expenditure relates to activities and/or actions with environmental protection purposes (within the meaning of SERIEE), we are now asked if there is a part of the expenditure that does not have such purposes. Answering “No” to this question means that we are certain that all the activities and/or actions financed by the item of expenditure are for environmental protection. Otherwise - that is if, among the activities and/or actions mentioned in the statement, we have identified at least one that does not have environmental protection purposes - we need to answer “yes”, so that the item will fall among those at least partly for environmental protection (provisionally included in NHE).

2.1.1 Are the purposes of the activities and/or actions to which the item relates exclusively environmental protection?



YES include it in PEPE (Outcome B)

NO include it in MEPE (Outcome C)

Having established that the expenditure is entirely for environmental protection, this question serves to specify one of the two EPE sub-groups (PEPE or MEPE).

SECOND BLOCK – ANALYSIS OF LAW10

3 Is the law referred to (directly or indirectly11) in the description of the item readily available?

YES go to Question 4

NO go to Question 5 (third block)

If there is no reference to law, or the law referred to (directly or indirectly) has not been traced, clearly the block of questions relating to the legal level cannot be used. Clearly account must be taken of any such absence in the overall evaluation of the item and for the purposes of any subsequent more detailed inquiries.

4. Do the purposes of the law definitely include the purpose of environmental protection?

YES go to Question 4.1


This question further “skims” the items, transferring those where no decisive information can be drawn from the law (absence of definite environmental purposes) directly to the next level of the process.

4.1 Are the purposes of the law exclusively environmental protection?

YES include it in PEPE (Outcome E)

NO go to Question 4.2

Where the answer to this question is “yes”, we can also derive from the purposes of the law a reasonable certainty that the activities and/or actions financed by the expenditure are for environmental protection. If not, the situation is more complicated, as we see from the discussion of Question 4.2.

10 By “law” we mean the whole of the Acts of Parliament, Decree-Laws, Legislative Decrees, Regional Laws, and EEC Regulations, and also decisions by CIPE (etc) referred to in the statement of the item. Where there is a reference to one or more specific Articles or paragraphs, special attention is to be paid to these, as well as to the general purpose of the instrument and (in general) to the spirit of the law governing the subject.

11 We mean not only the statutory instruments explicitly indicated in the statement but also any to which indirect reference is made, that is, those to which the former refer.



4.2 Does the law relate only to activities and/or actions which are for environmental protection purposes and for other purposes together?

YES include it in MEPE (Outcome F)


Having established that environmental purposes are to be found among the purposes of the law, although not exclusively so, it becomes crucial to find out how the various purposes co-exist. In this connection it is of fundamental importance to understand whether an explicit reference is made in the law to activities and/or actions rather than to purposes: only if the whole of the law referred to shows specific activities and/or actions which – although they are for protection of the environment – are also for other purposes do we have a sufficient condition; if so, that allows us to allocate the expenditure to the MEPE group. Apart from this instance, the other hypotheses possible do not allow us at this stage to repeat the analysis equally effectively, though indirectly, for the activities and/or actions so, for these cases, we have to move to the third block.

THIRD BLOCK – ANALYSIS OF THE POSITION OF THE ITEM WITHIN THE STRUCTURE OF THE ACCOUNT

5 Considering also the position of the item within the structure of the public account, can we definitively rule out the possibility that it relates to environmental protection expenditure (i.e. are we sure that it does not relate to any such expenditure)?

YES include it in NEPE (Outcome G)

NO go to Question 6

In terms of its “first filter” function, this question has to be regarded as similar to Question 1: it serves to “get out of the way” items which (1) are found in a section of the budget that has nothing to do with environmental protection and for which (2) this position is enough to remove any remaining doubt that they may be for environmental protection expenditure. For this to suffice, the earlier steps in the process must not have produced details which – whilst not being enough for a definitive allocation – would support inclusion of the item in EPE or NHE rather than exclusion from these groups. If such details are present, however, a discrepancy with the “administrative-bureaucratic” level is not enough to change the situation, and we move on to Question 6. Only where there is no hint whatsoever to the item concerned can it be included in NEPE because it is in a budget section not relating to environmental protection.

6 Since we are not certain that the item relates only to expenditure entirely devoid of environmental protection purposes, and considering also the position of the item within the structure of the public account, do there



nonetheless arise elements giving certainty that it relates to at least one activity or action with environmental protection purposes?

YES go to Question 6.1

NO include it in UE (Outcome M)

This rôle of this question is similar to that of Question 2: it serves as a “second filter” to catch all items of expenditure which, in the light of the position within the budget, can certainly be regarded, at least in part, as environmental protection and letting all the others – which at this point simply cannot be interpreted from the information given by the public accounts alone – drop into the residual group UE. The only difference from Question 2 comes from the point that, having identified activities and/or actions that are certainly intended for environmental protection (considering also the position of the item within the structure of the account), there may remain doubts regarding the remainder of that item; in fact such cases are not filtered out here under a note similar to that attached to Question 2 since, as there is no further information to consider, we have to take this last opportunity of catching items whose purpose is at least in part environmental protection. Similarly, as against Question 5, we can rely on any confirmation that expenditure previously “suspected” of being for environmental protection is in fact so, even if only in part, whilst positions within the account that argue against any such pre-existing tendency will lead to outcome M. Where there is no hint whatsoever to the item concerned, it can be included in EPE if it is within a budget section relating to environmental protection (in which case, the answer to Question 6.1 is “Yes”). Where we answer “No” to Question 6, the uncertainty remains and can be resolved only by continuing the analysis specifically for the purpose of finding further information on the expenditure reported in the item.

6.1 From consideration of all the details so far gathered, do we find that all the activities and/or actions to which the item relates have environmental protection purposes?

YES (include it in EPE

and) go to Question 6.1.1

NO include it in NHE (Outcome L)

The rôle of this question is similar to that of 2.1 but, because of the comments on Question 6, here it may happen that we have to examine items of expenditure which in part have definitely been allocated to environmental protection whilst doubt remains on other parts. To take account of this, the question has been appropriately modified from 2.1: if, notwithstanding consideration of the law and the position of the item in the account, we cannot reach a decision on the “doubtful” part, the answer to this question will be “No”, and the item will be allocated to NHE.

6.1.1 Are the purposes of the activities and/or actions to which the item relates exclusively environmental protection ?



YES include it in PEPE (Outcome H)

NO include it in MEPE (Outcome I)

This entirely matches Question 2.1.1.

2.2.5 An operational tool for classifying the selected expenditure items under CEPA

2.2.5.1 CEPA: not only a classification tool but also a check list for selecting environmental protection expenditure items

The classification adopted for the purposes of the EPEA is the Single European Standard Classification of Environment Protection Activities and Facilities, which in practice includes two separate classifications obtained by combining - in two different ways - three basic criteria for classifying characteristic activities:

1. the environmental domain, i.e. the type of pollution or environmental damage – or risk of pollution or environmental damage –or the type of “environmental media” concerned;

2. the type of activity;

3. the facilities (equipment, installations, etc.) used.

CEPA, the Classification of Environmental Protection Activities, has been produced by combining the first two criteria, relating respectively to the environmental domain and the type of activity pursued. The categories considered under these two criteria are shown in Table 5. CEPA uses these two criteria together and identifies the various ranges of characteristic services which can be produced for each environmental domain.

CEPF, on the other hand, the Classification of Environmental Protection Facilities, has been produced with reference to the criterion based on the identification of facilities used for characteristic environmental protection activities; this identifies the resources and the equipment used in the first five of the environmental domains listed in Table 5 (for the noise and vibration category, only noise is considered).



Table 5: Classification criteria of characteristic activities

Environmental Domain Type of activity air pollution (and related climatic risks) pollution prevention activities surface water pollution pollution reduction activities: waste - reduction of emissions and discharges soil and ground water pollution - reduction of pollution levels of environmental media noise and vibration measurement and control activities degradation of biodiversity and landscape research and development activities radiation teaching and training activities

administrative activitiesSource: Eurostat, 1994a, §§ 2013-2014

In particular, for the purpose of identifying environmental protection expenditure by General Government, the CEPA and CEPF classifications are not solely an instrument for classifying expenditure, they also play a part in the actual process of selecting the items of expenditure by general government which include environmental protection expenditure: for this particular purpose, the two classifications constitute two reference lists for analysing the purpose of the expenditure, so that it is sufficient to see that a given item of expenditure finances the performance of activities included in the CEPA, or the execution of investments in equipment and plant included in the CEPF, to establish with certainty that the corresponding expenditures are intended for environmental protection. From this viewpoint, it can be stated that in general the CEPA represents a “stronger” criterion than the CEPF: the latter covers equipment and plant which is used in carrying out the characteristic activities. To identify an expenditure which can be classified under the CEPF necessarily means that this expenditure can also be classified under the CEPA, since both classifications are based on the common criterion of the environmental domain; the converse is not necessarily true, both because expenditure classified under the CEPA may consist of current spending and not an investment in equipment and plant, and also because not all the environmental domains of the CEPA are covered under the CEPF, but only the first five and, of these, the fifth is in any case considered only incompletely (that is, for noise alone). Therefore, since one of the criteria for selecting an item of expenditure is the fact of acknowledging that it finances a characteristic activity (even where it finances the investments connected with the activity), the CEPA is a more extensive reference list than the CEPF and, hence, to restrict ourselves in the first approximation to considering the CEPA does not involve the risk of excluding items of expenditure which clearly include transactions relating to characteristic activities; the use of the CEPF does provide an additional input for the purposes of analytical classification of capital expenditure connected with characteristic activities in the principal environmental domains, rather than with the selection of items of expenditure. In what follows, therefore, we shall restrict ourselves to consideration of the CEPA.

For the purpose of using the CEPA as a check list, it is useful to take account of the various levels on which the classification is arranged, since each of these provides a specific input of information. The classification is arranged on three progressively-detailed levels: the first level identifies a homogeneous grouping – class (single-digit code) – of characteristic activities; the second and the third levels (2-digit and 3-digit codes respectively) identify the various characteristic activities included in each class.



The criterion for grouping the characteristic activities into classes (single-digit codes) is not always the same: although the first seven classes (1 to 7) bring characteristic activities together on the basis of the environmental-domain criterion, the last two (8 and 9) are based on the criterion of type of activity pursued. This means that the way in which we combine the two criteria for defining CEPA activities - environmental domain and type of activity pursued, as in Table 5 - is not always the same: for the first seven classes, given a particular environmental domain (e.g. waste), the characteristic activities are defined by specifying the different types of activity in relation to that domain (e.g. the “pollution-prevention activity” type within the domain of waste is specified creating the characteristic activity “3.1 prevention of waste production through in-process modifications”); but in the last two classes, the dominant criterion is the type of activity, so class 8 includes all “research and development activities” regardless of the environmental domain to which they relate and class 9 includes all “teaching, training and information activities”, plus “regulatory and administrative activities”, regardless of the environmental domain to which they relate (class 9 also includes activities that cannot be attached to individual environmental domains and those not classifiable under any other item).

More specifically, in the case of class 8, for the “research and development activity” type, the individual characteristic activities are identified by linking the particular type to the separate environmental domains. However, class 9 essentially brings together the activities belonging to two types (“education, training and information activities” and “regulatory and administrative activities”12) and no provision is made for dividing them further by environmental domain.

Furthermore, since by definition it is a residual class, class 9 includes all activities which cannot easily be classified under the other items of the classification, either because they relate to several environmental domains and therefore do not fit into a single class or because they simply cannot be placed under any of the items provided. In this connection it should be noted that the types of activity regarded in the definition of classes 8 and 9 are not regarded in classes 1 to 7 so that, within the scope of the latter, for any one environmental domain, the characteristic activities are identified by specifying the various types of activity with reference to that domain apart from the types included in classes 8 and 9 (“research and development activities”, “education, training and information activities” and “regulatory and administrative activities”)13.

Therefore, in the case of the first seven classes there a correspondence of the type:

one class – one environmental domain – all activity types (except the types typical of classes 8 and 9)

whereas for class 8 there is a correspondence of the type:

one class – one activity type – all environmental domains;

and lastly, in class 9 there is the relationship:

12 As will be seen later when discussing the rules for application of the CEPA (see § 2.2.5.2 below), not all regulatory and administrative activities are in fact classified in class 9: this class includes only activities within this type that cannot be attached to a single environmental domain and which for that reason cannot be classified within any of the first seven classes.

13 This is not completely true as regards the regulatory and administrative activities for the reasons given in the foregoing note; these will be explained in the next paragraph.



one class – two principal14 activity types – all environmental domains.

2.2.5.2 Rules for applying CEPA: general principles and critical issues

The CEPA is a classification of the characteristic activities of environmental protection; therefore, within the context of the EPEA, the object to be classified by means of it is represented by the expenditure incurred for performance of these activities. The CEPA is in fact also useful in classifying environmental protection expenditure which is not connected with execution of the characteristic activities (expenditure for the use of specific products; specific transfers); this results from the following kinds of reasons relating to the link between the arrangement of the CEPA and the arrangement of the EPEA in sub-accounts:

- implementation of the EPEA primarily involves the construction of the sub-accounts and then of the consolidated account;

- the arrangement of the EPEA in sub-accounts closely corresponds to the arrangement of the CEPA in classes: provision is made for constructing a sub-account for the expenditure relating to each of the first six classes of the CEPA (6 sub-accounts), and of one sub-account which records the combined expenditure relating to the last three classes of the CEPA (classes 7, 8 and 9);

- each sub-account records all expenditure connected with a particular environmental domain, with the exception of one which also records expenditure for the activity types relating to CEPA classes 8 and 9 (see § 2.2.5.1 above); the resulting arrangement requires the construction of one sub-account for each of the first six environmental domains (that is, excluding the domain “radiation”) and of a residual sub-account covering both the expenditure for the “radiation” domain and expenditure for the activity types included in CEPA classes 8 and 9. Taking account of the links between environmental domains and CEPA classes, we find that:

- for the first six sub-accounts we have the relationship:

one sub-account – one CEPA class – one environmental domain (except expenditure relating to the domain but to be classified in CEPA classes 8 and 9);

- for the seventh and last sub-account there is the relationship:

one sub-account – three CEPA classes - all environmental domains (except expenditure relating to the first six environmental domains but to be classified in the first six CEPA classes);

- from the points above it follows that all environmental protection expenditure can be classified under the CEPA: expenditure that is particularly intended for execution of characteristic activities is to be classified under the corresponding items at the second and third level of detail in the CEPA (two- and three-digit codes); all other expenditure is to be classified at CEPA class level (single-digit code).

14 The term “principal” relates to the fact that, since activities not relating to individual environmental domains and those not classifiable elsewhere are also classified in class 9 (as items 9.3 and 9.4) , in fact it does not include only the types “education, training and information activities” and “regulatory and administrative activities” (items 9.1 and 9.2 respectively), but also the others listed in Table 5.



Having established therefore that the CEPA can be used to classify all expenditure for environmental protection (not only that intended for execution of the characteristic activities), although at various levels of detail, the operation of classifying expenditure has to be effected with regard for certain rules defined in accordance with the arrangement of the CEPA.

Some rules of a general nature follow from the arrangement of the CEPA in classes (single-digit codes), as shown above (see § 2.2.5.1). The following rules follow from the manner in which the classes are defined:

1. In each of the first seven classes we classify all expenditure relating only to the corresponding domain, apart from expenditure falling within CEPA classes 8 and 9, which are defined without establishing a one-to-one link with any particular domain;

2. In class 8 we classify all expenditure relating to the “research and development activity” type, for environmental protection, whichever environmental domain they relate to; even where the expenditure for this type of activity can be linked with a single environmental domain, it must be classified in class 8 and not in any of the seven preceding classes (Eurostat, 1994a, § 9006);

3. In class 9 we classify all expenditure relating to types of activity not already considered in the eight preceding classes, whichever environmental domain they relate to.

Further rules on classification follow from the arrangement of the CEPA in characteristic activities (two- or three-digit codes).

Firstly, since it is clear from the arrangement in classes that the type “research and development activities” is included in class 8 and excluded from the other classes, the arrangement of characteristic activities makes it possible to confirm which of the other activity types are included in the individual classes. As has been shown already (see § 2.2.5.1), the characteristic activities into which the first seven classes are arranged show that - unless specifying the content of the item “other activities” - these classes include all types of activity except “research and development activities”, “education, training and information activities” and “regulatory and administrative activities”: these types are included among the activities characteristic of classes 8 and 9; in addition, the latter also includes expenditure which cannot easily be classified in other items of the classification (see § 2.2.5.1). The implementing rules to be borne in mind regarding the arrangement of the CEPA in characteristic activities are listed here:

1. Under the characteristic activities of each of the first seven classes we classify all expenditure relating to the environmental domain involved in each case and relating to the types “pollution prevention activities” “pollution reduction activities” and “measurement and control activities”;

2. Expenditure relating to the type “research and development activities” – in accordance with the rule set out above as regards class 8 – is classified in class 8, in the characteristic activity relating to the environmental domain involved in each case, which therefore corresponds to one of the first seven classes (Eurostat, 1994a, § 9017);

3. Expenditure relating to the type “education, training and information activities” is classified in class 9, in characteristic activity “9.2 – education, training and



information” even when it relates exclusively to one environmental domain (Eurostat, 1994a, § 9008);

4. Expenditure relating to the type “regulatory and administrative activities” is classified in class 9, in characteristic activity “9.1 – general administration of the environment” only when it cannot be attributed to a single environmental domain, but in this case it is to be classified under the item “other activities” in the CEPA class for that domain15 (Eurostat, 1994a, § 9008 );

5. Expenditure relating to more than one CEPA class – and which therefore cannot be allocated to a single class – is classified in class 9 under characteristic activity “9.3 –activities leading to indivisible expenditure” (Eurostat, 1994a, § 9024). This is expenditure which relates simultaneously to more than one environmental domain and any activity type except “regulatory and administrative activities” (since, under the rule stated in point 4 above, expenditure for regulatory and administrative activities and relating to more than one environmental domain is classified in characteristic activity 9.1);

6. Expenditure which cannot be classified under any item (class or characteristic activity) is classified in item “9.4 - activities not elsewhere specified”. This item therefore can in principle accommodate expenditure relating to any environmental domain16 not considered in the other classes of the CEPA and/or any activity type not already considered.

Particular attention needs to be paid to one of the rules listed above: that relating to the classification of expenditure relating to the type “regulatory and administrative activities” (point 4) which in essence refers not only to characteristic activity 9.1 but also the “other activities” items found within each of the first seven classes of CEPA (identified by codes: 1.4; 2.6; 3.6; 4.4; 5.5; 6.6; and 7.3, respectively). Although on the one hand the SERIEE manual sets out very clearly the rule which establishes when expenditure relating to the activities concerned is to be shown in item 9.1 and when it is to be shown in the items “other activities” (Eurostat, 1994a, § 9008), on the other, the description that is given in the manual for the “other activities” content of each class is not always similarly clear.

In the SERIEE manual, the indications on the content of the “other activities” item of each class are provided in the context of the description of the corresponding CEPA class, which in turn is examined in the context of the description of the sub-account to which it relates. An initial point arising from these indications is that the “other activities” item in the first seven classes not only includes expenditure relating to the type “regulatory and administrative activities” but sometimes, though not

15 It is under this rule that, in a note to § 2.2.5.1 above, we said that not all activities falling into the “regulatory and administrative activities” type are included in class 9.

16 One example of an environmental domain not explicitly considered under the CEPA is electromagnetic pollution. This example is indeed suggested in Chapter 3 – “Control and protection of the environment” in the NABS classification: the content of this chapter matches the definition of environmental protection in SERIEE and in particular the arrangement of CEPA class 8 in a number of environmental classes; in the item “other environmental research” which is given in NABS Chapter 3 (heading 3.10), the example provided, of research not relating to environmental sectors which are included in the preceding headings is in fact that of research connected with electromagnetic pollution (see Eurostat, 1994c).



systematically, also includes expenditure relating to “research and development activities” and “education, training and information activities”.

Table 6 shows how these three types of activity recur, in the “other activities” items of the first seven classes,. The first column of the table gives the CEPA class, the code for the “other activities” item and (in brackets) the paragraph or paragraphs of the SERIEE manual in which the content of that item is described. Columns 3, 4 and 5 show the three activity types considered; the symbol “X” where a type and a class intersect means that the SERIEE manual makes an explicit reference to that type in the context of the description of the “other activities” item for that class; the absence of an “X” means that the activity type is not mentioned; since the type to which column 4 refers in fact covers three types of activity, after the symbol “X” and in brackets we show the word as used in the manual for the type to be identified.

The table shows that the only activity type explicitly and systematically mentioned in the content of the “other activities” item in the first seven classes is that for “regulatory and administrative activities”: “research and development activities” are mentioned only within the context of classes 3 and 4, whilst “education, training and information activities” are named in connection with the first four classes (and also as regards only one part – not always the same one – of the activities covered by this type).

It should be stressed that the fact that “regulation and administration activities” are systematically named in the “other activities” item of the first seven classes is consistent with the general rule (set out at point 4 above) which establishes when to classify the expenditure relating to this type in item 9.1 and when to classify it in the “other activities” item of the individual classes. On the other hand, the fact that this item also – though not systematically – includes “research and development activities” and “education, training and information activities” contradicts the general rules set out above at points 2 and 3, respectively.



Table 6 - Contents of “other activities” item of classes 1-7 of the CEPA as described in the sub-account chapters of the SERIEE manualClasses of the CEPA and Type of activity

Corresponding code of the “other activities” item

regulation and

administration

research and

development

education, training and information

protection of ambient air and climate – 1.4 (§ 3030) X X(teaching)

waste water management – 2.6 (§ 4033) X X(teaching)

waste management – 3.6 (§ 5035) X X X(teaching)

protection of soil and groundwater – 4.4(*) (§ 6029) X X X(training)

noise and vibration abatement – 5.5(*) (§§ 7032 - 7034) X

protection of biodiversity and landscape – 6.6 (§ 8033) X

protection against radiation – 7.3 (§ 9016) X(*) Cases in which the “other activities” items also explicitly include certain characteristic activities not linked with the 3 activity types considered in the table (see Istat 1999a).

In the context of the Istat approach, the solution adopted on the basis of the considerations suggested by the details in Table 6 is to restrict the content of the “other activities” item in the first seven classes exclusively to expenditure for “regulatory and administrative activities” where such activities relate to a single environmental domain (hence, consistent with the general rule set out at point 4 above).

In fact, as shown in the footnote to Table 6, under classes 4 and 5, the “other activities” item also includes some specific characteristic activities not defined on the basis of the three types covered in the table: in the case of class 4, this is anti-erosion activity for environmental protection purposes (and not for economic purposes) outside protected areas; in the case of class 5, it is noise-abatement activities in the neighbourhood and in public places (see Istat, 1999a, CEPA operational tables 4 and 5). No alternative solution has been adopted in these specific instances: the expenditure linked with these activities is therefore classified in the “other activities” item of the relevant class.

2.2.5.3 CEPA operational tables for selecting and classifying the expenditure items

As already mentioned, in the context of collecting General Government expenditure on environmental protection, the CEPA classification is a reference tool both for the selection of items of expenditure by general government which include expenditure for environmental protection and for the classification of the expenditure itself17. For that reason, when analysing the account for the purpose of surveying environmental protection expenditure, we always have to bear in mind all the items within the CEPA classification and their individual contents. In other words, we have to hold a “detailed” and “structured” description of the content of all the items in the CEPA: “detailed”, in

17 Of necessity, when any expenditure is included in that for environmental protection because the activities are accepted as among those included in the CEPA, the decision on the nature of the expenditure is taken at the same time as it is classified. It is therefore often difficult to separate these two actions, although in logical terms they are completely separate.



the sense that it contains a maximum of information of use in selecting and classifying the items of expenditure, and “structured” in the sense that the description is so arranged as to permit fast and easy consultation when analysing the general government accounts.

The description of the CEPA provided in the SERIEE manual does not entirely meet these requirements. This is because the description is not created as a single step in one part of the manual duly dedicated to that purpose, but is fragmented across the various parts of the manual which are dedicated to illustration of the different sub-accounts of which the EPEA consists: in the part of the manual concerned with describing a given sub-account there is a description of the CEPA class or classes (and of all the characteristic activities included there) corresponding to that sub-account, together with a whole series of other details like (e.g.) the transactions to be recorded in the sub-account, the chief sources of information at the European level for collecting transactions within the various institutional sectors, etc. In other words, although the description of the CEPA contained in the SERIEE manual is detailed, it is not set out in a compact and structured manner, but is spread over different parts of the manual and therefore cannot be consulted easily and immediately.

In fact, a further point contributing to the CEPA not always being easy to consult is that the description of it as shown in the SERIEE manual is available only in English and French. The translation of this into Italian (or into any other language) is required, not only (and not even) to make it easier for those not knowing these two languages to consult it, but rather for a thorough understanding of the content: the description of the characteristic activities of the CEPA very often goes into the technical details of the various types of environmental protection intervention, and of the phenomena of pollution and damage which these interventions are to act against; what has to be done for a thorough understanding of even this type of content is to identify the proper correspondences in one’s own language for all the details given in the description set out in the manual. In this way we shall create a resource which enables anybody engaged in analysing the accounts to recognise terms, including technical terms, used to describe items of expenditure in the legislation consulted, etc.

In the light of these considerations, we have developed the CEPA operational tables (two examples of these are given in the paragraph following) which overall give a “detailed” and “structured” description of the CEPA in the sense explained above, and these provide an operational support resource in particular for selecting and classifying items of expenditure by general government; this resource is particularly useful in analysing the accounts of general government because the structure of the CEPA operational tables has been conceived in part to show the information which is relevant, in particular, to identification of expenditure incurred by general government.

The method adopted for compiling the CEPA operational tables was first to define the entire structure, taking account of the general need for understanding the CEPA and also of the requirements specifically relating to Istat surveys of environmental protection expenditure by general government. After defining the structure, the CEPA operational tables were compiled by means of a reasoned and systematic reading of the SERIEE manual, following the approach prescribed for a generic CEPA operational table.



Nine CEPA operational tables were produced in all: one for each class of the CEPA18.

Each CEPA operational table is arranged in two parts:

A) The first part (referred to as Part A) provides overall information on the CEPA class concerned, with the following details (we put the word “title” in brackets to show that the details given consist only of the title, but we put the word “description” to show that the details given are an extensive and full description):

- “CEPA class” (title);

- “Description of CEPA class” (description);

- “Environmental domain” (title);

- “Description of environmental domain” (description);

- “Special characteristics of the environmental domain and implications of these for characteristic activities, with particular reference to involvement of general government” (description).

B) The second part (referred to as Part B) is used for a description of the content of the individual characteristic activities included within the CEPA classes, giving the following details (the terms shown in brackets have the conventional meanings already used for the details given in Part A of the CEPA operational tables):

- “Characteristic activity (code and title)” (title);

- “Description of the activity” (description);

- “Comments on the aspects excluded from the activity and possible position of these in other classes and/or activities of the CEPA” (description);

- “Comments on general government involvement in the field of the activity” (description).

The arrangement and the content of the two parts of each CEPA operational table have been designed with the intention of providing all the details potentially of use in selecting/classifying the expenditure scrutinised, in a readily consultable manner.

In defining the arrangement and content of Part A, we have taken account of the fact that very often the information that can be derived from the accounts of general government does not allow identification, in particular, of the individual characteristic activity for which the expenditure under scrutiny has been incurred; but that does not preclude the possibility that such information will make it possible to relate the expenditure at a more aggregated level to a class of characteristic activities or, more generally, to an environmental domain (that is, to have some idea of what type of expenditure is involved: expenditure for the execution of characteristic activities; expenditure for the purchase of specific products; specific transfers). Therefore, in Part A of the CEPA operational tables we have included and separately described the items relating to “CEPA Class” and to “Environmental Domain”. Next, taking account of the requirements specifically relating to the gathering of general government expenditure, we have inserted into this part of the CEPA operational tables an item which provides general indications on how general government intervention is specialised within the

18 In § 2.2.5.4 below we give only the CEPA operational tables for the first two classes of the CEPA. The nine CEPA operational tables are in Istat, 1999a.



field of the particular environmental domain being considered in each case (“Special characteristics of the environmental domain and corresponding implications for characteristic activities, with particular reference to involvement of general government”).

The arrangement and content of Part B are intended to provide a reference grid for classifying (where possible) the expenditure at the maximum disaggregation level possible, that is at the level of the individual characteristic activity. Part B of the CEPA operational tables is structured as a table; the first three columns (from the left) provide a representation of the characteristic activities which is generally applicable and therefore not crucial in collecting expenditure, in particular that of general government: column 1 shows the name and code of each characteristic activity included in the CEPA class to which the CEPA operational table refers; column 2 shows the detailed description of the content of the characteristic activity, i.e. of everything which fits there; column 3 gives guidance on the aspects which do not fit into the characteristic activity and shows any cross references relating to other items of the classification (i.e. guidance on any items where we might classify the aspects excluded from the characteristic activity). It should be stressed that the information contained in column 3 - other than, more generally, the arrangement of Table B as a table - makes a particular contribution to “structuring” the description of the CEPA. Column 4 in Part B has been introduced particularly for the purpose of collecting general government expenditure: here are included details on the rôle generally played by general government in the context of a given characteristic activity. The purpose of the details in this column is in particular to show where general government acts as a characteristic producer; details are given also to show where general government is essentially a user of the services produced in a given characteristic activity, and some of the cases where it is the source/recipient of specific transfers.

In order to make it easier to read and consult the CEPA operational tables produced, we illustrate below the meanings of the symbols used in them:

- in Part A of the CEPA operational tables

* “(§ xxxxx)” indicates the relevant paragraph of the SERIEE manual from which we have taken the details shown in the CEPA operational tables (it should be noted that the reference to the SERIEE manual paragraphs has been omitted in Part B of the CEPA operational tables, since that would have slowed down the explanation, because in this part we go to a deeper level of detail);

- in Part B of the CEPA operational tables

* the symbol “(-)” in columns 3 and 4 means: no entry;

* the words “( as above)” means that the entry on the preceding line in the same column applies.



2.2.5.4 Two examples of the CEPA operational tables

2.2.5.4.1 CEPA operational table 1 (Ambient air and climate protection)

PART A – CLASS OF ACTIVITY AND ENVIRONMENTAL DOMAIN

CEPA class:

1. Protection of ambient air and climate

Description of CEPA class:The characteristic activities of ambient air and climate protection consist primarily of abating emissions of pollutants during the production and/or consumption process, in particular emissions related to the combustion of fossil fuels (§ 3020).They therefore consist of measures aimed at lowering the production of pollutants and measures aimed at reducing discharges or the concentration of pollutants in the air after production (§ 3021)

The following are not characteristic activities of ambient air and climate protection (§§ 3003-3004):1) activities aimed at saving energy or other natural resources (such expenditure is accounted for in the “natural resource use and management account” and not in the

EPEA account);2) activities aimed at offsetting the harmful effects of air pollution and climate change on human health, man-made capital goods such as productive plant or buildings, or

productive activities such as agriculture (such expenditure is not to be accounted for in the EPEA account);3) measures aimed at reducing traffic, or prohibiting production of certain substances (e.g. CFC), or favouring the use of less polluting transport systems, etc (however

any expenditure relating to such measures – for example, subsidies to offset any additional costs of the adoption of such measures – constitute specific transfers for environmental protection and as such are to be accounted for in the EPEA account).

Environmental Domain:Air pollution (and related climate risks)

Description of environmental domain:Air pollution is defined as the introduction by man into the atmosphere, either directly or indirectly, of substances or energy found to be harmful to the extent that human health is endangered, biological resources and ecosystems damaged, material goods deteriorated and the pleasurable values and any other legitimate use of the natural environment undermined (§ 3008).

(continued)


The Istat methodology for calculating General Government expenditure on environmental protectionCEPA operational table 1 – Ambient air and climate protection (continued)


Special characteristics of the environmental domain and corresponding implications for characteristic activities, with particular reference to involvement of general government:

One special characteristic of air pollution is that, unlike what happens for example with waste water and solid waste, the pollutant substances once released to the environment (in this case the atmosphere) cannot be collected and removed from it. Consequently the characteristic activities connected with this domain are principally aimed at lessening the output of air pollutants at the source, that is to reduce their release and their concentration in the air. This means that such activities are chiefly conducted on an ancillary basis by the producers who generate the pollutant emissions, and not by persons performing the rôle of characteristic producers (specialised or not) performing services of ambient air and climate protection for third parties or, in the case of general government, for the entire community. Therefore, unlike what happens in the field of management of waste water and solid waste, in the field of ambient air and climate protection, general government does not perform the rôle of characteristic producer other than in monitoring and control and regulation and administration (see part B of this CEPA operational table).The expenditure relating to this domain consists essentially of: (1) expenditure incurred by producers for the purpose of reducing their own emissions of air pollutants; (2) expenditure incurred by households and other institutional sectors for the use of adapted and connected products (§ 3007); expenditure constituting specific transfers (taxes, subsidies, investment grants, etc).As regards general government in particular, on the basis of the above, the expenditure linked with this domain essentially relates to:1) the expenditure incurred for carrying out characteristic activities such as monitoring and control (1.3) and regulation and administration (1.4);2) the expenditure incurred for the purchase of adapted and connected products (purchase of adapted motor cars and buses, unleaded petrol and de-sulphurised fuels;

services of adjustment of carburation and heating systems; purchase of catalytic converters; etc) (§§ 3062 and 3064);3) expenditure taking the form of specific transfers like, for example: transfers to undertakings to offset losses connected with the adoption of measures for ambient air

and climate protection; transfers to Rest of World (e.g. European Union) to finance programmes of ambient air and climate protection (§ 3065).(continued)



CEPA operational table 1 – Ambient air and climate protection (continued)

PART B – CHARACTERISTIC ACTIVITIES

Characteristic Activity(code and title)

Description of activity Comments on the aspects excluded from the activity and the possible position of these in other

classes and/or activities of the CEPA

Comments on general government involvement in the field of the activity

1.1 Prevention of pollution through in-process modifications

These activities include all measures to reduce or eliminate production of air pollutants by modifying processes.The process modifications presented as characteristic activities are the following:- actual change to the productive process used in favour of a process which generates less pollutants during production, or adoption of ‘clean technologies’;- change of productive plant (apparatus, components, plant) in order to use adapted products as intermediate inputs to the productive process.

The use of adapted products is not of itself a characteristic activity; but a modification of processes to make use of adapted products is a characteristic activity. Expenditure to buy adapted products must therefore be classified by CEPA class (single digit) or assigned to the relevant environmental domain; modifications to processes must be classified by characteristic activity (2 or more digits).

These are activities generally carried out by producers in the Corporation sector in order to reduce or eliminate their own air emissions. General government does not usually engage in such activities and thus does not perform the rôle of characteristic producer (see Part A of CEPA operational table: “Special characteristics...”) Possible expenditure by general government consists of specific transfers (subsidies, investment grants, capital transfers) or the purchase of adapted products.

1.1.1 for the protection of ambient air

(as above) (as above) (as above)

1.1.2 for the protection of climate and ozone layer


1.2 treatment of exhaust gases and ventilation air

Removal and reduction, using end-of-pipe type technologies (filters, appliances to remove dust and particulates from gas emissions, etc), of particulates or other air pollutants in exhaust gases or in the air and emitted by ventilation systems.‘Exhaust gases’ means air emissions from discharge tubes, exhausts, chimneys, etc and generated by the combustion of fossil fuels or by other processes. ‘Air emitted by ventilation systems’ means air emitted by air-conditioning systems at industrial sites.

(-) (as above)

1.2.1 for the protection of ambient air


1.1.2 for the protection of climate and ozone layer


(continued)


The Istat methodology for calculating General Government expenditure on environmental protectionCEPA operational table 1 – Ambient air and climate protection (continued)






1.3 Measurement, control, laboratories and the like

Monitoring, measuring, analysis and control of the concentration of pollutant substances in exhaust gases, of air quality, of the ozone layer, of greenhouse gas emissions, etc.More generally, this activity includes surveying, measuring and recording of data on the various characteristics of air.This activity is often pursued in order to check that the content of exhaust gases conforms to the levels set in specified standards or that the qualitative characteristics of air comply with targets set locally, nationally or internationally, under specific programmes.The activity may also be carried out by means of survey networks not exclusively dedicated to monitoring and measuring the air quality but also measuring the quality of the soil, etc.As regards climate change in particular, the activity is pursued with support from networks and appliances specifically dedicated to monitoring the climate, the ozone layer and the concentration of greenhouse gases, etc

The activities of monitoring, measuring, analysis and control of meteorological conditions do not come within the scope of this characteristic activity. Indeed, with reference to climate change, pursuit of the characteristic activity is shown only in those cases where use is made of dedicated appliances and survey networks.

This is the only activity (together with that of regulation and administration – see characteristic activity 1.4 in this CEPA operational table) where general government is one of the characteristic producers.This activity in fact is often pursued by general government for the purpose of checking and control of: certain de facto situations (e.g. the level of urban pollution); compliance with standards and regulations setting limits for air pollution; the progress of programmes developed locally, nationally or internationally (pollution-reduction programmes; scientific programmes, etc).

1.4 other activities Regulatory and administrative activities in those cases where they can be separated from similar activities relating to other environmental domains and thus specifically and exclusively assignable to the domain of air pollution (see § 2.2.4.2)

Exclude regulatory and administrative activities which, although concerned with the domain of air pollution, also relate to one or more other domains (see § 2.2.4.2), since these come within activity 9.1 (see CEPA operational table 9 – Part B)

This is an activity which, like characteristic activity 1.3, is generally pursued by general government as characteristic producer.



2.2.5.4.2 CEPA operational table 2 (Waste water management) PART A – CLASS OF ACTIVITY AND ENVIRONMENTAL DOMAIN

CEPA class:

2. Waste water management

Description of CEPA class:The characteristic activities of waste water management are all activities for the purpose of preventing the pollution of surface water and the collection and treatment of waste water, including monitoring and control and regulation and administration activities (§ 4003)The following are not characteristic activities of waste water management:1) activities for the protection of ground water, which are part of Class 4 on the characteristic activities of soil protection and underground water (§ 4006) (see CEPA operational table 4);2) activities for the recovery and restoration of areas of water, which are part of Class 6 on the characteristic activities of protection of biodiversity and landscape (§ 4006) (see CEPA

operational table 6);3) measures consisting of banning or prohibiting specified products or specified productive activities (however, any expenditure connected with such measures – for example transfers to

offset any losses resulting from specified prohibitions – are specific transfers for environmental protection and as such are to be accounted for in the EPEA account) (§ 4017).

Environmental Domain:Pollution of surface water

Description of environmental domain:The environmental domain of surface water pollution is identified by defining two characteristic features, namely:1) by defining the concept of “waste water”;2) by delimiting the scope of “surface water”.The term waste water is used for water which because of its quality and quantity and the time of its occurrence, is of no further immediate value for the purpose for which it was used or in the pursuit of which it was produced. Waste water includes cooling water (§ 4003).The scope of surface water, for the purpose of defining Class 2 on the characteristic activities of waste water management, includes surface inland water (watercourses, lakes and ponds, artificial reservoirs, etc) and the sea (including brackish water) (§ 4009).

(continued)



CEPA operational table 2 – Waste water management (continued)


Special characteristics of the environmental domain and corresponding implications for characteristic activities, with particular reference to involvement of general government: Unlike air pollution but similar to waste, pollution of surface water is such that it can be combated not only preventively (by avoiding the production of pollutants or avoiding releasing them into surface waters) but also by means of action to treat or purify the water after the pollutants have been generated and released there. The possibility of this type of intervention means that the field of waste water management is characterised not only by activities to protect surface water as carried out (on an ancillary basis) by the producers who generate the pollutants for the purpose of limiting the pollutant charge itself, but also by water-protection activities conducted on behalf of third parties by specialized characteristic producers. On behalf of the entire community, general government undertakes many waste water management activities: not only those of monitoring and control and of regulation and administration, as in the case of ambient air and climate protection (see CEPA operational table 1), but also other activities such as management of sewerage systems and treatment of urban waste water (see Part B of this CEPA operational table). General government undertakes these activities either by producing the service itself and so taking on the rôle of specialized characteristic producer, or by buying in the service from specialized producers.The expenditure relating to this domain comprises (§ 4017): 1) expenditure incurred by the characteristic producers in pursuit of the characteristic activities; 2) expenditure incurred for the purchase of adapted products and connected products; 3) expenditure constituting specific transfers (taxes, subsidies, investment grants, etc).As regards general government in particular, on the basis of the above, the expenditure linked with this domain essentially relates to:1) the expenditure incurred for carrying out characteristic activities such as: management of sewerage systems (2.2); treatment of waste water (2.3); monitoring and control (2.5);

regulation and administration (2.6);2) the expenditure incurred for the purchase of characteristic services from specialized producers. For example, the disposal of sludge after purification is an immense intermediate

consumption by specialized producers in the activity of purification, which takes the form of buying in the service from producers specialising in that service (§ 4069). More generally, it may involve the services of managing the sewerage systems or of treatment of the waste water bought in by general government for the community from specialized undertakings;

3) expenditure incurred for the purchase of adapted products and connected products. This type of expenditure relates chiefly to households (§ 4070). In the case of general government it chiefly involves intermediate consumption of adapted products for the purpose of pursuing characteristic activities and, as appropriate, gross capital formation in the form of purchase of septic tanks (whichever general government is involved in this purchase where there are no sewerage systems or investments for creating drainage systems);

4) expenditure in the form of specific transfers like, for example: subsidies to specialized producers engaged in the activities of management of sewerage systems and of treatment of waste; transfers to Rest of World to finance programmes of activity relating to sewerage systems and treatment of waste in other countries (for example, in the context of public and/or private aid to developing countries) (§ 4071).

(continued)









2.1 Prevention of pollution of water through in-process modifications

This activity includes all measures to reduce or eliminate production of pollutants by modifying processes.The process modifications presented as characteristic activities are the following:- actual change to the productive process used in favour of a process which generates less pollutants during production, or adoption of ‘clean technologies’. By extension they include activity to reduce emissions of pollutants and/or of waste water such as treatment and re-cycling of water used in the productive process, separation of waste-discharge systems, etc;- change of productive plant (apparatus, components, plant) in order to use adapted products as intermediate inputs to the productive process.

The use of adapted products is not of itself a characteristic activity; but a modification of processes to make use of adapted products is a characteristic activity. Expenditure to buy adapted products must therefore be classified by CEPA class (single digit) or assigned to the relevant environmental domain; modifications to processes must be classified by characteristic activity (2 or more digits).

These are activities generally carried out by producers in the Corporation sector in order to reduce or eliminate their own emissions of pollutants into surface water. General government does not usually engage in such activities and therefore does not perform the rôle of characteristic producer. Possible expenditure by general government consists of specific transfers (subsidies, investment grants, capital transfers) or the purchase of adapted products.

2.2 sewerage networks Collection and removal of waste water from one or more users, and of rainwater, by means of sewerage systems, main drains, tanks and other means of transport (vehicles to carry waste, etc).“Sewerage systems” means systems of mains, drains, conduits and pumps to remove waste water (rain water; waste water from domestic users or other types of user) from the point of generation and to convey it either to a waste treatment plant or to a point of discharge into surface water.

(-) The activity of collection and removal of waste water by means of sewerage systems is typically operated by specialized characteristic producers for third parties.Very often general government undertakes this activity for the entire community and therefore incurs the expenditure for production of this type of service as a specialized characteristic producer. It is also common for the service to be performed by specialized characteristic producers from the Corporation sector: in such cases, general government meets the expenditure for buying the service from the private producers, on behalf of the community.

(continued)









2.3 Waste water treatment This activity includes all processes (purification) for treating waste water to bring the waste into compliance with environmental quality standards and/or the statutory limits set.It also includes the processes for treating sludge produced by plant purifying waste water.The treatment processes divide into three wide types: 1) mechanical treatment; 2) biological treatment; 3) advanced treatment.

Whereas the treatment of sludge produced by plant purifying waste water comes within the characteristic activity of waste water management, this activity does not include the treatment and disposal of waste produced by the treatment of purification sludge. The treatment and disposal of such waste comes into CEPA class 3 for the activities of waste management – characteristic activity 3.4 (see CEPA operational table 3 – Part B)

Treatment processes can also be divided into processes for treatment of urban waste water and processes for treatment of industrial waste. The importance of this distinction is linked less to identification of the differing sources of the waste and more to an identification of the differing methods of treating the waste. Generally urban waste water is purified by general government plant taking the water from the public sewerage system; general government meets the expenditure for purification of urban waste as a specialized characteristic producer, where it operates the treatment plant itself, or as a user, where the service is produced by plant operated by private undertakings. Industrial waste is generally purified by the undertakings which generate it and which therefore spend either to conduct the characteristic activity on an ancillary basis, or to buy in the service from third parties.

(continued)



CEPA operational table 1 – Ambient air and climate protection (continued)






2.4 treatment of cooling water

This activity includes all processes for treating cooling water with the aim of making it compatible with environmental quality standards before release to the environment.Cooling water means water used to remove or reduce heat.

(-) One way of distinguishing cooling water may be to consider its source. Under this criterion, there are: 1) cooling water from thermal power stations; 2) cooling water from other activities using water-cooled systems. With reference to this distinction, where general government itself manages thermal power stations it would show as a characteristic producer engaged on an ancillary basis in the activity of treating cooling water and therefore meeting the cost. More generally, this characteristic activity is performed on an ancillary basis by industrial firms.

2.5 Measurement, control, laboratories and the like

This activity includes all activities for control and monitoring of the quality of sea water and inland surface water.The activity may be pursued using fixed and mobile instruments; at measuring points in rural and urban areas; using apparatus incorporated in climate observation and monitoring networks.

(-) This activity is performed by general government as a characteristic producer; in fact it is often performed by general government to check and control: certain de facto situations (level of pollution in areas of surface water and sea water); compliance with standards and regulations setting limits of pollution for sea water and surface water; progress on programmes developed locally, nationally or internationally (pollution reduction programmes; scientific programmes, etc).

2.6 Other activities Regulatory and administrative activities in cases where they can be separated from similar activities relating to other environmental domains and therefore specifically and exclusively assigned to the domain of pollution of surface water (see § 2.2.4.2)

Excludes regulatory and administrative activities which are concerned with the domain of surface water pollution but also relate to one or more other domains (see § 2.2.4.2): these come into activity 9.1 (see CEPA operational table 9 – Part B)

This is an activity which is generally performed by general government as a characteristic producer.



3. Three approaches

3.1 The Istat approach compared to other options: critical issues and perspectives

Istat’s methodology – set out schematically in § 2 above – takes it for granted that the method of collecting the data is budget analysis, i.e. the process takes the form of an on-the-desk analysis of the accounts of general government, as far as possible avoiding direct inquiries to the administrations (if appropriate19 only for those items where the second stage of work is necessary).

For the sake of simplicity this could be called the “approach based on the environmental accountant’s desk” (Figure 7). The essential benefit of this approach is that it is based on an administrative source “as it stands” (the account) and causes no disturbance (or only very little) to the administrations, with the request to produce customised information on environmental protection expenditure which they have incurred. Against that, however, there is the disadvantage that the information which the environmental accountant has on his desk (the public accounts and any laws cited in the description of the items of expenditure examined) does present the problems explained above (see § 2.2). It should also be stressed that this approach substantially centralises the function of budget account analysis with the environmental accountant: although on the one hand such centralisation seems to be workable if the analysis is limited to state and regional administrations20 (NUTS I and II), on the other hand there is the danger of creating a bottleneck, if the analysis is extended to all other government administrations (Provinces, Communes21, etc – NUTS III); the possible consequences of this would certainly include an increase in the time-gap between the date on which the administrative source arrives on the “environmental accountant’s desk” and the date when the data on environmental protection expenditure are disseminated.

It is also in the light of these questions that we have to consider the alternative option, which we might call the “approach based on the government administrator’s desk” (Figure 7). This approach would essentially mean that environmental protection expenditure would be collected and quantified by each administration for itself. The benefit of this approach is, first of all, that it circumvents the problems (described above – see § 2.2) relating to the information available on the “environmental accountant’s desk”: this differs from the “government administrator’s desk” in that the former holds much less information than the latter, where by contrast – by definition – most information lies. A further benefit is linked with the fact that, with this approach, the databases on environmental protection expenditure could be made available more 19 To trace the extra information needed for the additional detail at the second stage, there is not

only the option of approaching individual administrations for explanations of the content of problematical items of expenditure: there is for example the option of approaching the individual inspectorates of the Ragioneria Generale dello Stato (Ministry of the Treasury, Budget & Economic Planning) whose province is the expenditure of the various bodies of general government (Ministries, Regions, etc) and who hold information on individual spending actions under each item of expenditure in each account.

20 In this phase (under a Contract made with the Ministry of the Environment) Istat has begun to collect and quantify the environmental protection expenditure incurred by state administrations in the years 1995 and 1996. At present we are in the final phase of stage one of the approach, involving the analysis of slightly under 12,000 items of expenditure.

21 For example, there are more than 8,100 Communes in Italy.



speedily, especially if each administration were to collect and quantify such expenditure at the same time as it compiled its budget account and not afterwards. On the other hand, for this second approach actually to be feasible would require Istat to transfer to general government the know-how required for it to be able to collect and quantify its own environmental protection expenditure in accordance with the definitions and classifications of SERIEE and EPEA. The various administrations might acquire such know-how in a non-uniform way (e.g. misinterpretation of the reference definitions and classifications) with the danger, at least in the introductory phase, of introducing distortions in the information.

We might also identify a third approach which stands “midway” between the first two: “the approach based on taking the environmental accountant’s desk to the government administrator’s desk” (Figure 7). This approach involves analysing the budget account using the “approach based on the environmental accountant’s desk” and interacting with the administrator as the analysis advances, when there arise items of expenditure for which the information available on the “environmental accountant’s desk” is insufficient: such interaction requires sustained contact and hence that the environmental accountant and the public administrator be “nearby”. Essentially, it means conducting the first- and second-stage analyses of Istat’s approach (see § 2.2.1) almost at the same time. This manner of proceeding – currently under experiment on the study case in Puglia Region for 1995 – can be of benefit especially for the local administrations, who might not always find it easy and speedy to put certain information (e.g. regional law) on the “environmental accountant’s desk”; on the other hand, there is a drawback to this approach, with the need to conduct the analysis on the spot.



Figure 7: Three approaches


On the environmental accountant’s desk

On the government administrator’s desk

Taking the environmental accountant’s deskto the government

administrator’s desk


3.2 Critical issues to be considered in evaluating the alternative approaches: an overview

The critical issues to be considered in evaluating the alternative approaches can be summarised as follows:

1. Access to all relevant information on expenditure: incomplete for the environmental accountant but complete for the government administrator

2. Additional work for government administrator: none, little or a lot, according to the approach

3. Number of environmental accountants compared with number of administrations: enough or not enough, depending on the approach

In Table 7 below, the benefits (pros) and drawbacks (cons) of the three approaches are shown with reference to the critical issues listed above.

Table 7 – Pros and cons of the three approaches: an overview

Approach On the environmental

accountant’s desk

On the government

administrator’s desk

Take environmental

accountant’s desk to government administrator’s

deskCritical Issues pros cons pros cons pros consAccess to all relevant information

(X)incomplete

(X)complete

(X)complete

Additional work for government administrator

(X)none

(X)a lot

(X)little

Number of environmental accountants

(X)not enough

(X)enough

(X)not

enough



Bibliography

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Falcitelli F, (1999), Statistica ufficiale, contabilità ambientale e contabilità delle spese per la protezione dell’ambiente della Pubblica Amministrazione, Intervento al seminario tecnico di aggiornamento “Sistemi informativi di governo per l’ambiente” 4-5 May 1999, Florence.

Istat (1996), Contabilità ambientale, Annali di Statistica, Serie X - vol. 13, Rome.

Istat (1999a), Creazione e sviluppo di un sistema di contabilità ambientale, rapporto finale del progetto Istat - Ministero dell’Ambiente “Creazione e sviluppo di un sistema di contabilità ambientale”, Rome.

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