Measuring and Modelling Sustainable Development in Australia

Harris, M., Pearson, L. and Walker, B.

Date: 20 Aug 2003

Summary

A three year project has been initiated to test the feasibility of measuring and modelling sustainable development in Australia. The prototype will be tested in the Goulburn Broken Catchment (Victoria) and the Murrumbidgee Valley (NSW) with a sister project in the Stockholm region, Sweden. Participants in the Australian project include; Environment Australia, Treasury, AFFA, Bureau of Rural Science, ABS, ABARE, Productivity Commission, various universities, the Joint Australian Academies Committee on Sustainability, Goulburn-Broken Catchment Management Authority and the Pratt Water Project Office. The project is primarily funded through the CSIRO Emerging Science Program in social and economic integration.

The project will be putting into practice current theoretical and conceptual thinking about sustainable development and its measurement through inclusive wealth. Inclusive wealth measures the components that make up human well being, now and into the future, where well-being is based on a number of things; health, access to potable water, shelter, security, fulfilment, happiness, etc. Which are in turn determined by such services as agricultural productivity, housing, medical facilities, transport, communications, access to natural areas rich in biodiversity, etc. This project, therefore, in measuring inclusive wealth, explicitly takes into account non-marketed ecosystem services, manufactured (built) assets and human capital and the capacity of these assets to continue providing services into the future. Project objectives include (i) advance a sustainable development measurement framework, based on international best practice, (ii) develop holistic production functions for key goods and services in each region, (iii) explore the issues of measuring different types of capital, and (iv) explore ways to assign relative values to capital stocks.

Introduction

The issue of how to measure sustainable development is bedevilled by partial measures and incomplete lists of indicators. The existing sustainability index projects in Australia and internationally do not adequately address the economic or ecological significance of a change in the indices concerned – how much is enough or too much, and the economic, environmental or social implications of a change. There is a strong need for an extension of the World Bank “Genuine Savings” approach, along the lines of the Inclusive Wealth proposal (Arrow et al 2003).

This project has been initiated to develop a framework for modelling and measuring sustainable development in Australia based on the Arrow et al (2003) theory. It should be noted that this is a pilot project to explore the feasibility of the approach. It cannot, and should not, be used to influence policy.

The project will be undertaken by CSIRO with the input and support of a number of participating agencies (further expanded in Section 0).

Aim

The aim of this project is to pilot a framework for practically measuring and modelling sustainable development, at the regional scales, through inclusive wealth, in Australia. This national test will use two case study regions, the Goulburn-Broken Catchment (Victoria) and the Murrumbidgee Valley (NSW).

Objectives

The four objectives for this project are:

a) Contribute to the development of an inclusive wealth measurement framework, based on the theoretical approach of Dasgupta and Maler, 2001 and Arrow et al (2003), involving the allocation and definition of production inputs as stocks and flows of capital (human, natural and manufactured)

b) Develop holistic production functions for key service flows and types of capital in each region

c) Explore the appropriateness of different approaches to assessing changes in composition of the capital stock, including attention to regional and national scale issues in measurement

d) Explore ways to assign relative values (shadow prices) to the above stocks and hence derive a measure of Inclusive Wealth.

This project description has four sections. Section 1, this introduction includes the aim and objectives of the project. Section 2 outlines the approach to be taken; specifically the theoretical framework and issues with implementation. Section 3 steps through the actual implementation process for the project. Final section 4 outlines some project delivery facts, including project personnel and participants, communication process and timelines.

The Approach

This project applies the theoretical framework of sustainable development as undertaken by Arrow, Dasgupta, and Maler. This framework was chosen because it explicitly incorporates measurement and tradeoffs between three forms of capital: human, natural and manufactured. A regional scale is necessary for it to be of useful in policy. Intervention by national programs for natural resource management and for economic development is made at the scale of regions.

NOTE: This project is restricted to examining the feasibility of the approach at a regional scale. However, the eventual aim is a national measurement program based on a minimum sufficient representative sample of Australian regions. This sample of regions will be broad enough to enable interpolation between regions to identify “missing” regions sustainability, as well as extensive enough to extrapolate to a national measure of inclusive wealth.

This section clarifies what is meant by sustainable development in the project and how measurement is proposed, based on the theory. This theoretical discussion is followed by identification of a number of issues that face the application of the theory in Australia.

Theoretical Approach

What do we mean by Sustainable development?

At a global scale it is relatively easy to understand, for example, that we may be unsustainably using Earth’s carbon resources (fossil and renewable). It is likely to be unsustainable in terms of staying in the same climatic configurations the world has experienced over the past many thousands of years. For example, if, as recent research suggests is possible, global warming leads to a rapid cessation of the North Atlantic thermohaline circulation, then northern Europe could flip into another ice age while the tropics would slide into massive droughts and high temperatures. Should that occur, our present life-styles would disappear and many species, and local human populations, would go extinct. In such a case the situation is clear; at a global scale we could say that our present patterns of resource use are unsustainable. However, at a national scale, such examples are not as clear.

What, precisely, is it that we wish to sustain in Australia? The natural resources of the country? All of them? How do we account for minerals, and vegetation on land that is to be used for agriculture? Do we really mean “all existing biodiversity” – ie no further losses of species, or of populations, or what? Or is it the productivity of the natural resource base?

More generally, is it the future options for our grandchildren and their grandchildren? If so, options for what? - use of natural resources, access to manufactured and financial capital, existence of viable social institutions, employment opportunities, access to wild places, all of these? Is it maintaining the present levels of ecological processes, like nutrient cycles, carbon uptake, hydrological cycles? To be operational we have to be clear about what we want to sustain. And this means that to be operational, sustainability must address the current status, trends and future prospects of the country’s natural, human, social and economic systems. Considering only one or two of these systems will lead to partial solutions; and given the strong interactions between the three systems, partial solutions will not lead to the hoped-for outcomes.

The word “sustainability” has been the cause of much confusion, and it is better (J. Chesson, pers. comm.) to rather use “sustainable development”. However, sustainable development has been defined in various forms and ways. It is important to clarify the definition because it will determine the type and process of measurement proposed (see Table 1).

The definition for sustainable development used in this project is non-declining inclusive wealth, which measures the sum of an economy’s capital stocks, weighted by their shadow prices for each capital component; human, natural and manufactured capital. The shadow prices reflect the relative “real social” values attributed to changes in the capital stocks. As social capital is the institutions and cultural norms that transfer capitals between stocks and flows it is not proposed to be measured in the analysis, however this is one aspect of the theory to be further examined in the project.

Such a definition emphasizes that sustainability is not about maintaining the status quo and leads to questions about how changes in a country or region contribute to or detract from sustainable development, rather than asking if some existing state is sustainable.

How can we measure Sustainable development?

There is currently no adequate measurement tool for sustainable development. Initially a number of existing economic/financial instruments were used as a proxy for sustainable development, such as GDP. Progressing beyond the limitations of these established tools is the Genuine Progress Indicators, and now the World Bank measures of Genuine Savings, or Genuine Investment, which link use of natural resources to human wellbeing (eg Hamilton and Clemens 1999; Dasgupta and Maler 2001). It should be noted that all these measures are related, genuine investment and genuine savings derive from Green GDP and Inclusive wealth is a stock analogue of the genuine investment measure. A summary table of key definitions and their associated models for measuring sustainable development are in Table 1.

Table 1. Key Definitions and Indicators of Sustainable Development

Definition of Sustainable Development	Name or Proposed Indicator	Source
Measures national income or output adjusted for the depletion of natural resources and degradation of the environment. A larger number signifies greater sustainability.	Green GNP / Green GDP	Harris and Fraser 2002
Measures the net change in national assets including natural and human capital. A larger number signifies greater sustainability.	Genuine Investment/ Savings	Hamilton and Clemens 1999
Measures the change in social well-being, through twenty five indicators, covering consumption (broader than GDP) and value of capital stocks. A larger number signifies greater sustainability.	Genuine Progress Indicator	Hamilton 1998
Measures an economy’s capital stocks, using weights from the estimation of shadow prices for each capital component (human, natural and manufactured capital). Non-declining net (weighted) capital stocks ensures sustainability.	Inclusive Wealth	Arrow et al. 2003

As previously stated this project is using the “inclusive wealth” concept as the appropriate attribute to sustain. It extends the notion of triple bottom line accounting to regional or national measures of the sustainability of development pathways. The reasoning is as follows:

Human well-being is what we are really concerned about. We want our own future well-being, and that of our grandchildren’s, to be at least as good as at present. This well-being is based on a number of things (health, access to potable water, shelter, security, fulfilment, happiness, etc) and, on a per capita basis, these in turn are determined by such things as agricultural productivity, housing and other infrastructure, medical facilities, transport and communications, access to natural areas rich in biodiversity, and so on. Collectively, these determinants of our well-being are a measure of our wealth – they are the asset base that delivers us the flow of benefits (income), which also include happiness from experiencing a coral reef, for example.

A conceptually simple, yet comprehensive indicator of sustainable development, therefore, is wealth, defined in an inclusive way that explicitly takes into account non-marketed ecosystem services and the capacity of ecosystems to continue providing these in the future. Sustainable development, then, is non-decreasing per capita wealth, inclusively defined. The measurement and calculation of wealth in these terms is at the heart of operationalizing sustainability. It will provide an index (albeit a complex index comprised of a number of measures) that enables us to monitor the trend in the sustainability of present patterns of resource use.

Using wealth as the basis for a sustainability measure moves the focus of analysis from flow measures (e.g. how much is being produced or consumed) to stock measures (e.g. what is happening to the underlying composition of assets from which our standard of living flows). What is being measured are the stocks of assets (or capitals) that make up total inclusive wealth, with such quantities being valued by risk-adjusted shadow prices.

Estimating inclusive wealth in a repeatable and meaningful way is not without difficulties. Various efforts have been made, or are in progress, and this proposal needs to build on them, refining the flow-based analyses such as those by Solow (1992), the World Bank “Genuine Savings Index” (Hamilton and Clemens 1999), Dasgupta and Maler (2001), Pezzey and Toman (2002) and the UN System of Environmental and Economic Accounts (within the System of National Accounts) (Anon 2001). These are but a few of many publications in economics dealing with including the environment in the measurement of national accounts. It is not a trivial issue, as shown by the widely differing results from using different ways of estimating depreciation of mineral resources in Australia (Common and Sanyal 1998). The comparative analyses of Neumayer (2000) and Hanley, Moffatt, Faichney Wilson (1999) also show the diversity of results that can be derived from competing approaches. Furthermore, none of the proposed systems is yet complete and they suffer from being selective, owing to non-availability of data. For example, the World Bank Genuine Savings Index necessarily includes only a sub-set of the important components of natural capital and, for example, takes no account of changes due to salinization or soil acidification. Resolving the measurement issue for Australia would be part of this pilot project.

The main components of a measure of inclusive wealth are the stocks or asset bases. The asset base is the sum of the various aggregated forms of capital (C) – manufactured (MC), human (HC) and natural (NC), plus any international assets or debts. Changes in the various components of these three forms of capital, measured in their relative or shadow prices (which is NOT the same as whatever their market prices might be), represent changes in wealth. If we measure a decline from time t1 to t2, the allocation (pattern of use) of resources at t1 was unsustainable.

This interpretation of sustainable development is not without problems. An issue is the specification and measurement of all three forms of capital. This paper has focused on natural capital as the example, setting aside for the moment manufactured and human capital. In doing so it in no way implies that an equal emphasis on HC and MC isn’t necessary. It is essential, in fact, if we are to understand the consequences for human wellbeing that arise from inter-capital conversions. This is obvious when we consider (J.Pezzey, pers. comm.) that a conventional economic view, set out for example by Weitzman (1997, 1999), suggests that natural sustainability is only about 2-5% of total sustainability¹. If we also set aside, for the moment, the issue of estimating shadow prices, the big task confronting those in the area of natural capital assessment is how to appropriately disaggregate NC so as to provide a meaningful basis for determining whether wealth is declining, or is at least sustainable. The same problem confronts those involved in assessing MC and HC.

It is important to realise and to accept that NC cannot be considered in isolation in assessing change in wealth because without some transformation of NC into HC and MC, human wellbeing, and therefore wealth, will decline. Sustainability is not about maintaining the status quo. It is about improving future wellbeing, as development inevitably proceeds, and in many cases the best way to achieve this may well be to draw down NC now, convert it into HC and MC so as to increase efficiencies of further NC use, and later even re-invest back into NC (eg Solow 1992 – the sin is not in transforming NC, it is in what is done with the proceeds). However, given our rudimentary ability to measure and model sustainability as a function of changes in the various forms of capital, there are widespread concerns about the degree of permissible inter-capital conversion, and these concerns underpin the distinction between “strong” and “weak” sustainability (eg Pearce et al 1996). These authors argue that until we are able to adequately measure resilience in natural systems we are obliged to follow the strong sustainability approach.

Given the interactions and transformations between the forms of capital, what is the appropriate set of NC measures that are needed to complement the HC and MC measures to assess inclusive wealth? There are a number of important considerations in applying this theory, which are discussed below.

Operationalising the theory in Australia

Four considerations have arisen from the above theoretical and conceptual investigations. These considerations specifically deal with the ability to realistically apply the theory to an Australian example and are discussed below.

Area under investigation

An initial consideration is the ‘area’ of investigation- should it be by “industry” or region. From an industry perspective there are good reasons to approach the assessment on such a basis – eg, is the dairy industry, the timber industry, or the wheat/cotton/rice/ industry, etc., sustainable? There will be differences in sustainability between sectors, such as irrigated agriculture, dryland cropping, horticulture, timber from native forests, livestock on rangelands, fisheries, etc., each at different scales. How can we add up to the national scale on the basis of industries/sectors, and does it make sense to do so?

However, there are two problems with an industry approach. First, the industries do not operate separately, and in most areas several of them interact to yield net benefits and costs to society. Changes in the sustainability of one industry will have effects on the sustainability of others. This becomes progressively more apparent as the understanding of ecosystem services increases. So though it might be informative and helpful to do such industry-based assessments, there is a need for integrated regionally based assessments first, so these interactions can be taken into account.

A second, more important drawback, is that the demise of a particular industry might well be appropriate in terms of future well being. Whaling, asbestos mining and tobacco farming are some examples of past industries. Sustainable resource use in Australia must arguably not be constrained by the interests of any particular industry.

Therefore, a regional area is adopted. The focus on regions in this proposal meets the need in Australia to deal with sustainability issues on a regional basis. Knowing only how the nation as a whole is faring, as in the World Bank national sustainability indicators, tells us little about where or how to fix the problem, or do better. Some regions might be able to continue functioning in a productive way under present resource use patterns while others may not, and within regions some kinds of resource use may be sustainable and others not. A key requirement for this program to be successful (ie continue to be used and developed) is that it feeds directly into decisions that agencies (at all levels) have to make. Conducting the assessment at a regional scale is necessary to reflect the intervention policies for funding and natural resource management of the main government agencies responsible for policy (AFFA, EA, DOTARS).

What is the most appropriate regionalisation to use? It makes sense to build on an existing scheme, and this remains to be determined. For this feasibility project our region of investigation will be a catchment.

Choosing to develop the system on a regional scale brings in added complications that must be addressed, chief amongst which are inter-regional transfers of all three capitals. Changes in capital at the regional level must include assessments of inflows from and outflows to other regions.

Measuring capital

Within a catchment, what is the minimum sufficient sub-set of NC components that will be able to tell us how NC (in terms of inclusive wealth generation) is changing? And once we know the components how do we measure them and model their interactions. Disaggregating the three forms of capital into components is a critical process, to achieve this a two step process is proposed:

a) Identify important goods and services for the region, which provide an accurate and representative cover of capital inputs

b) Construct inclusive production functions, including identification of capital components for the good and services identified, with each component measured by its shadow or relative price

c) Aggregate the appropriate capital components to form a holistic measure of each capital (eg. NC)

Once the components of capital have been identified they need to be measured. Some components have established market values (primarily only in MC) others require an investigation of their relative prices. These relative prices of worth are called shadow prices or accounting prices. An issue with measuring relative worth is the differences between segments of society about the relative values of alternative streams of benefits delivered by some component of natural capital (water for irrigation vs water for nature) and changes in the values as technologies and preferences change. We cannot predict what the preferences of our grandchildren will be. Because of this it is very difficult to get a meaningful estimate of the shadow (or accounting) price of some particular asset (component of NC). These difficulties lead some to prefer the use of option values, defined as the value a resource may have in the future for some unknown purpose. But as discussed earlier, this still involves uncertainties about options for what assets.

Because it is not possible to determine an average utility function for society as a whole, and for the reasons given in the earlier discussion on changing values over time, there are two suggested procedures. Both procedures will be retrospective in nature eg. 1990 and 2000, which ensure that there are known resource use/ allocation patterns that have occurred at both time periods. Procedure (a) is to use a set of equivalence classes that span the range of societal values and concerns (M. Anderies pers. comm). We could envision, for example, middle-income people in the suburbs of major cities and farmers who own their own land as two such classes, and by dividing each into those <25, 25-50 and >50 years of age, we would have six classes. It might be possible to use differences between the age classes to derive estimates of future changes in values, at least for one generation into the future. Procedure (b) identifies theoretical criteria for determining relative value such as Rawls ‘veil of ignorance’.

Currently the second option is proposed, though this will be clarified during the project. This proposed set of measures will collectively reflect the pattern of change in the country’s natural capital. Given the magnitude of the task, there are two aspects that need to be considered: First, the disaggregation exercise needs to be on a minimum but sufficient basis, and second, even then, it will be necessary to establish a carefully selected sampling strategy to make the measurement procedure achievable. As alluded to earlier, this part of the procedure – determining the necessary NC attributes and obtaining measures or estimates for them – is the big challenge for those involved in the natural capital aspects of sustainability.

A second important reason for assessing value rather than just quantities of the various capitals is that, if done correctly, the estimated relative prices reflect the risk of future losses in capital. It provides the means for including the future-looking component into the estimate of sustainability, based on estimates of changes in resilience.

Risk and resilience

If the risk of NC declining in the future increases, even though NC itself may not be exhibiting any changes now, its relative stock value has decreased, and therefore wealth has declined. This is a very important and greatly under-estimated aspect of sustainable development. For example, for decades all direct measures of the MDB indicated sustainable use of resources. Only in the last couple of decades has the risk of future losses in productivity associated with changes in hydrology and salinity been adequately recognised. The risk of changes in NC is reflected by changes in the resilience of the systems concerned. A special focus in sustainability metrics needs to be on the identification and estimation of thresholds in natural systems that demarcate significant changes from one state of NC to another (less valuable) state – especially non-reversible changes – and how far the system is from such thresholds. The closer to a threshold, the lower the resilience and the higher the risk of loss of capital. Some thresholds might be fairly obvious, but others involve complex system dynamics involving both biophysical and social systems, and will require use of emerging complex systems science approaches. In discussing the problems facing the development of the Environmental Sustainability Index of the World Economic Forum’s Global Leaders for Tomorrow Environment Task Force, Esty (2001) concludes that “...because sustainability relates both to the distance a society is from critical pollution or resource consumption thresholds and how fast these thresholds are being approached, the concept of sustainability has proven hard to translate into clear signals for policymakers”.

Social capital and equity

On the use of social capital in our estimation of sustainable development, we follow the Arrow et al use of three forms of capital (NC, HC, MC), and do not explicitly measure social capital. Social capital is the intuitions and cultural norms that transform the three capitals into production. It has, for example, been estimated as the “Solow residual” (K-G Maler, pers. comm.) in accounting for the variance in GDP by the variances in HC, MC and NC. A negative residual implies a decline in social capital during the time period over which the variances were measured. However, how to account adequately for changes in social capital still needs to be resolved. Investigation of how it will be handled in this project will be further clarified at the October 14-15 symposium.

A second important issue is equity. It is possible for the total inclusive wealth of a country to increase while the poor get poorer, or the disparity between rich and poor gets larger. The issue of equity is important for national institutions and Australia as a whole, however for the purpose of our two case studies, a more descriptive investigation of equity will be performed, as current theoretical and empirical investigations have not dealt with this issue.

This discussion has set aside the issues of defining and measuring HC and MC, but eventually the accounting prices of these two measures of capital need to be brought together with those for NC to allow for the overall assessment of inclusive wealth.

The operational process

A number of discussions with project participants have ensued to derive the following process of operationalising the above conceptual and theoretical discussion, which will meet the project objectives.

Figure 1. Process for modelling and measuring sustainable development in Australia

The process

1. Clarify method and data source available for the implementation of the theoretical framework. This will be achieved through a symposium held in mid October 2003. Prof. Karl-Goran Maler will visit Australia and meet with steering committee members and leading developers of sustainable development theory and practice in Australia. Investigations of current and available data sources will also be undertaken at this time to ensure that proposed models are supported by available data. We will start by examining available data; i) the ABS sources and national accounts; ii) National Land and Water Audit data; iii) State of the Environment reporting and iv) data held by state and regional bodies.

2. In conjunction with the regions and their stakeholders (all people with an interest in the region, inter-and intra), determine a limited set of “key” goods and services that the region provides, now and into the future. The notion of “inclusive wealth” needs to be invoked in determining the range of G&S that provide value to people. They may include, for example, agricultural products, clean water, and biodiversity conservation. For the pilot project this should not (cannot) be a complete list, but should encompass the range of G&S and component capital stocks.

3. The process for determining the “key” goods and services is proposed to be inclusive and to deliver not only the ‘local’ or ‘regional’ profile of goods but also include a broader scientific perspective.

4. Develop conceptual production functions for each G&S, identifying the components of human, natural and manufactured capital in each. The formulation and development of these production functions will be a major part of the project, requiring collaboration with local agencies and experts to get the relationships correct and to obtain the necessary data. It will need to take into account such issues as substitutability between components (which affects their shadow prices). It will result in the disaggregated list of capital assets that constitute the inclusive wealth of the region.

5. The production functions envisaged would form a single system that reflects product (output) transformations and input substitutions, the latter being critical to transformation among the different forms of capital. Also of importance in the specified production functions are the treatment of uncertainty and the explicit modelling of temporal dynamics. Detailed specification of these production functions will coincide with appropriate investment models and factor (input) demand functions for the different forms of capital.

6. Clarification of inter and intra regional transfers. In terms of equivalence with national estimates of GDP and GNP, the objective here is to measure GRDP (gross regional domestic product), not GR”N”P (gross regional ‘national’ product)². However, it will be necessary to measure each aspect of the various forms of capital at the appropriate scale. The regional scale is appropriate for potentially natural capital and much manufactured capital. The treatment of human capital, in particular, needs consideration in terms of the appropriate scale for its measurement and the flow of people in and out of regions. Data on human capital as captured by the ABS may need to be re-worked to conform to the regions selected.

7. Estimate the current levels (amounts) of each capital component, and measures needed to complete the production functions. It is presumed that most economic and some manufactured capital aspects will be already included in ABS measures and that the new information needed will mainly relate to natural capital. It will be necessary, however, to clarify, to what degree current statistics contain errors in measurement or definition of the variables concerned.

8. Identify any significant threshold effects, non-linearities and stochastic elements in the dynamics of the components (especially natural capital components). Understand and incorporate (where possible) issues related to loss of capital components and the availability of substitutions. A surrogate measure of change in risk is an estimate of change in resilience, which we will attempt to define explicitly. This part of the project focuses on future well being³.

9. Explore the possibility of measuring and allocating relative prices to each component, enabling the consideration of marginal changes in the components and acknowledging risk and resilience issues. This is a difficult and contentious part of the project, regarded by some as unachievable. However, it should be noted that this valuation component is intended to be a retrospective analysis. Various participants to the project have stressed the importance at this stage to use the best available data and undertake relative valuation measures only.

10. Explore the development of a model of inter-capital conversions that allows for assessment of the effects of changes in one form of capital on others. This model, being retrospective, will assume that changes in capital can be tracked over time as everything else will remain constant, eg. consumption and production patterns. If achievable, this will allow assessment of the consequences of alternative patterns of resource allocation on inclusive wealth (ie could we have done better?).

11. Inclusive Wealth is important as the end goal but it will not be the only output of the project. Outputs will be provided at a number of levels, for example: 1) The integrated measure of Inclusive Wealth. 2) “Warning lights” – the capital components to worry about, based on the assessments of non-substitutability and of resilience, thresholds, etc. 3) the assessment and allocation of shadow prices. 4) the inclusion of production functions for key goods and services. 5) the individual measures of capital components. 6) statement of appropriate application of the framework at the national level and a potential implementation process.

12. It is emphasized again that the 3-year pilot project is a proof-of-concept project that will determine whether a full-scale program is achievable and worthwhile. If it is, and is agreed on by the partners in the project, the intention is to develop a collaborative, multi-agency monitoring/measuring system (of the appropriate capital stocks) for assessing trends in Australia’s sustainability, reported by potentially the Australian Bureau of Statistics.

Matching objectives to outputs

Earlier we stated that there are five specific objectives for this project, Table 2 lists these objectives and how they will be dealt with in the proposed process and the outputs from the project.

Table 2. Matching objectives to the process and expected outcomes

Objective	Proposed Process	Expected Outcome
Contribute to the development of an inclusive wealth measurement framework, based on the theoretical approach of Arrow, Dasgupta & Maler, 2003, involving the allocation and definition of production inputs as stocks and flows of capital (human, natural and manufactured)	Steps 1 to 9	The integrated measure of Inclusive Wealth Statement of appropriate application of the framework at the national level and a potential implementation process
Develop holistic production functions for important goods and services in each region	Steps 2 to 7	The inclusion of production functions for goods and services Warning lights” – the capital components to worry about, based on the assessments of non-substitutability and of resilience, thresholds, etc.
Explore the appropriateness of different approaches to assessing changes in composition of the capital stock, including attention to regional and national scale issues in measurement	Steps 5 & 6	The individual measures of capital components
Explore ways to assign relative values (shadow prices) to the above stocks and hence derive a measure of Inclusive Wealth.	Step 7	• The assessment and allocation of shadow prices

Project Delivery Facts

There are three areas of project delivery that are important to the success of this project, first, the project personnel and participants, second, the method of communicating to all these people and keeping them involved and third, the timeline to achieving this project.

Project personnel and partipants

This pilot project has been made possible through funding under the CSIRO Science Investment Program in the area of socio-economic integration. The leader of the CSIRO proposal is Dr Brian Walker (Sustainable Ecosystems). Dr Michael Harris (La Trobe Univ) has been appointed as part-time project leader (2 days a week, initially until the end of 2003) and Dr Leonie Pearson has joined CSIRO full time on the project, initially for two years.

A Project Steering Committee has been identified to provide guidance on day-to-day management issues. This committee includes Steve Hatfield Dodds (CSIRO), Brian Fisher (ABARE), Jean Chesson (BRS), Mike Young (CSIRO).

The wider participants in this project are: Environment Australia (EA), Agriculture, Forestry and Fisheries Australia (AFFA), Bureau of Rural Science (BRS), Australian Bureau of Statistics (ABS), Australian Bureau of Agricultural Resource Economics (ABARE), Productivity Commission, Treasury, Dept of Transport and Regional Development (for manufactured capital), Education Science and Training (for human capital), CSIRO, Universities and The Beijer Institute for Ecological Economics (Sweden). The four Australian Academies are mounting a 5-year program on Sustainable Development under a Joint Academies Committee on Sustainability, and this project will serve as one appropriate umbrella project for the program, bringing in the expertise from all four Academies. The Goulburn-Broken Catchment Management Authority and the Pratt Water Project Office in Griffith are the primary contacts.

Communication

Communication will occur throughout the whole project and a strategy is currently being developed in CSIRO to best manage the needs and requirements of the participants and the project objectives. Specifically communication will include:

• Medium for information to be provided to participants at regular periods throughout the project

• Measuring and Modelling Sustainable Development in Australia Symposium, Oct 14-15, 2003

• Published papers and reports

• Presentations at conferences and seminars

Timeline

The project will involve the following steps over a period of two years, though with some initial and on-going work on the overall ‘process’ to ensure that the objectivise and the needs for evaluation are taken into account. Figure 2 displays the sequencing of the steps to achieve the project aim and objectives.


Time blocks	2003	2004		2005		2006
Process steps	July- Dec	Jan-Jun	Jul-Dec	Jan-Jun	Jul-Dec	Jan-Jun
1. Clarify method and data
2. Identify regional goods and services
3. Conceptualise identified goods and services production functions
4. Clarify inter and intra regional flows
5. Estimate Levels of capital components
6. Undertake threshold/ resilience analysis of components
7. Explore relative pricing of components
8. Model Sustainable Development
9. Reporting

Figure 2. Project Timeline

References

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Chesson, J. 2003 “Reporting on the Social Objective of Ecologically Sustainable Development” proceedings of ‘The social dimensions of the triple bottom line in rural Australia’ a seminar held 26 February 2003, Canberra.

Common, Michael S. and Kali Sanyal. 1998. "Measuring the depreciation of Australia’s non-renewable resources: a cautionary tale." Ecological Economics, Vol 26, 23-30.

Dasgupta P and Maler K-M. 2001. Wealth as a criterion for sustainable development. Beijer Institute Discussion paper # 139.

Esty D C. 2001. Toward data-driven environmentalism: The Environmental Sustainability Index. The Environmental Law Reporter. 31: 10603 – 10612. Environmental Law Institute, Washington, DC.

Hamilton, C. 1998 “Measuring Changes in Economic Welfare: The Genuine Progress Indicator for Australia”. In R. Eckersley ed. Measuring Progress: Is life getting better? CSIRO Publishing, Australia pp 69-93.

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¹ This ignores any threshold or irreversibility issues regarding natural capital, which are not included in a conventional economic approach

² GRDP measures the annual total flow of G&S used for final consumption or investment. Income from investments outside the region is excluded, in contrast with GR’N’P.

³ This provides an opportunity for further investigation of acceptable development trajectories for regions.

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