Author: Vivian S. C. Tunn
Adding bio-based products and materials to statistical classifications

4. Changing and adding codes to the NACE classification

The findings presented in this section are based on desk research and interviews with NACE experts working at organisations such as Statistics Netherlands and the European Joint Research Centre.

4.1 What are NACE codes and who governs them?

The NACE classification delineates industries. The current NACE classification came into force in 2008. The term NACE is an acronym that stands for the French Nomenclature des Activités économiques des Communautés Européennes. NACE codes can have up to six digits, the first two of which are governed worldwide by the UN, the third and fourth by the EU and the fifth and sixth can be chosen by the individual Member States.

Table 03Table 3 Structure of statistical codes of the NACE classification D i g i t # 1 2 3 4 5 6 At EU-level by Eurostat Corresponds to ISIC codes At EU-level by Eurostat Per country Per country optional optional Corresponds to ISIC codesTable 3 Structure of statistical codes of the NACE classificationDigit # 1 2 34 5 6 At EU-levelby EurostatCorrespondsto ISIC codesAt EU-levelby EurostatPer countryPer countryoptionaloptionalCorrespondsto ISIC codes

4.2 Timing and responsibilities of introducing new NACE codes

4.2.1 Timing and initiation of NACE-code alteration

The NACE classification is revised every 15 years to reflect reality better. These revisions typically take several years: for instance, the current NACE classification stems from 2008 and the next revised version is planned to come into force in 2024. An initial consultation of the NSIs for this revision took place in 2018 and the revision task force was formed in 2019, with members from 20 EU Member States. The structure of the new NACE will be ready by the end of 2022. Sometimes changes are made between revisions. These are then implemented by Eurostat in so-called "case laws", usually following an extensive discussion on the Eurostat forum for the NACE classification.

Initially (in 2018) proposals for amendments were put forward by NSIs of the Member States, often suggested to them by other departments and organisations. Subsequently, other stakeholders were consulted in 2019 (a very wide consultation round with all kinds of authorities/organisations/ (Eurostat) working groups/directorates, etc.).

In 2019, DG Environment shared a list of proposals for the NACE review with Eurostat, many of which fully or partly relate to the circular economy.

4.2.2 Official guidelines for defining NACE-codes

The documentation of the last NACE revision (Eurostat, 2008) includes some criteria for adding and changing codes at different levels within the NACE classification. The “NACE consists of a hierarchical structure (as established in the NACE Regulation), the introductory guidelines and the explanatory notes. The structure of NACE is described in the NACE Regulation as follows: i. a first level consisting of headings identified by an alphabetical code (sections), ii. a second level consisting of headings identified by a two-digit numerical code (divisions), iii. a third level consisting of headings identified by a three-digit numerical code (groups), iv. a fourth level consisting of headings identified by a four-digit numerical code (classes).” (Eurostat, 2008, p. 15).

The following are excerpts taken from Eurostat (2008, p. 21):

The criteria used to define and delineate classification categories at any level depend on many factors, such as potential use of the classification and availability of data. These criteria are applied differently at different levels of the classification: the criteria for detailed levels of the aggregation consider similarities in the actual production process, while this is largely irrelevant at more aggregated levels of the classification.

Criteria for classes
40. The criteria concerning the manner in which activities are combined in, and allocated among, production units are central in the definition of classes (most detailed categories) of NACE. They are intended to ensure that the classes of NACE will be relevant for the detailed industrial classification of units and that the units falling into each class will be as similar, in respect of the activities in which they engage, as is feasible.

41. NACE Rev. 2, reflecting the fourth revision of ISIC, generally gives more importance to the production process in the definition of individual classes. This means that activities are grouped together when they share a common process for producing goods or services, using similar technologies.

42. In addition, the classes of NACE are defined so that the following two conditions are fulfilled whenever possible: a. The production of the category of goods and services that characterises a given class accounts for the bulk of the output of the units classified according to that class; b. The class contains the units that produce most of the category of goods and services that characterise it.

43. Another major consideration in defining classes in NACE is the relative importance of the activities to be included. In general, separate classes are provided for activities that are prevalent in most EU countries, or that are of particular importance in the world economy. To attain international comparability, certain classes have been introduced in the structures of ISIC and, therefore, included in NACE.

Criteria for groups and divisions
44. Unlike for classes, the actual production process and technology used in production activities become less important as a criterion for grouping them at more aggregated levels. At the highest level (sections), the general characteristics of the goods and services produced, as well as the potential use of the statistics, for instance in the SNA and ESA framework, become an important factor.

45. The main criteria applied in delineating groups and divisions of NACE concern the following characteristics of the activities of production units: n the character of the goods and services produced, n the uses to which the goods and services are put and n the inputs, the process and the technology of production.

46. In the case of the character of the goods and services produced, account is taken of the physical composition and stage of fabrication of the items and the needs served by them. Distinguishing categories of NACE in terms of the nature of goods and services produced provides the basis for grouping production units according to similarities in, and links between, the raw materials consumed and the sources of demand and markets for the items.

47. The weight assigned to the criteria described above varies from one category to another. In a number of instances (for example food manufacturing, the textile, clothing and leather industries, machinery and equipment manufacturing, as well as the service industries) the three specific aspects are so closely related that the problem of assigning weights to the criteria does not arise. In the case of intermediate products, the physical composition, as well as the stage of fabrication of the items, were often given the greatest weight. In the case of goods with complicated production processes, the end use, the technology and the organisation of production of the items are frequently given priority over the physical composition of the goods.

4.3 Steps for proposing new NACE codes

  1. Initiation of revision and suggestions for changes (revision every 15 years)
    a. The revision is coordinated by Eurostat with aid of a task force.
    b. A consultation process takes place in order to determine which trends should be reflected by the NACE. In this consultation process NSIs, the European Commission DGs, commission services, European industry federations and the European System of Central Banks are asked to provide input.
  2. Submission of proposed changes
    a. Proposals that Eurostat receives are sent to members of the Revision Task Force.
  3. Evaluation of proposals and decision
    a. Evaluation steps:
    i. Internal EU consultation: sometimes topic experts are consulted on the proposals (for example, in the past researchers from the Joint Research Centre were consulted over a proposal for bio-based NACE codes).
    ii. The NACE Revision Task Force provides feedback and discusses controversial proposals in the Task Force meetings. The Task Force might also make recommendations for how to improve the proposals. The Task Force also revises the existing implementation manuals. 
    1. Feedback positive → proposal is accepted
    2. Feedback mixed → Eurostat decides or further discussion
    iii. The draft of the new NACE will be sent out for consultation in the second half of 2021.
    b. Evaluation criteria:
    i. Feasibility: can the codes be implemented in practice? The implementation of such codes should also be thought through and laid out in the proposals. For example: how is a company that produces bio-based and non-bio-based products registered? How do you determine whether a company is bio-based or not? Based on the feedstock, process or products?
    ii. Relevance: another important criterion in practice is the societal/policy relevance of the proposed code.
    iii. Volume: volume is also important, as small Member States might otherwise face confidentiality issues.
  4. Publication and implementation
    a. Legal procedure: the time needed for the legal procedure will depend on the necessary impact assessment and EU decision procedure, which can only be defined when more concrete information is available on the changes envisaged.
    b. The latest revision of the NACE is expected to be implemented and come into force in 2024.

4.4 Interrelation with other codes

PRODCOM. The first four digits of the PRODCOM codes are taken directly from the NACE classification.

ISIC. The ISIC revision takes place simultaneously with the NACE revision. ( In this international revision the EU is also represented by Eurostat and two Member States. If proposals entail changes to the first two digits of the NACE, these have to be implemented on the international level by the UN in the ISIC. Changes decided internationally for the ISIC also need to be implemented in the PRODCOM. For example, the current ISIC revision was mandated by the UNSC in March 2021 and the revised ISIC is scheduled to be adopted by the UNSC in December 2022.

It is important that changes to the NACE and the EGSS (Environmental accounts on the Environmental goods and services sector) are aligned (e.g. through co-ordination between the task forces). For instance, if one classification provides an improved coverage for the circular economy, this should also be reflected in the other.

Sometimes Eurostat might decide to wait for the revision of CN codes and PRODCOM codes to follow their definitions.

4.5 Recommendations for proposing new NACE codes

If activities involving the production of bio-based materials and products were classified separately from non-bio-based activities on industry level via separate NACE codes, it would be easier to monitor the development of the bio-economy. However, in practice bio-based and non-bio-based products are often still produced in the same production facilities using similar processes which makes it more difficult to distinguish them and for companies to be allocated to either industry.

  • Consider whether the proposed code actually represents a separate industry with separate production processes and facilities or whether these remain the same and it is merely the inputs that change. In the latter case it would make more sense to propose new codes at the product level.
  • Consider and engage with industry, some sectors might be more open and receptive to such changes than others. If an industry is positive it strengthens the case for a new NACE code.
  • It is crucial that proposals are very clear and introduce the topic and relevance, as Task Force members review proposals related to many different topics and are thus probably not experts in the field the new code relates to.
  • Proposals should clearly indicate which structural changes or splits they aim at. (For example, name the code that should be added or describe which codes should be merged).
  • Highlight codes from other classifications that are closely related to the proposed NACE code.