Green gross domestic product

The green gross domestic product (green GDP or GGDP) is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators (such as 'waste per capita' or 'carbon dioxide emissions per year'), which may be aggregated to indices such as the 'Sustainable Development Index'.'there is a more fundamental problem with green GDP, which also applies to Nordhaus and Tobin's SMEW and to the ISEW/GNI indices. None of these measures characterize sustainability per se. Green GDP just charges GDP for the depletion of or damage to environmental resources. This is only one part of the answer to the question of sustainability.' The green gross domestic product (green GDP or GGDP) is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators (such as 'waste per capita' or 'carbon dioxide emissions per year'), which may be aggregated to indices such as the 'Sustainable Development Index'. Calculating green GDP requires that net natural capital consumption, including resource depletion, environmental degradation, and protective and restorative environmental initiatives, be subtracted from traditional GDP. Some early calculations of green GDP take into account one or two but not all environmental adjustments. These calculations can also be applied to net domestic product (NDP), which deducts the depreciation of produced capital from GDP. In each case, it is necessary to convert the resource activity into a monetary value, since it is in this manner that indicators are generally expressed in national accounts. The motivation for creating a green GDP originates from the inherent limitations of GDP has as an indicator of economic performance and social progress. It only assesses gross output, and does not have a mechanism for identifying the wealth and assets that underlie output. This is problematic because it cannot account for permanent or significant depletion or replenishment of these assets. Ultimately, GDP has no capacity to identify whether the level of income generated in a country is sustainable. Richard Stone, one of the creators the original GDP indicator, suggested that while 'the three pillars on which an analysis of society ought to rest are studies of economic, socio-demographic and environmental phenomenon', he had done little work in the area of environmental issues. In particular, natural capital is poorly represented in GDP; resources are not adequately considered as economic assets. Relative to their costs, companies and policy makers also do not give sufficient weight to the future benefits generated by restorative or protective environmental projects. As well, the important positive externalities that arise from forests, wetlands and agriculture are unaccounted for or otherwise hidden because of practical difficulties around measuring and pricing these assets. Similarly, the impact that the depletion of natural resources or increases in pollution can and do have on the future productive capacity of a nation are unaccounted for in traditional GDP estimates. The need for a more comprehensive macroeconomic indicator is consistent with the conception of sustainable development as a desirable phenomenon. GDP is mistakenly appropriated as a primary indicator of well-being, and as a result, it is used heavily in the analysis of political and economic policy. Green GDP would arguably be a more accurate indicator or measure of societal well-being. Therefore, the integration of environmental statistics into national accounts, and by extension, the generation of a green GDP figure, would improve countries' abilities to manage their economies and resources. Many economists, scientists and other scholars have theorized about adjusting macroeconomic indicators to account for environmental change. The idea was developed early on through the work of Nordhaus and Tobin (1972), Ahmad et al. (1989), Repetto et al. (1989), and Hartwick (1990). In 1972, William Nordhaus and James Tobin introduced the first model to measure the annual real consumption of households, called the Measure of Economic Welfare (MEW). MEW adjusts GDP to include the value of leisure time, unpaid work and environmental damages. They also defined a sustainable MEW (MEW-S) value, and their work was the precursor to more sophisticated measures of sustainable development. Repetto further explored the impact that the failure of resource-based economies to account for the depreciation of their natural capital could have, especially by distorting evaluations of macroeconomic relationships and performance. He and his colleagues developed the concept of depreciation accounting, which factors environmental depreciation into 'aggregate measures of economic performance'. In their seminal report, 'Economic Accounting for Sustainable Development', Yusuf Ahmad, Salah El Serafy and Ernst Lutz compiled papers from several UNEP-World Bank sponsored workshops, convened after 1983, on how to develop environmental accounting as a public policy tool. The central theme of all of the authors' arguments is that the system of national accounts (SNA), as it traditionally calculates income, omits important aspects of economic development that ought to be included. One important disagreement on environmentally adjusted indicators is presented by Anne Harrison and Salah El Serafy in their respective chapters. Harrison argues that appropriate adjustments ought to be made within the existing SNA framework, while El Serafy suggests a redefinition of what constitutes intermediate and final demand. In his view, the SNA should not consider the sale of natural capital as generating value added, while at least part of the income generated from this sale should be excluded from GDP and net product. This would effectively allow GDP to continue to be used extensively.