Green GDP


Green GDP (GGDP)

  1. Meaning
    1. Green GDP is a term used generally for expressing GDP after adjusting for environmental damage.
      • It has become increasingly relevant in contemporary times.
    2. It excludes assets (like oceans, mountains and forests) that do not have private ownership.
      • It is difficult to set a monetary value of such assets.
    3. It includes the services which are provided by the environment and the savings they afford in monetary terms.
      • For instance, if any geographical region has a better quality of water than other regions, the people in this region are expected to live healthier and more productive lives. There is a tangible and measurable cost attached to the medical expenses associated with bad water or polluted air.
    4. Most importantly Green GDP includes a depletion analysis.
      • This is the document which explains whether the natural resources are being used sustainably.
      • Unsustainable use of natural resources would therefore scare investors away.
  2. Environmental Accounting
    • When information on economy’s use of the natural environment is integrated into the “System of National Accounts”, it becomes “Green National Accounts” or “Environmental Accounting”.
    • An ‘Expert Group’ led by Prof. Partha Dasgupta was established in 2011 to work out a framework for green national accounts in India. Submitted report in 2013.
    • The expert group recommended that economic evaluation be made on the basis of a comprehensive notion of wealth, including aspects such as infrastructure and capital equipment, human capital and natural capital.
    • The process of developing “Green National Accounts”, which was supposed to culminate in 2015, is yet to be completed.
  3. Why the delay in releasing ‘Green GDP’ figures
    1. Data deficit
      • Lack of sufficient micro level data on ‘natural capital’. For eg. there is no information on issues such as the total volume of surface water or the different sectors where water is used and the quantum used.
      • Moreover, the complexity of the exercise makes it extremely time-consuming.
    2. Affects ‘growth perception’ = lack of political will
      • Accommodating environmental costs (or Green GDP) in the traditional GDP (which ignores them) will lower the growth rate, thereby affecting investor sentiment and future growth. This will invariably affect the political fortunes of the ruling parties.
  4. Issues with the conventional methods of GDP estimation
    1. It does not consider the value of ‘ecosystem services’ lost
      • The environment generates a range of ecosystem services such as
        • provisioning services (food, irrigation, drinking water),
        • regulating services (climate regulation, water quality regulation),
        • cultural services (recreational and religious services) and
          supporting services (nutrient recycling, soil formation).
      • Identifying and quantifying them for the purpose of damage assessment is a difficult task in the absence of relevant data.
        • Billions of households and economic activities utilise these ecosystem services for production and consumption.
        • Though economically highly valuable, these are not traded in the markets and, therefore, their true values are not reflected in the system.
      • At present, the price of a commodity covers only the private cost of production, not the damage cost.
        • This makes the commodity relatively cheaper, thus inflating the demand and consequently the environmental damage cost.
    2. It treats the environmental damage cost as ‘income’
      • For example, when people get sick due to degraded environment, the medical expenses are treated as ‘income’ of the medical service providers.
      • This expands the GDP at the cost of ‘public welfare’.
      • This snowballs into other problems like impoverishment, debt-traps, rising income-inequalities, fiscal burden on govt, etc.
  5. History and status of environmental accounting in India
    • A Framework for the Development of Environmental Statistics (FDES) was developed by the Central Statistics Office (CSO) of India in the early 1990s.
    • Following the guidance of International Organisation of Supreme Audit Institutions (INTOSAI), the CAG conducts environmental audit in India since 2002.
    • Thus, in India, Environmental audit is conducted within the broad framework of Compliance Audit and Performance Audit at the central level by the CAG and by the state Accountant Generals (Audit) at the state level.
  6. The externalities of economic growth that are not factored into the conventional GDP numbers have a massive monetary value.
    • According to World Bank, in 2013 India suffered a loss of over 8.5% of GDP, just as a result of air pollution. The economic cost of other impacts, such as water pollution and land degradation, etc would be much more.
    • WWF’s ‘Living Planet’ Report finds that 25% of India’s total land is undergoing desertification, while 32% is facing degradation. Thus, India could see a 10-40% loss in crop production by the end of the century.
  7. Global experience
    • Countries such as China and Norway have already experimented with green accounting.
    • China launched the process in 2004, only to drop it in 2007. Factoring in environmental costs had a significant impact on the country’s perceived “economic growth”, resulting in a hasty departure.
  8. Why have GGDP
    • Interrelationship between market and nature
      • Natural resources fuel market growth and excessive market growth has the potential to destroy natural resources. Unless managed properly this relationship can turn unsustainable.
    • Comparison across peers and periods
      • GGDP will enable more accurate (environmentally) predictions and analysis of economic performance.
    • Accountability
      • The earth has got a limited carrying capacity. Without a fair and universal indicator environmental catastrophe is imminent as policymaking will remain environmentally insensitive.
  9. Challenges facing GGDP
    • Realistic accounting
      • Since we are essentially measuring the intangible, it is very difficult to estimate the monetary values associated with them.
    • Lack of political will
      • Policymakers fear that a bad GGDP score will scare investors away.
  10. Conclusion
    • The Green GDP system is not perfect. However, it is developing. Many scholars and researchers are working towards a solution wherein Green GDP can become more pragmatic and realistic.
    • Instead of pushing for ‘highest-attainable’ growth rate (as per the extant methodology), it is better to target 5-6% growth with strict environmental regulation.