Does Green GDP really account for a country’s Growth Rate?

Gross domestic product is a tool adopted by all countries for measuring a country’s growth rate. Does it really measure even the economic growth rate of a country? GDP involves accounting for the monetary value of all the goods and services produced in a particular year. While aiming for increased financial transactions via boosting production and consumption, the world forgot that all of it comes at a cost to the Earth’s environment. It has been long debated that the Gross Domestic Product needs to be replaced with more inclusive real metrics that account for the depletion of Earth resources and measure the sustainable growth along with the costs incurred to the environment.


Green GDP calculation was introduced by Nordhaus and Tobin (1972). Although they didn’t officially name it Green GDP, the method required to adjust GDP calculation to include the value of leisure time, unpaid work, and environmental damages and they termed it MEW (Measure of Economic Welfare). Green GDP goes beyond traditional economic measures by factoring in economic activity’s environmental and human well-being costs. It considers the depletion of natural resources and environmental degradation, giving a more accurate picture of a country’s economic health and sustainability. Furthermore, it must take into account estimating the intergenerational well-being of our future generations.


While technological advancements are often touted as the key to sustainable growth, they often come with a stark trade-off. Increased human productivity and output, fueled by progress, are undeniable. However, this progress takes a heavy toll on the environment and unbridled progress based on greed and money profit.


Calculation of Green GDP would require redefining and adjusting the conventional GDP concerning wealth, production, and consumption and also account for the losses incurred to the environment. Several measures have been adopted to account for the Green GDPs of a country. Different countries have come up with different methods of accounting, however, there is no single substantial method for accounting for Green GDP growth yet. Countries like China, Sweden, the EU, the USA, and India have tried accounting for Green GDP, but have faced complexities. China attempted to publish Green GDP data in 2004 but faced political pushback after an initial report portrayed lower than expected Environmentally-adjusted GDP. This highlights the perceived potential tension between economic growth and environmental well-being. The US has a robust system tracking environmental and economic interactions, providing valuable data but still lacking a unified metric. The EU compiles comprehensive environmental accounts through its member states, yet calculating a Green GDP for the entire union remains elusive.


Meanwhile, Sweden has emerged as a leader in sustainability reporting. It excels on the Global Green Economy Index, which actively monitors progress towards real sustainability, demonstrating a proactive approach to balancing economic and environmental goals. Indian researchers have been diligently pursuing Green GDP metrics, but a standardized approach is yet to be developed. However, the recent estimates released by the Reserve Bank of India’s working paper in 2022 stated the green GDP of India to be somewhere around Rs 167 trillion for 2019. This is almost a 10% reduction compared to nominal GDP 185.8 trillion for the same year. This emphasizes the potential environmental impact of economic activity and the need to consider environmental damage alongside economic benefits.


Hence, looking beyond traditional metrics, a comprehensive understanding of economic health requires meticulous accounting of environmental damage. Therefore, countries need to invest more in nature-friendly expenditure, that is, spending more on technology that reduces negative externality effects from economic consumption and commercialization activities.


With the rapidly accelerating climate crisis, a unified index for measuring the real environmental impact becomes crucial. Bound by the same atmosphere and dependent on the same ecosystems, we humans must acknowledge that any harm to the environment means harm to us! For instance, carbon pollution isn’t just a threat to the environment, it’s hitting us where it hurts: our wallets and wellbeing. Experts warn that every additional ton of carbon dioxide shortens lifespans, hurts crop yields, and raises sea levels. To put a price tag on this damage, economists and climate scientists use the term Social Cost of Carbon (SCC). The Social Cost of Carbon (SCC) is essentially a price tag placed on the damage caused by every extra ton of carbon dioxide we release, reflecting the economic burden of climate change on human health, agriculture, and infrastructure. India faces the world’s highest cost of carbon pollution at $86 per tonne, translating to $210 billion in annual losses. This makes it highly vulnerable to climate change’s economic impact.


As for every problem, there is a solution. In 2010, a consultancy firm called Dual Citizen developed an index named ‘Global Green Economy Index’ (GGEI). The index measures green economic performance of a country. It is calculated for 160 nations and uses 18 underlying indicators, with four main dimensions of Climate Change & Social Equity, Sector Decarbonization, Markets & ESG Investment, and Environmental Health. Several reports provide the basic framework for Green accounting. One of the most famous reports was released by UNDP, titled System of Environmental-Economic Accounting 2012—Experimental Ecosystem Accounting. It is a comprehensive document guiding nations and corporations to adopt a Green GDP calculating system. However, it is high time the nations spring into action and start accounting for their environmental losses before it is too late!


However, all is not lost and we can still compensate for the environmental losses. We must remember “Where there is a will there is a way!” A powerful tool for achieving sustainable growth is a unified Green GDP measurement system. Through international cooperation, nations can establish a common framework that factors in environmental impact alongside economic output. This will give a clearer picture of a country’s true progress, promoting responsible practices and rewarding sustainable development.

~ By Nidhi Tambe, May 2024


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