Openness and
Green GDP
John Talberth, Alok K. Bohara (2006)
GDP Failure
• There have been several attempts to develop alternative national income accounting
systems that address these deficiencies. These systems measure is referred to as
green GDP.
• Major objectives→ to provide a more accurate measure of welfare and to gauge
whether or not an economy is on a sustainable time path
• Example of green GDP systems: the Index of Sustainable Economic Welfare (ISEW)
and the Genuine Progress Indicator (GPI).
Green GDP System
ISEW GPI
• Austria • USA
• Chile • Australia
• Germany
• Italy
• the Netherlands
• Scotland
• Sweden
• United Kingdom
Green GDP: 3 Basic Steps
Pros Cons
Pros Cons
Pros Cons
It is not clear that the ISEW, GPI, and its variants are
sufficiently similar to combine in a single multi-country
panel model
“Measures what is valuable about nature, excluding goods and services that are already
captured in GDP, such as nature’s contributions to commercial harvests and other
products.”
WHY MEASURE GREEN GDP
• To see how market consumption affects the consumption of public goods like beautiful
views, clean air, and clean water.
• To track the provision of nature’s benefits over time, either to hold governments
accountable or to compare their environmental conditions with those of another
country.
• To articulate tradeoffs, measure performance, and maximize social well-being.
(impossible to achieve when nature’s contribution to human welfare is not measured.)
MAKING GREEN ACCOUNTING MORE PRECISE –
WHAT SHOULD GREEN GDP COUNT?
• What is enjoyed or consumed - when the beneficial aspects of nature are counted,
nature’s contributions to welfare can be much better described.
PROBLEM FOR PRECISENESS LEVEL OF
GREEN ACCOUNTING
Nature offers plenty of features to count
• Ecology, environmental economics, and the growing field of
green accounting have failed to provide adequate guidance on
what in nature should be counted as defensible measure of
nature’s services
Terminology
• Ecology and economics talk about ecosystem components,
processes, functions, and services—and often in different ways
WHAT ARE ECOSYSTEM SERVICES? THE
5 PRINCIPLES GUIDE
Services are nature’s end products, not everything in nature; only have to count what matters
directly to people.
Count things that can be practically measured and that have concrete meaning to
people
Ecosystem services should be counted with the greatest possible spatial and temporal
resolution.
ROLE OF ECOLOGY
• Green GDP aggregates all final goods • Captures all ecosystem end-products,
and services, including final non-market those counted in green GDP plus
goods and services, into a single index. ecosystem components that are
• Green GDP adds those missing combined with non-ecological inputs to
ecological elements that are directly produce market goods.
enjoyed to GDP. • Comprehensive measure of all nature's
• GDP captures all final goods and contributions to well-being, marketed
services, where “final” refers to the point and non- marketed.
of enjoyment • ESI captures all final ecosystem
services, where “final” refers to the last
contribution of the ecosystem.
A DEFINITION OF ECOSYSTEM SERVICES
A final ecosystem service:
Final ecosystem services are components of nature, directly
enjoyed, consumed, or used to yield human well-being.
•Harvests
Some people don't want to use managed harvests as measure of ecosystem services.
Too many non-ecological inputs affect such harvests. So, they would use the available
population or crop as the ecosystem measure, because the ecosystem itself is
delivering the harvest opportunities.
•Amenities and fulfillment
Recreational benefits and property values, for
example, are influenced strongly by visual amenities. Any
environmentalist can describe the emotional benefits of
contact with nature, as hard as these may be to measure.
An illustrative inventory
•Damage Avoidance
Climate-related damages to natural resources are accounted for already.
Consider the effect of climate-related sea-level rise on beach recreation. If sea-
level rise damages beaches, and thus recreational benefits, that will be captured
in our beach-related ecosystem
service measures.
From units of account to green GDP