Green GDP: The Way Forward

The Environment and Economics

Most people would assume that good economic theories never take the environment into consideration. After all, aren't economic models all about output, capital or growth? 

Wasn't Economics just about the economic man, and not about trees or birds? 

Not one bit. Good economic policies have always been ecologically conscious. Every forward looking idea must be sustainable. By sustainable we mean that it must put forward a manner of using resources that leaves enough for future generations. Good policies must last longer than men & women themselves. We cannot continue cutting down trees for more area for cultivation. We also cannot continue to pollute rivers and oceans just because we cannot manage the industrial waste. These trends have to go someday, because they are unsustainable. Good economic policies must think about the environment and not just about the people they are affecting. Environmental Economics is the branch of economics that deals with all these issues. It tries to understand the costs and benefits of environmental laws.

Natural Capital

What Nature provides us is called Natural Capital. Natural Capital includes all the parts of our surroundings that can give us returns in the future. For example, lakes can provide fishing grounds for hundreds of years. Trees can provide food and habitat. Plants can cool homes and prevent the soil from eroding away. A large population of snakes keeps rats from multiplying. All these are Natural Capital.

Natural Capital can also cleanse the environment to make it cleaner. Trees remove carbon-dioxide from the air and supply oxygen. The branches and leaves on the trees catch dust and flying particles, they leave the air cleaner. Vultures eat dead decaying animals and worms consume rotton fruits. Bacteria can break down almost all types of organic matter. These creatures help clean up the environment.

 Natural Capital unlike Physical Capital is not always renewable. It takes thousands of years for trees to become fossil fuel. Most components of our eco-system work together, hence the value of Natural Capital is only evident in the larger picture. Ecological Economics is the branch of economics that considers the economy as a small part of the environment and emphasises the role of natural capital.

The GDP is all wrong!!!

Physical Capital like machinery, houses and transportation vehicles lose value year by year due to wear and tear. Economist's call this Depreciation. The Traditional GDP does consider this wear-and-tear loss. But what about the wear and tear of aquifers, watersheds and forests?  What about the degradation of ponds and lakes? The Traditional GDP cannot account for this depriciation because it does not consider Natural Capital at all!!!



Recently Beijing was in the news for emitting a lot of excess pollution. Now rising pollution would lead to failing health. Failing health would lead to a rise in the incomes of hospitals and the Chinese pharmaceutical industry. Hence the Traditional GDP would assume that hospitals are contributing more to the Chinese national income. However, as we can notice- the rise in expenditure on medicine was caused due to a rise in pollution. Thus this 'increase in medical expenditure' should be considered under 'damage to environment'. This rearrangement would not be necessary in the Green GDP. 


Sustainable Development Indicators are those macro-variables that tell us whether a particular venture is equally helpful for both current and future generations. The Green GDP can be considered one of the most important indicator of sustainable development. The Traditional GDP is hardly even relavent for sustainability. It overlooks the unsustainable methods of production and does not account for the loss of productivity in the future. Cutting the entire forest down to make furniture would result in a high rise in the Traditional GDP but it also prevents future generations from enjoying the benefits of the forest.

The GDP is very much used in political debates and discussions. Focusing on the Traditional GDP diverts the energies of policy makers and general public in a direction that does not necessarily go in line with the environment. Politicians aim for high Traditional GDP growth which is not necessarily a beneficial thing.

What is the Green GDP? 

The Green GDP is a part the SEEA (System of Environmental & Economic Accounts). The SEEA provides us with a lot of information and although it is a very recent development (1993) it tells us a lot about our interaction with the environment. It tells us the quantity of pollution that was emitted last year. The amount of energy, water and fuel that the country uses is also measured in the SEEA. The SEEA also includes the cost of environment deterioration in money terms. Out of many indicators, the Green GDP is the value of all production activity deducting the cost of environment damage. It presents a truer picture of our production, income and expenditure. It tells us if our total wealth is increasing or decreasing.

The Green GDP is instrumental in directing the focus of our policymakers and economists towards a greener ideology. The Green GDP is the actual amount of output that our private and public sector create. If we are trying to raise the production of goods and services at the cost of polluting rivers and cutting down trees, then the Green GDP will be low. On the other hand, if we use newer & cleaner technologies to raise the production of goods and services and at the same time manage our waste; the Green GDP will be high. The Green GDP is the future of the GDP, and it is surprising that it has taken so long to be recognised. Only in 2012 was the SEEA made an international standard by the UN, which means it has a similar status as the traditional GDP. 

A future made sustainable 

Although the future rests on many developments yet to come, the Green GDP is the logical next step. The countries of Germany, Norway and Sweden all try to account for environmental degradation. Soon they will be able to provide us with their Green GDP measures. Once public policy follows public sustainability the future becomes largely secure. At present, it is far from secure. We have many issues to tackle- war, famine, hunger- and the Green GDP is definitely a way forward. It could change the way we perceive our everyday lives! Individuals like you and me, might be able to understand the true cost of our actions and their repercussions on nature. We might be able to follow a lifestyle that goes hand in hand with nature's resources. 

Paul Erlich -

"We must acquire a lifestyle which has as its goal maximum freedom and happiness for the individual, not a maximum Gross Domestic Product"

Confucius -

"The future generation is the most important thing"

Terri Swearingen -

"We are living on this planet as if we had another one to go to"