What does Green GDP mean?
Throughout history, a country’s economic growth has been mainly measured by Gross Domestic Product (GDP), which is the sum of a nation’s consumptions, investments, net exports and imports, and government spending. Later on, economists developed other metrics for evaluating growth, including GDP per capita and Gross National Income (GNI). Recently, a new concept of assessing GDP growth has emerged. The term is referred to as “Green GDP”. The difference is that Green GDP takes into account the environmental costs and depletion of natural resources in its calculation. To break down further, these costs comprise air pollution, deforestation, and loss of biodiversity. By including the sustainability aspect, Green GDP presumably provides a more comprehensive landscape of countries’ economic growth. (SEEA, n.d.)
Components of Green GDP
The formula for Green GDP is calculated as
Green GDP = GDP – Environmental Costs – Social Costs
The components of environmental costs tend to vary based on the decisions of economists, but they typically include the depletion of natural resources such as coal, oil, and natural gas. The degradation cost of the ecological environment such as water pollution and extinction of wildlife also contributes to the formula. Finally, some economists even consider the restoration cost of natural resources, e.g. waste recycling, wetland restoration, and afforestation. Meanwhile, the social costs are normally poverty or additional spending on healthcare caused by environmental downgrade. After deducting these costs, we will have a sustainable GDP figure, representing economic growth that does not compromise environmental and societal resources for future generations. (BYJUS, n.d.)
Why Green GDP is used more recently
Source: https://www.frontiersin.org/journals/environmental-science/articles/10.3389/fenvs.2024.1459764/full
Firstly, Green GDP is a more reliable measure of a nation’s economic health, mainly because it factors in the negative externalities of production, which can be a huge concern for any economy in the long run. The move to incorporate Green GDP in standard reporting practices may also encourage businesses to adopt sustainable measures such as limiting carbon emissions by implementing the widespread use of electric vehicles, such as Vinfast, or using renewable resources like windmills and solar panels to generate energy. Secondly, using Green GDP will incentivize investors to put more funds into these environmentally friendly resources, further helping the economy achieve sustainable growth. Governments can also refer to the Green GDP as a guidance to impose policies that align with their sustainable development goals (SDGs). For instance, they can set a benchmark for their Green GDP target rate, and then deduce the required carbon tax policy for each company. This will steer businesses from their goal of short-term maximizing shareholder value toward optimizing long-term societal value. (Zheng and Chen, 2024)
Why the metric may not be useful
Again, no single method or metric is perfect, and it is the same with Green GDP. It is extremely difficult to come up with a precise evaluation of natural resource depletion since different types of resources have various rates of restoration, depending on environmental conditions, and seasons, thus requiring a large amount of data to extract. Additionally, acquiring the data available for measuring environmental damage can be a huge challenge in developing countries. This is because these nations’ technology is limited, not to mention the complicated red tape that the data has to go through to get validated by officials. Therefore, the collected data can be skewed in favor of self-interested parties. Moreover, developing countries often experience exponential economic growth caused by damaging the environment due to the mass production of factories and plants working at full capacity. As a result, a country that has a high GDP may still have a low Green GDP after deducting other costs, leading to potential misleading comparisons for economists. (SEEA, n.d.) For example, China attempted to incorporate the use of Green GDP in the early 2000s to account for the environmental and social damage it suffered during its industrialization. However, it was shortly removed due to political issues surrounding the accuracy of the measures and the environmental damage was controversial.
In the end
Green GDP remains a promising approach that considers the sustainability aspects that the standard GDP ignores. Countries can definitely rely on it to measure and keep track of pollution and other negative externalities that are caused by economic growth. Nonetheless, debates have sparked whether the metric truly represents a country’s sustainable economic growth, especially when politics and data reliability are huge barriers coming into play. Despite the challenges, governments should adopt the global use of the metric, prompting more sustainable policies to combat climate change.
References
BYJUS (n.d.). Green GDP: Definition and Rationale for UPSC Environment and Economy. [online] BYJUS. Available at: https://byjus.com/free-ias-prep/green-gdp/ [Accessed 3 Dec. 2024].
SEEA (n.d.). The Quest for Green GDP | System of Environmental Economic Accounting. [online] seea.un.org. Available at: https://seea.un.org/events/quest-green-gdp [Accessed 3 Dec. 2024].
SEEA (n.d.). The Rise, Fall and Rethinking of Green GDP | System of Environmental Economic Accounting. [online] seea.un.org. Available at: https://seea.un.org/news/rise-fall-and-rethinking-green-gdp [Accessed 5 Dec. 2024].
Zheng, X. and Chen, Y. (2024). A Better strategy: Using Green GDP to Measure Economic Health. Frontiers in Environmental Science, 12. doi:https://doi.org/10.3389/fenvs.2024.1459764.