Green GDP considers negative externalities such as environmental degradation, depletion of natural resources, and savings of resources and environment into the national income accounts.
- Origin: In 1993, United Nations published Handbook of National Accounting: Integrated Environmental and Economic Accounting as an interim report.
- System of Environmental-Economic Accounting (SEEA) offered a new type of accounting which measured the environment and its relationship with the economy.
- It focused on monetary valuation of natural resources, allowing the cost of natural resource depletion and environmental degradation to be subtracted from gross domestic product.
- In particular, the handbook advocated compilation of an ‘environmentally adjusted domestic product’—also known as ‘green GDP’.
- However, Green GDP focused only on deducting the cost of depletion of natural resources from GDP. This necessitated a paradigm shift.
RBI’S OUTLINE OF GREEN GDP ESTIMATION
Green GDP = GDP – (Carbon dioxide damage + particulate emission damage) – (Opportunity cost of energy depletion + mineral depletion + net forest depletion) + Expenditure on environmental protection
INITIATIVES
- Natural Capital Accounting and Valuation of Ecosystem Services (NCAVES) project was launched in 2017 by United Nations (UN) and European Union to enhance knowledge and accounting processes for ecosystem accounting as per the SEEA framework.
- The project initially started in five countries - Brazil, China, India, Mexico and South Africa were chosen on account of the importance of the natural capital in these countries, the presence of diversity of ecology and biodiversity and the commitments of these countries to Convention on Biological Diversity (CBD).
- Ministry of Statistics and Programme Implementation (MOSPI) initiated the compilation of environmental accounting under the NCAVES. Primary aim was to provide an estimation of India’s stock and flow of natural assets, as per the SEEA.
- Accounting estimates include an estimation for land, forest, wetlands, and also the quality of land, soil, water, crop diversity and forest cover.
ENVIRONMENTAL KUZNETS CURVE
- Explains the systematic relationship between environmental degradation and economic growth. It reflects the trajectory of pollution witnessed in a country as part of process of economic development.
- Argues that in the initial phases of economic development, there seems to be a positive relationship between pollution level and per capita income. Beyond a certain threshold of per capita GDP, however, economic growth allows for environmental remediation, thus leading to decline in pollution.
- This relationship is reflected by a bell-shaped curve that relates economic growth to environmental degradation.
