Sooner or later the hidden long-term Costs of Environmental Degradation will be factored into our measures of Economic progress. There is no way around it.
Some serious Environmentalists are arguing that that day should be now.
Environmental factors must be included in GDP, say scientists
by Will Nichols, businessgreen.com -- 20 Feb 2012
Countries must move beyond tracking economic growth using measures of gross domestic product (GDP) and incorporate environmental and social dimensions into a new measure of wealth if they are to avoid an escalating series of climate, biodiversity and poverty crises.
The group will also call for the removal of fossil fuel subsidies, worth an estimated $409bn a year globally, as well as the end of support for traditional transportation and agricultural methods that do not account for their environmental costs.
"The immense environmental, social and economic risks we face as a world from our current path will be much harder to manage if we are unable to measure key aspects of the problem," the paper says.
The call comes after UK environment minister Caroline Spelman last week said the country will work to secure an assurance that all businesses and governments begin work to incorporate natural capital into their accounting practices, a metric she called GDP+, at the Rio+20 conference later this year.
Imagine a farmer who did not follow the seasons. That farmer would be "out of business" in short order.
Imagine a society who did not acknowledge a changing climate. That society will suffer the consequences of their willful ignorance, in a few short decades.
Here are some serious Environmentalists suggestion some alternate measures to supplement our traditional GDP gauge on the health of the Economy. If the Planet is changing, maybe the Planet's inhabitants need to change too. Maybe those metaphorical farmers should take note too.
Beyond GDP: The Need for New Measures of Progress (pdf)
The Pardee Papers / No. 4 / January 2009
[... pg 10]
Other Ways to Measure Progress
A number of ways of measuring national-level progress have been proposed, developed, and used to address this growing realization that GDP is a measure of economic quantity, not economic quality or welfare, let alone social or environmental well-being. The measures also address the concern that GDP’s emphasis on quantity encourages depletion of social and natural capital and other policies that undermine quality of life for future generations.
[... pg 11]
Indexes that ‘Correct’ GDP
Some alternative indicators of economic well-being use the national accounts and GDP as the foundation and then add or subtract quantities in an attempt to address some of the issues discussed above. These include the Index of Sustainable Economic Welfare, the Genuine Progress Indicator, Green GDPs, and Genuine Wealth.
[... pg 12]
Sustainable Economic Welfare
The Index of Sustainable Economic Welfare (ISEW), later revised and renamed the Genuine Progress Indicator (GPI), is a measure that uses GDP as a foundation. It was first proposed in 1989 by Daly and Cobb in their book For the Common Good as “a way of measuring the economy that will give better guidance than the GNP to those interested in promoting economic welfare” (Daly and Cobb 1989, 401). [...] Daly and Cobb wanted an index that accounted for both current environmental issues and long-term sustainable use of natural ecosystems and resources.
[...] “Both the GPI and ISEW use the same personal consumption data as GDP but make deductions to account for income inequality and costs of crime, environmental degradation, and loss of leisure and additions to account for the services from consumer durables and public infrastructure as well as the benefits of volunteering and housework.
[... pg 13]
Numerous attempts have been made to develop Green GDPs -- GDPs that factor estimates for environmental degradation and depletion of natural resources into the national income accounts to arrive at a single number.
[... pg 14]
Genuine Savings (GS) was developed for the World Bank (World Bank 1997) and is defined as “the true level of saving in a country after depreciation of produced capital; investments in human capital (as measured by education expenditures); depletion of minerals, energy, and forests; and damages from local and global air pollutants are taken into account” (Hamilton, Ruta et al. 2006, xv). This includes the value of global damages from carbon emissions.
[... pg 15]
Indexes that do not use GDP
Some alternative indexes do not measure economic activity; rather, they measure environmental or social activities, well-being, or changes in environmental, social, or human capital.
The Ecological Footprint (EF) was developed by Mathis Wackernagel and William Rees as a way to account for flows of energy and matter into and out of the human economy and convert those flows into a measure of the area of productive land and water required to support those flows (Wackernagel and Rees 1996). The EF is intended to be used as a resource management tool for assessing whether and to what extent an individual, city, or nation is using available ecological assets faster than the supporting ecosystems can regenerate those assets.
Those measurements sound smart. A smart society would be wise to implement some of them. Environmental Costs unmeasured, can be expensive.
Case in point, here some "Economic-Environmental Footprints" that have stepped-on our GDP already -- and those hidden costs that ARE REAL. They are an "economic signal" being sent by our ever-changing climate system, alarms with ever more frequency and severity. These are the impact of Extreme Weather Events and the GDP-negating aftermath they leave behind, once the dust has cleared:
Four global warming impacts alone -- hurricane damage, real estate losses, energy costs, and water costs -- will come with a price tag of 1.8 percent of U.S. GDP, or almost $1.9 trillion annually (in today's dollars) by 2100.
That is quite the "hidden investment" into the future: $1.9 Trillion a year in clean-up costs related to those not-so-trivial "Economic-Environmental Footprints." Some people like to rail against Cap and Trade, and any sort of Carbon Tax, but like it or not, those "extra fees" are being assessed one way or another. Assessed by a planet that does have its humanity-favoring limits. Just ask your local farmers.
Like it or not, ignore it or not, our diverse, changing Planet is extracting its "environmental costs" irrespective of whether they are directly measured by our quaint thermometer called the GDP, or not. Changing Environmental factors like:
Migrating Insect Pests
People without adequate Food
People without adequate Water
People without Opportunity
Natural Resources that have been tapped out
Such are the surcharges of society's environmental ignorance.
Like it or not, these little-measured "Environmental Costs" do have a NEGATIVE effect on our simpleton measure of Progress, otherwise known as the GDP. When you look at it, the GDP is really quite the simple calculation:
Gross domestic product
Gross domestic product (GDP) refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living; [...]
GDP can be determined in three ways, all of which should, in principle, give the same result. They are the product (or output) approach, the income approach, and the expenditure approach.
"Market value of all final goods and services calculated during 1 year."
"Sum total of incomes of individual living in a country during 1 year."
"All expenditure incurred by individual during 1 year."
In economics, most things produced are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production.
"Goods and services, individual incomes, individual expenditures" -- What about the legions of farmers who's crops consistently fail? What about legions of home-owners being displaced by floods, fires, and storms? Who can put a price tag on such wealth-erasing disruptions?
What about the ever-increasing costs of food, shelter, and energy for the average citizen?
Do they have a negative impact on GDP? And if so, when will they be addressed as the very real recurring problems, that they are too?
The planet will continue to add "Environmental Costs" to our phantom accounts; the accelerating pace of Extreme Weather Events will continue to pile onto "all expenditures incurred by individual during 1 year"
-- whether we care to measure those ever-larger "footprints" or not.
One of these years, maybe the American people will notice this huge Environmental Surcharge (in the neighborhood of Trillions), that Nature keeps putting on our National Tab.
That mantra of "Limitless Growth" of the last 2 centuries, may indeed have its limits afterall -- especially if we just plow ahead undeterred on the boundless resource extracting course were on. Wagons Ho, Status quo. Full steam ahead. Tap that carbon fuel.
The Laws of Physics do have their "causes and effects" boundaries afterall ... and they are constantly tallying up those Economic Impacts, that will be extracted, someday ...
our quaint measures of Gross Domestic Product economic progress, notwithstanding.