Green Gross Domestic Product also known as Green GDP, accounts for the environmental consequences of a country’s traditional GDP. It acts as an index of the growth of economy with the environmental implications of that growth which is related to a country’s conventional GDP. Green GDP tells us the biodiversity that is lost from a country and costs associated with climate change.
The reason why green GDP was evolved is that the conventional GDP has many limitations and cannot indicate the performance of economy and social progress effectively. The traditional GDP only calculates the gross output and by no means can find out the factors which are detrimental to the economy factors such as asset and wealth. This phenomenon creates problem as there is no accountability as to which factor is leading to the filling and depleting the resources. GDP also fails to answer if the present income levels are going to be stable in the long run or not. The original makers of the GDP concept himself said that “the three pillars on which an analysis of society ought to rest are studies of economic, socio-demographic and environmental phenomenon” he had worked the least in the environmental pillar.
The various national resources are not clearly undertaken as assets in the GDP, under the similar note the impact of depletion of resources and increased pollution on the future of productive capacity of a nation is not considered. All these factors worked together for the need of a better indicator of economic conditions and that would give the true sentiment of the resources and their usage under the guidelines of sustainable development. Hence the idea of green GDP was conceived and theoretically it was able to answer all the questions that were not possible to be answered by the conventional GDP. Green GDP was thought as an accurate assessment tool for the economy.
When it comes to green accounting, there is a tendency to believe that a monetary value will be put on the natural resources. Just like companies have assets like machines and factories, nations also have assets like mountains, forests, rivers and oceans. However, assets usually denote private ownership. That is the reason they have value in the first place. In the absence of private ownership, these assets cannot be transferred to other people and hence they would not have any value. Economic assets like oceans, mountains and forests do not have private ownership. These are public goods that can be enjoyed by everyone at no cost. Hence, valuing these assets and including them in a national balance sheet would not make any sense. Also, on a realistic level it is not possible to count each and every asset and attach a monetary value to it. It must therefore be clear that green GDP is not about building fictitious assets in a country’s balance sheet and this is generally excluded from any calculation.
Among the various countries of the world, China is the only nation that has majorly used the concept of Green GDP to measure the viability of its economy. The then Chinese Premier Wen Jiabao in 2004 informed the whole world that the green GDP concept would be soon replacing the traditional GDP as a measure of financial condition of the country. When Chinese reported their financial report in 2006, they used the green GDP and showed a major loss caused due to pollution as high as $66 Billion US which accounted for nearly 3 percent of the national economy. Now as the Chinese continued using the green GDP concept they found out that the economic growth of the country has took a nose dive and was nearly zero in few provinces owing to which the Chinese government stopped the use of the green GDP in 2007 and reverted back to using the normal GDP concept. Many independent organizations estimated that due to degradation of environment and depletion of resources from past decades have led to 8-12 percentage points of Chinas GDP growth. According to these estimates the Chinese economy actually had grown by zero if they had used the Green GDP concept.
India has shown the most promising country to work on the concept of green GDP and the then country’s environmental minister, Jairam Ramesh stated that it was possible for the scientists to estimate green GDP of India. Following that lines a practice was started in India headed by chief statistician of India Pronab Sen and was declared that the India’s GDP number will be adjusted accordingly so as to get an idea of country’s green GDP. As far as the world is considered, No country in the world uses the green GDP concept as a viable indicator to economy any more.
Challenges Facing Green GDP
The biggest challenge facing the Green GDP is that of realistic accounting. Since we are essentially measuring the intangible, it is very difficult to estimate the monetary values associated with them. The Green GDP system is not perfect. However, it is developing. Many scholars and researchers are working towards a solution wherein Green GDP can become more pragmatic and realistic. The idea is to ensure that the flaws of the GDP system are not replaced by another flawed system. The process might take time but seems to be on the right track.