Green gross domestic product

The green gross domestic product (green GDP or GGDP) is an index of economic growth with the environmental consequences of that growth factored into a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators (such as "waste per capita" or "carbon dioxide emissions per year"), which may be aggregated to indices such as the "Sustainable Development Index".

Calculating green GDP requires that net natural capital consumption, including resource depletion, environmental degradation, and protective and restorative environmental initiatives, be subtracted from traditional GDP. Some early calculations of green GDP take into account one or two but not all environmental adjustments. These calculations can also be applied to net domestic product (NDP), which deducts the depreciation of produced capital from GDP. In each case, it is necessary to convert the resource activity into a monetary value, since it is in this manner that indicators are generally expressed in national accounts.

The motivation for creating a green GDP originates from the inherent limitations of GDP has as an indicator of economic performance and social progress. It only assesses gross output, and does not have a mechanism for identifying the wealth and assets that underlie output. This is problematic because it cannot account for permanent or significant depletions or replenishment of these assets. Ultimately, GDP has no capacity to identify whether the level of income generated in a country is sustainable. Richard Stone, one of the creators the original GDP indicator, suggested that while "the three pillars on which an analysis of society ought to rest are studies of economic, socio-demographic and environmental phenomenon," he had done little work in the area of environmental issues.

In particular, natural capital is poorly represented in GDP; resources are not adequately considered as economic assets. Relative to their costs, companies and policy makers also do not give sufficient weight to the future benefits generated by restorative or protective environmental projects. As well, the important positive externalities that arise from forests, wetlands and agriculture are unaccounted for or otherwise hidden because of practical difficulties around measuring and pricing these assets. Similarly, the impact that the depletion of natural resources or increases in pollution can and do have on the future productive capacity of a nation are unaccounted for in traditional GDP estimates.

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