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Green GDP and India’s Five-Year Plan

Beginning in 2010, India, as part of its five year plan, aims to factor the use of natural resources into its GDP as a means of underscoring its actions in the fight against global warming. And by 2015 the aim is to report on "Green GDP" figures.

Everyone is familiar with the concept of gross domestic product (GDP), which provides a basic measurement of a country’s overall economic performance. While GDP has some merits – it is a great way to measure the size of an economy – it’s a poor measure of welfare. GDP, as it currently measures market transactions, generally fails to include the environment. When it does, the environment tends to fall on the wrong side of the balance sheet; pollution and the mitigation of that pollution alike contribute to the GDP. This paints a picture that environmental degradation actually benefits a country’s economy.

Green gross domestic product, then, or green GDP, measures economic growth while factoring in the environmental consequences, or externalities, of that growth. There are methodological concerns – how do we monetize the loss of biodiversity? How can we measure the economic impacts of climate change due to green house gas emissions? While the green GDP has not yet been perfected as a measure of environmental costs, many countries are working to strike a balance between green GDP and the anachronistic GDP, though the results may be politically and economically unsavory. China is perhaps the most notable example; the country began efforts to track green GDP in 2004. The results were significant – economic loss due to environmental degradation was estimated to exceed $66 billion USD, or more than three percent of the country’s economy. Efforts to track green GDP in China ceased in 2007 – when accounting for green GDP, growth rates were reduced to levels so low that some provinces failed to see any gains.

Beginning in 2010, India, as part of the country’s five year plan, aims to factor the use of natural resources into its GDP as a means of underscoring its actions in the fight against global warming. Despite not being obligated to reduce carbon emissions under the Kyoto Protocol, India is taking unilateral domestic actions to move toward a greener economy and to strengthen the country’s position as a major player in international environmental initiatives.

India’s environmental minister Jairam Ramesh hopes to make “green accounting” a reality as part of India’s governmental policy on economic growth. Ramesh estimates that by 2015, India should be able to provide alternative GDP estimates that account for the domestic consumption of natural resources. Specifically, these estimates will provide details on the amount of natural resources that are consumed during the course of economic growth, the degree to which the environment is being degraded as part of the growth process, and the amount of mitigation that occurs as a means of correcting this degradation.

This obviously presents a number of institutional and policy related challenges. First and foremost, governments do not want to give off the impression that economic growth and development has stalled, either to their constituents or to the international economic community. Accounting for environmental degradation may lead to a significantly lower GDP, which has made many developing countries reluctant to measure environmental impacts. The Chinese example, the preeminent experiment in green GDP, has served to reinforce this fear.

From a policy standpoint, the primary concerns surround how to properly measure environmental degradation in monetary terms, and how that information will be gathered. In developing countries like India, this often has to do with the issue of property rights. Clarifying ownership will help to put a value on clean air, clean water, and other resources. Commonly, this valuation system takes the form of cap and trade or similar policies, effectively allowing the market to determine the price of environmental goods and services. For green GDP to be most effective, companies and other users are relied on to accurately report pollution emissions. This is one of the many problems of being able to “buy” the “right” to pollute – market prices may encourage a polluter to lie in order to keep its emissions within its allotted limits, which would reduce the accuracy of a green GDP measurement. Putting a price on the right to pollute may also stall green innovation that may be beneficial to development and traditional GDP – it may be more economically beneficial for a polluter to buy up more pollution credits than to implement new technologies or retrofit existing ones.

India is part of the BRIC countries, four major world economies that are characterized by their fast growth. India is joined by Brazil, Russia, and China in this designation, though India is one of the countries most threatened by the effects of climate change. Like its fellow BRICs and other developing countries alike, India faces the challenge of increasing development and quality of life for its poorest citizens. The millions of impoverished individuals in India rely heavily on the combustion of fossil fuels. Some half a billion people in India still lack access to electricity – this means coal is used for as much as 70% of India’s power needs. Leadership in New Delhi recognizes the need to depart from the path taken by many developed countries that are reliant on coal, oil and natural gas and, with a little guidance from rich nations, a transition to a low-carbon future in India could be closer than we think.

Image(s) courtesy:
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