For more than 70 year, Gross Domestic Product (or GDP) has been the primary yardstick by which countries have measured economic progress. GDP only accounts for the monetary gains derived from economic activity. It ignores the effects of environmental degradation, finite resources, and human well-being. It’s time we came up with something better.
GDP has promoted unsustainable practices that contribute to climate and biodiversity emergencies without ever acknowledging the contribution of nature. GDP is like a ledger refusing to accept red ink. It has allowed us, like an accounting trick to release greenhouse gasses into our atmosphere, destroy habitats, neglect human wellbeing, and never have to worry about the consequences.
Simon Kuznets, an economist from the UK, did not have to consider the current environmental crisis when he made his decision. developed the conceptAfter the Great Depression of the 1930s. Kuznets was aware of its limitations but GDP is still the most widely used economic indicator. This puts policymakers who want to limit global warming in a difficult spot.
Gross Ecosystem Product
As such, we need to start looking at alternative metrics such as Gross Ecosystem Product (GEP) so that we can account for nature’s contribution to economic activity and human wellbeing.
Research into calculating GEP is only in its infancy, it attempts to place a monetary value on things like clean water, soil quality, food security, healthcare and the culturally-significant landscapes that contribute to our happiness. In other words, GEP assigns a dollar value to the work of bees who act as nature’s pollinators, bogs that sequester carbon, and the stimulating effect nature has on our mental health.
While GDP looks exclusively at the value of production – or outputs – GEP instead places a value on nature’s input and incentivises policy makers to invest in nature. Since both metrics overlap in many areas, it would be foolish to simply add them together and get an overall figure. Both measures can provide complementary information to decision makers that could lead to sustainable economic growth.
Exporting ecosystem services – and boosting GEP
For example, the Chinese government has been experimenting with the implementation of GEP in Qinghai province – a remote region of the Tibetan plateau that contains the source of the Mekong, Yangtze and Yellow Rivers.
Researchers discovered that GEP was significantly higher than GDP in 2000 (82.5% vs. 26.8 billion Yuan). At that point, ecosystem activity was much more valuable than human economic activity.
However, GEP was only three quarters the size GDP in 2015. 185.4 vs. 242 billion Yuan. This indicates that more investment was made in traditional economic growth at cost of the environment.
Intriguingly, as Qinghai is the source of three major rivers, the study also found that the province “exports” ecosystem services like drinking water and fertilising nutrients, which show up in the GEP accumulated by other Chinese provinces and neighbouring countries.
The ability to measure the value of Qinghai’s ecosystem “export” could set in train a process whereby financial compensation is paid to the province by neighbouring regions. This program could provide economic incentives for communities to conserve and increase ecosystem assets. This can be viewed from a global perspective. Imagine if Brazilian farmers were paid by European nations to manage the rainforest according to the amount of carbon it sequesters.
Similar to Ireland, where I live, GEP would allow woodlands and bogs to contribute to the country’s economy. In such a scenario Irish cities might be required to pay rural areas carbon storage fees or maintain culturally important landscapes that promote mental health and well-being.
GEP encourages us to place a value on the natural benefits we receive from our environment. It also encourages us to think differently about how manage, maintain, and grow those areas that have been overlooked in favor of centralised growth strategies.
However, for now at least, it would be impractical to implement a system like GEP or the UN’s System of Environmental-Economic Accounting. It is a complex and difficult task that is largely unproven. To adopt it, a global economic consensus would be required on a scale never seen since the creation of the international financial order. after the second world war.
However, radical new thinking will be required if we want to manage the complex tradeoffs necessary to mitigate climate crisis.