At Long Last, Environmental Supplement to GDP Takes Shape
By PAUL VOOSEN, GreenwireSeptember 9, 2009
In March 1968, Sen. Robert F. Kennedy delivered a speech at the University of Kansas that dismantled the authority of statistics like the gross domestic product (GDP), the economic indicator that to this day remains the dominant reference point for the progress of nations.
It has taken 41 years, but it seems Kennedy's message has begun to resonate -- on the other side of the Atlantic.
Yesterday, the European Union announced plans to launch an indicator this year to measure environmental stress. The index will reflect the pollution and environmental harm within the bloc's member states, including aspects of climate change, biodiversity, air pollution, water use and waste generation.
GDP, which measures short-term spending, was not traditionally intended to measure well-being. And it is not a sufficient guide for modern policymaking that takes social and environmental objectives into account, said Stavros Dimas, the head of the environment directorate of the European Commission, the European Union's executive arm.
"To change the world we need to change the way that we understand the world," Dimas said while announcing the indicator. "And to do this we need to go beyond GDP."
The commission is positioning its environmental indicator as a supplement to GDP, not a replacement, though an eventual "Green GDP" could be developed, Dimas said.
For decades, the criticism of GDP has been that it undervalues noncommercial goods like natural resources. For example, if a country clear cuts its forests to sell timber, this would be taken as GDP growth, while the country's "natural capital" is devastated. Another example: the $80 billion in damage caused by Hurricane Katrina, which counted as economic growth, Dimas said.
The E.U. critiques echo Kennedy's famous attack on the gross national product, a then-popular indicator very similar to GDP, at a campaign stop in Kansas.
"Gross national product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage," he said. "It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.
"Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play," Kennedy said.
'High priority for the nation'
The United States was once positioned to be a leader in nonmarket economic indicators, including environmental accounts.
In the early 1990s, the Commerce Department's Bureau of Economic Analysis pushed forward on a system of environmental accounts, but then, in 1994, Congress cut funding for the program, pending review by the National Academy of Science.
Five years later, the academy concluded that developing environmental accounts was a "high priority for the nation," urging Congress to restore the program's funding.
But to this day, the program remains unfunded and undeveloped, according to Ralph Stewart, the bureau's spokesman.
The process of developing environmental indicators has now been under way for more than a decade in Europe, taking the lead from the United States. But the effort has gone slowly.
It is not easy putting a monetary value on ecosystem services, which is part of the reason why efforts have been so delayed, said Elisabeth Falemo, a state secretary from Sweden, which holds the European Union's rotating presidency.
The commission considered other existing environmental indicators as candidates for its index, like ecological and carbon footprints, but found both too limited in scope, the former neglecting water impacts and the latter too focused on greenhouse gas emissions.
The European Union also promised to increase its turnaround of environmental data, which have lagged two to three years behind the period assessed. GDP and other economic statistics are often available within weeks, and such near real-time reporting is needed for robust indicators, Dimas said. A first example of this is the European Environment Agency's ozone web, which provides daily data on ground-level ozone concentrations.
The European Union envisions eventually publishing its environmental indicator annually alongside the GDP for each of the 27 member states. While the index's focus will be on environmental harm, research will also begin on what is perhaps an even more difficult indicator to gauge, environmental quality.
The environmental index will be "as simple, as reliable and as widely accepted as GDP," Dimas said. "It would be an index where populations take pride in positive results. It would change the way we understand progress and would be a catalyst for changing the way we live."
The European Union's effort joins other indices that have been developed by multinational organizations over the past years that have focused on social well-being or savings.
For example, the United Nations has established a Human Development Index that combines GDP, health and education figures, but not environmental indicators. (Last year's No. 1 country, Iceland, seems likely to lose its seat.)
The World Bank, meanwhile, calculates "genuine" savings, and France has established a high-level panel, chaired by U.S. economist Joseph Stiglitz, that will identify the limits of GDP in a report due next week.
While the European and multinational agencies have pushed forward with their critiques of GDP, the U.S. government remains relatively silent.
Last year, Sen. Byron Dorgan (D-N.D.), who has crusaded for changes in the country's use of GDP for more than a decade, held a hearing on GDP's limits in the Senate Commerce, Science and Transportation Committee.
He was the only senator to attend.
The first version of this story mischaracterized gross national product, or GNP. While similar to gross domestic product, GNP is not GDP's antecedent. GNP measures only owned goods and services produced in a country, while GDP measures all goods and services produced.
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