Download Ecological Production Theory

Green GDP:
“Seeing” the Hidden
Economy of Nature
James Boyd
Resources for the Future
Washington, DC
Ecological Wealth
• Public goods
– Shared, usually not owned
– “Free,” not things we pay for
• As economically important as market goods
and services
– Difficult to track because not a part of market
system
Motivations for Green GDP
• Economic
• Ecosystem goods and services are valuable and should
be measured to foster management and accountability
• Ecological
• A way to highlight conditions, trends, depletion
• Philosophical
• Calls attention to broader, more accurate measures of
wellbeing
Carbon storage
Flood risk reduction
Air quality
Habitat
Open space
Food
Groundwater
Productive soil
Thank You
Irrigation
Drinking water
Navigation
Open space
Food
Habitat
Reduced energy needs
Air quality
Beauty
Open space
Water quality
What Is GDP?
• Counts what we produce and consume
• Tracks those changes over time
• Weights “goods” by their “value”
– Sort of
• When we produce more, GDP 
• When we produce more valuable stuff, GDP 
The Problem:
GDP is Wrong Because It is Incomplete
• GDP always gets “better”
– the more coal we burn
– the more land we develop
– the more fish taken from
the oceans
• Impact on ecological
goods and services not
measured
The Broader Background
• Even without
climate change
• Trends in global
economic
development
Our Human Appetites
6.8 billion to
9.4 billion in
mid-2050
So Should We Replace GDP?
Our Existing Economic Accounts
• Are a social miracle
– Permit aggregation & disaggregation of a
complex system
– Objective, rule-driven and scientific
– Politically, institutionally independent
A powerful
accountability
mechanism
Our culture pays
attention, and it
should
The Goal
• Construct a non-market, ecological equivalent
to GDP
Several Alternatives
• Macro-adjustments
– Discount costs from existing measures
• Health, cleanup, regulatory costs
• Macro “near market” accounts
– National timber, water, mineral accounts
• Wellbeing measures
• Material accounts
• Ecosystem good and services accounts, relying
on ecological production theory
Different Strategies #1
• Lump “adjustments” or “subtractions” to GDP
– Estimate environmental health, remediation costs
• Pros
CHINA – Loss caused by
pollution was $66.3B, a
3.05% reduction in GDP
– Relatively easy, gets you a number
• Cons
– Doesn’t foster measurement infrastructure
– Not an accounting system
– Narrows scope of what is measured, not really
“ecological”
Different Strategies #2
• Wellbeing Measures
– Bhutan’s Gross National Happiness
– Genuine Progress Indicator
– Sarkozy’s quality of life measures
– Britain’s happiness census
• These are not “economic accounts”
– Not that there is anything wrong with that
GDP-type Accounts
• Do not measure wellbeing
• They simply measure
– Amounts of stuff produced and consumed
– Weighted by prices
• Production, not the effect of production on
human wellbeing
Threshold Question
• How do we measure ecological wealth in
terms of quantities?
– What are countable ecosystem goods and
services?
The Index Problem
Q×P
• Factor 2 core elements
– Quantity and price (value) indices
• Challenge
– Consistently define and differentiate q’s and p’s
– Values are totally contingent on the definition of q
19
Commodities Are Not
Immediately Obvious
• Public goods, so market doesn’t define q
– No sales receipts, units, inventory data, etc
• Too many alternative commodities
– Any natural feature or quality?
Quantities – Market vs. Public Goods
Obvious
Not obvious
“Ecosystem Goods & Services”
• Examples
– Flood avoidance – an expected damage reduction
– Reduced water pollution – a quality
– Greater fish, bird abundance – a quantity
– Water availability – a quantity
– Open space – a quantity
These are measurable
commodities q
“Ecosystem Services”
• Vague & used in many different ways
– “Nutrient cycling” – a biophysical process, not a
quantity q
– “Recreation” – a beneficial activity relying on
natural inputs, not an ecological quantity q
What is q?
• Simple production function
– Final economic good F
– Two inputs, capital K and ecosystem good E
– Production function F= F(K,E)
– PF, PK, and virtual PE
24
What is q?
• We have a choice
–q=E
• The ecological input
• “acres of open space,” “fish abundance”
– q = F(K,E)
• Change in production of final good
• “increased crop yields,”
• Definition of p conditional on definition of q
25
Practical Preference for q = E
• Want quantity index to reflect ecological
output changes
– Other definition can obscure ecological change
• If observe increase in F(K,E)
• Is E improving or is K improving?
• Concrete ecological measures
– A “units link” to natural science
26
Basic Accounting Rules
• How to deal with double counting?
– Distinguish between final and intermediate goods
• Many ecological commodities are dual
– Both output and input to subsequent ecological
process
• Ecological production theory is necessary to
sort out these issues
27
GDP Counts Only Final Goods
• Why?
– To avoid “double counting”
• Final goods include the value of inputs
• If you count both final and intermediate
goods, you double count the value of the
intermediate good
Ecological Production Theory
• Distinguish inputs, processes, outputs
• Focus on ecological final goods, rather than
inputs
• What are ecological final goods?
– Commodities “directly consumed, used, or
enjoyed”
– Perception and experience is a test
29
Examples
Input
Surface water pH
Acres of habitat
Biophysical Process
Habitat and toxicity
effects
Forage, reproduction,
migration
Wetland acres
Hydrologic processes
Urban forest acres
Shading and
sequestration
Vegetated riparian
border
Erosion processes
Final Ecological Good
Fish, bird abundance
Species abundance
Reductions in flood
severity
Air quality and
temperature
Sediment loadings to
reservoirs
Systems depicted as inputs and outputs,
linked by biophysical processes/functions
Definition of q
• Common resource/ecological units tend to be
– Bundled
• Forests, water volumes, species abundance, beaches
are bundles of commodities
– Dual
• Often both final and intermediate commodities
Big implications
for accounting
Dual Commodities
• Many ecological commodities are both input
and output
• In production theory, a given commodity can
be both input and output
– Cars: output, but input when rented
Dual commodity
Process 1 output is Process 2 input
Examples
Final & Intermediate
Biophysical Process
Final
Trout abundance
Forage and predation
relationships
Bird abundance
Forest acres
Hydrological processes Species abundance
Wetland acres
Hydrologic processes
Flood pulse regulation
Location &
Timing Matter
Value of ecosystem goods
and services depends on
(1) Where they are
“how many
customers?”
“how many
substitutes?”
(1) When they’re delivered
Quantities need to be
space, time specific
Assets vs. Goods & Services
• Assets are aggregates, goods and services are
not
• The index aspires to an eventual value (price)
counterpart
• Aggregation will thwart valuation
– What is the value of “national water volumes”?
– What is the value of “national open space
acreage”?
37
Decompose
Bundles
“Acre feet of freshwater”
Prefer to decompose
commodity into
The hydrograph
Depth
Width
Velocity
Timing
Matters to final uses:
Navigation, irrigation, recreation
Matters to role as input to other
biophysical processes and outputs:
Species abundance, vegetation
Carbon storage
Flood risk reduction
Air quality
Habitat
Open space
Food
Groundwater
Productive soil
A range of “products”
Different quantities
Different user groups
Different values/weights
The Geographic Boundaries of
Accounts
• Do we only care about ecological conditions
inside our own borders?
• Maybe, but
– Note effect of US consumption on ecological
conditions in China
– Ecological conditions in China affect US supply
chain
– Some ecological conditions have global effects
Optimism
• 80 years ago, nobody could measure GDP
either
• How did GDP begin? A useful reminder…
How many boxcars moving
between Chicago and NYC?
Today
• Our accounting for the natural economy is
as crude as “boxcars”
• But international efforts, experiments are
underway
Valuation (Weighting) Issues
• Existing valuations are inconsistent and
questionable for accounting use
– Commodities often not reported, let alone clearly
defined
• Environmental valuation meta-analyses
– “Goods not commensurate”
• Reasons to question “benefit transfers”
– Values location-specific (not fungible spatially)
– Values not based on clear commodity definition
The U.S. Political Problem
• 1992, BEA begins work on environmental
satellite accounts
• 1995, Congress prohibits BEA from
conducting this work
• For budgetary perspective
• 2010 census, $11B
• Green accounts, $0
Hi James Unfortunately, Congress has prohibited us
from spending any funds on developing
any measures of green GDP, so we are
not working at all on this topic.
Thanks for sending the paper, though.
Recommendations
• Focus on quantity definition via
collaboration between natural and social
scientists
• Aspire to accounts, not just indicators
• Bureaucratic independence
• Consider global accounting perspective
• Satellites and experiments, not new NIPAs
yet
• Investment > 0
•
•
•
•
•
•
•
•
“Counting Non-Market, Ecological Public Goods: The Elements of a Welfare Significant
Ecological Quantity Index,” International Economic Association Series, Palgrave
Macmillan, forthcoming.
“The Definition and Choice of Environmental Commodities for Nonmarket Valuation,”
Resources for the Future Research Paper 09-35, with Alan Krupnick, 2009.
“What are Ecosystem Services?” Ecological Economics, with Spencer Banzhaf, 2007.
“The Architecture and Measurement of an Ecosystem Services Index,” with Spencer
Banzhaf, Resources for the Future Discussion Paper 05-22, September 2005.
“The Nonmarket Benefits of Nature: What Should Be Counted in Green GDP?”
Ecological Economics, 2006.
“Box Cars and Breadlines Are No Way to Measure an Economy: A Plea for
Environmental Accounts,” Resources for the Future Policy Commentary, January 19,
2009.
“Location, Location, Location: The Geography of Ecosystem Services,” Resources, Fall
2008.
“Don’t Measure, Don’t Manage: GDP and the Missing Economy of Nature,” RFF Issue
Brief, May 2008.