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HIMANSHI 2020B3PS1270P
Under guidance of
Abstract 2
Introduction 4
Literature Review 6
Conclusion 19
References 20
Introduction
Anthropogenic activity is eroding human capital (education, productivity), as well as produced
(infrastructure, property) and natural (air, water) at an unprecedented pace. This environmental
degradation, over the course of decades, has accumulated robust and substantial declines in
economic output relative to a world without anthropogenic activities. There has been an increased
focus on the study of impacts caused by climate change in the past decade, including documented
impacts on agriculture, human health, and ecosystems.
Climate change resulting events impact the poorest countries the most due to their lower coping
capacity and more time and resources are required to rebuild and overcome the effects of such
events. According to the global climate risk Index of 2021, India is ranked 7th in terms of global
climate risk making it one of the most vulnerable countries to climate change in the world.
According to the world bank data based on the global carbon project(2020), India is the third
largest CO2 emitting country in the world.
GDP is considered to be one of the primary measures of economic growth and development. All
the policy makers consider GDP as one of the most important macroeconomic parameters while
forming any new policies. However, the current conventional system of GDP measurement doesn’t
take into account many vital aspects of growth such as changes in the quality of health, level of
education, and changes in the quality and extent of environmental resources.
The term gross domestic product (GDP) has been used for about 80 years. The System of National
Accounts (SNA), which was adopted during the Bretton Woods Conference in 1944 and is now
produced by virtually all United Nations Member States, and the accompanying GDP indicator are
produced by national statistical offices worldwide. However, the drawbacks of GDP have been
known for almost as long as GDP itself. While GDP is a reliable indicator of economic
performance, it is obviously problematic when used in policy research since it is incorrectly
interpreted as a measure of well-being and welfare, especially when it comes to the environment.
Whether conventional indicators of a nation's economic activity and development, such as gross
domestic product (GDP), gross national product (GNP), or gross national income (GNI), fail to
take environmental concerns into account is an often discussed subject. It only considers economic
production and ignores other significant elements that have an impact on social, environmental,
and economic sustainability. The limitations of GDP are now obvious: (1) it can be a misleading
economic indicator if we give it an excessive amount of weight because it frequently reflects
material and static positions rather than indicating what is wrong with the economy; (2) it does not
scale the sustainability of growth (it does not detect the distribution of income, household
production, and/or the loss of leisure time, volunteering, costs of environmental deterioration,
social and public health costs); and (3) it does not scale the size of the global economy. However,
GDP was never meant to be a comprehensive proxy for human wellbeing.
In this paper, we try to overcome the environmental drawbacks of GDP calculation and come up
with an initial estimate of Green gross domestic product (GDP) for India, based on an
internationally accepted accounting framework provided by the System of Environmental and
Economic Accounting (SEEA). The World Bank estimates that India's environmental degradation
costs the country about US$ 80 billion annually, or roughly 5.7% of GDP (World Bank, 2013).
We make an effort to comprehend the trajectory and trend of green growth in India using the data
currently available. The current state of environmental-economic accounting in India is physical
quantities only (e.g., soil quality change shown in change in production level, wetland loss shown
in change in wetland area, etc.), with no economic translation of these environmental variables.
As a result, there is very little room for comparison and evaluation of various environmental costs.
The drawbacks of this paper are that this calculation of green GDP is just a primary estimation
based on the data from various available sources. The data used in this report is secondary data
that has been extracted from the world bank development indicators and various other reports from
BRICS. Data from Indian sources and databases is not yet available therefore the accuracy of our
calculations is subjected to the world bank data. Using the calculated estimate of the year-on-year
green GDP of India, we try to understand how India has progressed over the years keeping in mind
the sustainability factor accounted for by environmental degradation and we try to come up with
some policy suggestions for India to move towards a more sustainable economic growth.
Literature Review
The relationship between environmental degradation and economic growth has been long
researched upon. One of the most prominent theories pertaining to the above concept is the
Environmental Kuznets Curve(EKC), named after Simon Kuznets who proposed that income
inequality first rises and then falls as economic development proceeds. Gene M. Grossman and
Alan Krueger built on Simon Kuznets' hypothesis to develop the concept of EKC, which explains
the consistent relationship between environmental degradation and economic growth. In the early
stages of economic growth and initial phases of expansion in an economy, pollution emissions
increase and environmental quality declines but beyond some level of per capita income the trend
reverses, so that at high income levels, economic growth makes it possible to reduce environmental
degradation. This implies that environmental impacts or emissions per capita are an inverted U-
shaped function of per capita income.
The results of the EKC were sustained, particularly in the Northern Hemisphere nations, to support
their role in environmental contamination. According to recent studies, environmental
contamination increases in tandem with economic growth (Maneejuk et al., 2020). It has also been
discovered that there isn't a single EKC connection that can account for all pollutants across all
locations and all times. For regional air pollutants including sulphur dioxide, nitrogen oxides, and
particulate matter, the EKC connections seem to be the most reliable. But for gasses like carbon
dioxide, which is the most detrimental to the global climate, there is minimal evidence to support
the EKC theory. The negative implications of economic expansion on environmental quality are
being raised against the backdrop of the EKC being questioned. The EKC is an essentially
empirical phenomenon, but most estimates of EKC models are not statistically robust.
Recent literature has paid more and more attention to how financial development affects
environmental conditions. China's economy was the subject of analyses by Yuxiang and Chen
(2011), Jalil and Feridun (2011), and Zhang (2011). To examine the impact of financial
development on industrial pollutants, Yuxiang and Chen (2011) in particular used provincial data
from the Chinese economy. They discovered improvements in the environment as a result of
financial development. By boosting income and capitalization, utilizing new technology, and
putting environmental regulations into place, they argued, financial development enhances the
quality of the environment.
Strong correlations between total economic output and temperature over time have been shown by
macro-level analyses. It is still unclear how temperature effects combine and accumulate within
complex human societies to affect overall economic productivity. Since it has implications for our
comprehension of historical patterns of human development and how the future economy may
react to a changing climate, characterizing this influence continues to be a fundamental problem
in both the developing field of coupled human-natural systems and in economics more generally.
According to a study by Burke, M., and Hsiang, S. E. Miguel & The fact that there is a strong
negative correlation between baseline income and baseline temperature suggests that there may be
an increase in global inequality as a result of warming since hot, poor countries will likely
experience the greatest decline in growth. According to our baseline estimate, the average income
in the poorest 40% of nations will decrease by 75% by 2100 when compared to a world without
climate change, while the richest 20% will actually see a slight increase since they are typically
cooler.
There has also been some amount of study on the relationship between per capita income and
greenhouse gas emissions to observe the possible influence of economic growth on environmental
degradation. The correlation has turned out to be positive, indicating that CO2 emissions increase
with increasing GDP. Jenny Cederborg & Sara Snöbohm have found in their study that the positive
relationship is more certain in the case of poor economies whose GDP has been increasing at
comparatively higher rates.
Figure 3. Graphical view of the regression results for poor countries. Per capita GDP is represented on the x-axis and
environmental damage on the y-axis. Carbon dioxide emissions measured in tons per capita.
The study of environmental accounting has advanced over time. Given the shortcomings of GDP-
based growth accounting in capturing the effects of climate change, the importance of Green GDP,
which incorporates estimates of national income accounts for environmental degradation and
diminishing natural resource availability, has multiplied.
Since the 1970s, one of the primary criticisms of GDP has been that it disregards environmental
damage and resource depletion entirely. In contrast, it might regard environmental degradation and
resource depletion as economic productivity. For instance, clearing a rainforest and selling the
lumber will increase GDP even though it will have a terrible effect on long-term well-being and
economic growth. Due to problems like these, the Rio Summit suggested in 1992 that new accounts
be created that expand the SNA and include environmental and social components.
The UN published an interim study titled The Handbook of National Accounting: Integrated
Environmental and Economic Accounting in 1993. The System of Environmental-Economic
Accounting (SEEA), which developed a new method of accounting that tracked the environment
and its relationship to the economy, used the fundamental concepts and tenets of the SNA. By
allowing the cost of resource depletion and environmental degradation to be subtracted from GDP,
the 1993 guidebook placed a strong emphasis on the financial valuation of natural resources. A
"green GDP," also known as a "environmentally adjusted domestic product," was specifically
encouraged in the manual. This indicator helped to produce a more accurate picture of real
economic growth by combining the costs of environmental damage with the traditional measures
of a country's economic performance.
Accounting for the loss of natural capital, environmental deterioration caused by air pollution, and
government spending on environmental protection, Veklych and Shlapak (2013) determined the
Green GDP and environmentally adjusted net domestic product for Ukraine (for the period 2001–
2010). The general conclusion was that Ukraine's economic growth has significant environmental
costs and is largely reliant on its natural resources. In 2015, Abdul Rahim and Noraida attempted
to determine the short- and long-term causal relationships between Malaysia's Green GDP,
conventional GDP, CO2 emissions, trade openness, and urbanization (for the period of 1971-
2010).
The most intriguing work is by Qi, Xu, and Coggins (2001), as it is the only one that conducts a
thorough and exhaustive analysis of the Green GDP on a cross-country basis. For 103 wealthy and
developing nations, the authors assessed the worth of environmental damage as a proportion of
GDP and Green GDP (for the period 1980-1997). In terms of environmental harms, they came to
the conclusion that between 1980 and 1983, global environmental externalities rose in value per
unit of GDP. It suggests that over this time, some degree of environmental quality has been
compromised in favour of GDP development. However, since 1992, the global environmental
externalities associated with creating one unit of GDP have been continuously declining. On the
other hand, they calculated the Green GDP indicator by country in three specific years (1980,
1992, and 1997) and came to the conclusion that the growth of GDP and Green GDP coincided in
nearly all countries, though the growth rates were on slightly different scales, depending on
whether the country was developed or not. The authors' ultimate finding was that, even when
developing nations are taken into account, the majority of countries have not sacrificed
environmental quality in order to increase GDP.
Some other measures of economic well-being to estimate national income mainly use GDP as the
base and then make adjustments based on specific variables. Some of these indices are – Index of
Sustainable Economic Welfare, the Genuine Progress Indicator, Green GDPs, and Genuine
Wealth. On the other hand, there are some indices those do not use GDP as foundation but measure
environmental activities, social well-being, improvement in social-environmental and human
capital formation – to arrive at some estimation of the environmental and economic well-being.
Some of those indices are Ecological Footprint, Subjective Well-Being, Gross National Happiness,
etc.
Several researchers have conducted studies on how to measure Green GDP and what components
should make up an estimation of Green GDP, which have been motivated by the System of
Environmental-Economic Accounting (SEEA).
According to Stjepanović, Tomic and Skare (2017), the Green GDP indicator is calculated as a
traditional GDP indicator minus the cost of natural resource consumption minus the costs of
environmental depletion. The indicator is presented as a growth rate, which is convenient for the
comparison to the traditional GDP measure and a numerical analogy between the countries. This
methodology (a qualitative position) integrates supplementary information by distinguishing the
real costs of environmental damage and opportunity costs of a lost turnover. Thereby addressing
certain aspects of social costs. The green GDP formula used:
Green GDP = GDP - (KtCO2* PCDM) - (Twaste* 74 kWh* Pelect) - ((GNI/100) * %NRD)
Where, GDP: Traditional GDP, KtCO2: Carbon dioxide emissions in kilo tonnes, PCDM: The
average volume-weighted price for carbon (in PPP), Twaste: Total (commercial and industrial)
waste (expressed in tonnes), Pelect: Price for 1 kilowatt-hour is calculated as a mean of commercial
and industrial price for each country., NRD: Adjusted savings of natural resource depletion as a
percentage of the Gross National Income (GNI).
Green GDP estimation covers environmental pollution costs and resource depletion costs (Wang,
F., Wang, R. and Wang, J, 2020). The following formula in terms of pollution and depletion costs
can be used to calculate the green GDP:
Green GDP = GDP - (Environmental pollution cost (EPC) + Resource depletion cost (RDC))
EPC:
Air Pollution: (amount of carbon emission*conversion factor) + (amount of SO2 emission*shadow
price)
Wastewater pollution: (amount of wastewater discharge*governance cost)
Solid waste pollution: (amount of solid waste discharge*governance cost) + (amount of solid waste
storage*governance cost)
RDC:
Fossil energy depletion: (amount of fossil energy consumption*shadow price)
Water resource depletion: (amount of water consumption*unit volume price)
Furthermore, the Green GDP estimation was improved by including not only cost incurred on
environment and resource depletion but also savings of resources and environment (Qi, Huang and
Ji, 2021)
Green GDP= GDP- Cost of resources- Cost of environment+ Savings of resources and
environment
Natural resource depletion cost: Cultivated land depletion value+ Forest resource depletion value+
Water resource depletion value+ Energy consumption value+ Mineral resource depletion value
Environmental quality degradation cost: Air pollution, Water pollution, Solid waste pollution,
Natural disaster loss
Resource and environment improvement benefits: Garden green space benefits
In this paper, we have followed the type III approach as given by (Qi, Huang and Ji, 2021) by
adjusting the GDP for various costs to the resources by taking into account the resource
consumption indicators and cost to the environment by including the sustainable development
indicators and have also included the expenditure by the government on environment protection.
The sustainable development indicators include carbon dioxide damage and particulate emission
damage (current US$). The resource consumption indicators include opportunity cost of energy
depletion, mineral depletion, and net forest depletion –(constant US$). These values have then
been used to arrive at the Green GDP of India after appropriate adjustments to the year-on-year
GDP(current US$).
The following formula has been used:
Green GDP = GDP – (Carbon dioxide damage + particulate emission damage) – (Opportunity
cost of energy depletion + mineral depletion + net forest depletion) + Expenditure on
environmental protection
GDP: Gross Domestic Product
Carbon dioxide damage: Cost of damage due to carbon dioxide emissions from fossil fuel use and
the manufacture of cement, estimated to be US$40 per ton of CO2 (the unit damage in 2017 US
dollars for CO2 emitted in 2020) times the number of tons of CO2 emitted.
Particulate emission damage: Particulate emissions damage is the damage due to exposure of a
country's population to ambient concentrations of particulates measuring less than 2.5 microns in
diameter (PM2.5), ambient ozone pollution, and indoor concentrations of PM2.5 in households
cooking with solid fuels. Damages are calculated as foregone labor income due to premature death.
Estimates of health impacts from the Global Burden of Disease Study 2013 are for 1990, 1995,
2000, 2005, 2010, and 2013. Data for other years have been extrapolated from trends in mortality
rates.
Opportunity cost of energy depletion: Energy depletion is the ratio of the value of the stock of
energy resources to the remaining reserve lifetime (capped at 25 years). It covers coal, crude oil,
and natural gas.
Mineral depletion: Mineral depletion is the ratio of the value of the stock of mineral resources to
the remaining reserve lifetime (capped at 25 years). It covers tin, gold, lead, zinc, iron, copper,
nickel, silver, bauxite, and phosphate.
Net forest depletion: Net forest depletion is calculated as the product of unit resource rents and the
excess of roundwood harvest over natural growth.
Expenditure on environmental protection: The amount of money spent by the government every
year to restore the environmental damages.
Only after 1990 are data on particulate emission damages available, and data on spending on
environmental protection are available for the years 2007 to 2020. The World Bank's World
Development Indicator (WDI) database was used to compile data for all of these indicators for
India, with the exception of environmental protection spending. The BRICS Joint Statistical
Publication series has provided information on environmental protection spending. The Green
GDP has been calculated for the years 1971 to 2020.
We compute three measures of Green GDPs according to the availability of different time series
data. The following are the three computations:
1. Green GDP= GDP - (Carbon dioxide damage) - (Opportunity cost of energy depletion +
mineral depletion + net forest depletion) (Data availability: 1971-2020)
2. Green GDP= GDP - (Carbon dioxide damage) - (Opportunity cost of energy depletion +
mineral depletion + net forest depletion) - particulate emission damage (Data availability:
1990-2020)
3. Green GDP= GDP - (Carbon dioxide damage) - (Opportunity cost of energy depletion +
mineral depletion + net forest depletion) - particulate emission damage + Expenditure on
environmental protection (Data availability: 2007-2020)