5.

Study of Interdependencies and Relationship between GDP, SEEA Indicators, and Sustainable Development Goals (SDGs)

Before delving deeper into the relationship, we must determine which direction to head.

5.1 What do we need, Growth or Development?

Herman Daly, in his book "Beyond Growth: The Economics of Sustainable Development" highlights the difference as-

"Growth is the quantitative increase in physical scale while qualitative improvement or the unleashing of the potential of resources is development. Can an economy grow without developing, or develop without growing, or do both, or neither?”

By looking at the above definition, we need both growth and development. But we want more development than growth. Now, the question arises, how can we converge on one single concept to establish a relationship for the interdependencies between the two? This relationship can be gauged with the term - Uneconomic Growth, wherein the word
‘uneconomic’ takes care of the development part.

“Uneconomic growth occurs when production increases come at an expense in resources and well-being worth more than the items made".

For example, a boost in chemical production may increase income for factory workers. Still, it may lead to more consumption of resources, including increased air pollution and various effluents increasing global warming, which will harm or deteriorate the land and air.

Because of the above, it is safe to assume that we all need growth that caters to the needs of the present without eroding the ability of future generations to meet their own needs by considering economic, social and environmental changes which require an interdisciplinary approach.”

Now, another question arises, how should we measure this? Are there relevant indicators for the same? Let's understand the requirement of indicators and their interdependence.

5.2 Why do we need Indicators for such development?

Indicators are being used to understand where we are, which way we are going, and how far we are from where we want to be regarding development goals as reference bases, thresholds, or targets for indicators are set up to guide political and social action. Various indicators have been developed to measure identifiable economic, social, and
environmental conditions. However, moving towards sustainability indicators means moving towards less objective and tangible indicators such as 'quality of life' and 'ecological integrity'.

5.3 How are these indicators helpful in the decision-making process?

As discussed above, these indicators can help to devise policy during various steps of the policy cycle. Let’s check the different stages in the policy cycle and the potential use of indicators to go beyond GDP.

Problem Diagnosis Measures Performance

Recognition Control
Current Situation

Analysis of Policy
Evaluation of the

Evaluation of the
Progress of Policies
Monitoring Policies,
Analysis of Causes of

Proposals
the Problem

Cost-benefit
analysis,

Impact
Assessment of
Policy Proposals
Analysis
of Policy
Proposals Analyzing if certain
indicators can be
achieved

Consideration of
Interdependencies

As highlighted above, the analysis of Policy Proposals is the step where these indicators play a role in the simultaneous achievement of other economic, environmental, and social goals. This step is crucial when we want to make an impact by comparing Business-as-usual GDP to Sustainable GDP.

5.4 GDP being a globally accepted Indicator

Gross domestic product (GDP) has been around for nearly eight decades. It was adopted during the Bretton Woods Conference 1944 and is presently being compiled by the UN Member States. However, as per its "creators", GDP was never meant to become a universal measure of economic welfare.

5.5 Let’s deep dive into What & Why for GDP?

The Gross Domestic Product is generally defined as the value of all final goods and services produced within geographical boundaries within a given period. It is:
 - “Gross” because the depreciation of the value of capital used in the production of goods and services is not deducted from the total GDP

- “Domestic” because it relates only to activities within a domestic economy regardless of ownership.

- "Product" refers to what is being produced, i.e. the goods and services, otherwise known as the economy's output.

Value is made up of prices and quantity. An economy can increase the value of its GDP by increasing the price that will be paid for its goods and services or by increasing the number of
goods or services it produces. GDP growth effectively determines employment levels, tax revenues, and subsidies paid even to the greenest technologies. Modern economies and welfare
systems are heavily dependent on GDP growth.

5.5.1 Benefits of GDP

GDP is a simple, straightforward, and linear measure. It will produce reasonable accuracy in measuring tax revenues and productivity and help macro-management through estimations of
output gaps and inflation.

There is an undeniably strong correlation between GDP levels and components of basic welfare, such as high literacy rates, better nutrition and health care, communications technology, and
life expectancy, all critical factors contributing to people's welfare.

5.6 What is the problem with GDP as an effective Indicator?

Let’s go through some counter-intuitive questions…

- The exploitation of mines increases GDP but lessens the wealth of any given country.
- Even air pollution and the release of water effluents may increase GDP through the income generated by industries
- Overconsumption of resources may lead to an economic benefit in the short term through increased demand but has significant economic and ecological impacts in the longer term.

Figure: The elements of happiness and well-being

(Source: Deutsche Bank Research, 2006)

Looking at the above figure, it is clear that GDP occupies a significantly less portion of the above Venn diagram.

5.7 What is the problem with moving away from GDP?

GDP growth bears positive feedback mechanisms through consumption and investment that make more of it always incessant. However, while not getting rid of GDP, it is desirable to reduce some of this dependency on it. The problem with the opposite of growth, i.e., de-growth, is that it is likely unstable. Declining consumption would lead to rising
unemployment, falling competitiveness, and a spiral of recession. This is a real dilemma — modern economies are driven towards growth, as less of it is unstable, but more of it is increasingly unsustainable.

View of the Economy as Part of a Larger System

Source: M. Hart, Sustainable Measures

5.8 Assessing Alternatives of Other Developmental Indicators

The indices, or indicator systems, have been grouped into three categories: adjusting, replacing, and supplementing GDP as the dominant measure of development and societal progress.

(a) The category adjusting GDP includes those approaches where traditional economic performance measures like GDP or national saving rates have been adjusted by including monetized environmental and social factors, e.g., Measure of Economic Welfare, The Index of Sustainable Economic
Welfare (ISEW), Green GDP, and the Genuine Progress Indicator (GPI), Genuine Savings (Adjusted Net Savings)

(b) The category replacing GDP contains indicators that try to assess well-being more directly than GDP, e.g. by evaluating average satisfaction (like the Happy Planet Index), Human Development Index (HDI), and Gender-related Development Index (GDI) — UNDP, Ecological Footprint (EF), etc.

(c) The category supplementing GDP consists of approaches designed to supplement GDP. Here GDP is not adjusted or replaced by constructing new indices but complemented with additional environmental and social information, e.g., Indicators ‘supplementing’ GDP based on national accounts
systems — Greening the national accounts, i.e., SEEA.

Adjusting or replacing GDP will attract many problems, including political, societal, etc. Thus, considering the importance, let's focus on what all indicators under SEEA can help supplement GDP.

5.9 SEEA - A new kind of GDP?

The new System of Integrated Environment and Economic Accounting (SEEA) is a hybrid accounting system that integrates environmental pressures and economic activities. These accounts are intended to be adjuncts rather than core SNA modifications.

5.9.1 Green GDP?

The 1993 SEEA handbook focused on the monetary valuation of natural resources subtracting the cost of natural resource depletion and environmental degradation from GDP, known as ‘Green GDP’, resulting in a figure that would be lower than conventional GDP. In some countries, these low numbers led to governments' resistance, leading to the
demise of green GDP.

5.9.2 A Coherent Dashboard of Indicators

Green GDP was no longer an end game. The SEEA Handbook 2003 provided a strong foundation in monetary and physical accounts, such as those for energy, water, and material flows, as well as air emissions and waste. Instead, the SEEA could now provide the basis for a coherent dashboard of indicators, including, for example, indicators of
efficiency and productivity, natural capital, etc. Stock and flow accounts feature in both physical and monetary terms, which gives a comprehensive view of the usage of the environment and natural resources.

5.9.3 Indicators Derived from Dashboard of Indicators

With the help of the SEEA, numerous indicators can be derived, for example, the Sustainable Development Goals indicators and indicators for the future monitoring framework of the Global Biodiversity Framework.

Also, it can help produce a new kind of green GDP that includes both the positives and negatives. An indicator for just the "positives" is currently being tested through a novel headline indicator called Gross Ecosystem Product (GEP), which measures the sum of total ecosystem services produced and can be compared with GDP . The indicator
has been tested in China, where a recent pilot in Guangxi Province found that ecosystems produced a GEP equivalent to about 50 per cent of the Province’s GDP in 2017.

5.10 How Dashboard of SEEA indicators can help in various Developmental Goals?

As we have seen that the SEEA does not propose or recommend any single indicator or basket of indicators for use in developing and assessing policy. This approach to integrating statistics allows for multiple purposes and scales of analysis. Thus, there are several vital aggregates and indicators that are directly derived from the accounting tables and
are of interest to policy analysis and goal-setting.

The indicators can be derived from basic statistics; standard accounts (SNA) ensure consistency because their component data are derived from a common framework. As a result, the signals of the statistics and indicators are coherent.

5.10.1 The SEEA Accounting Methods

The SEEA 4 categories of accounts:-

(a) Data relating to flows of pollutants and materials

For example, emissions account for greenhouse gases (NAMEA).

(b) Environmental Protection and Resource Management Accounts

For example, an account of expenditures made by businesses, governments, and households to protect the environment.

(c) Natural Resource Assets

For example, timber stock accounts.

(d) Environmentally adjusted Macroeconomic Aggregates

For example: ‘defensive’ expenditures (following valuation of the environmental damage and resource depletion arising from economic activities).

SEEA
Flow and Stock accounts (Source: Bartelmus, 2007)

The above table shows how the SEEA introduces nature’s environmental and economic assets and the ‘environmental cost’ of their degradation and depletion into the SNA. This system measures the value of opening and closing stocks of economic and environmental assets and their changes during an accounting period. Changes in assets are
brought about by the formation and consumption of produced and natural capital (assets) and other non-economic influences such as discoveries, natural disasters, or natural regeneration. The latter, i.e., other asset changes, are recorded outside the income and production accounts; these changes do not affect the conventional indicators of cost,
income, product, and capital formation.
5.10.2 Analysis of The Asset Accounts – Measuring Environmental Pressures – Decoupling Indicators

Monetary indicators — such as environmentally-adjusted Net Domestic Product, capital formation, or value-added — measure sustainable economic activity and growth. However, the SEEA does not (yet) incorporate social and institutional issues.

This capital approach deducts the costs of produced and natural capital consumption from conventional economic indicators. The physical indicators present material flows and stocks, notably natural resource inputs and outputs of pollutants and wastes. They measure environmental pressure and, thus, refer to environmental performance. They can be
linked to economic performance indicators, notably GDP, as ratios of material intensity or resource productivity. The time series of these ratios indicate the linkage or delinkage (‘decoupling’) of environmental impact from economic growth. Decoupling refers to breaking the link between "environmental bads” and “economic goods”. This is usually
expressed by relating GDP (“economic goods”) to indicators of environmental pressure (“environmental bads”).

Decoupling is said to have occurred when the growth rate of an environmental pressure is less than that of its economic driving force (i.e. GDP) over a given period. Decoupling is measured by decoupling indicators with an environmental pressure variable as a numerator and an economic variable as a denominator, such as a resource
efficiency/resource intensity (ratio of resource use to economic value-added) and resource productivity (inverse of the previous one). For example, resource efficiency and intensity are calculated as ratios of resource use to economic value-added, while resource productivity is the inverse ratio.

Improving the rate of resource productivity, i.e., doing more with less but faster than the economic growth rate, can be termed "decoupling". That goal, however, pushes us to rethink the links between resources consumed and economic prosperity, giving us a direction to invest in various innovative solutions. This will help at least freeze per capita
consumption in advanced economies and help emerging nations follow a more sustainable path.

The most straightforward input and consumption indicators used for international comparisons are Direct Material Input (DMI) and Domestic Material Consumption (DMC), which only consider direct flows. A second set of indicators – Environmentally Weighed Material Consumption (EMC), Raw Material Input (RMI), and Raw Material Consumption
(RMC) - takes indirect flows also into account.

It is evident from the graph that for the period 1990 to 2002, EMC & DMC remains almost constant, while GDP and Inland Energy have been on the rise, which shows the effect of decoupling.

Improvements in Resource Productivity (GDP / DMC) in India, China, Germany

Similar decoupling effects can be appreciated in the above graph.

Source: UNEP Global Materials Flows Database

If we see beyond 2000, absolute material consumption in BRICS and emerging economies increased significantly over the past decades, and per-capita material consumption remains lower but converges to OECD levels.

5.10.3 Application of SEEA

The applications of SEEA can be categorized into two main applications of environmental accounts to support policy-making:-

(a) Development of Sets of Indicators

(b) Descriptive statistics

 For example,

- to monitor material and energy flows throughout the economy over time

- to identify the most important sources of pollution and the causes of change

- To monitor the amount of environmental protection expenditure and the use of economic instruments over time and relate them to specific economic sectors

- To monitor the physical stock of natural resources over time and relate them to the economic value.

- Analyze the influence of certain taxes on the environment and the economy.

5.10.4 SEEA and Sustainable Development Goals (SDGs)

Consistency with the SNA allows for the integration of environmental statistics with economic and other statistics:-

- Provides for the calculation of important ratios

- Sustainable development indicators

Let’s have a look at sustainable development policy areas first according to four simple quadrants related to how information is derived from the SEEA.

Improving
Managing
Access to
Supply and
Services and
Demand - II
Resources - I

Improving the Mitigating

State of Risks and
Environment Adapting to
and Reducing Extreme
Impacts - III Events - IV

(a) The First Quadrant

The first quadrant refers to policies that aim to ensure households access appropriate, reliable, and affordable resources and services. The SEEA can provide a range of measures to guide policy-makers in assessing and managing providers' performance of critical services such as water and energy. They
include the following indicators:

- Current and capital costs associated with the provision of the services and their financing
- Losses in distribution
- Quantity of resources used

(b) The Second Quadrant

It refers to the allocation of natural resources for meeting the needs of current and future generations concerning the available endowments. Relevant measures derived from the SEEA include the following key aggregates and indicators: