1. Green Accounting, Growth, and other Measurement Issues Peter Berck (c) 2010 18-0 © 2011 Pearson Addison-Wesley. All rights reserved.

2. How are we doing? National Income and Products Accounts are a balance sheet for a country. They are a measure of what happened this year. They are not an assets statement. 18-1 © 2011 Pearson Addison-Wesley. All rights reserved.

3. Firms Linked sheets –Assets on Jan 1 Factories, inventory, cash, whatever –Income from Jan1 – Dec 30 Revenue – cost of goods sold – etc –Gives Assets on Dec 30 We don’t do the assets part for countries, just the income part. 18-2 © 2011 Pearson Addison-Wesley. All rights reserved.

4. Gross Domestic Product Value of all final goods and services produced within a countries borders. Final goods are marketed to someone. –Candy bars. Final. Not used to make other goods. –Steel. Intermediate. Used to make cars, a final good. Believe that intermediate must be used up within the year. –Cars, final. 18-3 © 2011 Pearson Addison-Wesley. All rights reserved.

5. Conservation Reserve Farmer is paid for land that grows birds ( a conservation use) –Birds are not marketed and hence not a final good. –Land payments to the farmers should be a final good, but I doubt it is counted that way. SCR unit on a powerplant. –A final good (investment is a type of final good) and not as an intermediate good. –Change in clean air is not valued. 18-4 © 2011 Pearson Addison-Wesley. All rights reserved.

6. So GDP Values things that make the planet better but not the change in the value of the planet itself. –SCR in GDP –Clean air not in GDP Be careful! If clean air were in GDP as a final good than we would need to reconsider how to handle SCR’s. 18-5 © 2011 Pearson Addison-Wesley. All rights reserved.

7. 18-6 © 2011 Pearson Addison-Wesley. All rights reserved. Table 18.1: U.S. National Income and Product Accounts for 2008 (in billions of dollars).

8. Three missing elements 1. Leisure. 37% to 66% of women in labor force. (1959-2004). GDP goes up because of the final product they now produce. GDP does not go down because of the unmarketed products they longer produce. (Hey, any of you parents? Do you find Leisure a strange name for what you produce when you are not at work…?) 18-7 © 2011 Pearson Addison-Wesley. All rights reserved.

9. Second Missing Element 2. Natural Resource Depletion. –When you build an SCR, it shows up in GDP. –About 1/30 of it shows up each year thereafter as capital consumption and is subtracted from GDP to get NNP. –When you take oil out of the ground, it shows up in GDP. –Exactly 0% of it shows up each year as capital consumption. 18-8 © 2011 Pearson Addison-Wesley. All rights reserved.

10. And third Non-marketed goods. –Environmental services –Clean air Not a market good but final goods used to produce it are valued. –Pollination An intermediate good if ever there was one. Properly excluded from GDP 18-9 © 2011 Pearson Addison-Wesley. All rights reserved.

11. What of education? It is a final good; an investment just like building a building or an SCR. It is included in GDP (usually as part of government, but private universities count too.) If it were treated as an asset, it should be depreciated! That is NNP is too big because we don’t account for strokes, death, forgetfullness, and leaving the labor force 18-10 © 2011 Pearson Addison-Wesley. All rights reserved.

12. 18-11 © 2011 Pearson Addison-Wesley. All rights reserved. Figure 18.1: Adjusted Net Savings and Its Components.

13. 18-12 © 2011 Pearson Addison-Wesley. All rights reserved. Figure 18.2: Human Development Index for Sweden, Brazil, Ethiopia, and India.

14. Why have an HDI? Is there more to be learned from HDI than from GDP? –Think of an oilopoly that stashes it cash in a swiss bank account. –How about Cuba in its heyday with just enough food and healthcare and lots of education? 18-13 © 2011 Pearson Addison-Wesley. All rights reserved.

15. Are Richer countries cleaner Maybe 18-14 © 2011 Pearson Addison-Wesley. All rights reserved.

16. 18-15 © 2011 Pearson Addison-Wesley. All rights reserved. Figure 18.3: Environmental Kuznets Curve for SO x.

17. 18-16 © 2011 Pearson Addison-Wesley. All rights reserved. Figure 18.4: Greenhouse Gas Emissions and U.S. Real GDP.

18. Why is China (or at least Beijing) getting cleaner? Physical answer: moving out polluting industry and even closing it. More mass transit. Controlling erosion. Etc. Economic Answer: Why? Hint: they are getting much more income over time. 18-17 © 2011 Pearson Addison-Wesley. All rights reserved.

19. Jobs and Environment US as a whole. Supply equals demand for labor. Makes no difference whether we make cars or Modern Dance instruction. CA. Isn’t it possible that we are so clean that no one can work here? All industry and people move to Texas? –But there is no evidence that this happens. 18-18 © 2011 Pearson Addison-Wesley. All rights reserved.

20. CDM Clean Development Mechanism –A project in a developing country that saves carbon. Example: Better cement kiln in china. –Carbon savings are sold to an EU country that has obligations under Kyoto/EU trading scheme. –Additionality. Did the CDM do more than they would have done anyway? 18-19 © 2011 Pearson Addison-Wesley. All rights reserved.

21. CDM—emissions trading Works just like our emissions trading diagrams. –Do the cleanup where it is cheaper. 18-20 © 2011 Pearson Addison-Wesley. All rights reserved.

22. REDD/REDD+ United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries Same idea as CDM—except save carbon by keeping forests. –Verification is very, very hard. –Additionality is hard, too. 18-21 © 2011 Pearson Addison-Wesley. All rights reserved.

23. IPAT Impact = Pop * Cons/Pop * impact/cons –My view: The biggest and most important pollution control project on the planet is the one child policy in China. Policy is a real burden to average person. Policy will save the pollution from perhaps a ½ billion people over the next 20 years. Comparison: Nile river basin—Ethiopia at 80m and 3% growth. 18-22 © 2011 Pearson Addison-Wesley. All rights reserved.