Environmental and Natural Resource Economics 3rd ed. Jonathan M Environmental and Natural Resource Economics 3rd ed. Jonathan M. Harris and Brian Roach Chapter 8 – National Income and Environmental Accounting Copyright © 2013 Jonathan M. Harris

Figure 8.1: Indonesian GDP Adjusted for Resource Depreciation, 1971-1984 This classic natural resource depreciation study indicated that the environmentally-adjusted domestic product for Indonesia was generally much lower than standard GDP, and slower-growing. The temporary spike in EDP reflects an increase in world oil prices used to value oil Indonesian reserves, as well as a discovery of new reserves. Source: Repetto et al., 1989.

Figure 8.2: Calculation of Adjusted Net Saving 15 Depreciation of fixed capital Percent of GNI 10 Education expenditure 5 Depletion of natural resources Adjusted net saving takes into account the negative effect of natural resource depletion and pollution damages, as well as the positive effect of education expenditures. Pollution damages -5 Gross Saving Net Saving Net saving plus education expenditure Adjusted net saving excluding pollution damages Adjusted net saving Source: World Bank, 2012. Note: GNI = gross national income.

Fixed capital depreciation Education expenditure Table 8.1: Adjusted Net Saving (ANS) Rates, Selected Countries in Percent of GDP, (2008) Country Gross national saving Fixed capital depreciation Education expenditure Energy depletion Mineral depletion Net forest depletion Carbon damage ANS Chile 24.23 –12.86 3.60 0.26 –14.32 0.00 0.31 0.08 China 53.89 –10.08 1.80 –6.74 –1.70 –1.26 35.92 Congo, Rep. 26.68 –14.08 2.25 –71.19 –0.16 –56.50 France 18.74 –13.86 5.05 –0.03 –0.10 9.80 India 38.17 –8.49 3.17 –4.86 –1.42 –0.78 –1.16 24.64 Indonesia 22.25 –10.66 1.15 –12.60 –1.38 –0.61 –1.85 Russia 32.78 –12.39 3.54 –20.47 –1.00 –0.85 1.62 Saudi Arabia 48.33 –12.46 7.19 –43.51 –0.62 –1.06 Uganda 12.63 –7.42 3.27 –5.06 –0.15 United States 12.60 –13.96 4.79 –1.93 –0.11 –0.31 1.07 Adjusted net saving is typically much lower than gross national saving, often due to depletion of energy and mineral resources. Uganda is an example of a country with severe forest depletion. Source: World Bank, 2012.

Figure 8.3a: Adjusted Net Saving, 1982-2008, World Bank Country Aggregates: High Income Countries, South Asia, Middle East, and North America Trends over time show adjusted net savings decreasing in high-income countries, but rising in South Asia.

Figure 8.2: Adjusted Net Saving, 1982-2008, World Bank Country Aggregates: East Asia and Pacific, Latin America and Caribbean, Sub-Saharan Africa Adjusted net savings has increased in East Asia, but fallen in sub-Saharan Africa. It has remained fairly steady in a range of 5-10% in Latin America and the Caribbean. Source: World Bank, 2012. Note: ANS = Adjusted Net Saving

Value (billions of dollars) Table 8.2: Genuine Progress Indicator (GPI), United States, 2004 Component of GPI Value (billions of dollars) Personal consumption 7,589 Personal consumption after inequality adjustment 6,318 Value of household work and parenting +2,542 Value of higher education +828 Value of volunteer work +131 Service value of consumer durables +744 Service value of highways and streets +112 Costs of crime –34 Loss of leisure time –402 Costs of underemployment –177 Cost of consumer durables –1,090 Costs of commuting and auto accidents –698 Costs of environmental defensive expenditures –21 Costs of pollution –178 Value of lost wetlands, farmland, and forests –368 Costs of nonrenewable energy depletion –1,761 Damages from carbon emissions and ozone depletion –1,662 Adjustment for capital investment and foreign borrowing +135 Total 4,419 The Genuine Progress Indicator “deconstructs” GDP to identify positive and negative elements of economic activity. Long-term resource depletion and damages from carbon emissions and ozone depletion are large negative factors in the overall GPI measure. Source: Talberth et al., 2007.

Figure 8.4: Comparison of GDP and GPI per Capita, United States, 1970-2004 While GDP has risen over time since 1950, GPI seemed to reach a maximum around 1975, and has not increased significantly since then. Source: Talberth et al., 2007. Note: GPI = Genuine Progress Indicator, GDP = gross domestic product.

Figure 8.5: New Zealand’s Auckland Regional GPI vs. GDP, 1990-2006 A regional GPI analysis of Auckland in New Zealand shows similar trends in GDP and GPI between 1990 and 2006, but that the growth in GPI is due to rising personal consumption, while environmental damages increased over the period. The rate of growth in personal consumption more than offset the environmental losses in overall GPI. Source: McDonald et al., 2009. Note: GPI = Genuine Progress Indicator, GDP = gross domestic product.

Figure 8.6: Components of the GPI for Maryland, 1960-2010 An analysis of GPI for Maryland shows that while economic indicators improved over the period 1960-2012, environmental indicators generally declined. Source: www.green.maryland.gov/mdgpi/mdgpioverview.asp.

Figure 8.7: Better Life Index Values for Selected Countries The multiple components of the Better Life Index allow comparison in different dimensions including environmental, health, and social indicators. Source: OECD, 2011.

Agricultural Land Resources Total Environmental Asset Value Figure 8.8: Example of Natural Resource Accounts Board-Feet of Standing Timber 500,000 400,000 Price per Board-Foot $5.00 $5.00 Timber Asset Value $2,500,000 $2,000,000 Forest Resources Year 1 Year 2 Hectares of Land 6,000 7,000 Price per Hectare $1,000 $1,000 Agricultural Asset Value $6,000,000 $7,000,000 Agricultural Land Resources $8,500,000 $9,000,000 Total Environmental Asset Value Decrease in Capital Stock Increase in Capital Stock Environmental asset accounts can be maintained in both physical and economic units, giving a detailed picture of a country’s natural resources and trends over time, and also allowing calculation of total environmental asset value.

Table 8.A1: Historical Gross Domestic Product (GDP) Data, United States Year Unadjusted U.S. GDP ($ billion) Unadjusted GDP per capita (dollars) GDP per capita in 2011 dollars 1950 294 1,929 14,920 1960 526 2,914 17,747 1970 1,038 5,064 23,586 1980 2,788 12,270 29,105 1990 5,801 23,252 36,476 2000 9,952 36,170 46,214 2011 15,094 48,409 GDP growth needs to be adjusted for inflation to get an accurate measure of trends over time. Source: U.S. Bureau of Economic Analysis and U.S. Census Bureau Web sites.