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China’s “light green” GDP

Stephen Green

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A recent “green accounting” report put a headline-grabbing price tag on China’s growth. But how far is the country from calculating its real “green GDP”? Stephen Green reports on the measures that may help to assess its sustainability.
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A small green bud sprouted in China’s statistical forest when a report that summarised the country’s first effort at “green accounting” was published in September 2006. The report was the result of two years’ work by China’s National Bureau of Statistics (NBS) and the State Environmental Protection Administration (SEPA). It had backing from senior leaders who increasingly talk of “sustainable development”, a concept that many environmentalists understand as economic growth that does not damage the value of nature’s assets.

There were three headline conclusions to the NBS-SEPA report. Firstly, China emitted 511.8 billion yuan (US$64 billion) worth of pollution in 2004, equivalent to 3.1% of GDP. Secondly, the estimated clean-up cost for this pollution was calculated at 287.4 billion yuan (US$36 billion), 1.8% of GDP –around three times more than the actual money spent (100.5 billion yuan, or US$13 billion). Thirdly, if the country used current technology and today’s standards to solve this pollution at the source, it would need a one-off investment of 1,080 billion (US$135 billion), 6.8% of GDP. China’s 11th Five Year Plan, which began this year, calls for 1.4 trillion yuan (US$175 billion) to be spent on environmental clean up – 280 billion yuan a year, a figure similar to the 2004 clean-up cost. But it still looks like NBS and SEPA are positioning this report as a call for a much larger investment.

The report was an important move, but at 10 pages – at least in the public version – it was only a start.

 © Rob Welham 

Economists like to measure gross domestic product (GDP) – goods and services produced – since it is a straightforward concept, it is relatively easy to calculate and is comparable across time and place. But GDP does not capture the cost of using up finite resources and the price of environmental damage, both of which will undermine future GDP growth. Over the last 30 years, economists and environmentalists around the world have attempted to come up with alternative measures or to adjust GDP to correct for this problem. The “holy grail” has been “green GDP”: a single number equal to the value of goods and services minus all the resource depletion and value of environmental damage.

It is not surprising that environmentalists and political leaders want to know their green GDP, and how fast it is growing (or declining). In theory, it allows for the sustainability of development to be easily tracked. The big attraction for China is that if local government officials were evaluated using this metric, it could provide a powerful incentive for them to protect their local environments.

But the experience of places like Norway and the US is that green GDP is near impossible to calculate – and not that useful anyway. Coal is easy to price since people buy it, but how do you price clean air and how do you value a forest that is not being cut down? How do you calculate the damage to underground water, to human health and ecological systems? Such questions seem endless, and green GDP requires all of them to be answered consistently and accurately.

Recognising these limitations, the surveys NBS and SEPA carried out in 2004-05 did not attempt to assess resource depletion or any damage to China’s ecological systems. On the one thing they did measure – pollution emissions – they only tracked 10 of the more than 20 types of pollutant. In short, they only measured the tip of China’s environmental iceberg.

 © Rob Welham 

However, not all of the issues raised by green GDP are insurmountable. Economists recommend three ways around them, and China does appear to be adopting all of them. Firstly, China’s environmental statisticians have begun to use physical flow accounting: tables which allow one to track pollutants as they move around economies, even across national boundaries. These help with assessments of sustainability in various parts of the economy – and in designing policies that will lead to improvements.

Secondly, China has started to use distinct environmental measures to monitor the environment and provide incentives for local officials. Some countries go in for big measures of development, such as the “Genuine Progress Indicator: a composite index of a number of economic, social and environmental indicators. But a lot of things get mixed up in such indices, and it is ultimately more useful to break things down.

The 11th Five Year Plan has made a start at this, setting up targets in a number of different areas, such as energy efficiency (reducing energy-use per unit GDP by 20% compared to the 2005 level), and water consumption (reducing per unit industrial output by 30%). It also features targets on air pollutant emissions, water quality and protection of arable land. Data for 2005 and the first half of 2006 suggest that air and water pollution indicators are going the wrong way. Energy efficiency also fell by 0.8 percentage points when it should rise four percentage points over the entire year. Local officials must be sensing that such things are beginning to make a difference to their promotion prospects.

Thirdly, the NBS-SEPA team has appeared to tackle the valuation question head-on. For instance, they value air pollutant emissions in 2004 at 511.8 billion (US$64 billion), equivalent to 3.1% of GDP. This is a useful step – it creates press headlines in which environmental costs come with a price tag that everyone understands, and it should also allow officials to start rationally assessing policy choices with cost-benefit analysis.

Monitoring is one thing, but enforcement of course is another. At present, provincial, municipal and even county SEPA offices are run primarily by local governments. This is a widespread problem in China, where local directors of such bureaus owe their appointments, budgets and promotions to local leaders, and so are always under pressure to side with local interests. When SEPA attempt to investigate, fine or close down polluting facilities, localities often simply ignore them. But now there is some discussion of the system being reorganised to allow SEPA to gain administrative control – with the first step being the recent establishment of five regional offices.

Sadly, however, it may require a serious crisis to trigger the kind of restructuring that would be needed. It would be regrettable, to say the least, if it took a bigger environmental disaster than the 100-tonne benzene spill into the Songhua River in Jilin province in December 2005 to encourage this. Without better enforcement, it is difficult to be optimistic about slowing the pace of depreciation in China’s natural environment – and it will be doubly painful if we can measure it.

Dr. Stephen Green is a senior economist at Standard Chartered Bank in Shanghai.

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How about green GDP in Europe and the US?

China just introduced green GDP in recent years. I am eager to learn more about green GDP in Europe and the US, and how green they are? What could actually China learn from them?


热力学第二定律决定了经济学定律。所有的经济行为都阻碍“生态系统服务”——因为所有的经济行为都需要获取能源和材料却返回废弃物,这种循环破坏了地球和大气的正常循环。艘游的经济行为都有“外部消耗”,如果我们对这个消耗做一个统计,这个数据绝对惊人。到目前为止人类还没有引起对生态影响的充分注意——但是随着经济行为的增长,自然灾害带来的影响会越来越突出。不幸的是,时间上的滞缓仍然存在——哪些方面被注意到了,什么方面是被允许计算在内的,我们所做的远落在实际需要之后。但是,这还不仅是因为缺乏生态系统破坏的科学知识和限制生态耗费计算的社会耗费的问题。民族理论家称之为“道德冒险”的东西同时也是存在于中国和其它地区的一个因素。作出经济决策并从中受益的人显然是占上风,而占下风的人则要为此付出代价。道德冒险也是有时间尺度的——眼前人受益,承担后果的人将是现在的儿童这一代或者尚未出生的一代,所以我们听不到反对的呼声。道德冒险意味着有特权的决策者为使他们的利益不受到损害,会避免把资源用于找出对社会和生态造成危害的投资。发现社会和生态危害不可能在一个大众无法自由进行研究,组织和谈论的社会中实现。多方参与,多种话题以及多种标准的过程可在一个民主决策过程中综合成为一个整体。不仅对中国,而且对整个世界目前的任务就是利用多方力量,各学科和民主的方法来促进生态经济学发展。Brian Davey Feasta

Counting and Participative Economics

The second law of thermodynamics set the context for the laws of economics. All economic activities degrade "ecological system services" - they all require energy and materials from the earth and return as wastes to the earth and atmosphere increasing disorder. So all economic activities have "external costs" and if we were to calculate them all the task would be utterly vast.

Up to now humanity mostly hasn't bothered to measure or notice its ecological impacts - but as the scale of economic activity has increased the catastrophic magnitude of natural impacts have become unavoidably noticeable. Unfortunately there is still a time lag - what is noticed, and what statisticians decide, or are allowed to count, lags far behind the real scale of problems.

However, it isn't just the lack of scientific knowledge of eco-system damage and social costs that limits ecological cost counting. What ethical theorists call 'moral hazard' is also a factor - in China and everywhere else. Those who take economic decisions and benefit from them are typically upwind those who bear the costs are downwind. Moral hazard also has a time dimension - the benefits are now the costs are born by generations who are still children or who are not alive yet, so have no voice. Moral hazard means that privileged decision makers prevent resources being allocated to finding out about social and ecological costs as their interests might be damaged by what is found out.

Finding out about social and ecological costs can't be done outside of a social dialogue where people are free to research what is happening, to organise and to speak up, or find people to do it for them - and then a process where multiple stakeholders, issues and criteria can be synthesised in a democratic decision making process. That defines the task, not only for China, but also for the rest of the world using the participative, multi-disciplinary and democratic methodologies of ecological economics.

Brian Davey



it takes time for chinese local office to automaticlly pay attention to the enviromental issues, hopefully the central government can re-organize the judicail power of the NBS,SEPA

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