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Taking account of China’s growth

China boasts the fastest growing economy in the world. But how to calculate this development’s impact on natural resources, on public health and the environment? Pan Yue sets out the case for green GDP accounting.

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To understand the total volume of a country’s economy at any period in time, we must look at its Gross Domestic Product (GDP). There are two main ways to calculate this: one can measure the country’s total revenue, in salaries, profits, interests and so on. Or one can measure the country’s expenditure: spending on consumer goods, investments, net export etc. These two numbers, of total revenue and expenditure, should be the same. GDP can express a country’s total economic output and its national income level quite accurately. 

GDP is, at present, the accounting system for China’s national economy. In fact, every country in the world has adopted GDP as their accounting system, and it has become the standard for measuring the development level of a country.

But, as they say, there’s no such thing as a “free lunch.” Increases in a country’s total economic output will certainly mean an increase in the consumption of natural resources; pollution and environmental damage will also increase. GDP statistics only show the total economic revenue or output, and do not show environmental costs. There is no number that can quickly help us ascertain the ecological situation in a country. But the environment is an integral part of a country’s economy.

In the absence of ecological factors, a GDP figure cannot give a comprehensive picture of a nation’s economic situation. The numbers may even look ridiculous, since environmental pollution may in fact cause an increase in GDP. For example, in the case of a flood, a dam has to be constructed to prevent it. This will lead to an increase in investments and salaries, and therefore an increase in GDP. This is also true where pollution makes people ill; despite the obvious pain and loss, the increase in patients will lead to growth in the medical industry – and increase GDP.

In the past 20 years, China’s economic growth has been the fastest in the world. But how to calculate the cost of this development, in terms of loss in natural capital and environmental damage? Aside from the environmental angle, from a social point of view, GDP does not reflect quality of life, wealth distribution or income disparities between rich and poor. GDP statistics have some obvious defects, but no amendment has ever been made to them.

Since the middle of the last century, along with the development of the environmental movement and the rise of the concept of sustainable development, some economists and statisticians have tried to incorporate environmental factors in their calculations. This is what is called “green GDP.” It is the adjustment of GDP indicators to represent GDP after deducting environmental costs. Experts in China and the rest of the world have worked on this in recent years, and although some progress has been made, there are still many points of contention. Some countries have already adopted green GDP calculations on a trial basis, but there has never been a green GDP assessment model that is accepted by all nations. No government has ever announced their green GDP results.

Difficulties

Implementing green GDP throws up a number of technical and ideological difficulties.

Firstly, GDP takes the market as a precondition. Once a product or job comes to the marketplace, its value is decided by supply and demand. It has a market price, and its worth can only be defined when it is sold. That is to say, the only authoritative way to calculate GDP is by looking at free market prices. But how do we evaluate environmental factors? They are not sold on the market, after all. When a forest is chopped down and the logs are sold, there is a price that can be counted in a GDP calculation. But how can we measure losses caused by the death of animals whose lives rely on the existence of the forest? Or the losses of soil and water caused by the forest disappearing? The animals and the soil do not have market prices. We don’t yet know how to define their value. 

Many methods for calculating this have been proposed. They are as yet imperfect, but can only be reinforced and improved with time. But in some cases, the environmental cost of a specific project can actually be evaluated through market pricing. For example, pollution in southwest China’s Dianchi Lake has been very serious in the past several decades due to pesticide runoff from surrounding farmlands and waste from nearby chemical plants. Add together the total profits of those surrounding farmlands and the chemical plants, and it will come to several billion yuan. But to make the water of Dianchi as clear as it was previously, and turn poor-quality “category five” water into good-quality “category two” water, it would costs tens of billions of yuan. Calculated in this way, even without including other losses – such as vanishing species of fish – the economic activities around Dianchi Lake are making a huge loss.

Green GDP would also mean a great change in our ideas: a completely new way of thinking about development and the evaluation of officials’ political performance. Once green GDP is implemented, the word “development” will have a different meaning and a different measure. By deducting the environmental cost, the data for economic development of some areas will decrease greatly. This means that green GDP also will lead to great changes in the performance evaluation system for cadres. In the past, GDP was the main evaluating factor in the performance assessment of local officials. Many cadres will find it difficult to combine economic growth, social development and environmental protection, and may try to resist this change. Changes in ideas have to win out over time, through gradual, difficult processes. A reform such as this will increase fairness and efficiency, and is a great development in the theory of the socialist market economy. We should expect that along with the development and implementation of green GDP, the degree of environmental protection will become important evaluation criteria in the promotion of officials.

We must work hard to establish a green GDP that is suited to China’s particular characteristics, and make our contribution to the development of green GDP throughout the world.

Green GDP elsewhere

Although it is difficult to calculate environmental costs in green GDP, great progress has been made in developed countries.

In Norway, the calculation of natural resources costs started in 1978, with a focus on water, biological, mineral and other ecological resources. Other factors such as soil and air pollution, as well as two kinds of water pollution (nitrogen and phosphorus) are also included. For this purpose, they have built a very detailed statistical system that includes energy expenditure, forests, fisheries, recycling, as well as air and water pollution.

Emulating Norway’s example, Finland also set up a natural resource calculation system that includes forest resources, air pollution and environmental protection expenditure, of which forest resources are the most important. In calculating forestry resources and air pollution, physical quantities are taken into account, whereas monetary value is used to calculate environmental protection costs. Other developed countries, such as France and the US have also considered a green GDP system. And although Mexico is a developing country, it has also implemented a green GDP calculation. Supported by the United Nations, Mexico in 1990 included petroleum, land usage, water, air, soil and forest resources in its calculations of the environmental costs of development. Information on natural capital loss is evaluated to ascertain economic losses, as well as the costs of environmental degradation. Mexico’s calculation methods have also begun to be implemented in Indonesia, Thailand, and Papua New Guinea, and the experience of these developing countries may have more reference value for China. 

In 1997, the World Bank continued these efforts by publishing Expanding the Measure of Wealth, a report that highlighted four major aspects of wealth that had been overlooked: natural capital, production capital, human capital and social capital, thereby allowing the meaning of “wealth” to become larger.

Since 2003, China’s National Bureau of Statistics has made material evaluations of the country’s natural resources. This calculation is an important base for the development of green GDP. In 2004, the National Bureau of Statistics and the State Environmental Protection Administration formed a joint green GDP unit, which has been actively carrying out research and experiments.

Public participation

There is an important relationship between green GDP and public participation. Public evaluation is an important way of determining green GDP, already applied in a number of countries, since environmental risks are often very difficult to evaluate monetarily. For example, to calculate the ecological effects of large construction projects, public opinion is often consulted. Independent, professional consultants conduct public surveys to canvas public opinion. People will make a truthful assessment of a project when it is so closely related to their physical and mental health. Therefore, green GDP needs to include public participation. We must listen to public opinion on economic benefits and environmental costs, and use these opinions as a dimension of the green GDP system. 

Public participation in environmental protection is part of the development process of a socialist democracy. We need economic development, but we also need a healthy natural environment and a fair and harmonious society. Sustainable development should include three aspects: economic growth, social development and environmental protection. These three aspects must be balanced if we want to create a human-oriented society. Public participation is a key factor that reflects the development of a society, and is a requirement for of both economic growth and environmental protection.

In establishing green GDP, we should not rely too much on technical tools, which will be continually improved. Scientific data is certainly very helpful in making correct decisions, but public participation and democratic processes are the determining factor that will ensure the majority of people benefit from the system. Environmental protection is impossible without broad participation and public support. Therefore, at the same time as establishing green GDP, we should also work hard on public participation. Otherwise, environmental protection and green GDP calculations will become a job for a small number of people – and will certainly fail. 

Changing GDP from a measurement of economic growth to a measurement of natural resources, environment and social development is a great challenge and a great hope. Let’s get to work. 

 

Pan Yue is deputy director of China's State Environmental Protection Administration (SEPA). Part of a new generation of outspoken Chinese senior officials, Pan has given rise to a tide of environmental debate, attracting enormous attention and controversy. This essay was first published (in Chinese) as A talk about green GDP (2004).

Also by Pan Yue on chinadialogue:

The environment needs public participation

Homepage photo by Graeme Nicol

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评论 comments

Default avatar
匿名 | Anonymous

绝对是挑战

绿色GDP,谈何容易?

That's absolutely challenging

Green GDP, it is easier said than done, right?

Default avatar
匿名 | Anonymous

向绿色GDP前进

绝对支持绿色GDP

GO GREEN GDP

Definitely support the Green GDP

Default avatar
匿名 | Anonymous

绿色GDP推进到哪一步了?瓶颈在哪里?

绿色GDP的雷声响了一阵了,雨点好像还没落下来。究竟推进到哪一步了?遇到了哪些难题,瓶颈在哪里?

How far can green GDP go? Where's the bottleneck?

The thunderclap of green GDP has sounded for some time now, and it's rained a bit though still not really poured. After all, how far will it go? What problems has it run into, what bottlenecks?

Default avatar
匿名 | Anonymous

让我们一步一步地来。

潘局长讲得好,让我们一步一步地来。中国的环保已经基本走过了唤醒民众的初级阶段,走进了需要切实解决问题的中级阶段。现在,汪永晨这些热情高昂,善于抗着大旗奔走呼号的宣教者也已经基本完成了他们的历史使命。现在所需要的是本着科学的精神,埋下头来,从每一个环节每一个细节去对症下药,这些脚踏实地一步一步走路的人才能从根本上真正解决中国的环境问题。

Let us go step by step

Minister Pan speaks well: let us go step by step. China's environmental protection movement has completed upon the fundamental initial stage of alerting the broader public, and has entered into the middle stage of needing a feasible solution to the problems. Now Wang Yongchen and those other highly enthusiastic prostletyzers, good at rushing about campaigning, have already entirely fulfilled their historical role. Now what's needed is a truly scientific spirit, putting one's nose to the grindstone. Based on every single link, every single detail, we must treat the illness based on the right diagnosis, so those men who earnestly and conscientously proceed step by step down the path will be able to solve China's environmental problems on the most fundamental level.

Default avatar
匿名 | Anonymous

不能总拿GDP说事

人民的幸福和健康似乎不是用GDP可以衡量的,就象有钱未必幸福一样.关键是大众的环保意识和正确的方法.

Don't take advantage of GDP

Well-being and health cannot be measured by GDP, just like richness cannot bring happiness. What really matters are people's awareness and the correct way for protection.

Default avatar
匿名 | Anonymous

可是不谈GBP地方官员永远都无动于衷

利益集团的观念改变只能靠利益的改变,无论是企业还是地方政府

local officials are all unmoved without mentioning GDP

Only the change on distributing benefits can change the ideology of those interest groups, which can either be companies or local governments.

Default avatar
匿名 | Anonymous

我不太明白你的意思。我要求你给我一些关于中国自然资源的例子,但是你却答非所问。

hey

i dont get this i asked you for some examples of china`s natural resources and you gave me the wrong thing

Default avatar
匿名 | Anonymous

回复7号评论

我个人认为这篇文章就是关于中国自然资源的文章。但是它并不是一篇简单的资源状况介绍,而是涉及到远比这个复杂得多的话题。理解这篇文章的关键在于:“一个国家的经济产出的增长就必然意味着自然资源消耗的增长,同时环境污染和损耗也在增长。GDP数据只是显示了经济产出,而没有显示出环境损耗。” SL

Re: comment 7

In my opinion, this article is very much about natural resources, but I do understand that it's a complex article and not an introductory piece. The key to understanding the thrust of the article is here:

"Increases in a country’s total economic output will certainly mean an increase in the consumption of natural resources; pollution and environmental damage will also increase. GDP statistics only show the total economic revenue or output, and do not show environmental costs."

SL