The Problem with a "Green Domestic Product"

July 26, 2012

One of the recurrent themes at the United Nations' spectacularly unsuccessful Rio+20 summit in June was the need to change how we measure wealth. Many argue that we must abandon our obsession with gross domestic product (GDP) and develop a new "green" accounting standard to replace it. Such a system, advocates suggest, would incorporate economic decisions to preserve the natural environment, says Bjørn Lomborg, an adjunct professor at the Copenhagen Business School.

However, greater understanding of such a metric reveals the fallacies involved. Notably, by placing a disproportionate focus on preserving the environment and maintaining the status quo, a "green" standard would stifle economic innovation and discourage civilization-altering discoveries.

The prototypical example reported in the run-up to Rio+20 and used to support "greening" GDP centered on the Nakivubo Swamp in Uganda's capital, Kampala.

  • Wastewater flows from the city toward Lake Victoria, but it is naturally purified by the swamp in a way that prevents the need for water treatment facilities.
  • Without the swamp's purification services, a study showed, Kampala would need a sewage plant costing at least $2 million a year.
  • Further, because the benefits of the cleaner water are estimated at $1.75 million, it was recognized by a green accounting standard that the economically efficient decision was to preserve the swamp for its purification uses.

This supposedly efficient decision, however, is ultimately misleading. The problem in this case is that, eventually, some proposal will come forth for the swampland that is more valuable than the $2 million that it is currently worth. But environmentalists, enabled by a green accounting standard, would block such a change in the name of preservation.

This outcome, which is inevitable given the swamp's proximity to a major city, underlines the problems with such a standard: they fail to account for long-term benefits yielded by short-term sacrifices.

  • For example, the World Bank claims that in order to be green, we need to take into account that consuming fossil fuels will deprive future generations of those resources.
  • In reality, burning fossil fuels over the past 150 years has enabled greater creativity and innovation that has vastly improved global quality of life.
  • Further, the burning of fossil fuels has allowed for the discovery and exploitation of substitutable sources of energy, such as natural gas from "fracking."

Source: Bjørn Lomborg, "The Problem with a 'Green Domestic Product,'" Slate, July 15, 2012.

For text:

http://www.slate.com/articles/health_and_science/project_syndicate/2012/07/the_rio_20_summit_focused_too_much_greener_ways_to_calculate_wealth_and_gdp_.html

 

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