The building blocks for working out green GDP

01 Jun 2023
The building blocks for working out green GDP

Opinion: Deepika Chawla.

This involves accounting for both environmentally beneficial and harmful products, and doing the required data-gathering.

Growing environmental concerns have resulted in the demand for green national accounts that highlight the stock of environmental wealth, and its use and depletion by a society in its conventional national accounts. Incorporation of green accounts in conventional GDP requires expansion of the definition of production, consumption, and wealth. Both environmentally beneficial and harmful products must be accounted for in the national accounts. The social value of such products must be integrated with related economic activities.

In production it would amount to including environmentally beneficial/harmful goods and services. Final consumption would be segregated based on zero carbon generating, less environmentally degrading, and major environment depleting products.

The investment vector would then have zero carbon and conventional carbon generating technologies as categories. And financial services would need to show advances to both these technologies. As for human capital, bifurcation of jobs in conservation and conventional sectors would be needed. Factor payments advanced to human capital would then be split as green and conventional technology salaries.

Income of the government would need to illustrate taxes levied on and subsidies advanced to polluting sectors, environment-conservating technologies and efficient technologies.

The structure of production, costs of production and incomes generated by factors of production, flows of goods and services within the domestic economy and with the rest of the world are accounted in the ‘Supply and Use’ tables of the Ministry of Statistics and Programme Implementation (MoSPI).

Green national accounts
The formation of green national accounts, therefore, amounts to splitting of each good and service in the Supply and Use tables into at least two sectors (green and non-green). Green accounts should include activities that directly serve an environmental purpose and those that do not aim at zero emissions but help in reducing emissions. Such a compilation requires primary survey on environmental activities/ producers/ products as units engaged in environmental activity may also produce non-environmental products or vice-versa. It might be easier to describe the whole economic structure in terms of products as it is easier to capture products than activities. In this approach, products would be classified as pure-environmental, environmentally-cleaner or ‘normal/conventional’.

In case industries, instead of products, are used to describe the economy, producers will have to be segregated as primary, secondary and ancillary producers of environmental products. Inclusion of ancillary activities could help track and monitor emissions more efficiently. The treatment of ancillary products in the accounts will differ based on whether industry or product approach is used.

A green concordance table stating the correspondence between pure-environmental skills, cleaner skills and normal skills to products/ activities would also be required to classify the salaries made against each type of skill per product/activity. At the heart of its construct lies in estimating jobs in each and every type of production process with the help of a primary survey. This would also help in estimating direct and indirect employment linkages.

Though details of production, consumption, investment, employment, taxation and subsidies of sectors could be at different levels (depending on data availability), ideally they should be mutually consistent, as in describing the social value of each in monetary terms. The resultant green GDP would evaluate inter-generational well-being.

The writer is a consultant at NCAER.

Published in: The Hindu Business Line, 01 Jun 2023