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'GDP ignores vital indices of national wealth'

Aug 10, 2009

The global obsession with robust gross domestic products is giving way to a novel and controversial concept – the Green GDP that seeks to evaluate and place a monetary figure for a country’s environmental resources. Prerna Singh Bindra takes a look at the new ways to save the earth.

If you knew it costs the earth Rs 15 lakh a year to pay your car’s EMI, would you still buy new wheels? Would you rather have electricity for 10 years or oxygen for 100? Choose: fresh drinking water until 2099 or aerated drinks until 2050?

These aren’t inane questions but real choices and challenges that will soon influence global growth, as colossal environmental costs overshadow economic progress in the era of climate change. Battling these questions and the difficult face-off between environmental concerns and development goals, some countries are now considering supplementing Gross Domestic Product (GDP) calculations – the conventional index of national wealth – with ‘Green GDP’, an exciting and controversial new concept.

Green GDP seeks to evaluate and place a monetary figure for a country’s environmental resources. Simply put: if you know the cost of something, you will value it. If you don’t have a cost for something, you are happy to throw it away.

"Green GDP seeks to evaluate and place a monetary figure for a country’s environmental resources"

Says Pavan Sukhdev, founder of the Green Indian States Trust (GIST) and pioneer of the Green GDP concept in India: “The traditional GDP simply does not measure the value of forests in national economy. In that sense, it is not a true reflection of wealth at all. The GDP must be made to take into account the value of natural capital that is being destroyed – forest losses, degradation, declining water quality, etc. – and the creation of human capital in terms of education.”

But how is one to put a price tag on Corbett National Park or Ranthambhore National Park or the impenetrable forests of Arunachal Pradesh? The parameters of the Green GDP are still debatable, and the practicality of using it received its first setback in 2005 when China, reportedly the only country to have officially computed it, abandoned the exercise two years after it began.

Calculating the cost of natural resource

In India too, while the Ministry of Statistics and Programme Implementation is now readying a national database to calculate the cost of natural resource depletion, a highly placed source in the government says that this will be, at best, an academic exercise.

However, none of this negates the fact that the traditional GDP ignores vital indices of national wealth and well-being and falls short of being a real indicator of growth. The men who designed the conventional GDP in the World War II era themselves recognise its limitations.

Upon winning the Nobel Prize for Economics in 1984, Richard Stone, one of the creators of the GDP measure, stated that societal analysis ought to rest not only on economic studies, but also on socio-demographics and environmental phenomena. Says Sameer Sanyal, who co-authored GIST, “The message was that the GDP was a work in progress.”

To illustrate the fallacy of the current GDP measure, Sanyal talks about the worth of a pristine rainforest. “If we cut it down we will be destroying huge value in terms of biodiversity, watersheds, carbon sequestration, flood control, non-timber forest produce and so on. Yet in the current system, the destruction of all that value will show up as positive GDP growth from logging!”

The GDP, therefore, can only be a true reflection of national wealth and value generated if we assign monetary values to intangibles such as air and water pollution, deforestation and land degradation, as well as changes in human capital such as improvements in health and education.

Such computations, environment economists feel, are vital for making informed choices and deciding on development tradeoffs. For example, would it be worth building a dam if it submerged a forest with a value of, say, Rs 5,000 crores?

What is the cost of building a mall over city green space? Citizens of Delhi might identify with this question.

If the Green Brigade, as it battled against swanky malls trampling the Delhi Ridge, could have quantified in monetary terms the oxygen released, carbon sequestered and water retained, perhaps the projects would not have gone forward. As a result, we would have had clearer air and more groundwater, if a little less of Bulgari and Nina Ricci.

"If the Green Brigade, as it battled against swanky malls trampling the Delhi Ridge, could have quantified in monetary terms the oxygen released, carbon sequestered and water retained, perhaps the projects would not have gone forward"

Attaching value to green assets

The idea of attaching economic values to green assets gains even more urgency in the context of climate change. For instance, the European Union–commissioned Economics of Ecosystems and Biodiversity (TEEB) study, led by Pavan Sukhdev, concluded that the cost of natural decline dwarfs losses on the financial markets.

As Lord Nicholas Stern, who authored the path-breaking Stern Review, said: “A business-as-usual scenario would shrink the world economy by at least five and perhaps even 20% of the global GDP.”

This is bad news for India, which is especially vulnerable to climate change with its long coastline and rivers fed by Himalayan glaciers. The impacts are being felt in the form of receding glaciers, increasingly dry or overflowing rivers and extreme weather unpredictability, including droughts, cyclones and floods. Climate change, with its horrifying human and economic costs, is beating down our door.

This is very evident, for instance, in Himachal Pradesh, where apples are the main produce of an agrarian economy. Sanjay Chauhan, joint secretary of the Himachal Kisan Sabha estimates that nearly 90% of this year’s apple crop failed.

“A good crop of apples requires about 1,200 chilling hours, adequate snowfalls and rains”, says he, but a truant snowfall and higher temperatures have led to recurring crop failures. Apple yield has halved in the past decade. For 80% of Himachal’s marginal farmers, such climatic changes have already become a question of survival. Reacting to this, in June this year, the state started a pilot insurance scheme covering risks arising out of changing climate parameters.

Such crises abound elsewhere in the country. Given these increasing alarm signals, India has been galvanised into computing the value of its forest cover, a vital exercise given that deforestation accounts for nearly 25% of greenhouse gases.

Jairam Ramesh confirms that the government is “engaged in a technical exercise to assess the contribution of India’s forest cover in capturing carbon dioxide”. But this too has its downside and is being hotly debated in environmental circles.

"The government is engaged in a technical exercise to assess the contribution of India’s forest cover in capturing carbon dioxide”

As Ramesh says, the economic value of forests is indisputable, but they also have an intrinsic value that should not and cannot be monetised.

“The purpose of computing these values is academic and to have a knowledge base”, says he. “The idea is to quantify the carbon capacity of our forests to serve as a basis for our climate change negotiations. We want to be in a position to say, this is the contribution of India’s forest cover to the absorption of carbon, this is the magnitude of carbon sinks India has, and we need to get credit for that. Our position is that we need to get credit not just for stopping deforestation but for promoting reforestation.”

Several NGOs are now engaged with computing economic values for our natural resources. Ranjit Barthakur, founder of NatureFirst, has proposed a ‘carbon sink reserve’ encompassing about 3,500 square kilometres of forests across Assam and Arunachal Pradesh. He is also campaigning for a new overall way to place value on ecological assets and define new frameworks for development – a framework he calls ‘naturenomics’.

Under this, highly forested states would be monetarily compensated by the Centre for promoting carbon storage and conserving ecosystems instead of destroying forests. This sort of revaluation of natural resources would redefine ‘poorly developed states’ as rich in natural assets and hence economically wealthy. Arunachal Pradesh, for instance, constitutes about 15% of the total forest carbon reserve of the country and would command many crores of rupees for this sequestration.

Need to invest in natural resources

This practice of ‘payment for ecosystem services’ to states has already found a place in Indian government policy.

In 2004, the 12th Finance Commission recognised for the first time the need to invest in natural resources in this manner and earmarked Rs 1,000 crore over five years to be given to states for preserving forests. Currently, the 13th Finance Commission has commissioned a study into the forest wealth of states so that they can be allocated resources accordingly.

The argument that nature should be economically valued is succinctly laid out in a recent Nature editorial: “As long as the marketplace treats [nature’s] services as free goods, the value of what nature does for humanity will effectively be set to zero and nature will continue to be trashed. But if the market could somehow be made to price the services appropriately, all those forests, streams, lakes, prairies and seashores would suddenly acquire real economic value, and people would have incentives to preserve them.”

This reasoning is sound, but how accurately can one compute the services rendered by biodiversity? If we do not understand their intrinsic value, how can we put a “fair price” on them as GDP – itself an imperfect, inequitable valuation?

Besides, we must ensure that compensation for ecosystem services is equitably distributed and does not fall into the pockets of the rich and powerful.

"Besides, we must ensure that compensation for ecosystem services is equitably distributed and does not fall into the pockets of the rich and powerful"

Sunita Narain, director of the Centre for Science and Environment, echoes this concern. In the Niyamgiri hills of Orissa, for instance, where rampant mining has been allowed, the forests are compensated at ‘net present value’ – a paltry amount considering the area’s natural value and the livelihoods of people dependent on the forest. With this, conservation has become a mere money game, she says.

“If you can pay, you can cut the forest, destroy the wildlife. No forest is so priceless it cannot be cut, no land so inviolate it cannot be had.”

There are many like Narain who argue that nature should not be further commodified. Water already comes in plastic bottles and tigers are put on show for paying audiences. One might therefore question the ethical value of putting a price tag on each tiger and tree, making nature justify its existence in monetary terms for the selfish purposes of man. But, equally, if we are to save our natural resources, perhaps this is what we must finally do.

Source : Tehelka
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