Green Net National Product Research Articles

New Financing for Sustainable Development

We propose that national governments could issue bonds whose interest payments are linked to green net national product (gNNP) or, almost equivalently, to inclusive wealth. The main intention of this new financial instrument is to entice investors and the national government to invest in human and natural capital for which the corresponding financial assets currently do not exist. As the concept of wealth expands to include human and natural capital, so should the corresponding assets side in the balance sheet of nations. While the argument for gross national product (GNP)–linked bonds focuses on trimming public debt toward fiscal sustainability, the proposed bonds aim to ensure long-term sustainability. The theoretical link associated with welfare economics is also more plausible. Moreover, it could lead to the virtuous cycle of increased government expenditure directed toward inclusive wealth, expanding tax revenue, increased coupon payment to investors, and increased social well-being.

Estimating Green Net National Product for Puerto Rico: An Economic Measure of Sustainability.

This paper presents the data sources and methodology used to estimate Green Net National Product (GNNP), an economic metric of sustainability, for Puerto Rico. Using the change in GNNP as a one-sided test of weak sustainability (i.e., positive growth in GNNP is not enough to show the economy is sustainable), we measure the movement away from sustainability by examining the change in GNNP from 1993 to 2009. In order to calculate GNNP, we require both economic and natural capital data, but limited data for Puerto Rico require a number of simplifying assumptions. Based on the environmental challenges faced by Puerto Rico, we include damages from air emissions and solid waste, the storm protection value of mangroves and the value of extracting crushed stone as components in the depreciation of natural capital. Our estimate of GNNP also includes the value of time, which captures the effects of technological progress. The results show that GNNP had an increasing trend over the 17 years studied with two periods of negative growth (2004-2006 and 2007-2008). Our additional analysis suggests that the negative growth in 2004-2006 was possibly due to a temporary economic downturn. However, the negative growth in 2007-2008 was likely from the decline in the value of time, suggesting the island of Puerto Rico was moving away from sustainability during this time.

A Study of Co-variation and Convergence of Alternative Measures of Sustainability on the Basis of Panel Data

The study highlights the need for creating alternative indicators of sustainability for considering a well guarded view about sustainable development of a country. The aim of the study is (1) to focus on different alternative measures of sustainability, (2) to assess whether these alternative measures move in the same direction which indicates peoples’ wellbeing as well as maintenance of environmental health and (3) to ascertain whether there has been some tendency towards convergence among the considered countries based on the alternative sustainability measures. Four alternative sustainability indicators like Green Net National Product, Ecological Footprint, Sustainable Human Development Index and Pollution Sensitive Human Development Index, for 22 developing countries have been constructed. Correlation matrix has been considered to focus on the extent of consistency between alternative indices. Unit root test has been done to ensure the stationarity of time series of such indices. The issue of convergence of different sustainability indices has been analysed by use of beta and sigma convergence employing pooled OLS and fixed effect model. It has been found that the different indices are more or less mutually consistent and stationary and over time they have converged across the considered countries. The results indicate that despite convergence coherent with Environmental Kuznets Curve hypothesis, the level of environmental degradation when linked to GDP per capita gives rise to an N-shaped pattern. The study suggests the need for diverse economic pollution control instruments to avoid degradation of the environment.

Intergenerational equity with individual impatience in a model of optimal and sustainable growth

Among the ethical objections to intergenerational impartiality is the violation of consumer sovereignty given that individuals are impatient. We accommodate that concern by distinguishing intra- and inter-generational discounting in an OLG model suitable for analyzing sustainability issues. Under the assumption of constant elasticity of marginal felicity, the optimum trajectory of aggregate consumption is guided, via the Ramsey condition, by the intergenerational discount rate but not the personal discount rate. In an economy with produced capital and a renewable resource, intergenerational neutrality results in a sustained growth path, without the necessity of a sustainability constraint, even in the presence of intragenerational impatience. We also find that green net national product remains constant along the optimal approach path to golden rule consumption.

A methodological improvement for assessing petrochemical projects through life cycle assessment and eco-costs

As the debate on how to effectively link life cycle analysis (LCA) and negative externalities of the products or processes is still unsolved, an improved methodology that involves the private and social (environment) profitability to petrochemical projects in Mexico is presented. We incorporate both environmental impacts, identified through the LCA, using the eco-costs model, within a project appraisal analysis. The eco-costs are a single LCA-based indicator of environmental burden, based on the concept of marginal prevention costs, i.e. costs required to bring back the environmental degradation to a sustainable level. The methodology was carried out in four steps. First, the potential environmental impacts (in physical units) were assessed through life-cycle assessment. Second, the marginal prevention costs of pollution (eco-costs) of impact categories were estimated. Third, since these monetary values are given for a European income level, eco-costs were adjusted to Mexican income levels (i.e., benefit transfer). Fourth, these adjusted values were used for assessing the financial viability of two petrochemical projects at two stages of installed capacity. The costs of marginal prevention (eco-costs) changed from 1.62 USD/kg of acrylonitrile in the old design to 0.926 USD/kg in the redesign. In case of vinyl chloride monomer (VCM), the eco-costs were from 16.08 USD/kg of VCM for the stage design to 1.62 USD/kg for the operational stage (ex post). The sensitivity analysis identified that only 15 % of these eco-costs, in the case of acrylonitrile, and 1.5 % for the VCM, could be incorporated to the costs of the project without affecting the profit on the investment. The developed methodology was helpful to express potential environmental impacts in monetary units as financial indicators in a project appraisal. Thus, the methodology can be used to internalize the eco-costs into product prices, shifting the financial burden to firms and consumers, in order to offset the high costs of the green net national product.

Wealth and sustainable development: the role of David Pearce

Green net national product was thought to be one way of measuring sustainable income. However, David Pearce understood that a better measure of sustainable development was to look at what a generation is leaving in form of capital assets to later generations. In this article, his arguments and insights are highlighted against recent theoretical advances.

Comparing augmented sustainability measures for Scotland: Is there a mismatch?

We estimate and compare two empirical measures of the weak sustainability of an economy for the first time: the change in augmented Green Net National Product (GNNP), and the interest on augmented Genuine Savings (GS). Yearly calculations are given for each measure for Scotland during 1992–1999. Augmentation means including, using projections to 2020, changed production possibilities enabled by exogenous technical progress or changing oil prices. The change in augmented GNNP and the interest on augmented GS are both always positive, showing no sustainability problem for Scotland then, according to the assumptions underlying our weak sustainability calculations. However, the former greatly exceeds the latter, even when macroeconomic fluctuations are taken into account. This is a mismatch which poses an unresolved problem with the theory. Resolving it may require respecifying the utility functions used in mainstream growth theory.

Sustainable growth with environmental spillovers

In this paper, we apply the approach of Ramsey and Koopmans to the problem of optimal and sustainable growth. Under plausible assumptions, intertemporal neutrality implies that the optimal growth path is sustainable without the contrivance of a sustainability constraint. The model is extended to cases involving environmental disamenities. The solutions equivalently solve the problem of maximizing net national product adjusted for depreciation in natural capital and environmental effects. Green net national product in this framework is constant over time, thus avoiding the paradox of declining sustainable income.

One-sided sustainability tests with amenities, and changes in technology, trade and population

If an economy with multiple consumption goods (including environmental amenities) uniquely maximises present value with constant discounting, it is unsustainable at some time if either of two measures—augmented net investment, or the change in augmented green net national product—are zero or negative then. “Augmented” denotes that time is treated as a productive stock, which includes in each measure the value of future, exogenous changes in technology or terms of trade. Adjustments are found to make each measure a test for individual sustainability when population grows exogenously. The practical and philosophical rationale for testing sustainability in a present-value-maximising, and therefore fully prescribed, development path is discussed.

Seeing the trees as a forest: what counts in green accounting

Applying ‘green’ accounting to value the commercial contribution and depletion of a forest is only a short-run variation of the traditional approach to net national product (NNP) and arguably provides less information. Green adjustments can make a vital difference, however, by introducing nonmarketed values. Since optimal NNP is the linearized Hamiltonian, values are taken at the margin and exclude consumers’ surpluses, unlike in cost–benefit analysis. Green NNP may also require imputation of unmarketed exports and imports.

Incorporation of risk in regional forest resource accounts

To be an appropriate indicator of sustainability, a net income measure projected into the future should consider risk. Several authors have demonstrated how risk can be formally incorporated into welfare measures like Green Net National Product (NNP), however, the resulting measure can be considerably more complex than its deterministic counterpart. A practical alternative to formally incorporating risk is to use simulations of the type outlined in this paper to provide information about the expected impact of risk. This information can be used to apply a stochastic version of a sustainability rule that requires that the expected value of net income be non declining. This paper discusses the importance of risk and uncertainty to welfare measurement and more specifically the measurement of net income from forest services in a region of northern Alberta. Two different approaches to valuing resource extraction are compared. The depreciation approach and the wealth-based approach provide very different projections of net income. We demonstrate that when a renewable resource is subject to risk, the wealth-based approach provides a more appropriate measure of the influence of resource use on future consumption possibilities and the sustainability of net income.

Sustainability accounting and green accounting

Theoretical issues arising in maximin and utilitarian programs are considered in order to shed light on the merits of various concepts of income and types of environmental accounting as guides for environmental policy. The accounting prices for sustaining an economy obey Hartwick's rule but are inconsistent with the principles of national accounting. Moreover, they would be formidably difficult to calculate. Green net national product is an approximate index of welfare in a utilitarian economy which maximises future discounted utility flows. These conclusions hold even if underlying conditions are non-autonomous.JEL Codes: Q3, E2

Net national product, wealth, and social well-being

This paper is about net national product (NNP). We are concerned with what NNP means, what it should include, what it offers us and, therefore, why we may be interested in it. We show that NNP, properly defined, can be used to evaluate economic policies, but we also show that it should not be used in any of its more customary roles, such as in making intertemporal and cross-country comparisons of social well-being. We develop such indices as would be appropriate for making those comparisons. In particular, we show that welfare comparisons should involve comparisons of wealth. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies, and are thus of limited use. Our analysis generalises this substantially by studying economies whose governments are capable of engaging only in policy reforms. We show how linear indices can be used for the evaluation of policy reform even in the presence of non-convexities in the economic environment. The analysis pertinent for optimising governments are special limiting cases of the one we develop.The literature on green NNP has widely interpreted NNP as ‘constant-equivalent consumption’. We show that this interpretation is wrong. It is the Hamiltonian that equals constant-equivalent utility. Since both theory and empirics imply that the Hamiltonian is a non-linear function of consumption and leisure, the Hamiltonian should not be confused with NNP.

Is Scotland sustainable? A the series of indicators of sustainable development

Seven measures of sustainable development for Scotland are examined for the period 1980-1993. These measures are green net national product, genuine savings, ecological footprint, environmental space, human appropriation of net primary production, the index of sustainable economic welfare and the genuine progress indicator. Very different messages concerning sustainable development in Scotland emerge from these measures.

Sustainable consumption, sustainable development, and green net national product

This paper examines how green net national product (NNP), which can be interpreted as “hypothetical” constant consumption, is related to sustainable development based on two levels of sustainable consumption. First, we focus on “maximum sustainable consumption” and assume that a utilitarian optimal path is sustainable if the level does not decrease. Then we show that from this standpoint nondecreasing green NNP is a necessary condition for the optimal path we take to satisfy the sustainability. Next we introduce the viewpoint of “long-run increasing consumption” based on “minimum sustainable consumption” and regard the optimal path as sustainable if the path has a long-run increasing consumption path. We demonstrate that nondecreasing green NNP is a sufficient condition for the consumption path to be long-run increasing. These investigations show that although green NNP is not sustainable consumption it is closely linked to sustainable development defined by sustainable consumption, so it represents an indicator of sustainable development.

Measuring sustainability: A time series of alternative indicators for Scotland

This paper presents results from a time-series analysis of seven alternative measures of sustainability for Scotland. The measures chosen are green Net National Product, genuine savings, ecological footprint, environmental space, net primary productivity, the Index of Sustainable Economic Welfare and the Genuine Progress Indicator. These are all measures at the national, or macro, level. We note arguments in the literature that no one single measure of `sustainability' is likely to be sufficient. However, very different messages concerning the sustainability of Scotland over the period in question (1980–1993) emerge from these measures chosen. We also argue that different indicators provide different insights for policy making.

Green Accounting in Imperfect Market Economies

The idea of measuring the national welfare level by using the green NNP (net national product) has gained much attention lately. This paper summarizes the research on social accounting in imperfect market economies by putting the results into a unified framework. The main contribution of the paper is to relate the form of the national welfare measure to the functioning of the economic system and, therefore, to explicitly address the informational requirements implicit in social accounting.

Green Accounting under Pollution Uncertainty

ABSTRACT The correct concept for measuring economic welfare in an economy is the so-called “green net national product” (GNNP) which, in addition to the depreciation of manmade capital, is also adjusted for the consumption of natural resources and environmental damages. The Hamiltonian representation of the net national product (NNP) has been used to take into account the use of exhaustible and renewable resources and the degradation of environmental assets by pollution accumulation in the ambient environment, in defining the GNNP. In this paper the GNNP is defined when uncertainty is introduced at the level of the pollution accumulation. The framework of investment theory under uncertainty is used to analyze how uncertainty in the accumulation of the pollutant in the ambient environment can affect decisions about the timing of environmental policy introduction, and consequently, how the timing choices affect the value of the GNNP.

Air pollution and green accounts

A simple model treating air emissions as cumulative pollutants is used to derive measures of ‘green net national product’. The model implies that pollution emissions are properly valued at their marginal social costs in the measurement of green NNP. The level of genuine savings, net savings less the value of resource depletion and pollution emissions, is shown to provide a useful indicator of sustainable development. Recent figures on the social costs of fuel cycles are used to derive genuine savings measures for the UK and other European nations. Several countries had negative genuine savings during the 1980s.