There have been several attempts to incorporate environmental externalities into g-GDP by less developed countries. Most prominently, China assessed environmental damages around 3 percentage points of its GDP in 2004<sup>3</sup> (report published in 2006), but the effort was discontinued and the report for 2005 due in 2007 was never issued officially. More recently, India has committed to produce g-GDP by 2015<sup>4</sup> and a commission headed by Professor Partha Dasgupta has been established to that effect.<sup>5</sup> The list of countries doing green accounting includes Australia, Austria, Botswana, Brazil, Canada, Chile, Czech Rep. , Denmark, Estonia, Finland, France, Germany, Guatemala, Indonesia, Japan , Korea , Mexico, Namibia, Netherlands, Norway, New Zealand, Philippines, Slovak Rep., South Africa, Sweden, and the UK.

While the estimation of g-GDP may still be in its infancy and some of its elements still controversial, the conceptual framework is useful for thinking about green growth. Green growth can be understood as growth of a suitably defined g-GDP. Some apparent tradeoffs between environmental quality and GDP growth vanish off. In his Nobel lecture, Robert Solow gives an account of Edward Dennison’s growth accounting results. During the period 1929-1982 Denison identifies sources for 109 percent of the recorded growth, because miscellaneous factors then reduce the growth of output by 9 percent of the 3.1 annual growth, or 0.3 percent per year. Solow remarks “These negative factors could include such things as investment in environmental improvement, which uses resources but does not appear in measured output, though it may of course be very valuable.”<sup>6</sup> g-GDP attempts to remedy such an omission by providing a more comprehensive measure of output.

Consider, for example, a transportation project whose main payoff is the reduction of congestion. Thus, assume that, as is commonly the case, in the cost-benefit analysis, the main source of benefits stems from the value of travel-time savings. But this value of time is not included in GDP statistics. If we look at just first-round effects (or if we assumed that no change in behavior follows), then such a project, despite its positive net social value, could actually affect negatively GDP through motor-fuel savings. g- GDP accounting eliminates these apparent tradeoffs.

Muller and others (2011) present a framework to include externalities into a SNA using an integratedassessment model that includes air pollution, solid waste combustion, stone quarrying, marinas, oil- and coal-fired power plants etc. The largest industrial contributor to external costs is coal-fired electricity generation, their damages range from 0.8 to 5.6 times its value added. The implication of damages in excess of value-added is that closing down that industry would unequivocally increase g-GDP.

The policy implications are (i) to take a broad view of economic activity to eliminate tradeoffs that are more apparent than real; e.g., between environmental quality and economic performance; and (ii) Include all dimensions that are relevant for welfare in the corresponding cost-benefit analyses of policy interventions and perform sensitivity tests on the components that are measured with significant uncertainty (e.g., value of a statistical life).

> 3 - Report published in 2006, available at: http://www.gov.cn/english/2006 <u>09/11/content_384596.htm</u>

> 4 <u>http://www.financialexpress.com/news/India-to-release--green-GDP--data-from-2015/544338/</u>

> 5 <u>http://www.telegraphindia.com/1110510/jsp/nation/story_13962877.jsp</u>

> 6 Robert Solow, “Growth Theory and After,” Nobel Lecture, December 8, 1987.

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