GREEN ADJUSTMENTS TO GDP

A review of the green national accounts literature shows that there is little agreement on whether to adjust gross or net product, or on the sign of some of the adjustments proposed. A series of models is presented, following Weitzman, to examine the treatment in the national accounts of living resources, heterogeneous resource deposits, resource discoveries, environmental services, carbon emissions and defensive expenditures by households. A key conclusion is that expanding the accounts to include non-market environmental services results in a measure of welfare rather than product (although net national product is the starting point), and that the level of environmental services is an integral component of this welfare measure. These results are compared with the standard national accounts. Greener measures of wealth per capita and savings rates will have more policy relevance in gauging progress towards sustainable development than adjustments to national product.