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Green GDP: measurement from a welfare perspective

CASS-Nottingham Workshop on Environmental Management 22-24 June, 2005 Nottingham University. Green GDP: measurement from a welfare perspective. Jiahua Pan Research Centre for Sustainable Development Chinese Academy of Social Sciences Beijing 100732. Consumption and welfare.

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Green GDP: measurement from a welfare perspective

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  1. CASS-Nottingham Workshop on Environmental Management 22-24 June, 2005 Nottingham University Green GDP: measurement from a welfare perspective Jiahua Pan Research Centre for Sustainable Development Chinese Academy of Social Sciences Beijing 100732

  2. Consumption and welfare Conventional welfare function: a concave function with respect to concumption of goods. Welfare functional form: inverse “U” type, with respect to consumption Why negative welfare from consumption? negative: excessive nutritional intake exteral damages: wildlife losses reversive consumption: waste water treatment, medicine for over-weight treatment Conception of right and limit right: survival, human aspiration limit: biological and physical

  3. Consumerism measurement Consumption->untility->welfare Classic and neo-classic economic wlfare theory define welfare function: U(C(Y)), that is: welfere is determined by consumption, and consumption is a function of income. Increase in income means improvement in welfare. GDP measurement is therefore based on functional assumption between welfare and income. Economic development: Wallace Rostow’s theory of development stages: uni-dimentional, from traditional agrarian to “mass consumption” GDP as a measurement of purchasing power World Bank Development indicators: ranking countries by per capita GDP level Development target for reform in China: doubling/quadruppling GDP

  4. Materialism and consumerism: misleading Social trend: more income, mass consumption Purchasing power for what? Poor health? Purchasing power for medicine? No enjoyment of life? No Hobbies or no time Freedom of thinking and speaking: political right, personal freedom, institutional justice. No safeguarding of consumption Consumerism->quality of life? Money making machine, high consumption, but bad health, poor environment Pursuit of consumerism: corruption, robery Wrong direction

  5. Objective and comprehensive measurement of welfare Early in the 1950s: UN initiative for quality of life measurement: nutrition, physical buildup (height and weight), life expectancy, income, political and civil rights Middle 1980s: Amartya Sen’s post-welfarism: strengthening the capacity for fulfillment of human potentials: nutrition, health, employment, civil rights, political freedom are human rights In 1990: UNDP Human Development Index: equal weights to income, education and life expectancy Consumerism measurement of welfare does not reflect quality of life with repects to nutrition, health, civil and political rights.

  6. Limits to consumerism Luxurious and wasteful consumption: basic consumption is limited by biological features; luxurious consumption is unlimited: housing, cars, Biological limits: biological boundaries exist: height, weight, life expectancy, nutrition Geo-Physical limit: physical quantities of natural resources limited Exhaustibles: fossil fuels, metals, total amount fixed Renewables: rate and quantity within a boundary, not unlimited fixed: solar power does not diminish, but at given time and area, energy intensity is fixed

  7. Life expectancy and income(US$(ppp)/a)，2000

  8. Calary intake 1964-1996 (k/d/c)

  9. Comsumerism: conteractive impacts on welfare Material consumption: contributes to utility and welfare, but not necessarily in the right direction Types of utility from consumption Positive utility: marginal utility of consumption is greater than zero. Consumption contributes to welfare improvement. Negative utility: marginal utility of consumption is smaller than zero. Examples: excessive fat and sugar intake leads to overweight, blood pressure. Reversive utility: marginal utility is greater than zero, but is used for reversing the negative utility from over consumption. Therefore, it does not lead to increase in total welfare. Examples: some medicine, waste water treatment

  10. Measurement of consumerism: the diference between economic and physical measurements (1) Economic measurement: so long there is consumption, there is value added and positive contribution to GDP is recorded. Therefore, no matter the utility is positive, negative or reversive, there is value added. In economic measurement, GDP is the sum of absolute value of three utilities: positive, negative, and reversive. Wefare measurement/quality of life measurement: only posive utility is measured as negative and reversive utilities are at most offsetting one another. There is no enlargement of total welfare from negative and reversive utilities. Cosumerism often includes elemetns of negative and reversive utilities.

  11. Measurement of consumerism: the diference between economic and physical measurements (2) Biological measurement: positive utility from material consumption is fixed from a biological perspective. Bilogical benefits can grow within a upper boundary limit; Economic benefits can grow indefitely: as it includes positive utility, negative utility, and reversive utility The difference between biological and economic measurement is zero if positive utility in included then diverges when negative and reversive utilities are counted. Other examples of native and reversive expenditures Wastewater treatment: within natual assimilative capacity, benefit of water conumption is positive; higher than the capacity level, there is external cost; investment and operation of the wastewater treatment facility are reversive expenditures. Protection of endangered species: reversive expenditures

  12. Reversive: medicine Negative: overweight Positive: nutrition positive negative reversive GDP numbers economic and biological measurement utility GDP measurement Biological measurement

  13. Reducing the negative & reversive consumptions (1) Change of consumer behaviour Quality of living: not amunt of material consumption and asset ownership Understanding the limit: biological and physical limits Rights and limits of consumption Basic need consumption is an essential part of human rights: shuold be respected and guaranteed Wasteful and luxurious consumptions: in many cases, lead to negative and reversive utility; cause damage to human health and the environment; should be restricted

  14. Reducing the negative & reversive consumptions (2) Institutional measures:legislation, ethical and cultural Economic measures:incentives and disincentive.examples: energy tax, tabaco tariff and alcohol tariff Progressive taxiation on material consumption: tripple dividends Social: protect the basic consumption by the disadvantaged Environmental: restriction on negative and reversive consumpiton of scarce natural resources; reflecting the biological and physical/environmetnal limit Economic/financial: fundraising, for R & D, redistribution of income Market signal for efficiency improvement Examples: South Africa: free electricity to households: 60 kWh/month China: Beijing: progressive pricing on water consumption

  15. Progressive taxation Tariff rate: ab valurun, or ab Accoding to quantity conumed: basic necessities: water, electricity, natural gas According to market value: tabaco, alcohol, housing, cars,

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