Ecological Production Theory
Transcript of Ecological Production Theory
Green GDP: “Seeing” the Hidden Economy of Nature
James Boyd
Resources for the Future
Washington, DC
Ecological Wealth
• Public goods
– Shared, usually not owned
– “Free,” not things we pay for
• As economically important as market goods and services
– Difficult to track because not a part of market system
Motivations for Green GDP
• Economic • Ecosystem goods and services are valuable and should
be measured to foster management and accountability
• Ecological • A way to highlight conditions, trends, depletion
• Philosophical • Calls attention to broader, more accurate measures of
wellbeing
Carbon storage
Open space Habitat
Groundwater
Flood risk reduction
Air quality
Productive soil
Food
Thank You
Open space
Food
Drinking water
Navigation
Habitat
Irrigation
Open space Water quality
Beauty
Reduced energy needs
Air quality
What Is GDP?
• Counts what we produce and consume
• Tracks those changes over time
• Weights “goods” by their “value”
– Sort of
• When we produce more, GDP
• When we produce more valuable stuff, GDP
The Problem: GDP is Wrong Because It is Incomplete
• GDP always gets “better”
– the more coal we burn
– the more land we develop
– the more fish taken from the oceans
• Impact on ecological goods and services not measured
The Broader Background
• Even without climate change
• Trends in global economic development
Our Human Appetites
6.8 billion to 9.4 billion in mid-2050
So Should We Replace GDP?
Our Existing Economic Accounts
• Are a social miracle – Permit aggregation & disaggregation of a
complex system
– Objective, rule-driven and scientific
– Politically, institutionally independent
A powerful accountability
mechanism
Our culture pays attention, and it
should
The Goal
• Construct a non-market, ecological equivalent to GDP
Several Alternatives
• Macro-adjustments – Discount costs from existing measures
• Health, cleanup, regulatory costs
• Macro “near market” accounts – National timber, water, mineral accounts
• Wellbeing measures
• Material accounts
• Ecosystem good and services accounts, relying on ecological production theory
Different Strategies #1
• Lump “adjustments” or “subtractions” to GDP – Estimate environmental health, remediation costs
• Pros – Relatively easy, gets you a number
• Cons – Doesn’t foster measurement infrastructure – Not an accounting system – Narrows scope of what is measured, not really
“ecological”
CHINA – Loss caused by pollution was $66.3B, a 3.05% reduction in GDP
Different Strategies #2
• Wellbeing Measures
– Bhutan’s Gross National Happiness
– Genuine Progress Indicator
– Sarkozy’s quality of life measures
– Britain’s happiness census
• These are not “economic accounts”
– Not that there is anything wrong with that
GDP-type Accounts
• Do not measure wellbeing
• They simply measure
– Amounts of stuff produced and consumed
– Weighted by prices
• Production, not the effect of production on human wellbeing
Threshold Question
• How do we measure ecological wealth in terms of quantities?
– What are countable ecosystem goods and services?
The Index Problem
• Factor 2 core elements – Quantity and price (value) indices
• Challenge – Consistently define and differentiate q’s and p’s
– Values are totally contingent on the definition of q
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Q × P
Commodities Are Not Immediately Obvious
• Public goods, so market doesn’t define q
– No sales receipts, units, inventory data, etc
• Too many alternative commodities
– Any natural feature or quality?
Quantities – Market vs. Public Goods
Obvious Not obvious
“Ecosystem Goods & Services”
• Examples
– Flood avoidance – an expected damage reduction
– Reduced water pollution – a quality
– Greater fish, bird abundance – a quantity
– Water availability – a quantity
– Open space – a quantity
These are measurable commodities q
“Ecosystem Services”
• Vague & used in many different ways
– “Nutrient cycling” – a biophysical process, not a quantity q
– “Recreation” – a beneficial activity relying on natural inputs, not an ecological quantity q
What is q?
• Simple production function
– Final economic good F
– Two inputs, capital K and ecosystem good E
– Production function F= F(K,E)
– PF, PK, and virtual PE
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What is q?
• We have a choice – q = E
• The ecological input
• “acres of open space,” “fish abundance”
– q = F(K,E) • Change in production of final good
• “increased crop yields,”
• Definition of p conditional on definition of q
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Practical Preference for q = E
• Want quantity index to reflect ecological output changes – Other definition can obscure ecological change
• If observe increase in F(K,E) • Is E improving or is K improving?
• Concrete ecological measures – A “units link” to natural science
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Basic Accounting Rules
• How to deal with double counting?
– Distinguish between final and intermediate goods
• Many ecological commodities are dual
– Both output and input to subsequent ecological process
• Ecological production theory is necessary to sort out these issues
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GDP Counts Only Final Goods
• Why?
– To avoid “double counting”
• Final goods include the value of inputs
• If you count both final and intermediate goods, you double count the value of the intermediate good
Ecological Production Theory
• Distinguish inputs, processes, outputs
• Focus on ecological final goods, rather than inputs
• What are ecological final goods?
– Commodities “directly consumed, used, or enjoyed”
– Perception and experience is a test
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Examples
Input Biophysical Process Final Ecological Good
Surface water pH Habitat and toxicity effects
Fish, bird abundance
Acres of habitat Forage, reproduction, migration
Species abundance
Wetland acres Hydrologic processes Reductions in flood severity
Urban forest acres Shading and sequestration
Air quality and temperature
Vegetated riparian border
Erosion processes Sediment loadings to reservoirs
Systems depicted as inputs and outputs, linked by biophysical processes/functions
Definition of q
• Common resource/ecological units tend to be
– Bundled
• Forests, water volumes, species abundance, beaches are bundles of commodities
– Dual
• Often both final and intermediate commodities
Big implications for accounting
Dual Commodities
• Many ecological commodities are both input and output
• In production theory, a given commodity can be both input and output
– Cars: output, but input when rented
Dual commodity Process 1 output is Process 2 input
Examples
Final & Intermediate Biophysical Process Final
Trout abundance Forage and predation
relationships Bird abundance
Forest acres Hydrological processes Species abundance
Wetland acres Hydrologic processes Flood pulse regulation
Location & Timing Matter
Value of ecosystem goods
and services depends on
(1) Where they are
“how many
customers?”
“how many
substitutes?”
(1) When they’re delivered
Quantities need to be
space, time specific
Assets vs. Goods & Services
• Assets are aggregates, goods and services are not
• The index aspires to an eventual value (price) counterpart
• Aggregation will thwart valuation
– What is the value of “national water volumes”?
– What is the value of “national open space acreage”?
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Decompose Bundles
Matters to final uses:
Navigation, irrigation, recreation
Matters to role as input to other biophysical processes and outputs:
Species abundance, vegetation
“Acre feet of freshwater”
Prefer to decompose commodity into
The hydrograph
Depth
Width
Velocity
Timing
Carbon storage
Open space Habitat
Groundwater
Flood risk reduction
Air quality
Productive soil
Food
A range of “products” Different quantities Different user groups Different values/weights
The Geographic Boundaries of Accounts
• Do we only care about ecological conditions inside our own borders?
• Maybe, but
– Note effect of US consumption on ecological conditions in China
– Ecological conditions in China affect US supply chain
– Some ecological conditions have global effects
Optimism
• 80 years ago, nobody could measure GDP
either
• How did GDP begin? A useful reminder…
How many boxcars moving
between Chicago and NYC?
Today
• Our accounting for the natural economy is
as crude as “boxcars”
• But international efforts, experiments are
underway
Valuation (Weighting) Issues
• Existing valuations are inconsistent and questionable for accounting use – Commodities often not reported, let alone clearly
defined
• Environmental valuation meta-analyses – “Goods not commensurate”
• Reasons to question “benefit transfers” – Values location-specific (not fungible spatially)
– Values not based on clear commodity definition
The U.S. Political Problem
• 1992, BEA begins work on environmental
satellite accounts
• 1995, Congress prohibits BEA from
conducting this work
• For budgetary perspective
• 2010 census, $11B
• Green accounts, $0
Hi James -
Unfortunately, Congress has prohibited us from spending any funds on developing any measures of green GDP, so we are not working at all on this topic.
Thanks for sending the paper, though.
Recommendations
• Focus on quantity definition via collaboration between natural and social scientists
• Aspire to accounts, not just indicators • Bureaucratic independence • Consider global accounting perspective • Satellites and experiments, not new NIPAs
yet • Investment > 0
• “Counting Non-Market, Ecological Public Goods: The Elements of a Welfare Significant Ecological Quantity Index,” International Economic Association Series, Palgrave Macmillan, forthcoming.
• “The Definition and Choice of Environmental Commodities for Nonmarket Valuation,” Resources for the Future Research Paper 09-35, with Alan Krupnick, 2009.
• “What are Ecosystem Services?” Ecological Economics, with Spencer Banzhaf, 2007.
• “The Architecture and Measurement of an Ecosystem Services Index,” with Spencer Banzhaf, Resources for the Future Discussion Paper 05-22, September 2005.
• “The Nonmarket Benefits of Nature: What Should Be Counted in Green GDP?” Ecological Economics, 2006.
• “Box Cars and Breadlines Are No Way to Measure an Economy: A Plea for Environmental Accounts,” Resources for the Future Policy Commentary, January 19, 2009.
• “Location, Location, Location: The Geography of Ecosystem Services,” Resources, Fall 2008.
• “Don’t Measure, Don’t Manage: GDP and the Missing Economy of Nature,” RFF Issue Brief, May 2008.