ABSTRACT
Standard measures of national income such as gross domestic product (GDP) fail to capture important environmental and social factors. This can result in misleading measurements of national well-being that ignore important environmental problems and lead to misguided policy recommendations. A variety of approaches can be used to adjust existing national accounting measures or to provide alternatives.
274Estimates of natural capital depreciation measure the depletion of natural resources such as oil, timber, minerals, and agricultural soils, in monetary units. Monetary estimates of these losses can be subtracted from the standard measures of national income and savings. An advantage of these measures is that they are compatible with existing national accounts. But a significant disadvantage is that they require all impacts to be converted to monetary values. Particularly for developing countries, results based on these approaches indicate a substantial impact of natural resource depletion and environmental degradation.
Various alternatives to GDP have attempted to incorporate environmental and social factors, including the genuine progress indicator and Better Life Index. Results for the GPI suggest that a steadily increasing GDP is not necessarily correlated with increases in well-being, especially above moderate average income levels. Results for the BLI indicate that many other dimensions may be more important for well-being than income, such as health, education, and environmental quality.
Another approach is to maintain environmental asset accounts, tracking environmental indicators separately from GDP, either in monetary or physical units. Environmental asset accounts are particularly useful if one is interested in whether a society is achieving strong sustainability, focusing exclusively on natural capital.
Despite significant efforts to develop social and environmental accounting, no particular indicator, or even set of indicators, has yet to emerge as the preferred approach. Challenges that remain include developing consistent data collection methods and convincing politicians of the need for alternative indicators.
