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Nonmarket benefits of nature: What should be counted in green GDP?

Key Message

The benefits of nature include many forms of recreation, aesthetic enjoyment, commercial and subsistence harvests, damage avoidance, human health, and enjoyment of life’s diversity.

Source

Boyd, J. (2006). Nonmarket benefits of nature: What should be counted in green GDP? Ecological Economics, 61(4), 716-723.

Purpose

Green gross domestic product (green GDP) is meant to account for nature’s value on an equal footing with the market economy. Several problems bedevil green GDP, however. One is that nature does not come prepackaged in units like cars, houses, and bread. Even worse, green GDP requires measurement of the benefits arising from public goods provided by nature for which there are no market indicators of value. So what should green GDP count? That is the subject of this paper. Ecological and economic theories are used to describe what should be counted—and what should not—if green GDP is to account for the nonmarket benefits of nature.

The most visible and influential of the national economic indicators is gross domestic product (GDP). People familiar with national accounting know that GDP is but one of many accounting measures and that GDP captures only a part of what is important about an economy. Nevertheless, GDP deserves its special status because it represents an important bottom line: how much the market economy produces, and what it is worth. Other accounts depict inputs to production (e.g., labor and capital), but GDP gets right to the point: is the measured economy growing or shrinking?

If a green GDP could be calculated, it also would get right to the point, describing the state of nature and its worth. In this paper, green GDP is defined as a measure of what is valuable about nature, excluding goods and services that are already captured in GDP.

Why measure green GDP? For environmentalists,well-being provided by nature is as important as well-being provided by market consumption. Societies should be able to see how market consumption affects the consumption of public goods like beautiful views, clean air, and clean water. After all, consuming fewer manufactured products now in order to ensure more access to natural goods and services later may be in society’s best interest. Another reason to measure green GDP is that environmentalists want to track the provision of nature’s benefits over time, either to hold governments accountable or to compare their environmental conditions with those of another country.

The benefits of nature are too important and too large to be “left off the table” of national accounting. The real difficulties should not distract from the practical steps that can begin immediately. One reason that these steps have not been clarified is that economists have not previously integrated principles from accounting economics with those from environmental economics.

In this paper, the author describes ways to define and measure units of ecosystem goods and services that are consistent with conventional national accounting. These methods are necessary if green GDP is to become a reality. If nature’s benefits are to be characterized and tracked over time, then the units must be clearly defined, ecologically and economically defensible, and consistently measured. At present, the government and the public are presented with an overabundance of poorly defined measurement units that have unclear origins and that exacerbate the divide between economic and ecological analysis.

The paper proceeds as follows…
In Section 2, The author describes the two essential components of an income or benefit index: quantities and prices. Much of the concern about the practicality and validity of green GDP arises from the very real difficulty of putting values on the aspects of nature that benefit society. Lost amid that concern has been analysis of a much more tractable problem: how to define the quantities to be counted.
In Section 3, the author describes the units of account in detail.
In Section 4, the author discusses the role of ecological analysis in interpreting and adjusting green GDP measures.
In Section 5, the author relates the units of account defined in previous sections to the broader ambitions of SEEA.

Evidence

What are ecosystem services?
The term services originates in economics but has been adopted in ecology as well to signify the connection between ecosystems and human well-being. Ecosystem services arise from—and depend on—the broader sets of ecological components, processes, and functions but are different: they are the aspects of the ecosystem that are valued by people. Economists ask how nature benefits society. The benefits of nature include many forms of recreation, aesthetic enjoyment, commercial and subsistence harvests, damage avoidance, human health, and enjoyment of life’s diversity. Ecosystem services are the aspects of nature that society uses, consumes, or enjoys to experience those benefits. They are the end products of nature that directly yield human well-being.

It is important to emphasize that many other aspects of nature are valuable but are not capable of being valued in an economic sense because they are not associated with social or individual choices. Nature is composed of myriad processes, functions, and interactions; the oceans affect climate, climate affects plant life, plant life affects habitat, and on and on. All of these linkages are fundamental to life on Earth and thus fundamental to human well-being. And all are therefore valuable.

Ecosystem services are benefit-specific- Less intuitive is the property that units of account are benefit-specific. For example, a given natural characteristic can simultaneously be an end product and an intermediate product. Accordingly, that characteristic can simultaneously be counted and not counted by green GDP. Consider a hillside forest and two different kinds of benefit: beautiful views and the existence of biodiversity. Households, hikers, commuters, and office workers with visual access to the hillside directly enjoy the forest’s beauty. In that particular place and time, the forest should be counted as an ecosystem service because in this context the forest is a desirable end in itself. The forest also provides habitat for diverse flora and fauna that are beneficial for recreation or simply for their existence. In this case, the forest should not be counted as an ecosystem service because although it supports diverse species, the forest serves an intermediate function, much as an automobile factory supports the production of cars.

Green GDP vs. An ecosystem services index
The preceding discussion emphasizes that ecosystem services to be counted in Green GDP are “end products,” or nature’s “final goods.” What about the case where nature’s end products are inputs to marketed products? Should nature’s final goods be counted if they are inputs—and thus intermediate—to marketed final goods?

This choice is between two alternative (but consistent) accounting strategies: Green GDP and what can be called an ecosystem services index (ESI). Green GDP aggregates all sources of well-being, including all market goods and services, into a single index. In effect, green GDP adds missing ecological elements to conventional GDP. Green GDP “trues up” GDP to account for nonmarketed ecological contributions to welfare. If a final ecosystem service is already counted as an input to a final market good, it should not be counted again. In this case we should add only missing ecosystem services to the set of final market goods already counted in GDP.

The ESI alternative has a different goal: to separately account for all nature’s contributions to welfare, even those already captured in GDP as intermediate products. In an ESI (Banzhaf and Boyd, 2005) nature’s benefits are isolated from other classes of input (e.g., labor, capital). When all ecosystem services are measured, the ESI aggregation represents a measure of nature’s total contributions to welfare. It is not the same thing as green GDP, but can easily be adjusted—to avoid double-counting of ecosystem services already captured in GDP—to arrive at green GDP.

In both cases the definition of a final ecosystem services does not change. All that changes is the set of final ecosystem services that is aggregated.

Additional Information

| © 2006 Elsevier B.V. All rights reserved.

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