Green GDP: measurement from a welfare perspective

1
Green GDP measurement from a welfare
perspective
CASS-Nottingham Workshop on Environmental
Management 22-24 June, 2005 Nottingham University

• Jiahua Pan
• Research Centre for Sustainable Development
• Chinese Academy of Social Sciences
• Beijing 100732

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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

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Consumerism measurement

• Consumption-gtuntility-gtwelfare
• 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 Rostows 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

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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-gtquality of life?
• Money making machine, high consumption, but bad
  health, poor environment
• Pursuit of consumerism corruption, robery
• Wrong direction

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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 Sens 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.

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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

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Life expectancy and income(US(ppp)/a),2000
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Calary intake 1964-1996 (k/d/c)
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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

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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.

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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

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GDP numbers economic and biological measurement
utility
Biological measurement
GDP measurement
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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

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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

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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,