Replace GDP: Introducing the Green Domestic Product
The implications of GrDP for policy and business
Adoption of the GrDP would allow policy makers to consider the impact of all pollutants when designing policies and would give policy makers and business stakeholders a clearer way to understand the true cost of industrial activity. . For example, electrifying transportation systems by replacing renewables with fossil fuels would help reduce both GHGs and air pollutants. However, the adoption of synthetic fuels made from captured CO2 and hydrogen could play a crucial role in reaching net zero by closing the carbon loop, but would have little impact on air pollutants that are still generated when synthetic fuels are burned. Decarbonization, when properly designed, could lead to significant co-benefits and increased GRDP growth.
GrDP can be reduced to provide a more detailed picture of each industry’s added value, as illustrated in the upcoming E4S white paper Beyond GDP: Swiss green domestic product (2022), where we assess the decoupling between growth and pollution at the sectoral level. This increased granularity can help investors and innovators identify industries experiencing rapid (net) growth and, conversely, slow decarbonizing industries that will require heavy investment and innovative solutions to reach net zero.
For business leaders, faced with growing stakeholder demand for clear ESG footprint information, GrDP provides additional data and a powerful contextual tool to frame their approach to impact measurement and, by extension, decision making. The GrDP is only a first step towards the adoption of environmental accounting – for example, companies’ profits before interest and taxes could be adjusted according to a similar methodology to take account of environmental profits and losses. Measuring and valuing external costs would improve awareness of the true cost of activities and increase the transparency of supply chains, making it easier to choose suppliers and potentially leading to greater pressure on industry to adopt greener practices.
Nevertheless, a systemic view is crucial when dealing with global pollution such as GHGs. For example, electrifying a company’s vehicle fleet would reduce GHG emissions (scope 1) but would have little effect on overall emissions (scopes 2 and 3) if the electricity is produced by power plants. fossil fuels. A coordinated transition between policy makers and businesses is therefore necessary.
The limits of GrDP
While replacing GDP with GrDP would be a step in the right direction, continued GrDP growth alone will not be enough to achieve sustainable growth.
First, by aggregating all economic activities and externalities into a single indicator, the GrDP masks differences within countries and does not reflect social inequalities. Secondly, the scope of considered externalities being limited in our current version of the GrDP, the indicator does not fully take into account the evolution of environmental, social and human capital. For example, it does not measure plastic pollution and tells us nothing about the depletion of materials and minerals. It would therefore be possible to continue the growth of the GRDP without respecting the limits of our planet, at least in the short term.
Understanding the shortcomings of economic indicators is a crucial step in using them properly in policy and other decision-making.
If adopted, the GrDP, while incomplete in its mission to capture and quantify all externalities, represents a valuable and vital tool for policy makers, industry leaders and other stakeholders as the world is grappling with the threat of climate change and environmental degradation. By taking into account the negative effects of emissions of a wide variety of pollutants, GrDP is a more appropriate measure for the times we live in than the outdated concept of GDP. At the very least, it will support more informed decision-making, helping to shape a more sustainable future for people and the planet.
If you want to know more about the GrDp indicator and methodology, E4S researchers have published a white paper GrDP in Switzerlandaccessible here.