Sustainable Development and Economic Performance

Kimberly BurnettMarch 21, 2007

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State Income Accounting Measures Economic Activity Narrowly Defined

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But this Measure misses many Aspects of Human Welfare

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Biodiverse and Healthy Watersheds?

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Oahu Pigs

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Maui Goats

Photo credit: JB Friday

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Or Degraded Watersheds?Nu`uanu 1920

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Depreciation of Infrastructure + Watershed Degradation = Sewage Spills

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Sediment plumes

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Fish kills

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The Economy

Firms

(production)

Households

(consumption)

Inputs OutputsTHE ECONOMY

Amenity valuesResource inputs

Wastes

Global life-support

Impacts on biodiversity

NATURE

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Environomy

Firms

(production)

Households

(consumption)

Inputs OutputsTHE ECONOMY

Amenity valuesResource inputs

Wastes

Global life-support

Impacts on biodiversity

NATURE

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The Components of GSP

Gross State Product (GSP) is the sum of the following:• Consumption (C)

• Investment (I)

• Government Expenditures (G)

• Net Exports (NE)

GSP = C + I + G + NE

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GSP and its Components

40%

17%

40%

3% Consumption

Investment

Governmentexpenditures

Net exports

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GSP to NSP to GNSP

Another measure is Net State Product, which deducts

capital depreciation from GSP NSP = C + I + G + NE – CD Green NSP measures environomy. From NSP, subtract

• Depreciation of natural capital (biodiversity, aquifers, reefs)

• Defensive expenditures (scrubbers on smokestacks to reduce pollution)» Falsely included in NSP in the first place

» Subtract again to better reflect net increase in welfare

• Residual damages from pollution, congestion, and ecological damages (flooding, sewage spills, leptospirosis)

GNSP = C + I + G + NE – CD – (NCD + 2DE + RPD)

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Case study – Ko`olau forested watershed

Amenity NPV, in millions MethodGroundwater quantity $4570 Lost recharge

Water quality $83.7 – $394 Averted dredging costs

In-stream uses $82.4 Survey on single fish species

Species habitat $487 Survey on single bird species

Biodiversity $0.6 – $5.5 Average cost listing 11 Ko`olau plant species

Subsistence $34.7 Replacement value, pigs

Hunting $62.8 Hunting expenditures

Aesthetic values $1040 Survey

Commercial harvests $0.6 Koa harvest

Ecotourism $1000 Ecotourism expenditures

Climate control $82.2 Replacement cost, carbon sequestration

TOTAL $7.4 – $7.8 billion

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Sustainable/Green Income Accounting

Would include depreciation of natural capital, pollution damages

Better indicator of levels-of-living, forward-looking welfare

GNSP reflects the performance of the environomy