GDP and Climate: From Beyoncé of Economics to Midlife Crisis

GDP and the climate: a tumultuous love affair that needs a makeover. It's time to break free from growth obsession, embrace nature's worth, and create a brighter future.

Credits to MB

Let's start with a little truth bomb: what might be good for gross domestic product (GDP) might be quite bad for the climate. Picture this: chopping down a tree – great for GDP. Leaving it standing tall and proud – not so much. So, is there a connection between GDP and carbon emissions? Oh, yes!

Enter the Kuznets curve, a fancy economic concept that suggests we can decouple GDP from carbon emissions. In other words, our economy can keep growing while emissions slow down, thanks – for example – to the magic of renewable energy. It's like watching a tightrope walker doing the tango with a renewable energy source. Impressive, right?

It's time to rethink GDP. I've already shared my two cents on GDP in a previous article. GDP is just a fancy calculation, a number you can't touch. GDP is a reflection of what happens in the society: people don’t come out of poverty because GDP is rising. But because the economic activity increases, GDP rises. And this is one of the biggest problems with GDP: it has become so powerful as a concept that it is very popular to think that GDP is on the driver’s seat.

Here's where the trouble begins. GDP has become so powerful, it's like the Beyoncé of economic concepts. We start to believe that GDP is the ultimate driver of progress. As a result, we become obsessed with manipulating that number rather than tackling the actual reality it's supposed to represent.

And there's more! GDP doesn't just turn a blind eye to sustainability; it also conveniently forgets about education, happiness, and a bunch of other important stuff we value in life. Apparently, any spending and growth are considered winners, even if it means embracing child labor, prostitution, or - brace yourself - war. Yep, even weapons sales can give GDP a boost (have a look at Russia’s GDP, boosted by military spending).

GDP and the formula for GDP undergoes changes periodically and we are right in the middle of possibly one of the most important changes since its creation (which dates back 70 years). Statisticians, economists, and policymakers are calling for an evolution of GDP, a makeover that considers the environment and other vital factors. The UN is working on giving GDP possibly the biggest change since its birth in 1953. Talk about a midlife crisis!

The aim is to recognize the environmental costs associated with economic activities. For instance, when constructing a road, we must consider the emissions it generates, not only during its construction but also throughout its usage (we cannot expect that we will only put bicycles on this road!). By incorporating these costs into our economic calculations, we can make more informed decisions.

Measuring the value of nature ain't a walk in the park, either. Sure, we've got robust methods to measure carbon emissions, but when it comes to – for example – biodiversity, it gets complicated. Plus, comparing different forests – like one in Scotland and the other in Gabon – is like comparing a pineapple to a kangaroo. They have different uses, ecosystems, and vibes. It's a challenge, especially for developing countries with limited resources, but technology and international support can lend a helping hand.

So the UN faces a huge challenge in reshaping GDP, and a significant hurdle lies in the disagreement over how to measure the value of environmental goods and services in cold, hard cash. Let's ponder a thought-provoking scenario: what is the worth of a standing tree that could be turned into firewood? It's not just about the tree's intrinsic value in nature; it's about bringing that value into the real economy. The funny thing is, we kind of know how to do it, but politics makes it tricky.

Let's take Brazil as an example. If they decide to cut down their precious forests and turn them into lumber, guess what? They get real money in return. But if they choose to leave those trees untouched, all they receive is a pat on the back and a nod of goodwill. Unfortunately, goodwill doesn't fill empty stomachs or build thriving communities.

So, can we measure the value of preserving nature? Absolutely! We've even discovered ways to integrate that value into the real economy. One such method is through carbon credits, where we pay to keep those trees standing tall (despite the ongoing debates and critiques surrounding REDD+ projects - although, I agree, the scrutiny should be improved).

A clever trick is to implement a carbon tax, making those who engage in harmful behaviors pay a hefty price. It's like hitting them where it hurts the most—the wallet. And let's not forget about rewarding those who exhibit good behavior. Incentivizing positive actions is a surefire way to encourage change. So, for a country like Gabon, recognizing the value of its natural capital means providing technology and financial support to everyday heroes—the ordinary people who are the backbone of their communities.

These are the individuals we must prioritize—the very communities we aim to uplift. Development, after all, revolves around improving people's living conditions. Look at the countries we call "developed." What sets them apart? It's the infrastructure they've built—schools, hospitals, roads—all constructed using the bountiful natural resources at their disposal. To ensure progress without sacrificing nature, we need to lend a helping hand to these communities, making sure they don't feel compelled to clear forests just to escape poverty's clutches.

For example, Gabon's government has made strides in fostering an economy based on sustainable timber production and the services sector, thus preserving their precious natural capital. But that alone is not enough. Politicians are calling for international support, and countries like France and Norway have stepped up to the plate, pouring millions of euros into Gabon's efforts to safeguard its natural treasures. However, while this is a commendable gesture, it remains a mere drop in the vast ocean of what's needed.

And here we come to the key issue: the question of incentives. For far too long, our economy's success has hinged on GDP growth, which correlates with increased emissions. But what happens when we shift to a new GDP model? The idea of no growth is a perilous notion, particularly for those with meager incomes and low living standards. And let's not forget the political ramifications—it's a potential breach of the unspoken pact between governments and people who voted them.

In conclusion, redefining GDP to incorporate the value of nature is an arduous but necessary task. We must find ways to measure and integrate the value of environmental goods and services into our economic framework. By doing so, we can strike a balance between progress and preservation, ensuring that prosperity extends to both humanity and our planet. The UN should deliver on their project in 2025: it is much closer than it seems.