Green GDP and Green Accounting

Conventional Gross Domestic Product (GDP) measures the total value of goods and services produced in an economy, but it does not net out the environmental cost of producing them. A factory that clears a forest for timber, or depletes a fishery, or pollutes a river, adds its full output value to GDP — while the depletion of the forest, the fishery, or the river's water quality is not subtracted anywhere. Conventional GDP can therefore rise even while a country's actual natural-resource wealth and environmental quality are falling.

Green GDP (also called Green Accounting or environmentally-adjusted national income) attempts to correct this by deducting, from conventional GDP, an estimate of the value of natural-resource depletion and environmental degradation caused during production. The resulting figure is intended to give a more honest picture of whether an economy's growth is being achieved sustainably or by drawing down its natural capital. …