Environmental Resources, Shocks, and National Well-Being

Inasmuch as existing resource stocks are below efficient levels, better enforcement of existing laws as well as policies that incentivize sustainable use are needed. Similarly, progressive royalty assessment of mineral resources can incentivize exploration without transferring the bulk of resource rents to private interests. In the case of pollution, the key is to face firms with the full costs of their production, e.g. through emission taxes and/or cap and trade systems. Calculating total depletion and degradation (TDD) will facilitate the calculation of green national income (GNI), a more inclusive metric of national well-being. In the case of natural disasters, simultaneous optimization of disaster management policies in the face of climate change can facilitate a further improvement in national well-being, this time measured as comprehensive national income (CNI). The challenge is to maximize the present value of existing resource stocks by policies that incentivize resource extraction and harvesting at efficient levels. Inasmuch as existing forest stocks are below efficient levels, this requires improved governance to reverse deforestation and policies that incentivize sustainable use of forest stocks. Increasing royalty charges for mineral extraction and providing tax incentives for exploration can increase the contribution of national well-being. In the case of pollution, the key is to face firms with the full costs of their production, e.g. through emission taxes and/or cap and trade systems. What is not measured will not be managed. Inasmuch as GDP does not measure national well-being, there are a number of adjustments that must be made. Starting with Net National Income, one first subtracts the values of natural-capital depletion and environmental degradation to obtain green national income (GNI). Previous attempts in the Philippines to approximate total depletion and degradation (TDD) have been made, resulting in a partial benchmark estimated to be 5% of net national income. In an optimistic scenario, decreasing this partial measure from 5% to 0.6% by 2040, adds more than 0.18% per year to the growth rate of national well-being, thus helping to compensate for negative factors that slow down the growth of net national income. In the future, it will be useful to extend GNI to include potential damages from natural disasters. This construct is referred to as comprehensive national income (CNI). Inasmuch as climate change is likely to decrease the level and growth rate of CNI, improved risk management practices can be an offsetting force. Moving forward, improved capacity is needed to evaluate investment priorities for improving long-run security. A source of CNI growth is the removal of distortionary policies. We illustrate the negative effect of distortionary policies such as subsidies on national well-being. For example, switching from mandates and subsidies to a policy of facilitation of renewable energy can exert a positive effect on the level and growth rate of national well-being. Determining the effectiveness of policy measures will also require the capability to measure green and comprehensive national income. This is entirely in line with current initiatives to strengthen statistical agencies so that official statistics are more disaggregated, frequent, timely, and timely, and with capacity building for climate change modeling and damage assessment. The fundamental premise of sustainable income and green accounting is that nature and the economy are part of the same system (the environomy). One system requires one unifying measure of performance. In order to convert the common indicator of the size of an economy, Gross Domestic Product (GDP), into a measure of national well-being, a number of adjustments must be made. It is well known that GDP overestimates public welfare by failing to deduct depreciation – that portion of investment that replaces capital that has worn out or become obsolete. Deducting capital depreciation from GDP yields Net Domestic Product (NDP). And since income is a better measure of welfare than production, we need to subtract the income earned in the Philippines by foreigners, add income earned by Philippine citizens abroad, and add remittances to the Philippines by non-citizens. The result is national income, which is a better measure of welfare than GDP. The national income is a better measure of welfare than GDP because it includes the income earned by Philippine citizens abroad and the remittances to the Philippines by non-citizens.