GDP
Non-marketed services are excluded
Does not accounts for depreciation of natural capital
What doesn’t GDP measure?
Example: Exxon Valdez oil spill
Three types of capital
1. Human
2. Human made
3. Natural
The key issue from an environmental standpoint is whether these different forms of capital can be substituted
Alternatives to GDP
1. Net National Product (NNP) or Green GDP (gGDP)
Accounts for depreciation of naturalcapital.
2. Index of environmental indicators
Accounts for the fact that many benefits from environmental improvements are not accounted for in market transactions
International aspects of the environment
1. International public goods
2. Transfrontier pollution
3. Impact of environmental policy on trade
4. Impact of trade policy on environment
Global public goods
Similar to national or local public goods:nonexcludable and nonrival in consumption, but production and consumption are separated by political border.
Examples: The atmosphere and outer space
Disease prevention
Ecosystem services
Transfrontier Pollution
Pollution that crosses an international political boundary
Examples: Acid RainSmoke from firesWater pollution in major
river systems
Important because applying economic incentives may be difficult -- but some hope for solutions based on tradable permits.
Environmental Policy and Trade
Main concern is that a country’s environmental policies will reduce the country’s competitiveness and reduce its volume of exports.
Three main linkages: 1. Cost of production
2. Incentives for relocation
3. Export of “green technologies”
Trade Policy and the Environment
Trade policy is generally designed to promote exports and imports without regard to conditions of production. This often has the effect of undermining environmental goals (both domestic and international).
Trade Alliances
North American Free Trade Agreement (NAFTA) US + Mexico + Canada
General Agreement on Trade and Tariffs (GATT)
Includes most countries
Why are Trade Alliances Important?
They often specify that “unfair” barriers cannot be used to protect a country against imports.
WTO has generally held restrictions on environmental grounds to be unfair.
Examples: U.S. attempted tuna ban from Mexico (w/o “dolphin friendly” practices)
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