Episode 145: How does environmental policy affect measures like GDP?

Nick Muller
, a visiting professor at Carnegie Mellon University explains whether Gross Domestic Product is a good way to gauge the effects of environmental policy.



Learn more

Effects of a Carbon Tax on the Economy and the Environment from the Congressional Budget Office

Recent advances and challenges in benefit-cost analysis by Nick Muller

Economic Growth and the Environment by Tim Everett, Mallika Ishwaran, Gian Paolo Ansaloni and Alex Rubin


HOST: How does environmental policy affect measures like GDP? On this week’s Energy Bite, Nick Muller, a visiting professor at Carnegie Mellon University, has some answers.

MULLER: In most cases, measures like GDP (the gross domestic product) only count the costs to firms and consumers from environmental policy. As a result, for the most part, environmental policy acts as a drag on GDP. However, current research suggests that many environmental policies produce considerable benefits to human health and the environment.

HOST: What are these benefits?

MULLER: Most of these benefits are due to improvements in human health and life expectancy, which are readily converted to monetary terms. Importantly, GDP does not include the value associated with changes to life expectancy. As a result, conventional measures of economic performance cannot include or reflect the full consequences of environmental policy.

Relying on GDP to gauge the effect of environmental policy is worse than simply being incomplete. It is a biased measure because GDP omits the benefits of environmental policy (which would boost GDP) and includes the costs (which put a drag on growth).

HOST: Do you think the calculation for GDP should be changed to include not only costs but the benefits of environmental policy? Take our poll, see the results, and ask your energy questions at Energy Bite dot org.

ANNOUNCER: Energy Bite is a co-production between 90.5 WESA and Carnegie Mellon’s’ Scott Institute for Energy Innovation.


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