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Home / Opinion / Columns /  The data revolution that can catalyse our climate battle

A few years ago, some of the world’s leading economists were asked to make predictions for the next 100 years. Economic theorist Avinash Dixit made a tongue-in-cheek assessment of how global climate change negotiations might pan out. “Only the Germans and the Scandinavians will make promises in good faith and strive to fulfill them," wrote Dixit. “Britain will try to emulate them but will not succeed. America will be honest about its domestic political difficulties, and therefore promise little or nothing, drawing criticism from countries like France and Italy, which will sign anything and then do nothing. China and India will repeatedly declare good intentions, but their main priority will be economic growth, and they will be too distracted by their internal problems to do much about the environmental impact of their growth."

Dixit’s essay was published in 2014, and climate negotiations since then have largely followed his script. Yet, there are some signs that a new script could emerge in the coming years. Fidgety investors and anxious citizens have made it difficult for corporate leaders and politicians to ignore climate change. Their pledges on climate action are subject to much greater scrutiny today than in the past. Jolted by the pandemic, the world seems to be taking note of the mounting evidence on global warming and growing increasingly hostile towards empty rhetoric.

Will these trends sustain? Much depends on how we deal with the inexorable trade-offs the climate battle poses. Will decommissioning that thermal power plant make power supply more erratic, crippling small manufacturing units? Will that new coastal highway devastate marine life, and put the livelihoods of fishermen at peril?

Citizens and policymakers will need reliable information on such trade-offs. That’s not all. We would also need to know how such choices add up on a regional, national or global scale. If we consider an economy’s productive base to include both natural and man-made capital, are we adding to or depleting that base each year? Unfortunately, we do not have rigorous data yet on the comprehensive capital stock (and hence its rate of depletion) for any region or country in the world. Fortunately, there is enough theoretical and experimental knowledge around these issues to start building such databases.

Among the pioneers of such efforts is the British-Indian economist, Sir Partha Dasgupta, long considered a likely Nobel awardee, like Dixit. Dasgupta’s research has emphasized that growth is sustainable as long as the overall wealth of an economy does not diminish. If growth in a country’s gross domestic product (GDP) quickly depletes its natural capital, growth would eventually collapse, Dasgupta argues. Sustainable development may be a buzzword among intellectuals, but that doesn’t make it a bogus term, Dasgupta once said in an interview. Apart from physical and human capital, our conception of wealth must therefore include natural capital, he argues.

Dasgupta has led efforts to put his ideas into practice, helping the United Nations develop indicative measures of ‘inclusive wealth’ for the world’s 20 largest economies. Dasgupta also chaired a panel appointed by the Indian government to identify ways to account for the environment in India’s national accounts system. The committee’s report submitted in 2013 forms the basis of the statistics ministry’s current efforts to incorporate natural capital in our official statistical framework. Dasgupta has made similar recommendations to the UK government in a recent review report for its treasury.

It is likely that we will see these ideas gain traction in the coming years as countries around the world incorporate environmental gains and losses in their formal accounting systems. One important input for this process will come from the corporate sector.

Pushed by climate-conscious institutional investors, companies across the globe are now in a scramble to map their and their suppliers’ carbon footprint. The time seems right for green accounting to move centre-stage in economics and finance. But this won’t be easy. Consider the valuation of natural capital. So far, most assessments have focused on components that have readily-available market prices: timber from forests, minerals unearthed from mines, and so on. It is much more challenging to measure the value of the ‘ecosystem services’ provided by nature. Think of mangroves that provide protection from storms in coastal areas. By comparing the damage that storms inflict on coastal villages protected by mangroves with that on villages without the same buffer of vegetation, economists have tried to deduce the ‘value’ of such mangroves. But these estimates are still tentative in nature and are not available for all such eco-system services.

At this stage, green accounting will need to rely heavily on economic and ecological modelling, with plenty of assumptions thrown in. But we should not forget that early accounts of national income also suffered from severe limitations. Indeed, even current estimates of GDP, especially in countries such as India, are far more tentative than most people realize. As long as the limitations of green-accounting estimates are transparently spelt out, they will be welcome additions to conventional national accounts.

The historical neglect of nature in economics and finance has proven costly. We need to include nature’s bounty in our conception of national wealth. Tracking changes in national per capita wealth would then provide a fair idea of whether we are moving along a sustainable development path.

Pramit Bhattacharya is a Chennai-based journalist. His twitter handle is pramit_b

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