General Studies

Economy-Gross Environment Product


Why in news?

On World Environment Day (June 5), Uttarakhand became the first state in India to take into account Gross Environment Product (GEP) while calculating its Gross Domestic Product (GDP).

  • Four critical natural resources- Air, Water, Forest and Soil- will be assigned monetary values.

The quality and quantity of these natural resources would determine the GEP of      Uttarakhand.

○ Environmentalists estimate that Uttarakhand through its biodiversity gives services to the tune of Rs 95,112 crore per year to the nation.

  • Discussions on having a GEP in the state came after the Kedarnath disaster (2013) and were further accentuated by the acute water shortage in the state during summers.

About GEP

  • It was established back in 1997 by ecological economists like Robert Costanza at the global level.
  • It is an assessment system to measure ecological status.
  • It is considered as the product and service value that the ecosystem provides for human welfare and economic and social sustainable development, including provisioning, regulating and cultural ecosystem services.
  • Overall, GEP accounts for the economic value of the ecosystem in providing products and services, and it is one of the components of green GDP.
  • It is the total value of final ecosystem services supplied to human well-being in a region annually and can be measured in terms of biophysical value and monetary value.
  • It indicates the overall health of the environment as GEP measures prime indicators such as forest cover, soil erosion, air quality and dissolved oxygen in river water.
  • Unlike Green GDP which is obtained after deducting the damage to the environment from the total production of the state, GEP will assess the improvement in the environment components in a year. Further it will tell how much work the state has done in reducing the loss of the ecosystem in environmental protection and resource use.

Need for GEP

  • Economic growth alone cannot represent true economic development: and may lower human well-being if it is accompanied by growing inequity and environmental degradation.
  • Resource depletion during industrial growth impacts rural growth disproportionately as the rural economy depends on such natural resources only. GEP thus forms a balanced development approach where ecology is given equal space.
  • Accounting GEP into GDP will give a true measure of the nation’s growth towards sustainable development.
  • Shortcomings of traditional systems: The Traditional System of National Accounts (SNA) like GDP/GNP neither accounts for the value of natural resources and ecosystem services nor the value of environmental/resource degradation taking place during the developmental process.
  • Ecosystem Services are “benefits people derive from ecosystems” like provisioning services (food, wood etc.) and regulating services (water purification, carbon sequestration etc.)
  • Framing adequate policies: GEP helps in understanding the impact of anthropological pressure on our ecosystem and natural resources. This will enable us to make policies that will balance ecology and economy.

Issues in capturing GEP into GDP

  • Knowledge gap: There is lack of data and an existent challenge to assign a monetary value to ecosystem services. Assigning monetary value to ecosystem services is possible only to a limited extent.

○ For example, the pipal tree in India is revered as a holy tree and religious ceremonies are conducted under its shade. Here economic valuation of the tree cannot encompass the complexity and the ecological, socio-cultural and institutional heterogeneity of a particular area.

  • Policy gap: There is lack of recognition of ecosystem services in economic decision-making, development planning and resource allocation. Value of ecosystem services is either ignored or inadequately understood.
  • Institutional failure: Insufficient ‘Compensation for ecosystem services’ (CES) provided by the government to stakeholders.

CES involves recognising and compensating people who manage the land that contribute to the long term security of ecosystem functions. It is a new financial resource for funding conservation measures to ensure a vital ecosystem. Prominent CES mechanism is ‘Payments for Ecosystem Services’ (PES).

Way forward

  • Incorporate environmental assets accounts: This approach collects data on various types of natural capitals like forests, groundwater etc. and convert them into monetary terms.
  • Biophysical and spatio-temporal dynamics of the region needs to be kept in mind while quantifying and valuing ecosystem services
  • Develop frameworks to incorporate impacts of climate change on ecosystem services.
  • Develop alternative or complementary non-market methods to evaluate ecosystem services with focus on intangible assets, skills and knowledge and cultural values.
  • Factors like social disparities should be accounted for in evaluating ecosystem services.

Question expected in the examination:

Question 1. Elucidate the main aspects of GEP (Gross Environment Product). To what extent will it contribute to the economy and environment?

Question 2. Recently State government of Uttarakhand ordered for the assessment of its natural resources in monetary terms in the form of GEP. What implication will it have on the state’s economy? Explain.

Question 3. What do you think of Gross Environment Product(GEP)? How GEP is different from GDP? Discuss.

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