Carnegie Mellon University

Linda Argote and Chris Sleet

April 01, 2021

Research Study Proposes New Method of Environmental Accounting

The factors that determine overall economic sustainability are fairly well-established in this day and age. When it comes to environmental sustainability, on the other hand, the equation becomes significantly more complex. Based on pollution data collected over two decades, a new study proposes a better way to gauge the environmental impact of economic growth.

In "The Growth of Nations Revisited: Global Environmental Accounting from 1990 to 2018," published in NBER, a group of researchers from Carnegie Mellon University, Washington University in St. Louis, and Dalhousie University present the first globally-comprehensive accounting of environmental impact. Their study focuses on two pollutants: fine particulate matter and carbon dioxide, two of the most economically significant pollutants.

"We concluded that the best measure of pollution intensity is not emissions but monetary damage, which reflects natural capital depreciation," says Nicholas Muller, Lester and Judith Lave Associate Professor of Economics, Engineering, and Public Policy at the Tepper School of Business. The study defines sustainability as a decline in pollution damages when an economy is on its balanced growth path.

By analyzing data from 163 countries between 1998 and 2018, Muller and co-authors estimate monetary damage from fine particulate matter and carbon dioxide over time. They subtract gross environmental damages from gross domestic product to come up with an environmentally-adjusted value added (EVA) score for each country.

The study concludes that the global economy became less pollution-intensive between 1998 and 2008 but that the positive trend plateaued after the Great Recession and reversed after 2015. Thanks to an increase in renewable energy, regulatory constraints, and a drop in energy use, pollution intensity declined in the U.S. and Western European economies from 1998 to 2018. In contrast, the upper-middle income country group exhibited a spike in pollution intensity in the same time period. "We have to note that the Chinese economy drove this increase," explains Muller. "A five-fold growth in GDP per capita over the 21 years we studied had well-known implications for the environment."

According to Muller, China highlights the importance of defining sustainability in terms of damages, not emissions. While emissions improved in China between 2011 and 2018, monetary damages rose by 50 percent. "In cases like China, environmental policymakers may see lower emissions levels and mistakenly conclude that an economy is on a sustainable path," he says.

By establishing the first set of global, integrated environmental and economic accounts, the study has the potential to inform everything from central banks’ monetary policy and capital allocation decisions to exchange rates and multilateral trade agreements. "As we work to expand the definition of environmental sustainability, we aim to make a much wider impact," concludes Muller.


Summarized from an article in "The Growth of Nations Revisited: Global Environmental Accounting from 1990 to 2018," by Mohan, Aniruddh (Carnegie Mellon University), Muller, Nicholas Z. (Carnegie Mellon University), Thyagarajan, Akshay (Carnegie Mellon University), Martin, Randall V. (Washington University in St. Louis), Hammer, Melanie S. (Washington University in St. Louis), van Donkelaar, Aaron (Dalhousie University). Copyright 2020. All rights reserved.