2000
Year2010 2020*$0$200$400$600$800$1,000$1,200$1,400$1,600$1,800$2,000
Costs
BenefitsBillions*EstimatedVisions of America/UIG/Getty Images, Inc.
Based on data from U.S. Environmental Protection Agency.abis a measure of the net production of the economy, after
a deduction for used-up capital. In contrast, when an oil
company drains oil from an underground field, the value
of the oil produced is counted as part of the nation’s GDP,
but no offsetting deduction to NDP is made to account
for the fact that nonrenewable resources were used up.
In principle, the draining of the oil field is a type of
depreciation, and the oil company’s net product should
be accordingly reduced. The same point applies to any
other natural resource that is depleted in the process of
production. Natural capital is a very large part of a coun-
try’s economic wealth, and we should treat it the same as
human-made capital.The Costs and Benefits of Pollution Control
Imagine that a company has the following choices: It can
produce $100 million worth of products and, at the sametime, release toxic emissions into the air. Alternatively, if
the company uses 10 percent of its workers to properly
dispose of its wastes, it avoids polluting but gets only $90
million of products. Under current national income ac-
counting rules, if the firm chooses to pollute rather than
not to pollute, it will make a larger contribution to GDP
($100 million rather than $90 million) because the na-
tional income accounts attach no explicit value to clean
air. In an ideal accounting system, the economic cost of
environmental degradation is subtracted in the calcula-
tion of a firm’s contribution to GDP, and activities that
improve the environment—because they provide real
economic benefits—are added to GDP (Figure 3.15).
Incorporating resource depletion and pollution
into national income accounting is important because
GDP and related statistics are used continually in pol-
icy analyses. An increasing number of economists,64 CHAPTER 3 Environmental History, Politics, and Economics*ÕÌÊVi>Õ«Ê>`Ê *ÊUÊ}ÕÀiÊΰ£xÊ
Air emissions from chemical plants like this one in Cleveland, Ohio (a) are far lower than they would
be absent air quality regulations. The costs associated with controlling air pollution from industry,
transportation, and other sectors are far smaller than are the resulting benefits to health, property,
and the environment (b). The improved air quality is not included in the calculation of GDP.Interpreting Data
What was the ratio of benefits to costs in 2000?
Did the ratio increase or decrease from 2010 to
2020? What is it estimated to be in 2020?