Why the Environment Must Be Part of Economic Metrics

A New Framework for Measuring Sustainable Growth

How do we measure success?

My wife and I just started our biggest project yet, this website, Climate Ages, dedicated to disseminating paleontology and climate change science. Our goal is to help people gain trust in the scientific method by exploring the methodology behind the most important scientific advances in the field.

Let me tell you, this is not a simple project, especially when we both have full-time jobs and two young kids in common. But little by little, we’re taking this where we want it to be.

One of the things we’ve been doing recently is talking to people who have been successful in similarly big projects. Silvia and I are big proponents of not having to learn all the lessons the hard way and of other people’s expertise being unmatched.

One of these meetings made us think more carefully. We were talking about this person’s incredible success, now that they are about to retire, when they confessed something important: failing to measure success the right way almost cost their organization more than once.

They explained that, at the beginning, they thought that the only way to measure their growth was by looking at revenue and accomplished projects. However, at some point, growth stalked and even plummeted. What happened?

Well, they failed to take care of their mental and physical health. They started sleeping poorly, eating unhealthy, and getting paralyzed by anxiety. That’s when they decided to step back a little bit, prioritize their personal well-being over their economic growth, and reconsider how they measured success.

In their new measure system, they added physical and mental health. Then, and only then, did they start seeing the personal and economic growth that eventually led to their becoming a successful enterprise.

We took note of their learnings, but later at home we had an interesting conversation. Are countries also measuring growth the wrong way? Should they also consider their environmental health in the growth equation? Well, a new study offers some ideas.

The world is changing at a pace that’s hard to keep up with. Our energy systems are finally pivoting away from fossil fuels, and global events like the COVID-19 pandemic and geopolitical conflicts have reshaped how we live and work.

These shifts affect the economy and our environment, specifically greenhouse gas emissions and air pollution. In the midst of constant change, how do we ensure that economic growth doesn’t come at the expense of the planet? In other words, how do we keep our economies afloat without destroying our natural resources?

A group of researchers has tackled this question in a recent study published in Nature Communications Earth & Environment. The authors argue for a fresh measure of sustainable growth by accounting for environmental costs that traditional metrics like GDP overlook. Indeed, a new way to measure growth is long overdue.

Their approach could help policymakers better navigate the complex growth and sustainability challenges.

So, how did they measure the real cost of growth?

The researchers developed a new framework that integrates environmental damages into national economic accounts. They analyzed data from 165 countries between 1998 and 2018, focusing on two major pollutants: fine particulate matter (PM2.5) and carbon dioxide (CO2).

Using this data, they calculated the monetary damages caused by these pollutants—what they call Gross External Damage (GED)—and deducted these costs from GDP to create a more comprehensive measure: Environmentally Adjusted Value Added (EVA). Good choice of acronyms!

However, we need to understand that this approach isn’t just about counting tons of emissions or tracking pollution levels. It’s about translating those numbers into a language that resonates: dollars and cents.

The authors are convinced that, by monetizing environmental harm, they can highlight the real cost of growth and push for a more sustainable path forward.

 And what did the numbers have to say?

The study’s findings provide an intriguing insight into global trends. Between the late 1990s and the Great Recession in 2008, the global economy became less pollution-intensive. Indeed, countries were producing more while polluting less. A step in the right direction.

However, after the recession, this progress took a hit. Larger economies like China and India saw their shares of global production rise, but with higher pollution intensity, driving up environmental costs.

Something that got the author’s attention, though, is that pollution damages aren’t uniform. “Our results suggest that the global economy is likely to experience rising damages from particulates and carbon dioxide emissions in the coming years as nations grow and develop,” said co-author Dr. Aniruddh Mohan from Princeton University.

In other words, wealthier countries tend to have stricter regulations, which curb pollution intensity, while middle-income nations often experience rising damages as they industrialize and grow. 

For instance, in high-income countries, pollution intensity fell from 10% of GDP in 1998 to 7% in 2018. Meanwhile, middle-income countries like China and India saw sharp increases in damages due to rapid economic and capital growth.

Of course, these trends underline a critical challenge: balancing development with environmental stewardship.

But why does this all matter? What’s so important about this study?

This study stands out because it focuses on monetary damages rather than physical pollution levels. And this shift in perspective has big implications. By putting a price tag on environmental harm, the framework highlights costs that are often invisible in traditional economic metrics.

This isn’t just an academic exercise; it’s a tool for better decision-making. An invaluable resource for policy-makers.

Take carbon dioxide, for example. The damage from CO2 emissions continues to rise because the gas accumulates in the atmosphere, driving climate change. Meanwhile, damages from PM2.5, a term for extremely small particles in the air that can cause adverse health effects, tend to peak earlier in a country’s development. Understanding these dynamics can help policymakers prioritize actions. 

As Dr. Nicholas Muller, a co-author from Carnegie Mellon University, put it, “In this transitional state, society must consider what these global-scale disruptions mean for broad-based, sustainable growth moving forward.”

What should we look at moving forward?

While the study is a big step forward, it doesn’t claim to have all the answers, which is actually a good thing. Their framework focuses on two pollutants, but critical issues like biodiversity, ecosystem services, and water pollution aren’t yet included.

Nonetheless, it provides a powerful foundation for integrating environmental costs into the way we think about growth.

Traditional measures like GDP were never designed to account for sustainability, but the stakes are too high to keep ignoring these costs. As nations grapple with climate change, resource depletion, and other environmental challenges, tools like EVA can guide smarter, more sustainable policies. They can help us be more efficient and make less mistakes. Information makes us powerful.

After all, we must remember that sustainable growth isn’t just about producing more—it’s about making sure that growth doesn’t come at an unbearable cost. By linking environmental damage to economic output, this framework offers a way to measure progress that truly aligns with long-term well-being.

The economy and the environment aren’t separate systems; they’re deeply interconnected, and managing one requires considering the other. Or else…