Event Recap: Towards the Measurement of Net Economic Welfare: Inter-temporal Environmental Accounting in the US Economy

Nov. 18, 2012

On Thursday, November 15, 2012, AEDE welcomed Nicholas Muller, Assistant Professor in the Department of Economics at Middlebury College, to present his research titled, “Towards the Measurement of Net Economic Welfare: Inter-temporal Environmental Accounting in the US Economy” as part of the AEDE Seminar Series. This seminar was sponsored by the Environmental Policy Initiative at Ohio State, which is overseen by AEDE’s Professor Brent Sohngen.

Muller’s work focuses on measuring air pollution emissions damage in the US economy. He employs the use of an environmental accounting methodology to measure “Gross External Damage (GED)” due to air pollution emissions in the US during the years 2002, 2005 and 2008. Using quantities of emissions data reported by the US Environmental Protection Agency, GED was tabulated using source-and-pollutant-specific marginal damages produced by an integrated assessment model.

At the AEDE seminar Muller also presented recent research related to GED findings for the year 1999, which he is now adding to the previous analysis. In his work, Muller pursues time series measurement to analyze the GED data through the application of methods he developed previously with Mendelsohn and Nordhaus. This task of computing GED in multiple years is an important extension to static environmental accounting.

In his research Muller found that five sectors contributed to 90 percent of GED in the US during the time period examined: utilities, agriculture, manufacturing, transportation, and construction. In his data analysis he found that real GED is estimated to be $440 billion in 2002, $430 billion in 2005, and $335 billion in 2008. He theorizes that most of the reduction in GED from 2005 to 2008 was due to fewer emissions in the utility, manufacturing, agriculture, and transportation sectors.

This research is significant as environmental accounting addresses some of the limitations of conventional measures of production and enables researchers to gain a more complete picture of national welfare. As reflected by Muller, “time series environmental accounting estimates rates of growth (or contraction) in the stocks of valuable natural resources and the magnitude of environmental damage from market production. Including these measures into augmented accounts is a critical step in closing the gap between the current production-based measures of output and a more complete picture of national economic welfare."

Additionally, the use of times series analysis is important as, by providing an estimation of air pollution damage indices over multiple years, Muller provides researchers and policymakers the opportunity to assess how the social costs from air pollution change relative to the size of the economy.

In moving forward on further data analysis, Muller and his team aim to extend the research to include the years 1999 and 2011 now that data from this period is becoming available. In particular, analysis of the pollution damage between 1999 and 2002 could prove very fruitful to gain insight on the value of regulatory programs that were put in place between these years.

To see Muller’s full presentation at the AEDE seminar, please click here

November 19, 2012