Toward the Measurement of Net Economic Welfare: Air Pollution Damage in the US National Accounts–2002, 2005, 2008

This analysis measures the Gross External Damage (GED) attributable to air pollution emissions in the US economy in 2002, 2005, and 2008. The paper measures three indices: the GED, the GED-to-Value Added ratio (GED/VA), and environmentally-adjusted Value Added (EVA), defined as Value Added minus the GED. Each of these indices is computed for each sector of the U.S. economy in 2002, 2005, and 2008. Real GED is estimated to be $480 billion in 2002, $430 billion in 2005, and $350 billion in 2008. Most of the reduction in GED from 2005 to 2008 is attributable to fewer emissions in the utility, manufacturing, agriculture, and transportation sectors. Nominal GED/VA begins in 2002 at 0.054, drops to 0.039 in 2005, and then declines again to 0.030 in 2008. The empirical time-series estimation of EVA is an important augmentation to standard measures of growth. From 2002 to 2005 VA grew at an annual rate of 2.76 percent. Over the same period EVA grew at 3.07 percent. Between 2005 and 2008 VA grew at 1.18 percent while the EVA increased by 1.47 percent. Thus, the reduction in the GED over these time periods results in growth rates in the EVA greater than VA by about 0.30 percent.