Redefining GDP: Integrating Carbon Pricing in National Income Accounting

Abstract

Gross Domestic Product (GDP) has long been a key metric for assessing economic activity but falls short as a measure of social welfare and sustainability. It overlooks unpaid labor, informal sectors, and environmental costs like deforestation and carbon emissions. For instance, while India's informal sector contributes significantly to GDP, much remains unaccounted for. Moreover, global GDP growth has historically correlated with rising CO₂ emissions. This paper advocates for integrating carbon pricing into GDP calculations, assigning costs to environmental degradation and incentivizing sustainable practices. By redefining progress, nations can align economic growth with social equity and environmental sustainability, fostering holistic development.