Long-Run Environmental Accounting in the US Economy

Abstract

This paper estimates an augmented measure of national output inclusive of environmental pollution damage in the US economy over a 60-year period. The paper reports two primary findings. First, air pollution intensity declined precipitously from the 1950s to the modern era. Air pollution damage comprised roughly 30% of output in the post–World War II economy, declining to under 10% in 2016. Second, accounting for pollution damage significantly affects growth rates. Prior to the passage of the Clean Air Act in 1970, gross domestic product outpaced environmentally adjusted value added (EVA), defined as GDP less air pollution damage. Following passage of the act, EVA grew more rapidly than GDP. Macroeconomic and environmental policies, as well as the business cycle, appreciably affect damages and EVA growth.