Conference Agenda

We consider how to integrate CO2 emissions in comprehensive national accounts for the purpose of indicating whether countries’ development is sustainable. We do so under the assumption that emitters pay for the damage that their emissions cause elsewhere, in accordance with the Polluter Pays Principle and the rationale behind the World Development Indicators of the World Bank. We investigate two different interpretations of the Polluter Pays Principle—compensating for current emissions, or for historical cumulative emissions—and show that neither leads to the expression of genuine saving used by the World Bank. The correct expressions involve future capital gains on transfers from emitters and future net cost of increasing emissions. Since current emissions cause future damage, the properties of sustainability indicators in this setting are related to the interesting problem of how to compensate for emissions across time. Our empirical application to recent genuine saving data combined with the social cost of carbon (SCC) estimated from a recent integrated assessment model shows that the performance of developing countries when emitters pay for their current emissions would be worse than the corresponding estimates using the World Bank methodology, while it is mainly early emitters that do not perform well in their sustainability indicator when emitters pay for their historical cumulative emissions. Our results have significance in the design of the loss-and-damage fund currently debated in the international community.