In the last decade, the average social well-being in the countries that make up the Organization for Economic Cooperation and Development (OECD) would have declined approximately two percent if the damage caused by CO2 emissions had been internalized, thus avoiding the worst future scenarios of global warming, according to BBVA Research.
GDP per capita is the most commonly used indicator in comparisons of economic performance across countries. It is an appropriate and useful way to compare the evolution in economic performance over time, as it synthesizes the value of the flows exchanged on the market in terms of income, expenditure and activity.
According to BBVA Research, it is an “incomplete indicator of the economic well-being of a society, as in addition to consumption, it should also include equity in distribution, time available for leisure and life expectancy of the population.” Furthermore, as it is an average concept, GDP per capita does not capture the effect that income distribution has on aggregate well-being.
In addition, GDP does not incorporate the damage caused by CO2 emissions, necessary to reach high consumption levels.
In its latest report, ‘Well-being and social cost of carbon’, BBVA Research estimated a measure of society’s economic well-being, including the cost of carbon emitted to cover consumption. For society, the cost of emissions, and therefore the price that should be set to internalize them, is subject to uncertainty as it depends on the present value of future damage from climate change, which also depends on the alternative climate scenarios.
Internalizing the social cost of the carbon emitted in the last deace would reduce the average well-being of OECD countries by approximately two percent according to a reference scenario. The differences among countries are significant especially in terms of the use of emissions per unit of consumption being more or less intense. The average correction would also increase by 0.6 percentage points if the emissions consumed are taken into account instead of emissions produced, as most developed countries are net importers of carbon from emerging economies.
“Between 2010 and 2019, social well-being in the Spanish economy was, on average, 81 percent of the social well-being recorded in the United States in 2019,” BBVA Research reported. Spain was behind the larger economies in the European Union, such as France and Germany (99 percent), Italy (88 percent) and also fairly far from countries like Belgium, Switzerland, the U.K., Sweden, Iceland and Finland.
However, Spain was above Portugal, Greece, Ireland and the Czech Republic and its well-being was considerably higher than South American countries like Colombia and Chile. Spain’s performance in life expectancy and free time is also notable. However, the opposite occurs with inequality, where Spain was in a worse position than northern European countries like Norway, Sweden or Iceland.
Taking into account the social cost of carbon in social well-being improves the relative position of the Spanish economy due to its less intense use of CO2 emissions per consumption unit, and its lower GDP per capita. By going beyond GDP, Spain’s gap with countries like the U.S. is cut in half when this comparison is made in terms of social well-being.
In this regard, the report notes that: “Among the 36 countries included in the sample¹, Spain is above average (76 percent) in terms of net well-being, corrected by the damage from CO2 emissions, holding the 19th position, just behind Japan and ahead of Ireland. However, there is still a significant gap to close with respect to more advanced OECD countries."