Insee Analyses · November 2024 · n° 98

Can the climate be taken into account in the national accounts ? Climate-adjusted net savings are negative in France

The provision of carbon accounts as part of the augmented national accounts programme allows for the production of new indicators addressing issues that have thus far been ignored by standard indicators within the national accounts. This study therefore describes indicators taken from the national accounts that have been adjusted for costs incurred in connection with greenhouse gases emissions (GHG).

In 2023, France’s economic activities generated 403 megatons of GHG emissions in carbon dioxide equivalent (Mt CO₂ eq) [Baude and Larrieu, 2024], while its carbon footprint was 644 Mt CO₂ eq (figure 1). Globally, GHG emissions amounted to 53 gigatons of CO₂ equivalent (Gt CO₂ eq). They result in two types of cost. On the one hand, there are costs associated with climate damage, which can in particular affect productivity, employment and the value of assets such as present and future agricultural yields. These costs also include those incurred in adapting agents to the consequences of climate change. On the other hand, costs are incurred in connection with the need to decarbonise the economy, largely resulting from policies aimed at limiting emissions.

Both types of costs co-exist now and will continue to do so in the future. Augmented accounting therefore seeks to take account of both phenomena. However, it is important to note that some of these costs are already included in the indicators used for the national accounts. This means that the market price valuation of assets includes future losses or gains resulting from climate damage, in so far as the economic actors are able to anticipate these. For example, the market value of a vineyard exposed to an increased risk of drought may be affected today. Likewise, the announcement of limitations on GHG emissions, such as a ban on the sale of petrol and diesel vehicles, reduces the value of companies that generate emissions, which are not prepared for these limitations. Furthermore, the gross domestic product indicator does a good job of capturing certain types of damage linked to global warming where these manifest as lower production.

However, even where they are implicitly taken into account in the usual national accounts, the costs incurred in connection with emissions are neither visible nor separable. In addition, the production, income and savings indicators for the current period do not reflect the fact that the emissions reduce the wealth bequeathed to subsequent generations. In other words, this means that the net domestic product, net income and net savings are overestimated in the usual accounts. This approach therefore aims to make these implicit costs visible, resulting in a change in the manner in which current net production and net savings indicators are measured, and, in doing so, modify the contribution made by savings to wealth trends. The indicators are then considered to have been “adjusted” by that contribution.

No other costs are taken into consideration, even implicitly, in the measures of gross production and wealth in the usual national accounts. These relate to damage affecting products or assets falling outside of the standard coverage of the national accounts, in particular those with a direct impact on the health and mortality of households. The indicators that include these costs can also be calculated and are therefore referred to as “extended”.

GHG emissions mostly impact future activities. On the one hand, the carbon inventory accumulated in the atmosphere causes damage. It harms the “climate capital” and therefore the economic services that the climate provides to industries dependent on it. On the other hand, new emissions observed during the current year result in the strengthening of mitigation policies in the following years, further restricting production methods in order to meet decarbonisation targets. Such policies then take the form of a “carbon budget” allocated to economic agents, which consists of authorised cumulative emissions that reduce each year in line with new emissions.

The synthetic indicators presented here equate the effect of the emissions to capital consumption, resulting in net indicators that are adjusted for this consumption. Indicators of this type are already included in the national accounts: in relation to gross domestic product or gross savings, net domestic product and net savings are obtained by subtracting the consumption of fixed capital from each of the gross indicators. This corresponds to the obsolescence and wear and tear of capital occurring during the period under consideration (the year in the case of the national accounts).

With augmented accounting, the same reasoning can be applied to climate capital and the carbon budget: these are depleted by GHG emissions, which accounts for future production. The net domestic product for GHG emissions, in turn impacts, with the reduction of the climate capital and the consumption of the carbon budget, provides a more accurate measure of the country’s activity. Unlike traditional metrics, it explicitely incorporates resource depletion, an aspect previously overlooked. Likewise, adjusted net savings reflect the amount that is actually still available to the economy once all consumption has been taken into consideration: that associated with final demand and that linked to wealth. From this perspective, negative savings indicate a lack of sustainability: current production is not sufficient, relative to consumption, to maintain the current level of assets.

The above-mentioned principles must face a major challenge: valuation. Within the standard framework of the national accounts, valuation is based on the observation of market or transaction prices (methods). If such markets or transactions do not exist or cannot be observed, other methods must be used to value climate capital and the carbon budget.

Numerous studies have sought to estimate a value on the carbon in the atmosphere by quantifying the costs of the damage it causes. They aim to identify the various consequences of these emissions, focusing primarily on global warming, and to assign a monetary value to the damage that they cause. In doing so, they estimate the social cost of carbon (methods). The US government has launched a series of studies, summarised by Ouvrir dans un nouvel ongletRennert et al. (2022), which estimate that one ton of CO₂ equivalent (t CO₂ eq) generated in 2020 cost the world around 172 euros in 2023 (figure 2). However, another essential takeaway from this study is the quantification of the uncertainty surrounding this cost, which can vary from 40 euros/t CO₂ eq to 376 euros/t CO₂ eq depending on the modelling assumptions used.

Some of the damage associated with carbon emissions goes further production as measured by GDP and is not classified as economic activity. In particular, the effects of rising temperatures on human health and mortality are now well documented [Ouvrir dans un nouvel ongletVicedo-Cabrera et  al., 2021]. The social cost estimate proposed by Ouvrir dans un nouvel ongletRennert et al. (2022) separates out this component, valuing it at 82 euros/t CO₂ eq in 2023. Unlike the other components of the social cost of carbon, which reflect the potential damage to the economy (in particular agricultural yields, energy production or destruction of property as a result of rising sea levels), the effects on health and mortality are typically excluded from the national accounts. As a result, the social cost component that falls “within the GDP production boundary” (90 euros/t CO₂ eq in 2023) will therefore be considered separately from the component that falls “outside of the GDP production boundary” (82 euros/t CO₂ eq).

If we value the social cost of carbon on this basis, French emissions – emissions by resident units – during 2023 would have reduced global climate capital by 36 billion euros for the component falling within the production boundary (figure 3). In addition to this reduction, the effect of French emissions on the health and mortality of the world’s population amounts to 33 billion euros, giving a total of almost 70 billion euros.

The damage valuations set out above reflect the global impact of emissions tied to France's economic activity. The damage incurred by France as a result of global emissions (including those generated in France) can also be assessed in the same way. The studies by Ouvrir dans un nouvel ongletRennert et al. (2022) do not look at the social cost of the damage for France in isolation, but this can be approximated by assuming that it is proportional to the economic weight of France (around 3% of global GDP). If we apply this cost to the 53 Gt CO₂ eq emitted into the atmosphere in 2023 worldwide, the damage caused to France by these global emissions in 2023 can be estimated at 144 billion euros (figure 3). This estimate could be refined by basing it on a more precise examination of the consequences of global warming for the French situation. However, we expect this approach to show that France “imports” around twice as much damage as it exports. Its economy is actually relatively low carbon [Bourgeois et al., 2022] and more developed than the average, which implies that the economic damage suffered is potentially even greater.

The social cost of carbon is estimated on the basis of projected population change, economic activity and emissions trajectories, which take into account in particular the implementation of mitigation policies aimed at limiting them. These policies are not without cost: they may involve encouraging or forcing companies to change their production methods or to develop less carbon-intensive products, or encouraging sufficiency. In this study, the impact of such policies is summarised by the existence of a global limit on emissions that must not be exceeded, referred to as the “carbon budget”. This is established on the basis of the emissions targets set out in the national low-carbon strategy, known as “SNBC 2”, adopted in 2020, and then reduced each year by the emissions observed (methods). Emissions generated today reduce the room for manoeuvre with regard to future emissions and therefore involve an implicit cost in addition to that of the damage caused.

The concept allowing the cost of decarbonisation actions to be assessed is the “value of climate action” (VCA). In France, the Quinet committee therefore defines the VCA as “the value, for the community, of initiatives delivering on the net zero GHG emissions target” [Ouvrir dans un nouvel ongletQuinet, 2019]. The VCA is established with reference to emissions targets and makes it possible to assign a value to emissions avoided for a private or public investor (methods). More precisely, the value of climate action is not a fixed price, but a price trajectory. In principle, this follows Hotelling’s rule, which governs price changes for a limited resource, in this case the carbon budget. This rule stipulates that prices increase in line with the discount rate, which reflects the growing cost of decarbonisation. The depletion of the carbon budget as a result of carbon emissions in the current year therefore narrows future decarbonisation policies.

Based on the VCA estimated by the Quinet committee (around 154 euros/t CO₂ eq in 2023, figure 2), by reducing the carbon budget, thereby making future mitigation policies more restrictive, carbon emissions reduced the value of the economy’s assets by 57 billion euros in 2023 (figure 3). This price is applied to regional emissions (inventory in SNBC format) in line with the emissions targets set out in SNBC 2 (methods). Such an estimation could be reviewed alongside the updates announced for the VCA and the SNBC.

The total cumulative cost of the damage (deterioration of the climate) and mitigation policies (depletion of the carbon budget) brought about by French emissions reached 94 billion euros in 2023 (figure 3). This total includes 36 billion of in global damage caused by French emissions and 57 billion of consumption of the carbon budget. The net domestic product adjusted for GHG emissions (ANDP) amounted to 2,200 billion euros in 2023, compared with 2,294 billion for net domestic product. In other words, it was 4.1% lower. From a conceptual point of view, this adjusted indicator provides a measure of current domestic production from which the implicit costs incurred in connection with the emissions accompanying this current production and compromising future production are deducted. In addition to these costs, the damage to health and mortality is not taken into account in the national accounts. The extension to include this dimension has the effect of reducing the ANDP by an additional 33 billion, resulting in a figure of 2,167 billion for 2023, or 5.5% less than the usual net domestic product.

Given the gradual decline in resident emissions, the downward adjustment of net domestic product becomes less significant as the years go by. At the same time, economic growth is continuing its trend. The nature of this decoupling of economic activity and emissions explains why the ANDP has increased more than the NDP in recent years, since 2018. 2023 in particular saw a fall in France’s GHG emissions. This reduction in the volume of emissions resulted in a decrease in their annual cost and therefore a boost to the ANDP in terms of volume. The growth of the ADNP in terms of volume then settled at 1.5%, a boost of 0.3 points (figure 4).

National savings are defined as the difference between national income and total national consumption. Net savings in the usual sense are equal to savings less fixed capital consumption. Like net domestic product, net savings can be adjusted taking account of the consumption of climate capital and the depletion of the carbon budget. However, unlike domestic product, national savings are not affected by the depletion of climate capital as a result of emissions generated on French territory, but by global emissions affecting France. Therefore, the adjustment made to calculate adjusted net savings (ANS) results in a decrease in net savings of 201 billion euros, giving a final figure of -133 billion euros (figure 3). These 201 billion euros represent the sum of 144 billion of damage in France linked to global emissions and 57 billion for consumption of the carbon budget, bringing the final figure to -133 billion.

The adjusted net savings have therefore been negative in recent years, particularly in 2023, even when limited to only taking account of damage within the GDP boundary (i.e. not taking account of the health effects). This illustrates the impoverishing effect of the depletion of carbon resources on the economy as a whole. This observation is even more negative with adjusted and extended net savings (-264 billion euros in 2023), which also include the loss of value caused by the future effects on health and mortality. The dissaving situation during these years indicates a deterioration of future living conditions that is not offset by the purely economic increase in the country’s wealth and therefore that economic activity, as it currently stands, is not sustainable.

Of course, when debating indicators of this type, it may appear incongruous to apply a monetary equivalent to dimensions that are essentially non-monetary, namely the threats posed by climate change to health and living conditions. However, this is the price that must be paid if we are to consider establishing a synthetic indicator.

The above indicators provide an assessment of the current situation in the country. Information concerning emissions and footprints can also be used from the perspective of wealth by calculating three indicators that can be interpreted, in a specific sense for each, as approximating a certain concept of “climate debt”: a "carbon meter" comparing actual emissions against targets; an assessment of the future costs of decarbonisation; a retrospective estimate of the cost of the accumulated damage from past emissions, adjusted for carbon sink, not accounted for in these applications.

An initial approach compares the emissions generated year-on-year against the targets set by France's National Low Carbon Strategy, SNBC 2. The cumulative total of the deviations in emissions generated compared with their target therefore results in a “carbon meter” measuring intertemporal compliance with commitments, from a given date. In 2023, the cumulative emissions generated since 2018 were 123 Mt CO₂ eq below the cumulative emissions targets (figure 1). This advance reduces the carbon stock in the atmosphere, resulting – all else being equal – in a lower figure for damage, assessed at a social cost of 21 billion euros (figure 5). Of course, this observation would involve different signs or orders of magnitude if calculated from an earlier baseline or using a different reference framework than the SNBC2.

By extending and cumulating the emissions targets as provided for today in the SNBC, France can still emit 6 Gt CO₂ eq between now and 2050, the year in which the net zero emissions target is expected to be reached (figure 1). This budget can be considered as an asset that is being depleted as emissions are generated, but the value of which may increase due to the growth in the VCA. In 2023, this carbon budget amounted to 929 billion euros, estimated on the basis of the VCA. Assuming that the VCA correctly reflects the future costs of decarbonisation, this scale can also be interpreted as an implicit commitment: it represents the discounted total of the costs to be paid in the future in order to decarbonise the entire French economy in accordance with the commitments that have been made, with such costs being borne by public or private funds in the form of investment or ceasing consumption. This is the concept of climate commitment defined by Germain and Lellouch (2020).

The value of the carbon budget is purely indicative given the valuation uncertainties. Considering that it is estimated under the assumption of the optimal use of technologies [Ouvrir dans un nouvel ongletQuinet, 2019], it is likely that the estimated value of the carbon budget underestimates future expenditure on decarbonisation. In addition, if we wanted to update this indicator over time, any deviation from the emissions trajectory set by the SNBC targets, on the basis of which the VCA is established, should be accompanied by a re-estimation of the VCA and its trajectory in a strict application of climate policy aimed at offsetting excess emissions.

Another approach is to consider the anthropogenic carbon stock in the atmosphere, for which France is responsible, from the beginning of the industrial era, given CO₂ long atmospheric lifespan. This idea of responsibility can be applied to emissions generated within French's borders, as well as to those resulting from final consumption. From this perspective, it is more suitable to refer to the carbon footprint of the French economy. This includes foreign emissions resulting from French final demand (“imported” emissions), but excludes French emissions generated in response to final demand in other countries (“exported” emissions). It amounted to 644 Mt CO₂ eq in 2023 [Baude and Larrieu, 2024], a significantly higher total than the 403 Mt CO₂ eq of emissions by resident economic units (figure 1). Valued at the social cost in 2023, the total cost of the damage caused by the French carbon footprint was therefore 113 billion euros in 2023, reflecting its contribution to the degradation of global atmospheric capital (figure 3).

The cumulative carbon footprint of France since 1850 is estimated at 40.5 Gt CO₂ eq (figure 1). Valued at the social cost of carbon, it amounts to 6,964 billion euros, thereby quantifying the global cost of the damage caused by all of these emissions (figure 5). This amount can be interpreted as a responsibility towards the whole world when it comes to climate, which would be retrospective in so far as it is based on past emissions. However, it does not take into account the effects of the cumulative emissions of other countries on the damage suffered by France itself. This is not a “climate debt” in so far as its value in euros can be reassessed on the basis of the change in the social cost, which reflects changes in emissions in other countries.

The various indicators proposed here are based on recent conceptual advances in the national accounts aimed at adjusting and extending their coverage to take account of certain dimensions “beyond” GDP. In particular, the next revision of the System of National Accounts (SNA) will place greater emphasis on well-being and sustainability, including by recommending wider indicators "net" of capital consumption. This study takes this same approach, but differs from the improvements being made to the SNA by focusing on the costs of climate change. The introduction of two additional asset classes, “climate capital” and the “carbon budget”, provides visibility of their consumption and allows for the establishment of adjusted indicators that take good account of the cost of GHG emissions.

Like all progress, it is exploratory at this stage and subject to debate. In this respect, the proposed indicators are experimental statistics, established with reference to the standard indicators used for the national accounts, which allows us to demonstrate how the consideration of climatic sustainability changes the standard indicators.

In addition, all of the considerations presented here remain highly uncertain from a quantitative point of view. The emissions and carbon footprint figures for France are based on [Baude and Larrieu, 2024]. These findings are based on statistical observations and proven models and can therefore be considered as known with an adequate degree of precision. Conversely, the orders of magnitude of the adjustments to NDP and net savings could be heavily revised with more precise estimates of damage and the costs of mitigation policies, which are required to value emissions in monetary terms. In addition, looking beyond the issues surrounding the uncertainty of estimates, the cost of mitigation policies would be heavily revised in the event that these policies are amended and could even depend on the way in which they are formulated, via the establishment of emissions targets. Unlike standard national accounting indicators, which are based on observed transaction prices, the adjusted indicators lack this empirical foundation. The absence of market-based prices for climate damages and mitigation efforts inherently weakens their robustness compared to conventional economic metrics.