Revenues matter, but costs are equally important in figuring the true health of a business or a country. In a company, materials must be bought, machines lose their usefulness over time, and buildings require repair. Similarly, the economy of a country includes depreciation and the costs of doing business. National accountants adjust GDP to arrive at a net figure that accounts for worn-down roads and bridges, but there is more to a country than its physical infrastructure.

We are aware that trees are important to the environment, for example, but a tree doesn’t factor into GDP unless it is part of a commercial transaction. The sale of a Christmas tree appears in the GDP. An identical tree in the forest does not—at least not until it becomes plywood—and its contribution to a healthy environment does not appear on the country’s balance sheet.

GDP growth and overall welfare might no longer go hand in hand.

If these factors were included, the adjustments to nearly every country’s GDP could be enormous. The cost of environmental degradation and pollution in China is equal to about 8 to 12 percent of the country’s GDP per year. That wipes out most of China’s impressive annual GDP growth, lately in excess of 10 percent.

China announced earlier this decade that it would start to calculate its green GDP, only to backtrack once the first numbers revealed some bad news. That turn of events is not new. The United States followed a similar path in the 1990s. It first started to measure subsoil assets, such as coal still in the ground. The coal industry did not like the results, and Congress soon bowed to lobbyists and included a line in the appropriations bill barring any such future activity. That ban has since disappeared, but national income accountants are still wary of doing anything too public.

Simon Kuznets—the father of U.S. income accounting who won the 1971 Nobel Prize in economics for his work—was the first to point to the limitations of calculating GDP without factoring in costs. On one hand, it is innocuous if the GDP feeds on a deteriorating environment: Companies produce, which adds to the gross domestic product, and other companies clean up their pollution, which again increases the GDP.

A large problem arises, however, with the way that GDP figures are used. The press, the public and even some economists equate them with statements about a nation’s overall well-being. And, up to a point, material wealth does mean better living conditions. China in the last two decades pulled more people out of poverty faster than any other country in history. Yet the enormous deterioration of its environment is equally unprecedented.

The United States provides another case in which GDP growth and overall welfare might no longer go hand in hand. Recent studies on childhood obesity conclude that children today might not live as long as their parents.

Ideally, we would develop an entire dashboard of indicators—economy, health, environment—and accord them all equal or similar weight in policy decisions. In practice, however, economic decisions often dominate. That is why it is essential to create monetary measurements of the environment or health and education, and integrate them with existing GDP measures.

When it comes to balancing 50 jobs against 50,000 trees, logging companies are able to point to hard economic data while environmental activists must plead for the sympathy vote with pictures of virgin forests and perhaps a fuzzy baby animal. But it is indeed possible to calculate the economic worth of trees left standing. They are natural water and air filters. Providing clean drinking water and removing carbon dioxide from the atmosphere add real value to society. Another sizeable part of the equation is the recreational value of forests and their contribution to the tourism industry.

Green GDP is not the result of green accounting; it is simply good accounting. The more data that the policymakers have to steer a country’s economy, the better. It is technically feasible to create such monetary measurements of our environment. What remains to be done now is the actual counting.

Gernot Wagner, a consultant in New York, served as the 2007 Peter Martin Fellow on the editorial board of the Financial Times.