It’s the environment, stupid: Canada can’t afford
ecological deficit
News: climate change actually oozes with opportunity to harness market forces through emissions trading
(The Hill Times, Ottawa, Ontario
September 23, 2002)

A vigorous Kyoto debate and 15 new national parks – the Prime Minister’s speech at Johannesburg points to the environment coming into its own as an issue in the Throne Speech next week.

That’s good news. But even better news would be to hear that as a society we are recognizing the links between a healthy environment and a prosperous economy. Let’s stop the fiction: if we don’t recognize that reality and act on it, we run the risk of creating a new deficit – this time ecological.

Signs are appearing that we are living beyond the carrying capacity of many of our natural systems. This is happening despite the fact that these natural systems provide services – such as water filtration, air purification, and the pollination of crops – that are essential to human survival. Public health, social well-being and the economy are all precariously perched on the bedrock of these natural systems. But in many cases we’re spending this natural capital rather than prudently living off the interest.

To keep the ecological budget in balance, we need to develop creative new approaches that recognize and value natural capital. One of these approaches involves the expanded use of economic instruments to achieve at once both higher environmental and economy performance. Another involves the re-deployment of fiscal tools such as taxation and expenditure.

But one thing is for sure: when it comes to new thinking in this regard of the delivering up of creative out-of-the-box options for consideration, Canada is in a state of infancy. For example, the narrow bandwidth dedicated to Kyoto discourse is dominated by talk of pain, cost, and grief. It’s time to turn that outdated approach to “the environment” on its head.

Climate change oozes with opportunity, not the least of which is to harness market forces through the economic instrument called emissions-trading. Kyoto compliance or a made-in-Canada program to bolster climate stability – either way, Canada has a huge job ahead.

The National Round Table on the Environment and the Economy (NRTEE) has studied a number of greenhouse gas (GHG) reduction strategies and found that however the problem is approached, reductions can be achieved at half the cost or less by using an emissions-trading regime. Simply put, GHG polluters who can reduce emissions more cheaply can “over-reduce” and sell their surplus reductions to a GHG polluter whose cleanup would be more expensive. But that’s just looking at ameliorating a negative – costs. Emissions-trading gives rise to positive consequences. It allows the free market to give a dollar-value to carbon dioxide reductions. Monetizing carbon dioxide emissions will prompt development of innovative technologies as entrepreneurs seek to supply the demand for energy-efficient and low-emission processes, machinery and structures.

If we use emissions-trading to unleash investment in solutions, who knows how much opportunity could be generated for Canadian businesses? Another economic benefit of moving quickly on emissions-trading is that we can keep the business – and the commissions – at home, rather than trading later in a foreign market.

In the area of fiscal reform, consider the example of the farmer who is offered a grant by a government to drain a wetland to expand crop production, even as no one tallies the loss of nature’s free water filtration and air purification plant.

Subsidizing unsustainable economic development depletes the public purse to finance overburdening the environment. It is what commentators have identified for decades as “a perverse subsidy”. This approach – an inheritance from the days before we understood the value of nature’s services – can be found throughout out society.

The federal government recently announced a program that holds promise that we can end this practice. Ottawa has allocated $100-million for a “conservation cover” program that encourages farmers to stop planting annual crops on marginal lands whose economic uncompetitiveness is masked by government farm payments. It is designed to spark a switch to other agricultural uses that are within the long-term carrying capacity of the land.

A recent NRTEE study showed the potential for a conservation cover program to deliver reductions in greenhouse gas emissions and sequestration of carbon. It saves government payments and crop insurance premiums. It increases fish and wildlife populations. It reduces soil erosion, and generates savings on drinking water treatment and sediment removal costs.

Note the change in fiscal strategy: where the government was subsidizing an unsustainable over-use of marginal land, now it is making financial incentives available for a transition to sustainable agriculture uses.

These are but two examples of the kind of reforms we need to implement across-the-board. We must also learn to measure and track our stocks of natural capital, to avoid making erroneous economic decisions based on ignoring the cost of that capital.

Preserving deposits of natural capital in national parks, and finding clever ways to cut the cost of reducing climate destabilizing emissions are markers of our increasing recognition of the links between the environment and the economy.

Only by placing nature – and the typically unvalued ecological services that nature performs – squarely in the mainstream of our economic thinking and behaviour, can Canada hope to move forward decisively toward sustainable development.

David J. McGuinty is President and CEO of the National Round Table on the Environment and the Economy.

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