Let’s stop the fiction - GDP is not enough: Canada needs to adopt natural capital indicators to monitor the economy’s ecological foundations

Until today, Canada’s decision-makers had no way of measuring whether we have adequate ecological resources to maintain our current level of economic activity and prosperity into the future.

Because we haven’t kept track of our ecological resources, we don’t know if we are running down our stocks of this “natural capital” to the detriment of future generations’ prosperity.

What is natural capital? It is comprised of environmental goods and environmental services that are the foundation of economic activity.

The services include clean air and water, pollination, climate regulation and other life-sustaining benefits that are worth $33 trillion a year, according to a very rough 1997 estimate by an international team of economists and scientists.

Environmental goods go well beyond the minerals, metals, lumber and fossil fuels that are the basis of our traditional resource extraction sectors. They include the bounty of biodiversity: an encyclopedia of genetic recipes, patterns, design and engineering solutions, medicines and other marketable ideas. In the United States, for example, 40% of all the prescriptions filled are derived from living things, which over millions of years evolved ways to fight ailments.

Traditional measures such as gross domestic product (GDP) provide only a partial view of the factors that affect economic activity. They do not account for the true and full costs and benefits of economic decisions because they ignore impacts on natural capital stocks. In other words, we’re not in a position to measure the true health and wealth of our nation-state.

If natural capital is declining, economists, executives and Finance Ministers better know about it sooner rather than later. But right now we have no tools to track it.

To fill this gap in Canada’s understanding of its long-term economic prospects, the National Round Table on the Environment and the Economy is today proposing six new formal Statistics Canada natural capital indicators. These indicators would supplement familiar economic data – such as the consumer price index (CPI) and GDP.

An event earlier this month underlined why just knowing the level of economic activity – the GDP – is not enough.

As we were over-fishing the Northern cod, every year we added the value of the landed catch to Canada’s total economic output. But the depletion of the cod stocks were ignored. When fish stocks collapsed, 40,000 people who earned their livelihood from cod had to find other work. And a few weeks ago, the Northern cod was declared an endangered species – leaving us to ponder what wonders are in a cod’s genes.

We need to know how much and how fast we are using our natural capital. Over time the trend lines will become stars we need to steer by. In its report Environment and Sustainable Development Indicators for Canada, the Round Table is proposing six new indicators:

• Forest cover would track changes in the extent of Canada’s forests. The Round Table found that in 1998, the only year for which sufficient satellite-based data is available, Canada was 41% forested, with 392 million hectares of forested land out of a total landmass of 951 million hectares.
  
• Freshwater quality would show whether water quality is meeting objectives for particular uses such as swimming, irrigation and aquatic life. The indicator would show trends in how many monitored waterways are classified as “marginal” or “poor” for these uses. For the first time, national water quality information has been assembled, showing that in 2002, 22% of monitored waterways were impaired.
  
• Air quality is estimated using ground-level ozone (“smog”) levels. For the first time, the report weights air quality information from across Canada by population. The level of ground-level ozone that Canadians are exposed to is creeping up (+3% over 20 years), even as scientists are finding that the pollutant sickens and kills people at lower levels than previously thought.
  
• Greenhouse gas emissions. This indicator has been developed by Environment Canada. It tracks total annual emissions of the gases that are destabilizing the planet’s climate patterns. Canadian GHG emissions have increased 16% over the last 20 years.
  
• Extent of wetlands would track changes in the total area of wetlands. The area covered by wetlands is a proxy for biodiversity. Surprisingly, there is no information at this time to calculate this indicator, but it could be constructed in two years from satellite remote-sensing data.
  
• Educational attainment would track the percentage of the workforce-age population with post-secondary education. The report found that this indicator went from nearly 43% in 1990 to 55% in 2000. This is the only human capital indicator in the group, and measures Canada’s ability to compete in a knowledge-based global economy.

The Round Table is also recommending that we create better statistical links between capital – natural, human and social – and the economic data that supports macro-economic indicators like the GDP. The Government of Canada should allocate money to Statistics Canada and Environment Canada to gather, analyze and publish this data. Ottawa should also support the proposed Canadian Information System on the Environment (CISE) whereby all levels of government would work to improve the quantity and quality of information about Canada’s environment. Existing information bases are incomplete and are often incompatible.

Canadians need to know if we are living well today at the expense of our children and grandchildren.

The GDP told us that the Atlantic Fishery was good to the last cod. But it wasn’t true. Let’s stop the fiction: we need new ways to measure economic success.

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

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