Live Research Bulletin: The opposite poles of environmental accounts of Canada and the United States

November 24, 2012 Environmental Economics, Macroeconomics, Mining, Monetary, Oil and Gas, Policy, Solutions, Sustainability 2 Comments 3,057 Views

“I’m not in this race to slow the rise of the oceans or to heal the planet.” Republican Presidential Candidate Governor Mitt Romney, an interview on “Meet the Press”, September, 2012.

This month, Development Roast has published several posts offering insights into different principles and practices of green accounting. After our overview of European experience with environmental accounting, we now turn to North America. Excluding Mexico (which will be discussed next week in the Latin America update), the two remaining countries show us quite different experiences with greening the national accounts. While Canada has shown to be an example of comprehensive implementation, the United States suspended its national project for environmental accounting in 1995 and hasn’t made large attempts to develop these accounts since.

Canadian efforts to quantify and value the environment started in the 1970s, but in 1991 the government asked its national statistics body (Statistics Canada) to develop an actual system to analyze the relation between the economy and the environment. In 2006, Statistics Canada released a comprehensive document of Canada’s environmental accounts. The system developed is called the Canadian System of Environmental and Resource Accounts (CSERA). It uses both physical and monetary measurements to account for the country’s natural wealth (Natural Resource Stock Accounts), the material and energy requirements of the economy (Material and Energy Flow Accounts) and also for the expenditure in environmental protection (Environmental Protection Expenditure Accounts).

The accounts are very comprehensive and include measures of oil, natural gas, minerals, timber, land, greenhouse gas emissions, water, fish, and agricultural products. However, one key limitation of the CSERA is that it doesn’t calculate sustainability indicators such as the Environmentally Adjusted Net Domestic Product (EDP). The EDP is a way of calculating the wealth of the entire country that includes non-extracted natural resources and discounts for depleted environments and waste emissions. In principle, it is the end goal of monetary environmental accounting since it can adjust economic indicators with the environmental situation of the country. If greening the accounts makes a country’s economic indicators look bad, the logic is that it will lead to greener policy-making.

In order to value the natural resources monetarily, the Canadian system uses several accounting methods, but its basic principle is to calculate the income that can be generated from extracting each resource over its useful lifetime. For example, they calculate the economic value of a standing forest by estimating how much money would be earned from logging it. However, if one is to take the principles of environmental accounting seriously, they should attempt to estimate the cost of everything that the resource provides, as hard and subjective as that can be. In the case of forests, that would include accounting for the ecosystem services it provides “for free” (like carbon capture, clean air, and habitat for wildlife, among others) and valuing it accordingly.

Drawing on the same environmental stocks and flows accounts, a more recent 2011 study by Statistics Canada demonstrates progress in the sustainability of Canada’s economy but also shows sectors that have not improved. On one hand, waste diversion, recycling, business spending with environmental protection, and stocks of crude bitumen (a type of petroleum) have increased. On the other, household emissions of greenhouse gases have increased and water yield (the water that replenishes the stocks of water contained in the country’s lakes, rivers, and aquifers) was depleted.

The United States started creating environmental accounts in 1992, with a system called Integrated Economic and Environmental Satellite Accounts (IEESA). The system for creating the accounts—led by the Bureau of Economic Analysis (BEA)— lasted only for three years when in 1995 the U.S. Congress suspended its implementation due to perceived problems with its methodology. Since then smaller, non-systematic accounts have been developed, but no institutionalized, nation-effort is underway.

One recent and comprehensive example of an ‘independent’ attempt to green the U.S. national accounts is the accounts for air pollution calculated by economists Nicholas Muller (Middlebury College), Robert Mendelsohn (Yale University), and William Nordhaus (Yale University) in 2011. The researchers used an indicator called Gross External Damage (GED), which calculated that the utility sector (water, gas, and power) is the most damaging: It was responsible for one third of the country’s air pollution. Individually, stone quarrying, solid waste incineration, sewage treatment plants, oil- and coal-fired power plants, marinas, and petroleum-coal product manufacturing are seven of the most unsustainable industries. These not only pollute and destroy heavily, but their environmental costs (GED) are higher than their economic value. In other words, the money they generate does not even begin to cover the environmental damage they cause.

Environmental damage, especially pollution, has been a controversial and very politicized topic for North America in the 21^st century. Much of the environmental blame often falls on developed capitalist countries for their industrial intensity and consumerist lifestyle. However, the political delicateness of the topic shouldn’t stop countries from measuring and analyzing the problem and, although green accounting has its limitations (see “Can economics protect the environment?”), it shouldn’t be dismissed in the way it was in the United States.

In fact, much of the controversy of taking responsibility for environmental degradation exists because Northern economies are so dependent on heavily destructive practices and heavily politicized unsustainable commodities such as oil. Therefore, introducing real sustainability in the United States would require an entire revision of its foreign policy and its relation to oil-producing countries. This is also an issue with Canada. Although its environmental accounts seem exemplary, there are several issues related to many of its unsustainable practices, such as human rights violations in the Alberta oil sands and in Canadian mining operations in Guatemala, Honduras, and many other countries. This begs the question of whether, in the age of globalization and the ‘export’ of unsustainable and even illegal practices to poorer countries, national level accounts could contribute to the globally-shared burden of environmental destruction. A more concerted international, even global, effort may well be the only way forward.