2. 2 Natural Capital Accounting and Sustainable Development Robert Smith Statistics Canada International Workshop on Ecosystem and Natural Capital Accounting European Environment Agency Copenhagen November 30 – December 1 2006

3. 3 Overview The Canadian Environmental Sustainability Indicators initiative –What it is and how it came to be Natural Capital as a conceptual framework –Why it is the best hope for integrating ecosystem considerations into decision making Ecosystem accounting –The next frontier The role of statistical agencies

4. 4 Canadian Environmental Sustainability Indicators Joint Initiative of three federal departments –Environment, Health and Statistics National report to be published each autumn –Air quality, water quality and greenhouse gas emissions –More indicators could be added (e.g., forest cover, wetland cover) –http://www.statcan.ca/Daily/English/061123/d061123c.htm Two important “firsts” –First time the Canadian federal Cabinet specifically mandated environmental indicators –First national indicators (anywhere) to be firmly rooted in the concept of capital; Norway has followed suit

5. 5 Canadian Environmental Sustainability Indicators Strong political support –Minister of Finance (2001) - “…we too often fail to take full account of natural capital in the decisions and choices we make.” Provided $9 million over three years to develop indicators Six indicators recommended in 2003; three adopted by Cabinet in 2004 Strong conceptual basis –Capital adopted as conceptual framework after considerable debate Concerns that the “social dimension” of SD would be excluded Too “economic” for some –Concept’s rigour and coherence prevailed in the end –Capital provided a strong reference point throughout the initiative All discussions eventually came back to the concept

6. 6 Natural capital – Why is it important? To meet the challenge of measuring sustainable development… –How does the environment contribute to human welfare in the long term? …a concept integrating various sources of welfare is needed An extended notion of capital can serve this purpose –By definition, capital is what has value (provides welfare) over time Concept is as old as civilization itself –Herds of animals were the first capital assets Economists have made the most analytical use of the concept –Their focus is on sources of economic welfare But others can and should also make use of it (e.g., ecologists)

7. 7 Natural capital – Why is it important? Provides a coherent framework for studying and comparing various sources of welfare Provides a boundary around the challenge of measuring the environment –Not everything needs to be measured Just those elements that qualify as assets – the forest, but not the trees Acceptable to a range of stakeholders –Senior decision makers, business people, environmentalists alike can find their comfort zone –Still, anathema to those with strong biocentric ethics

8. 8 Natural capital – What to watch out for? Definitions must be clear; for example –Relationship between renewable resources and ecosystems –Relationship between land and ecosystems –“Critical” natural capital Valuation and aggregation remain controversial –A fully monetised approach will be hard to sell The conceptual framework must be carefully explained –Many believe the focus is only on stocks They question the relevance of this narrow focus –Must explain that flows are an inherent part of the framework

9. 9 Ecosystem accounting – The next frontier Defining ecosystem services is an essential first step –Identifying service flows is the fist step to identifying and then measuring ecosystem assets The UN Millennium Ecosystem Assessment provides an excellent starting point Many measurement challenges lie ahead –Can’t measure ecosystems with a yardstick or a weigh scale –They aren’t (usually) bought and sold, so prices don’t exist –A single ecosystem can produce many conjoint goods and services Forests: timber, water filtration, carbon absorption The SEEA revision provides an opportunity to address some of these challenges

10. 10 Ecosystem accounting – Some possibilities Forget measuring ecosystems directly and focus on their functions –Water quality as a proxy for the functioning of aquatic ecosystems This is the approach in the Canadian indicators –For terrestrial ecosystems, use areal extent as a starting point Satellite imagery making this more feasible Even if imperfect, apply standard economic valuation methods to ecosystem services Willingness to pay for increases in urban air quality Expenditures on recreational activities

11. 11 Why statistical agencies are needed Can take a long-term perspective Already responsible for measuring much of what contributes to human welfare Objective and credibile Not restricted by a narrow mandate –Environment agencies can’t touch agricultural issues and vice versa Professional capacity –Scientific monitoring an obvious exception Interest and experience in the topic –Already engaged in national activities and international discussions –The SEEA is a natural place to focus our efforts

12. 12 Thank you Robert Smith Director Environment Accounts and Statistics Division Statistics Canada Ottawa, ON, Canada K1A 0T6 613-951-2810 robert.b.smith@statcan.ca