Towards a greener Canadian economy

Alexander Wood Senior Director, Policy and Markets

awood@sustainableprosperity.ca 613.878.7189

Twitter: ALEXatSP

Master 2

Making markets work for the environment 2

The challenge – and necessity – of defining a green economy

• Definitions of “green economy” abound (UNEP, OECD, WB), even in Canada (CWF, GLOBE, ECO)

• But – in SP’s estimation – they do not capture full nature of what a green economy should be in the Canadian context

• Canada’s economy is diverse, composed of significant resource (primary), manufacturing (secondary), and services (tertiary) sectors. Each of these needs to be taken into account to make our economy “green”

• Just as important as scope is question of static vs. dynamic definition: is it better to talk of “green”…or “greening”?

• Reflecting all of that is need for metrics/indicators that are based on clear understanding of what constitutes ecological limits (both of consumption and sink functions)

Master 2

Making markets work for the environment 3

The economic case for a green economy

• Traditional economic growth theory focuses on interaction of various forms of capital (human, financial, built) but has typically omitted integration of natural capital

• If it has dealt with it at all, it has been as a constraint to growth

• Emerging paradigm around green economy/green growth and the overlapping economic and environmental benefits of efficiency and productivity

• That paradigm emerges from an increased understanding of gap that exists between theoretical economic models (which assume perfect efficiency) and real markets (which are anything but)

Master 2

Making markets work for the environment 3

Canada and the green economy

Why should Canada “green” its economy?

Environmental argument is clear (clean water, clean air, stable climate, etc.)

Economic arguments are getting clearer...

Line of logic goes: We derive wealth from natural capital Using natural capital more efficiently makes it more valuable (productivity

logic) Developing efficiency/productivity solutions to sell to others (innovation

logic)

Master 2

Making markets work for the environment 5

Natural Capital

• Canada has the richest allocation of natural capital in the world ($89,000 per capita: StatsCan)

• The sustainable, effective, and efficient use of that natural capital is what will make us a “green economy”

• As a country, we’ve always derived substantial social and economic benefits from that form of capital

• Key issue then become how to ensure enduring benefits from our natural capital (especially non-renewable kind) and protection of the basic services it provides

billions of dollars

1,400

1,200

Energy Timber Minerals

1,000

800

600

400

200

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Master 2

Making markets work for the environment 3

Greening the economy and the Resource Revolution opportunity

“In an era of persistently elevated resource prices, enhancing operating efficiency, improving resource management and developing products with a more sustainable environmental footprint make commercial and social sense. Moreover, advances in building-energy efficiency, enhanced farm yields and power plant efficiency would pay immediate domestic dividends. However, once again, the real prize may be in emerging markets, which contain an estimated 85 per cent of the resource productivity opportunities in the world”

Mark Carney, Governor of the Bank of Canada Waterloo, April 2, 2012.

Master 2

Making markets work for the environment 3

Greening the economy and the Resource Revolution opportunity

Starting this year, $900 billion needed p.a. to realize productivity opportunities that match supply to demand That is the size of the potential market for Canadian innovation in resource productivity Moreover, increased resource productivity saves us costs of expanding supply (Total savings from such investments estimated at $2.3 trillion p.a.)

Source: McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food, and water needs, November, 2011.

The carbon productivity opportunity

Carbon productivity needs to rise three times as fast as labor productivity did during the Industrial Revolution

The water productivity opportunity

Exhibit I Aggregated global gap between existing accessible, reliable supply1 and 2030 water withdrawals, assuming no efficiency gains

Billion m3, 154 basins/regions

Municipal & Domestic

2%

CAGR

4,500 600

6,900

900 1,500

2,800

100

-40%

4,200 700

Groundwater

Industry

Agriculture

800 3,100

4,500

Relevant supply quantity is

much lower that the absolute renewable water

availability in nature

3,500

Surface water

Existing withdrawals2

2030 withdrawals3

Basins with deficits

Basins with surplus

Existing accessible, reliable, sustainable supply1

1 Existing supply which can be provided at 90% reliability, based on historical hydrology and infrastructure investments scheduled through 2010; net of

environmental requirements 2 Based on 2010 agricultural production analyses from IFPRI 3 Based on GDP, population projections and agricultural production projections from IFPRI; considers no water productivity gains between 2005-2030

SOURCE: Water 2030 Global Water Supply and Demand model; agricultural production based on IFPRI IMPACT-WATER base case

Conclusions

• Progress….but still a fair ways to go

• Resource productivity, as a vehicle for greening the economy, represents a massive opportunity

• Priorities Improving natural capital productivity Identifying ecological limits (metrics) Improving competitiveness and innovation Increasing climate change resilience