Nancy Olewiler is Steering Committee members at Sustainable Prosperity. The views contained here do not necessarily reflect the views or positions of Sustainable Prosperity.

A new study from the Simon Fraser University School of Public Policy(external link) is calling for governments and private sector industries to fully cost the consequences of production and consumption on the natural environment.

The study points out that the resources, ecosystems and wildlife that make up Canada's natural resources(external link) are an essential component to industry productivity. Yet industry has failed to factor in the consequences of the impact of that productivity on Canada's natural capital and markets have failed to fully price ecosystem goods and services.

'There is a growing need for full-cost pricing, a system that adjusts market prices to reflect not only the direct cost of goods and services, but also their impact on this country's natural capital,' says the report author, Nancy Olewiler, the Director of the SFU School of Public Policy.

The study suggests that for full-cost pricing to succeed, it's up to the Canadian government to create conditions that will allow this. That includes;

  • Eliminate energy subsidies to producers and consumers
  • Implement full-cost pricing on air contaminants and greenhouse gases
  • Encourage projects at the municipal and provincial level that adopt this methodology

Olewiler says the benefits include 'productivity gains, potentially billions of dollars in savings for consumers, businesses and governments; a strong environment supporting sustainable industries and a simplified tax system.' The study suggests the Stephen Harper government should introduce full-cost pricing in the upcoming spring 2012 federal budget.

The study defines Canada's stocks of natural renewable and non-renewable natural resources as fossil fuels, minerals, forests, fish and soils. It also includes environmental resources such as the atmosphere, water, land and ecosystems.

Ecosystem goods and services are the flow of inputs from natural capital used along with produced capital and labour to produce and sustain the economy's goods and services and our wellbeing. The full impact of utilizing these natural resources is rarely if ever factored into productivity.

For example, water prices for household, industrial or agricultural use typically reflect the operating and capital costs of delivering the water, but do not include the impact of water withdrawals on ecosystems. This can include loss of biodiversity, impacts on drainage and storm runoff and depletion of surface and groundwater.

'The cost to society from ignoring or undervaluing natural capital in economic forecasting, modelling and assessments can lead to public policy and government investment decisions that exacerbate the degradation of soils, air, water and biological resources and thereby negatively impact a range of economic and social objectives.'

The report points out that in many cases, depleting natural resources often leads to the need for investing in expensive substitute infrastructure that may actually cost more than protecting the natural resource. For example, constructing or enhancing water treatment facilities when the natural ability of wetlands and forests to assimilate waste is lost to urban development.

The paper examines three areas of environmental policy development that the federal government could introduce over the next few years that supports its current objectives without increasing the deficit. And it could create a Canadian methodology to measure and value impacts on the environment and ecosystems that would be unique in the world.