Issue Summary April 2012 ECONOMY-WIDE AND EMERGING ISSUES

Sustainable Prosperity is a na- tional research and policy net- work, based at the University of National Ottawa. SP focuses on market- What is it? based approaches to build a stronger, greener, more competi- tive economy. It brings together The concept of national capital, or national , refers to the sum Human and is generally not calculated directly,10 but , policy and academic of a country’s assets, in terms of natural, human, social, produced and instead is taken as the residual between total wealth and produced, leaders to help innovative ideas financial capital.1 It is an extension of the traditional concept of financial and .11 inform policy development. national wealth in recognition of the fact that other forms of capital Sustainable Prosperity (natural, human and social) contribute significantly to national c/o University of Ottawa wealth. In order to be economically prosperous, a country needs to be Who uses it and how? 555 King Edward Avenue a good steward of its national capital, with a gradually increasing Ottawa, ON K1N 6N5 capital stock if the population is growing. Richer countries’ national Norway 613-562-5800 x3342 capital tends to be comprised of mostly intangible capital, such as www.sustainableprosperity.ca Norway is one of the leading jurisdictions when it comes to using human and social, whereas natural capital is a lower proportion of national capital as a measure of economic sustainability. Norway’s total national wealth.2 main concern is to preserve its natural wealth for future generations, so a portion of the revenues from its natural go Examples of each form of capital are:3 into a Sovereign Wealth Fund.12 Norway’s Sustainable Development Strategy outlines that the country’s natural capital decreases (such as • Natural: land, mineral and energy resources, groundwater 13 resources, ecosystems, trees and other non-cultivated plants, and oil and gas) must be offset by increases in other forms of wealth. animals (including fish); Statistics Norway estimates that represents 73% of • Human: educated and healthy workforce; total national capital, while oil and gas reserves represent only 12%.14 • Social: functioning social networks and institutions; Figure 1 shows Norway’s national capital figures since 1986. • Produced: machinery, buildings, telecommunications and other types of infrastructure; and, Figure 1: Norway’s Total National Capital (1986–2009) • Financial: stocks, bonds and deposits. TOTAL NATIONAL CAPITAL 9,000

8,000 How is it calculated? 7,000 6,000 NOK 1,000 per capita Different types of national capital are calculated using different 5,000 methods. For produced capital, the net capital stock is calculated by 4,000

taking the sum of gross minus depreciation, known as the 3,000 4 perpetual inventory method. Financial and produced capital value is 2,000 5 directly observable in the market. 1,000

0 Natural capital is generally calculated as the net present value of the -1,000 estimated stream of rent the capital can be expected to produce over 1986–90 1991–95 1996–2000 2001–05 2006–09 6 an assumed lifetime. The calculation therefore necessitates Renewable natural resources Net financial capital Human capital assumptions about future prices, costs and rate of extraction, and the Produced capital Non-renewable natural resources Source: OECD15 discount rate; for simplicity’s sake, it is often assumed that net price 7 and level of extraction remain constant over time. The value of Canada ecosystem services is generally excluded, as are the value of Canada also calculates certain aspects of its non-financial national unpredictable natural resource revenue streams, such as fisheries.8 capital, including produced assets, land, and certain natural resources. One major problem with the calculation is that there are few stock In 2010, Canada’s natural capital was valued at $1.16 trillion ($34,000 data available to use in the calculation of lifetime values. per capita), or about 15% of non-financial assets, as shown in Figure 2. Environmental pollution is assumed to be reflected implicitly in Given that the value of certain natural resources is driven by the forces SP-PB-2717-APR-2012 lower total national capital, since it leads to lower labour productivity of global market supply and demand, the values for energy and mineral and negative health effects, which depress income.9 capital are more volatile than for other types of natural capital which are valued based on domestic market conditions, such as land. Issue Summary April 2012 ECONOMY-WIDE AND EMERGING ISSUES

Figure 2: Value of Canada’s Non-Financial Assets (2000–2010) Figure 4: Value of Canada’s Energy Resources (2000-2010)

VALUE OF NONFINANCIAL ASSETS VALUE OF ENERGY, MINERALS AND TIMBER RESERVES 5,000 1,400

4,500 1,200

4,000 1,000 billions of dollars billions of dollars 3,500 800

3,000 600

2,500 400

2,000 200

1,500 0 2000 2002 2004 2006 2008 2010 1,000 Coal Crude oil Crude bitumen Natural Gas 500 Source: Statistics Canada, CANSIM tables 153-0001, 153-0002, 153-0003, 153-0004, 153-0005.

0 2000 2002 2004 2006 2008 2010

Produced assets Land Selected natural resources Source: Statistics Canada, CANSIM table 378-0005. Utility for Policy-Makers

Energy resources accounted for 63% of total natural resource wealth, while minerals National capital is a measure of a country’s total wealth. When tracked over time, it can accounted for 22%, and timber 15%, as shown in Figure 3. show whether capital stocks are going up or down, and which types of capital are growing or are being depleted. National capital calculations give an indication of how Figure 3: Value of Canada’s Energy, Mineral and Timber Reserves (2000–2010) well a country’s natural resource wealth is being managed, and whether a country’s economic structure is producing sustainable wealth. Wealth from non-renewable VALUE OF ENERGY, MINERALS AND TIMBER RESERVES 1,400 resources should be invested in other forms of capital in order to maintain the total wealth, or national capital, of a country. At the same time, different forms of capital are 1,200 not necessarily equal or interchangeable; certain forms of non-renewable natural capital 1,000 for instance, cannot just be offset by increases in human capital. billions of dollars 800

600

400

200

0 2000 2002 2004 2006 2008 2010

Energy Timber Minerals Source: Statistics Canada, CANSIM table 378-0005.

Most of energy wealth is in the form of crude bitumen (oil sands) – valued at $460 billion, as shown in Figure 4.

Endnotes

1 Financial capital does not include individual wealth, because what is a financial asset for one person is a financial liability for another. The only financial capital that counts in national wealth is net foreign financial assets (the difference between Canada’s holdings of financial assets in other countries and their holding of Canadian financial assets). 2 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 3 United Nations. Measuring Sustainable Development: Report of the Joint UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development. http://www.oecd.org/dataoecd/30/20/41414440.pdf (2008). 4 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 5 United Nations. Measuring Sustainable Development: Report of the Joint UNECE/OECD/Eurostat Working Group on Statistics for Sustainable Development. http://www.oecd.org/dataoecd/30/20/41414440.pdf (2008). 6 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 7 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 8 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 9 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 10 There are also methods that estimate human capital directly. 11 World Bank. Where is the Wealth of Nations? Measuring Capital for the 21st Century. World Bank: Washington DC, http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf (2006). 12 Moe, Thorvald. Wealth, welfare and sustainability: What may resource-producing developing countries learn from the Norwegian experience? World Bank Policy Research Paper 2010. Center for International Climate and Environment Research (Oslo). 13 Organisation for Economic Co-operation and Development (OECD). Environmental Performance Reviews: Norway 2011 (highlights). 14 Organisation for Economic Co-operation and Development (OECD). Environmental Performance Reviews: Norway 2011 (highlights). 15 Organisation for Economic Co-operation and Development (OECD). Environmental Performance Reviews: Norway 2011 (highlights).

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