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How is Economic Expansion Affecting our Well-Being?

By John Lorinc

In an era of conservation, is economic expansion still a viable method of measuring progress — and well-being?

Seven years ago, with concern about climate change cresting, community stakeholders and municipal politicians in Guelph, Ont., embarked on an ambitious response to the pressures of population growth and greenhouse gas emissions. Provincial officials estimated the city, home to manufacturing, agribusinesses and a university, would see its population jump by 50%, to 180,000, within about 25 years.

That growth trajectory, says Alex Chapman, the city’s corporate manager of community energy, would have a “significant impact” on both power use and water consumption. Given that all of Guelph’s water comes from ground sources and the community’s electricity is piped through a hydro corridor with limited expansion capacity, it seemed clear something had to give, or the city would face a potentially ruinous squeeze well before 2031. “We wanted to be part of the solution instead of part of the problem,” says Chapman.

Officials created a strategy to improve local energy efficiency, foster green energy projects and transition to “district energy” — a local utility that pipes heat to homes and businesses. The city expects to generate additional electricity with local thermal plants, as well as with purchases of waste heat from Guelph area industries, including a Magna International Inc. subsidiary that has already won approval to build a combined heat/power plant adjacent to its factory. A network of underground heating pipes will be installed over 25 years as the city does routine road maintenance.

The equally compelling element of Guelph’s long-range plan, however, has to do with its impact on the local economy. Currently, says Chris Tiessen, project manager of Guelph Sustainable Solutions Group, the city spends $500 million a year on its energy consumption from all sources, with the bulk of the money leaving the area. Once the plan is built out, Guelph’s energy spend, based on benchmarking comparably sized European cities, will be about $250 million, and most of the funds will stay in the city because so much of the energy will be locally produced. At the same time, the city intends to leverage the program to attract renewable energy firms to the area. “We are pursuing this as an economic development opportunity,” Tiessen says. “We’re going to make it work and provide a city that will be a model for other cities to look at.”

It would be difficult to conclude that Guelph’s energy plan is anything but positive news — until you measure its impact on gross domestic product (GDP). After all, energy revenues in the city will fall over time, thus marginally reducing the most important yardstick of national economic well-being: top-line growth.

What’s wrong with this picture? Plenty, say sustainability advocates and proponents of what’s called the “degrowth” movement who argue that our current benchmarks fail to accurately inform policy-makers about true societal progress or the potential for alternative ways to improve quality of life. While most macroeconomic policies aim to boost GDP, the metric ignores some components of the economy while valuing others that are not necessarily beneficial from a social or environmental perspective. Moreover, some observers point out that in many industrialized societies, happiness levels have flatlined while working hours grow ever longer. “Many people are starting to realize that simply buying more things doesn’t bring more happiness,” says Ingrid Leman Stefanovic, dean of the faculty of environment at Simon Fraser University.

In other words, economic growth may be the wrong goal. “The GDP counts the wrong things,” says Armine Yalnizyan, an economist with the Canadian Centre for Policy Alternatives, who adds that it’s entirely possible to reduce GDP in ways that actually produce a social benefit. For example, public health spending meant to prevent illness in a population will improve quality of life but won’t register as economic growth, while increased revenue for drugs meant to treat lifestyle-related illnesses, such as Type 2 diabetes, will. The same is true for environmental cleanup operations in the wake of toxic releases or oil spills.

The underlying question is whether it’s possible — for communities, nations or even larger geographic regions — to downshift to a more sustainable form of growth that isn’t driven by economic activities tied to the production of massive amounts of waste or ecological destruction.

Environmentalists have been pushing for a more sustainable form of economic activity for decades. But those involved with the degrowth movement, which has gained momentum in the past few years in response to extreme economic upheaval in southern Europe, have added a further layer to the case against some of the core assumptions underlying global economic expansion.

Serge Latouche, a French economist, argues that our society hasn’t fully grasped the long-term impact of prevailing geometric economic growth rates — 3% in the developed world and as much as 10% in emerging economies such as China. “A 3% rate of growth multiplies GDP by 20 in 100 years, by 40 in 200 years and by 8,000 in 300 years.” As he observed in Farewell to Growth, a 2007 study on degrowth, “Our economic hyper-growth is coming up against the limits of the biosphere’s finite resources…. [H]uman beings are turning resources into waste faster than nature can transform waste into new resources.”

While there’s no straightforward way to measure the Earth’s natural resources and the degree of our reliance on those resources over time, it’s difficult to argue with Latouche’s math. In fact, a growing number of environmentalists and degrowth advocates say we’ve reached a point where we must begin developing, and then scaling, practical approaches to reducing waste, boosting green energy and adopting innovative, noncommercial ideas for improving quality of life without relying on more consumption. Others argue that governments need to find alternatives to the GDP to measure progress if policy-makers genuinely want to reset an economy addicted to excessive growth.
Herewith, then, are some approaches — micro and macro — for downshifting the global economy without damaging quality of life.

The potential of alternative economies

Three years ago, Ran Goel, a lawyer who spent years advising Wall Street hedge funds, came back to Toronto from Manhattan and set up a quirky farming venture on six acres of a decommissioned military base in the city’s north end. He reckoned there was a growing appetite among many urbanites not just for locally grown produce but also for closer ties with working farms. Yet Goel is a realist. He didn’t want to offer a nostalgia-tinged version of the family farm. Instead, he wanted to offer a cost-effective, convenient way to move locally grown goods from field to table without relying on overpriced farmers’ markets.

The result, Fresh City Farms, is an intriguing mash-up of new and old: using the tools of e-commerce and enterprise management software, Goel’s outfit allows customers to buy online, with their orders harvested, batched, sorted and then home delivered. He’s not the only operator in this space, and points out that many smaller companies and nonprofits have sprouted in recent years as consumers seek alternatives to the conventional supermarket.

Goel’s project, however, has an intriguing degrowth narrative. Unlike the chains, he can precisely match harvest and shipments, meaning there’s little spoilage (up to 50% of supermarket produce goes to waste) and no need for environmentally damaging open refrigeration. Having eliminated the middlemen, he can charge less than supermarkets do for organic produce. Lastly, Fresh City’s home delivery service gets individual cars off the roads, reduces emissions and provides consumers with more time for other activities. The result is a paradox: “If you look at the actual numbers,” he says, “GDP will slow because of the company’s impact on the economy, but quality of life increases.”

Fresh City Farms isn’t going to topple Loblaw any time soon. But the aggregate impact of such social enterprises is beginning to make a big mark, and nowhere more than in the rapidly expanding sharing economy, where so-called “peer-to-peer net- works” have radically altered the relationship between producer and customer. According to a recent PwC study, the global sharing market is worth $15 billion annually and could rise to $335 billion by 2025.

In North America and Europe, the once fringe car-sharing sector, which started with a handful of entrepreneurial services such as Toronto-based AutoShare, has not only expanded dramatically, but gave rise to ride-sharing firms such as Uber, whose platform allows consumers to quickly find nearby rides with individually owned cars operated by people earning spare cash. Meanwhile, Airbnb is making a dent in the hotel sector, allowing travellers to rent apartments or spare rooms.

The list doesn’t end there: in cities across North America, hackers and hobbyists in the so-called “maker” community have established tool-sharing clubs, which jointly own equipment ranging from machine lathes to 3-D printers, and offer an alternative to individual ownership, especially for people who live in apartments or small homes. These maker spaces are seen as potential engines of manufacturing innovation, as members collaborate on inventions, open-code software and art.

Richard Swift, a Montreal degrowth activist who is the author of SOS: Alternatives to Capitalism, points to the burgeoning co-op movement in southern Europe, where crippling post-2008 unemployment rates have forced thousands of young people to look for other ways of making a living. In recent years, he says, dozens of industrial, agricultural and service co-ops have begun to spring up in smaller communities in countries such as Spain, Italy and France.

In Catalonia these small co-ops have coalesced into a movement with infrastructure. An umbrella organization, the Cooperativa Integral Catalana, encompasses small and large artisanal producers, farms, housing projects and service providers, including doctors, educators and even an interest-free auto financing entity. It now has 4,000 to 5,000 members and relies on barter, an internal currency and communal property. “It’s not a cash economy,” says Swift.

Building a better benchmark

Environmentalists and some economists have long argued that GDP increases conflate wasteful and sustainable growth, and thus provide policy-makers with no way of rewarding one and discouraging the other. According to York University professor of environmental studies Peter Victor, policy-makers are so dependent on GDP as a proxy for economic well-being it’s hard to think about other approaches. “We should not rely so much on increases in the GDP to deal with employment as an antidote to poverty. We should take a more direct approach.”

Governments should adopt a more holistic measure of progress, such as the genuine progress indicator (GPI), says Eric Pineault, a degrowth expert and sociologist at the Université du Québec à Montréal. “There’s a demand for new tools to measure what is happening in our economy and its relation to other spheres such as the social and natural world.”

The GPI is a bundle of indices that track a range of environmental metrics, as well as a more nuanced benchmark for economic growth that seeks to take into account factors such as income inequality, underemployment, consumption levels and capital investment. Tellingly, US GDP has risen more or less steadily since the 1950s, but the GPI peaked in the 1960s and has declined ever since.

Victor has also urged policy-makers at home and abroad to consider an alternative economic measure that tracks what he calls the “materials balance” — a full accounting metric that compares the total inputs to the economy, including all ecological resources and energy, with the total output, including waste. As he puts it, “The economy thrives on the input of materials and all that gets discharged back into the ecosystem.”

Despite the imperfections of traditional metrics, Yalnizyan says she’s not prepared to “throw out the GDP” because it remains by far the most commonly used, standardized measure, and doesn’t rely on more subjective, nonfinancial variables.

Carbon offsets, 2.0

For degrowth advocates, it is critically important to find macroeconomic ways of spurring development and improving living standards in the global south, yet do so in ways that don’t rely so heavily on resource depletion. To that end, in September 2014 the Norwegian government pledged to give the Liberian government US$150 million in exchange for a promise to stop clear cutting about 30% of the West African rain forest within the country’s borders. The move came in reaction to a 2012 decision by Liberia to issue logging licences that would have led to the deforestation of almost 60% of the country’s rain forest.

The Kyoto Accord included provisions for these kinds of international transfers, known as “clean development mechanisms,” which are regulated by the United Nations. Industrialized nations can meet their emissions reduction obligations by investing in emission-reduction projects in the developing world, and hundreds of smaller projects, many involving factories in China, India and Brazil, have received financing to install scrubbers.

Pineault points out that Norway, which has generated billions from oil and gas revenues, relies on a nature index that allows the national government to make a cost-benefit analysis of the impact of economic growth on the environment, and even of the value of ecological assets. The index, launched in 2010, tracks the coverage of the country’s forests, wetlands and water systems, with the goal of halting the loss of biodiversity. Each year, Norway’s statistical agency and the ministry of finance update the index and use those results to guide their environmental and economic policies.

Such moves, says Matt Horne, the Pembina Institute’s associate director for British Columbia, have “real potential” to break down the barriers between the north and the south. But he is even more optimistic about the launch earlier this year of a North American cap-and-trade system, founded by California and Quebec. The credits are currently tied to 180 million tonnes of annual industrial greenhouse gas emissions, but both jurisdictions have pledged to extend the system to transportation and heating fuel emissions next year. Quebec officials told Bloomberg recently they expect the system to generate US$2.7 billion by 2020, with the proceeds going to fund energy efficiency and green energy projects.

A role for accountants and economists?

For years, Victor and other ecological economists have pressed institutions such as the International Monetary Fund and the World Bank to hire more economists and accountants trained to find ways to account for the ecological impact of global commerce, and incorporate those findings into their analyses. So far, he’s met with resistance. “Most of the people who work with national accounts don’t feel it’s within their competence to concern themselves with the state of the biosphere,” he says.

So for Victor, degrowth poses the sort of challenge that accounting professionals would recognize instantly: “If we want to make something smaller, we need to know how to measure it,” he says. “We need the expertise of accountants to work out what we should measure.”

In recent years, some accounting and governance experts have been pushing to standardize corporate social responsibility reporting and finding ways of quantifying environmental impact. Firms such as Puma and PotashCorp. have been recognized for their efforts to date. Bob Thomson of Degrowth Canada, a not-for-profit that mobilizes Canadians in the global post-growth movement, adds that property insurance companies, facing heavy losses due to extreme weather, have begun to take a much more hardheaded approach to risk management.

Indeed, as the troubling evidence of climate change accumulates, demand for such analysis won’t come just from investors. Rather, the rapid growth of the sharing economy suggests consumers are choosing to patronize companies and social enterprises that know how to make more effective, and less wasteful, use of society’s resources — and do so in ways that leave more wealth, and even time, in the hands of their customers. “People are listening,” observes Goel. He chooses an agriculture expression to describe the moment: “The beds have been prepared.”

John Lorinc is a freelance writer based in Toronto.

This article was originally published in the January 2015 issue of CPA Magazine.