This document was published in July 1996.
The text that follows is the executive summary and acknowledgements relating to a recently completed economic study of the Canadian Forces Maritime Experimental and Test Ranges at Nanoose Bay. Copies of the full study are available upon request from the authors (address below) or from Nanoose Conversion Campaign, 85 Commercial St., Suite 2, Nanaimo, BC, Canada V9R5G3, Tel/Fax +1(250)7411662 or <convert@nanaimo.ark.com>.
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* CFMETR: Canadian Forces Maritime Experimental and Test Ranges
The research upon which this study is based was undertaken independently by Jack Ruitenbeek and Cynthia Cartier over the period January-June 1996. The authors may be contacted at: H.J. Ruitenbeek Resource Consulting Limited RR#2 - Site 52 - C21, Gabriola Island, BC, CANADA V0R 1X0 Tel +1 250 2478436 Fax +1 250 2478492 Email <hjruiten@web.net> The authors acknowledge the cooperation of the Georgia Strait Alliance, Nanoose Conversion Campaign and the Regional District of Nanaimo in assisting with information retrieval and research. Any opinions or conclusions expressed herein, however, are those of the authors and do not necessarily reflect the position of these agencies.
"DAMN THE TORPEDOES ... full speed ahead!" The phrase - uttered by many a ship captain in old war movies - evokes mixed emotions. To some, the phrase symbolizes courage and self-sacrifice, tempered by experience and carefully calculated risks. In this first interpretation, actions are stoically pursued for a greater noble good. To others, the phrase typifies the reckless and irresponsible abandon of common sense, clouded by misinformation and uncertainty. In this second interpretation, actions are wantonly pursued for an immediate thrill or for narrow self-interest. Which of these interpretations best describes Canada's defence policy?
To this stage, the Government of Canada has - implicitly - maintained a "full speed ahead" policy for the Canadian Forces Maritime Experimental and Test Ranges (CFMETR) at Nanoose Bay, BC. CFMETR has been used, for the past decades - by Canada, the United States, and their allies - for testing devices that would be used in anti-submarine warfare. The agreements governing the use of CFMETR lapse in mid-1996; but the Department of National Defence (DND) expects that its use will continue with little changes to existing protocols and practices. Such uses entail, among other activities, regular visits by US nuclear-powered vessels to the ranges.
The goal of this research project was to assess, from an economic perspective, this "full speed ahead" policy for CFMETR. Is the current Canadian policy an example of well-documented economic arguments and carefully considered risks? Or is it an example of ill-considered heedlessness?
The general premise of this research project is that sound economic policy analysis must address, minimally, three conceptual issues. First, economic impacts (in terms of income or employment) must be assessed in terms of alternative policy choices. Second, economic efficiency or cost-effectiveness concerns must account for impacts beyond the direct costs and revenues generated by a policy. Finally, economic analyses must reflect the complexity and uncertainty of impacts in the event of a 'worst possible case' outcome of a policy.
The methods used in this work are state-of-the-art techniques for modeling economic impacts, efficiency losses, and complex systems. We acknowledge that the analyses undertaken here do not consider all of the issues and therefore still regard this a 'preliminary' assessment. Evidence suggests, however, that policymakers have neglected three relatively straightforward economic 'lessons'.
Economic impacts generally refer to the impacts on jobs and incomes from direct project expenditures, augmented by a 'multiplier effect' to capture respending by local households and businesses. Different activities (and projects) will have different multipliers because of differences in spending patterns.
Analyses in this study relied on a model of an 'input-output' accounts framework for the BC economy. Such frameworks are conventionally used for estimating economic impacts. The particular accounts used for this study correspond to the 1990 accounts; these were in turn linked to satellite 'environmental' accounts to capture selected environmental impacts associated with emissions.
Three different 'scenarios' were analyzed to show alternate uses of the facilities. In each case, a benchmark 'initial expenditure' was assumed, which was consistent with the DND reported level of impacts for maintaining CFMETR. Impacts under the various scenarios show that:
The analyses show that, if conversion to other uses can be done rationally, then there would be relatively few negative impacts on total employment and incomes. It is noted also that, if activities are abruptly stopped (as often has happened in the US when bases are converted without advance warning), then adverse impacts would be immediate.
Economic efficiency generally refers to the relative costs and benefits of a project or policy. A project is said to be 'efficient' if total benefits exceed costs, or (when benefits are not quantifiable) if the project is the least cost means of performing some function. The usual test for economic efficiency is to conduct a cost-benefit analysis (CBA) or a cost-effectiveness analysis (CEA).
The most often neglected aspect of CBA or CEA is the inclusion of efficiency losses (or gains) from indirect effects of a project or policy. They are usually overlooked because project prices do not reflect market prices (such as for land subsidies) or because they relate to unmarketed 'externalities'. If such externalities or subsidies are relatively large (when compared to overall project costs) then standard efficiency measures and techniques (such as CEA and CBA) become meaningless and arguments relating to the cost-effectiveness of a give project or policy may also be deceptive.
This study identified a number of potential efficiency losses associated with maintaining current activities at CFMETR. Two of these were then evaluated using conventional techniques of environmental economic analysis based on productivity losses and contingent valuation methods. Estimates of annualized efficiency losses for the following impacts are:
The analyses illustrate that, relative to direct costs, these potential efficiency losses are substantial.
Complexity may be thought of as a system's tendency to adapt, to regulate itself, and to produce 'surprises'. Very complex systems - such as the human body, large ecosystems, regional economies, and large urban social structures - all behave unpredictably because of their complex nature. Where such systems exist, policymaking must come to grips with decisionmaking under uncertainty.
Uncertainty differs from risk. Risk is quantifiable; uncertainty is not quantifiable. Probability assessments may be attached to a given incident occurring (such as a nuclear leak), but the subsequent consequences of such an incident within a large complex system are uncertain because of the way the system responds to such impacts. By extension, an economic risk assessment is only valid in a deterministic system in which probabilities can be attached to all outcomes. Such risk assessments are not valid for complex system.
To illustrate system complexity, a recently developed complex system model of the Lower Fraser River Basin was used to analyze the potential impacts of a radiation dose from a radioactive cloud striking the lower mainland of BC. The model addresses complexity by tying together demographic variables (through migration and natural birth and death rates), economic variables, urbanization levels, environmental quality (of air and water), and human health (through cancer rates or productivity losses).
The simulation of a 'most likely worst case scenario' showed the following concurrent impacts over a 10 year time period.
The above conditions changed markedly, however, if the radiation dose was greater than that in the 'most likely' scenario. Simulations showed that irreversible economic collapse would occur if the radiation dose were two times that in the most likely scenario. From a practical perspective, assessing the economic policy tradeoffs - and implementing policies - under such uncertain conditions has resulted in a simple policy directive: under conditions of irreversibility and uncertainty, apply the precautionary principle.
Canada's "damn-the-torpedoes-full-speed-ahead" policy has, to date, neglected economic realities.
The central economic argument in favor of maintaining activities at CFMETR is that these activities create significant and otherwise unattainable local economic impacts. But this argument is specious. Proponents of the Status Quo ignore other important economic considerations.
First, conversion to other uses will generate similar or - in some cases - greater economic impacts than those generated by current activities. Economically, conversion would have few negative economic effects relative to existing activities.
Second, the current activities, in fact, veil implicit hidden subsidies because of neglected indirect economic impacts. A valuation of selected 'subsidies' suggests that they exceed $18 million annually. These are real economic costs to British Columbia and Canada.
Finally, and most seriously, the economic consequences of an unforeseen 'accident' have - to date - been given no rigorous treatment. Valuations suggest that the 'economic costs of choosing an incorrect policy' could be as high as $5.6 billion a year, representing 8% of the output of the Fraser River Basin, in the event of a catastrophic radiation accident.
In brief, Canada's policy of maintaining CFMETR's current activities generates few incremental economic or employment impacts. Also, substantial (hitherto ignored) efficiency losses arise because of this policy. Most significantly, the economic costs of a nuclear calamity are monumental.
Is this current policy the courageous pursuit of a greater noble good? Or is it simply an abandonment of good sense? You be the judge.
H.J. RUITENBEEK RESOURCE CONSULTING LIMITED (HJRRCL) is a BC firm specializing in the economic analysis of natural resource, environmental and human security issues. Its work over the past 15 years has spanned projects in Canada, Asia, West Africa, and Latin America & the Caribbean, for clients that include national and provincial governments, international aid and lending agencies, the private sector, and international environmental NGOs. The firm is currently involved with state-of-the-art modeling research that includes coastal zone management models for protected areas. It has also recently collaborated with the Centre of Sustainable Regional Development at the University of Victoria in the design of an ecosystem-based complex system model for southern portions of the British Columbia mainland; a version of this model was used as a basis for some of the analyses in this study.
JACK RUITENBEEK, president of HJRRCL, holds degrees in physics and natural resource economics, as well as a Ph.D. in development economics from the London School of Economics. His work dealing with environmental economic analysis, and with the modeling of social, ecological and economic indicators, has been widely published and referenced in international books and journals. He is a founding member of the Canadian Chapter of the International Society for Ecological Economics, and has served as expert witness to regulatory commissions and tribunals of the governments of BC, Alberta, Ontario, and Canada, as well as to the House of Commons Standing Committee on the Environment. In addition to managing his consulting practice, he is an Adjunct Professor in the Geography Department of the University of Victoria.
CYNTHIA CARTIER, economist with HJRRCL, holds a M.A. degree in development economics from Simon Fraser University, Vancouver, and has specialized in the economic analysis of energy and environmental issues for 10 years. Her work in Canada has focused on issues relating to environmental economic analyses and to environmental institutions, while her international work has focused on valuations and analyses of linkages between the economy, environment and social sectors in developing countries. In BC, she has been involved in Gulf Island issues for four years and currently co-chairs the Advisory Planning Committee to the Gabriola Island Local Trust Committee of the Islands Trust.
Copyright © 1996 by H.J. Ruitenbeek Resource Consulting Limited, Gabriola, Canada
All rights reserved. Any part of this document may be reproduced, stored, or transmitted under the conditions that: (i) such activity is not intended for profit; and, (ii) such activity is accompanied by a full acknowledgment of title and authorship. In all other situations, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without written consent from H.J. Ruitenbeek Resource Consulting Limited, Gabriola, BC Canada V0R 1X0.
Damn the torpedoes: a critical economic assessment of CFMETR - Nanoose Bay / by Jack Ruitenbeek and Cynthia Cartier p. cm. Includes bibliographical references
email <hjr@island.net>