|
|
Greening Canada’s Economy Canada’s economy will not operate to its maximum efficiency, nor maximize benefits to Canadians, until market prices reflect true costs and benefits, financially and environmentally. Currently, Canada’s market prices do not tell the environmental truth. The life-cycle impacts of goods and services include the resources consumed, waste created, pollution emitted, and environmental benefits resulting from their development, production, transportation, sale, use, and disposal. However, the full spectrum of such costs and benefits is generally not represented in the price of goods and services. Because of this, consumers tend to over- or under- consume particular goods and services depending on whether prices are artificially low, or high, respectively. Economists refer to this situation as a “market failure” because there is no market for the externalities, and the market for the goods and services is distorted. Conventional economic theory says that when prices reflect true costs, an optimal level of consumption takes place, and society’s welfare derived from the consumption of goods and services is maximized. Conversely, when prices do not reflect the full costs and benefits, the arising market failure prevents Canada’s economy from being fully efficient and from maximizing societal well-being for current and future Canadians. Oystein Dahle, former Exxon vice president for Norway and the North Sea, stated,
Canada’s economy suffers from two major ongoing market failures. Firstly, it does not accurately reflect the critical value of natural resources as a source of economic activity, in the present and future. Secondly, it undervalues natural resources and human health with respect to their capacity to absorb pollution. At the front end of production, we are over-consuming and inefficiently utilizing our non-renewable natural resources, because they are under-valued. We discount future needs. If our children and grandchildren had a chance to bid on the natural resources we are currently depleting, they would likely pay much more than we do, but they may not have that chance. For the most part, we only value our natural resources when they are consumed, or cleaned, and not as an asset to be nurtured and grown, as we would treat our financial savings. At the tail end of manufacturing and consumption, we are over-polluting our air, water, and soil, because we similarly undervalue the absorptive capacity, and limits, of the environment and of our own human bodies. We have taken the absorptive capacity of the air, water, and soil for granted for many centuries. We depend on it for everything we do, from manufacturing to driving to simply breathing. However, changes to our global climate, as well as increases in sicknesses like asthma amongst our family and friends, suggest that we have reached the point at which we can no longer pollute without major consequence. We have reached the limits of both the planet’s and our individual absorptive capacity. Furthermore, when businesses and citizens try to make operational and purchasing decisions that will have beneficial environmental impacts, they often find themselves needing to incur increased costs in order to do so - costs that their competitors or neighbours do not face. This is hugely counterproductive to developing a healthier society because it sends the wrong signals to economic decision-makers, large and small. The Green Budget Coalition strongly believes that Canada’s future prosperity requires forward looking policies that integrate social and environmental values into market prices, and use market-based instruments that provide financial incentives to businesses and citizens to purchase goods and services with a more positive impact on environmental and human health. This approach is often called ecological fiscal reform (EFR). Levies should be gradually increased on activities that damage society, such as pollution and waste, and simultaneously reduced, or credited, on activities that benefit society, such as employment, savings, non-polluting economic activity, and the stewardship of Canada’s natural capital. This could be achieved through the implementation of a mix of market-based instruments, such as taxes, fees, rebates, credits, and tradable permits, and implemented in a revenue-neutral manner, at no net additional cost to the average Canadian. In this way, the prices of specific goods and services would better reflect their full life-cycle costs and benefits, and current market failures would be progressively reduced. More specifically, when full life cycle costs and benefits are represented in market prices, firms and households make “better” decisions about technologies to invest in, and goods to purchase, and thus increase societal economic efficiency. Such policies create many benefits. They stimulate environmental innovations with global export potential, reward environmental leaders amongst businesses and citizens, and expedite the development of economies where economic success brings concurrent environmental and human health benefits. Furthermore, such policies provide enhanced fairness to citizens and business through the “polluter pays principle”, by forcing polluters to pay for the harm they cause. Canada lags behind most other industrialized countries, including the United States and Australia, in utilizing such market-based instruments, particularly financial disincentives. The OECD’s 2004 Environmental Performance Review of Canada states:
The best first step towards aligning Canada’s fiscal policy with sustainable natural resource consumption, and environmental and human health, would address the Oil Sands: Leveling the Playing Field with Other Energy Sources, by reducing the current accelerated capital cost allowance applicable to oil sands projects (100%) to a level consistent with that of natural gas and conventional oil (25%). Shifting Mining Incentives to Minerals Recycling would be another important step in this direction. The most effective action to harmonize Canada’s economy with our environment would be to put a price on greenhouse gas pollution. A prime means of doing this is Reducing Industry GHG Emissions with a Regulated Targets-and-Trading System that incorporates auctioned permits. All revenues generated (after modest administration costs) could be dedicated to additional greenhouse gas emission reduction activities, and to lowering Canadians’ income taxes. Two great opportunities to help individual Canadians reduce energy consumption, and thus save money, are the Switch Green: Energy Star Appliance Feebate and the Drive Green: Company Car Tax Shift proposals. Both proposals use market-based instruments to provide individuals with financial incentives to purchase and use more energy-efficient products. Under the Switch Green proposal, purchasers of high-efficiency appliances would receive rebates while purchasers of low-efficiency appliances would pay a small fee. Thus, a small fiscal price adjustment could help increase energy efficiency for hundreds of thousands of Canadians. All these italicized proposals are detailed in this document. As a means of measuring tangible progress in this area, the Government should commit to developing indicators to measure the integration of life-cycle costs and benefits into the prices of goods, services, and activities, both at the retail level and throughout the supply chain. These measures should similarly indicate the correlated cost advantages for goods, services, and activities with more positive life-cycle impacts than their competition; and the competitive advantages for businesses who are environmental leaders in improving the life-cycle impacts associated with their operations. The Government should, further, commit to continuous improvement in these measures, and set targets for doing so. While such measures may initially be imprecise, they could be strengthened over time, and would provide an increasingly valuable measure of the Government’s effectiveness in nurturing an economy that truly represents the full spectrum of costs and benefits in prices, and in providing deserving financial incentives to individuals and businesses that lead the way to a healthier future. As Canada’s economy better incorporates environmental factors into prices, it will become more efficient with natural resources, and more internationally competitive. It will also facilitate lower taxes through decreased energy development and health care costs. Furthermore, it will leave our children with a more sustainable resource base and cleaner air, water, and soil. 1. OECD (2004): OECD Environmental Performance Review of Canada, p. 193. Back to text |