The Full Report

The Issues: Economic signals

Today, Canadians recognize that the economy and the environment are two sides of the same coin. We pay a price when polluted air reduces labour productivity and drives up health care costs. We pay a price when we have to clean up contaminated sites. We waste money when we waste energy.

One reason we have entrenched environmental problems like poor air quality and accelerating climate change is that we do not pay the full environmental and social costs of the products and services we buy: Not paying for the climate impacts of burning fossil fuels gives automobiles an unfair competitive advantage over public transit; not recognizing the environmental costs that pesticides and fertilizers create makes organic foods appear more expensive than they really are; solar and wind power are clean, but must compete with coal whose deadly air emissions are not factored into the price of electricity.

To make matters worse, our tax policies often subsidize economic behaviour that damages the environment and the climate by propping up conventional development – such as in the tar sands – instead of driving investment in more sustainable approaches. Such subsidies are both economically costly and environmentally unsustainable.

More than any other issue, climate change illustrates the economic costs of environmental degradation. Sir Nicholas Stern, former chief economist of the World Bank, has warned in a comprehensive study of the economics of global warming that failing to immediately invest in protecting the climate could lead to the global economy shrinking rather than growing. "Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes," he has warned.

Similarly, the National Round Table on the Environment and Economy, in its federal government-commissioned report, Getting to 2050: Canada's Transition to a Low-emission Future, stated that "[w]ith a climate change policy that enables cost-effective emission reductions through broad-based emission pricing and in a world where Canada's major trading partners undertake similar deep GHG emission reductions, it is reasonable to conclude that Canada's economy will continue to thrive with a relatively limited impact on economic growth." In fact, the Round Table report found that over a 43-year period, Canada would forego at most one to two years of economic growth during the transition to a more sustainable economy.

Canada's Economic Action Agenda:

In the 2008 budget, begin shifting the federal tax burden from desirable activities (such as savings, income and investment) to undesirable environmentally harmful activities by:
- Instituting carbon pricing through carbon taxes or a cap-and-trade system for greenhouse gas emissions and using the proceeds to finance further actions to reduce GHG emissions while protecting low-income Canadians;

Increasing taxes on the use of virgin resources and using the proceeds to encourage greater use of recycled materials;
Immediately shortening by two years the phase-out period for the accelerated capital cost allowance for the tar-sands industry;
Reducing existing subsidies for the mining and oil-and-gas industries and committing to a ban on any new subsidies or fiscal incentives for mining or oil-and-gas projects, such as for the Mackenzie Gas Project.

For further information:

Green Budget Coalition (2007) Budget 2007: Opportunities for a Greener Canada
National Round Table on the Environment and the Economy (2007) Getting to 2050: Canada's Transition to a Low-emission Future.
Stern, Nicholas (2007) The Economics of Climate Change: The Stern Review
National Round Table on the Environment and the Economy (2002) Toward a Canadian Agenda for Ecological Fiscal Reform: First Steps

» Conclusion