protecting the environment and reducing canada's deficit— liberal party of canada 1993...

Protecting the Environment and ReducingCanada's Deficit

The Greening ofGovernment Taxes an d

Subsidies

Where to Start 1

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A .M . GILLIE S

I1 S D SUSTAINABLE DEVELINTERNATIONAL INSTITUTE FO R

PMENT

Copyright © 1994 International Institutefor Sustainable Development (IISD)

Sections of this paper may be reproduced wit hacknowledgement to the International Institutefor Sustainable Development .

Canadian Cataloguing in Publication Dat a

Gillies, A .M. (Alexander M . )

Where to start

Includes bibliographical references .ISBN I-895536-18-9

1 . Sustainable development - Canada. 2. Environmenta lpolicy - Economic aspects - Canada . 3 . Canada -Economic policy - 1991 - * I . InternationalInstitute for Sustainable Development . II . Title.

HC12O.E5G54 1994 333 .72'0971 C94-920053- 0

This book is printed on paper with recycled content .

Printed and bound in Canada .

Published and distributed by :

International Institute for Sustainable Development161 Portage Avenue East - 6th FloorWinnipeg, Manitoba, CanadaR3B OY4

Phone: (204) 958-7700Fax : (204) 958-7710

11/2/94

WHERE TO START

AN ACTION PLAN FOR PROTECTINCi THE ENVIRONMENT & REdUCINCi CANAdA' S DEFICIT

PREFAC E

The International Institute fo rSustainable Development (IISD) isa private non-profit corporatio nwhose mandate is to promotesustainable development indecision making .

IISD believes sustainabledevelopment can help guid eCanada and other countries into anew era of greater fiscalresponsibility while at the sametime building a much healthie r

• relationship between environmentand economy. "Sustainabledevelopment" captures in a phras ethe positive message tha teconomic, environmental andsocial goals can be pursued in amutually supportive fashion.

We launched work onsustainable development budge treforms, including case studies on"leading practices" within NorthAmerica and Europe, over the pas tyear. IISD's Board believes suc hwork should be a'high priority fornations in all parts of the world. .Those countries which successfull ytackle the problem should be wellplaced for the competitivepressures of globalization whil ebettei meeting the well-being ofboth people and the environment.

This Action Plan For ProtectingThe Environment and ReducingCanada's Deficit has been preparedas a Discussion Paper forconsideration by governments and

concerned citizens alike . As anorganization receiving public fundsit is our responsibility and wish to

' engage in what is likely to be adifficult but exceedinglyworthwhile endeavour . The reporthighlights what we believe to be areasonable approach which coul ddemonstrate significant resultsover the coming five years .

Arthur J . HansonPresident and' CE OInternational Institute forSustainable Development

INTERNATIONAL .INSTITUTE FOR SUSTAINABLE DEVELOPMENT

A. M . GiLLiE s

AckN-OWLEq.EMENTS

text, while Carole Quenelle andTherese Laberge were unstintin gin their production assistance. Mydeep thanks to all of thesecolleagues .

A.M. GilliesWinnipeg, CanadaFebruary 1994

The author would like togratefully. acknowledge th eassistance he received from anumber of sources during thewriting process .

This report is the offshoot of alarger study initiated by IISD

which is focusing on "leadingedge" budget reforms in Europe

and North America. In this work ,which will culminate in th eInternational Casebook on Leading

Practices, I have the pleasure t ochair a walking group whichincludes a number of distinguishedorganizations, including Th e

Centre for Global Chang e(Washington, USA), The "European Institute fo rEnvironmental Policy (Paris ,France), the KPMG EnvironmentGroup (The Hague, Holland) ,CSERGE . (London, England) andResource Futures International(Ottawa, Canada) .

For this report,•Francois Bregh aof Resource Futures Internationa lprovided a very helpful first draft .

• Subsequent drafts were aidedconsiderably through the kin defforts of Kevin Doyle, Garry .Beatty and Peter Hardi . Pau lGraham was an inspiratio nthroughout the process . AmongIISD Staff, Robert Gale; Hayde eDeras,. Cynthia Pollock-Shea,Stephan Barg and Rob Kerr havebeen= especially helpful ,with the

INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

WhERE TO START — AN ACTION PLAN FOR PROTECTINCI TILE ENVIRONMENT & REdUCINCi CANAdA'S DEFICI T

TABLE OF. CONTENTS

Executive Summary : 2

1. Introduction : ; 8

2. Canada Not Alone 9

3, Billion Dollar Subsidies 1 1Are we paying for our own impoverishment? 1 13 .1 Forest Loss 1 13 .2 Agriculture Danger Signals 1 33 .3 Energy and Global Warming . . : 1 5

4 . Ecological Tax Reform 20Shifting to a, 21st Century Economy : . . . . :. . : 20 .4 .1 Environment-Friendly Taxation 204.2 Income-FriendlTaxation

:4 .3 Incentives For a Clean and Green Economy 24

5 . . Getting From Here to There : 29Implementation Issues : . . . : . .

29. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 .1 From Red to Blue to Green : 295.2 jobs and Competitiveness : 3 3

6. Conclusion : . . : 36

References : : 38

INTERNATIONAL INSTITUTE FOR-SUSTAINABLE DEVELOPMENT

A . M . Gillks

EXECUTIVE SUM MAR y

Sustainable deve l opmen tcreates — better lobs - an dcreates much more soun deconomic growth

jBut sustainable developmen twill never be, achievedi unles swe significantly re deploy th efinancial resources

eiithi ngovernment budget s

Our studies indicate tha tliterally billions of dollars ar enow being utilized bygovernments-to subsidiz enon-sustainable activities

i fthose funds were shifted . you' dsave money and improve thesustainability of economi cgrowth .

lt1aurice Strong

The budget is without a doub tthe most important statement o fenvironment policy that artgovernment makes .

Jim MacNefifSecretary-General"r?ur Common Future(Report of the BtuntdlariuCommission)

.From the outset, it should beadmitted that reducing the federa lgovernment deficit will not be

easy,. no matter . what plan ormethod is selected . There is nomagic bullet .

This should not be taken as an

argument for not .having a plan. Infact, quite the contrary . Thereneeds to be a sound plan with clea rand explicit goals which can guidethe difficult decisions ahead .Random" cost-cutting ._ migh tsirnply aggravate the nation' sproblems, not solve them .

A GREEN DEFICIT STRATEqy :

THE GoALs

So, where to start? Given thebattered state of our economy and .our environment, this Action Plan

is guided by three goals which wil lremain essential over the nextdecade. Cutting the deficit shouldbe done in such a way as to first ,strengthen the economy, second ;create jobs, and third, restore theenvironment.

These are ambitious goals .Achieving all three simultaneousl ywhile reducing the deficit will not .be easy; but it is not inconceivable .Properly designed and carefullycarried out, a green deficit-cuttin gstrategy could play a role i nremoving some of the majo rstructural weaknesses affecting oureconomy and our environment . In

order to do this, a gree ndeficit-fighting strategy mus tinclude : these elements :

tax reform, specifically oneemphasizing therealignment of the taxsystem to weigh mor eheavily on the very thing sholding back economic andenvironmental recovery, .namely waste, pollution and .inefficient energy andresource use . Added "green "taxes on wastes, toxicdischarges, pollutants, andinefficiency would create a

continuous incentive fo rindustry to develop cleane rand more efficient productsand technologies — givingthem a competitive edge i nthe global marketplace.

v green taxes could alsoproduce new revenues for thegovernment, some of whichcould be devoted to payingoff the accumulated debt:

- But there could be othe rdividends . A portion of therevenues could also be use dto lighten the tax burden o n

incomes, savings and smal lbusinesses - the ver yfactors heeded for recovery .These are also the thing snow being driven into the :underground economy - .reducing government

INTERNATIONAL INSTITUTE-FOR SUSTAINABLE DEVELOPMENT

WHERE TO START — AN ACTION PLAN FOR PROTECTINC1 THE ENVIRONMENT & REdUCINCI CANAdA'S DEFICI T

revenues by an estimated$20 billion a year .

v the third element of reformshould be in the area ofsubsidy programs . Subsidyprograms which distort and .artificially underprice ournatural resources should bescaled back. Such subsid yprograms . have historicall ybeen justified in the name ofjabs. But while there i susually a short-term boomin jobs, it is followed by a"bust" (witness the Atlanticfishery) . This boom andbust pattern is underminingthe goal of long-term

V

sustainable job andeconomic growth.

A green deficit fighting planalong these lines is not withoutinternational precedent—at leastin bits and pieces . Eco=taxes arenow a feature of most Europea ntax systems: A 1989 survey ofOECD members identified •morethan 50 environmental taxes andcharges, including levies on air an dwater pollution, waste, and noise ,fertilizers and batteries . As one

recent example, in 1989, the U.S .Congress passed a $4.3 billion tax onozone-depleting chlorofluorocarbons(CFCs), which played a large part inhastening their phase-out andsubsequent replacement by

.environmentally-benign alternatives .

THE LIBERAL ELECTIO N

PROMISE

The Action Plan presented herecould dovetail very nicely with th erecent election of the new Liberalgovernment . In what'was one of

the .most important bu toverlooked planks in . their electionplatform, the Liberals promised afundaMental stocktaking of thegovernment's budget, tax an dsubsidy policies from . an -environmental point of view .

'A Liberal government, will

', establish a framework in which Venvironmental and economic policy .signals point the same way .

Our first task will be to conduct acomprehensive baseline study offedera ltaxes, grants, subsidies, in order toidentify barriers and disincentives tosound environmental practices. We .

want to promote, not hinder, th eresearch, development, andimplementation ofclean andenergy-efficient technologies; renewableenergy use,. the sustainable managementof renewable resources; and theprotection of biological diversity . "

— Liberal Party of Canad a1993 Electioni"Red Book"

WhERE TO START

For the new Liberal governmen tindeed any government — a

"sustainability audit" ofgovernment spending and taxatio nwill by no means be easy : In manycases there is no- consensus of whatconstitutes a "sustainable "practice . What constitute s"overuse" of pesticides andchemical fertilizers in farming forexample : What is the precis emeasure of sustainable forestcutting, and how much pollutio nis too much? While there are n oclear-cut answers to thes equestions, there is now a body ofevidence which allows us to be

A 1989 survey of OEC Dmembers identified more than 5 0environmental taxes and charges ,including levies on air and wate rpollution . i,laste, and noise ,fertilizers and batteries .

– OECD, 1989

.INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT

A. M . GilLiEs

THIS ACTION PLAN

ADVOCATES THAT TAXES O N

INCOME, SAVINGS, AND SMAL L

• BUSINESSES BE SCALED BACK ,

AS THESE ARE THE VERY

FACTORS UNDERLYIN G

LONG-TERM ECONOMI C

EXPANSION .

indicative, if not definitive, aboutwhere government spending andtaxation is both fiscally an d:environmentally unsound . .

Subsidy REFORM -

Some analysts have suggestedthat subsidies which are bothfinancially and environmentallycounter-productive now amount t obetween $ 5 to $10 billion pe ryear. These subsidies affect energy ,transportation, forestry, andagriculture, to name just a fewareas. It has been estimated, for.example, that subsidies to th efossil fuel industry now amount to$4 billion per year, adding to •

inefficient fuel .use, loss ofcompetitiveness, global warmin gand our debt problem . This is onearea of potential subsidy reform. .There are others which should alsobe scrutinized carefully . .

Irrigation subsidies ., Subsidies fo rthe provision of irrigation ca nencourage excessive water use ,change groundwater flows, an dcause environmental damag edownstream such as increasedsalinity . In, the •United . Statesirrigation water supplied b yBureau of Reclamation is heavilysubsidized at an estimated cost o f

$1 . billion a year . . .These subsidies artificially lowe r

the cost of water, so farmers applyit inefficiently . At the same time,large-scale diversions and storag ehave brought about extensiv eecological changes- that threatenthe survival of several species .

Agricultural subsidies . In WesternCanadian agriculture, for example ,the heavy bias towards specific

crops remains evident ; attempts a ta more sustainable and diversifiedagricultural base are hampered bythe subsidy structures implicit insuch programs as Food FreightAssistance, the Western GrainTransportation Act, the Wester nGrain Stabilization Act, theAgricultural Stabilization Act, th eFederal Fertilizer Act, cropinsurance programs, and majorcrops and livestock productionsubsidies . Some of these will hav eto be altered in any case . There is amajor opportunity: now to alignenvironment and economyconsiderations.

Transportation subsidies. Workdone in Canada by Pollution Probeindicates automobile travel is nowsubsidized at an estimated rate ,ofalmost -$5 billion a year . That's thedifference between all revenuesfrom cars and gas . ($3 .5 billion )and the costs associated withdependence on cars, estimated byPollution Probe at $S.3 billion .(The Pollution Probe estimatecovers such items as health cost sarising from car accidents andsmog, police employed at traffic .control, and removal of primefoodland from production . )

TAXATION REFOR M

This Action Plan advocates thattaxes on income, savings, andsmall businesses be scaled back, asthese are the very factorsunderlying long-term economicexpansion : Where would the los sof revenue be made up? By taxin gthe things that we are trying todiscourage through the use ofvarious environmental taxes or


WHERE TO START — AN ACTION PLAN FOR PROTECTINCI THE ENVIRONMENT & REdUCINq CANAdA'S DEFICIT

charges . A charge can be .considered as , a 'price' that is pai dfor polluting the environment .Charges provide an incentive fo rreducing pollution . Greater usecould be made of various types ofcharges .

Effluent charges : these are . basedon the content and amount o findustrial discharges into the air ,water, or sewerage system . In theOECD countries, they have bee nused mainly in the area of waterpollution:control .

User charges : these are feescharged for using a resource or forbeing provided with a service .They are commonly used for thecollection and treatment ofmunicipal solid waste andwastewater discharged into sewers .Royalties on resource use— suchas timber, minerals andLoil — areanother form of user charge. Suchcharges can encourage people tobe more efficient in usingresources, since the less they us ethe less they will have to pay.

Product charges are charges addedto the price of products : they canbe used to discourage disposal o rencourage recycling . For example ,a charge could be made accordingto' how miich packaging a productuses . A product disposal charg ecould be made on paper toencourage waste-paper recycling .In Scandinavia, charges are 'imposed on new cars to cover thecost of their eventual disposal ; inGermany, charges are imposed onlubricating and other mineral, oilsto cover the costs of theircollection and disposal .

Differentiated sales taxes . A sale stax is generally paid by consumers .They have the ability to affectbuying patterns, and createincentives for consumers to buyenvironmentally friendly products .This can be done by imposingdifferent amounts of sales tax o ndifferent goods or services so thatenvironmentally friendly product shave a price advantage overpolluting products .

Preliminary studies done in th eU.S. and Germany imply that greentaxes can play a potentially large rolein the overall tax system= up tobetween 5 and 10 percent of acountry's Gross National Product '(GNP). With Canada's GNP anestimated $720 billion this wouldamount to between $36 — 7 2billion . These estimates ar eadmittedly very crude . Estimatesof the anticipated revenues wouldbe affected by the tax rates thatwere levied and the effects of th etax. (Indeed as eco-taxes ar eeffective in reducing pollution ,then revenues will decline as th epollution is scaled back) . .Nonetheless, the potential fo reco-taxes to play a role indeficit-cutting, while at the sametime creating over the longer terma cleaner, more competitive, andmore sustainable economy, cannotbe overlooked .

THE COSTS ANd BENEFIT S

A strategy such as this ActionPlan proposes will shift costs andreduce subsidy benefits . This willprovoke opposition from thoseaffected . The added charges onwaste and pollution will affect

THE POTENTIAL FOR ECO-TAXES TO

PLAY A ROLE IN DEFICIT-CUTTING ,

WHILE AT THE SAME TIM E

CREATING OVER THE LONGER

TERM A CLEANER, MOR E

COMPETITIVE, AND.MOR E

SUSTAINABLE ECONOMY, CANNO T

BE OVERLOOKED .


A. M . GiLLiE s

Competitivenes s

Michael Porter . Harvar deconomics professor and autho rof The Competitive Ad!-antag eof Nations, has sho!'in thatstringent environmental policie sactually enhanceindustria fcompetitveness,by triggerin gcost cutting innovations . Th eshort-term added costs relate dto product and process redesig nare outweighed lofterr verysignificantly) bythe tong!~tern]cost-savings associated v .~it henergy efficiencies, lorr wastes ,and higher quality products .

pollution is expected to reach $30billion annually by the year 2000 .In Western Europe, where th eexisting pollution control markethas been estimated at $50 to'$100billion per year, demand mayapproach $150 billion by the year2000 .-

-Competitiveness.. Michael Porter ,

Harvard economics professor' and .author of The Competitive Advantage

ofNations, has shown thatstringent environmental policie s

waste- and pollution-intensiveindustries, and will evokeresistance on. the grounds that thi sadded burden will threatenprofitability, competitiveness, an djobs . Those industries and sectorswhose subsidy benefits are reducedwill argue that jobs and livelihood sare similarly affected .

Those concerns are genuine .This Action Plan does not shrinkfrom these issues but tries toaddress them fairly . While ther ewill be a shift in costs, there wil lalso be significant, overall benefits .Properly designed an dimplemented, this Action Plan

could yield significant benefit srelated to: jobs, competitiveness ,energy efficiency, materia lefficiency, water efficiency, wastereduction and pollution reduction .

Jobs . Canada's job creationstrategy over the next decade mus tbe concerned not only with new -jobs in new areas ; but als o'sustaining Canada's manyresource-based jobs . These job smust be sustained for the longterm . Subsidy and grant policie swhich artificially stimulate andaccelerate rates of resourc edepletion must be avoided . Thecollapse of the'East Coast fishery isa case in point . In terms of new

. jobs the international market forenvironmental goods and services`is aslarge as the aerospace market :valued at $280 billion a yeartoday, and expected to reach U S$ 580 billion a year by the end, ofthe decade . The United Statesspent more than $170 billion o npollution control in 1990 .. In Asia ,the money spent on controlling

actually enhance industrialcompetitiveness by triggerin gcost-cutting innovations . Theshort-term added costs related t oproduct and process redesign areoutweighed (often verysignificantly) by the long ter mcost-savings associated with energ yefficiencies, low wastes, and higherquality products .

Reduced waste and pollution .

North .Americans account for only7 percent of the world' spopulation, but 50.% of its waste . -The costs of dealing with th egrowing volume. of waste are risingsteadily . Some costs are private ,such as the costs of wast ecollection . Others are external ,such as the aesthetic costs sufferedby people living next to landfills .and incinerators . A unit tax o rcharge on each trash hag set ou tfor collection creates economicincentives for households todispose of less trash (and recycl emore, fore example), but lowers th e

overall. costs of trash disposal .Some countries like Sweden are

. using tax policy as ah instrumentin planning for low/zero pollutio nin selected industries by the year ,


WHERE TO START — AN ACTION PLAN FOR PROTECTING THE ENVIRONMENT & REdUCINCi CANAdA 'S DEFICI T

2000-For example acid rain i scaused by emissions of sulphurdioxide (SO2) and nitrogen oxide s(NOx) . Due in part to theintroduction of taxes on thes eemissions, Sweden slashed levels o fsulphur dioxide by 75 percen tbetween 1965 and 1985. The, . 'country is committed to reducingwhat is left by another 75 percent .

ThE WAy AhEA d

This Action Plan is intended to :.;. spell . out the goals of a '

green deficit-reductionstrategy

identify the specific areaswhere subsidy reform is .warranted, from both aneconomic an denvironmental .point of view

v identify the specific areaswhen tax reform i swarranted, from both aneconomic andenvironmental perspective

The Action Plan is not presentedas a short-term quick fix . Norealistic deficit-cutting strategycan be a quick fix . It is however,presented as a place to start, apractical and concrete startingpoint for deficit reduction whic hsets' as its specific goals therestoration of both a robusteconomy and a healthierenvironment . . .

Some of the changes .involvefundamental shifts . Others requir econsiderably more research andplanning: In our opinion, however,neither the magnitude of th echanges nor the amount ofadditional work that will

ultimately be required should

serve as a reason not to star timmediately . The genera lapproach that is required i stwofold. The first step is to stopsending producers and . consumersthe wrong signals throughenvironmentally-damagingsubsidies : The second is to star tsending positive signals by '

"incorporating environmentalconsiderations explicitly in prices .

The immediate priority shouldtherefore be to" study th eenvironmental impact of subsidies ,to ask whether the objectives fo rthese policies are still valid ; and ifso; whether they can be achievedin a more sustainable fashion. Thesecond area for action should beincreased experimentation wit h

- ecological tax reform. There aremany obvious areas wher eenvironmental taxes could b eapplied . In addition to immediat eeconomic and environmenta lbenefits, this, should help t oincrease our understanding ofmany. of the more fundamentalissues that will have to be resolvedin order to green the budge tprocess as a whole .

There are always technical andpolitical difficulties to changing_taxes and subsidies . But withincreased effort ; and theknowledge that our current taxand subsidy regime, created in anearlier time, may now be , servingto.dig us in deeper — bothfinancially and environmentally —these difficulties should not beinsurmountable "

. .

THE ACTION PLAN IS NOT

PRESENTED AS A SHORT-TER M

QUICK FIX : NO REALISTI C

DEFICIT-CUTTING STRATEGY CAN

BE.A QUICK FIX " IT IS HOWEVER ,

PRESENTED ASA PLACE TO

START, A PRACTICAL AND`

CONCRETE STARTING POINT FO R

DEFICIT REDUCTION WHICH SET S

AS ITS SPECIFIC GOALS TH E

RESTORATION OF BOTH A

ROBUST ECONQMY•AND A

HEALTHIER ENVIRONMENT .

INTERNATIONAL INSTITUTE FOR SUSTAINABLE. DEVELOPMENT

A. M. GilliEs

INTRO d UCTIO N

Long-run Success

Fortunately, a`higher standar dof Irving does not need to b ebased on unchecked toxic .wast eand bloated consumption o fenergy and material resource sHeadlong pursuit of this kind o f-growth" offers only th e

self-destructi v e and blackene dindustrial wasteland no wrevealed in Eastern Europe O nthe other hand, a model o fresponsible economic growth .v:'hick is less energy, resource ,and waste intensive, offers a fa rmore attractive future, an densures that the progress of th e20th century will be more than abrilliant short-run success

A world of limitless resource sand boundless spaces .

This is the vision that has drive nthe phenomenal economic andindustrial expansion of the 20thcentury. All nations on earthshared in this vision . Theindustrialized nations were first offthe mark, but the rest of the worldis now awaiting its turn .

Given the universal appeal ofthis - vision, it is not surprising thatgovernments have taken it as thei rcentral mission to make access tothe world's resource base a sinexpensive and , easy as possible,Governments have spent billion sof dollars in order to subsidize andaccelerate the use of forests ,fisheries and fossil fuels, and t oallow air, soil, and water to beused as free dumping grounds forour wastes

all in pursuit ofwealth, jobs, and economi cprogress . Deliberately, if with thebest of intentions ; we have usedgovernments to shield us from thetrue costs, of our own economic .actions .

That path may be too expensiv efor the 21st century . Grosslyartificial underpricing cannot g oon indefinitely. In a world o falready over-stretched publicsector budgets, governments canno longer afford the expensiv egiveaways embedded i nbillion-dollar subsidy programs

and tax concessions . And in aworld of already over-stresse dresources, a more cautiou sapproach to what we dump anddischarge, and what we recklesslyconsume, is more than warranted .

WIN!WIN

There is a.win-win opportunity .We can avoid passing along both afinancial and an environmenta ldeficit to the next generation .First, by cutting back on subsidieswhich are leading to rates ofresource depletion far in excess o fwhat is necessary or sustainable ._Second, by using our tax system sto put a realistic price tag on th euse of air, land, and water . Using 'these as receptacles for our . wastes ,emissions and pollutants shoul dcarry an appropriate cost .. Indeed astiff cost will accelerate the 'development of low wast eproduction systems and cleanindustrial technologies . Not onlyare these desirable . in their ow nright, they will be universally.sought after in the 21st centuryeconomy .

The opportunities we faceshould not be overlooked. Withimagination and creativity, Canadacan enter the 21st century withboth its financial andenvironmental house order .

INTERNATIONAL INSTITUTE FOR SUSTAINABLE *DEVELOPMENT

WHERE TO START — AN ACTION PLAN FOR PROTECTINC I TILE ENVIRONMENT & REdUCINCI CANAdA ' S DEFICIT

~ . CANAdA'- NOT ALONE -

Canada is not alone in facingthese challenges . The globa leconomy is now "unmaking" thenatural environment through the .cutting and burning of forests ,damming of rivers, elimination o fother species, and the injection ofbillions of tonne's of pollutants int othe air, soil and water . Over thepast 20 . years :

world population ha sincreased by one billion--about 20 percent ;

v the net amount of potentia lproductive forests in theworld was permanentlyreduced by nearly 10% ;

4. arable land, especially in ,

Africa and India, has beenpermanently destroyed orlost over an area equal a tleast to- the entire arabl eland in Saskatchewan ;

•r . . the water table droppedalarmingly in the southwestU.S., while salinizationbecame a serious problem inparts of the- Canadian prairies .

WHAT GOES AROUNd . . .

The impact the global economy is

having on the environment is nowcoming fiill circle. Deterioratingenvironmental conditions are nowresponsible for creating widespreadimpoverishment and economichardship . Air pollution and acid rain

are destroying vast : stretches of

Europe's forests, and greenhousegases and global . warming couldseriously disrupt economic activityacross many regions. Four of theworld's. 17 fishing zones have beenoverfished, according to the UNFood and Agricultura lOrganization. Land degradation istaking a toll . In Africa, where lan ddegradation • is most visible, th eannual loss of rangelandproductivity is estimated at $7 -billion, more than the GNP of -Ethiopia and Uganda combined .In many parts of the world,ecology and economy, are nowlocked in an unfortunate butunmistakable lose-lose downwardspiral.

SELF-iNFLiCTEd?

At the moment; world economies aremoving backward at an acceleratingpace. If the annual draw on the earth' sstock ofrenewable resources is to bebrought within the capacity ofnaturalsystems to generate it, the industrializedworld will need to increase by severalorders. ofmagnitude its support for

-strategies aimed at abating pollution, atprotecting and preserving essential resourcecapital' and at restoring andrehabilitating assets that have alreadybeen depleted or exhausted.

-It is much more important, however, t oreform the {budget} policies that activelyif unintentionally encourage deforestation,

DETERIORATING ENVIRONMENTAL

CONDITIONS ARE NOW '

RESPONSIBLE FOR CREATIN G

WIDESPREAD IMPOVERISHMENT . . .

IN MANY PARTS OF THE WORLD,

ECOLOGY AND ECONOMY ARE NOW

LOCKED IN AN UNFORTUNATE BUT.

UNMISTAKABLE LOSE-LOSE

DOWNWARD SPIRAL:

INTERNATIONAL 'INSTITUTE FOR SUSTAINABLE DEVELOPMENT

A . M . Gillits

"America subsidizes thelogging of its ancient forests .Britain subsidizes company cars .Germany subsidizes coal mining .Each country has its gree nmadness, often as economicall yperverse as it is environmentall ydamaging ." Collectively .government spend tens o fbillions of dollars a yea rsupporting environmentall yunsound economic practices .Subsidized irrigation services ,biased utility regulation, an dbelow-cost timber sales are but asampling of the numerous publi cprograms that result in wastefu lresource . use and environmenta ldamage . Often just where taxe sare justified to reduce a harmfu lactivity, a public subsidy instea dpromotes it .

desertification, destruction of habitatand species, and decline of air andwater quality .

Unless and untilsuch policies are reformed, nations willnot be able to keep up, let alone catchup, with the increasing rates ofdepletion of their natural capital.

This quote from Jim MacNeillcaptures very well the contradictio nwe now find ourselves in .

Subsidies to resource industries ,for example, are commonplace

_around the world, and greatlyaccelerate the rates at which the. .earth's forests, minerals and fishstocks are depleted,-often in "boom ' .and bust" fashion. In the same way ,widespread subsidies for 'oil, gas; coaland other fossil fuels lead to seriou sunderpricing, which in turn

.encourages profligate energy use,undermines efforts at greaterenergy-efficiency, and hampers th edevelopment of less-harmful energy

alternatives .It is . now incumbent upon

governments to develop andapply tests of sustainability to al l

their programs . There are manylevers that governments canwield through their budgetar ypowers: taxes, financia lassistance, subsidies, agreements ,research and developmentexpenditures, export credit ,regional development grants ,resource development leases ,marketing policies, tariffs an ddepreciation allowances . Thechallenge of the next decade, andinto the next century, will be toharness these instruments an dpoint them squarely in th edirection of a sustainable globa l

economy . .

The opportunities are limitlessfor using these instruments to.promote sustainable aim's : greate rinput efficiencies, lower wastes ,recycling, reduced reliance on toxi cchemicals, increased lan dreclamation, 'alternative energies,_conservation and the like : In theindustrialized countries alone. $2. 1trillion is raised and spent eachyear by the countries of the EC ,and $1 .6 trillion is raised andspent by the U.S . and Canada.Harnessing this enormousspending power to promot e"change for the better" is essentialif sustainable development is to beachieved .

10 .

INTERNATIONAL INSTITUTE .FOR SUSTAINABLE DEVELOPMENT

WHERE TO START — AN ACTION PLAN FOR PROTECTING THE ENVIRONMENT & REdUCING CANAdA IS DEFICIT

3. BILLION DOLLAR SubsidiEs

ARE WE pAyINq FOR OUR OW N

IMPOVERISHMENT ?

Government subsidies hav eplayed an enormous role increating our modern economies .Public expenditures and subsidyprograms have underwrittenlarge-scale road building, railroadexpansion, and mass systems o feducation and health care, to nameonly a few examples .

Subsidy programs have also

opened access to the world'sresources . Indeed public subsidie sare now so massive and so

pervasive — from, forest clearing ,to pesticides, to fossil fuels — tha tscaling back will be difficult : Yetthe vast scale at which we aredepleting our resource base —wastefully and unnecessarily —requires that a scaling back tak eplace .

ecosystem in exchange for a

short-term economic gain. The

• 3 .1 FOREST LOSS

Probably the most visible of thepressures'facing the planet is fores tloss : Each year the world lose ssome 17 million hectares oftropical forest alone, adding upover a decade to an area the size ofMalaysia, the Philippines, Ghana,the Congo, Ecuador, El Salvador ;and Nicaragua.

Clearing forests is, . in effect, theloss of a highly productive

reasons for this are not hard to . .understand . The cutting of timberfor the purposes of logging, pulpand paper, and making way fO ragriculture are all regarded asnecessary economic activities . As .of course they are . But there ar eserious questions as to whether the .benefits are outweighing the costs .Laden with debt and looking fo rquick revenues, manytropical-country government soften aided by international donor s

have instituted tax credits an dother fiscal incentives to encourag ethe . conversion of forests topasture, cash crops, and other land .uses that may earn short-term

;profits but rarely prove sustainable .on poor tropical soils . Generousharvesting contracts have fueledshort-lived "timber booms", whichleave little behind when the ycollapse. Once tropical 'forests aregone; the land rapidly loses it sfertility: These soils can be farmedfor three to five years and can b egrazed for five to ten years befor ebecoming wasteland, but the ytypically will not sustainproductivity over the long term_ 3 -

Forestry is still'too often acut-and-run operation in whichthe forest is not helped to regrow .Worldwide, 10 trees are .being cu tfor every one planted ; in Africa theratio is 29 to 1 . A program of

SOME NATIONS NOW HAVE A N

APPROPRIATE PRICIN G

STRUCTURE THAT PROVIDES FO R

ADEQUATE REFORESTATION .

THESE NATIONS ARE EXPANDIN G

THEIR FOREST COVER AN D

GETTING WELL-POSITIONED FO R

AN, EXPANDING FORESTRY

SECTOR . FINLAND'S FOREST .

RESOURCE IS PROJECTED T O

EXPAND FROM 55 MILLION CUBI C

METRES-IN 1989 TO 75 MILLIO N

CUBIC METRES IN 2005 .

'SWEDEN'S ANNUAL ' FOREST

GROWTH IS 100 MILLION CUBI C

METRES PER YEAR. IT I S

CURRENTLY HARVESTIN G

70 MILLION CUBIC METRE S

ANNUALLY .


A. M . GiRiEs

As Sir John A . MacDonal dwatched an endless stream o flogs flowing down the Ottaw aRiver in 1871, he wrote : "We arerecklessly destroying the timbe rof Canada and there is scarcely apossibility of replacing it . . . I toccurs to me that the subjectshould be looked in the face an dsome efforts made for th epreservation of our timber .

Michael KeatingToward a Common Future

reforestation is a worldwidepriority . Our Common Future, theReport of the BrundtlandCommission said the world needsto plant trees oti an area the size ofSaskatchewan every year .Commensurate with. that prioritythose same grants, subsidies, . andtax concessions which encourageforest "giveaways" must besuspended, or at least berebalanced and aimed. in favour o ftree-planting, . so that reforestationmatches or exceeds de-forestation .

CANAdA

Canada's dependence on forestsis well known . Canada is a forestnation, ranking third in the worldin forested land, after the (former )USSR and Brazil . Canada's forest.products are its single ,bigges texport, worth approximately $2 5billion (and earning Canada th ereputation of being the world' slargest exporter of wood products) .The industry employs over900,000 people, one-tenth it slabour force . Over 350 .communities are almost solelydependent on logging or pulp and

paper, as are some 7000 businesses .Massive cutting since the last

century has reduced Canada' sforest cover to under 50% of theland surface, but we still pOSSeS Sabout 10% of the world' sproductive forest and one-third o fthe world's Boreal forest . But theamount of timber close enough t oroads and mills to be commerciallyusable is shrinking . Due todiminishing stocks, Canada' sAnnual Allowable Cut hasdropped from- 256 million cubic

metres'in 1970 to 204 million in1986 . In 1988 .the Audito rGeneral's report said ; "Significantshortages of wood are nowreported at the local level in everyprovince Restocking of productiveforest lands has not kept pace withthe harvest and this threaten sfuture forest productivity ."4

Until recently Canada replante donly 1 tree in every 4 ; : a ratio now'improved to '1 in 3 . These rates arestill too low ._ According . to the .Government of Canada, "Hence itis predicted that, unless drasti cchanges are made to forestr ypractices, Cariada's .mighty forestswill,be reduced to scrubland by - .the middle of the 21st century .

If this is to be avoided, Canad a

must sharply reverse the .directionof its public policies . Some .countries have already made thi schange in direction, most haven't ."The Brazilian taxpayer has bee nunderwriting the destruction of 'the.Amazon with, millions in taxabatements for uneconomic.enterprises . American taxpayersare subsidizing the . clearingof. the .

- Tongass, the great rain forest . of

Alaska : The Indonesians do thesame:. So do the Canadians."6 In .sharp contrast, some nations no w

'have'an appropriate pricingstructure that provides fo radequate reforestation . Thesenations are expanding their forest .cover . and getting well-positionedfor an expanding forestry sector .Finland's forest resource i s

projected to expand from 55 ., million cubic metres in 1989 to 75million cubic metres in 2005 .Sweden's annual forest growth i s

,, 5

12

INTERNATIONAL INSTITUTE FOR, SUSTAINABLE DEVELOPMENT

WHERE TO START — AN ACTION PLAN FOR PROTECTINCI TILE ENVIRONMENT & REdUCINCI CANAdA'S DEFICI T

100 million cubic metres per year .It is currently harvesting 7 0million cubic metres annually .

3 .2 AgRiCUITURE DANCE R

SLCNA' S

One-third of the planet i s. already desert . As the forests arecut back and grasslandsover-grazed or over-farmed,deserts expand . The deserts ar egrowing at a rate of 60,000 squar ekilometres a year, an area largerthan Nova Scotia and Princ eEdward Island together. When theland dries up, fertile soil is ,blownor washed away . Around the world .an estimated 24 billion tonnes ofsoil are lost each year, and fertilityhas been reduced on croplandtwice the area of Canada .

Pesticides are a two-edge dsword for agriculture . They kil lcreatures that prey on crops' bu tthe chemical residues `sometime shave severe side effects; includingthe poisoning of wildlife and - thecontamination of drinking water .In examining policies among ninedeveloping countries, the WorldResources Institute inWashington, D.C., found pesticidesubsidies in the early eightiesreaching as high as 89 percent of . .the unsubsidized retail cost (inSenegal) . The median subsidy was44 percent . In Egypt, subsidie scost the treasury mote than $200million per year . The Egyptiangovernment spent more per capit aon pesticide subsidies in 1982 thanit currently spends on health . Bykeeping pesticide costs low ,governments aim to help framer sreduce pest damage and thereby

increase crop yields . But it alsoencourages them to use pesticide s

- excessively, increasing the myriadrisks associated with toxic farmchemicals .

Pesticide subsidies provide oneexample of costly and damagingpublic policies . There is a case t obe made that the problem goe smuch deeper than that .

Agricultural subsidies provide one of .the best examples ofunwittinglydestructive economic policies . Virtually,the entire food cycle in North America,Western Europe and Japan attractshuge direct or indirect subsidies . Thesesubsidies encourage farmers to occupymarginal lands and to clear forests an dwoodlands . They induce farmers to use .excessive amounts ofpesticides andfertilizers and to waste undergroundand surface waters in irrigation .Canadian farmers alone lose well over$1 billion a yearfrom reduced

production due to erosion stemming

farm -Subsidies..:

0 .

5,000

. 10,000

15,000

20,000

25,000

30,000 .

Annual subsidy received by each farmer (SUS .)Source: Globe & Mail Report on Business, January 199 0


13

A. M. GiLliEs

from practices underwritten by th eCanadian taxpayer .

According to. the Organization fo rEconomic Cooperation an dDevelopment (OECD) ,and othersources, the farm-subsidy structure nowcosts Western governments in excess of

CANAd A

. Soil problems on the Prairiesdid not begin and end with th efamous . "Dirty thirties ." Ever since ,prairie land began to be cultivatedin the late 19th century, the

.fertility of some areas has bee ndeclining. Every year we are losing300 million tones of topsoil on thePrairies, and organic matter i sbeing destroyed 10 times faste rthan it's being produced . In theeastern provinces so much:topsoilhas been'lost that rocks are

.sprouting through once-rich farmfields . :Prince Edward Island haslost 50% of its topsoil since 1900 .

In 1984, the Sedate StandingCommittee on 'Agriculture ,

Forestry and. Fisheries producedSoil At Risk ; a report that - .estimated that soil degradation inCanada costs farmer's $1 billion a

year. That same year, the federalagriculture department estimated

that Canada lost as much as $1 . 4billion when one counts the cost sof pollution and sedimentation, off `the farms .

In 1990, the Science Council ofCanada undertook acomprehensive two-year study ofthe sustainability . of the Canadian

agri-food industry . Thei rconclusion was that many of ou rcurrent problems were

.

self-inflicted. Wind and wate rerosion of soils has been brough tabout by the cultivation o fmarginal- farmlands and practices

such as excessive tillage ;monoculture, andsummer-fallowing . Salinization i s

also associated wit hsummer-fallowing, as well as

$300 billion a year. What

conservation programs can compete withthat? These subsidies send farmers far

more powerful signals than do th esmall grants usually provided for soi land water conservation . $

Greener and cheape rWELLINGTO N

FREE-TRADERS have Jong arguedthat farm subsidies hurt the enviro n

ment, but without much solid evidence .-Since 1984 New Zealand has scrapped -most of its agricultural support. Recentl ythe Ministry of:Agriculture (MAF) pub-lished a report* on the environmentaleffects . They are unquestionably green .

New Zealand's farmers have alway s• used less fertiliser, fuel and chemical sthan farmers in Europe and NorthAmerica. But even in New Zealand sub-sidies seem to have inflated the use ofthese things . Superphosphates, for in- .stance, were subsidised for Zo years up .to1986 (see chart). The -MAF study arguesthat subsidies increased fertiliser Or-

- chases by 10-25% in the 1970s, though' it 'admits that the decline in fertiliser salesthat followed the end of subsidies may `also have . been caused by decliningworld commodity prices and their effec ton farm incomes .

Despite their relative caution with ar-tificial fertilisers, New Zealand's farmerswere guiltier than most when it came toclearing too much lan d . and putting to omany animals on it . These mistakes wer eonce underwritten by subsidies . Thecountry's pasture land rose by nearly 10 %in the 1970s: When the subsidies went ,the land-clearing stopped . Subsidie salso bolstered the relative profitability ofraising sheep, which . tended to graze themost marginal lands . As- the subsidieshave gone, farms have become mor ediversified, and. the most marginal land

is now grazed; less intensively .All these changes have been environ-

mentally benign . However; because sub-sidies to manage soil erosion have alsovanished, some land has become morevulnerable than in the past. The Uru-guay round allows farm subsidies with aspecific environmental purpose-suchas support for erosion control . Perhap sNew Zealand is the one GATT memberthat should intervene more on the farm ,not less .

"Impacts on the Environment of Reduced Agricul• .tural Subsidies : A Case Study of New Zealand ." ByRuss Reynolds and others . MAP Technical pape r93/12;

-

The Economist, Nov . - 27, 199 3

14

INTERNATIONAL INSTITUTE FOR . SUSTAINABLE DEVELOPMENT

WHERE TO START — AN ACTION PLAN FOR PROTECTINCI TI1E ENVIRONMENT & REdUCINC1 CANAdA' S DEFICIT

long-term irrigation using highmineral content water . Publicpolicies have also played a part .Food production strategies ,including government subsidieshave encouraged . oversupply,notably of grain products . Thestimulation of production hasencouraged the adoption ofenergy- and chemical-intensivetechnologies and practices that ar eenvironmentally stressful ; with th eresult that the development ofsustainable agriculture systems hasbeen hindered . 9

The long-term consequences o fthese trends cannot be ignored .Canadian agriculture is a $50billion a year , business that directlyor indirectly employs 14 percent ofour-workforce and accounts for a smuch as one-third of our tradesurplus . The industry comprisessome 293,000 farms whichprovide employment for 450,000Canadians in primary agriculture ;plus an additional 1 .5 millionCanadians in related farm supply ,processing, distribution and retai lbusinesses . To save these jobs, thi sindustry and the environment ,change, is necessary . As a modes tfirst step, subsidy structures couldbe changed in ways that payfarmers to build up rather thandeplete their basic farm capital .The "greening" of agriculturalsubsidies offers the possibility ofsustaining both the land base and 'the livelihoods of those whodepend on it.

.

3 .3 ENERqy ANd GLOBA L

WARM iNq

The industrialized nation sderive almost 90 percent of theirenergy (including that used forautomobiles) from fossil fuels ,while 7 percent comes from hydro ,3 percent from nuclear

energyfrom other sources add up to 0 . 2percent .

Fossil fuels play a dominant role ,in many of the key environmentalissues of the day .-, climatechange, depletion of the ozone -layer, acidification and urban ai rpollution. The burning of fossilfuels - creates CO2, which alongwith methane and CFCs, is amajor contributor to thegreenhouse effect and globalwarming. Over the last century ,fossil fuel burning has poure dbillions of tonnes' of additiona lgreenhouse ,gases into theatmosphere . Carbon dioxide level shave risen 30% . Methane levelshave risen 100%. In its report, theBrundtland Commission note dthat "choosing an energy strateg yinevitably means choosing a nenvironmental, strategy . "

North America is currently th eleading source of CO2 emissions(25 percent of the world's total) . -By contrast; Japan, the nationwith the highest per capita incomeand the second largest gros snational product (GNP), producedonly 5% of emissions, havingswitched significantly to naturalgas, a cleaner fuel than either coal

As cited above, up to $1 billionin current government subsidiescould be adding to the problem .Turning those subsidies' around —

or even part of them — would go 'a long way to adding to th esolution .

What definitely needs to h emore attractive is to conserv eenergy . save energy, make mor eefficient use of energy .Subsidizing energy, which i sdone in many parts of the v„z orld ,is wrong . Fossil fuel i ssubsidized to an incredibl eextent, ', v hich is crazy from a nenvironmental standpoint . Thes esubsidies should be removed .That is our number one proposal .

– Stephan Schrnidheir yChairnkin, Busines sCouncil tor SustainableCk.,velopn nt. Geneva


15

World Resources Institute

or oil, and invested in energyefficiency after the . oil supply scaresof the 1970s .

While alternatives to fossil fuel sare emerging, for now energ yefficiency offers the best potentia lfor cutting back pollution an dsaving scarce reserves of fossi l

fuels . For decades it was. though tthat increasing. energy use andeconomic growth were indivisible .Experience has shown this to b efalse . Between 1973 and 1985, in .the decade after the first oil pric eshock, per capita energy use in theOECD countries fell by 5 percent ,while per capita GDP (Gros sDomestic Product) grew by athird. Buildings in OECD

, countries as a whole now use aquarter less energy per perso nthan they did before the first oi lshock, while the energy efficienc yof industry has improved by abou ta third . Worldwide, cars now get25 percent more miles to thegallon than they did in 1973. Inall, increased efficiency since 197 3has already saved theindustrialized countries $25 0billion .

Far more could be achieved .Buildings, industry and transpor tcould all increase their efficiencyby at least 50 percent. Cars thatachieve more than 50 miles pe rgallon (mpg)are already on theroad — and prototypes that ge tabout 100 mpg have been tested ..Encouraging public transportwould save more energy ; buse sand trains use about three-quarters .less fuel per passenger mile thancars ; trains and ships us etwo-thirds less energy than trucksto transport the same amount offreight .

The technology for massivesavings in energy— and pollutio n— is available . The major obstacl eto achieving_ improvements is theexisting structure of public' sectorincentives . These incentive susually promote the very oppositeof what is needed . Theyunderwrite the exploration ,development, and consumption o fcoal, oil ; and gas ; they ignore thecosts of polluting air, land, an d

. water .

• _

'In 1989 the 21 membe r

countries of the InternationalEnergy Agency (IEA) spent 7 5percent of their $7 .3 billion energy

Gasoline Prices and Per Capit a

Gasoline Consumption

Gallons per Person per Year400

n us

0 .5

1

1 .5

2

2.5

3

3 .5

4

4 . 5

Dollars ($1987) per Gallo n

INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT'

MERE TO START — AN ACTION PLAN FOR PROTECTINCI THE ENVIRONMENT & REdUCINq CANAdA' S DEFICIT

research budget on fossil fuels andnuclear energy, but only 7 percen ton renewables and 5 percent onenergy conservation . lo In theUnited States, a recent study,"Federal Energy Subsidies: Energy,Environmental and Fiscal Impacts, "concluded that energy subsidie scost U .S. taxpayers between $20billion and $36 billion in 1989 ,the latest year for which reliabledata are available . The stud yfound that these subsidies favourincreased energy supply ove rincreased energy efficiency by a35-to-1 ratio, with 58 percent of • .the subsidies going to suppor tfossil fuels and 30 percent going t othe nuclear power industry . 1 1

Other researchers have put theU.S . :energy subsidy bill eve nhigher by including, the $50 billionprice tag the U.S. paid fo rprotecting the Kuwait oil fields.during the Persian Gulf war .

As a result, OPEC .has'projectedthat worldwide consumption of oilwill rise by nearly 20 percen tbetween now and 2010 . Fossilfuels will continue to produce 90

means be a bargain, either for our .economies or our ecology .

On the other hand, wher ecountries have reformed their taxand subsidy policies as part of abroader package of energy reform ,the results have been impressive .Japan achieved its greatest energ y

savings between 1979 and 1986 ,when it cut energy consumption20 percent . From 1973 to 1986,GNP grew 63 percent while .energy demand grew only 6 . 2percent. Small businesses obtainedenergy audits at no charge, and allfactories above a minimum size hadto have a licensed energy engineer t opromote energy efficiency. Efficiencystandards were also . applied to

percent of the world's energysupplies into the 21st century,adding a further, 50 percent to th epollution problem in the next 50 .years. (And incidentally, ensuringthat the world will continue to bedependent upon the whims ofOPEC.) In order to meet thi sdemand Dr. Subroto ,Secretary-General of OPEC, ha sestimated that around $250 billionwill be required worldwide overthe coming years to rais e

- production capacity sufficiently . 1 2Thus, the status quo will by no

Organization for Economi cCooperation and Development

GASOLINE TAXES I N

INDUSTRIALIZED NATION S

(1992) .

$1

$2

$3

$4 .

$6 .

$U .S . per gallo n


17

A. M. GiELiE s

THe Gas oNLY'Me aiRcRaFT CaRRi R j r

$L.7o, Tie. TANK i5 ' 115 .7HeST€aLll r1c wr€R i5 $330,

'Ne Gas Masi i5' $4•-5 aND THeGUN apps X30 A.GaLIFN .

. industrial processes, buildings ,automobiles, and appliances . All ofthis was supported by a high taxon gasoline and incentives forenergy conservation` whichincluded accelerated depreciatio n

or tax credits, reduced propertytaxes, and loans : 13 .

CANAd A

Canada's record on energyefficiency has never been a goo done. During the =1973. to 1979 .61

. Crises, we did achieve' some -efficiencies, with the result tha tthe amount of energy to produceone dollar of GNP dropped -by 1 4percent between 1973 and 1986 .Still, this drop was only two-thirdsof.what was realized by the othe r-member states of the OECD .During the second half of the1980s, improvements . in efficiencyslowed down-again :

Canadians have historically beenprofligate users ofenergy. Blessedwith a country that, during it sdeveloping years had abundant an deasily accessible sources of energy,Canadians have developed

energy-intensive lifestyles an dindustries . Canada's economi cprosperity was based on cheapenergy — for forestry operations ,to move wheat long distances tomarket, .and to developenergy-intensive, industries such . asaluminum smelting that gaveCanada a competitive advantagebecause it had "the cheapes telectricity in the world .- The -conspicuous display of energy evenbecame a national trademark andromantic symbol . Canadians have .been for a decade or more ' thehighest or second-highest . percapita energy users , in the worldwhich might at first be explainedby, the -cold winter . climate, exceptthat energy use is just . about ashigh in the milder parts of th ecountry. Other . cold countries —Sweden, USSR use much les sfuel per capita . Canadian .consumption of fuel for persona ltransportation, again the highestin the world . . Our Canadianlifestyle and habits, until now ,have stubbornly resisted attemptsat greater efficiency.14 .

In the future, if Canadians areto achieve significant .increases in

energy , efficiency, we will needconsistent and sustained`policies .Fluctuating oil prices are part ofthe problem . Every time the pric eof oil declines, efforts are eased andthe energy crisis is proclaimed tobe over . Inconsistent policies areanother problem. Relatively small

energy conservation programs . areno match for the enormousinfluences which point in the othe rdirection - the second-lowest .

energy taxes in the world an d

18 .

INTERNATIONAL INSTITUTE FOR-SUSTAINABLE DEVELOPMENT :

WHERE TO START - AN ACTION PLAN FOR PROTECTINq THE ENVIRONMENT & REdUCINC1 CANAdA'S DEFICIT

Greenhouse Index Ranking and Percent Shareof Global Emissions ; 1989

Intergovernmental Panel on Climate Change (IPCC)

Percent Country Rank Percent Country Rank2 617 .8 United States 0 .7 "Malaysi a

13 .6 U .S .S .R . 2 0 .7 . Romania 27

.9 .1 China 3 0 .7 Vietnam 2 84 .7 ' Japan 4 0 .7 Lao PDR 2 94 .1 India 5 . .. 0 .6 Saudi Arabia 3 03 .9 Brazil 6 0.6 [ran, Islamic Rep . 31 . .3 .4 Germany (a). 7 0 .6 Argentina

: 322 .2 United Kingdom 8 0 .5 Venezuela 332 .0 Mexico 9 0 .5 Netherlands .

3 41 .7 Indonesia 10 . 0 .5 Ecuador : 3 51 .7 Canada 11 0 .5 Korea, DPR 3 61 .6 Italy 1. 2 0 :5 Yugoslavia 3 7

` 1 .5 France 13 0 .5 Peru

- .381 .5 Thailand 14 0 .5 Pakistan 3 91 .5 Poland 15 0 .4 Bangladesh 401 .4 Colombia 16 - 0 .4

. Turkey 4 11 .1 Nyanmar .17 0 .4 Madagascar .421 .1 Nigeria 18 0 .4 Zaire 431 .1 Australia . 19 0 .4 Belgium 441 .1 South Africa 20 0 .3 Sudan 45 '0 :9 Cote d'Ivoire -21 0 .3 Bulgaria 46 . ,0 .9 Spain 22 0 .3 Cameroon 470 .8

. Korea, Rep . 23 0 .3 Egypt 4 80 :8 Philippines 24 0 .3, Greece 4 90 .7 Czechoslovakia 25 0 .3 Iraq 50

Sources -

. 'Intergovernmental Panel on Climate Change (IPCC), Climate Change : The IPC C

Scientific Assessment, J . Houghton ; G .J . Jenkins, and J .J . Ephraums, ds . (Cambridge,University Press, Cambridge, U .K ., 1990) .

Note : (a) Data for Germany include both the former Federal Republic of German yand the German Democratic Republic .

subsidies to the energy secto restimated to be $4 billionannually . 1 5

Increasing energy efficiency i stherefore undermined by ou rstop-start-stop-start efforts and byour decidedly mixed policy signals . .However, as the OECD haspointed out, a program of reducedsubsidies and increased taxes couldinfluence pricing in ways that

encourage conservation andefficiency, This would involveraising energy taxes during periodsof low real prices and reducingthem during periods of high rea lprices . The objective would be t omaintain or slowly increase price sat levels high enough to bringabout steady improvements inenergy productivity. 1 6

INTERNATIONAL INSTITUTE FOR SUSTAINABLE 'DEVELOPMENT

19 .

A . M. GiELiE s

4. EcOLOgicAL TAX REFORM .

U.S. Ozone DepletingChemicals Tax

As part of the U .S . plan toimplement the•Montrea tProtocols under the ViennaConvention, in 1989 Congressenacted a $4 .3 billion excise taxon ozone-depleting chemical s(ODCs) . The tax has been amajor success in reducing OD Cproduction . Although th eEnvironmental Protectio nAgency issued regulationscapping the total emissions ofODGs, chemical producers hav ebeen induced by-the tax toproduce lower amounts of ODC sthan allowed by the caps in everyyear since the tax was enacted .The tax has twice been raise dand is a significant source o frevenue . The most striking effectof the tax has been to encourag etechnological development . Mostof the major producers of ODCsare now by their own accoun tproducing replacementchemicals which are les sexpensive, more effective an dmore environmentally benig nthan those they replaced .

SNIFTINCI TO A 21ST CENTURY

ECONOMY

Our tax system constitutes a

very major part of the frameworkwithin which our econom yoperates . It affects every sector an devery industry . The tax syste mcontains an extraordinary numbe rof tax programs and tax policieswhich taken together, create anextremely powerful framework .ofincentives and signals for

the behaviour ofproducers and consumers ,businesses and households .Getting this framework "right" isessential . The wrong frameworkcan damage the economy . Equally ,the wrong framework can damag ethe goal of creating a sustainableeconomy .

The Canadian economy in th e21st century must be both stron gand sustainable . "Ecological taxreform" is one of the mos timportant tools for getting us

there. Properly designed and fully .implemented, ecological- ta xreform could remove the"burdens" on our economy —waste, pollution, inefficienc ywhile providing relief and eve nboosting the factors that ar eneeded for economic success —work, investment, and greate refficiency .

A comprehensive program o fecological tax reform should have .three main components . First, i tshould impose heavier levels oftaxation on toxic pollution, waste ;and inefficient use of virginresources . Secondly, : as an offset ,the current tax burden on income,

savings, and small business coul dbe lightened. (The alternative is touse the revenues fromenvironmental taxes to pay downthe public sector debt .) Thirdly ,ecological tax reform shouldensure that the tax system offersincentives only for economicadvancements in line with the leanand clean economy which will be apriority for competitiveness an dprosperity in the coming decades .

4.1 ENVIRONMENT-FRIENdly

TAXATION : TOWARds A ZERO -

WASTE, ZERO-POLLUTIONEcoNoMy

The idea of "ecological taxreform" is in many ways a nextension of the Polluter Pay sPrinciple . The principle wasintroduced , by membe r, countriesof OECD in 1972 . The PPPrequires a firm to 'pay the full cost sof pollution prevention and contro lmeasures. It is important for anumber of reasons . It has thepotential to see thatenvironmental damage is reflecte d

. 20


WHERE TO START — AN ACTION PLAN FOR PROTECTINCI THE ENVIRONMENT & REdUCINCI CANAdA 'S DEFICI T

in the prices that consumers pay ,thereby creating an incentive fo rconsumers to favour those goods ,which have the least impact on theenvironment. Secondly, pollutiontaxes drive the furthe rdevelopment of zero-wastetechnologies and clean productio nsystems, of which there.: are nowmany examples . Theseadvancements boost economicperformance since waste and°toxicpollution weaken an economy andcost it jobs .

Over the past 15 years, manynations including Canada, havestepped forward with a myriad ofcharges, fees, levies, pay-per-bag ,and refund deposit schemes . Thesein turn-have sparked a round ofprivate sector ingenuity, andprofitability . A 1989 survey ofOECD members identified mor ethan 50 environmental taxes andcharges; including levies on air andwater pollution, waste, and noise ,as well as various product charges ,such as fees on fertilizers an dbatteries . In most cases these feeshave been set too low to motivatemajor changes in behaviour, andhave been used instead to raise amodest amount of revenue for anenvironmental program . 1

7 Thereare, however, some notabl eexceptions . In the UnitedKingdom, a higher tax on leade dgasoline increased the marke tshare of unleaded gas from 4percent in 1989 to 30 percent in1990. And in 1989, the U .S .Congress passed a $4.3 . billion tax ..on ozone-depletingchlorofluorocarbons (CFCs), whic hplayed a large part in hastening

their phase-out and .subsequen freplacement by environmentallybenign alternatives .

Some other examples are belo w. . -Air Pollution . Acid rain is cause d

by emissions of sulphur dioxid e(SO2) and nitrogen oxides'(NOx) .Due in part to the introduction oftaxes on various atmospheri cemissions,'Sweden slashed levels ofsulphur dioxide by 75 percentbetween 1965'and 1985 : The'country is committed to reducin gwhat is left by another 75 percent . .Sweden isn't the only nation. WestGermany cut power plan temissions of sulfur dioxide bynearly 90 percent between 198 3and 1989. Switzerland and Austri ahave gone further . Finland was thefirst country to introduce a carbo ntax on fossil fuels, effective Januar y

1, 1990.Water Pollution . The' French

have had' a , system of effluen tcharges on water pollution in plac esince 1969. The system i s

:primarily designed to raiserevenues which are then used t ohelp maintain or improve waterquality. As an illustration, the

. agency for Seine-Normandie ,corresponding to the Paris region ,levied the equivalent of $US 25 0million in 1990 alone . These fund sin their entirety will be invested inwater pollution control in thesame region. The pollutants onwhich charges are levied hasexpanded considerably since the.initial inception of the program . 1 8

The German system of effluen tcharges is very similar to theFrench system . It covers a widerange of pollutants, and th e


21

A . M . GiLLiE s

charges are used to cove radministrative expenses for waterquality management and tosubsidize projects which improvewater . quality. The Netherlands

has had a system of effluentcharges . in place since 1969, an dthe charges placed on effluentstreams are among the highest . Ingeneral newer plants face morestringent regulation than olde rplants .

Toxic Waste . Canadian sproduce approximately five milliontonnes of hazardous waste eachyear, 80% of which enters theenvironment untreated. There areapproximately 10,0.00 old .dumpsites, containing decades o ftoxic, untreated chemicals . Manyof them are leaking their contents .into the environment . The fourbiggest dump sites on th eAmerican, side of the Niagar aRiver alone are threatening thedrinking water of seven millionCanadians and one millionAmericans downstream . (Thecleanup cost of these dumps i sestimated to be anywhere fro m$11 billion to $100 billion) . 1 9

In October 1989, the CCMEundertook to restore contaminate dsites in Canada in accordance with .the . "polluter pay principle ." Ajoint federal-provincial progra mtotaling $250-million wa sproposed with $200-millionearmarked for decontaminatio nand the remaining; $ 50-million fordevelopment and testing ofdecontamination technology. Inthe Green Plan, the federalgovernment has since committe ditself to work with the provincesand territories on agreements forimplementing the program . 2 0

In reviewing the experience ofenvironmental taxes and charges ,certain patterns and strategies can .

Recent Environmental Tax Reforms -.from EC/OECD Countries (1990 )

Australi aproposals for'Polluter Pay s

Principle' laws .

Belgiu m- proposals to tax waste wate r

and solid waste :

Denmar k(a)has a CFC tax and a tax o n

rubbish(b)refundable deposits on drin k

containers, planned for ca rbatteries .

(c)new legislation to triplerubbish charge and increase costof raw materials in process .

•

Finland(a)introduced a carbon tax ;(b)removed sales tax fro m

'green products' ;(c) increases in taxes on

single-trip containers, waste oil an dphosphate fertilizers.

France(a)charges business for air an d

_water pollution and uses the revenue to subsidize investments i n

pollution control by industry .(b)is considering redesignin g

water charges to discourage .farmers from using nitratefertilizers .

Germany-(a) introduced tax incentives o n

catalytic converters on cars, plan sto tax cars on noise and emission sbasis not engine size;

(b) charges for industrialpollution emissions - reducingthe charge in the earl y. ye.ars of the

installation of pollution contro lequipment ;

(c) has more environmenta leconomic measures than any othe rEC country (but less than Finlan dand Sweden) .

Hollan d(a) introducing a new

environmental plan ;(b) plans energy taxes and ta x

on carbon dioxide emissions ;(c.) recent call for environmenta l

disclosure in financial statements .

Italy(a)introducing a range of taxes '

on non-bio-degradable materials ;(b) implementing new taxes o n

sulphur dioxide, particulates ,plastic products, herbicides an dnon-biodegradable industria lwaste ;

(c)taxes on airport noisepollution .

Norwa y(a)raised tax on petrol and

charge a toll in cities ;(b)refundable deposit on oi l

and batteries ;(c)tax on CFCs bein g

introduced .

Swede n(a)recently increased taxation

of pesticides and fertilizers ;(b)VAT on energy ;(c)specific taxes on carbo n

dioxide, sulphur and nitrous oxid eemissions ;

(d)carbon tax introduced ; .(e)car-usage taxation is risin g

and likely to rise much further .

•22


WHERE TO START — AN ACTION PFAN FOR PROTECTINCI TFIE ENVIRONMENT & REdUCINC1 CANAdA'S DEFICI T

already be seen . Bill .Long,Director of the OECDEnvironment Directorate recentl yobserved

problems: and, second, fo rpolicy-makers to use regulations toestablish long-term performanc eobjectives. . .and then to look to marketmechanisms to find-the most .cost-efficient pathway toward that

2 1goal.Perhaps more important, i s

what lies .ahead : In Germany ateam of researchers at the Urnweltand Prognose Institut(Environmental Assessment -Institute) proposed a varied set o ftaxes for the former Wes tGermany that would havecollectively raised more than 21 0billion- deutsche marks ($13 6billion) . The researchers analyzedmore than 30 possible "eco-taxes, "and determined tax .leyels that -would markedly shift consumptionpatterns for each item . In somecases, a doubling or tripling ofprices was needed to cu tconsumption substantially . For. .

the pollution cha

example; . halving pesticide use,would require a tax on. the order of•200 percent of current pesticide

~prices . 22 .

.

4.2 I NCOM E-FRI ENd ly' TAXATION

Our current tax structure tend sto weigh . most heavily on thoseactivities that drive long-ter meconomic progress : savings ,investment, and efficiency. Taxeson income, payrolls, andinvestment inevitably encouragepeople to work, save, and investless than they would otherwise .Over time, the resulting lag in theacquisition of skills, capital, ,andefficient technology slows incomeand productivity growth .

We are at a point where theeconomy badly needs to berejuvenated, not held back . Workdone by the World Resource sInstitute (WRI) suggests theeconomic benefits of an "ecologicaltax shift" could be substantial .Their work has focused on th eU.S. where they have conclude dthat substituting $100 billion insuitably designed green taxes for$100 billion in current taxescould, over time, increase'economic productivity by $45 to$80 billion annually . These :savings arise in two ways : First ,cutting the marginal tax rates o nincome and profits. would reducethe burden of these taxes on th eeconomy, generating 40 to 6 0cents for each dollar of revenueshifted . An additional 5 to 20cents on the dollar is-gained fromthe net environmental benefits of

rge or green fee . 2 3

The use of environment taxes andcharges . has expanded considerably inrecent years . OECD governments today ..are applying new taxes to , energy,pesticides and fertilizers, batteries,packaging, waste disposal and tovirtually anything one can think of.that places an undesirable burden onthe environment . It is noteworthy;however, that on almost every occasion, :these •"eco-taxer" are introduced as asupplement to regulation and not as areplacement. Two strategies areemerging: one is for governments tosearch for the best mix of regulatoryand economic instruments for particular


23

A. M . GiLLiEs

Their work also suggests that ifsubstantial new revenues areneeded as part of a federa ldeficit-reduction .program ,pollution charges are preferable totraditional revenue sources . Taxe son income or-payrolls impose ne tcosts on the economy at the sam etime that they raise revenues, bu tproperly designed pollution taxesdo not . Green taxes, can generat erevenues and promoteenvironmental quality withou tdiscouraging savings orinvestment. Reducing the federaldeficit could have long-termbenefits for the economy, although .how it's done determines howlarge those benefits are likely t obe .

As the WRI has concluded ,pollution taxes should be a ke ycomponent in a national strateg yto put the economy on a growthtrack. They should be part of anylong-range plan to reduce th efederal deficit, to make ou rnational tax system 'work for theeconomy, and to promotecost-effective environmenta lmanagement .

4.3 INCENTIVES FOR A

CLEAN 'ANd GREEN ECONOMY

As Canadians prepare for the21st century; we must remindourselves that all economie sconstantly change, the onlyquestion is the direction of tha tchange . . If we cling to the vision o fan outdated, resource inefficient,

In . this century we .have leftbehind the horse and buggy ,paddlewheelers, coal bins,, th eiceman, typewriters, and vinylrecords . To replace these productswhole new technologies andservice industries have emerged :telecommunications, broadcasting ,airline travel, and computerervices . Even since 1976 we. have

witnessed the lightening-spee dacceptance of cellular phones ,compact disc players, facsimilemachines; and microwave ovens .

In the future, there is no reasonnot to further discard thoseproducts and technologies that ar eresource inefficient an denvironmentally poisonous, andinstead redirect our economytoward clean industries and .technologies and services that areeconomically_ and environmentall ysustainable : clean and efficienttransportation systems, recyclingtechnologies, energy and wate rsaving technologies, intensive -reforestation, eco-cars, hydrogen- ,biomass-, and solar-powersystems; zero-emissiontechnologies, closed-loopproduction systems, and energ yefficient. consumer products . Tofail to do this is to invite th eeventual but inevitable erosion o four economic, resource andenvironmental well-being .

Preparing for a 21st century ..economy requires that we .hav esome vision of what a clean andgreen economy might look lik eand that weput . in place the right

, tax signals to help get us there .Such a vision' is of this point -.incomplete, but there are sign s

and potentially hazardouseconomy, we stand to jeopardiz eour competitiveness and ourprosperity.

24 -


WHERE TO START — AN ACTION PLAN FOR PROTECTINC•1 THE ENVIRONMENT & REdUCINC1 CANAdA' S DEFICIT

that point us in promisingdirections in transportation,recycling, and clean energy, t oname only a few areas .

EFFICIENT TRANSPORTATIO N

The fastest-growing user ofenergy (and energy-related CO 2emissions) is passenger .transportation. We are at th epoint where the world's 50 0million automobiles have led tounsustainable urban congestionand environmental damage . (It ha sbeen estimated that the cost oftraffic congestion — idle driver sand idling cars = now reache s$100 billion yearly in the U .S . 24 ) .The question is, what technologie swill succeed the car, and where

will Canada be in this multi-billiondollar race .

.: New environmental regulationsin California and other states areencouraging electric cars . By2003,10 percent of all new carssold in California must be ZEVs .(zero-emission vehicles) . The ECwill probably adopt measure ssimilar to California in the nextfew years, and japan already aimsto have 200,000 electric cars o nthe road by 2000. In the long run ,most experts predict the use ofhydrogen to produce electricity ina fuel cell .

California has also ordered tha tdiesel trucks and buses beconverted to methanol fuel by1995. That conversion is an

Fiscal Policies for. the Transportation Secto r

Fuel Use Fuel Choice Transportation Demand Infrastructure DevelopmentPRICES Establish a deposit-refun d

system for CFCrefrigerants in mobile air :conditioners

TAXATION Tax petroleum fuels ;establish packages o ftaxes and rebates orcorporate income tax

.incentives to promotedesign, production ,marketing and purchas eof high fuel-econom yvehicles

Tax petroleum productsas 'part of an integratedpackage of options t opromote use of alternativefuels with lowergreenhouse gas emissions .

Provide corporate ta xincentives for employer sto encourage .employeesto increase vehicl e.occupancy and reduc eemissions .

Surcharge on constructioncontracts to supportdemonstration an dcertification of designs .and standards that reducematerials use i ninfrastructuredevelopment .

SUBSIDIES

'

Promote design ,production, marketing an dpurchase of hig hfuel-economy vehicles b ytaxes and rebates.

Subsidize a range of secto r .activities to promote use ofalternative fuels with lowe rgreenhouse gas emissions ,including R & D .

Subsidies to promot edevelopment oflow-emission. modes .

DIRECT EXPENDITURES Purchase high =MPG-vehicles for governmen tvehicle fleets, and supportprototype development topromote design andproduction of efficientvehicles .

R & D to reduce cost of

V

producing alternative fuelswith low greenhouse ga semissions : '

R &•D to understanddemand fo rtransportation ; to permitsubsequent formulation ofpolicies to reduce growt hin demand . -

R & D to reduce material :use and associate dgreenhouse gas emissionsin infrastructur edevelopment .

V

U .S . Department of Energ y


2 5

A . M . GilliEs

Tax Credits andRenewable Energy inCalifornia

Over the past decad erenewable energy has becom ean important part of California' senergy supply . App€oximately 1 4percent of electricity generate din the state now comes fro mrenewable resources no tincluding hydropower . Californi aleads the world in geothermal .wind and solar thermal electri cgeneration, has the larges tbiomass electric capacity in th eUnited States ana accounts fo rabout one fifth of world'm fJ eproduction of photovoltai cmodules . The success o frene.vables in California is i npart due to tax credits . Both -federal and state governmentsfirst introduced renewabl eenergy tax credits in the lat e1970s and they have had avaried history since then .culminating in the enactment o finvestment and productio ncredits in the 1992 Nationa lEnergy Policy Act .

estimated two billion dolla rbusiness opportunity . Methanol(also known as wood. alcohol o rmethyl hydrate) is extremel yclean-burning, with none of th ebuild-up of noxious emission sassociated with diesel fuels . On anequivalent energy basis, it alsopromises to be more economical,and it can be stored andtransported in much the same wayas gasoline and diesel .

Even cleaner technologies areemerging ; for example, magneti clevitation trains based onsupefconductivity . High-speedtrains could largely replaceshort-haul flights, especially in theThird World, which provide the 'dense populations needed to 'support them . The Bullet Train in

Japan may point to the future .It is important to note ,

however, that furthereco-improvements in

-transportation need not be theexclusive preserve of the world' sindustrial giants : Brazil fo rexample almost single-handedlycreated its own ethanol-powere dautomobile industry . In 1975 ,faced with heavy dependence o n

imported oil and a depressed sugarmarket, the Brazilian governmen t

began a program to convert 'domestic sugar cane into ethanol

for use as a motor fuel . Thegovernment provided substantial ,subsidies for ethanol .production, .used the government-owned oi lcompany to control much of theethanol distribution, ensured that 'ethanol was consistently pricedlower than gasoline, and reduce dtaxes on ethanol vehicles . Today

about 30 percent of Brazil's

.passenger vehicles operate only onethanol with a target to increasethat in the future . 2 5

What these examples illustrat e— and vividly — is what can b edone on the road to cleaner energysources and more efficienttransportation systems . The key to .making the shift is again th esignals provided by public policies .Fuel taxes, for example, shoulddistinguish between theenvironmental effects of differenttypes of fuel — gas or diesel ,

.leaded or unleaded: The tax andsubsidy structures shoulddiscourage heavier and mor eenergy-intensive transport .Private-vehicle expenses should n olonger be deducted from taxableincome. Work done by the U .S .Department of Energy (se e

sidebar, page 25) gives a nindication of the range of possibl e

options .

RECyCLINgj

Canada can expand its 'threatened' forest resources b yusing and re-using them moreefficiently . Every year our officesand homes discard'a virtual "urba nforest" . Over 40% of landfill wast eis paper or paper products . IfCanada recycled its newspapers as .efficiently as japan, we would save80 million trees a yearapproximately 40,000 hectares o fforest land . Recycling not only

saves forests, it also saves energy .Recycling paper requires only a -third the energy of virgin' timber .

The transition to recycled ' .materials is an integral part of -

26 .


WHERE TO START — AN ACTION PLAN Fon PROTECTINCI TILE ENVIRONMENT & REcUCINCI CANAdA 'S DEFICI T

A Greener Bottom Line

increasing the material efficienc yof our. economy. Recycling canhelp save biodiversity, .too .Increased recycling of glass, .steel,and aluminum and other.energy-intensive products reduce sthe need for mining the raw - -material and - at least asimportant - the demand for the -energy used in processing . Thesemeasures translate into fewer dam sand power plants destroyinghabitats, and fewer pollutant sreleased into the air and water .

One key step governments ca ntake toward greater resourceconservation and recycling is t oremove-subsidies for productio nbased on virgin materials . Inmining particularly, tax breaks ar eoften given to companies tocompensa. te-for the depletion o fmineral reserves . Since companiesusing recycled materials get n osuch breaks, tax policy encouragesthe -use of virgin materials .

CLEAN ENERcIy

Together, renewable source scould make a great, andoverwhelmingly benign,contribution 'to energy supplies .The Philippines; Brazil and .Norway already get at least half

their energy from them .Wind Ninety-five countries

now get electricity from the wind .California generates 90 percent of•the world total and-expects thewind to supply at least 8 percen tof the state's power by the yea r

. 2000. _Denmark now produces 6percent of the world'swind-generated electricitymore than half the power

produced outside California . Giant .

windmills have been built inSweden and West Germany, an dthe U .K. has estimated that wind

power could provide a fifth of th ecountry ' s . electricity by 2020 . .

Solar, The sun's power as an .energy source dwarfs anythingthat man has yet devised: the . .sunlight which falls on earth ever y15 minutes provides more energ ythan that produced in -a whole. yearby all other forms of energy (oil ,gas, nuclear, electric) combined . I tis not surprising that a sunnyclimate is leading the-way in sola rtechnology . California produce smore energy from solar source sthan the rest -of the 'worldcombined . Nearly 20 solar powe rstations using reflectors have beenbuilt with government help, halfof them in California .

Plants and trees store the sun'senergy. Brazil used ethanol,produced from sugar cane, for halfthe fuel used in' its vehicles in1986 and, although its progra mhas hit problems, 'such alcohol .fuels are becoming increasinglyattractive, particularly in the U.S . ,for combating pollution .

Geothermal. The top fivekilometres of the earth's crus tcontain 40 million times as much

energy as its oil and gas reserves .But geothermal energy, too ; iswidely dispersed and is only usedwhen concentrated by hot water ,trapped in rock. Most of Iceland'shomes are heated by suchreservoirs . Geothermal electrical.capacity provides more than asixth of the power consumed in .Central America. Japan plans to

A survey in the lifted'$ate sof more than 500 companie s

that adopted cleaner productio nprocesses found that eachcompany reduced industria lwastes by between 85 and 10 0percent; even more importantly ,the investment payback period swere short, only one month t othree years . These benefit saccrued to old industries as'el tas to high-technology industries .The technological change sincluded the incorporation ofadvance technologies, such a sion exchange and ultrafiltratio nprocess modifications involvin gthe replacement of an ol dsubstance by a new ,less-polluting material : and th eadoption of processes that - -less chemical intensive and 'more mechanical-intensive . Th emost dramatic case was that o fthe photographic firm PCAInternational Inc . . The mitial

co f $120,1100 for the processmodification was paid back in afew months by annual savings i nthe cost of developing solution s($360,000), fiver solutio n($25,000), bleach solution($780,000) and silver reco''er,'($1 .410 .000) . a total annua lsaving of 02 575000 .

-INTERNATIONALINSTITUTE FOR SUSTAINABLE DEVELOPMENT

27

A . M . GiLLiE s

increase its use tenfold in the1990$ . 26

Canada has historically been aproducer, and a consumer, of awide range of modern forms o fenergy: oil ; natural gas, coal,uranium, and hydro-electricenergy. In addition, our larges tsingle industry, forest products ,produces much of its own neededenergy from wood waste . We havedeveloped a very wide range oftechniques, technologies, skills an d

.policies to deal with a spectrum of -modern energy and environmen tissues. We have not always bee nsuccessful . But this enforcedversatility should stand us in goodstead in the changes likely t ocome. Canada is in a good positio nto lead in many areas: grain-base dfuels, natural gas and, for heating ;geothermal steam. Canada has a nabundance of all three . Each ofthese alternatives produces muchtower volumes of CO2 than fossi lfuels .

To capitalize. on the low CO 2factor in alternative fuels, Canadacould lead the world in theimposition of a CO2 tax = a taxwhich would be imposed "on all .fuels as measured by the degree ofCO2 . generated . This woul dprovide a new source of revenuewhich could be applied directl yinto alternative fuel research. anddevelopment . Tax incentives fo rrenewables have proved thei rworth in California and inDenmark. With a fraction-of thesupport that has been poured intonuclear power, Canada would beon its way to getting much of it s

As newly industrializin gcountries like India and Chin aemulate countries with hig hstandards of living, thei routpourings of emissions an dtrace gases into rivers and th ecountryside can create aneco-disaster. We can ' t tell the mnot to industrialize or modernize .They're just trying to do what w edo .

There's an opportunity fo rbusiness to provid epollution-abatement technolog yto help control factoryemissions : we would be helpingourselves at the same time. Thi scan be paid for b~,> North/Sout hcapital transfers, and wil lprobably be the fastest-growin garea for scientists and engineersin future . Environmenta [engineering will grow like crazyas developing countries try t oraise their standards of living .There are big marke topportunities in helping thes ecountries clean up thei renvironments .

– Paul Kennedy. Autho r"Preparing for the 21s tCentury"

energy from a more sustainablemix of energy sources .

- 28

INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT -

WI-IERE TO START — AN ACTION PLAN FOR PROTECTING TILE ENVIRONMENT & REdUCINCI CANAdA'S DEFICI T

GETTLN4 ,FROM HERE TO THER E

IMPLEMENTATION ISSUE S

'A Liberal government will establisha framework in which environmentaland economic policy signals point th esame way.

Our first task will be to conduct a _comprehensive baseline study of federaltaxes, . grants, subsidies in order t oidentify barriers and disincentives tosound environmental practices . Wewant to promote, not hinder; theresearch,, development, " andimplementation ofdean andenergy-efficient technologies; renewableenergy use; the sustainable managementof renewable resources; and. theprotection ofbiological diversity .

Liberal Party of Canada1993 Election "Red Book"

The key actor in framing aneffective sustainable economicpolicy is the Government, whichhas the power both to se tstandards and to choose from awide range of instruments toimplement such standards . TheGovernment must create a realisticframework for encouragingindustry to pursue cleane rproduction processes .

spelled out , in the Government' s`Estimates' Also known as theBlue Book (because of the colourof its cover), the Estimates createthe framework of governmentspending, taxation and subsidysignals within which the economy .operates . The above promise seem sto indicate that the Blue Book isabout to become the Green Book .

In a theoretical sense it is easy tospell out what a green budgetframework should accomplish .

This framework 'should integrate .environmental and sustainabilirydimensions into industrial policy andall spending programs relevant toindustry . It should eliminate policy .inconsistencies and mismanagement, .as well as policies and instrument sthat distort markets, e .g . the fixing

of wrong prices (artificiallysubsidized energy or raw materials) .It should also correct market failures ,such as the absence of prices forenvironmental services :Governments should generall yadopt the polluter-pays principle,which requires industry to bear thecost -of pollutant reduction andprevention. This principle wouldapply continuous pressure onindustry to pursue cleaner 'production options and wouldprevent distortions ofcompetitionamong firms .

Ecological tax and subsidy reformwill involve pollution taxes, removal

The above quote from th eLiberal election Red Book,promises to create such aframework . Canada's budget and

plans are nornnally

FROM REd TO BLUE TO GREEN

The public wish to see th eeconomy and the environment ,integrated more carefully in th efuture . According to a poll b yIISD, a majority of Canadian swant environmentall ysustainable economic growth ,believe the transition can occu rquickly, and think greenproducts and services will spu reconomic recovery and export s

"Developing our economy in aay that avoids the depletion o f

renewable resources an dminimizes damage to th eenvironment" should be a "majo rpriority" over the next decade, -sai d

72 percent of those polled . Full y82 percent of Canadians surveye dsaid "developing a nenvironmentally sustainabl eeconomy over the next decad '" likely" or "definitely possible" .

Those surveyed saw theenvironment playing a leadin grole in repairing and developin gthe North American economy ."Clean-upand protection of th eenvironment will contribut esignificantly to the growth of ou reconomy," agreed 84 percent o fthe Canadians . An, overwhelming92 percent of Canadians sai denvironmentally friendl yproducts and services could playa ``somewhat" or "veryimportant" role in overall exportsduring the next ten years :

— / t, S. D. , and Th eEnvironmental Monitor ,'1993

Canadians think green

INTERNATIONAL INSTITUTE FOR -SUSTAINABLE DEVELOPMENT

-29' .

A. M. GiLLiEs

of environmentally-perversesubsidies, "golden carrots"(incentives to encourag eenvironmentally-beneficialbehaviour) and support for thetransition from aresource-intensive to aefficiency-intensive economy .

Preliminary studies done inGermany and the United State simply that green taxes havesubstantial revenue-raising potentia l(up to 5 to 10 percent of GNP) .These estimates are admittedly quite

crude. Data on emissions andpollutants is still poor. We have anincomplete understanding of wha twe're trying to tax. Estimates of °anticipated revenues would also beaffected by the tax rates that wer elevied, and' the effects of the tax . (Ifthe tax is truly successful the ta xbase should eventually shrink to zero

i .e . the pollution should stop :)The following consideration s

will be important in implementingecological tax reform : 29

v what level of taxation canbe justified in terms of th epolluter-pay-principle?

• does raising the cost ofresource consumption havethe desired incentive effect ?at what level is the incentiveeffect relatively optimum ?

what other taxes should b elowered to achieve the goalsdesired?

v how can undesireddistribution effects b eavoided or compensated. for?

In practice, the redesign ofgovernment budgets to promot emore sustainable forms o fdevelopment raises a variety o fissues, a number of which are

•summarized below .° Objectives. A significan tchallenge in "greening "government budgets is to defineappropriate environmentalobjectives or standards which canguide fiscal decisions andgovernment programs. Such -standards exist in economicplanning where a combination ofmeasures (e .g . ; unemployment ,inflation, rate of growth, level ofdebt, etc .) has come to be acceptedas sound indicators of a country' sperformance . Social planning hasits demographic, income, ..

education, and other indicators ;environmental protection planninghas indicators to measure change sin the quality of air, water, soil ,and other resources. Yet thereremain disagreements on th estandards of acceptabl eenvironmental performance . Thereare many questions with n_ owidely-accepted answers : "How"clean" should clean water be? I sany net loss of forest cove racceptable? Or how much species 'extinction can we afford? "

At a more fundamental level of

analysis, economists and ecologist shave not reached consensus aboutsustainability . This raises issue swhich include : the level ofthroughput. in the economy ,disparities between the rich an dthe-poor, the degree to which .natural and manufactured capita lcan be substituted, the capacity o f

v what is- the appropriate pace,for introducing suchreforms ?

30


WhERE TO START — AN ACTION PLAN FOR PROTECTINCI TILE ENVIRONMENT & REdUCINq CANAdA ' S DEFICI T

ecosystems to assimilate wastes ,the harvesting of renewableresources on a sustained yieldbasis, intergenerational equity, andliving off the interest of capital .

'Opposition to Change . In the past,both environmentalists andindustrialists have resistedeconomic instruments :environmentalists have beenconcerned that governments notabandon traditional regulatoryapproaches in favour of "licenses t opollute" ; for their part, industryhas opposed some instrument s." on 'the simple ground-of not having topay for what they had previouslyreceived for free .

The fact that economi cinstruments continue to belittle-used°— although the ideaitself is over twenty years old —illustrates the importance ofcreating constituencies for such

change. An example of thepolitical difficulties in introducinggreen taxes is the recent oppositio nto President Clinton's propose denergy tax. Although Americanspay lower energy prices than mos tother industrialized countries ,interest group pressurenevertheless led Congress to wate rdown President Clinton's proposal .It is worth noting that th eproposed tax would'have yielded -less revenue than the value ofenergy subsidies to.America nconsumers .

Federal-Provincial Harmonization . Infederal countries, the -harmonization of federal and'provincial budgetary measures is .important to prevent them fromoperating at cross-purposes .

Countries . will no longer be able toafford the costs- of contradictor ypolicies . Such incoherence is

.evident in policy areas such as

energy (e .g ., the simultaneou ssubsidy to fossil fuels and fundingof programs to reduce carbo ndioxide emissions) and agricultur e(where some governments makeavailable subsidies both to increas eproduction and to protec tmarginal lands). In the . future,these conflicts will have to b eresolved as part of the budgetar yprocess . Flow would thi scoordination be achieved? Where `federal governments transfermoneys to lower levels o fgovernment, what opportunitie sexist to attach environmentalconditions to such . transfers ?

- Appropriate Circumstances .Properly designed . economicinstruments offer many, advantage sover traditional regulatoryapproaches . In theory, they reduce

. compliance costs (and thusenhance competitiveness), ar emore flexible, encourag etechnological innovation andreward better environmentalperformance . It is important tonote, however, that economicinstruments are not appropriate i nall circumstances. Where healthand.safety are at stake or time is afactor, traditional regulatory

.approaches such as prohibitions or .detailed regulations may remainthe preferred course of action :

Effectiveness . In theory,environmental taxes will also beineffective where consumers do notappreciably change behaviour inresponse to higher prices .

Environment StocksChecklist

WINNERS — These will dowell in the t J9Os : petrochemica lproducers leveraged tomethanol, ~,Jaste oil disposa lcompanies, packagingr_.oanpan~es with recyclin gprograms oit producer sle ieraged to natural gas .environmental and ethica lmutual funds, companie sengage, in environmenta lsolutions

LOSERS These face majo rexpenditures in clean-up . Failur eto do so ii~ay find som ecompanies regulated auto fbusiness : pulp and pape rmakers

,.akers, smokestack industries ,

energy producersleveraged tooil . base metal smetters, gol drefiners, plastic companiesWithout recycling programs .

Financial Pos t


31

A. M. GiLLiE s

However, this problem carries th eseeds of its own solution. To theextent that the environmental taxraises significant revenues, th erevenues can be used to reduce th ecause of the environmenta lproblem . A number, of NorthAmerican utilities subsidize energ y• efficient retrofits of old buildings ,for example . Governmentexpenditure. . can support researchand development of cleanermaterials, processes, and .

damaging subsidies or to tax .environmentally damagingbehaviour will have considerabledistributional impacts . 'A reductionof agricultural subsidies wouldimpact farmers more thanconsumers, for example . Increasingthe level of taxation on gasolineand other fossil fuels will also raisedistributional issues . Simply put ,who pays? and more important ,who will pay more than others ?Energy-intensive industries wil lend up paying more than others ,as will colder regions . Someimpacts-would also be regressive .For example, an energy tax wouldhave a greater effect on poorfamilies, Who spend a highe rproportion of _their income on anenergy. Without correctivefeatures an energy tax . could havethe perverse result of changingenergy use by poor households butwould have less impact on themore energy intensive wealthie rconsumers who could more easilyassume the increased costs .

There are essentially two waysin which governments can cushionthese unfair distributionalconsequences . Ideally, social and -environmental targets should b eintegrated into policy design ,ensuring from the start thatdistributional. effects are equitable .This might require, for example ,that a scheme to reduce auto 'emissions by increasing the cost ofdriving would also include aprogram to increase theavailability and affordability ofenvironmentally beneficialalternatives . In some cases, thisapproach will be impractical and

technologies. The tipping feefo rusing the regional landfill o nVancouver Island covers the cost sof a program- researching an dsupporting the development o fmarkets for recycled materials .Finally, government . expenditurescan be used to subsidizealternatives to curren tconsumption patterns . Thusgovernments can ensure theprovision of recycling program sand transit systems .

Impact on Government Budget.Planning . Environmental taxespotentially serve two competingobjectives: behavioural change andrevenue-raising . To the extent thatthey are successful in the firs tobjective and lead to a reduction inthe detrimental practice o remission being targeted, it ma ycompromise the achievement of

, the second objective and lead to adrop in government revenues . Thereconciliation of these potentially .competing objectives is thereforean important consideration indesigning and applying any suchsystem of taxation .

Distributional Issues . Steps takento eliminate, environmentally .

'32


WhERE TO START — AN ACTION PLAN FOR PROTECTING TILE ENVIRONMENT & REdUCING CANAdA ' s DEFICI T

environmental . policies will have t obe designed with provisions tocompensate the hardest hit after the

fact through reductions in othertaxes or increases in welfar ebenefits . For examplegovernments could use therevenue generated.by theintroduction of ecological taxes t oreduce regressive taxes such assales taxes .

-Earmarking. A particularly

controversial issue regarding theuse of environmental. taxes i swhether the revenues theygenerate should be earmarked._ t othe resolution of environmenta lproblems . or be consolidated intogeneral government revenues .Polling data have shown that _public acceptance of green taxes isenhanced by allocating theirrevenues to environmentalprojects . Earmarking is common i nEuropean countries ; notablyGermany, France and The

- Netherlands where it has bee npracticed with respect to wate rpollution charges for several years .In Canada, British Columbia ha sestablished a SustainableDevelopment Fund for thi spurpose . On the other hand, , asBruce Doern has observed ,Canadian finance authoritiesi "arestout in their objections to th edirect linkage of any tax wit hany expenditure fund" .27

There are reasons for thes eobjections. Taxes on waste, fo rexample, are really taxes on man ydifferent types of waste ,everything from tires, to batteries ,to air emissions . How manyseparate accounts should be set up,

before this becomes "administratively expensive andeven counter-productive .

" .,Furthermore, is there any reason'why health care should not be pai dfor, at least in part ; byenvironmental• taxes since it is 'quite plausible that some of th eburden. being placed on our healthcare systems can be traced back t othe presence of toxic poisons . in ourair, water and soils . - . .

For these reasons, theadvantages and disadvantages ofearmarking will need to b ethought through carefully. as par tof any major ecological tax reformpackage .

Jobs ANd COMPETITIVENESS .

Although conventional wisdo msuggests that imposing additionalcosts on industry to protect theenvironment reduces it scompetitiveness, a .number ofstudies conclude that the opposit emay hold .

Michael Porter is the author o fThe Competitive Advantage OfNations. , Writing in Scientifi cAmerican (April 1991) heconcluded that "strict :environmenta lregulations_do not inevitably hindercompetitive advantage against foreignrivals; indeed they often enhance it .Exacting standards seem at first blus hto raise costs and make firms lesscompetitive: This may be true ifeverything stays the same except thatexpensive pollution-control equipment isadded.

."But everything will not stay the

same. . Properly constructed-regulatorystandards which aim at outcomes andnot methods, will encourage companies

Environmental Policy andthe Public Revenue inDeveloping Countries

The range of environmenta lconcerns continues to expand ,and few sectors of economi cactivity remain untouched . Yetclaims on public and privatefinancial resources are alread ylarge . Howe then can .environmenta lpolicies tie made mor e"affordable'? Regulations

an dtaxes can help reduc eenvironmental damage, an ddeveloping countries mayb ebetter served by following the taxand investment approaches t oenvironmental policy in mos tsituations, rather than th eregulatory route followed byindustrial countries during thepast century.

Although the use of regulationsis sometimes appropriate, such asfor controlling hazardous wastes,in mast cases the tax approac hhas significant advantages, Taxe sare economically efficient, havewider impacts, demand lessinformation, and areadministratively less burdensomebecause they can be grafted ontoexisting structures . Economist shave often considered most suchadvantages to be applicablain theindustrial countries, but they applywith even greater force in th edevelopingworld .

"World Bank & the

nvironrmnt 1992

INTERNATIONAL,. INSTITUTE FOR SUSTAINABLE DEVELOPMENT .

A. M. GiLLiE s

to re-engineer. their technology . Ther. esult in many cases is a process tha tnot only pollutes less but lowers costsand improves quality .

"Both Germany and japanhave.tough regulations and both countriescontinue to surpass the U .S. in GNPgrowth rates, . "

In the. U .S. the most .comprehensive recent study of theimpact of environmentallegislation on the 'rates ofeconomic performance in variousstates was conducted by Stephe nMeyer, a professor at th eMassachusetts Institute o fTechnology. His findings werestriking : states with the mostambitious environmentalprograms had the highest level ofeconomic growth and job creation .

Almost 10 years ago, the firs tWorld Industry Conference o nEnvironmental Management(WICEM), convened by the U Nand the . International Chamber ofCommerce (ICC), pointed out thatindustries that curb toxic and solid .waste through recycling and low -emission technologies were oftenmore profitable than competitorsusing older, more pollutingtechnology . Another example: the3M corporation has spent in exces sof $100 million in waste recyclin gover 13 years but has saved thecompany over $400 million.Starting more recently in 1986 ,Dow Chemical estimates that the yhave already saved $ .5 million .

Economic instruments may b eeven superior to regulation : Forexample, Frederick Cannon, VicePresident and Senior Economist ,Bank of America, recently

reviewed the available evidencewith this conclusion :

Economic growth and environment .improvement have had apositiverelationship during the past two decades .However, the cost of environmentalprotection has been high — higher thanit need be. Inflexible bureaucrati capproaches in applying regulations haveoften reduced economic activity withou tachieving needed environmentalimprovements. Market-based approachesto environmental improvement arebeginning to demonstrate how the cost ofprotecting air and water resources can beminimized. As more' of these market-basedapproaches prove successful, they will b eapplied to a wide range of environmentalneeds, such as controlling solidandhazardous wastes, managing land use,and encouraging recycling. As a result,millions ofjobs can be created inenvironmental industries, resourcemanagement can be improved, and strongeconomic growth can be . sustained. 28

Will this involve a shifting ofcosts? .Yes it will . But it will alsobring about a desirable shift in oureconomy, by creating a- properframework of incentives for a clea nand efficient economy, one morecapable of competing an d

. prospering in the 21st century .Taxing products, and activitie s

that pollute, deplete, or otherwisedegrade natural systems is .a wayof ensuring that environmentalcosts are taken into account inprivate decisions — whether t ogenerate electricity from coal o rsunlight . Each individual produceror consumer decides how to adjust .to the higher costs : a tax on airemissions would lead somefactories to add pollution controls, ,

34


WHERE TO START — AN ACTION PLAN FOR PROTECTINC1 TILE ENVIRONMENT & REdUCINC1 CANAdA ' S DEFICI T

some to change their productio nprocesses, and others to redesig nproducts so as to generate les swaste . By raising revenue fromsuch "green taxes" and reducingincome taxes or others tocompensate, governments can hel pmove economies swiftly onto asustainable track .

Would such tax shifts bepolitically feasible? If people ar easked whether they favour highertaxes, the answer i soverwhelmingly no.. If people areasked whether they would rathe rbe taxed on their use of energy andon the amount . of waste they.generate than on their salaries . andprofits, the answer is very likelyyes . Environmental charges givepeople an attractive option fo rsavings . At present, the only waymost people can reduce their ta xbill is to work less and earn les sincome. Environmental chargeswould give them the option ofreducing their tax bills by actingon their principles - by savingenergy, recycling, or bicycling towork. Virtue is its own; but no tnecessarily its only, reward . 3 0

Phasing in tax and subsidyreforms-over, say, .5 or 10 yearswould ease the economic effect sand allow for a gradual

Virtually anywhereenvironmental taxes are applied ,

. other taxes would need to beadjusted to ensure a progressiveoverall tax structure . Completel yshifting the tax base would not be .desirable, since income taxes canbe designed to ensure that th ewealthy pay a proportionatelyhigher share; green taxes, o nbalance, would not serve thi sequity goal . Indeed, to offset anyregressive .effect, income tax rateswould need to be lowered fo rpoorer people, who would suffer,for example, from higher heatingfuel prices . Government paymentscould compensate the very poor ,who may not pay any income taxesat all now but who migh texperience higher living costsunder an environmental tax code.Moreover, since green-taxrevenues would diminish a sproduction and consumptionpatterns shift away from the taxedactivity, they would not be as ,constant a source of revenue a sincome taxes are . For all thesereasons, some blend of taxes seem sbest .

adjustment . If Canada wishes tokeep the , total tax burden the sam eit . could reduce income and othertaxes in proportion to the adde drevenues . Or it. might choose to.use some of the green-tax revenues

' for unmet fiscal needs -- fo rinstances, to reduce the budgetdeficit .

Federally and provincially ,Canada has plenty of sticks in it sarsenal ; it's time to start grov.in gmore carrots .

– Ian Smyth, President ,Canadian PetroleurnAssociation

INTERNATIONAL INSTITUTE FOR SUSTAINABLE DEVELOPMENT '

15

A . M . GilliE s

6 . . CONCLUSIO N

Over the past 25 years, thenations of the world have .pursuedeconomic prosperity as anuppermost priority . The mostsuccessful nations have emphasize dwhat are undeniable priorities :training, research and development ,labour-management cooperation ,innovation, and investment . All of

these_ have been important in thepast and remain importan telements of any nation's economicstrategy. But they should all bebased on an even morefundamental and enduringprinciple of economic strength:respect for the environment, an dsustainable development.Sustainable development canprovide for prosperity over the longrun; economic growth without thehangover. There is no trade-offbetween ecology and economy ;they are partners in prosperity ;

As we look around the globe ,we can, see the unmistakable signs ,of change . Governments havestarted to undertake tax andsubsidy reform with sustainabledevelopment in mind. In theUnited States; the Friends of theEarth have published The Earth

Budget, the first comprehensivereview of all U.S . Federalexpenditure programs from anenvironmental point of view . .

As a companion piece to thisAction Plan, the IISD has carried

out a project focused on examiningclosely these reforms which haveworked most successfully andwhich haven't . Reforms are beingexamined from across NorthAmerica and Europe,_ and includ ereforms related to :

•• polluter pay taxes, levies ,charges

v incentives for clea ntechnology

.;. energy and carbon taxes ,transportation taxes ,incentives for alternativ eenergies

v waste management deposi t

systems

v ' agriculture . subsidy reforms, 'soil conservation, wetlandsand forestry .

This work will culminate in The

International Casebook on LeadingPractices, giving details on:

v when the subsidy or taxchange was mad e

v the goals of the chang e

v the . problem the change wasdesigned to address

v the impact .so far onpromoting sustainability

v the cost-savings (or addedrevenue) for the government

v the economic groups mos taffected by the changes, and

. the adjustment programsput in place

36

INTERNATIONAL INSTITUTE FOR SUSTAINABLE 'DEVELOPMENT

WHERE TO START — AN ACTION PLAN FOR PROTECTING TFIE ENVIRONMENT & REdUCING CANAdA'S DEFICI T

As this Action Plan reveals, thegreening of taxes and subsidieswill likely dominate much of thepublic policy, public finance ,environmental and resourc emanagement agenda in the1990's . The reasons ?

+ . budget pressures will make itdifficult to spend more t osave the environment.Protecting the environmen twill have to. come not fromspending more, but fro mspending and taxing .differently. .

v public support for "green"taxes remains high, as . doe sthe desire to seegovernments take decisiv e

: steps on the environment.

v governments traditional"command and control "response to environmenta lproblems will increasinglyneed to be complementedby the use of economic andfiscal instruments .

v sound environmental policyis increasingly seen a sunderpinning stron geconomic performance andjob growth . -

This Action Plan has tried toscope the many issues raised by th e"greening" of governmen tbudgets . Some of the change sinvolve fundamental shifts . Othersrequire considerably more researchand planning . In our opinion ,however, neither the magnitude of

' the changes required nor theamount of additional work that wil lultimately be required should serveas a reason not to take actionimmediately. The general approachthat is required is twofold . The first

step is to stop sending producersand consumers the wrong signal sthrough environmentally-damagingsubsidies. The second is to startsending positive signals byincorporating environmenta lconsiderations explicitly in prices. .

The immediate priority shouldtherefore be to study the ...environmental impact of subsidies ,to ask whether the objectives fo rthese policies are still valid, and i fso, whether they can be achieved ina more sustainable fashion . Thesecond area for action should beincreased experimentation withecological tax reform. There aremany obvious areas whereenvironmental taxes could b eapplied . In addition to immediat eeconomic and environmentalbenefits, this approach should helpto reveal and to increase ourunderstanding of many of the morefundamental institutiohal ,economic and scientific issues thatwill have to be resolved in order togreen the. budget process. as a whole .

There are always technical andpolitical difficulties to changing taxe sand subsidies, but, with increased .effort, and the knowledge that thecurrent tax and subsidy regime maybe serving to dig us in deeper =both financially and environmentally

these difficulties should not b einsurmountable .

SUSTAINABLE DEVELOPMEN T

CAN PROVIDE FOR PROSPERITY

OVER THE LONG RUN ; ECONOMIC '

GROWTH WITHOUT THE - -

HANGOVER . THERE IS N O

TRADE-OFF BETWEEN ECOLOG Y

AND ECONOMY; THEY AR E

PARTNERS IN PROSPERITY .


. 3.7

A . M . GiLLiEs

REFERENCE S

1. MacNeill, J . "Strategies fo rSustainable EconomicDevelopment ." Scientific American :September 1989 .

2. - Cairncross, Frances. Costing TheEarth, Boston : Harvard Busines s

. School Press, 1992 .

3. Brown, Lester. "The WorldTransformed" . The Futurist ,May June 1993 .

4. Quoted in Keating, Michael .Toward a Common Future . Ottawa .Ministry of Supply and Services ,1989 .

5. The International DevelopmentResearch Centre (IDRC) ABackgrounder On Current Activities ,Ottawa: IDRC, 1992.

6. MacNeill, J . et al . BeyondInterdependence . New York : Oxfor dUniversity Press, 1991 . .

7. Repetto, Robert,-Paying th ePrice :. Pesticide Subsidies in

Developing Countries, Washington,D .C . : World Resource Institute ,.1985 .

8. MacNeill., J "Strategies fo rSustainable EconomicDevelopment ." Scientific American .September 1989 .

9. Science Council Committee onSustainable Development, It'sEverybody's Business, ScienceCouncil of Canada, 1991 . Thomas,

R. Sustainable Agriculture : EconomicPerspectives and Challenges, Science

Council of Canada, 1991 . ScienceCouncil Committee on SustainableAgriculture, Sustainable Agriculture :The Research Challenge, Report No .43, Science Council of Canada ,1992 .

10. Dogse, Peter and von Droste,Bernd . Sustainable Development : TheRole of Investment In EnvironmentallySustainable Economic Development .New York: UNESCO-WorldBank, 1991 . .

11. Environmental and Energ yStudy Institute : Federal EnergySubsidies.' Energy, Environmental an dFiscal Impacts . . Washington, D .C . ,1993-

12.Austria: Carbon Tax Would HitOil Investment: Reuter Newswire .March 24, 1993.

13. Miller ; Alan S . and Moore ,Curtis .Japan and The GlobalEnvironment . Washington: Centrefor Global Change, . 1.991 .

14. Roots, E .F. EnvironmentalAspects ofCanada's Energy Problems .Ottawa: Environment Canada ,undated . .

15. MacNeill, J . BeyondInterdependence .

16. OECD: Taxing Energy Why andHow . Paris: OECD, 1993 .

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WHERE TO START — AN ACTION PLAN FOR PROTECTING THE ENVIRONMENT & REdUCING CANAdA ' S DEFICIT

17. Postel, S . and Flavin, C . ."Reshaping the Global Economy . "In State of the World: New York:Worldwatch Institute, W .W .Norton & Company, 1991 .

18. UNIDO Secretariat.Government Initiatives in AchievingEnvironmentally SustainableIndustrial Development (Conferenceon Ecologically 'Sustainabl eIndustrial Development .Copenhagen; October 1991) .

19. Collison, Robert . "TheGreening of the Boardroom . "Report on Business 'Magazine . July1989 . .

20. Resource Futures Internationaland Institute for Research onPublic Policy . 1991 EnvironmentalScan National and Internationa lIssues . Winnipeg : CanadianCouncil of Ministers of theEnvironment, 1991 .

21. Long, Bill : "The Economics ofSustainable 'Development, An .International . Perspective" .Proceedings of the Internationa lConference on EnvironmentalPollution . Barcelona, Spain, 1993 .

22. Postel. S . and. Flavin C . .Reshaping the Global Economy .

23. Repetto,' R. et al . Green fees : .How a Tax Shift Can Work for theEnvironment and the Economy .Washington, D .C . : WorldResources Institute, 1992 .

24. Ben-Akiva Moshe, ef al. TheCase for Smart Highways (IVHSResearch Program, MIT) .Technology Review, July 1992 .

25 : General Accounting Office .Alternative Fuels — Experience sof Brazil, Canada and New .Zealand . in Using AlternativeMotor Fuels (Report to theChairman, Environment, Energyand Natural Resource sSub-committee) . Washington :U.S. Government, 1992 .

26. World Resources'Institute .World Resources 1992-93 . NewYork: Oxford University Press ,1992 .

27. Doern, G . Bruce . Regulationsand Market Approaches : TheEssential EnvironmentalPartnership" , in Doern, ed . ,Getting It Green, Case Studies inCanadian Environmental.Regulation .Toronto: C.D . Howe Institute ,1990 . .

28. Cannon, Frederick . EconomicGrowth and the Environment in

Economic and Business Outlook . SanFrancisco : Bank of America,June/July 1993 .

.

29. Weizsacker, E.U.V. andJesinghaus, J . Ecological TaxReform . London & New Jersey : ZedBooks, 1992 . -

30. Repetto : R. Green Fees : How aTax Shift Can Work For the

-Environment and the Economy .

INTERNATIONAL INSTITUTE FOR SUSTAINABLE . DEVELOPMENT

39

The International Institute for Sustainable Development (IISD) is aprivate non-profit corporation established and supported by th egovernments of Canada and Manitoba . Its mandate is to promotesustainable development in decision making - within government ,business and the daily lives of individuals . Its scope is internationa l

in recognition of the fact that local, national and global developmentissues are interconnected and impact on each other .

IISD believes sustainable development will require new knowledg eand new ways of sharing knowledge . IISD engages in policy researc h

and communications to meet those challenges, focussing o nprograms in international trade, business strategy, national budget sand new institutions to support sustainable development . The issueof poverty eradication is a fundamental theme linking IISD's researc h

and communications .

The interconnectedness of the world's environment, economy andsocial fabric implies that collaborative efforts are needed to brin g

about changes. IISD works through and encourages the formation ofpartnerships to achieve creative new approaches to the comple x

problems we face .

IISDInternationalInstitute forSustainable

Development161 Portage Avenue Eas t

Winnipeg, Manitoba, Canad aR3B OY4

Phone: (204) 958-770 0Fax : (204) 958-7710

protecting the environment and reducing canada's deficit— liberal party of canada 1993...

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