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CanadaChanging: Ecological Fiscal Reform

amyt.jpg(Amy Taylor is Director of the Ecological Fiscal Reform Program at the Pembina Institute.)

Fiscal policy refers to the ways that governments collect (e.g., through taxes, royalties and user fees) and spend (e.g., through grants, tax credits, exemptions, refunds and rebates, and accelerated capital cost allowances) money. When these fiscal components are adjusted to better integrate environmental costs and benefits, ecological fiscal reform (EFR) is achieved. Financial incentives for environmentally beneficial behaviour are provided and economic, environmental and health benefits can result.

There is increasing interest in the use of EFR in Canada and elsewhere. Indeed, the OECD Environmental Strategy for the First Decade of the 21st Century, which Canada has adopted, calls for governments to give priority to ecological fiscal reform. Already in Canada there are a number of successful and innovative EFR policies in place.

Canada’s ecological gifts program provides a tax incentive to individuals to donate ecologically sensitive lands to a qualifying environmental charity or government body for long-term environmental protection. Donors receive a tax credit for the fair market value of their eco-gift that can be applied against up to 100 per cent of their net annual income. As of 2005, 479 ecogifts had been donated, totaling 44,827 hectares and valued at over $140 million.

The federal government also has a very successful wind power production incentive, the WPPI. This incentive provides financial support to electricity produced from wind: an initial incentive payment of 1.2¢/kWh of production, gradually declining to 0.8¢/kWh, was introduced for qualifying projects commissioned between April 2002 and 2007. The wind power production incentive has been instrumental to the growth of the wind industry in Canada. The original program to support 1,000 MW of wind power was fully subscribed two years ahead of schedule in 2005. The quadrupling of the program in 2005 is supposed to lead to 4,000 MW of wind power by 2010, but it will be fully subscribed a year or two early.

At the provincial level, both British Columbia and Quebec are leaders in the use of ecological fiscal reform in Canada. British Columbia has tax breaks for bikes, alternatively fueled vehicles, materials used to conserve energy, and energy efficient furnaces, boilers and heat pumps. The tax incentives are automatically received at the time of purchase. These breaks have facilitated increased purchases of eligible technologies including a six-fold increase in qualifying boilers between 2000 and 2005 from 116 to 689 and an increase in the number of efficient furnaces from 2,457 in 2000 to 8,671 in 2005.

In a precedent-setting initiative, the Quebec government recently announced the introduction of Canada’s first carbon tax. The revenue from the tax will provide finances to a Green Fund, used to support actions to reduce greenhouse gas emissions. At the policy level, organizations like the Green Budget Coalition and the National Round Table on the Environment and the Economy are pointing the way to further options for the future.

Ecological fiscal reform has been used around the world to address a host of environmental issues including carbon dioxide emissions, sulphur dioxide emissions, nitrogen oxide emissions, solid waste generation and disposal, water consumption, resource use and toxic substances. It has also been implemented to spur investments in environmental technologies such as renewable energy production, alternatively fueled vehicles, water conservation devices and energy efficiency improvements. (See the OECD / EEA database on economic instruments for environmental policy.)

And the benefits of ecological fiscal reform extend beyond just environmental improvements. Ecological fiscal reform is also being pursued as a means of achieving employment gains, increasing economic efficiency, and reducing economic distortions. By adjusting market signals to better reflect environmental costs and benefits, EFR provides better financial incentives for sustainable practices - incentives needed for both businesses and individuals. For the business sector, this need relates to innovation, risk management, competitiveness and the desire for growth. For the individual, this need lies in the tension between expressed personal concerns about the environment, human health and quality of life, as well as the incremental cost often incurred when choosing more environmentally sustainable products, activities or lifestyles.

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Comments

Very good information Amy- thank you. Are there any models of ecological fiscal reform at the muncipal level.

I am glad to hear the wind power incentives are still in place. But I understand the federal government has frozen some solar incentives, pending a review. What do you think the overall environmental program picture will be with the Conservative party.


Posted by: Arjun Singh on 20 Jul 06



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