5 Questions for Richard Lipsey: putting the market to work for the environment

Richard Lipsey picture - carbon pricing
Climate and Energy Pollution Water

“If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three.” So said Winston Churchill. So what happens when you put 12 leading economists in a room and ask them to focus on one of the biggest challenges of our time: growing economic and environmental prosperity in Canada? You get Canada’s Ecofiscal Commission and luckily one answer, not 13. This Commissioner blog series gives you a glimpse into the diverse personalities and perspectives behind our work — and what it takes to wrestle through the big issues together.

  1. You are one of Canada’s best-known economists: you’re an officer of the Order of Canada, you’re a fellow of the Royal Society of Canada and your textbook has been required reading for several generations of economics students. But you have also co-founded a think-tank on climate change adaptation. Tell me what makes an economist like you interested in environmental issues and the Ecofiscal Commission?

The environment has always been an important issue and economists have worried about it for over a century, ever since the coal-fired factories of the early Industrial Revolution started polluting the atmosphere. But what we have today is a pretty serious problem: climate change caused by the use of too much carbon fuels. If we don’t work at it, we’re going to be in serious trouble. The Commission is concerned with actually dealing with the root cause of carbon emissions and other causes of climate change.

  1. Is it possible to protect the environment without sacrificing economic growth?

The evidence is that we can protect the environment without harming economic growth — indeed, possibly even encourage it. In Canada, B.C. has major carbon taxes and their growth rates have been some of the best in Canada. If you go to Europe, northern countries are doing far more than we are to reduce their carbon emissions and are not suffering economically as is southern Europe, where much less has been done to protect the environment.

  1. What can other provinces learn from B.C.’s carbon tax and from the measures that northern Europe is taking?

That it’s completely feasible. When you put a price on carbon, people are careful about emitting it. You also have the choice of deciding what to do with the revenue. You can just reduce other taxes if you want to be revenue neutral or, if you’re in a jam like some of the provinces, you can use the revenue to reduce your debt. Better to reduce your debt by taxing the bad things than by cutting the expenditures on good things.

  1. Why is the Commission advocating this idea of taxing pollution or applying user fees rather than regulating pollution?

A heavily planned economy is inflexible. A tax says, look, emitting carbon is bad, but you figure out best how to do less of it, so that you get all the flexibility of a market economy without all the rigidities that you’d get through central controls. It’s a very efficient tax in the sense that it doesn’t cost too much to administer, it does what you want it to do and it yields revenue with little opportunity for evasion.

  1. What do you hope to achieve through the Ecofiscal Commission?

That some governments will listen to us enough to actually change the tax system. Right now we have many subsidies that encourage very, very high-polluting activities. If we can reduce this, we will in fact have a significant effect on the local environment and on our standing in the world. You get a significant benefit to the health system when you reduce greenhouse gas emissions. Pollution of lakes and rivers is another very local effect that we can reduce if we get control of this emissions problem. The public is listening. The next thing is governments must listen to get their house in order by changing their tax subsidy system.

About the Author

Richard Lipsey is Professor Emeritus at Simon Fraser University in the Department of Economics, as well as a Commissioner of Canada’s Ecofiscal Commission.

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