an Ecofiscal approach to the GHG challenge | carbon pricing

Aligning Aspirations: An Ecofiscal Approach to the GHG Challenge

Climate and Energy

On Wednesday, March 11th, Canada’s Ecofiscal Commission held an event in Edmonton with the Canada West Foundation. Below is Chris Ragan’s speech.

Thank you very much Trevor, and thanks also to the Canada West Foundation, which has been an invaluable partner in bringing this event together.

As Trevor mentioned, the Ecofiscal Commission launched last November. Tonight is our first event in Alberta—the first of many. It is great to be here in Edmonton because, long before I was a mild-mannered McGill economics professor, I was born and raised in this fair city – and grew up in Windsor Park and then in Brander Gardens. And though my mother sometimes wonders otherwise, I know that I’ll always be an Albertan, through and through.

Canadians Are More than Just Lucky

As Canadians, and as Albertans, we know that we are incredibly lucky. Our famed “peace, order, and good government” is a beacon to many in a world full of serious challenges. And we enjoy a level of prosperity envied around the globe.

I’ve spent the last 25 years of my life focused on studying and teaching economic policy, and that education has convinced me that we owe our prosperity to more than simply the combination of good luck and a rich natural bounty.

What else has mattered? Over almost 150 years, we have come together as a people to make many smart and practical policy decisions – from the creation of public health care and public pensions to the evolution toward free trade and public fiscal responsibility.

But it’s now clear that we’ve hit a bit of a roadblock here in Canada. In trying to make both economic and environmental advances, many people see these goals in competition. They think it’s necessary to choose between them – that we can only improve our environmental health by sacrificing our economy.

I need to be very clear on this point. I believe this choice is not necessary – nor even possible. Especially in a resource-rich country like Canada, and a resource-rich province like Alberta, our economic strength is built upon the health of our environment.

This is the same belief that has brought together the members of the Ecofiscal Commission, and that drives our five-year mandate — to help get practical policy options on the table that work for a stronger economy and a healthier environment.

What Is “Ecofiscal” All About?

In a nutshell, ecofiscal policies correct market price signals to encourage the economic activities we want more (job creation, investment, and innovation) while discouraging those we want less (greenhouse gas emissions and pollution of our land, air, and water). The revenue generated from pricing pollution can create further economic benefits—by reducing taxes on families and businesses, by investing in new technologies, or by providing critical public infrastructure.

This isn’t really a new idea at all. Economists have been talking about it for years. (In my own introductory textbook, for example, the component parts of ecofiscal policies are explained – beautifully, I might add! – in Chapters 17 and 18.)

It’s not new — but this basic idea is nonetheless not one that Canadian governments have used much to their advantage – not yet anyway. Many other countries have implemented ecofiscal policies to address issues ranging from water conservation to landfill waste, and from traffic congestion to carbon emissions.

Over the next 5 years, the Ecofiscal Commission will work hard to advance provincial and municipal policy solutions for all of those issues, and others.

Alberta’s Challenge and Opportunity

But today, here in Edmonton, we’re going after the elephant in the room – a policy issue that has been hotly debated and is arguably among the most divisive in recent memory: the challenge of reducing greenhouse gas emissions.

We’re not going after the big game because we’re masochists. And it’s not because we’re economists with pointy-heads who are lost in the clouds and don’t realize how touchy a subject this is.

Quite the contrary. As an Albertan I have long believed that this province’s official motto could easily be “go big, or go home”. Well, that sentiment resonates strongly with me — and I’m not ready to go home just yet.

Seriously, though: This issue is hugely important to Albertans. And it is particularly relevant inside Alberta, where the tension between economic and environmental imperatives is felt viscerally. After all, this is a province determined to reduce its own GHG emissions and equally determined to ensure that it’s valuable petroleum products get to global markets.

For some people, these ambitions may appear contradictory. But they are both firmly rooted in the realities of the 21st century. And I would argue further that Alberta’s ability to achieve both goals is necessary—not just for the benefit of Albertans, but for the benefit of all Canadians.

Here are two pieces of that reality worth keeping in mind – both from the International Energy Agency’s 40-year forecasts of the global energy market. First, global economies, particularly the developed ones, are going to move toward decarbonization. We are already seeing the beginning of this transition.

Second, the world’s demand for energy will continue rising, especially as developing economies grow quickly and only slowly make their transition away from manufacturing and toward services. In response, we will certainly see renewable forms of energy scale up massively. But we will also see continued increases in the world’s total demand for oil. And someone is going to meet that demand.

What does this mean for Alberta’s economy? It means that over the next half-century, our prosperity will partly depend on how successfully our resource firms can respond to changes in the global environment, drive down their costs, and reduce their GHG emissions. There is both challenge and opportunity in Alberta’s future.

Carbon Pricing 101

And this brings us back to smart and practical policies. Specifically, it brings us back to pricing carbon.

Now this may be a well-kept Canadian secret, but Alberta has actually already moved along this policy path. It was the first province in Canada to establish a mechanism for pricing carbon – the Specified Gas Emitters Regulation. We’re going to talk about that system and how it’s working more specifically in a little bit.

But first, I hope you’ll forgive me if I fall back to my intellectual “happy place” and talk a little about the Economics 101 of carbon pricing.

The central advantage of carbon pricing is that it doesn’t presuppose which sectors or businesses will most reduce emissions. Instead, by attaching a price to emissions, it makes reducing them financially profitable. And, in the process, it unleashes powerful market forces, which drive innovation and lead businesses and households to reduce emissions in the most cost-effective way.

And these market forces apply equally to the emissions from the production and consumption of energy. The difference between those two things is crucial. Of the total GHG emissions that come from a barrel of oil, roughly 80 percent occur when that oil is consumed. So a conversation about pricing carbon in Alberta should be at least as much about the choices we make as oil consumers as it is about the choices we make as oil producers.

And that is the conversation I am looking forward to having with some very smart Albertans tonight – all of you. Before I invite our panel to the stage, I would like to quote another “local boy”, your premier Jim Prentice (although he was actually born in South Porcupine, a bedroom community of Timmins, Ontario). He said: “Focusing on environmental policy is no longer just a question of morality. It’s an economic imperative.”

It is thus not a question of whether we can align our economic and environmental aspirations – we must. The operative question is how.

Today’s Panel

And now, to answer that question and many others, please join me in welcoming to the stage:

  • Steve MacDonald, Chief Advisor to the Premier, Energy and Climate Change
  • Andrew Leach, Associate Professor, University of Alberta School of Business
  • Leon Zupan, Chief Operating Officer, Liquids & Pipelines, Enbridge
  • Greg Stringham, Vice President of Oilsands & Markets, Canadian Association of Petroleum Producers

Read more about our event in our Storify piece.

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