ECONOMIC INSTRUMENTS

NOVEMBER 25, 2013

OVERVIEW

• Pros and Cons of Economic Instruments

• Tax Incentives and Allowances • Non-tax Instruments• Other Economic Incentives

Economic Incentives• Market-based instruments used by policy

makers to achieve environmental goals• Stimulate an economic actor to adopt

environmentally friendly behaviour or technology, or abandon environmentally harmful behaviour or technology

• Leverage economic interest of individuals, corporations, organizations and communities to protect ecosystems, ecological services

• Distinguished from command and control regulation

Pros of Economic Incentives • Polluter Pays – “assigns polluters the

responsibility for remedying contamination for which they are responsible and imposes on them the direct and immediate costs of pollution” Imperial SCC

• More efficient and cheaper to allow market-based instrument to achieve desired level of environmental protection than regulations

• Stimulates more efficient technologies• Competitiveness, lower regulatory costs

Cons of Economic Incentives

• Trust in government to manage economic instruments scheme

• Unfair allocation of environmental burdens to minorities (environmental justice)

• Should industry be authorized to buy rights to undertake activities that are inherently bad?

• Economic analysis tools inadequate to task of assigning values to environment

Tax Incentives and Allowances • Carbon Taxes • Accelerated depreciation of capital costs,

sales tax rebates on pollution-control equipment

• Subsidy reform in extractive industries: Green Budget Coalition 2014 federal budget recommendations

• Ecological Gifts Program provides federal tax credits to land owners donating ecologically sensitive lands charities

Non-tax Instruments

• Deposit /Refund schemes for bottles• Water pricing, metering • Sale of emission rights for pollutants• Emission trading schemes• Protection of forests through carbon credit

sales• Dedicated environmental funds

Other Economic Incentives• Insurance mandated by law relating to

environmental liability as economic instrument

• Financial sureties for mine closure required for mine approval

• Use of pollution, hurricane liability exclusion clauses by insurance companies

Summary Question • Is the increased use of economic incentives a

national emergency? (OECD)