There is a persistent notion in Canadian discourse that pits the environment against the economy. According to this train of thought, resource-based economic development must necessarily diminish in order to prevent further environmental degradation. On campus, this argument has been propagated by groups such as Toronto350, which calls on the university to divest its holdings in fossil fuel-producing companies.
This argument, however, is misguided. The economy and environment do not have to be caught in a zero-sum game. With the implementation of the proper policy mechanisms, economic development can actually progress in tandem with environmental preservation. On the other hand, a dogmatic focus on superficially “green” initiatives can actually promote economically and consequently ecologically damaging results.
It is first important to recognize that environmental degradation is a product of market failure. Carbon emissions produced from fossil fuels produce a cost to the general public; yet, producers of carbon emissions don’t need to shoulder that cost. In economics, carbon emissions are labelled a “negative externality” — costs incurred by the community who has no choice but to incur them, and produced by those who are not compelled to reimburse the cost.
Since producers need not shoulder the cost of externalities, the price of production is artificially low. In turn, the resultant goods are too cheap and people will over-consume them. This eventually leads to environmental harm, such as the drastic increase of greenhouse gases in our atmosphere.
The aim, therefore, should be to implement policy mechanisms whereby producers of fossil fuels are incentivized to reduce their emissions. In other words, a producer is entitled to produce fossil fuel emissions, but they would be better off if they didn’t. This can only occur if the producer “internalizes” the externality — that is, producers are forced to shoulder the cost of the externality.
As it happens, there are policy mechanisms that do just that, and Canada is arguably the world leader when it comes to implementing them.
Most notably, British Columbia became a global leader in environmental policy when it announced its revenue-neutral carbon tax in 2008, earning praise from the OECD, the World Bank, and The Economist. Quebec and Ontario followed suit when they announced their cap-and-trade policies in 2013 and 2015, respectively. Most recently, Alberta announced a BC-inspired carbon tax last November.
Because BC’s carbon tax has been in effect for almost eight years, a significant body of evidence has culminated in an unsurprising conclusion: it works. Because it is revenue-neutral, any revenue accrued from the carbon tax is channeled into corporate and income tax cuts, which fosters economic growth in other sectors. Since 2008, the BC economy has out-performed the rest of Canada every year. Simultaneously, from 2008 to 2014, fuel use declined by 16 per cent in British Columbia, compared to a three per cent rise in the rest of the country.
Many organizations, such as Toronto350 and The Leap Manifesto, argue that carbon pricing does not go far enough towards staving off the effects of climate change. The Leap Manifesto is an online campaign which advocates including indigenous communities while making economic decisions. They call for a drastic scaling back of the Canadian economy, increased investment in goods and services provided by the public sector, such as high-speed rail, and a complete end to fossil fuel use within our generation.
What may work in Tokyo, however, may not work in Timmins. The fact is that oil and natural gas, as sources of energy, are incredibly good at what they do. They are energy dense, easy to store and transport, and easy to use. Today, 99 per cent of personal transport journeys in the United States use some sort of fossil fuel.
Properly designed, carbon-pricing solutions like that of BC can create an incentive for firms to reduce their fossil fuel emissions, while enabling economic growth.
What’s more, the reality is that fossil fuels are market-based commodities that will continue to be produced and used around the world. The United States currently imports over nine million barrels of oil per day, roughly a third of which comes from Canada. Imports from Canada have been growing since the early 1980s, and, regardless of pipeline decisions, this figure will likely continue to rise so long as oil remains an economical energy resource. To fail to recognize this point is to disregard the principles of market economics.
This is not to mention that “green” initiatives pursued without economic considerations often have detrimental ecological consequences. Germany, which invested vast sums into wind and solar energy, has seen its carbon footprint climb because wind and solar cannot produce reliable levels of electricity. Since it closed many of its nuclear power plants, the country has had to fill the gaps with electricity produced from cheap lignite coal, one of the dirtiest fossil fuels.
Another example would be that of lithium, the critical element in the batteries powering electric vehicles. Though it may seem appealing to envision a world of electric cars, lithium is starting to face questions over the carbon-intensive production process required to extract and turn it into the chemical compound used in batteries.
Getting the entire Canadian population, let alone that of the world, to make a drastic change in their behaviour on appeals to “green” norms alone is unfortunately unrealistic. It remains, however, our responsibility — particularly as the generation who will bear the costs of climate change — to examine corporate and government actions to combat climate change, and consider the macroeconomic effects of those actions.
There are policy mechanisms that can provide a win-win solution. Properly designed, carbon-pricing solutions like that of BC can create an incentive for firms to reduce their fossil fuel emissions, while enabling economic growth.
Jonathan Wilkinson is a fourth-year student at University College studying international relations.
Tags: Climate Change