Hike the price of pollution

Every once in a while we get a sea change in how we deal with environmental problems. Finally we are getting that change for the control of greenhouse gases. Ontario announced it will join Quebec and California in a program called cap and trade. The provinces put limits or caps on industrial sources of greenhouse gas pollution. If some industries get below their emission limits they can trade (sell) their unused quota to other industries that find it cheaper to buy credits than control their pollution. The net result is total emissions have to go down.

The greenhouse gas controls are creating the biggest crackdown on a major air pollutant since the acid rain controls of 30 years ago. Recently, Ontario and Quebec chose to set limits on greenhouse gas emissions. Since 2008, British Columbia has had a carbon tax on fossil fuels, and use of these fuels declined 16 per cent helping to cut the province’s emissions.

Under cap and trade, governments impose limits to carbon emissions, but they leave it up to the market to decide how the cuts will be made. Around the world countries are moving to various systems to put a price on carbon dioxide pollution as a way of encouraging people to reduce it.

There are many strong and well-established arguments for pricing carbon emissions. It is a basic economic principle that if something becomes more expensive you will use less of it. There more costly the pollution the more incentive to reduce it.

The sticking point has always been resistance from polluters. This has slowed government controls on carbon pollution for years. But there has been seismic shift. The public accepts that the climate is changing and we face severe risks. Very importantly, a number of major industries have agreed on the need for pollution cuts.

A panel discussion held at the Toronto Stock Exchange in early April provided a glimpse of those changes. There were two hosts. One was Canada’s Ecofiscal Commission www.ecofiscal.ca, a highly credible group calling for governments at all levels to use market-based approaches to discourage pollution and to encourage innovation. The other was the Cement Association of Canada, whose members are an important source of greenhouse gases. Along with Michael McSweeney, president of the cement association, panelists included David Paterson, vice-president of Corporate and Environmental Affairs for GM Canada, and Craig Alexander, Senior Vice President and Chief Economist for the TD Bank. What was most important was that all three business leaders on the panel were agreeing on the need for a price on carbon. This is an important signal to governments that they can move without getting too much pushback from business.

The event was another important move by the ecofiscal commission www.ecofiscal.ca, which was created last year with the goal of promoting “practical fiscal solutions for Canada” that lead to economic and environmental prosperity.

The Ecofiscal Commission is chaired by McGill University economist Chris Ragan, who has worked at the Bank of Canada and the federal finance department. The very diverse advisory board includes leaders from the business and financial sectors, the environmental movement, and former political leaders.