Delivering hope from the mouths of economists

Source: Ecofiscal Commission

It’s not a commission in the traditional sense – that is, one established by and in the service of government – but a new Ecofiscal Commission launched on November 4 aims to command the same level of influence over the creation of public policy in Canada. Indeed, it is likely to be perceived by the public and politicians alike as more credible, precisely because it is independent of government.

That’s what founding chair Chris Ragan, a professor of economics at McGill University, is counting on. To achieve that high standard, Ragan believes economists are best placed to deliver the message. After all, inaction on environmental issues largely stems from the belief that environmental policy and economic policy stand in direct opposition to each other. We expect environmental groups to say this isn’t true. But have a group of respected economists from across the country debunk this belief and there’s a greater chance someone will listen – and maybe even act.

To give the commission a trans-partisan persona, it enlisted 14 advisors from across the political spectrum, including former Liberal Prime Minister Paul Martin, former Ontario New Democrat Premier Bob Rae, and former Reform Party leader Preston Manning. Steve Williams, chief executive of Suncor Energy, and McKinsey & Co. global managing director Dominic Barton are also part of the advisory board, which includes academics and environmentalists.

Ragan is a former special advisor to the governor of the Bank of Canada, so he knows how government thinks and works. But the challenge he has set up for the commission is complex and daunting. In a nutshell, the goal is to save the environment without increasing the size of government, hurting the vulnerable, undermining the competitiveness of Canadian industries, and triggering the redistribution of resources across provinces.

Corporate Knights recently had the chance to chat with Ragan about the Ecofiscal Commission and how he expects its work over the next few years will unfold and be received:


CK: What is the commission all about?

RAGAN: We are a group of Canadian economists who are very policy savvy, with a great deal of experience in terms of designing and implementing and analyzing real-world policy across the country. We’re backed up by a group of advisors, who really are exceptional Canadians from across business and civil society and the political spectrum. These people all came together, sharing the conviction that a stronger economy and healthier environment are both possible and go together. What lies at the heart of moving forward in both dimensions is a redesign of our fiscal structures across the country.

CK: When was the idea born, and how did it evolve to this point?

RAGAN: I wish I could tell you there was a Eureka moment, but there was not. Over the last few years my head has been thinking about green growth. I have also been thinking about part of the literature that talks about de-growth; literature that I don’t, for the most part, agree with. I’ve also been thinking about environmental policies and how that relates to green growth. All of these things kind of came together leading to this idea that we’re at this impasse in Canada – too many people believe you cannot have a cleaner environment without weakening the economy. I believe this is wrong. So how do you get past that impasse? How about bringing together a bunch of economists who are actually saying a stronger economy and cleaner environment go together? The idea was, that ought to matter. It’s not just the message, but it’s the messengers. This commission is not saying something completely new, but we’ve got a new machine that is assembled to actually do the research and make the arguments. And if we have an advisory board chalk full of exceptional people from across the political spectrum, and from the environment and from business and from civil society, then people will say this is not a venture from a particular part of the political spectrum – it’s not left wing, it’s not right wing – this is something everybody can get behind. So over the past three years we’ve been slowly building that machine.

CK: Are you pleased with how it’s been received publicly so far?

RAGAN: I’m delighted. If you had asked me at the end of October to write down what a successful launch day would look like, I don’t think I would have written down the whole set of things that happened on that day and the day or two following. It has exceeded my expectations, frankly.

CK: Is this a sign that the mood of the public and media is shifting? Is the timing right for this initiative?

RAGAN: A number of people have said to me over the last few days the timing for this couldn’t be better. I wish I could say it was all carefully planned, that somehow we just hit the nerve of the people at the right time, but we’re not that clever. What’s true is that the mood or mindset is starting to change on this. Canadians are starting to wonder about how to do better economically and how to do better environmentally. I think they do see some problems. They are starting to detect that there are environmental costs that are no longer abstract but are real. But they’re looking for a way forward. What the commission is offering or suggesting is there is a way forward, there is a very sensible way forward, but in order to identify this path you need to get a bunch of people who are going to look in detail at the fiscal structures, and you have to engineer those fiscal structures. Most normal people don’t think about the details of the fiscal system, but that’s exactly what these commissioners are good at. So I think there’s hopefulness in the commission that is tapping a nerve. Yes, it has been fortuitous timing.

CK: Is this filling a gap created in spring 2013 after the federal Conservative government shut down the National Roundtable on the Environment and the Economy?

RAGAN: The motivation and thinking for the Ecofiscal Commission long predates that event. But the commission is also quite different. One of the significant things about the Ecofiscal Commission is that it is fully independent. It does not rely on any government for financing or anything else. That’s very important. Independence not only gives us security, but that independence gives us credibility. If there’s a group of economists that are speaking their own minds, and if we can get 12 economists to say here is a particular message on pricing pollution, and here’s a way to do it in a way that’s fair and mindful of the competitive challenges and of jurisdictional realities – that we are fully independent and non-partisan – then people are going to say “Let’s hear what these guys have to say.”

CK: The question is, will government listen to you?

RAGAN: It’s hard to make a blanket statement about governments in this country. There are a lot of governments. Our attention is focused on provinces and cities, because we think that’s where most of the action is, quite frankly. All of the issues we’re going to be addressing are very relevant for provinces and cities, and most of them are only relevant for provinces and cities. At some point we’ll write a report on residential waste and scarce landfill capacity. That’s a very local issue – nobody wants to make the federal case about residential garbage. And if you talk about water access or water pricing in some areas of the country where water scarcity is becoming a real issue, that’s very much a provincial issue and probably a local issue, but not a federal issue. On carbon, frankly, we live in a country where three provinces are already acting on carbon, and there’s actually pretty good reasons for that to happen provincially.

CK: How do you get all those governments on the same page?

RAGAN: What we want to do is identify a principle, a basic principal that is really an Economics 101 principle, which guides our thinking in the design of our fiscal structures. Let’s raise more revenue by taxing pollution, and let’s raise less of our revenue through corporate and income taxes and some of the most growth-retarding taxes we have ever created. You can apply it to residential garbage. You can apply it to road tolls. You can apply it to water. You can apply it to carbon. You can apply it to a whole bunch of things. Our job is just to identify those opportunities. The opportunities that are front-of-mind in Halifax may be different from the ones in Winnipeg, may be different from the ones in Vancouver, and that’s fine.

CK: You’ve got your work cut out for you. What’s your game plan over the coming years?

RAGAN: We certainly do have our work cut out for us. Our plan is to be around for five or six years. I am committed to not making this a retirement project for myself. We plan on issuing a report roughly every fourth months – a series of reports over five or six years on a series of issues, but all of them looking through what we call the ecofiscal lens – that is, looking for policy opportunities that involve the pricing of pollution and the recycling of revenues. If done right, we can identify opportunities where various governments can emerge with better economic outcomes and better environmental outcomes. We’ll be travelling the country talking about the reports we have just released, but also gathering information for the reports in progress. This is a really important part. If we are going to write reports that are useful to city and provincial governments from across the country, then we’ve got to really understand and build in some of those local details. That’s only going to happen by talking to people.

CK: Would the commission frown upon the regulatory approach largely adopted so far?

RAGAN: That’s a good question. The general argument that we make in our first report, which we sometimes call our landscape report, is that in a large number of settings pricing is a more efficient policy approach than direct, prescriptive, qualitative regulations. But there are some exceptions. There are situations where regulations actually are okay, and there’s a large number of situations where pricing, whether through a tax or cap-and-trade or some hybrid, is going to be more efficient. If you’re talking about carbon emissions that have multiple sources and those sources are quite heterogeneous in terms of their abatement costs, that would be a pretty good situation for the use of ecofiscal policies.

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