Economic Modeling White Papers

Encouraging Environmentally Sustainable Growth in Canada

• Tags:
• economic modeling,
• resource,
• policy,
• economic

Overview This paper analyses aspects of natural resource policy and environmental policy in Canada. In the taxation of resource-based activities, the management of water supply and the Atlantic fisheries management, the paper finds that there are incentives that may lead to overexploitation, over-harvesting or over-use, with possible harmful environmental consequences. Water prices are kept low, especially for agricultural use, exacerbating water availability problems in some areas, whereas the ban on bulk water removal and exports reveals a high implicit valuation of water. The use of economic water pricing and transferable water rights in some areas would establish more consistent incentives. The evolution of the crisis in the Atlantic fisheries illustrated the problems of balancing short-term adjustment costs against long-term sustainability. A more precautionary approach in setting total allowable catches and the removal of incentives for labour to remain in the sector may be needed. Canada also faces a number of challenges for environmental policy, in particular to deal with toxic substances, air pollution and climate change mitigation. Objectives and intermediate targets may be better defined, and some institutional features may have reinforced the usual difficulty faced by environmental policy of imposing costs on particular sectors in order to provide diffuse benefits to the public. The frequent recourse to voluntary agreements has not proved effective in dealing with toxic substances or greenhouse gas emissions. A greater use of economic instruments would improve the cost-effectiveness of environmental policy.

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