6 Conclusions

Canada is lagging most of the OECD in its use of economic instruments. In 1992, a Government of Canada discussion paper identified an implementation gap and various opportunities to introduce economic instruments. Ongoing reviews by the OECD and others suggest that other countries are significantly outpacing Canada in finding ways to use economic instruments to manage their environmental objectives in a manner that also contributes to economic or other social objectives.

This gap means that Canada may not be addressing its environmental problems as cost-effectively as some other countries are. The experience elsewhere suggests that economic instruments can have many advantages over other risk management measures. In some cases, they can be used as the primary mechanisms for addressing an issue, and in others they can provide valuable and low-cost incentives for continuous improvement

More fundamentally, Canada needs to make greater use of economic instruments in order to promote sustainable development. Canada is a market-based society. As such, most decisions that affect the environment or natural resources are in response to market signals. There are significant limitations to the degree to which non-market based signals can restrain, influence or inform these decisions. If the market does not reflect environmental costs, there will inevitably be overuse of our common resources. Clear regulatory restrictions may be required to ensure the baseline protection of basic ecosystem conditions (clean water, clean air, etc.). However, only economic instruments can address the underlying production and consumption challenges we face in a way that stimulates and builds on the innovation and economic development dynamics of the market place.

In seeking to overcome this gap, Canada would do well to draw on the growing international experience with economic instruments. Although there are various legal, geographical and other considerations that may limit the direct applicability of some of the foreign experience, there are important examples of economic instruments that have been demonstrated to be effective in addressing an issue of importance to Canadians and that could be implemented in Canada without significant law or institutional reforms.²¹ International experience also provides many valuable process and design lessons for Canadian efforts to introduce economic instruments. The Guiding Principles outlined in Section 5 of this paper summarize many of these lessons.

Many European countries are moving beyond the piecemeal approach of using economic instruments for discrete issues and towards more fundamental ecological fiscal reform. This trend holds prospects for significantly changing the way those countries promote sustainable development. Using increased revenue from consumption taxes to reduce distortionary taxes on capital or labour offers the long-term prospect of enhancing the efficiency and pervasiveness of incentives for environmentally sound decision-making while stimulating economic development and employment. Canada's close economic relationship with the United States may limit our ability to diverge widely on some issues. Nonetheless, emerging support from both industry and environmental advocates for shifting the emphasis in fiscal policy away from taxing income and onto "consumption", together with initiatives such as Winnipeg's New Deal, suggest the possibility of made-in-Canada solutions that build on the basic tax-shifting, double dividend premise of EFR.

Regardless of the precise direction Canada takes, the main lesson from the foreign measures is the importance of developing domestic experience with what works and what does not (both in terms of the effectiveness of certain instruments as well as in the manner in which they are introduced). Experience is essential to overcome scepticism and to ensure appropriate design. Fundamentally, such experience can only be gained through implementation, ongoing innovation and careful scrutiny of outcomes and lessons learned.

²¹ See, for example, the options identified and described in: Stratos Inc., 2003. Economic Instruments For Environmental Protection And Conservation: Best Practices And Opportunities For Canada, prepared for Environment Canada.

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