Good for the planet, bad for the economy?

Nicholas Rivers

“There is a holdup in introducing more robust environmental policies in Canada. My goal is to help people make better-informed decisions about environmental policies so there can be a stronger pursuit of them.”

– Nicholas Rivers

When it comes to environmental policies, opinions differ widely: will going green boost the economy or cause its collapse? Nicholas Rivers is convinced a healthy environment and a strong economy can coexist.

Rivers, a professor in the University of Ottawa’s Graduate School of Public and International Affairs, holds the Canada Research Chair in Climate and Energy Policy. An expert on the economic impact of environmental policies, his research downplays perceptions that climate change regulations will single-handedly save or sink the economy. The truth, he says, is much more nuanced and involves much less doom and gloom.

“The arguments for and against environmental policies are often presented in extremist formats,” says Rivers. “Right now, there is a holdup in introducing more robust environmental policies in Canada. My goal is to help people make better-informed decisions about environmental policies so there can be a stronger pursuit of them.”

With funding from the Pierre Elliott Trudeau Foundation, the Social Sciences and Humanities Research Council of Canada and the Natural Sciences and Engineering Research Council of Canada, Rivers has developed and applied large-scale economic models to many environmental and renewable energy strategies to quantify their costs and benefits. His goal: to help governments create more effective green policies by detailing their economic objectives and real-world effects

Rivers has looked at the economic ramifications of numerous environmental policies and green initiatives. They include Ontario’s feed-in tariff policy, which provides a financial incentive to companies that generate renewable electricity, as well as a tax rebate program that encourages Canadians to buy fuel-efficient cars. He has also studied the less tangible effects of climate change policies, including their impact on the competitiveness of Canadian companies. Rivers has found that, contrary to some policy-makers’ fears, well-designed environmental regulations will not destroy the domestic manufacturing industry

Canada’s high energy consumption and significant dependence on international trade has some policy-makers worried that regulations aimed at reducing greenhouse gas emissions will diminish the ability of Canadian companies to compete globally, especially if other countries do not adopt similarly aggressive climate change policies. There is also concern that some Canadian firms might move their manufacturing facilities to countries with less stringent environmental regulations. This situation would not only lead to job losses and a reduction in economic output, but would also lessen the effectiveness of climate change policies.

Using a computable general equilibrium (CGE) model, which uses real economic data to predict the impact of policy changes, Rivers has made a promising discovery. Drastic economic changes will not result from efforts to meet the federal government’s target of reducing total greenhouse gas emissions by 17 percent from 2005 levels by 2020.

For instance, if Canada were to unilaterally introduce carbon reduction regulations, adding a tariff to imported goods would help Canadian products remain competitive in domestic markets. While the resulting increase in the cost of goods would lead to a modest decrease in consumers’ standard of living, Rivers says this sacrifice would be minor in comparison to the positive impact on the planet.

He has found, however, that the economic burden of new environmental policies would not be spread evenly among provinces or economic sectors. For example, the energy-hungry cement and lime industry would be hit harder by climate change policies than other sectors. Though this industry makes up only a tiny part of the economy, Rivers says regulations can be designed to avoid straining small sectors.

One solution involves output-based rebating. Under such a system, the revenue collected from a carbon tax or cap-and-trade approach to emissions reduction would offset the negative economic effects experienced by certain sectors. As a result, companies would have financial incentives to both lower their carbon emissions and keep their operations in Canada.

“Knowing this information gives governments a sense of what they should consider when designing carbon tax policies,” says Rivers.

The professor has recently received a $400,000 grant from Carbon Management Canada (funded by the federal Networks of Centres of Excellence) to further his research involving CGE models. Working with researcher Randall Wigle of Wilfrid Laurier University, Rivers intends to expand and apply the models to other environmental policyrelated scenarios, from provincial regulations to the role that climate change policies play in spurring technological change.

 

by Dana Yates

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