Tax Incentives for Climate Change: Unlocking Private Capital and Driving Market Behaviour

KEY HIGHLIGHTS FROM OUR NOVEMBER 29, 2021 DISCUSSION ON TAX INCENTIVES FOR CLIMATE CHANGE

 

Canada has committed to cutting carbon emissions by up to 45 per cent by 2030 which will require a rapid and fundamental transformation of our economy in just eight years. Agricultural processes account for about a quarter of Canada’s emissions, but the vast majority stem from the burning of fossil fuels to heat our homes and offices, power our industrial sectors, develop our buildings and infrastructure, and to ensure we can drive our vehicles and transport goods around the country.

Fiscal measures are an important part of the toolkit at the governments disposal and are certain to be activated for Canada to reach its emissions reductions goals.  This session debated the best approaches to take in order to get the results needed for climate, but also maintain economic stability and prosperity.

Dr. Mintz made a strong case for pricing carbon as the only measure needed to drive down emissions and help Canada achieve its net zero aims. Canada’s carbon tax is a good example of a measure that works for business – although the price will reach C$170 by the end of the decade, the schedule of price increases is set and predicable and can be absorbed by the markets over time. The tax base could be widened to cover more of Canada’s carbon footprint than it currently does. Mintz also supports global carbon markets since carbon emissions are a cross-border issue – but pointed out that the cap-and-trade system made carbon prices more volatile and unpredictable than clear tax regime. The revenues gained from taxation or trading can be applied to accelerating new low carbon and green technologies that are not yet commercially viable but that are needed to help Canada reach net zero carbon emissions by 2050.

Peter van Dijk generally agreed with Mintz’s stated principle that the tax system should be as efficient and un-cluttered as possible, but made the case that climate change is a uniquely urgent challenge and did require more tools in the fiscal policy toolkit to tackle. In addition to carbon pricing system, van Dijk stated that today’s subsidies needed to be redesigned to move away from fossil fuels and toward cleantech, grants and other rebates are needed to help companies and individuals move toward climate friendly options, and that an ‘all hands on deck’ approach is needed to harness the savings and personal choices of everyday Canadians in the fight against climate change.

Dr Vinski shared her perspectives from a behaviour science perspective to say that individual choice is not always predictable and does not always follow the rational or optimal financial path. Issues like climate change are impacting people emotionally and this is driving changes in market demand for high emissions products and services.

 

Further reading

Tax Incentives to Fight Climate Change - Global Risk Institute : Global Risk Institute

Tax Incentives Deployed in Countries Leading the Fight Against Climate Change: How Does Canada Stack Up? - Global Risk Institute : Global Risk Institute

Dr. Jack M. Mintz

Jack Mintz
President's Fellow, School of Public Policy, University of Calgary

 

 

 

Peter van Dijk

Peter van Dijk
Executive in Residence, GRI

Melaina Vinski
Associate Partner, Head of Behavioural Science and Cognitive & Analytics, IBM