Ecological Fiscal Reform

Ecological Fiscal Reform – assessing the true cost of salmon farming and using public policy to transition to greater sustainability.

The environment is the very foundation of the economy. Nature provides services such as clean air, water, and soil that are rarely factored into the cost of doing business. Protecting Canada’s environment and conserving natural resources is essential for a competitive economy in the 21st century.

Many countries have realized that environmental conservation is good for the economy—and they’re taking action. Places like Sweden, Germany, the U.K., Denmark, and the Netherlands are strategically using public policies such as ecological fiscal reform to spur innovation, investment, technological progress, and behavioural change.

Ecological Fiscal Reform (EFR), helps improve economic efficiency by correcting the prices of goods and services. EFR includes costs borne by society as a whole, such as increased health care costs due to air pollution, or the loss of tourism jobs when sea lice from farm salmon threaten the survival of wild pink salmon.

The concept is simple. EFR involves financial incentives to achieve sustainability goals.

One example is a tax shift accomplished by reducing taxes on products and services that protect health and the environment while increasing taxes on polluting activities. This kind of EFR is being used in Europe with great success, and could help make aquaculture cleaner and more environmentally sustainable.

An example in salmon farming would be to decrease taxes on investment in closed tank technology and increase fees for waste discharge permits for net cages.

Tax shifts can be designed to be “revenue neutral” so that citizens or businesses don’t have to pay more total taxes. EFR ensures that prices in the marketplace better reflect the environmental cost of production.

Ecological Fiscal Reform in Canada

Currently, Canada lags behind most other industrialized countries in the adoption of EFR measures. Canada’s slow adoption of economic instruments places a burden on the economy and the environment. The Government of Canada is beginning to respond to calls for EFR. According to its own April 2007 survey, 60% of Canadians support a green tax on consumer and industrial products to crack down on pollution.

Under the current federal fiscal regime, there are few mechanisms in place to help ensure that the costs of pollution are borne directly by those firms or individuals who caused it. Thus, there are currently scant fiscal incentives not to pollute. Bottom line profit/loss issues often provide, in effect, fiscal incentives to pollute.

The costs, sometimes referred to as negative externalities, are carried by society as a whole rather than the business creating the problem.

Negative externalities related to salmon farming could include:

  • pollution from fish farms reducing the usability of benthic ecosystems, clam beds, or other food fish
  • competition from escaped Atlantic salmon reducing survival of important sport fish
  • parasitic sea lice infestations from salmon farms reducing wild salmon stocks resulting in a negative effect on fishing, tourism and First Nations traditional resources
  • An array of ecological fiscal reform measures would assist in moving the BC salmon farming industry toward sustainability while maintaining its financial viability. Ecological fiscal reforms can be used in combination with other policies and regulations to achieve environmental objectives. EFR uses policy tools such as taxation (tax exemptions, credits, and rebates), tradeable emission permits, direct spending, and program expenditure to “green” the companies’ operations.

A variety of these measures are immediately applicable to the aquaculture industry in BC such as:

  • “polluter pays”;
  • environmental tax shifting;
  • a reduction in environmental externalities and market failures;
  • the introduction of feebate [self-financing system of government imposed surcharges (fees) and refunds (rebates) that are used to shift market purchasing preferences toward an economically, socially or politically desired goal];
  • environmental levy systems;
  • capital cost allowances; and
  • market and pricing mechanisms.

CAAR is currently working on joint research into some environmental externalities with Marine Harvest Canada in an effort to better understand the true cost/benefit analysis comparing open net cages and closed tank systems. We are also pursuing EFR in the form of improved pollution costs to industry through regulation and the implementation of an investment and innovation fund that would support the development of closed tank technology.