Understanding Eco-Fiscal Policy

Canada’s ambitious commitments made during the COP 21 Paris, UN Convention on Climate Change to reduce emissions, have increased the relevance and applicability of Ecofiscal policy. To have meaningful conversations on Ecofiscal policy we first need to understand what it means and why it matters for setting objectives, monitoring, and reporting on progress. The Ecosystem Services and Biodiversity Network have reached out to an expert, Dr. Ken Nicol, to build an understanding of Ecofiscal policy, and create some awareness of the importance to ecosystem services.

What is an Ecofiscal Policy?

Ecofiscal policies correct market price signals to encourage the economic activities we do want (job creation, investment and innovation) while reducing those we don’t want (greenhouse gas emissions, pollution, loss of habitat for wildlife). Ecofiscal policy can be applied to ecosystem degradation, emissions control and also to maintain biodiversity and take action on species loss.

How are Ecofiscal policies applied?

Ecofiscal policy incorporates the ecosystem (or environment) in government economic policy. Legislation needed to apply Ecofiscal policy puts a cost on ecosystem degradation rather than using the current fiscal policies of taxing income or assets to “clean-up” the degradation.  Ecofiscal instruments (or market-based instruments) are used by government, such as tax revenue, cap and trade systems and user fees, to incorporate ecosystem degradation into the decisions of resource users.

It is not effective to implement Ecofiscal policy without some means to monitor and measure its success. Monitoring of ecosystem health allows policy makers and the general public to determine if the condition of the ecosystem is static or changing and if that change is desirable or not. 

Why should we care about Ecofiscal policies?

When implemented, Ecofiscal policy encourages innovation and entrepreneurship as business strive to develop new technologies and processes that give them an ability to reduce emissions thus reducing their pollution tax burden. The instruments, depending on the system used, or the combination, allow for the tailoring of the policy to more effectively target polluters and or users of the resources, and can create certainty around pricing of resource use and degradations. Investment and innovation resulting from the development and adoption of Ecofiscal policy creates competitive opportunities for the economy as products are more widely accepted in the marketplace.

Read more on Eco-fiscal Policy and Market Based Instrumetns in our ES Toolkit

Dr. Ken Nicol is retired after a 21 year career in the Faculty of Management at the University of Lethbridge.  He also served as MLA for Lethbridge-East from 1993 to 2004, and during his final three years was leader of the Alberta Liberal Party.  In 2006, he was asked by Premier Stelmach to chair an institute with the mandate of finding opportunities for Alberta to use market-based tools and policy instruments that would improve business innovation and enhance the provision of ecosystem series in Alberta.