Economic Instruments

• Author: Jamie Benidickson
• Pages: 367-387

367

CHAPTER 17

ECONOMIC

INSTRUMENTS

Economic instruments, another of the more recently prominent ap-

proaches to environmental protection, take a va riety of forms. Not all of

the economic incentives currently in place or under consideration are

particularly innovative, even though efforts to appreciate the environ-

mental implications of their operation have intensif‌ied in recent years.

Nor is the focus entirely on initiatives that are explicitly directed at

improving environmental conditions, for the environmentally-adverse

impacts of other policy measures is of equal signif‌icance. A simple ex-

ample is subsidies to the agriculture, energy, transportation, and in-

dustrial sectors which have encouraged waste, pollution, and excessive

natural resource consumption.1 Although this is an important matter,

it will not receive much attention here.

After discussing the general attractions of economic instruments

and market mechanisms from an environmental perspective, as well

as noting some of the reservations that are expressed about them, this

chapter describes non-tax instruments, tax incentives, and public

funds dedicated to the environment. The chapter concludes with refer-

ence to insurance and f‌ina ncial institutions in light of their potential to

use economic incentives in the interests of environmental protection.

1 Improving the Environment through Reduc ing Subsidies (Paris: OECD, 1998);

Environmentally Harmf ul Subsidies: Challenges for Reform (Par is: OECD, 2005);

Subsidy Reform a nd Sustainable Development : Economic, Environmental and Social

Aspects (Paris: OECD, 2006).

ENVIRONMENTAL L AW

368

A. SOME BASIC PROS AND CONS

Proponents of economic incentives anticipate that environmentally ap-

propriate behaviour can be encouraged if the environmental costs of

various activities are recognized, and then appropriately valued and

allocated. Certain elements of the legal regime can already be seen

as consistent with an economic approach to regulation. For example,

statutory arrangements assigning f‌inancial liability for cleanup costs

and other expenses to “persons responsible” for the damages express

the general intention that the burden of compensation for environ-

mental losses should be borne by those who stand to benef‌it from the

activity that resulted in the damage. As the Supreme Court of Canada

remarked in Imperial Oil, the polluter-pays principle “assigns pollut-

ers the responsibility for remedying contamination for which they are

responsible and imposes on them the direct and immediate costs of

pollution.”2 In this regard, prof‌it-stripping provisions are expected to

eliminate the f‌inancial attraction of disregarding environmental pro-

tection requirements. Legal implementation of the polluter-pays prin-

ciple is also often assumed to cre ate incentives for preventive measures

and alternative approaches that serve to avoid environmental harm in

the f‌irst place. Such an observation might be made in connection with

the following provision from Newfoundland legislation:

Where pollution occurs and the person or municipal authority that

the minister c onsiders responsible for the occurr ence of the pollution

fails to do the things that the minister considers are appropriate to

prevent, control, eliminate or ameliorate the pollution, the minister

may take appropriate act ion to prevent, control, eliminate or amelior-

ate the pollution and the cost s incurred by the minist er in taking that

action are a debt due the Crown and a re recoverable from the person

or municipal authority that the minister considers responsible for

the occurrence of the pollution.3

Principles that di rect the court to consider both use values and non-use

values as aspects of environmental damage that serve as “aggravating

factors” in the context of sentencing also underscore economic conse-

quences.4

2 Imperial Oil v Q uebec, [2003] 2 SCR 624 at 642.

3 Environment Act, SN 1995, c E-13.1, s 21. Now see Environmental Protection Act,

SNL 2002, c E-14.2.

4 Canadian Environme ntal Protection Act, 1999, SC 1999, c 33, s 287.1 [CEPA 1999].