Economic Instruments

• Author: Jamie Benidickson
• Profession: Faculty of Law University of Ottawa
• Pages: 358-378

358

CHA PTER 17

ECONOMIC

INSTRUM ENTS

Economic instruments, another of the more recently prominent ap-

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

the economic incentives currently in place or under consideration are

particularly innovative, even t hough 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 environment ally-adverse

impacts of other policy measures i s of equal sig nif‌icance. 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 mechanism s from an environmental perspective, as well

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

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

dedicated to the environment. The chapter concludes with reference to

insurance and f‌inancial institutions in light of their potenti al to use

economic incentives in the interests of env ironmental protection.

1 OECD, Improving the Environment through Reducing Subsi dies (Paris: OECD,

1998); OECD, Environmentally Harmful Subsidies: Ch allenges for Reform (Paris:

OECD, 2005); OECD, Subsidy Reform and Sustaina ble Development: Economic,

Environmental and Soc ial Aspects (Paris: OECD, 2006).

Economic Instr uments 359

A. SOME BASIC PROS AND CONS

Proponents of economic incentives anticipate that environmentally ap-

propriate b ehaviour can be encouraged if t he env ironmental costs of

various activities are recognized, and then appropriately valued and

allocated. Certain elements of the legal regime c an already be seen

as consistent w ith an economic approach to regulation. For example,

statutory arrangements assigning f‌ina ncial liability for clean-up costs

and other expenses to “persons responsible” for the da mages ex press

the general intention that the burden of compensation for environ-

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

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

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

ers the re sponsibility for remedying contam ination 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 f‌inanci al attraction of disregarding environmental pro-

tection requirement s. Legal implementation of the polluter-pays prin-

ciple is also often assumed to create incentives for preventive measures

and alternative approaches that serve to avoid environmental harm in

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

the following provision from Newfoundland legi slation:

Where pollution occurs and t he person or mun icipal authority that

the minister considers respon sible for the occurrence of the pollution

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

prevent, control, eliminate or amel iorate t he pollution, the minister

may take appropriate action to prevent, control, eliminate or amelior-

ate the pollution and the costs incurred by the minister in taking that

action are a debt due the Crown and ar e recoverable from the person

or municipal authority that the minister considers responsible for the

occurrence of the pollut ion.3

Although there are certain satisfactions in requiring those who pol-

lute to assume the costs of the damage they have caused, prevention is

more attractive. In general, advocates of economic i nstruments expect

not only t hat har m to the environment wil l be less likely when those

benef‌iting from the harmful activity must assume the costs, but that

society’s overall costs of achiev ing a g iven level of environmental pro-

tection will be lower because of a more eff‌icient distribution among

2 Imperial Oil v. Quebec, [2003] 2 S.C.R. 624 at 642.

3 Environment Act, S.N. 1995, c. E-13.1, s. 21.