Chris Ragan on ‘ecofiscal’ policies for Canada

By Chris Chipello

Economics Prof. Christopher Ragan made headlines across the country last month with the launch of Canada’s Ecofiscal Commission, an independent group of 12 policy-savvy economists determined to promote fiscal changes that will benefit both the economy and the environment. The commission’s 14-member advisory board includes prominent figures from across the political spectrum – Paul Martin, Preston Manning and Jean Charest, to name a few – as well as environmental and business leaders. Ragan, who previously served stints as visiting economist at Finance Canada and special advisor to the governor of the Bank of Canada, came up with the idea for the commission and will serve as its chair. He sat down with the Reporter in his Leacock Building office to explain what he hopes it will accomplish over the next few years.

How did you come up with the idea for this ‘commission’?

I wish I could say there was a ‘Eureka!’ moment, but I don’t think there was. The evolution of this idea is really the evolution of my thinking over the past few years. I spent a couple of different stints in Ottawa – at the Bank of Canada and at the Department of Finance – where you get immersed in real-world policy and how it gets developed. I’ve also been thinking about the whole issue of ‘green growth’: combining good economic policy with good environmental policy. Over time, you just start thinking about: ‘Why aren’t we doing as well as we can?’ Many Canadians believe – or have been led to believe – that you cannot have a cleaner environment without giving up economic growth. And I just think that’s wrong.

How do you expect to change that belief?

The idea is to get a whole bunch of economists in the room – excellent economists, but more than that, very policy-savvy economists who have spent a lot of time designing, implementing, and analyzing real-world policies across Canada. If a bunch of economists stand up and say this is good for the economy AND this is good for the environment, wouldn’t people pay attention to that? That was my thinking. And if that were backed up by an advisory board that was from business, and civil society, and across the political spectrum, wouldn’t people kind of believe that? And if all of these people were independent, and non-partisan, and it wasn’t part of a political platform, wouldn’t people believe that? So an important part of the message of the Ecofiscal Commission is the messengers. We’re not connected to any political party. We’re not trying to sell people a bill of goods. We’re just trying to come up with better policy. All of that kind of gelled in my thinking over the past few years.

How did your work in Ottawa, on issues including climate change, feed into your thinking?

I remember giving a going-away speech on my last day there, about the disconnect between academics and policy makers. Academics tend to think about policy issues in a particular way, and government policy makers think about policy in a particular way, and they both bring something very valuable to the table. But they both kind of miss what the other guys have. Bridging that divide, it seems to me, is a really important thing to do. And that’s exactly what this commission is trying to do.

How long have you been working to put this together?

Roughly three and a half years. It was almost exactly a year ago when this went from being hypothetical to being real, because it was November 2013 when I opened up envelopes in this office that had commitments with financing. Then I thought, ‘Holy crap, we’ve got to do this.’ If our requests for funding hadn’t come through, it probably would have died. But at this point five foundations and two corporations have come through and supported us, and so the thing went from being hypothetical to real.

So, no government funding – was that intentional?

Oh, absolutely. Not interested in government funding, and won’t accept it if anybody offers it. Independence is absolutely crucial. I don’t want to be dependent on a government decision for financing. But frankly way more important, I think it’s absolutely crucial for the recommendations to be made by people who are speaking their mind – so that people can say: ‘They’re not tied to a company; they’re not tied to a party; they’re not tied to anything. They are fully independent.’ I think that’s absolutely essential.

How did you enlist this cross-section of participants?

We were looking for prominent, exceptional Canadians from across the country, from across the spectrum, for whom this issue mattered. I’ve been kind of blown away by how enthusiastic both the advisors and the commissioners are. These people are very passionate about this, they’re spending a lot of their mental energy and their time thinking about this project.

How often will the commission be issuing reports?

Our “landscape” report came out in November. It’s the paper that makes the case for ecofiscal reform: what it looks like, the nature of the benefits created, other countries that have used it. Every four months a separate report will come out on a separate issue. At the end of the landscape report we lay out the kinds of issues: water access and pricing, carbon pricing, road-congestion issues, residential waste and landfill, catastrophic risk pricing – a bunch of things. One report, one topic is the plan. The next report will be out in early to mid-March, I’m guessing.

The op-ed you wrote recently with Jean Charest notes air pollutants in Canada’s cities are expected to impose health costs of roughly $230 billion between 2008 and 2031.

This is an amazing number. This is the Canadian Medical Association’s estimate of the health costs from air pollutants. So it’s only air pollutants. It’s not climate change. It’s not water pollutants. It’s not traffic congestion, or residential landfill issues. And it’s only the health costs. It’s $10 billion a year, so serious money. But then you add to that: how about the costs associated with people when they are sick – their lost income and productivity. And then you add in all the other types of pollution and do the same thing… Our environmental damage right now is costing us economically. And the longer you wait, while doing very little, those costs mount.

We’ve been dumping pollution into the environment for a long time, haven’t we?

We treat our environment like a free disposal garburator. And we live in a world where that is permitted by law – not everywhere and always, but there is a large amount of pollution that we simply dump into the air or into the water. Some of this is legislated against, and much of it is not. And it’s hardly a surprise that if people are permitted to treat their environment like a free disposal garburator, that at some point it comes back and bites you – to mix metaphors. And that’s what is happening. So the focus of the Ecofiscal Commission is on our fiscal structures. These are fiscal experts on the commission; they’re not just economic experts more generally.

What exactly do you mean by “ecofiscal” policies?

We’ve kind of created this new word to start a conversation in Canada about these issues. The way we describe ecofiscal policies in our report, there are two halves to it. The first half is: you price pollution into the fiscal system, whether we’re talking about air pollution, or water pollution, or carbon, or driving on congested roads. And as soon as you attach a price to pollution, people have an incentive to avoid it. This really is Economics 101. So there are two effects from the pricing of pollution: Number one, people pollute less, when there’s now a price attached to their garburator; and number two, they have an incentive to try to innovate their way around it. So there’s both an environmental benefit and an economic benefit. And then the second part of ecofiscal policies is just as important: You’ve just now generated some revenues from the pricing of pollution, so let’s now take those revenues and recycle them back into the economy. And let’s do that in a very intelligent way. You can use that money to lower corporate taxes, or lower personal income taxes. You can use that money to give back to the most vulnerable, lowest income families. You can use that money to invest in R&D, or clean tech, or public infrastructure.

The commission sounds like a kind of think tank, but with a limited lifespan.

Yup, I hope so. I’m absolutely committed for this not to be a retirement project. [laughs]. I’m 52. Our horizon is five or six years. There’s a lot to do. But we think we can kind of span the space of ecofiscal issues and reports in five or six years.