Canada West Foundation Blog

By: Shawna Stirrett

Using market-based instruments (MBIs) for environmental protection is a potentially exciting way to manage the tension that sometimes arises between economic and environmental goals. MBIs apply the economic principles of supply and demand to the management of natural resources and they rely on the market to positively influence behaviour.

There are many different kinds of MBIs and some of them, such as deposit refund programs for drinking containers, have a long history in Canada. Other types of MBIs, such as transfer of development credits and resource allocation trading, have had limited uptake in Canada so far.

There is, however, the chance that MBIs will be used more frequently in Alberta in the coming years because of some recent policy changes that have come about with the passing of the Alberta Land Stewardship Act (ALSA) in 2009. This Act explicitly enables the use of market-based instruments for the protection of natural resources in Alberta.

While the theory behind MBIs is solid, the challenge is in the details. It is imperative that market-based solutions are clearly addressing an environmental problem, that they are understandable and accessible to the public, and that they operate within clear regulatory boundaries.

An illustration of how challenging it can be to find the right balance is found in Alberta’s home rebate program for energy efficient new homes. The idea behind this rebate is to incent homebuilders or homebuyers to choose products and designs that will be as energy efficient as possible. This means that if you buy a new home with an EnerGuide rating of 80 or above you will receive a government rebate that ranges from $1,500 - $10,000 on a sliding scale tied to efficiency ratings.

This is a fantastic program in theory because the more that can be done to encourage home owners to reduce their energy consumption the less greenhouse gas will be emitted, the less need there will be for new power generating stations and fewer building materials will end up in the landfills. According to C3 (the organization that administers the rebate program): “Upgrading the energy efficiency of a new home could reduce its greenhouse gas emissions by upwards of one tonne per year.”

The devil, of course, is in the details. The first challenge is that most builders do not know, or do not advertise, the energy rating of the homes they build. If a new buyer wants to find out the rating of their home, they will have to go through a pre-evaluation process. This means sending building site plans with elevations, sections and floor plans; specifications on insulation, doors and windows; mechanical details on the furnace, hot water heater, fireplace and other efficiencies; and information about appliances and lighting systems for assessment.

Not only is this a lot of work, but it will cost homeowners around $300 (if their new house is 1,200 square feet or less, additional footage is charged extra) to have this pre-evaluation done, which will tell them if they might be eligible for the rebate. The fee is non-refundable. There may also be additional charges if the house has solar or geothermal systems attached.

Should they decide to go ahead with getting their house EnerGuide rated, homeowners then have to get a blower door test done—at a cost of $175 for the first hour and $120 for every subsequent hour, and potentially including mileage for the Energy Advisor.

Finally, it is an additional $100 to update the file with the blower door test information, submit the claim to Natural Resources Canada and get the EnerGuide label and report.

A conservative estimate, then, is that a homeowner would need to spend around $600 in order to apply for the rebate that is offered. This is worth it if the house will be rated at the highest level, giving them a rebate of $10,000 or if there is certainty that the house will qualify for a rebate. But what about those who come in at the lowest level eligible for the rebate? They will have spent $600 (not to mention what they will have already spent on high efficiency furnaces, windows, insulation, etc.) in order to get back $1,500. What about those who invest in the pre-evaluation only to find out they are ineligible?

Because of the effort and the amount of money required to get this rebate, this program will have the greatest appeal for those who already care about the efficiency rating of their home and will have designed their home with efficiency measures in mind. In other words, this rebate as currently designed is aimed largely at people who would have made their homes as efficient as possible already and are not motivated by the promise of money back.

The argument could be made, therefore, that the rebate program is not incenting people to buy or build energy efficient homes, merely rewarding those who do.

So what can be done about this? It’s not as though the assessment process can be scaled back. There needs to be certainty that rebate-receiving houses really are as efficient as they say they are otherwise taxpayer money will be thrown away and no environmental benefit will result.

One potential solution is increased system integration around this issue. Would it be possible, for example, to require homebuilders to assess and disclose the EnerGuide rating of their homes, much like auto manufacturers are required to disclose the fuel economy of their vehicles? This would enable consumers to quantify the efficiency levels of new homes and this information, in addition to the rebate program, could lead to preferential selection of homes with higher efficiency ratings. In this way, builders would acquire greater experience and expertise in efficiency measures, one of the main barriers to consumers (the cost and the time of finding out the rating of their new home) would be reduced and substantial improvements could be made in Alberta’s environmental performance.

As this example demonstrates, the idea behind MBIs is good and they have the potential to enable environmental protection in an economically sustainable way. Getting the details of a market-based instrument right, however, is imperative if the tool is going to be effective at solving environmental problems and motivating people to change behaviour.

A detailed look at the role of market-based instruments within the Alberta context is covered in a forthcoming Canada West Foundation report entitled: “The Invisible Hand’s Green Thumb: Market-Based Instruments for Environmental Protection in Alberta.”

By: Robert Roach, VP, Research

While the recession has affected countries throughout the globe in the past few years, Canada’s economy has done reasonably well. Yet, things are not all that they seem. Like a frog in a pot of warm water, Canadians have not yet realized the danger. A rapidly changing global economy is heating up the water in the pot.

The Boiling Frog Dilemma: Saving Canada from Economic Decline by Todd Hirsch, Senior Economist, ATB Financial and Robert Roach, Vice President of Research, Canada West Foundation, outlines ways that Canadians can get out of the pot before the water boils—and not only survive, but thrive, in the global race for good jobs.

Canadians need to become much more creative and this means a revolution in education and how creativity is harnessed in the workplace. Canadians need to embrace risk and stop lamenting the good old days when more things were made in Canada. They need to see the potential in lodging themselves at the top of the global value chain as the world’s designers, managers, educators, investors and creators. Canadians need to integrate their business practices with environmental stewardship, see the world as their oyster rather than a threat, and be much better neighbours to one another at home.

It is individual Canadians who need to change their own attitudes and habits. Governments can’t do it for them. The Boiling Frog Dilemma envisions new Canadian entrepreneurs who will move Canada from being largely invisible to totally indispensible in the global economy of the 21st century. The new entrepreneur puts into action the argument that nothing generates economic wealth except the power of ideas.

Read Rob and Todd’s op-ed in the Calgary Herald “People, not tax credits, will power the economy.”

To order The Boiling Frog Dilemma: Saving Canada from Economic Decline, visit www.toddhirsch.com

By: Robert Roach, VP, Research

In an article in today’s Globe and Mail, John Ibbitson argues that "One question will define national politics in our time: Are Western Canadians prepared to sacrifice for the sake of the nation, now that Ontario is less able to help?"

In addition to incorrectly implying that western Canadians chipping in to help the rest of the country is a new phenomenon, the question is the wrong one to ask.

The question Canadians should be focused on is how to ensure that the nation successfully adjusts to the evolving global economy. It is a mistake to start with a negative question that assumes the need for "sacrifice"—whatever that means—or puts pressure on the nation’s fault lines by immediately assuming that regional wealth redistribution is the solution to central Canada’s problems. This is the old way of thinking and this is not the time to bring it back.

The West knows what it is like to have its interests and economic prospects ignored and how damaging this is to the country and its potential. It will not, therefore, make the same mistake that central Canada has made in the past and be blithe to the blight of the other regions.

The West gets it—all regions benefit when all regions are heard and respected. The West will do its part, as it always has.

Ensuring Canada’s prosperity will happen naturally as the western economy continues to provide jobs and returns on investment. It will also happen at the political level through the equalization program, a strong tax base in the West that helps fill the national treasury, and by ongoing efforts by Canadians to ensure strong regional representation within the national government.

Ultimately, however, the economic recovery of Canada's industrial heartland will depend on the efforts of individual Canadians and their ability to harness the changes happening at a global level.

By: Shawna Stirrett

In November 2011 the Canada West Foundation in partnership with the National Round Table on the Environment and the Economy (NRT) conducted a series of roundtables about developing a low-carbon growth strategy for Canada with particular emphasis on the opportunities and risks facing the West.

You can read all about the main themes, policy recommendations, and overview issues in the report (click here to view) but, just for fun, here is a visual overview of the roundtables:

These word clouds were created from my notes, which were typed up during each of the sessions. Words that appeared more often in the conversation appear larger in the clouds and words that were less common are smaller. In a sense, these clouds give a visual overview of what ideas were most prevalent during the roundtables and which topic generated the most interest.

What is really fun is to see how the conversations—which were all structured around the same questions—varied from province to province.

For example, in Saskatoon, one of the main themes was on how to deal with carbon constraints in an environment of economic growth.

Those in Vancouver were most concerned about how carbon should be constrained, should it be a tax or cap and trade?

Calgary roundtable participants were pretty set on the need for a national framework around energy and emissions.

While in Winnipeg the discussion centered on how challenging it can be to put in place carbon policies when power is so cheap and emissions rates are so low in the province.

Of course these word clouds do not tell the whole story, but they do provide an interesting visual overview of what issues were important to roundtable participants and how the conversation varied across the region.

Click here to download a copy of Cautious Optimism: Western Perspectives on a Low-Carbon Economy.