August 22, 2017 CEEC

Why Policy is Relevant in Discussing Sustainability

June 1st, 2017. This was the day that Donald Trump reopened a crossroads in the dialogue of climate change and public policy. In attempting to put “American jobs and American consumers first” Trump chose to back out of one of the largest, most unanimous agreements on climate change to date.

For reference, companies such as Apple, Walmart, Exxon Mobil, and Shell implored the president to abide by the deal of COP21. The only two other countries that did not sign the agreement was Syria (raged by civil war), and Nicaragua (who believed it didn’t go far enough). By withdrawing I believe the US has now embarked on an experiment for the ages, unintentionally. Can the US keep pace with the rest of the world in carbon reductions through the private sector and local governments without federal goals and policy shifts? In short answer, I think the answer is yes simply due to economic drivers and local governments stepping up, yet this does not mean they face a larger uphill battle.

Prior to this past summer I believed that policy changes are a slow moving lethargic process that are reactionary to market fluctuations in the private sector. In analyzing potential solutions to a two-degree warming on this planet, I saw only the importance of scaling present technologies through the private sector. I spent the summer interning with the Pembina Institute, an environmental think tank that is working to solve today’s energy challenges with evidence-based decision making and innovative solutions. I came to understand that public policy provides the regulatory and institutional frameworks that influence the actions of all actors, including private investors and consumers. Listed below are four ways that government involvement and policy changes are both necessary and beneficial:

  1. Articulating national strategies for sustainable development.

    There is a need for a broader articulation of strategies on the direction of plans to address policy and market failures and other constraints to sustainable development. Only strategic frameworks will ensure coherence across public policy actions and provide the confidence to the private sector to do its part. In other words, by declaring targets and strategies, governments will adjust their policies accordingly to promote both public and private investments into sustainable infrastructure. For example, Canada has promised an investment of $21.9 billion in green infrastructure in 2017 [1] in comparison to 2010 where they included “measures to encourage investments in clean energy generation” [2]. Billions of dollars are being placed into funds and are up for grabs for organizations and businesses that can provide and implement innovative green solutions.

  2. Addressing price distortions in the market place.

    Correcting distortions in the pricing of natural resources, infrastructure, and carbon is essential to improving the policy environment for sustainable development. The largest distortions are fossil fuel subsidies and the lack of carbon pricing; which strongly bias investment toward carbon intensive sources of energy and undermine efficiency in energy use. The IMF recently estimated that the total cost of fossil fuel subsidies is of the order of $5.3 trillion a year, or 6.5 percent of world GDP. [1] Canada gives out about $3.3 billion a year in subsidies for oil and gas providers. [3] Currently less than 15 percent of global carbon emissions are covered by a price, using a mix of instruments such as carbon taxes, fees, and cap-and-trade plans. [2] By removing fossil fuel subsidies and taxing carbon emissions it will not only correct incentive distortions, but mobilize fiscal resources to support sustainable development. Carbon taxes can be designed to be revenue-neutral, or countries could opt to raise more revenue from carbon taxes and less from taxes that negatively impact economic performance such as taxes on capital and labor.

  3. Improving the enabling environment.

    There is a need to strengthen investment planning and project preparation to build and implement a stronger pipeline of investment-worthy projects. A new challenge is to develop capacity and practice to incorporate climate risks and sustainability criteria systematically into all investment plans. Secondly, countries need to improve the regulatory and institutional frameworks for private participation in sustainable development. Risks and transaction costs related to public policy are major roadblocks to private investment. Together with the reform of carbon pricing, more transparent frameworks for public-private partnership negotiations, the consistent use of climate risk, and actions to improve the ease of doing business would facilitate greater private engagement in scaling sustainable infrastructure.

  4. Mobilizing sustainable financing.

    Increasing annual investment in sustainable development and infrastructure will present a major financing challenge. It will require the mobilization of both public and private finance. Due to constraints on the public-sector budget, much of this will come from the private sector. However, as local entities take on increasing roles as investors in sustainable infrastructure mechanisms for decentralized financing will become more important. This can be seen in the Pan-Canadian Framework as the federal government is returning all revenue from carbon pricing back to the provincial level to be reinvested. Low-carbon, sustainable investments in many cases can require higher upfront costs with large downstream benefits. Innovations in financial instruments aimed at promoting sustainability will need to be encouraged, such as green bonds.

There is an inherent bias to any conversation surrounding climate change. Being born in Alberta, later being educated in Ontario, and interning in BC I like to believe I see both sides, yet this is a daunting task. I simply implore anyone reading this to research what their local, provincial, and federal governments are up to. In Canada, there are major developments being pushed through the legislature that open opportunities for sustainable development and for all of us. We have already pushed past seeing climate change and sustainability as simply a social cause but also an economic driver. Until everyone understands this it will be up to our governments to promote this through better policies. It’s easy to become cynical and proclaim that these “2030 goals” are simply place holders the government never intends to meet. While there is truth in this, without these targets and strategies it’s like running a race without knowing where the track is. Canada now has an opportunity to be a climate leader through superior policy.