Commentary: The Cost of 'Green' Budgets

By Developing Ideas staff

What do government finance officials do when they're not plotting cutbacks?

Increasingly and somewhat surprisingly, they talk about 'greening' their budgets - changing taxes and subsidies, charges and re-allocation schemes to protect rather than erode the environment. In Canada, for example, fuel taxes in Ontario and permanent crop cover subsidies in the Prairies are just two of a growing number of green budget initiatives receiving wide acclaim.

A once-arcane field dominated by Organization for Economic Cooperation and Development experts with a weakness for economic jargon is suddenly the darling of development circles. It is de rigeur these days for World Bank publications and UN conferences to promote green budget ideas like 'economic instruments'. Not surprisingly, Canadian Finance Minister Paul Martin and Environment Minister Sheila Copps got into the act in 1994 by creating a federal task force on the subject.

Such talk is welcome. But when will it be reflected in national budgets? More to the point, is green budget reform compatible with the cost-cutting mood of many governments worldwide?

Many people still believe that when environmental and economic development issues clash, resolving them will be costly. But as links between the environment and the economy become better understood, the view is proving increasingly naïve.

Flawed reasoning suggests that either industry will have to incur high cleanup costs and lose a competitive edge, or government will have to dish out funds and add to the deficit or impose higher taxes and slow economic growth.

A clear-headed examination of experiences in Canada and other western industrialized countries shows the economy, deficit and environment can all benefit from green budget reforms. All it takes is a little imagination.

Take, for instance, a recent study of 23 cases of reform in eight countries by a team from the International Institute for Sustainable Development in Winnipeg.

Starting in the late seventies, California and Denmark looked at energy pollution as an economic opportunity to pursue, rather than a problem to control. Today California leads the world in solar, wind, geothermal, biomass and other renewable electricity generation. Denmark towers above the rest of Europe in wind power generation.

The Californian and Danish successes are due largely to government subsidies for renewable electricity production. Calculations suggest these will be offset by new corporate tax revenues from this growing sector.

But a government intent on reducing the deficit today can go one better. Forget new subsidies and taxes that may leave taxpayers or industry holding the bag. Redistributing environmental charges within sectors is fast proving the most popular solution internationally.

For example, Germany promotes 'clean' gasoline by charging users of leaded gasoline and redirecting these flows to unleaded users. Saskatchewan runs a deposit-refund scheme on beverage containers that also manages to be one of Canada's largest employers of physically disabled people. Sweden reduces emissions of nitrogen oxide (an atmosphere- warming gas) by requiring its dirtiest energy producing firms to compensate cleaner producers. The UK transfers disposal cost savings from recycling to people responsible for collecting waste.

Such 'budget-neutral instruments' redistribute funds from poor environmental performers to superior ones. They create a dynamic within industries or economies to improve general standards of environmental performance without forcing everyone to comply with sometimes loathesome regulations.

In the spirit of cutting all unnecessary costs - to government, industry and the environment - can governments afford not to green their budgets in 1995 and beyond?

An adaptation of this article first appeared in The Ottawa Citizen on February 2, 1995.

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