Ontario's Environmental Markets: Creating Price Signals to Protect Our Natural Environment

The aim of this report is to explore how environmental markets can be employed as a way to maintain and improve environmental quality and limit pollution as Southern Ontario’s population and economy grow. By creating an explicit value where none currently exists, they can help incentivize Southern Ontario’s businesses, farmers and other landowners, and citizens to protect Ontario’s air, water, and biodiversity.

This report first defines environmental markets; it then explores their use in Ontario by considering them in three environmental areas: air and carbon, water, and biodiversity. Further details on each market are available in the Appendix. It is important to note, however, that not all environmental markets fit under a single area. Some of the identified markets place a value on goods and services that provide benefits in more than one environmental area and it is therefore appropriate to classify these under a distinct fourth area entitled multiple ecosystem services. To avoid repetition, this report does not analyse multiple ecosystem services markets under a separate section. However, these markets are listed separately in the environmental markets table on page 9 and on the Methods Appendix.

Each section in the report includes a Focus Area where a particular type of environmental market is explored more closely. The Focus Area provides an in-depth analysis of the type of market, describing how it works, and discussing its effectiveness and limitations. The focus areas were chosen for their potential to offer important lessons learned and/or their potential to be used more often. Other specific environmental markets of particular interest are detailed in Featured Market sub-sections. Each section concludes with a Going Forward segment that outlines recommended steps to increase the use of these environmental markets.

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About the Project

The goal of this project is to shed light on the relationship between economic activity and the environment by exploring the linkages between changes in our natural capital and our measures of productivity generally, and through the construction of an environmentally adjusted measure of productivity specifically.

While it is now commonly accepted that economic activity and the state of our environment are linked, many economic measures still fail to incorporate the environment – both the things we draw from it and the pollution we release into it. By developing and calculating measures of productivity that include natural capital, Canada may be able to better understand these linkages. This, in turn, may lead to the identification of strategies that can help Canada become more efficient and innovative in the use and protection of natural capital, and thus more productive and more prosperous.

Using the forestry sector as a case study, this project aims to construct an environmentally adjusted measure of multifactor productivity. In doing so, we aim to add another layer of understanding to the environmental and economic performance of this sector. The proposed measure will have relevance to the Canadian economy as a whole.