Pricing Works: How pricing of municipal services and infrastructure can lead to healthier and more efficient cities

Written by Sustainable Prosperity & released through the Metcalf Foundation Green Prosperity Papers

Ontarians benefit enormously from our natural environment. Healthy ecosystems provide us with many environmental goods (clean air, clean water, and timber) and environmental services (floodwater absorption, climate moderation, and pleasant scenery). However, growing cities, industries, farms, and other economic activities are eroding our natural environment’s ability to provide these critical environmental goods and services. These economic activities impose environmental costs on our society that are not factored into the prices we see in markets.

Municipal policy-makers have tools at their disposal to change prices in ways that help to reflect these environmental costs. These market-based policies — like environmental fees, taxes, or market-based instruments— use prices to provide an incentive to minimize environmental harm and to conserve environmental goods and services. At the same time, these policies have the benefit of creating revenue streams for municipalities and encouraging innovation on the part of those paying the fees.

Unfortunately, Canada makes less use of these environmental pricing tools than almost any other OECD country. In this paper, we look at the opportunities to make greater use of these price-based policy tools, particularly at the local level, to help address environmental problems and provide revenue that municipalities need to support their budgetary and environmental objectives.

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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.