Fiscally Responsible Environmentalist

Last week I was at a presentation about Ontario politics sponsored by Toronto’s Empire Club. In the meet-and-greet, someone asked me to describe myself politically. Thinking about the letter by Canadian economists supporting the carbon tax that had been released that day, the self-description that popped into my head was “fiscally responsible environmentalist.” Their response was to suggest that it wouldn’t be easy for me to find a political home. In this post I’ll explain what it means to be a fiscally responsible environmentalist, why that set of policy choices seems to be eclipsed at present, and why those issues may become more salient in the future.

As an aside, the panelists were three well-known insiders: Conservative Kory Teneycke, Liberal Genevieve Tomney, and NDP-er Brad Lavigne. They are knowledgeable and thoughtful; the discussion was recorded and definitely worth a listen.

The Welfare of Future Generations

As a senior, the state of the world my generation leaves future generations is becoming increasingly important to me. Climate change is now having some noticeable impacts, such as more frequent extreme weather events, erosion of coastlines, island nations on the verge of disappearance, and the melting of glaciers. And, if we don’t reduce our carbon emissions, the future will be much grimmer.

Fiscal responsibility refers to the sustainability of public debt. Future generations will have to pay the interest on the debt that governments issue today. More broadly, they will have to solve the problem of how to maintain economic growth at a faster rate than the rate of interest on the debt so that it can become a decreasing proportion of GDP, hence becoming more manageable. Though Canadian governments borrow internationally, the fact that the Canadian dollar isn’t a global reserve currency puts a limit on how much more Canada the rest of the world wants. Decades ago, I had an inside look at an episode when the capital markets didn’t want any more Canada. During the runup to the 1995 Quebec referendum on sovereignty the Ontario Government was trying to float $1 billion in long-term bonds (then considered a lot of money) for the construction of Highway 407. I was on the board of the Crown corporation responsible for the project and the capital markets made it very clear to us that they were unwilling to make any new long-term loans to the Government of Ontario until the political instability was resolved.

The Trudeau and Ford Government Records

The Trudeau Government’s record on climate change has been reasonably good in terms of its imposition of the carbon tax on provinces that do not put in place an adequate emissions reduction program and its willingness to continue increasing the tax until Canada has achieved net-zero emissions. The politically motivated exemption for heating oil in Atlantic Canada was clearly a mistake because it has stimulated the wave of opposition to the tax by Conservative premiers.

The Trudeau Government’s record on public debt is a different story. Trudeau quickly broke his 2015 promise to return to a balanced budget, showing that fiscal prudence was not in his DNA. The justifiable deficits for the pandemic followed by the reliance on the NDP for political support have set his government on a course of deficits and growing debt for the foreseeable future.

The Ford Government’s approach to climate change is hypocritical as it is quite willing to subsidize Ontario firms to build electric vehicles to be sold elsewhere, while opposing initiatives such as the carbon tax to induce Ontarians to reduce our own carbon emissions. Beyond that, its key policy priority is now affordability, which leads to initiatives to reduce prices of goods produced or influenced by the government. This is the justification for its opposition to the carbon tax as well as a host of measures that reduce government revenue and increase the deficit, as I discussed in regard to last week’s budget.

From Affordability to Sustainability

The current climate of opinion, with the salience of affordability from the standpoint of citizens as consumers, is not very supportive of initiatives to deal with problems that will get worse in the future, such as climate change and public debt. The focus on affordability is a classic case of short-term gain for long-term pain.

But priorities do change. If inflation continues to decline and returns to rates that are within people’s expectations, affordability will start to sound like yesterday’s news. On the other hand, Canada’s burden of public debt will start to attract the attention of global capital markets, and not in a good way. These changes would set the stage for a return of sustainability, both environmental and fiscal, to the top of the public policy agenda. So, in response to my interlocutor last week, my stance as a fiscally responsibility environmentalist may regain respectability, and I might even find a political home again. But I will not venture to guess which party at either the federal or Ontario levels will provide that home.

Forthcoming Posts this Month

In April I will be taking some personal time. Next week I will be going to Niagara Falls to see the solar eclipse, as I discussed in a recent post. I will write about the experience next week. For much of the rest of the month I will be in Istanbul, where my son Nathaniel is studying on an exchange program with the University of Toronto. So look for my post about my trip in late April or early May.

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