Reflections on Environmental Policy in Canada 3

Reﬂections on Environmental Policy in Canada

Wiktor Adamowicz

Presidential Address to the Canadian Agricultural Economics Society, Professor and Canada Research Chair, Department of Rural Economy, University of Alberta, Edmonton, Alberta, Canada, T6G 2H1 (phone: 780-492-4603; fax: 780-492-0268; e-mail: [email protected]).

INTRODUCTION In his presidential address, Weersink (2006) identified four types of addresses: a summary of research activity, an analysis of changes in industry structure, a discussion of new social or economic issues facing the profession, or an examination of the services the professional societies like the Canadian Agricultural Economics Society (CAES) provides to the profession. This presidential address will not be any one of these, but it may touch on some aspects of at least two or three of these typical topics. The issue I examine is not directly my area of research nor is it a topic directly associated with services of the CAES. However, it is a topic that is fertile ground for research and it is something that I hope that the members of CAES consider as part of the service that our society can provide to policymakers and the public. The topic I will investigate is whether Canadian natural resource and environmental policy requires a reframing toward increased use of market-based instruments and economic methods to aid in decision making. My interest in this topic stems from several readings and occurrences. First and fore- most, a recent OECD environmental performance report for Canada strongly criticized Canadian environmental policy for not employing market-based mechanisms and for not using economic analysis in policy decision making (OECD 2004). For example, the OECD report on Canada states: While cost-benefit analysis is becoming more common in policy discussions [in Canada], it has rarely been a basis for policy decisions. Implementation of eco-efficiency is also con- strained by inappropriate market signals; to provide incentives for eco-efficient projects, instruments such as energy taxes and water charges are required (OECD 2004, p. 97). and Market based instruments are insufficiently used to foster integration of environmental concerns into sectoral policies; too much emphasis is given to soft instruments like voluntary guidelines or partnerships (OECD 2004, p. 97).

The OECD report is full of examples where Canadian environmental and resource policy is lacking and where the use of economic instruments and economic analysis would benefit policy.1 The list includes air quality regulation, water quality regulation, water pricing, conservation of biodiversity, energy conservation, and carbon management. Many Canadian environmental and resource economists (including me!) have wondered about the reasons for the lack of uptake of economic instruments, water prices, benefit cost analysis, and related economic approaches to natural resource and environmental management. In this paper, I attempt to assess the following questions: Is the OECD

Canadian Journal of Agricultural Economics 55 (2007) 1–13 1 2 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS critique warranted? If the critique is warranted, why is Canada lagging in the application of economic methods to environmental policy? What can the applied economics community, notably the CAES, do to alleviate this lack of application of economic methods to environmental and resource policy? And finally, is there evidence that the tide is turning regarding the use of economics in resource and environmental policy?

Is the OECD Critique Warranted? In general I believe the answer to this question is “yes.” Evidence can be captured from various sources. Beginning with water resources, the longstanding concern over the lack of water pricing or trading associated with water quantity scarcity, discussed by Adamowicz and Horbulyk (1996) and Weersink and Livernois (1996), continues today (see Horbulyk 2005; Renzetti 2005a). Water pricing and/or rights trading has seen limited use even though legal and policy frameworks to allow such mechanisms exist in several jurisdictions. Renzetti (2005b) describes the low prices that agricultural users pay for water, ranging from essentially free to small amounts per cubic meter. This lack of incentives for conservation exists even in this sector that accounts for 71% of consumptive use, for example, in Alberta, where irrigation is centered (Government of Alberta 2002). On the water quality side there is also limited use of economic instruments. While other countries have implemented fees, taxes and in some cases water quality trading schemes (e.g., total maximum daily load trading scheme in the United States—http://www.epa.gov/ owow/watershed/trading/finalpolicy2003.html) Canada still largely relies on command and control, voluntary, or best management practices for water quality policy (Renzetti 2005a). In the area of air quality Canada has also lagged behind other jurisdictions in its use of market-based instruments. While there has been considerable discussion of the merits of market-based instruments for various air emissions, there has been limited experimentation with such programs. Air quality continues to be a concern, especially in areas of Eastern Canada with SOx, ground level ozone and particulates generating an increasing number of air quality warnings (OECD 2004). A recent Energy Information Administration report in the United States reported that air toxic emissions in Canada grew by 7% over the time period 1998–2000 while they decreased in the United States by 8% (http://www.eia.doe.gov/emeu/cabs/canenv.html). In the development of strategies to address climate change there was extensive discussion of market-based systems for carbon emissions management, but it is unclear whether these programs will be implemented (Tradable Permits Working Group 2000). In general Canada has relied on command and control policies while other industrialized countries, notably the United States with examples like the market for SO2 emissions, have moved toward market-based approaches. The OECD also reports that Canada collects a small amount of environmentally related taxes relative to other OECD countries (Figure 1). In land use management few economic instrument programs are in use relative to our U.S. neighbors. In the United States Transferable Development Right programs are being used to protect various public goods values including environmental values, scenery, and cultural aspects of land (American Farmland Trust 2001). In Canada few programs of this type have been implemented. There is little or no use of economic mechanisms for conservation on forest land as these lands are typically public and conservation programs are incorporated in use agreements (such as forest management agreements) in a command and control fashion. REFLECTIONS ON ENVIRONMENTAL POLICY IN CANADA 3

Figure 1. Revenues from environmentally related taxes. Source: OECD 2005, p. 287

The OECD also criticized Canada’s lack of use of benefit cost analysis and similar economic assessment tools used for the development of environmental policy. While the use of some form of benefit cost analysis is called for in federal policy documents (e.g., The Government of Canada Regulatory Policy 1999, Privy Council Office), there are relatively few recent examples of rigorous benefit cost analysis for major environmental policy issues in Canada. While there have been exceptions, including the use of benefit cost analysis in the development of particulate matter and ozone guidelines (Canada Wide Standards) there is relatively little use of such mechanisms in the environmental arena. A final area in which Canada seems lacking is the use of economic methods for the determination of compensation for environmental damages. The U.S. system for natural resource damage assessment (NRDA) that includes monetary or in-kind compensation for damages has not been implemented in Canada to any significant degree. In that system responsible parties are required to pay compensation for natural resource damages into a public fund that is then used for environmental improvement projects (see e.g., Kopp and Smith 1989). While the compensation payments form the basis for such a policy it is the deterrent value associated with the potential for compensation that is as important as the mechanism for compensation itself.

Why is Canada Lagging in the Use of Economic Methods for Environmental Management? Opinions are varied about why Canada seems to be reluctant to employ economic instruments or embrace economic analysis methods. One view is that environmental scarcity 4 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS is not a significant issue in Canada—we are blessed with abundant water, air, wildlife, and related resources and thus do not need to implement costly environmental policies. This view is not supported by the data. Water resources are scarce in several parts of the country (Renzetti 2005a). Air quality, especially in eastern Canada, is of significant concern as particulate matter and ozone levels continue to frequently exceed acceptable levels. A Government of Ontario report on air quality states that fine particulate matter guidelines were exceeded at every monitoring station in the province except Thunder Bay (http://www.ene.gov.on.ca/envision/techdocs/5383e.pdf). Thirteen cities in Ontario, including Toronto, exceeded the fine particulate guidelines for the year 2004 (http://www.ene.gov.on.ca/envision/techdocs/5383e.pdf). The number of endangered species as a percentage of known species is relatively large compared to other OECD countries (Figure 2). All of these pieces of information suggest that many environmental resources are scarce in Canada. Reasons for the lack of use of economic measures for conservation must lie elsewhere. Copeland (1998) suggests that Canada’s environmental policy has suffered from the lack of an integrated vision for sustainable development and from a lack of commitment to environmental goals. Regarding the latter he states that a focus on short-term political goals rather than longer term economic goals has resulted in standards without much enforcement or penalty, as well as a conflict between employment and environmental goals. He suggests that institutional change that supports stronger commitments to environmental objectives is required. This provides some insight into why voluntary agreements and command and control devices dominate Canadian policy, but it is still unclear why Canadian outcomes differ from other OECD countries that also face similar political and distributional goals that can conflict with environmental goals.

Figure 2. Endangered species as a percentage of species known. Source: OECD 2004, p. 202 REFLECTIONS ON ENVIRONMENTAL POLICY IN CANADA 5

Harrison (1995), Harrison and Hoberg (1994), and Harrison and Antweiler (2003) suggest that Canada has followed a negotiation approach to environmental policy, rather than strong commitments to objectives and standards. This negotiation approach, cou- pled with weaker enforcement, tends to operate at industry or company levels and thus negates the use of broader economic instruments. This supports Copeland’s (1998) notion that Canadian policy suffers from a lack of commitment, but does not address the issue of why Canada is “different.” Harrison (1995) offers the view that the U.S. policy system relies more on litigation and adversarial actions that lead to more commitment. One view of why Canada appears to differ from other jurisdictions is offered by Renzetti (2005a). He states that a lack of institutional capacity, particularly around economic aspects of environmental policy, may be a leading cause. Both Horbulyk (2005) and Renzetti (2005a) suggest that a lack of information and a large degree of uncertainty about the outcomes of alternative institutions may also contribute to the lack of application of economic instruments. Learning by doing is a powerful avenue for agencies to learn about policy implications and to reduce uncertainty. In addition to a lack of capacity in policy agencies, jurisdictional issues in Canada and the overlapping administrative boundaries complicates the issue and fragments capacity that does exist. In a country with a relatively small population, having several provincial governments and the federal government all competing for expertise in the area of economic/market-based policy analysis can spread the few resources very thinly. Furthermore, the transactions costs of deviating from the status quo or norm can be very large in such a system. The size of the country may also contribute to the transactions costs of some environmental policy options, and thin markets may be a problem in some sectors including land use, air quality, and water quality. There may be some cases where there simply are not many players in the market, negating the benefits of some market- based instrument schemes. However, in these cases tax instruments should be effective and could yield the benefits associated with ecological fiscal reform. The lack of use of market-based mechanisms may be related to equity concerns. It is possible that tax instruments and appropriate pricing for resources like water have been rejected because of distributional concerns. For example there are concerns that low-income individuals would bear the brunt of water pricing or that depressed economic regions would suffer adverse consequences of market-based instruments for air pollution or carbon taxes. These are legitimate concerns that should be addressed in any policy analysis. However, analyses of the effects of command and control versus market-based instruments show that the latter may have improved distributional effects if designed with distributional concerns in mind (Copeland 1998). One view is that the norm in Canadian environmental policy is to avoid the commitment to standards required for economic approaches and to employ negotiation-based approaches (Harrison 1995; Copeland 1998). Industry does not expect changes to this negotiations approach thus there is little incentive for them to view benefits in market- based approaches. In such an environment there is little evidence that standards will be tightened and strictly enforced in the future. The interest in market-based mechanisms for SO2 emissions arose in part because of the notion that other approaches for SO2 management would be costlier—a typical situation in which market-based instruments are supported by industry (Stavins 2001). 6 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS

The passages above have attempted to explain some of the reasons that Canada may lag behind other countries in the adoption of market-based instruments. Many of the same arguments apply to our lack of use of economic analysis in environmental policy. There appears to be an underlying set of norms that does not favor the use of benefit cost analysis or related analytical methods in analysis of environmental policy. As discussed above, this may be a result of a lack of capacity in agencies. Many resource management agencies in Canadian provinces are staffed by ecologists, environmental scientists, and engineers but few social scientists and particularly few economists. Agencies in the United States have routinely employed economists (e.g., the U.S. Environmental Protection Agency’s National Center for Environmental Economics, http://yosemite.epa.gov/ee/epa/eed. nsf/pages/homepage?Opendocument; USDA’s Economic Research Service, http:// www.ers.usda.gov/). Capacity in Canadian environmental nongovernmental organiza- tions (ENGOs) in economics also appears to be limited when compared to the United States and these nongovernmental agencies have often been very influential in advocating for the use of economic analysis methods and economic instruments (Coggins and Ruttan 1999). The lack of use of economic analysis may also stem from the fact that environmental policy requires analysis of complex ecological-economic systems. Measurement of benefits, for example, is often difficult not only because of the economic challenges in environmental valuation but also because of the difficulty in understanding the dynamics of natural systems and the linkages between the natural system and the human system. In the case of the health–environment interface, such as air or water quality policy, estimating values of health risk reductions involve not only complexities associated with air or water chemistry and other biophysical sciences, they require assessment of how humans process risks/probabilities and how they make complex choices involving risks. These environment-economy interactions are often classified as “wicked” problems (Rittel and Webber 1973; Shindler and Cramer 1999) (http://www.fs.fed.us/eco/eco- watch/wickedpr.html). Adding to the difficulty is the lack of data (economic or environmental) around many environmental policy issues. For example, tourism is often cited as benefiting from more environmentally friendly land uses; however, location-specific data on regions visited by tourists are seldom collected in a systematic fashion. The Survey on the Importance of Nature to Canadians (http://www.ec.gc.ca/nature/index_e.htm), conducted approxi- mately every five years starting in 1981, was discontinued after 1996. Estimates of regional economic impacts are often in demand yet data for such analyses at a regional level are seldom available (Patriquin et al 2002). To address some of the data deficiencies in environmental policy analysis there is a great deal of interest in benefits transfer—a mechanism that uses environmental values from one jurisdiction (study site) and applies them to another (policy site)—as a method of alleviating data deficiencies. However, benefits transfer in environmental contexts is quite difficult as not only are characteristics of individuals between study and policy sites likely to differ, environmental contexts and characteristics are also typically very different. It may be possible to transfer values of mortality risk reduction from a U.S. population to one in Canada. It would be more difficult to transfer the value associated with hiking in Nevada to values for northern British Columbia or to transfer passive use values for protected areas from Florida to Ontario. The movement to use benefits transfer is an REFLECTIONS ON ENVIRONMENTAL POLICY IN CANADA 7 attempt to reduce the costs associated with collection of primary data for environmental valuation. While reductions in the costs of collecting such information may increase the use of benefit cost analysis (making it feasible for agencies to conduct such analysis), the quality of the analysis comes into question. As usual, the “free lunch” is elusive. Economic analysis of environmental policies can be very expensive and there remain many controversial issues around tools like benefit cost analysis. The selection of a discount rate and the implicit treatment of future generations, for example, is often a controversial topic. The view that health and environmental issues should be evaluated using benefit cost analysis is also often debated (Arrow et al 1996). Overall there remain concerns about the philosophy behind benefit cost analysis for policy purposes when environmental quality is at stake. I believe that without economic analysis of environmental policies the process is missing a key component or it is assuming information about preferences, values, and costs that could be collected and assessed in a rigorous fashion. Nevertheless, there continues to be resistance to the use of economic methods in policy evaluation.

Behavioral Economics and Environmental Policy Choice While a variety of reasons have been put forward to help understand why there has been a reluctance to adopt market-based instruments or economic analysis of environmental policy, some additional insight may be gained from recent findings in behavioral economics. Aspects of behavior that are emerging from behavioral economics are typically applied to consumer choice, but policy choice could be affected in similar fashions. Policymakers can be viewed as being “consumer like” in that they must choose from a confusing array of options often with limited information. Behavioral economics outcomes can also easily apply to firms and choices by managers and not only consumers. McFadden (2006) summarizes a number of findings from this emerging field. Among the various “anomalies” that he reviews are several that appear to be related to issues surrounding policy choice. For example, much of McFadden’s discussion revolves around the notion that consumers often dislike markets and the difficulty associated with making trade-offs and running the risk of making bad choices. He describes individuals as facing market, personal, and social risks when making decisions in markets. Managers, given the option, may also argue against movements to market-based mechanisms for environmental policy. They may prefer voluntary or command and control mechanisms for the same reasons that consumers avoid making trade-off decisions—even when they can make choices that are clearly better for them. Is it possible that policymakers—either through lobbying processes or simply knowledge of the sector—recognize the disutility associated with trade-offs and markets? Could their avoidance of market-based mechanisms be an attempt to reduce the “cost” to industry associated with such mechanisms? An often heard criticism of water pricing or trading is that it will have deleterious equity implications and will adversely affect those who have limited understanding of such systems. This is a reflection of the notion that market-based mechanisms may be perceived as imposing hardships on individuals, relative to voluntary or command and control systems, because of the “cost of thinking” (Shugan 1980). Other behavioral economics findings (Swait et al 2002; McFadden 2006) indicate that individuals have limited ability to process complex information and limited awareness of options, adhere to the status quo (status quo bias), employ simplifying heuristics when 8 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS making choices, are influenced by peers and norms, and often appear to be “happier” when fewer choice alternatives are available. To what extent do these characteristics apply to policymakers and environmental policy choice? Brock (2004) provides a fascinating application of some behavioral economics prin- ciples to the issue of policy choice. He constructs a relatively simple model in which a single policymaker is making a judgment between two policies. The choice of policies is based on the utility arising from each policy in a typical “logit” random utility framework. As in the random utility model, the probability of choice of policy A over B depends not only on the systematic components of utility but also on a “scale” term that captures the degree of precision of the choice model. In algebraic terms, if Xi reflects the characteristics of policy i = (A, B) that might include measures of efficiency, equity, transactions costs, etc., β represents preferences over policy characteristics, and µ is the scale or precision parameter, the probability of choosing policy A over B will be

= µ β / µ β + µ β Pr (Policy A chosen over Policy B) exp( XA ) [exp( XA ) exp( XB )]

As the scale term goes to infinity, the choice is made entirely on the basis of the systematic utility (Xi). If the term approaches zero, choice is random and not at all based on the systematic utility. This scale term represents the degree of precision of the systematic utility, or the degree of ambiguity in the choice process. An option contains a penalty if it is a deviation from views of peers, much like the findings in the behavioral economics literature that outlines how choices are often affected by the influence of peers or surrounding individuals. One can also think of this effect as a type of status quo bias. Movements away from the current policy contain a penalty. This is also a common finding in the behavioral literature. What Brock shows is that even with relatively small peer effects (or analogous status quo bias effects) decision makers can be trapped into making choices that maintain inferior policies. These policy traps arise from the reinforcement of the peer effect (or status quo effect) interacting with the precision component. A high precision adds weight to the peer effect. One of the most fascinating aspects of Brock’s model is that policy tipping points can occur. Tipping points have been part of the scientific and popular literature for the past few years. Often they arise in the context of new products or old products that have reemerged (e.g., Hush Puppy shoes that made a remarkable comeback in the past few years—Gladwell 2000). With reinforcement of the better policy option, the policymaker “tips” out of the trap of the inferior policy into a new regime. But what would lead to such flips in policy? In the context of Brock’s model such changes would arise from reductions in the peer effect penalty against the superior policy, reductions in status quo bias, and changes to the degree of precision that may arise from improved scientific information and better communication. The precision parameter may also be affected by the complexity of the choice situation (Swait and Adamowicz 2001) thus reductions in complexity about the policy options may help achieve the superior outcomes. Have any such policy flips occurred? Brock uses the case of Individually Transferable Quotas in fisheries as an example. Kuran (1995) outlines various policy flips in more general political economy contexts including the fall of the Soviet Union. In Canadian forestry such a major conceptual change arose over the past few years with the adoption of “natural disturbance management” as a guiding principle. While several examples of REFLECTIONS ON ENVIRONMENTAL POLICY IN CANADA 9 policy “flips” have been described in the literature, there is little guidance regarding how to move from policy traps into preferable policy regimes.

What Can the Applied Economics Community Do? Given that most economists agree that using economic methods in environmental policy analysis and market-based instruments can be socially beneficial, how can Canada’s ap- parent lag in adopting such practices be addressed? Part of the solution is the clarification of the “systematic” component of the policy choice task. This includes clarification of the relative benefits of such methods. The other part of the solution is in the behavioral and precision component as discussed by Brock (2004). I outline various thoughts on these solution strategies below. Note that I am not suggesting that market-based instruments should always be used nor should benefit cost analysis be the only analytical instrument used in policy choice. However, there appear to be many cases in which Canada would benefit from the use of market-based methods and analysis. One of the key avenues to improve the use of economic methods in environmental policy is through capacity building. Several major reviews of policy have outlined the need for additional capacity in social science in general and economics in particular. The Royal Society of Canada Report (2001) on particulate matter and ozone regulations outlined significant capacity needs in economics and environmental science. Capacity building that helps inform existing policymakers and ENGOs will help reduce uncertainty/ambiguity and may help reduce negative peer and status quo effects. Part of this capacity building arises from teaching graduates and undergraduates about economic analysis and market- based instruments. Extension or knowledge exchange courses for existing policymakers and ENGO members would also help build capacity. Increasing familiarity with economic methods will also arise from learning by doing. Test cases, pilot studies, and experiments should all help reduce uncertainty about economic instruments. Research in environmental and resource economics can play a dual role by creating new knowledge and by helping build capacity and familiarity in policy spheres. Research conducted in a multiuser context can be a powerful tool for policy and management change as well as to inform further research topics. Continued research ef- forts that include government, industry, and NGO partners should be encouraged—many such processes have already been embraced by Canada’s Networks of Centres of Excel- lence programs and a variety of the Social Science and Humanities Research Council’s partnership programs. Status quo bias in policy choice can be one of the main factors precluding new policy mechanisms. The source of status quo bias could be comfort and familiarity with existing policy approaches. Stavins (2001) suggests that current policy approaches (command and control) let existing policymakers maintain power as they have expertise on existing mechanisms. He suggests that separating policy objectives from mechanisms— e.g., focusing on the choice of market-based instruments versus command and control rather than the environmental quality target—helped lead to change in U.S. environmental policy. He recognizes, however, that this tactic was accompanied by a change in ideology, increasing pollution abatement costs, and the good fortune to have several capable policy entrepreneurs who were able to argue in favor of market-based approaches. A recent review of market-based instruments in Europe (European Environment Agency 2006) places policy entrepreneurs or “instrument champions” at the top of a 10 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS checklist for effective market-based instrument adoption. This list includes many of the strategies listed above including clarity and focus on the policy issue and the trade-offs involved, involving stakeholders, and learning by doing. It seems that a combination of conditions, incentives, and personalities are required for the momentum to switch toward increased use of economic mechanisms. Perhaps the conditions in Canada today are “right” for such a momentum swing. One can think of the reluctance to employ market-based instruments as somewhat like the agricultural policy case of the reluctance to change the “Crow rate” (Klein and Kerr 1996). The Crow rate was roundly criticized by agricultural economists (and others) for years, yet there was no movement by policymakers. Undoubtedly this maintenance of the status quo was influenced by ideology, a lack of certainty of the outcome of a change, peer effects, and other effects described above. Klein and Kerr (1996) review the Crow case and assess the contribution of agricultural economists. They state that rigorous analysis (illustrating the results of policy options), interdisciplinary research and com- munications, and significant effort in knowledge exchange were the major contributions. Policy entrepreneurs helped to tip the system away from the status quo and there has been relatively little criticism of the change since it was implemented. Perhaps a decade or so from now, we will consider the contributions of agricultural and resource economists in reforming Canada’s resource and environmental policy.

Is There Evidence that the Tide is Turning? The discussion to this point suggests that relatively few market-based instruments have been adopted in Canada and that economic analysis plays little role in environmental policy. There are interesting signs of change however. Economic analysis of air quality regulation was prominent in the recent discussion of the Canada Wide Standards on Particulate Matter and Ozone (Royal Society of Canada Report 2001). Similar analyses involving Health Canada and Environment Canada have been conducted around climate change and human health. In the area of endangered species, the Department of Fisheries and Oceans has been commissioning research on the socioeconomic analysis of endangered species recovery plans. The issue of incorporating environmental values into compensation assessments was the topic of a recent Supreme Court of Canada case, the implications of which are outlined by Elgie and Lintner (2005). Elgie and Lintner view the outcome of the case as setting a precedent for the assessment of compensation based on damage to the environment, putting in place a mechanism much like NRDA as practiced in the United States. NRDA processes outline compensation required for environmental damage but they also implicitly provide incentives for environmental protection. Advances have also been made in the area of market-based instruments. Alberta’s new water act provides for water rights trading and there have been some trades. Alberta’s “Water for Life” program describes the use of incentives as one method for addressing water scarcity (Government of Alberta 2003). Trading programs for NOx and SO2 have been developed (Clean Air Strategic Alliance 2003) and a system of carbon emission trading was constructed as one potential approach to meeting Canada’s Kyoto commitments (although whether this mechanism will be used remains to be seen) (Tradable Permits Working Group 2000). Some jurisdictions in Alberta are experimenting with transferable development rights and Ontario has descriptions for the use of tax increment financing REFLECTIONS ON ENVIRONMENTAL POLICY IN CANADA 11

(http://www.mah.gov.on.ca/userfiles/page_attachments/Library/1/205918_finance_ tools_e.pdf). Research on integrating economic mechanisms and analysis into environmental policy has also progressed in the past decade. Research networks like the Sustainable Forest Management Network (an interdisciplinary research network on forest management), BIOCAP Canada (developing a “bioeconomy” in Canada), and the Agricultural Policy Research Networks have provided opportunities for the investigation of economic aspects of policy development, including environmental policy. Perhaps most importantly, these networks have been investing in graduate students, building capacity in the areas of economic analysis. It may be time for environmental policy research networks that concentrate on innovation in environmental policy in Canada.

CONCLUSIONS The OECD (2004) was highly critical of Canada’s lack of economic content in environmental policy, but it seems that changes are occurring. Hopefully these movements from the status quo, and the learning by doing that will occur, will help propel the policy system into more exploration of economic mechanisms and instruments. Two key mechanisms that will lead to change are capacity building and the development of policy entrepreneurs. This is where the Canadian Agricultural Economics community can help. There is a wealth of experience in the CAES community in applying sound economic thinking to real-world policy contexts. The community has also helped by developing or providing some outstanding policy entrepreneurs who have had significant impacts on agricultural and resource policy. The time is ripe for economic input into environmental and resource policy. As Weersink (2006) states, the CAES community has the opportu- nity to “step forward” by engaging in policy innovation and by helping build the capacity needed to remove criticisms of the type that the OECD country studies have generated. This will require extra effort in communication, working with the broader scientific and policy community in resource and environmental management. The profession is well po- sitioned to do this through its applied economics nature and its strong linkages with other social and natural scientists and with the policy community. As in most cases, learning from the past and understanding of the dynamics of policymaking will help us improve environmental policy in a nation in which our environment and natural resources are key components of our economy, our culture, and our identity.

NOTE 1When referring to market-based instruments (taxes, tradable permits, etc.) I will include pricing of natural resources. I will also use the term economic analysis to include benefit cost analysis and related analytical tools including environmental valuation.

ACKNOWLEDGMENT I would like to thank Peter Boxall, Sean Cash, Chokri Dridi, and Terry Veeman for their com- ments, suggestions, and recommendations. As usual, any errors, omissions, or trangressions are my responsibility. 12 CANADIAN JOURNAL OF AGRICULTURAL ECONOMICS

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