August 8, 2005

Incentives underused as option for enhancing development, achieving environmental goals

Incentives are an underused, yet potentially more efficient and cost-effective approach to achieving environmental change, says a new report from the Canada West Foundation (CWF). What's in it for me? Exploring Natural Capital Incentives examines four specific types of incentives that could be used to enhance investment in western Canada's natural capital. These include: regulatory, economic and market-based, information-based, and voluntary.

CWF policy analyst and report author Karen Wilkie outlines each incentive's advantages and disadvantages and uses local, national and international examples to illustrate how each one works. The report then provides general recommendations for the design and implementation of natural capital incentives.

Natural capital incentives offer many rewards and benefits, says Wilkie. "The benefits establish 'the business case' to encourage individuals, businesses, and organizations to improve environmental performance," she explains. "Ultimately, incentives can enhance both financial and environmental performance."

In some cases, the traditional "command-and-control" regulatory approach is the most appropriate and effective option for meeting environmental goals. Continuing research by the CWF, however, has found that both industry and government stakeholders feel there is a limit to what the regulatory approach can achieve. These same stakeholders are increasingly interested in pursuing alternative options such as incentives in order to surpass regulatory requirements and encourage more sustainable development and use of natural resources, including land and water.

Incentive-based environmental policy instruments offer potential cost savings, enhanced effectiveness in addressing specific environmental issues and greater flexibility. They can also encourage innovation and continuous improvement. And yet, notes the report, they remain underutilized in Canadian environmental public policy.

Among the case studies cited in the report is the highly successful Clean Air Strategic Alliance (CASA) flaring agreement. This multi-stakeholder initiative, initially established to find ways of reducing solution gas flaring, later expanded its focus to target venting as well. The reduction targets and action plans, developed through a collaborative process, have resulted in substantial reductions and earned CASA's flaring and venting project team a 2005 Pollution Prevention Award from the Canadian Council of Ministers of Environment.

This and other case studies provide a number of recurring themes which the report says should be considered guiding principles in the design and implementation of natural capital incentives.

*Incentives should complement regulations, building on and going beyond their requirements, and they should be simple, understandable and user-friendly.

*Incentives should provide for flexibility as to how environmental objectives are achieved. This in turn will stimulate innovative measures and will encourage continuous improvement.

*Incentives should provide an effective, least-cost option for achieving environmental objectives and should encourage faster initiation of responses to environmental issues.

*Measurement, monitoring and third-party verification should be built into incentive schemes in order to provide performance data demonstrating the efficiency and effectiveness of incentives and to enhance the credibility and reliability of incentives.

*Integrated participation, collaboration and co-operation among diverse stakeholders is an essential component of a successful incentive program. Other important elements include communication, education and promotion; and recognition and reward for exemplary efforts.

Ultimately, incentives are one of several policy options. They need to be evaluated on a case-by-case basis to determine their appropriateness and how they can best be integrated with other public policy tools. The report offers several recommendations aimed at advancing acceptance and use of incentives.

First, it says, promotion, education and outreach efforts should be used to increase awareness of incentives among industry, governments, non-governmental organizations and the public.

Existing incentive initiatives should be measured and monitored; this will provide a better understanding of their environmental and economic costs and benefits. When it comes to new incentives, adds the report, it is important to start small and build up: begin with pilot projects that can later be extended.

Further research and analysis is also needed so that a framework can be developed for evaluating which incentives work well together and which do not. Finally, says the report, we should continue to learn from others, researching and analyzing incentives set up in other jurisdictions to determine whether and how the can be applied in (western) Canada.

The report may be viewed and/or downloaded from the CWF Web site, www.cwf.ca. More information is also available from Karen Wilkie, policy analyst, Canada West Foundation, 403/264-9535 ext 356, E-mail wilkie@cwf.ca, or from Gary Slywchuk, 403/538-7649, E-mail slywchuk@cwf.ca.

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