Concerning the Canadian economy, the current federal government is committed to two complimentary policy objectives – growth through innovation, and lower carbon emissions.

 

But governments have surprisingly few levers with which to achieve their objectives. They can regulate, they can spend, they can procure, and they can tax.

 

Regulation is often heavy handed and cumbersome for the market, spending needs to be administered by a bureaucracy and is often inefficient and expensive, and procurement typically works only when there is a product to procure but rarely, in the absence of other factors, drives innovation. So we are left with tax policy as the most powerful instrument.

 

In terms of the bioeconomy’s contribution to a low carbon agenda, some argue that a combination of the above measures is needed. But truthfully, if we are trying to be simultaneously cost effective, unobtrusive, and market oriented, the most efficient instrument for stimulating an innovative low carbon economy is a revenue neutral, and bottom-line consequential, carbon tax.  

 

It is price that drives substitution. And if generating carbon through the production and use of hydro carbons is sufficiently financially painful , then taxed entities will innovate away from hydrocarbons toward low carbon chemicals and materials made from carbohydrates.

 

The higher the price of carbon, the faster the innovation transition will take place. Private sector board rooms around the world will be answering to shareholders whose return on investment will suffer if carbon is taxed. Said shareholders will flee to those entities that are innovating to avoid the tax. Innovation laggards will fail.

 

But since certainty is the mother of investment, the tax cannot be transitory, or subject to lobbying by entrenched interests. Hence the need for revenue neutrality. The purpose of the carbon tax is not to generate additional revenue for governments. It is to create innovative, low carbon manufacturing that ensures we meet our Paris climate commitment. So carbon tax revenues need to be transparently collected, and then returned to the citizenry in the form of reduced income taxes. In this equation, even a carbon tax starting at $120/tonne can be politically saleable, and will ensure the tax is in place for the long term. In its absence, companies won’t innovate and scale up because of fear of stranded assets.

 

The OECD’s Bioeconomy to 2030 report estimates that by 2025-30, the world’s bioeconomy market will be worth between US$2.6 and $5.8 trillion. With 9% of the world’s forests (over 700 million acres), and 160 million acres of farmland, Canada is well endowed with biomass. We could be a global leader in this emerging innovation bioeconomy market.

 

It will take political courage. It will take those of us gathered here today to Scale Up. The alternative is Canada as a perpetual importer of other country’s technological innovation. And while that might help reduce global GHGs, it is bad for the Canadian economy. So using Canada’s bio-based advantage, why not make globally leading GHG emission reduction technology here, and export it to a solution hungry world?

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Jeff Passmore

Chair, Scaling Up

CEO, Passmore Group Inc.

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