A Canadian action plan for Kyoto

January 27, 2003

The federal government's projected budget surplus of $8 billion for the current fiscal year should be rolled into an innovative Kyoto Investment and Transition Fund instead of being used to reduce the federal debt.

That's the key recommendation advanced in a technical paper prepared for the Canadian Centre for Policy Alternatives' forthcoming Alternative Federal Budget.

CCPA economist Marc Lee and resource policy analyst Dale Marshall, who co-authored the paper, argue that a Kyoto Fund would be a far better use of the money than debt repayment. "Putting the surplus into a Kyoto Fund would allow Canada easily to meet its Kyoto targets over the next 10 years, while at the same time bolstering sustainable economic development," say Lee and Marshall.

The new Fund would allocate $7 billion over the 10-year period to fund energy efficiency projects, green technologies and power sources, and $1 billion for a "just transition" strategy to assist those workers adversely affected by action on climate change.

The CCPA paper describes the proposed Kyoto Fund as "the minimum effort needed by Canada to meet its Kyoto targets. Canada's goal should be not just to meet the targets, but to exceed them."

Some of the other policy measures suggested include shifting subsidies now extended to conventional energy production to energy efficiency tax credits; imposing new taxes on carbon emissions from automobiles and using the tax revenue to subsidize the purchase of fuel-efficient vehicles; and promoting the development of inner-city and mass commuter transit.

"The strategy outlined in our paper," Lee and Marshall say, "should be viewed as a national project, aimed at making Canada a world leader in addressing climate change. By funding and implementing such a program, we can assure Canadians that nobody will be unduly burdened, but that, on the contrary, this program will lead to economic benefits that far outweigh the much-overstated transition costs."

In any case, using the surplus to pay down the debt would have little impact on Canada's debt-to-GDP ratio, the best measure of the federal debt load because it is tied to increases in the GDP. If the entire $8 billion surplus were put into debt reduction, the federal debt-to-GDP ratio would fall from 49% at the end of the 2001-02 fiscal year to 45.4% at the end of fiscal 2002-03. Because of GDP growth, however, the ratio would still fall to only a slightly higher level of 46.1% even if not a cent of the surplus was put into debt reduction.

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