A team of Canada's most prominent economists and former political leaders have banded together to urge governments to reform their fiscal policies to improve environmental protection and economic performance.

The "ecofiscal commission" was unveiled Tuesday in Toronto, and will undertake a series of studies to promote subsidy reforms and taxes – including carbon pricing – to deal with air, water and waste concerns.

It is chaired by McGill University economist Chris Ragan, who has done stints at both the Bank of Canada and the federal Department of Finance. It includes a dozen high-profile economists from across the country, including the Conference Board's Glen Hodgson and Department of Finance alumnus Don Drummond.

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The group shares the conviction that "Canada can do a better job," Mr. Ragan said in an interview.

"Canada can have better environmental performance; Canada can have better economic performance and they absolutely share the conviction that those two things go together. Ultimately, if we really care about our continuing prosperity, we have to take the role of the environment very seriously."

Its advisory board features retired politicians such as former Quebec premier Jean Charest, former Liberal prime minister Paul Martin, and the Reform Party's founding leader Preston Manning. It includes both Steve Williams, chief executive at Canada's largest oil company, Suncor Energy Inc.; and Peter Robinson, head of one of the country's top environmental organizations, the David Suzuki Foundation.

In an interview, Mr. Ragan rejected the notion that economic growth and environmental sustainability are incompatible, or that capitalism is fundamentally incapable of addressing challenges like climate change.

In her book, This Changes Everything, Canadian author Naomi Klein has helped popularize that idea that the industrialized world is operating under a "failed economic system" that is "at war with life on earth."

But Mr. Ragan and his ecofiscal commission colleagues argue the governments' taxation and expenditure systems can be overhauled with "market-based measures" to discourage pollution and carbon emissions, and to encourage innovation.

"I think capitalism is a good thing," he said in answer to the Naomi Klein view. "I think there is a way to address environmental problems and harness the power of markets. And that is exactly what the ecofiscal commission is about."

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He acknowledged that pricing pollution can create fairness issues for poorer households who can't afford to pay more for their energy, or for waste disposal or on their water bills. But he insisted there are ways for governments to offset the impact on lower-income Canadians.

In a paper released Tuesday, the group said fees and taxes and subsidy reforms can be used at the federal, provincial and even municipal level to address such diverse issues as road congestion, water use and global warming.

The commission will undertake a series of studies, each addressing a specific issue. By raising revenues through taxes on socially harmful practices, governments could reduce cut other taxes that discourage employment and investment, it said.

Currently, Canadian governments raised only 1 per cent of their revenues through taxes on pollution, while countries like Australia, Norway and the Great Britain raise twice as much revenue from environmentally related fees and taxes.

In an interview, Mr. Manning said he was attracted to the commission because he believes Canadian conservatives need to embrace environmental progress by espousing market-oriented solutions.

"Conservatives believe that you have to live within your means financially. But living within your means is also an ecological concept," he said. "You have to live within your means with natural systems. You can't put more demands on them than they are able to meet."