Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 6 - Evidence - February 3, 2005
OTTAWA, Thursday, February 3, 2005
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:35 a.m. to examine and report on emerging issues related to its mandate.
Senator Ethel Cochrane (Deputy Chairman) in the Chair.
[English]
The Deputy Chairman: First, I want to say good morning and Happy New Year.
We have with us this morning Pierre Sadik. Before we introduce our guest speaker, I will introduce our senators.
We have Senator Milne from Ontario, Senator Adams from Nunavut, and the Honourable John Buchanan from Nova Scotia.
Welcome Mr. Sadik. I have a little biography that I would like to read out. Mr. Sadik has been employed in the environmental field for three years. He joined the Green Budget Coalition in December 2002 as its program manager. He provides strategic direction and coordination for this coalition of 21 of Canada's leading environmental and conservation groups. Previously, he spent 10 years in Toronto practising labour law. He has an LLB degree from the University of Ottawa.
Welcome. I understand you have a text. We have already received it, so please begin.
Mr. Pierre Sadik, Program Manager, Green Budget Coalition: I have a variation of that text to present to you. It will take approximately 10 minutes.
First, let me thank the committee for inviting me to talk about this issue of importance to all Canadians. I understand I have been asked to speak about tax instruments and fiscal instruments to some extent in the broader sense, as well as how and what Canada is doing with those types of instruments.
It is well recognized that there are several types of measures available to promote sustainable development: Regulations, voluntary measures and fiscal instruments are three of the types that first come to mind. Fiscal instruments and fiscal disincentives in particular are unfortunately underutilized in Canada, especially at the federal level. While there are historical reasons for underutilization, there are at present no fundamental or systemic barriers to the effective use of these types of instruments in Canada.
Canada, in the opinion of many, places itself at an economic and environmental disadvantage in relation to other developed countries by failing to take advantage of fiscal instruments in combination with other measures to promote sustainable development. Many other highly developed nations including the Scandinavian countries, U.K., Japan, Germany and France are using fiscal instruments with a great deal of success. You will see appended to the brief that I have provided to the committee in advance an appendix that provides a general overview of Canadian use of fiscal instruments. In fact, I have limited it largely to tax instruments in particular and the use by other countries around the world. I bifurcated the list into incentives and disincentives. Canada relies overly on incentives, whereas other countries make use of economic disincentives as well. According to the OECD and the Conference Board of Canada, the economies of most countries on the list provided and the countries I have listed for you today are doing as well or even better than our own. However, what is most important at the same time is that Canada unfortunately ranks considerably below all those countries with the exception perhaps of the United States in connection with protecting our environment.
I will give you a brief overview of the most salient aspects, most pertinent points of fiscal instruments, including the various categories of fiscal instruments, such as tax incentives, tax disincentives, direct subsidies, feebates and cap-and- trade systems.
Fiscal instruments can be broadly characterized as either subsidies, which in essence pay the polluter, or fiscal disincentives, which employ the polluter-pays principle.
The committee has asked me to address tax instruments principally and I will describe some of the characteristics of those. Some of the advantages of tax instruments particularly in relation to regulations and voluntary measures for protection of the environment include the fact that unlike regulations, tax instruments can reward continuous improvements in efficiency. In other words, while most regulations provide little or no incentive to go beyond the regulated level of performance, a fiscal incentive or disincentive will provide an economic rationale for a firm or individual to go beyond the desired environmental level of performance because the incentive keeps on giving economically. Even if the law says vehicles must use 8.8 litres per hundred kilometres, if there is a fiscal incentive to go to 5.5 litres per hundred kilometres, people will be inclined to move in that direction. There is no limit in that sense of fiscal incentives. Tax instruments can stimulate the development of new technology. In the interest of fairness most regulations are set at a level that can be achieved using existing technology whereas tax instruments will encourage people to go beyond using existing technology and try through creative measures to explore additional ways of saving more money.
The ripple effect of tax instruments can influence the behaviour of economic actors who cannot be reached through regulations. Of interest perhaps to the finance department, tax instruments can generate revenue for the government. Fiscal disincentives are a charge or levy on certain undesirable activities. That charge or levy can go to the general revenue account, more money for the federal government to use in good ways, or the money can be earmarked to reduce the taxes on desirable activities such as employment or investments and savings.
I would like to make a distinction between disincentives and incentives because not all fiscal instruments, not all economic instruments, are created equal. Disincentives tend to be far more efficient and effective at meeting the desired objective which is to reach a certain environmental performance standard. Tax disincentives which mean that the polluter pays, increase the relative cost of a pollution-intensive technology, process or product. This kind of disincentive creates a continuous impetus for innovation to improve pollution reduction or to shift production to substitutes which have a lower impact on the environment.
Pollution taxes by their very nature have a direct impact on market signals and thus affect pollution-intensive sectors and regions more than other regions or sectors. There is a disproportionate impact on different sectors of our economy as well as different areas of the country. Areas that are resource or manufacturing intensive will be more heavily affected than areas or sectors that rely more on things like intellectual property or software which have a relatively small impact on the environment.
However, the economic cost of tax incentives and disruption to a given sector or region is lower if the measure is expected ahead of time. Fair warning to industry and individuals is gradually phased in and continually applied thereafter. Unfortunately, disincentives will have a disproportionately negative affect on low-income households for reasons that ought to be fairly obvious. If emissions are taxed more heavily, the product will cost a little bit more in the short term and those who use the product will have to pay a little more for it. That is why we recommend the introduction of an accompanying refundable tax credit for low-income Canadians to offset the modest increase in the cost of certain items. The money for that credit can come from the tax that has been levied on the undesirable activity.
It is noteworthy that the incremental effect of many tax incentives is relatively small compared to other factors in the economy that we are used to seeing all the time: the value of the dollar, interest rates and fluctuations in the cost of crude oil.
In essence, a tax incentive is paying the polluter and has a few other different and important characteristics from disincentives. It is a subsidy that reduces the cost of a technology or product with lower pollution intensity. A tax incentive can target current decisions such as an accelerated capital cost allowance or long-term competitiveness such as research and development funding. An incentive or subsidy usually involves a relatively large public expenditure per unit of pollution reduction in order to be effective. That large expenditure is due to something called free riders; firms or individuals who would have undertaken a desired change in any event even in the absence of the subsidy the government is offering. A Canadian study conducted last year estimates that on subsidies for various industrial, residential and commercial equipment, free riders ranged from 40 per cent to a whopping 82 per cent. This is somewhat troubling because, to date, subsidy measures have formed the backbone of Canada's modest experience with fiscal instruments. That is a bit of an overview of tax instruments, fiscal instruments in general and the distinction between incentives and disincentives.
I would like to talk a little bit about the Canadian experience with tax instruments. I think we have to start with the Department of Finance in that regard because that is the locus of the decision-making, the analytical abilities, in connection with tax instruments.
Some of the blame for Canada's disappointing record on the use of tax instruments — that record is evident in the comparison I gave you comparing our jurisdiction with others around the world — must be laid at the feet of the Department of Finance. There is a growing call from many quarters for the Department of Finance and the federal government to begin to employ fiscal instruments in earnest. The following organizations, in their various documents, reports and proceedings, have urged the federal government and/or the Department of Finance to begin using tax instruments in earnest, particularly disincentives. The first body that comes to mind is this esteemed committee and its report of November 2004, The One-Tonne Challenge: Let's Get On With It, a very timely call for the government to use fiscal instruments in the fight to meet our Kyoto targets and reduce climate change. The House Standing Committee on Environment and Sustainable Development and proceedings of November 14 very clearly stood behind the notion of the Department of Finance making greater use of fiscal instruments. The House Standing Committee on Finance in its report in December 2004 and my organization, the Green Budget Coalition, for years have been calling for an increase in the use of fiscal instruments. The Commissioner of the Environment and Sustainable Development, in her report to the House of Commons issued in the fall of last year, chapter 3 in particular, is a very cogent and articulate call for the use of fiscal instruments in Canada. I understand you heard from the commissioner some time before the holidays.
The External Advisory Committee on Smart Regulation, in its report to the Government of Canada in September 2004, included a call for this type of measure. The Canadian Council of Chief Executives in the past has called for the use of fiscal instruments. An interesting report from the federal bureaucracy leaked to the press early this year called Climate Change — Lessons Learned and Future Directions makes it clear that if we are to meet the Kyoto target and reduce greenhouse gas emissions, we will have to make greater use of fiscal instruments. Finally, the OECD has for the last number of years chastised Canada for its weak use of fiscal instruments.
The Green Budget Coalition deals extensively with the Department of Finance, and we have been urging it to make greater use of fiscal instruments over the years. We have noticed a series of systemic problems at the Department of Finance that perhaps stand in the way of the introduction of these types of measures.
The department has failed to carry out its mandate pursuant to the 1990 cabinet directive on environmental assessment of policy plan and program proposals. That cabinet directive was updated in 1999. The department has failed to a large extent to carry out its mandate pursuant to the department's sustainable development strategy, or SDS, that every department must employ.
The department, in our experience, has engaged in endless and frequently ineffectual environmental-related tax incentives from stakeholders. It has been characterized as a merry-go-round before another committee.
The department has used dubious over-reliance on the principle of departmental confidentiality as a smokescreen and rationale for non-transparency in connection with what it is doing on the question of the important issue of fiscal instruments. There are even a few instances of buck-passing between the departmental and ministerial levels on this issue. The sense we and others have is that there is no sense of urgency in relation to ongoing environmental degradation at the department as well as a lack of sustainable development imperative.
Finally, the department's mandate and mission statement refer only to economic, social and security objectives but make no references to sustainable development.
I have a few recommendations to the federal government, in closing, in terms of making better use of the tax system and fiscal instruments as a sustainable development tool. The OECD recently stated that Canada must make clear that subsidies and tax incentives are tools for use during a transition period only and that voluntary approaches should be supplemented by a more conventional use of regulations and economic instruments. The OECD's admonition is based on the recognition that the environment and the economy are inextricably linked. Decisions taken in either realm will have a lasting impact on both. As the OECD notes, while there is no substitute for regulations to backstop environmental protection measures, Canada must begin to embrace the greater use of fiscal instruments as well.
I feel that a fresh start cannot be made without the introduction of meaningful changes at the Department of Finance. Most, if not all, of the shortcomings that I have listed above should be addressed. However, as is often the case, perhaps the single most important factor will be the introduction of a greater element of transparency in the department in connection with how finance undertakes environmental assessment of tax measures and policy proposals. The alleviation of many of the shortcomings I have listed follows quite naturally upon the introduction of transparency, casting the cleansing effect of sunlight into the process. The public disclosure of the environmental assessment of measures that the department considers, which it has to do in any event pursuant to the cabinet directive of 1990, concurrently with the introduction of tax policy or the measure in question would satisfy the need for transparency and all of the good things that flow naturally from transparency.
In my opinion, the requirement of concurrent or simultaneous disclosure with the introduction of the measure as opposed to pre-disclosure, in most instances, should adequately address the department's concerns about not influencing decision-making by players in the economy who may take advantage of having knowledge beforehand of a tax measure that will be introduced.
I thank you for this opportunity, and I would be happy to answer any questions.
The Deputy Chairman: Thank you very much, Mr. Sadik. It has been informative, and we have taken notes of everything you have said. Now we have some questions from our senators.
Senator Angus: I thank you and your organization for the outstanding work you are doing. Let me empathize with you that despite the good work you are doing, it is falling on deaf ears. I am a relatively new member of this committee, but almost every time we have a hearing we are told the Department of Finance is the bête noire here. Everyone is very candid in criticizing this senior ministry in our government and goes into quite a bit of detail, as you have done, in terms of the systemic shortcomings that are obvious, unless it is just a big cover-up. I have to admit I find myself wondering how we can bring more publicity here. Understanding a little bit about politics, the thing that gets action generally is to get it hanging out there in their face.
You have referred to our report, and I would like to start my first question there. I joined the committee when we were drafting that report. We may have made an error by naming it as we did because it looks like a big promotion of the One-Tonne Challenge. However, we were saying that the One-Tonne Challenge is not working very well and here are some suggestions for the government, including the Department of Finance. We have seen a lot of media lately, and we have worked hard ourselves to try to get some publicity, saying the One-Tonne Challenge is effectively a farce, the advertisements with Rick Mercer are a waste of taxpayers' money, and something has to be done.
We spent a lot of time drafting and redrafting our executive summary so that it would get attention. We had a press conference and we listed our recommendations. The frustration I sensed was that with all our media, all it did was point out that the government was not doing enough, which I guess is good.
Were our recommendations more or less on the mark? They resulted from hearings that were held.
Mr. Sadik: Yes, I thought your recommendations were largely on the mark. I would have to say that in isolation the One-Tonne Challenge is an ineffective program, and the committee got at that in its report. These are tools in the tool kit. The One-Tonne Challenge, in essence, is trying to encourage voluntary movements in the right direction, voluntary compliance with the needs we have. However, these things have to be done in conjunction with other measures that have some bite to them, some modest regulations and something like some of the disincentives that I have been talking about here today.
The analogy I would make is one to our justice system. We maintain law and order in this country through relying on the good moral sense of Canadians, voluntary measures in other words, a system of penalties and fines and incarceration. You cannot maintain law and order in this country simply by relying on voluntary measures and incarceration. You need to use all of the tools at your disposal. Right now, in the sustainable development realm the Government of Canada is reluctant to use all the tools at its disposal. It wants to use voluntary measures, the One- Tonne Challenge. It wants to use subsidies, but it does not want to use some of the implements that have some bite to them.
Senator Angus: We do not know what it was, but we know what it is not doing. We have been impressed here. We find an ally in the former Minister of Environment, Minister Anderson. He has even shared with us the frustration he found with the Department of Finance, but it seems to me we are in a period of great hope. We have the February 16th date on the Kyoto Protocol. It is in focus, the media is looking. Can Canada meet its targets? What are we doing? Why is the OECD putting us at 127 out of 128, right after North Korea? What is going to be in the budget? I asked the leader in the Senate: ``Is it going to be a green budget?'' He said: ``I do not know what colour the cover will be.'' It is an attitude that disgusts me. I wonder if you agree that the timing, right now, is so appropriate to really mount a publicity campaign and to put pressure.
Mr. Sadik: The timing is opportune because of the February 16th date for Kyoto. The eyes of the world will be on Canada and on other nations as well that are having trouble with their Kyoto commitment. In that sense the timing is opportune. There is a budget coming that is good timing as well, obviously. There is — as I have talked about and as you know — a recent OECD report. There is a relatively recent Conference Board of Canada report. There was a study done by some folks at a couple of eminent universities in the United States. They presented at the World Economic Forum at Davos, Switzerland, last week, and ranked Canada near the bottom in terms of environmental performance.
Senator Angus: We have an organized country.
Mr. Sadik: We are doing well in terms of the amount of green space we have, but simply by virtue of sheer abundance, we are 10th or so in relation to other countries. However, we are whittling away at it quicker than anyone else.
Senator Angus: Maybe we could have another round.
The Deputy Chairman: That would be fine, senator.
Senator Adams: The only thing that I was really concerned with is what you keep saying about the polluters. I think that in the beginning when developing Canada we did not understand what polluting meant, so we allowed the chemicals and stuff to go into streams and lakes, and up into the air. Now, after 40 to 60 years, we are finally finding out what is causing the pollution that is happening today. In the area of Nunavut, we did not develop at the same time as the south of Canada. Today Nunavut has difficulty. We did not get the kind of pollution like that and we now have so much regulation to do any kind of project, such as road or harbour development. It is really very difficult for us now to ask for anything from the government. Before money is passed to do the kind of job, they have to do the environmental study. It is really difficult for some of the companies that want to do some mining up there. Even local companies have to do it if they want to do something in the community or if they want to develop a road outside the community. Now, we have another bill coming in with a concern about the shippers polluting in the sea. There are some things that are produced that cannot be recycled. Even though money comes from the government to recycle it, there are some things that come to the community that cannot be recycled. Since we have to ship it back down south to be recycled, it costs more money. That is why I have difficulty sometimes with the committee here because I live in a different world. We are still Canadian, but sometimes we have to follow the regulations because they are in the rest of Canada. The regulations also affect our food. Before we did not lose any of our operations, such as sealing and whaling, but now there are animal rights that are affecting our community. I believe in protecting the environment. I pay taxes. I live up there and I pay it on anything I buy that is recyclable. I am able to return it here in Ottawa, but up home, anything that is recyclable, I cannot return it. We have to go to the dump. There must be some way to work this.
We have four departments with all the same agent between Transport Canada, Health Canada, the Canadian Coast Guard, Environment Canada and the Department of Fisheries and Oceans. I do not know how many departments we have to go through. You do a kind of study and now we have the green budget. We have all the same regulations for everywhere in Canada, even in the Arctic. It is very difficult for us sometimes. The municipalities say that they would like to build a road up to so many kilometres. There has to be a study, a survey on the fish that are going through the creeks. We live in a cold-weather environment. In the meantime, the current from the water is coming up there. For our area, it is very difficult for us to deal with any policy that is coming out. Can you answer that?
Mr. Sadik: Senator Adams, I don't have much to say. I am not going to sit here and try to tell you what you and the committee have described — a problem — so eloquently here today. That has to do with the very real differences in the various regions of Canada and how the things that we can sit here and propose will impact differently on different parts of Canada, and particularly in the North. I will just make a few points that came to mind in the course of what you were saying. I will note that — as you are aware and as we are all well aware — climate change is impacting the North in a particularly harsh manner. In very real terms, it is pulling out the rug from under the people of the North, the very ground beneath which people live. That is a vicious cycle which includes the introduction of greenhouse gases into the air and a desire to extract carbon from beneath the North. There is a cycle going on there and there is some irony in that.
Another point that comes to mind is the way that distributed energy lends itself particularly well to the North. You have made reference to the high cost of getting things in and out of the North. I have been to Resolute Bay and I recall diesel generators running all the time. The North is also quite a windy place and the introduction of windmills to augment that fossil-fuel-generated power would be a wonderful way to reduce the amount of fossil fuel that needs to be burned and the cost of bringing that energy up there. I am not going to sit here and tell you what you already seem to know. We need to look at some measures to try and find a happy medium there.
Senator Adams: I understand. I am glad you mentioned the cost of living, especially in the North. In Nunavut alone we have 26 communities. Every one of them has a generating plant running 24 hours a day, 365 days a year. In the meantime the smoke is going up in the air. Stéphane Dion, the Minister of Environment, told us before Christmas that Nunavut is a priority for the wind generating and I hope they keep the promise in the wind generating.
The Deputy Chairman: Thank you, senator. Just keep the pressure on, that is all.
Senator Milne: Mr. Sadik, I wish you all kinds of success in trying to get the Department of Finance to come up with a formal framework for environmental assessment of their policies. Some of us have been working for 10 years to get them to do gender analysis as they have been mandated to do and they are still not doing it. It is a very opaque department.
You talked about some of the ideas of tax disincentives having a disproportionate effect on low-income households. Also, the fact that our heaviest producers of pollution, our large polluting industries, are located in areas of say the Boreal Forest, where some of our poorest people live. There is a real problem there. It is not just the people themselves, it is the location. Everybody in the entire area is heavily disadvantaged if the industry goes belly-up.
You talked about a balance between incentives and disincentives. Some businesses could take the approach that a fiscal disincentive is a cost of doing business and they add it on to the end price of their product. That is fine, no problem. It is just not enough to actually get me to do anything unless it is a stiff disincentive. There is this balancing effect that the government would have to take if it went into tax disincentives, between those industries that would add it on to the end price of the product or the ones that would say, ``It is not enough to make me do anything, I will just carry on business as usual.'' How could the government find a critical mass of incentives or disincentives to make a difference without it costing multi-billions of dollars?
Mr. Sadik: Tax instruments, fiscal instruments, are not a panacea. They are to be used in combination with voluntary measures, regulations, and the full spectrum of available measures. Fiscal instruments also, like all tax measures, are relatively complex and need to be designed carefully, though that does not mean we should shy away from using them. They need to be, in some instances, looked at a year down the road to see how they are performing; perhaps be tweaked, increased or decreased which is something that other jurisdictions have done. There will be an added cost to products that have undesirable inputs. For better or for worse, that is the entire purpose of fiscal disincentives. That is how they operate. They will make it more expensive for industry to use certain materials and for consumers at the end of the supply chain to purchase those materials. I know that is an unpopular notion but it is something that sooner or later we are going to have to come to grips with.
The real cost of a lot of the products we buy is not included in the product. These are called the external costs; the cost to our health and the costs to our water, air and our peoples. We have to start including those kinds of things. It may turn out at the end of the day that certain products are too expensive in the whole sense. We must learn to make do with less of those products. It is not a popular notion, but it is something we are going to run into sooner or later anyway.
Senator Milne: I look at this survey that you have at the end of your presentation, Appendix 1, which I think is really an excellent little reference table for us. Which combination of these countries here would be in your view a best- practices package for a country like Canada to look at? Which one of these mixes of incentives and disincentives would be most appropriate for Canada?
Mr. Sadik: The country that has oft been held up as an example for Canada to emulate is Sweden, which you will find on page 3. This is only a list of tax incentives and disincentives.
Senator Milne: No incentives.
Mr. Sadik: Right, not fiscal instruments in general. Sweden, on page 3, does not rely on tax incentives as all. Sweden is compared to Canada often because it is a northern country like ours, so one cannot have claims of, ``They do not need as much power because their clime is more amenable to human existence.'' They have neighbours with very strong and dynamic economies that they have to trade with and compete with as Canada does with the U.S. There are differences of course. The sheer scope of geography means we will travel more than Swedes do and so on. Nonetheless, Sweden has a forestry industry as Canada does as well.
Senator Milne: It looks much like northern Ontario.
Mr. Sadik: A remarkable forestry industry where they are constantly regenerating their forest.
Sweden has been able to attain a living standard at least as high as ours and in an economy that is more dynamic than ours, therefore, Sweden is one good comparator.
All the nations listed here, with the exception of the United States and perhaps Australia, are doing better than Canada in terms of protecting the environment.
Senator Milne: Australia does not do a whole lot, though. They do not recycle at all there.
Mr. Sadik: I do not know that.
Senator Buchanan: I am rather delighted to hear someone like yourself because I have an idea that you live in the real world.
For 38 years — 24 years elected and 14 years here — I think I have lived in the real world, the political world. That sounds strange for me to say, that the political world is the real world, but it really is. I say that because what you just said about Sweden is interesting. I did not know that. It must have taken them a long time to get into the position they are in now.
There is a funny thing about politics and people. Everybody complains about the cost of gasoline: ``Eighty cents a litre, how terrible; that is awful.'' Really, it is a bargain when you think of it because we now pay $1.50 for a litre of milk, a dollar a litre for water and it goes up. Nobody seems to really say too much about it, so it is kind of that real unreal world we live in.
The problem with disincentives in this country is you have to be the bravest politician the Good Lord ever put breath into to do those kinds of things. For instance, in the little province of Nova Scotia, we rely on coal to generate electricity. You can say, ``You should use wind power.'' We are trying that, about two per cent. We have four or five spots where we can do it.
You can say, ``Use water power.'' We do not have any real hydro, just a few rivers that will generate a few megawatts of power.
We are left with coal, which is about 65 per cent and the rest is the other 30-some per cent that I just mentioned.
With respect to natural gas, when we get a sufficient amount ashore, it now mostly has to go to the United States because we are not fitted to use natural gas in Nova Scotia, and the cost will be incredibly high to do it. That is out for a while, so we are left with coal to generate electricity and coal for industrial purposes.
What do you do? You put a tax on coal, as mentioned here. You put a tax on coal; you put a tax on electricity; you put a tax on natural gas; and you put a tax on gas. Of course, in the real world, in which I and most around here live, that is it. You are just not going to be able to do it.
You mentioned the people in certain income levels should get a rebate to help them. I have gone through that in government many times. I am not against bureaucrats here, by the way, but tax rebates become a bureaucratic nightmare. We calculated the cost of doing a rebate program once. It cost us more to do a rebate program than paying the rebates out themselves. There is one in Nova Scotia right now that I am sure will cost the provincial government more — it did when I was there — than the rebates themselves.
There must be some way to streamline that kind of a situation. If you do not, then we are not in a real world because people will not accept the new taxes and the increases on those commodities they need for everyday life. That is the conundrum we are in. That is the big problem we have in this country and in the United States. It is interesting about Sweden. I do not know how in the world they did it in Sweden. Maybe they live so far north that it does not matter to them.
Senator Angus: They do not have a finance department.
Senator Buchanan: What do you say about that?
Mr. Sadik: You have brought reality to bear on the issue, Senator Buchanan. You made some excellent points about the political reality of doing some of the things I am proposing here today. Again, what I am proposing is not a panacea. It needs to be done in conjunction with other instruments out there.
Let us use the coal for example. If we want to reduce the amount of coal that is burned in Nova Scotia, and all of the problems that accompany it, some options take us in that direction. One, for example, would be to levy a small tax on coal but, at the same time, introduce a vigorous social marketing campaign. The campaign would tell Nova Scotians why the tax is being levied, the positive impacts it will have on the province physically on the citizens of Nova Scotia in terms of their health, and what will be done with the millions of dollars raised with this tax.
With respect to what could be done with the money raised with this tax, some of it could be recycled back to those large industrial sectors that burn coal and will be paying more for it. The money could be earmarked for the introduction of, for example, wind technology. If they pay $100 an hour or more for coal, they get back $100 or close to $100 per hour as long as they apply that money to wind technology or other renewable sources of energy. Those sectors would introduce them into their production process, thereby reducing the amount of coal needed to generate the heat, which is typically what it is used for, to generate the power, and using other renewable methods of generating this power. At the end of the day, those sectors are not behind a lot economically. There is equalization there. That is recycling the revenue to the industry.
The other component is recycling some of the money to the end-users, namely, the citizens of Nova Scotia, who would buy the product from the company where it now costs more to make the product because the coal costs more, or the people who are buying coal-generated electricity and it goes up a little in price. Reintroducing that to the low- income citizens in the form of a rebate, similar to the GST rebate, might not be so difficult if it is tied to the level of income reported on income tax returns annually. That is the test and the threshold: People below a certain income level and people above a certain income level who can afford to pay a little more for the luxury of coal-generated electricity. I say ``luxury'' because coal is getting into the lungs of Nova Scotians and putting mercury into the rivers and lakes of Nova Scotia.
Senator Buchanan: I disagree. In a speech I made in New York years ago I made a little joke. I did not think the media were there. They asked me, ``Do you still burn all kinds of coal in Nova Scotia?'' I said, ``Yes.'' They said, ``What about acid rain? What about CO2?'' I said, ``We don't worry about it in Nova Scotia because we waft it all over Newfoundland.'' The Halifax Chronicle-Herald had it on the front page. I did not think a reporter was there. I had to apologize to Brian Peckford.
Mr. Sadik: Even if it is going down to the U.S., we do not want to dump our stuff there. Recycle more. You pay a little more but you get it back if you take the right steps to replace what you have lost. It is not simple; it is not a panacea. It takes much time, effort and thought to implement these things, but we must start doing them.
Senator Buchanan: The federal and provincial governments involved in this should put you on television to explain it the way you just did. In all deference to Newfoundlander Rick Mercer, who talks about the One-Tonne Challenge, there was a poll at a radio station in Halifax. They interviewed 40 people and asked them if they knew about the One- Tonne Challenge. Most of them said they had heard something about it. Out of the 40 that were interviewed, 32 did not know what it was. The other eight said they knew about it but half of them did not know exactly what it was all about. That is the problem. We know what it is; we put it together, did we not?
Senator Angus: No, we did not.
Mr. Sadik: You tried to fix it.
Senator Angus: I was going to ask you earlier, sir, if you only had one choice of tax incentives and you were assured it could get in the upcoming February budget, what would it be? Then I recalled something that was told to me this week, and it worries we greatly. The government has woken up to the fact that we have this terrible deficit and we will have to do something extraordinary if we are even going to come close to honouring our obligations in Kyoto. They are looking at trading in environmental credits, which I have to confess I do not know too much about, but it is clearly important. I am now seeing in the literature that many countries are able to discharge their obligations by buying and selling these credits. The way I read it is, if we buy these credits — in other words, give money to make somewhere in Indonesia more environmentally friendly — this does not do anything in Canada for climate change or warming. Do you agree that this looks like the way the government is going and, if so, is it good or bad? What do you say about these credits?
Mr. Sadik: The government is floating the notion of buying credits because the government is feeling enormous pressure from a sector called large final emitters, representing over 50 per cent of Canada's greenhouse gas emissions. These are the electricity generators and large industries of Canada. Of course, they play a tremendously important role in keeping our economy going, employing people, et cetera. At the same time, it appears they are unwilling to do their fair share. They are unwilling to take their own One-Tonne Challenge the way Canadian citizens are being asked by the government to do. The government is looking at other options if it will be backing down from having the large final emitters cut their fair share of emissions. It is looking at buying credits on the international markets; but there also can be credits that can be purchased domestically. Credits on the international market in an abstract sense are a good idea because the planet as a whole is suffering the effects of climate change and greenhouse gas emissions. We are divided into small political sub-units. Nobody likes to send money off to other countries when that money could well be used at home to do the same things.
International credits probably would be the death knell of the Kyoto Protocol because it would be a pariah treaty. Canadians would be incensed by the fact that we are sending billions of dollars overseas to reduce greenhouse gases when we can keep that money here and implement the reductions in Canada.
It might make sense to look at a domestic credit system. This would create an incentive for creative individuals and firms operating in Canada to reduce their level of greenhouse gases to a level to which they committed to the government of Canada. Whatever extra reductions they make in greenhouse emissions can then be sold as credits to other sectors that have not been able to achieve those reductions. The money stays in Canada and creates a finance incentive for people to go beyond their committed level of production. It is a potential solution here in this country.
Senator Angus: You would be against us getting into what I think Senator Austin called trading; that we might address this problem of meeting our targets by engaging in an international trading process with environment credits. That prospect scares me quite a bit.
Mr. Sadik: That is scary, because it is unnecessary. It would generate such a backlash, and quite properly so, amongst Canadians. Canadians do not have a problem sending money overseas to help people in need. We gave very generously to tsunami relief. However, sending money overseas to reduce greenhouse gas emissions when we can do it ourselves and keep the money in Canada does not make sense.
Senator Angus: Perhaps you could suggest one thing to put in the budget on tax incentives, or disincentives — I do not know, either way. I am with Senator Buchanan about the art of the possible in this business. Telling people not to do things is one thing.
Mr. Sadik: About one thing in the budget I will decline to answer, because it takes many finely tuned different things to get where you want to be. There is no silver bullet. There is no one bullet.
Senator Angus: He wants it all.
The Deputy Chairman: Could I just continue on with that line? You realize that the government has a big job to do; there is no question about that. We have to narrow it down a little bit. Maybe you can sleep on this, Mr. Sadik. Try to think of one way that we can offer as a suggestion to the federal government for improvement. Would you do that for us?
Mr. Sadik: Sure. We have a package of 15 recommendations for the federal government. There is a list of four priority items. I have already referred one thing that the government has to do, and this is not a budget matter. It has to introduce a process of transparency into the Department of Finance in terms of how the Department of Finance looks at environmental tax measures and fiscal instruments.
The Deputy Chairman: That is within their administration.
Mr. Sadik: This has to do with the administration within the bureaucracy at the ministerial level and at the departmental level, so that the Senate committee, House committees, Canadians, interest groups and stakeholders can determine whether the Government of Canada and the Department of Finance are taking sustainable development seriously or not. You heard from Johanne Gélinas that that has vexed the Commissioner of the Environment and Sustainable Development to no end. It is her job to audit the department and she has not been able to do that.
To answer the budget question, a couple of things ought to be in the budget and will be sooner or later because it is happening in so many other countries around the world. It is the introduction at this time of some sort of disincentive to the burning of fossil fuels, coal, oil, natural gas and diesel. A small tax tied to the level of environmental harm that a given fossil fuel causes, because they are not all created equal, ought to be levied. This should be implemented slowly with lots of warning so that industry can take it into account.
Such a tax will have two results. People will start looking to other ways of generating energy and will have fair warning that they must do so. Second, the money from that can be recycled back into the economy toward things we like, such as generating renewable energy, reducing the tax rate on investments, reducing the rate on labour, reducing EI premiums and reducing employer health tax remissions. That is something many countries are doing and it is proving very successful. It is something Canada will do sooner or later. The sooner we start, the less painful it will be for us.
The second priority is that we need to shift some of the subsidies paid to the non-renewable resource sector away from that sector to other desirable sectors that we would like to promote. The Pembina Institute for Appropriate Development came out with a report earlier this week which showed that the federal government alone still pays $1.46 billion a year in tax incentive subsidies to the oil and gas sector. That sector, as we all know, is a tremendously profitable sector. Nonetheless, it is getting tax breaks to the extent of $1.46 billion per year.
I am not saying those tax breaks should be eliminated overnight. I am saying they should be phased out because the oil and gas sector does not need them. We need to promote other sectors for a long-term sustainable future.
Senator Angus: I have a problem with the subsidies. What about the subsidies to the automobile industry with no strings attached?
Mr. Sadik: Subsidies with no strings attached are insane.
Senator Angus: It is insanity. We provide all this money and then we do not force them to implement hybrid or blended fuels or to stop driving big sports utility vehicles. The government's own vehicles are all lined up right out here emitting. It is mind boggling.
Mr. Sadik: It sets a bad example.
Senator Angus: There is something in the One-Tonne Challenge about idling vehicles. Last night, the bus was sitting for three hours and took only one trip around.
Senator Lavigne: I changed my car this year and I noticed that I had a tax to pay if I picked a car worth more than $50,000, so I decided to buy a car worth less than $50,000 because I did not want to pay the tax. With measures like these, we have to start with one thing and focus on it and not let it go.
I was a member of Parliament for 10 years, and when I had a file to work on in my riding, which was a poor riding, I always worked on one file at a time and won.
You have to understand the importance of focussing on one thing at a time. At the Senate, I can propose a motion or a project and I focus on one motion or project until it is finished. After that, I will focus on something else. I will not focus on 15 things at once.
I am thinking about the tax on the $50,000 car and what follows that. If I buy a $55,000 car, I will pay more for insurance, I will pay more for gas and I will pay more for everything. This is a very good way that you mentioned to get people to understand that we have to stop one day.
All the senators here have to help you push these things through in order to say to the minister and the Prime Minister that this is really important. We have to give examples such as the tax on cars worth more than $50,000. As well, if you change from natural gas to electricity, you might get a subsidy, so why do we not stress that point more and more to help the environment?
Many people say they are environmentalists but they are not environmentalists. They are hypocrites because they waste energy. What the senator said is true. A minister's car is left running for an hour and the minister cannot say to his chauffeur, ``Hey, do not leave the car running. Come inside if you want to warm yourself. Come inside, we have a place for you.''
We are the government here. We are supposed to show good examples and we are showing bad examples. Some say I am the bad boy of the Senate. I am not the bad boy of the Senate. I am a guy who will say what he thinks.
Senator Buchanan said it well. We live in a world that we can fix but we do nothing. We want to look very nice, very sharp. We want to be the first one in line. I do not want to be the first one in line. I want to be the second one.
Mr. Sadik: That is almost as good.
Senator Lavigne: Senator Buchanan, is that not true? I was elected three times in my riding. Why, because I was with the people on the ground. I was serving my people. That was my work.
Senator Angus: Senator Lavigne for finance minister.
Senator Lavigne: We have to focus on one thing and get on it and not let it go.
Mr. Sadik: Senator, yes, your point is well taken. It is a criticism that is often levelled at the environmental and conservation communities and at the Green Budget Coalition in particular.
The coalition needs to take into account the realpolitik that Senator Buchanan was talking about. The coalition is comprised of 21 members across the country, 21 different environmental and conservation organizations. Some focus on climate change and some focus on water, forestry or air. Unfortunately, they are unable to agree on one priority area to promote in conjunction with you folks here.
We have managed to whittle it down to four priorities which are listed in the front of our report. Then there is the balance, the other 11 priorities, which we have put to the back. We have not been able to bring it below four priorities because every department is vying to get its measure into the budget. Every committee is vying to get its issue into the forefront and into the media.
Senator Buchanan: I want to make a comment on that.
Senator Lavigne: We always say that electricity is clean.
Senator Milne: Hydro-generated, water-generated.
Senator Lavigne: It is clean, but most of the time when people from electricity, by hydro or other companies, try to do a project, they always come with many problems. For instance, if you take a river —
[Translation]
If you proceed with plans to build a dam on a river, some fish could die. For example, it is possible that 50,000 trout could be lost. Strangely, though, no one in Canada says anything about countless other energy sources that can cause serious environmental pollution.
[English]
Nobody says anything, and we move many things. It is pollution. When we talk about electricity, we say we will lose 1,000 fish in that river. What is the best, to lose 1,000 trout or make pollution with gas or things like that? What is better?
Mr. Sadik: If you are asking for a hierarchy of clean energy sources, there is obviously some debate there. We can try to place the various energy generating sources in some sort of priority. I am not sure that necessarily moves us in the right direction. We can look at certain sources of energy that are virtually environmentally harmless such as solar, wind, geothermal and wave energy. If we move toward those sources of energy, reducing all other non-renewable sources, we are moving in the right direction without having to place the various sources of energy into a hierarchy. We can move from one group, one type that cause an environmental problem to a greater or lesser extent, to another category or class of energy that does not have a large environmental footprint, slowly, carefully and phasing it in over time. I think that is the solution.
Senator Lavigne: It is not a big environmental problem to recreate the fish in another place. It is proved that 20 years after, when the barrage is done, you have double and triple the fish inside; maybe not the same but you will have fish inside.
Mr. Sadik: Are there not implications with hydroelectric dams in terms of flooding areas? It kills them and then the carbon in the trees and the fauna is released into the atmosphere in large areas of flooding.
Senator Lavigne: I like your theory too, that these kinds of electricity are clean.
Senator Buchanan: The interesting thing about everything we are talking about here is when you try to do something that is really good you do not get much praise, but when you do something that some people say is not good they damn you. When I was first elected in 1967, when I was the Minister of Government Services and Public Works, we installed the first solar panels in a public building in the Atlantic Provinces. Nobody gave a damn. Then, in 1986, we built the first fluidized-bed coal plant in Canada to eliminate SO2, and David Suzuki called me a dinosaur.
I called him up and asked why he would say that. I said we have eliminated SO2. He said, what about CO2? I did not know what he was talking about but I checked it out. I tried to do something that was good. Other organizations thought it was good. They said Nova Scotia was moving in the right direction to eliminate SO2; we would not be wafting it toward Newfoundland anymore. That is just a comment.
Senator Angus: There are many kinds of pollution.
Mr. Sadik: There are many kinds of pollution and small steps in the right direction are wonderful.
Senator Milne: Mr. Sadik, I have some divided feelings. I liked what you said about using the carbon credit system domestically rather than internationally, because it will reduce carbon emissions here in Canada and keep the money in Canada. On the other hand, if you look at it from a world basis, is it not cheaper and more efficient to reduce one tonne of emissions in Russia, where it can be done more cheaply, rather than in Canada?
Mr. Sadik: In a sense, there are two parts to that question. As a consequence of the collapse of the Soviet regime in the late 1980s, Russia is already well below its target. They will sell us credits and do absolutely nothing because their emissions are so low and they already have the credits in their pocket. We will pay money and the planet will not see a reduction in the amount of greenhouse gases emitted.
If we keep it domestic and create an incentive for farmers to sequester carbon in their fields and crops, or in growing a stand of trees instead of crops, the farmers benefit, the money stays in Canada and we have a stand of trees. The payoffs are more bountiful than sending money over to another country.
Senator Milne: If you want to sequester carbon in a farmer's field, grow hemp instead of trees; you grow more fibre in a shorter period of time.
Mr. Sadik: Yes.
Senator Milne: What also concerns me is when you talked about the fact that doing this sort of thing, taking the approach of some of these other countries, would take a lot of time and trouble. I think those were the terms you used.
Mr. Sadik: No doubt about it.
Senator Milne: To me that spells bureaucracy and another potential Department of Finance. There is that trade-off there. I cannot see that in the long run it would save the government any money whatsoever.
Mr. Sadik: We are proposing that a sustainable development secretariat be introduced into the Privy Council Office, for example — a central secretariat that has advisory and decision-making authority to some extent to whip the departments into shape, to get all the ducks in a row and marching in the right direction. I know that will not happen like that or overnight, but that is the notion instead of creating a new department. There are no easy answers here but there are no easy problems. The problems are serious and complex and the answers will be difficult and complex as well.
Senator Angus: I wanted to ask you about ethanol. I understand in the European community they have just brought in some new legislation making it mandatory for vehicles starting at a certain date to have blended fuels. I gather the way it works — and I am not a scientist — is that you take the ethanol and the big oil or gas companies have to mix it and then it is a tremendous leverage. For a little bit of ethanol, you get substantially reduced emissions of CO2.
I do not know the details, but I understand ethanol is a by-product of grain and things that Canada produces in a huge way. Do we have a great ethanol resource and, if so, is there something that could be done there, where we pass that kind of legislation? It seems to me that would be a quick shot.
Mr. Sadik: All the gasoline-powered cars currently on the road can run with 10-per-cent ethanol without any modifications to the engine. You can now buy 10-per-cent ethanol at a few gas stations across the country. They are blending it in already. Ten-per-cent ethanol reduces greenhouse gases a very little bit, because you are dealing, first, with only 10 per cent of your fuel, and even then there is only a small reduction in greenhouse gases. The small reduction can be achieved by using cellulosic ethanol, which is ethanol made from fibre husks such as switch grass and wood chips — ideally by-products. It is not advisable to grow corn to make ethanol, because when you grow what is in essence a food staple crop to make ethanol, you are creating greenhouse gas just to grow, fertilize and harvest the crop, so it is better to use a by-product of something you are already growing.
There is a company on the outskirts of Ottawa called Iogen Corporation. They have a wonderful process for making ethanol from cellulosic material. It is commercialized and it is producing small reductions in greenhouse gases. It is not going to solve all our problems, but it is a track worth continuing on.
Senator Angus: You would not then advocate changing our law to make it mandatory to use this kind of fuel?
Mr. Sadik: I would not because it is di minimus.
Senator Milne: From the agricultural point of view, you may not realize that when you grow corn there is a lot of waste fibre. All the stocks and the cobs can easily be used to produce alcohol, and you still get the grain that you are growing anyway.
I believe they are building a plant in northern Alberta that uses the fibre by-products of the lumber industry.
The Deputy Chairman: I remind senators that we are going to visit the Iogen plant.
Mr. Sadik, when the Commissioner of the Environment was before our committee she said that Canada is dragging its feet with regard to analyzing how the federal fiscal framework affects the environment. Do you think this is an issue of political will — and by that I mean the Prime Minister, the Minister of the Environment and down the line — or are there other impediments to change such as bureaucratic resistance or inertia?
Mr. Sadik: The answer lies in political will to a large extent. If the political will is there, the bureaucracy will do it. The Department of Finance can and will do it if they are told to. In theory, the political will exists because there is a cabinet directive telling the Department of Finance to assess all its proposals through an environmental lens. However, the bureaucracy is not taking that directive seriously and no one is compelling them to take it seriously, but political will is the short answer, yes.
The Deputy Chairman: Thank you so much for being so frank. We have enjoyed your appearance before us. It has been a great exchange and we will take to heart the information you provided.
Senators, as you will recall, we wrote a letter to the Prime Minister asking that the Minister of Finance become a permanent member of the Ad Hoc Committee on Sustainability and the Environment.
The letter I received in response reads, in part, as follows:
With regard to your suggestion that the Minister of Finance be made a permanent member of the Ad Hoc Committee on Sustainability and the Environment, I would point out that the Minister is an ex officio member of all Committees of which he is not a standing member.
Well, we know that.
In addition, Ministers other than standing members may be invited by the Chair to attend the Ad Hoc Committee, as may be required.
The Ad Hoc Committee plays an important role in considering, in an integrated manner, sustainability and environment priorities. However, although it may, as an ad hoc committee, make formal recommendations to Cabinet, the Cabinet retains all decision-making authority with regard to these recommendations.
On the issue of the creation of a sustainable development advisor (or advisors) in my office or within the Privy Council Office (PCO), it should be noted that the PCO officials currently support the Ad Hoc Committee in its work. More generally, the PCO and my office play an important role in ensuring that policy proposals are consistent with the government's core priorities, such as the environment and sustainable development.
The Standing Senate Committee on Energy, the Environment and Natural Resources has a key role to play in advancing the sustainable development agenda.
The committee adjourned.