Prime Minister Harper has made a commitment to include the mining sector in an upcoming stimulus package. There is no denying that this sector, as with other industrial and resource sectors in Canada, is experiencing hard times. Metal prices have plummeted, fewer people are buying diamonds, and even the usually safe haven of gold has taken some tarnishing. Exploration is virtually stopped, development of many new projects is on hold and cutbacks or complete shut-downs are being announced at operating mines.
MiningWatch Canada supports efforts to ease the stress of the current economic situation on mining dependent communities and to look for new economic opportunities in these communities. For reasons outlined below we do not support additional tax breaks and benefits to mining companies and through our participation in the Green Budget Coalition we have, for several years, been advocating for ecological fiscal reform of taxes and subsidies to provide greater support for metal conservation, recovery and recycling. There are also opportunities to stimulate economic activity in mining communities through remediation of contaminated areas and abandoned mine sites.
No More Tax Breaks for the Mining Industry
The two national mining industry associations, Mining Association of Canada and the Prospectors and Developers Association of Canada are both asking the government to offer up additional tax breaks to the industry to ease their bottom line during the economic crisis. The industry, however, already receives highly favourable tax treatment and tax breaks. These include the “Super Flow Through Shares” program, the Mineral Exploration and Development Tax Credit, and the Accelerated Capital Cost Allowance for Mining.
MiningWatch Canada has documented the extensive subsidies and tax benefits enjoyed by the mining industry in two documents, Beneath the Surface and Understanding Mining Taxation in Canada, both available on our website. One of startling findings from Understanding Mining Taxation In Canada was that in 2002 and 2003, some of our largest mining companies, with sales in the billions, paid no corporate income tax thanks to their ability to write-off exploration and development, operating and capital expenses at the time of their choosing.
Providing additional federal tax breaks during a slow down will not stimulate the sector because both corporate and income taxes are based on profit. When the companies do not show a profit, as will be the case for many during the current economic crisis, their tax burden will already be limited.
One of the industry’s tax benefits is the Super Flow Through Share Program, which allows exploration expenses to be passed on to share holders as tax write-offs. It was introduced in 2000 to stimulate investment in exploration during a previous slow down. It has remained on the books through the recent boom and now industry is advocating for an increase in its benefits and for it to become permanent. There does not, however, seem to be convincing evidence that this program even works to stimulate exploration. Data from Natural Resources Canada show exploration investments in recent years are strongly correlated with the price of metals and that exploration investments did not start to increase out of the previous slump until there was a strong price signal from the market. (Figure 1)
MiningWatch Canada strongly recommends that the 2009 federal budget not include any additional tax benefits to the mining industry, and would further recommend the phasing out of tax benefits including the Super Flow Through Shares Program, the Mineral Exploration Tax Credit and the Accelerated Capital Cost Allowance.
Support Mining-dependent Communities
Rather than providing tax benefits to mining corporations, the federal budget and stimulus package should be used to ease the economic stress on mining-dependent communities. This could be done through investing in local infrastructure projects, improvements to employment insurance, protecting workers’ pensions, and economic diversification programs.
As a member of the Green Budget Coalition, we support its recommendations for increased funding to environmental infrastructure, renewable energy and energy efficiency programs. Special consideration should be given to resource dependent communities that have seen the foundation of their economies crumble in recent months.
MiningWatch also supports the Canadian Labour Congresses recommendations on infrastructure spending, EI reform, and protecting workers pensions found in Labour’s Plan to Deal with the Economic Crisis . The recommendations on EI include lower entrance requirement of 360 hours, and longer and higher benefits. Workers pensions should be protected by increasing benefits from Canada/Quebec Pension Plan and the Old Age Security, creating a national pension insurance fund, and regulating financial markets.
Local economies that are based largely on the mining sector are inherently unstable in the medium-term and inherently un-sustainable in the long-term. In order to dampen the effect of the boom and bust mineral economy, and provide for opportunities for long-term community viability, mining communities need to find alternative sources of economic activity. There is no one-size fits all solution for economic diversification, and the opportunities are very much dependent on local circumstances. MiningWatch recommends that a fund for economic diversification initiatives, focussing on local entrepreneurial opportunities be created to support mining-dependent communities.
Transfer Tax Benefits to Metal Conservation, Recovery and Recycling
Canada has been criticised by the OECD for having a tax and subsidy system that favours the more environmentally costly mining of metals over the sustainable alternatives of conservation, recovery and recycling. For example, mining companies enjoy considerable advantages in writing-off depreciation of assets and capital investments that are not available to the recycling industry.
Conservation, recovery and recycling have significant environmental advantages. Energy use and greenhouse gas emissions are 60% (zinc) to 95% (aluminium) lower for recycling metals when compared to mining. The amount of water pollution and other sources of air pollution are also greatly reduced by recycling as are the impacts on wildlife and landscapes that are caused by construction and operation of mines. While promoting recycling has these environmental benefits, there are also benefits for employment:
“Green” increasingly means creating jobs by re-circulating materials through the economy. Walter Stahel of the Product-Life Institute in Geneva recognized decades ago that the bulk of industrial energy use goes into the mining or production of materials like steel and cement, while only about 25 percent is used to convert the materials into finished goods like machines or buildings. But for labor, the opposite is true: roughly three times as much labor is used to convert materials into value-added products than in the original mining. The lesson for policymakers today: an economic stimulus package designed to recondition or reprocess old products, rather than make new ones, would help the environment and create more jobs.
The recycling industry is a mature sector that operates in an international market. Significant percentages of global metal needs are met by recycling; forty-five percent of global steel comes from scrap and a third of global aluminium is produced from recycled metals . There are, however, opportunities for substantial improvements in the demand and supply of recycled metals as well as in the efficiency and environmental performance of secondary processing. While other countries are providing support to their recycling sectors, Canada continues to favour the more environmentally damaging and unsustainable extraction of primary metals, putting the Canadian recycling industry at a competitive disadvantage.
MiningWatch Canada recommends that the Accelerated Capital Cost Allowance currently enjoyed by the mining industry be transferred to the metals recycling industry. Construction or improvements to recycling facilities where existing metal processing facilities exist would help to maintain jobs in some mining-dependent communities where facilities are currently in place.
Promote Innovation for Recycling and Closed-loop Material Cycles
Many of the barriers to increasing recycling and closing the loop for non-renewable resource use has to do with product design and manufacturing. Most products are designed and made with recycling an after-thought, which creates great challenges to efficient recovery of the valuable materials they contain. While it is necessary to address immediate economic issues in this budget, the government should not forget that medium and long-term prosperity will depend on innovation as much as it does on production. Relative to the mining sector, recycling benefits from very little federal support. We recommend the re-funding of the successful Enhanced Recycling Program of Natural Resources Canada, with at least $2-million a year. We further recommend the development of a centre of excellence for “closed-loop” design and manufacturing at a post-secondary institution.
Advances have been made within the auto sector for recycling cars and other vehicles at the end of their life, however significant barriers exist to the economic and environmental efficiencies of auto-recycling. As part of any auto-industry stimulus package the government should insist on improvements to recyclability of automobiles including the removal of un-necessary toxic substances.
Through its purchasing power, the federal government has an un-tapped potential to drive markets for recycled goods. The government should develop and implement a sustainable purchasing strategy that includes purchasing decisions based on both the recycled content of goods and their end-of-life recyclability.
Improve Environmental Performance of Mining Industry and Remediate Contaminated Areas
Mining is a messy business and improvements in the environmental impacts of mining have been made in recent years. There is still, however, significant room for improvement in the environmental efficiency of existing operations and in cleaning up the legacy of past mining and mineral processing activities.
Mining and mineral processing are energy intensive activities and contribute significant amounts of greenhouse gas emissions and other pollutants to the atmosphere. HudBay Mineral’s Flin Flon smelter is, for example, the largest point source polluter of sulfur dioxide, mercury, lead, cadmium and arsenic in Canada. MiningWatch supports making credit more available for the industry to undertake targeted, and measurable reductions in greenhouse gas emissions or other pollutants.
The history of mining and mineral processing in Canada has left a legacy of contaminated and dangerous sites across the country. In addition to areas contaminated by smelter fall-out there are an estimated 10,000 abandoned mines in Canada, many of which continue to pollute the environment and pose significant health and safety risks. Many of these sites are in the traditional territories of First Nations, Inuit and Metis that received little or no benefit from past mining operations. The Quebec and Ontario governments have estimated that $700-million is required to address the sites in these provinces and in 2002 the estimated costs for rehabilitation in the northern territories was $555-million.
Unfortunately no systematic evaluation of the economic impact of remediation has been conducted. Examining a single case, the remediation of Mt. Nansen Mine in the Yukon can provide an indication of the potential. Of the $2-million spent on remediation in 2000, almost $900,000 went to labour and $740,000 went to construction, equipment, fuel and maintenance costs much of which would have been provided by local service industries. These figures suggest that remediation would have lasting environmental benefits while providing an immediate economic boost to rural communities.