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The Taxman Needs to Help Shift from Mining Virgin Materials to Recycling

MiningWatch has recently published new research on the bias of the tax system towards mining exploration -- Understanding Mining Taxation in Canada.

The astonishing cost of the minerals we take for granted must be respected in government policy and industry practice. This means treasuring the minerals that have already been extracted and reducing the need for mining wherever possible. Many more jobs and more sustainable economies can be created in the minerals industry if the focus shifts from mining to the re-use of minerals already taken from the ground and to value-added production in Canada.

In the last decade a number of voices have been expressing growing concern about Canada's special tax treatment for the extraction of virgin minerals:

  • The Organization for Economic Cooperation and Development (OECD) recommended in its 2000 country report on Canada that, “the preferential tax treatment of conventional resource sectors, such as oil and gas, and minerals and metals should be eliminated” on both environmental and economic grounds.
  • Principle 8 of the 1992 Rio Declaration and Chapter 4 of Agenda 21 – Changing Consumption Patterns committed the parties to the elimination of unsustainable patterns of production and consumption. It has been estimated that, to achieve sustainability worldwide, the material intensity of each unit of economic output will need to be reduced by 50 per cent and, in industrial countries like Canada, it will have to fall by factors of between four and ten.
  • A 1995 report prepared for the Canadian Council of Ministers of the Environment that found tax expenditure provided by federal and provincial governments provided a bias against recycling, and stated that recycled materials would have to taxed 13 percentage points less than virgin materials for optimal waste reduction
  • A peer-reviewed article by Kimberley Sharf of the University of Warwick, drew the following conclusions: “The Canadian tax system significantly favours the use of virgin materials rather than recycled materials in the case of metal and glass products…” Sharf found that “ Metal produced with virgin material has a Canada-wide weighted average tax rate of 23.4%, while metal produced with recycled material has a rate of 27.9%.”

Some of the benefits from recycling metals include:

  • Pollution prevention - mining produces 1 million tones of waste rock and 950,000 tonnes of toxic tailings annually, often requiring perpetual care and maintenance. This is more than twenty times the amount of municipal solid waste generated each year by all of the residences, industries, commercial establishments, and institutions in Canada combined. According to the US Institute of Scrap Recycling Industries, recycling steel results on a 97% mining waste reduction and a 76% water pollution reduction.
  • Energy savings on metal production: zinc 60%, steel 74%, copper 85%. Falconbridge Nickel mines in Ontario currently consumes as much electricity as 250,000 homes.
  • Reductions in greenhouse gas (GHG) emissions: producing a tonne of aluminum creates four tonnes of GHGs and making a tonne of steel gives off 0.8 tonnes of GHGs. Small increases in their rates of recycling would yield substantial reductions in GHG emissions. The Enhanced Recycling Program at Natural Resources Canada is working with industry and other stakeholders to find ways to improve recovery of these metals.
  • Reductions in human health risk, illness and associated public health costs. Heavy metals released by mining are a significant contributor to ill health in communities such as Sudbury and Port Colborne in Ontario, Lynn Lake, Manitoba, Trail (BC), Labrador City (Labrador) and Rouyn Noranda (Québec). Over 60,000 tonnes of particulate matter are released into the atmosphere from tailings in Canada each year, while the metal smelting sector is a leading source of a range of heavy metals, including cadmium, mercury, lead, nickel and arsenic, as well as acid rain precursors, such as sulphur dioxide.

Metals are especially good candidates for recycling and conservation. Metals do not lose their mechanical or metallurgical properties when recycled, while retaining their economic value. As a result metals can be re-used and recycled through the economy almost without limit.

In a study undertaken by the Pembina Institute and MiningWatch Canada in 2002 (Looking Beneath the Surface) , we discovered that even in Canada, the return on investment from the mining industry to federal and provincial governments is shrinking in cash revenues, in contribution to GDP and in employment, while the environmental and social costs are rising. At the same time, ore reserves are being depleted. Investment in mining would be better spent on innovative community economic development strategies for mining dependent communities and support to recycling and conservation.

It is extremely difficult to sort out the tax and royalty benefits of the mining and concentrating industry for a number of reasons. Many figures are confidential. Mining data is frequently aggregated with data from downstream industries like smelting, refining and metals manufacturing - industries which would still exist if the inputs were re-cycled materials. Mining data is also often aggregated with tar sands, oil and gas.

According to the federal Department of Finance, the last year for which detailed tax data on mining was available was 1997. We have been able to determine that in 1997, mining only contributed $251 million in direct federal taxes, and $147 million in provincial income taxes (from all provinces) for a total of $398 million. (from Statistics Canada catalogue number 61-219, 1998).

According to their 2003 annual financial statements, four of the largest mining companies in Canada paid the following totals in taxation. The figures include their subsidiaries and taxes paid to governments elsewhere in the world (numbers in brackets indicate negative taxes).

Company       Sales (US $)   Taxes 2003   Taxes 2002

Barrick Gold  $2.035 billion   $5 million      ($16 million)

Placer Dome $1.763 billion  $44 million    ($34 million)

Inco              $2.474 billion  ($49 million)   ($639 million)

Noranda       $4.657 billion  $24 million     ($168 million)