The Green Budget Coalition today urged the Government of Canada to seize the unique opportunities available to cut spending while improving Canada's long-term environmental, economic, and health status.

"The federal government's intention to cut wasteful spending can, in fact, play an important role in creating healthier lives for current and future generations of Canadians, if directed wisely," said Julie Gelfand, Coalition Chair, while releasing the Coalition's Recommendations for Budget 2006: Leading Opportunities for Our Environment, Our Economy, and Our Health.

Phasing out tax expenditures to the oil and gas sector could save about $1.4 billion annually, while ending select subsidies to nuclear power, via AECL, and to mining exploration, would save more than $150 million and $80 million per year, respectively.

"For decades, these "perverse subsidies" have caused market failures and contributed to industrial inefficiency, unsustainable energy consumption, and unnecessary pollution and health damage," explained Gelfand. "These subsidies are a waste of taxpayers' money."

"Canada's future prosperity depends on phasing out such subsidies, maintaining our current environmental programs, and better integrating economic, environmental, and human health considerations into federal policy-making."

The Green Budget Coalition's five priority recommendations, detailed in the new document, would simultaneously strengthen Canada's economic competitiveness, clean our air and water, and improve Canadians' health, and could all be implemented at no net additional cost. The full submission is available at http://www.greenbudget.ca/pdf/GBC_2006.pdf.

The Green Budget Coalition brings together the collective knowledge of 20 of Canada's leading environmental and conservation groups, to submit priority recommendations for each annual federal budget, and to advance the understanding and use of ecological fiscal reform. The Coalition firmly believes that Canada's future prosperity depends on the effective integration of environmental, economic, and human health objectives.

The Green Budget Coalition's members include Bird Studies Canada, Canadian Environmental Law Association, Canadian Parks and Wilderness Society, Centre for Integral Economics, David Suzuki Foundation, Ducks Unlimited Canada, Environmental Defence, Équiterre, Friends of the Earth Canada, Greenpeace Canada, International Institute for Sustainable Development, MiningWatch Canada, Nature Canada, Nature Conservancy of Canada, Pembina Institute, Pollution Probe, Sierra Club of Canada, Sierra Legal Defence Fund, Social Investment Organization, and World Wildlife Fund Canada.

CONTACTS:

Amy Taylor, Director of Ecological Fiscal Reform, Pembina Institute, 403-678-3355, amyt(at)pembina.org
David Martin, Energy Co-ordinator, Greenpeace Canada, 416-627-5004, dave.martin(at)yto.greenpeace.org
Julie Gelfand, Chair, Green Budget Coalition, 613-562-3447 ext. 231, jgelfand(at)naturecanada.ca
Andrew Van Iterson, Program Manager, Green Budget Coalition, 613-562-3447 ext. 243, avaniterson(at)naturecanada.ca

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Backgrounder: "Perverse" Energy Subsidies

The term "perverse subsidy" is often used to refer to subsidies intended to support energy exploration and production but which also work against other important public policy objectives, such as human health and a clean environment. A 2001 OECD analysis recommended 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.[1] Three key recipients of such perverse subsidies are the oil and gas sector, Atomic Energy of Canada Limited (AECL), and the mining sector.

Oil and Gas Sector

The largest of these subsidies benefit the oil and gas sector.

Estimated federal expenditures to the oil and gas sector are $1.4 billion per year, based on the latest available data. Most of the subsidies are in the form of tax breaks under Canada's Income Tax Act. In the period 1996-2002, these tax subsidies amounted to a staggering $8 billion. According to the Auditor General's office, the fossil fuel sector has received more than $40 billion in federal subsides over the course of the last three decades.

One particularly egregious subsidy is the accelerated capital cost allowance for tar sands developments. Capital cost allowance rates generally reflect the useful life of the assets being depreciated. Tar sands projects qualify for significantly accelerated write-offs resulting in a tax expenditure of $484 million between 1996 and 2002 according to the Pembina Institute. These tax expenditures are likely to grow dramatically given the numerous multi-billion dollar tar sands projects that have recently been proposed.

Since 1997 when Canada first agreed to its Kyoto target, the federal government has been spending $2 on oil and gas industry tax subsidies — and indirectly promoting greenhouse gas emissions — for every $1 it has spent on reaching its Kyoto goal. Between 1990 and 2003 Canada's GHG emissions increased by 24%, with a significant part of the increase attributable to the oil and gas industry.

The Green Budget Coalition believes that these government expenditures are not warranted to a sector experiencing record profits.

Contact: Amy Taylor, Director of Ecological Fiscal Reform, Pembina Institute, 403-678-3355, amyt(at)pembina.org

See: A. Taylor, M. Bramley, & M. Winfield (31 January 2005): Government Spending on Canada's Oil and Gas Industry: Undermining Canada's Kyoto Commitment. Pembina Institute.

Nuclear Subsidies and AECL

Atomic Energy of Canada Limited (AECL) received $163 million in the 2004-2005 fiscal year, and has received over $17.5 billion since its creation in 1952. AECL is a federal crown corporation that designed and marketed the CANDU reactors. AECL has no prospects for further reactor sales, but with no public debate continues to receive massive subsidies for the design of a new and untested reactor design known as the Advanced CANDU Reactor (ACR).

Following the failure of licencing processes for the ACR in the United States and the United Kingdom, no utility or government has stepped forward to take the risk of building the untested prototype reactor.

In September 2005, the former Liberal government allocated $2.3 billion for the clean-up and decommissioning of AECL's Chalk River Laboratories, in the Ottawa valley. These funds should be kept in a segregated fund, separate from AECL and its day-to-day operations.

Contact: David Martin, Greenpeace Energy Coordinator at 416-627-5004

See: David H. Martin (2002): "Canadian Nuclear subsidies: Fifty Years of Futile Funding", www.cnp.ca

Mining Sector

Mining exploration in Canada has caused substantial damage to Canada's fragile ecosystems, and local First Nations and other communities, and similarly prevented other more sustainable economic opportunities, yet the federal government continues to subsidize this mining exploration. The Flow-Through Share Program and the Investment Tax Credit for Exploration (ITCE) forego over $38 million, and $39 million, respectively, in annual tax revenue.

The flow-through program, a tax incentive for "grassroots" mineral exploration, was introduced in October 2000 as a temporary measure to help moderate the effect of a global downturn in mineral exploration in the 1990s. The original three-year program has been extended twice since its inception, both for additional one-year periods, and was then due to come to an end on December 31, 2005. The program enables mining companies to allocate a portion of their exploration losses to investors to use as a loss on their tax returns.

The federal ITCE further enables investors to receive a 10% credit for their investment in a mineral exploration project on previously undeveloped land. The ITCE was institutionalized with Bill C-48 at the end of 2004. The ITCE enriches speculative investors by reducing the after-tax cost of a $1000 investment in exploration in Canada to as little as $207 in Quebec, and $333 in BC[2].

The federal government should phase out the ITCE and flow-through share program. It would also be economically prudent to further investigate whether the investment of public funds to support primary resource extraction over recycling and conservation measures reflects good business or environmental practice.

Contact: Joan Kuyek, National Coordinator, MiningWatch Canada, 613-569-3439, joan(at)miningwatch.ca
Green Budget Coalition Contact: Andrew Van Iterson, Program Manager, 613-562-3447 ext. 243, avaniterson(at)naturecanada.ca

[1] A. Vourc'h (22 March 2001): Encouraging Environmentally Sustainable Growth in Canada. Economics Department Working Papers No. 290. ECO/WKP(2001)16, p. 40.

[2] Natural Resources Canada March 2003 presentation to World Bank Extractive Industries Review, p. 28.