[Recorded by Electronic Apparatus]
Monday, November 27, 1995
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[English]
The Chairman: We are now beginning an examination of the fiscal disincentives in the implementation of sustainable development practices. That is what this committee today and in the next few days is all about. We are doing this in conformity to article 108 of the regulations, and in identifying these obstacles, we selected some specific objectives at our last meeting, which I believe was on November 22, 1995.
We intend to obtain a progress report on federal efforts. Secondly, we intend to determine an appropriate process. Finally, we want to identify in four economic sectors principal federal fiscal disincentives to sound environmental practices. We will then make recommendations on how to replace these practices with ecologically and sustainable development-favourable alternatives.
For a government that is committed, as this is, to sustainable development, the key question, it seems to some of us around this table, is the following. How do we ensure government policy leads to decision-making that is sustainable? At this moment, as we all have gradually discovered, our budgets and policies lead frequently to unsustainable outcomes.
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Secondly, we realize that we face a complex situation. We have on the one hand markets that do not internalize environmental costs, leading to pollution and resource depletion. We also have market prices that are pushed lower through government subsidies, leading to an even greater consumption of environmentally unfavourable commodities. On the other hand, we know that economically and environmentally perverse incentives can be identified, reduced, and eventually reversed, thereby improving both economic and environmental performance.
The next federal budget is our object - in a sense, the reason for doing it now - and because of its expected focus on deficit reduction, it represents a good opportunity to identify fiscal savings out of some of the subsidies. Eliminating some of the subsidies is the clearest and perhaps simplest approach to sustainable development budgeting, and that is what we are intent on discovering.
We are far from having a level playing field, particularly in energy, where we have government budgets favouring the consumption of fossil fuels increasing, rather than decreasing our dependence on them. Then there is the need to internalize the cost of production, which I mentioned earlier, and one way of internalizing cost is to impose taxes on polluting activities, using the revenue thus generated to offset a reduction of other taxes - for instance, income taxes - and thereby resulting in a revenue-neutral tax reform.
We are quite aware also, not in detail, of the fact that in other jurisdictions - the Netherlands, Norway, Germany, and Denmark - they are successfully lowering subsidies, shifting subsidies onto environmentally sustainable activities, and implementing new approaches to taxation. Canadian decision-makers and policy-makers need to benefit from their experience. A study designed to promote sustainable development strategies, flowing from the promise made by the finance minister of Canada in his 1995 budget to review natural resource taxation, is therefore urgently needed.
Regarding the process, what is needed is to achieve a comprehensive and consistent study. Last Wednesday, when we met with the first panel, witnesses told us that it should involve finance officials; that it should incorporate the work of interested groups such as the National Round Table on the Environment and the Economy, the Pembina Institute, and others; that it should not become another task force forum for a wide range of opinions; that the information on subsidies exists but may not be assessed in terms of sustainable development and not examined as to how to modify these subsidies; that the study should have clear terms of reference; that federal departments are in a position to provide information in a reasonable amount of time so policy change could come about within the current mandate of the government; and finally, that the framework for an analysis could be developed by a small group of experts in this field who know the domestic and the international scene.
We were also told last Wednesday that we cannot allow this approach to sustainable development to drift much longer within the federal bureaucracy; that we should not attempt to introduce too much complexity into the study, as tempting as that might be; and that the study eventually could become a collection of separate studies performed by individual departments.
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So what we are concluding, dear colleagues and ladies and gentlemen, is that we are launching here today what could be described as a preliminary step intended to pave the ground for the Minister of Finance and the Minister of the Environment to keep a red book promise, which can be found on page 64 of Creating Opportunity and which reads as follows:
- Our first task will be to conduct a comprehensive baseline study of federal taxes, grants, and
subsidies in order to identify barriers and disincentives to sound environmental practices.
In order not to make interruptions and last minute announcements, there will be a change in the schedule this evening, whereby our session, which is scheduled for 7 p.m., is changed to 7:30 p.m. in order to accommodate certain other requirements.
Having said that, I proudly invite Penny Gotzaman to introduce herself and indicate to us how she wants to proceed.
Ms Penny Gotzaman (Director General, Policy and Economics Directorate, Department of the Environment): Thank you, Mr. Chairman. My name is Penny Gotzaman. I'm the director general of the policy and economics directorate in Environment Canada.
Mr. Chairman, we have talked about the order in which we would like to proceed and we have decided that Anthony Cassils will start the session. I will then give my introductory remarks. Anne Park will follow me, and we'll leave François Bregha to the end. So I will let the other panellists introduce themselves, Mr. Chairman.
Mr. Anthony Cassils (Consultant on the Environment and the Economy): My name is Tony Cassils. I'm a consultant on environment and the economy. I've been doing this for the last seven years. In the course of my speech I'll give you more information about my background and how it pertains to this presentation.
First of all, I'd like to thank you for the opportunity to contribute to the work of this distinguished committee. The vision and rigour with which you have pursued your tasks has long evoked my admiration. In my view, the committee is to be commended for undertaking this review of fiscal disincentives to sound environmental practices and for beginning to explore the question of how the fiscal regime can best be modified to achieve environmental goals.
I've been asked, as my role in this introductory panel, to provide a strategic overlay and to comment on the importance and timeliness and the actions required for progress of these issues. Last Wednesday I listened to the eloquent presentations made by Jim MacNeill, David Runnalls, and Art Hanson. I won't repeat the points they have made extremely well, but I do support them.
Because I come before you today in my personal capacity, I thought it might be worth while to discuss some of my experiences that have shaped the strategic perspective that I will share with you today, and most of them relate to one of my major concerns, which is institutional change.
My active interest in the environment goes back almost 35 years and grew out of my undergraduate studies in economic history. At that time the population of the world was approximately 2.6 billion or about one-third of the present level. The pace of economic activity between 1940 and 1960 was sufficiently rapid to deplete many resources previously thought inexhaustible, and to me it indicated that the acceleration of human demands on the environment would force a time of reconciliation requiring profound institutional change. I believe that we are now at that period of adjustment, but also that we have been moving much too slowly to alter beliefs, assumptions, and institutions.
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These insights have shaped my career. After taking law in Quebec in the 1960s, in 1969 I worked with the Canadian Council of Resource Ministers, which was the forerunner of the present CCME and one of the few environmental groups in the country at that time. Then followed ten years as a public servant in the Government of Ontario in the 1970s doing policy development work in Treasury and Economics and in the cabinet office.
I spent the 1980s in the financial services industry, seven years in the head office corporate planning of the Royal Bank of Canada and as vice-president of a medium-sized investment counselling firm of international interests. One of my roles has been to pick up early signs of change and to alert organizations to potential implications of these developments, a role shared, I expect, by many people in this room. It can be difficult to do and brings to mind a statement of Earle McLaughlin, a former chair of the Royal Bank of Canada, who said, I am always certain but I'm sometimes wrong.
In 1978 I remember urging that acid rain be put on the policy agenda of the Government of Ontario. I was informed that it was not an issue but they said they would put it on to humour me. I became aware of the issue of acid rain in the late 1950s and early 1960s when hiking in the Adirondacks, where acid rain had been a major source of concern since the 1930s. I suspected that it was not stopping at the border.
In another case in 1985, while at the Royal Bank, I circulated a memorandum about the likely collapse of the Soviet Union and was informed, ``not in our lifetime''.
These and similar experiences made me aware that it is difficult for large institutions to respond to early anticipation, even though it may be well founded in traditional wisdom, as reflected in sayings like ``a stitch in time saves nine''.
Institutions, like people, all too often defer change until things become so bad that they have to act. Perhaps there is too much emphasis on analysis. While analysis is useful, it can be overdone in the pursuit of an almost scientific certainty, which is illusive if not impossible when dealing with government and creatures as complex as human beings.
Analysis is only one way of knowing. Analysis by a specialist can push aside intuitive insights, which may be more timely and integrative. This may explain in part why so many of our institutions seem to be functioning counter-intuitively.
One way to overcome this dilemma is to respond more quickly to intuitive insights by testing changes in small, promising ways. This builds experience and prepares for further advances. I believe that we are at this point in encouraging change in the fiscal system.
When the Brundtland report came out in 1987, I started speaking and writing in support of sustainable development. In October 1988 I co-authored, with a vice-president from the Royal Bank, an article called ``Let's Give Business an Incentive it Understands''. This appeared in the op-ed page of The Globe and Mail and it suggested some tax measures, such as using flow-through shares to encourage sound environmental practices. I'd been buying these flow-through shares for my clients and it seemed bizarre to me that they weren't being applied for other ends than for mining or for oil and gas development. The timing of this article was right and it received considerable attention nationally. This led to requests to do more work related to taxation and sustainable development, such as a paper in 1989 called ``Structuring the Tax System for Sustainable Development'', prepared for the Canadian Institute of Resources Law.
Until 1990 I did this work on a voluntary basis but that year decided to become a consultant on the environment and the economy full time because the work was taking most of my time. Since then I've tried to bridge business and the environment in my work and have done a number of studies on economic instruments.
In recent years I've had the good fortune to work with groups such as the National Round Table on the Environment and the Economy, which has shown itself to be a far-sighted and flexible organization. It has an integrative capacity that will be required of many more organizations in the future.
At this point, I would like to touch on the following issues. Why does progress towards the implementation of green taxes and other economic instruments to encourage sound environmental practices seem to be happening so slowly? I'd like to touch on changing values, assumptions, incentives and structures. I'd like to deal with how solutions of one era often become the problems of the next. I'd like to consider the requirement for good information for management and the need for bold, inspirational leadership.
I will conclude with comments about the importance and timeliness of a baseline study and some suggestions for next steps.
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Last year, when the Task Force on Economic Instruments and Disincentives to Sound Environmental Practices had started its work, the national round table asked me to prepare a paper on barriers to sound environmental practices. In this paper I posed the following question: why has it taken so long to apply economic instruments, or to remove fiscal barriers in a substantial way?
Green taxes are one of the oldest and most familiar of economic instruments. It was a Cambridge University economist, Arthur Pigou, who proposed such a tax in 1920 as a way to bridge the gap between private and social costs, which is at the root of environmental damage. Since the 1960s economists have written increasingly on the subject of economic instruments, with a burst of activity since the late 1980s led by the OECD. However, the intellectual energy has not resulted in as much implementation as one would hope. The Nordic countries and the Netherlands now raise from 5.4% to 10.75% of their total tax revenue from taxes with environmental implications. They have included things such as excise taxes on fuel, so it may in part be putting new labels on old ideas for window dressing. On barriers to sound environmental practices, comparatively little has been written.
There are many explanations for the slow pace of progress. For example, the current way of life in Canada is shaped by values, assumptions and incentives that are built into political and economic structures, and more subtly into social structures. Structures and institutions shape the values of people as much or more perhaps than the values of people shape structures. I've worked in several large organizations and know well the influence of established institutional culture.
Many existing policies find their conceptual underpinnings in the era of the Great Depression of the 1930s. At that time consumer demand and productive capacity were strong, but many people did not have much money or jobs, so there was a liquidity problem. Public expenditure primed the pump with policies designed to stimulate production, consumption and jobs, but without emphasizing efficiency. I would suggest that these assumptions still dominate in Canada and in the fiscal structure, but they do not seem to be working very well.
The solutions of one era often become the problems of the next, and when things get bad enough, they induce change. Hopefully, these very problems may bear the seeds for their resolution. I believe we may experience hard times over the next few years. Many illusions will fall with the onset of the next recession. Acceleration of production and consumption has outstripped financial, and sometimes environmental, resources during the past 25 years. High debt levels and the near eradication of the groundfish on the east coast, declining salmon on the west coast, and talk about over-harvesting in the B.C. forest industry keep anxiety levels high.
As has been said many times, both the environmental deficit and the fiscal deficit, not the financial deficit, stem from the same attitude of wanting too much now or trying to fulfil needs by consumption without seeking other solutions.
Unemployment remains persistently high and some people who have lost stable jobs are operating on a more fragile self-employed basis. Hard times may place an even greater burden on environmental resources, to the detriment of opportunities in the medium and long term. You're well aware of the groundfishery on the east coast, where people without jobs turned to the fishery as an employer of last resort and lost the fishery.
These problems bring some benefits. They can break down intellectual and institutional barriers and stir creativity. The Great Depression of the 1930s cleared the way for the application of Keynes' general theory. The next crisis will make room for the rapid application of sustainable development, which I believe is to the 1990s what the general theory was to the 1930s.
Deferring the transition creates more problems than it solves. Hard times will improve government and make it more accountable. Traditionally, the soft measure of public opinion has been the chief motivator for government action, but flinty-eyed investors and bond raters want to see evidence of good management of the details. They want results. To do this following the principals of sound environmental management and sustainable development requires a much improved management information system. For years the auditor general has been delivering a similar message.
Good, objective information on the integration of the environment and the economy is often hard to find. The information will need to be objective and accessible to the public.
In late summer and early autumn of this year I spent two months in British Columbia. To gain a better understanding of the forest products industry in that province I interviewed the chief foresters of some major companies and some leading environmentalists.
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All seemed to be sincere and honest in their beliefs. Foresters talked about their progress towards sustainable forest management and the management of ecosystems. From the perspective of environmentalists, the harvest is unsustainable and rising. Employment in the industry has been declining over the past twenty or thirty years, while the harvest is up sharply. The amount charged by the province per cubic metre of wood is much less than current market value. Starting in the 1960s the industry built large mills in British Columbia. It has a chronic overcapacity, and as a result they're trucking in wood from the Yukon, Alberta and Saskatchewan to supply the mills. Some say they're bringing wood from as far as Manitoba, which is not unlike what is happening in Thailand, where the Thai mills are bringing in wood from Myanmar and Cambodia.
It's been suggested that much more public revenue could be realized if the wood were sold at auction and through long-term forestry licences. More employment would be gained if more secondary manufacturing of wood products was required in British Columbia, and so the arguments fly back and forth. Although forestry is within provincial jurisdiction, the Government of Canada has been making investments in the forestry sector in British Columbia of about $200 million annually. Much of this has been through agreements that are due to be phased out. Recently, much of the funding has been tied to the development of plans for sustainable forestry in the provinces. If this is the case, what is happening in British Columbia?
It would be useful to have hard, objective information to assess results. I understand that the forestry service has been moving quickly to develop an interactive information base suitable for sustainable development. Environment Canada has made considerable progress in developing information for management and the public with the environmental knowledge network, the national pollution release inventory, environmental effects monitoring and the development of environmental indicators and state-of-the-environment reporting.
I think the government could demonstrate bold, inspirational leadership by acting on its promise to conduct a comprehensive baseline study of federal taxes, grants and subsidies in order to identify barriers and disincentives to sound environmental practices. It would encourage receptiveness to change and the budgetary encouragement of innovation. It would send a strong signal to departments and to the public that management for sustainable development has arrived. It would act as a catalyst to encourage the development of criteria to assess not only taxes, grants and subsidies, but also existing programs, ultimately leading to much better information for management. As well, doing the baseline study will fulfil a promise to Canadians, many of whom are feeling anxious these days and need the trust that comes from a promise kept.
It is probably evident by now that I consider the baseline study to be both important and timely. In terms of how it should be done, perhaps the main issue is whether it should be done internally or externally. An external report may have more credibility. As government may not have the time or the staff to undertake such a review, perhaps it could be assigned to a tax foundation working in conjunction with the National Round Table on the Environment and the Economy, or the International Institute for Sustainable Development. The Canadian Institute of Chartered Accountants could be involved.
With regard to ideas for possible inclusion in the next budget, the green budget task force of the national table sponsored a workshop on October 18 to review three excellent papers relating to taxation and the environment. You may already have these papers, as the authors of two of them, Stephanie Cairns and François Bregha, are participating in this forum. The paper by the Pembina Institute, ``Fine Tuning Taxes for Energy Eco-Efficiency'', sets out a number of well-thought through proposals that could demonstrate positive environment-related action in the next budget.
Another option would be for a central agency to ask departments to identify their top ten grants and contributions in dollar terms. They could indicate the effects of these initiatives on environment and sustainable development on a best-judgment basis and whether they could be cut in the coming year. They could be phased out over a period of time. That's a way of learning for both those people who receive the grants and those who make them.
This committee is taking some very useful steps that may mark the beginning of ecological tax reform. It soon may be useful to have a high-profile review of the potential for ecological tax reform in Canada, perhaps something like the Carter commission. Perhaps it should be the subject of a royal commission. I see few risks and many benefits from such an exercise.
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I have one final comment. I'm aware that many people in both the public and private sectors are making enormous efforts to move towards sustainable development. Steps such as the appointment of the environmental commissioner and A Guide to Green Government are very commendable. Old thorns such as agricultural subsidies are being recast on the basis of sustainability. These steps and the changes in attitudes they reflect are very promising, as is the work of this committee. Thank you.
The Chairman: Thank you, Mr. Cassils. That's very helpful.
Please proceed.
Ms Gotzaman: Thank you, Mr. Chairman. Mr. Chairman, I'm very pleased to be here today to participate in the forum.
Moving ahead to identify and address fiscal disincentives is, as you know, a priority of the Minister of the Environment, and at the department we attach a great deal of importance to this work.
Last week the IISD provided you with what I thought was an excellent introduction to this forum, and Mr. Chairman, I think you provided an excellent summary of what came out of that session.
In my introductory remarks I plan to give the committee the Department of the Environment's perspective on fiscal disincentives to sound environmental practices, where the issue fits in the government's sustainable development agenda, and some steps that have been taken to date to move ahead on the identification of disincentives. I'll also touch on what we see involved in identifying fiscal disincentives to sound environmental practices, and I'll raise some issues you may wish to consider in preparing your report on how the government should proceed from here.
The federal government's environmental policy over the last few years has been largely driven and guided by the sustainable development chapter in Creating Opportunity. One of the underlying themes in that chapter is the need to converge economic and environmental agendas across all departments.
The government has introduced a number of initiatives to achieve that convergence. I'm not going to go into them in any detail because you no doubt are familiar with them. But I do want to touch on three or four of those because I think some of them are very relevant to this forum and the discussion you're going to be having over the next day or two.
An initiative that will have far-reaching implications for the way federal government departments do their business is one that this committee was instrumental in shaping; that is, Bill C-83.
The requirement for departments to prepare pragmatic, sustainable development strategies and the creation of the commissioner are major steps forward in integrating sustainable development into the way the government does its business.
A related initiative that Mr. Cassils has raised is A Guide to Green Government. The Prime Minister and the cabinet ministers have endorsed the guide as the policy direction for departments in the preparation of their strategies.
The establishment of the independent Canadian Environmental Assessment Agency will serve to better integrate environmental considerations into project planning, and some progress has been made in identifying and addressing fiscal disincentives to sound environmental practices. I'll return to that in a few minutes.
First I want to touch very briefly on A Guide to Green Government, because I think there's a direct link between it and the focus of this forum.
The guide identifies as part of developing a sustainable development strategy self-assessment of the impact on sustainable development of a department's policies, its programs and its operations. There's a real need to look at policies and programs in place to see whether they are creating disincentives to sustainable development. Doing so provides an opportunity for identifying ways of fulfilling departmental mandates that may closely align environmental and economic policy signals. Certainly the fiscal system sends out economic signals that may or may not be aligned with environmental policy signals.
Those of us involved in environmental policy have been examining the potential use of economic instruments, like environmental charges, emissions trading, and deposit-refund schemes to address specific environmental problems. There has been modest progress in implementing economic instruments, and the Department of Environment is continuing to work toward their implementation wherever they make sense.
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At the same time, before new economic instruments are introduced, it is important that signals in the current fiscal regime are reviewed for their sustainable development implications. As you pointed out, Mr. Chairman, this was recognized in the creation of the comprehensive baseline study of federal grants, taxes and subsidies to identify barriers and disincentives to sound environmental practices.
As you pointed out in your introductory remarks, Mr. Chairman, such a study offers the potential for both reducing the deficit and removing barriers to achieving environmental objectives. As such it offers real potential for taking a significant step forward in realizing the synergies between environmental and economic policies.
There is an international dimension to this synergy as well. There is potential for countries to work together in removing trade-distorting subsidies that also have environmental implications. The reduction of agricultural subsidies that came out of the Uruguay Round is a case in point.
There is some progress within the government in moving toward addressing fiscal disincentives to sound environmental practices. About eighteen months ago the ministers of environment and finance, following up on a commitment made in the 1994 budget, set up the Task Force on Economic Instruments and Disincentives to Sound Environmental Practices. In the limited time it had to do its work, the task force was asked to identify one or more economic instruments for possible implementation, and one or more disincentives, including fiscal measures, for potential in-depth examination.
The task force was also asked to develop a comprehensive framework for identifying disincentives to sound environmental practices. The Guide to Green Government identifies that framework as a possible tool that departments could use to assess their current policies, programs and operations for such disincentives. As such it could also be used to identify fiscal disincentives. I believe François Bregha will talk more about that framework.
The task force marked the first time the government put in place a formal process to incorporate environmental considerations into the budget-making process, and some of its recommendations found their way into the 1995 budget. I think the 1995 budget was a very positive one from an environmental policy perspective. To some extent this was a credit to the task force, but to a large extent it was due to the fact that the fundamentals making the review of fiscal disincentives important from a deficit reduction and environmental perspective were at play.
The 1995 budget changed the tax treatment of donations of ecologically sensitive land. The task force and others before it had identified the tax treatment of donations of ecologically sensitive land as a barrier to the government's commitment to preserve 12% of Canada's representative land-based natural regions by the year 2000 and as a barrier to the conservation of biodiversity. While the change introduced in the budget may be perceived as modest, it is symbolic and is a step in the right direction.
Also as a follow-up to a recommendation made by the task force, in the budget the government committed to reviewing the tax system to determine whether the current income tax treatment of energy efficiency, renewable energy and non-renewable energy investments is appropriate and if further improvements can be made. This work is well under way. David Runnalls gave the committee a preview of some of the results coming out of that work, and I understand that officials from the energy department will be speaking to that in more detail tomorrow.
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A number of measures contained in the budget for fiscal reasons will have an impact on sustainable development, which is generally positive as well; for example, the elimination of the railway subsidy under the Western Grain Transportation Act and the commitment in the budget to no new funding for energy megaprojects.
Where to from here? The panel that will follow this one will give the committee an appreciation of the work on fiscal disincentives being done in various departments, and hopefully this will assist the committee in preparing your recommendations on how you think the government should proceed from here. What I would like to do is leave the committee with some thoughts on five issues that you may wish to think about in preparing your report.
One issue is the question of whether there is a need for a consistent and coherent approach across all departments. The second one is the main elements of work on identifying fiscal disincentives. A third is scope: what fiscal measures should be captured? The fourth is timing, and the fifth is an effective process for completing the work.
Mr. Chairman, consistency in the work across departments is an issue that I believe you had raised with David Runnalls when he appeared before the committee last week.
I think there is a need for a consistent and coherent approach across departments. That is not to say that all departments should use exactly the same methodology. That would really not make very much sense, and it would be, as Mr. Runnalls had put it, the enemy of the good.
Perhaps a good analogy that the committee is familiar with is the sustainable development strategies that departments will be required to prepare under Bill C-83. When departments sat down together to talk about what preparing strategies would entail, it became evident - and this is recognized in A Guide to Green Government - that the strategies would necessarily vary quite widely. Departments' mandates differ quite widely, and therefore the ways in which they can influence sustainable development can be very different.
But there was also a recognition from departments, from the Auditor General, and from this committee, that departments need some guidance on, for example, the elements, underlying objectives, concepts, and ways of achieving sustainable development.
In thinking about what a consistent approach might be, I would suggest that an identification of fiscal disincentives to sound environmental practices should include two very basic elements: first, an identification of what those federal taxes, grants and subsidies are; and secondly, an assessment of both their economic and environmental implications.
On the identification, in some cases, for example, where subsidies are direct, it is very straightforward. The numbers are in the main estimates, and it's a question of picking them out of the main estimates. Where the identification is less straightforward and may require quite sophisticated analysis is when the subsidy is indirect; for example, when it is delivered through the tax system.
There is also the issue of how to approach the identification. One approach is by sector, and it seems to me that this is an appropriate way to go and the approach that most people seem to have in their minds. But the federal tax system obviously cuts across sectors, so there's also a need for a complementary horizontal approach.
In the interest of a consistent and coherent approach to the government's work on disincentives, guidance needs to be given to departments on which sectors should be examined, which horizontal issues should be addressed, and how the vertical and horizontal issues should be brought together.
On the economic and environmental assessment element, the economic assessment could include a number of things, and most of us are familiar with these sorts of assessments. They would include issues such as economic efficiency as a measure, its effectiveness in meeting the socio-economic goals, and its fiscal impact.
The environmental assessment could be based on specific environmental problems or policy goals that are affected by the disincentive. It would really depend on the fiscal measure being examined and the sector being examined. It could be quantitative where possible and qualitative where not.
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As I'm sure you recognize, it's difficult to quantify environmental damage, and yes, the methodologies exist but the estimates can vary quite widely to the point where they have very little value. Perhaps it's more important to get a handle on the severity of the environmental or health problem and the extent to which the fiscal disincentive contributes to it, estimates of emissions resulting from a subsidy, for example.
The identification of subsidies and the economic and environmental assessment of their impacts would cut across the work being done by all departments. But the extent of the work required for each element could vary quite widely across sectoral departments.
For example, in the case of agriculture, the identification of subsidies is really quite straightforward. Getting an appreciation of the economic and environmental implications is less straightforward. I would expect that the work of the agriculture department would likely focus on the latter.
In the case of the oil and gas sector, on the other hand, identifying and quantifying remaining subsidies delivered through the tax system involves quite sophisticated analysis, and I think you'll get an appreciation of that tomorrow.
That brings me to the question of scope. What fiscal measures should be captured in departmental work on disincentives? How comprehensive is comprehensive? One extreme is to include all federal taxes, grants and subsidies. This clearly would be a huge undertaking and would not likely be worth the effort in terms of environmental and fiscal benefits. A more pragmatic approach would be to focus on priority areas. Conceptually, priority measures could be either those that have a large fiscal impact and/or those that have a large environmental impact.
That raises the question, though, of how do you know before undertaking the work whether a large subsidy does in fact provide an environmental disincentive, or whether a relatively small subsidy has a significant environmental impact? In some cases it might be obvious and in others it won't be. But you have to start someplace, and the value of a forum such as this one, Mr. Chairman, is that stakeholders and the committee members can identify areas they believe should be examined on a priority basis by the government.
I have a few words on timing. As you pointed out in your introductory remarks, Mr. Chairman, certainly at a time when deficit reduction is a priority, this sort of work is extremely important. There's a real opportunity here to realize environmental goals while saving taxpayers money and reducing the deficit.
Over the next couple of days, the committee may be able to identify what areas are ripe for consideration in the development of the next budget. Whether work on additional priority areas that the committee may identify could all be completed within a year is not clear - I think there was some discussion of this in the previous session - but certainly some of it could be completed in time to feed into the 1997 budget. The committee may wish to consider how the government could stage its work so that there are results for input into the 1997 budget and possibly subsequent budgets.
Mr. Chairman, I'll end with a few words on process. We look forward to the committee's view on appropriate process for the government in proceeding with its work on fiscal disincentives. I would offer two thoughts. One is, in keeping with the recognition in A Guide to Green Government that departments should self-assess their policies and programs in place, it is beneficial to have much of the work done within government departments by departmental and finance experts. That being said, that work would benefit, both in terms of substance and in terms of credibility with stakeholders, from input and feedback from experts outside of government, whatever that mechanism might be. Thank you.
The Chairman: Thank you. Madame Park, s'il vous plaît.
Ms Anne Park (General Director, Economic Development Policy Secretariat, Department of Finance): Thank you very much. My name is Anne Park and I head something called the economic development policy secretariat in the Department of Finance. This is a group that deals with all of the sectoral economic policy issues confronting the department, ranging from environment, energy, mining, agriculture, transportation, small business, industry, science and technology, and so forth.
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I've been asked to put the question of disincentives to sound environmental practices in a broad context, from a fiscal and economic perspective, and I hope that what I have to say will be helpful to the standing committee. I also recognize, having listened to Penny Gotzaman, that some of what I have to tell you may sound a little familiar. Perhaps that reflects the extent to which we in the Department of Finance and the Department of the Environment are in fact working increasingly closely on these issues.
First of all, in terms of economic theory, there's little involved here, I think, that is really very new. Economists have long recognized the link that exists between the economy and the environment and the issue of so-called ``externalities''. The fact that the marketplace does not automatically incorporate the costs of environmental degradation has been with us for many years. While attaching precise values to these externalities can be problematic, their existence is what underpins the rationale for the role of government in acting to ensure the environment is adequately protected when economic and other decisions are made.
This can, of course, be done in several ways: by encouraging industry to act voluntarily, or by establishing environmental requirements through legislation and regulation. Recently, there has been growing interest in exploring the scope that exists for using market-based approaches or so-called economic instruments.
In this same vein, it is also recognized that government spending and taxation policies and programs that were originally put in place to meet particular economic and social goals may not always take environmental considerations into account. This has given rise to questions about the extent to which current patterns of spending and taxation may inadvertently have come to represent disincentives or barriers to the environment.
What has changed over the past twenty years or so is our appreciation of the nature of the environmental problems themselves that we face and the approach that we should take to dealing with them. I know members of this committee are well aware that whereas the environmental issues used to be thought of as largely local or country-specific concerns, we're now having to deal with problems that are significantly more complex technically, such as toxics, and that are frequently transnational or global in scope, such as climate change. This has placed a new onus on achieving consensus on the nature of the problem itself in order to determine what the appropriate policy response to it should be and how to go about achieving it.
At the same time, with the emergence of the concept of sustainable development, there has also been growing recognition that economic, social and environmental goals are interrelated and need to be pursued in an interrelated way. In practice, we therefore now look at the environment and economy less as opposing goals and more as objectives that need to be pursued together. This also brings new opportunities for convergence between the economic, social and environmental agendas.
Let me turn, then, to what the federal government generally, and the Department of Finance in particular, is doing to address this question. As you know, we need an economy in Canada that provides growth and jobs for Canadians, both now and into the next century. We'll need to become more innovative to adjust to a world of challenge and change. We cannot do this without dealing with the government's serious debt and deficit situation. The last two federal budgets therefore took fundamental action to get the government's fiscal house in order by reducing spending not simply through cuts but by redesigning the role and structure of government itself.
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A very important element of this fiscal reform involves substantial reductions in the subsidies the federal government has historically provided to business. As a result of the 1995 budget, spending on business subsidies was substantially reduced, with a major number of them being eliminated or restructured to improve their effectiveness. Total business subsidies are declining from $3.8 billion in 1994-95 to $1.5 billion in 1997-98. That is a 60% decline over three years. There will be no new funding for megaprojects announced. There is also a shift away from the traditional approach to subsidies. Conditional contributions that were only to be repaid under certain conditions or not at all were shifted to a greater reliance now on repayable forms of assistance.
While these steps were taken essentially for fiscal and economic reasons, it is interesting that the general direction was also welcomed by environmentalists, who recognize that subsidies that introduced distortions in the economy can also be detrimental to the environment. Of course, this does not mean that all expenditures are subsidies or that they do not have a legitimate role to play in achieving economic, social or other objectives. However, it does illustrate that good economic policy and good environmental policy can go hand in hand and that the reduction or elimination of subsidies, which both distort the economy and are environmentally unsound, is something the two agendas have in common.
As Penny Gotzaman stated earlier, as part of the effort to begin better integrating the economy and the environment, in 1994 the Minister of Finance and the Minister of the Environment appointed a task force comprised of representatives of environmental organizations, the academic community, industry and government to provide advice in two areas: economic instruments, and barriers and disincentives. I won't go through this in great detail because I know François Bregha is going to be discussing this, but I think it is very useful to flag the framework that the task force identified for examining barriers and disincentives.
This framework was developed after a great deal of discussion among the various members of the task force. What it would involve is a six-stage process. It would first begin with a defining of what sound environmental practice is. That would be followed by an assessment of policies within each sector. At the same time, cross-cutting policies such as the tax system, jurisdictional and institutional issues and so forth, would be assessed. This would then be followed by the fourth step, characterization and evaluation of discrete policies and measures identified in steps 2 and 3. Step 5 would be the identification of options, including alternate delivery, redesign or elimination of the measure. The last step, step 6, would be a determination of what barriers to reduce or eliminate, and this would need to be based on an analysis of the environmental implications; the economic costs and benefits; the fiscal impact; the impact on social objectives; and of course the administrative feasibility of policy change.
I mention this because I think it is evident from the task force's work that dealing with barriers and disincentives does involve a highly complex process of analysis. That is true even for one area of concern, let alone a comprehensive review of all government expenditures as a whole. It is also clear that it tends to be a rather labour-intensive exercise requiring considerable time and a major commitment of resources by government departments, and a reliance on the analytical expertise of those who are familiar with the various policies and programs involved.
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These complexities notwithstanding, some important steps have been taken to begin addressing the question of disincentives. While Penny referred to a number of them, I'd like to just quickly go through them, because I think this is important.
In the 1994 budget we announced changes to capital cost allowances for certain types of energy conservation equipment to assist newer, cleaner technologies such geothermal and photovoltaics. We also introduced a tax deduction for contributions to provincially mandated mine reclamation trust funds.
Then, in the 1995 budget, we announced the intention to further this initiative by continuing to review the tax system with respect to the level playing field in the energy sector. That means to determine whether the current income tax treatment of energy efficiency, renewable energy and non-renewable energy investments is appropriate, and if there are further improvements that can be made. As was mentioned, that work is proceeding apace, and I understand you'll be hearing more about it later.
The 1995 budget also indicated that the Minister of Finance, as part of his ongoing responsibility to monitor the environmental implications of the tax system, would examine whether the income and sales tax systems contain any barriers or disincentives to the use of recycled material. The budget also announced the elimination of the 20%-of-net-income cap on the income tax deductibility of donations for conservation purposes of ecologically sensitive land.
In short, we have begun addressing the question of disincentives, and we will be continuing and expanding this work in cooperation with other departments. We foresee steady progress in this area as priorities are identified and as a key element in the department's sustainable development strategy, which will be required under Bill C-83, the amendments to the Auditor General Act.
Let me now comment briefly on some of the general considerations involved in how we are moving forward in this area. I think it is important to have a clear understanding of what a baseline study of disincentives and barriers to sound environmental practice would actually entail.
Generally speaking, government expenditures include all departmental appropriations and direct spending in the form of grants and contributions, including, increasingly, repayable contributions. They can also take the form of other financing programs, such as equity investments, which are now less common with the shift away from megaprojects, as well as financing through loan guarantee arrangements or direct lending, such as help to small business to encourage exports.
Basic information on all of these expenditures of the government exists in annual budget documents, in the main estimates, or in information provided by individual departments.
Government spending also, of course, includes tax expenditures in the form of tax exemptions, deductions, credits, and so forth, which is, in effect, revenue forgone by the government to provide particular incentives to meet economic, social, or other objectives.
Some tax measures, as you know, are designed for specific purposes. They can be of general application or they can be for specific industries. A measure such as the lower tax rate for small business and the scientific research and experimental tax credit exist for the specific purpose of, for instance, encouraging small business and promoting technological innovation in industry, including environmental industries. They are both applicable widely across industry.
Other measures, such as the lower tax rate for manufacturing and processing, or accelerated write-offs for exploration, are unique to a specific industry.
The Department of Finance publishes an annual report on all tax expenditures. The next version of this should be available shortly.
While assembling this kind of data can be complicated, I don't think that the issue itself is essentially one of data and statistics. Even a comprehensive tallying up of total federal spending and taxation would not, in itself, indicate whether or how such expenditures contribute to unsound environmental practices.
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Rather, it is critical here to look behind the numbers. This involves assessment, analysis and interpretation, which is the kind of thought process that was identified by the task force.
Of course, it begins with defining the environmentally unsound practices that need to be addressed. Only in that context is it possible to assess whether the present pattern of federal spending or taxation presents barriers to our ability to deal with these problems. If so, in what ways might we deal with that?
Evaluation of the issue also needs to be done within the framework of sustainable development, which means the economic, social and environmental considerations involved.
It's also useful, I think, to keep in mind the considerable impact that provinces and other levels of government have in this area, which is also important in terms of the approach taken in the country as a whole.
Perhaps most important, however, is the policy orientation we bring to this exercise. I think we need to set policy directions that will take advantage, to the extent that we can, of the synergies that exist between economic and environmental goals in some areas. Of course, we also need to avoid situations in which neither the economic nor the environmental agenda is served.
Ultimately, of course, we need to work on how we can protect the environment while at the same time giving industry the overall framework it needs to invest, expand and contribute to the growth of the economy.
Before concluding, I would like to turn just very briefly to the international dimension of this question.
I might just note that prior to my present responsibilities in Finance, I spent some time working on disincentives and related issues as an economic adviser to Maurice Strong in the lead-up to the UN Conference on Environment and Development, which took place in Rio in 1992.
It was clear, I think, from the discussions I had then with economists and others who were involved that this area is certainly one very much worth working on, but that the issues are indeed complex and they will not be addressed easily or quickly.
I would also note that the OECD, in its recent review of Canada's environmental performance, noted the progress Canada is making in integrating the economy and the environment in decision-making. It also encouraged us to assess the degree to which reducing financial assistance - this means things such as direct and indirect subsidies, preferential loans, tax incentives, and increasing environmental charges - could reduce budget deficits and improve economic and environmental effectiveness at the same time.
The OECD, as you know, has been working for several years on issues of barriers and disincentives, largely through case studies, qualitative assessments and survey work, sometimes from the point of view of the economic aspect, if you like, of subsidies, as well as the environmental aspect.
Canada has been involved in this ongoing work and has recently encouraged the OECD to take on a more horizontal and comprehensive examination of subsidies and tax expenditures that affect the environment. The OECD is particularly well placed to do this work because it offers an opportunity to look at economic, social and environmental issues in a horizontal, comparative and integrated way, and it will enable us to benefit from their considerable expertise, as well as the expertise and experience of other governments that are trying to tackle these same issues. It will also help to ensure that we are acting in concert with other industrialized countries, thereby contributing to, not undermining, Canadian competitiveness in the measures we take.
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An OECD experts meeting on this subject was held last week. The Department of Finance, the Department of the Environment and others participated. This session underlined the considerable interest that exists in this issue, as well as the expertise that is available within the OECD and among other countries to deal with it. At the same time it also underlined the many conceptual issues that must be tackled, as well as questions of data availability in moving forward.
Clearly the work at the OECD is at a preliminary stage, and it will be important to try to address these issues thoroughly and well. The Department of Finance will be working with other departments and our international counterparts in other countries in moving this agenda forward.
Thank you very much.
The Chairman: Thank you, Ms Park.
Mr. Bregha.
[Translation]
Mr. François Bregha (Director, Resource Futures International: Thank you,Mr. Chairman. Ladies and gentlemen, my name is François Bregha. I work for a consulting firm called Resource Futures International.
Allow me to begin by thanking you for the opportunity of appearing before you. This is important work at a time when the momentum on these issues seems to be slowing down.
In my presentation, I will focus on three themes. Firstly, I would like to talk about the context in which work on fiscal disincentives should be placed. Secondly, I will say a few brief words about a methodological approach in addressing fiscal disincentives. Finally, I would like to offer some thoughts on the process for analyzing and eliminating these disincentives. I will begin with the context.
The committee's work should be seen in the broader framework of ecological fiscal reform. EFR has three elements: first, removing barriers, which is the topic of your discussions; second, taxing environmental bads; and third, offsetting some of these new taxes by reductions in existing taxes, such as payroll taxes.
Most people would agree that it is not enough to remove explicit barriers. One should also ensure that the market sends the right price signals to consumers and investors. In the language of economics, this means that the price of the goods and services we buy should include their environmental externalities.
These environmental externalities are clearly the pollution and resource degradation they cause. One way of achieving this is through the use of what are called economic instruments. However, it has been noted that in this area, Canada lags behind the US and many European countries in applying such instruments. If one believes economists such as Dr. Michael Porter of Harvard University in the United States, this lag may well hurt Canada's competitiveness in the long term.
The last element of EFR is to gradually shift the tax system over time from taxing ``goods'', such as income and savings, to taxing ``bads'', such as the destruction of habitat or pollution.
Work done for the European Commission implies that if the European Union were to offset a tax on CO2 emissions by equivalent decreases in payroll taxes, it could cut its CO2 emissions significantly, and reduce unemployment by 1% without harming economic growth.
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The implementation of EFR raises a lot of questions. My colleagues and I have discussed these questions in a paper on EFR that I provided to the committee.
[English]
I'd like to move now to the second topic of my presentation on methodology. Last year I had the privilege of chairing the various subgroups of the Task Force on Economic Instruments and Disincentives to Sound Environmental Practices.
As part of this work, and in part already referred to, the task force developed a framework for analysing public policy barriers. This framework is described in the body of the report, and in greater detail in the second appendix of the report. It also appears in schematic form on page 53 of the report.
As the report explains, a barrier arises only if it prevents one from achieving a desired objective. It is important therefore as a first step to identify what these objectives may be. Indeed one of the recommendations of the task force was that the government should develop more environmental objectives, which could be used to guide program development.
Once a barrier to sound environmental practices has been identified, it does not necessarily follow that it should be eliminated, as there may be overriding social or economic reasons to keep it. It is therefore important to account for these reasons in determining what should be done about the barrier.
Finally, it is imperative that we not create new barriers as we're eliminating old ones. Here the preparation of departmental sustainable development strategies should be helpful.
The framework provides a useful approach to the analysis of barriers. The Pembina Institute, from which you'll be hearing tomorrow, has applied it in its analysis of federal energy taxes. You will therefore have a case study of how this framework can be applied to taxes and the results this process yields.
I'd like to turn now to the final part of my presentation, which is the process that should be followed and where we should go from here.
This question has been particularly vexing, if the lack of a formal government response to the task force report is any indication. I think it is useful to go back to fundamentals and ask what a review of barriers to sound environmental practice should entail.
In my view such a review has to meet at least four basic requirements. First, it has to be pragmatic. A comprehensive review of barriers to sound environmental practice is potentially a very large exercise, even though there are probably fewer barriers today than there were a few years ago.
But not all barriers are created equal, and some of them exert larger environmental impacts than others. It is therefore here that one should start.
Departments should do a quick scoping of their programs to identify the three or four measures whose removal or redesign could offer the greatest environmental benefits while meeting the program objectives of which they are part.
The second design element is technical expertise. The identification and analysis of barriers is a sophisticated exercise that requires in-depth understanding of government programs and policies.
In most cases this work must involve the people who administer these programs, assisted as necessary by other experts. In other words, this work cannot be entrusted completely to outsiders. Another reason departmental officials must be involved is that it is important that the lessons learned from such a review inform future policy-making.
The third design requirement in deciding where to go from here is legitimacy. The purpose of doing a review of barriers, of course, is to determine whether some of these should be reduced or eliminated. Such a review will inevitably affect certain groups or individuals who now benefit from their existence. In some cases there are, of course, others who suffer from the existence of these barriers.
The point is that it is important that these outside interests be given an opportunity to provide their input into any review. This review therefore cannot and should not be conducted entirely internally. It must be open to outside participation.
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The fourth criterion is perhaps an obvious one, but it's political will. Through a forum such as this one the committee can help demonstrate the benefits in reducing and eliminating barriers to sound environmental practices. These benefits include, of course, better environmental protection, but also potential fiscal savings, greater consistency in signals to business and potentially a more competitive economy.
I would therefore recommend for the committee's consideration that the analysis of barriers be made one of the first items of business in the preparation of departmental sustainable development strategies and action plans. This indeed was one of the recommendations the task force made last year.
Second, ministers should instruct their officials to consult and involve outside interests in this analysis.
Third, the departments should focus on those barriers of greatest environmental significance. There will quickly be diminishing returns through such an analysis and there's therefore little advantage in doing an exhaustive analysis at this time.
In closing I will note that the task force developed the analytical tools to undertake this review a year ago. The Pembina Institute has pilot-tested this approach and demonstrated how it can be applied quickly and at very moderate cost in one sector, the energy sector.
Now I believe it is time to apply this approach systematically. It is an essential task if the government is to ensure the convergence of its economic and environmental agenda. I hope the committee will give it the impetus it needs.
Thank you very much.
The Chairman: Thank you all. This was extremely helpful in launching the discussion. We'll make a round of one question each so that we can have two rounds, or perhaps even three, as is customary here.
On the list I have Madame Guay and then Paul Forseth and Clifford Lincoln. They have been called to the House because there is a debate on Bill C-94, the bill on removing manganese from gasoline. They asked to be excused, and when they come back I will recognize them as they return.
I will start with the first names on the government side, namely, Tom Wappel and Peter Adams.
Mr. Wappel (Scarborough West): Thank you, Mr. Chairman. Boy, am I lucky to ask my questions right off the bat.
Well, Mr. Chairman, I feel like a grade 8 student attending a university lecture. I don't like feeling like that. This topic confuses me because either I'm not quite understanding what the panel has so far tried to say, or they're not talking to me about the thing we should be talking about.
What do I mean? The background notes we have say that in our red book the Liberal Party stated that an urgent task of the Liberal government would be to conduct a comprehensive baseline study of federal taxes, grants and subsidies. For what purpose? To identify barriers and disincentives to sound environmental practices.
That's a given, so there's no point in talking about whether or not we should conduct a study, whether we should have a baseline study, or whether this is a good idea or not. It's a given; we're going to have it.
Apparently it's going to be an urgent task - notwithstanding that we're in our third year of government - and apparently it's going to be comprehensive.
So fine, we're going to have a baseline study. What are we going to do? We're going to identify disincentives. We have a forum on fiscal disincentives. I'm having difficulty hearing from anybody any identification of any fiscal disincentives.
I heard the two government officials say, oh, we're not going to fund any more megaprojects. Well, that may be a very sound fiscal policy because we don't have any money, but does that mean it is the position of the panellists that every megaproject is contrary to the environment? If it isn't, then which megaprojects aren't we going to fund because they're contrary to the environment, and which aren't we going to fund because they're contrary to the fact that we don't have a cent from which to fund them?
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Mr. Bregha said we should shift from taxing goods - and that's not in the economic sense, but I presume in the moral sense, the environmentally moral sense of good and bad - to taxing bads. Well, what are the bads? What are the fiscal disincentives that are preventing us from doing environmental things?
Let me ask a specific question. Is the fact that we have a federal system where there are concurrent jurisdictions a fiscal disincentive to sound environmental practices?
Mr. Cassils was talking about logging. What can the federal government do by way of fiscal incentives, or are there any fiscal disincentives currently in place if a provincial government decides they're going to allow an entire island to be logged in strip fashion so that there isn't a twig left? Where does the federal government move on this?
What I'm looking for from these panellists and from future panellists are some examples, concrete examples, of federal fiscal disincentives to sound environmental practices. That's the first thing.
Second, I'm looking for some suggestions on how we can get rid of those fiscal disincentives, not a lot of ``we're going to study this, we're going to study that, we should study fiscal disincentives''. Well, we're going to. What are they, and how do we solve them?
Thank you, Mr. Chairman.
Mr. Bregha: Perhaps I could start -
The Chairman: Keeping in mind that the purpose of this venture of ours is much broader than the specific identification.... That will require a baseline study. This is really a process that precedes the identification, but nevertheless anyone who wishes to do so, please say -
Mr. Wappel: Mr. Chairman, the most important thing to be identified, according to our background notes, is the number of candidates for reductions of subsidies and tax expenditures exerting negative effects on the environment.
By the way, I take it that not every subsidy is anti-environment, so maybe you could help us with some of those examples too.
The Chairman: This is a task for the panel tonight.
Mr. Wappel: Right.
The Chairman: Anyway, please go ahead.
Mr. Bregha: Sure. I think everybody on the panel will wish to speak to this, but I expect you will be hearing examples from such barriers in other sectoral panels that follow us.
But if we look at recycling and the treatment of virgin material, there's been a study by Jack Mintz, an economics professor at the University of Toronto. It suggests that the current tax treatment of recycled material puts a disadvantage of about $400 million a year on recycled material versus virgin material. To the extent that it is more environmentally beneficial to recycle than to use recycled material, then that's a potential barrier.
If you look at the energy field, the pattern of federal expenditures in the past has been towards energy supply rather than energy efficiency. Again, if you believe that energy efficiency is a more environmentally benign form of meeting our energy needs than encouraging the supply of new sources of energy, then you can say that the current pattern and the historical pattern of spending have been a disincentive to sound environmental practices.
Last week there was a report tabled on the transportation collaborative in Ontario. That was a joint undertaking by the Ontario and national round tables. It was a multi-stakeholder process that included representatives of the transportation industry, the energy industry and other stakeholders.
It concluded that current transportation patterns, in Ontario at least, were not sustainable. They weren't sustainable in part because the government signals that are being sent at all levels were not encouraging sound environmental practices.
So I hope the witnesses who will follow us will be able to add to this list.
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You were asking for steps that could be taken through economic instruments to ensure that environmental and economic agendas converge. I would refer you to the paper on ecological fiscal reform that I tabled before the committee.
On page 12 of this paper there's a box that includes a dozen examples of such possible instruments. These can be effluent or emission charges, charges on environmentally damaging activities, product charges and deposit-refund charges. There's a whole host of things that can be done.
If we look internationally, we can look at what the United States and certain European countries have done, and we can see examples of many of these measures. So there's already a body of expertise we can draw from in figuring out how to design these for Canadian application.
I perhaps should stop here, and let my colleagues -
Mr. Wappel: Mr. Chairman, just to follow up, I take it that the suggestions you've made are fiscal incentives for environmentally conscious action.
Mr. Bregha: That's right.
Mr. Wappel: Do we take it then that the fiscal disincentives are currently in place? You're suggesting these should be replaced by your suggestions in box 1 on page 12? Is that how I understand what you're saying?
Mr. Bregha: Well, there are now fiscal and other disincentives in place, not necessarily in every one of these examples that appear on page 12, but that appears...whether it is in energy, transportation or forestry, and Mr. Cassils can speak about this. We see there government programs that were established for economic or social reasons, whose unintended consequence often is to hurt the environment.
These are the barriers that need to be identified. The most obvious ones have been removed. These were some agricultural and energy subsidies, but barriers still remain.
These barriers have to be identified and analysed. One way of doing that is by applying the framework that was developed by the task force, which Anne Park described briefly.
Then it becomes a political decision: how does one trade off the environmental benefits of removing these subsidies or changing them? They're redesigning the programs to achieve the same objectives, but at lower environmental costs.
The Chairman: Thank you, Mr. Wappel.
Mr. Adams.
Mr. Adams (Peterborough): Thank you, Mr. Chairman.
Ladies and gentlemen, I seldom agree with my colleague, but in this case -
Mr. Wappel: That's not true.
Mr. Adams: - I do.
I'm aware of the research background you all have. I know the research background the committee already has.
But one of our functions is a sort of broadly educating function, and that includes educating members of Parliament. In fact I think of these public hearings very much as you talking through us, which is not very difficult given how little there is between the ears. Through us you talk to a wide constituency, people who might be watching, or people in the various parts of the federal government and elsewhere. So I think it is important.
So, Mr. Chair, first of all I'd like to say that one of the publications that's been referred to very steadily here is called Green Budget Reform. It's published by the International Institute for Sustainable Develop, at 161 Portage Avenue East, Winnipeg, Manitoba. That's a group that appeared before us.
The other one - which Ms Park was referring to, and I know others did - is Economic Instruments and Disincentives to Sound Environmental Practices, the final report of the task force, November 1994. I believe, Ms Park, that that was a task force in the federal ministry of finance.
So, Mr. Chair, as I understand it, we're talking about ways in which our tax system can be used to improve the possibilities for sustainable development - I don't like to say sustainable ``environmental'' development, but sustainable development - in Canada, or the tax system can be used to make our development less sustainable. That's what we're talking about. In some cases, taxes can be an incentive to sustainable development and sometimes they can be a disincentive.
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When I listened to Mr. Cassils, it seemed absolutely self-evident.... It's clear that the tax system can be used in this way and that we should move very quickly to put in green taxes. The economy would improve, the environment would improve, and so on.
Perhaps we should start with Mr. Bregha because he has a chapter in this book, Green Budget Reform. Is it possible to take us very quickly through the history of the gas-guzzling in Ontario to what I believe is now called the ``tax on fuel-inefficient vehicles''? There's a history of five or six years.
When I read it I was amazed. It seemed to me that the auto manufacturers opposed it. As an environmentalist, I expected that. The unions opposed it. It seems to me that some consumers opposed it, and in the end the two or three governments involved opposed it because not enough money was coming in from the tax.
Mr. Bregha, could you quickly take us through that? That's an obvious thing. We tax high consumption vehicles and that improves the environment. Why is there so much opposition to it?
Mr. Bregha: I'll do it very quickly. The context for that tax is very important. We have to remember that it was introduced when Ontario was in its deepest recession since the 1930s. It was also in that budget the government introduced when the deficit was so high. As a result of that, there was tremendous opposition on the part of some business groups to the fiscal measures the Ontario government was advancing. That very much coloured the success of that tax.
The lesson to be drawn from that example is the need to develop a political constituency for green taxes. That political constituency can only be developed if we spend as much time looking at the interests affected by such taxes as we do in the technical design considerations. That's why I suggested in my recommendations on the next steps that any work on barriers has to involve people from outside government so that they can be brought into the process, inform it, and, as Penny Gotzaman mentioned, legitimize that analysis. That same process should be followed for the introduction of economic instruments.
Mr. Adams: I noticed, Mr. Chair, that a gas-guzzler tax with a rebate, called a ``feebate'', is also mentioned in the other report. It seemed to me that the jury is still out on it in that federal report. I was talking about a provincial tax, but I see the jury is still out on it.
Mr. Bregha: It could be applied at the federal level as well. You're quite right when you say the government has not yet formally responded to the task force recommendations.
Mr. Adams: Thank you, Mr. Chair.
The Chairman: Thank you. Let's not underestimate the importance of a clear and intensive campaign of public education in any changes in tax.
The case of the Norwegian public comes to mind where the government managed to convince the public to accept an additional two cents per litre added to an already high gasoline price that is three times the Canadian price. It is described as the carbon dioxide tax. The public accepted even that as a result of an informative and intelligent public education campaign.
Therefore, I would attribute the rejection of the guzzler tax in good part to the fact that there was very little explanation to the public at large.
Mr. Adams: Mr. Chair, I was involved in introducing the gas-guzzling tax in 1989 and I assure you that my questions were designed to elicit explanations just like your own. Thank you.
The Chairman: My goodness. This is a red-letter day. Thank you, Mr. Adams, but I won't recognize you for a further question.
Some hon. members: Oh, oh!
The Chairman: Madam Payne, followed by Mr. Finlay.
Mrs. Payne (St. John's West): Thank you, Mr. Chairman.
I come from the east coast of this country. The disaster that occurred in our fishery was mentioned a number of times. Talking about taxing environmental bads, I'm wondering if I could obtain the feelings from the panel members.... We have a number of reasons for this disaster. Some have been attributed to Canadian sources and others, most of them, to non-Canadian or foreign sources. Can you give me some ideas as to how you would apply a tax on such sources? We have one source blaming the other. Nobody is quite prepared to admit responsibility for this.
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Mr. Cassils: As you well know, a lot of people got into the fishery and invested in fishing boats that had ten times the capacity of the older vessels, and perhaps there were accelerated write-offs and so on that contributed to help people become more efficient within the industry.
I wanted to respond to Mr. Wappel's comment on the fishery.
I think the Government of Canada has been contributing around $200 million a year to British Columbia over perhaps the last ten years. I wanted to look at British Columbia because it has been in the news so much. They seem to have their people in the forefront of environmental awareness and yet these are people who are also dealing with the resource industries. What concerned me was that I couldn't find the information.
I think all of us would like to come out with very specific examples of how various measures in government have perhaps been detrimental to sustainable development, but the information just doesn't exist.
I think one of the benefits from doing this baseline study is that it can be a catalyst to say that a new type of management is arriving. This sort of background information is necessary.
On the jurisdictional issue, forestry is under provincial jurisdiction. But if you are giving money to plans for sustainable development, it would be nice to know exactly how sustainable that development is, to have good objective information. If a province did decide to lay waste to its forest resource, at least the information would be there, and I doubt that it would be very long before the public responded very powerfully.
So it's just wanting to know what that information is, and I share that frustration. Unless you have put some thought to it, unless you have some information or at least some preliminary analysis, we're not going to have that list. I hope that comes out of this forum.
The Chairman: Mr. Wappel, if I remember correctly, in addition to what Mr. Cassils said, Forestry Canada has a phenomenal range of data, but a rather central one that is missing is the annual growth of our forests. That is an essential element in determining whether or not our forestry practices are sustainable, and yet we do not have that type of information that Mr. Cassils is referring to in general terms.
Mr. Finlay.
Mr. Finlay (Oxford): It's been a very interesting presentation, but I have the strange feeling, Mr. Chairman, that we're dealing with the process and various approaches, consistency and scope, timing and definitions, and identification and criteria, and it seems to me there must be some things we're doing that we perhaps should stop doing before we spend another year or two getting everybody to look at what they maybe should be doing.
Mr. Chairman, there are some examples from history that come to mind. The Germans decided the Rhine wasn't fit to swim in, drink from or fish from, and they realized that all the industries along the Rhine were pouring pollution into it. They applied a tax to that based on the amount of pollution and its toxicity on a scale. The Rhine may not be quite as blue as the Danube, but it's a lot better than it was.
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They did a similar thing in London when the fog and smog and pea-soupers were consuming several dozens of days per year and there were fewer than 150 days of sunlight in dear old London. The elderly were dying by the droves whenever they walked out in this muck.
They said they'd stop using soft coal in chimneys. You remember houses in London had ten or twelve or fourteen chimneys, depending on the number of rooms. They didn't ask everybody about it. They simply went one day to my grandmother's house and told her to show them the fireplaces. A young man went in and noted them down and said ``Do you want gas in here or electric? Which would you like?'' They had a choice. Two weeks later, workmen came along and put them all in. The next year, the number of sunlight days was well over 200. Of course London now compares to most other reasonable cities, as I understand it. Not only that, there are fish back in the Thames River.
I want to ask whether you have any concrete suggestions for removing even one or two major federal fiscal disincentives to sound environmental practices. If you can name me one or two, then how would you rank them in terms of priority?
Ms Park: I think it's a very good question. Perhaps the easiest way to answer it would be to say I think the measures we did take in the 1994 and 1995 budgets were steps to start that process.
One of them related to changes, as I indicated earlier, to the capital cost allowance for certain types of energy equipment so we would be assisting the newer, cleaner industries. That was a concrete thing we did, so we were not disadvantaging them. We were ensuring they would benefit from this kind of thing.
We also ensured, as I mentioned, contributions to the mine reclamation trust funds that were set up by the provinces, for example, would be eligible for tax deductions.
So there are certain things we have started to do. But I think the question posed is whether governments should do more with respect to the way in which we now spend and tax in order to stop doing things that may be hurting the environment and in many cases hurting the economy as well.
That, I think, is really what the disincentives exercise is all about. It's one subset, if you like, of this whole question of better integrating the environment and the economy, the other pieces of which involve things like economic instruments and other broader questions. But the particular question of whether there are things in the way in which we now tax and spend that we should stop or do differently is really the nature of the investigation we're now engaged in. The question is implicit in this baseline study idea.
Mr. Bregha: Mr. Finlay, in the report Economic Instruments and Disincentives to Sound Environmental Practices, you will find some ideas on what could be done. Not all of these ideas were presented by consensus, but there are some specific ideas for the government. In the last budget it undertook to do a level playing field study in energy. Maybe it would be time to move on the results of this work.
Still looking at energy, the Canadian nuclear industry receives an extensive subsidy from the federal government worth well over $100 million a year. This is not a level of support afforded to environmentally benign forms of energy. So one, I think, would have to question this.
I referred earlier to the work that Jack Mintz had done in the comparative tax treatment of virgin versus recycled material. This work also provides fodder for specific actions the government could take. But I think you will find over the years, both at the federal and the provincial levels, there have been a number of suggestions made, both by environment departments and by people outside government, of specific measures to level the playing field or eliminate barriers. There is a fairly rich literature about these things. In some cases, more analysis needs to be done. But in many cases, too, it's a question of political will. There are obviously some vested interests that would be affected by these measures. But what could be done has been documented before.
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Ms Gotzaman: I agree with both Anne and François. I would just add to that. One of the issues before you is how we systematically go about uncovering any other barriers out there that are not already on the table.
The Chairman: Certainly not by adopting the summary of the framework for analysing public policy barriers to sound environmental practices as indicated on page 53, appendix II. If you do that, we'll be here for the next 50 years.
But I don't want to interfere with your line of thought, Mr. Finlay. Please continue.
Mr. Finlay: François Bregha mentioned the level playing field and I had a question there. Part of the concern behind my question is that from everything we heard recently, we are not in line to meet our international commitments with respect to CO2 in the atmosphere. It would seem to me, since we made a commitment, this perhaps could be highlighted as something we had better get on and do.
But to go to the level playing field for a moment, it seems to me, in that area, there are incentives to the status quo that are obviously not sustainable. Now, I know there are some technical things there, but if we take unsustainable versus sustainable farming practices, for instance, I'm not sure what the fiscal arrangements are re taxation. But it strikes me there must be some. The Department of Agriculture, although they're doing a lot of work towards sustainable development, still seems to shy away from accepting suggestions for cuts.
I know we've cut the grain subsidy. In fact, I'd like to ask you just what this has to do with sustainable development. I'm not quite sure. I thought it had to do with marketing grain. It may accelerate the giving up of rail lines, which are a more sustainable way of moving things than by truck. I'm getting some mixed messages, I guess, Mr. Chairman.
Mr. Bregha: Well, this evening there will be others more knowledgeable than we are, I expect, who can speak about this.
But I would like to respond to the chair on the framework. The framework may appear complicated, but we do have an example of it being applied in the energy field. It took a couple of months to identify a number of barriers that are good candidates for removal and that should be investigated further. I invite you to ask Stephanie Cairns, when she appears tomorrow, to tell you more about that work. It's work that can proceed quickly.
I certainly would urge the government not to move comprehensively, but to identify those barriers having the greatest environmental impact and then start there. I expect one should be able to identify those barriers in various sectors very quickly. It doesn't take a great deal of research to know what they are. I think a lot of people already know. In the next few sectoral panels, you'll have an opportunity to ask witnesses about them.
The Chairman: Well, perhaps we'll explore that for a moment, too. But before the chair asks a couple of questions and before we start the second round, does anyone else wish to ask a question on the first round?
Mr. Steckle.
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Mr. Steckle (Huron - Bruce): I'm not sure you can answer this question, but in listening to all the rhetoric of this afternoon, is it not the wish of the senior bureaucrats, people such as yourselves who appear as witnesses before the committee, to put before the politicians the challenge to test the political will? Very seldom do we hear the kinds of things that really put to the test the political will of the politicians to really act upon those issues.
We're talking about sustainable development. A good example comes from the agricultural sector. There, we talk about an industry that has to be sustained if we want to have a viable Canadian economy. We do not have a level playing field if you look at some of the interprovincial things. We're eliminating, slowly and one by one, a few of those things, but it is still my contention that there are issues that we need to deal with in terms of the pesticides and chemicals we are using in this country.
We talk about environment. We are not allowed to use certain products in this country but we are allowed to bring in products grown in the United States using that same component. Why are we not addressing those issues? If it has to do with the safety of the product grown in American soil, why is it not right for us to grow the commodity here using the same product?
I think we need to hear from you people on the kinds of things I think we've been asking for. Mr. Wappel has been asking for them, and I put the challenge to you to give them to us. Those are the kinds of things we want to hear from you. We seem to get the same kind of rhetoric, however, and at the end of the day we really don't know. We know you are well versed in language, but we don't understand the language. We want to hear from you the challenge, then put it to us as to whether or not we are ready to take up that challenge and deal with it.
Ms Park: Let me try to answer that.
I think part of the difficulty that we may be having here has to do with the fact that some of the things you would like to address are in fact the things that will be dealt with in the specific sectoral panels that will follow this discussion. What we were asked to do at the beginning was to try to paint the big picture. If we have failed, I regret that. It is a complicated kind of area to get our minds around. I know from working on these issues that I certainly find it is not an easy territory to try to deal with at a broad level. Perhaps it is indeed in these very specific case-by-case priority areas that one can see this area becoming a little more alive. One can see the extent to which a problem exists and what perhaps some of the implications are of moving to deal with it.
I would hope you would not give up on us yet. Hopefully some of the larger issues that we've tried to lay out here, both conceptual and procedural, are things you will find it more useful to come back to at the end, after you have had the experience of addressing the various sectoral discussions.
The Chairman: How about it, Mr. Steckle? Stay with us because great revelations are still ahead.
Mr. Forseth.
Mr. Forseth (New Westminster - Burnaby): I listened to the esteemed guests, and they certainly provided a lot of great information, especially on a broad-brush basis. I was most interested to hear the presenter from the Department of Finance talk about redesigning the role of government to deal with the debt and deficit. I guess I have to challenge you a little bit on the somewhat rosy picture that you asserted about how the government was dealing with our biggest problem for the future in that in its government operations, especially, we are indeed dealing properly with debt and deficit, and it is being sufficiently responded to. I guess my assertion is that it's way too slow, far too little, and the issue is perhaps going to overtake us.
I was specifically interested in the comment you made about looking behind the numbers beyond these broad-brush comments, about where we need to go, and to try to look at specific examples. I think of the example being bandied about now, and that is ethanol. There has been a lot of talk about promoting ethanol - and here we get into subsidies and favouritism and so on - to really evaluate whether in the long run the things that are being contemplated around ethanol are really efficacious at all.
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We may be able to get more ethanol in our gasoline, but to get it there we've created all kinds of other inappropriate incentives. In the larger sense of the environment we have not helped anything at all.
Maybe using ethanol as an example, I would like someone to comment on whether it's really a wise policy.
Ms Gotzaman: I think that, again, is an issue that is better referred to the NRCan people who are responsible for that policy.
The Chairman: Probably you will get a better and comprehensive response, Mr. Forseth, if it's raised with the energy people in the panel tomorrow morning.
Mr. Forseth: All right.
The Chairman: If you have an additional question, by all means go ahead.
Mr. Forseth: Unfortunately, I have to leave. I'm about to speak on our other issue of MMT.
Again, it's the whole issue of what is the wise thing for us to do as government. We can often give broad-brush pronouncements about sustainable development, but then when we come down to the pragmatic application of that, what we are actually going to do in specific legislation, everything seems to fly up in the air.
Perhaps I could just ask the representative from the ministry of finance specifically whether you can you give us some examples where perhaps in the next budget there are some short-term doable things that may come about beyond the broader broad-brush picture.
Ms Park: I would like to try to answer that question, but one thing I've learned as an official of the Department of Finance is that it's dangerous to start trying to prejudge the next budget.
I think I would not want to speculate on specifics in that regard. I would simply say that this is an area we're looking at. As was mentioned earlier, the question of the level playing field study in the energy area that began as a result of the last budget is work that is continuing. That and the other areas are the ones we're focusing on at the moment. Thank you.
The Chairman: Thank you.
There are a few questions here from the chair because a number of important points have been made in the last hour and a half.
The approach you have described to us this afternoon is one based on sectoral approaches. This is the term that some of you have used quite frequently. It's encouraging to learn from Ms Park that Finance and Environment are working increasingly closely on these issues.
The question, however, arises as to whether in your reflections and contemplative activities you also include the budgets of departments that are very central to this entire exercise, whether you have passed any comments, if not judgment, as to whether they are sustainable in the long run and whether they fit into some of the commitments that were made internationally.
Here I'm hitching onto the line of questioning by Mr. Finlay. For instance, if you have decided to go sectorally there are some dangers in that, but I will accept it as a methodology that perhaps is inherent in the design of governments and that therefore is a trap from which we cannot escape. We are in it. We are designed that way. We are all facing little fortresses, one next to the other. As much as we would like to think holistically, when it comes to the crunch we have to think sectorally, whether we like it or not.
I'm sure you have analysed the budget of NRCan, and particularly its budget for energy. Would you agree, strongly agree, disagree or strongly disagree - as one is asked in certain competitions - that the budget is unsustainable?
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Have you reached the plateau of thought that would not really require turning to figure 1 in the summary of the framework for analysing public policy barriers on page 53 of the task force? With all due respect to Mr. Bregha, I will come to that a little bit later. What is your comment on the budget of NRCan? You must have done that in Finance, Ms Park, or am I wrong and you have not done it?
Ms Park: One of the consequences of bringing environment more into the mainstream of decision-making in government generally is that we now look increasingly to departments to apply sustainable development criteria to their programs. This is really one of their responsibilities.
The Chairman: Are you examining environment or are you examining sustainable development?
Ms Park: My point was simply that I think as we bring environment into the mainstream of decision-making we are looking to departments to themselves apply these criteria, whether it be environment or sustainable development - that we look to them to take more of a role.
The Chairman: No, but conceptually there is a big difference between the two. We need to know what you are examining. Are you examining environmental practices or practices that would lead to sustainable development?
Ms Park: My point would simply be that the Department of Finance does not, if you like, access the budgets of other departments from the standpoint of environment or sustainable development. We count on those departments to -
The Chairman: Then why are you one of the lead departments in this exercise?
Ms Park: We are interested in working with those departments, as indeed we are, for example, right now working very closely with Natural Resources Canada on the level playing field study, and when there are priority areas identified like that we work very closely with them. But if your question is, have we made a judgment on the budget of NRCan as a whole with respect to sustainable development, the answer is no, that is not normally something the Department of Finance would do.
The Chairman: So you're not in a position to tell us whether in your judgment the budget of NRCan can be described as offering a level playing field to all of the actors that are active in the energy field.
Ms Park: No, I'm not in a position to say that.
The Chairman: In conducting a baseline study of the kind that is promised in the red book, who should be the lead department?
Ms Park: I think this is something that is the responsibility really of the government as a whole and in which all departments concerned will need to play a leading role with respect to the programs and policies that are under their responsibility. Certainly, the Department of the Environment has a particular interest in this area. The Department of Finance does to the extent that we have an interest in all government spending and taxation. But certainly the role of line departments with respect to the programs for which they are responsible is very important.
The Chairman: Would you describe the finance department as being particularly suited in matters related to sustainable development?
Ms Park: The Department of Finance has been increasingly becoming involved in these areas. We have, as part of the office for which I am responsible, a group of people who are devoted exclusively to these issues, as well as people in other parts of the department, on the taxation side and the fiscal side, who are also working on these kinds of issues.
The Chairman: Going back to the earlier question, when I was asking you which department should be the lead department, and modifying it slightly by asking which department should coordinate the baseline study, what would be your answer?
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Ms Park: I think it is difficult to say that a single department should be responsible for this. I think what is required here is a cooperative and concerted effort by a number of government departments to work together on this area to move the agenda forward.
The Chairman: But you realize what happens to a body without a head. In other words, you are probably giving a departmental answer here. I can appreciate your dilemma and the fact that you perhaps might not want to be specific. As a committee, however, we still need to know which department should be the coordinating force in such a difficult exercise in this system consisting of parallel, vertical forces operating independently from each other but brought together at certain specific dates, such as the budget date. To me, that seems to be a fair question.
Ms Gotzaman: Mr. Chairman, if I may, I think the point Anne Park has made is a good one. In a sustainable development world, it is a concerted effort on the part of a number of departments, and it need not necessarily be one department that leads the process, but perhaps two departments. I think it is evidenced by some of the questions that were asked today. Sectoral departments bring the expertise on what's happening in their sectors and what the possible barriers are. The finance department obviously brings to the table its knowledge of fiscal issues and the environment department brings to the table assistance in assessing the environmental implications.
The Chairman: So you would recommend a continuation of the process initiated so far.
Ms Gotzaman: What I'm saying is that it certainly does need to involve the sectoral departments, the finance department and the environmental department. That's not to say it's necessarily any one department that takes the lead, although it could be two departments that help coordinate the effort.
The Chairman: What timeframe would you have in mind?
Ms Gotzaman: I tried to address the question of timing in my remarks, Mr. Chairman. I think there may be some issues that are right for the next budget, and perhaps there are issues better left until after the next budget. Over the course of perhaps a year, certain disincentives or perceived disincentives can be further analysed. I don't know. I guess it depends on how many issues are tackled. Conceivably, the work could be staged in some fashion to make sure there are early results.
The Chairman: Thank you.
Let me see whether I have more luck with you than I had with Ms Park on this question. In your opinion, is the budget of NRCan a level playing field budget?
Ms Gotzaman: I'm not sure. I'm certainly not in a position to answer that question. I haven't done that sort of analysis. If you're referring to the taxation element in the energy sector, you will hear more about that.
The Chairman: I'm referring to the budget of the department itself.
Ms Gotzaman: I haven't analysed the budget itself. I couldn't answer that question, but I would refer back to -
The Chairman: It offers payment to the renewable, it offers payment to the non-renewable - the fossil fuel - and it offers payment to the nuclear, as was mentioned earlier. The question is whether or not that department, which is probably key to matters related to climate change, as Mr. Finlay already indicated, can achieve the objectives of the government under the present design of its departmental budget.
Ms Gotzaman: I really couldn't answer that question.
The Chairman: But you are the one who is supposed to provide governmental advice to the other department. That's why you have decided it should be Environment and Finance.
Ms Gotzaman: Well, I certainly think in the context of the identification of barriers and disincentives, for example, the Department of the Environment can assist there in doing the environmental assessment. But in terms of departments and their sustainable development goals, those are the sorts of things that have to be developed by the departments themselves. In fact, that is what lies behind the amendments to Bill C-83 and the development of strategies. Departments will go forward and develop their sustainable development objectives working with their stakeholders.
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The Chairman: Can you perhaps explain to me, then, in light of what you just said, why this chart on page 53 of appendix II deals with a summary of the framework for analysing public policy barriers to sound environmental practices? Wouldn't it be more appropriate for the task force to call it sound ``sustainable'' practices rather than ``environmental''? Why was it chosen to be in environmental - implicitly - protection practices, which have nothing to do with sustainable development except for the fact that environment is one of the elements that have to be taken into consideration?
Ms Gotzaman: The way I look at this is that it is a framework for sorting through, first of all, what the barriers are. This whole exercise is about identifying disincentives to sound environmental practices. So it's a question of first identifying the barriers, then assessing what the environmental implications are.
But the decision that comes after that is certainly a sustainable development decision, because when it comes to deciding whether we remove the barrier, we make changes, or we achieve the public policy goal another way, a whole host of considerations enter that decision, such as social implications, economic implications, plus environmental implications, regional implications; a whole host of factors.
The Chairman: That's fair enough. We have now achieved the knowledge to answer to the content of box 1. We have also covered considerably - collectively, as a society, I mean - the requests under box 2. But we are perhaps in that phase of moving between box 2 and box 3. Would you say the lack of progress is because of lack of political will, or is there another reason?
Ms Gotzaman: I can only say, Mr. Chairman, there has been some progress. That's not a question I could really answer. All I can really say is it's certainly an area the Minister of the Environment, and the Department of the Environment, attach a great deal of importance to.
The Chairman: In your capacity, wouldn't you expect yourself to be able to answer that question?
Ms Gotzaman: I do know it is certainly an important area from the perspective of the Minister of the Environment and the Department of the Environment. We have seen some progress. I think when you listen to the panels over the next day or two you will get an appreciation of what is being done. I think one of the issues here is where the gaps are and how we proceed from here to continue to move this work forward.
The Chairman: Do I take it from your answer the problem is not a lack of political will?
Ms Gotzaman: I'm not sure there's a problem. Certainly there is this work on disincentives to sound environmental practices.
The Chairman: Could it be perhaps bureaucratic inertia?
Ms Gotzaman: I can't answer that question. I think once you -
The Chairman: Then how do you explain the lack of overall progress?
Ms Gotzaman: As I tried to explain in my introductory remarks, some steps have been taken and there has been some progress. You'll get -
The Chairman: This report has been with you for twelve months.
Ms Gotzaman: Some elements of this report have been acted on in the last budget and you'll be hearing about some of the results. I'd expect it would be fairly soon when there's a more formal response to the report.
The Chairman: What advice would you offer, then, in addition to the five points, on how to remedy the lack of speed in making progress in moving from unsustainable to sustainable policies, particularly through the budgetary system, the fiscal system?
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Ms Gotzaman: About the work on disincentives to sound environmental practices, I think the way we're proceeding to go about it is the right one, which is taking stock of what areas we have identified so far, then where are the gaps and how do we priorize where those gaps are, and let's set ourselves a program to proceed to work through it.
The Chairman: Are you saying to us you have identified the disincentives?
Ms Gotzaman: I am saying we have...and François and Anne both spoke to some of the ones we are aware of out there, and some work has been done on them. I guess the question is, are there more out there that the committee members see, that stakeholders see, and that should be brought to the government for its further consideration?
The Chairman: So has there been a lack of consultation with stakeholders? Is that what you are saying?
Ms Gotzaman: No. I'm saying we've had some consultation through the task force. We have your committee. The people from IISD who appeared before it last week have put on the table their views on what areas we need to focus on. I think that sort of work is very helpful.
The Chairman: Mr. Bregha, do you have any comments to make on this exchange, particularly in relation to figure 1, which I'm sure you're partially the author of?
Mr. Bregha: I share your impatience, Mr. Chairman, and I certainly hope the government will move quickly to respond to the task force. I'm concerned that perhaps, as Mr. Reynolds implied in his testimony last week, we're letting the perfect be the enemy of the good.
There are a number of areas where we should be moving, where we should be experimenting, and sometimes just pilot-testing. We need information on which to draw up economic instruments, for example. We're lagging far behind some of our competitors. If we wait to do all the studies and all the consultations until everybody has agreed on what should be done, we will have missed the boat. I think there is enough information on which to make some decisions right now and to acquire the information needed to design further economic instruments.
In the case of barriers, it is true that some of the egregious barriers have already been removed, but some remain. I don't think it is -
The Chairman: Can you indicate to us some of those barriers?
Mr. Bregha: I mentioned spending in the nuclear field, for example, which is something you've mentioned as well. I've mentioned the Jack Mintz study on recycled -
The Chairman: Spending in the nuclear field hasn't changed one bit. It is $172 million in the NRCan budget this year.
Mr. Bregha: I believe it has declined a bit. But in any event, I would -
The Chairman: It has declined by $2 million with respect to the previous year.
Mr. Bregha: But I would highlight that as being one barrier to sound environmental practice at a time when the government's budget is extremely limited, because certainly energy efficiency technologies are not getting nearly the same kind of support, even though one can argue they are more environmentally benign than support for the nuclear industry.
Tomorrow you will hear examples of other barriers in the energy sector from the study the Pembina Institute did.
The Chairman: Are you in a position to tell us whether in your opinion the NRCan budget is one that will allow the government to move closer to its declared objective of stabilizing CO2 emissions by the year 2000 and reaching minus 20% by 2005?
Mr. Bregha: It's been a while since I've done work in this area, but I think it's quite clear the current pattern of spending will not get us there. I would be surprised if one were to find many people who would think the current program will allow us to stabilize emissions at the 1990 level, let alone decrease them.
The Chairman: All right. We can start the second round.
Mr. Finlay.
Mr. Finlay: Mr. Chairman, I would like to explore this concept of the level playing field a little more, because the definition, or what is written here, is that the level playing field is one in which federal government intervention is not biased towards any particular industry or activity. Then we have some examples. Some you've just mentioned: the non-renewable forms of energy versus renewables, virgin mineral products versus recycled metals, road transportation versus rail.
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It seems to me there's a simple way to deal with this if these things are uneven. There are two ways to deal with an uneven playing field. If you're subsidizing non-renewable forms of energy, then you can subsidize renewable forms of energy. That'll level the playing field. You're giving them this much so you add something.
It seems to me that in our present fiscal situation that's the wrong way to go. If we're giving subsidies to non-renewable energy, then it would seem that a very simple thing to do would be.... We're not giving any to renewable energy, or not nearly as much, and they need some, so let's reduce this.
We must have some object, some purpose. We understand what it is; it's sustainable development or environmental improvement or ecological preservation or whatever in terms of preserving our health. Isn't that something we might look at that wouldn't take quite as long as what we're proposing? If we're paying for something that's not environmentally good or sustainable in the development field, then why don't we target those things and stop putting that money into them?
Mr. Bregha: The energy field is probably the area where progress can be made most quickly, because there has been a lot of work done on it in the past. I keep coming back to the presentations you'll be hearing tomorrow, where there will be examples given of very specific measures the government could take to level the playing field in the case of oil and gas, for example.
In the past the government has tended to spend about ten to twenty times as much on promoting energy supply as it has on promoting energy efficiency. So by what is admittedly a fairly gross measure, you can say the practices have not been encouraging sustainable development. Now that ratio is declining as support for megaprojects ebbs, but I think the work the department is doing, as well as outside independent work, demonstrates that the playing field still isn't level.
Fortunately, that work is also coming up with specific suggestions of what could be done to level it. You're quite right that in the current fiscal situation one can't ratchet up; one has to ratchet down.
Mr. Finlay: I remember very clearly, Mr. Chairman, the lobby from the petroleum industry that came to see all of us. They came to see me as a member and suggested that I should only consider a subsidy for ethanol with respect to what subsidies the downstream oil companies got, which would seem to be fairly light. I pointed out that it seems to me that in Canada we have a lot of integrated oil companies that not only own oil fields and pump oil out of the ground but also refine it. I see their name on the gas station.
I find that a specious argument. If we're going to have depletion allowances and so on, then I suggest we can't afford to level the playing field the other way by putting all the money at equal amounts into ethanol. We have to do it by reducing them.
Now that's going to hurt some people and we're going to get the argument about jobs and growth and so on and so forth. I realize we have to pay some attention to that, but it seems to me that's perhaps a more simple way to go forward if we can ever get the principle of sustainable development further forward in everybody's mind than where it seems to be in some areas now.
The Chairman: That's where the question of political will becomes so crucial.
Mr. Finlay: Yes, that's where political will becomes important.
The Chairman: Mrs. Payne.
Mrs. Payne: Thank you, Mr. Chairman.
I guess I'm going back at the same question I asked previously, because the answer Mr. Cassils gave me was really a comment on what we had done wrong in the past. I know already what we've done wrong in the past, and I think most everybody does.
I guess you could apply the example Mr. Finlay just made. He made his in terms of environment and I'll make mine in terms of sustainable development.
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Mr. Bregha, you mentioned taxing the environmental bads and a couple of other people mentioned the same thing. I don't think it's any secret that the kind of technology we've used in the past for fishing has in fact been largely responsible for depleting the resource. What is your comment about placing a tax or imposing some kind of a fee on equipment that is not technologically or environmentally sound?
Mr. Bregha: In the case of the fishery - and it's an area in which I'm on thin ice - the economic instrument to use may not be a tax. It may be the creation of property rights. This is something that has been looked at on the west coast and that I believe has been applied in New Zealand. Fishermen are given an ownership stake in the fishery. It is tradable and it gives them the incentive to conserve the resource because it is obviously the source of their livelihood.
I am not sure that putting a tax on a technology because it happens to be more efficient than another one would make sense in this case, but economic instruments could certainly be applied in order to protect the resource.
Mrs. Payne: I am not so much concerned with the protection of the resource because we can do that by quotas. I am more concerned with the protection of the habitat.
Mr. Bregha: Unfortunately, I can't comment on that.
Mrs. Payne: Thank you, Mr. Chairman.
The Chairman: Before we break up, could we perhaps see whether there is consensus on a very one-dimensional and sectoral question? In the case of fisheries, would you agree that the policies pursued by subsequent federal governments by providing subsidies to the fishing industry and to the fleets engaged in fishing turned out only recently to be unsustainable policies because they increased the capacity of the fleet to take out more than the resource could reproduce in order to maintain its stock? Is that an assessment you can agree with? Do you agree that in retrospect past fiscal and subsidy policies have turned out to be unsustainable?
Ms Park: I certainly think that is a valid perspective within which to view the problem we have in the fishery, but I don't think it's the only factor involved in that particular problem. There are other contributing factors related to the scientific side, to the role of foreign overfishing and so on and so forth.
If one is concerned that subsidizing an industry encourages a pressure on the resource, one could look at the situation of the fishery from that perspective. I think I'd want to hear the views of the Department of Fisheries and Oceans before jumping to conclusions.
The Chairman: Are there any other comments?
Mr. Bregha: I agree with your characterization of the situation. In retrospect, we funded an overcapacity of the fleet that led to the depletion of the stock. Anne Park is quite right when she says that there have been other factors. It's been suggested that climate change is one factor that may have contributed to the collapse of the east coast cod fishery.
In retrospect I think the fishery is a very good example of policies pursued for economic or social purposes that did not take environmental factors into adequate consideration. Therefore they were not sustainable.
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Mrs. Payne: Mr. Chairman, we're still not getting to the issue. We're talking about quotas and we're talking about sustainable development. I think the issue we're ignoring or at least missing is the destruction of the habitat. I'm wondering if that cannot be discouraged through some fiscal arrangement. In other words, I'm wondering if the use of the technology that causes this destruction can be discouraged either through some fiscal policy or in another way.
Mr. Bregha: If the issue is that technology is destroying the habitat and the habitat is essential to the fishery, one should just prohibit that activity. One shouldn't use an economic instrument. One should just say this technology will not be used or say there will be no fishing at a time of year because it's destroying habitat. I think a direct regulation would be a much more direct way to go.
The Chairman: I have one final question before we break up.
In the task force activities, was time and effort spent in examining the impact on resource exploration that is facilitated by the depreciation allowances given to certain industrial or resource sectors? If so, how was it conducted?
Mr. Bregha: Some of the disadvantages the task force had in conducting its business were that it had very little time and very little money and was composed of a very large number of people who did not agree on everything. We certainly had a very strong debate and had several meetings as to whether the current exploration allowance or what you call depletion allowance, the current provisions in the act, represented subsidies or not. Not surprisingly the representative of the oil industry argued vigorously that these were not subsidies. As a result of that the task force's hands were tied. In the end we didn't comment on that particular question.
I think it underlines one of the difficulties of creating a multi-stakeholder process with over thirty members and expecting them to reach agreement on questions of this sort.
The Chairman: Are there any other comments?
Ms Gotzaman: That having been said, some further work has now been done on precisely that sort of issue. You'll be hearing about it.
The Chairman: Mr. Cassils.
Mr. Cassils: Yes, I think there is a bias in most of our administrative structures in favour of going through natural resources as quickly as possible. I will give you a couple of examples. One is the diamond rush in the Northwest Territories and the other is the recent discovery of base metals in Labrador. These were areas that had been disputed environmentally for some years, including the low flying of NATO jets over Labrador and other things. All of a sudden these things appeared to be irrelevant. There was a mad frenzy for riches.
This has been the pattern of human behaviour. Maybe that pattern can be changed. Sometimes I'm not sure it can. But I suggest that at least structures can be put in place to discourage it.
The Chairman: So you would agree in figure 1 on page 53, that when the question is asked about the barrier reflecting any underlying policy bias in most cases the answer is yes.
Mr. Cassils: Intuitively, I suspect it's still there. Even in this meeting we as panellists have been asked to deal with everything. Sustainable development deals with everything. What you can do in tax policy and in economic instruments is almost infinite. It depends on what the specific issue is and on what the circumstances are around that issue. I hope that at subsequent meetings you'll get the specifics you're looking for.
The Chairman: So too do we, Mr. Cassils.
We thank you, Ms Gotzaman, Mr. Bregha and Ms Park for the input, for your presence this afternoon and for your helpful answers. We appreciate that very much. We hope to see you again, perhaps with another mandate.
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We will adjourn until 7:30 p.m.