Recommendations for Budget 2005
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Shifting Subsidies from Fossil Fuel and Nuclear Power to Renewable Energy and Energy Efficiency

Summary
Recommendation: phase out government subsidies and tax exemptions for fossil fuel and nuclear power and shift support to new incentives for the research and development of renewable energy and energy efficiency.

Estimated Funds for Shift⁵²

• $260 million — annual corporate tax reduction for oil & gas sector (and mining) introduced in 2003 budget⁵³
• $163.8 million — federal subsidy to Atomic Energy of Canada Ltd. in 2004/0554

Benefits for Canadians

• position Canada as a world leader in renewable energy
• expand regional economies in parts of Canada with substantial renewable resources
• create new, high-tech employment opportunities for Canadians
• achieve substantial reductions in greenhouse gas emissions in Canada
• reduce other air pollutant emissions resulting in associated reductions in Canada's health impacts and healthcare costs from fossil fuel energy use
• reduce radioactive waste, emissions and accident risk at nuclear power plants

Background and Rationale
One problem that has plagued the federal budget for a very long time is the policy of providing environmentally harmful subsidies to polluters. Polluter subsidies come in various forms, though today the most common is the tax break or tax expenditure.

Two of the most environmentally harmful sectors of the economy, fossil fuel and nuclear power, have historically been among the largest recipients of federal polluter subsidies.

Fossil Fuel
According to the Auditor General’s office, the fossil fuel sector has received more than $40 billion in federal subsides over the course of the last three decades. Current annual federal subsidies to the oil and gas sector are in the hundreds of millions of dollars.

The Green Budget Coalition believes, and many Canadians would agree, that enormous government subsides to a sector that not only routinely experiences record profits, but threatens our health and the health of our children, are not warranted.

Furthermore, purely in terms of government policy, these subsidies fly in the face of what the federal government has committed to achieving under the Kyoto protocol. Kyoto has been adopted as official government policy and imposes binding international treaty obligations on Canada from 2005 onward. This, presumably, is why the federal government has committed $4.7 billion toward climate change measures over the course of the last five budgets.
Yet, by continuing to subsidize the fossil fuel sector, the government stimulates and accelerates greenhouse gas emissions. In essence, therefore, the government is working at cross purposes with itself.

Nuclear Power
A history of high costs, poor performance and serious environmental problems has hampered the construction of new nuclear reactors since the early 1980s. With few new reactors under construction, it is estimated that eighty per cent of the world’s current nuclear capacity will be shut down by 2030 as ageing reactors are closed.

A number of countries have decided to take a proactive approach by cutting subsidies to the nuclear industry and by instead developing renewable energy sources to replace their nuclear facilities. Germany, for instance, is phasing out all of its nuclear reactors by planning for their permanent closure at the end of their operational lives. Belgium, which depends on nuclear power for well over half of its electricity generation, will shut down all of its reactors by 2025.Keeping Candu on Life-support: Federal Nuclear Subsidies
Fifty years of direct taxpayer subsidies to Atomic Energy of Canada Limited (AECL) from 1953 to today now total more than $17.5 billion.⁵⁵ In the 1996 budget, the government committed to cap AECL’s subsidy at $100 million per year, beginning with the 1998/99 fiscal year.⁵⁶ This budgetary commitment was never kept.

As Table 1 demonstrates, budgeted subsidies to AECL are routinely increased through supplementary estimates. In 2003/04, for instance, the government provided an additional allocation of $46 million for R&D on a new Candu model, the Advanced Candu Reactor.⁵⁷ The use of the supplementary budget to increase AECL funding in an ad hoc manner thwarts good planning and reduces the opportunity for parliamentary and public input.

Table 1
Federal Nuclear Subsidies to Atomic Energy of Canada Limited
millions of dollars

Nuclear Liabilities
AECL conducts most of its research and development work at Chalk River Laboratories (CRL), approximately 100 km north of Ottawa. There are seven reactors at CRL in various stages of construction and operation as well as several radioactive waste storage areas.

AECL currently estimates the cost of decommissioning CRL at $2.2 billion.⁵⁸ The actual cost of cleaning up this facility, however, will probably be much higher. AECL has proposed cleaning up CRL over a 100 to 300 year period, probably as a means of shielding the corporation from a full accounting of the real cost of decommissioning.

In 2002, the Auditor General noted that “[t]here is no consensus between the Corporation and the government on how best to manage these [decommissioning] activities, or which federal department or agency will be financially responsible for them beyond the five-year period.” While the federal government has acknowledged that it is responsible for AECL’s liabilities,⁵⁹ it has not set aside any funds for the clean up of Chalk River.

Recommendation
In May 2001 member countries of the OECD, including Canada, adopted an environmental strategy that includes the phase out of environmentally harmful subsidies and tax exemptions. Accordingly, the Green Budget Coalition recommends a shift in government support from subsidies and tax exemptions for the fossil fuel and nuclear industries, to new incentives for the research and development of renewable energy and energy efficiency.

Alternative and Complementary Policies
Federal government subsidies to the nuclear industry are funneled through its crown corporation AECL. The Green Budget Coalition recommends that subsidies to the nuclear industry be ended. These subsidies could stop immediately or be phased-out over several years. The federal government should also stop using the supplementary estimates to increase the annual AECL subsidy.

As a matter of principle, we do not believe that the federal government should continue to support nuclear power through a crown corporation. However, the government could allow AECL to attempt to exist on a non-subsidized basis. As another policy alternative, there is an historical precedent for privatization of AECL. In 1988 Nordion, a former subsidiary of AECL, was sold to MDS Inc. for $165 million.

The federal government also has an obligation to clean up Chalk River Laboratories in a timely and transparent manner. AECL and the federal government should establish a fund to cover the future costs of radioactive waste management and decommissioning of AECL’s various facilities after the end of their service lives. The total cost (allowing for accrual of interest over time) should be paid into this fund during the active operating life of the facilities. This fund should be separate from the operations of AECL, and should be managed and accounted for by an independent body.

Contact
Andrew Van Iterson
Green Budget Coalition
613-562-3447 ext. 243

Shawn-Patrick Stensil
Sierra Club of Canada
613-241-4611

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