Recommendations for Budget 2005
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Shifting Tax Incentives from Virgin Mineral Extraction to Recycling of Metals

Summary
Recommendation: that the federal government shift tax incentives from
the extraction of virgin minerals to measures favouring the recycling and
conservation of minerals.

Investment
This is a tax shift and will result in no net loss or gain.

Benefits for Canadians
Pollution prevention – mining produces one million tones of waste rock and 950,000 tonnes of toxic tailings annually, often requiring perpetual care and maintenance. This is more than twenty times the amount of municipal solid waste generated each year by all of the residences, industries, commercial establishments, and institutions in Canada combined.²⁷ According to the US Institute of Scrap Recycling Industries, recycling steel results on a 97 per cent mining waste reduction and a 76 per cent water pollution reduction
energy savings on metal production: zinc– 60 per cent, Steel– 74 per cent, copper– 85 per cent²⁸. Falconbridge Nickel mines in Ontario presently consumes as much electricity as 250,000 homes²⁹ reductions in GHG emissions: a tonne of aluminum produces four tonnes of GHGs and a tonne of steel produces 0.8 tonnes of GHGs.³⁰ Small increases in their rates of recycling would yield substantial reductions in GHG emissions reduce human health risk and associated public health costs. Heavy metals released by mining are a significant contributor to poor health in communities such as Sudbury, Port Colborne, Lynn Lake, Trail, Labrador City and Rouyn Noranda. Over 60,000 tonnes of particulate matter are released into the atmosphere from tailings in Canada each year, while the metal smelting sector is a leading source of a range of heavy metals, including cadmium, mercury, lead, nickel and arsenic, as well as acid rain precursors, such as sulphur dioxide³¹

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

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

• The Organization for Economic Cooperation and Development recommended in its 2000 report on Canada that, “the preferential tax treatment of conventional resource sectors, such as oil and gas, and minerals and metals should be eliminated” on both environmental and economic grounds.³²
• Principle 8 of the 1992 Rio Declaration and Chapter 4 of Agenda 21 — Changing Consumption Patterns committed the parties to the elimination of unsustainable patterns of production and consumption.³³ It has been estimated that, to achieve sustainability worldwide, the material intensity of each unit of economic output will need to be reduced by 50 per cent and, in industrial countries like Canada, it will have to fall by factors of between four and ten.³⁴
• A 1995 Report prepared for the Canadian Council of Ministers of the Environment that found tax expenditure provided by federal and provincial governments displays a bias against recycling, and stated that recycled materials would have to taxed 13 per cent lower than virgin material for optimal waste reduction
• A peer-reviewed article by Kimberley Sharf of the University of Warwick, drew the following conclusions: “The Canadian tax system significantly favours the use of virgin materials rather than recycled materials in the case of metal and glass products…”. Sharf found that “Metal produced with virgin material has a Canada-wide weighted average tax rate of 23.4 per cent, while metal produced with recycled material has a rate of 27.9 per cent”³⁵

Metals are especially good candidates for recycling and conservation. Metals do not lose their mechanical or metallurgical properties when recycled, while retaining their economic value. As a result metals can be re-used and recycled through the economy almost without limit.³⁶

Even while a mine is operating, employment and income potential is likely to be relatively short term. This trend is the result of a decline in the average operating period for new mines, and the technological developments that are constantly displacing workers. Most new mines only last 10-15 years.³⁷ Mining also results in socio-economic costs including: health impacts; work injuries; boom and bust economic cycles; the destruction of indigenous livelihoods; and dramatic changes in regional cultures.³⁸

According to the 1998 report of the Minister of Finance’s Technical Committee on Business Taxation, the federal tax rate on Canada’s mining and oil and gas sectors is the lowest of all sectors.³⁹ The marginal tax rate is 8.7 per cent, and the federal effective corporate tax rate is 6 per cent. Although the February 2003 budget discontinued the Resource Allowance for mining, it also phased in a reduction of the corporate tax rate to 21 per cent. Federal subsidies for the exploration and development of new mines in Canada have historically been justified because of the resulting employment and other economic benefits. However, the number of workers employed in mining has fallen dramatically, from a high of 70,038 in 1974 to 29,248 in 2000.⁴⁰ Contribution to GDP of metal mining fell by eight per cent from 1994-2000. Recommendation
Shift federal government support for mining exploration to tax measures supporting the recycling and conservation of metals.

Alternative and Complementary Policies
The Green Budget Coalition also recommends: an environmental and long-term social impact assessment process that includes an evaluation of the need for the material in a given mining proposal; incentives and legislation to encourage the recycling of metals from landfills and obsolete industrial and commercial structures; the use of bar codes and other identifiers to enable the separation of complex alloys; legislation forbidding the use of certain toxic metals (e.g. cadmium, mercury and lead ) in steel production in order to facilitate recycling.

Contacts
Joan Kuyek
MiningWatch Canada
613-569-3439

Mark Winfield
Pembina Institute
613-235-6288 ext. 25

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