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Shifting Mining Incentives to Minerals Recycling Recommendations for Budget 2006 Recommendation
Tax Expenditure Implications These funds could be much better utilized to improve both Environment Canada’s inadequate capacity to analyze the ecological, social and cultural costs of existing and proposed mineral developments, and Natural Resources Canada’s metals recycling program (which currently has one staff person). Benefits for Canadians
Through increased reliance on metals recycling:
Background and Rationale Flow-Through Share Program Investment Tax Credit for Exploration (ITCE) The ITCE enriches speculative investors by reducing the after-tax cost of a $1000 investment in exploration in Canada to as little as $207 in Quebec, and $333 in BC.10 In addition to this federal program, most provinces have their own flow-through share and tax incentive programs for mines in remote areas. Evaluating Focused Flow-Through Shares Increased commodity prices in the past two years have provided an unprecedented stimulus to mineral exploration in Canada. There is no doubt that this has resulted in increases in all the indicators currently used to evaluate the FTS program. However, the unmeasured costs to communities and ecosystems have also been rising. Two examples illustrate the problem: Fortune Minerals, a junior mining company registered in Ontario has made four private placements of FTS to its investors.11 The company proposes to mine anthracite coal in the “Sacred Headwaters” of the Tahltan people: the headwaters of five major rivers in British Columbia. Elders from the community have blockaded their exploration activities, arguing that the rivers need to be protected and their cultural heritage is at risk. The Tahltans are faced with five major new mining projects on their lands as well as infrastructure to support them all at the same time. In northern Ontario, in 2005, seven First Nations have recently issued a mining moratorium to stop the exploration activities of Superior Diamonds and other mining companies on their traditional territories. They say the company is infringing their rights and damaging their land. The company’s activities are jeopardizing access for all mining interests in the region. On March 16, 2005, Superior Diamonds Inc.’s two private placements raised total gross proceeds of $2,659,530. Subscribers in the brokered private placement purchased 3,604,060 flow-through shares at 50 cents per share and 1,461,111 non-flow-through units at 45 cents per unit for proceeds of $2,459,530. It is clear that the FTS offerings are enabling these junior companies to sustain investor interest in their operations. However, it is unclear whether these benefits outweigh the costs being imposed on society and the environment. The case for metals recycling over extraction of virgin materials A 1999 study by the Institute for Fiscal Studies (U.K.)13 concluded that Canada’s tax system “significantly favours the use of virgin materials rather than recycled materials in the case of metal and glass products”. This is exemplified by corporate income and mining tax incentives at the exploration and extraction stages of production, as well as by provincial sales taxes on capital and on business inputs, which are borne more heavily by scrap firms than by resource and manufacturing firms. Another report, prepared in 1995 for the Canadian Council of Ministers of Environment (CCME), found taxation by the federal and provincial governments demonstrated a bias against recycling.14 The authors estimated that, for Ontario, recycled materials should be taxed at a rate 4.5% lower than at present in order to be taxed at the same rate as virgin minerals. Furthermore, to achieve optimal waste management the taxation rate for recycled materials would have to be 13 percentage points less than virgin materials. The energy savings realized when metals are produced from secondary sources versus primary sources are: zinc: 60%; steel: 74%; lead: 76%; copper: 85%; and aluminum: 95%. Additionally, the reduction in pollution realized from recycling can be immense. For aluminum, there is a 79% material conservation, a 95% reduction in emissions and a 97% reduction of effluents through recycling. For steel, one sees a 90% virgin materials savings, an 86% emissions reduction, a 40% effluent reduction, a 76% water pollution reduction and a 97% mining waste reduction through recycling. The Canadian metal recycling sector salvages an estimated 10 million tonnes of metal each year, valued at roughly $3 billion. Industry sources indicate that recycling creates many more jobs than land filling and waste disposal. A 2001 OECD analysis recommended that, “the preferential tax treatment of conventional resource sectors, such as oil and gas, and minerals and metals should be eliminated” on both environmental and economic grounds.15 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% and, in industrial countries like Canada, it will have to fall by factors of between 4 and 10.16 The scale of the environmental and social impacts of mining has been central to arguments regarding the need to reduce the consumption of newly extracted materials. The current rates of materials consumption are considered unsustainable, not so much due to shortages of materials themselves, but rather due to the extent of the environmental and social costs associated with their extraction and processing.17 Mineral and metal extraction leaves an enormously damaging and lasting environmental footprint, and the consequences of mining accidents, such as tailings dam failures, are potentially calamitous.18 In addition to major disturbances of the landscape, the destruction of fish, wildlife, and plant habitat, and the disruption of surface and ground water flows, mining, and metal mining in particular, generates enormous quantities of waste. Even when mines are operating, employment and income potential are likely to be relatively short term. This trend is a 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 15 years or less.19 Mining also results in socio-economic costs including: social and health impacts; work injuries; boom and bust economic cycles; the destruction of indigenous livelihoods; and dramatic changes in regional cultures.20 Given these factors, the federal government must provide the resources to investigate whether the investment of public funds to support primary resource extraction over recycling and conservation measures reflects good business or environmental practice. Substantial risks and costs are currently assumed by the ecosystems and communities that are disrupted by the search for new deposits. Contact: 10. Natural Resources Canada March 2003 presentation to World Bank Extractive Industries Review, p. 28. back to text 11. They have had at least four FTS issuances to date:
12. National Science Foundation http://www.physorg.com/printnews.php?newsid=9971 13. K. Scharf, “Tax Incentives for Extraction and Recycling of Basic Materials in Canada”, Fiscal Studies, 20(4), pp 451-477, 1999. back to text 14. EMCBC publication, “Protecting the Future through Action Today”, (30/08/2004). 15. A. Vourc’h (22 March 2001): Encouraging Environmentally Sustainable Growth in Canada. OECD Economics Department Working Paper No. 290. ECO/WKP(2001)16, p. 40. back to text 16. The need for a 90% reduction in material intensity in OECD countries was acknowledged in the October 1994 Carnoules Declaration, endorsed by prominent individuals
including the former executive directors of the Business Council for Sustainable Development and the Brundtland Commission (in T. Green, Lasting Benefits from Beneath the Earth, 1998:69). See also G. Gardner and P. Sampat, Mind over Matter: Recasting the Role of Materials in Our Lives, Worldwatch Paper 144, (Washington: Worldwatch Institute, 1998); J.Young and Aaron Sachs, The Next Efficiency Revolution: Creating a Sustainable Materials Economy, Worldwatch Paper 121 (Washington: 17. J.E. Young, Mining the Earth, Worldwatch Paper 109, (Washington: Worldwatch Institute, 1992). back to text 18. As illustra .probeinternational.org); the March 1996 Marcopper tailings dam failure in the Philippines (for a detailed discussion of this incident see http://www.miningwatch.ca/publications/Marinduque_backgnd.html), and April 1998 Boliden tailings dam failure in Spain (for a detailed discussion of this incident see http://www.antenna.nl/wise/uranium/mdaflf.html). On the potential for mining tailings dam collapses in Canada, particularly in the context of climate change, see P.E. Perkins, “Climate Change and the Canadian North: Ecological Economic Implications Related to Mining,” Paper presented to conference of Canadian Society for Ecological Economics, October 1997. back to text 19. Pembina Institute (2002): Looking Beneath the Surface. back to text 20. See Mining and Communities: a Literature Review and Annotated bibliography (Ottawa: MiningWatch Canada, 2000) back to text |