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. Shifting Mining Incentives to Minerals Recycling Recommendation Advance Canada on the path to more efficient, sustainable resource use by:
Tax Expenditure Implications Annual resultant savings would be about $95 million from ending the focused flow through share program, and about $10 million from cancelling the ITCE. These funds could be much better utilized to improve 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).
Mining exploration in Canada has caused substantial damage to Canada’s fragile ecosystems, and local First Nations and other communities, and similarly prevented other more sustainable economic opportunities, yet the federal government continues to subsidize this mining exploration. These subsidies serve to exacerbate environmental problems by financing otherwise non-commercially viable exploration, and by thus expediting our arrival at the limits of our natural resource supplies.
The ‘super’ flow-through program, a tax incentive for “grassroots” mineral exploration, was introduced in October 2000 as a temporary measure to help moderate the effect of a global downturn in mineral exploration in the 1990s. The original three-year program has been extended four times since its inception, each time for additional one-year periods. The program enables mining companies to allocate a portion of their exploration losses to investors to use as a loss on their tax returns, and provides a 15% tax credit in addition. The federal Investment Tax Credit enables certain mineral exploration companies to receive another 10% credit for their investment in a mineral exploration project on previously undeveloped land. The ICTE was institutionalized with Bill C-48 introduced at the end of 2004. The flow through shares and Investment Tax Credit enrich 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(1). It is important to note that most provinces also have flow-through share programs and tax incentives for mines in remote areas which are in addition to the federal program.
The benefits of the Focused Flow-Through Share (FTS) program are usually evaluated on the basis of: the amount of money raised; increases in exploration gross expenditures and the discovery of new mineral deposits. Such analyses ignore important effects such as the costs to affected ecosystems, loss of services provided by nature, lost economic opportunity costs, and costs to the First Nations and other local communities. 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 eco-systems have also been rising. Two examples illustrate the problem: Fortune Minerals, a junior mining company registered in Ontario has made a number of private placements of FTS to its investors(2). 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 been blockading 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, seven First Nations have recently issued a mining moratorium to stop the exploration activities of Platinex, Metallex, Superior Diamonds and other mining companies on their traditional territories. They say the company is infringing their rights and damaging their land. These companies are all dependent on The Flow through Share program to raise equity. It is clear that the FTS offerings are enabling these junior companies to sustain investor interest in their operations. But at what cost to society and the environment?
In a study published on January 17, 2006 in the Proceedings of the National Academy of Sciences, Yale University researchers Robert Gordon, Thomas Graedel and Marlen Bertram said that their research had determined that supplies of copper, zinc and other metals cannot meet the needs of the global population forever, even with the full extraction of metals from the Earth's crust and extensive recycling programs, and that depletion will be an immediate problem for some precious metals like platinum(3). A 1999 study by the Institute for Fiscal Studies (U.K.)(4) 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(5). The authors estimated that, for Ontario, recycled materials should be taxed at a rate 4.5% lower than the current rate 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%; 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(6). 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, (7). 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 the shortages of materials themselves, but rather due to the extent of the environmental and social costs associated with their extraction and processing(8). 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(9). 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(10). 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(11). Given these factors, the federal government should allocate sufficient 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: TOP 1. Natural Resources Canada March 2003 presentation to World Bank Extractive Industries Review, p. 28, Back to text |
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