FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, September 28, 1998

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order and welcome everyone here this morning.

As you know, pursuant to standing orders 108(2) and 83.1, the committee resumes its pre-budget consultation process. It is our pleasure to have with us representatives from the Canadian Steel Producers Association, the Canadian Chemical Producers' Association, the National Round Table on the Environment and the Economy, and the Sierra Club of Canada.

We will begin with Jean Van Loon, president of the Canadian Steel Producers Association. Welcome.

Ms. Jean Van Loon (President, Canadian Steel Producers Association): Thank you very much, Mr. Chairman.

The CSPA very much appreciates this opportunity to talk to you and your colleagues about the forthcoming budget. I'd like to take my five minutes to explain a bit about why the issues are so important to our industry.

We are a large industry in Canada. We had over $11 billion in sales and over $3 billion in exports in 1997. We have plants operating in six provinces of the country, employing 33,400 people. For each one of those people there are another four engaged in supporting industries, service industries, environmental services, information technology, and engineering services. So we are an important employer.

The 1990s has been a very important period for our industry, a period of transformation. What's happening in the industry is that it's becoming more and more a knowledge-based industry, driven by technological change combined with intense competition. The technology is changing faster and faster, which means, given the nature of our industry, there's an ongoing requirement for capital investment. In the 1990s alone our industry has spent over $4 billion in capital expenditures in Canada.

With the requirement for ongoing capital investment, which will continue given the changing pace of technology and the rapidly changing technologies in the industry, we also have a requirement for increasingly skilled employees and astute and innovative managers. So we're facing, as we look toward the competition of the future, a need for ongoing capital investment and very talented personnel.

That leads us to the positions we're taking with respect to the forthcoming budget. We strongly support setting a high priority on reducing Canada's indebtedness. The reason for this is that we believe the level of indebtedness that remains, while it is a great improvement and has certainly helped us in the recent period of instability, is still too high. Canada is still vulnerable to perturbations from outside the country that could lead to higher, unstable interest rates, which would put a damper on the kind of investment our industry has to do.

The other big point for us is the need to address the problem that our income tax levels are too high. In our industry we have several member companies who are in effect the headquarters for operations in both Canada and the U.S. It's perfectly logical for those companies to look at, from time to time, bringing a manager from the U.S. to headquarters to assume some important role here, but it's very difficult to do that when the income tax rates are so high that the person would in effect have a substantial decline in their standard of living by coming here.

So we see the need to reduce income taxes as being very important. We probably cannot afford to move immediately as far as we should, but the government should at least be making a commitment to move in that direction in setting up a plan that will move forward.

Given the economic outlook as it's been shaped by the economic events worldwide, we believe we should not be looking at increasing expenditures on public programs but sticking with the debt reduction and moving toward income tax reductions.

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As our final point, we're also concerned at some of the recommendations raised in the Mintz report in the past year. We believe they're suggesting that the tax levels on manufacturing and mining industries essentially be increased to the benefit of other industries. We think that's unrealistic and would have negative economic implications.

Thank you, Mr. Chairman. I think that's all I need to say for opening comments.

The Chairman: Thank you very much, Ms. Van Loon.

Now we will hear from the Canadian Chemical Producers' Association, Mr. David Goffin, vice-president, business and economics, and Mr. John B. Arnold, senior income tax advisor.

Welcome.

Mr. David W. Goffin (Vice-President, Business and Economics, Canadian Chemical Producers' Association): Thank you, Mr. Chairman. We too are pleased to be here.

The Canadian Chemical Producers' Association, or CCPA, represents the interests of over 70 member companies. While we're often looked at as big business, we actually represent companies having between 50 and up to 5,000 employees across the country.

We produce $16 billion worth of chemicals at over 160 sites across the country. Each of our members exports, and exports amount to 57% of production. So clearly we are a sector that needs to be globally competitive in order to thrive.

We look on chemical manufacturing as a linking or keystone sector, providing the basic building blocks to much of Canadian industry. For example, we provide direct inputs to sectors like construction, transportation equipment, plastics and rubber products, textiles and so on. On the resource side, our biggest customers include the oil and gas, mining, forestry and agriculture sectors.

Canada's chemical industry is a driving force in achieving improved environmental performance not only in Canada but also around the world. Our responsible care ethic is now being picked up in more than 40 countries, many of which are developing countries.

Responsible care, which is a condition of membership in our association, is an ethic that ensures that chemicals are managed responsibly through all stages of their life cycle, from development in the laboratory through the final disposal at the waste site.

With that introduction, let me turn to the four general questions you have posed to witnesses. In the course of this and in the discussion we hope we can talk a bit about the Mintz report, or the Technical Committee on Business Taxation. Jean Van Loon has commented from her sector's perspective. We want to make it clear that our comments on that report are very much our analysis and the impact that the recommendations in that report would have on chemical manufacturers. Mr. Arnold, a member of our tax committee, is here specifically to respond to comments on the Mintz.

First of all, on priorities for the fiscal dividend, we applaud what the government has done in eliminating the deficit. This committee in the past has suggested a debt reduction target at the lower end of the 60%/50% of GDP range, and we would like to see the government achieve at least the lower end of that range. Recently Minister Martin has been quoted as mentioning 40% of GDP target without any time limits attached to that yet. If it's possible to set a longer-term, lower goal, we would certainly support that.

Second, on strategic investments and changes to the tax system, we recognize the government's current priority is on personal taxes, and we agree with that. Personal taxes need to be more competitive. We hope the report of the technical committee does not get lost, however.

For chemical manufacturers—and as I have stressed, we're talking only for our sector—the general direction of that report, in driving down corporate tax rates but at the same time broadening the tax base, would improve our tax competitiveness.

We didn't come here in June to talk about that because we wanted to do a quantitative assessment using our plant tax model. That's the result that a polyethylene plant tax model generates for us.

In order to equip Canadians for the 21st century, we feel that the governments are generally working in the right direction. For example, the agreements that the federal government has made with most provinces now on training and employment services are appropriate. For us, focus on engineering and business skills development is key. Efforts are being made across the country to get more technology into the classroom, to redesign courses to take this into account. All that is important for a high-technology sector like chemicals.

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Finally, to ensure jobs for Canadians in the new economy—and we certainly view chemicals as part of that new economy—we feel that the best thing to do for our sector is to focus on the fundamental elements of competitiveness in the country. We have some question, I guess, about whether the government has kept a clear focus on economic development and has a vision in that direction.

Certainly in the beginning of the government's first term I can remember Industry Canada coming out with an orange book that looked like it was going to be the start of a comprehensive vision, but it seemed to get sidetracked. We feel that without this clear vision, some policy directions have come about that have tended to reduce our competitiveness—for example, the Canada Transportation Act and its effect on competitive access for shippers; cost recovery; Bill C-19 on labour relations, which addressed grain shipper concerns but not those of us and other shippers; and in the environmental area, where we went to Kyoto and made some commitments without a full understanding of the economic consequences for us.

If there was a clear strategy for economic development, what would be critical for us? The tax structure, which I've referred to in our comments on the technical committee's report. Transportation competitiveness in terms of both infrastructure investment and the year 2000 review of the Canada Transportation Act. Maintaining scientific research and experimental development tax credits, which are very important to our sector. In the environmental policy and regulation area, as I referred to earlier, understanding the economic impacts of our commitments; greater acceptance of voluntary measures like responsible care; and re-evaluating our system in this country for new chemical assessments.

Finally, trade is key to us. On trade, we couldn't ask the government to do any more than it has been doing in advancing trade liberalization on a number of fronts.

With those opening comments, I'll conclude, Mr. Chairman. Thanks very much.

The Chairman: Thank you very much, Mr. Goffin.

We'll now move to representatives from the National Round Table on the Environment and the Economy, Dr. Stuart Smith and Mr. David McGuinty.

Welcome.

[Translation]

Dr. Stuart Smith (Chair, National Round Table on the Environment and the Economy): I will make the presentation myself and I will be doing it in English. Later on, my executive director, Mr. McGuinty, will join me in answering your questions in English or in French.

[English]

It's a great pleasure for us to be here. Just as an opening statement, let me say a few words about the round table. The round table is a unique organization that is now in a sense being copied throughout the world. We are a multi-stakeholder body appointed by the Prime Minister. We bring together people from industry, from environmental groups, from the academic sector, from various native groups, and from labour and other interested parties. We deal in an atmosphere of cordiality and mutual respect. We try to find consensus, but where we cannot find consensus we try to clarify the nature of the differences.

Based on that work, I would like to say that we are happy that the concept of sustainable development is gaining a certain amount of attention in the business world as well as of course in the environmental sector.

I'd like to tell you of some of the work we're doing. Keep in mind, please, that our strength is our ability to convene people and to maintain a sense of balance. Apart from that, there'd be no need for us, but it's a unique organization in that sense.

I'll give you some examples of our recent work. I might mention eco-efficiency. We're trying to find standard measures that every company can use for declaring its waste minimization, success or failure, and its energy usage per unit of production. This would be so standardized that the same measure could appear on every company's annual report and be audited and clearly understood. You cannot manage what you are not measuring, and if we want people to manage these things we have to help them measure it.

On another matter, climate change, you'll be aware that we've called together members of the Order of Canada and had the most unique consultation probably in Canada's history on this topic. We brought in people from all viewpoints. At the end of the day, the members of the forum decided that while there is uncertainty on the subject of climate change, it is not an excuse for inaction.

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On emissions trading, which is part of how we intend to meet our Kyoto commitment as a country, we have, after discussions with the Minister of Finance, convened just about every expert in the country from all the stakeholder groups. We are now putting together the options with a deep, full understanding of what these options might mean for Canada.

Let me say some general considerations about the budget, since that's what your committee is looking at. We think it's very important to recognize that Canada's Kyoto commitment could have enormous implications for Canada's economy. We are of the opinion that the average citizen really does not understand what it is we're talking about. We know for sure they don't know technically what the greenhouse gas issue is. They don't realize that it has to do with reducing their energy consumption. Energy is pretty fundamental to our economy and our way of life, and we believe it's terribly important that Canadians understand what's going to be asked of them, because what's going to be asked of them is not trivial.

In the long run, it may be to the great benefit of our country, but in the short run it will certainly cause them to make changes. They will not take well to suggestions if they don't understand them.

We're suggesting that some money should be set aside to allow dissemination of the declaration arrived at by their fellow citizens of the Order of Canada. It's a very balanced and sensible declaration, the kind of thing that Canadians would themselves have come up with if given the seven days these people had to be immersed in the topic. While it's a balanced statement and therefore might not appeal to every person, I believe it's typically Canadian in its sense of fair play and common sense.

We think too that if we're going to meet the Kyoto commitment, we're going to have to tilt the playing field in favour of conservation of energy and renewable energy. In the past, your committee and the minister made some excellent moves to level the playing field between the fossil fuels and conservation and renewables, but I'm afraid the time has come now to tilt the playing field. Otherwise, we have no chance of meeting our Kyoto commitments.

May I now speak of some very specific recommendations we have been discussing with members of the Department of Finance. One has to do with privately owned woodlots, mostly in Atlantic Canada. We have been carrying out multi-stakeholder consultations, and as a result of that there has been some action in the Maritime provinces.

In terms of the woodlots, which are now being cut at far greater than their sustainable level and will be ruined if this continues, we've recommended that the people who own these woodlots be given a better tax treatment, be treated more like farmers. While they have a very long crop time, at maybe 25 years in some instances, they should be treated more like farmers, with one exception.

In the case of a farm, if you are losing money, you can only take the loss against your other farm income. Well, these people don't have other woodlot income. If they're going to spend money year by year to manage the woodlot, they have to be able to subtract that from their other income, because for the most part these woodlots are owned by people who drive trucks or have other jobs. So it's very important that Revenue and Finance get together and allow that deductibility to occur.

The other issue—and I'm just going to touch on it—has to do with contaminated urban lands. This was a matter of considerable personal interest to the Minister of Finance in our conversation. These lands should be developed.

You know, usually in the environmental sector you're trying to get people to stop development. Well, in this case we're trying to get people to start development, because these are lands that are valuable. People want to develop them. They should. The market should develop them. What's holding everybody back is that the lenders, the banks, will not lend money because of the possibility of long-term, open-ended liability.

What we're saying is that once the developer has $100 million of insurance, after that the federal and provincial governments should act as reinsurers, or backstop, with a sort of virtual reinsurance company to essentially say if there's anything beyond that, it won't fall back on the lender. If there's anything beyond the insurance, the government will take care of it.

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Case by case, that's been done. In fact, in Quebec there's been some excellent cases of this kind. They've shown the way in this regard.

But I think it's terribly important, particularly in Toronto, Montreal, Vancouver and, to a lesser extent, Calgary, that if we want these lands to be developed this measure could be taken. It won't cost the government anything but it gives the protection to let the lenders come in.

That's all we have to say for our opening statement. Thank you very much.

The Chairman: Thank you very much, Dr. Smith.

We will now hear from the Sierra Club of Canada, Mr. John Bennett, director, energy and atmosphere. Welcome.

Mr. John Bennett (Director, Energy and Atmosphere, Sierra Club of Canada): Thank you, Mr. Chairman, and members of the committee.

The Sierra Club thanks you for this opportunity to present our point of view on the coming budget. I also represent today the Canadian Climate Action Network, which is about 120 environmental groups from across the country. I will try to give you some idea of our feelings around the Kyoto agreement and how we think it's an opportunity. We've heard words already today that it's going to be a terrible cost, but we think there's a real opportunity here, not only in the creation of new jobs and new technology in Canada but also in the elimination of costs.

It's estimated that in Ontario alone $1 billion a year is spent on health care as a direct result of air pollution. By attacking climate change through reducing emissions, we're attacking air pollution at the same time. So we're looking at saving money on the backside. What we'd like to see from the federal government is some leadership on climate change in terms of real action rather than just talk.

In terms of your second question, we would like to see the use of strategic tax relief to stimulate action on climate change. This is a point Dr. Smith was just referring to in terms of tilting the playing field in the right direction.

Right now we already subsidize nuclear energy to hundreds of millions of dollars, and we continue to do that despite its failure in Ontario. Every one of us also subsidizes the fossil fuel industry by allowing them to put their waste into the air and use our lungs as a dump; hence the extreme health costs. So that's a subsidy that's unaccounted for.

Therefore, we should be looking at levelling the playing field in such a way that the energy technologies that don't produce those side effects are given a better opportunity. The way we'd like to do that is through the tax system, much like the federal government did last year when it targeted education and gave new deductions for people who went back to school. Even though those individuals received the main benefit, it recognized that all of Canada was better off with a better-educated workforce and was more competitive.

We'd like to see the same kind of initiatives aimed at climate change in terms of encouraging people to do the things to reduce their energy consumption and to switch to renewables where possible. Where to do that is by changing the capital deduction system. If a corporation invests in energy efficiency and conservation, let's give them twice as much of a deduction as we already do now. If they invest in a renewable energy source, let's give them a triple deduction.

This is more symbolic than anything else, but it's a way to free up the economy to allow the economy to attack climate change rather than to try to plan it out in every detail, which is the process that's going on right now.

Second, the federal government is in the oil business. At the same time it's telling us we have to reduce our CO₂ emissions, it owns 8% of the Hibernia oil project, worth about $1 billion. That money was invested about eight or nine years ago in order to save the project. Well, the project's been saved and it's producing oil. There's interest in the oil industry to purchase that share, so let's sell that share and then reinvest that money in climate change. Let's create a national atmospheric fund and use it to fund the kinds of things in society to promote climate change activity that won't necessarily be funded through the economy itself.

One of the best examples of that is the green community system, where groups of environmental organizations, municipalities, local gas companies and utilities form a co-operative organization in their community to go out and encourage people to reduce their CO₂ emissions. I have some extensive notes on it in this paper.

Finally, I'd just like to say that all the things that we're suggesting will actually increase the economy and create jobs, and create jobs in a different way than normally government-initiated programs do. Government in the past has gone for megaprojects that allow large numbers of jobs in particular places but leave the rest of the country without them. If we were to move toward a renewable energy-based society, the jobs we would create would be dispersed throughout the country. There would be jobs in Cape Breton just as there would be jobs in Toronto. So we're looking at a way of dispersing the impact of climate change and creating jobs at the same time.

Thank you very much.

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The Chairman: Thank you very much, Mr. Bennett.

We'll now enter the question and answer session with Mr. Mark.

Mr. Inky Mark (Dauphin—Swan River, Ref.): No questions.

The Chairman: Okay. Mr. Riis.

Mr. Nelson Riis (Kamloops, Thompson and Highland Valleys, NDP): No questions. I'm sorry to have come in late, sir.

The Chairman: Mr. Pratt.

Mr. David Pratt (Nepean—Carleton, Lib.): Thank you, Mr. Chair.

In looking over the brief by the national round table, my attention was drawn to one of the statements on page 2. It says:

Furthermore, a Federal-Provincial approach to assist municipalities to improve and popularize Urban Transit is urgently required.

Could you explain a little bit about what you were thinking in terms of what sort of an approach?

Just to give you a little information, one of the projects I've been working on over the course of the last few years has been as a former regional councillor in Ottawa Carleton and former member of the OC Transpo Commission. One of the issues we pursued at the local level, and one I've worked on over the last year, is the whole business of having employer-provided transit passes considered as tax-free benefits.

Is that the approach you're recommending, or do you see a more broadly based infrastructure-type program that would provide direct funding from the province and the federal government to municipalities to help them with their capital acquisitions? Because obviously the municipalities over the last number of years have been extremely pinched by the cutbacks from the provincial governments.

Can you elaborate?

Dr. Stuart Smith: Certainly, Mr. Pratt, and thank you very much. Perhaps my colleague would also wish to say something.

We did write two years ago to the Minister of Finance in favour of the transit pass deductibility. At the time, the feeling he expressed was that this would be unfair because allegedly, parking was not also given as.... It would tilt the playing field in favour of public transit against parking, and those who actually brought their cars were not getting this deduction.

My feeling is that in the first place, many places do give free parking, but apart from that, it's time to tilt the playing field. If we want to meet the Kyoto commitment, we have no choice but to tilt the playing field. It seems to me that anything that encourages public transit is terribly important.

Public transit vehicles are now so empty that it has come to the point where the actual usage of fuel per passenger is higher in public transit than it is in your own car. This is a pretty sad state of affairs. It's per passenger because these vehicles are empty. We have to redesign these systems. We have to refurbish them.

Toronto now has no choice but to raise the fares again. It's going to hurt public transit even more. It's a vicious circle.

We simply say that there are very few things that can be done to deal with the Kyoto commitment easily, but one of them is an infrastructure program focused on public transit.

So my answer is both—the transit passes and an infrastructure program in the public transit field.

Do you wish to add anything?

Mr. David McGuinty (Executive Director and Chief Executive Officer, National Round Table on the Environment and the Economy): I would just add that if you put things in perspective, in terms of greenhouse gas emissions nationally, transport is responsible for between 27% and 28%. In a speech I gave at the AGM of the board of directors of the Transportation Association of Canada last week, for example, I think the reality or the challenge, the size of the magnitude of that challenge, hadn't really struck that board yet. There will have to be major changes. The question is, how do we get those numbers down? It is the single largest contributor at 27% to 28%.

Mr. David Pratt: Tell me, do you expect to be devoting more time and energy to the transit pass issue? Because there's a group of people, through the Amalgamated Transit Union, the union that covers most of the transit workers, who are very active in promoting this idea. It seems to me that we've really just scratched the surface of the potential on this. The Americans, of course, have had transit pass deductibility for the last 10 or 15 years now.

Could you see yourself doing more work in that area over the next little while?

Dr. Stuart Smith: Yes. We have a backgrounder on urban transportation, which we'll be issuing very soon. Again, we're going back at the same issue, along with many others. Certainly that's one of the issues we're going back at.

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Mr. David Pratt: Okay.

The Chairman: Thank you. Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman.

I want to thank all of the interveners. I think your interventions have been clear. There was a theme, though, that came out a couple of times and that I wanted to get your thoughts on, because I think it's important in terms of longer-term visioning for Canada.

The gentleman from the Sierra Club had mentioned that there is this problem of choosing to invest in preventative measures through environmental safeguards as opposed to dealing with problems after you have them. I guess it raises the theme, for a government, about whether or not we have an appropriate balance between investing in preventative strategies, regardless of the discipline, as opposed to dealing with problems after we have them, and being more reactive, and whether or not there is a consensus about the productivity of a dollar spent on prevention and the cost-efficiency of prevention as opposed to reactive or the cost of dealing with problems after they're over with.

So I would be interested in hearing from the panel about whether or not the government has in the past shown an appropriate balance between, say, preventative versus remedial approaches to some of the issues before us or whether or not you feel there should be a shift in that balance that's being proposed.

The Chairman: Mr. Bennett.

Mr. John Bennett: There definitely should be a shift to looking at a problem and saying, “Where does it come from?” You can say, “How much more money do we need to spend on hospitals for respiratory health care?”, or you can say, “How much money do we need to spend to prevent people from getting respiratory problems in the first place?” It's been clearly documented. The Ontario Medical Association, the lead organization on air pollution in Ontario at this point in time, is saying we need huge reductions in emissions that cause illness.

So, yes, we can do it, and that's what we have to do.

The Chairman: Any further comments from the panellists?

Ms. Van Loon, go ahead.

Ms. Jean Van Loon: I think it's very important to take an informed and fact-based approach to looking at the issues, so generally speaking, yes, our association would support that approach. It has to be combined with looking at where you can get the best results for dollars invested, because you need to combine the balance in prevention versus cure with an assessment of relative risks of different problems, and relative rewards of investing in prevention in different areas.

Mr. David Goffin: If I could add to that, I would agree with what Ms. Van Loon has said. I think the prevention message has really clearly come forward from the federal government and provincial governments in the last number of years. It's certainly been picked up by our companies, who have demonstrated how prevention has a payback for them in specific areas.

In our association we publish our emission reductions each year, and looking out over the next five years. As Jean said, I think you have to take a look at what shifts in those relative emissions are taking place and what is the risk benefit of further actions on the much-reduced level of emissions that we're achieving today.

The Chairman: Thank you, Mr. Szabo.

If I may just for a second, I'd like to ask you a question in relation to the Mintz report, chapter 9, page 16. The recommendation reads as follows:

The Committee recommends that the federal government, in co-ordination and consultation with the provinces, consider replacing the federal fuel excise tax with more broadly based environmental taxes that raise equivalent revenue and that are designed to reduce emissions of pollutants and environmentally damaging activities.

I'm sure there are different perspectives on this particular issue, and I'd like to hear from the panellists your thoughts on that particular recommendation.

We can begin with Mr. Bennett.

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Mr. John Bennett: We think it's time to stop taxing goods and to start taxing bads. You can use the tax system as an instrument to change the way we produce our society's goods. By setting the tax structure in such a way that if you're producing something that's bad for society, it's more expensive and more difficult to be successful than it is if you're producing something that's good for society, then we don't interfere with the economics of society and we allow society to continue to work, and business to go forward, but we start to reduce the negative impacts from some types of businesses. We give encouragements.

I don't think we should do it by saying, “Either you change this or you go out of business”. I think we should tax them and give companies and investors the opportunity over the long run to invest in the kinds of businesses and kinds of sources of energy that don't produce the negative impacts that society has to pay for.

We are subsidizing industries that are allowed to pollute. When we talk about the tar ponds or other big single sources, then we start looking at the dollars, but we don't add them up when it's one little bit on everybody's lung every day. Those are real costs. No one ever had an environmental assessment about our lungs and said, yes, we agree that there's a certain acceptable amount of health problems we'll accept in order for this company to make a profit.

The Chairman: Anybody else? Dr. Smith.

Dr. Stuart Smith: Certainly if we're going to meet our Kyoto commitment there has to be a change in the price signal with respect to the cost of energy, but that doesn't have to be a tax. A tax is one way of doing it. But one has to be very careful in a country that has as much regionalization as our country does that we do not do something that penalizes one part of the country at the expense of another.

But the price signal does have to change. One way of handling it and letting the market handle it is with emissions trading. In other words, when people will be allotted a certain amount of emissions of energy use, or essentially carbon dioxide, that they are allowed to emit, and have to pay between each other for the right to emit any more than that, then the market has a way of getting the price signal up, and it's not exactly a tax. It's one we're looking at very carefully.

The final comment I'd make is that as much as I personally think there has to be a change in the price signal, we can't go very far beyond the United States. Our economies are so closely intertwined that I think it would be very unwise for us to take drastic action in Canada if the United States is not taking something by way of similar action. That's a constraint on us as an independent country, and I don't like it any more than I suspect anybody else in this room likes it, but I think it's a reality.

As I say, tax is one way to get the price signal up. Another way is emissions trading.

The Chairman: Thank you, Dr. Smith. Mr. Goffin.

Mr. David Goffin: I agree with everything Dr. Smith has said in relation to taxation and climate change. I think the technical committee's recommendation was a bit broader in terms of taxing a range of emissions. That's something we'd certainly be willing to take a good look at. As the witness from the Sierra Club said, the tax system can be an instrument in shifting relative tax burdens between what is judged goods and bads and whatnot. It can also be a pretty blunt instrument for doing that as well.

We have certainly looked at environmental taxes for some time, going back to the work of the Ontario Fair Tax Commission a few years ago. They did a major piece of work in this area. At the end of it, I think the environmental organizations, the Ontario government and us said, fine, let's pilot some environmental taxes on some specific substances and really look at the impacts versus what is achieved through regulatory controls, what can be achieved through voluntary measures. We've never got down to that level of work.

There are some risks here, that's for sure. Seven or eight years ago, with the support of manufacturers, the Swedish government did shift to pretty considerable reliance on environmental taxes and at the same time dropped their corporate tax rate. Of course, a few years later, as emissions declined as expected, the revenues were no longer there for government. That then put the manufacturers in a real bind. The last time I was there, they were back in their parliament arguing that they couldn't move any further in this direction because they had reached the limit where it was going to impact their competitiveness.

So it's something that we feel needs some good, thorough analysis to get it down to the pilot project stage. We'd certainly participate in that type of work.

The Chairman: Thank you, Mr. Goffin. Mr. Mark.

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Mr. Inky Mark: Thank you, Mr. Chairman.

Certainly we all agree that we need to take care of the environment. I agree that while we're doing it, it also presents us with new opportunities in the creation of new technology.

My background is in municipal government. I know the dire shape we're in regarding water and sewage treatment plants in this country, as well as solid waste.

The question I have for you is this. Even though you may promote that the federal government spends more money looking after the environment, there's no assurance that it's going to reach the right level.

Would you, Mr. Bennett—certainly I can ask him the question—take that extra step and actually specify allocations where a lot of these tax dollars should go?

Mr. John Bennett: Well, I think you should talk to the federation of municipalities. They have some very progressive plans already. Yes, there are particular programs that they would ask you to spend direct tax dollars on. They're looking right now in terms of municipal buildings and energy efficiency. It's profitable now for most municipalities to do retrofits in those buildings to reduce their emissions. There is even some federal funding available to actually help them do it. Plus there's a great deal of private capital available, because it does make a profit.

Their problem right now is having the money to do the original feasibility studies to be able to then show that, yes, we can save $60,000 a year so we can borrow $1 million to pay for this. The federation of municipalities is looking for $600,000 a year for three years to create the seed money for that program. That's a specific thing.

They're also looking at encouragements to take those old landfill sites that are leaking methane into the atmosphere, which is several hundred times the CO₂ impact in terms of greenhouse gas, and to draw that methane off and produce electricity and neighbourhood heat. So any kinds of help the federal government could to encourage that....

Again, you're looking at iupfront engineering money to do the feasibility studies and get the things up and ready. Then private industry will often come in and bring the main capital.

Mr. Inky Mark: I'd take it even more basic. As you know, certainly over this last five years giardia has been a problem in the drinking water for a lot of Canadians. Sewage disposal, human waste, is a big problem, because a lot of the facilities built back in the 1950s and 1960s are all crumbling today.

I mean, it's a multi-billion-dollar initiative to deal with the environment from that point of view. At this time, even though we know it's necessary for federal assistance, no one says they have to do it and they have to help. All municipalities across this country are in dire straits.

So unless we have specific allocation to deal with specific problems with the environment related to that area, basically we're going.... Even if we just say the federal government should spend more money on the environment, how are they going to spend it? That's the question I have. How are we going to hold them to task to spend it in the right places?

Mr. John Bennett: I think there are a number of specific programs, such as the two I just mentioned, but I think in general, if you unleash the economy to go in the right direction, you don't have to plan every detail. If you set up the tax system in such a way that you encourage the good and discourage the bad, then we'll go a long way towards that.

I think too, in terms of sewage treatment especially, one of the groups I've promoted here is the green community project. One of the things green communities do is encourage people to install low-flow toilets. In a lot of communities, the problem with the sewage system isn't that it doesn't function but that it's overburdened. It was built for a certain number of homes and that number of homes has now doubled. The real problem is the volume of the water flowing through, or the overflow in terms of when you get a rain and then you get a washout into the water courses.

Reducing the amount of water people use is a significant contribution to reducing the need for more capital investment in those plants. Green communities actually go into people's homes, give them devices to reduce that flow, and allow them to actually make their houses more water efficient as well as energy efficient.

So those types of direct programs, where you can put a knowledgeable person in someone's home and explain what they can do and why it's important, are very successful. Those are the kinds of projects the federal government should be funding.

The Chairman: Thank you, Mr. Bennett. Monsieur Desrochers.

• 1150

[Translation]

Mr. Odina Desrochers (Lotbinière, BQ): First of all, I want to thank the people who have taken the time this morning to come and share their views with us on how to use our budgetary surplus. Listening to your evidence on the Kyoto agreement, there are clearly two different schools of thought: that of the Canadian Chemical Producers' Association and that of the National Round Table on the Environment and the Economy.

My first question is to Dr. Stuart Smith. You said earlier that the environment and greenhouse effect issues have been widely covered by the media last winter. You also say that the Canadian and Québec populations do not really understand yet what the environmental problems are and what will be the impact of the greenhouse effect over the next few years. What should the federal government do to address the problem?

Mr. Stuart Smith: Mr. Desrochers, it is clear that most Canadians and even some Quebeckers do not understand that something is happening. What they do not understand yet is that the greenhouse effect has to do with energy use. Right now, most people think that it has to do with the ozone hole, for example, or something like that. We know that the climate is getting warmer and that it is having severe effects such as freezing rain, and you know what I'm talking about.

People have to understand that it is our energy use that is the real cause of this greenhouse effect. If they don't, they will not accept an increase in gas prices and other forms of energy. That is what has to be explained before going ahead with price increases and taxes, before issuing emission permits. One way or the other, prices will increase, but you have to understand the issue in order to accept these measures. There has to be more discussion, more debate.

There is another problem also. This winter will be colder and if you keep on saying that the climate is getting warmer, the people in the street will not believe what the politicians are saying. You have to recognize that it is a very complex issue. Scientists cannot even agree among themselves, so we cannot be absolutely certain that it will happen. However, we have to do something now and that is the message we are trying to get across to the Canadian public.

We have a specific suggestion to make as to how we should proceed. Maybe I will ask my colleague, Mr. McGuinty, to say a few words about it, Mr. Chairman.

The Chairman: Yes.

Mr. David McGuinty: Thank you, Dr. Smith. Let's use as an example a survey that was made last February or March, right after the freezing rain and, of course, after the Kyoto negotiations. Almost 60% of the Canadian public was absolutely uninformed, didn't even know that the Canadian government was in Kyoto and barely 2% of the population knew that the Canadian government had come back from Japan with specific commitments.

Also, at any given time in Canada, there are more than 300 ongoing consultation processes, but surveys show that Canadians have never felt so alienated from their government.

We suggest reconcile three things: the experts in the field on one hand, the general public that understands very little on the other, and the Canadian politicians who are caught between the two and who are trying to make very difficult decisions.

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Therefore, we intend to set up five or six regional roundtables in the Maritimes, in Québec, in Ontario, in the West, in B.C. and in Western Arctic, in Nunavut and in the Northwest Territories. We will be chosing 25 to 30 ordinary citizens to show them all the evidence, everything that is happening in that field, then we will ask them to inform their fellow Canadians of what is really happening with the climate change. That should happen before the federal, provincial and municipal governments respond with concrete measures.

Mr. Odina Desrochers: When will those regional roundtables be held? Is the schedule known?

Mr. David McGuinty: Not quite. This will be decided this week or the next. We are thinking of holding them in early 1999, or maybe at the beginning of the next fiscal year, on April 1, 1999. We have to make sure that this work will complement the work done by the Secretariat for Climate Change and we must also find partners in Québec, the Maritimes and throughout Canada.

Mr. Odina Desrochers: Thank you very much. I would like to hear Mr. Goffin's view on this. Does he think there is a problem? Are people unaware of the environmental issues, the greenhouse effect, climate change, etc.?

[English]

Mr. David Goffin: I can give only a personal view. It's not something we've done any surveying on as an association.

Yes, that's certainly my perception, and what I have heard. The type of approach suggested by the round table certainly sounds like a good one to build the awareness we need to have out there in the general public if we're going to successfully meet our Kyoto commitments.

[Translation]

Mr. Odina Desrochers: Would you be ready to be a partner for this roundtable and to promote it?

[English]

Mr. David Goffin: If there's a role for us there, we'd certainly look at that within our responsible care umbrella, where we do try to do that linking with the community, particularly in our planned communities.

[Translation]

Mr. Odina Desrochers: Do you have anything to add, Madam?

[English]

Ms. Jean Van Loon: Thank you, Mr. Chairman.

I'd just like to say that this is an issue that's of considerable concern to our industry. We've been making great steps forward in terms of reducing CO₂ emissions through a focus on energy efficiency. We've actually reduced our CO₂ emissions by 16% between 1990 and 1996 through energy efficiency improvements, even though our total shipments have gone up. One of our member companies is actually doing a pilot to use methane from landfill for production purposes. So we're very focused on this issue.

I'd like to raise two cautions as we look to the future. One, don't assume that increasing energy prices is going to automatically reduce greenhouse gas emissions. We're doing some work now to identify some of the long-term, really radical technological solutions that might be available, and so far all the ones we've seen depend on having access to lots of low-priced electricity.

The second caution I would raise is that when and if you're looking at environmental taxes, don't forget the competitive context, because if we simply put our tax structure out of line with that of our competitors, in our industry it will just mean that somebody else makes the steel that we will continue to consume, and it will probably be somebody else who's putting out more emissions per tonne than we do. The environment will be no better off and Canadians will be worse off.

The Chairman: Mr. Bennett.

Mr. John Bennett: Pollara did a survey for National Resources Canada and Environment Canada in May, and it too showed that Canadians aren't too certain of what exactly the causes are and how that relates to them, but they all said they expect the federal government to show some leadership on solving the problem. They expect government to do that. I think the committee should keep in mind the importance of leadership as an education tool.

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If there were positive tax measures and encouragements in the next budget that said we are going to address climate change in one fashion, by giving people tax benefits for making the investments that will reduce their emissions, as a positive move, that gives a new kind of image to it. It also gives it some kind of seriousness.

I'll tell you that as a member of the public for most of my life, when I see ministers stand up and say, “We are acting on climate change, and we have in fact started a consultation process that's going to go on for another 18 months and then we're going to come up with a plan”, when knowing that in 1990 I was at a consultation process that was going to come up with a plan in one year, and in 1994 I was at a consultation process that was going to come up with a plan in two years, and in 1996 there were consultation processes that were going to come up with a plan, then that's not leadership. That tells the public that the politicians don't take this seriously.

So you have to take it seriously yourselves and put it into the realpolitik of the system so that people say, hey, this is real. It's in the tax system. It's not just ministers talking and environmentalists being angry.

There are positive things here to be done. Just imagine a home owner who could deduct the cost of buying a high-efficiency gas furnace. So he has to spend an extra couple of thousand dollars to get the best model; he can deduct that now. Now he has a reason to think about climate change and energy efficiency.

That's a kind of leadership, a kind of way of teaching people about the problem.

The Chairman: Mr. Riis.

Mr. Nelson Riis: Thank you very much, Mr. Chairman.

I'd like to say that I think that last comment by Mr. Bennett is very telling, that if we're serious, there are some specific steps that can be taken that would send a very clear message in terms of the seriousness with which parliamentarians are taking this issue.

I have two or three questions that are rather eclectic in nature.

Ms. Van Loon, can you comment on the issue of steel-construction homes? I hear increasing references to the use of steel in home construction, and I'd like to hear what you have to say about that.

Dr. Smith, your comments on the inefficiency of our public transit systems are rather shocking and ought to be a real wake-up call that something needs to be done. My colleague, Mr. Pratt, indicated one initiative that's being considered in terms of some tax relief, which we'll probably have much more time to talk about later.

On the issue of retrofitting public buildings, one thing the federal government could do immediately would be to launch their own program across the country to make all federal buildings energy efficient as a clear signal to send out to others. Would you have some comment on that in terms of the practicality of taking that kind of initiative?

That's fine for now.

The Chairman: Mr. Bennett.

Mr. John Bennett: I'd like to see the federal government put solar panels and windmills up wherever they're appropriate in public places, in their most public buildings, to say they're not just renovating the inside but are actually going to produce their own electricity—so that you can see it. It's a reason for doing it. It's very easy to identify what windmills are and what they do.

The federal government has had, as long as I can remember, a program of retrofitting and making its buildings more energy efficient. Those kinds of “we're going to clean up our own house” things don't really go too far, because they're not visible. They're not big enough for people to see and relate to. They need some encouragement.

So I'd like to see more fundamental encouragements for everyone to get involved.

The Chairman: Thank you, Mr. Bennett. Ms. Van Loon.

Ms. Jean Van Loon: Steel for housing is a concept that the North American industry has developed over the past five years or so. Essentially it involves using, instead of wooden 2x4s, galvanized steel 2x4s with the holes pre-drilled for wiring and plumbing and so on.

They have some real benefits in terms of the rigidity and strength of the structure and resistance to high winds and fire. You can get lower insurance rates if your house is framed in steel, because the framing doesn't become part of the problem in a fire.

There are also some interesting environmental benefits, because for every house that's framed in steel you can use recycled steel instead of 20 or 30 1-foot-diameter trees. Each one of those trees consumes thousands of tonnes of CO₂ per year. A steel-framed house, because it doesn't warp or twist, is very rigid. You can have a very tight closure against the outside world and thus have a higher energy efficiency in the house. So we see it as a very promising technology.

• 1205

The big difficulty in getting it spread throughout the country is the fragmentation of the construction industry and building codes. Our industry and a number of fabricators are working together to develop codes and spread them around, and to work with the construction unions to make sure they understand the minimal tools that are needed.

We see it as very promising. There's much less waste on site as well.

Mr. Nelson Riis: Good. Thank you, Ms. Van Loon.

The Chairman: Dr. Smith.

Dr. Stuart Smith: The members of the Order of Canada at the national forum on planet change were very impressed with the action being taken in certain municipalities, especially Toronto. They made the suggestion that there should be—as my colleague, Mr. Bennett, has suggested—a national atmospheric fund to assist various municipalities to do the same thing that Toronto has been doing. They know which buildings need retrofitting.

The federal government has actually been retrofitting buildings, so they're not the worst. Of course, they now have a commissioner for sustainable development, as you know, whose job it is to tweak the ministries that aren't doing this. This is quite a good step forward, we think.

The problem is, you can only make those changes that make economic sense. One either has to change the price signal so that it makes economic sense to save energy instead of waste it or one has to make it a whole lot cheaper for people to buy energy-saving equipment or fixtures.

If you don't change the economics in a market economy, you're working against the market, and really, it doesn't pay to work against the market. It's better to work with it. You just have to jig it so that the market is giving the right signal.

Emissions trading is one way. Tax relief is another. Energy taxes are another. You have to decide which are the best ones to use.

The municipalities are closer to the scene, and a national atmospheric fund would get leverage. What money the feds would put in would actually get a lot of leverage because of all the work you get from people at the municipal level who will organize themselves to make the changes required.

Toronto has done extremely well. They cut their emissions by some 15% to 20%.

The Chairman: Any further comments?

Mr. Nelson Riis: A short supplementary?

The Chairman: Sure, Mr. Riis.

Mr. Nelson Riis: Thank you.

David, I don't know if this is intended for you. Does concrete come under your jurisdiction?

Mr. David Goffin: No, it does not.

Mr. Nelson Riis: Okay. Generally speaking, then.

In a meeting with the cement producers they said they were a major offender in this whole issue, but their contention is that as we move toward upgrading our highway and road system, concrete highways are much more energy efficient in terms of not pushing pavement as you drive along. This is going to be one of the main initiatives they are going to try to make to us and I guess others.

Do you have any observations on that? Is that valid? I notice increasingly as we drive around paved roads with all the trucks on them that you get these little dips in them. I think it's quite dangerous, actually. I thought it was an interesting view that concrete is actually a good energy saver when you look at the holistic nature of their attempt to have paved highways replaced with concrete highways.

The Chairman: Who would like to comment on concrete?

Mr. John Bennett: The tire recyclers would tell you that if you put the recycled rubber into the asphalt, that's more energy efficient, too. I think this is an example of how complex it is to try to sit in committee rooms for two or three years and plan how we're going to meet an agreement. What we need to do is unleash the economy in ways that will encourage the right decisions. How are you or I going to decide whether concrete or asphalt is the most energy efficient? Let the market do it.

The Chairman: Thank you, Mr. Bennett. Mr. Pratt, followed by Ms. Bennett.

Mr. David Pratt: With the issue of municipalities coming up, I thought I'd raise another issue that's important to municipalities, especially to the Federation of Canadian Municipalities, and that is the whole business of district energy.

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I can't say that I've read it really closely at this point, but there's nothing in either your document, Mr. Bennett, or the round table document on district energy, which the FCM has been promoting.

This applies in some respect to the steel industry as well. They have been promoting accelerated tax write-offs for capital equipment related to energy efficiency. In the case of the steel industry, I know there has been some concern that there's a lot of waste heat that re-enters the environment in terms of the cooling process with not just steel but many industrial processes.

For those of you who aren't familiar with the concept of district energy, this parliamentary precinct is actually a district energy site because of its central heating plant. That's what district energy primarily involves, a central heating plant and piped hot and cold water. It increases the energy efficiency because you have one plant supplying heating and cooling for an entire area rather than smaller, inefficient plants doing the same thing.

Any comments on that in terms of the importance of the issue and whether or not that's something you folks would support?

The Chairman: Stuart Smith.

Dr. Stuart Smith: When we had our consultations on energy efficiency and renewable energy a year and a half ago, district heating was certainly one of the areas recommended.

As you well know, Mr. Pratt, it depends on your density of housing stock. It depends on having people close enough so that it makes actual sense to deliver the heat from a central source. As you say, there are certain areas; Ottawa, for instance. I was chairman of the board of governors of the Ottawa General Hospital. That campus out there is a similar one, where we had actually cogeneration in district heat. Then we sold electricity back to Ontario Hydro.

That makes a lot of sense wherever it can be done. Cogeneration using heat from industry, which the steel industry is actually quite familiar with, is a good idea.

The trouble with district heating is that it doesn't lend itself to our pattern of suburban growth of the kind we have adopted in Canada, but there are instances where it makes sense. I mean, downtown Toronto is an instance where it would make a heck of a lot of sense. As you know, they're now talking about cooling by using the waters from Lake Ontario. That makes a lot of sense.

These are the kinds of things that I think could be encouraged by the federal government infrastructure program if it focused on energy conservation, for example.

The Chairman: Ms. Van Loon.

Ms. Jean Van Loon: Thank you, Mr. Chairman.

Yes, we do recognize the possibility of district heating as one of the things we want to look at in the steel industry. As our companies are making improvements, removing steps from their process, quite often they free up requirements for heat, so they no longer have a place to use heat generated in an earlier step in the process.

So we think there is some potential there, and we would like to explore that more fully.

The Chairman: Mr. Goffin.

Mr. David Goffin: Yes, in our sector as well, I think sharing services among companies, sharing cogeneration, is something that is catching the attention of companies more and more today as we look at the challenges facing us.

In Mr. Gallaway's riding, for example, TransAlta is making a major new cogeneration investment that involves a number of our companies as customers. Whereas there used to be two or three companies sharing the cogeneration system, now there will be many more. So the Sarnia—Lambton area is a primary one for these types of sharing approaches to take place.

There is a range of things governments can do, ranging from how cogeneration is treated, as far as the electricity grid is concerned, to help these types of approaches.

The Chairman: Ms. Bennett.

Ms. Carolyn Bennett (St. Paul's, Lib.): Thank you.

It's an interesting panel. I guess what I would like to hear is for the two members from industry to comment on the environmental witnesses in terms of what actually you would see in terms of tax reform. It's not in your briefs. What kind of tax reform would you like to see to help you have incentives to do the right thing on the environmental side?

Mr. David Goffin: Let me start. As we do our work on climate change, we may well come back at some point in terms of incentives, but I think generally, as an industry, the chemical industry has looked at having sufficient time to make the changes needed and companies financing those investments themselves rather than looking for tax incentives or other types of incentives.

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Now, if we're pushed to the point where something has to be done in a very short time frame, and it's something very drastic, we may have to depart from that, but it's something we don't like to do.

What we would prefer, in terms of our general tax competitiveness, is push in the direction that the technical committee has recommended, get the tax rates down, and at the same time broaden the tax base. It will make us generally more competitive and better able to make the environmental investments needed along with a range of other major new plant investments.

Ms. Jean Van Loon: I think the steel producers' position is very similar. When we look back at how we have been able to achieve the reductions and improvements we have done, it's been through the normal process of investing in new processes and new technologies. We've improved yield, so you use less of everything per tonne produced. We've improved productivity. Again, you get gains across the board, so it would be difficult to identify any of the steps as being purely for energy efficiency.

So from our perspective, the most important thing to do through the budgetary instrument is to keep sound economic basics so that the industry can carry on assessing and making the right investments as soon as possible.

The Chairman: Mr. Bennett, do you want to comment on their comments?

Mr. John Bennett: I think they have a basic point, but you have to think beyond that. We have to drive the system further. Especially in terms of the steel industry, I can see them expanding production to help us meet the Kyoto target.

One of the problems the municipalities have with district heating is that the taxation on the pipe is different from the taxation on the plant. Among the things I think you'll hear from the federation is that they'd like to see different tax treatment for the piping.

There are a great deal of things they need to produce that will help all of us reduce our energy use. That's why I've asked for sort of a leadership approach to this that would allow all those within society to benefit from taking the right steps that benefit society.

They have done great work. Canadian industry in the 1980s, following the last oil crisis, reduced energy consumption by 2% per year over 15 years. That was a significant step, and they have made great strides. They've also made themselves more profitable in doing that.

I remember fighting with Inco in the 1970s about their emissions of sulphur dioxide. They kept saying, no, we can't do it, but by the time they actually did install the technology to do it, it made them much more profitable.

The Chairman: Thank you, Mr. Bennett. Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chair.

I'm told that during the energy crisis of the 1970s, when there was a concerted effort in this country to reduce energy consumption, the best we ever did in any given year—this was the peak—was 3% reduction.

I think virtually every group this morning has referred to Kyoto. I'm told that to reach our Kyoto objectives it would require a 4% per annum reduction in energy emissions across the board. Having regard to the fact that in the 1970s one of the objectives was for the government to become very involved in subsidies—for example, we all remember every home being insulated—I want to ask Mr. Goffin and Ms. Van Loon whether or not, if presented with these requirements of what I would call “substantial”—and you might call “drastic”—reductions in energy consumption, because you have American colleagues and parallel American association, you can remain at all competitive, having regard to the objectives that have been agreed to by Canada vis-à-vis Kyoto and compare that with the objectives agreed to by the United States vis-à-vis Kyoto?

Ms. Jean Van Loon: I guess the basic fact is that we are competing head to head with American producers every day. It's an industry where competition is intense and price sensitivity is very high.

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If Canada takes steps so that we can't continue to compete successfully with our American counterparts, and indeed steel from other parts of the world, then we're going to lose business. The steel will still be made, but it won't be made here, and as I said earlier, then the economy won't benefit. The economy will lose and the environment won't gain. So we have to work hand in hand.

Whether we could get anything like the goal that Kyoto set, I don't really know. We're trying very hard to assess what the potential is. But I think you can't look just sector by sector, because as we've been discussing this morning, some of the benefits are going to come at the interconnection between different parts of our economy, between municipalities and industry, between individuals and the rest of the economy.

For example, our industry is part of a global consortium of steel companies looking at how to make a lighter car, using existing high-strength steels from today. We've already shown and built a prototype of the body in white, the basic frame of an automobile, that's 25% lighter than today's family car. If you could push that 25% weight gain throughout the whole vehicle and throughout all road vehicles, you could achieve an energy reduction that's vastly greater than anything we could achieve in our own production processes.

The Chairman: Thank you, Ms. Van Loon.

Mr. Goffin, would you like to comment?

Mr. David Goffin: Yes, I'll just try to respond to that.

Certainly the goal we've set for ourselves is an extremely difficult one to achieve when you look at a sector like ours. To step up the type of energy efficiency improvements made in the 1970s, as you've indicated, would be a real challenge. While industry as a whole, through the Canadian Industry Program for Energy Conservation, didn't stay at that 3% level, industry saw a good payback in the 1970s and continued that program through the 1980s and until today. So it's not as though there's a lot of low-hanging fruit out there to be plucked.

In our particular sector, we are more carbon-intensive than our U.S. competing sector. As you know, the concentration of companies in your riding are petrochemical companies. We tend to be more of the basic chemical industry in Canada than in the United States, so we have more of a challenge than our U.S. competitors, even if our targets are relatively the same.

As Ms. Van Loon has said, certainly anything we do here.... We as a sector, like the steel producers and others, are prepared to do our part. We're all part of the voluntary challenge register, and making moves today, but we certainly do have to keep an eye on our fundamental competitiveness as we move ahead.

The Chairman: Dr. Smith.

Dr. Stuart Smith: I think members should understand that there isn't a chance in the world that we're going to be able to hit the Kyoto commitment just by making improvements in our own country. It is not going to happen. There is too much sunk cost right now in our existing industrial stock to do the kind of radical technological change required between now and the time that the Kyoto commitment speaks to.

Much of Canada's commitment is going to be met by our taking advantage of something called the “clean development mechanism”, which will allow us to do projects in other countries and get credit for it here. The abatement in other countries will be much cheaper to achieve per tonne of carbon dioxide.

This last weekend we had a meeting here between the various ministers on this very topic in preparation for the meeting in Buenos Aires. However, if we don't get started now to make some of the very important changes, then we won't be able to go beyond Kyoto, and we have to go there if the climate change problem is even remotely what the scientists say it is.

Kyoto by itself will accomplish virtually nothing as far as dealing with the climate change issue. Kyoto is just a start down the road. Ultimately, our only hope is radically new technology that will allow us to maintain our standard of living without using the amount of energy from fossil fuel that we now use, but we cannot get there unless we start people working in that direction. That requires a price signal to start going there, a sense of impending shortage in the future, and a sense of impending importance in the future.

• 1225

So Kyoto is essentially to get us on track. It's like trying to putt from here to a hole at the end of the room; you aim at a blade of grass a little closer to you so you can get your alignment right. We have to start going down that road.

In Canada alone, the kind of drastic changes required will not be made. We can only make some of them. The rest I suspect will be accomplished through the clean development mechanism, or what they call activities implemented jointly with other countries.

So let's not scare ourselves into inaction, because we could easily paralyze ourselves with fear, recognizing how big the problem is.

The Chairman: Thank you, Dr. Smith.

Mr. Roger Gallaway: I have just one very short question for Mr. Bennett.

Your association, the Sierra Club, and a number of others have correlated the fact that there is a cost to the health care system. Now, assuming that we could meet objectives proposed by either the Sierra Club or others in reducing certain hydrocarbons and pollutants in the air, it fails in a sense to recognize that there's also a transboundary or transborder exchange of pollutants.

Assuming that we were to follow the requests of the Sierra Club and others, what realistic effect would that have, having regard to the fact that most of the people in this country live within 100 miles of the American-Canadian border and that in great parts of this country we are living in an area abutting the American industrial heartland?

Mr. John Bennett: There are two things you need to keep in mind. After years of going to the Americans and arguing about acid rain, they eventually did move to reduce their acid emissions only after Canada did. Canada took the step and said, “We're going to reduce our emissions”. Ontario said, “We're going to reduce our emissions”. The United States then came along afterwards.

So it's important to realize that in terms of leveraging change from one jurisdiction to another, before you go to another jurisdiction and ask them to do something you had better have done it first.

Secondly, in today's Globe and Mail there's a story about how the EPA announced on Thursday 25% reductions of NO_x across the United States. They're not targets like we have in Ontario. In Ontario's smog plan, we have a 45% reduction of NO_x as a target that we'll be hoping to make through consultations and discussions. The EPA has now put into regulations that there will be a 25% reduction in NO_x. The mostly coal-generated electricity area of the States is going to be making a very huge investment to reduce those emissions.

So once the big rock below starts to move, it moves much faster than we do, but we have to set the example. We have to show that our house is in order and then bring the Americans along.

The Chairman: Thank you, Mr. Bennett. Mr. Mark, a final question.

Mr. Inky Mark: Thank you, Mr. Chairman.

I was very happy to hear Dr. Smith allude to the fact that municipalities are leaders in terms of the environment and actually doing something about fixing the problem. Money is still the driving force, because obviously they don't deal with the issue. The only way they're going to increase the revenues is tax the people.

A case in point would be the recycling programs in the municipalities across the country. Most people in this country are very conscious of the environment and therefore usually buy into it. In fact, it's quite common that targets be up to 80% recycling of solid waste over about a five-year period. But the biggest concern I hear is that the municipalities gather all these recyclables, but what do they do with them, because it's so dependent on the industry?

My question is, how can we deal with the tax system to make it more friendly or attractive to deal with these recyclables at the municipal level?

The Chairman: Who would like to answer that question? Dr. Smith.

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Dr. Stuart Smith: I hope I don't disappoint my friend, with whom I obviously share a good many values.

I wouldn't like to see the tax system used in this regard. Please understand, our organization is not an environmental organization. It balances environmental with business. We try to keep the economy and the environment going simultaneously. Of all the problems of the environment, we think water pollution and air pollution and atmospheric pollution rank far ahead of solid waste as serious problems.

When we see people washing jars and using hot water to do it, putting additional nutrients into the sewage system that have to be dealt with at the sewage plant, in order to have people pick up glass, which at various times has no value, and they have to figure out where to put it, we kind of wonder if we've gone astray somewhere. Metals clearly make a whole lot of sense to be recycled. That's where the strength is. People recycle lead batteries, steel, aluminum; that's where the money is. From time to time newsprint makes sense, depending on the market.

I wouldn't like to see tax money go to support the collection of things that have no value. I realize that municipal politicians hate landfill sites, because that's how you lose votes, but really they're not so dangerous if they're done right. Diverting glass from a landfill site? To me, you do it if it makes sense. Otherwise, I don't get excited about it.

Plastics depend, of course, on the quantity. You can recycle any plastic, but the problem is, you have to sort them out, and you have to sort them by type. If you don't have a sufficient quantity of each type, it's not worth the effort of sorting it all. That's the difficulty.

So certain plastics make sense in certain cities, and in certain others, they don't. But if you do put them in a landfill site eventually they do produce methane. You can in fact collect that methane. Unfortunately, they produce certain other gases as well that aren't quite as safe. We have to worry about some of that. Nonetheless, they can be trapped and diverted, and people can be safe from it.

So I'm saying, yes, we're in favour of blue box programs. Would I put a lot of tax money behind that? If you asked me whether I'd put it behind that or energy efficiency, or whether I'd put it behind that or behind public transit, I'd tell you that the blue box falls, for me, below energy efficiency and below public transit as a priority.

That's my personal view.

The Chairman: Thank you, Mr. Mark.

Mr. Inky Mark: May I have just one last short one?

The Chairman: Yes.

Mr. Inky Mark: The problem with what you've said is that the mindset out there is that if people are recycling, they're saving the environment. Now you're telling me there's no connection to it, and there's a priority list. How do you send this message to the people of this country?

Dr. Stuart Smith: As an educational tool—and I know John's keen to get in here—it's a good thing. To have kids running around picking up McDonald's things and so on and so forth, and figuring that they're doing something good, is a good thing as long as they don't believe that from then on they can say that's their contribution to the environment: I gave at the office; I recycled; what more do you want from me?

The same people who are busy recycling are driving 4x4s in order to get milk at the corner and feel like a cowboy in the middle of the Grand Canyon. It's ridiculous. These are gas-guzzling giants that are costing all kinds of problems for us in energy terms, and yet everybody's out selling 4x4s. You must be a cowboy and look down on the rest of the road to feel important.

These people say, well, I'm recycling; I have a blue box; what more do you want from me? I'm saying the priorities really ought to be straight, and I wouldn't like to see using tax money to further distort the priority.

But to some extent it's a personal view you're getting here.

The Chairman: Mr. Bennett.

Mr. John Bennett: I have another personal view.

The greatest problem with the solid waste is the packaging. If things are packaged in crazy ways because it's cheaper to do it that way for a company to sell it off, you end up having, in our capitalist, individualist society, a collective, communist way of paying for garbage.

If I want to buy a stereo and it's all wrapped in foam and in boxes and things that have to be disposed of, shouldn't we between us, me or the person who sold it to me, be responsible for the disposal of that? Why should I just have to put it on the street corner and say, “The rest of society, you pay to get rid of this”?

I don't know how you tax that. You may think about putting charges on how you package things so that the people who benefit from that packaging actually pay the cost rather than all of us. If I choose not to buy things with packages, then I get a benefit.

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The Chairman: Thank you very much.

On behalf of the committee, I'd like to thank all the panellists for your input. You've obviously made a very strong case. Environment is indeed a very important societal issue. What also came out of this panel was of course the balance you need to have in order to move the public policy process forward.

We'll keep that in mind, of course, as we make recommendations to the Minister of Finance for the 1999 budget. Thanks again.

The meeting is adjourned.