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Reducing emissions of greenhouse gases

Petition

[OAG Translation]

November 14, 2001

Office of the Auditor General and the
Commissioner of the Environment
and Sustainable Development
Subject: Petitions
240 Sparks Street
Ottawa, ON K1A 0G6

Maya Bevan
29 Mount Pleasant Ave.
Ottawa, ON K1S 0L7

Dear Ms. Gélinas:

I would like to use your petition process to ask the government a few questions as well as make a few suggestions. There are numerous environmental issues in which I take an interest, but for now I will limit my petition to one issue only.

At present, the Government of Canada is faced with the issue of sustainable energy. I hope that the Kyoto Protocol will be ratified next year; after that we will have only ten years to find a solution to our reliance on non-sustainable energy sources. At the same time, however, we are faced with a few other obstacles that may make ratification more difficult: the expansion of Alberta's tar sands, a possible energy agreement with the United States, and the development of natural resources in Canada's north.

My questions are indeed related to these larger issues and, as a citizen of Canada, I would like to be a part of the solution. However, I feel that the Government of Canada does not provide me with the opportunity to do so.

1. I would like to build an eco-friendly home. Many choices are available. For example, a "yurt," which requires no foundation, or a "hay bale house," which is energy efficient in both the winter and the summer. Unfortunately, banks will not give me a mortgage on these types of houses.
2. I would like to use alternative energy sources in my home, such as solar and wind power. Although the long-term costs for such energy sources are lower, the cost of installing an alternative energy system is too high without tax incentives. In addition, new alternative energy providers suffer from the same problem: start-up costs are too high (the subsidization of major oil companies does not help the situation).
3. I would like to drive an air-powered car (one model currently exists on the market and Canadian inventors were involved in developing it), but I feel that the federal government has not taken any steps to promote this type of vehicle or provide assistance to new technologies. Indeed, even though the government promised a year ago in its Climate Change Action Plan to increase the number of electric cars currently available on the market in its car fleet, only three per cent of federal government-owned vehicles use an alternative energy source.

Consequently, I am particularly interested in the tax and regulatory system. Please send my questions to the departments concerned. I would like answers to the following questions:

1. Is there a way for the government to work with the banks so that they will give me a mortgage on an eco-friendly house, and with municipalities so that they will permit me to build such a house?
2. How can the government change the federal tax system so as to help me use a solar or wind energy system?
3. What changes could you bring to the federal tax system to provide benefits for people selling environmentally-friendly cars?

Sustainable development starts with the citizens of Canada. I would like the Government of Canada to make it possible for me to participate.

I strongly support your petition process and I am looking forward to receiving a response. Thank you.

Sincerely,

[Original signed by Maya Bevan]

Maya Bevan

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Minister's Response: Environment Canada

May 8, 2002

Ms. Maya Bevan
29 Mount Pleasant Avenue
Ottawa, Ontario
K1A OL7

Dear Ms. Bevan:

I am writing in response to your petition of November 14, 2001 (Environmental Petition no. 40) which poses several questions concerning government support for environmental initiatives.

With respect to your first question regarding the introduction of energy-efficient housing mortgages, measures to promote energy-efficient housing are the responsibility of the Minister of Natural Resources. Natural Resources Canada and the Canada Mortgage and Housing Corporation have programs in place which support innovative solutions to reduce energy requirements in Canadian homes. These two agencies are currently examining the development of market mechanisms such as green mortgages to assist homeowners who renovate existing homes to improve their energy efficiency or build highly energy-efficient homes.

As for your question on possible changes to the federal tax system to promote the use of renewable energy sources, this issue is the responsibility of the Minister of Finance. The government has introduced a number of initiatives in recent Budgets to promote renewable energy. Most recently, in Budget 2002, the Minister of Finance announced the Wind Production Power Initiative which will encourage the development of 1,000 megawatts of wind power capacity in Canada during the next five years. Under this program, the Government of Canada will provide a new production incentive for electricity produced from qualifying wind energy projects. An initial incentive payment of 1.2 cents per kilowatt-hour of production, gradually declining to 0.8 cents per kilowatt-hour of production, will be introduced for eligible projects commissioned after March 31, 2002, and before April 1, 2007.

With regard to your third question on possible changes to the federal tax system to promote the sale of environmentally friendly vehicles, this issue is also the responsibility of the Minister of Finance. As part of the National Climate Change Process, a number of measures to achieve this objective were reviewed by the Transportation Issue Table. As Canada further develops its policy approach to reducing greenhouse gas emissions, proposals for encouraging the purchase of environmentally friendly vehicles will be examined and compared to other possible measures according to a range of criteria, including cost-effectiveness.

I appreciate your interest in initiatives that could promote a more sustainable and environmentally sound energy future.

Yours sincerely,

[Original signed by David Anderson, Minister of the Environment]

David Anderson, P.C., M.P.

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Minister's Response: Finance Canada—Department of

February 11, 2002

Ms. Maya Bevan
29 Mount Pleasant Avenue
Ottawa, Ontario
K1S 0L7

Dear Ms. Bevan:

The Commissioner of the Environment and Sustainable Development, Johanne Gélinas, has asked me to answer the three questions in your petition (file number 40). I would like to acknowledge receipt of your letter on January 3, 2002 and at the same time reply to it.

I would like to answer the following three questions:

1. How can the government work with the banks so that they will give you a mortgage to build a "green" house, and with the municipalities so that they will permit you to build it?
   
   The federal government is responsible for regulating Canada's banking system, but it does not intervene in the banks' daily activities. Similarly, the federal government does not intervene in decisions by municipalities regarding the issuance of building permits. However, the federal government has contributed $250 million to the Green Municipal Enabling Fund and the Green Municipal Investment Fund, both administered by the Federation of Canadian Municipalities, to study and fund green projects like saving water and energy, community energy systems, public transit, waste diversion and renewable energy sources. Although the funding is intended for municipalities, it is possible that they will support specific projects that require the participation of individuals.
   
   
2. How can the government change the federal income tax so as to help you use a solar energy system and wind energy?
   
   In the 2001 Budget, the federal government announced that it was setting up a new incentive for renewable energy production. The program involves an incentive for production of electricity using wind energy. The incentive will be available for the first ten years of production and will help to provide a long-term stable revenue source to producers. As a result of this initiative, it is highly likely that the electric power utilities will offer their clients the possibility of buying this wind energy. Some electricity companies in Canada are already offering their clients green energy. I would therefore encourage you to contact your supplier to enquire about such an offer.
   
   
3. How can you change the federal income tax to provide benefits for people who sell "green" automobiles?
   
   The federal government has a number of programs supporting research and development of environmental technology, such as fuel cell vehicles. Two of the main federal programs are Technology Early Action Measures (TEAM), administered by Natural Resources Canada, and Technology Partnerships Canada, administered by Industry Canada. These programs make it possible to improve the technologies and reduce their costs, ultimately promoting their commercialization.

Yours sincerely,

[Original Signed by Paul Martin, Minister of Finance]

The Honourable Paul Martin, P.C., M.P.

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Minister's Response: Natural Resources Canada

[OAG translation]

April 10, 2002

Ms. Maya Bevan
29 Mount Pleasant Avenue
Ottawa, Ontario
K1S 0L7

Dear Ms. Bevan:

I am replying to your letter dated November 14, 2001, which Ms. Johanne Gélinas, Commissioner of the Environment and Sustainable Development sent to me in accordance with the procedure set out in section 22 of the Auditor General Act. The answers to your questions are presented below.

The answers will address, in order, mortgages for eco-friendly houses, a federal tax incentive to increase the use of solar or wind-energy systems, and a federal tax incentive offering benefits to people who sell environmentally-friendly vehicles.

With regard to your first question about the Canadian government working with banks and municipalities to grant Canadians mortgages on eco-friendly houses, Natural Resources Canada (NRCan) supports and promotes the R-2000 Standard. The R-2000 Standard has been encouraging and recognizing the construction of highly energy-efficient houses since 1982. It is a voluntary program by which businesses build energy-efficient houses and have them certified.

The R-2000 Standard is recognized by some financial institutions such as TD Canada Trust and the Bank of Montreal, which offer green mortgages for these houses. To approve mortgages, financial institutions use the house's resale value as the major financial criterion. This value includes factors such as the house's location, comparative market value, and quality of construction. At this time, environmental and energy performance are still minor factors, but NRCan is working with the construction industry to increase their importance.

With regard to municipalities, any new house must meet the requirements of the applicable building codes. In general, municipalities have no difficulty accepting technologies that enable a house to reach levels of energy efficiency such as the R-2000 Standard. However, if the house uses unconventional construction techniques, the builder must show compliance with the building code.

Each year, NRCan promotes the R-2000 Standard through the activities of the Federation of Canadian Municipalities, and R-2000 delivery agents also work with municipalities to ensure that the value of the Standard is well understood.

With regard to your second question, you asked how the Canadian government could change the federal tax system to help Canadians use solar or wind-energy systems.

Any changes relating to the federal income tax are the responsibility of the Department of Finance. However, NRCan encourages renewable energy through a number of programs. The Department carries out research projects, prepares user guides for residential and commercial buyers, and supports the renewable energy industry through marketing initiatives and commercial development projects. To learn more about renewable energy programs, please consult our Web site at www.nrcan.gc.ca/redi. As a member of the Renewable Energy Deployment Initiative, NRCan grants a financial incentive to businesses and establishments that purchase qualified solar heating systems or biomass combustion systems. NRCan is of the opinion that it can have a greater impact by encouraging these markets. Having said this, the Department is currently launching some pilot projects using solar water-heating systems.

With regard to your third question, you sought information about how the Canadian government could change the federal tax system to create incentives for people selling environmentally-friendly vehicles.

The federal government provides tax support for environmentally-friendly transportation by refraining from collecting the excise tax of 10 cents per litre for alternative fuels such as ethanol, electricity, natural gas, and propane. When compared with conventional fuels used for transportation, these alternative fuels produce fewer emissions that affect climate change through the course of their production and utilization. A number of provinces do not collect a road tax on these fuels, therefore providing a sizeable financial incentive. But most importantly, all recent vehicle models can use gasoline blended with a low level of ethanol, thereby making it possible for many vehicles to reduce their emissions in comparison with using conventional fuels.

Manufacturers are promoting their work developing fuel-efficient, low-emission vehicles and often demonstrate their experimental vehicles at public events. Fuel-cell vehicles produce low emissions and offer higher-fuel efficiency, although they generally depend on fossil fuels to provide them with hydrogen. Although manufacturers are investing a great deal of effort into developing these vehicles, the first models will probably be available in small quantities only and it may take a number of years before fuel-cell vehicles become common. The situation is the same for other fuel-efficient, low-emission vehicles. Manufacturers are not very open to selling new technology vehicles in Canada or any other country until it is proven that they comply with the standards which car buyers expect. We do not know whether the change in tax treatment for these vehicles will provide the incentive that manufacturers need to sell their experimental vehicles in Canada before they believe the vehicles are ready.

I hope these responses answer your questions.

Sincerely,

[Original signed by Herb Dhaliwal, Minister of Natural Resources Canada]

Hon. Herb Dhaliwal, P.C., M.P.

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Minister's Response: Transport Canada

April 14 2002

Ms. Maya Bevan
29 Mount Pleasant Avenue
Ottawa, Ontario
KIS OL7

Dear Ms. Bevan:

I am writing in response to your petition of November 14, 2001 in which you request information concerning ways in which the federal tax system might be tailored to support those that sell or manufacture environmentally-friendly vehicles. I am pleased to convey to you the information that my department has available on this issue, and to outline for you a number of ways in which Transport Canada is working to make advanced technology vehicles available to Canadians.

At the outset, I should emphasize that all matters pertaining to the federal tax system fall under the purview of the Minister of Finance. I note that your petition has been forwarded to him by the Commissioner of the Environment and Sustainable Development, as well as to the Minister of Natural Resources and the Minister of the Environment.

As part of Canada's national response to the negotiation of the Kyoto Protocol in 1998, the federal, provincial and territorial Ministers of Transportation established a multistakeholder Transportation Table on Climate Change. Its task was to identify and analyze a range of potential measures to reduce greenhouse gas emissions from transportation. The Transportation Climate Change Table was a two-year effort, resulting in a report entitled Transportation Climate Change Table - Options for Action. A copy of this report is enclosed for your information.*

The Table studied the full range of potential actions across the transportation system. In doing so, it conducted a number of studies related to the use of taxation, incentives and other market mechanisms to improve the fuel efficiency of new vehicles. The background studies are available on the Transport Canada website at www.tc.gc.ca. The following highlights some of the options studied, and the Table's conclusions.

Incentives

The Table studied the use of tax incentives to stimulate the market demand for fuel-efficient vehicles and fuels. Examples include providing rebates for vehicles which have significantly lower GHG emissions, or are "best in class" with respect to fuel efficiency. The Table also studied the use of incentives for refiners to encourage the blend of low levels of ethanol in gasoline, while maintaining the current tax exemption for ethanol as an alternative fuel. The Table found these measures to be relatively promising. One difficulty with providing vehicle purchase incentives is the risk that it could stimulate the purchase and use of new vehicles, leading to a potential increase in emissions.

Feebates

The Table studied the use of a "feebate" system, which is a relatively new concept that combines both incentives and fees for new vehicles within a single system, imposing taxes or charges on low efficiency vehicles and providing incentives or rebates for efficient vehicles. The system would be revenue-neutral, as it would be continually adjusted to reflect overall improvements in the new vehicles available. The Table's work found that this approach could generate moderate fuel efficiency improvements, but that there were difficulties associated with it. Given the small size of the Canadian vehicle market, the cost of such an initiative could be high if not delivered in harmony with the United States. However, there is no actual experience with feebates at the level and scale required to judge its effectiveness, and the Table felt more analysis of this approach was required.

Research and Development Tax Credits

The Table considered the use of research and development tax credits to support the ongoing improvement of vehicle and fuel technologies. The specific measure it studied was to provide funding or tax credits to augment the U.S. Partnership for a New Generation of Vehicles, which is a multi-year initiative to develop vehicles that are three and four times more efficient that currently available. This measure was not analyzed in depth by the Table, due to the difficulty of tracing a direct link between research and development and greenhouse reductions for the purpose of its work.

I would emphasize that there are a number of ways in which the government can support the development of more environmentally friendly vehicles that do not rely on use of the tax system. For its part, Transport Canada has a number of initiatives, which accomplish this goal. For example, it works in partnership with Natural Resources Canada to deliver the Corporate Average Fuel Consumption program for new vehicles. Under this program, automobile manufacturers in Canada voluntarily meet average fuel consumption targets for their new vehicle sales in a given year. These targets are harmonized with the mandatory standards, which exist in the United States, as this industry is integrated on a North America-wide basis. Transport Canada ensures compliance with the targets, verifies the fuel consumption of the vehicles, and gathers data from manufacturers. This information is used by Natural Resources Canada to publish a new vehicle fuel consumption guide for use by consumers.

Transport Canada also supports the research and development of alternative fuel vehicles through the Transportation Development Centre (TDC) in Montreal, Quebec. For example, the TDC has long been active in the area of electric vehicles, and has ongoing funding for a number of demonstrations of this technology.

The department is responsible for guiding the implementation of the transportation component of the government's Action Plan 2000 on Climate Change, in cooperation with Natural Resources Canada and other departments. This Plan is a comprehensive package of measures that includes a commitment to spend up to $500 million over the next five years on new ways to reduce greenhouse gas emissions, building upon the $625 million announced in the 2000 budget for climate change-related initiatives. The five new transportation programs included in the Plan focus on key transportation objectives, including promoting new vehicle efficiency and lower-carbon fuels for vehicles. These programs build upon the work of the Transportation Table.

Transport Canada is delivering a $16 million Motor Vehicle Fuel Efficiency Initiative in partnership with Natural Resources Canada. The goal of this program is to phase in a significant voluntary improvement in fuel efficiency across Canada and the United States, supported by a comprehensive consumer education program to raise understanding of the need and opportunities for "green" vehicle and fuel choices. As part of this initiative, Transport Canada's $6 million Advanced Technology Vehicle program demonstrates and showcases a range of new technologies, to increase their public acceptance and to remove barriers to their penetration into the Canadian market. Over 30 vehicles have been purchased to date, and over 35 showcase events have been held across Canada.

I should also note that Action Plan 2000 includes a $3 million Future Fuels Program, which encourages new fuel ethanol production by providing a contingent line of credit for new ethanol producers in the event that a change in the federal excise tax treatment for fuel ethanol affects the ability of a producer to repay a major debt. The target is to increase Canada's ethanol production capacity by 750 million litres—triple our current capacity—enabling as much as 25 percent of Canada's total gasoline supply to contain 10 percent ethanol. A $23 million Fuel Cell Alliance Program supports the development of refueling infrastructure for fuel cell vehicles that emit low or no emissions.

I trust that you will find the foregoing information useful. Please be assured that Transport Canada remains committed to a safe, secure, efficient and environmentally responsible transportation system.

Yours sincerely,

[Original signed by David Collenette, Minister of Transport]

Hon. David M. Collenette, P.C., M.P.

*[attachment not available]