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Evaluating the tax system to advance environmental goals

Petition

June 7, 2005

The budget speech 2005 delivered by the Minister of finance on February 23, 2005, contains on page 17 the following sentence: "and we will continue to look for other ways to use the tax system to advance environmental goals". The budget plan tabled in the House of Commons on the same day has an annex 4 entitled "A framework for evaluation of environmental tax proposals". Purpose of this letter is to request the Commissioner for the Environment and Sustainable Development to forward this petition to the appropriate federal departments and agencies so as to establish the time when the evaluation of the current tax system, including tax expenditures, will be completed so as to permit the advancement of environmental goals in the next federal budget.

[Original signed by Charles Caccia]

Charles Caccia
University of Ottawa
555 King Edwards Street
P.O. Box 450, Station A
Ottawa, Ontario
K1N 6N5

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Minister's Response: Finance Canada—Department of

September 27, 2005

The Honourable Charles Caccia, P.C.
Senior Fellow
Institute of the Environment, University of Ottawa
555 King Edward Street
P.O. Box 450, Stn. A
Ottawa, Ontario
K1N 6N5

Dear Mr. Caccia:

Re: Environmental Petition No. 147

I am responding to your petition of June 7, 2005, which was forwarded to me by Ms. Johanne Gélinas, Commissioner of the Environment and Sustainable Development. In your petition, you wish to "establish the time when the evaluation of the current tax system, including tax expenditures, will be completed so as to permit the advancement of environmental goals in the next federal budget."

The government evaluates the tax system on an ongoing basis as part of its normal policy development process. The Department of Finance identifies and, where possible, estimates the value of these expenditures and reports them on an annual basis through the publication of the Tax Expenditures and Evaluations report. These estimates are supplemented by special studies that are included in the report or are published separately. For example, in 2001 the Department published a working paper on oil sands tax expenditures. In addition, departmental officials prepare, on an ongoing basis, briefings and analyses of various environment-related tax proposals made by environmental non-government organizations, industry, other government departments, and other jurisdictions.

These analyses have led to changes in tax policy to support environmental goals (a summary of the changes announced or implemented since 1996 is attached). A number of these changes have been implemented specifically to level the playing field in the treatment of non-renewable and renewable resources (e.g., the introduction of Canadian Renewable and Conservation Expenses in 1996), a point noted by the OECD in its 2004 Environmental Performance Review of Canada.

It is also important to note that tax policy is only one tool at the government's disposal in order to achieve its environmental goals. As noted in the government's climate change plan, Moving Forward on Climate Change: A Plan for Honouring our Kyoto Commitment, the government also provides direct support, such as the Wind Power Production Incentive and grants through the EnerGuide for Houses Retrofit Incentive program. Key elements of the Plan were funded in Budget 2005, with over $4 billion in investments over the next five years, which, combined with the recently announced Housing Retrofit Grant Program for low-income households, brings total federal spending in support of measures to address climate change to over $6 billion since 1997.

The federal government has also made significant investments to address environmental issues other than climate change. Since 1997 the government has committed more than $6B to improve other areas of the environment, such as air, water, soil and biodiversity. For example, the government has provided $4 billion to remediate federal and shared-responsibility contaminated sites, including the Sydney Tar Ponds; a total of $160 million to improve air quality; a total of $343 million to protect and improve National Parks and to maintain and acquire capital assets in National Parks; $600 million to upgrade, maintain and monitor water and wastewater systems on First Nations reserves; $213 million to support the Species at Risk Act; and $216 million to support the Canadian Environmental Protection Act.

In terms of recent tax changes, Budget 2005 announced an acceleration of the capital cost allowance (CCA) rate from 30 percent to 50 percent for certain high-efficiency cogeneration equipment and the full range of renewable energy generation equipment currently included in capital cost allowance Class 43.1 (including wind turbines, small hydro facilities, active solar heating equipment, photovoltaics and geothermal energy equipment). Budget 2005 also proposed to extend Class 43.1 CCA treatment (including eligibility for the new 50 percent CCA rate) to certain district energy and biogas production systems. Qualifying start-up expenses of projects using these additional technologies will be eligible for treatment as Canadian Renewable and Conservation Expenses.

In addition to these concrete actions, the government reaffirmed in the 2005 Budget that it would continue to review other investments for inclusion under Class 43.1 to ensure that appropriate incentives are provided for investment in efficient and renewable energy generation equipment. The government has also asked the National Round Table on the Environment and the Economy (NRTEE) to consult and make recommendations with respect to options for a vehicle "feebate", with a view to encouraging Canadians to acquire more environmentally friendly vehicles.

Indeed, as indicated in Budget 2005, the government continues to actively consider opportunities to use the tax system to support environmental objectives, in areas where it would be an appropriate instrument. To assist in that process, the framework to evaluate environmental tax proposals that you refer to was published in the 2005 Budget Plan. The purpose of the framework is to contribute to the public policy debate and to facilitate dialogue with other levels of government, organizations and individuals who are concerned with the integration of economic and environmental factors in policy making and the pursuit of sustainable growth.

With these specific initiatives and the government's ongoing review of tax policy, let me assure you that using the tax system to advance the government's environmental goals will be considered in the development of the next budget.

Yours sincerely,

[Original signed by Ralph Goodale, Minister of Finance]

Ralph Goodale

Environmental Tax Measures Implemented Since 1996