March 29 - April 5, 2004

Federal budget commits added support to R&D, site cleanups and sustainable communities

The March 23 federal budget tabled by Finance Minister Ralph Goodale has reaffirmed the government's fiscal commitment to cleaning up contaminated sites, including the Sydney Tar Ponds, as part of an overall enhanced investment in cleaner, sustainable communities.

The 2004 budget provides $4 billion in funding over ten years to clean up contaminated sites. Of this amount, $3.5 billion will be used for a major multi-year cleanup of contamination on federal lands.

There are approximately 3,800 contaminated federal sites across Canada, in every province and territory; 40% of the sites are in or near urban areas. Examples include: Giant Mine, Yellowknife; Harvey Barracks, Calgary; and Canadian Forces Base Valcartier, in Quebec. Of the Government's spending on federal contaminated sites, 60% is expected to occur in the North, leading to economic development and employment opportunities for Aboriginal communities and Northern residents.

The remaining $500 million will support the federal government's role in the remediation of certain other sites, with priority assigned to the tar ponds in Sydney, Nova Scotia.

The government intends to sell its remaining shares in Petro-Canada during 2004-05. The new funds accruing from this initiative (projected at $1 billion over seven years) will go to support the development and commercialization of new environmental technologies. In particular, $200 million will be directed toward Sustainable Development Technology Canada (SDTC), the arm's-length foundation that supports development and demonstration of environmental technologies. A further $800 million over the next seven years will support emerging environmental technologies.

Other research and innovation funding provisions include:

the addition of $90 million per year to the budgets of Canada's three federal granting councils: the Canadian Institutes of Health Research, the Natural Sciences and Engineering Research Council of Canada, and the Social Sciences and Humanities Research Council of Canada; and

a new allocation of $5 million per year to the Industrial Research Assistance Program (IRAP) to strengthen its support for the regional innovation initiatives sponsored by the National Research Council (NRC).

As announced in the February 2 Throne Speech (ELW February 9), the budget provides full goods and services tax (GST) relief for municipalities of all sizes. Municipalities will receive an estimated $7 billion in GST relief over the next ten years, which can be invested in critical priorities such as roads, transit and clean water.

As well, the government intends to accelerate the $1-billion Municipal Rural Infrastructure Fund (MRIF), distributing funds over the next five years instead of ten. This will give municipalities across Canada quicker access to the funds they need to plan their infrastructure improvements and put them in place. The MRIF is designed to help municipalities pay for smaller-scale projects, such as those relating to water infrastructure and local transportation.

The 2004 budget also contains measures to enhance access to venture capital financing, the lifeblood for new companies working to translate promising research into new products and services.

This will include $270 million set aside for new investments in venture capital financing by the Business Development Bank of Canada (BDC) and the Farm Credit Corporation (FCC). Among the allocations:

* $100 million for direct investment in new technologies to bring them to the next level of venture capital financing;

* $100 million to support the creation of specialized funds that will lever additional private equity investment in leading-edge technologies; and

* $50 million to invest directly in innovative start-up and early-stage companies to further support the commercialization of enabling technologies.

When combined with private sector investments, the venture capital financing initiatives by the BDC and FCC are expected to lever a total of $1 billion in new venture capital investment.

Finance Minister Goodale confirmed the seventh consecutive balanced budget for 2003-04; balanced budgets or better are forecast for 2004-05 and 2005-06. Program expenses are projected to grow an average of 4.4% in 2004-05 and 2005-06, roughly in line with projected growth in the economy. Private sector economists are predicting a 2.7% average growth in the Canadian economy in 2004. While this is a substantial improvement over last year, it is still well below the 3.5% forecast at the time of the 2003 budget. A further pickup in growth, to 3.3%, is expected in 2005.

The main risk factors influencing this outlook include: the uncertainty surrounding the economic impact of the rapid rise of the Canadian dollar; and the sustainability of the U.S. economic recovery.

Mixed reaction to budget

Reaction to the budget from an environmental perspective was mixed. The Clean Air Renewable Energy Coalition, for example, said, "Canada's ability to generate 'green power' was not enhanced in any way, shape or form."

Specifically, the group had been hoping for enhanced funding for the Wind Power Production Incentive (WPPI), the federal program designed to make investments in wind power more attractive. The Coalition was instrumental in bringing this initiative to fruition in the December 10, 2001 budget.

The lack of any WPPI enhancement signals Provinces and Territories considering the implementation of Renewable Portfolio Standards or other mechanisms that the Federal government expects other levels of government to take the lead.

"Without incentives or mechanisms for renewable energy technologies, green power investors, companies interested in acquiring green power, and consumers at large will not be persuaded that the federal government sees a legitimate role for green power to compete with conventional power in the national electricity marketplace," said John Keating, CEO of Calgary-based Canadian Hydro Developers.

The Coalition also expressed concern about inaction relating to its recent recommendation calling for the development of a National Renewable Energy Strategy (relating to low-impact renewable electricity/green power) in co-operation with the provinces, territories and other stakeholders. Although the budget did not address this issue directly, the group said it remains hopeful that the Martin government will, nevertheless, direct appropriate departments to initiate this strategy development. The Coalition's recommendations are set out in its paper, "Visions for a Low-Impact Renewable Energy Future for Canada," which may be viewed on its Web site, www.cleanairrenewableenergycoalition.com.

The Clean Air Renewable Energy Coalition is a group of corporate, environmental non-governmental organizations (ENGOs) and municipal governments launched late in 2000 to accelerate the development of Canada's low-impact renewable energy industry. Its members include 14 corporations, five environmental organizations and the Federation of Canadian Municipalities. More information is available from John Keating at Canadian Hydro Developers, 403/298-0251.

The Association of Municipalities of Ontario (AMO) welcomed the budget's announcement of support for Canada's cash-strapped municipal governments. AMO President Ann Mulvale said, "We have a long way to go in Ontario toward rebuilding the foundations of strong communities, and today's action by the federal government is an important step in that direction.

"Ontario's municipalities are optimistic that we are embarking on an era of real trilateral co-operation between all orders of government. We will continue to work with our partners in Ottawa and Queen's Park to find secure stable, long-term revenue to support vital public services delivered by municipal governments," she added. The AMO projects that the 100% refund to municipalities for GST payments, effective February 1, 2004, will save Ontario municipalities approximately $150 million a year.

The acceleration of planned federal investment in municipal and rural infrastructure, distributing payments over five years instead of ten, will allocate an estimated $300 million for Ontario communities. This, notes the AMO, will help them tackle an estimated $5 billion annualized infrastructure deficit, which has accumulated as a result of years of deferred infrastructure repairs and investment.

More information is available from Pat Vanini, AMO Executive Director, 416/370-4320.

In Montreal, Greenpeace representatives commended the federal government's plan to sell off its remaining shares in Petro-Canada, but maintained that all of the money should be invested on environmental issues and especially on meeting Canada's Kyoto commitment.

"$2.8 billion would be a welcome addition to the current federal spending on the environment," said Greenpeace climate campaigner Steven Guilbeault. "However, the Greater Montreal Area alone, will need at least $1.6 billion over the coming years just for renovations to its subway system. It would be a serious mistake to assume that the Federal government's spending announcement will take care of the environmental needs of this country."

Guilbeault also pointed out that "on a kWh basis, the federal incentive program for wind energy is roughly a third of the one that exists in the US under the Bush Administration." He added that "despite the fact we have a plan for Kyoto, many elements of the plan are still unclear, like the 'One-Tonne Challenge' or how some of the targeted measures will actually deliver the emissions reduction that we need in order for us to reach our Kyoto target." [see One-Tonne Challenge story, page 1.]

On the other hand, a commentary by the CD Howe Institute in Toronto says the federal government made the right decision in not providing new funding for greenhouse gas (GHG) reduction in its recent budget and it should be supported even by those who want dramatic emission cuts. That said, however, the paper adds that Canada must initiate a mix of smart regulations and market incentives rather than relying on voluntary efforts and modest government subsidies to meet its Kyoto Protocol targets. [see story, page 4]

Finally, federal Environment Minister David Anderson reiterated the budget's commitment to cleaning up the Sydney Tar Ponds, citing its statement that "an immediate priority for the government will be to conclude discussions with the government of Nova Scotia and the city and citizens of Sydney to establish an effective approach and a fair division of responsibilities and costs for the cleanup of the Sydney Tar Ponds." In recent years, he noted, derelict and dangerous structures have been removed, an old municipal landfill has been contained, and interceptor sewer piping has been installed.

At the same time, Nova Scotia Energy Minister Cecil Clarke said the provincial government is encouraged by this renewed commitment. Speaking on behalf of Ron Russell, minister responsible for the Sydney Tar Ponds Agency, Clarke said the reconfirmed federal commitment "will enable the province to participate in a joint cleanup of the Tar Ponds and Coke Ovens on a 70/30 basis with the federal government."

Discussions on the technologies to be used in the cleanup are in the final stages, and the project will likely have a final price tag of about $400 million. Clarke also confirmed that the provincial government set aside funding to clean up the tar ponds, coke ovens, and Sydney Steel plant five years ago in the 1999-2000 budget.

"There is a sound legal, factual, and historical basis for a 70/30 cost-sharing arrangement," Clarke said, noting that the federal government owns major portions of both the tar ponds and coke ovens site; 85% of the PCB materials, the most serious contaminant on the site, are in the federal portion of the tar ponds, he added.

The worst pocket of contamination on the coke ovens site, a 25,000-tonne underground deposit known as the tar cell, was created when the federal government, through the Cape Breton Development Corporation, owned the coke oven operation between 1968 and 1973.

Clarke said the $120 million Nova Scotia has set aside for the cleanup would be more than enough to clean up all the provincially-owned property within the Muggah Creek watershed.

"Our preference would be to partner with the federal government in a joint cleanup," Mr. Clarke said. "However, we have not ruled out the option of proceeding on our own for the next phase if we are unable to agree on a cost-sharing arrangement in near future."

In his statement, Anderson also addressed the issue of sharing of cleanup costs, noting that the federal government's involvement in the operation of the coke ovens facility was limited to a five-year period during its 80-year life span.

He said the pollution on the federal property was caused by emissions from the steel and coke facilities operated primarily by the Nova Scotia government and private interests regulated by the province. The tar cells on the coke ovens site were created in the mid-1940s and early 1960s, not during the period of federal ownership, he added.

It has been nearly ten months since the Joint Action Group submitted its cleanup recommendations to the federal and provincial governments, Clarke said. "Residents of the Sydney area are more anxious than ever before to see this project move forward. They have shown great patience and tolerance on this issue, and it's important that we honour that fact by concluding our negotiations in a timely manner."

Clarke said that while he hoped a cost-sharing agreement can be completed in the near future, the provincial government is not prepared to let negotiations drag on forever. He reiterated a commitment Premier John Hamm made in a recent speech to the Sydney Board of Trade: "One way or another, this government is determined to see a cleanup plan in place within the very near future."

However noble the intentions and commitment of the two governments may be, the Ministers' comments suggest that a final cost-sharing agreement may still be some time in coming.

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