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Michael McSweeney Remarks – 2015 Ontario Pre Budget Consultation

Speaking Notes for Michael McSweeney, President and CEO, Cement Association of Canada

2015 Ontario Pre Budget Consultations

Good Morning, I'm Michael McSweeney, President of the Cement Association of Canada. Thank you Madame Chair for the privilege of addressing your Committee. It is nice to see my MPP here, John Fraser. Our industry provides Ontario a reliable, domestic supply of cement required to literally build the foundation of Ontario's communities, its economy and the critical infrastructure that we all rely on. I am here today to talk about how the Finance Committee can impact tax savings for Ontario taxpayers, make the cement industry more competitive, improve our Province's environment...and all at no cost to the Government.

Our industry generates over $6 billion in economic activity and supports a $37 billion construction industry. Ontario’s cement and concrete industries employ directly and indirectly over 16,000 Ontarians.

There are a few important issues that I would like to briefly touch on in my remarks today starting with low carbon fuels.

Low Carbon Fuels

We applaud and congratulate the government’s recent decision to end coal-fired electricity generation. Our industry would like to follow the province’s lead by reducing our reliance on coal. Since 1990 we've reduced our GHG emissions by over 22%, however our industry is still responsible for approximately 4% of the country’s CO2 emissions and about 30-40% of those emissions are due to burning coal and petcoke. We would like to reduce our reliance on coal by moving to low carbon or carbon neutral fuels sources, such as non-avoidable wastes like (construction and demolition waste, non-recyclable materials, biomass, etc).

We are working with the MOECC on a regulatory change that would improve the current process which is very costly and often with uncertain with timelines. This posted regulation can be implemented at no cost to government, help foster innovation and investment in the cement industry and support our competitiveness at a time when our industry needs it. For instance if we replaced 35% of our coal use with low carbon or carbon neutral fuels we would keep almost 350,000 tonnes of unrecyclable waste out of the landfill and our CO2 emissions would be reduced by 200,000 tonnes annually. It will also save the average cement company $12 million annually, thus enhancing their overall competitiveness. And this money could be reinvested into new technology and plant modernization so we can continue to improve the vitality and competitiveness of the Ontario economy.

Life Cycle Cost Analysis when making infrastructure decisions

In spite of all the work and investments that Ontario has made, the demand for provincial funding still outweighs the money available. We believe the government should build on its use of asset management planning by also conducting Life Cycle Assessment and Life Cycle Cost Assessments when it is evaluating all infrastructure funding requests. This is a way to ensure the public gets the "best bang for its buck". >

LCA is key to ensuring infrastructure investments deliver maximum economic, social and environmental value because it takes into account all phases of a project’s life cycle, including the all-important “use” and “end of life” phases. LCA ensures that the financial, as well as environmental costs are factored into an infrastructure investment decision.

A Life Cycle Cost Assessment (LCCA) is a method for assessing the total financial cost of a project by taking into account all costs of acquiring, owning, and disposing of a road or a building. By implementing this Ontario would then have to factor maintenance into the cost. Think about a road as a car. A new car could cost you about $25,000 to buy, but that’s not the true cost of the car over 5 years. Through an LCCA you also have to think about the cost of gas, insurance, maintenance, etc. Over 5 years your $25,000 car has now cost you $50,000+ to own and operate. In the case of an Ontario road project, concrete is generally equal to the cost of an asphalt pavement in terms of first cost. Asphalt is a soft pavement, you ride into it and therefore it typically needs to be repaved every 5 to 7 years. Concrete roads on the other hand are hard surfaces and you ride on top of it. They also last typically 40-50 years and require significantly less maintenance.

Two examples demonstrate this. Hwy 407 was opened in 1997 and was the first highway built in almost thirty years, since Highway 427 was built with concrete in late 60s. If you drive on Hwy 407 you’ll notice there are very few repair patches and the concrete pavement is still in great condition. In contrast, Highway 416, which was completed in 1999, is already showing signs of wear and tear which will require numerous resurfacing projects over the next several years and decades.

By insisting on a life cycle cost analysis the government can help stretch already tight tax dollars further. This move will help the government better manage the fiscal plan into the future by ensuring that the full cost of projects (capital and maintenance) is properly accounted for at the outset of a project. One of the reasons that the Alternative Financing and Procurement (AFP) model in Ontario has been so successful is because it recognizes the true costs of a project over a longer period of time. We need to take the lessons learned from the AFP model and from asset management planning and apply them to other aspects of government spending. We’re not here today to ask you to pick concrete over asphalt. We are here to ask that you recommend in your report that Ontario mandate the use of full life-cycle cost analysis and life cycle analysis for all provincially funded infrastructure projects. Once this LCA is conducted, let the numbers speak for themselves.

High energy prices are hurting Ontario’s competitiveness

Ontario’s industrial electricity rates are twice those in our competing jurisdictions. These high power rates discourage industrial renewal in Ontario and limit job growth. As we all know, capital investment competes globally. In order to win that investment we need to make sure Ontario’s rates are competitive.

We believe there is room to reduce electricity system costs through rationalization and improving regulatory governance. The recent merger of the IESO and the OPA is a great start and should help to improve the system.

We also believe that Ontario surplus power should be made available to Ontario businesses instead of paying our competitors to take it from us. Last year Ontario spent over $1 billion paying competing jurisdictions to take our surplus power. We believe that the government should work with Ontario’s major industrial users to give them access to that surplus power. For instance, one of my member companies has said that they would consider building a second grinder to process clinker and running it all night long if they had access to predictable, lower cost power. This would mean more jobs and investment right here in Ontario.

The high cost of power doesn’t just affect the cement industry. Our partners in the steel, lime, food processing, paper, oil and gas, and manufacturing sectors are all affected. The impacts don’t always show up in the form of plant closures, although we’ve unfortunately had a few of those. The impacts often mean that the Ontario division of a multinational firm doesn’t win the new product line or the new R&D investment.

We hope Ontario will start to improve the competitiveness of our electricity pricing system in the same way they improved the competitiveness of our corporate and personal tax system.

Maintaining a robust infrastructure spend

Finally, Ontario has been doing a monumental job addressing the infrastructure gap. Over the past decade Ontario has spent on average over $10 billion annually on public infrastructure. Ontario has also been making significant investments in municipalities. The Municipal Infrastructure Investment Initiative and the Small Rural and Northern Infrastructure Fund have been very successful in helping municipalities address their critical infrastructure needs.

We hope these investments in municipalities will continue. Our municipal partners need long term predictable and sustainable funding so that they can work to address their respective infrastructure challenges. We hope that the permanent municipal infrastructure fund will be at least $100 million annually and that it will continue to be based on the principles of asset management planning.

According to the Conference Board of Canada “each dollar of real public infrastructure spending [in Ontario generates $1.11 in real GDP.” In the past few budgets Ontario has maintained a 3 year $35 billion funding commitment. We urge you to continue that investment so that together we can continue to grow the Ontario economy, save Ontarian's tax dollars and improve the environment at the same time.

Thank you. I’m happy to answer any questions you might have.


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