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CAC President and CEO addresses BC Select Standing Committee on Finance and Government

 

SPEAKING NOTES - Mr. Michael McSweeney, President and CEO

Presentation to the BC Select Standing Committee on Finance and Government

September 21, 2011, Kamloops, BC

Hello, my name is Michael McSweeney and I am pleased to address the Select Standing Committee on Finance and Government representing the BC members of Cement Association of Canada.

Personally, I love coming to Kamloops.  Even though I live in Ottawa, I manage to visit this city a three or four times a year.  It really is the cross roads of the province with its rivers, highways and railroads enabling a never ending flow of people, services and industry.

Lafarge Canada, has a cement kiln here for that very reason, to serve the province from its centre and interior.   The Kamloops plant is one of three in BC, the other two are Lafarge's other plant in Richmond and Lehigh Hanson's plant in Delta.

Unfortunately, I’m here to report that after many decades of prosperity in BC, the cement industry is struggling when it should not be; it is suffering primarily as a result of an unintended consequence of the carbon tax.

The cement industry is supportive of climate change and has been working diligently with the BC government for over four years in trying to develop a system that allows the cement industry to provide well paid jobs, remain competitive, but at the same time understands it has a role to play in reducing green house gases.  But from the cement industry’s perspective the BC carbon tax was launched too quickly, without enough industry consultation, and implemented without proper measures to protect domestic production from untaxed imports.  And BC families are paying the price.

While the situation is very serious for our industry, I do bring good news.  This is a problem that can be easily fixed by the Finance Minister in the next budget.  After many meetings with BC government politicians and civil servants over the last 3 years attempting to make the carbon tax more fair, the BC cement industry, in consultation with the BC Climate Action Secretariat, had developed a solution that will protect BC jobs and families, increase revenue for the BC government AND protect the environment all at the same time.  I will speak more on that in a moment.

Let me remind you, cement is like flour, concrete is like bread.  Cement is a fine white grey powder made primarily from heating limestone in a rotary kiln at very high temperatures.

 

Concrete is the hard substance that forms when cement powder is mixed with water, sand and gravel and allowed to set.

In BC cement is made from limestone quarried in Kamloops and Texada Island, and heated with coal mined in the Kootenays and Tumbler Ridge.  BC’s cement kilns manufacture a 98% made in BC product.  In BC, when we use the coal to heat the limestone, we pay the carbon tax, which by the way will cost our industry over $20 million by July 1, 2012.

This is in addition to all the other normal taxes our industry pays: corporate income tax, sales tax, payroll taxes, gasoline taxes, municipal taxes, to name but a few – and now potentially more with the PST being reintroduced

BC’s cement industry is a manufacturing sector borne of mining.  It makes strategic sense for BC to have a prosperous cement industry – it has the required minerals in plentiful supply.  In contrast, Saskatchewan and Manitoba don’t make cement, they have to import it from BC, Alberta or the US at extra transportation costs and increased GHGs I may add.

Cement is a strategic commodity and it is easily shipped around the world.  The key determining factors in the global price of cement powder are local labour standards, environmental regulations and transportation costs.

Before the carbon tax was instituted in 2008, most of the cement consumed in the province was made in BC.

At that time, imports had only 4% market share, usually because of specialized products.  Now after 3 years of the carbon tax - imports have increased to an unprecedented 23% of market share.  Why?  Because imported cement is not subject to the BC carbon tax.  Foreign cement powder comes into BC tax free.

So when cement is manufactured anywhere in North America, it has an advantage over the domestic producers in the BC market.  They don’t pay carbon tax on their fuel.

They don’t pay carbon tax on transportation costs until they cross the border.   And they don’t pay the carbon tax on their cement when it lands here.

The situation is even more acute for Asian cement.  No carbon tax is collected at their kilns, or paid on the ship’s fuel as it travels across the world's biggest ocean or upon arrival in BC. A crossing that only creates more GHGs that end up in BC one way or the other with the trade winds.

Not surprisingly, since the BC government allows foreign made products into the BC market tax free, there is now less demand for our local fully-taxed cement.  As a result, in 2011, BC’s cement kilns are running at about 50 to 70% capacity, which has meant rotating layoffs for hundreds of employees and termination or layoff notices for contractors.  Local mines, trucking lines and railways serving the kilns are also hurt.  The negative provincial economic impact runs in the 10s of millions of dollars.  But most of all the impact of this is on BC families - as they are the ones that have to bear the brunt of unemployment, while others are employed making cement elsewhere in the world.

This reality is especially frustrating for many of our west coast employees and contractors, as Texada Island limestone is shipped by barge to Washington state for value-added manufacturing there and then shipped back as cement to BC, untaxed.

In addition, because 23% of the cement used in BC now doesn’t pay the carbon tax, this system is actually costing the government direct revenue.  The trend lines show that as the carbon tax increases, the tax base it applies to will continue to decrease.  It’s a money losing proposition for all involved.

So, as currently designed, the BC carbon tax leads to perverse outcomes.   The BC carbon tax is actually causing an increase in GHGs through the transportation sector, hurting families because of layoffs jobs and actually leaving potential government revenues on the table.

British Columbia is the only jurisdiction in North America with a carbon tax.   And it appears to be the only jurisdiction in the world that applies higher environmental demands and taxes on domestic production that on foreign imports.

But the good news is that we have a solution - to make the carbon tax fair by making it smarter.  The cement industry supports government policies that put a price on carbon combustion, but we expect them to be applied fairly, without providing a competitive advantage.  We have been recommending for a few years now that the BC government should apply the carbon tax at the point of sale, where cement is transferred to the concrete industry.  This way all the cement used in BC will pay the carbon tax.  It will be fair, because every cement producer in BC, Alberta, Washington and China will pay the same BC carbon taxes.  This change will help families by saving jobs, increase BC Government revenue and help reduce GHGs in the BC air shed.  The BC cement industry would continue to pay the carbon tax the coal it burns, so would be incented to reduce emissions.  And, an input tax credit system would ensure that BC cement production is not double taxed.

Moving the carbon tax on cement to the point of sale is a simple idea that would protect BC families, recreate BC employment, increase the BC Government’s revenues by millions of dollars, and would reduce the GHGs introduced into the environment.  It’s a winner all around.

This is not an anti-environment or anti-carbon tax proposal.  The famous Kyoto, Copenhagen and Cancun conferences all extensively discussed environmental, economic and job leakage and stressed that barriers were essential to ensuring the integrity of climate initiatives.  The lesson is simple, if you want to institute high environmental standards, you must protect against leakage if you want the policies to be effective.

BC carbon tax is not effective as it currently operates.  It is hurting families, costs jobs, hurting government revenues and hurting the environment.   And it is causing BC cement companies to consider moving its production, jobs and investment outside of the province so that it can serve the market tax free too.

What is needed to make the carbon tax smart, effective and fair is political will.

As some of BC’s most senior, influential and experienced political leaders we look forward to your adopting our proposal – to move the carbon tax to the point of sale to the concrete industry.

I would be pleased to answer any questions that you may have.