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March 29, 2015
Ms. Kathy Hering
Senior Policy Analyst
Ministry of the Environment and Climate Change
Climate Change and Environmental Policy Division
Air Policy and Climate Change Branch
77 Wellesley Street West
Floor 10
Toronto Ontario
M7A2T5
Dear Ms. Hering:
Re: EBR Registry Number: 012-3452 – Ontario’s Climate Change Discussion Paper
2015
On behalf of Canadian Manufacturers & Exporters (CME) I am pleased to provide you with our
members’ comments on the above noted document. CME would also like to comment on the
consultation sessions which were held from March 3 to March 19, 2015. Many CME members
attended these sessions and would be happy to engage in more detailed discussions regarding
this submission.
CME is the voice of manufacturing and global business in Canada. The association directly
represents more than 10,000 companies nationwide, half of which are in the province of
Ontario. More than 90% of CME’s members are small and medium-sized enterprises. CME’s
membership network accounts for an estimated 82% of Canada’s total manufacturing
production and 90% of exports.
Summary and Recommendations
The manufacturing sector in Ontario supports and has been successful in the reduction of
greenhouse gas emissions using voluntary instruments. CME strongly believes that carbon
pricing mechanisms must not compromise the competitiveness of Ontario industry and must
ensure net reductions of emissions and avoid a situation where companies will relocate to
other jurisdictions or decide to not invest in new or existing facilities in Ontario. Instead, the
Ontario Government must encourage investment in productivity-enhancing technologies and
machinery and equipment. Not only can new technologies reduce emissions, but higher
productivity can achieve the same result and make Ontario more competitive and prosperous
at the same time. CME would support more extensive and authentic consultation as we move
forward on a climate change policy and would be pleased to be part of those discussions.
Background
A. The Manufacturing Sector in Ontario
Manufacturing makes a larger contribution to the Ontario economy than to any other province
in Canada. Every billion dollars of manufacturing output generates billions more in indirect
impacts elsewhere in the province. No other sector generates as much secondary economic
activity.
Manufacturing in Ontario is showing signs of recovery from the significant downturn stemming
from the 2008 recession. Ontario manufacturers made strong gains in 2014, with total sales
growth reaching 5.9%, outpacing the national average of 5.2%. Manufacturing sales last year
reached $286 billion – their highest level in seven years.
Manufacturers directly employed 750,000 Ontarians last year. These are highly skilled and highly
paid jobs; manufacturing wages are 14% higher than the provincial average. On top of those
direct positions, another 1.2 million Ontarians are indirectly employed in jobs supporting
manufacturing. Every dollar invested in manufacturing, generates nearly $4 in total economic
activity, the highest multiplier of any major sector. As an innovation leader, manufacturing also
accounts for 54 percent of all private sector R&D and over 80 percent of all new products
commercialized in Ontario. It is manufacturers that will develop and commercialize the
innovations and technological solutions required to reduce GHG emissions. Manufacturers’
success remains the bedrock of Ontario`s prosperity.
B. Greenhouse Gas Emissions in Ontario’s Manufacturing Sector
The Ontario government has a target of reducing GHG emissions in the province to 15 per cent
below 1990 levels by 2020.
Ontario’s manufacturing sector has made a major contribution to achieving the province’s
target. From 1990 to 2012, manufacturers have cut their GHG emissions by 30.9%. Not only
have they reduced emissions by more than twice the Ontario government’s aggregate target,
they have done so eight years early. Meanwhile, emissions from all other sources with the
exception of electricity generation have risen by 4.3% over 1990 levels.
The manufacturing sector’s success in reducing GHG emissions took place in two distinct
periods. Between 1990 and 2000, sector-specific emissions decreased by approximately 18%.
That decrease can be largely attributed to significant capital investments made in Ontario
manufacturing in the mid-1990s. Introducing new technologies, new machinery and equipment,
and innovative new production methods allowed Ontario manufacturers to cut GHG emissions
without compromising their economic competitiveness in the process.
The second period, from about 2001 to 2012, saw an additional decrease of 15.7% in
manufacturing sector emissions. Reductions in this period can be attributed in large part to a
sharp drop in manufacturing output as a result of the economic recession.
It is important to emphasize the lessons from the first stage of emissions reduction. Investment
in new capital improves energy efficiency in manufacturing operations. It fosters innovation,
reduces waste and cuts GHG emissions, all while maintaining or enhancing productivity and
competitiveness – the single most important determinant of long-term economic prosperity.
The impact of capital
investment on emissions
reduction is clearly illustrated
in Figure 1, below. A
significant increase in
business investment in the
early-to-mid-1990s
contributed to the strongest
period of manufacturing
emissions reduction in the
past generation.
Implementing government
policies that encourage more
investment in new plant and
equipment, new technologies and process/product innovation are pivotal to the success of
any climate change plan.
CME Response to the Climate Change Discussion Paper
A. General Comments
The Climate Change Discussion paper offers a vision of a low-carbon future and presents a case
to address climate change in a comprehensive manner over the longer term. In our view,
successful transition to that future will require the support and engagement of all sectors.
At this stage of Ontario’s thinking around carbon pricing, and given the lack of detail
surrounding a carbon pricing policy, CME does not have a set position regarding which carbon
pricing instrument would be best-suited for the manufacturing sector. We do believe that any
instrument must meet with CME’s guiding principles on climate change policy (see Addendum).
In addition to our guiding principles, other important elements of an effective carbon pricing
mechanism would include ensuring a consistent carbon price across the economy and ensuring
that revenue raised from a carbon pricing mechanism on businesses would be re-invested to
support Ontario industries. As well, we must ensure that the cost of administering a carbon
pricing mechanism is minimized.
While a low-carbon economy does present new opportunities for growth and development in
Ontario, the potential impact on many of our established industries requires additional analysis
prior to the finalization of the provincial climate change plan. It needs to be an integral part of
an open and full discussion about the true costs and benefits of introducing a carbon pricing
system in Ontario.
While more assessment is required on the costs and benefits, CME seeks to work with the
Ontario government to fully consider the impacts of a carbon pricing scheme on our established
industrial base. It is imperative to ensure a level playing field with our competing jurisdictions in
Canada, the United States and around the world to prevent carbon leakage.
From a manufacturing perspective, success in transitioning to the lower carbon future includes
valuing and promoting our existing manufacturing base. In this regard, a successful transition
requires the following:
1. Ontario’s approach to climate change must allow Ontario industry to continuously
enhance its competitiveness with respect to attracting investment, improving operating
efficiencies, and developing new markets for its products and services. Industry must
continue to improve energy efficiency performance, as it has done successfully for the
past 20 years, and invest in new, more productive emissions reducing technologies.
Policy measures should be designed in support of these efforts.
2. The citizens of Ontario must be fully engaged in individual initiatives to reduce
greenhouse gases and be given comprehensive information about the costs and benefits
of the government’s climate change plan.
B.
The Impact on Long-Term Business Competitiveness in Ontario
CME believes that additional rounds of consultation need to be conducted. An unbiased and
cooperative approach to developing climate change policies is critical in order to maximize
effectiveness, minimize the negative impact on the Ontario economy, and ensure that
significant unintended negative policy consequences, such as carbon leakage, are avoided.
We are concerned that a climate change strategy that raises business costs in the province will
cause even more companies to bypass Ontario when deciding where to locate new facilities,
invest in existing facilities, or expand existing operations, and could lead to established
enterprises shutting down their Ontario operations and moving them elsewhere.
This outcome would have a profound long-term negative impact on economic growth,
prosperity, and public finances in Ontario without any meaningful progress being made to
reduce greenhouse gas emissions. If businesses leave Ontario (or choose not to locate here), it
may help to accomplish the Ontario government’s provincial emission-reduction goals, but it
would simply relocate emissions to other jurisdictions. The end result would be a weaker
Ontario economy with no net progress made in terms of lowering greenhouse gas emissions on
a global, or even North American level.
C. Allocation of Revenue Collected from Carbon Pricing
CME believes that revenues raised from businesses subject to any carbon pricing model must
be re-invested in Ontario businesses.
In order to minimize the impact on Ontario businesses and future economic growth in this
province, revenues generated from businesses under a cap-and-trade program (or a carbon tax)
need to be re-invested in effective programs and policies that help businesses adopt new
technologies to curb their emissions.
Money should not be transferred to consolidated revenues initiatives like investment in public
transit. We are not opposed to transit investment, but that money should not come at the
expense of business competitiveness in Ontario.
Failure to re-invest revenues directly into same sector capital investment will increase the cost
of doing business in Ontario without providing industry with the means to adapt in a timely
manner to its new, harsher, economic environment. Ironically, it may even result in lower
revenues for the provincial government in the long term. While the proceeds from carbon
pricing will yield new revenues, the policy itself could lead to lost businesses, foregone
investment in new industrial capacity, lost jobs, and slower economic growth. All those things
undercut the provincial tax base.
Comments on Specific Questions in Section 4
Actions in Key Sectors
Q. What can government do better to encourage industry to further increase rates of
innovation that would lead to improved productivity of all capital, including natural capital in
order to reduce emissions?
Government needs to work with business to enable increased capital investment in the
manufacturing sector.
The most effective way to further reduce GHG emissions from the manufacturing sector is to
encourage investment in productivity-enhancing technologies and machinery and equipment
that reduce GHG emissions. Not only can new technologies reduce emissions, but higher
productivity can achieve the same result and make Ontario more competitive and prosperous at
the same time. Business investment is also crucial for Ontario manufacturers that are
developing and commercializing the technological solutions required toreduce GHG emissions.
Evidence from the 1990s demonstrates the clear linkage between capital investment and
emissions reduction. This success needs to be replicated in order for Ontario to meet its
emissions-reduction goals and maintain a healthy and competitive economy at the same time.
As such, the Ontario government needs to work with business to implement policies that
encourage business capital investment, and that reduce the risk associated with adopting new
technologies.
Price on Carbon
Q. The Discussion Paper states:
This Spring Ontario will confirm the market mechanism or mechanisms that will be
used to price carbon in Ontario. Some of the goals of carbon pricing include:
o Ensuring greenhouse gas emissions reduction certainty
o Supporting and encouraging innovation in industry
o Improving human, social, financial, produced and natural capital
productivity and to
o Supporting households and business transition to low carbon economy
Given this statement, what market mechanism or mechanisms will best achieve these goals
for Ontario?
-
The best mechanisms are those which are non-interventionist; those which promote capital
investment and innovation; those that allow firms the freedom to choose their preferred
approach to emissions reduction; and those which do not compromise business competitiveness
in Ontario.
As pointed out above, manufacturing in Ontario has reduced GHG emissions by more than 30%
since 1990 – all accomplished in the absence of regulation. In fact, investment and innovation in
the 1990s alone was enough to allow Ontario’s manufacturing sector to meet its share of the
province’s 2020 reduction target. This historic, sector-leading GHG-emission-reduction
performance aside, many CME member companies have experience with carbon pricing
mechanisms in other jurisdictions in Canada and around the globe and the following are critical
factors for consideration:
1. Competitiveness of existing manufacturers must not be compromised.
i. Manufacturers in Ontario should not face more stringent requirements
than those imposed on jurisdictions in which we compete.
ii. Ontario’s policies should continuously enhance competitiveness with
respect to attracting investment, improving operating efficiencies, and
developing new markets for its products and services.
iii. Policy measures should encourage industry to seek innovative, feasible,
cost effective technological options for reducing greenhouse gas
emissions. It should also be recognized, however, that the timeframe
required for the development and widespread adoption of such
breakthrough technologies is considered a long-term goal.
2. Carbon leakage must be avoided. While BC is held up by some as an example of
a successful approach to carbon taxation, the reality is that the carbon tax has
resulted in significant carbon leakage. For example, there has been a significant
drop in domestic production of energy-intensive goods like cement, with a
corresponding spike in imports of those goods. Carbon leakage can do
significant damage to the local economy without accomplishing anything in
terms of aggregate GHG emissions reduction.
3. Voluntary and market based approaches have worked well in the
manufacturing sector.
4. Programs or policies to encourage investment in emissions reduction need to
be as general as possible. Businesses need to retain the freedom to invest in
the technologies they think best suit their individual circumstances. By no
means should government policies prescribe the adoption of specific
technologies or approaches to emissions reduction.
Q. For those industries already facing challenges today due to changing economic conditions
or technological advances in other jurisdictions, what carbon pricing mechanism or
mechanisms would be most beneficial? What design considerations should be taken into
account?
In addition to the points made in response to the previous question, the design of a carbon
pricing mechanism needs also to reflect and accommodate the range of energy intensities
across Ontario’s manufacturing subsectors.
Science & Technology
Q. In what areas of low-carbon science and technology does Ontario have competitive
advantages or strategic interests?
As pointed out above, manufacturing in Ontario has reduced GHG emissions by more than 30%
since 1990 in the absence of regulation or direct government involvement. Over two thirds of
this amount, or roughly the equivalent of Ontario’s 2020 reduction target, is due to investment
and innovation. Ontario manufacturing has demonstrated an ability to rise to the challenge of
reducing emissions when enabled to do so. That approach contributed to a substantial drop in
GHG emissions in the 1990s and could do so again in the years to come.
However, repeating that success does not require the provincial government to identify
strategic interests or to pick “winning” technologies in which to invest. Fundamentally, we
believe that such an approach is misguided. It leads to a scenario in which government officials,
consultants or NGOs decide which technologies are worthy of support. A preferable approach
would be to develop broad-based investment incentives that encourages Ontario businesses to
identify or develop their own competitive advantages and strategic interests, rather than being
told what they should be.
In short, it is in Ontario’s strategic interest to further nurture and enhance our manufacturing
base by:
I.
II.
III.
Acknowledging the significant contribution of manufacturing in Ontario and
ensuring that the competitiveness of existing manufacturing is not compromised by
any cap-and-trade system that is implemented;
Enabling business investment by reducing costs and supporting capital turnover;
Allowing the market to decide which technologies should be supported through
broad-based incentive programs and not by attempting to pick winning
technologies.
It is also worth noting that Ontario has an advantage over many other jurisdictions in North
America in that it does not rely on fossil fuel combustion to generate electricity. Businesses
across the province have grave concerns about the impact that provincial energy policy has had
on energy costs in Ontario, but our nuclear and hydro resources specifically offer a strong
emissions-free foundation upon which to build. Furthermore, we also support efforts to lower
energy costs in the province by importing hydroelectricity from Quebec. Doing so will improve
business competitiveness in Ontario and make the province a more attractive place in which to
invest, without directly adding to GHG emissions in the process.
Ontario manufacturers are also leaders in the development and commercialization of GHG
emission-reducing technologies in a variety of industrial sectors including automotive,
aerospace, information and instrumentation systems, metals and other materials, nuclear,
hydro, and alternative energy, industrial automation, food processing, and waste management.
Q. How can Ontario better support early stage research that could lead to the future
commercialization of technologies that will provide economic benefits while also helping
Ontario achieve its carbon reduction goals?
CME recognizes that early-stage research is critical to the development of new technologies and
innovation. In addition, it is important to recognize the importance of improving . the linkages
between existing early-stage research (both within and outside of Ontario) and the
commercialization and adoption of new technologies, processes and products.
This issue was highlighted repeatedly in CME’s most recent Management Issues Survey. In that
survey, businesses were asked to identify their top three priorities for enhancing
competitiveness, innovation and productivity.
69% of Ontario respondents pointed to the need to improve tax policies directed at
supporting capital investments;
- 66% emphasized the need to improve policies directed at supporting investment in
innovation within business;
- 39% said that the linkages between post-secondary institutions and industry needed
to be strengthened;
- 24% said Canada needed to focus on developing new products and services based in
advanced technologies; and
- 15% thought that technology transfer from universities and colleges to the private
sector needed to be improved.
These results clearly point to a gap between the development of new technologies through
early-stage research and their commercialization/adoption by business. CME recommends that
the Ontario climate change plan supports improving linkages between existing early-stage
research and the commercialization and adoption of new technologies, processes and products.
-
Comments on Future Consultation Sessions
CME understands that the consultations associated with the Climate Change Discussion paper
signal the start of more detailed conversations that will be increasingly sector- and perhaps even
facility-specific as we move through 2015. CME and its members look forward to these further
consultations and trust the opportunity for dialogue will enable a more comprehensive
discussion than the stakeholder roundtables conducted in March.
CME did not understand the intent of the stakeholder roundtables and was concerned that the
facilitated sessions overly restricted the dialogue, limiting it to two specific themes and
preventing a wider range of discussion. It is with that in mind that we look forward to more
extensive and authentic consultation as we move forward.
CME would be pleased to meet with MOECC to further discuss this submission. Please
feel free to contact me if you have any questions.
Sincerely,
Jayson Myers
President and CEO
CC.
Hon. Glen Murray, Minister of Environment and Climate Change
Hon. Charles Sousa, Minister of Finance
Hon. Brad Duguid, Minister of Economic Development, Employment and Infrastructure
Hon. Bob Chiarelli, Minister of Energy
Paul Evans, Deputy Minister, Ministry of Environment and Climate Change
Scott Thompson, Deputy Minister, Ministry of Finance
Giles Gherson, Deputy Minister, MEDEI
Rick Jennings, Deputy Minister, Ministry of Energy
George Vincent, Chair, CME Ontario Board of Directors
Ian Howcroft, CME Ontario Vice President
Nancy Coulas, CME Director of Environment and Energy Policy
Addendum: CME’s Guiding Principles
CME recognizes that climate change is an important issue in Ontario and across Canada.
Industry has, over the years, taken many important steps to reduce its environmental footprint
and must continue to be part of the solution in future. With that in mind, our response to the
Ontario government’s climate change discussion paper is guided by the principles outlined in
our Resolution on Climate Change. The Resolution was developed by CME’s National Board
of Directors in 2008 and while intended for national discussions on climate change
policies, they are also relevant at the sub-jurisdictional level:
1. Canada’s climate change objectives should be pursued in line with our other
economic, social, and environmental policy goals. Canada must ensure
consistency and maintain a level playing field with respect to climate change
measures adopted by our major trading partner, the United States, and
competing jurisdictions globally.
2. All options being considered as part of a “plan” for Climate Change must be
thoroughly analyzed on the basis of acceptable, reliable, and scientifically valid
models of social, economic, and environmental impacts.
3. Policy recommendations should be adopted only if the full extent of their
economic and competitiveness impacts are clearly understood and taken into
account. A clear understanding is also needed of the tools available to Canada
to meet emissions reduction targets and how they will work. This would include
the issue of carbon pricing (i.e,. carbon tax or cap and trade system) which must
be viewed in terms of alignment with competing jurisdictions. We also must
consider harmonization among provinces, territories and the federal government
to ensure that Canada does not have a “patchwork” of policies and tools.
4. Canada’s approach to climate change must allow Canadian industry to
continuously enhance its competitiveness with respect to attracting investment,
improving operating efficiencies, and developing new markets for its products
and services. Industry must continue to improve energy efficiency, as it has done
successfully for the past 20 years, and invest in new emissions reducing
technologies, and policy measures should be designed in support of these efforts.
5. Voluntary and market-based approaches should be preferred over regulatory and
tax-based approaches to reducing greenhouse gas emissions.
6. Industry will continue to take the lead in developing feasible, cost effective
technological options for reducing greenhouse gas emissions, and policy
measures should encourage innovation in this field. Government should also
provide fiscal support. It should also be recognized, however, that the timeframe
required for the development and widespread adoption of such technologies is
considered a long-term goal.
7. The Canadian public must be fully engaged in individual initiatives to reduce
greenhouse gases and must be encouraged to become engaged in a debate (i.e.
understand costs and benefits) about policy measures that will ultimately
constrain the energy use and affect the living standards of all Canadians.