Main Menu - Help

Budget 2005 - Budget Plan
- Table of Contents - Previous - Next -

Chapter 5 
Moving Toward a Sustainable Environment and Sustainable Communities

Highlights

Ensuring a Sustainable Environment

• $1 billion for an innovative Clean Fund to further stimulate cost-effective action to reduce greenhouse gas emissions in Canada.

• $225 million to expand the successful EnerGuide for Houses Retrofit Incentive program for Canadians.

• $200 million to support the development of a Sustainable Energy Science and Technology Strategy.

• $200 million over five years and a total of $920 million over 15 years to further stimulate the use of wind power to generate energy. This delivers on the Government of Canada’s commitment to quadruple the Wind Power Production Incentive.

• $97 million over five years and a total of $886 million over 15 years to stimulate the development and use of forms of renewable energy other than wind, such as small hydro, biomass and landfill gas.

• An estimated $295 million in enhanced tax incentives through accelerated capital cost allowance (CCA) to encourage investment in efficient and renewable energy generation and establishing that new accelerated CCA will only be considered for investments in green technology.

• $300 million provided to enrich the Green Municipal Funds, which make investments in innovative green municipal projects. Half of this amount will be targeted to the cleanup of brownfields.

• $85 million to fund strategic investments to minimize the risk of invasive alien animal and plant species damaging our environment and economy.

• $40 million to improve the ecological integrity of the Great Lakes ecosystem.

• $28 million over two years to preserve the health of Canada’s oceans. $15 million per year ongoing to ensure the conservation of our fisheries in the Northwest Atlantic.

• $90 million to support scientific assessments and research under the Canadian Environmental Protection Act, which will help reduce the exposure of Canadians to potentially harmful substances.

• $209 million for the maintenance and acquisition of capital assets in national parks and $60 million to restore the ecological integrity of parks.

Delivering on a New Deal for Cities and Communities

• Implement its pledge to share $5 billion worth of gas tax revenue over the next five years:

• In 2005–06, the share of the federal gas tax dedicated to cities and communities will be $600 million.

• By 2009–10, the share will increase to $2 billion, representing 5 cents per litre.

• Renew federal infrastructure programs such as the Canada Strategic Infrastructure Fund and the Municipal Rural Infrastructure Fund, which invest more than 50 per cent of funding toward sustainable infrastructure.

Introduction

A sustainable economy depends on a sound environment and healthy communities. Budget 2005 continues to strengthen Canada’s core capabilities through significant investments in the environment and in sustainable infrastructure in Canadian communities.

The Government of Canada is committed to achieving robust economic growth and protecting the environment. With properly designed policies and targeted investments, these two objectives are complementary. To achieve sustainable growth, the Government is pursuing policies which match the appropriate economic instruments with specific environmental outcomes.

In Budget 2005, the Government is making more than $3 billion in new investments to address climate change and to protect our natural environment. When combined with $2.2 billion of existing funding, the resulting package of more than $5 billion represents a major step as part of a longer-term strategy to meet these vital objectives. Since 1997, the Government has committed more than $10 billion in new funding for environmental measures, putting Canada on the path to a sustainable economic future. These investments include measures to address climate change; to clean up contaminated sites; to design, implement and enforce framework legislation such as the Canadian Environmental Protection Act and the Species at Risk Act; and to invest in the development of environmental technologies.

The objective of the Government’s environmental initiatives is to have the most impact where it matters most—in the places Canadians live, work and play. Canada depends on cities and communities that can attract the best talent and compete for investments as vibrant centres of commerce, learning and culture. Canada’s cities and communities must continue to be healthy, safe and beautiful places to live.

That is why, building on current financial support for infrastructure programs and the full rebate of the GST, Budget 2005 also delivers on the commitment to share a portion of the revenues from the federal gas tax with municipalities to assist with their sustainable infrastructure needs.

Moving Toward A Green Economy

Budget 2005 establishes the framework for making environmental investments. In particular, the following principles guide the Government of Canada’s environmental investments:

• Balance. Investments must balance the need for short-term action to protect our natural environment and long-term measures to spur transformational change in public behaviour and business practices.

• Competitiveness. While building sustainable economic growth is an essential component of Canada’s long-term international competitiveness, the transition to a sustainable economy must also weigh carefully the impact on short-term competitiveness.

• Partnership. To the greatest extent possible, investments in the environment should lever outside funds and encourage responses from industry, citizens and other orders of government.

• Innovation. Investments should promote innovation and support new technologies. Innovation feeds economic growth, creates new opportunities and provides long-term improvement in our environmental performance.

• Cost-effectiveness. Initiatives should achieve environmental goals at the lowest possible cost.

Evaluation and Reallocation

The Government of Canada will learn from past investments. It is committed to reassessing and redirecting funding dedicated to the environment to those measures that best meet the above principles. Budget 2005 formalizes that process by launching a government review of all climate change programs.

A profile of program funding that could be used to extend the existing climate change programs has been established. However, prior to releasing these funds for 2006–07, Ministers will review all existing measures to determine the relative success of each in achieving cost-effective emission reductions over the short and long term.

As a result of these evaluations, resources will be reallocated among existing measures and new measures that target climate change and incent new consumer and producer behaviour, consistent with the principles outlined above. For example, resources identified through this review will be used to fund the continuation and expansion of the EnerGuide for Houses Retrofit Incentive program, which is described in the section "EnerGuide for Houses Retrofit Incentive Program."

Addressing Climate Change

The Government made addressing the global challenge of climate change a national priority by ratifying the Kyoto Protocol in December 2002. The Protocol came into effect on February 16, 2005. Beyond the Kyoto Protocol, Canada must strive toward a clean energy future. Governments, industry and citizens all have a role to play. Acting together will lead to a better quality of life for Canadians and open up new economic opportunities for Canada. Moving to a clean energy future, Canada will establish itself as a global leader in the field of environmental technology, develop a competitive advantage and become a more innovative economy.

Funding announced in previous budgets, totalling $3.7 billion since 1997, has helped improve the country’s understanding of the challenge and risks of climate change, promote technology and innovation, develop policy options for addressing climate change, and take early action to reduce greenhouse gas emissions.

In order to meet our climate change objectives, the Government will use the full range of policy instruments, providing both the resources for significant progress on climate change and the framework for next steps. Budget 2005 provides funding using six instruments:

Market mechanisms. Introduces an innovative $1-billion Clean Fund to encourage the most cost-effective projects to reduce greenhouse gas emissions while complementing the ongoing development of a market for emissions trading.

Targeted incentives. Delivers on the Government’s commitment to quadruple the Wind Power Production Incentive to 4,000 megawatts and further extend this incentive to other renewable energy sources. Quadruples the number of homes to be retrofitted under the EnerGuide for Houses Retrofit Incentive program from 125,000 to 500,000.

Tax measures. Increases the incentives for investment in efficient and renewable energy generation equipment under capital cost allowance (CCA) Class 43.1 by expanding the scope of the class and further accelerating the CCA rate from 30 per cent to 50 per cent for certain investments. Establishes that new accelerated CCA will only be considered for investments in green technology. Will review potential tax measures such as a revenue-neutral "feebate" for vehicles to achieve enhanced environmental outcomes.

Public infrastructure investment. Makes major investments alongside other orders of government, including $300 million in the Green Municipal Funds and the dedication of the $5-billion gas tax transfer over five years, to support sustainable infrastructure.

Investment in innovation. Dedicates $200 million for the development of a Sustainable Energy Science and Technology Strategy and extends existing measures to develop and commercialize leading-edge environmental technologies.

Regulation/voluntary action. The Government is pursuing agreements with both the large final emitters and vehicle manufacturers to ensure concrete action on the largest sources of greenhouse gas emissions by establishing real targets.

The climate change measures introduced in Budget 2005, in combination with previously announced measures, will shift Canada toward a clean energy future and increase the efficiency, sustainability and international competitiveness of the Canadian economy, while moving toward our emission reduction objectives under the Kyoto Protocol. More action will be required in the future. The Government will introduce additional measures as resources permit and as we learn from our investments and international experience.

Market Mechanisms to Reduce Emissions

Budget 2005 establishes a market-based, results-oriented mechanism to encourage emission reduction initiatives. The innovative Clean Fund will purchase emission reductions from Canadians, industry and—in those cases when it is in the national interest and involves Canadian companies reducing greenhouse gas emissions—projects in other countries. With minimum funding of $1 billion over the next five years, the Clean Fund will stimulate cost-effective action to reduce greenhouse gas emissions and pull forward technology development.

The Fund will have three streams of activity. First, it will use market mechanisms to purchase project-based domestic offsets. The purchase price of offsets will be determined through a competitive process where funding would be provided to the most cost-effective projects. It is expected that the fund will help stimulate the development of a domestic market for emissions trading and help serve as a catalyst for technology development and application.

The Fund will be available for projects using a broad range of new technologies and processes to improve GHG emission levels. Examples could include the installation of green power sources such as fuel cells, and solar water and air heating; the introduction of more efficient production processes such as combined heat and power systems and enhanced recycling; or carbon sinks (any process that removes carbon dioxide from the atmosphere and stores it) such as forest plantations and agricultural practices.

Second, the Fund will consider targeted support for large strategic projects in partnership with the private sector. For example, projects that have the potential of generating significant greenhouse gas emission reductions, where the cost per tonne is initially high but is expected to fall over time, could be considered for funding if the project would contribute to the structural change necessary to move Canada to lower carbon use levels over the longer term. Funding could be provided to purchase a portion of the emission reductions to be generated in the future in order to help projects realize such potential. Examples might include carbon dioxide capture and storage or clean coal technology. There may be projects that have unique provincial or territorial characteristics. In such cases, the newly created Partnership Fund, described in the section "Provincial and Territorial Partnerships", could provide funding.

Third, in those cases when it is in the national interest and involves Canadian companies, the Clean Fund will purchase internationally tradable emission reduction credits tied to specific projects in other countries. Among countries that have ratified the Kyoto Protocol, the Clean Development Mechanism (CDM) provides credit for financing emission reduction projects in developing countries. Joint Implementation (JI) projects offer credits for financing projects in other developed countries. Credits generated from CDM or JI projects can contribute to the development of emerging economies and provide new markets for Canadian companies and technologies. Consistent with the Government’s focus on domestic transformative change, these projects would have at least one of the following characteristics for funding to be considered: apply Canadian technology, improve Canada’s international competitiveness, or otherwise advance our national interest. The Government will determine the specifics of international credit purchases following consultations.

To the extent possible, these measures will incorporate funding from other partners and result in additional environmental benefits such as cleaner air. Further, all projects will need to clearly demonstrate the extent to which they reduce GHG emissions, and the evaluation of competing projects will draw on expert advice from outside government. The Government will announce the funding mechanisms, funding criteria and further details of this major initiative shortly.

Targeted Incentives

New cost-effective greenhouse gas emission reduction incentives will also be important to spur activities and to change behaviours in ways that mitigate climate change impacts and generate other environmental benefits.

EnerGuide for Houses Retrofit Incentive Program

Individual Canadians produce GHGs through their day-to-day activities such as driving vehicles and heating or cooling their homes—anything that involves energy use. Actions by citizens can play a key role in addressing climate change.

By using energy more efficiently, Canadians can reduce GHG emissions and other emissions that contribute to air pollution and smog. Efforts to reduce GHGs will give us a safer climate, cleaner air and healthier communities.

For example, water heating, and space heating and cooling account for more than 40 per cent of the average household’s GHG emissions. Fully 15 per cent of Canada’s annual energy use is to heat our homes, and this energy comes mostly from non-renewable resources such as oil and gas. Retrofitting a home—insulating the basement or attic, or purchasing a new, more efficient furnace—costs less than producing new energy supplies to heat it.

The Government supports actions by Canadians to reduce GHGs through a range of information and incentive programs such as the EnerGuide for Houses Retrofit Incentive program. This evaluation service provides homeowners with independent expert advice on the different systems of a home and information on energy efficient improvements that can increase comfort and reduce energy bills.

Once the recommended improvements have been carried out, a follow-up visit can be requested to re-evaluate the home and update the EnerGuide for Houses report and label. If a minimum energy performance improvement has been achieved, the homeowner is eligible for a grant. To date, more than 125,000 Canadians homes have been retrofitted.

In order to encourage further action by Canadians, provinces and territories, Budget 2005 allocates $225 million over the next five years to quadruple the number of homes retrofitted under the EnerGuide for Houses Retrofit Incentive program. This new federal level of effort will support energy efficiency improvements in a total of 500,000 homes by 2010. The funding for this initiative will be sourced from the resources identified by the review and reallocation of climate change expenditures.

Wind Power Production Incentive

Budget 2001 provided $260 million for the Wind Power Production Incentive, a per-kilowatt incentive paid to eligible wind energy projects commissioned between March 31, 2002, and April 1, 2007. The goals of this investment include stimulating the installation of 1,000 megawatts (MW) of wind power capacity and encouraging complementary provincial support for renewable power. Since the launch of the program, 450 MW of capacity has been commissioned and most provinces have announced plans, or are considering plans, to increase the share of electricity generated from renewable sources such as wind.

Building on the success of this program, and as committed to in the Speech from the Throne, Budget 2005 provides $200 million over 5 years and a total of $920 million over 15 years to expand the Wind Power Production Incentive target to 4,000 MW. This is equivalent to the amount of power needed by approximately 1 million average Canadian homes. In addition to the environmental benefits, this initiative will support rural economic development, build a new economic sector, and position Canada to be a leader in a vibrant wind energy industry in North America and internationally.

As under the original terms of the program, an incentive payment of 1 cent per kilowatt-hour of production for the first 10 years of operation will be made to eligible projects commissioned before April 1, 2010. The eligible production per project will be determined by Natural Resources Canada. While existing terms respecting interaction of the incentive with tax treatment for Canadian Renewable and Conservation Expenses will continue to apply, wind turbines will be eligible for the enhanced capital cost allowance provisions discussed in the section "Capital Cost Allowance for Investment in Efficient and Renewable Energy Generation."

Renewable Power Production Incentive

In addition to wind resources, many other forms of green energy such as small hydro, biomass and landfill gas are available in Canada. The competitiveness of renewable energy technology has improved in recent years as a result of technological developments and the increasing costs of more conventional technologies. There is an increasing need for these sources of power to meet growing electricity demand, while reducing impacts on the environment.

As part of the Government’s commitment to encourage renewable energy production, Budget 2005 announces a Renewable Power Production Incentive to stimulate the installation of up to 1,500 MW of new renewable energy electricity generating capacity, other than wind. An incentive payment of 1 cent per kilowatt-hour of production for the first 10 years of operation will be introduced for eligible projects commissioned after March 31, 2006, and before April 1, 2011.

The incentive will result in more investment in renewable energy projects in all regions of Canada, which will help address climate change and further improve air quality. Provincial and territorial governments are encouraged to provide additional support for these renewable energy investments to help promote the production of renewable energy in Canada.

Budget 2005 provides $97 million over the next 5 years and a total of $886 million over 15 years for the Renewable Power Production Incentive. Preliminary details will be announced shortly by the Minister of Natural Resources and, following consultations, final program details including eligibility criteria will be announced before April 1, 2006. The eligible production per project will be determined by Natural Resources Canada. It is anticipated that many projects eligible for the new incentive will also benefit from the enhanced capital cost allowance provisions discussed below.

Environmental Tax Measures

Organizations like the National Round Table on the Environment and the Economy and, internationally, the Organisation for Economic Co-operation and Development have highlighted the important contribution that the tax system, alongside other market mechanisms and targeted incentives, can make to improve environmental outcomes.

Tax measures have been implemented and expanded recently in many areas where the potential for environmental benefits has been identified.

• Investment in energy efficient and renewable energy generation equipment is promoted through accelerated capital cost allowance (CCA) under Class 43.1. This is an explicit exception to the practice of setting CCA rates to reflect the useful life of assets. In addition, eligible start-up expenses of projects using such equipment qualify for favourable treatment as Canadian Renewable and Conservation Expenses. Further details are provided in the box below.

• Support for the production and use of alternative fuels is provided through an excise tax exemption for ethanol, methanol and bio-diesel used in blended fuels.

• Protection of Canada’s natural heritage is supported through such measures as:

• A reduced inclusion rate on capital gains from donations of ecologically sensitive land.

• An immediate deduction for contributions to qualifying environmental trusts established for the reclamation of mine, waste disposal and quarry sites.

• In addition, as proposed in Budget 2004, legislation has been tabled that prohibits the deduction of fines and penalties, including those imposed under federal, provincial, municipal and foreign environmental protection laws.

Capital Cost Allowance for Investment in Efficient and Renewable Energy Generation

Encouraging the widespread use of equipment that produces energy efficiently or from renewable sources will continue to be an important part of Canada’s environment and climate change strategy. Budget 2005 proposes to further accelerate the CCA rate from 30 per cent to 50 per cent for certain high-efficiency cogeneration equipment and the full range of renewable energy generation equipment currently included in Class 43.1 (including wind turbines, small hydro facilities, active solar heating equipment, photovoltaics and geothermal energy equipment). This increased rate will apply to equipment acquired during the next seven years, at the end of which period the effectiveness of the measure will be reviewed.

Allowing tax deductions for capital costs to be taken more rapidly will improve the after-tax return on these investments. The resulting financial benefit will support additional investment in technologies that contribute to a reduction in greenhouse gas and other harmful emissions and a more diversified energy supply. This enhanced CCA incentive will be in addition to support available under the Wind Power Production Incentive and Renewable Power Production Incentive outlined above.

Budget 2005 also proposes to extend the range of equipment eligible for Class 43.1 CCA treatment and to make qualifying start-up expenses of projects using these additional technologies eligible for treatment as Canadian Renewable and Conservation Expenses.

One important opportunity for deployment of cogeneration is in district or community energy systems, where heat or steam is produced in a central generating plant and distributed through a system of pipes to a district of nearby buildings. The budget proposes to extend Class 43.1 to include distribution assets of district energy systems such as pipelines, pumps and meters where the heat energy has been produced using cogeneration equipment that qualifies for Class 43.1 treatment. This measure supporting private investment in district energy systems complements the Government’s support for environmentally sustainable public infrastructure, including district energy, under the New Deal for Cities and Communities and through the Green Municipal Funds.

Accelerated CCA will also be extended to include certain equipment used to produce biogas (largely methane) from the anaerobic digestion of farm manure, where the biogas is used to generate electricity. The use of biogas—a renewable energy source—to produce energy helps to reduce reliance on fossil fuel. This process also reduces greenhouse gas emissions by capturing and using methane, a potent greenhouse gas that would otherwise by released into the air when the manure decomposes.

Assets acquired during the next seven years in eligible district energy systems using high-efficiency cogeneration and biogas production systems will be eligible for the new 50-per-cent CCA rate.

Together, the increase in the CCA rate to 50 per cent and the extension of accelerated rates to biogas and district energy systems are expected to reduce federal revenues by approximately $20 million in 2005–06 and $45 million in 2006–07, and by a total of approximately $295 million over the next five years.

Further details on these measures are set out in Annex 8.

Environmental Measures—Future Action

The Government will 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. It will also actively consider other opportunities to use the tax system to support environmental objectives, in areas where it would be an appropriate instrument.

To assist in this process and to facilitate dialogue, Annex 4 sets out a framework and general criteria that may guide the assessment of potential tax measures aimed at furthering environmental goals. This document is intended to foster a shared understanding of the policy considerations that may be taken into account in evaluating the potential contribution of specific tax proposals to Canada’s environmental objectives.

Of particular interest to the Government are measures that may encourage Canadians to acquire more environmentally friendly vehicles. As discussed below, the Government is negotiating with the auto manufacturing sector to achieve an agreement that would improve the fuel efficiency of vehicles sold in Canada. The Government believes that there may also be merit in the concept of a vehicle "feebate." A feebate would provide a consumer rebate for fuel-efficient vehicles and impose a fee on fuel-inefficient vehicles. The program could be designed to be revenue neutral for the Government. Over time, a feebate could contribute to the improvement of the fuel efficiency of vehicles purchased in Canada, reduced greenhouse gas emissions and improved air quality.

To facilitate third-party input, the Government is asking the National Round Table on the Environment and the Economy (NRTEE) to develop options for a feebate, to consult and to make recommendations to the Government for the next federal budget. On February 16, 2005, the Government requested the NRTEE to provide advice and recommendations on the development of a long-term energy and climate change strategy for Canada. The NRTEE—an independant advisory body that brings together distinguished individuals from all sectors of society (government, industry, labour, academia, environmental organizations and Aboriginal groups)—is uniquely placed to provide guidance and expertise on an initiative such as a vehicle feebate.

Consideration of a vehicle feebate may also generate useful lessons on the potential to apply the concept of a feebate for encouraging homeowners to acquire, and manufacturers to supply, more energy efficient home appliances.

The implementation of a tax exemption for employer-provided transit benefits has also been proposed as a way to promote the use of public transportation. In this regard, the participation of several federal government departments in the capital region transit authorities’ Transit Pass Program—whereby a discount on transit passes is provided to employees—will provide important information to help the Government identify the most cost-effective way of encouraging public transit use.

Before announcing any new measure in these areas, the Government will follow a process which establishes a clear environmental objective and assesses the potential measure in terms of its environmental effectiveness, fiscal impact, economic efficiency, fairness and simplicity. It will also engage in consultations and ensure that any measure is adopted over a reasonable time frame to facilitate adjustment.

Public Infrastructure Investments

Investments in modern infrastructure can lead to improvements in the environment as they can encourage more efficient use of energy and other natural resources. The Government of Canada is strategically targeting its infrastructure-related investments to promote better environmental outcomes. Budget 2005 makes major new investments in green infrastructure and brownfield remediation. It also confirms the sustainable infrastructure focus for investments made under the Government’s infrastructure programs and the New Deal for Cities and Communities.

Green Municipal Funds

Municipalities across the country make infrastructure-planning decisions each day that affect the environment, for example by contributing to or stemming the factors leading to urban sprawl, water pollution and greenhouse gas emissions. In recognition of the key role municipalities play in helping Canada reduce its greenhouse gas emissions and in improving the country’s environmental performance, the Government of Canada established the Green Municipal Funds in 2000 with an initial endowment of $125 million, which was increased to $250 million in Budget 2001.

These programs, run by the Federation of Canadian Municipalities, support investments in innovative green municipal projects such as the installation of deep water-cooling systems for commercial buildings, district energy systems, and more efficient water and wastewater treatment facilities. As the funds operate on a revolving basis, repayment of loans from these and other projects will provide the Green Municipal Funds with cash flow for further opportunities to fund innovative municipal projects.

The funds have been effective in stimulating community-based feasibility work and green infrastructure investments, contributing to more than 340 projects across the country. The funds have been able to leverage over $1 billion in municipal, provincial and private sector funding for environmentally sustainable infrastructure. Budget 2005 builds on earlier investments by contributing an additional $300 million in 2004–05 to the Green Municipal Funds.

Half of this new funding will be targeted toward measures to assist with the cleanup of qualifying brownfields (abandoned or idle properties where environmental contamination is known or suspected and where there is an active economic potential for redevelopment—see the section on brownfields) in order to stimulate economic, social and environmental benefits and revitalize local communities.

Infrastructure Programs

The Government of Canada’s infrastructure programs contribute toward environmental sustainability, including reducing greenhouse gas emissions. For example, Infrastructure Canada has incorporated climate change considerations into its project selection process, and a climate change "lens" is applied to maximize climate change contributions from infrastructure projects (i.e. by encouraging the use of best practices and best-in-class technologies). In addition, funded projects must be supported by complementary policies such as demand management measures. Finally, under both the $2.05-billion Infrastructure Canada Program and the $1-billion Municipal Rural Infrastructure Fund, a minimum percentage of funding (50 per cent and 60 per cent, respectively) must go toward green infrastructure projects.

Investing in Communities:
Sharing Gas Tax Revenues for Sustainable Infrastructure

The sharing of a portion of federal gas tax revenue under the New Deal for Cities and Communities in the amount of $5 billion over the next five years will also contribute to environmental sustainability. These funds will be invested in municipal infrastructure projects including public transit, water and wastewater treatment, and community energy systems.

Getting the Federal House in Order

The Government of Canada is also doing its part to green its operations.

The Federal House in Order initiative is the Government of Canada’s plan for reducing greenhouse gas emissions within its own operations. Through this initiative, the 11 departments and agencies that account for 95 per cent of federal emissions have agreed to collectively meet a target of reducing greenhouse gas emissions within their operations by 31 per cent from 1990 levels by 2010. As of 2003, a total reduction in greenhouse gas emissions of 24 per cent had been achieved within federal government operations through reductions in floor space and vehicle fleet size, changing to less carbon-intensive energy sources, improvements in energy efficiency and fuel switching. Under this initiative, a stronger emphasis will be placed on greening the Government of Canada’s buildings, as this is the area where emission reductions can be achieved at the lowest cost.

In addition, as stated in the October 5, 2004, Speech from the Throne, the Government will implement a new Green Procurement Policy to govern its purchases by 2006.

Innovation

The development of Canada’s environmental technologies is essential to the long-term transformation required for our economy to become fully sustainable. New technologies can provide Canadians with the ability to reduce greenhouse gas and other harmful emissions while enjoying the benefits of a productive and growing economy. Canadian environmental technology development and adoption will be an increasingly important determinant of the international competitiveness of our economy.

In recognition of the importance of new environmental technologies, Budget 2005 announces the Government of Canada’s plan to develop, by the end of 2006, a Sustainable Energy Science and Technology Strategy. The Government will contribute $200 million to the development and implementation of the strategy.

To initiate the development of this strategy, a panel of experts will be appointed by the Minister of Natural Resources to provide advice on priorities, taking into consideration our national energy circumstances, existing technology strengths, and opportunities for partnerships with the provinces, territories, industry and academia as well as internationally. The panel will be asked to report on its findings in a timeframe that will allow the Government of Canada to complete the development of the strategy in 2006. Key objectives of the strategy will be to:

• Lever both the ideas and financial resources of the private sector, universities, provinces and territories.

• Develop a set of medium-term research goals around the efficient production and use of conventional and renewable energy.

• Develop a detailed action plan for reaching these goals.

As part of this process, the Minister of Natural Resources will examine the effectiveness and efficiency of existing federal investments in environmental and energy science and technology in order to ensure these resources support the direction of the strategy. Current federal resources directed at energy-related science and technology total approximately $200 million per year, including:

• Sustainable Development Technology Canada, an arm’s-length foundation focused on the development and demonstration of climate change, and clean air, water and soil technologies.

• The Program for Energy Research and Development, an inter-departmental research program managed by Natural Resources Canada.

• Budget 2003 climate change technology and innovation funding for research into cleaner fossil fuels, the hydrogen economy, advanced energy end-use technologies, decentralized energy and biofuels.

• The CANMET Energy Technology Centre, which develops and delivers knowledge- and technology-based programs for the sustainable production and use of Canada’s energy supply.

Provincial and Territorial Partnerships

Addressing climate change requires actions from citizens, industry and all orders of government. Federal programs must work in concert with those of the provinces and territories to maximize the impact of our investments.

Budget 2005 establishes a Partnership Fund in order to underpin the Government’s commitment to work with provinces and territories to meet climate change objectives. It will complement the support provided to individuals and businesses through the Clean Fund. The Partnership Fund will deliver targeted support for large strategic projects that are jointly agreed priorities for the Government of Canada and provinces and territories.

This fund will subsume and expand the Opportunities Envelope established in Budget 2003. Its funding will be at least $50 million per year for the next five years, with the amounts to be augmented as projects are identified and developed. Given the scale of the potential emission reductions, and the likely timing of the projects, the size of the fund could grow to $2 billion to $3 billion over the next decade.

Projects could include a carbon dioxide capture and storage pipeline, clean coal, cellulosic ethanol plants and the construction of Canada’s east-west electrical transmission infrastructure to bring hydro power to provinces that rely on fossil fuels. These investments have the potential to generate transformative change in important economic sectors and lead to significant reductions in greenhouse gas emissions. The general approach to funding these projects would be to purchase a portion of the projected emission reductions to be generated, on a cost-shared basis with industry, provinces and territories, so that these projects could more fully realize their total economic and environmental benefits.

Regulations and Voluntary Actions

New regulations and voluntary agreements will be introduced to promote greenhouse gas emission reductions in the transportation sector and among Canada’s largest industrial emitters (large final emitters).

Vehicles

Vehicles produce significant amounts of greenhouse gases—about one-quarter of Canada’s annual emissions—and other harmful substances. Two-thirds of vehicular emissions are generated within urban areas and are also major contributors to smog.

To help reduce greenhouse gas emissions and contribute to cleaner air in urban areas, the Government is negotiating with the auto manufacturing sector to achieve an agreement that would improve the fuel efficiency of vehicles sold in Canada by 25 per cent, or its equivalent in greenhouse gas reductions, by 2010.

Large Final Emitters (LFE)

The LFEs include firms in the production, refining and distribution of oil and gas, electricity generation, and mining and manufacturing, such as cement plants and iron and steel mills. LFEs are expected to produce about half of Canada’s total greenhouse gas emissions by 2010. These enterprises have been active proponents of improved environmental performance, and have made considerable strides in improving the emissions intensity of their production. In the coming months, the Government will set out the details of a mandatory emissions reduction regime and emissions trading system, including the related legal framework, for LFEs to support further improvement in the performance of this sector in addressing the challenge of climate change.

The LFE system will have four main characteristics. First, it will be market-based. Second, emission targets for the industry will be based on best-available technology standards for new facilities. Third, companies will be able to buy and sell emission reductions, both domestically and internationally. This trading system will include the establishment of a new research and development Technology Investment Fund, which will provide an alternative way for firms to achieve a portion of their target and support the development and deployment of innovative technologies that reduce greenhouse gas emissions. Fourth, the approach will consider how best to ensure equivalency agreements that will allow provinces and territories to be able to oversee the system in their jurisdiction.

Going forward, the Government of Canada will continue to work with all partners, including provincial and territorial governments, to explore ways to promote voluntary action, standards and regulations which could help address our climate change and environmental challenges. For example, it will work with the provinces and territories, industry and other interested stakeholders on ways to expand the production and use of renewable transportation fuels, such as the potential for national average fuel content requirements for ethanol and biodiesel.

Protecting Canada’s Natural Environment

Canadians take great pride in the beauty and quality of their natural environment. They also recognize the importance of continuing to make investments to protect Canada’s environment to ensure that Canadians can pass along to future generations their extraordinarily rich inheritance of land, waters and biodiversity. Budget 2005 invests $860 million in additional funds to further improve Canada’s stewardship of the environment and contribute to the sustainable development of the economy.

Clean Air

The Government of Canada has taken significant action to improve air quality in order to support the health and quality of life of Canadians. In particular, $120 million over five years was invested in 2000 for initiatives to reduce smog under the Ozone Annex of the Canada–United States Air Quality Agreement, including measures to reduce emissions from vehicles and electricity generation, as well as to improve the monitoring and reporting of emissions. In addition, Budget 2003 invested $40 million over two years to promote best practices and develop regulations to address air pollution in a number of sectors, and to work with the United States to further improve transboundary air quality, including pilot projects in key airsheds. A further $50 million over the next two years will be invested to support this initiative. These investments build upon the ongoing efforts of Environment Canada and other federal departments to improve air quality.

The major new investments made in Budget 2005 to address climate change will also be instrumental in achieving Canada’s clean air goals, as emissions of air pollutants and greenhouse gases often stem from the same sources. The Government of Canada will continue to look at ways to improve air quality as one of its environmental priorities.

Invasive Species

Invasive alien species are plants or animals, such as the Asian longhorn beetle, the sea lamprey or the gypsy moth, that are introduced by human action outside their natural habitats, causing harm to our local ecosystems. Alien species cause billions of dollars in damage to the economy, for example through their impact on fish stocks, agricultural yields and forestry outputs. It is more effective and less costly to prevent the entry of invasive alien species than to address their impacts once they are established in Canada.

To promote effective management of this issue, Budget 2005 will provide $85 million over five years for an Invasive Alien Species Strategy that will focus on enhanced preventative measures. This strategy will be carried out in partnership with the provinces and territories. Strategic investments will be made to increase inspections at our borders, enhance supporting scientific activities, strengthen national surveillance efforts, and raise awareness about harmful practices. Addressing the threat of invasive alien species will also support other environmental initiatives, such as Canada’s ongoing efforts to protect species at risk and to improve the ecological health of our national parks.

New funding for the Invasive Alien Species Strategy includes an incremental $2 million per year over the next five years for the Sea Lamprey Control Program, which is jointly administered by Canada and the United States to control the presence of sea lampreys in the Great Lakes. This funding will enable Canada to increase its annual contribution to the program to improve its delivery and thus ensure better protection of our Great Lakes.

Canada also has domestic species, such as the mountain pine beetle, which can damage Canada’s natural resources and ecosystems. In 2002, the Government announced the Mountain Pine Beetle Initiative, which provided $40 million over six years for improving research on mountain pine beetle outbreaks, and the rehabilitation of federal and private forest lands impacted by the beetle infestation.

Great Lakes Action Plan

A quarter of Canadians rely on the wealth of nature provided by the Great Lakes ecosystem. The Government will expand its ongoing efforts to improve the environmental health of the Great Lakes Basin. Budget 2005 provides a further $40 million over the next five years to bring forward the next phase of the Great Lakes Action Plan. Building on achievements made since 1989, this initiative will continue the environmental restoration of key aquatic areas of concern identified under the Great Lakes Water Quality Agreement between Canada and the United States, thereby restoring the ecological and economic development potential of these areas.

Oceans Action Plan

Canada’s oceans currently contribute more than $22 billion annually to the national economy through oceans-related industries. However, Canada’s oceans are facing a number of challenges such as the loss of marine habitat, declining biodiversity and the deterioration of fish stocks—including redfish and American plaice stocks exploited in the Northwest Atlantic.

Budget 2005 provides $28 million over two years to implement Phase I of the Oceans Action Plan, which will focus on improving oceans management and preserving the health of Canada’s oceans. These initiatives constitute an important step toward meeting the commitments made under the 1997 Oceans Act and improving the management of ocean ecosystems on a sustainable basis.

On the Atlantic Coast, foreign overfishing in the Northwest Atlantic Fisheries Organization’s (NAFO) regulatory area is a pressing issue. In May 2004, the Government of Canada announced that it would be stepping up its efforts in enforcing the provisions of NAFO—including an increased at-sea presence by Canada leading to more inspections of foreign vessels. These efforts have been successful in reducing the instances of overfishing and improving compliance. However, the Government’s presence in this area must be maintained in order to ensure an appropriate level of compliance. Budget 2005 commits $15 million per year on an ongoing basis to continue actions in the NAFO regulatory area.

Coast Guard Support for the Oceans Action Plan

In order to fulfill its commitments toward the Oceans Action Plan—including at-sea fisheries research and enforcement activities—and, more generally, to maintain its level of core services to Canadians, the Canadian Coast Guard requires a fleet of vessels in good condition. Recognizing this need, in Budget 2003 the Government allocated $47.3 million annually over five years for major repairs to the fleet, shore-based infrastructure and capital replacement purchases for that infrastructure. Building on this investment, Budget 2005 allocates $276 million over the next five years for the procurement, operation and maintenance of a total of six new large vessels, including two offshore fishery research vessels and four midshore patrol vessels to support the conservation and protection of fisheries. The investment will have a budgetary impact of $27 million over the next five years, reflecting the amortization expense associated with the vessels.

A Seafood Industry That Meets International Standards

Canada’s $5-billion seafood industry needs to maintain its reputation as a provider of high-quality seafood. In order to maintain the seafood industry’s access to important export markets and to ensure the continued growth of the industry, Canada will need to continue to meet international standards for aquatic animal disease control as they evolve. To meet these standards, the Department of Fisheries and Oceans and the Canadian Food Inspection Agency will work jointly to establish a National Aquatic Animal Health Program. Budget 2005 provides $59 million over five years for this program to protect Canadian aquatic resources from the introduction of exotic animal diseases and to maintain the seafood industry’s competitiveness in international markets.

Atlantic Salmon Endowment Fund

In 2001, the Government provided funding to establish the Pacific Salmon Endowment Fund in order to improve the sustainability of salmon stocks in British Columbia. Revenues generated by the fund are invested in projects related to the conservation and enhancement of Pacific salmon stocks.

In order to support similar conservation and habitat enhancement programs on the Atlantic coast, this budget identifies $30 million as a one-time investment to establish an Atlantic Salmon Endowment Fund. The Minister of Fisheries and Oceans will announce details of this new initiative shortly.

Canadian Environmental Protection Act

The Government of Canada is committed to protecting human life, health and the environment from risks associated with toxic substances. Budget 2005 provides $90 million over five years to Health Canada to accelerate actions under the Canadian Environmental Protection Act to conduct health risk assessments and research the effects of potentially harmful substances. These measures will reduce the exposure of Canadians to potentially harmful toxins, thereby supporting a reduction in the incidence of cancer and developmental diseases. As well, by demonstrating compliance with high standards of health and environmental protection, the timely assessment and control of substances covered under the Canadian Environmental Protection Act will enable Canadian industry to maintain consumer confidence, facilitate introduction of innovative products into the marketplace and maintain Canadian competitiveness in international markets.

Ecological Integrity of National Parks

Canada’s national parks are a symbol of identity and are sacred places where Canadians connect with nature. While often viewed as pristine, Canada’s national parks have been under pressure from stresses originating both inside and outside their boundaries. In Budget 2003, the Government of Canada invested $75 million over five years and $25 million ongoing to help relieve these pressures and restore the ecological health of the parks. Budget 2005 builds on these investments by providing an additional $60 million over five years to enhance and expand existing ecological integrity measures.

Capital Assets in National Parks

In order to continue to ensure Canadians are able to experience their national parks in a sustainable fashion, the Government of Canada will also address pressures facing the parks’ physical infrastructure. Budget 2005 invests $209 million over five years for the maintenance and acquisition of capital assets in national parks that mitigate the environmental impacts of daily park operations. This investment will ensure that generations to come will also be able to enjoy the benefits of Canada’s natural heritage. The investment will have a budgetary impact of $39 million over the next five years, reflecting the amortization expense associated with recapitalization of Parks Canada’s assets.

Brownfields

Brownfields are a legacy of the poor environmental practices of the past. They are abandoned or idle properties where environmental contamination is known or suspected, and where there is an active economic potential for redevelopment. Brownfields are among the most visible types of contaminated sites, since they are often found in urban areas close to where many Canadians live and work. They include abandoned gas stations, old waterfronts and former industrial properties.

In Budget 2004, the Government of Canada committed to putting its own house in order by providing $3.5 billion over 10 years to accelerate the ongoing cleanup of contaminated sites for which federal departments are responsible, including some urban brownfields. As well, up to $500 million was committed to support the remediation of sites for which the Government of Canada is only partly responsible, such as the tar ponds in Sydney, Nova Scotia.

As mentioned in the section "Public Infrastructure Investments," $150 million of new funding going to the Green Municipal Funds is to provide loans to assist communities with the cleanup and redevelopment of brownfields. This investment will enable communities to meet their sustainable development objectives by stimulating economic, social and environmental benefits, and will support the overall revitalization of local neighbourhoods.

Table 5.1
Building a Green Economy

Sustainable Communities: Working Together to Deliver a New Deal

Introduction

The New Deal for Cities and Communities is based on a set of principles designed to:

• Provide municipalities, both large and small, with a long-term, reliable and predictable source of funding.

• Ensure equity between regions and between large and small communities.

• Respect jurisdiction by harnessing the roles and responsibilities of each order of government to pursue shared national priorities and objectives in cities and communities across Canada.

• Build intergovernmental partnerships to give effect to these priorities.

• Set shared objectives and report regularly to Canadians on common outcomes.

The New Deal is not just about financial support from the Government of Canada. It is about developing meaningful partnerships with all other levels of government as well as other sectors of society, including the private sector and non-profit and community-based organizations, to develop long-term strategies for improving Canada’s cities and communities.

The New Deal for Cities and Communities

The New Deal: First Steps in Budget 2004

The Government of Canada took the first steps to deliver elements of the New Deal in Budget 2004 with a full rebate of the goods and services tax (GST) and the federal portion of the harmonized sales tax for municipalities. Increasing the rebate to 100 per cent from the previous 57.1 per cent will deliver more than $7 billion to municipalities over 10 years to help fund critical infrastructure priorities such as roads, transit and clean water.

The full GST rebate represents a significant source of growing, reliable and long-term funding to municipalities of all sizes across Canada. This measure benefits not only cities, large and small, but also regional and municipal organizations, such as transit commissions and public libraries and some non-profit social housing corporations or cooperatives.

In Budget 2004, the Government also announced accelerated funding under the Municipal Rural Infrastructure Fund. Specifically, the $1 billion provided in Budget 2003 will be spent over five years instead of the original 10, in effect doubling the amount of funding available to municipalities over the five-year term. This program helps finance smaller-scale municipal infrastructure projects, primarily in smaller communities and rural areas.

The Municipal Rural Infrastructure Fund is only the latest in a series of infrastructure programs that the Government has funded. Since the mid-1990s, the Government has invested $12 billion in infrastructure programs, which will lead to a total investment in infrastructure by all partners exceeding $30 billion. Key programs include the Infrastructure Canada Program, the Strategic Highway Infrastructure Program, the Canada Strategic Infrastructure Fund, the Municipal Rural Infrastructure Fund and the Border Infrastructure Fund. As a result of these initiatives, crucial investments in infrastructure are being made.

The New Deal: Delivering on Commitments

Sharing Gas Tax Revenues

Budget 2005 delivers on the Government of Canada’s commitment to share a portion of the revenues from the federal gasoline excise tax to support environmentally sustainable infrastructure. This commitment will mean $5 billion in new money for infrastructure to cities and communities over the next five years.

Beginning in fiscal year 2005–06, the funding will ramp up over five years, with a total of $5 billion. By 2009–10 the funding flowing to municipalities will amount to $2 billion annually, equivalent to 5 cents per litre, representing a strategic investment in our cities and communities.

Gas tax funds are neither a simple fiscal transfer to Canada’s municipalities nor a duplication of existing infrastructure programs. Tailored bilateral agreements with each province and territory will ensure the gas tax funds are used strategically and in support of shared national outcomes. Complementary actions by all partners will be required, including annual reporting to Canadians.

To ensure gas tax revenue allocation results in stable, predictable and equitable funding, the Government will allocate funds to the provinces, territories and First Nations (delivered via Indian and Northern Affairs Canada) on a per capita basis, with a minimum amount of funding assured for the smallest jurisdictions equal to 0.75 per cent of total funding, or $37.5 million over five years. Funding will flow to provinces and territories, and they will make these funds available to cities and communities according to the terms of New Deal agreements being negotiated with each province and territory. Funding will flow to provinces and territories once agreements are signed that will ensure the funds are received by municipalities promptly, and are targeted to sustainanble development.

Eligible investments will include capital expenditures for environmentally sustainable municipal infrastructure. As the needs of large urban centres are different from those of smaller communities, eligible projects will depend on the size of the community and the region. In each large urban centre, investments will be targeted to one or two of the following priorities: public transit, water and wastewater, community energy systems, and treatment of solid waste. In smaller municipalities, eligible funding will be considered more broadly to provide flexibility to meet priorities. In all municipalities, some funds may also be used for capacity-building initiatives to support sustainability planning.

In fiscal year 2005–06, funding will be $600 million, the equivalent of 1.5 cents per litre of gas tax revenues. This amount will remain constant at $600 million in 2006–07, and will grow to $800 million in 2007–08, $1 billion in 2008–09, and will reach $2 billion, the equivalent of 5 cents per litre, in 2009–10. This funding, together with the growing and predictable GST rebate, and in addition to the current support through ongoing infrastructure programs, represents a significant and growing federal investment in municipalities.

Table 5.2
Funding Profile for Gas Tax Sharing Over Five Years

Renewal of Existing Infrastructure Programs

Federal infrastructure programming is a key instrument through which the Government of Canada supports infrastructure investment. Over the next few years, significant funding will flow towards infrastructure projects from the Canada Strategic Infrastructure Fund, Municipal Rural Infrastructure Fund and Border Infrastructure Fund. To ensure gas tax sharing revenue provides additional revenues for municipal governments rather than displacing other funding, the Government of Canada intends to renew and extend into the future these infrastructure programs as they expire. Details on the renewal of these programs will be included in future budgets.

New Partnerships

The New Deal is about more than the gas tax commitment. It is about creating new and lasting intergovernmental partnerships and new ways of doing business. There is no doubt that all governments need to work closely together if real, lasting change is to be achieved in our cities and communities. There is a need for all orders of government to bring together their resources and expertise more effectively, given the central role cities and communities play in the country’s quality of life and standard of living.

The Government of Canada has promised to provide a stronger voice to municipalities in discussions on national issues most important to them. The Government has already acted by creating a point of contact for municipal leaders through the proposed new Department of Infrastructure and Communities, as well as including municipal leaders in pre-budget consultations, and will continue to seek out opportunities for dialogue.

Table 5.3
The Government of Canada Invests in Communities

Table 5.4
Moving Toward a Sustainable Environment
 and Sustainable Communities

- Table of Contents - Previous - Next -