Carbon tax may give unfair advantage to foreign cement

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by Jessica Krippendorf last update:Nov 19, 2014

The Cement Association of Canada (CAC) is disappointed that the B.C. government has failed to address industry concerns about whether the provincial carbon tax is giving foreign cement producers the upper hand.

The government reviewed the carbon tax in the 2014 budget and opted not to change the way it applies in the cement sector, a move CAC said threatens cement-related jobs in the province.

The cement sector generates as many as 2,000 direct and indirect jobs in B.C.

The carbon tax, implemented in 2008, applies to the purchase or use of fuels with rates adjusted to reflect the amount of greenhouse gas emissions a fuel produces.

B.C. producers are taxed on cement production because they use coal to heat limestone in the process.

The carbon tax rate is $53.31 per tonne of low heat value coal, and $62.31 per tonne of high heat value coal.

The tax adds an additional cost burden to the local industry and gives Asian producers a significant market advantage.

“The way the carbon tax is structured is putting our domestic supply of cement, critical to the government’s ambitious economic growth goals, at risk,” said Michael McSweeney, CAC’s president and CEO.

McSweeney said between 2005 and 2007 the global economic boom resulted in an abundance of ocean-going vessels and an eventual glut in the market, setting the stage for low transportation costs.

Combined with a still-reasonable price of oil, it is less expensive to produce cement in Asia and ship it to the U.S. and on to Canada, he said.

Local producers have lost nearly a third of the market share to imports since 2008, and are currently running at around 65 per cent capacity.

Yet demand for cement in B.C. hasn’t dropped, thanks to major infrastructure projects like the Canada Line, Port Mann Bridge and the 2010 Olympics.

Jonathan Moser, director of environment & public affairs for Lafarge Western Canada said the company, which has cement plants in Richmond and Kamloops, B.C. and Exshaw, Alberta, has paid about $30 million in carbon tax since 2008.

“From an investment perspective, we are currently completing a half-billion dollar expansion of our Exshaw plant and the implementation of the carbon tax was part of the decision to relocate outside of B.C.,” he said.

“Ten per cent of our operating costs in B.C. go to carbon tax.”

Lafarge employs 4,000 people in Western Canada, including 1,100 in B.C.

Moser said it’s fair to say there is a substantial gap between the price of domestic and imported cement, and although the tax is meant to incent carbon reduction and management, the unintended consequence of boosting foreign sales is having the opposite effect.

“We have cement produced in Asia, maybe not to the standards we adhere to, and then railed to port and put on a boat,” he said.

“In the U.S. it is sent to Canada by truck and train and there is a significantly higher carbon footprint being created, yet they don’t pay the tax.”

Lafarge is working towards an ambitious goal to reduce its fossil fuel use by 50 per cent by 2020.

The company now uses 20 per cent alternative fuel in B.C.

The CAC isn’t wedded to any one particular solution, said McSweeney, but is in favour of the government applying the carbon tax at the point of sale, where cement is transferred to the concrete industry.

“This way all the cement used in B.C. will pay the carbon tax,” he said.

“The B.C. cement industry would continue to pay the carbon tax on the coal it burns, so it would be incented to reduce emissions. An input tax credit system would ensure that B.C. cement production is not double taxed.”

This is a solution proposed by former head of the Climate Action Secretariat, Graham Whitmarsh.

At present talks are at a stand-still.

“We are waiting to hear from Ministry of Finance officials when another meeting will take place,” said McSweeney.

“There are an awful lot of projects coming up in B.C. and they should be made with B.C. cement and concrete.”

Minister of Finance Michael de Jong said the government is aware of the CAC’s concerns and acknowledges that high emission industries, such as cement and oil and gas, are most impacted by the carbon tax.

The government stands behind the revenue-neutral carbon tax as a way of protecting economic growth and encouraging companies to reduce greenhouse gas emissions.

The Ministry of Finance said the CAC’s proposed changes are not being considered because they would result in a fundamental change in the application of the tax.

There is also concern that moving the tax to the point of sale would contravene existing trade agreements with other countries.

“B.C. cement producers currently benefit from key carbon tax revenue recycling measures, such as the reduction in corporate income tax rates from 12 to 11 per cent, and the reduction in property tax for major industry,” said de Jong.

“Further relief for the B.C. cement sector must be considered in the context of the overall tax system, the fiscal situation and government spending priorities.”

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last update:Nov 19, 2014

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