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CANADA Bold, gutsy . . . but not exactly a brilliant move for metals


British Columbia has offered a bold—and politically gutsy—solution to help combat global warming by becoming the first jurisdiction in North America to introduce a carbon tax on both business and consumers.

But it's a move that has left executives at one of the province's biggest mining companies, Teck Cominco Ltd., scratching their heads over whether they'll be subject to a tax penalty that could ultimately ruin their competitiveness. It's also created further uncertainty in the minerals sector over just what the fight against climate change will ultimately cost.

If the province isn't careful, it could end up trading off private-sector investment in one of its biggest industries in favor of becoming an innovator in greenhouse gas solutions.

The carbon tax, which kicks in July 1, will start at $10 per tonne of carbon-equivalent emissions and rise $5 annually over the next four years. It will apply to all fossil fuels, including gasoline, diesel, natural gas, coal, propane and home-heating fuel.

The legislation comes with certain exceptions, though, that allow industries to get out of paying the tax on manufacturing processes that use fossil fuels. While all combustion of fossil fuels will be taxed, hard-to-measure emissions and fossil fuels used as feedstock will not. These processes are believed to account for nearly one-third of emissions in British Columbia.

That has created a gray zone for Teck Cominco, which uses coal in its furnaces as a "reductant" to create certain chemical reactions as part of the process to produce lead at its Trail smelter and refining complex. The issue is whether that is a combustion use of a fuel source or can technically be defined as a process use.

The company's use of coal at its smelter generates a sizeable portion of its carbon emissions in the province. If taxed, Teck Cominco's costs to produce lead would shoot up, putting it at a competitive disadvantage to its peers operating elsewhere in the world.

Teck Cominco plans to take the issue up with the provincial government, which appears not to have delved too deeply into such technical matters before announcing the carbon tax. It's quite possible the government will put the smelter on its exceptions list, but in the meantime it's created some unwelcome headaches.

Teck Cominco argues that having just one jurisdiction being subject to a carbon tax isn't good for business. The province's carbon tax solution runs contrary to the thinking of the federal government and other provinces, which generally have rejected such a tax system in favor of supporting technologies and efforts to capture and store carbon. Quebec introduced a scaled-down form of a carbon tax last year that directs revenue to initiatives supporting green technology—but its plans weren't nearly as far-reaching as those of British Columbia, which produces less than 0.2 percent of the world's greenhouse gas emissions.

Putting a tax on the back of both business and consumers is sure to ruffle a lot of feathers, even though the intention of the British Columbia government is to return every penny collected through personal and corporate tax cuts.

There's also the question of whether it will do the environment much good. According to Matthew Bramley of Canada's non-profit Pembina Institute, a carbon tax would have to be at least $75 a tonne to have a substantial impact in reducing carbon-dioxide emissions. Given the British Columbia tax falls far short of that, and neighboring Alberta—a key contributor to greenhouse gases because of its rich oil sands resources—has rejected the tax, it seems that the benefits could be minimal.

According to the Mining Association of British Columbia, the industry produces about 3.3 million tonnes of greenhouse gas emissions annually. That would result in the mining sector paying $33 million in carbon taxes by 2009 and $99 million by 2013. The association also calculates that corporate income tax reductions will make up only about 23 percent of the overall climate plan tax reductions, yet industry will pay approximately 60 to 70 percent of the new carbon taxes. It urges that more work be done to ensure true revenue neutrality for all sectors.

But it's not just carbon taxes that concern the industry.

The governments of British Columbia and Manitoba are developing the architecture for a cap-and-trade program, which could put strict limits on the amount of greenhouse gases individual polluters can release. Industries that exceed the caps would have to pay fees to those under their limits. The mining association wants any cap-and-trade system to allow for the creation of new mines and smelters, but how to get to that point is going to take a lot of hard thinking and consultation between government and industry.

What British Columbia may learn from the carbon tax is that often there are devils lurking in the details that can derail the most well-intentioned plans. Sometimes, taking baby steps toward a solution can be better than rushing to be the first to implement one.

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