Jeb Blount Financial Times of Canada June 25, 1990 Our panel of two executives and one environmentalist agrees that unsound practices can be corrected by an evolving price system. After pressure from industry and business, the federal government is now conducting cross-country hearings on the environment. Financial Times staff writer Jeb Blount spoke with three Canadians concerned about the relationship between business and the environment — Adam Zimmerman, chairman and CEO of Noranda Forest Inc., Peter Allen, president and CEO of Lac Minerals Ltd., and Larry Solomon, executive director of Environment Probe, a Toronto environmental think-tank — about environmental policy in Canada. FT: New research suggests the earth’s temperature could rise by as much as 3.5 degrees in the next century. The world’s population is expected to double by the year 2050. The ozone problem is widely accepted, and toxic chemicals now permeate almost every region of the world. Can we afford not to adopt sweeping new environmental regulations and economic restructuring?
Allen: What is not needed are sweeping, comprehensive and costly federal and provincial government plans for research, policy and high and low-level international commitment to environmental programs. Because, like anything else, we have to change our culture gradually.
FT: But is gradualism enough to prevent possibly dire consequences?
Allen: Nobody has the answer to that. I’ve heard scientists argue that we cannot do it fast enough, but we must start now. There is still a lot of confusion about what is environmentally right in an objective sense.
Solomon: I’m always leery of crash programs. Crash programs brought us nuclear power as a solution to the oil crisis. A crash program brought us urea formaldehyde as another reaction to the energy crisis. On the other hand, it is nice to err on the side of caution. In the case of greenhouse gases, we are actually lucky; there is no cost to society in cutting back on C02 emissions. All that would be required is to do what is economically rational, like removing subsidies from the energy industry. Removing subsidies in the Third World that promote forest clearing would also do a lot to reduce C02 emissions. The root of the problem is economic, and resolving environmental problems can result in a net financial saving.
Zimmerman: I attended the Bergen conference last month in Norway, which was a world environmental conference, and there were three little things that were the background for decision-making. One was the projections of primary energy demand; one was the per capita food production. The other was the world population forecast. Any thinking person reading those drafts would clearly be on the side of conservation. But that can be done only with the best available technology, and only on the basis that the standards are uniform across the world, particularly in the case of commodity-type products. Otherwise, it becomes a hopeless matter.
FT: By that, do you in effect mean the mandatory use of the best available technology?
Solomon: But the best available technology, I think, is a wrong-headed approach, because the best available technology may be better than is necessary in some cases. In other cases, it may not be good enough. That is often the case in the forest industry. Best available technology is a red herring if lands are not economically harvested. It may be economical for the harvester, but not for the owner of the resource. With much of Canada’s forests, a higher value for that land would be its real-estate or recreational value. And yet the government, for political purposes, reserves those lands for industrial output.
Zimmerman: I don’t know how to answer that. What I am saying about the best available technology is that no one should be asked to do something they can’t do. If what they can’t do is necessary, then I guess they shut down. But I do think that there are wild and unsupported claims made that would require us to do things that are impossible, unreasonable and unnecessary.
FT: You all say we need to do something more, but we rarely hear the corporate community say what it is they have done wrong.
Allen: Well, the most important thing that both companies and governments can do is to have full and open environmental disclosure, the way they do with their financial affairs. We had a major chlorine spill on a railway in Mississauga (Ont.) and nobody even knew that tank cars were going by there. If you do not disclose your strategy, and the specifics of what you are doing, then you leave yourself open to carrying on with habits, practices and processes that you might not otherwise.
Zimmerman: Excluding the obvious bad actors, or the Snow Whites, I think industry, first of all, has to respond to the market mechanism. While it has always responded to the price mechanism, I don’t think that the price mechanism heretofore has allowed for a lot of elaborate environmental tension. People have, wilfully but also unknowingly, dumped stuff in a water course and think it disappears. There is the seemingly clean business of running logs in a river. It is now environmentally offensive because of the fibre that falls off the logs and then, in rotting, starves the river of oxygen. Nobody in the world would have dreamt of that as being offensive until the strain on the system got to be such that this showed up. It is all a course of evolution. What we have done wrong is have too many children. There are too damn many people in the world.
Solomon: Population is a red herring. There are many parts of the world that are environmentally degraded that have a very low population density and other areas that are fine with a high population density. If anything, higher density leads to greater wealth. Population is a way of pointing the finger at people in the Third World.
Zimmerman: Oh, come on.
Solomon: Well, Adam-environmentalist, which problem in the Third World was caused by population?
Zimmerman: Well, the festering urban population in Brazil has caused the government to create this situation in the Amazon to encourage people to go there and settle. The place is like an anthill.
Solomon: But Brazil’s urban densities aren’t higher than urban densities in many other places. The native populations’ property rights are being ignored. The state is trying to encourage people to go into the north, first of all by seizing the property of the native populations, then by tax incentives and direct grants. Yet, it is also getting the cooperation of the World Bank and the Inter-American Development Bank to finance the roads through the Amazon. These are activities that people would never be doing on their own. There are mineral deposits that the government wants to take out. The fact that it is not economic to take those deposits out without subsidies is not important to the Brazilian government because it is getting these subsidies from the West.
Allen: It starts with fundamental human greed. As you build up wealth, you turn to consumption, and consumption, unfortunately, has devastating effects. Then you have the Third World and non-GNP economic things happening: the breakdown of aboriginal peoples; overpopulation and the loss of traditional ways. Then people migrate instead of sitting around, or they sit around instead of migrating. Whatever the case, the habitat for farming, for fishing and everything else gets destroyed. The Third World has lost its roots and needs some re-educating, the same way that wealthy countries of the world need re-educating.
FT: We are consuming a million years of fossil-fuel creation each year. Can we really say that the price mechanism at the heart of our free-market system is working to allocate scarce resources? If not, how can we ever dream of achieving the goal of sustainable development?
Zimmerman: The price mechanism will work eventually; it is a question of whether it is working in a timely fashion. But there is another side to this. Everybody in the world apparently wants recycled paper, particularly these newspapers who are holier than thou. You ask a newspaper to collect an environmental charge of 10 cents a copy and give it to the producer, and they look at you as though you are crazy. But I’ll tell you this, if that happens, the whole recycling business will happen more quickly. It requires very big capital costs and a writeoff of existing capital works.
Allen: I feel that there has been a historic aberration on producer cost, and thereby pricing, particularly in producing metals and some forest products around the world. But there are now places we thought were quite far-flung, such as South American countries, Chile particularly, that are just as concerned with dangerous substances as we are. They are a few years behind, but by the end of the century they are going to be right up where we are. That historic difference provided a competitive edge for them. I don’t think that pricing and economics and GNP expectations are the cause of the problem. I think it is cultural. As soon as you have some wealth, you want to spend it. I notice that when we pay our miners. If they get a big increase, they buy a few more snowmobiles, pickup trucks and other equipment. Their back yards are full of it.
Solomon: I don’t think that the problem is the level of consumption. The problem is that where people do consume, they don’t get the right price signals. The issue that Adam raised with recycled paper is a very good one. There are large disposal costs associated with paper, and those are not borne directly by the one person producing. A lot of costs are not being internalized.
Zimmerman: Which is to say that it isn’t included in the price to the consumer.
Solomon: Yes, but sometimes the consumer pays it through his taxes, and when he pays it through his taxes it is all muddled. There is no price feedback. For instance, primary products have preferential transportation rates. I think that you pay less to ship pulp than you do to ship a manufactured product. Our society is skewed in favor of primary resources over secondary resources.
Zimmerman: Well, heretofore the resource industry has been the engine room of the Canadian economy, and I would agree it is pretty important to have those freight differentials. They reflect the fact that Canadians fight two things all the time: weather and distance. These things tend to equalize us against our competition. But I could argue that the trucking industry is massively subsidized and is destroying the railways, which are more important to us than trucks.
Solomon: Transportation is generally subsidized, and this gives an edge to remote locations as opposed to industries that are located near your market, like the recycled-paper industry.
Zimmerman: If you are going to get into recycling newsprint in Canada, you are going to have to have big transportation subsidies. Somebody is going to have to pay. And it doesn’t matter whether the producer collects it or not.
Solomon: Well, the consumer should be paying. Not the taxpayer. The oil markets are an excellent example of how price signals have worked very well. The entire oil sector is distorted because most of the oil is controlled not by the private sector but by a few nations. When costs to the North American consumer started to rise in the 1970s, the reaction of government was to subsidize the price. As a result, energy consumption carried on at unrealistically high levels. It wasn’t until 1980 or so that the subsidies started to come off. As soon as that happened, consumption dropped something like 20%. We are only now back at 1973 levels of consumption, so the price signal can be a very powerful force, and I don’t think that there need be any concern that we are going to run out of fossil fuels. Back around 1980, people were concerned that oil prices were going to go to $60, $80 and $100 a barrel, and we noticed that at about $30 to $40 a barrel, there was conservation and renewable energy became economic, depressing the prices of non-renewable fuels.
FT: Yet the government is subsidizing things like heavy-oil upgraders and offshore-oil development. There are exploration grants for all sorts of things industry asks for. But they ultimately distort the mechanism the business community champions as the best way to regulate and compete.
Allen: You may have hit the nail on the head. I don’t think a megaproject like heavy oil or James Bay has really been looked at carefully. But when you get into tax cincentives for industries, exploration for instance, it’s just straight jobs, and it doesn’t affect the environment one way or the other.
Zimmerman: An argument could be made that megaprojects should be confined to the private sector. But if you look back over quite a lot of megaprojects, particularly from the environmental point of view, I guess you could argue that they seem as damaging as they have been helpful, except for one, the St. Lawrence Seaway. It doesn’t make money, and what have we got? We have the devastation the lamprey and the zebra mussel. Is that what we want?
FT: But the corporate community still asks for them.
Zimmerman: Businessmen will do business with the devil. The business of business is business.
FT: Then why should the public trust the business community’s commitment to the environment?
Zimmerman: Peter Allen raised the operative thing at the beginning. As long as business is completely open about its environmental performance and record, then it is up to the public to judge as it does in the case of financial performance.
FT: What sort of mechanisms should be implemented to improve environmental quality and maintain our economy? Do we need strict regulations, economic instruments such as environmental carbon taxes, tradeable emission permits?
Zimmerman: You are looking for regulations that are acceptable worldwide and attainable by the best available technology.
FT: What about tradable pollution permits, like the ones they are designing in the United States? You buy a licence to pollute up to a certain strictly regulated amount, and if you reduce your pollution loads, you can sell that part of the licence to another company.
Zimmerman: Well, I don’t favour tradable permits. That’s like trading building density in downtown Toronto.
Solomon: Generally speaking, I don’t think a lot of new regulations are desirable. The single most important thing should be a strict adherence to property rights, including not only a right to our physical property, but our rights to our personal health. That is part of John Locke’s definition, and it would resolve most of the environmental concerns that face us.
FT: Don’t property rights also give you the right to pollute your property?
Solomon: It is very hard to sell property that is polluted.
Allen: My view of southern Ontario is that we do have good property rights and the place is a mess. You have a beautiful country home here, you have a used-car lot there, 10 miles down the road you have a tire dump, and then more nice little subdivisions. It is a junk heap. That’s property rights for you.
Solomon: I would dispute that we have strong property rights, because the rights of expropriation are so strong. And we have laws in this country such as the Nuclear Liability Act that protect any supplier to the nuclear industry from liability in the event of an accident.
Zimmerman: It still is a fact, certainly in the resource industries, that industry can act only with public consent. I think most companies are going to a system of environmental auditing, writing environmental reports with their annual reports. But you can’t have an absolute standard of environmental performance. In our operations, we have moments where we exceed levels; in fact, we have frequent occurrences of that. But the average comes out OK.
Allen: I still feel that it is a civil and social matter and not a criminal matter.
Zimmerman: That would make a lot of people happy, to think of you and me in jail.
Allen: I also think that it is important that the regulations and standards be adhered to by the governments themselves. To date we have seen many instances where they are more or less exempted from their own rules.
FT: In the post-Meech Lake universe, do we need to put the environment on the constitutional agenda?
Zimmerman: The simple answer is that we pray for a simple, common national standard.
Allen: I would like to see some clarification in this area. There are many problems that are not only national and inter-provincial in scope, which must be in the federal government’s bailiwick.
Solomon: Rather than going to an international level, we should be going more to a local level. That might imply putting property rights into the Constitution. On straight regulation, I would agree with Adam that federal clarification on the issue is very important right now. It is a country-wide problem.