Small Business Perspective on the Environment and Carbon Pricing in Nova Scotia

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1 Submission March 07 Small Business Perspective on the Environment and Carbon Pricing in Nova Scotia Protecting small business and the environment in a green economy Kate Allen, Policy Analyst Protecting the environment is an important issue for many Nova Scotians, including the majority of small- and medium-sized enterprise (SME) owners. CFIB members in Nova Scotia have recently shared their views on environmental issues and carbon pricing through a national CFIB survey. SME operators believe, in order for the Pan-Canadian Approach to Pricing Carbon Pollution to be effective, their views must be considered. Introduction In October of 06, the federal government announced a Pan-Canadian Approach to Pricing Carbon Pollution. The plan mandates the provinces to implement a carbon pricing scheme (either cap-andtrade or a carbon tax) by 08. The plan must meet a 30% emissions reductions target by 030. In November of 06, the Nova Scotia government announced its intention to adopt a cap-and-trade system that would be developed and administered in Nova Scotia. Big support from small business for a green economy For Nova Scotia s small business owners, being green does not mean making a choice between implementing environmentally friendly measures and growing their business. In fact, 79 percent of our members believe it is possible to both grow the economy and protect the environment at the same time (see Figure ). In contrast, only per cent think that protection of the environment should be given priority, even at the expense of curbing economic growth. The remaining 0 per cent of small business owners believe that economic growth should be given priority, even if the environment suffers to some extent. Government of Canada, Pan-Canadian Approach to Pricing Carbon Pollution,

2 Small Business Perspective on the Environment and Carbon Pricing In Nova Scotia Figure : Which of the following statements best describes your own point of view? (% response) I believe it is possible to grow the economy and protect the environment at the same time 79 Protection of the environment should be given priority, even at the risk of curbing economic growth Economic growth should be given priority, even if the environment suffers to some extent 0 No Answer The majority of small business owners in Nova Scotia have taken steps in their businesses to implement environmentally friendly measures within the past three years. Some of these activities include introducing or expanding recycling (78 per cent), reducing electricity usage (7 per cent) and making buildings more energy efficient (see Figure ). Figure : What environmentally friendly measures has your business implemented in the past 3 years? (% response) Introduced or expanded recycling (e.g. of paper, toner, cans, plastics) 78 Reduced electricity usage (e.g. by putting in place energy efficient lighting) 7 Made the building(s) more energy efficient with insulation and/or other upgrades (e.g. windows, doors) Used more environmentally friendly products in business processes Purchased or leased energy-efficient machinery, equipment and/or vehicles None of the above, my business has already minimized its environmental footprint as much as it can Provided employee incentives for environmentally friendly transportation (e.g. help pay for public transit, provide bike racks) None of the above, my business has not implemented any environmentally friendly measures in the past 3 years 3 5 8

3 Small Business Perspective on the Environment and Carbon Pricing In Nova Scotia 3 When small business owners are asked what motivates them to change or improve their environmental footprint, by far the strongest driver is their own personal views (84 per cent). Other motivating factors included the potential for cost savings (56 per cent), customers views (37 per cent), and employees views (3 per cent) (see Figure 3). Current government policies and government financial incentives were not cited highly by small business owners as motivating factors in implementing environmentally-friendly measures. This indicates these tools have a much lesser impact on both the existing actions and attitudes of small business owners. Figure 3: What motivates your business to implement environmentally friendly measures? (% response) Personal views 84 Potential cost savings 56 Customers views 37 Employees views Current government policies (e.g. regulations, fees, taxes) Financial incentives offered by government, energy providers, etc. (e.g. subsidies, rebates, tax credits) Fear of additional government policies (e.g. regulations, taxes, fees) Suppliers requirements Don t know Other Carbon pricing: at what cost? Nova Scotia is in a unique position respecting the Pan-Canadian Approach to Pricing Carbon Pollution. As the provincial leader in greenhouse gas (GHG) emissions reduction, the province is ahead of the curve in meeting existing GHG targets. This has not come without considerable strain being put on small business over the last several years, and they are continuing to pay heavily through power rates today. Carbon emissions should be controlled within a reasonable timeline but not used as another tax. -Restaurant owner, Kings South The goal to further reduce GHG emissions is important but the ability for small businesses in Nova Scotia to absorb higher costs of doing business is extremely limited. According to CFIB s monthly Business Barometer (see Figure 4) the economic climate in Nova Scotia has been flat for several months. Business optimism among Nova Scotia's small businesses has remained steady in March. The Nova Scotia Government, Cap and Trade Design Options Discussion Paper, Canada s 06 Greenhouse Gas Emissions Reference Case.

4 Small Business Perspective on the Environment and Carbon Pricing In Nova Scotia 4 Business Barometer Index (65.9) has been almost at the same level since last fall. Short-term employment plans are muted with almost equal share of business owners planning to decrease employment (8 per cent) as those planning to hire additional staff ( per cent). About 47 per cent business owners report their firms are in good shape while 7 per cent say their firms are in bad shape. Figure 4: CFIB Business Barometer Source: CFIB, Monthly Business Barometer, March 07 Small businesses in Nova Scotia indicated that tax and regulatory costs are their leading cost constraints (see Figure 5). The potential additional regulatory costs from a cap-and-trade system would further restrict small businesses and harm their ability to grow and invest in their business. Figure 5: CFIB Business Barometer Major cost constraints Source: CFIB, Monthly Business Barometer, March 07 Small businesses in Nova Scotia, and the Atlantic region, are facing a number of challenges in the future. With years of CPP increases in the years to come, increases in Employment Insurance rates looming, some of the highest Workers Compensation premiums in Canada, and an aging and declining population, business owners in Nova Scotia have deep concerns about their ability to absorb any additional costs associated with the planned implementation of a carbon pricing system (such as cap-and-trade) starting in 08.

5 Small Business Perspective on the Environment and Carbon Pricing In Nova Scotia 5 Without having a full understanding of the financial and economic impact a cap-and-trade system would have on the cost of doing business, and complying with another layer of complex regulation, it s easy to see why small business owners are wary. Moreover, small business owners worry about being able to stay competitive in the global economy where most direct competitors don t face the same financial and regulatory constraints. When asked what the impact of increased costs due to carbon pricing would be on their business, 70 per cent said it would reduce their profitability, which could lead to higher prices or fewer investments in the business. Another 67 per cent feared it would increase operating costs. Just over 40 per cent indicated it would put pressure on them to freeze or cut employee salaries. Fewer than 0 per cent of small business owners in all regions and sectors of the economy in Nova Scotia said a carbon price would create an incentive to reduce their emissions (see Figure 6). Figure 6: If a carbon pricing mechanism were to increase your business costs, what would be the impact? (% response) Reduce my business profitability Increase operating/input costs Pressure to freeze/cut salaries Delay investments (e.g. equipment, employees) in my business Creates an incentive to reduce my business carbon emissions Don t know No impact Other Small business lens on environmental regulation Any new regulation, including an environmental regulation framework such as cap-and-trade, must be designed in close collaboration with the small business community and viewed through a small business lens. Recognizing the Nova Scotia government has committed to adopt a cap-and-trade system to meet a federal requirement, prior to it coming into effect the majority of small business owners agree government must consider the cost of this measure on small businesses They also want government to consider the regulatory burden this would impose on business (see Figure 7). Figure 7: Which of the following should government consider before implementing a mechanism to establish a price on carbon emissions (e.g. carbon tax, cap-and-trade system)? (% response)

6 Small Business Perspective on the Environment and Carbon Pricing In Nova Scotia 6 Cost to small businesses 79 Regulatory burden on small business 73 Economic impact Environmental benefits Taxpayers ability to pay Time needed by businesses to adjust to increased costs Financial support for businesses adopting measures to reduce their carbon emissions (e.g. solar panels) Compensation for businesses most impacted 4 Don t know Other None of the above No answer 4 Small businesses in Nova Scotia believe protecting the environment and implementing environmentally-friendly measures in their businesses are important: however, striking the right balance between protecting the environment and growing the economy is essential for long-term success. Consulting with small business is key Information shared to date on plans and design options for Nova Scotia s cap-and-trade system from the Department of Environment has raised many more questions than it has answered. Small businesses should not have been asked to provide feedback on design options for a highly technical new system such as cap-and-trade in the earliest stage of stakeholder engagement. When questions raised on possible economic impact cannot be answered in plain language, businesses are unlikely to be engaged in the development of the cap-and-trade system and are unlikely to be supportive of the plan over the long-term. This could represent a missed opportunity to gain the support of Nova Scotia s most vital sector the small business community. There should be fewer restrictions for small businesses from the provincial and federal governments. -Manufacturing business owner, Cole Harbour Nova Scotia s small businesses don t have enough information to fully participate in the consultation on Nova Scotia s cap-and-trade system. Prior to moving ahead with cap-and-trade, the Department of Environment must be able to provide answers to the many questions raised by small businesses in

7 Small Business Perspective on the Environment and Carbon Pricing In Nova Scotia 7 Nova Scotia. Best practices for consultation with the small business community should be utilized including: being transparent about what the Department of Environment wants to achieve, providing information in plain language, providing a reasonable timeline to allow for greater understanding and engagement, and making efforts to understand the realities currently faced by small business owners. Conclusion and recommendations Nova Scotia is fortunate to have in place the Regulatory Accountability and Reporting Act and the Premiers Charter of Governing Principles for Regulation. The Charter establishes a shared vision for regulatory excellence in the Atlantic region. CFIB is highly supportive of the principles, guidelines, and intent of the Charter. By applying the Charter to the development of environmental regulation, such as the framework required for a cap-and-trade system, a superior approach could be developed. Below is a list of recommendations reflecting the principles in the Charter. The Department of Environment must consult with small businesses to understand the issues they currently face and their concerns surrounding how a cap-and-trade system could impact operating costs, the economy and competitiveness. The process of developing a cap-and-trade system must be transparent, use plain language, and small businesses must be engaged in a timely and meaningful way. A cap-and-trade system must not increase the regulatory burden or cost for small businesses. The Department of Environment must conduct a thorough analysis of the economic impact the regulatory framework a cap-and-trade system would impose on business and report on results publicly before it is adopted. The regulations imposed by a cap-and-trade system in Nova Scotia should not be harder to comply with than equivalent regulation in relevant jurisdictions. It should not discourage a fair and competitive market economy. It should not create an obstacle to trade (internal or international). Any new cost or burden associated with the cap-and-trade system must be offset by another reduction in cost or burden of existing regulations on small businesses. The Department of Environment must demonstrate that cap-and-trade implementation adheres to the principles of the Charter and must work closely with the Office of Regulatory Affairs and Service Effectiveness and the Joint Office, who oversee the application of the Charter and advise on best practices for the Atlantic region.