ENVIRONMENTAL PERFORMANCE REVIEW OF CANADA

ENVIRONMENTAL PERFORMANCE REVIEW OF CANADA EXECUTIVE SUMMARY In a context marked by economic growth, pollution and natural resources management issues, and Canada s specific federalism management has progressed but still needs strengthening The Canadian economy grew by 39% overall between 1990 and 2002 (despite an economic slowdown, along with the global downturn in 2001) while the population increased by 13% to reach 31 million today. GDP per capita is among the highest in the OECD area. With trade liberalisation Canada s economy has become more export-oriented and more closely linked to the economy of the United States; the US now accounts for three-quarters of Canadian exports and two-thirds of its imports. Natural resources continue to make an important contribution to Canada s economy. Agriculture, forestry and fishing represent 13.6% of GDP. Canada accounts for about 40% of world exports of softwood lumber and is a major exporter of wheat and fish, as well as of energy products and minerals. The provinces and territories play an active role in economic development, particularly with respect to manufacturing in Ontario and Quebec, fishery in the Atlantic provinces, forestry in British Columbia, agriculture and oil and gas production in the prairie provinces, and mining in the North. Despite Canada s very low population density, pollution and natural resource depletion issues have continued to be politically significant over the years. Decoupling of pressure from economic growth has been achieved in some areas (e.g. SO x and NO x emissions), but Canada still faces challenges associated with high energy intensity, biodiversity loss, and fishery resource depletion. Today the priority issues include climate change, health protection, nature protection, air and water quality, waste water collection and waste disposal. As the goal of protection is not explicitly embodied in Canada s Constitution, federalism implies that specific governance issues are to be addressed by federal, provincial or territorial authorities. Although sustainable development is a major stimulus for changes in governmental structure and behaviour, it still largely remains to be translated into practical institutional and market-based integration. To meet these challenges, it will be necessary for Canada to: i) thoroughly implement its policies, improving their cost-effectiveness and inter-jurisdictional co-ordination; ii) further integrate concerns into economic and sectoral decisions; and iii) pursue its international co-operation. This report examines progress made by Canada since the previous OECD Environmental Performance Review in 1995, and the extent to which the country s domestic objectives and international commitments are being met. It also reviews progress in the context of the OECD Environmental Strategy *. Some 42 recommendations ** are made that could help strengthen Canada s progress in the context of sustainable development. Since the mid-1990s Canada has made many significant improvements in its policies. It has presented some major intergovernmental policy statements, including a Canada-wide Acid Rain Strategy, Canada-wide Standards for Particulate Matter and Ozone, and agreements on harmonisation of assessments, approvals, monitoring and enforcement. The legislative framework has been substantially enhanced, notably through the 1999 Canadian Environmental Protection Act (CEPA). Comprehensive compliance and enforcement policies and strong public reporting mechanisms have been developed to support these efforts. Environmental impact assessment legislation has been strengthened, with improved intergovernmental and interagency co-ordination and with better public reporting and follow-up. The federal government is promoting increased awareness of economic instruments through the National Round Table on the Economy and the Environment. Federal and provincial governments are also continuing substantial analytical and design work on instruments (e.g. trading of GHG, SO x and NO x emissions permits). The federal government has reviewed Canadian experience with voluntary approaches and has developed a policy framework to enhance their effectiveness. * Objectives of the 2001 OECD Environmental Strategy for the First Decade of the 21 st Century are covered in the following sections of these Conclusions and Recommendations: maintaining the integrity of ecosystems (Section 1), decoupling of pressures from economic growth (Sections 2.1 and 2.3), integration of social and concerns (Section 2.2) and global interdependence (Section 3). ** See Annex. 1

compliance and enforcement as well as the use of economic instruments, and implementing the polluter pays principle. Despite good advances towards sustainable development (e.g. through better integration of concerns in some sectoral decision) much remains to be done. Following a period of devolution of responsibilities to the territories and within some provinces, and despite efforts to strengthen the implementation of legislation, doubts remain about the capacity to fully implement and enforce legislation and standards at federal level (e.g. the CEPA agenda on toxics) and sometimes at provincial level. In the second half of the 1990s there were large cuts in federal and provincial budgets as a result of fiscal consolidation efforts at both levels of government. This was followed in the early 2000s by increases in the federal and some provincial budgets. Overall, total pollution abatement and control expenditure (i.e. public and private, investment and current) reaches 1.1% GDP, on the lower side among G7 countries. Actual use of economic instruments (e.g. charges, trading) could be expanded. The wide use of voluntary approaches has not always been effective or efficient. Concerning the polluter pays principle, to which Canada subscribes, further progress could be made in internalising pollution externalities and reducing government financial assistance to pollution abatement and control, thereby increasing the cost-effectiveness of policies and contributing to an level playing field. Further recognition of economic opportunities for products and technologies could be pursued. Greater intergovernmental co-ordination is required to ensure continued progress on several key policy issues (e.g. climate change, water catchment area management). Canada has continued to make progress in decoupling pressures from economic growth, achieving reductions in SO x and NO x emissions and in water abstractions. Establishment of a Commissioner of the Environment and Sustainable Development has played an important role in the auditing of federal sustainable development policies and the implementation of other commitments by the federal government. The experience of this model institution could be usefully reviewed by other countries. The development and adoption of sustainable development strategies by all federal departments and various agencies has led to greater co-operation and promoted a culture of horizontality among departments and agencies. Development of strategic assessment has proven useful for integrating concerns into trade policies. There has been a positive trend with respect to reduction of ly harmful direct subsidies in several sectors (e.g. agriculture, fisheries, coal) but not in others (e.g. mining and some fossil fuel sectors). Measures have been put in place to provide more consistent tax treatment across non-renewable energy projects and among the non-renewable and other economic sectors are welcome. However, in most cases sustainable development strategies developed by various federal departments or agencies consist in repackaging current and planned activities and have little bearing on budget allocation. Fiscal instruments are generally used as fiscal deductions rather than to internalise externalities, thereby impeding economic efficiency. Market based instruments are insufficiently used to foster integration of concerns into sectoral policies; too much emphasis is given to soft instruments like voluntary guidelines or partnerships. While cost-benefit analysis is becoming more common in policy discussions, it has rarely been a basis for policy decisions. Implementation of eco-efficiency is also constrained by inappropriate market signals; to provide incentives for eco-efficient projects, instruments such as energy taxes and water charges are required. Despite progress at the federal level in developing a data base related to the environment/economic interface (e.g. with data on pollution abatement and control expenditure), this work is often outdated. Further efforts are needed to decouple nitrogenous fertiliser use and municipal waste generation from economic growth. 2

Building on an impressive international co-operation record, Canada should further progress in implementing marine, climate change and aid commitments. Canada has an impressive record regarding international co-operation. It continues to support and pursue a range of agreements, meeting its commitments and obligations. It is an active and responsible party to a wide array of bilateral, regional and multilateral treaties and agreements. Canada provides leadership in many international bodies (e.g. UNEP, WMO, WTO, FAO, UN-ECE, the OECD and the UN Commission on Sustainable Development) and is closely identified with important international initiatives promoting sound management (e.g. actions related to the ozone layer, climate change, POPs) and sustainable development. This is reflected, for instance, in improved air and watershed conditions in Canadian boundary areas and beyond. At regional level, Canada-US co-operation has been close and generally effective; the International Joint Commission (IJC) is active and is influential on a variety of issues. The fisheries dispute with the US over protection of Pacific salmon has been resolved; long-standing disputes over acid rain have given way to co-operative risk reduction efforts. Growing co-operation with Mexico and the US within the North American Commission on Environmental Co-operation has facilitated a hemisphere scale approach to shared air pollution and wildlife management challenges. The eight-nation Arctic Council provides a factual basis and opportunities to overcome a previously piecemeal approach to management in that sensitive region. However, Canada s capacity to translate international commitments into action and results can pose challenges because of its special federal-provincial governmental relationships (implementation is often a shared federal-provincial or a provincial responsibility) and by budget cuts. In particular, between 1995 and 1999, such cuts adversely affected staffing levels and programme funding for meeting international obligations (e.g. enforcement of laws and regulations) at all levels of government. A number of international agreements should be reviewed for signature and/or ratification (e.g. marine agreements, the Aarhus Convention). Canada (like a number of other OECD countries) failed to meet a year-2000 commitment to stabilise greenhouse gas emissions. It accepted and is now pursuing a challenging new Kyoto target. Marine pollution and resources issues still need to be addressed. Some commercial fisheries have been closed as a result of over-fishing and changes. Loss of fish and wildlife habitat in riparian and coastal areas due to urban expansion is a growing problem. Water quality in the Great Lakes continues to be degraded by PCBs, mercury and other toxic substances released from contaminated sediments and from long-distance atmospheric transport, raising concerns about bioaccumulation in fish and drinking water quality in certain areas. Total ODA declined significantly before a recent commitment and subsequent reversal of this trend. In addition to promising Canadian leadership in ly related ODA activities, adequate funding will be required to support follow-up and delivery on national commitments. To purchase the OECD Environmental Performance Review of Canada, and other OECD publications, visit the OECD Online Bookshop at http://www.oecd.org/bookshop or send an email to sales@oecd.org For more information about the OECD's series on countries' performance, contact : Christian Avérous, Head, Environmental Performance and Information Division, Environment Directorate Email - christian.averous@oecd.org Fax : +33 1 44 30 61 81 For more general information about the OECD Environment Programme, visit our website at: http://www.oecd.org/env or send an Email to env.contact@oecd.org 3

Annex: 42 Recommendations * Environmental management Air Water Nature and biodiversity further implement federal and provincial legislation, ensuring that federal and provincial compliance and enforcement programmes are well co-ordinated and adequately resourced; consider ways to improve the cost-effectiveness of policies by extending the use of economic instruments such as charges for water supply and air and water pollution; further implement emissions trading schemes (e.g. for greenhouse gases, SO x and NO x); continue to develop cost-effective voluntary approaches within industry, ensuring that these approaches are consistent with Environment Canada s 2001 policy framework; review the economic efficiency and effectiveness of various incentive schemes proposed under current or planned programmes (e.g. for air, water, waste management) and apply more rigorously the polluter pays principle and the user pays principle. further reduce SO 2 and NO x emissions (in line with 2010 targets) using the most cost-effective available policy measures (e.g. emissions trading in polluted areas, air emission charges, binding air emission standards and voluntary approaches); set a reduction target for VOC emissions and ratify the Gothenburg Protocol to the Convention on Long-range Transboundary Air Pollution (LRTAP); ensure proper implementation of Canada-wide Standards for ambient concentrations of PM 2.5 and ground-level ozone by 2010; improve the design of Ontario s NO and SO 2 emissions trading scheme, particularly by extending its source coverage and by fixing an overall emission cap; reduce the energy intensity of the economy and increase the share of low-emission energy sources, particularly through further internalising externalities in energy prices for industry and households; expand use of economic instruments in the transport sector (e.g. tax breaks for individuals using public transport, incentives to promote shift from road to rail freight transport, incentives to purchase fuel-efficient vehicles, gasoline taxation). firmly implement water management policies, including provincial water strategies (e.g. basin management, ecosystem approach, stakeholder participation) and enforcement of regulations (e.g. inspections, sanctions); accelerate the development of integrated water resource management and water efficiency plans; improve efficiency in the delivery of water and waste water services, through improved governance (e.g. consolidation of operators, quality assurance, accountability mechanisms), improved supply management (e.g. source-to-tap approaches for municipal drinking water systems, protection of rural water supply wells against contamination, maintenance and renewal of municipal water-related infrastructure) and demand management (e.g. water metering, technical measures, use of economic instruments, appropriate pricing levels and structures); speed up the access to water supply and sanitation infrastructure for all Canadians; review systematically subsidies for water supply and treatment infrastructure and water pricing practices, aiming at cost-effectiveness and long-term financing in the maintenance and upgrading of facilities; review subsidies for flood and drought control projects in terms of their long-term impact on risk; progressively move to full-cost pricing while taking account of social factors and the needs of First Nation and Inuit communities; continue to promote reduction of water use and releases of water effluents from large as well as small and medium enterprises; ensure that the intentions of the Agricultural Policy Framework are firmly translated into actions and results (e.g. with respect to nutrients, pesticides, irrigation); improve the information and knowledge base for water management, including i) harmonised and up-to-date monitoring of ambient water quality; ii) better data on expenditure, prices and financing; and iii) further analysis of micro-economic conditions facing key water users. complete the national park system; expand protected areas in the southern part of the country (where habitats are under much pressure); implement the new legal and institutional setting to improve management of national parks; substantially increase the total area of marine and wetland ecosystems under protection; implement the new legislation for the protection and recovery of species at risk, with particular emphasis on priority species; take the necessary regulatory and financial steps to control the introduction and spread of invasive alien species; expand the use of economic instruments to internalise in a transparent way the positive ecological functions of forests and prevent unsustainable use of softwood resources. * These Recommendations were formally approved by the OECD Working Party on Environmental Performance. 4

Integration economyenvironment Integration socialenvironment Sectoral integration: chemicals International commitments prepare an integrated federal sustainable development strategy (including greening of the federal budget); develop and/or implement provincial sustainable development strategies; continue to phase out ly harmful subsidies at both federal and provincial levels, including subsidies in the form of tax incentives for the resource-based economic sectors; review existing ly related taxes (e.g. taxes on transport and on energy products) with a view to restructuring them in a more ly effective way, within a neutral fiscal context, at both federal and provincial levels; continue to develop and expand the use of strategic assessment; continue and strengthen efforts to implement co-ordinated inter-jurisdictional decision-making that integrates, social and economic policies. continue to advance scientific and economic analysis relating to health; focus action on pollution affecting human health, including that of vulnerable segments of the population; make further progress on unsettled land claims in order to remove uncertainties about land and resource rights and foster economic development in Aboriginal communities; continue devolution of land and resource management to the northern territorial governments and Aboriginal self-governing communities; implement policies to foster economic and social development of the North while protecting its natural environment and Aboriginal cultural values; facilitate diversification of economic activities in the North while pursuing implementation of ly sustainable mining; continue efforts to develop and strengthen high-quality and integrated information and data and implement the Canadian Information System for the Environment; report periodically on the state of the environment; further develop new natural and human capital indicators. continue to improve monitoring of toxics in the environment; ensure that adequate resources are allocated for the examination and management of existing substances in commerce; continue to ensure that there are adequate resources to implement the new law on pesticides registration; consider a tax on pesticides; manage the assessment phase of the review of existing substances of concern in keeping with global timeframes; increase participation by the chemical industry in the gathering of information relevant to hazard assessment of chemicals; further strengthen co-operation on (and harmonisation of) chemicals risk management through the Canadian Council of Ministers of the Environment; avoid duplication of chemical industry reporting requirements; move towards a classification system for the environment through implementing the global harmonisation system for classification and labelling of chemicals; use an appropriate mix of regulatory and non-regulatory instruments to better control chemicals (e.g. regulations, rather than voluntary measures, to address organic or inorganic chemicals of high concern with respect to human health or the environment; voluntary measures, backed up by legal measures, for risk reduction); ensure full implementation of the OECD Council Acts related to Good Laboratory Practice for new tests (e.g. with respect to new and existing chemicals, including pharmaceuticals). further elaborate and aggressively implement the Climate Change Plan for Canada, using a broad array of policy instruments (including emissions trading and other flexibility mechanisms) to ensure that GHG targets are met effectively and efficiently; continue to analyse the costs and benefits of various GHG control measures, including the cost of no action as well as ancillary benefits of taking action; expand co-operation internationally regarding common approaches to greenhouse gas reduction; continue phasing out remaining inventories of ozone-depleting substances in Canada, and continue efforts to strengthen international compliance with the Montreal Protocol and its amendments, particularly in order to ensure coverage of new ODS and to assist developing countries to comply; continue to strengthen surveillance and enforcement capabilities, at both federal and provincial levels, with additional staff and expanded investment in technology, to address marine problems (e.g. fishing violations, marine oil spills) and illegal trade (e.g. in endangered species, ozone-depleting substances and hazardous waste); continue progress in improving water quality in the Great Lakes and other transboundary waters through co-operation with border country states (e.g. remediation of contaminated sediments, control of invasions by alien species); expand cross-border water ecosystem management (e.g. by promoting integrated, ecosystem approaches to transboundary water issues); employ, strategically and rigorously, the range of tools available to the government to promote improved management in developing countries (e.g. expansion of ODA, CIDA's new policy directions, Canada's membership on the boards of international development banks, the Canadian Export Development Corporation's review requirements); review Canada s record in ratifying and implementing international agreements. 5