Can Canada be green and competitive?

Thank you.

At Probe International we work very hard to stop the Canadian government and Canadian corporations from harming the environment in Third World countries. To accomplish this we advocate property rights, market mechanisms, the internalization of costs, and yes, competition. As an environmental group that has monitored environmentally damaging foreign projects for 20 years, we have found market forces to be among the most powerful forces available to protect the environment.

So I was particularly delighted to be asked to address the question, “Can Canada be green and competitive?”

Let me begin by saying that the question is based on a false premise. “Can Canada be green and competitive,” implies that environmentally questionable foreign projects are competitive. As the conference organizers explained it to me, I should consider how companies that want to make money, generate wealth, and employ people can also respect the overall goal of protecting the environment.

This question sets up a phoney debate and presumes a zero-sum game: The environment is nice, and we’d all like to protect it, but it won’t put dinner on the table, or worse, we’ll all have to go back to the caves.

Let me be very clear here: Canada exports many products and investments that are neither green nor competitive. And we subsidize the worst of these, making taxpayer funding the sole reason for the projects’ existence. Worse still, government subsidized political risk insurance and project financing undermines the customary property rights of Third World citizens, whose lands then become seized to fulfill the projects. When the rule of law is upheld, and not overruled by the porkbarrel interests of governments or the monopoly desires of corporations, development will reflect the values of society and economies will thrive.

We have found that if market players are obliged to internalize all the risks — environmental and financial — of their exports and their foreign investments, bad investments would be replaced with productive ones and economies would thrive. When subsidies and an ability to expropriate other people’s property drive investment decisions, moral hazard rules, generally leading to environmental and economic calamity.

Let me give you a few examples.

On August 19, 1995, the earthen dam holding back a waste pond at the Canadian-owned Omai Gold Mine in the Guyanese Amazon erupted, spewing 3.2 billion litres of cyanide and heavy metal-laced effluent into the Omai river. The effluent snaked its way down this narrow tributary leading to the Essequibo River, Guyana’s main waterway.

The Guyanese government knew a political catastrophe was at hand and sprang into action. Using helicopters, boats and runners, it tracked the Omai Gold Mine’s plume and warned people to stay out of the water. It hastily posted danger signs, warning people not to drink, swim, bathe, wash or fish in the river, and to keep their livestock away from the river’s edge.

Within two days, the news of cyanide flowing down the river had devastated the country’s fishing industry, with the origin of all fish now suspect. In the markets of Georgetown, Guyana’s capital, catches could not be sold, and some Caribbean countries banned all seafood products from Guyana. Other industries, too, suffered in the wake of the spill. Farmers could not sell produce grown along the river, small mining and logging operations were put on hold and local abattoirs, which wash the meats with river water, had to shut down. Guyana’s fledgling tourist industry, offering river eco-tours on this northern tip of the Amazon rainforest, received cancellation after cancellation.

According to mining critics, the cyanide plume killed the spectrum of life in the Omai river, from fish to microbes, and caused a ticking time bomb in the Essequibo River by leaching out heavy metals such as cadmium, copper, zinc, iron, and mercury. Within five days, the crimson plume stretched the full 115 miles from the mine to the river’s mouth. Guyanese citizens adopted cries such as “Take Your Poison Back Home to Canada,” and “Let Omai Pack Up and Leave.”

The Omai Gold Mine is majority-owned by the Cambior mining company of Montreal. To finance this mine in Guyana’s rainforest, Cambior received a US$163-million political risk insurance package from Canada’s Export Development Corporation, a publicly-owned and financed crown corporation, and from the Multilateral Investment Guarantee Agency (MIGA), a World Bank agency, also financed with Canadian tax dollars. After the spill, I interviewed a Cambior executive, and asked him if Cambior would have invested in the gold mine without the EDC/World Bank insurance package. He said, “We have shareholders, we want to be safe.”

He went on to explain the importance of EDC insurance to his corporation’s risk assessment. “If you have $10 in your pocket and you can invest in Canada or Colombia, then where do you invest?” “Canada,” of course!

In other words, if Cambior had to internalize the risks of the Omai Gold Mine, the investment would not have been economic or competitive. Only by transferring its private sector risk to the public sector — to EDC and the World Bank, in this case — would Cambior invest in Omai.

While Cambior socialized its political risks onto the Canadian taxpayer, it externalized the environmental risks of its hazardous mining operation onto unwilling or unsuspecting parties living downstream. Cambior was not required to indemnify those whose environment and businesses were put at risk, nor to take out performance bonds to protect them in the event of a spill. To do so would have made the project uncompetitive with other investments. And Cambior’s political risk insurance also allowed it to be casual about the consequences of an environmental accident. An official investigation into the spill found, that the tailings dam broke because of “inadequate application and execution of sound practice for design, construction, supervision and inspection that are well understood in current embankment dam and tailings dam technology.”

We have found from experience that if you scratch the surface of environmentally damaging projects, they are dressed up to look economically viable with a web of publicly-sponsored-subsidies. Part of the subsidy web comes from financing courtesy of the likes of EDC, CIDA, and the World Bank; part comes from publicly decreed monopoly protection for the projects; and part comes from a license to inflict the environmental costs of the operations onto a dispersed and unprotected public. These projects survive only by externalizing their risks onto uninformed or unwilling third parties.

Not only do these subsidizing institutions undermine Third World economies, they also undermine good governance in Third World nations by encouraging economic spendthrifts and reckless environmental decisions. Thanks to state to state loans and grants from countries like Canada, Third World governments obtain financial independence from their citizenry. Likewise, thanks to political risk insurance from EDC or the World Bank, Canadian corporations can ignore the financial risks of dealing with dictators. In the process we as taxpayers have bankrolled bad governments and sponsored crony capitalism. When EDC and the World Bank’s Multilateral Investment Guarantee Agency stepped in to insure Cambior against the risk that it might have its assets expropriated, the risk that it might not be able to get its profits out of the country, and the risk that it might not be able to enjoy its assets due to war and insurrection in Guyana, it interrupted an important message that the private sector would have otherwise sent to the government. “Convince us that your country is politically stable, that you have the confidence of the people, that you respect the rule of law, and then we’ll invest.”

Let me give you another example of how the absence of property rights, markets and competition harm the environment — the Three Gorges dam on China’s Yangtze River. Many of you will have heard the statistics. The Three Gorges dam, if it is finished, will be the largest dam in the world, with a 600 kilometre long reservoir that will flood nearly 2 million people off their land, submerge 19 cities, 326 towns, archeological treasures dating back to 10,000 BC, and threaten many endangered species. The Three Gorges dam — now under construction — is also beset with engineering problems and widespread corruption.

But, what most threatens the Three Gorges dam is the marketplace. Conceived and coddled without public oversight and market discipline, the Three Gorges dam will produce electricity that is 2-3 times more expensive than the competition. Probe International predicted last year that the Three Gorges dam would be unable to find willing customers for its power. Last week, the Financial Times, the South China Morning Post, and the China Business Times quoted the just retired deputy general manager of the Three Gorges Project Development Corporation (the corporation which is building the dam) saying that he too doubts Three Gorges will have customers when it starts producing power in 2003, raising the spectre that it will become the largest stranded asset in the global electricity industry. As China’s monopoly electricity structure disintegrates, large dams are losing customers to the more flexible, readily available, and cheaper sources of electricity, such as high efficiency gas turbines and cogeneration. This is bad news for large dams like Three Gorges, and good news for electricity consumers in China.

It is also good news for the environment. Not only would the local Three Gorges environment be relieved if the dam is cancelled, dollar for dollar, yuan for yuan, an investment in high efficiency gas turbines and cogeneration would reduce China’s greenhouse gas emissions four times more than the Three Gorges dam could.

So who is behind this boondoggle? You are, I am, all Canadian taxpayers are.

In 1986, the Canadian International Development Agency financed a $14-million feasibility study, carried out by SNC, Lavalin, Acres International, BC Hydro International, and Hydro-Quebec International, that concluded that the dam was feasible and “should be carried out at an early date.” Despite this ringing endorsement from Canadian engineers (who, by the way, hoped to receive contracts to build the dam), no financiers would touch the project until, on the eve of the first Team Canada trip to China, the Prime Minister told Canada’s Export Development Corporation to finance Canadian suppliers to the project. Since then, EDC has financed the US$12.5 million sale of AGRA Monenco’s construction management system, and Canadian General Electric’s US$153 million sale of turbines and generators.

Government subsidized political risk insurance and project financing undermines the customary property rights of Third World citizens, whose lands then become seized to fulfill the projects. When the rule of law is upheld and not overruled by the porkbarrel interests of governments or the monopoly desires of corporations, development will reflect the values of society and economies will thrive.

What is to be done in this warped aspect of the global economy, one which is devoid of property rights, which allows corporations to profit by externalizing environmental and other costs, one where Third World governments give these corporations rights to their citizens’ property, and where first world governments provide subsidized financing, in order to win votes at home and friends abroad?

Shut down the public institutions that socialize private sector risk: EDC, CIDA, and the World Bank for starters. If private sector investors are unprepared to take the risk of building a hydro dam or a nuclear reactor, or of opening a gold mine of their own free will, why should taxpayers be commandeered into the investment? This corporate welfare must end.

By removing the moral hazard, introduced so pervasively by the government and its agencies into economic decisions, “green” will be “competitive” and corporations that ignore it will do so at the peril of their shareholders.

Thank you.