The Drummond Report: What Miners Need to Know

by Dentons
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This article was written by David Hunter, Nalin Sahni, and environmental planner George McKibbon of McKibbon Wakefield Inc.

Economist Don Drummond recently released a sweeping report (the “Drummond Report”) on rethinking Provincial governance and Ontario’s economy. Miners should take note: the Drummond Report calls for increased mining taxes and user fees and “a new paradigm for environmental and natural resource programs,” licensing, and services that could both hinder and simplify mining development and operations.

Transformation is an important theme in our continuing series on streamlining the current mine development system. In our last article, we discussed the Draft Class Environmental Assessment for Mining and how the licensing system could be improved (See February 9th posting). Today, we discuss the changes that miners should expect from the Drummond Report, if implemented.

Increased Mining Taxes and User Fees

The Drummond Report recommends that Ontario: scrap the resource tax credit, review the mining tax system to ensure Ontario is appropriately compensated, and charge mines for any water used. Business taxes in Ontario have been significantly reduced and tax credits and reduced mining taxes are no longer necessary to encourage investment. Charging for water withdrawals could raise significant revenue and would encourage water conservation. However, the increased costs from these taxes and fees on the mining industry could be substantial. The Drummond Report also recommends that Ontario consider additional mining taxes dedicated for Aboriginal development if mining companies do not fund Aboriginal peoples’ economic participation in the “Ring of Fire”.

Government Should Recover the Full Cost of Resource Licensing

The Drummond Report recommends that the Ministry of the Environment (the “MOE”) and the Ministry of Natural Resources (the “MNR”) raise fees to fully recover the review and administration costs of environmental, land use, and resource licensing. While this is not likely to be problem for the MOE, it isn’t clear if this can be accomplished for approvals under MNR’s Public Lands Act (the “PLA”) for mine related infrastructure approvals such as roads and transmission lines.

Risk-Based Environmental and Natural Resource Approvals

While the MOE is already moving to a risk-based approvals system, MNR’s approvals continue to be based on policies developed under the PLA. Unlike environmental permitting or municipal land use decision-making, there isn’t a wide body of experience for establishing risk-based policies or approvals under the PLA. Acting on this recommendation will be challenging for MNR.

One Project, One Environmental Assessment

The Drummond Report recommends that there should be only one environmental assessment per project with no duplication between the Federal and Provincial governments. As with current renewable energy approvals, environmental assessments should facilitate development by addressing the other approvals mines require such as roads and transmission lines. A consolidated environmental assessment process could create a win-win for miners and environmentalists by trading minimum environmental standards for mines (good for enviros) for an expedited process that lets mining companies get all the permits they need fast (good for miners). Though not mentioned in the Drummond Report, the Municipal Class Environmental Assessment used for municipal infrastructure could also serve as a useful model that provides for the integration of Planning Act and Environmental Assessment Act approvals provided consistent notice and analytical processes are followed.

In our February 9th posting, we discussed how a “one-stop-shop” approach for mining projects could significantly speed project development while increasing environmental protection but would require significant coordination between government ministries. The challenge for the MNR will be to establish objective, science based principles for issuing approvals.

Increased Used Polluter-Pay Principle for Contaminated Sites

The Drummond Report recommends that Ontario expand the financial assurance system to ensure the funds provided in advance are sufficient to pay for any cleanup required. This could lead to proponents of advanced exploration and mining projects being forced to provide larger sums up front in the form of a bond or letter of credit.

While the polluter-pay principle is enshrined in Ontario law, in practice the Parties that contaminate land or fail to property close mines often go out of business or become insolvent and the government is left to pay for the clean up. The MOE and the Ministry of Northern Development and Mines often require companies to provide financial assurance though the amount required is often insufficient to pay for the full cleanup cost. While the financial assurance system can be improved, it is unlikely to cover all cleanup costs since it is impossible to determine how much a cleanup will cost in advance. The Drummond Report also recommends that Ontario follow the approach of the U.S. Superfund and tax mining and other industries to create a pool of money to cover any unfunded clean up costs.

Conclusion

If fully implemented the Drummond Report could create several new taxes and user fees for mining companies. While creating a “one-stop-shop” for approvals and environmental assessments will require significant coordination between Ontario Ministries, it could greatly speed the mine development process. While we hope this occurs, it should not be expected. We will keep you apprised of the implementation of the Drummond Report’s recommendations in future articles.

Note: The Drummond Report fails mention that oil and chemical tax that paid for the U.S. Superfund has been removed by the U.S. Congress. The Superfund is now paid out of general revenues and is no longer an example of a government recovering cleanup costs from industry as stated by the Drummond Report.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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