Canadian Recycling Industry Domestic and International Market Outlook

1. Canadian Recycling IndustryDomestic and International Market Outlook Jack Mintz President’s Fellow, School of Public Policy, University of Calgary and National Policy Advisor, EY

2. Topics • World and Canadian economic growth • Commodity prices • Trade in recycled materials: trends • Policy opportunities and risks Canadian Association of Recycling Industries

3. Global Economic Forecast: Better times ahead? (GDP growth %, constant 2010 USD) Source: World Bank (2017) Canadian Association of Recycling Industries

4. Canadian, U.S. and China Growth(GDP growth, constant 2010 USD) Source: World Bank (2017) Canadian Association of Recycling Industries

5. Historical Scrap Metal Prices : Aluminum and Copper Source: U.S. Geological Survey (2017) Canadian Association of Recycling Industries

6. Historical Scrap Metal Prices : Iron & Steel Source: U.S. Geological Survey (2017) Canadian Association of Recycling Industries

7. Commodities Price Forecast (nominal US dollars) Source: World Bank (2017) Canadian Association of Recycling Industries

8. Canada Trade Balance in Scrap Metal and Non Metal Market ( $ Million) Source: Authors Calculation Statistic Canada (2017) Canadian Association of Recycling Industries

9. Canada Scrap Metal and Non Metal Trade in 2016 ($ Million) Source: Statistic Canada (2017) Canadian Association of Recycling Industries

10. Top Export Market for Canada Scrap Products Source: Authors Calculation from Statistic Canada Data Canadian Association of Recycling Industries

11. Important Policy Developments • U.S. Trade Reform • U.S. Tax Reform • Carbon Policy Canadian Association of Recycling Industries

12. Trade Issues • Key points of concern: • U.S. administration will want “winners”. Will be hard for Mexico to make even modest changes. This could be fast-tracked. • Key document will be survey of trade issues to be published soon. • Unilateral ability for each NAFTA leader to withdraw from NAFTA (not requiring Congress approval for example). Could be a “nuclear option”. • U.S. looks at current rules as being unfair to them. Hence will push for trade reforms to deal with these points. • Could be useful to use TPP settlements. • Some policies easy to adopt but could be a model for other negotiations: eg. arbitration agreement for undervaluation of currency or currency manipulation and trade balances provision. Canadian Association of Recycling Industries

13. U.S. List of Issues of Concern • Major priorities for U.S. • Auto • Agriculture • Others: • Broadcasting • Promise doctrine and patents • Data flow/privacy limitations by some provinces. • If now border adjustments under corporate tax, may ask Mexico and Canada to eliminate their border adjustments. • Trade in services: market access for telecommunications, financial services. • Key for Canada to have its offensive and defensive strategies for NAFTA negotiation. Canadian Association of Recycling Industries

14. Business Taxation Canadian Association of Recycling Industries

15. U.S. Tax Reform • Ryan/Brady Plan (House Blueprint) which may still be a basis of a House Bill submitted in spring but likely superseded by WH-House-Senate Republican plan. Senate will likely have its own tax plan. • Trump Plan introduced in May 2017 provides less information about the base, more on rates. • Both includes personal and corporate tax cuts. • To avoid 10 year limit, plan must be balanced with other provisions. Otherwise rates will be temporary although budget rules can be adjusted • Best to think of House plan as • Abolishing corporate income tax • Adopting a “subtraction-method” VAT (Business Transfer Tax) • Wage expensing (eg. credit for labour costs). • Comments in Canada on BAT are off-base and potentially damaging since VATs normally have border adjustments that Americans criticize in the past. U.S. may ask Mexico and Canada to drop border adjustments under VAT under NAFTA negotiation. Canadian Association of Recycling Industries

16. METRs on Capital 2017 (excludes energy tax effects on capital purchases) Canadian Association of Recycling Industries

17. Most industries except forestry, communications and trade could be equally or more heavily taxed in Canada Canadian Association of Recycling Industries

18. Carbon Pricing: Competitiveness Issues • Two types of carbon prices: explicit (tax, cap and trade) and implicit (regulations imposing a cost like coal phase-outs, standards). • British Columbia: $30 per CO2tonne. Some exemptions resulting in effective price of $19 per tonne. Significant share of revenues on general tax reductions. • Alberta: moving to $30 per CO2tonne and continuing tax on large emitters. Exemption for electricity. Effective tax rate is $7.20 for 2018-19. Except for small business tax rate reduction, no tax reductions. • Ontario: cap and trade with predicted effective prices between $8.40 and $11.40. Revenues used for program expenditures. • Quebec: similar to Ontario in scope. • Implicit prices: eg. electric vehicle subsidies: $375 per tonne, ethanol: $175 per tonne, coal phase-out ($42-$99 per tonne depending on planned phase-out period with just a carbon tax). Canadian Association of Recycling Industries

19. Effect of Alberta Carbon Explicit Levies on Cost Competitiveness: Forest Industry 2017 Direct and Indirect Impact on Non-Labour Costs Impact on Gross Margin (EBITDA) Canadian Association of Recycling Industries

20. Summary • Economic growth especially in the U.S. will be more supportive of the recycling industry in Canada. • U.S. trade and tax reforms could have a significant impact on cost competitiveness in Canada and incentive to invest here. • Carbon policies – explicit and implicit prices – could have a significant impact on cost competitiveness especially if revenues are not used to reduce other business taxes. Canadian Association of Recycling Industries