Economic Development Journal of Canada | Economic Development Journal of Canada, 2003
Originally published December 12, 2003

Brownfields Transforming Liabilities into Assets

David J. McGuinty

CANADA COULD GAIN as much as $7 billion in public benefits if the thousands of contaminated properties that litter its cities and towns were cleaned up and returned to productive use. The National Round Table on the Environment and the Economy recently proposed a package of measures designed to transform Canada’s brownfields into economically productive, environmentally healthy and socially vibrant centres of community life. With the coordinated efforts of all levels of government, the private sector and community organizations, many of Canada’s derelict properties can become economic engines.

Brownfields are contaminated commercial and industrial properties that now lie idle or are under-used, but have good potential for redevelopment. There may be as many as 30,000 such sites in Canada. They include decommissioned refineries, former railway yards, old industrial waterfronts and riverbanks, crumbling warehouses, abandoned gas stations, former dry-cleaners and other commercial properties that once housed toxic substances.

Left as they are, brownfields disfigure the landscape and adversely affect the quality of neighbourhood life; they can also pose risks to human health and the environment. Transformed into housing, shops and recreational facilities, however, they can generate significant economic, environmental and social benefits. They have the potential to help revitalize Canada’s inner cities, create jobs and curb urban sprawl, kick-starting a whole new era in sustainable development. In addition to the direct commercial benefits realized by developers and users of the land, the redevelopment of Canada’s brownfields would yield $4.6 to $7 billion in increased tax revenues, deferred municipal infrastructure costs, reduced health risks, preserved agricultural land, cleaner air and enhanced economic productivity on adjacent lands.

Casualties of an imperfect marketplace

Despite the potential payoffs, most brownfields face too many hurdles for conventional market forces to overcome. Numerous factors, including poor access to traditional sources of capital, open-ended liability, limited access to insurance protection, regulatory delays and a lack of awareness among key groups, conspire to keep brownfields redevelopment off the radar screens of developers and community organizations.

Pre-project costs can make it three times as expensive to redevelop a brownfield as to build on previously undeveloped lands. Banks and other traditional financiers have been reluctant to support the up-front site assessment and clean-up phases of these projects. Many lenders consider a brownfield property dubious collateral, and fear exposure to regulatory and civil liability should a defaulting debtor saddle them with an unremediated site.

Some derelict properties remain in limbo because sellers cannot contract out of liability for damages that come to light later and because current owners or operators can be held liable for damages even if they had no part in the contamination. The absence of reliable closure on liability and the unpredictable duration of the risk affect all interested parties. To make matters worse, there is limited access to liability insurance, partly due to the high transaction costs that make premiums expensive for smaller projects.

Sometimes redevelopment efforts stall because regulatory hurdles are too complicated. Some jurisdictions have no system in place for approving remedial action plans or certifying that they have been implemented. At the other extreme are municipalities that require developers to exceed provincial remediation standards as a condition for obtaining environmental approvals. Finally, lack of awareness of the opportunities that brownfields represent has made redevelopment a low priority in many communities. Public opposition, however ill-informed, can be enough to send an already-reticent developer packing.

The case for redeveloping brownfields

Direct public benefits and spin-offs include:

Delivering a strategic nudge

The national brownfields redevelopment strategy takes aim at these long-standing legal, financial and community concerns through a mix of strategic public investment, regulatory relief, technical support and public education.

Incentive financing

First, to lure hesitant investors into the marketplace at the early stages of redevelopment, the strategy envisions the creation of federal and provincial investment tax credits, much like current R&D incentives for scientific research. Site remediation costs would become deductible expenses in computing income, and federal and provincial liens and tax arrears against qualifying brownfields sites would be removed. Bridge financing in the form of mortgage guarantees, grants and revolving loans would offset the cost disadvantages of brownfield redevelopment, putting brownfields and greenfields on a more level playing field.

A similar approach has met with success in the United States, where the government has spent $280 million on pilot projects, revolving loan funds, small grants and technical assistance to lever $4 billion in public and private investment for 19,000 clean-up, construction and redevelopment jobs over the past decade. The program was successful enough to prompt the U.S. Congress to double the program budget in 2002: the U.S. Brownfields Revitalization and Environmental Restoration Act, signed into law last year, authorized a new infusion of funding $250 million a year for five years.

There are Canadian precedents as well. In 2000, the federal government established the Green Municipal Enabling Fund, administered in partnership with the Federation of Canadian Municipalities, which provides grants of up to $100,000 for community brownfields inventories and assessments of development potential and policy options.

Not just any old brownfield

Although many Canadian municipalities are strewn with idle properties, often in the heart of the inner city, not all brownfields are equally attractive candidates for redevelopment.

Some abandoned factories occupy such valuable real estate that no cost need be spared in reclaiming them. At the other end of the spectrum are properties that are too poorly situated or too contaminated to warrant investment.

Between these two extremes lies a group of brownfields with high redevelopment potential, where the cost of purchasing and cleaning up the property is just about equal to its remediated value, and a strategic nudge is all that is needed to tip the balance in favour of redevelopment. These are the sites targeted by the National Round Table’s new strategy. Usually found in established urban areas and along transportation corridors where municipal services are readily available, these projects-in-waiting hover on the brink of viability, casualties of an imperfect marketplace.

Limiting liability: drawing the line

The strategy also envisions a public policy regime that limits liability, gives provinces and territories a clear role in regulating remediation and incorporates a risk-based approach to remediation, with requirements for clean-up scaled to the risks associated with the proposed new use.

Under the new regime, provincial and territorial governments would become responsible for approving remediation efforts, establishing risk-assessment protocols and authorizing clean-ups based on site-specific, rather than generic, criteria. Once a site is certified as clean, the approval would start the clock on a limitation period for civil liability against all parties involved in rehabilitating the site and developers would be cleared of future regulatory liability.

To compensate for harm that may come to light later, redevelopers would be required to buy private insurance for a period of about 15 years after the civil liability termination date. Damage claims arising even later would be covered by a provincially administered insurance fund financed by brownfields redevelopers. The strategy also urges municipalities to adopt more streamlined approval processes. Finally, new provincial and territorial legislation would permit owners of brownfields to transfer liability, along with the land, to buyers who can prove they are able to cover site remediation costs.

In the U.S., both state and federal laws already shield investors, new owners and prospective purchasers of brownfields from regulatory liability and limited protection for civil liability.

Changing attitudes and building capacity

But, important as they are, financial incentives and an enlightened public policy regime are not enough. Key groups need to be made aware of the economic, social and environmental benefits of brownfields redevelopment. Communities need help building shared objectives for the transformation of brownfields sites. And prospective developers need more know-how about commercial remediation technologies.

To that end, the strategy recommends the creation of a brownfields information network, including establishment of a national association, to share existing knowledge and expertise, coordinate the efforts of public, private and not-for-profit sectors, and build capacity. Initiatives might include training for municipal and provincial officials, peer exchange programs among municipalities and educational workshops for members of professional associations.

Addressing key market barriers: The national strategy in a nutshell

Canada’s first national brownfields redevelopment strategy is designed to overcome the regulatory hurdles, market barriers and negative public perceptions that currently impede interest. The National Round Table’s strategy proposes to:

A comprehensive, national education, training and communications initiative would address concerns about risks and awareness, complementing efforts to attract capital investment, lower costs and reduce uncertainty in project planning.

To help new environmental technologies and remediation processes make the leap from the laboratory to the clean-up site, the new strategy encourages the federal and provincial governments to facilitate the demonstration of near-market or commercially viable remediation technologies on designated brownfields sites across Canada. Demonstration programs, such as the 13-year-old Superfund Innovative Technology Evaluation Program operated by the U.S. Environmental Protection Agency, have played an important role in promoting the uptake of new technologies.

Building on success

Some Canadian communities and provinces have already made excellent progress in addressing concerns such as environmental liability and incentive financing. Ontario and Quebec have introduced legislation specifically directed at promoting brownfields redevelopment by removing key barriers.

Quebec’s Revi-Sols program provides grants to communities to cover the cost of site remediation studies and clean-ups of eligible sites. It has created an estimated 1,075 person-years of employment in site assessment and remediation and levered millions of dollars in private investment. Some examples of how this program has helped transform environmental liabilities into community assets include:

Meanwhile, some municipal governments, including Cornwall, Hamilton and Vancouver, have been leaders in developing and delivering brownfields redevelopment initiatives.

Public sector leadership: the vital ingredient

Transforming Canada’s brownfields into goldmines is no simple feat. To succeed, the strategy must engage the full spectrum of public, private and community interests: everyone who cares about the quality of life in Canada’s communities, business and financial sectors, labour groups, neighbourhood associations and, above all, those who live and work in these communities, must embrace the plan. But the single most essential ingredient is public sector leadership. The federal government can signal its enthusiasm by endorsing the strategy and implementing the measures under its jurisdiction as quickly as possible. It can demonstrate leadership by redeveloping federally owned brownfields sites, including former military bases, railway lands and ports. All three levels of government can make it a firm policy to choose brownfields over greenfields when purchasing property for their own use.

The National Round Table’s strategy throws down the gauntlet to governments, developers and neighbourhood associations. Its proposed incentives, regulatory changes and partnerships will breathe new life into neglected neighbourhoods, strike a blow against urban sprawl and deliver a much-needed shot in the arm to Canada’s nascent brownfields redevelopment sector.

ABOUT THE AUTHOR

David J. McGuinty is president and CEO of the National Round Table on the Environment and the Economy. The National Round Table on the Environment and the Economy provides advice to Canadian policy makers on how to balance economic prosperity with environmental preservation. The complete strategy: Cleaning up the Past, Building the Future is available at http://www.nrtee-trnee.ca.

Economic Development Journal of Canada | Economic Development Journal of Canada, 2003