OTTAWA -- Paul Tellier, Canadian National Railway president, said yesterday the federal and provincial governments should offer companies a tax credit to encourage them to use railways instead of trucks to ship goods, the National Post reports.

The tax credit would lower costs for shippers, cut government spending on road maintenance and help Canada meet its commitment to reducing greenhouse gas emissions, Mr. Tellier said in a speech to the Canadian Club.

The proposal could be called a green tax because it will help Canada have a more environmentally sustainable transportation system, Mr. Tellier said.

"On average, rail is five times more fuel-efficient than inter-city trucks, and generates one-fifth of the greenhouse gases per tonne-kilometre. Our proposal has the potential to reduce greenhouse gas emissions by some nine megatons every year," Mr. Tellier said. Greenhouse gases, caused by the burning of fossil fuels, are identified as the source of the gradual rise in temperature of the planet. Canada has accepted an international agreement to substantially reduce greenhouse gas emissions over time.

The tax credit idea comes as the federal government is reviewing the Canada Transportation Act, which regulates different transport modes. Mr. Tellier said governments collect $160-million in fuel taxes from the railway industry. This revenue should be allocated to shippers in the form of a tax credit if they use it to ship more goods by rail, he said.

"It would be good, sound public policy. It would encourage shippers and truckers to take their shipments off the highway and to put it on trains. This would have a great many benefits for all Canadians."

The move would cut the number of trucks on highways and reduce congestion for Canadians. He estimated the measure would save $500-million on highway maintenance, shift about 100 million tonnes from trucks to rail and reduce freight rates for shippers.

The trucking industry, however, said Mr. Tellier's proposal is fundamentally flawed.

"I find it (the proposal) somewhat baffling," said David Bradley, the Canadian Trucking Alliance president. Even with a price advantage, rail has difficulty competing because of factors such as service in meeting the needs of shippers, Mr. Bradley said. Trucks have flexibility and geographic reach that rail has diffuculty duplicating.

"It isn't price that keeps rail out of this market -- it is the service that rail can or can't provide," he said.

Mr. Bradley also took issue with the claims that rail is a more environmentally friendly transport system, saying Mr. Tellier is skirting the emissions that rail transport produces.

Mr. Tellier also said the railways should not be seen as part of the farm income crisis. Revenue from the grain trade earned by CN has fallen 26% in real terms since 1995. Instead, the federal government's policy decision in 1995-96 to have more of the cost of grain transportation borne by farmers instead of taxpayers has added about $700-million to the farmers' costs.