Proceedings of the Standing Senate Committee on
National Finance
Issue 33 - Evidence - February 26, 2013
OTTAWA, Tuesday, February 26, 2013
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2013.
Senator Larry W. Smith (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Honorable senators, today we are continuing our study of the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2013.
[English]
This morning we are pleased to welcome Scott Vaughan, Commissioner of the Environment and Sustainable Development. Accompanying Mr. Vaughan are two principals from the Office of the Auditor General of Canada, Kimberley Leach and Trevor Shaw. Mr. Vaughan was appointed to his position in May 2008 but will soon be moving on to new challenges and new horizons, so we are very grateful for his appearance here before us this morning.
Scott Vaughan, Commissioner of the Environment and Sustainable Development, Office of the Auditor General of Canada: Thank you very much. In addition to Kimberley Leach and Trevor Shaw, I am joined by colleagues from the OAG, George Stuetz, Liohn Donenfeld-Sherer, Jocelyne Therrien and Véronique Dupuis.
Our report, which we tabled three weeks ago, examines several environmental programs and activities intended to support sustainable natural resources development.
Given the central role of natural resources in the Canadian economy, it is critical that environmental protection keeps pace with economic development. I am concerned by the gaps we found in the way federal programs related to natural resources are managed.
[Translation]
Let me start with our marine protected areas. Protecting commercial fisheries and marine species such as whales and sea turtles — as well as their habitat — is important to relieve the growing pressure on our oceans and ecosystems.
Over the past 20 years, the federal government has made limited progress on its commitments to set aside areas to protect Canada's marine biodiversity.
Fisheries and Oceans Canada and Parks Canada have established 10 marine protected areas, but the network that is needed to safeguard marine species and ecosystems does not yet exist.
Moreover, Canada has protected less than 1 per cent of its oceans and great lakes, compared to the 10 per cent target it agreed to.
[English]
We noted several areas of progress in establishing marine protected areas across Canada. However, the level of protection falls short of what the Oceans Act calls for.
Given that conservation actions are not keeping pace with the increasing pressures on our oceans, the government needs to complete the network of marine protected areas to safeguard Canada's marine species and ecosystems.
[Translation]
Oil spills from offshore platforms are an important risk for the marine environment. Our audit examined the Canada-Newfoundland and Labrador and the Canada-Nova Scotia offshore petroleum boards and the support they receive from federal departments.
[English]
We noted that while the Canada-Nova Scotia and the Canada-Newfoundland and Labrador boards have adequately managed the day-to-day environmental impacts of offshore oil and gas activities, they and their federal partners need to do more to prepare for a major oil spill.
We identified several deficiencies that limit the offshore boards' ability to take over the response should operators fail to respond appropriately to a major oil spill. For example, the boards and federal entities have not tested their collective plans or joint capacity, and roles and responsibilities are not always clear in their response plans.
This report also examines environmental financial guarantees and absolute liability limits related to four sectors for which the federal government is responsible: mining in Canada's North, spills from oil tankers, offshore oil and gas platforms, and nuclear power.
[Translation]
Regarding the limits companies are liable for in case of spills from offshore oil platforms and nuclear incidents, we found that these limits were out of date and significantly below levels set by other countries.
[English]
The federal government needs to review its absolute liability limits in the nuclear and offshore oil and gas sectors.
We found adequate systems regarding the federal government holding of approximately $11 billion in financial guarantees to cover site remediation costs after operations cease. By contrast, we found several shortcomings in the oversight of the $500 million the federal government holds in financial guarantees for the mining sector in Canada's North. These shortcomings include insufficient guarantees as well as significant gaps in mining inspections required by regulation.
[Translation]
This report also includes a study of federal support to the fossil fuel sector. At the G20 meetings in 2009, Canada committed to rationalize and phase out inefficient fossil fuel subsidies. We found that the federal government has taken action in line with that commitment.
[English]
Direct spending to support the fossil fuel sector has decreased since 2000, and a significant portion of support is now directed to cleaner technologies. At the same time, the study identified a number of tax incentives that remain in place and provide a significant amount of support to the fossil fuel sector.
Mr. Chair, I am pleased also to present the annual report on environmental petitions. This year, we received 23 petitions requesting information from government ministers on a range of environmental topics.
[Translation]
Petitioners raised concerns about the consideration given by the government to potential environmental impacts of proposed activities, consultations with the public, and the transparency of decision-making.
[English]
Petitions have repeatedly raised concerns about the toxicity of substances used for hydraulic fracturing of shale gas and the lack of public disclosure of those substances. There are some 200,000 hydraulic fracturing wells in Canada, and that number is expected to double over the next 20 years. With the oil and gas sector exempted from reporting pollutant releases, the government cannot know if Canadians are adequately protected.
[Translation]
Mr. Chair, in closing, the gaps identified in this report expose Canadians to potentially significant environmental damages and related costs. I am concerned that these gaps may be preventing environmental stewardship from keeping pace with natural resource development.
[English]
Mr. Chair, that concludes my opening statement. We would be pleased to take your questions.
The Deputy Chair: Thank you very much, Mr. Vaughan. You have reviewed various elements in your report. One thing that strikes me is the issue of getting departments and people to work together. There seems to be some form of a silo issue. From your studies, will you comment on silos and getting these groups to work together? Would that be one of the potential remedies to enhance performance?
Mr. Vaughan: Yes, that is absolutely indeed one of the observations, and not only from this report. I can say that in the five years I have been in this position, that is a recurring challenge of multiple ministries and we understand why. If you work within the ministry, the incentive structure is to report within that ministry, and public servants are doing the best they can within that. However, our audits often touch upon crosscutting issues involving several or multiple ministries. As a specific example, the audit we prepared on the offshore oil and gas sector was the two boards, Transport Canada, the Department of Fisheries and Oceans, Environment Canada and the Canadian Coast Guard. We have said that there was actually a surprising amount of confusion on who was supposed to do what in the event of a major oil spill, for example. That is the cautionary side of it.
The positive side, which is the other part of your question, is that in that offshore oil and gas audit we made recommendations for the departments to work more closely together to figure out what they are supposed to do. From every indication I have seen from several meetings with deputy ministers as well as the Canadian Coast Guard, they recognize this issue you pointed to and the importance of actually getting a coordinated response.
The Deputy Chair: There seems to be a balancing act between policy that is provided by the government and the actual execution within the departments. It is not a case of putting blame on one group or the other. It is a coordination issue. Your comments are most welcome in that particular area.
Mr. Vaughan: We would not comment on policy anyway. We are in the Office of the Auditor General. However, we do look at implementation in that regard. We are not here to find fault. If there are problems, we are here to try to point them out and to suggest recommendations to close gaps and address them.
It would not just be this one. It would be other audits where this really is a recurring issue, and I think you have characterized it well. It is not a policy issue; it is an implementation-related issue.
Senator Callbeck: There are a couple of areas I want to get into, but before I do, I want to ask about petitions. Can anyone send in a petition? Do you have to have a number of names on it? How long does it take for the department to deal with it? When do you find out about it? Is it through your audits?
Mr. Vaughan: The petition process is actually a misnomer because it is in the Auditor General Act and I believe it was set up in 1995. One person can sign it, so it is not a petition with hundreds or thousands of names. It is open to any Canadian resident who could send a petition through us. The purpose of it is to pose direct questions to the federal government on areas related to federal mandates.
We receive a petition and essentially act to forward it to the minister responsible. Under the law, the minister is then required to respond to that petitioner within 120 days. At the end of the year, we are required to report to Parliament with a summary as well as what the performance has been in terms of responses.
Senator Callbeck: If the minister responds within the 120 days and the person feels that it is not an adequate answer, is there any comeback or is that it?
Mr. Vaughan: That is an excellent point. We go back and do a survey of the degree of satisfaction of the responses received. There is a high degree of dissatisfaction — it has gone down a bit. Over 70 per cent said they wished they had received a different answer. However, at the same time, they said they were satisfied with the process.
They can come back, and they have. I think one petitioner this year went back three times to Health Canada to get the answer that he was specifically looking for. I think it is an issue of getting an absolutely specific question, which is in the federal mandate, and that often takes a couple of attempts. It really depends on the petitioner.
Senator Callbeck: On page 8 in your executive summary or overview, you concluded with a statement that I want to read, because I think it is a very powerful statement. It states:
Considering the central role of natural resources in today's Canadian economy, it is critical that environmental protections keep pace with economic development. In this report, we found a number of encouraging practices, but also numerous shortcomings. When combined with our previous reports and viewed in the context of the risks and challenges posed by increasing development, these shortcomings leave me concerned that environmental protection is failing to keep pace with economic development.
As I said, that is a pretty powerful quotation from you. Do you make recommendations to the government?
Mr. Vaughan: Yes.
Senator Callbeck: You have obviously made recommendations. Is the government moving on these recommendations?
Mr. Vaughan: Senator, I would say there have now been many examples. Our process works such that we make recommendations. The departments in our audits then respond to those; they either accept them or reject them. More often than not, they accept those recommendations, and we will go back to see if they have implemented what they have said.
There have been several cases. For example, last year we said that the inspections of the National Energy Board needed to be ramped up because there were poor follow-up to inspections. In Budget 2012, the government put more money into the NEB to increase inspections.
We pointed out two years ago that the federal response to a spill from a ship was probably inadequate. The government went through that, and the Canadian Coast Guard is now working through it to redesign their command centre to do a better coordinative response to spills from vessels. I could go on, but I will not.
I think that this system works. We are an independent office. The Office of the Auditor General makes recommendations objectively and dispassionately to help address the problems we have found. I think there have been more examples where the government has taken action than where they have said they would and nothing has happened.
Senator Callbeck: Generally speaking, then, you are saying that you are satisfied with the way the government is proceeding.
Mr. Vaughan: In the process we have, there is more evidence that the government has responded with action to the recommendations we have put forward.
Nevertheless, the bigger issue you posed is that we know there is a boom taking place in our natural resource exploitation. Is there a similar boom or expansion in environmental protection at the federal level? Right now, we said that at the aggregate level, no, there needs to be a ramping up of environmental protection measures.
"Satisfied" is a bigger issue, but within the processes we work on, we find a problem, identify it and then make recommendations on how to fix it. The government is on record as saying they will, and we then go back and see whether they have done that.
Senator Callbeck: For the last five years, has your budget been cut or has it basically been the same?
Mr. Vaughan: The Office of the Auditor General is not under the guidance of the ministries. The short answer is that, voluntarily, the Auditor General's office went through a reduction of, I believe, 8 per cent in its budget.
Senator Callbeck: Do you have a budget yourself?
Mr. Vaughan: Yes.
Senator Callbeck: What about your budget?
Mr. Vaughan: My budget and my predecessor's budget went through a reduction over the last three or four years, before the last round of departmental budget reductions. We went through some reductions earlier; therefore, we had already "paid out." Our funding has remained stable. More important, the number of people in our office dedicated to working on environmental audits is around 40 now, and it has remained at that level almost since I have been here; it has gone down about four FTs, or "full-times."
Senator Callbeck: How long have you been there?
Mr. Vaughan: It will be five years.
Senator Finley: The questions I will ask may sound a little here-and-there because I am trying to understand the context of issues on natural resources and environment disaster scenarios. There are people with passions at every level on this. I try to understand what it is because I was not aware until recently that the Auditor General had such a separate organization.
First, are there other organizations under the Auditor General that specifically involve themselves in a particular mandate such as the one you appear to have?
Mr. Vaughan: No. We are actually embedded, as it were, within the Office of the Auditor General; we work with exactly the same methodologies and the same standards of assurance. Our staff work in different groups, but this is the only dedicated topic. That was set out in an act of Parliament in 1995 to provide Parliament with more specific information on issues related to environmental protection and sustainable development.
Senator Finley: You mentioned that you have 40 staff. Perhaps you can square this circle for me. The field of natural resources has become a high-tech and, hopefully, high science-based endeavour. Similarly with the environment — it is a separate issue. You have got huge technological issues ranging across almost every branch of science. You also have the financial aspect, which is insurance and other things.
With 40 people, how do you have those levels of expertise? Do you tend to be more technical/scientific, or do you tend to be more audit trail-based? If you are more audit trail-based, is it a problem for you in any way to deal with the science and technology of what is happening and to know what is right and wrong?
Mr. Vaughan: That is an astute question. You are right: The science on any given environmental issue — toxicity of chemicals, for example — is now incredibly sophisticated and complicated. Keeping up with that literature is what university professors do on a full-time basis.
For the coverage that we have, and of the 40 people in our office, I would say probably about half have an environmental background; they are biologists, chemists, physicists or environmental lawyers. The other half is people who have expertise in auditing. For example, Mr. Shaw is a chartered accountant. I think it is a fantastic marriage of people with a substantive background. The Auditor General's office has probably among the highest levels of evidence-based audits in the world, actually. People come to our office all the time, from all around the world, to see how we do this and to provide assurance to Parliament.
It is critically important for the reputation of the office, because we work for you, that we get this right. Within that, we cannot cover everything. I think you are quite right; the complexity of the natural resources sector, every single subsector within that has its own area of specialization. It is really complicated. We do not go in and prescribe what we think should be done in any given area. We do not go and say this is the science that we think should be followed by government ministry. We go in and ask the government: What are you trying to do? What have you said you will do? What are the programs you are supporting? How much money do they cost? Are you delivering what your program is expected to do? If not, we then explain to Parliament what the variance is and then come to a recommendation on how to close it.
Forty people compared to tens of thousands working in these different ministries is not a fair matchup. We are trying to say: This is what we think you should be doing. From the perspective of the auditing profession, it is more absolutely disciplined and focused on saying, "This is what your programs said they would deliver. Are they? Yes or no?"
Senator Finley: This leads to a whole range of questions, I guess. It strikes me that you have 40 people — 5 physics experts, 5 chemists, biologists, whatever — and it seems to be a daunting task when one considers the explosion, certainly over the last 20 or 25 years, of environmental and natural resource issues. That is the first thing, and it is more of a comment. It just strikes me as being very difficult. How do you triage? Do you have a triage system, and what is it based on? Is it based on media coverage? Is it based on petitions? Is it based on whistle-blowers? How do you triage to do this?
Mr. Vaughan: I may ask Ms. Leach to expand upon it a little because we are going through a strategic planning process, and it is based essentially on materiality. It is based on the importance of two things. One, how big is the federal program in terms of dollar amount and what is the risk of that not working? The second one is not so much the dollar amount but what is the risk of that program failing?
For the offshore boards, for example, it is quite a small budget. Nova Scotia, I think, is $40 million and Newfoundland is $80 million or thereabouts. Compared to the billions of dollars in other federal programs, that would not get through the materiality threshold. However, if there were a catastrophic accident, like Deepwater Horizon, that then becomes important.
We go through a triage or strategic planning process based on allocating risk. It is not based on media reports. It is informed by petitions, but it is not guided by petitions. We will go through what are the key federal programs and then what are the risks inherent within those.
Senator Finley: Are you the gentleman who makes the final decision on whether you go on a project or you do not go, or the range of the project?
Mr. Vaughan: At the Office of the Auditor General, a whole bunch of people are involved in the process. I would come forward with a recommendation, but for the final clearance we have someone called a product leader, Neil Maxwell, who will be taking over as the interim commissioner at the beginning of April. He looks at all the performance audits, legislative audits across the OAG, and then ultimately the Auditor General of Canada. We have a process, which is again because we are integrated; we are inseparable from the other branches or parts of the Office of the Auditor General.
Senator Finley: I would imagine, with the ratio of people on your audit staff to the big wide world out there of natural resources and the environment, that you must have to take a lot on trust. If you say, "Okay, ABC promised to do something" and you go back some time later to determine if, in fact, they have done this, I would imagine that you have to trust a great deal in what they tell you or what their opinion is of where they have gone. Does that cause an issue with you?
Mr. Vaughan: There is that old Ronald Reagan phrase: Trust, but verify. As an example, the chapter before you on the offshore petroleum boards, that 25 or 30 pages has I think now 10,000 different pieces of evidence. Those are reports. We have legal access to all government documentation short of cabinet confidence. When we say something in those reports, you can take it to the bank. There is a high level of assurance, a high level of evidence-based reporting that goes into all OAG reports.
I will give you one example. If an event happens subsequent to the period of the audit, we will put in a short paragraph saying the department told us, and that would be an example where it did not go through the full rigour that we would do within a full audit. Those are quite rare. Again, this is an important instrument to provide assurance to parliamentarians, so it is not based on our opinions; it is based on the evidence from the teams. These are incredibly professional, hard-working people who work right across the OAG. It is something Canadians should be proud of. When they go in, they provide assurance. They provide all the evidence to the statements that are in these reports.
Senator McInnis: With respect to the financial assurances for environmental risk, you have tallied it up to be that the federal government has, in various sources, something like $11.6 billion, and you have raised some doubt as to whether those funds are sufficient to deal with decommissioning or reclamation. I am thinking it must be difficult to calculate what the costs would be, say, for example — heaven forbid — an oil spill off Hibernia, a tanker or a disabled gas project in Nova Scotia. How do you do that? How do you calculate it and say that $11.6 billion is not sufficient?
Mr. Vaughan: I may ask my colleague Mr. Shaw, but very briefly, we did not calculate it ourselves. We looked at the models and the procedures that the government had in place to do those calculations. Then we asked whether they look like they are credible enough. We would not come forward with: "The government has said $11.6 billion. We think it should be $12.4 billion." However, we will kick the tires and say, "Does this look like it is a credible process to come up with that number?"
We have said that for the guarantees for the nuclear sector, the $11 billion had actually looked like it was reasonable, based on all the steps they go through. They review them every three to five years. We said that that looks like it is something that people could take assurance from.
By contrast, with regard to the $500 million for the mines north of 60, we found three examples where there were shortfalls based on the government's own calculations. The mining operators were supposed to put up more money than the government received. There again, we would say, "The government has said $500 million. It probably should be more based on the government's own methodology for calculating it."
Senator McInnis: What leverage does the government have to increase? The project is under way. How do they lever this?
Mr. Vaughan: It is basically the same principle as — I am sure you know this, senator. To me, it is like making a down payment on renting an apartment. If the landlord requires three or four months, it is up to the discretion. Similarly, the federal government sets the guarantee threshold. They do this through a calculation between what the operator proposes — they hire an independent consultant to look at the amount the operator proposed and the amount the government proposed to come to some agreement on what the level should be within the mining sector. We said that is a good system. We also said that the models that Aboriginal Affairs and Northern Development Canada uses were credible models and that the systems for the third-party verification were adequate for the challenges. If there are instances where it is inadequate, then the federal government can go back under its own authority and say we need more money from that specific company.
Senator McInnis: I will move on to shale gas, which is in the domain of the provinces, although I realize the federal government and provinces are doing a study into hydraulic fracturing. Are either the provincial governments or the federal government able to put assurances in place for this? I was astounded to hear that there are 200,000 hydraulic fracturing wells. What happens in those instances with respect to potable water and any damage to the environment?
Mr. Vaughan: I have to get back to you on the assurances. Our mandate is only to look at the federal government. As you said, most of this is in provincial jurisdictions, so the permitting is within the provinces, which is outside of our area.
The Quebec Auditor General's office came out two years ago reporting issues around the permitting and authorization process and assurances related to that, but we can follow up and I can get you some information. What we did say more broadly is where there is federal jurisdiction — and most of it is provincial — and that was in the chemicals used, if they are listed as toxic, then there is a clear federal mandate and authority. We asked two questions: What chemicals are being used? Do they pose risks? Right now Health Canada and Environment Canada said they do not know. It was that simple. We attached this as an audit because we concluded there were no programs to audit at the federal level dealing with shale gas at this moment.
Senator McInnis: Yes, it is highly emotional. This matter relates to marine protected areas. Apparently, we are at 1 per cent and we were supposed to be at 10 per cent, according to certain agreements put in place.
Procedurally, how do they establish these things? I presume costs are associated with any marine park or marine protected area. What kind of time is it? In Nova Scotia, for example, there is a pristine area off the eastern shore that probably would fit into this, but how do these come about? I am trying to imagine public servants looking, but then I am thinking about Ducks Unlimited, the Ecology Action Centre, the nature trusts and those types of organizations that have come forth. How do you expedite it?
Mr. Vaughan: My colleagues will get a chance to talk as well because I can blather on. I will ask Mr. George Stuetz to come in here.
The process is long. In Gwaii Haanas, for example, it took 20 years. Regarding negotiations, in addition to the groups that you have mentioned, it is the fishing communities and then, if marine protected areas are created, there are restrictions. The communities are affected, so there is both an economic and a livelihood issue. First Nations are critically important in these consultations. They take anywhere between five to twenty years. The federal government has the jurisdiction on oceans under the Oceans Act, but the process is complicated. At the end of the day this was a chapter where I am not so much focused on the 1 per cent because each one of those marine protected areas that have been established are things of wonder; that is, things that Canadians should be proud of. The process is complicated; the consultations are complicated.
Senator McInnis: Is Parks Canada part of this? Does this constitute a national park, for example?
Mr. Vaughan: It is a similar analogy. Parks Canada is one of the departments and the other is Fisheries and Oceans Canada. Parks Canada has two and Fisheries and Oceans have the other eight. It is the same analogy. It is like what we know about Parks Canada, going and visiting Fundy National Park, or Banff, or Jasper. These are often called marine parks. Because so many are not out on the ocean, it is hard for Canadians to visualize. Many people in Quebec, for example, have gone to see Tadoussac and the Saguenay/St. Lawrence. It is one of the most important tourist destinations in Quebec for whale watching. We made the point in the chapter that in addition to providing a haven to protect those species, it generates over $150 million a year in tourism. There are costs and tradeoffs in creating these marine protected areas, but there are also economic benefits.
George Stuetz, Director, Office of the Auditor General of Canada: You were talking about how these are set up. There is Parks Canada and Fisheries and Oceans Canada. Environment Canada also has a role, but we did not audit them.
The process they go through is simply identifying a number of potential sites. They do an extensive amount of scientific assessment in terms of what these sites bring or do not bring to the table. They narrow down the sites to a number of final potential ones and then go through a process of consultation with industry, stakeholders, Aboriginal communities, other government departments, and so forth, in getting their opinions in terms of the social, economic and environmental aspects of this particular site.
That process usually takes a fair amount of time. The science sometimes does not take quite as long as the consultations and taking everyone's opinion into account. At some point a decision is made by the ministers involved to declare one of those sites and then to go through the legislative process to declare it a site.
[Translation]
Senator Chaput: My first question is about the petitions. If I have understood correctly, when you receive a petition, you assess its relevance before you submit it to a department. Is that correct?
Mr. Vaughan: We begin by determining whether the petition comes under federal jurisdiction, since we have received petitions that fall under the jurisdiction of other governments — provincial, municipal or other.
Senator Chaput: If the petition is not relevant, do you return it to the petitioner and tell them that the case is closed as far as you are concerned?
Mr. Vaughan: Our involvement stops there, but we can indicate the relevant body that can deal with their petition — be it at the provincial level or at the private level. We suggest the steps they should take, but our involvement in the petition ends there, as it does not come under the federal government's mandate.
Senator Chaput: When the petition is submitted to the appropriate department, that body is responsible for responding to it. Do you receive a copy of that response, or is that no longer your responsibility?
Mr. Vaughan: Yes, departments send us a copy. In many cases, a number of ministers have to get involved. For instance, a petition that concerns the health of Canadians would require the involvement of the ministers of Health Canada, Environment Canada and other departments.
Senator Chaput: So a petition could concern several departments?
Mr. Vaughan: Exactly.
Senator Chaput: My other question is about financial guarantees for environmental risks. That is under Chapter 2. What information do you need to assess the adequacy of financial guarantees?
Mr. Vaughan: There are two ways to make that assessment. We examined the processes used by departments to assess financial guarantee amounts. We analyzed the department's model and found some shortcomings in the process for setting financial guarantees for mines in Canada's north. We audited the verification process to determine the final amount, and we noted the shortcomings in the report.
There is another way to make that assessment. I am talking about absolute limits and liabilities. That applies to nuclear facilities, offshore platforms and oil tankers. We compared other countries' limits and liabilities. We began by assessing the Canadian limits for platforms and compared them to those applied in Great Britain, Norway, Greenland and the United States.
Senator Chaput: As far as adequate processes go, do you have general process guidelines, which you then adjust according to the situation?
Mr. Vaughan: The Treasury Board Secretariat has some guidelines when it comes to management systems in general. We also looked at each department's practices and guidelines. We took note of any issues in the audits with regard to practices or guidelines.
[English]
Senator Finley: I have a supplementary question to my colleague's questions on petitions. My memory could very well be wrong. At my age, it usually is.
The Commissioner of the Environment and Sustainable Development can accept and utilize petitions, but the Auditor General cannot?
Mr. Vaughan: Let me ask Ms. Leach.
Kimberley Leach, Principal, Office of the Auditor General of Canada: No, the Auditor General could also use petitions to inform their office as well.
Senator Finley: It was not very clear. Thank you very much.
[Translation]
Senator Bellemare: I am pleased to be able to talk to you. Environment Canada plays a stewardship role in achieving and maintaining a clean, safe and sustainable environment. It is stipulated that the department's programs are mainly aimed at achieving a clean environment while minimizing threats to Canadians and their environment from pollution. The goal is to achieve a safe environment by giving Canadians the tools to make informed decisions on changing weather, water and climate conditions.
Environment Canada's mandate is very broad. It is not just a matter of risk assessment because there is a great deal of uncertainty surrounding environmental issues, and that worries Canadians. Unlike risks, uncertainty is difficult to forecast and plan for.
Moreover, we should be reassured by Environment Canada's mandate, but that uncertainty makes it very difficult to achieve the set goals. Much of the cost involved in the development of our natural resources is externalized, and we are not even able to assess it — at least not always.
You have carried out assessments and compliance analyses. How does Canada compare to other countries? You told us that other countries have come to see how you did your assessment and that Canada was a model. How does Environment Canada compare to its counterparts around the world when it comes to program implementation?
Mr. Vaughan: The law sets a mandate for Environment Canada. Of course, that mandate is very broad and clear. It consists in protecting the health of Canadians and environmental quality. I think it all depends on what the issues are.
For instance, Canada announced that it would adopt the United States' climate change approach to reduce greenhouse gas emissions. Canada decided to adopt the U.S. government's approach. There are other examples, such as toxic substance assessment, where Canada is truly a leader.
The European Union is very interested in the approach Canada uses to assess thousands of chemical substances that could potentially pose a risk to the health of Canadians. There are also approaches for water quality protection. For example, we have noted some issues in the approach the federal government uses to monitor rivers and lakes. A study was presented at the Davos meeting, three weeks ago, and Canada was compared to other countries. I think that Canada is ranked 27th.
There are also OECD comparisons, where Canada is measured against other countries. We have compared specific approaches in various cases.
Senator Bellemare: The second part of my question has to do with the estimates. I do not know whether you can answer it. In your compliance audit analysis, you made some recommendations and comments. We see that, in terms of budget spending, increases have been made to some sectors' total budgets, while other sectors experienced cuts.
Can you establish any connections between your study of Environment Canada's budget assessment and allocation, and the department's mission and programs? Can you make suggestions and say that, in the end, the subsidies and contributions have perhaps increased too much compared with anything else?
Mr. Vaughan: Yes. I think that is a very good question. This is a major concern. I can give you a few examples because, when we examined the programs for this report, there were obviously some fiscal responses for 2011 and 2012. However, so far, it is still difficult for the department to identify the specific impacts of the budget cuts in the programs we have assessed. We know what the department's total budget is, and we have a comprehensive perspective of the budget for each program.
It is still very difficult to determine what impact the budget cuts have on the Fisheries and Oceans Canada's program for protecting marine ecosystems. Finally, I think you are right in saying that it is very important to have a clear idea of budgets for each program and to know what the impacts of changes to those budgets are.
Senator Bellemare: Some cuts have been made, but certain sectors also received increased funding. Money may need to be reallocated, but I assume that extends beyond the limits of your mandate.
Mr. Vaughan: Yes, of course. As you noted, there are also some budget increases. For instance, I mentioned an increase in the National Energy Board's budget for pipeline inspection. I think that the Canadian Coast Guard's budget for the purchase of new equipment has also been increased.
So there are some cuts but also some increases, and since impacts are ongoing, it is difficult to say what exactly the final budgets are. However, I think you are right, Madam Senator, as we clearly need that information to know what the budgets are for each program.
[English]
Senator Black: Thank you, Mr. Vaughan and your colleagues, for the work that you have done, not only today, but the very important work that you do on an ongoing basis.
I have spent the majority of my career in the energy sphere, so I understand very clearly the importance of the element of social licence, and I know this is an issue that you would be very alert to. With that in mind, and with the experiences I have had over many years with the Department of Fisheries and Oceans, Parks Canada and with other arms of the federal government, it is very important that the work you do is seen by Canadians as being relevant. If it is not, the whole concept of industry vis-à-vis the environmental groups and the social licence chips away.
My question is straightforward, and I do not want you to think there is any agenda behind it: How practical is the lens you use in looking at the projects you look at?
Mr. Vaughan: For this one, I will let Ms. Leach answer. However, very briefly, I think we are all about practicality. I would also say that we would not pretend that we have worked in the energy sector for 20, 30 or 40 years. We will call upon a wide range of outside experts who will offer us advice independently.
Also, we work intensely with both offshore boards. At the end, they have spoken well of us both publicly and also privately. For instance, Max Ruelokke, the outgoing CEO of the Canada-Newfoundland and Labrador Offshore Petroleum Board, someone I respect immensely, sent me a memo privately saying, "Your audit, I am convinced, will lead to better management decisions and operations of the board."
We are entirely about practicality; we stay away from theoretical assumptions.
Ms. Leach: I will speak mostly about the offshore board's audit, Chapter 1 of the report. We began this a couple of years ago. We published a report in December 2010 called Oil Spills from Ships where we made some remarks about the preparedness of Transport Canada and others in terms of a major spill from ships. We did not cover platforms at the time. At the same time, the Deepwater Horizon encountered a blowout such as the world had never seen.
At that time, we came to committee to speak about the Oil Spills from Ships chapter. People were asking questions about the boards and the offshore situation. That is an example of where our strategic planning process would include that sort of an issue. In fact, we were asked by order-in-council to conduct an audit on the offshore boards and to report matters of significance. We did that as a result of that order.
That is just sort of an addendum of practicality.
Senator Black: How do you work with the provincial regulators, if at all?
Mr. Vaughan: This is a great question. They are not here, so they cannot answer, but we actually started the offshore petroleum board audits with our provincial counterparts because the boards are joint federal-provincial.
For their own reasons, they decided not to pursue this. My understanding is that they decided not to proceed because, under the Atlantic Accord, there is a description of privileged information that they anticipated would lead to some restrictions on access to the documentation they would be able to get. Therefore, we decided to hang in there, and I am glad we did. We had nothing but absolutely outstanding cooperation from both boards and from all the federal agencies and departments we worked with.
That would be an example. We initiated that to do this jointly but, unfortunately, it did not pan out. However, I think it is important to do where there is federal and provincial jurisdiction. Environmental responsibilities are primarily at the provincial level, so I think it is critically important that we work with our provincial counterparts to the extent we can.
Senator Black: Is that what you intend to do or what you do?
Mr. Vaughan: That is what we do in theory. I did not get one in the five years. It was not for lack of trying.
There are different reasons for it. Our methodologies and the ways we go through and do an audit, it is at least 12 or 14 months. We have different standards. There are different timelines. It goes to the senator's question about how we plan and when. Synchronizing these things is difficult.
We have an agreement with the provincial auditors of Alberta to look at the joint federal-provincial plan and the ongoing monitoring of the oil sands. We are planning that for 2014.
I think it is important that the legislatures in the provincial capitals, as well as Parliament, have as complete a picture as possible where there is federal-provincial shared jurisdiction or programming.
Senator Callbeck: On the fossil fuels sector, you talk about tax incentives, and you say that they provide a significant amount to this sector. What do you mean by "significant"?
Mr. Vaughan: This is a great honour for us to come to the Senate, so I want to ensure that all my colleagues have a chance to talk. This is one of our young, talented professionals who will be leaving in a month. He did all the heavy lifting on this, senator, and I will ask him to speak.
Liohn Donenfeld-Sherer, Audit Professional, Office of the Auditor General of Canada: Could you please repeat the question? I was approaching the table and missed part of it.
Senator Callbeck: It is on the fossil fuel sector. The presentation said that "the study identified that a number of tax incentives remaining in place provide a significant amount of support to the fossil fuel sector." What do you mean by "significant amount"?
Mr. Donenfeld-Sherer: It is difficult to say exactly how much. The Department of Finance Canada, because of the nature of these tax incentives, cannot give estimates for a number of the incentives at all and cannot give specific numbers for many of the estimates.
One example has been the accelerated capital cost allowance for the oil sands, which was estimated at $300 million a year. That is being phased out, but over our study period, that amounted to about $1.5 billion.
Another example was the flow-through shared deductions, which is not exclusive to fossil fuels; it is available to a number of resource sectors, including mining. That amounted to close to $2 billion over our study period. Finance Canada is not able to say exactly how much of that $2 billion would have gone to fossil fuels versus other mining developers.
Beyond that, there are a few other accelerated deductions available to the fossil fuel sector for which Finance Canada does not have estimates at all. The answer to the question of what we consider significant is "potentially several billion dollars over the past five years."
Senator Callbeck: Several billion.
The other question I had was on the financial assurances mentioned in the briefing. You said that you have compared our limits with other countries and that we are lower; I believe it said we were even lower than the United States. We must be extremely low, if that is the case, because if you look at the BP oil spill in the Gulf of Mexico, was not the liability there something like $75 billion and the cost now is estimated at over $40 billion?
Mr. Vaughan: Yes. The U.S. absolute liability limit is $75 million. When the White House commission looked at what happened with Deepwater Horizon, one of their observations was that that limit was absolutely inadequate. The cost now before the courts is $70 billion. However, it is important to say that the absolute liability is essentially a "no fault," as in the United States, and then costs above what the limit is in Atlantic Canada, which is $30 million. The last time that was looked at was over 20 years ago. It is not to say that would be the total cost the polluters would pay, but in order to get more, courts would have to determine either negligence or fault.
Senator Callbeck: Is the government actively working at increasing these limits?
Mr. Vaughan: Yes. The government has our reports for a couple of months before we release them. The Minister of Natural Resources, Mr. Oliver, said they were going to go back and review the absolute liability limits and align them with that of other countries.
Senator, the other area where there was misalignment was in nuclear installations, and the last time that was looked at was over 30 years ago. The limit there is $75 million. Natural Resources Canada has acknowledged that that is inadequate and they have gone through several times to change those. It requires a legislative change, I understand, but their own analysis is now saying it is probably closer to over $900 million.
The government recognizes that this is out of date and inadequate, and they have announced that they will update them and put them more aligned.
Senator Callbeck: Have the amounts gone up in the United States Since that BP spill?
Mr. Vaughan: It has gone one way; it has gone up. Initially it was $25 billion and it went up to $40 billion. Now, I believe in the last two weeks that the claimants have put in a total for $70 billion. I believe the Federal Court's review of this just opened two days ago. The court case is now beginning, and this will go on for a while.
Senator Callbeck: I mean the liability limit.
Mr. Vaughan: Excuse me. The liability limit, to my understanding, is still $75 million in the United States. The White House commission noted that it was totally inadequate, but that is yet to be changed. There is a whole series of recommendations which the U.S. federal government, I assume, will be enacting in the future.
Senator Finley: I could argue with Senator Callbeck on the validity of some of these reports, particularly the timing of being placed twenty-eighth. Also, there are many other reports that show us actually well ahead of the United States, so it cannot be that low.
I have a couple of quick questions. When I asked about the Auditor General having the right to accept petitions, is it not a fact that it is only on environmental issues that the auditors can accept petitions?
Mr. Vaughan: Under the law, it is both environmental and sustainable development. The rubric of what is in and what is out of sustainable development is actually quite large. Sustainable development issues can include social issues, for example. The petition process is not exclusively related to pollutants or fresh water. They can look at economic issues and other ones.
Senator, you are absolutely right; Canadians now think of it as an environmental process.
Senator Finley: My final question: You mentioned that you make extensive use of studies and input from third-party groups on specific subjects. Can you tell me, annually or whatever, the dollar value you spend on consultants?
Mr. Vaughan: I can find out for you, senator. Often we will interview people and they will do it without any fee. For example, we went to the Canadian Association of Petroleum Producers and I met with the president and several vice- presidents. They did not have to do that. They took a couple of hours to walk through their perspectives on things. The teams will typically interview people in companies, in academia, in groups. The cost will be the travel. I can provide the number to you, but my guess would be that for every audit, the total cost for consultants is around $20,000. It is pretty modest. It would generally be two face-to-face meetings over two full days and some back and forth and drafts. Our consultant bills are actually very modest.
Senator Finley: Do you maintain some record, perhaps in the public domain, of the people you consult with? Is that available?
Mr. Vaughan: It is not, and I will tell you why. When we go into an audit process — and I am sure you can appreciate this, senator — there is a high degree of confidentiality in terms of the scope of the audit, for example, the timing of the audit and the time period of the audit. That is important because the office takes with the utmost seriousness that the first people to see this are you; it is Parliament. Often we will have advice from people who do not want to be named. We have, for example, former deputy ministers. They will be advising us and they wish to remain discreet. There are a couple of former prime ministers, for example.
Senator Finley: I can understand that. I am talking about historically, going back; not last year, because that may be current, but the year before that and the year before that. For example, at this point in time, we almost have to register, if you bump into what is regarded as a lobbyist at a cocktail party — as a senator, you have to note that down. How does someone like me believe that your consultations are balanced and not being edged one way or another if I do not know who you are consulting with?
Mr. Vaughan: That is a good question. I am sure there is some office methodology on this somewhere, which I would be glad to provide to the committee on what the process is for consultations, either through contracts or more broadly.
I understand your point. We have to make sure that we are objective and unbiased. Therefore, we go through a lot of rigour to make sure we have as many different perspectives as possible. However, at the end of the day we sign this. We are not indebted to any group or any perspective. The only thing we are indebted to is that we conform with the standards of evidence, objectivity and impartiality that the government has handed down.
Senator Finley: I fully understand and appreciate that. The Senate has to work in a much similar way. However, if I have to basically tell the world every single thing I do, which is almost where it is at, these are very important issues with very strong passions and there are extreme extremes in them, and I want to be relatively assured that the expertise you are calling on provides that same kind of balance. What I would like to know is your mandate or what regulations cover you in this respect, and would it be possible, retroactively, to look at the people you have sought information and advice from?
Mr. Vaughan: Senator, we will get back to the committee and answer it as best we can.
[Translation]
Senator Hervieux-Payette: I apologize for being late. The shale gas issue is a major concern for us in Quebec. It seems to me that this matter is still not objective — whether people are for or against. In British Columbia, they have been extracting shale gas for a while. In Quebec, opposing shale gas development has become almost a religion. I would like to know more about that. Can you tell me if people know how to extract shale gas? Are there any safe methods out there? It is being said that Europe will extract shale gas. Mr. Obama announced that the U.S. will use it, thus denying Canada some parts of the market.
It is important for Canadians to know whether shale gas is a threat or a benefit. Are all the Europeans and Americans wrong, or are they lacking the right information?
Mr. Vaughan: I think there is a great deal of uncertainty in that sector. Many questions are being raised, and there are a number of studies available on that issue. We have considered the federal government's mandate. The assessment of chemical products used in hydraulic fracturing is a very specific area. We have found that the federal government has little information for identifying what chemical products are used in the sector and what the risks for the health of Canadians and the environment are.
That is part of the federal government's mandate, but we have found that the information for determining the risks is lacking. We were not making a risk assessment; we were saying that the data available is insufficient for us to inform Canadians on the specific issues pertaining to the use of chemical products.
Senator Hervieux-Payette: Mr. Chair, I think saying that the federal government does not have information is a bit strange. There are surely some public servants who know how to read. There are surely some studies that have been conducted elsewhere. There is no need to reinvent the wheel. Policies have been in the works for decades, including patients' medical records. I am saying that because the federal government has invested billions of dollars into this area, as have the provinces, and we still have nothing to show for it. Could we not work with the provinces? If this is being done in British Columbia — a province that is usually environmentally responsible — could we not rely on their expertise when making decisions? The Americans and the Europeans are probably not making decisions without conducting studies.
Could we not get away from the idea of a federal study and move toward other studies — such as the one by the Journal of Medicine — that are known and shared by all the scientists around the world? It seems to me that information in this area should be shared, as that would enable us to assess this issue.
Mr. Vaughan: That is probably a question for a deputy minister. However, there are many studies on this topic, including Washington's Resources for the Future. I highly recommend it. That study provides literature and evidence through independent studies. The group involved completed the report two weeks ago.
As for the issue of co-operation between the federal government and the provinces, that is a question for the deputy minister.
Senator Hervieux-Payette: I am talking strictly about the studies themselves. If we do conduct studies, we will not be going much deeper than our neighbours. I would like your office to send us the exact reference to what was produced in Washington, so that our clerk can give us the information.
Mr. Vaughan: With pleasure. Resources for the Future is available, but there are other studies out there, and it would be our pleasure to send you a list of recent studies.
[English]
The Deputy Chair: It looks like we have exhausted all our questions from senators, unless there is anyone else with a question.
Mr. Vaughan, do you any final comments as we recognize the fact that you will be moving on to greener pastures?
Mr. Vaughan: No, just to say thank you. It is an honour being before the Senate. We are here always at your disposal; we work for you. Thank you for inviting us. It is an honour and a pleasure to be here.
The Deputy Chair: On behalf of all senators, we thank you for your attendance.
(The committee adjourned.)