Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 45 - Evidence - May 10, 2018
OTTAWA, Thursday, May 10, 2018
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:01 a.m. to study the subject matter of Part 5 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures.
Senator Rosa Galvez (Chair) in the chair.
The Chair: Good morning, and welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Rosa Galvez. I am a senator from Quebec, and I’m the chair of this committee.
I will now ask senators around the table to introduce themselves.
Senator Neufeld: Senator Richard Neufeld, British Columbia.
Senator Wetston: Howard Wetston from Ontario.
Senator Richards: Dave Richards from New Brunswick.
Senator Cordy: Jane Cordy from Nova Scotia.
[Translation]
Senator Massicotte: Paul Massicotte from Quebec.
[English]
The Chair: I would also like to introduce our staff: the clerk, Maxime Fortin, and our Library of Parliament analysts, Sam Banks and Jesse Good.
Today, we are continuing our study on the subject matter of Part 5 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures.
Part 5 of the bill deals with the greenhouse gas pollution pricing act. We have three panels today. In our first panel, we will hear from one organization, the Canada West Foundation, Martha Hall Findlay, President and Chief Executive Officer. Thank you very much for joining us. I’ll invite you to proceed with your statement, and, after that, we’ll go into a period of questions and answers.
Martha Hall Findlay, President and Chief Executive Officer, Canada West Foundation: Thank you very much, everyone, for including the Canada West Foundation in these deliberations. Just a brief introduction for those of you who don’t know us. The Canada West Foundation is a public-policy think tank based in the West of this wonderful country, formed almost 50 years ago, to some extent out of a sense of frustration that major decisions affecting the country were being made in Central Canada but really without a larger western perspective being included in the decision making. I don’t know that that’s necessarily still the case, but we still continue to do work with a focus on the economic and social prosperity of the West of the country, but with a very strong view that what’s good for the West is certainly good for the country as a whole. We focus on natural resources, human capital and trade and investment. Those are our three main policy centres. We are very proud of being evidence-based and non-partisan, and we try very hard to live that every day.
On the issue at hand, we like to point out that we are very strongly in favour of pricing carbon, but we are also very strongly in favour of building infrastructure to get our resources as a whole, but in particular, given today’s challenges, our energy resources, to market, including to the coasts, although right now we’re really only dealing with an effort to get to one.
Needless to say, and particularly sometimes in the West, the fact that we support a carbon price doesn’t exactly make us friends in some areas, and the fact that we support building energy infrastructure does the same in different parts of the country. We like to think that that actually makes us friends, but they’re not necessarily always the same ones.
But we do like to point that out to really focus on the fact that the evidence for this country, in terms of our economic prosperity, suggests that we do need to capitalize on the resources that we have, and we need to be able to get them to market. The evidence is also there that climate change is clearly an issue that we need, as the rest of the world does, to address, and we are firmly of the view that, if we want to reduce greenhouse gas emissions, putting a market price is the way to go about it.
I will read some comments, but, frankly, I’m very much looking forward to engaging in some discussion and hearing the questions that you have.
Big picture key messages: You will be hearing from my friend at Ecofiscal after I’m finished here this morning. We are very strong supporters of their work. So I don’t need to belabour the detail that Ecofiscal and other organizations have done.
But enough to say that, from our perspective, carbon pricing achieves emission reductions at the lowest possible economic cost, that being a non-partisan comment. If you want to do something, do it as cost-efficiently as possible. That is a big, important aspect for us. Carbon pricing creates demand for low-emitting technologies and drives technological innovation to reduce emissions. We see that daily in the oil sands, in particular, reduction of emissions but also, interestingly enough, reduction of cost, so there is a win-win happening, as I said, virtually every day in the technological innovations in energy.
Carbon pricing works. Study after study shows that in jurisdictions with a carbon price, emissions are lower than they would otherwise be.
Reducing emissions through other mechanisms, such as regulations or incentive programs, does not reduce the cost of emission reductions. It just hides them. Not reducing emissions, of course, has costs as well. The cost of climate inaction is also real.
The fact of whether to price carbon or not is a matter of choices. It’s a choice between reducing emissions at the lowest cost or reducing emissions through more expensive measures. It’s a choice between letting people and businesses reduce emissions in the way that makes the most sense to them or having the government tell people and businesses how they should reduce their emissions — the value of a market mechanism. It’s a choice between putting smart policies in place to reduce emissions now or shrugging the responsibility off to later generations. It’s a choice between being transparent about the costs of reducing emissions or hiding those costs through more regulations, incentives and other measures.
I would really like to talk about jurisdictional authority, but I won’t do that in my comments. So this is just a throw out. I hope somebody asks a question on that because I want to talk a little bit about some of the arguments that we’re already hearing, both in the House of Commons and here, in terms of whether we should be pricing carbon or not. One of comments that we heard was: “Normal people cannot reduce their emissions. They need to drive, heat their homes, et cetera, and they cannot do this without producing emissions. For this reason, a carbon tax essentially punishes people for living their lives.” That’s a quote. It’s not me saying that.
First, implementing a carbon tax is not meant to punish anyone and certainly not for living one’s life, just like income tax is not meant to punish people for working, and a corporate tax is not meant to punish companies for making a profit. A carbon tax is meant to reduce emissions by making it lucrative to figure out ways to reduce one’s own emissions in ways that make sense. This is a lot better than the government telling you how to reduce your emissions. It is important that people have those choices to make.
Second, it’s true that many people will not be able to avoid emissions and paying a carbon price immediately. They will still need to fill their car with gas to get to work or drive their tractor, although I know there has been some discussion about whether agricultural fuels will be subject to it or not. This fact is simply an argument for starting with a low carbon price and increasing it over time and using carbon-tax revenues to reduce costs to people elsewhere.
I will do a shout out to the effort of the Government of Manitoba. I can say that an awful lot of people in Manitoba really dislike the idea of a carbon price, but I personally, and certainly we at the Canada West Foundation, liked the effort of the government to say, “We’re not happy with this. We’re not really happy with the federal government saying this is what we have to do, but we recognize that there’s an issue that we all need to deal with. We’re going to come with a made-in-Manitoba solution.” Nothing is perfect, and a lot of discussions are to be had, but I thought that was an effort to come to the table and work out something, which I think we could do with a lot more of right now in this country.
Starting low reduces the initial impact of a carbon price when it is harder for people to adjust, but over time, with clear market signals from carbon price, people can act to avoid carbon taxes through their regular investments. For example, when a new vehicle is needed, people can choose to buy a more energy efficient one to reduce their emissions, but not everyone can buy a new vehicle tomorrow, and hence the importance of coming at this with some gradual approach.
Over time it will also be easier and cheaper to make low-carbon investments as innovation creates new technologies and drives costs down. Markets drive innovation when there is value to be captured. A carbon price creates value to be captured from reducing emissions. As carbon taxes increase, they will become easier and cheaper to avoid.
Another quote: “A carbon tax is just a cash grab by governments that implement it. No jurisdiction has yet implemented a real revenue-neutral carbon tax.”
This is our response: The key is that the primary purpose of a carbon price is to reduce emissions. What happens to the revenue after the fact is a different policy question entirely. And it is a policy question that should rightfully be debated. But the mantra that somehow any additional revenue must be revenue neutral is not the point. The point is that we want to impose a price on carbon to reduce emissions.
I can remember a time not that long ago when there was an effort on the part of the government to implement a carbon price, and the starting point was we think we should put a price on the things we want less of and reduce the price on the things we want more of, so the whole point was not a catch phrase of revenue neutrality, but that it would be better to price carbon and reduce income taxes. It was a different approach to the policy question.
My last quote here is this: “A carbon tax will just push investment and emissions out of Canada and somewhere else. Canada loses economic benefits and the world still has the same amount of emissions.”
This would be very true with an across-the-board carbon tax that does not take into consideration emission-intensive, trade-exposed industries, but the federal bill does take those into consideration. It uses an output-based allocation system just the like the one in Alberta to reduce the cost burden on industries that face global competitive pressures while still maintaining the price incentive to reduce emissions.
There are people in different parts of the country who think it doesn’t go far enough. There is a significant concern about trade-exposed industries and whether or not their concerns will be fully addressed. I suspect that’s exactly what you and your colleagues in the house are supposed to be doing with this bill to determine whether it addresses those concerns effectively or not. Hopefully we can get more of the provinces to come to the table and engage in that discussion.
The Chair: Thank you very much for your statement.
Senator Wetston: Thank you for coming today. I did a bit of research on the Canada West Foundation. Congratulations on the work that you’re doing, particularly remaining non-partisan and attempting to do your job. It may be difficult from time to time.
Given your background in law and politics, I have a lot of concern about the capacity of the country to move things forward in the federation that we have where obstacles often occur between the federal government and the provinces. I don’t want to get into issues of downloading responsibilities to provinces or cooperative federalism, but I think you understand where I’m coming from. There was a comment from the Canada West Foundation about electricity grids, and the notion of an east-west grid and how that would help alleviate some of the challenges around greenhouse gas emissions.
We have more north-south grid development and have for many years with much less east-west grid development, which could be an answer to some of the issues around greenhouse gas emissions. Do you have any thoughts about that issue in particular? How did we get to this place?
Ms. Hall Findlay: When you said, “You may not have any thoughts about this,” a couple of people around the table said, “She probably does.” That is our job at the Canada West Foundation, to look into and research and analyze these.
Right now we’re in the middle of preparing a much larger report on what should be done in terms of grid and transmission capacity, particularly for the West. There is the big chunk in the middle of the country where it may not make sense to have a full east-west grid, but even among the four provinces in the West, there has been talk over decades about finally getting a western grid because we don’t have one. It’s not just the country; even in the western provinces, we sell far more and have way more going south.
Interestingly enough as an anecdote, when we’re talking about the struggles and building energy infrastructure, it’s not just the pipelines. Manitoba is having trouble building transmission lines, even ones down to the United States. We believe that the time is now to significantly revisit this, that unfortunately political pressures have stymied the effort in the past. Way too often we’ve had one province or another saying, “We don’t really want electricity coming from over there because we actually have coal-fired electricity plants, and that would sacrifice those jobs.” In that particular case that would have been Alberta talking many years ago. We’ve had historically political issues that come up that have prevented a really effective western electricity grid.
The time now is very interesting, though, because everyone is making commitments around greenhouse gas emission reductions. Alberta has had a carbon tax for a long time but is making even more commitments. Saskatchewan is making its own commitments. While British Columbia and Manitoba have a lot of hydro capacity, which, of course, is clean in terms of GHGs, Alberta and Saskatchewan not so much. Alberta has made a commitment to come off coal completely, and that has to be replaced somehow. Our hope is that now when there is a need to in fact get cleaner energy in Alberta and Saskatchewan, the opportunity for — let’s cross our fingers — a greater level of collaboration could be done.
As a final comment, we’re big fans of renewables. We’ve been using solar power for almost 20 years. If we could have fully renewable clean energy tomorrow, that would be great. We’re not supporters of the oil industry for the sake of being supportive of the oil industry. We support it because the world will be demanding oil for some time, and we should be able to sell that to the world. But even if tomorrow we were able to satisfy all of our energy needs through renewables, we have no way to actually get that energy from where it gets produced to where it’s needed, so transmission is still a huge issue, regardless of your views on energy sources.
Senator Massicotte: Thank you for being with us this morning. I heard your comments, and everyone agrees that we have to somehow protect and provide a level playing field for high-intensity, trade-exposed firms. That’s the easy part. The minister made it very clear.
But now we come across the proposals, and you referred to it, here is how we will do so. Different countries tried different things. What we’re doing is taking all the heavy industry and the heavy emitters and putting them all in a basket. Then we say, “Okay, they’re probably trade-exposed,” from the size, and we’re going to say, “Okay, we can give you free credits for 70 per cent at this point — that’s for discussion — and the rest, you have to pay a carbon price.”
Is that the right approach? The public servants tell us they did a graph to compare to Alberta, and it cuts across, the same as you would if you protected them with some incentive.
Is that the right model, in your mind, when you look at other countries or even at what Alberta is doing? Is it working? Is that the right approach? It’s a bit arbitrary, but is it the right one?
Ms. Hall Findlay: It is a bit arbitrary. The problem is that it’s being discussed within the limits of this bill, for example, whereas from our perspective, the issue is the overall competitiveness of the country or the regions of the country. So when you talk about trade-exposed industries, the big concern is whether this is going to render my business or our region less competitive, both in terms of products for selling but also whether we’re competitive in terms of attracting other investments.
From our perspective at Canada West Foundation, the larger perspective is the one that should be looked at in a more comprehensive view of what is helping our competitiveness and what is hurting.
I don’t mean to diminish the importance of looking and trying to address the specifics of whether a carbon price is going be hurting particular industries more, and how we can do that. That was my comment earlier. Frankly, we need a lot more engagement by the provinces with the federal government to find out what the details are of that.
Senator Massicotte: Do you have an opinion as to what a better model would be, if that’s not the right one?
Ms. Hall Findlay: My view is that it doesn’t work if we only look at one piece in terms of competitiveness. Frankly, what’s happening in the United States with the reduction of corporate taxes is a huge aspect of competitiveness. A part that we’re not talking about — we can get into the weeds on whether this industry is more trade-exposed and what will happen with that. Those discussions are important. So, yes, I can say that’s an important approach. But I fear that it actually loses sight of the much larger question. If we’re really worried about competitiveness, our investment climate in Canada now is really bad, because we can’t get anything built. Like I said, it’s not just pipelines; it’s transmission and wind farms. It’s very difficult.
You can go into the weeds all you want in terms of the specific numbers. People will have to do that analysis. But I worry that, in doing so, we lose sight of the much larger issues facing our competitiveness.
Senator Massicotte: Can I respond to that? A lot of people are saying —
The Chair: I’m sorry, but we have three panels. I will put you on the second round.
Senator Neufeld: Thank you for being here. I come from a province that put in a carbon price — carbon tax, I guess — before anybody else was revenue neutral, anywhere. That’s changed, and that’s what happens. The leadership at that time said it was going to be revenue neutral and they would reduce taxes for industry and individuals. We did that while we were there. Leadership changes, and pretty soon people are scooping the money for something else. We now see exactly what’s happening. The NDP are taking it and they’re going to spend it on whatever they think they want to spend it on.
To me, that’s a huge problem with the carbon tax that we’re talking about; it’s not all going to reducing carbon.
But in terms of carbon leakage — and you know exactly what I’m talking about there — industries have told us in Alberta that they’ll move south of the border.
What’s your take on those kinds of things? We all live in the same atmosphere. In the U.S., although some states are looking at it seriously, others aren’t. What is Canada West Foundation’s take on how many industries we lose? I think $80 billion has left Western Canada in the last number of years — an estimated $80 billion in investment.
Ms. Hall Findlay: In the energy sector alone, in terms of the departure of investment and the lack of attraction of investment, there are Canadian companies — we see headlines of the big companies and what’s happening with them, but there are mid-level companies, Canadians with Canadian energy assets. They’re continuing those, but they are being forthright in saying that any new investment, they’re going down to Mexico or elsewhere.
I can’t stress enough the comment that I was making in answer to Senator Massicotte’s question: The larger question is the larger competitiveness. We are losing investment, and we are not attracting investment.
If I can, in my short period of time, I will use that as my opportunity to do the jurisdictional piece.
This is not specifically the bill. We support the bill. We support that the federal government is making an effort on carbon pricing. Where we really see big challenges is this whole question of jurisdiction and the whole question of flip-flopping decisions. This is not a partisan question or a partisan comment because, unfortunately, we’re seeing more and more governments of different political stripes doing the same thing. A government makes a decision; government changes; government completely changes its mind. You cannot run a business without any kind of certainty about what will happen.
We can be critical, and we are, of what’s happening in British Columbia in terms of a commitment made by the British Columbia government — very clearly made on conditions we even objected to, to some extent, at the beginning. But a commitment was made on behalf of the Government of British Columbia. That government changes, and the government turns around and changes its mind 180 degrees.
That’s not acceptable, frankly, but — and here’s a caution to a number of politicians who are out in different parts of this country saying, on the one hand, “It is not appropriate for the Government of British Columbia to flip-flop; it is not appropriate, even in terms of constitutional jurisdiction, to hold back what is clearly a federal undertaking. Oh, but, by the way, when we come into power, we’re going to actually say to the federal government, ‘You don’t have the right to involve yourself in carbon pricing; and if and when we get into power, we’re going to flip a decision on carbon pricing.’”
Whatever party you’re in, whatever partisan stripe you have, it is critically important in this country, because we are flip-flopping and changing our minds, whether you agree with something or not. The key for us — and we’re seeing this every day in the loss of investment and the lack of new investment coming in — is that people around the world and people in Canada are saying, “If we can’t count on what’s going to happen from one day to the next, then we’re just going to go somewhere else.”
Thank you for that opportunity.
Senator Neufeld: One more quick one. The government has given us a table on emissions by economic sector. So that is oil and gas; emissions-intensive, trade-exposed industry; electricity; transportation; buildings; agriculture. And there is talk about “Well, we just do away with the oil and gas industry.” That’s fine, but every one of those other industries or divisions or sections — except electricity, because we’re 85 per cent clean — depends on the product that comes from oil and gas for it to be a business.
I’ve gone across the country and I went to four significant universities. No university is looking at what we use to replace oil and gas. It’s fine to say, “Get rid of it.” So what do you replace it with? It’s not just plain electricity. That’s folly; that’s just dreaming. Electricity will play a role but not the whole role. I don’t know what you replace plastics with, or asphalt. Simple things come to mind: heating homes. Fifty per cent of the homes in Canada are heated with natural gas.
How do you deal with that? How do you get industry or the universities to start thinking about that?
Ms. Hall Findlay: One of the problems that we see in the conversation right now is that there are two parts to it, and we keep lumping them into one. Canadians use energy, but we’re actually very concerned about using less and less — using less energy, yes, in terms of conservation, but we’re also concerned about our personal GHG emissions footprint.
We’re doing great things, making great strides in more and more renewables for our own consumption in Canada. That’s fantastic. We have lots of opportunities to do that. We’re an affluent society, so we are capable of doing that. However, we also have an industry that sells to the rest of the world, and that will continue for a significant time to come.
When so much of the world is in dire energy poverty, it’s a little rich for us to say, “Well, we’re going to cut off oil supplies because the rest of the world shouldn’t be using oil.” The rest of the world is going to continue to use fossil fuels for a significant time to come. We may not like that, and we may prefer that there were an alternative, but in terms of cost and availability, the issue here is demand and consumption — ultimately, demand.
Canada and Canadians can do a lot in terms of our own footprint. Even with regard to production in the oil sands, the GHG emissions — in terms of intensity, in terms of a barrel of oil — are now less, thanks to significant innovations, than some of the competitors: two of the Venezuelans, and even California heavy.
Even when people say, “Canadian oil is worse than others,” it’s not so much anymore. If the world still needs oil and gas, and Canada has it and we can produce it at least as cleanly as some of the alternatives, why would we not do that? Why would we focus on that this is bad? When transportation makes up 25 per cent of Canada’s greenhouse gas emissions, why aren’t we protesting General Motors and Ford? We’re not because that wouldn’t make any sense.
Senator Neufeld: It would affect Ontario.
Senator Patterson: Thank you for the presentation. I come from Nunavut. Air travel is really important, because we have no roads in 20 per cent of Canada, but it’s important to Canadians too.
You said this legislation reduces the cost burden on emissions-intensive, trade-exposed industries. I want to challenge you on the airline industry.
We heard from the National Airlines Council the other day. They are highly technologically efficient. They’re eking out, on average, 1.8 per cent reductions. They are doing everything they can to reduce emissions. They got together internationally in 2016 to form the international Carbon Offsetting and Reduction Scheme for International Aviation, CORSIA.
By the way, we’re competing with the U.S. That’s our trade. People are flooding across the border to fly cheaper U.S. airlines. The Americans signed on to CORSIA. The National Airlines Council said to us the other day that we should get credit for being involved with CORSIA, and we should be treated as an emissions-intensive, trade-exposed industry, so we should have the output-based system in determining and calculating our emissions, which is basically what CORSIA does.
But, no, there is a flat carbon price in this legislation. There is no output-based system for the Canadian aviation industry. CORSIA is not recognized or given credit by this legislation. It is going to raise the cost of travel exponentially in the Arctic, and also in Canada, and make us less competitive.
Why would you say this legislation effectively protects emissions-intensive, trade-exposed industry? The airlines industry says that’s not the case.
Ms. Hall Findlay: To be clear, there is an attempt in the legislation to do that, but it’s by no means perfect. That’s the purpose of having a bill and then having discussions and committee.
Senator Patterson: Okay. Let me ask you another quick question. You’re a legislator. You were a legislator. We’re being told — and it’s hundreds of pages — that basically this greenhouse gas emissions act, which you support, is enabling for a huge amount of regulation to take place to actually operationalize the act.
What do we do, as legislators, to find out whether they did anything to fix the exposure of the airline industry? We won’t know about that until we see the regulations and details of the so-called OBS system. What do we do as legislators? Do we pass the enabling legislation and trust the government to get things right, like airline policy on the aviation industry, which I would say is not unimportant to Canadians? What do we do when the details are in the regulations? As legislators, what do we do?
Ms. Hall Findlay: As a legislator, first, I would have been concerned that this very important piece of legislation was included in a much larger budget bill. Frankly, as legislators, I think we could —
Senator Patterson: That wasn’t my question.
Ms. Hall Findlay: I know, but I’m going to say it anyway.
Senator Patterson: We were promised no omnibus bills.
Ms. Hall Findlay: Again, it’s not a partisan comment. I think something as important as this — and, to your point, so detailed, and with such detailed potential consequences — needs to have a thorough examination and a thorough involvement of the people involved, outside of all the other things that this one bill is trying to accomplish. That’s an important aspect.
However, it’s not just that one industry. There are lots of other industries that feel as though this was brought down without a significant amount of — mining, agriculture — all sorts of industries that are, just like the aviation industry, trying to figure out how this is going to affect them. Of course, they’re also trying to figure out how NAFTA is going to affect them.
This was my point earlier about you have to look at this in the larger context. There are a whole lot of things happening that are going to affect a lot of industries.
This needs more work; there is no question. That’s why this esteemed group is doing the work they’re doing. It’s going to be tough to get all of that input done. I totally agree; as a legislator, I think it’s a really big challenge.
Senator Patterson: Scrutiny of regulations, that’s what we need.
Senator Richards: Thank you very much for coming. Senator Neufeld commented on what I was going to comment on. We’re all wearing petroleum right now. We drive in cars; we fly in planes. Fifteen billion dollars comes into Port Saint John from Venezuela and Saudi Arabia, yet we can’t get a pipeline built. We all talk about how great it’s going to be when we have the new tech, but we don’t have the new tech. To me, that’s the real problem. We’re coming at this from an idea that this is going to be easy to accomplish.
New Brunswick is a shining example of what happens when the industry dries up, when the pipeline isn’t built, when the mills and everything are shut down. If you want that in greater Canada, then continue protesting oil and gas and everything, and you’ll get it; you will get exactly what is happening in Miramichi with about 40 per cent unemployment.
The people I have listened to, who have come here with all the best intentions in the world, really have not addressed the issue of what’s happening — not only in Eastern Canada but in all parts of Canada.
[Translation]
Senator Dupuis: Thank you, Ms. Hall Findlay. You said competitiveness has to be viewed in a much broader perspective than the one in this law. Did your foundation examine the issue from the point of view of the citizens who finance the subsidies to enterprises, be they oil companies or other ones?
As for Canada’s fiduciary obligation to indigenous peoples, we created constitutional rights and recognized them in a particular way. Does your foundation look at the costs as compared to the operations? The country tells the industries that they are to conclude so-called “impact and benefit agreements” for each of the projects they want to conduct. So we seem to be subcontracting, and thinking that in this way we have discharged our fiduciary obligation. The courts have stated that the country has the fiduciary obligation to consult indigenous peoples, to obtain their agreement to some degree, and that in certain cases, indigenous peoples have a right of veto. This represents costs that have to be included somewhere in the system. One gets the impression that at this time the country has completely subcontracted this to the industry. However, we see that when the time comes to carry out the projects, the issues have not been solved. Did your organization examine the matter of the costs this means for the industry?
Ms. Hall Findlay: Yes, but I think it’s important to understand that it’s a little early yet. I know that is hard to hear, but the federal government, all partisan considerations set aside, did very little for decades. The industry was in charge of consultations and discussions and of determining whether a project would, among other things, help a given community.
During the Northern Gateway discussions and analyses, the National Energy Board, the NEB, — it was a joint review panel — was the only forum where environmentalists and indigenous peoples could get together to discuss their rights and opportunities. It was not up to the National Energy Board to play that role. There were a lot of problems. Far too many people wanted to speak, and it was impossible. Now the federal government has developed or at least announced a framework plan for relations with indigenous people, and we hope that problems will get solved which, until now, were handed over to the responsibility of the industry, by default. It was a difficult situation and there really was no forum for debate.
That is why I am saying that it is early days yet. This was poorly managed. Perhaps now the government, the businesses and the indigenous communities will be able to meet in a much more respectful environment, one that will be more conducive to finding satisfactory solutions for everyone.
The Chair: Thank you.
[English]
Senator Mitchell: Nice to see you. I’m not convinced that we haven’t had time to think about this kind of policy. We’ve had carbon tax in Alberta for 10 years. Eighty per cent of the population now is under some kind of rigorous, serious carbon pricing. We have been talking about carbon taxes and dealing with climate change since at least the 1990s, probably the 1980s.
What I hear in this kind of discussion is all of the costs and all of the problems and all the impediments, which are important. We have to talk about that. But there are two very powerful messages of urgency. First, climate change is an infinite risk. If we want to hurt the economy, we should just keep doing what we were doing before we got serious about doing something about climate change.
The other one is changing market forces. I was struck, last September, when I saw an announcement by GM that they’re going to go to 100 per cent electric cars. Volvo is 100 per cent electric cars. Volkswagen — $52 billion dollars to get into electric cars. The Norway sovereign wealth fun has reached $1 trillion, $700 billion in stocks, zero oil and gas stocks. What is the impact of that risk, that suddenly the market changes, more and more suddenly? We’re left with products that we can’t sell, and we haven’t made the transition to a different kind of economy.
Ms. Hall Findlay: As I said earlier, if we were able, as a country, as a globe, to be at 100 per cent renewables by tomorrow, that would be fantastic. This is by no means to say support the oil industry for the sake of doing that. It’s just that the evidence is showing that, for the next number of decades, there is still going to be considerable demand for oil and gas. Whether we like it or not, that’s what’s going to happen.
So, as a Canadian, I think it’s really important that we do not give up the opportunity to continue to supply what the world needs. I think that has to be a big part of the message. It’s not anti-environment. It’s not anti-renewable at all. Quite the opposite. It is how do we make the most of what the evidence is telling us is going to be global demand, global consumption, of different types of energy? I don’t drive an electric car in Alberta because, if I were driving an electric car, it would be dirtier than the hybrid that I have because our source of electricity comes from pretty bad emissions sources.
Senator Mitchell: Not if you charge it overnight, when it’s getting wasted.
Ms. Hall Findlay: No one disagrees with that, senator. The challenge that we have is that the conversation just goes to either-or, and it’s not either-or.
Senator Mitchell: Exactly.
Ms. Hall Findlay: Absolutely, I love the fact that we can say Alberta has already done this. British Columbia has already done this. We’ve figured out a lot of the ways to address different industrial challenges. But whatever we’ve done as a country and as a government — again it’s not a partisan thing — we’re now facing the problem that three provinces may actually go completely 180 degrees differently, including Alberta. That worries me because if we have not addressed the details about the aviation industry sufficiently, if we have not addressed some of the agricultural concerns sufficiently — listen, you know green shift, 10 years ago, lots of scars from having pursued exactly this, and we watched it go down the drain to the detriment of so much, not just climate but also Canada’s reputation, our ability to get things done in this country.
So I agree, but we have to do better at figuring out how to get everybody to the table. That’s why, if I can just go back, kudos to Manitoba for saying, “We don’t agree with it, but let’s figure out how.” And I really hope that the federal government responds in kind. Frankly, we’re not seeing enough of that. It just feels as though this was put in. “We need to impose a carbon price. Let’s do it quickly. Let’s put it in an omnibus bill where we can’t actually have a full enough discussion about it as legislators.”
My worry is that the end result is that we’re going to lose it. Been there, seen the movie. And it doesn’t bode well for the country as a whole.
The Chair: Thank you very much. One last question because we are already past our time.
Senator Seidman: Welcome back, and thank you very much for your perspective.
I’m going to cut to the chase because I don’t have a lot of time. You empathize and understand and have made the point that we are stuck with a very important piece of legislation in an omnibus bill. I’m going to ask you: If you were in our shoes, as a committee that now has oversight of this, if you could make two recommendations to us about changes we might make to this legislation, what would they be? I know I’m putting you on the spot, but I’m going to try.
Ms. Hall Findlay: You are putting me on the spot, but I think that’s your job. One can go down into the weeds of what needs to be changed in the legislation. I don’t think, frankly, I’m prepared enough to do that. You are the ones who are hearing all of the witnesses. The house committee is hearing, obviously, a lot of witnesses.
I support the concept. So how you actually deal with the weeds, I actually don’t think that’s where I can add more value. What I can do is stress what I just said in my answer to Senator Mitchell. We have to handle this bill and what that means in terms of working with the different provinces and the different industries because provincial governments and politicians respond to industries. So it has to be everybody. But, if we don’t do this right and we ram this through, we could lose it altogether.
We lost it 10 years ago. We lost a brave effort to impose a price on carbon, and it actually put us further back. My worry is that we’re about to do the same thing.
I wish I had the answer to it, but I feel it is so important to stress that if we allow ourselves to get into the weeds and have everybody just say yes or no, then we will lose this opportunity again.
The Chair: Thank you very much. I will use my prerogative just to ask one very little question. Eighty per cent of the population of Canada is already under a certain regime of carbon pricing. So you said we lost time, but, given the fact that we already have 80 per cent of the population under a sort of carbon-pricing regime, are we really impacted more? What will be the difference between what we’ve been doing and this new legislation?
Ms. Hall Findlay: My point is that a significant portion of that 80 per cent may find themselves not in a carbon-pricing regime because of the worry about political flip-flopping. That is my concern. I think the fact that so many people are living within a carbon-pricing regime — and at this point we’re not talking huge numbers in terms of dollars per tonne in any of these regimes — actually shows that this can be done. I can’t stress enough: We support the idea of carbon pricing because it’s way more cost-effective than regulation.
In terms of partisan stuff, to advocate regulation because you’re concerned about putting a cost on people is ludicrous, because you’ll end up putting a bigger cost on everybody, as taxpayers, than a price on carbon. It’s disingenuous to say that somehow a price on carbon is going to cost people more. There’s no question that regulation will cost more than a straight market price.
We’ve learned lessons from those jurisdictions on how to do it well. Fantastic. We should be able to learn from those. My concern is that a large number of those people will find themselves in jurisdictions where it gets taken away.
The Chair: Thank you very much, Ms. Hall Findlay.
We now welcome, from Canada’s Ecofiscal Commission, Dale Beugin, Executive Director.
Thank you very much for joining us. I invite you to proceed with your statement, after which we will have one or two rounds of questions.
Dale Beugin, Executive Director, Canada’s Ecofiscal Commission: Thank you so much for the opportunity to speak to you today. I represent Canada’s Ecofiscal Commission, a panel of senior economists from across the country supported by a cross-partisan advisory board with representatives from industry, civil society, and political perspectives across the spectrum. Our mandate is to explore policies that make sense for both the environment and the economy. That means identifying policies that can achieve environmental objectives at the lowest possible cost. Our research and analysis over the last three or four years clearly indicates that carbon pricing is such a policy.
In my opening statement, I want to unpack three aspects of that performance of carbon pricing, according to our analysis and according to the economic evidence that’s available.
First, carbon pricing is effective in reducing GHG emissions. It creates incentives for businesses and households to choose lower-carbon activities and technologies. It creates demand for low-carbon technologies. And it drives low-carbon innovation.
We know that prices affect choices all through the economy, but there is also ample evidence that carbon pricing, in particular, affects behaviour.
In B.C., according to the best available academic research, GHG emissions would be 5 to 15 per cent higher in B.C. if B.C. had not implemented its carbon tax in 2008. That means that vehicles would be 4 per cent less efficient and gasoline demand would be 7 to 17 per cent higher. That’s from statistical analyses using the evidence in B.C. and Canada.
Ecofiscal’s own modelling analysis from 2016 found that a carbon price rising to $50 per tonne in 2021 and $100 per tonne by 2027 could reduce emissions by about 170 megatonnes in 2030 and 80 megatonnes in 2022. Carbon pricing works.
Economists agreed very clearly that carbon pricing is the lowest-cost approach to reducing GHG emissions.
In terms of economic impacts, our modelling analysis found that the cost of carbon pricing, even the carbon price rising to $100 per tonne by 2027, would only slightly affect economic growth. Certainly, how revenue is recycled affects these estimates, but, at worst, carbon pricing would reduce growth rates by about one tenth of one percentage point.
If revenues were used to cut income taxes, on the other hand, as provinces have discretion to do under the Pan-Canadian Framework, the impacts on growth would be negligible. In all cases, economic growth would remain strong and positive.
Alongside these small costs, we must also consider benefits. Carbon pricing can reduce GHG emissions, helping Canada to achieve its 2030 target. Doing so will also contribute to global efforts to fight climate change and help avoid the costly impacts of a changing climate. These reductions will also have other benefits in terms of reducing local air pollution, thus improving local air quality and health.
Canada has ambitious targets for emissions reductions in 2030, and achieving these targets will have costs. The carbon pricing can achieve emissions reductions at the lowest possible costs. Other policies, including subsidies and regulations, will cost more. Regulations require specific outcomes or technologies in specific sectors. When they are less flexible, they have higher costs.
Carbon pricing does not require a preconception as to where in the economy or where in the country the lowest-cost opportunities for emissions reductions might exist.
The flexibility of carbon pricing also creates a powerful incentive for clean innovation.
Subsidies to clean technology require picking specific technologies. Furthermore, they are often paid to businesses or individuals who would have adopted the clean technology even in the absence of that subsidy or with a smaller subsidy. That increases costs and reduces the effectiveness of subsidies.
My final point is that well-designed carbon pricing can reduce emissions while also protecting the competitiveness of Canadian businesses, even while some of our trading partners do not price carbon. In particular, our own analysis suggests that output-based pricing can provide transitional support to vulnerable industries. It creates incentives for industry to reduce GHG emissions by improving their performance, not by reducing production or investment in Canada. This is the approach that Alberta pioneered under the Specified Gas Emitters Regulation in 2007 and subsequently improved under the Carbon Competitiveness Incentive Regulation currently in place. It is also the approach in the federal backstop, as defined in the greenhouse gas pollution pricing act.
Canadian businesses, especially those in emissions-intensive, trade-exposed sectors, have expressed clear support for output-based pricing as a way to cost-effectively encourage emissions reductions, without undermining economic competitiveness.
Let me conclude by saying that a climate plan based on carbon pricing is the lowest-cost approach to achieving Canada’s GHG emission targets. The legislation in Bill C-74 ensures that carbon pricing applies across Canada and addresses concerns around competitiveness, but it also gives provinces flexibility in designing provincial carbon pricing and recycling revenue according to their own circumstances and priorities.
Thank you very much. I look forward to your questions.
The Chair: Thank you very much, Mr. Beugin.
Colleagues, we have only 40 minutes per slot, so that gives us about three minutes per senator. So please keep your preambles short and go straight to your questions.
Senator Neufeld: We’ve heard a lot of different testimony, not just here but for other studies that we have done, about the price of carbon having to get maybe as high as $300 before it makes a difference. Do you think that there’s a risk that we’ll lose business in Canada through carbon leakage? I have been told, personally and publicly, that companies will leave Canada and go to those places where there isn’t a carbon-pricing system. Do we worry about that, or do we just say that that’s part of doing business in Canada?
Mr. Beugin: I think we don’t know that the carbon price needs to rise to $300 per tonne. I’ve seen good analysis that says that a package of policies, with a price rising to $130 per tonne, could be sufficient to achieve our emissions reductions.
To your substantive point around leakage, I think leakage and competitiveness concerns are absolutely important and absolutely should be considered, and I think that this policy does consider those problems. Relying on this output-based carbon-pricing system is following recommendations from academic and economic literature that says that these so-called output-based allocations can give incentives to firms to reduce their emissions by improving their performance, by producing fewer emissions per unit of output, not by changing the amount of production that they are involved in or the levels of investment within Canada. I think the concern is the correct one, but I think the solution is baked into this policy.
Senator Massicotte: I will ask one question, but it will include two components.
On the output-based, which is a critical part of our review here — it’s very important — you support it, and it’s the right approach to protect those trade-exposed, high-intensity users. But how about the list of exclusions? Basically, what the government is proposing is that certain companies are excluded. Some companies can opt in. Are you satisfied with the structure of that?
Many studies would indicate that with the government’s current plan we’re not going to meet our objectives for climate change. Does Ecofiscal have any studies on that aspect?
Mr. Beugin: Ecofiscal has done extensive analysis on this competitiveness issue and the extent of who is exposed to these competitive pressures and who isn’t. Our analysis very clearly says you need to meet two criteria. You need to be both emissions-intensive, so that you’re producing lots of emissions per unit of output, and trade exposed. You’re competing in global markets and so can’t pass on your costs.
According to our analysis, only about 5 per cent of the Canadian economy really meets both of those criteria. It is a small part of the economy rather than a large one. It’s an important issue, but it matters for specific sectors rather than for the economy as a whole.
There’s some variation across the country. In Alberta, the number is more like 18 per cent of the economy is exposed, and that is because of the prominence of the oil and gas sector, which absolutely meets both of those criteria.
In terms of meeting our objective, I would think that we haven’t done an analysis at Ecofiscal specifically exploring the policies required to achieve Canada’s target. It is on our to-do list in the next eight months or so. That being said, we have run modelling analysis with a carbon price that rises to $100 per tonne by 2027. Under that modelling analysis, emissions in Canada came to close to achieving the target but did not yet achieve the target.
Senator Massicotte: When you said it has to be trade-exposed and high-intensity, everybody agrees with that. But the government has basically adopted an arbitrary approach that says we’re going to get there by identifying these industries with the output-based model. Does the list of industries there satisfy your two criteria, or would you see an amendment to that list to make sure that it’s fair and that they can remain competitive?
Mr. Beugin: There is another process underneath that one. First, you identify the sectors, and then you identify the extent to which each of those sectors gets more or less support. That process is under way now, through extensive consultation with industry. If anything, I would say that we are at risk of providing too many free allocations. We might be overcompensating for the competitiveness problem, and that is, frankly, a classic reality under carbon-pricing systems. The output-based allocations are pretty much analogous to free allocations in the cap-and-trade system, and, historically, cap-and-trade systems have almost always begun by providing more free allocations than necessary.
Senator Patterson: I would like to follow up on that and ask you about the airline industry. They came here the other day and said, “We’re highly efficient. We’re doing the best we can to minimize the burning of fuel. We’ve gained, on average, 1.8 per cent over the last couple of years, but we can’t go any further technologically. It’s not there yet.” They’re not included in the output-based system. Under this legislation, they’re going to have a flat carbon price applied. The CORSIA agreement the airlines made to work internationally toward emission targets has been disregarded and not credited by the Government of Canada. What do you say to that?
Mr. Beugin: A few reactions there: Number one, it’s really important to remember that carbon pricing creates innovation incentives. It’s going to create incentives for industry to develop new technologies.
Senator Patterson: Airlines?
Mr. Beugin: Maybe biofuels, maybe efficiencies. We don’t know. The whole point is that we don’t need to know exactly what’s going to come. We let the market determine what’s going to make sense under those conditions.
Number two, I would push back a little bit, with respect, against the idea that domestic airline travel is trade exposed.
Senator Patterson: Canadians go across the border.
Mr. Beugin: But that’s a different kind. The policy only covers flights within Canada. So, in those cases, all of the competitors in that market are facing the same signals. So it’s not trade exposed. What that means is that costs will get passed on, so it will increase the cost of those flights. That does have implications, and important implications, for the families and businesses relying on those flights. So the concern, for me, is those costs, not the trade exposure. The solution to that problem, I would say, is more in the space of revenue recycling, just as revenue recycling can be used to make sure that low-income households are not disproportionately affected and that the policy is not unfair. It does so by providing rebates, quarterly, as we do for HST and sales tax rebates. That approach can ensure that vulnerable families are not affected adversely, while maintaining the incentives under the carbon-pricing policy. To me, that is a stronger solutions base for that problem.
Senator Patterson: You say that Bill C-74 is good because it applies carbon pricing across Canada. I come from an area where many remote communities rely on diesel. It is not feasible to replace it with an alternative energy. I’m sorry; the population base isn’t there to support those costs.
What do we do when there is no easy alternative energy, if it’s not affordable for small, isolated communities? Do I just tell people in Nunavut, “Suck it up. We’re doing our part. The cost of everything will increase. We’re doing our part”? The truth is that it won’t reduce emissions, because you can’t ride a bike to work in the winter north of 60. What do we do for those communities? There are lots of them.
Mr. Beugin: The concern is an important one. It applies in the North and in remote communities in various parts of the country. I’ve heard the same concerns from the coastal regions of Newfoundland and Labrador, for example. It is an important concern to be raising.
I would caution a little about saying that it will not affect emissions, especially in the medium and long term. The response to the carbon price isn’t that it changes behaviour only in the very short term; it’s also the medium term of investing in more efficient equipment over time, as old equipment must be retired and replaced. It’s also effective in the longer term in terms of the innovation and development of new low-carbon technologies that reduce more emissions at lower cost.
That being said, I think there is room for other measures to address the important concerns you’re raising about the short term. Again, I would say that part of the solution is wise use of revenues. The other might be complementary policies, other policies addressed to provide specific support for those specific problems.
Senator Cordy: We have heard from a number of witnesses about the competitive advantage that would be lost. The airline industry, a number of years ago, spoke about the competitive advantage lost because of the cost of fuel. So the government allowed them to have a fuel surcharge, which has gone up and up. Even when fuel prices have gone down, the fuel surcharges that the airlines have added have not gone down. Sometimes it has not been helpful when we’ve offered airlines, or other industries, incentives. I think when we look at the competitive advantages, we have to look at incentives to make things better.
You said in your opening remarks that carbon pricing is the lowest-cost way to reduce GHG emissions. We’ve heard from other witnesses that it allows businesses to determine how best they are going to do it, rather than being top-down from the government: This is what you do and this is how you have to do it. So that’s a positive.
We also heard from a previous witness — and I think you were here — that a bigger challenge to business investment in Canada is government flip-flopping on policies related to the environment, and not, in fact, the carbon pricing. I wonder if you could comment on that.
Mr. Beugin: It’s an important point. “Competitiveness” is a word that means many different things to many different people. There are lots of different factors that inform competitiveness — from tax rates, to environmental policy, to proximity to supply chains, to whatever else is happening internationally, to the prices of commodities. It’s important that carbon pricing not become the scapegoat for all possible competitiveness problems. There are lots of things going on, and lots of policy responses are possible. Carbon pricing is one very small piece of that competitiveness puzzle.
That’s exactly why Ecofiscal has argued that a targeted, specific response is most appropriate to the competitiveness problem that is specifically associated with carbon pricing. Aim your support specifically at those sectors that are most affected, that 5 per cent of the economy. Make it temporary in terms of providing that support only while our trading partners are also not pricing carbon; and, as the rest of the world begins to move along, phase out that support over time. And make it transparent; make it clear why we are providing support to those specific sectors and not to others.
Senator Wetston: I have a specific question about the relationship between carbon pricing and GDP growth. I think there’s probably a direct relationship of one sort or another. Perhaps you could comment on that.
Mr. Beugin: There’s lots of interesting economic literature on this. I won’t bore you with all the details, but there are a few things here.
Number one, it depends on how revenue is used and on what you’re doing with that revenue. If you’re just providing lump-sum transfers to households, if you’re cutting cheques to households, that might be good for fairness, but it probably has the highest cost in terms of GDP impacts. As I noted in my remarks, even under that worst-case scenario, the worst-case use of revenue, it’s still only a small impact — average growth rates going from something like 2.0 per cent per year to 1.9 something per year. So it is a small but negative impact.
The more complicated story is when you use revenue to cut other distortionary taxes, in particular, for example, corporate tax rates, which we can think of as the most distortionary taxes. If you use all the revenue from the carbon tax to cut other taxes, that’s where the relationship becomes a little less clear. Our analysis says that it has almost no impact on the economy, but there are analyses out there that suggest it’s possible you might even get a positive effect from that kind of pure tax shift. That literature isn’t quite conclusive, though.
Senator Wetston: I’m from Ontario. We have cap and trade. I do have some preference for cap and trade, for reasons other than you have mentioned. However, the way in which the allowances have been utilized in Ontario seems to be quite positive and going in the kind of direction that you would suggest.
Do you agree with that position? Are you comfortable with how Ontario, and maybe Quebec, are using cap and trade as a way to invest in innovation and other such areas?
Mr. Beugin: I will start with a high-level point, and that is that Ecofiscal has done a lot of research on revenue recycling and the trade-offs and has not taken a position as to the only and best way to recycle revenue. We have very clearly said that different approaches can make sense, depending on different priorities and contexts.
So if your priority is to drive innovation or green development, then the approach in Ontario has made sense. If your objective is purely to minimize economic impacts, then perhaps a more revenue-neutral tax-shifting approach, similar to the original B.C. carbon tax, could make sense. If you’re primarily concerned about ensuring fairness, then providing cheques to households — as Alberta has relied on to a large extent — can make sense.
Different approaches can make sense in different contexts. That’s not a blank slate or an “anything goes.” I think it’s always possible to waste revenue, and we should be looking to governments to be spending carbon-pricing revenue wisely.
Senator Mitchell: Thanks. I’m very interested in the Ecofiscal Commission. One of the board members is Preston Manning, no less, and he’s behind a carbon tax. It’s fantastic.
A recent report by the government said that in 2022, with $50 a tonne, the potential difference in growth in the economy would be $2 billion. That’s $2 billion on a $2 trillion economy. It’s not even a rounding error. It only assumes that the money is used to put back into people’s pockets, or however. But it doesn’t even make the case for what the stimulative effect would be in terms of innovation and technologies, what you’re talking about airlines doing and so on.
Do you have any studies that would take that $2 billion and say that, in addition to that, we would expect growth because we have catalyzed a new 21st century economy?
Mr. Beugin: Great question. You’re quite correct that the models that the Government of Canada uses, and the same models that Ecofiscal uses, don’t do the technological change particularly well. They don’t anticipate what kinds of technologies might become available, as induced by the innovation incentives from that carbon price, even though theory clearly says that innovation will be induced by that carbon price.
The problem is that we don’t know exactly what the market will come up with. It’s exactly why carbon pricing is a better solution than regulatory approaches, because it doesn’t presuppose that we know what the outcomes are; it doesn’t require us to subsidize a specific kind of technology, because we’re not assuming anything about which technology will ultimately win.
It means I don’t have a good answer for your question. It means that I don’t have quantitative analysis as to what those benefits might be.
Senator Mitchell: But you do have a pretty clear vision that this will happen. It’s like I don’t know how Crosby is going to score the next goal, but I’m pretty sure he’s going to score one. Not this season; it’s over, there. Okay, Connor McDavid, clearly. I don’t know how he’s going to score the next 100 goals, but I know he’s going to do it.
Mr. Beugin: That is right. As a former Calgarian, I will grudgingly give you the point.
I will add that those innovation incentives are strongest when expectations around future carbon prices are strongest. They work best when there is a clear trajectory into the future as to what the future carbon price will be. Right now we only have future information out to 2022 and not beyond. Further clarity would provide stronger innovation incentives.
Senator Neufeld: I always worry about Fred and Martha, the people that are actually going to pay the bill, and they will. Everything trickles down in some way, shape or form.
I don’t think we’ve really looked closely enough at how we actually help Fred and Martha through this process. I will use natural gas, for instance, for heat. Fifty per cent of homes — and I think businesses are higher — use natural gas to heat their businesses or their homes.
Right now, if you take $50 a tonne and the price of natural gas today, on average, the carbon price would be twice what the price would be for natural gas to heat your home. That’s significant.
I know people say, “Well, there comes a point where you can change to something,” so I will use my own house as an example. I brought in a firm that actually looks at your house and tells you what you can do to save energy. They said I’ve done everything I can do to save energy. I heat with natural gas fired boilers. I asked if I can change to an electric fired natural gas boiler because we have clean electricity. His response to me was that would be stupid because it would cost four times what it would cost today to heat with natural gas.
So I think about those things. I’m not the only one in that position. There’s a whole bunch. For the millennials who can barely afford a home or are just in a home, to change how they heat their house and all of those things, it is going to be a huge impact.
How do we deal with that in realistic terms? Because I think they’re the people that are going to pay at the end of the day, and they’re the ones that will lose their jobs. They’re the ones who, if the industry leaves, they’ve lost their job.
Mr. Beugin: Let me tackle the household side first. You’re raising an important concern. We don’t want to impose disproportionate costs, especially on those low-income households that cannot bear those costs. That would be unfair and cause costs that are not justified.
That being said, again, there are solutions to that problem. The other big solution is we provide low-income households with these quarterly cheques and quarterly transfers. Ecofiscal’s analysis says that using between 10 and 13 per cent of the revenue generated from a carbon-pricing policy across the economy — using just up to 13 per cent of that revenue — could make the bottom 40 per cent of the lowest-income households as well off as if the carbon price was not in place. You are ensuring that the policy isn’t regressive by providing these cheques to households.
Senator Neufeld: That’ll fix the problem. That keeps them whole. I will go with that. But they’ll still have to change their heating systems, or all the things they would have to do these old houses. Just drive around town and see how many would need to be changed. That doesn’t pay that bill. Where does that money come from? How do these people do it? They live from cheque to cheque.
Mr. Beugin: I think if you are providing those households that are living cheque to cheque with those quarterly cheques that are at least compensating them for the costs they pay from carbon pricing, then they still have incentives to reduce their emissions if they can. But if they can’t, then they don’t see a difference.
Senator Neufeld: Do you have realistic numbers that say you can send out a quarterly cheque and this will pay the difference of what it will cost to heat your home, look after it, change the systems and do all those things?
Mr. Beugin: Alberta did exactly that analysis and has on its carbon-pricing website exactly that analysis for average households, based on the quarterly cheques that they are, in fact, providing those households. That analysis can be done.
Other approaches to reducing greenhouse gas emissions are also going to have costs, and if you are going to regulate your way out of this problem instead, for example, those costs will still come down to households in one way or another. They will ultimately be borne by either investors or workers, and those costs would be higher.
Achieving our targets, which we have all agreed we want to do, would cost more using regulations than it would using carbon pricing. Analysis we did about three years ago in the context of 2020 targets — not 2030 targets — said that using an inflexible regulatory approach rather than carbon pricing would be 3.8 per cent of GDP more expensive than using carbon pricing.
You could do better than that. That would be the worst case using very inflexible regulations. You could drive better outcomes with more flexible approaches, but you will never do as well as carbon pricing. You will never get costs down to where carbon pricing will take them. If you want to achieve targets, then some costs are part of the equation, but so are the benefits of emissions reductions, and better lower costs than higher costs.
[Translation]
Senator Dupuis: Thank you for being here today. In your presentation, you mention what I call idealistic scenarios, suggesting that if we head in a given direction, everything will get settled, and on the other hand, there are very pessimistic ones that suggest that we will never get there in any case. In your opinion, carbon pricing is a solution that allows governments to set priorities, for instance, by increasing the gross domestic product rather than by redistributing the revenues to poorer families. According to priorities set by governments, we will be able to evaluate a certain number of things, but there are also some unknowns regarding the way in which technology will evolve. And part of that cannot be evaluated at this time. Did I understand you correctly?
[English]
Mr. Beugin: Yes, I would agree with that in broad strokes. I think it’s important to remember that the primary point of the carbon price is not the revenue. The primary point is the incentive that we create to change behaviour and change incentives and incent innovation over time.
The revenue is the secondary benefit that exists, and that is where the discretion lies with the provinces, where there are different approaches that can be taken with different priorities. I agree that can be customized according to local priorities and context.
The Chair: Thank you.
For the last portion of this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources, we are continuing our study on Part 5 of Bill C-74.
We now welcome Nathalie Chalifour, Associate Professor, Faculty of Law, Common Law Section, University of Ottawa. Thank you very much for joining us. We’ll invite you to proceed with your statement, and we’ll follow it with some questions and answers.
[Translation]
Nathalie Chalifour, Associate Professor, Faculty of Law, Common Law Section, University of Ottawa, as an individual: Thank you for your invitation this morning. I hope my appearance will be useful. Although I am French-speaking, I will be making my presentation in English. Afterwards, I can answer your questions in both languages.
[English]
I’m an associate professor in the Faculty of Law at the University of Ottawa, just around the corner. I have my JD from the University of Western Ontario, and a masters and PhD in law from Stanford University.
I have been working, teaching and researching in the area of environmental law and policy for about 25 years, and in the last five to 10 years I have been focusing a fair bit on climate law and policy, largely in Canada with some focus on carbon pricing, including its constitutionality.
I’ve written fairly extensively on a number of topics, including energy governance, environmental taxation, enforcement of carbon pricing, fairness of carbon pricing and constitutionality, which I understand is the reason I was invited to speak to you today.
I’m going to spend a couple of minutes explaining the analysis I’ve done and answer whatever questions I can.
In a nutshell, in the analysis I’ve done on the constitutionality of carbon pricing, I’ve looked at both provincial and federal policies. Both my analyses, which I’ve published, were done prior to this piece of legislation that is very recent. I can speak to the analysis I did before then, although I have looked at the current proposal.
The analysis I have done on the constitutionality of carbon pricing at the federal level has led me to conclude that Parliament would have constitutional authority to enact what it is proposing to do here. However, this does not undermine the very considerable constitutional authority that provinces have. Provinces have a lot of jurisdiction to legislate on a variety of matters relating to climate policy, including their own internal carbon-pricing policies. But as currently proposed, in my view, the federal law does have constitutional authority.
I thought I would take a couple of minutes to walk you through the analysis, but if you would prefer to go straight to questions, that would be fine as well.
The Chair: Walk us through your analysis, please.
Ms. Chalifour: I know that some of the members of the committee have law degrees and are familiar with this analysis, but for those of you who aren’t, thankfully the analysis that’s done on constitutionality is very straightforward in terms of its test; it’s not straightforward in its application. But when a court is asked, as has been done recently in the reference challenge by Saskatchewan, to determine the constitutionality of a piece of legislation or even a provision within that legislation, the courts ask two questions.
First, they look at the piece of legislation and they say, “What is this about? What is the dominant purpose, the pith and substance?” They use the language of the legislation to try and ascertain what the law is really trying to do, what it’s really about. And then the court says, “Now that we know what that law is meant to be about, what is the subject matter? What head of power does that fall under”?
As you know, the Constitution lists a number of powers in several key provisions, and the federal government has a residual power to legislate under peace, order and good government. Of course, that list of powers was enacted many years ago and doesn’t include many of the subjects for which we have laws now provincially and federally. And so there is — what keeps us law professors in business — a very large body of jurisprudence or case law that interprets this division of powers in the context of modern realities.
The courts have developed a whole number of doctrines. I know you’re all quite familiar with many of them, from cooperative federalism to others that have helped us to respect the huge regional diversity among provinces and territories in this country, as well as promoting national unity.
In terms of this analysis, to determine the purpose, they can look at the legislation itself and the words. They can look at the effects of the law surrounding policy discussions and even consider things like efficiency — which level of government is most effectively able to address an issue — and democratic values like accountability.
If we look at that test and we apply it to the current piece of legislation, Part 5 in particular, we see that the current government has stated the act’s purpose to be to mitigate climate change through the pan-Canadian application of pricing mechanisms to a broad set of greenhouse gas emissions sources. And then if we look at the preamble, which I’m sure you’ve looked at in some detail, we see they focus on greenhouse gas mitigation as the purpose. They characterize the law as dealing with the unprecedented risk to the environment, human health and economic prosperity.
We also see an emphasis on the national and international dimensions of the problem, including Canada’s participation in the global climate regime and a recognition that all levels of government have a role to play and must cooperate.
When you look at that purpose and you see it is about mitigating greenhouse gas emissions, then you say what heads of power authorize that? That’s where it becomes a little bit more complicated because there is no head of power that says environmental pollution or carbon pricing or climate change or anything of the sort. Neither, of course, is there a head of power that specifically says food and drugs, health and other policies for other areas for which we have shared jurisdiction.
My analysis has gone through the heads of powers, and a lot of other people are writing on this as well and working on this.
The main areas of power that would likely justify the federal legislation are criminal law and the national concern branch of peace, order and good government.
Most people, when they think about carbon pricing and carbon taxes in particular, turn right away to the taxation power as a source of authority. And it is quite possible that taxation powers, both provincially and federally, could authorize carbon-pricing legislation, but in the federal context, taxation constitutionally is usually something meant to raise revenue and something made for general purposes, revenue raising outside of a regulatory scheme. So constitutionally, the carbon-pricing legislation would not likely be justified as a tax unless the courts expand their interpretion of past jurisprudence. That said, I think there’s a strong reason for the law to be justified under the national concern branch of POGG, peace order and good government, or under criminal law.
Recent case law has interpreted the criminal law power, which is very interesting. Criminal law doesn’t sound to most Canadians like a justification for environmental legislation, but numerous decisions, including Supreme Court decisions, have confirmed our criminal law power is very broad in Canada. It is an authority for a wide range of regulatory measures that address an important public purpose, including environmental protection. The courts have been explicit about environmental protection being part of the criminal law power.
I can speak to some of the tests and some of the nuances in questions on both POGG and national concern or criminal law, but maybe for now I can just speak to the recent Syncrude decision on the constitutionality of federal carbon regulations on renewable fuel.
Syncrude challenged the constitutionality of the regulations. Under the Canadian Environmental Protection Act there are federal regulations that require a minimum content of renewable fuel in diesel and gasoline — 2 and 5 per cent respectively. So Syncrude said, “That’s not constitutional. That’s outside the jurisdiction of Parliament; this is more of a provincial matter.” But the Federal Court Trial Division, upheld by the Court of Appeal, found that it’s very valid federal criminal legislation. It is addressing environmental pollution, which we have unanimously held time and again is a valid criminal purpose in federal criminal law.
Also most importantly, and why I think this is important in the context of carbon pricing, Syncrude was arguing that this is an economic measure, something that belongs in the provinces. And the Federal Court said it can be valid federal law, because criminal law is not just about the Criminal Code. It’s law that attempts to change behaviour, and the renewable fuel regulations attempt to change behaviour in persons and the economy.
So while Syncrude tried to characterize this as an economic incentive and a measure to change behaviour that was outside of federal authority, the court strongly and unanimously held it to be criminal law, saying, “Well, that is what criminal law is meant to do; it’s meant to change behaviour, and the ‘how you do it’ is not our business in the courts. That’s for the government to decide.”
They gave the analogy of tobacco and noted that federally we have laws that relate to marketing and packaging of tobacco and cigarettes. The court said, “We don’t criminalize smoking. We can’t do that, just like we wouldn’t criminalize the use of fossil fuels. But we can send an important signal through a piece of legislation that would change behaviour and essentially discourage the activity that we want to discourage.”
Perhaps I’ll leave it at that and let you ask whatever questions you may. I will do my best to answer them.
The Chair: Thank you. I learned today.
Senator Patterson: Thank you for the presentation.
I’m not going to ask about the constitutionality. I have a question to ask you, as a legal expert, about the challenge that I think we face with this legislation in that it’s enabling legislation that allows for a regulatory regime to be set up. We hope that industry will be consulted, and we hope that the officials will get it right, but we’re basically passing enabling legislation if we pass this legislation.
Is there a role for Parliament in the scrutiny of regulations, when various industries — we’ve heard from the mining industry, and the other day from the airline industry — are telling us, “We’re having frustrations with our interface with officials. They don’t seem to adequately take into account our concerns.”
As legislators, how do we insert ourselves into oversight of that process?
Ms. Chalifour: Great question. I think in many ways you have better answers than I do on that, in that I think parliamentary oversight and executive oversight of consultations on regulations are really important. In terms of what you’ve been doing here in committee and what all the other committees are doing in terms of hearing the views of so many different stakeholders, being open to hearing those, to looking for the best solutions, I think that’s exactly the right approach. I would hope that all the stakeholders would feel that they’re getting heard and that they have an adequate ability to engage — not just at the level of the enabling legislation, as you mentioned, but also at the regulatory level, where the details are often determined. I think that’s really important and hopefully something that will continue through the regulatory process.
Senator Wetston: I’m going to ask you a constitutional question. I’m sure this committee is tired of my saying this, but I was involved in City National Leasing, as well as the securities reference. I cannot in any way rationalize the way in which the Supreme Court managed the second branch of the trade and commerce power, as well as not relying on that. They didn’t rely on the second branch because it wasn’t argued; it was argued as the general trade and commerce power. For the life of me, I’m still trying to figure that out.
Do you have any of thoughts about that? Maybe it’s not relevant to this discussion, but I would sure like to hear it anyway.
Ms. Chalifour: I think a lot of people were perplexed by that decision, very much so. For those of you who aren’t familiar with it, the trade and commerce power in Canada has been interpreted very narrowly, over and over again, and there seems to be a huge reticence on the part of the courts to support parliamentary legislation that would regulate a particular industry. That seemed to really come out in both of those decisions that you referenced, that they don’t want to see legislation dealing with a particular industry — outside, of course, the scope of explicit federal jurisdiction over that.
Again, coming at it from the climate perspective and the carbon-pricing policy, when I’ve written and talked to others about this, I’ve always emphasized that if Parliament is to have a role in this — and I think it has a very important role to play — it needs to focus on the GHG component of industrial activity and not a particular sector, other than perhaps with spending, on particular technologies. That’s how I see that reconciled.
That said, in terms of the branch of the trade and commerce power that deals with interprovincial trade and interprovincial commerce, there we’ve had, I think, more generous interpretations of the power. I think either one of those branches would be justifications for the trading components of a federal cap-and-trade program, were it ever to be proposed.
Senator Wetston: Less constitutional: I think in the past you’ve written about the impact of carbon pricing on disadvantaged groups. You’ve also written or discussed carbon taxes from a feminist perspective. Can you elaborate on your views on both of those, and how the implementation of this regime would affect both groups? I don’t know whether feminists are a group or not, but I think you know what I mean.
Ms. Chalifour: It’s a perspective, yes. I appreciate the question, because I’ve been listening to some of the other testimony.
One of the things that has been really challenging in writing in this area is that I’m a firm proponent of carbon-pricing policies, but they need to be fairly designed. I agree with what the earlier witnesses have said in terms of its efficiency.
That said, because I have taken a very strong focus on fairness and impacts on vulnerable communities, it’s all in the design. The devil really is in the details. I think that what tends to not get heard when we hear concerns about Fred and Martha, and some of the very valid concerns about the costs that this could impose on vulnerable populations, is that we have to take into account the cost of inaction. We have to take into account that it’s the vulnerable communities that are going to be the most impacted by the effects of climate change, which I think is why we need to be proactive in trying to address it.
Just turning back to the details, it’s in the design. Because I’ve looked at it through the lens of fairness and justice for vulnerable communities, I think the design has to take into account things like income, rural location and ability to adapt. As you said, in the winter in Nunavut, you can’t get on a bike. Women who have caregiving responsibilities can’t necessarily take public transit because they may be trying to drive kids to school or caring for aging parents.
Those are the kinds of factors that simply, in my view, need to be brought into the design. They’re not a reason to scrap carbon pricing. They’re meant to be brought into the thoughtful use of revenues to make sure that when that revenue comes in, we make sure those different issues and perspectives are considered and addressed.
Senator Wetston: And feminism?
Ms. Chalifour: Same thing. First of all, we know that climate change is a gendered issue in developing countries. Is it in northern countries as well? I was part of a project where lots of scholars from industrialized countries looked at the question. While it’s not nearly as blatant an issue in a northern context, it certainly still is relevant.
Addressing it, again, comes down to design. It comes to things like recognizing that women, on average, still make less money. So if a policy is regressive, then we need to take that into account and not create a double burden of regressivity for those populations. It’s in the design, not setting aside carbon pricing.
Senator Wetston: My colleague Senator Patterson has been discussing this today, that design will more likely find itself in the regulations rather than in the implementation of legislation. I suspect you would be very interested, then, in what those regulations say, as this committee might be. Would you agree with that comment?
Ms. Chalifour: I think so, although I think it does boil down to revenue. I think ultimately it’s how the revenue is going to be used. So if those are choices that are made through regulatory processes or otherwise, that’s where I think the real impacts are going to be determined, and in the asking of the question and the design.
Senator Massicotte: As you know, for the federal program, the revenues go back to the provinces, those who participate. So the solution, like you said, is how to design a revenue base on a provincial level. But it’s kind of a divide-and-conquer strategy, given that it’s not a federal political decision; it’s provincial. However, the provinces are not coming forward with the solutions in terms of how they allocate the revenue to compensate for those people who are vulnerable.
It seems like they’re playing cat and mouse. They’re not talking about it. They’ve sort of disappeared on the issue, probably because they would prefer to have total discretion in how they use the money without having public debate on a national basis. Because of the separation of power, they seem to be getting away with it, without coming back with the proper design to make sure we compensate for those people who are vulnerable in terms of the increased cost of the carbon tax.
Do you have any comment on that?
Ms. Chalifour: Constitutionally, because of our Charter as well, we do have obligations to make sure that we essentially respect equality rights across the country. So, while I think the provinces appreciate the flexibility and, as the previous witness was commenting, different choices have been made in different jurisdictions with how to use revenue, I think it comes down, of course, to political priorities and to what’s important in that jurisdiction. But I would see a really important role, at the parliamentary level and at the federal level, for a set of guidelines and a set of considerations, the way that we have for national water-quality standards or similar kinds of guidelines, to make sure those things are taken into consideration.
Senator Massicotte: Thank you.
[Translation]
Senator Dupuis: I was trying to find section 15(2) of the Canadian Charter of Rights and Freedoms. My question is related to your reply on government priorities for spending the revenue. Could there be guidelines about the use of those revenues by the provinces that would encourage adopting social programs to benefit underprivileged groups? This is already a part of the Canadian Charter of Rights and Freedoms and applies to the federal government as well as to the provincial ones.
Ms. Chalifour: That could be a very interesting option. Thank you for your question. On the matter of guidelines or advice regarding expenditures, I think these are political questions that will probably be called into question by the jurisdictions. It’s a good idea to provide analyses, advice, and possible solutions. When gender-based budget analyses are done, for instance, those issues can be raised at the outset, when the policies are implemented.
There are a lot of questions about competitiveness or the effectiveness of the measures. There could be some compromises. Some of this income could be invested in day care programs or other initiatives, aside from green investments, but it would have consequences on the cost of carbon pricing. So these are costs that must be taken into account.
We have to think about the costs we want to include in this analysis. We can talk about the effectiveness of our approach on climate change. But we must also take into account the cost of inaction and the social costs. According to economists, it’s not always that effective to do it that way. It becomes a matter of political choices.
[English]
Senator Neufeld: I agree that Fred and Martha have been left out of the equation of what it is actually going to cost them at the end of the day. We had the last witness say, “Well, on average, you can do this, and you send a quarterly cheque back.” Although that’s nice, it usually doesn’t cover the real cost. It might cover part of the cost of the operation but not the replacement of equipment in older homes.
When you say you believe in carbon pricing and that we need to do it to reduce our emissions because, if we don’t do it — you used the word “inaction” — there are some serious repercussions.
I don’t disagree with that, to a degree, but we are 1.5 per cent, Canada as a whole, huge country, second-largest country in the world, 1.5 per cent of the total problem in the world. That’s what we’re told. We’re also told that that’s going to drop. That will drop, I guess, if we do something, but it will also drop as the rest of the world, the economies that want to have a lifestyle like ours, increase using fossil fuels. So we’re going to be less. We could only be 1 per cent. Yet we’ve heard lots of people come and say that if, in fact, we do $50 a tonne or $100 a tonne, it’s going have dramatic economic effects in our country.
I’ve also talked a lot about adaptation. I do think that we can reduce that 1.5 per cent down. We’re good. We can all pat one another on the back as everybody is walking down the street without a job in a lot of parts of the country, but it’s still going to happen.
Experts tell us that Canada will not meet its targets. The world will not meet its targets, many of the European countries. Germany is going back to coal. There are all kinds of things happening in the world. We’re not going to meet our targets.
So I look at adaptation because I think it’s going to happen in spite of all of the good intentions. Would you not think that that would be something we should be looking at seriously? I don’t think any government has seriously looked at adaptation, other than after an event. “Okay, then we’d better adapt there.” But adaptation is something that you do across the whole country, understanding that climate change is coming. Just saying that, if we don’t reduce by 1.5 per cent, it’s going to be terrible what’s going to happen in Canada. What is your response to that?
Ms. Chalifour: There is a lot to your comment, so I will just try to address two points, briefly. They’re really important points. You hear them a lot. Canada is such a small player. That’s one perspective. At the same time, we’re still in the top 10 to 12 emitters globally, and per capita we’re very high. We’re also a very privileged nation. If we just say, “This is too hard for us,” how can we then turn to others in the international community and say, “You should take action”? You have small island states that are making incredibly emotional appeals for action globally. I think, also, the global community has spoken in Paris. We’re going to each do our parts, and we’ve put in our targets and agreed to act, recognizing that that’s not going to solve climate change. If Canada meets 100 per cent of its targets, it’s not going to solve the whole problem, but we will be doing our part.
I think the question of adaptation is huge. It’s absolutely essential, and we are behind, as are most jurisdictions, in dealing with this because we’re all trying to figure out how we decarbonize our economies, and we’ve paid less attention to adaptation. So I would agree with you that we need to spend more time on that, but I wouldn’t throw the baby out with the bath water and forget about mitigation. I think we finally have some really concrete action in Canada, and I think, as other witnesses have said, businesses and stakeholders just need some certainty to move ahead. I do support carbon pricing, but I would also support regulations. I just want to see us moving forward on this and not wasting time and money and efficiency, because the longer we wait, the costlier it gets.
But then we absolutely also need to address adaptation. So I would think we’ve got a lot of work cut out for us.
[Translation]
Senator Dupuis: Senator Neufeld often talks to us about “Fred and Martha.” I know them pretty well by now. They have a son and a daughter. The daughter is the single parent of two children, and the son just got separated. So we have two single-parent families with young children. As we consider the priorities to be set for these revenues, should we not take intergenerational fairness into account? Fred and Martha are already “sitting on a legacy.” They are going to live quite a long time. It’s possible their children will not see their inheritance for a long time. Those children already have to adapt to a reality which for many is very precarious economically. Do you have anything to tell us about intergenerational equity?
Ms. Chalifour: That is very important. I am studying the issue to see to what extent we are legally obliged to think about future generations. I think we do indeed have an obligation. The issue of knowing how to act is very important, but actually acting is even more important. We have to act quickly and with certainty. I agree with you. We absolutely must take into account the distributive aspects and effects of policies.
However, thanks to the revenue that will be generated, it should not be too difficult to prioritize goals and costs and give ourselves an adequate long-term adaptation plan. We absolutely have to take future generations into account, because these are important issues.
Senator Massicotte: I agree with Senator Neufeld that the date as such is very important, and I believe that you agree with us. Should we not consider increasing the carbon tax so as to use those additional funds for adaptation?
Ms. Chalifour: It’s always a matter of balance. The key is that we have to act and we have to do so decisively. The revenue from the taxes will be considerable. Canadians want a prosperous country that generates long-term jobs for everyone, and good social programs. We are in a very different world.
As for the plan to deal with climate change and the legislation, many programs have been created in the various provinces. Some provinces have already gone forward. We are looking at a model which in my opinion introduces a certain balance. The variations among the provinces have been respected. They are given permission to move forward with their own policies, and they have the freedom to make their own decisions regarding the revenue that will be generated. You have given the provinces a choice, while advising them that the federal government will act if no program is created.
Personally I feel that you should see to it that the revenue is directed to programs for vulnerable populations. I think we are headed in the right direction.
[English]
The Chair: Thank you so much for your exchanges, information and questions.
(The committee adjourned.)