THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Tuesday, May 22, 2018
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5 p.m. to study the subject matter of those elements contained in 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; and, in camera, for the consideration of a draft agenda (future business).
Senator Rosa Galvez (Chair) in the chair.
[English]
The Chair: Good evening senators and Minister McKenna. Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Rosa Galvez. I’m a senator from Quebec and the chair of this committee.
I will now ask senators around the table to introduce themselves.
Senator MacDonald: Senator MacDonald, from Nova Scotia.
Senator Marwah: Sabi Marwah, from Ontario.
Senator Wetston: Howard Wetston, Ontario.
[Translation]
Senator Massicotte: Paul Massicotte from Quebec.
[English]
Senator Cordy: Senator Jane Cordy, Nova Scotia.
The Chair: I would like to introduce our staff. Our clerk is Maxime Fortin, and our library analysts are 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 proposed greenhouse gas pollution pricing act.
[Translation]
Appearing before the committee today is the Honourable Catherine McKenna, Minister of Environment and Climate Change, and Stephen Lucas, Deputy Minister of Environment and Climate Change. Thank you for agreeing to be here.
Minister, you may go ahead and make your opening statement, after which, we will move into questions and answers.
[English]
Hon. Catherine McKenna, P.C., M.P., Minister of Environment and Climate Change: Thank you very much, Chair. It’s great to be back here, and thank you very much for all your hard work. I certainly appreciate it.
Honourable senators, let me start by getting to the heart of the matter: pollution isn’t free. Severe weather due to climate change is already costing Canadians billions of dollars a year in insurance costs. Across the country, Canadians have experienced first-hand devastating wild fires, extreme flooding, severe droughts and stronger storms. Some estimates suggest that climate change will cost Canada’s economy $5 billion a year by 2020.
Yet by taking action on climate change, there is an upside: the enormous opportunity of clean growth. The World Bank says that the global shift to cleaner growth is an opportunity worth $23 trillion from now until 2030.
Canadians overwhelmingly want to see their government take action on climate change and they want to see a growing economy. That’s exactly why we’re pricing pollution. A price on carbon creates a powerful incentive to cut pollution, encouraging people in businesses to save money by making cleaner choices, like better insulating their homes or upgrading to more efficient equipment.
Pricing pollution is flexible. It sets an economic signal that people respond to in various ways. The price makes pollution more expensive and clean innovation cheaper, so it spurs innovation, creates good middle-class jobs, and rewards clean choices.
Because it’s flexible, it’s cost effective. Pricing pollution lets markets do what they do best. It helps us tackle problems like acid rain, as former Prime Minister Brian Mulroney has told me many times, while supporting clean growth and innovation.
And it’s working to cut carbon pollution. Over the past decade, B.C.’s direct price on pollution has reduced emissions by 5 to 15 per cent. Meanwhile, provincial real GDP grew by more than 17 per cent from 2007 to 2015. B.C.’s growing clean tech sector now brings in an estimated $1.7 billion in annual revenue.
A price on carbon pollution is already in effect in nearly half of the world’s economy. China is pricing pollution; California and the EU are pricing pollution; and I could go on.
Four out of five Canadians live in jurisdictions that are pricing carbon today. That’s 80 per cent of Canadians. Those four provinces — Ontario, Quebec, Alberta, and B.C. — led the country in economic growth last year. That success is the result of a long list of factors, of course, but anyone who says carbon pricing hurts an economy isn’t basing their argument on the evidence.
Pricing pollution is a win for the environment and the economy. It’s the approach that economists overwhelmingly recommend. It’s the policy that over 30 governments and 150 businesses have come together to support through the international Carbon Pricing Leadership Coalition. This is a group that includes Canada’s five major banks, alongside Canadian companies in the consumer goods, energy and resource development sectors.
In October 2016, the Prime Minister announced our government’s commitment to have carbon pricing in place throughout Canada with broad coverage across the economy and increasing stringency over time.
To ensure a price on carbon pollution across Canada, the government also committed to develop and implement a federal carbon pricing system as a backstop. This system will only apply in a province or territory that requests it or that does not have a carbon pricing system in place in 2018 that meets the federal standard. Provinces and territories have until September 1 to confirm their carbon pricing approach, after which we will make a decision on where the federal system will apply.
The greenhouse gas pollution pricing act provides a legal framework for the federal carbon pricing system. We are confident that we have sound legal authority for carbon pricing. Indeed, the federal government has a long history of environmental protection under the peace, order and good government criminal law authorities.
Canadian provinces have shown real leadership in pricing pollution and we recognize that kind of leadership when we put into place our plan.
Our approach gives provinces and territories the flexibility to design their own systems, provided they meet the federal standard, and to decide how best to use the revenue from pricing pollution to support individuals and businesses in their jurisdiction and grow a clean economy. We have been very clear that direct revenues from pricing pollution will remain in the jurisdiction they come from.
Alberta, British Columbia, Ontario and Quebec have opted to reinvest the revenues from pricing pollution in their provinces through measures like targeted rebates or tax cuts to households and businesses, and in clean growth investments like home retrofit programs, support for businesses with clean solutions ,and better public transit. These investments are already making a big difference for Canadians. They are creating jobs, supporting cleaner growth and driving investments.
Governments can and should design their carbon pricing systems to avoid putting extra financial pressure on low income and middle-class households. For example, provinces can choose to provide money-back rebates, cut taxes, or fund discounts on energy-saving programs and technologies.
Studies show we can put a price on carbon pollution while our economy continues to grow. Analysis from the Parliamentary Budget Officer, Environment and Climate Change Canada, and external experts confirm that the economics of carbon pricing would be negligible and could be completely eliminated depending on how provinces and territories choose to return revenues to the economy.
Governments in Canada are already making those kinds of choices, allowing them to price pollution while making sure no one faces costs they may not be able to afford. British Columbia’s carbon pricing support has a low income climate action tax credit that helps offset the cost that have provinces’ carbon pricing through direct payments to low-earning families. In Alberta, families that earn less than $95,000 per year receive a full rebate to offset costs associated with the carbon levy.
So a price on pollution can protect families from any net costs. It doesn’t hurt the economy, but it does cut pollution and position Canada for success in the global transition to cleaner growth.
I’m very proud that our government is taking this step as part of Canada’s clean growth and climate action plan. The evidence from at home and around the world is incredibly strong. It shows that pricing pollution creates good middle-class jobs, and gives families and businesses an incentive to make choices that will help them save energy and money.
We know the environment and the economy go hand in hand. Canadians expect healthy environment and a growing economy, and that’s exactly what we’re delivering. Thank you.
Senator MacDonald: Thank you minister for being here today.
Recently, in the House of Commons, you were asked and the government was asked to release all documents, in their original uncensored form, which would indicate how much the federal carbon tax will cost Canadian families.
We know that gasoline will go up by at least 11 cents a litre and the cost of heating one’s home will increase by over $200. However, we don’t know the overall cost to an average Canadian family, because multiple requests for information filed with the government have resulted in the release of documents with key information blacked out.
I’m curious why this key information is blacked out, and how do we determine the real price of this when we are not given the information by the government?
Ms. McKenna: Thank you very much senator for the question. The federal government has not put a price on pollution in any provinces. The provinces have taken a leadership role for provinces representing 80 per cent of the population and put a price on pollution in their own province, and that’s 80 per cent of Canadians. So what we can say for now is that in those provinces, not only are they taking action to reduce emissions, but they also are the fastest growing economies in the country.
Of course, we’re very mindful of impacts, potential impacts of pricing. That’s why we have said to provinces, you have the opportunity to decide — to determine what system works for you and what to do with the revenues. The federal government has been very clear that the direct revenues from pricing will remain in the province, and provinces have taken different approaches.
You can look at the example of British Columbia, where they did tax cuts. They gave the money back and their economy grew. The sweet spot, of course, is that you reduce emissions, your economy grows and you support a transition to clean growth.
It’s worth pointing out that Vancouver, and British Columbia more generally, is a leader in clean technologies. It is punching way above its weight. That’s where the world is going. We think this is a smart approach. It’s also a cost-effective approach; economists show that it is the lowest cost option. You can also have the flexibility for provinces to determine how to deal with the revenues.
Senator MacDonald: It’s also worth pointing out that you never came close to answering the question I asked you, so let me ask you it again.
Can you tell the Senate assembled here today how much money the carbon tax will cost the typical middle-class family in this country. For example, for a middle-class family of four with two children, how much will it cost annually?
Ms. McKenna: As I said, we do not have a price on pollution across the country. I can talk about the context of British Columbia. They took the revenues from putting a price on pollution and gave them directly back as tax cuts to people. So that you could actually do — you put more money in people’s pockets, but you also make sure that they have the incentives to reduce emissions.
Alberta has also given rebates back to families. Ontario and Quebec have made investments in clean technologies, in energy efficiency. So really, it’s up to the provinces. We think that’s the way it should be. We believe that provinces are best-placed to determine what they want to do with the revenues and they are well within their rights to give the revenues back in terms of a tax cut or a rebate.
Senator MacDonald: Illuminating.
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Senator Massicotte: Minister, thank you for being with us today. I am very much in favour of carbon pricing. It’s a reflection of capitalism and the marketplace, after all. It’s a more effective approach, and we are seeing the results. You have my support. Nevertheless, I have two questions. One has more to do with macroeconomics, and the other is a bit more specific.
A number of individuals, including experts, the auditors general of all the provinces and our own environmental authority here, in the House of Commons and the Senate, have said that Canada is not on track to meet the greenhouse gas reduction targets committed to in Paris, neither in the short term nor by 2030. You said that we would meet the agreed-upon targets and that they were within reach. Who is telling the truth? What makes you so optimistic, when other highly trained people are claiming that Canada will not be able to meet its targets?
Ms. McKenna: Thank you for your question. Carbon pricing is working in Quebec. When I was in Paris with the Prime Minister, we were on a mission to promote clean technology, and there were numerous Quebec companies that had made the transition; they have clean solutions and are creating jobs. Of course, we have a plan. We said that we were going to meet our targets, and carbon pricing is a major piece of the puzzle, one that will lead to a reduction of 90,000 megatons of greenhouse gas emissions, but it isn’t the only piece.
We are also phasing out coal by 2030. Four provinces still use coal. We have made record investments in public transit. We are the first country in the world to reduce methane emissions in the oil and gas sector by 40 per cent. We have an electric vehicle strategy for the transportation sector, which is a big emitter. I could go on. In addition, we are making investments in clean technology.
All that to say, we have a plan to achieve our targets by 2030. If you look at what Environment and Climate Change Canada is doing, we are showing how we are going to meet our targets. There are other measures we can take. We will see just how significant of a role reductions tied to public transit, clean solutions and the forestry sector can play.
It’s a tough road because the previous government did nothing for 10 years. We are here, and we have a plan to achieve progress. I was very pleased last year, given that we fostered a further emissions reduction of 232 megatons, over and above our projections. That was our biggest success in terms of reducing greenhouse gas emissions. It will take time, but 2030 is our target. We are working very hard.
Senator Massicotte: I have another, more specific, question. Under your plan, emissions-intensive and trade-exposed industries will receive a credit of around 70 per cent in relation to existing emissions. That obviously needs to be confirmed on an industry basis, sector by sector. How does that 70 per cent compare with our plans? In other words, why 70 per cent? How much of a credit do Quebec, Ontario and Alberta give their big emitters?
[English]
Ms. McKenna: When you design a system, you need to make sure that it takes into account trade-exposed sectors; that you’re not just sending companies and emissions offshore. We don’t want to do that. That’s why we’ve been smart. When it comes to heavy industries we’ve decided to take an intensity standard approach — 70 per cent. That’s the benchmark. If you are better than that, then you won’t have to pay or you could make money. If you’re below that, then you will.
I think that we are working very closely with industry. You need to get that right. There might be some sectors where you need to make adjustments, but we believe that this is a smart approach. There are experiences around the world to see what works. We looked at Alberta and British Columbia and what we’ve done, and we think we’re coming up with a robust system.
I am going to pass it on to Deputy Minister Stephen Lucas who can go into more details.
Stephen Lucas, Deputy Minister, Environment and Climate Change Canada: I would just note, senator, that figure of 30 per cent more stringent than the average, or 70 per cent of the sector’s national average emissions intensity, represents a starting point. It reflects an analysis of emission-intensive trade-exposed sectors, about 20 in total or about 86 facilities across the country, based on the distribution of facilities and their performance. We are consulting with those sectors to learn about their circumstances and will consider adjustments based on that information and our modelling on trade exposure and competitiveness.
Senator Massicotte: Why 70 per cent? How does that compare to what’s actually occurring today in Alberta, Ontario and Quebec where there is a carbon price? How does that compare to actual results?
Mr. Lucas: The structure is different than in Ontario and Quebec, where it’s a cap that limits overall emissions. This is a limit on the emissions intensity per unit output. It’s a different construct.
In Alberta it’s closer to 80 per cent. They’ve gone on a sector-specific basis and we’re being informed by that and looking at facilities across the country, international benchmarks and information provided by facilities to help inform sector-specific standards which, as I said, should cover about 20 or more specific sectors in the country.
Senator Cordy: Thank you, minister, for being with us today. You spoke earlier about encouraging jurisdictions not to hurt low-income families, and you spoke about provinces who are giving rebates to those who have low income so that they aren’t hurt by having a price on carbon.
I’d like to talk about the North for a little while, because the energy options in the North are pretty limited, and in what fuels they can use. I’d like to know whether or not you have thought about the impact of a carbon price on those in the North or those in remote northern areas for that matter?
Ms. McKenna: Thank you very much. I think this is a really important point. We recognize that remote communities have unique circumstances. They might be relying on imports, or they might not have the same choices in terms of fuel switching. That’s why in the pan-Canadian framework we committed to working with the territories to find solutions that address their unique circumstances, including high costs of living and of energy, challenges with food security, and emerging economies.
I just had a meeting with the premiers from all of the Territories. They are supportive of pricing but, of course, they want us to be mindful. I’ve said that is absolutely top of mind for me. My goal is to reduce emissions, it’s not to hurt people. In the case of the North, many people are lower income and I think we need to be smart about what we do. We’re going to be continuing to work with the territories. As I say, we’re working very well with them. We have shared modelling with them and they’re very keen to work with us to find a solution that makes sense for the North.
Senator Cordy: You said earlier that a price on carbon is a powerful incentive, and indeed I think that it is. I think you were quoting Brian Mulroney, I’m not sure, but nonetheless I think we all agree with that. The materials that I’m reading certainly say that this is an incentive and you’re not getting much of a reduction unless you do that.
We’ve got some provinces with cap and trade, some with carbon tax, and then some who will have it imposed by the federal government, but with the understanding that any income that will come from that will go back to the jurisdiction from whence it came.
What made you decide on a carbon tax and not cap and trade? What were the discussions behind the scenes on that?
Ms. McKenna: Thank you very much. I love how everyone is understanding putting a price on pollution. That’s great.
We hope the provinces will step up and design a system that makes sense for them. If, in the unlikely circumstance — and for at least most of the country it looks like we won’t — we have to step up, we felt that having a direct levy on fuels and then having an energy-specific system for high intensity sectors was a system that made the most sense. We were committed to returning the revenues to the provinces.
There are actually three systems. There’s a system where you would do a direct price, there’s a cap and trade system, and there’s the case of Alberta who has adopted a hybrid system. We think that’s the system that makes sense. We feel that’s a system that provides flexibility, recognizing trade-exposed sectors.
The Chair: I want to ask you something. It’s been a while now that some provinces, as you said, where we already have a carbon price — Quebec, Alberta and Ontario — and even in Quebec we do business with some states, like California.
After we installed these taxes, do you think that big markets, such as the one around the Great Lakes, would be interested in intensifying the exchange?
Ms. McKenna: That’s a very good question. The trend around the world is to put a price on pollution. I’m not sure of the actual percentage, but I would say close to half the countries in the world have a price or are looking at a price. It’s supported by the Carbon Pricing Leadership Coalition which includes major companies around the world.
It’s interesting to look at the context of the U.S. California has the fifth or sixth-largest economy, depending on how you count it, with the market linked with Ontario and Quebec. You’re also seeing the eastern seaboard putting on a carbon price and you’re seeing momentum grow. We signed an agreement with U.S. states representing 40 per cent of the U.S. economy, and one of the areas we are studying and are committed to working together on is carbon pricing.
When I met with my Mexican counterpart, they are very interested in carbon pricing. It’s the same with Chile, and Singapore just signed on. The hope would be that at some point, particularly for cap and trade, that there would be linkages between this system. It rewards efficiency.
We know that you want to see a price on pollution around the world eventually, because that’s one of the big, low-cost tools we have to actually reduce emissions but also, very importantly, to innovate. When you have the incentive there, when you have a price on pollution, if you have a solution that pollutes less or eliminates pollution, then it’s something that you will see consumers and businesses turning to and we’ve seen that in Canada.
Senator Wetston: Thank you for coming today. Minister, I want to follow up on broad-based principles of what you’re trying to achieve here.
Can you help me with the benefits and the costs associated with the policy that you’re implementing? In it there are always, invariably, winners and losers. You may not see it that way, but it’s hard not to step back and ask yourself the question: Who are the winners and who are the losers in the price of pollution? Do you have any sense of that?
Ms. McKenna: Thank you. Pricing pollution is seen as the most efficient tool because it’s flexible. In fact, it’s a conservative concept, small “c” conservative, but also big “c” in the case of Brian Mulroney when it was used with the acid rain treaty to great effect.
Because it provides incentives to choose how you’re going to reduce what you pay, to pay less, whether you’re a business or you’re a family, you make the choice and you can decide how you’re going to do it.
Of course, the revenues are an important part of that. That’s why we’ve said this is not about revenues for the federal government. Revenues would be returned to the province.
In terms of winners and losers, that’s the whole purpose of revenue recycling. If you look at what economists have done or you look at very practical models like British Columbia, you can address concerns.
I am very concerned about the middle class and those aspiring to join it or people in the North. That’s why using the revenues in a smart way is really important. You can give rebates back to families so that families are made whole, especially low-income families or middle income families.
The real losers are people who continue, like companies, to pollute and don’t see that we’re moving to a cleaner future. The good news is that we’re sitting down with companies, the major companies that meet the threshold that are the energy-intensive companies and they all understand that this is the way we need to go. In the end, they will actually save money.
This is the opportunity for everyone to be smarter. We know we need to tackle climate change. We know our planet is warming. We want to do this in a sensible way, in an organized way.
I don’t like drama. I don’t like surprises. I like things that are thoughtful. I like good policy. That’s why we’ve worked really hard and that’s why I continue to work very closely with the territorial governments — I mean governments across the country — but also with businesses and also really emphasizing the opportunity to use the revenues in a way where you support families, where you support low-income and middle-income Canadians, where you help people make the choices they want to make.
When I talk to Canadians, they want to make choices to pollute less because they understand that we need to have a sustainable planet for our kids, like I do.
The Chair: Just a parenthetical comment to tell honourable senators that there is a vote but it’s only at 6:20 p.m., so we should be okay.
Please follow up.
Senator Wetston: Thank you for that. I guess what I was attempting to get at here was that you really want to change behaviour. There are a number of ways of doing that. The carbon tax is a direct way of attempting to achieve behaviour, but in that context there will be firms and companies that have greater challenges in changing.
On the other hand, if you’re going to nudge behaviour through cap and trade, which Senator Cordy was more or less getting at with you, you achieve other goals.
I talked to your officials about this. One way is a direct government intervention, whereas the other way tends to be more of a market response.
I’ve always felt that a better way to achieve a market response is to nudge that behaviour in markets and you might get a better result than necessarily government forcing its hand on business and saying, “This is the tax you’re going to pay.” It can work in some situations.
If your overall goal here — which I agree with, by the way -- is that we need to change behaviour. We need to put a price on pollution one way or another.
I’d be interested in your thoughts about which way — I mean, you can price carbon in the way that you’re suggesting and that’s the easier way of doing it, in my opinion. It doesn’t necessarily mean the impact is going to be easier to achieve.
Do you have any thoughts about that, minister?
Ms. McKenna: That’s actually really interesting. I consider both marked-based approaches and I’ll tell you why. I was trying to figure out which one you were saying was market based. You could say cap and trade is clearly market based because you’re trading, but I believe market-based means that you have choices to go into the marketplace and change your behaviour, as opposed to a regulatory approach. We have a mix of approaches. We think we’ve taken a responsible approach. It’s not just a price, which you could do. By having a direct price, we let people decide what they want to do.
Also, when you look at economists, a lot of economists are in favour of a direct price. They think that that is a way where it’s very clear. and it's also very clear what’s happening with the revenues and they believe that you should return them.
What we’ve done is really to sit down with business and talk to them about, in terms of business, what approach makes the most sense. This is why for the energy intensive trade-exposed they said, “Look, we understand the need to put a price on pollution,” but we believe that this is a system where you look at the intensity and you kind of have best in class. You want people to aspire high and it is an approach they liked.
I’ll ask my deputy to say a few words.
Mr. Lucas: Under the system proposed as the federal backstop that you’re to consider, for the emission intensive trade-exposed sector, under the output-based performance standards system, there are multiple compliance pathways that in effect create a market opportunity to reduce the cost of compliance.
So if a firm does have emissions above the output-based standard, it could pay the direct price on that or they could buy them from a company that has overperformed, if you will, who would receive credits or acquire offsets which may be in another sector.
It does create that market opportunity to drive innovations and reduce costs.
The Chair: I want to jump in again. One way of reducing emissions is by putting the price, but another important way is to inform and educate the consumer. The consumer needs to know how much is the carbon print of this and this so they can choose.
Maybe I’m dreaming, but I would like to go to the marketplace and take something and say, “Okay, these are the three alternatives and this one will do the least damage to the planet.” Is there anything that is coming on that to accompany this practice of carbon pricing?
Ms. McKenna: That’s exactly right. As I say, when I meet with Canadians they want to figure out how they can reduce their footprint. They aren’t always entirely sure. We do talk about the importance of insulating, using a smart metre and providing incentives. With the low-carbon economy fund, for provinces that have signed on to our climate plan, we’re working in partnership with them. We are investing in energy efficiency measures which help, and we have a program that we use that provides energy smart information about how efficient your appliance is. Certainly that’s where there are real opportunities.
I don’t know if anyone has a smart meter, but with smart meters the amount of data that you can get is great. When you’re not at home, why do you need your heater or your air-conditioning on? You can set this up.
I think there’s a real opportunity now with big data, with technology, to do a better job. Then there is also the stuff that you could always do, which is better insulating.
Certainly education is a really key component. The marketplace is bringing a lot of these products on, but also just making sure that we’re making this information available.
I guess there is a way of looking at carbon pricing. It is a proxy for the footprint of a product, so if you have a more efficient product you will pay less. If you insulate your home you see your bills will go down, so that’s the idea to do it. It may not be the same as putting a label on a product, and we are doing that too, but obviously, definitely, the education piece is really key about the opportunities to save on emissions but also save money.
Senator Marwah: Thank you, minister and deputy minister for coming today.
The legislation gives considerable flexibility to the provinces in designing their own systems, including the reinvestment, which is very positive because they can cater to the needs of their citizens which is very positive, in my view.
How do you ensure that there is some consistency in the provinces that is aligned with federal priorities. Furthermore, you have the extreme case where, as you know, in Ontario we have one potential leader who has proposed scrapping parts of it all together.
Do you have enough levers, and do you have enough recourse to ensure that progress is being made and that there is some consistency across provinces? I worry about companies that have plants in two provinces whereby, suddenly, they have two jurisdictions to worry about. How do you ensure some modicum of consistency across them?
Ms. McKenna: Thank you very much. I think, as a first principle, we certainly recognize the role of provinces. To be honest, provinces have been leading the way. The four provinces with a price on pollution did that independently of the federal government.
I am hopeful that governments will design a system that works for them, but, in the event that they don’t, we’ve been clear. We have a benchmark that outlines what the expectation is to provide some consistency. There is a lot of flexibility within that benchmark in terms of whether you take a direct price, or a cap and trade system, or a hybrid system, and also how you use the revenues.
We are waiting to hear from the provinces. They have until September to tell us what they are doing and what their system will be. Then we’ll be evaluating them to ensure consistency. As I say, the goal is not for the federal government to use the backstop. It’s for provinces to step up and do something that is smart and design a system that makes sense for them and use the revenues as they see fit.
Senator Marwah: If you’re not happy with what they are doing, then what?
Ms. McKenna: Then we have the backstop. That is really what we’re talking about, our backstop. That’s why we are putting so much time into the backstop. There may be provinces that choose to use a backstop, or we may be in a situation where the federal government applies a backstop. As I say, that’s not my preferred option, but we think that we are in a good position to do that.
There are systems in place. You take the context of Ontario. There are revenues associated with that system that are coming into the provinces, but also there are credits that have been sold. So there would be implications, financially, should a government decide to step back from that system.
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Senator Massicotte: I have a technical question. As far as Quebec’s and Ontario’s cap and trade systems are concerned, numerous experts maintain that, instead of trying to reduce emissions, it would be simpler and more effective for companies to just buy credits from California. If that’s true, that represents opportunity for Canada outside the country, without impacting the amount of CO2 those companies emit. Given your analysis, is that something that would be possible? If so, how do we deal with that challenge?
Ms. McKenna: With a cap and trade system, the cap goes down. Credits become more expensive to buy. My deputy minister, Mr. Lucas, can speak to that in greater detail.
Mr. Lucas: Under the Western Climate Initiative cap and trade system, the rules are a bit more stringent, or effective, if you will, when it comes to lowering the cap — as the minister mentioned — and increasing the minimum price over time. It’s the combination, then, of the cap and minimum price driving the market.
Senator Massicotte: Does the possibility I talked about fit into your plans? Will those companies use it? Does that factor into your projections?
Mr. Lucas: Our modelling took into account the cap reduction in Ontario and Quebec set out in the legislation.
Senator Massicotte: My second question is this. The bill excludes major sectors like agriculture. Is that temporary, meaning that you will eventually introduce a program where farmers are incentivized to reduce their CO2 emissions? Or did you include the exception even though they are already covered under the cap and trade system?
Mr. Lucas: Under our system, carbon pricing applies to a wide range of emissions. Clearly, like British Columbia, in our legislation, we chose to exclude the gas farms in the agricultural sector use, as well as emissions that are hard to measure, such as livestock and methane emissions. We have another regulatory framework for methane emissions and other measures related to the forestry sector as far as carbon storage is concerned. It is therefore tailored to the types of emissions that are measurable.
Senator Massicotte: I wish you well with your plan. It’s very important for the future of our country and the world as a whole.
Ms. McKenna: We are fortunate to have excellent people helping us a lot.
The Chair: Thank you.
That concludes our meeting, since it is now time to go and vote.
[English]
I’m sorry; we have to stop there. Thank you very much for coming.
Committee members, can we just talk for two minutes? We need to give instructions.
Thank you so much.
Ms. McKenna: Thank you very much for inviting me. It’s great to be here and I appreciate your interest.
(The committee continued in camera.)