THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Thursday, May 9, 2024
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 11:29 a.m. [ET] to study Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello to everyone and welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I serve as the chair of this committee.
Just a quick reminder to use the black earpieces, not any grey ones if they’re still hanging around, and please keep them as far away from the microphone as you can. We’re trying to keep audio feedback to a minimum.
Let me introduce members of the committee today: Senator Loffreda, our deputy chair, Senator Deacon, Senator Gignac, Senator Marshall, Senator Massicotte, Senator Miville-Dechêne, Senator Petten, Senator Varone and Senator Yussuff. We have Senator Galvez with us today as well as we continue our examination of Bill S-243, An Act to enact the Climate-Aligned Finance Act and to make related amendments to other Acts.
I want to thank you all again for your cooperation yesterday. We also have a busy day today with two witnesses in our first hour and one in the next. We’re going to keep things as tight and focused as we can.
On our first panel, we have the pleasure of welcoming in person Gina Pappano, Executive Director at InvestNow; and by video conference today, Eric Usher, Director, Finance Initiative, United Nations Environment Programme.
Welcome to both of you. Thank you for joining us today. We will begin with your opening remarks, Ms. Pappano.
Gina Pappano, Executive Director, InvestNow: Good morning. I thank you for the invitation to be a witness at this committee hearing. I am here today to discuss Bill S-243, the climate-aligned finance act.
I am executive director of a not-for-profit organization called InvestNow. Our mission is to challenge the divestment movement in Canada. “Divestment” means that large endowment funds, pension plans, institutional funds and banks pledge that they will not invest in any oil and gas projects or companies. They are eliminating them from the investment pool and betraying their responsibility to their shareholders simply because these companies operate in the natural resources sector.
Bill S-243 is related to divestment because it is so prescriptive that it will deter investment in our oil and gas companies. Its object is to mobilize Canada’s financial sector against our energy sector with an eye towards achieving net-zero emissions by the year 2050. This plan does not bode well for a country whose most productive sector — by leaps and bounds, as per a just-released study by Philip Cross and Jack Mintz — is oil and gas. Cross and Mintz argue that resources are still Canada’s golden goose. They drive exports, productivity, incomes and government revenue. This bill, in contrast, would undermine not just the free market and the energy sector, but the Canadian economy itself.
When I worked at the Toronto Stock Exchange and TSX Venture Exchange, the role of the business development group was to go around the world to pitch companies to list on our exchanges. Our main selling feature was access to capital, especially for the resource sectors and for junior exploration companies in these resource sectors.
But nowadays we see companies like Shell, which is Britain’s most valuable company and the London Stock Exchange’s biggest listing, considering leaving the London Stock Exchange in favour of the New York Stock Exchange. Why? Because the oil giant feels that the U.K. is an increasingly hostile investment environment. Access to capital is key to a flourishing resource sector. If companies can’t get that access at home, they will go where they can get it.
What is happening with Shell and the London Stock Exchange should be a warning to a country like Canada, which through net-zero pledges and pursuits, emissions — or rather, production — caps and other anti-resource sector policies are making the country a hostile place for oil and gas companies and investors.
That is precisely the outcome Bill S-243 intends to bring about. And to do that it claims an extremely broad remit. For example, among other things, this bill interferes with who can and who cannot serve on the boards of reporting entities, including federal financial institutions and Canada Business Corporations Act regulated corporations. It mandates that each board must contain at least one member who has acute lived experience related to the physical or economic damages of climate change.
It further stipulates that no person may be appointed to the board of a reporting entity if that person controls any capital, shares, stock or has any ownership or legal interest in an organization that does not meet the description of an entity in alignment with climate commitments. To be considered “in alignment,” an organization needs to be dedicated to avoiding new fossil fuel supply infrastructure and exploring for new fossil fuel reserves and instead planning for a fossil fuel-free future.
The object of these provisions is to ensure that no one with relevant experience in Canadian hydrocarbon energy will be allowed to serve on one of these boards while stipulating that each board will have at least one member whose principal contribution will be advocating for the sector to be dismantled.
This is about as hostile an investment environment as can be imagined, not to mention a serious encroachment on good corporate governance.
Bill S-243 and the net zero by 2050 movement, more generally, are ultimately counterproductive to their own goals. They contend that eliminating Canadian oil and gas will enable Canada to play a part in reducing global carbon dioxide emissions. The facts suggest the opposite.
In 2022, 82% of the world’s primary energy needs were met by oil, natural gas and coal. Global demand for these fuels is increasing, not decreasing. If the oil and gas the world wants and needs is not supplied by Canadian energy companies, it will be supplied by authoritarian regimes in poorly regulated, undemocratic countries with less respect for human rights or the environment. Emissions will go up and environmental performance will go down. There will be more hardship for everyday Canadians as our economy is hobbled, businesses and industries shut down, people lose their jobs and the price of energy soars. Meanwhile, global demand for oil and gas will be satisfied by countries other than Canada. Why would the government, regulators, banks and investors want to commit to that?
Again, to see the effects of policy that is too prescriptive, we need only look to Europe. As countries there have pursued similar policies, many energy-intensive manufacturers have either gone elsewhere, drastically cut back production or gone out of business entirely. Manufacturing requires energy, and legislation like Bill S-243 is premised on making energy more expensive and less abundant.
Oil and gas are an essential pillar of Canada’s prosperity. Investment in oil and gas is essential for the healthy functioning of our economy, for jobs, for innovation, for government revenues and for global emissions reductions.
Bill S-243 is a prescriptive, overreaching bill that, in aiming to suppress one of Canada’s most productive industries, will do irrevocable damage to Canada instead.
Thank you.
The Chair: Thank you for your remarks. We go now to Mr. Usher for your opening comments.
Eric Usher, Director, Finance Initiative, United Nations Environment Programme: Thank you very much.
I am a director within the UN Environment Programme, or UNEP, with responsibilities as head of the UNEP Finance Initiative, or UNEPFI, a global partnership bringing together the UN with a group of some 550 global banks and insurers, including many from Canada, working to develop the sustainable finance agenda.
Over the years, we have established some of the most important sustainability-oriented frameworks within the finance industry, including the principles for responsible investment, principles to sustainable insurance and principles for responsible banking.
Please note that my remarks are made on a voluntary basis in my individual capacity and should not be understood to be a waiver of the privileges and immunities of the United Nations.
As is well-documented by the Basel Committee on Banking Supervision, and many others, climate change poses risks to the financial system. Actually, just last week, the Basel Committee formally incorporated climate risks into its core principles which set out the overarching standards for regulations to keep the global financial system stable.
It’s increasingly acknowledged that misalignment of capital flows with global climate objectives may result in short, medium and long-term financial risks for financial institutions individually as well as affect financial stability overall.
Financial regulation can support and incentivize the alignment between financial flows and the global climate agenda in two ways. Firstly, it can help better manage the physical and transition risks stemming from climate change. The new Office of the Superintendent of Financial Institutions, or OSFI, B-15 Climate Risk Management guidance is an important tool to strengthen the resilience of Canada’s financial institutions.
Secondly, financial regulation can build on voluntary industry commitments to incentivize financing for Canada’s economic transition towards a sound and sustainable economy. In recent years, regulatory sustainable financing initiatives have increased substantially across jurisdictions, aiming at — for example — increasing transparency of sustainability information, addressing greenwashing and strengthening climate-related risk management practices. These developments are an important prerequisite for intensified net-zero alignments across the financial system and the entire economy. But it is also very important to note that financial regulation can only truly incentivize transition finance if mirrored by a whole-of-government approach to regulation and meaningful action and commitments in the real economy.
In line with global developments, Canada has expressed its commitment to transition to a carbon-neutral economy and society, and the Canadian Net-Zero Emissions Accountability Act was foundational, and I welcome Canada’s recognition that the private sector — particularly the finance industry — has a key role to play. The establishment in 2018 of the Canadian expert panel on sustainable finance and in 2021 of the Sustainable Finance Action Council, or SFAC, are important steps in this regard.
Canada’s approach of an active partnership between regulatory authorities and the industry is commendable. Voluntary industry action has been a key driver of sustainable finance in Canada, reflected in many financial institutions’ integration of sustainability considerations into their operations. For example, they identify sustainability as a key priority within their business strategy. They reflect this in their governance and compensation policies. They establish systems to analyze the climate-related risks and impact of their financing, and have begun making sustainability disclosures.
Most of this is done voluntarily. Much of it as signatories to the UN frameworks or alliances that I mentioned, and voluntary and regulatory action must continue to work hand-in-hand, giving financial institutions the necessary room to innovate and, at the same time, signalling toward stronger market uptake, learning and ever-increasing ambition and innovation.
I welcome the focus of the “Climate-Aligned Finance Act,” or CAFA, on enhancing the reporting and disclosure of companies’ efforts to align their activities with net-zero commitments. This type of reporting is important for enhancing the transparency, credibility and the effectiveness of net-zero commitments across the economy, and ultimately to ensure the integrity of the transition. The development of international disclosure standards — including through the international sustainability standards board — should be advanced as to ensure optimal allocation of capital to the net-zero economy. Work with the Canadian Sustainability Standards Board, or CSSB, to develop reporting standards aligned with the International Sustainability Standards Board, or ISSB, is very welcome in this context.
On the issue of adjustments to risk waiting, I do wish to communicate a level of caution, as the right weights must — first and foremost — remain risk sensitive. To date, no jurisdiction has introduced changes to their risk waiting or their pillar 1 framework based on climate or sustainability considerations alone.
A few countries have, however, looked into the issue. The European Banking Authority recently looked into it and advised against changes due to operational challenges — essentially, how exactly to calculate and calibrate such risk weights plus potential distortion to risk management.
Likewise, the U.S. Federal Reserve does not seem currently inclined to introduce changes to risk weights based on their greenness, but for now I would therefore urge caution with regard to changes to risk weights and fully utilize other regulatory tools such as transition planning to incentivize the transition.
At a higher level, the role of financial regulation can only be effective if embedded in whole-of-government approach. A key aspect of this is the development of relevant sector emission reduction pathways for the real economy.
There is also the potential for a Canadian taxonomy to be used as a forward-looking tool to accelerate the net-zero transition. Taxonomies are often considered a static tool. It’s very important that regulatory frameworks are brought to be consistent. We have 40 countries developing taxonomies today. We need to forge them together to provide clarity and consistency to the financial and private sector needs. With that, I will yield. Thank you.
The Chair: Thank you very much for your testimony here today and your patience with our technical problems. We will get right into the questions, and I suggest that you direct your questions to whom you want to answer.
Senator Loffreda: Thank you, Ms. Pappano and Mr. Usher. I have a question for Mr. Usher. I have a letter dated December 4, 2023, from you in front me, and one sentence that caught my eye is:
To play the role and accelerate the decarbonization of their portfolios, Canadian and global financial institutions need a predictable and enabling policy environment.
As a former banker, I love the word “predictable.” It leads to sound judgment and sound decisions. Can you predict the economic impacts of this bill? Are they predictable? If they are, I am certain it will reassure our committee to maintain a sustainable economy going forward.
Mr. Usher: It’s a very important question. I would give one example as part of my answer — what I would call “the Tesla effect.” Not to comment on the CEO of the electric vehicle company, but there is no industry today that doesn’t believe that change and disruption are just a month or a year away. We’ve seen that in the automotive sector. Predictability is what investors and financiers are looking for to understand how the world will be changing. When we talk about climate, there is physical climate change, which is what we call physical risks, but there is also transition risk in understanding how policies and technologies are going to change the competitiveness of different actors within different industries and sectors.
I think what’s critically important here is we are asking whether predictability requires the ability for an industry not to look to the past in terms of risk management to understand what failed in the past so that we don’t do it again in the future, but to be able to look forward and try to be predictive about how the world is going to change, how every industry that we as a bank finance is going to change and who are going to be the winners and losers in that change.
In terms of the predictability that they are looking for, they are trying to understand, one, the science because they can look at the parts per million of carbon in the atmosphere and realize that climate change is not going away. It’s ever-present and it is — as I’ve mentioned — now considered clearly to be a financial risk. It’s not just a climate risk. Two, they want to be predictive on what the government policy response is going to be to help manage both those physical risks and also the transition away from high carbon forms of the economy.
So it’s very critical for them to see and understand the intentionality of government and the whole-of-government approach, which will allow them to take investment decisions or lending decisions that gives them a certainty that they can be forward-looking in a knowledgeable way to do their job.
The Chair: Thank you, Mr. Usher.
Senator Marshall: My question is for Ms. Pappano. Thank you very much for being here. The material we were provided is very interesting.
It says you put forward proposals at the annual general meetings of several banks, but your proposals failed. I would think that shareholders are trying to balance environmental issues while trying to maximize the return on their investment. You said that you’re going to try again.
Are you able to tell us why your proposals failed? You have to look backward and try to determine why because you said you were going to try again. I’d be very interested in knowing why you think you failed and how you’re going to go into the future. How you’re going to revise your proposal.
Ms. Pappano: This year was our second year doing shareholder proposals, and it’s very difficult to allow people to have a vote against what the board is recommending. The whole process involves a lot of work to vote against what the board and management team are recommending.
A lot of institutional investors just use proxy services. It’s a very complicated process.
What I intend to do next year is to approach large investors and state my case to them well before the meetings and try to get them to vote against what the board and the management team are telling them to do.
I did receive lots of support, even from some board members who are involved in mining companies and other industries that rely on the oil and gas sector. They sympathized with my plight, and they said to keep at it, things will change. The other proposals started about five years ago, and they have slowly gained more support.
Senator Marshall: I had the impression that it was three banks that were involved, but it was all the large banks?
Ms. Pappano: Last year it was three banks, this year it was five banks.
Senator Marshall: Thank you very much. That is interesting.
Senator C. Deacon: Mr. Usher, you have more of an international perspective than many of us have access to. When you look at OSFI’s rule B-15, how does it need to be strengthened in order to keep Canada moving in the direction that is the intention of Bill S-243? To me, that is an existing tool that is available to address this issue, and maybe we could be pushing to keep that moving forward.
Mr. Usher: I’m not going to speak as an expert on the OSFI rule. The disclosures are definitely the starting point for any corporate actor, including banks or even investors, to understand their exposure and their risk.
One of the key challenges, obviously, is the comparability of disclosures. This is my reference to the ISSB, the CSSB and the ratcheting up to provide more and more transparency to understand where the risks lie. I believe that B-15 is a big step forward in that direction. My sense is that often the challenges, particularly when we deal with big Canadian banks that are very exposed south of the border and around the world, is that disclosure methodologies are still varying across jurisdictions — the comparability issue has still a lot of work to be done.
This is why ISSB and CSSB is quite important. What you want is clarity, whether you’re investing in one jurisdiction or another, that you can do the comparability. As we know, climate is a global issue, and therefore we need a more of a coming together framework. I can’t say more about OSFI B-15 at this point.
Senator C. Deacon: The answer I get from that is that it’s clearly about greater transparency in a way that is interoperable between markets. It is comparable between markets. That would be the only way to keep improving and keep strengthening it that you’re aware of.
Mr. Usher: That’s a very important starting point. Everyone needs to get transparent as a first step to understand where the risks lie. Then, of course — and I think a lot of purpose of the CAFA bill — where do you build from there? That’s when you start to get into the territory of transition plans and the role of not only getting the snapshot of what the carbon footprint of a company is today, but, more importantly, how you can understand where they’re going tomorrow and how you can assess that risk.
The Chair: Thank you.
Senator Gignac: My first question will be for Ms. Pappano. As fair disclosure, to recognize the importance of oil and gas industry in Canada —
Having said that, I want to continue on the same angle as Senator Marshall about the action in the annual meeting. In your proposal to Suncor shareholders in the recent annual meeting, you argued that Suncor’s net-zero pledge is a costly and economically risky crusade based on dogma and ideology. You add that Suncor has an economic and moral obligation to drop their net-zero targets. The company response to your statement mentioned that they will commit to decarbonizing.
Your proposal has been rejected by 99% of shareholders at the annual meeting. Since shareholders focus on economic gain, could you explain why your proposal has been rejected? Is it because you go a little bit too far?
Ms. Pappano: I don’t purport to know what is in the minds of the shareholders, but I do know that it takes efforts to make a change when the management team and the board of directors are telling you to vote against a proposal. Again, I received support, and I will be out there again.
There has been no detailed or costed plan — or any plan at all — for achieving net zero. My issue is with Canada. I care about everyday Canadians. What will Canada do without our oil and gas sector? China is opening two coal mines a month, I believe. This is a global initiative, but my motivation is for everyday Canadians.
The manufacturing sector in Ontario especially depends on the oil and gas sector. What will we export? What will Canadians do? How will this affect jobs? Social risks are also important risks to consider. For innovation, for everything, for our economy, we need investment. These prescriptive bills are taking away investment, making it very hard for banks to invest in oil and gas companies.
The Chair: Thank you for that. Just to be clear here, your interpretation of the bill is that it will also restrict investment in the transition to net zero, not just the actual financing of oil and gas activity generally.
Ms. Pappano: Yes, it will affect the financing in general, but it will also affect our economy if we don’t have these sectors, which are our golden geese.
[Translation]
Senator Miville-Dechêne: I have a question for Mr. Usher.
You spoke glowingly about the part of Bill S-243 that deals with disclosure. Could you explain, in simple, understandable terms, how, on disclosure, the Climate Aligned Finance Act is more advanced and better for the climate than what exists with current regulators?
[English]
Mr. Usher: OSFI’s rule B-15 is a very important first step. To some of the comments of my fellow witness, we have to understand that managing risks also means understanding that the world is changing. If we are not able to invest along these changes, we are going to be left behind.
Let me give you an example. Larry Fink, who is the CEO of BlackRock, the largest investor in the world, is under a lot of pressure in the United States around the issue of climate transition. His annual letter is read by the entire financial industry. This year, his financial letter said this is not about climate activism. This is about the fact that the world is changing, and for our shareholders, we’re going to be a winner in driving those changes. We are going to do good business in essentially driving the energy transition. I think where CAFA becomes very important is as a structure for the financial community in Canada to take an active role in showing the role they will play in driving that transition.
We have to understand the oil and gas industry. It has historically been a very important provider to the Canadian economy, driving jobs, but it is exposed to risk. It is not the cleanest source of oil that is going to be the last drop, it’s the cheapest, and Canadian oil and gas are not the cheapest. From the CAFA alignment methodology, it looks at the idea of aligning with the transition, which is clearly based on the science but also based on industrial action around the world, which is showing that this is happening.
Therefore, it is critically the notion of moving from managing your risks in a very transactional way to managing it in alignment of your portfolio way, which means aligning it with the changing economy. That’s the benefit of CAFA.
Senator Varone: My issue is with board governance. Other than my fellow senators, who else is a climate expert and how do you become a climate expert? What schooling does one need to do?
I’ve taken courses through the Institute of Corporate Directors in Ontario, and I went on their website this morning, and there’s not a single program for climate. They have it on governance, they have it on diversity, equity and inclusion, but the human elements of the banks, they’re run by human beings. How do they become experts? And I want to address this question to both of you: Where do you go? What is the schooling? What makes you an expert to make the decisions that need to be made?
The Chair: We’ll get a brief answer from both of you, please. Mr. Usher to start; you have about 30 seconds.
Mr. Usher: Very good question, very challenging, but the reality is, when you have a requirement or an expectation, you have to figure out the means to deliver, and so I think the pressure is on. Big banks, global banks today are scaling up their capacity not in a centralized way, but across their sectoral business teams — steel, cement, agriculture — they’re getting the climate expertise into those teams. That comes from the board right down to the operational level. It’s a challenge, but the reality is sometimes having expectations around governance also drives the scaling up of those capacities.
Ms. Pappano: The prescription, you’re eliminating anybody with any kind of oil and gas experience, which doesn’t mean they don’t understand climate because I’m quite sure they do given the past years they have been working in oil and gas. Telling people they can’t be on a board or a company can’t appoint an expert on their board by virtue of the fact that they belong to a certain industry is bad governance. I don’t believe that’s good corporate governance.
The Chair: Thank you very much.
Senator Massicotte: Thank you for being with us today. I would address myself to Mr. Usher. I totally agree with the objectives, the risks and the fact that we have serious challenges and we’re seriously engaged, but my problem today is Bill S-243. That’s the issue I have that we have to decide shortly. What are you recommending? Are you recommending we approve the bill as proposed or that we do otherwise with it? Can you comment on that?
Mr. Usher: I would say I’m highly supportive of the bill. The only part I would put a caution on is risk weighting because I believe that’s an unproven area because it’s still not clear whether low carbon is less risky than high carbon. Obviously, it varies by industry, but overall, the rationale of the bill, I would say personally I’m very supportive of it.
I think the industry is supportive of it, and part of the problem is that they’re looking for policy certainty and they’re looking for interoperability between jurisdictions. As we know, other jurisdictions are moving more quickly than Canada, and so the Canadian financial actors risk being left behind.
Senator Massicotte: We had Mark Carney yesterday as a witness. He also wanted to exclude all the financial compensation or incentives that are in the bill. Are you okay with it?
Mr. Usher: You mean in terms of integrating the compensation packages?
Senator Massicotte: Yes, but also really how it could be motivated or organized to be more constructive or more real.
Mr. Usher: To give you a global perspective, within our global banking framework, the UN Principles for Responsible Banking, 30% of banks globally integrate sustainability objectives into compensation of senior management, so it’s starting to become an industry norm. I don’t know the numbers in Canada, but I think that it is becoming normal practice in many jurisdictions. Of course, there’s some detail about how that has to be done with good governance, but, overall, I would be supportive of including it within both governance and compensation.
Senator Massicotte: Thank you.
Senator Yussuff: Thank you, witnesses, for being here. Mr. Usher, I have a couple of questions in regard to your testimony and specifically on the bill.
I hear you loud and clear in regard to bank practices and lending, and I guess this will apply to the oil and gas sector. You’re saying the methodology is not fully proven yet, and so there is risk in doing something when don’t know the outcome.
In regard to the general public shareholders, and for that matter public policy, do you believe that disclosure by banks in regard to their assets and where those assets are held should be compulsory in the context of knowledge by the public? It’s not the banks’ money. It’s Canadians’ and shareholders’ money, but equally, in terms of public policy objectives for the government trying to meet our net-zero targets between 2030 and 2050, do you think there should be more enhancement in regards to disclosure by banks so we know what our banks are doing, but equally, if you’re buying shares in a bank, you have an understanding what they’re doing regarding their investment policy.
Mr. Usher: Yes, I would agree to that. As a comparison, when you buy a can of soup, you look on the back and see what the ingredients are. When you have your pension or when you are investing in bank stocks or taking them as a client, you should have the transparency to understand their position and essentially their exposure and actions.
Of course, it has to be done in a way that is manageable, and one of the challenges we have with a lot of banks is the number of compliance disclosures they’re being asked to do. It’s a heavy lift, and I think it has to be realized that regulators play a role to also be reasonable in how they expect disclosures to be done.
Overall, we believe that is important, and in certain jurisdictions, because of this transparency, you’re starting to understand much more the state of the transition in different industries, which then creates a reinforcement of the desire to invest in success. Certainly, Europeans are the lead on that. They put in place their taxonomy, which is very transparent, and now you start to see the state of where capital expenditure is going within companies within every industry in Europe, and you can sense which industry is falling behind and which industry is out ahead. So, ultimately, transparency helps drive forward the economic solutions that are needed.
The Chair: Thank you very much. We’ll try and come back to you on a second round if we have time.
Senator Galvez: Thank you. My question is also to Mr. Usher.
I’ve been observing how these countries and jurisdictions are evolving and the impact on other areas. Will you agree with me that if the financial sector of Canada — you said that it’s a bit behind — doesn’t move in this direction, it will affect other things, like, for example, our growth, our competitiveness? We are about to pass a study on a sustainable jobs act. How will we finance this if the finance sector doesn’t move? Here in Canada, the finance sector is not only the banks but also the pension plans and insurance.
Mr. Usher: Yes, I would agree, and I think the future of Canada’s economic development has to centre on addressing climate issues, and I think maybe the oil and gas industry has a role to play in that, but certainly the banking and investment industry do.
It’s not only a question of how they’re dealing with oil and gas. It’s how actively are they investing in the transition. Canadian banks are not leaders in investing in renewables, and I would say if you look at European banks, not a single European bank is on the top 10 list of fossil fuel financiers. Many Canadian, American and some Asian are; not a single European one. If you look at the top 10 list of renewable energy financiers globally, seven of 10 are European, and that shows the sense of travel of European banking versus Canadian or North American. I think in comparing Canadian and American banks, U.S. banks, they still have quite a bit of oil and gas exposure, coal as well, but they are very active on renewable financing, and I think Canadian banks have some catching up to do.
Final point, critical minerals, the exploration industry in Canada, as we know — and the finance industry who back them — are world-leading. We need to help direct that towards critical minerals. There’s a lot of capacity in Canada to do that, including the banks and investors; they have to build up that capacity.
Senator Petten: Mr. Usher, in your opinion, is the bill one of those public policies towards a low-carbon transition in line with science?
Mr. Usher: Yes. Obviously, these are different dimensions, the science and the policy. Because you implement the bill doesn’t mean you’re going to get to a 1.5-degree trajectory or whatever. It has notable elements to align the financial and economic system with the science, better than just having the OSFI bill on its own.
I should point out, as I said in my testimony, voluntary action is important as well to prove it out. It’s hard. You don’t want this to become a pure compliance approach where banks or investors start seeing this as purely ticking boxes. What we need, it has to be done in a way that provides room for the private sector to innovate and prove out how they think it should be done. The way it’s applied will be very important also.
The Chair: Ms. Pappano, I would put to you the same question Senator Massicotte put: Are there parts of this bill you think are helpful or do you reject the entire thing?
Ms. Pappano: I reject the bill. I think it’s too prescriptive, very onerous, not taking into account — I know Mr. Usher commented on Europe. But Canada’s strength, energy is our economy. You can’t mine for minerals without energy. You need oil and gas. There’s no other alternative up North or wherever you’re mining. Those are our strengths.
I worked at the Toronto Stock Exchange. Those were our two biggest industries, along with technology and clean technology. I would say it’s energy expansion. There can be innovations in all of those industries. But to not invest in our bread-and-butter industry, I think it’s foolhardy.
The Chair: Thank you for that.
Senator Loffreda: My next question would be for Mr. Usher, and Ms. Pappano if we do have time.
To what extent do you believe that legislation is necessary to regulate our financial institutions regarding climate risk? We all agree with climate risk, controlling climate change and moving in the right direction.
To what extent do you feel we should regulate them and legislate instead of allowing the industry, known for being amongst the best risk managers in the world — we have the best-run banks. When I look at the surveys, it’s either Australia or Canada or Canada or Australia. It’s one-two. For an industry, we’re top of the world. Why would we not let them independently manage their risk with guidance from OSFI? Do you feel it is necessary to legislate at this point in time?
The Chair: Briefly, Mr. Usher. Thank you.
Mr. Usher: To your earlier comment, forward certainty is what the private sector looks for. They can project many futures based on the certainty they see, a large part of which comes from government and regulation. It’s important to provide what the future looks like, and such a bill can help do that.
At the same time, I acknowledge that it should not be overly constraining. It should provide room for the private sector to innovate, to manage its risks — it knows its risks best — and to provide a wider framework.
You want banks to be expected to have a transition plan. This is what is talked about in many venues today. Unless you have a plan, you have a hard time knowing where you’re going to get to in future. That’s what CAFA needs to do.
Senator Loffreda: This bill is not overly constraining? We’ve heard from some very credible witnesses that it is. You don’t feel it is? Have you read the bill?
Mr. Usher: The risk weighting is the one I would take question with. I see many elements that are seen in other pieces of legislation in other regions, so I would not say it goes too far.
Ms. Pappano: Again, there’s no detailed, costed plan or any plan about how much net zero will cost. Senator Loffreda talked about predictability. There’s no predictability. We have no idea what will happen in the next 26 years with any of our industries. We need capital for innovation. That will lead to oil and gas innovating, getting the oil out of the ground cleaner. Demand is going up. The oil and gas will come from somewhere. It should be coming from Canada. We should not be constricting our Canadian resource sector.
Senator Marshall: I have a question for Ms. Pappano again because I find it very interesting.
What was the impetus for your shareholder resolutions? Are you seeing signs that the banks are drawing back from financing oil and gas? Do you feel, because there’s so much discussion about net zero, this is a real possibility or is this more like a pre-emptive strike? You would know more about the details as to what is happening with the banking sector.
Ms. Pappano: As I mentioned earlier, I worked at the Toronto Stock Exchange and TSX Venture Exchange. I’m from Toronto, born and bred. I never really understood the resource sectors. You do not really think about it when you are living in Ontario. I learned that these sectors are so important to jobs and our economy. Our economy is energy. There is no doubt about that. Energy security plays into this as well.
My impetus was I saw what was happening, first, with the universities. They were asking university endowment funds to stop investing in oil and gas companies. Then they went to the pension plans. Now, they’re approaching the banks.
It’s so prescriptive. It’s not allowing investors to participate. It is not taking shareholder rights into account because they’re eliminating an investment pool by virtue of the fact that the company is an oil and gas company. I disagree with that.
I think our sector should be built up because we want Canadian oil and gas to get to more people as opposed to from other jurisdictions. As I mentioned before, I’m mostly concerned with Canada. If we have a strong energy sector, we could do more good for reduction in emissions.
Senator Gignac: My question is for Mr. Usher. Like my colleague Senator Loffreda, for most of my career I was in the financial sector, insurance industry and banking. I think I know a little bit of what is going on there.
I have a problem when you compare Canadian banks with European banks because Canadian banks reflect the Canadian economy. Make no mistake, there are no European countries in the top 20 oil producers.
My question is this: Since we have a lot of sympathy for the objective of the bill, but they are too prescriptive as marketed, the question is could you elaborate more about Norwegian banks rather than European banks? Any suggestion or reading on Norwegian banks regarding the current bill in front of us so we can have the best practice from Norway, which is a high producer?
Mr. Usher: I think that’s a very good question. Certainly, Norwegian banks are quite modern also in terms of their approach to climate. Most of the Norwegian banks have set net-zero targets.
The Norwegian oil fund, the short term I use for it, it’s one of the largest sovereign wealth funds in the world and it is quite progressive.
I would agree with my fellow witness around the notion that divestment has a lot of weaknesses. My view is, in liquid capital markets, one divestor leads to another investor. You don’t change the financing unless done at a significant scale.
The Norwegian oil fund has a very active engagement policy with the companies that it owns, the largest companies, the largest emitters, basically working with them on their transition. I think the comparison is a good one to look at more.
As a final quick comment, what is critically important for the Canadian economy is not to say something is green or something is not green, including in terms of financing for it, it’s the transition, the “greening.” This is where the oil and gas and the resource-intensive industries — the Canadian financial system needs to finance the greening or the transition of these jobs and of these companies. That’s the particularity of the Canadian context. Like the Japanese, Australians and South Africans, we can’t have one fit-for-purpose mechanism or type of financing to do it, it has to be fit for purpose. I do believe that’s very possible, and the Canadian economy can prosper as it makes that transition.
Senator Yussuff: Thank you, witnesses. Mr. Usher, I will come back to trying to understand. Obviously, this bill is taking us in a direction to what we can do in regards to the financial institutions in this country. Equally, we need to compare that to what the global trend is around the world and what banks are doing in regard to their disclosure. Obviously, B-15 is driving a lot of reform. That is, of how banks are now disclosing their information.
What could you provide us in terms of global trends that we can learn from in regard to our financial sector going forward? We’re at this edge. There are two ways this is going to happen, either the government will drive the requirements of banks or banks themselves can drive the requirements for them to start disclosing more in regard to what we know with respect to their assets.
Mr. Usher: I think there’s a third possibility, which is that other jurisdictions will drive what happens for Canadian banks. This is coming because in European regulation, what’s called the Corporate Sustainability Reporting Directive, or CSRD, comes into application this year for European corporates, including banks. In 2027, it applies to organizations operating in Europe, including 1,100 Canadian companies and includes all the Bay Street banks. They will have to report to the Europeans, essentially, in a way which is very similar to CAFA.
You also have the Carbon Border Adjustment Mechanism, or CBAM, which you might be aware of, that the Europeans are applying on global trade. Canada, with its carbon pricing, I believe, is in a very good position. You’re a world leader on carbon pricing. But in terms of banks and other corporates being caught and regulated in an extraterritorial way, that is what’s coming. That’s another reason why it’s quite important for Canadian legislation to also align with these global trends.
Senator C. Deacon: You’ve both spoken about the risk that we may see the market for oil going to the least-cost producer over time. Infrastructure investments that banks are making are over quite a generational period in terms of their investment.
Do you see a potential prudential risk emerging as the value of Canadian oil is, perhaps, undermined by market pricing that is not where it needs to be to have a profitable industry?
Ms. Pappano: The problem right now is that the supply issue is causing prices to go up, and so energy is becoming unaffordable for Canadians and for manufacturers. What I’m proposing is that our industry needs to be vibrant and to keep energy prices down. I think that we need to have abundant and affordable energy to support all of our resource sectors and our manufacturing sector. If you look at the U.K. or Germany, the deindustrialization is happening. I don’t think we want that for Canada.
Mr. Usher: Sorry, no, I don’t have a comment on this question.
The Chair: I know Mr. Usher has to be out precisely on time. I will come back to you, Senator Marshall, for a very short second question.
Senator Marshall: Ms. Pappano, I looked at your proposal to the banks. Do you think that the banks just want to carry on as usual and that by adopting your propositions that it’s almost like declaring a battle? I was looking at the wording of it, and I was thinking maybe the banks don’t want to adopt that, so they’ll just go on and lend to the oil and gas companies and not make a statement about it.
Ms. Pappano: Well, they’ve already been reported to the Ontario Securities Commission, or OSC, by the groups that have proposed to them and did shareholder proposals to them. Are they just going along with it? Well, that doesn’t mean anything, either.
This year, we asked for a specific report to show how net zero will affect Canada’s economy and the banks said they don’t do that. Nobody is doing any kind of reporting or costing on what net zero means to our economy. We’re talking about a wholesale shift of how we do business, and nobody stops to think about the social costs or economic costs.
Senator Marshall: I think you referenced the U.K. and Germany in one of your earlier remarks.
Ms. Pappano: Yes. They’re feeling the costs of deindustrialization right now. We’re about five years behind, I would say.
Senator Marshall: So it’s coming.
Ms. Pappano: If we are following them, we can look to deindustrialization for Canada.
Senator Marshall: Thank you.
Senator Galvez: Ms. Pappano, you didn’t talk about climate change and the solutions to climate change or the question that extreme weather events are destroying a lot of assets. Do you make the link between climate change emissions and the need to transition?
Ms. Pappano: I don’t believe that not investing in our oil and gas sector will help emissions reductions. As I said, you can’t dispute that oil and gas demand is going up. A lot of countries still want to raise their standard of living —
Senator Galvez: Do you think that climate change is real?
Ms. Pappano: I think investment will lead to emissions reduction because investment leads to innovation. I think Canada has the best oil and gas sector, and it will lead to innovation and emissions reductions. We’ve seen it in Canada’s oil fields, Suncor Energy has been reducing emissions year over year, and that’s in my proposal as well.
The Chair: I’m going to thank Mr. Usher because I know he has to be out at a very strict time. Mr. Usher, Director of Finance Initiative, United Nations Environment Programme, thank you for your time and testimony today. We really appreciate that. We’ll let you escape.
I know Senator Yussuff had one more point, if you’ll put your question to Ms. Pappano. Thank you, Mr. Usher.
Mr. Usher: Thank you.
Senator Yussuff: Ms. Pappano, to be fair, banks are not institutions that are immune to public policy shift and societal shift. There is a recognition in Canadian society that we have to do better on our climate initiative. This is a fact. Canadians are concerned. Banks, in the context of their responsibility, as it is equally with oil companies, are trying to do their part. We can argue about how fast they’re moving or not moving, but it seems to me that you’re trying to swim up the wrong side of the stream.
Ms. Pappano: But recent polling —
Senator Yussuff: Let me finish my point. It’s very important. There are changes that are happening, and you’re arguing we shouldn’t change anything in regard to what we’re doing. I’m saying the world we live in is not boxed in —
The Chair: We’re going to let her answer, thank you.
Ms. Pappano: My point is that I don’t believe that taking capital away from our resources industries will help Canada or everyday citizens who don’t want to pay the high cost of energy. People are deciding whether they can heat their homes or eat, and that’s the reality of the world right now. I don’t think starving our oil and gas sector of capital will help any of these issues.
Senator Massicotte: I have a quick question. You’re a non-profit.
Ms. Pappano: Yes.
Senator Massicotte: Who are your major contributors?
Ms. Pappano: Everyday citizens across Canada and even the U.S. and Europe —
Senator Massicotte: So not one or two parties.
Ms. Pappano: No. A lot of individuals like you and I.
The Chair: Thank you for that information.
Gina Pappano, Executive Director, InvestNow, and of course, Mr. Usher, to whom I referred, with the United Nations Environment Program. Thank you very much for your testimony today. We have a second panel ready to go today, and we have the pleasure of welcoming Mark Cameron, Vice President, Government Relations and Public Policy at Pathways Alliance. Welcome and thank you for getting into your chair so quickly.
We will begin, Mr. Cameron, with your opening statement. Please go ahead.
Mark Cameron, Vice President, Government Relations and Public Policy, Pathways Alliance: Thank you, Madam Chair and honourable senators.
I am pleased to be speaking to you today on behalf of the Pathways Alliance. Pathways Alliance represents Canada’s six largest oil sands producers: Canadian Natural, Cenovus, ConocoPhillips Canada, Imperial, MEG Energy and Suncor. Together, our six companies operate 95% of Canada’s oil sands production. That’s over 3 million barrels per day.
The oil sands sector accounts for about 3% of Canada’s total gross domestic product, or GDP, and supports 255,000 direct and indirect jobs. Last year, the sector contributed over $20 billion in taxes and royalties to all levels of government in Canada.
We are proud of our contribution to the Canadian economy, but we also acknowledge that we are significant greenhouse gas emitters. That’s why, in 2021, our six companies came together to make a joint commitment to achieve net zero from our operations by 2050.
Our industry has made significant progress in reducing emissions already. We have reduced our emissions intensity, or emissions per barrel, by 23% between 2009 and 2022.
But to go further in reducing emissions to achieve the kind of ambitious reduction goals that Canada has set for 2030 and the ultimate goal of net zero by 2050, we will not simply need incremental improvements like intensity improvements year on year, but step changes in our emissions performance. That is why our companies are not only committed to long-term emissions reductions, but are collaborating on what would be one of the world’s largest carbon capture and storage networks in northern Alberta.
The Pathways project would involve installing carbon capture units on 14 different oil sands projects, building a 400-kilometre-long pipeline from Fort McMurray to Cold Lake and then storing the carbon dioxide from those 14 sites deep underground in saline aquifers.
Carbon capture is the only way to make meaningful greenhouse gas emission reduction in oil sands operations between now and 2030. Other technologies — whether small modular reactors, increased use of solvents in oil sands extraction or use of hydrogen for steam generation — may be possible in the longer-term future, but they are not commercially available today.
We believe that it is possible — and indeed is part of Canada’s global responsibility — to be a safe, reliable, democratic supplier of oil to global markets for as long as demand exists while continuing to reduce the emissions from our operations toward net zero.
To do this, we need to work with you. For governments and industry to meet their obligations for 2030 and 2050, we require partnerships with industry, federal and provincial governments, First Nations and Indigenous communities and lenders and investors like Canada’s financial institutions. Success means working together.
Unfortunately, in our view, Bill S-243 would make these kinds of partnerships more difficult. By putting restrictions on financing oil and gas in general, this bill may, in fact, restrict the progress we need to see toward a net-zero future. A 1,250% risk weighting on any new financing of oil and gas development and 150% risk weighting on existing oil and gas infrastructure will make it hard to finance precisely the clean infrastructure that our companies need.
Furthermore, the requirement that financial institution climate plans cannot include reliance on large-scale carbon capture and storage, or CCS, technology could prevent Canada’s financial institutions from participating in investing in decarbonation projects like Pathways, which would be one of the world’s largest CCS projects, or even potentially acting as lenders to First Nations partners who may wish to become equity partners in the Pathways project.
CCS is an essential part of any road map to get to net zero. In fact, the International Energy Agency, or IEA, and the UN International Panel on Climate Change, or IPCC, call for about 8 and 15 billion tons of CCS by 2050 for the world to get to net zero. That’s a thousand times the Pathways project. Canada can be a leader in this transformation, but only if we get the projects built.
Carbon capture is a proven technology at this point. Western Canada has four large carbon capture facilities in place — two in Saskatchewan and two in Alberta — that have already sequestered 40 million tons of carbon dioxide. The Pathways project would take this to the next level, and it is important that Canada’s financial institutions are able to become partners in these kinds of emissions-reducing technology projects.
We believe that there are already important financial accountability mechanisms being developed by regulators like the Office of the Superintendent of Financial Institutions and bodies at the international level like the Task Force on Climate-Related Disclosures and the International Financial Reporting Standards, or IFRS. We are concerned that this Senate bill could only confuse an already complicated financial reporting landscape.
We hope that the Senate can work with industry — whether in the oil and gas sector or the financial sector — to achieve our common goal of net zero rather than putting in place new measures that may, in fact, hinder progress on climate. With that, I look forward to your questions.
The Chair: Thank you very much, Mr. Cameron. I appreciate that.
Senator Loffreda: Thank you, Mr. Cameron, for being here. I will start with a statement from your president:
Climate change is a critical challenge, and the oil sands industry has an essential role to play in reducing emissions. Our path to net-zero emissions from operations will help our country achieve a sustainable future.
I agree that it’s a huge challenge, and we all believe that we should tackle climate change. Can you further elaborate on the benefits or the concerns you have with this bill in helping you get there, and why do many feel we are lagging and not proactively tackling key issues which will bring us closer to our objectives?
Mr. Cameron: Our concern is that this bill has a couple of measures in it that would specifically single out oil and gas for extra risk weighting and specific measures that restrict the ability to include carbon capture as part of the financial institution climate plans. We think these measures would have the opposite effect from what is intended. We absolutely think there is a role for government to play in helping get these projects off the ground. The investment tax credits that the current government has brought forward and the Alberta Carbon Capture Incentive Program that the Government of Alberta is bringing forth are examples of those kinds of measures.
The contracts for difference policy that the government has announced is another measure that we think could help. The carbon pricing system, in general, helps give an incentive both to reduce emissions and to the ability to overperform by capturing emissions and then selling credits. So there are a number of measures in place that do help with getting to this goal. Unfortunately, I think Canada does not have the same kinds of incentives on the table that the United States has with the Inflation Reduction Act or that Europe has with their Green New Deal. We do have a foundation in Canada, but this kind of legislation that would make it more difficult for financial institutions to invest in these projects will not help.
Senator Marshall: So you don’t support the bill, but we still have to get to net zero. What are the impediments? You were saying that Canada is not as progressive as some of the European countries. You know, the tax bill is full of tax credits to help us reach net zero. What is it we don’t have?
Mr. Cameron: The investment tax credits that are in Bill C-59 in the House, we do support those measures. We have things we would like to see improved or changed in it, but overall that is a very positive program.
The federal government is saying that they will put up 50% deductibility for carbon capture projects. It doesn’t stack up to what the U.S., the U.K. and Norway have, though. In those jurisdictions, there are more generous financial incentives for carbon capture. Carbon capture, as I said, is proven technology but it’s expensive technology. It’s difficult in industries like our industry because we’re competing globally. We can’t charge more for a barrel of oil because it has carbon capture on it nor can a steel producer charge more for steel because it has carbon capture; or a cement or a fertilizer producer. We must have incentives that allow us to compete with other global competitors.
Senator Marshall: What about the tax incentives in the budget bill? I think one or two might be on the verge of being implemented or have been implemented, but about four, five or six have yet to be implemented. Is that an impediment?
Mr. Cameron: The timing is an impediment. If the investment tax credits were in place already, we might see projects beginning to advance more quickly. There are other measures such as the carbon contracts for difference and the Alberta Carbon Capture Incentive Program because most of the projects are in Alberta. We need to see the whole suite of measures.
Senator Massicotte: Thank you, Mr. Cameron, for being with us today. I buy into your arguments as to why the current bill is difficult for you to accept; I have no problem with that.
Having said that, I have the same questions. Why are we not reducing it? Why is it you put so much emphasis on government? In fact, the minister was quite upset about a month and a half ago saying, “The industry has to come to the table.” We’re talking about $16 billion. You’re looking for support from the investment tax credit plus all the others. What is happening? What is it? You say it’s proven. Technology is not that proven. The kind of technology you need is experimental and it has not worked in some areas. Some people who are speculating by saying that you’re taking forever to move. You must be looking to delay your decision and wait for the election. How do you respond to that?
Mr. Cameron: There are a number of points there. First, we’re not waiting. We’ve already filed our regulatory application for the pipeline in March. We’re doing FEED work, or front end engineering and design, and pre-FEED work on the carbon capture projects and the pipeline; we’re having Indigenous consultations across the region. We probably spent $100 million last and will spend $100 million this year just on the pre-development aspects of the project.
Getting to a final investment decision, we need to see all the financial measures that we talked about in place. We have ongoing discussions with both the federal and provincial governments about that. This is proven technology, particularly in the area we’re talking about in the Basal precambrian layer in northern Alberta. We already have the Shell Quest Carbon Capture and Storage facility project in the same geological formation. It has been successful at capturing carbon dioxide. Yes, you could point to projects in other parts of the world that haven’t worked, but they have different geology from what we have in northern Alberta and Saskatchewan. They have the best carbon capture geology in North America if not the world.
Senator Massicotte: Who will survive at the end of the day? The cheapest product will survive. When it comes to a company, you’re saying that you’ve got to get there. Suncor is making a profit of $1 billion every quarter, and that’s after tax and so on. Why can’t you fund more yourself? Why is it somebody else’s fault all the time?
Mr. Cameron: Our companies are looking at investing substantial amounts of money in these projects. We would put up over $16 billion in capital and then, hopefully, we would get two thirds of that back in tax credits. But if there are cost overruns and so on, that’s on us. We are investing substantially in these projects that don’t produce any additional product. These products are essential —
Senator Massicotte: And that’s confirmed? The public is aware of that? You’ve said it’s been decided. Is that a firm decision? Will you go on to produce and get the projects going?
Mr. Cameron: The projects haven’t come to the final investment decision because we haven’t got all these different pieces in place, but that is the intent. The companies will be putting their money on the table but, hopefully, will be partnering with the federal and provincial government as well.
Senator C. Deacon: I want to build off what Senator Massicotte is saying. World markets dominate. The most expensive oil is not the oil that will get bought and that may increase with time. Our banks are lending over a long period of time. If an asset is diminishing in value, it could present a prudential risk to the bank that is not necessarily captured because they’re not forecasting that price reduction necessarily at the outset.
I really want to hear how you see that risk being properly priced in markets today so that we don’t have an emerging prudential risk because of it.
Mr. Cameron: That’s a great question. I think there’s a fair amount of misunderstanding about how the Canadian oil sands stack up compared to other oil reserves in the world.
With oil sands, unlike conventional drilling, you don’t go and drill a thousand wells and then end up dry on 500 and hit oil on 200. You know where the resource is. It’s a matter of investing the capital to get the resource out. Most of the capital has already been invested. It’s really about driving down longer term operating costs. On that front, the oil sands are very competitive.
There is a good paper by Dr. Kent Fellows from the University of Calgary called Last Barrel Standing? It was done for the C.D. Howe Institute. Basically, he compares the Canadian oil sands to other reserves like the Permian, where you have to keep exploring and keep investing new capital year after year. With the oil sands, the capital was sunk in the 1990s and now it’s really a matter of getting the operating costs down and showing that it is actually competitive in the long-term with other jurisdictions.
Senator C. Deacon: Regarding the investments you’re making in carbon capture and storage, what technology benefits will we see as a nation? Potentially, you could be part of the solution not just in reducing your own emissions — which is desperately required for us to meet our goals — but in using those same innovations to start to reduce emissions around the world or in other locations.
Mr. Cameron: I think that’s a great question. Alberta is a leader in this area already. There are a lot of technology companies coming out of Alberta and out of Canada. Carbon Engineering started in Alberta, based in B.C. and it has now moved to the U.S., but it was an innovative direct air capture company. Svante is working on a second generation carbon capture, a different type of filter. We do see new companies emerging that will then be able to sell their expertise around the world. Plus, Canada has a lot of subsurface experience. We have geologists, consultants and so on who can then go to Indonesia, Brazil or wherever to help implement carbon capture projects in these countries. There is a huge potential upside there.
Senator Gignac: Welcome to our witness. I’m not an expert on carbon capture but I do know that studies show, as Senator Massicotte mentioned, that we need a lot of public money to finance a project. As a matter of fact, the Shell flagship carbon capture project has a pretty good deal with the Government of Alberta, a two-for-one deal that Greenpeace has called a “phantom credit.” Alberta has given a lot of money.
Do you believe that the carbon tax is a way to phase-out subsidies to the oil sands? That is, if you have more carbon tax, it will become profitable and less money will be needed from the federal government and the Government of Alberta to break even. Could you explain that to me? I’m not an expert.
Mr. Cameron: Yes, absolutely. Carbon pricing is part of the solution. In 2030, if the carbon price hits $170 a ton, then we have a $170 incentive to reduce our emissions. Part of the reason that the Shell Quest deal had these two-for-one credits, which was well-known at the time — this was not secret; it was a deal negotiated in 2015 — was because at that point the carbon price was only around $30, $40 or $50. The double credits gave them enough incentive to go ahead and build the project. Carbon pricing is absolutely part of the solution.
Senator Gignac: Basically, that will help the business model to break even and require less money from taxpayers if the carbon tax goes higher. It’s as simple as that.
Mr. Cameron: It’s not quite as simple as that because that imposes a burden on the rest of our production, but there is a sweet spot where it is enough of an incentive to help incentivize decarbonization but it doesn’t make us non-competitive globally. That’s the balance that you have to strike.
Senator Petten: An analysis by the Pembina Institute demonstrates that despite the record profits in recent years, the oil sands industry is not investing in decarbonization efforts that align with the climate pledges. I’m wondering what progress Pathways Alliance has made on the decarbonization measures.
Mr. Cameron: As I mentioned, since 2009, the industry has reduced the carbon intensity per barrel by 23%. There are all kinds of different technology projects that are happening and all kinds of energy efficiency measures that are being implemented to reduce carbon intensity, but that’s been reducing carbon intensity while production has been increasing, so we’ve still seen the net emissions increasing.
To reduce emissions on a large scale, we need step changes in technology, of which CCS is the first, but there are hydrogen, small module reactors and other technologies potentially in the 2030s or 2040s. There are all kinds of initiatives under way. For instance, right now, Suncor is replacing its old coke boilers with efficient natural gas cogeneration. That project alone is about a two- or three-megatonne reduction.
[Translation]
Senator Miville-Dechêne: I’m listening to you, Mr. Cameron, and with all due respect, it seems to me that there are quite a few contradictions in what you’re saying. The oil industry is the biggest polluter and it’s preventing us from meeting our climate targets. You can’t reduce it because production keeps going up and up, because you want to make a profit, so you want to sell as much as possible. Then you say that carbon capture is a solution, and you’re calling for subsidies to keep selling more. All of this is pretty hard to understand for an ordinary citizen who believes in a clean environment and wonders, “Why not cut production?”
Why not pay to become cleaner? Especially since carbon capture, as my colleague said, is not a non-controversial way to reduce your emissions. We wonder whether the technology will keep up with your ambitions. How do you wrestle with these contradictions, which are difficult to follow and accept?
[English]
Mr. Cameron: Thank you very much for the question, senator. It is a fundamental question, which is: How should Canada seek to reduce its emissions? Should we be seeking to reduce the emissions from the production that’s actually occurring in Canada or are we seeking to reduce the emissions of the underlying product? If Canada was to stop selling four million barrels of oil per day, that will be replaced with oil from Venezuela, Saudi Arabia, Iran and every other oil-producing country. Right now, there is strong demand for that oil, particularly from the U.S. Midwest refineries that are designed for Canadian oil sands. In fact, the only potential substitutes are Venezuela and Mexico.
There is a demand for oil. Canada is one of the safest, most democratic, has the highest human rights and working standards, et cetera, of any oil-producing nation. If you look at the statistics, Canada and Norway are number one and two in all of those statistics. Where should oil be produced if not from Canada? As I said, it’s 3% of Canada’s GDP. It’s $20 billion in revenue and 250,000 jobs. And that’s only the oil sands sector, the conventional sector basically doubles that. That’s the choice that Canada has to make.
Senator Yussuff: Thank you, Mr. Cameron, for being here. You have a difficult job, and I don’t envy the Pathways Alliance and its effort, but I think you hear this, so I won’t be saying things you haven’t heard.
There is a sense of frustration about the slowness of the decarbonization by the industry. It took a long time for you guys to wake up and to recognize that things were changing. Unfortunately, we don’t have the luxury sometimes for the things we want within our time frame. I recognize I’m getting old, and that reality means I need to adjust my sights on a lot of things I think about and do.
My point is that, very simply, it can’t just be the taxpayers who are going to fund the changes you’re looking for. I recognize they could play a role and that is the role of the federal government. But, equally, Canadians are also looking at their financial institutions in this country and saying you have to play a role in the decarbonization of our economy, and we think you have to put more effort into disclosing what you’re doing in this regard. The pension funds are doing the same thing.
How do you square this challenge that you face to get resources to fund the decarbonization while at the same time building public support for what you’re trying to do in decarbonizing your industry?
Mr. Cameron: I think it’s completely legitimate to look at the financial sector and ask how they can help finance decarbonization and help achieve net zero. Most of Canada’s banks have signed up for the Glasgow Financial Alliance for Net Zero. The question we have related to this bill is that some of these measures, we think, might actually make it harder if you exclude carbon capture as a way of meeting those targets or if you put risk weightings on any oil and gas production. At the very least, oil and gas projects that are seeking decarbonization shouldn’t have these kinds of restrictions put on them.
Otherwise, there are essentially two ways of decarbonizing at the industrial level: either you build new clean industries or you clean up the existing polluting industries. If you exclude that second type of investment from the portfolio, you can only use half the tools in your tool box.
Senator Yussuff: Mr. Cameron, it’s really important for us to recognize that the banks are not public institutions, they’re private institutions. The shareholders could decide tomorrow morning that they don’t want to take the risk anymore. My point is, the industry has to figure out a way how to do what you’re attempting to do in a way that might still represent — whether it’s this bill or something else — how you will meet the objective at the end of the day.
Mr. Cameron: That’s exactly what we’re trying to do. We’re trying to figure out our path to get to net zero, and phase one is doing the world’s largest carbon capture project in northern Alberta.
Senator Varone: Thank you, Mr. Cameron, for being here. Climate change is real. Climate risk is real. I appreciate your comments with respect to the bill, but what I draw from it is an issue of time frame. A net zero by 2030 is problematic for Pathways. Outline for me what is not so problematic. How far out do you push getting to the targets that this bill outlines?
Mr. Cameron: I think 2030 net zero is impossible for just about any industry. I think most industries have a 2050 time horizon to get to net zero. Part of the question is: What is the definition of net zero? We think we can get to net zero from our operations, but we would still be producing oil in 2050 at the end of the day. There are some definitions of net zero that would say there should be no oil production by 2050 or only 20 million barrels per day or something like that. If that’s the definition of net zero, then it’s not a definition that would work for our industry. But a definition that says our industry should not have any net emissions from its production, that’s what we’re aiming for. It’s an extremely difficult goal, but we think we have a path to get there by 2050. But starting in a substantial way now, not waiting until 2045.
Senator Galvez: Thank you so much for your presence here today. I want to go into other types of risk, and the extreme weather events are getting very close to the area where the oil sands operate — droughts, wildfires — and Fort McMurray was devastated last year. Other types of risk also come. For example, everything that happens in the U.S. at some point comes to Canada.
Right now in the United States, litigation is a very tangible risk that is materializing. I’m sure you’re aware that Congress had a study, and they are digging into the oil companies — what they knew, how they knew it — and there are 2,300 cases of litigation, so this is a very strong case.
I want you to react to that, but the last thing is that our previous witness talked to us about the Norway sovereign wealth fund and said we should compare to them and that they are paying the transition through these funds. Because my colleagues are all asking where the money should come from, what is your reaction to that?
Mr. Cameron: I can’t really comment on U.S. litigation looking at what U.S. oil companies knew in 1985 or whatever about climate change. I would say that Canadian oil companies, especially the oil sands sector, have recognized the reality of climate change for a long time and have been working on it. That’s the reason they started the Pathways Alliance. They all took a joint commitment to net zero and all say that climate change is a serious problem.
The second part of your question was the Norwegian sovereign wealth fund. Alberta has the Alberta Heritage Savings Trust Fund. They haven’t put as much money into it as Norway has put into its sovereign wealth fund, but that principle is a really strong one; and obviously, we think that one of the ways that our industry does pay for this is by paying taxes and royalties, which we pay more of than any other industry except perhaps the banks.
Last year, I think $17 billion came to the Alberta government from bitumen royalties, so that’s part of the reason that we’re asking for some public investment in these projects. We are the biggest provider of revenue and royalties of any industry.
Senator Loffreda: Mr. Cameron, you did say the Canadian oil industry has realized the reality of climate change, and we all strongly believe, including yourself, that we must aggressively fight climate change. Would this bill allow you or speed up progress towards investing in renewable energy sources, implementing carbon capture and storage technologies and adapting or adopting cleaner production practices, which are inevitable? We will all have to get there. Will this bill help you towards getting there?
Last but not least, can you provide any insights into how the bill aligns with these goals and whether it would facilitate the transition to cleaner energy practices?
Mr. Cameron: The bill might incent more investments in some forms of clean energy, like renewables, but for the rest of what you’re talking about, like carbon capture or cleaning industrial processes, the bill would have the opposite effect. It would basically have oil and gas projects, even ones that were reducing emissions, essentially be red circled by banks. To us, that’s the risk of this legislation.
The Chair: If we can just follow up on that, I think you’ve cited carbon capture and its exclusion from this process. Are there a couple other examples? I keep asking the same question. The banks fund oil and gas activity. They also fund transition activity by that same sector.
Mr. Cameron: Exactly.
The Chair: So will we lose both kinds of access to funding with these restrictions in place?
Mr. Cameron: That’s the risk of the bill because the bill says that for new production it would be a 1,250% risk weighting and for existing production it would be 150% risk weighting. So if someone is building a new project that is cleaner than an old project, are they no longer able to finance it? That is the challenge here. I know work is being done by the Sustainable Finance Action Council, or SFAC, on the definition of transitional financing, so I think it would be good to look at what is transitional versus what is existing.
The Chair: That’s not clear either in terms of that distinction. That’s the thing that is troubling me.
Senator Marshall: I want to pick up on the money again. Most of the technology that you need now to reach net zero is not developed yet, really. Where will the money come from? You said you need more public investment. I think the federal government is coming to the end of being able to help in a very significant way. We have these six or seven tax credits now. We haven’t implemented all of them yet.
Is the industry able to finance a lot of this themselves? I just can’t see the taxpayer coming forward now and putting more money into the technology that is just experimental.
Mr. Cameron: I would challenge that it’s just experimental. A lot of this is proven technology. I think our six companies spend about a billion dollars a year on environmental research, and a lot of that becomes concrete projects, like the Suncor coke boiler replacement that I mentioned, which is about a $1.5 billion or $2 billion project. So there is already money being put into this by companies. Right now, that investment is leading to incremental changes, 1% or so a year. To get to step changes, we’d need something like a big carbon capture network or small modular reactors that cost hundreds of millions or billions of dollars. Even though we’re large companies, those are risks that we don’t think should entirely rest with the private sector, particularly when our competitors around the world are getting much greater government investment.
Senator Marshall: I hear what you’re saying, but even though other jurisdictions are helping out more financially than our governments, I think that our government is coming to an end of all the handouts. That’s all I’m saying.
Mr. Cameron: I would only point out that we haven’t received very much money at all from the federal government. For the Shell Quest project referenced earlier, that was about $800 million from Alberta and about $150 million from the federal government. So far, none of these tax credits are in place today.
The Chair: Possible money. Yes.
Senator Gignac: Mr. Cameron, you have a very impressive career. You have experience in the business sector. You were the former senior policy advisor to Prime Minister Harper. You have degrees from McGill and the University of British Columbia, so I can estimate that you understand our environment here.
We try to advocate for things here. Many of us find the bill goes too far, is too intrusive, but the idea is good. It just goes too far, so we’re trying to find solutions.
Could you talk about pension funds? Pension funds have 30, 40 or 50-year amortization, and your industry is important. They create wealth. Quebec benefits from acquisition, thanks to Alberta. But we have climate change. We have to do something.
Is there a way that the federal government pension fund could do something? This big pension fund invests in renewable energy in China and India, but they’re not very active in Canada. It’s not exactly related to the bill, but since you’re there, could you help us with that? How we will get there without attacking the oil and gas industry but phasing out taxpayer subsidies?
Mr. Cameron: It’s a great question. As someone who represents large companies that are looking for capital, it would be great to have the large pension funds playing a bigger role in Canada, but as someone who hopes to retire some day, I’m not sure how many restrictions I’d want to put on pension funds’ ability to invest and get the best possible return. You have a balancing act there.
I know the current government is looking at that. The pension funds are active in this space. Wolf Midstream, which owns the Alberta Carbon Trunk Line, which is one of those existing projects, is actually majority owned by the Canada Pension Plan Investment Board, or CCPIB. The pension funds are active in the space and we talk with them regularly, but I like the idea of pension funds that are investing in projects based on their merits.
Senator Gignac: The point is this one: Is it possible to have a risk sharing like Canada Growth Fund Inc. for PSP Investments?
Mr. Cameron: Yes.
Senator Gignac: These kinds of things may be the way for the Government of Canada. Anyway, 75% of the funding on capture is with taxpayer money, so we spend a lot of public money already.
Maybe with risk sharing — because technology will improve — and maybe ten years from now, a break-even will be possible without any taxpayer money. I don’t know. We have to find a solution.
Mr. Cameron: No, I think risk sharing and benefit sharing is absolutely something that we would be open to.
We’re not looking to make a lot of money on these projects. We’ve said to the government that if there are future returns, we’d be happy to share in the upside as well as share in the risk.
The Chair: Just on this point, when we come to the pension funds, we’ve had a lot of resistance from people wanting to even come and discuss this because they’re very worried about governments dictating to financial institutions — and, in turn, to investors — where our money will go. As you say, you want to retire some day, so you want to make sure that your pension fund is making money so that you can retire and not be engaged in what would be public policy debates.
How do we square that?
Mr. Cameron: I’ll leave that one to you guys.
Yes, obviously, we think Canada has some of the best pension funds in the world. They have a long-term time horizon, so we absolutely encourage them to be involved in our sector and, particularly, in some of these long-term decarbonization projects.
But what kind of geographic restrictions or whatever is put around investments, I’m not sure I want to get into that one.
The Chair: Again, voluntary versus mandating actual —
Mr. Cameron: Yes.
The Chair: I think that’s the issue people have.
Senator C. Deacon: I want to pick up on that point and the point you made earlier that pension funds move to where the projects have the highest merit, the least risk and the greatest return.
What is the fully costed amount per ton of carbon sequestered based on technology you’re now using? Not the subsidized costs but fully costed.
Mr. Cameron: There are different ways of measuring it. If you look at the cost of carbon measures that groups like S&P Global and so on would use, it is probably in the $200 to $250-a-ton range, but there are different metrics you can look at to come up with the costing.
Senator C. Deacon: Based on the permanence and verified at highest global standards?
Mr. Cameron: Yes. That is one real advantage of carbon capture, particularly in Northern Alberta, is that a tonne that is put under ground is truly permanently stored. It’s a much more secure form of carbon storage than in a tree that will eventually burn or rot or stored in peat or something like that. It is permanent carbon storage.
Senator C. Deacon: Based on the current projects and how you’re moving forward, what percentage of emissions from the oil sands will be captured and permanently stored by what point?
Mr. Cameron: If we fully execute phase one of Pathways, that probably reduces our emissions by about 20% from carbon capture. There are other technologies that we’re pursuing as well.
Senator C. Deacon: Not based on intensity but full emissions —
Mr. Cameron: Full emissions reductions, and that’s phase one. We think we can get up to as high as 40 or 50 megatonnes.
Senator C. Deacon: By what date?
Mr. Cameron: By the 2040s, which would be about half of our emissions.
Senator C. Deacon: So it’s a long way off.
Mr. Cameron: It’s a long way off.
Senator C. Deacon: It’s a long way off.
Mr. Cameron: Yes.
Senator C. Deacon: Thank you.
Senator Massicotte: I make the same point. There’s an impatience. I still support and think carbon capture and storage, or CCS, is the best one, but we’re getting tired of supporting and negotiations without doing a deal. I wanted to relay to you that comment. I think it’s time to move. It’s time to get it going.
In one of the annual reports I read recently, it actually quotes what the cost per barrel is and where it has got to go based upon competition. What were those numbers? Do you remember? It was a significant reduction.
Mr. Cameron: I’d have to look at which annual report you’re talking about.
One of the challenges is that the Canadian oil sands, it is a high-cost source, and I did say that most of the cost is on the front end in the capital investment, not on the back-end operating costs. But we’re competing globally, and right now there isn’t a price premium for a lower carbon product.
Investors are looking at Brazil, Guyana and the Middle East, so Canada has to be competitive in that market.
The Chair: On that point, my fellow senators here are talking about impatience, and we know that exists in the public at large, but where are the alternatives? That’s actually not your job. That’s somebody else’s job. You can clean up your own activity and make strides there, but I don’t think there is an alternative just yet to the kind of demand that we see and the usage of oil and gas in our economy and globally.
Mr. Cameron: Oil demand is still over 100 million barrels per day. In fact, even coal demand is still going up in the last few years. There is going to be oil demand for a long time.
The other thing I should point out is that even if electric vehicles reach their maximum projections, that really only reduces oil demand by about 25%. If we went fully to electric vehicles by the 2030s or 2040s, there’s still oil being used for other forms of transportation that you can’t replace with batteries and for all kinds of other products.
We actually think that in the long-term, there’s real potential for the Canadian oil sands to be producing non-emitting products like more asphalt, carbon fibres and things like that that are going to be in higher demand in the future.
The Chair: The electric vehicles would have to work in the cold as well, which they don’t.
Senator Yussuff: The Saskatchewan experience on carbon capture is something that’s real. We’ve seen it in operation, but the large problem of that project has been that as long as the subsidy was there, it made sense. If you take the subsidy off, it’s not going to be continuing.
My point is, as my colleagues are saying here, at some point Canadian taxpayers, and Canadians generally, are going to say, “Well, how long do we maintain these subsidies for?”
We’ve seen this reality in Saskatchewan because they’re going to have to deal with their challenge going forward. Have you learned anything from that experience, and how does this inform you about your project going forward?
Mr. Cameron: Sure. There are four existing projects. We have the Boundary Dam Carbon Capture Project, which is a coal project in Saskatchewan.
Senator Yussuff: I visited it, so I’ve seen the operations.
Mr. Cameron: A lot has been learned at a technical level about carbon capture from that project, but I think when it comes to an economic level, carbon capture is not something that produces more electricity or produces more oil; it’s something that simply cleans the existing process, and it is very expensive. You need to have some way of pricing the externality, like a carbon price or something, that actually creates that incentive.
Ultimately, you can subsidize something, you can regulate something or you can have a price-based incentive. Those are really the only three ways you can create a change in behaviour.
Senator Yussuff: Recognizing that experience, the experience with your project and the public impatience of the subsidy, you have to factor that in because anything could change. If the subsidies disappear, what happens to your project?
Mr. Cameron: If there weren’t subsidies available, such as the investment tax credit or the Alberta Carbon Capture Incentive Program, these projects wouldn’t happen. Then the choice is that you either continue producing with higher emissions or you shut down production. Those are the choices you have left.
The Chair: Neither gets you further down the road or deals with that issue.
Senator Miville-Dechêne: I want to continue on this fascinating carbon capture question.
The International Energy Agency recently wrote that oil and gas companies need to start letting go of the illusion that carbon capture is a realistic solution. I want to quote John Moffet, Assistant Deputy Minister at Environment and Climate Change Canada, who testified in front of our Energy Committee:
I think the bigger issue that we hear about is that it’s a very costly way to continue to produce oil and gas . . . at some point, the world needs to stop using oil and gas.
It’s not really a technical question, it’s a sort of moral hazard question. Should we do this, and thereby enable continuing use of oil and gas? This is a civil servant. He’s bringing up the moral hazard question. Are you asking yourself this question?
Mr. Cameron: As I say, it is a key question. I think it’s a question for policy makers, not for companies that are in the industry.
Senator Miville-Dechêne: But you’re a citizen.
Mr. Cameron: Yes, sure. There is a global demand for oil. It’s over 100 million barrels a day. In fact, it’s still increasing. Should Canada play a role in meeting that global demand or should we — out of a sense of responsibility for climate — start shutting down our production before other countries shut theirs down and pay a huge economic price for it?
Consumers and citizens may be concerned about the level of subsidies for carbon capture. If we lost 250,000 jobs, $20 billion in revenue and 3% of our GDP, I think they’d be even more upset.
The Chair: We’re going to leave it on that note. Thank you very much, Mr. Cameron, for being here today.
I want to remind colleagues that we have the break, then we’re going into budget consideration. We’re under huge time constraints during those meetings.
I ask colleagues to do their homework in advance. We’ve got a plan for trying to meet the deadline. Not everybody will be participating in each section. How many sections have we got? Sixteen. There will be a lot of heavy lifting for the next two or three weeks to get to June 10.
Senator Massicotte: I observe that four or five of my colleagues, when they asked the question, are looking at this little machine. They sound so intelligent. Do we buy that stuff somewhere?
The Chair: I think it’s made out of oil and gas, Senator Massicotte. I think you’re going to be in trouble.
Thank you, colleagues. Thank you again to Mr. Cameron. We will see you in a week.
(The committee adjourned.)