THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Tuesday, May 9, 2023
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 6:32 p.m. [ET] to examine the subject matter of those elements contained in Divisions 20 and 36 of Part 4 of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023.
Senator Rosa Galvez (Chair) in the chair.
[English]
The Chair: My name is Rosa Galvez. I’m a senator from Quebec and chair of this committee.
Today we are conducting a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. I would like to begin with a reminder: Before asking and answering questions, I would like to ask members and witnesses in the room to please refrain from leaning in too close to the microphone, or remove your earpiece when doing so. This will avoid any sound feedback that could negatively impact committee staff in the room.
Now I would like to ask my fellow committee members to introduce themselves, beginning on my right.
[Translation]
Senator Verner: Josée Verner, Quebec.
[English]
Senator Sorensen: Karen Sorensen, Alberta.
Senator Anderson: Margaret Dawn Anderson, Northwest Territories.
Senator McCallum: Mary Jane McCallum, Manitoba.
Senator Arnot: David Arnot, Saskatchewan.
The Chair: I wish to welcome all of you and viewers across the country who are watching our proceedings.
In accordance with the motion adopted by the Senate on April 27, 2023, we begin our pre-study of the subject matter of Divisions 20 and 36 of Part 4 of Bill C-47, Budget Implementation Act, 2023, No. 1.
For our first panel, we welcome two representatives from Crown-Indigenous Relations and Northern Affairs Canada. Georgina Lloyd, Assistant Deputy Minister, Northern Affairs, is here in person with us. Mr. Alain Therriault is going to join us, hopefully very soon, by video conference. He is Manager of Policy and Governance. From the Department of Justice we have Mr. Tom Isaac, Senior Counsel. Thank you very much.
Ms. Lloyd, you have five minutes to deliver your opening remarks and we will follow with questions. The floor is yours.
Georgina Lloyd, Assistant Deputy Minister, Northern Affairs Crown-Indigenous Relations and Northern Affairs Canada: Madam Chair and members of the committee, before I begin, I’d like to acknowledge that we are located on the unceded traditional territory of the Algonquin Anishinaabe people.
Thank you for the invitation and the opportunity to speak today about the proposed amendment to the Yukon Act. These proposed amendments are about ensuring the health and safety of Yukoners, as well as protecting the environment while advancing economic opportunities for Indigenous peoples and with northern partners.
These proposed amendments have the full support of the Government of Yukon and all affected First Nations. We have done extensive engagement and consultations with partners and affected communities across the Yukon, with the consensus being that all parties want these proposed amendments to go forward.
The Yukon Devolution Transfer Agreement was signed on April 1, 2003. This devolution agreement made Yukon the first territory to take over land and resource management responsibilities from the Government of Canada.
At this time, there were several abandoned mine sites in Yukon. Some of those sites were identified as having or potentially having unfunded environmental liabilities related to their remediation or closure.
One of these sites was the Faro Mine. The Faro Mine was once the largest open-pit lead-zinc mine in the world. Today, it is the site of one of the most complex abandoned mine remediation projects in Canada.
The mine was abandoned in 1998. It left behind 70 million tonnes of tailings and 320 million tonnes of waste rock. This waste has the potential to leach metals and acid into the surrounding lands and water.
Under the 2003 devolution agreement, the Government of Canada was financially responsible for remediating the Faro Mine, and the Government of Yukon was responsible for managing the remediation project. Funding to remediate the site is being provided through the Northern Abandoned Mine Reclamation Program, which is seeking an additional $6.9 billion over 12 years through Budget Implementation Act, 2023.
However, it had become evident that this joint governance model was posing challenges, given how complex, high risk and large scale the project is. Because of these challenges, the Government of Yukon approached the federal government and asked Canada to take over the project — an approach that all affected Yukon First Nations support.
This is why, in September 2020, the governments of Yukon and Canada signed a transition agreement to transition the site to full federal control. With the signing of the transition agreement, the Government of Canada has assumed responsibility for the Faro Mine remediation project. However, this transition was done under the authority of the Government of Yukon. This was intended to be temporary until Canada could amend the Yukon Act to provide the federal minister with the same authorities as the Yukon minister.
As part of taking on the responsibility, Canada is responsible for the care and maintenance of the site, as well as the urgent remediation work and advancing the overall remediation plan. Working with the main construction manager and to protect the environment, Canada is advancing the construction of the permanent water treatment plant in an urgent way. Active procurement is under way, with an award anticipated in the fall of 2023.
With these proposed amendments to the Yukon Act, we are addressing a commitment made to amend the Yukon Act to grant the federal minister responsible for Northern Affairs the same powers with respect to the contaminated site on federal land as the responsible minister in the Yukon for sites that are located on land administered and controlled by the Government of Yukon.
Prior to proposing these amendments, we have conducted engagement and consultation, which included all Yukon First Nations and the Government of Yukon. All partners and communities consulted were clear and indicated that they want to see the amendments and the work on the site go forward.
Before closing, I would like to note that these powers have no effect unless the Government of Canada and the Government of Yukon proceed with an official transfer of management of a contaminated site — such as in the case of the Faro Mine site, to the federal government.
Canada and the Government of Yukon continue to work collaboratively toward their shared goal of remediating the Faro Mine site and other contaminated mine sites in the Yukon.
Madam Chair, the proposed amendments to the Yukon Act are necessary to move forward to create more economic opportunities, protect the environment and support affected communities. Thank you.
The Chair: Thank you. We’ll start with our question period.
Senator Arnot: Thank you, witnesses, for coming here today.
I have a couple of questions, but I want to make a context-setting statement in case I’m wrong.
I’m interested to know if the amendments preparing the way for remediation for the four agreed-upon mine sites — I know these are complex mine sites, and there is significant potential for a negative environmental impact. It’s also, as you point out, 20 years since the devolution transfer agreement, and the Faro Mine site has been in remediation for 15 years.
Can you provide a timeline for the four mine sites that are targeted in terms of their successful remediation? The long term seems to me to enhance or aggravate the negative environmental impact.
Second, with respect to the Faro Mine, I understand you can’t pin down the costs, but you must have some estimation of how you will get to successful remediation of the four identified mines and when that might happen.
Ms. Lloyd: Thank you for your question. In terms of timeline, it depends, I would say, per site. You had mentioned four. In the Northern Abandoned Mine Reclamation Program, there are eight sites, four of which are located in the Yukon and under Yukon government responsibility. They are seeking to transfer the responsibility for the Faro Mine to Canada.
I would say they are all very different sites in terms of the level of tailings and the level of remediation that’s going to be required. It is quite difficult to provide a general timeline across all of the sites. In terms of Faro Mine, as I described, the level and scope of tailings involved are a much longer-term project, I would say.
Then in terms of the question about — sorry, I missed the second part of your question.
Senator Arnot: The $6.9 billion is not going to take you to the end result. This is going to be decades, basically.
Ms. Lloyd: We do view some of these projects as decades-long remediation plans.
The other part of your question was what the plan for remediation is. At all of the sites it really is a collaborative model, so it really is working with partners like the Government of Yukon, and in the case of the other sites in the Northwest Territories, working with the territorial government there and the affected First Nations. Their remedial plans are really developed in a collaborative way, and that would set the plan forward for how to approach it.
Senator Arnot: Thank you.
[Translation]
Senator Verner: I have a few short questions that I will ask in French. If I understood correctly, in the 2023 budget, there are $6.9 billion in addition to the $2.2 billion provided in the 2019 budget. Is that indeed in addition?
Ms. Lloyd: Yes.
Senator Verner: In 2020, you signed a transition agreement to assume responsibility for site remediation. Given that you signed that transition agreement in 2020, why has it taken three years to table a supplementary budget? Was it because of the consultations you did, as you indicated earlier in your opening remarks?
Ms. Lloyd: Thank you for the question. I will answer in English so I am more clear.
[English]
You are correct that in 2020, we did sign a transition agreement with the Government of Yukon. It has taken three years to come to today for a number of reasons. First and foremost, the transition agreement required consultation and engagement with affected First Nations and within the Government of Yukon. Also, the budget announcement that has been included in Budget 2023 concerns the overall Northern Abandoned Mine Reclamation Program, which covers all eight sites in Yukon and in the Northwest Territories. So it is kind of a broader picture of what is being provided by the budget request.
[Translation]
Senator Verner: Is the supplementary budget that is being tabled now, in 2023, going to cover more sites than the $2.2 billion budget that was passed in 2019?
[English]
Ms. Lloyd: There are 162 federal contaminated sites across the North. Many of those sites are small in scale and nowhere near what we’re discussing here. In order to be able to prioritize and move forward, we pulled out the eight most complex long‑term projects, and that is what the Northern Abandoned Mine Reclamation Program is about, of which $2.2 billion and $6.9 billion are dedicated to those most complex eight sites. There are 174 other sites across the North that require remediation also.
[Translation]
Senator Verner: Thank you very much.
[English]
The Chair: I will take advantage of the question asked by Senator Verner and ask a burning question that I have. How do we get to this point of having to put massive amounts of money into the North because we’ve abandoned mines? Where is the principle of polluter pays? Where is the principle of restoration immediately after the mine is closed? This problem dates back to 1998, and we are in 2023.
We had a mayor of a small community appear at the committee. It’s a very sad story because their coal mine is closing. Faro is a big town. Can you please tell us about the community? I feel that what you are saying is good because there will be work given to Indigenous people and people in the town as a result of this injection of massive amounts of money. But at the same time, we just heard a speech on environmental racism, and I can’t help but put lines among these dots.
Could you talk to us about the community, please, and all of the First Nations that reside there?
Ms. Lloyd: Certainly it is a question we receive a lot. You are correct to say that the polluter pays principle came into effect after these mines were abandoned, so Canada, as the owner of last resort, becomes responsible.
Today, of course, we have the polluter pays principle and policies in place so that when mines do want to open, they have to, for example, pay a bond, and that bond would be levied against the mine. Should they become insolvent or bankrupt, then we are able to use the bond to provide for the remediation cost. Those types of policies and principles were not in place at the time, and this has left us with a legacy of Northern abandoned mines that require significant remediation all across the North. I would say the cost of remediating those in the North are much more exaggerated than they are in the South. The scale and the scope of mines are quite significant.
You are right in that Faro was like a community. The history and the legacy of the mines has not always been great for Indigenous peoples and for northerners, so the responsibility for Canada to clean this up in a thoughtful way is really something we take seriously.
We are thinking about how we can do this in a way that engages and brings different voices to the table. One example I might give in terms of community engagement and some of the decisions that we’re making in a different way is that in very traditional remediation projects, if there is a tailings pond, one of the things you might want to do is cover that up and build it in a new repurposed way. You have seen in other parts of the country — the world, in fact — you can build parks over these spaces, becoming rejuvenated and renewed for the community’s use.
In some locations across the North, we have had Indigenous partners come to us and say, we don’t want to forget what has happened here, so we don’t want that to be repurposed as a park. We want to remember how enormous this was and what it meant to our community at the time. So we’re looking at different and new ways of remediating sites to respect the input and the legacy of what these mine sites have left, particularly for Indigenous communities and for all northerners.
It is something we take very seriously in terms of how we approach this work, given the significant legacy that’s been left behind.
The Chair: Thank you.
Senator Sorensen: Thank you for being here. I certainly appreciate the history lesson; it’s very educational for me. These are all topics that I’m not too familiar with personally, so it’s very interesting. It’s refreshing to hear that the Government of Canada, the Yukon government and the communities are working so well together. We don’t always get that message either. And to see — I think I understand — agreement by all on the amendment. I can easily agree to the amendment if you guys all agree to the amendment.
I want to further educate myself. You talk about eight sites, and four in the Yukon. I’m curious about where the other four are. I’m guessing, but I’ll have you clarify.
For either Ms. Lloyd or to Mr. Isaac, I understand through my notes that a transition agreement is currently being negotiated to transfer the Clinton Creek Mine site and Ketza River mine area in the Yukon to federal control as well. I’m curious if you have an update on that process and how long that’s going to take. I don’t expect you to come up with a year, but is it the same kind of thing where it’s just taking so long?
Back to Senator Arnot’s comment about the risks involved in managing sites like this, there must be concerns about liability. Is it the federal government who would be held responsible for any problems or harm that might occur in the process of closing the mines?
Ms. Lloyd: Thank you for your questions. I want to be clear on the eight sites under the Northern Abandoned Mine Reclamation Program. There are five sites in the Yukon, and three in the Northwest Territories out of the eight largest sites of the federal contaminated sites across Canada.
Senator Sorensen: Again, there are eight out of the over 160 sites that are significant?
Ms. Lloyd: Yes, and these eight take up more than 90% of the work of the 162. In scope and scale, they are much more complex and much larger.
Senator Sorensen: Those are the three, then? Faro Mine and the two I mentioned?
Ms. Lloyd: In Yukon, there is Faro Mine, United Keno Hills Mines, Mount Nansen Mines, Clinton Creek Mine site and Ketza River mine area. And in the Northwest Territories, Giant Mine, Great Bear Lake, and Cantung Mine.
As for the question about Clinton Creek and Ketza River potentially being under a transfer, there have been some discussions, but a decision hasn’t been taken by the governments to move forward with that. I think there is an interest to see this process and if the Faro Mine transition works out well for all of us and can be used as a good example and a model for governance, then we could have a conversation about the others.
To the question or the comment about the risk and the liability at play, it’s a significant issue for all parties involved. The environmental liability of the 162 sites for Canada right now is in excess of $6 billion. Obviously, the more we clean this up and the more progress we make on remediation that environmental liability will decrease. This is part of the reason why the Yukon government is seeking to transition to Canada, to ensure that the responsibility and the liability rests with Canada. It is a huge responsibility for a small territorial government not wanting to be overburdened. Should there be something that goes wrong, Canada as the owner of last resort would be the one to take on that responsibility.
Senator Sorensen: Thank you very much. You have become a pilot project. We’ll see how that goes.
Senator McCallum: My question was asked. I continue to be flabbergasted at this whole resource extraction of people, of companies coming in, taking what they want, leaving and some of them claim bankruptcy and start a new company, or they are from out of the country, and why that had been allowed to happen. Do you know if any of the companies that owned those mines are working today?
Ms. Lloyd: That’s a good question. I’m actually not sure if any of those companies are operating today. It’s something that we could probably look into and return. The installation of the polluter-pays principle has really changed the dynamic for companies. The responsibility that they have to provide up front before they can open a mine today is much different than before these policies were in place. It provides a responsibility to a company and an ownership of these types of responsibilities to caretake that well. Of course, that is the case today, but it does not work backwards.
Senator McCallum: So with this amendment, you said that the federal government is going to be taking the responsibility. Or is the territorial — will they have similar powers to take reasonable measures to prevent, counteract and all that? Do you think that would result in confusion or overlap between the two jurisdictions?
Ms. Lloyd: We know Faro Mine is the one we have provided a transition agreement for and one that we have discussed, consulted on and negotiated. The other mines that are in Yukon’s controls, they are called Type II sites, and those would remain under the Yukon government’s control. As per the devolution agreement, Canada is financially responsible and the Yukon government is responsible for the remediation.
In this case, this amendment will allow for the federal Minister of Northern Affairs to have the same powers as the Yukon minister to enable the remediation responsibility. The control of the remediation plan would revert back to Canada in the case of Faro Mine. The amendment provides for the Minister of Northern Affairs in Canada to have the same powers as the Yukon minister.
These are complex remediation. They really are. There is no single pathway for any mine site to remediate it. There is experience, there are lessons that we can draw from around the country and the world in terms of how to do this in a good way, but we also want to make sure that we’re bringing in the feedback of northerners and Indigenous groups.
We have a governance structure for each of the mine site remediations that includes an oversight committee and a technical committee. The Yukon government and Canada, even after the transition, have roles. The Yukon government will play a strong role in the oversight committee and the technical committee. All parties who participate in the remediation have a really clear understanding of what the roles and responsibilities are so there is no overlap.
Senator McCallum: So when you are looking at all the tailings and the open pits, are there any emissions of gases that are leaking from any of these abandoned spots?
Ms. Lloyd: We do regular monitoring on all of the sites. I would say in the case of Faro Mine, as an example, the element that we pay most attention to is the water quality. Last year, in the Yukon, there was a lot of flooding as part of the spring melt, and that really changed water levels in and around the Faro Mine site. We were really cognizant about how that can influence the water quality and keeping within ranges of what is safe. It is those types of things that are in care and maintenance until we are in active remediation that we pay very close attention.
One of the things I had mentioned earlier is that for the Faro Mine site, because water quality is such an important issue at that site, our first element of delivery is a water treatment plant. That is out for procurement now, which will give us the ability to manage the water quality in a much more direct way and not necessarily be impacted so heavily by either heavy rains or heavy flood seasons. With a treatment plant, we would be able to have a direct impact on water quality.
The Chair: I have a question. It’s my understanding that in 2018, consulting engineering firms were given contracts to plan all these water treatment plants, the seepage capture and treatment that you’re talking about. I’m wondering about these massive amounts of money and about the procurement process. How many companies do you think will come, and what is the timeline for the remediation? I know it will last 35 years or so, but what will the procurement be? Is it federal?
Ms. Lloyd: It’s an important question. In the case of sites for which Canada is responsible, Canada is responsible for the procurement and for the remediation. That includes all the procurement tools.
In our experience, we have found that a best practice for this type of large-scale project is to employ what is called a construction manager. A construction manager can come on board to manage the remediation and the overall remediation plan. They are able to scope all of the work packages in a way that aligns with a community’s capacity, for example. They know when there might be a crane on site. They know when workers might be available in a particular community, so they’re able to scope the work packages accordingly to ensure that there are higher levels of participation by Indigenous groups but also that broader northern communities can contribute to the remediation.
The remediation economy has been pegged in terms of knowing that these are long-term remediation projects. This has been discussed a lot. When you’re talking about decades and decades of remediation, it can become an economy, and how you manage that economy can be important.
We’ve been quite clear with construction managers, and with all the procurement tools that we have at our disposal, to be able to enhance what is called Indigenous opportunity considerations within a procurement tool. We use that in two ways: One is to hold the construction manager accountable to certain percentages, or rate them on their bids for things like training and capacity building for communities, for hiring local citizens, and for their procurement. The other piece is that when a construction manager goes to procure out, they’re held to a standard in terms of how much training, hiring of local citizens, and procurement packages they have for Indigenous considerations as well.
Senator Arnot: I’d like to understand this a little better. In terms of the $6.9 billion, will that be spent in one fiscal year?
Ms. Lloyd: No. That will be 12 fiscal years.
Senator Arnot: How, where and when will those resources be applied? And how will the minister demonstrate transparency in the spending of that $6.9 billion?
Ms. Lloyd: We report quite actively. There are two elements. Because there’s over $6 billion worth of environmental liability associated with these sites, there’s an environmental liability reporting component. Then there’s also the usual minister’s investment and transparency around those types of investments. That reporting operates through the usual financial reporting tools that the minister has.
The take-up and pace of spending will depend on the milestones achieved for each site and how active each remediation plan is. Some of the eight sites are in full, active remediation, and some are still in the early stages of engaging communities to be able to understand and build a remediation plan together.
Earlier, I gave the example of the water treatment plant that is out for procurement this year. That’s a huge milestone. Should we be able to achieve that milestone, it changes the timeline and pace of what can come after that on a site as large as Faro. That could open up in terms of how the construction manager can move work packages.
Having said all of this, it is important for the construction manager to keep those Indigenous opportunity considerations at play. If communities are given the opportunity, in some cases they may require additional time. That’s why there may be an interest to keep some of it over a longer period of time to ensure the capacity is in the North to be able to bid and participate in these projects.
Senator McCallum: What is the effect of the permafrost and slumping on remediation? Does it have an effect right now?
Ms. Lloyd: Yes. As I think everyone is aware, climate change is having the most profound impacts across the North. One of the elements that we have for all sites is to pay attention to all impacts of climate change, and permafrost is an important component of that.
We work with all the different modelling projections through the COP process, the international climate change modelling process. We have been working with different researchers to ensure we’re monitoring and able to plan for remediation that is thinking about how permafrost might change into the future. Right now, some of our projections are 50 or even 100 years out in terms of what permafrost could look like in and around Yellowknife, as an example, in the Northwest Territories.
We regularly reset that. Even after the remediation plan is complete, there will be long-term, ongoing monitoring at some sites. One of the monitoring aspects will be to watch things like permafrost and how the climate is changing.
Senator McCallum: I’ve been reading about Alaska and their pipelines and how they’re shifting underneath the permafrost. What has been the impact on wildlife, whether on land or in the water?
Ms. Lloyd: That’s a good question. I’m not sure if I have any precise examples. It will be very site specific in terms of the wildlife impacts.
Part of the remediation plan is to have input from researchers and others, but also from Indigenous communities in terms of sharing traditional knowledge. Part of a remediation plan is to think about the environment before the mine was there, and what the objective in the plan to bring the environment back to a certain state is. This does have wildlife impacts, so it is about thinking through how you put this in one holistic picture. Those are the types of factors that are built into the remediation plan when it is consulted out.
Senator Anderson: My question is around the 700 million tonnes of tailings and the 320 million tonnes of waste rock. Where are the pollutants going? Are they planning to leave them there or remove them? If they remove them, where are they going? Are they staying in the territory or are they being relocated?
Ms. Lloyd: I would say that one of the common practices is to leave them on the site, because sometimes disturbing the tailings can create different impacts. I’m not sure if the decision has been made for Faro Mine at this point, but it would be something you would look at, in terms of if you move it, what would be impacts of moving those tailings?
The key issue for Faro Mine is really about the impact on water quality. Having a site remediated and being able to test for all of the different chemicals is something that we’ve learned over the monitoring period at Faro Mine. It’s really about the water quality, so that’s where our main focus has been.
I’m not sure if Alain Therriault has been able to join us. Unfortunately, my colleague is travelling to take part in an important annual review of this mine and he’s in the best position to talk about the technical details of the tailings.
Senator Anderson: To follow up with that, both are polluted with heavy metals. If you leave them on the site, is there not concern about those heavy metals leaching on to the land and being absorbed not only by the plants but also by the animals and it being transferred to them? Should not the question be, what would be the impact of leaving it there? What would be the impact on people, land, plants and animals and not just on the water?
As an Indigenous person from the Northwest Territories, subsistence hunting is very much a part of our day-to-day living, which I imagine is the case in the Yukon. Animals travel, and we eat those animals. There’s a transferrable pollutant that is present and poses a risk — not just through the water system, but through the land itself and through the animals and the plants.
I want to point out that when you look at that question, there should be a bigger scope as to what you’re looking at.
Ms. Lloyd: Absolutely. It really is about the safest and best way. There is comprehensive monitoring. Should heavy metals, for example, be leaching out into the environment, that would be caught with the monitoring. In the case of Faro Mine, that’s not occurring right now. That’s not to say that it would not in the future, but we have been doing some research to make sure that our predictive capacity there is higher and that we know what we should be looking for. Right now, it is kind of in the water quality piece.
In terms of how heavy metals might leach out, the monitoring is really quite comprehensive to be able to respond to that.
Tom Isaac, Senior Counsel, Department of Justice Canada: In addition, in the Yukon, the plan for remediation of Faro Mine is also going through a rigorous environmental process through the YESAA process, the Yukon Environmental and Socio‑Economic Assessment Act. They take into account all of the potential impacts that arise from the plan as to how they’re going to remediate the mine.
Following that, there will be a very rigorous water licensing process that it is specific to water licensing and conditioning for things like containing potentially leaching of potentially hazardous materials or contaminants into the water. They are following a regulatory process as well.
Senator Anderson: I’m from Tuktoyaktuk. Tuktoyaktuk has had huge climate impacts, and huge permafrost and water impacts. I hear everything you’re saying. I agree that it’s the right thing to do, but I also know from my community that some of the impacts we’re seeing are impacts from decades ago. You’re looking at a project that, according to my estimate, will take 15 years to complete and 25 years of monitoring. But those heavy metals are being left in the land. I’m saying this because I walk the beach in Tuktoyaktuk, and the water has eroded the land and has exposed historical fuel spills and other pollutants.
My concern with leaving it on the land is that we won’t be here in 20, 30, or 40 years. Governments change. Priorities change. You may leave it in the land, but it can expose itself later on and be more problematic. That’s my concern. Technologies change, people change and priorities change, but if it’s left in the land, it may be forgotten until it’s exposed again later.
I want to point out that when you’re looking at those plans, there should not only be short-term plans but also mid-term plans and long-term plans that address that period of 40 years. I think that’s important to point out.
Ms. Lloyd: Thank you for that. Regarding the regulatory process, as Mr. Isaac mentioned, they will provide for that rigorous monitoring and the follow-up. With a water licence, for example, once the licence is provided, it’s routinely reviewed and then monitored on its own. Whether or not it stays in place, or in what condition it might stay in place, is under a review and monitoring program.
The Chair: I want to build on what Senator McCallum and Senator Anderson have said. I follow the Giant Mine project in the Northwest Territories, near Yellowknife closely. My colleagues designed the ice barrier. In their predictions, the ice was going to be solid for X number of years. However, climate change came and they can’t hold the ice wall.
The issue with climate change is that the rain pattern and the permafrost bring a lot of water which creates dilution. We know that dilution is not the solution. You can keep monitoring it, but more water just makes the concentration lower. The contaminants are still there. If my recollection is correct, in Yellowknife there is still arsenic around.
I agree that we need to see solutions for the long term and not just the medium or short term. We also need to factor in climate change and changing weather patterns, especially with respect to water.
Ms. Lloyd: I agree. In the case of Giant Mine in Yellowknife, Northwest Territories, the chemical there is arsenic trioxide. It poses such a significant health and safety risk that the ongoing monitoring will be for a very long time in the case of this abandoned mine. Even when the remediation plan is complete, there will be long-term monitoring. Part of the long-term monitoring plan is to watch and adjust to the climate models that we have built it around. We know the models are as good as the data today, but things change and we know that climate change has brought new and different impacts, particularly across the North. That’s been built into the plan particularly for those sites that are significant in size as well and where we know it will experience direct impacts from climate change.
The Chair: Can we ask you to ask Alain Therriault to send his notes on the different projects and the description of the details of the projects for tailings?
Mr. Therriault, are you there?
Alain Therriault, Manager, Policy and Governance, Crown-Indigenous Relations and Northern Affairs Canada: Yes, I’m here.
The Chair: Did you hear some of the questions concerning the tailing ponds and the remediation plans? Can you talk to us about that please?
Mr. Therriault: Could you repeat the question? I just got off a plane that was diverted, so my apologies for being late. I would love to hear those questions again.
The Chair: In general, it is to know more details about the treatment process for the tailings.
Mr. Therriault: Thank you for the question. I’m hearing there are questions on tailings processing, et cetera. Are we asking specifically for the Faro Mine site or for others? This is certainly information I can have ready and available to pass on to the committee.
The Chair: The Faro Mine site.
Mr. Therriault: For the Faro Mine site specifically? So the question is, how are we dealing with the tailings pond?
The Chair: Yes.
Mr. Therriault: To my knowledge, and I will certainly double-check this with all our engineers, but there’s a plan to put a cover on the tailings pond. The tailings pond is about four kilometres long and about one kilometre wide. So there’s a cover plan to work for the tailings. This would ensure that all runoff water would be captured and then obviously pumped to and treated at the water treatment plant. That would ensure that we keep clean water clean, and it would capture any — what we would call contact water, so water that would be dirty.
The Chair: What about groundwater?
Mr. Therriault: For groundwater, to my knowledge, there are seepage interception systems. There are underground wells that catch underground water further down site. There are many of them, and there are monitoring points to ensure that groundwater is tracked and managed that way. To my understanding, there are again those seepage interception systems that are strategically placed to capture that groundwater.
Senator McCallum: What is the cover that you are putting on the pond? Is it cement or something more temporary?
Mr. Therriault: Thank you for that question. Can I ask you to repeat it? I missed the beginning of that question.
Senator McCallum: The cover on the tailings pond, is it temporary or is it cement? How long will it stay? Are you going to leave it like that?
Mr. Therriault: Thank you for that question. My understanding is that it is a permanent cover. That’s the plan. Again, I will certainly follow up and ensure that I’m providing accurate technical advice, but, yes, to my knowledge, it’s a permanent cover that would be over top of the tailings area.
Senator McCallum: So it would be cement?
Mr. Therriault: I’m unaware of that. I understand there are different products, covers. To my understanding, I don’t recall it being cement. It’s more of other compounds, but that being said, again, we will certainly provide exact details for you.
Senator McCallum: With the cement, in the States, they found there was a lot of leakage. With the shifting of the permafrost, you would think that a cover would come undone. So you will just leave it there forever?
Mr. Therriault: To my understanding, the engineering details around that are to ensure they meet maximal probable floods, earthquakes, any of those, so that cover would be sort of a — I have the French word in my head but more of a flexible matter, if that’s clear enough.
Senator Anderson: Can you tell us what the plan is for the 320 million tonnes of waste rock?
Mr. Therriault: Yes. My understanding is that there are a few plans on this. I believe there are some covers being planned and also some — what’s the word I’m looking for — moving of earth into strategic areas. That’s my understanding on that, but, again, that’s something I can ask of our engineers. We have a lot of mock-ups and information that I will certainly provide to the committee.
Senator Anderson: Would it be safe to say then that the plan is to leave the majority of the pollutants on the land where it currently sits?
Mr. Therriault: Thank you for that question. My assumption is yes. The plan is not to take everything and remove it. It is to manage it within the existing area.
Senator Anderson: Can you tell me how long does your plan extend? Is it a 5-, 10-, 15-, 20-year plan?
Mr. Therriault: Again, I apologize if I’m repeating things that were previously said and, again, apologies for being late. The current phase is the care-and-maintenance phase of the project, including certain urgent works. This phase is in line with our regulatory stage, so getting all our regulatory approval in place. Once that’s in place, the construction phase starts, which is planned to be about 12 to 15 years.
That is our current estimate. The plan is to get through that phase which, again, will probably span between 2026 and 2029, depending on how quickly the regulatory approval process moves along. Then the construction period, we estimate, will be about 12 to 15 years, and that’s still being finalized.
Senator McCallum: With so much money going in, you cannot guarantee that this is going to work, can you? I mean, do you have faith in your environmental assessment plan?
Mr. Therriault: Sorry. My assumption is that the question is for me. I don’t want to overstep. Ms. Lloyd, I’m sort of jumping in and answering questions. I want to make sure that we are turning to me here and I’m not jumping ahead.
Ms. Lloyd: I would say, in terms of the environmental remediation plan, these have been well researched and developed with a lot of partners, looking at best practices, research and knowledge that we can contribute to the plan. We’ve put a lot of effort into it, so that we’re able to really build a plan that is thoughtful and that we can have faith in.
Obviously, we mentioned earlier the regulatory pieces and the monitoring. It’s not something that we’re going to kind of go and remediate and then walk away from. We’ll have to be constantly gauging how successful the plan is because certainly there’s no foolproof plan. There are built-in processes for us to be able to assess whether it’s working, how it’s working and if it needs to be adjusted.
Mr. Therriault, is there anything you wanted to add to that?
Mr. Therriault: No, that’s great. Again, our plans are based on lessons learned. We’ve had many other sites, obviously, in line with what Ms. Lloyd was saying. I believe there’s confidence in the approach. We recognize that it’s a massive scale and it’s complex; however, there is, to my knowledge, a lot of trust in the current approach on the technical side.
The Chair: Thank you so much.
For our second panel, we welcome two representatives from Environment and Climate Change Canada: Laura Farquharson, Director General, Legislative and Regulatory Affairs; and Paola Mellow, Executive Director, Low Carbon Fuels Division. Welcome and thank you for being with us today.
Ms. Farquharson, you have five minutes to deliver your opening remarks.
Laura Farquharson, Director General, Legislative and Regulatory Affairs, Environment and Climate Change Canada: Thank you.
The proposed amendments in Part 4, Division 36, would modify Part 11 of the Canadian Environmental Protection Act, CEPA. Part 11 of CEPA contains provisions relating to the use of economic instruments and market-based approaches.
The proposed targeted amendments would establish a fund that would be called the Environmental Economic Instruments Fund in the accounts of Canada for the purpose of administering amounts received under the funding programs that are established by certain regulations under CEPA, which is under the responsibility of the Minister of Environment and Climate Change.
At this time, the environmental economic instruments fund is only contemplated for use under the Clean Fuel Regulations. Those regulations, which require liquid fossil fuel providers to gradually reduce the life cycle carbon intensity, or amount of pollution, from the fuels that they produce and sell for use in Canada, include a number of compliance mechanisms, which are meant to help mitigate compliance costs, while maintaining the objective of delivering real greenhouse gas emissions reductions. One of these mechanisms allows regulated parties to discharge up to 10% of their annual compliance requirement, starting January 1, 2024, through payment into a funding program that invests in and obtains greenhouse gas emission reductions in the short term.
[Translation]
The 2021 budget provided funding over seven years to help implement and administer the Clean Fuel Regulations, which play an important role in helping Canada reach net zero by 2050. A federal fund, as provided for in these amendments, is a comprehensive compliance mechanism in the Regulations, providing a reliable compliance option for the proper functioning of the Regulations.
The proposed amendments would also provide technical clarification by replacing the term “tradeable units” with the term “compliance units” in CEPA, and would make consequential amendments to reflect this in the Canada Emission Reduction Incentives Agency Act. The proposed amendments would come into force upon Royal Assent.
[English]
The Chair: We will now proceed to the question period.
[Translation]
Senator Verner: Thank you both for being here tonight. I have a question regarding section 622. It states that the Minister of the Environment and Climate Change will be responsible for administering this fund or making payments from it for federal greenhouse gas reduction initiatives. You may be aware that in Quebec, we have had the green fund since 2006 to grow revenues from the provincial carbon market.
Now, following media reports, we have seen over the years that this fund has not always been used to pay for these types of projects. Section 622 seems to indicate that this new fund will only be used for specific departmental initiatives. In other words, we want to avoid the situation we experienced with the Quebec green fund. This will be dedicated to specific initiatives of the department, is that correct?
Ms. Farquharson: Yes, that’s right.
Senator Verner: I would like to know about accountability to both Parliament and Canadian taxpayers for the annual management of this fund, because there is no information on that in section 622. How will Parliament and Canadian taxpayers be kept informed — yearly, or on a regular basis — about the annual management of this fund?
Ms. Farquharson: It is true that not all of the details about how the fund works are available in the legislation. However — I would have to check, but I believe — there is a requirement to publish an annual report on how much was spent and how the funds were used. The details will be broken down in the fund. Does that answer your question?
Senator Verner: Yes. That was what I wanted to know: about accountability. That is, how to ensure accountability to Parliament and to taxpayers for the management of this fund.
Have you estimated the amount of money you will be able to collect and transfer to the new fund? Do you have an order of magnitude, a rough estimate of the amounts that would be collected and transferred to the new funds, over a five-year period?
[English]
Paola Mellow, Executive Director, Low Carbon Fuels Division, Environment and Climate Change Canada: As Ms. Farquharson indicated, the fund is one compliance mechanism under the Clean Fuel Regulations, and it can be used annually by regulated parties to meet up to 10% of their obligation.
One of the challenges with the fund is that it’s an optional compliance option. In any given year, regulated parties could contribute zero or they could contribute up to 10% of their regulated obligation.
The other challenge in terms of estimating the amount of money that would be put into it is you need a price, and so for that, what we have specified in the regulations is that contribution into the fund will be done at $350 per tonne, applied with the Consumer Price Index.
We don’t have any estimates on hand, but you could do a back-of-the-envelope estimate, say for $350 a tonne, up to 10% of regulated obligation, what is that number? The challenge with that is you get into forecasting the future. The regulation is applied to fuel volumes, so you have to make assumptions about how much fuel is used in the economy over time, which, of course, as you know, is a function of very many things. So we don’t have any estimates at this time, but that is the order of magnitude that we’re talking about.
[Translation]
Senator Verner: Section 622 indicates that by a simple ministerial order, the Minister of the Environment may delegate the responsibilities of both administering this fund and making payments out of it.
Why won’t this form of delegation of authority be subject to parliamentary scrutiny? Why is this in the bill? Is it expected that the fund might at some point be managed by a particular administrator? How can we as parliamentarians ensure that the person appointed will be held accountable to the minister — and, more importantly, to Canadian taxpayers?
Ms. Farquharson: Actually, there are other options for delegating responsibilities. For example, the Interpretation Act allows for delegation without an order-in-council. The idea behind having an order-in-council was to have transparency about who is being delegated. Your question is why the rule doesn’t also require Governor-in-Council’s approval, right? I can confirm it’s just the minister.
Senator Verner: Actually, here is what I was wondering: Why is Parliament not consulted even though, when the authority is delegated to another manager, it is indicated by an order-in-council? I was wondering what the reason was for doing it that way.
Ms. Farquharson: It is not necessary to use it; and in the order-in-council, the names, roles and functions would be stated.
[English]
Senator Arnot: It’s my understanding that the environmental economic instruments fund will, in effect, allow an organization to offset 10% of the compliance obligations by contributing money that will lead to emissions reductions in another setting. That’s the idea.
Can you explain what a 10% discharge of compliance requirements means to a party or an organization that contributes to the fund? Second: How is the 10% discharge cap determined? Why did you set it at that amount?
Ms. Mellow: What it means to a party is that 90% of their obligation is going to have to come through other measures. Maybe I could just take a step back and talk about the Clean Fuel Regulations a little bit. So it’s a regulatory obligation that’s placed on liquid fossil fuel providers who produce or import liquid fossil fuels for use in Canada, so primarily refineries.
It is a market-based mechanism, and it allows compliance through a suite of crediting options that have been defined within the regulations. This is a very broad suite of options all throughout the life cycle of these liquid fossil fuels; so upstream of the refinery, like oil sands extraction, for example, downstream, blending gasoline with ethanol, for example, or even further downstream, use of electric vehicles. All of these different options and crediting pathways are defined.
The 10% contribution fund — we call it a flexibility mechanism — is, basically, a tool that we have allowed regulated parties to access should they wish to. The price, as I mentioned before, is specified in the regulation at $350 a tonne. It is forecast to be the most expensive option for compliance. We did do it that way as we were trying to incent these other emission reduction pathways that we have identified through the regulations.
Basically, what it means to them is for 10% of their obligation, they know they can contribute into this fund for $350 a tonne and they would get credits in exchange for them. They are basically buying credits at $350 a tonne in this way, and then the fund goes off and, as Laura was saying, it is required to deliver real short-term emission reductions, where short term is defined in the regulation as five years. What it basically means for them is that they have a known flexibility mechanism to come into compliance.
Why it was set at 10%, there were a number of considerations, but most of all, the policy objective is to drive emission reductions in this life cycle of these liquid fossil fuels, and we wanted to make that happen. The majority of the action is being required in those credit creation pathways, and then this 10% is a flexibility mechanism just to provide the regulated parties with a bit of flexibility and a bit of certainty because it is this market‑based mechanism. There is less certainty than command and control-type of regulations. So it was just a mechanism to provide some certainty.
Senator Arnot: Would a 20% cap have been a better incentive?
Ms. Mellow: Again, because it’s an optional compliance pathway a 20% cap could have resulted in more contributions into this fund.
Again, the policy objective was to have emission reductions along the life cycle of gasoline and diesel used in Canada, and compliance pathways in those life cycles are defined under the regulations. This financial contribution to a fund is not to say that this money can’t go back into reductions in the life cycle, but there was simply a decision made that we wanted to make sure the majority of reductions were happening in these pathways that we have defined within the life cycle.
Senator Arnot: I want to understand better the Canadian Environmental Protection Act focusing on compliance. You are changing the term from tradeable units to compliance units, opening the possibility of use of previously non-tradeable units. Can you please explain the purposes of those changes and how those changes would benefit or impact parties captured by the act? I think particularly about persons and parties regulated by Canadian Environmental Protection Act and the Clean Fuel Regulations. What are the practical impacts or benefits to government?
Ms. Farquharson: The reason for the changing it from tradeable units to compliance units was to cover both tradeable and non-tradeable units. For example, in the Clean Fuel Regulation, certain credits will be non-transferable and non‑bankable, therefore not tradeable. The point was to make sure we’re using a term that actually describes what we know to be one of the uses of this new enabling power.
Senator Sorensen: Senator Arnot asked my question just now. Thank you.
Senator Anderson: To build off the question, the Kyoto Protocol is mentioned as well. It uses the term “tradeable units,” so I’m assuming that the Kyoto Protocol still applies, correct?
Ms. Farquharson: The Kyoto Protocol is mentioned because there is consequential amendment made to the Canada Emission Reductions Incentive Agency Act, which is an act that’s actually never been used but was meant to be used for the protocol. But the Kyoto Protocol has been superceded by a lot of other international agreements. However, this act is still on the books and uses that term “tradeable units.” We were just fixing that by calling them compliance units in case this act is ever used.
Senator Anderson: Does the Kyoto Protocol apply in any way to Canada in terms of — are we party to the Kyoto Protocol?
Ms. Farquharson: Canada is still a party to it, but it was superceded in 2015 by newer international agreements. That’s why people don’t really refer to it anymore. Now, we have other obligations internationally that are more stringent and we are meeting them through things like the Canadian Net Zero Emissions Accountability Act as we try to get to net zero by 2050.
Maybe I’m not answering your question.
Senator Anderson: I’m trying to get some clarity. The Kyoto Protocol allows for trading — to sell excess capacity to countries that are over their target. Does that still apply?
Ms. Farquharson: Okay. So I’m not —
Ms. Mellow: Maybe one thing we could talk about is — in the context of the Clean Fuel Regulations, that’s an obligation on anybody who produces or imports gasoline or diesel for use in Canada. That fuel is regulated, but any credits associated with the regulation only have value in coming into compliance with this regulation. So they are not fungible with any other type of credit for any other type of obligation.
Senator Anderson: [Technical difficulties] only apply to Canada specifically and there’s no international application to it or no potential international benefits to other countries if Canada keeps the emissions lower; is that correct? I’m saying if Canada meets the threshold but is actually lower than the threshold.
Ms. Mellow: There is no other regulation or agreement, domestically or internationally, under which those have any value. They can’t be used for any other purpose.
Senator Anderson: I understand. Thank you.
[Translation]
Senator Verner: You made reference to the 2021 budget, and you said that this measure was a result of that budget.
Why are we coming back to this now, in Bill C-47? Why didn’t you simply table a bill that deals with the Canadian Environmental Protection Act, and that would allow us to do a more thorough study, since the measure was already passed in the 2021 budget?
Ms. Farquharson: That’s true, but the measure supports a budget measure. There are a lot of things to take into consideration when determining how to present legislation, and I am not in a position to answer that question.
[English]
Senator Arnot: Thank you. Senator Verner asked the question earlier, but I just want to better understand the answer.
On the administration of the environmental economic instruments fund, it will all be in the hands of the Minister of the Environment. What commitments have the minister made to providing a public accounting of the use of those funds, the projected and real application of those funds and the benefit of those funds? I’m really looking for the impact, and the transparency required to give confidence to Canadians.
Ms. Mellow: [Technical difficulties] in the Clean Fuel Regulations, there are criteria governing the fund: One is real emission reductions; one is short-term emissions reductions, which is defined as five years; and, then there are other criteria around transparency and accountability. I don’t have them with me right now, but I would suggest that we send them to you in writing.
The Chair: Will you give some concrete examples of — you mentioned the refinery, and you say the options are from downstream to upstream. I think it will be for the benefit of us understanding if you take one example and you walk us through it. Please.
Ms. Mellow: The Clean Fuel Regulations are very unique regulations because they are life cycle based. As I was mentioning, they regulate the gasoline and diesel that is produced and imported for use in Canada. I keep stressing that, because as you know, a lot of crude and fossil fuel are exported from Canada. This is a regulation for what’s used in Canada.
The point of regulation is a refinery. However, because it is a life-cycle regulation and it is a market mechanism based on credits, we have defined a suite of compliance actions that we will award credits for. Those compliance actions fall into three compliance categories. One is GHG emission projects along the life cycle of these fossil fuels, which could be, for example, energy efficiency at a refinery; capture carbon capture and storage at a refinery; electrification; and renewable electricity, which varies from electrification, because we think of electrification of hooking up to a grid.
The second compliance category for the creation of credits is low-carbon-intensity fuels. That is lower downstream from the refinery, but it is blending gasoline or diesel with things like ethanol or renewable diesel. There is actually a suite of those sorts of progressive low-carbon intensity fuels that are becoming more and more common.
The third compliance category is credits for advanced vehicle technology, which are electric vehicles and hydrogen vehicles. It’s basically switching out the engine from using gasoline and diesel to some other lower-carbon-intensity fuel.
So those are all the credit-creation pathways.
Because the Clean Fuel Regulations are a market-based mechanism, we have provided a fund where regulated parties can contribute at $350 a tonne for up to 10% of their regulatory obligation annually, and they can get credits to come into compliance with 10% of their obligation annually via contribution to this fund.
The parameters around this fund, as specified in the regulations, are short-term real emission reductions, and then there are parameters around accountability and transparency, which we will send to you in writing.
Then, we need this amendment in Canadian Environmental Protection Act to enable this fund to happen. Once that work is finalized, then we’ll turn to the work of figuring out the specifics of the implementation of the fund. Once Environment and Climate Change Canada has the money in the fund from those regulated parties contributing to it, then it has to have a very specific way of operating, that respects the criteria in the regulations — the real short-term emission reduction. That work is going to be fleshed out upon the amendment.
The Chair: Thank you very much for that. That was very good.
The other part of the equation is this: What type of projects will the money be used for? You said you don’t have all the information or the strategy, but can you tell us what your perspectives are in the use of this money?
Ms. Mellow: Again, the only things we have specified are real short-term emission reductions and then, again, those other criteria around transparency and accountability. We have not specified further. I imagine some further details will be established. But really, the focus was on, again, short-term real emission targets, as the main objective of the regulation is these reductions within the life cycle of the gasoline and diesel used in Canada.
Senator McCallum: What made you come up with these three short-term items? It just seems like the government keeps coming up with different strategies, and it feels like none of them have worked. I’m talking about carbon capture and all of that.
What made people come up with these three items? And when you say short term, how long is that? What happens after the short term?
Ms. Mellow: The short term is defined as five years. Again, there is accountability. People are going to have to report on the delivery of those reductions if they happen within five years.
I understand your question is what if it doesn’t happen. That’s a good question to think about as they develop the fund — what would be contingencies for unforeseen circumstances? I don’t design program funding, so I can’t speak very much to exactly how the program would be designed. However, projects would only be accepted if there were confidence that they would deliver as feasibility reports or other things have created a pathway to have confidence that they would deliver.
To your question about what contingencies might be in place should they not deliver, that’s something that will have to be worked out as they fully develop the fund. I think we were, again, waiting for once we have this amendment, then the parts of the department that are focused on program development as their order of business are then going to use their knowledge in that area and work to develop those details.
Senator McCallum: When you look at the short term and you look at GHG emissions along the life cycle, the one thing that hasn’t been addressed is combustion.
Ms. Mellow: In those three compliance categories, the third one is combustion. It’s changing out a gasoline motor from a vehicle to an electric or a hydrogen motor. There are even natural gas motors. That last part is trying to get at the combustion of gasoline and diesel. Again, because these regulations are focused on gasoline and diesel, the vast majority of gasoline and diesel is used in transportation, so that’s the last part of the life cycle, and that third category of compliance credits is meant to try to get at that.
Senator McCallum: In terms of electrification, it’s still in its baby stages. We haven’t really looked at it. When you look at the batteries that they’re wanting to bring in, they haven’t addressed the mining that’s going to go with it. I understand they have about a 10- to 12-year life cycle. What are they going to do with them? They’re pretty big batteries that are underneath the car. It just seems like there’s nothing concrete in place.
Electrification is already happening in other countries. When we went to France about three weeks ago, all the buses are electric there. The cars have all their plug-ins. I think they’ve been electrified since 2019. I come from Manitoba, and it doesn’t seem like we’re ahead of the game. I don’t know how you feel about that.
Ms. Mellow: If the discussion was about electrification policy, I don’t think I’m best placed to speak to that.
Ms. Farquharson: I was going to say, I think that’s it. The change is about the fund and then how it relates to the Clean Fuel Regulations. I suppose the government’s intentions are set out in the 2030 Emissions Reduction Plan, so to the extent you’re looking for concrete plans and how we will actually get to net zero, all the different elements are in that plan. We’re not best placed to elaborate on those initiatives.
Senator McCallum: Shell oil met with one of the Indigenous bands. They had 6 gas stations, and they’ve increased to 12. I said, did they tell you that they’re supposed to — and they said no. They’re going to build them, so it doesn’t seem like people are serious about this. I don’t think I would buy an electric vehicle now. That’s my feeling.
Ms. Farquharson: Could I make a correction? We were talking about the Kyoto Protocol. I misspoke because Canada withdrew from the Kyoto Protocol in 2011. I had not thought about it for a long time because it was overtaken by the Paris Agreement. I just wanted to correct that.
The Chair: Thank you for that. Another way of asking a bit of a similar question, I’m sure that you make some predictions or modelling about how much this program is going to bring down greenhouse gas emissions.
Ms. Mellow: I could speak to that. The Clean Fuel Regulations are forecast to reduce emissions by up to 26.6 megatonnes by 2030. It’s actually a very substantive regulation. It’s definitely one of the more significant aspects because it regulates all the gasoline and diesel used in Canada. It’s a wide‑reaching regulation.
The Chair: Thank you.
Senator Anderson: I want to go back to your compliance strategies. Do they take into account the differences between provinces and territories? I’m from the Northwest Territories, and I know the Yukon, the Northwest Territories and Nunavut are heavily reliant on heavy fuels. Not only that, but because of the temperatures, our road systems and our aging infrastructure, I can’t even imagine an electric vehicle — I’m sorry — in minus 40, in a storm on a gravel highway with no access points for two and a half hours. The reality is just not there. I can’t see electric units being plugged in on that highway.
My thought is that in some ways, with the territories right now, equality and equity in Canada don’t add up. My concern would be that the territories will be penalized for conditions that necessitate our use of oil and gas because of the infrastructure, the environment we live in and our lifestyle. In the North, we’re also subsistence hunters, and that means Ski-Doos and all-terrain vehicles, or ATVs.
Ms. Mellow: The gasoline and diesel used in remote communities are exempt from this regulation. Also, this is a market-based regulation, and the obligation is imposed on the fossil fuel primary suppliers. Again, the vast majority of regulated fuel is with refineries.
Because it’s a credit-based mechanism, we did talk about the suite of compliance pathways of which electric vehicles are, absolutely, one key component. None of those are required. Those are all optional pathways. The regulated party gets to choose the pathway that works best for them. But I do want to acknowledge that the fuel going to remote communities is exempt.
Senator Anderson: You talk about a choice, but when you’re in that environment, you don’t have that choice.
Ms. Mellow: Regulated parties choose how they can comply, and —
Ms. Farquharson: I think it’s the refineries that are choosing how they’re going to comply, ultimately reducing the —
Senator Anderson: But the provinces and territories are also asked to reduce their emissions, am I correct?
Ms. Mellow: Not in this regulation.
Senator Anderson: Okay.
Ms. Mellow: I think I understand your question now, and I think it’s a question for climate change policy more broadly, the Government of Canada’s approach to climate change policy and what those requirements are for northern and remote communities. There is nothing in this regulation that has requirements for northern and remote communities, but other Government of Canada policies may; I’m not well placed to speak to those.
Senator Anderson: I understood what you’re saying, but I also recognize that no matter what department or division you are in, Canada is a country, and that includes the Arctic, and to be quite frank, the Arctic is often left out. When you speak of national organizations and you ask who they represent and if there’s representation from Nunavut, Northwest Territories or Yukon, 90% to 95% of the time I’ll be told no. It’s quite common, so I just want to ensure that in your work that Northwest Territories, Nunavut and the Yukon are reflected in that national picture.
Ms. Mellow: I would like to point out that they were extensively consulted in the development of this regulation. They have opportunities to be voluntary participants and voluntary credit creators under this regulation and that’s actually what some of our interaction with them has been to date. But they’ve absolutely been engaged from the beginning consistently. We still meet with them now to help explain implementation aspects. But, yes, they’ve absolutely been engaged.
Senator McCallum: Will all projects be forced to do this? I’m just thinking that if the project on its own decreased their emissions, what happens to that group?
Ms. Mellow: So the path to compliance is in this regulation — the regulated party is, for simplicity, refineries. There are a handful of those refineries in Canada, and they are not required to do anything. They can choose from a suite of compliance pathways. They can also just go to the credit market and buy compliance credits that are associated with compliance actions taken by other parties, be they regulated or voluntary. As with other market mechanisms, there’s just discretion. They can choose a pathway to compliance that they choose.
They have to come into compliance, but we don’t really dictate how. We define a suite of compliance pathways, and some of the options were the things I mentioned before — energy efficiency, electrification, renewable electricity, carbon capture and storage, a suite of low carbon intensity fuels, like hydrogen, ethanol, biodiesel, renewable diesel, co-processing as a type of low-carbon intensity fuel process, electric vehicles, hydrogen vehicles, natural gas vehicles — there’s a suite of options we’ve defined and they can choose among them.
Senator Arnot: With respect to the environmental economic instruments fund, I’m sure you’re anticipating that the fund will grow to very large sums of money very quickly, I assume. Is that true? Have you projected how that will work?
Ms. Mellow: The challenge with the fund is the 10% contribution. Regulated parties, again, because it’s a market mechanism and they can choose their compliance pathway, can contribute up to 10% of their regulatory obligation annually, but they don’t have to contribute anything. You’re right that one could consider a maximum scenario where everybody chose to contribute 10% every year.
The challenge with forecasting that is that it’s based on forecasts of fuel use in the economy over time, but we don’t have that. We haven’t done that calculation. You’re right that there could be significant contributions, and that’s why it’s important that the fund is designed with respect to the criteria that have been laid out in the regulation, and that it is accountable and transparent. You’re right, there could be a large sum of money in it, and it needs to be appropriately managed.
Senator Arnot: I think we can guess that it might be a large sum of money. One of the indicators of that would be the feedback that you’re getting from the regulated parties now in terms of this fund. Will they be utilizing it to the maximum of 10%? Is that enough of an incentive to do so? If you know that answer to those questions, you’d know how big the fund will be.
Ms. Mellow: Absolutely. The regulatory obligation has not started yet. It starts July 1, 2023. Right now, we do not have a significant amount of feedback on compliance pathways that regulated parties have chosen; however, I would say that they will choose to invest in themselves at least to some degree, as opposed giving money to a fund that will then be invested as the fund sees fit. But I don’t have a lot of feedback on their compliance strategies, I think they’re still coming to ground on those.
The Chair: You have repeated several times that this regulation is for fossil fuels produced and used in Canada and it concerns refineries. But we know that a lot of the petroleum that we produce — notably, those from the oil sands — goes to refineries in the States and comes back, and then we use them here. So are they not included in this?
Ms. Mellow: They will be included if they come back. If they’re imported for our use, it’s anything used in Canada. If we export the crude and import it back as refined fuel, it will be covered.
Senator McCallum: How would the emissions reductions be tracked and publicly reported?
Ms. Mellow: The regulatory obligation is expressed as grams of carbon dioxide equivalent per megajoule. Because it’s a life‑cycle regulation, what they’ve done is taken all the emissions along the life cycle — extraction, refinement, transportation and combustion — they’ve added them all up and expressed them in a unit of energy, and that’s the obligation that’s actually applied to the volume of fuel used in Canada. Going from that regulatory obligation to a megatonne, it requires estimates around the use of fuel in Canada over time. It’s fair to say that it is a forecast and an estimate, and what we will be ensuring compliance with is, in fact, a carbon intensity of the fuel.
Then there is the broader reporting that the Government of Canada does on emissions. Any reductions that this regulation delivers as the Government of Canada reports on its emissions and it’s progress toward emission targets, it would be captured in that.
Senator McCallum: We had one witness who said the reports had a two-year lag, which, in effect, means that they can’t really report anything. How would you ensure that that is not going to happen and that they’re going to report?
Ms. Mellow: There’s annual compliance with this regulation. It’s under the CEPA, so it’s a criminal head of power. There is a legal requirement to comply with this regulation. Through that mechanism, we would ensure compliance. That would ensure that the carbon intensity objectives are attained.
Senator McCallum: Do you take subsidies into account? When companies get subsidies for carbon capture, utilization, and storage, or CCUS, how do you deal with that?
Ms. Mellow: The suite of compliance pathways, what we’ve done in considering which pathways we want to create credits in our system, we have done an exercise that looks at them and asks, are these additional? Are these incremental? Are these not things that are just going to happen anyway? There are a number of things that we look at in that assessment.
We have oversight of those compliance pathways. They actually sit outside the regulation, and that oversight allows us to be evergreen. If we find, for example, that a technology is becoming business as usual or no longer additional or incremental, we have the ability to pull that pathway and say that this will not be receiving credits anymore. That’s the mechanism. Over time, the idea is we would add new pathways as new technologies come around, to try to incent them, and then remove the pathways that become business as usual for a variety of reasons, one of which might be that they become economical now because they’ve received sufficient funding or whatnot.
Senator McCallum: Thank you.
The Chair: We have exhausted the questions. Thank you for your presence and your answers.
(The committee adjourned.)