THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Tuesday, February 13, 2024
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 6:31 PM [ET] to consider emerging issues related to the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Paul Massicotte, I am a senator from Quebec and I am the 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 little 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 to remove their earpiece when doing so. This will avoid any sound feedback that could negatively impact the committee staff in the room.
I ask my fellow committee members to introduce themselves, beginning on my right.
Senator Verner: Josée Verner, from Quebec.
Senator Miville-Dechêne: Julie Miville-Dechêne, from Quebec.
[English]
Senator White: Judy White, Newfoundland and Labrador.
Senator Sorensen: Karen Sorensen, Alberta.
Senator Arnot: David Arnot, Saskatchewan.
Senator Wells: David Wells, Newfoundland and Labrador.
[Translation]
The Chair: I wish to welcome all the witnesses, my colleagues, and the viewers across the country watching our proceedings.
Today, the committee invited government officials to appear as part of its special study on climate change, more specifically the Canadian oil and gas industry.
We welcome, from Environment and Climate Change Canada, Erin O’Brien, Assistant Deputy Minister, Fuels Sector; and Drew Leyburne, Assistant Deputy Minister, Energy Efficiency and Technology Sector; John Moffet, whom we know almost like a little brother, he’s here so often, Assistant Deputy Minister, Environmental Protection Branch; Derek Hermanutz, Director General, Economic Analysis Directorate, Strategic Policy Branch; and Lindsay Pratt, Director, Pollutant Inventories and Reporting Science and Technology Branch. From the Canada Energy Regulator, Jean-Denis Charlebois, Chief Economist.
I welcome you all and thank you for accepting our invitation. Five minutes are reserved for each department’s opening remarks. The floor is yours, starting with Natural Resources Canada, followed by Environment and Climate Change Canada and the Canada Energy Regulator.
Erin O’Brien, Assistant Deputy Minister, Fuels Sector, Natural Resources Canada: Mr. Chair, thank you for the introduction and the invitation to contribute to your study on climate change and Canada’s oil and gas sector.
My name is Erin O’Brien; I am the Assistant Deputy Minister for the Fuels Sector at Natural Resources Canada. With me is my colleague, Drew Leyburne, Assistant Deputy Minister of the Energy Efficiency and Technology Sector at Natural Resources Canada.
[English]
I would like to acknowledge that we are joining you today from Ottawa, built on the unceded territory of the Algonquin Anishinaabe peoples.
As you are well aware, Canada is a top producer of oil and gas. As the world’s fourth-largest producer of oil and fifth-largest producer of gas, Canada’s oil and gas sector is an important and reliable source of energy for Canadians and for the world. Fossil fuels are vital to our daily lives, including as sources of heat and electricity in homes and workplaces and in industrial applications. They are also feedstocks needed to make the critical materials and value-added products that we rely on in modern life, such as fertilizers, asphalt and pharmaceuticals.
[Translation]
The sector brings significant benefit to Canadians across the country. In 2022, it was responsible for roughly 9% of Canada’s nominal gross domestic product (GDP). Between 2015 and 2019, federal, provincial and territorial governments received an average of $13 billion per year in revenues from the sector.
[English]
The sector also employs thousands of workers across the country, and particularly in rural and remote regions of British Columbia, Alberta, Saskatchewan and Newfoundland and Labrador. In 2022, the sector directly and indirectly employed over 400,000 Canadians. It is also the largest employer of Indigenous peoples in Canada, employing roughly 11,000 Indigenous peoples in the same year. But the sector is also the largest source of emissions in Canada. In 2021, it accounted for 28% of emissions.
Paired with its combustion in the transportation sector, oil and gas is responsible for over 50% of Canada’s overall emissions. It is imperative that the sector’s emissions are aggressively reduced not only for the health of the planet, but also for the continued competitiveness of the sector in a net-zero world where some demand for oil and gas is expected to continue.
The sector has long been an innovator and is already making progress in this direction. Major oil and gas companies have committed to achieving net zero by 2050 and are working towards aggressive interim targets. Absolute emissions across the sector have begun to stabilize, and the emissions intensity of production operations is on the decline. Companies have also made significant strides in reducing methane emissions and flaring.
This past fall, the Government of Canada released a Roadmap for the Decarbonization of Canada’s Oil and Gas Sector. It situates the recently published oil and gas emissions cap regulatory framework within a broader strategy that leverages various tools to support oil and gas sector decarbonization and competitiveness. This includes incentives such as investment tax credits, contracts for difference and programming, which can de‑risk investments in new and clean technologies.
Some of the best pathways to decarbonization will require significant investment in long-term infrastructure projects, such as electrification and carbon capture and storage, or CCS. Other pathways are lower cost and can be deployed more quickly with nearer-term results, such as solvents and energy efficiency changes.
The road map also includes carbon pricing and a broad suite of regulatory measures, which are critical to the sector’s decarbonization. They have been put in place by various levels of government and will ensure a predictable path to emissions reductions by 2030 and out to 2050.
[Translation]
Together, these actions are working towards the same objective of a future Canadian oil and gas sector that is resilient and achieves both environmental and economic success. The path to transition has already shown itself to be a collaborative journey. To be successful, it must continue to involve the actions of all levels of government, alongside industry, the financial sector, workers, indigenous communities and international partners.
[English]
I look forward to contributing to your study today and seeing the results of your work. Thank you.
[Translation]
The Chair: Does one of your colleagues have anything to add?
Go ahead, Mr. Moffet.
[English]
John Moffet, Assistant Deputy Minister, Environmental Protection Branch, Environment and Climate Change Canada: Good evening, senators.
As my colleague just explained, in December, the government published a road map describing the broad suite of policy measures that the government is putting in place or has put in place to support emission reductions in the oil and gas sector. These include funding measures, carbon pricing and two new regulations: amendments to the existing oil and gas methane regulations and a new oil and gas sector emissions cap. I will be happy to answer your questions about any of the department’s current and proposed measures, but I thought it might be useful to provide a few introductory remarks about these two new regulations given that they are both in development.
First, we are amending the existing oil and gas methane regulations. These were finalized in 2018 and were designed to reduce oil and gas methane emissions by 40% to 45% below 2012 levels by 2025. At the moment, these regulations do not apply in British Columbia, Alberta and Saskatchewan because of equivalency agreements which document that those provinces are implementing their own rules that achieve an equivalent outcome.
Evaluations conducted by Environment and Climate Change Canada in each province confirm that Canada is on track to achieve the targeted 40% to 45% reduction by next year.
In December, we published proposed amendments to those regulations. The amendments aim to reduce methane emissions from the sector by at least 75% below 2012 levels by 2030. We estimate they will contribute an incremental 17 megatonnes of emission reductions by 2030 and over 200 megatonnes from 2027 to 2040 at an average cost of $71 per tonne of carbon dioxide equivalent.
The second measure is one you have heard a lot about in your study, the oil and gas greenhouse gas, or GHG, emissions cap. The 2030 Emissions Reduction Plan committed to a cap and provided some guidance about its design. Since then, the government has engaged with provinces and territories, Indigenous peoples, industry and civil society on the cap. The minister also sought advice from the independent Net-Zero Advisory Body.
In July 2022, we published a discussion paper outlining two approaches. We received over 150 submissions and over 25,000 comments.
Last December, the government published a regulatory framework for an oil and gas sector greenhouse gas emissions cap, explaining that the government is developing a cap-and-trade system. Cap-and-trade is a proven market-based approach that has been used around the world to reduce emissions. It guarantees an emissions outcome while giving facilities flexibility by allowing them to trade allowances and to use a limited number of compliance flexibilities. Facilities that cut their emissions can then sell their allowances to other facilities that might need more time to make their own reductions. The value of allowances creates an incentive to invest in decarbonization without prescribing which and when technologies should be implemented.
Despite what you may have heard, the regulatory framework emphasizes that the proposed regulation will set a limit on emissions, not on production. By using better technology and improving efficiency, oil and gas producers will be able to maintain or even grow production while lowering their emissions.
My colleagues and I would be happy to answer your questions about these measures as well as our ongoing work to monitor, measure and report on emissions from the sector.
[Translation]
Mr. Moffet: Thank you.
The Chair: Thank you. Mr. Charlebois, did you want to add anything?
Jean-Denis Charlebois, Chief Economist, Canada Energy Regulator: Good evening. My name is Jean-Denis Charlebois, and I’m the Chief Economist at the Canada Energy Regulator.
Thank you for inviting the regulator to appear as part of the special study on climate change in the Canadian oil and gas industry.
As my colleague mentioned, I would like to point out that we are on the unceded ancestral and traditional territory of the Algonquin Anishinaabe Nation.
[English]
Today, I will focus on the Canada Energy Regulator’s energy information mandate and our report Canada’s Energy Future 2023: Energy Supply and Demand Projections to 2050. That report explores how possible energy futures might unfold for Canadians over the long-term, including two scenarios where Canada meets net-zero emissions by 2050.
I will also be happy to answer any questions you may have on Canada Energy Regulator, or CER, project reviews, a topic we discussed previously in December of 2022.
The CER’s Energy Information Program core responsibility flows out of our mandate and responsibilities described in the Canadian Energy Regulator Act. Our mandate also includes regulating pipelines, power lines and energy development and trade on behalf of Canadians in a way that protects the public and the environment while supporting efficient markets and advising on energy matters.
In conducting our energy market analysis, we consult with industry, various government and non-governmental organizations and academia in developing our publications. In our latest publication, Canada’s Energy Future 2023, we focus on the challenge of achieving net-zero emissions by 2050. Our scenarios cover all energy commodities and all Canadian provinces and territories. We use economic and energy models to conduct this analysis.
Our models and scenarios are based on the best available information and assumptions about future policies that may be set by federal and provincial governments. As a regulator, the CER does not set policies to achieve Canada’s net-zero goals. Rather, we implement policies to the extent they relate to our mandate.
In the report, global demand for oil and gas and resulting prices are the key drivers of our supply projections. In our scenarios, future demand and prices are linked to the pace and the stringency of climate policies, both domestically and abroad.
In a future where global demand for fossil fuels begins to fall due to increasing climate action and also grounded in the work of the International Energy Agency, we assume lower prices compared to scenarios where demand is higher. Energy prices are central to the investment decisions and production volumes projected by our models.
Our assumptions also included the information available as of March 2023 related to the oil and gas emissions cap and the methane regulations, among many other policies. Our projections also show how emerging technologies transform the entire Canadian energy system on the pathway to net zero.
Some examples include opportunities about construction of new energy infrastructure, such as wind, solar and nuclear power generation; construction of power lines; carbon capture and storage facilities; electrifying heating systems for homes and businesses; as well as improving energy efficiency.
[Translation]
The regulator provides its expertise and knowledge to help Canada’s energy system move towards a net-zero economy. Our focus is on innovation, security, competitiveness, and a safe, efficient energy transmission infrastructure.
I’d like to thank you for this opportunity to talk to you about the work of the Canada Energy Regulator. I’d be pleased to answer any questions you may have in either official language.
The Chair: Thank you. We’ll now go to questions.
Senator Miville-Dechêne: My question is for Mr. Moffet.
[English]
The new oil and gas emissions cap allows the industry to deploy CCS technology — which we know is heavily subsidized by the government — to reduce its emissions through capture and storage. On November 2, 2023, you appeared before this committee, and while stating that this was not the government’s official position, you summed up the criticism of CCS as follows:
I think the bigger issue that we hear about is that it’s a very costly way to continue to produce oil and gas, and, fundamentally, in order to address climate change, at some point the world needs to stop using oil and gas.
My question to you, Mr. Moffet, is this: Do you think that carbon capture and storage is a very costly way to continue to produce oil and gas, and that, fundamentally, in order to address climate change, at some point, the world needs to stop using oil and gas? It is an easy question.
Mr. Moffet: That’s an easy question. My views have not changed, and those are the views of the government. I think the costs associated with CCS are well understood.
As a signatory to the Paris Agreement and an active participant in the ongoing United Nations Framework Convention on Climate Change, or UNFCCC, negotiations, I think the government has made it clear that it is imperative for the globe to transition to a net-zero economy by the middle of the century, which requires us to find other sources of fuel. In the interim, however, as my colleague has emphasized, Canada and the rest of the world will need to make some use of oil and gas.
Maybe I will speak briefly about the oil and gas cap. The cap is not intended to address the use of oil and gas. We have other measures in place for that. It is intended to reduce the emissions associated with the ongoing production of oil and gas.
As to the CCS, the proposed design of the oil and gas cap is technology-neutral. We have done some estimates, in conjunction with our colleagues at Natural Resources Canada and supported by the Canada Energy Regulator, that look at the feasibility of reductions associated with various technologies, including CCS. We relied on those estimates to derive a proposed approach for the cap.
That said, the cap will not prescribe CCS if a facility chooses or is able to reduce its emissions using some other technology. Our regulation will be completely neutral as to the approach. Indeed, the only obligation will be to reduce emissions. As such, the incentive will be to find the lowest-cost approach possible.
[Translation]
Senator Miville-Dechêne: That said, you won’t address the aspect of which technology is chosen.
A look at the table on oil production by type and by scenario, produced by the Canada Energy Regulator, reveals that the figures are very telling. Canada’s projected production for 2050 is 1,190 million barrels per day. However, to achieve net-zero on a global scale, production will have to drop to 117 million barrels per day by 2050. I don’t see how you can go from the first number to the global target under these scenarios.
How are you going to do that? Oil production would have to be cut by 60% to 90% to achieve that figure.
The Chair: Who is the question for?
Senator Miville-Dechêne: Anyone who can answer it.
[English]
Mr. Moffet: Perhaps I can start, and we can discuss the numbers and the projections, but I think as the road map that the government published in December explained in detail and as the emissions reductions plan also explains, the overall approach to addressing emissions in Canada is a combination of reducing emissions associated with the production of commodities, such as oil and gas, cement, et cetera, and reducing emissions associated with the use of energy, primarily the production of electricity — so the transition to clean electricity — and emissions from the use of oil and gas in industrial processes, transportation and home heating.
We are deploying a combination of approaches to reduce production emissions and to reduce the demand for oil and gas in the first place. That’s the same approach that’s being used around the world, and that’s the same approach that Canada is encouraging other countries to pursue and providing technologies to other countries to deploy. I think that’s the only way we are going to achieve those long-term objectives you identified.
As to the numbers you cited, perhaps I can turn to Mr. Charlebois.
[Translation]
Senator Miville-Dechêne: It’s your table.
Mr. Charlebois: The numbers you are referring to show a significant decline in oil production in Canada. From the late 2020s to 2050, production will decrease from 6 million barrels per day to about 1.2 million barrels per day.
It is important to understand that these figures reflect the scenario from which they emerge. First, the global net-zero scenario reflects a price environment for oil that is fundamentally different from the current one. The price of oil today is around $85 a barrel. In 2050, the price of oil is assumed to be $24 per barrel. These prices reflect a change in demand for the product, not only in Canada, but worldwide.
For Canadian producers to be able to continue producing oil, they need to find more economical ways of doing so, including the costs associated with decarbonizing their operations. In a downward pricing environment, only the most competitive producers will be able to continue producing economically. In our scenario, this is the major reason why we see such a decline in production.
These figures reflect a shift in global supply and demand dynamics. They also reflect the costs of decarbonization and the costs faced by Canadian producers in a context where there is a price on carbon, a cap on emissions and a range of other policies that enable the emergence of new technologies, such as carbon capture.
This scenario therefore includes a set of factors that explain why we are seeing such a drop in oil production.
Senator Miville-Dechêne: Thank you very much.
[English]
Senator Arnot: My first question is directed at Mr. Charlebois primarily, but I want to hear from the other witnesses on these issues.
Sir, you have spoken about Canada’s Energy Future 2023, the document that was produced. There are two scenarios, one on global net zero and one on Canada net zero by 2050, and they’ve completed an economic analysis and prognosis for compliance to hit the target, I believe.
I look at a diminishing oil and gas supply and demand as an energy source. I want you to paint me a picture of what you see as energy sources. What are the new technologies that you are contemplating to replace oil and gas reliance? I’m looking at timelines. I’m doing it through the context of what the implications are for the agriculture sector in Western Canada — Saskatchewan, Manitoba and Alberta — and the dryland farmers, particularly with respect to the machinery they operate — tractors, combines, seeders, sprayers, rock pickers, truck transportation from farm to rail and rail to port.
My question is for all the panellists: What policy tools and programs should be available — and, in fact, would be required — for the agriculture sector to effectively make the transition that is required?
Mr. Charlebois: Thank you for the question, senator. Maybe I’ll start by complementing the answer I provided to your colleague a moment ago to explain clearly that compliance to hit the target — I think what you mentioned — relates to a hard constraint in our exercise that Canada had to meet net-zero emissions by 2050. This was something that had to happen as part of our analysis. That’s important to understand because that hard constraint drives a number of the results that we see.
In terms of the results specific to the transportation sector — or heavy machinery, which I think you are referring to — obviously, what we see is that to the extent that diesel is used extensively today, there is a portfolio of emerging fuels and technologies that will actually replace diesel. We see the electrification of transportation playing a major role as well as hydrogen, specifically as it relates to freight transportation or heavier machinery. We see hydrogen fulfilling about 30% of the energy demand in the transportation sector, which I think will enable farmers to continue to operate their machinery and conduct the business they have to conduct.
There is another aspect of our study that I will take the opportunity to mention. Another assumption we’ve made is that we have assumed that Canadians — including farmers, individuals and businesses — continue to receive the same energy services that they receive today but using different types of technologies or fuels. For example, we assume that Canadians will drive the same number of kilometres in the future as they do today except that they will use electricity to power their vehicles.
The other piece I will mention relates to the emergence of alternative fuels, which I think my colleague Ms. O’Brien can speak to in terms of renewable diesel. That will also play a key role, as well as other types of bioenergy, in the fuel mix to power different types of machinery.
Senator Arnot: I want to hear the policy side.
Ms. O’Brien: Thank you very much for the question and for the good set-up.
As my colleague indicated, I think the growth of clean fuels and biofuels represent a strong opportunity for the industry and for our country to decarbonize our energy mix overall.
As Mr. Charlebois mentioned, there are certain fuels — including renewable diesel, renewable natural gas and sustainable aviation fuels — that contribute far fewer emissions on a life-cycle basis. The benefit of some of these fuels is that they are drop-in fuels, which means you don’t need to make significant changes to engines or industrial processes. Going back to 2020, biofuel energy accounted for about 5% of Canada’s primary energy mix, and we see that growing significantly over the years to come.
Another benefit, senator, picking up on your interest in terms of support for agricultural and rural areas, again, these types of fuels present significant economic and employment opportunities for these areas as Canada is a rich source of biomass products that are required to produce these fuels. There will be continued economic development particularly in those areas as a result of building up our biofuel and clean fuel capacity.
As part of the clean fuels development, as I think your committee well knows, we expect that hydrogen will play an important role. Your committee has produced a very insightful report in terms of the future role of hydrogen. The Canadian government released the Hydrogen Strategy back in 2020, I believe. In fact, we’re currently working on a progress report that will demonstrate the progress we have made over the past three years, the opportunities that remain ahead and we look forward to publishing that in the near future.
Senator Arnot: Mr. Moffet and Mr. Hermanutz, do you have comments on policies, programs or incentives for the agriculture sector to make these transitions?
Mr. Moffet: If I might, just two brief points for your consideration.
One is that in addition to changing fuels, agriculture is also a source of emissions, what are known as enteric emissions from cows and from animal digestion. We can reduce those emissions by changing the food. We don’t need to change fuel. Fuel is an important part of the picture, but it’s not the only picture.
The second point is a broader one. I think we need to be candid here and echo comments made by the International Energy Agency and others, namely, that the government knows about some clean fuels that need to be supported and adopted. However, it’s clear that for the globe to achieve net zero by 2050, we will need new technologies that have not yet been developed. We need to both increase the use of existing clean technologies and we need to continue to invest in research and development to introduce technologies that are not yet in use.
Derek Hermanutz, Director General, Economic Analysis Directorate, Strategic Policy Branch, Environment and Climate Change Canada: I don’t have anything to add. I think it was well covered by my colleagues. Thank you.
Senator Wells: Thank you to the panel for appearing. I have a couple of questions.
Ms. O’Brien, you mentioned that the oil and gas sector contributes 28% of Canada’s emissions. Can you separate that number — the 28 percentage points — between the oil and gas production in the West, exclusively Saskatchewan and Alberta, and the east, which is Newfoundland’s offshore?
Ms. O’Brien: I do have some statistics. They might not be as granular as you were hoping. I can see my colleague Mr. Hermanutz, who is quickly looking at tables.
To start with, it can be difficult to assess emissions on a regional basis and instead looking at emissions by product type or subsector. In terms of the largest source — as I mentioned, the 28% — within that, the largest source of those emissions is from the oil sands. Looking at the statistics I have, absolute emissions have risen from 168 megatonnes of carbon dioxide equivalent in 2005 to 189 megatonnes in 2021. However, much of that was a result of increased production over that time period.
From 2012 to 2021, in the conventional sector — this would be conventional onshore — natural gas and oil producers have actually lowered their Scope 1 carbon dioxide emissions by 24% while growing total production by 21%.
Across all sectors, emissions intensity has been decreasing, I think due to reasons that we have raised in terms of fuel efficiency, fuel switching and deployment of clean technology. Across the sector, emissions intensity, including oil sands and conventional, have decreased.
In terms of the offshore that you have indicated, it is one of the least emissions-intensive subsectors in the oil and gas industry. If you give me a minute, I can find some of those statistics.
Senator Wells: Thank you for that. Mostly I wanted to get to the point of the emissions in offshore — primarily flaring, which is a safety procedure. The emissions in the oil sands are primarily in the separation of the oil from the sand. Is that correct?
Ms. O’Brien: I believe so.
Senator Wells: If you could provide for me or if Mr. Hermanutz says they have the number off of that split in the 28 percentage points between the offshore and land-based production, that would be helpful.
I think my second question may be for Mr. Charlebois. What are some of the measures that the government is employing to reduce production in the oil and gas sector? I think you had mentioned that in either your opening remarks or in one of the responses to another senator.
Mr. Charlebois: My colleagues will be able to speak more clearly about the government’s intention. In the context of the energy modelling that we have conducted, we have mostly modelled policies that are either implemented or announced but not yet implemented. We found that those policies were not sufficient in and of themselves to bring Canada to net-zero emissions in 2050.
On top of those two buckets, we also had to include a modelling technique wherein we refer to the aggregate cost of carbon to force the system to net-zero emissions by 2050.
This whole exercise was really about pricing carbon, assuming emerging technologies that would be clean in order to replace hydrocarbons either at the end-use demand side of things or, for example, in the power generation sector. In all of this analysis, we never assumed or contemplated the desire — real or perceived — to reduce or to stop producing oil and gas specifically.
Senator Sorensen: Thank you. I’m not sure who wants to answer my question, so I’ll just throw it out there and whoever feels they can do so.
This past January, due to pressure on the electric grid caused by extreme cold — minus 40 to minus 50 for a few days — Alberta had to issue an emergency power grid alert. Factors that contributed were low wind power, reduced gas generation and outages and issues with importing energy from B.C. There are many people — a lot of EV owners — who are arguing that this underlines just how difficult the energy transition is going to be in the Prairie provinces, and they are concerned that transition is happening too quickly.
I guess my question is: In a scenario like that, which is not uncommon in many parts of Canada, what is being done to specifically address and adapt to situations like this as Canada looks to transition away from oil and gas? Anybody?
Mr. Moffet: I can start. Maybe I’ll address the elephant in the room, which is that clean electricity regulation — which is the proposed regulation that the government introduced and published last year and which is intended to complement funding measures and decisions by provincial electricity providers to ensure that, as the grid is renewed and expands to respond to increased demand for electrification, those changes occur in the direction of clean electricity.
Of course, we’ve heard many of the same concerns that you just articulated that while, in principle, a transition to clean electricity is essential, it’s going to be the foundation for a net‑zero economy as we start to drive electric cars and heat our homes and buildings with electricity. As industry transitions away from natural gas to electricity, we will need more electricity and we will need that electricity to be clean. We also need to enable provinces to continue to discharge their authority in order to manage electricity in a way that continues to provide affordable and reliable electricity to homeowners and businesses.
So that’s a little preface. In response to what we are doing, I would mention two broad things. One is that we are looking at whether there is a need for increased flexibility in the clean electricity provisions. I don’t think I’ll get in any hot water if I say stand by within the next few days — you will learn about the direction that we are going in on those regulations.
But then, as the government explained last year and will continue to explain, the government is also providing extensive support to provinces and to electricity providers to enable them to make the transition. That’s not just a question of let’s invest in solar or wind; it’s a question of investing in smart grids, batteries and switching technologies, et cetera. The government has put in place a suite of measures to enable provinces to invest in those technologies so that they can respond to the increased demand in a way that improves reliability.
Finally, if I might say, some of the responsibility is on the provinces to look hard at the rules that they have in place for managing electricity and determining whether those are the right rules, not just for the transition to clean electricity but for responding to what is inevitably going to be an increase in the kind of situation that you just described as a result of climate change.
Senator Sorensen: You gave a great segue to my second question.
Mr. Moffet: We didn’t plan this.
Senator Sorensen: No. I think this is also directed to you, but anybody can jump in.
Alberta is on the path to becoming a leader in Canada’s renewable energy sector, and this past September, the Government of Canada made a funding announcement investing in 12 Alberta-based clean energy projects involving Indigenous communities. I think it’s a great example of the type of federal support that is urgently needed in areas most affected by the transition away from oil and gas.
I don’t know how much you could elaborate, but I’m interested in that. I don’t know if there is any area you can expand on some of the projects or give any sort of an update on any of those 12 Alberta-based projects that might be coming to fruition.
Mr. Moffet: I apologize, I can’t. I don’t have the details that I expected. We may need to follow up.
Senator Sorensen: Yes. I just think it’s a good news story, and I appreciate that. I think that’s exactly what you were speaking to, trying to enable the provinces to move forward. If you can get a response, that’s great, but I can also watch the news.
Mr. Moffet: We can provide the committee with more details. I would just say that you kind of slipped in another extremely important point, which is that not all the solutions here are going to involve Indigenous people, but there is an opportunity to include Indigenous partners in a lot of the next steps.
Senator Sorensen: Right.
[Translation]
Senator Galvez: Thank you very much to our witnesses.
[English]
My first question is to Ms. O’Brien, and then I will have a question for Mr. Charlebois.
The mandate letter of the Minister of Natural Resources says:
The science is clear. Canadians have been clear. We must not only continue taking real climate action, we must also move faster and go further. . . . I expect you to seek opportunities within your portfolio to support our whole-of-government effort to reduce emissions . . . .
That’s very nice and that’s great, but a recent report published in Science says that in Canada, oil sands pollution is up to 6,300% higher than reported. This study was conducted by people from Yale University and Environment Canada.
At the same time, the Copernicus programme with the European Space Agency reported that Canada produced 23% of the global wildfire carbon emissions for 2023. You have opened submissions in response to the oil and gas emission gaps. We have submitted that the timeline in the regulations are not ambitious enough in that the target is not ambitious enough and there are loopholes.
Considering the gross underestimation of all these extra emissions, how do you expect that we will attain our goals? Remember that Canada is the only G7 country that has not attained any of its emission reduction targets. This is for Ms. O’Brien.
Mr. Moffet: You ask some important questions that we should answer. First, I want to provide a correction about the study that you cited. The study was recently published in Science which was jointly conducted by researchers in our department and at Yale, among others.
The study is about releases of organic carbon, not greenhouse gases. So it’s an air pollutant. It’s a significant underreporting issue. It’s a significant air pollutant, a precursor for smog and other important air pollution issues. There is a measurement issue. There is a significant underreporting issue. This points to an underreporting associated with what was previously not a well-understood source of air pollutants.
That said, there is also an increasingly well-understood disparity in the reporting of emissions of methane, in particular —
Senator Galvez: Exactly. Yes.
Mr. Moffet: — from the oil sands and other sources. This information is now coming from satellite surveys and aerial surveys. The technology is continually becoming better to detect these emissions.
Senator Galvez: If we are underestimating all of that and we know that both the caps and the targets are not ambitious enough, how are we being coherent?
Mr. Moffet: This comes back to a point that I made earlier about technology. We need better technology. We need to support better technology so that individual sources can cost effectively measure their own emissions accurately. When we regulate or when we provide incentives via programs, we are deliberately including strict reporting requirements. The goal there is to hold emitters accountable for the best reporting requirements that we are able to articulate at the moment, recognizing that those will improve over time.
Ms. O’Brien: Yes, I think that is comprehensive. We certainly support it.
In terms of needing more aggressive reductions of emissions, I think Mr. Moffet is right in that it’s a careful and complicated balance of what is feasible today. In a panel, we suggested some actions that the government is taking in terms of regulation and programs and also what industry is putting in place. We talked about fuel switching and other things. That will have to continue.
The comments that Senator Sorensen made about Alberta underscore the complexity of the energy transition and needing to ensure that we are moving forward in a balanced way to ensure that we can maintain the resiliency of our energy system and continue to promote energy security and affordability.
I think there is a commitment across government, industry and other stakeholders to drive to the target. There will always be people who say we are not moving far enough fast enough, but I think we’re doing what we can with the tools and the technology that is available.
Senator Galvez: Mr. Charlebois, we have these integrated assessment models. On the one hand, we have climate models that are trying to predict the warming of the planet. On the other hand, we have the economic model that is trying to predict the different scenarios for this transition to a low-carbon economy.
The more I read about it, the more it’s evident that they are working in silos and that there is a lot of incertitude in both the climate and the temperature, but even more in the economic predictions. In general, it looks like the action costs are overestimated while the benefits of the actions are underestimated.
You talked about your models. Models are only as good as the data, the assumption and the hypotheses that it makes. I have a list of factors that I would like to ask if you include in your model. First, earth system interactions. Does your model include the planetary limits, the earth system interaction? Yes or no?
Mr. Charlebois: Our models don’t do that, no.
Senator Galvez: Good. I knew that. Acute physical risk?
Mr. Charlebois: Our models don’t do that.
Senator Galvez: Market failures?
Mr. Charlebois: No. At some point, maybe I can explain what the models actually do, but we can keep going with the list.
Senator Galvez: Financial volatility?
Mr. Charlebois: To some extent.
Senator Galvez: Geopolitical shocks?
Mr. Charlebois: Not in our Energy Future 2023 report.
Senator Galvez: Stranded assets?
Mr. Charlebois: To some extent.
Senator Galvez: I have 20. You just said no to one of them, and you said partially to another. How can we trust the models and the things that you are telling us? Again, I repeat that when we talk about action, everybody is like, “Oh, we cannot afford this or that.” But inaction is unaffordable, and the benefits of the transition are underestimated. What is your answer to that?
Mr. Charlebois: These are good and fundamental questions. I have to acknowledge that energy modelling is an imperfect science. I admit this without any issue.
We also need to make choices along the way when we set ourselves to model net zero for Canada within a specific period of time, to execute the work with the resources that we have at our disposal.
The changing climate is one aspect that we purposely chose to scope out of our study. We also chose to scope out, for example, the governance needed to achieve net zero in order to allow all of the decisions to happen to reach that goal. Those are specific choices that we make because of the constraints we have.
I would also argue that when focusing on the technology and the economic aspects of the transition, we at least offer a piece of information to decision makers — whether policy-makers, business professionals or you senators — to understand potential pathways to net zero. I know that you’ve heard from other energy experts, just like policy-makers hear from a myriad of energy experts as well. With this mosaic of information, decision makers can then make as informed a decision as possible.
Senator Galvez: Would you agree that without the influence and the catalyzing role of the financial sector, we will not move into this transition?
By the way, I am an engineer and I was teaching my students 30 years ago that we are in a transition. This is not a transition. At this point, we have to call it what it is. We are not moving. Would you agree that without the participation of the financial sector, we are not going to move?
My other statement is: Would you agree that for Canada to reach net zero by 2050, the first sector that needs to reach net zero is the financial sector? Otherwise, the other ones will not attain net zero.
Mr. Charlebois: I cannot comment on the role of the financial sector specifically. This is not something we had scoped in our study. Again, purposefully, because of the choices we had to make. One thing is for sure, the manner in which capital is allocated is a fundamental piece of the puzzle along the transition. I think the financial sector is already looking into this in terms of how risk is being priced and assessed. Beyond that, I cannot help you further. I’m sorry.
Senator Galvez: Thank you.
[Translation]
Senator Verner: I’d like to thank the four of you for being here this evening.
I’ll start by telling you about the Commissioner of the Environment and Sustainable Development, who submitted five reports last November, including one assessing the greenhouse gas — or GHG — reduction strategy, to meet the first target set for 2030 under the federal government’s 2030 emissions reduction plan to achieve net-zero emissions. Overall, the commissioner concluded in his 56-page report that the government is not on track to meet the 2030 target under this strategy to reduce emissions by 40% below 2005 levels.
According to a December 2022 report, Environment and Climate Change Canada instead indicated a 34% reduction. There is a 6% difference between the two targets.
Could you confirm that the 34% figure is likely to be the right number to use for the next six years?
[English]
Mr. Moffet: Senator, I will start and then I will turn to my colleague, who is responsible for our modelling in those projections.
It is accurate to say that the projection included in the emissions reduction plan that the commissioner cited concluded that the existing measures would likely achieve about a 34% reduction, but the report went further than that. Our report went further than that because there are other measures that are being put in place that we were unable to model because they had not been finalized. Some of them have still not been finalized, like the clean electricity regulations, for example, which will contribute additional reductions. Similarly, there are actions by the investment sector that we can’t pretend to model. We can do some modelling about some decision making.
The 2030 Emission Reduction Plan signalled that we’re confident that existing measures will get this far, but it also said that we are confident that other measures and other actions by society will take us further whereas the commissioner focused only on the 34%.
Mr. Hermanutz: I can add to that. The 34% that the commissioner was referring to was from our biannual report that was submitted in December 2022. In December, we published updated projections as part of the 2030 Emissions Reduction Plan progress report. There was a separate publication with updated projections that now show that number as 36%.
For context, I would add that Canada is well on track to exceed the previous target of 30%. It is also on track to meet our 2026 interim objective of being 20% below 2005 levels. Our biannual report submission to the UNFCCC in 2015 said that emissions would be 9% above 2005 levels. That was our best forecast at the time. We are now at 36% below. That’s a change from 815 megatonnes to 467 megatonnes. Those are the numbers from the projections.
[Translation]
Senator Verner: You understand that Canadians, who are being asked to make many sacrifices because of climate change, believe in this. The Commissioner of the Environment and Sustainable Development raises questions about your modelling, calling it overly optimistic in its assumptions, limited in its analysis of uncertainties, and lacking in scrutiny by other researchers.
For Canadians, you understand, they believe in it, they want to believe in it, and they want to make sure that we are all heading in the same direction. This is not the first time. When we did our report on hydrogen, there were also questions raised about how you calculate your figures, so to speak, so that Canadians understand what we’re talking about.
To gain and maintain Canadians’ confidence in the direction we’re heading, wouldn’t it be better to clarify your figures so that they are closer to those of the other expert in the field, the Commissioner of the Environment and Sustainable Development?
[English]
Mr. Hermanutz: The commissioner doesn’t do modelling, forecasting or projections. He comments on them, but they are not modellers; they don’t use models. I would say our projections, which we update on an annual basis, are submitted every second year to UNFCCC and follow their reporting guidelines, which allows us to publish a reference case of policies that already exist in place and are funded, et cetera, and an additional measures case, which is at 36%.
I would also say that for the 2030 Emissions Reduction Plan and for the recent progress report, the Canadian Climate Institute has done their own independent modelling and they have recently come up with a range of 34% to 36% using definitions comparable to ours. We think that shows that our projections are credible and transparent.
[Translation]
The Chair: If I may ask a couple of questions, I would like to go back a little bit. Since your arrival, you have seen a decrease in CO2 between 36 and 40. What are the exact figures you’re projecting?
[English]
Mr. Hermanutz: Our latest projections are for 36% below 2005 emissions levels.
[Translation]
The Chair: If I understand correctly, Mr. Charlebois, there is even a prediction that the demand for oil will drop considerably and that the price could fall as low as $18 a gallon, if I understand correctly?
Mr. Charlebois: The assumption is $24 in 2050.
The Chair: Why would there be a drop in demand? Because of a major change in automobiles?
Mr. Charlebois: Transportation fuel is one example, but it is mainly the result of policies, both in Canada and globally, where policies are put in place to reduce greenhouse gas emissions. To the extent that hydrocarbons are greenhouse gas emitters, this changes the supply and demand dynamics of those products.
The Chair: We have to admit, and I can confirm this, that we are all somewhat pessimistic. I would very much like it to be the other way around, but we have seen so many cases where, every time projections are made by us and by other experts, we’re wrong. Today, we’re looking for a more positive picture, because we can’t be discouraged all the time, you know.
Mr. Charlebois: I will answer your question. I completely agree. What’s important to note at this point is the distinction between the modelling exercise that the Canada Energy Regulator conducted in the context of net-zero emissions that I’m talking about tonight, and the modelling exercise that my colleague Mr. Hermanutz is doing in a public policy development context.
In the context of our exercise, as I just mentioned, there was a major constraint to respect, namely, achieving net-zero emissions in Canada by 2050. We established parameters and assumptions precisely to see how the energy system would evolve to meet this objective.
Obviously, assumptions had to be made. Some people will think that these assumptions are optimistic. My answer is that they’re there and information from the International Energy Agency, for example, has been used for the global context. For example, if the price reduction assumptions I mentioned do not prove to be directional, that would mean that it becomes more difficult from the perspective of oil and gas production to reduce that production. Price levels will then be higher than expected, and this will encourage producers to produce more.
The Chair: Let’s take a quick look at the estimated scenario 15 years from now. Mr. Moffet said that competition will eventually have to be established, and that it’s marginal cost that’s important. Which oil-producing country can produce oil at a lower cost? I hope I’m wrong, but we’ll be competing with Saudi Arabia, where the cost of oil is perhaps 5 or 10 cents a litre. That’s a much lower price than today’s prices, but your assumption is that demand will fall so much that the price will fall accordingly.
I hope that’s the case, but isn’t it a bit optimistic to think that we’re going to become their supplier when in turn we’re going to rely on a reduction in emissions? There seems to be a conflict in terms of understanding or reliable results.
Mr. Charlebois: I’d like to mention two things. We recognize that our pricing assumptions are a major uncertainty in our analysis. I fully agree with that. Only the market dynamics over time will tell us what the real prices will be, and that’s something we can’t control.
The Chair: Because of our costs, especially considering carbon capture, this increases our costs significantly. Could this make us uncompetitive?
Mr. Charlebois: For Canadian producers, decarbonization costs increase their cost structure. As I mentioned, that’s partly why only the most efficient producers will be able to continue producing in a world where oil prices are in a downtrend.
Senator Miville-Dechêne: Mr. Charlebois, you say in your projections that demand is falling dramatically, mainly because of the policies adopted to reduce emissions. In other words, it isn’t the market that’s getting us here; it’s political intervention. However, when political measures are proposed, the industry and economic lobbies tell us that it’s pointless, because the market will determine everything.
Who’s right? Those who say that the market alone will make the transition, or those who say that we will make the transition only if governments intervene forcefully?
Mr. Charlebois: It’s a bit of both, because it’s public policy that sets the parameters within which the market operates. It’s a bit of a chicken-or-egg dilemma, but ultimately, it’s really the two factors that determine things. If public policies don’t constrain carbon, I think it’s reasonable to assume that the market will continue to evolve in the direction we are seeing now, that it will be subject to what investors want in terms of environmental, societal and governance performance.
Once the policy framework is in place, it’s entirely a market dynamic that prevails, namely one in which producers are the most efficient and in which producers can stand out and offer the right product. Whether it’s in the oil sector or the electric vehicle sector, it’s market policy that prevails once the policy framework is in place.
Senator Miville-Dechêne: It seems to me that there is a fundamental contradiction between what Mr. Moffet said and what you said.
In your answer to my first question, Mr. Moffet, you said that the industry has the choice of maintaining or increasing production, as long as there is carbon capture to reduce GHG emissions. On the one hand, you say that it is the free market when it comes to increasing production, and on the other, you, in your modelling, which you admit is imperfect, say that it takes a very significant drop in production and prices to achieve this net-zero objective.
Am I mistaken or is this not a contradiction? Wouldn’t the objective eventually be to produce less oil?
[English]
Mr. Moffet: The short answer is yes, but the longer answer is that my response about companies being afraid to use whatever technology they want to reduce emissions was focused on one measure, which was the oil and gas emissions cap. The government has put in place a suite of measures with the goal of changing the rules of the marketplace so that production emissions go down, on the one hand, but also so that demand goes down.
So we have put in place measures to require a transition to zero-emission vehicles and we put in place measures to enable people to purchase zero-emission vehicles. We are supporting provinces and municipalities in developing and revising their building codes so that new buildings will use less energy. We’re —
Senator Miville-Dechêne: Those are all indirect measures. You are taking measures around it to reduce the demand.
Mr. Moffet: Exactly. We have a suite of measures to reduce demand for oil and gas and to increase demand for clean energy.
Senator Miville-Dechêne: But now, at the same time, the oil production is going up.
Mr. Moffet: As my colleague explained, projections are highly uncertain, but there is increasing convergence on the likelihood that global demand for oil and gas will peak and start to decline at some point in the next decade. Why? Because multiple countries, not just Canada, are putting in place measures to reduce demand for oil and gas. We will need to continue to ensure that we implement those measures here and we will need to continue to ensure that we apply pressure and support other countries to put in place similar measures to reduce demand for oil and gas, so that the globe transitions.
[Translation]
Senator Miville-Dechêne: When you say that, doesn’t it mean that you’re relying a little too much on the context of other countries rather than on our willingness to be tougher in our own transition? You say that eventually, as everyone changes, our oil will be less in demand, but can’t we act a little more directly?
[English]
Mr. Moffet: The government has an important policy decision to make. It has made a clear overall policy determination to put in place a suite of significant measures to reduce demand in Canada — arguably, more aggressively than most other countries in the world — so that our own demand for oil and gas will likely decline at a faster rate than the global demand for oil and gas will decline.
That leads to the question that you pose about what Canada should do with respect to the continued production of Canadian oil and gas to respond to global demand. That’s an important policy question. I’m going to turn that question back to you. I think that’s a question that this committee is wrestling with.
Senator Miville-Dechêne: Thank you.
Senator Wells: Canada’s percentage of global emissions is at about 1.5%, and that’s down from 1.6% recently. I don’t know if that’s because the globe has changed or we have changed.
This question is for Mr. Moffet or perhaps Mr. Charlebois. I’m not sure who can best answer or who is equipped with the information.
If all the measures we are putting in — reducing investment, production and emissions — all those measures that are designed to cut oil and gas production and use in Canada, if all those are done — and done successfully — and the world continues as it is, what would you expect our percentage of global emissions to be? We’re currently at 1.5%, one of the largest producers of oil and gas in the world and the largest land mass in the world.
Mr. Moffet: That’s a hypothetical question, the answer to which depends on the second part of the question and that is what do other countries do to address their emissions? But I think this government’s premise is that we are an important part of the problem. We need to be part of the solution. So our 1.5% is an important contribution. Second, we have no moral authority to tell anybody else to reduce their emissions if we don’t get our own house in order.
Senator Wells: My next question is this: What is this costing Canadians? This project to reduce use and production, all the measures that have been mentioned over the last hour and a half, what is this costing Canadians?
Ms. O’Brien: It’s difficult to provide a precise number across the various initiatives that we’ve indicated. The Royal Bank of Canada, or RBC, recently put out an interesting study that costs the overall energy transition. If I am not mistaken, I think they have put a price tag of about $4 trillion on the cost. However, that is a broader estimate in terms of the energy transition, and not just the oil and gas sector.
Senator Wells: That’s a Canadian number?
Mr. Moffet: It is a recent study that the RBC put out. However, I would emphasize —
Senator Wells: Is that a Canadian number?
Mr. Moffet: Yes. It’s RBC.
Senator Wells: So $4 trillion, and we are at 1.5% of global emissions?
Mr. Moffet: But they also emphasized that it is inappropriate to compare that to a baseline of not taking action. The baseline of not taking action, to Senator Galvez’s point, is more costly than that. That’s what they said.
Senator Wells: Thank you for your answer.
Senator Galvez: I want to expand on what we were discussing about policy versus market. It is very interesting because renewable energy is following a learning curve and is in a freefall. A kilowatt hour produced by renewable energy is becoming very cheap. It is the safest. The number of accidents in the renewable energy field is low compared to oil and gas or electricity production. At the same time, it is the cleanest. However, we keep producing with oil and gas and coal.
This morning at the National Finance Committee, I was discussing the fact that Norman Wells in the Northwest Territories produces gas that is sent to Alberta to produce oil while we are sending diesel to northern communities. It is completely incoherent.
However, the oil and gas sector is subjected to geopolitical issues and it depends on the type. As my colleague Senator Wells is saying, oil is not made the same. Some are cleaner, like in Saudi Arabia, and others are much more complicated. In Canada, we export all our petroleum to the United States because we don’t refine it here. We send it to Mississippi, to the United States and they send it back to us at a much higher cost so we can put it in our cars.
The elephant in the room is how this is possible. This is possible because we give a lot of subsidies to oil and gas. Maybe you have the updated numbers, but it is between $8 billion and $12 billion per year.
This idea about the free market and the market reacting and fixing everything, it’s impossible because we are making a distortion in the market. Will the government at some point say, “We have to reduce subsidies in order to make the market more realistic, more real and less dependent on all these external factors”?
My question is for Mr. Charlebois because you are the energy guy, no?
Mr. Charlebois: I may be the energy guy, but I’m not the subsidy guy or the policy guy. Maybe I will pass it over to my colleague who can speak to the matter.
Senator Galvez: Did you include subsidies in your model?
Mr. Charlebois: What we have included are the investment tax credits that were announced as of March 2023 as part of our analysis and a way to support the different types of technologies that benefit from investment tax credits.
Senator Galvez: I think it dates from 2005 when we said that we would look into the subsidies. We are in 2024, and we are fighting with inefficient, efficient, less efficient — but we are not reducing anything. We are increasing the subsidies because we are giving loans and guaranteeing loans.
The Chair: Let’s be accurate. The only subsidy you have today is the investment tax credit?
Mr. Charlebois: This is what we have used in our model.
The Chair: But that’s not what you’re applying?
Mr. Charlebois: Yes, this is what we have done.
The Chair: It’s occurring, so that’s the projection.
Senator Batters: Thank you very much. First of all, to follow up on the last questions that were raised by Senator Wells, there is a very large amount of money being spent on all of these initiatives. The figure of $4 trillion now seems to be a number that has been thrown out, and with that, 1.5% of Canada’s percentage of global emissions, but you can’t tell us how much, if at all, Canada’s 1.5% will decrease with all of that money being spent.
Don’t you do forecasting to provide advice to your ministers and that type of thing about, “Okay, when we spend this much money, this is the forecast amount for this year out and this year out”? Don’t you do that type of forecasting?
Mr. Moffet: A couple of points, senator. The $4 trillion was a reference to a study that we haven’t done. In my read of that study, that was an economy-wide cost over the next 30 years, so not an expenditure of the government today. Nonetheless —
Senator Batters: Regardless.
Mr. Moffet: But there are costs in the short-term to decarbonizing the economy. I think we have been through this a few times in this meeting. We have provided projections that we continue to update about the emission reductions expected from the various measures. As my colleague explained, Canada has gone from a situation in 2015 where we had projected an increase in emissions by 2030 relative to our 2005 levels to now at least a 36% reduction below those figures as a result of the measures that we’ve put in place.
Senator Batters: By 2030, but what about currently? We are still going up, right? That’s the last information we received within the last few years, that we’re still increasing — we’re not decreasing yet.
Mr. Moffet: My colleague can speak in more detail to the actual trend, but in general, the trend in Canada is flattening —
Senator Batters: Flattening, but not flat.
Mr. Moffet: — and we are now projecting that it will decline. Importantly, it’s flattening at the same time that GDP has dramatically increased since 2005. So economic activity and economic production have gone up while emissions are now peaking and about to decline.
Senator Batters: Okay. There is another issue that I wanted to ask you about. I just happened to see your Minister Guilbeault was at a transit conference this week in Montreal, and he had some pretty surprising things to say about some major infrastructure issues, especially in light of the amount of money the government has recently been spending on electric vehicle plants, battery plants and that sort of thing. Minister Guilbeault said:
Our government has made the decision to stop investing in new road infrastructure. Of course we will continue to be there for cities, provinces and territories to maintain the existing network, but there will be no more envelopes from the federal government to enlarge the road network. . . .
This is, of course, with an increasing population. He also said:
. . . over-estimating the ability of electricity-powered transportation to solve climate change and other environmental crises would be “an error, a false utopia that will let us down over the long term”.
We must stop thinking that electric cars will solve all our problems. . . .
What do you have to say about that given that we have seen many multi-billion dollar announcements with very substantial electric vehicle plants, battery plants and that sort of thing? It’s been something the government has put a lot of focus on, and now we have the minister saying that’s not something that will be a major part of their plans, seemingly.
Mr. Moffet: I think what the minister said is that electric vehicles on their own will not transition us to net zero. The move to electric vehicles is going to be an important part of an overall transition of the economy to clean fuels, but I think his point is that, as individuals, we can’t all go and buy an electric car and think we have solved the climate problem; we need to do many other things in addition to transitioning the way we move around.
Senator Batters: You don’t think that we’re going to need additional road networks in Canada and additional investment from the federal government given the amount of population increase and that sort of thing? People will still be driving whether it’s regular cars or electric cars or what have you. I mean, we’re not going to eliminate cars.
Mr. Moffet: Senator, I think you’ve got the wrong panel to respond to a question like that. We’re not responsible for —
Senator Batters: The environment?
Mr. Moffet: Well, you asked me about investment in roads.
Senator Batters: It was the Minister of Environment.
The Chair: It’s unusual. Can I ask you a couple of questions point-blank?
In a couple of rulings by the Supreme Court of Canada, we were told that we have overstretched relative to our old bill, Bill C-69. In your mind, does that affect the way you operate? Does that affect your operation, the economy and carbon dioxide emissions? Is that important?
Mr. Moffet: You’re referring to the reference that went to the Supreme Court?
The Chair: The Impact Assessment Act.
Mr. Moffet: It went to the Supreme Court of Canada, about the Impact Assessment Act. That reference effectively said two things about the Impact Assessment Act, which really need to be read in two parts.
One part sets out the rules for assessing new, large projects that are either conducted by the federal government or conducted on federal lands. The court said there was no problem with those rules. However, it also said that the part of the act that applies a federal oversight role for large projects on federal lands has some constitutional problems in the sense that the act gives the minister a broad range of discretion to address a wide range of issues, not all of which the court agreed are within federal jurisdiction.
The government’s response to that has been to accept the decision and to make a commitment to revise the act so that the scope of federal assessments going forward will be narrower and within the range of effects that the court has confirmed are within federal jurisdiction. You will see the result of that act shortly. You will see a new bill shortly. Of course, that will change, to a certain extent, the kind of projects that the federal government reviews.
I would say that impact assessment of large projects is a tiny, if negligible, part of the government’s overall decarbonization agenda, which relies much more heavily on carbon pricing, regulation of discrete emissions from various sources and a wide range of financial measures, investment tax credits, programs, et cetera.
The Chair: The other question I have for you is on carbon capture and storage. It looks like the government’s vision is that this is an important step for that economy at least to keep on producing, but we’ve reduced carbon dioxide. You made a reference wherein the cap is such that we’re capping emissions; we’re not capping the amount of production. I presume that’s accurate, right?
Mr. Moffet: That’s an accurate description of the proposed approach to the emissions cap for the oil and gas sector.
The Chair: What do you do with the carbon capture and storage? Is that an important part of your strategy? I think you’re proceeding here with it, but it’s a very significant project, probably close to $20 billion. It looks like it’s the federal government’s position to help out and pay for part of that cost.
How do they maximize that issue whereby it’s win-win for both parties but not ridiculous relative to its subsidy or investment tax credit? If it doesn’t work — because it hasn’t worked well so far. If it doesn’t get us there, we have to shut the tap as soon as we can. So you have to develop a strategy that the company is at risk and they are onside, and if they do well, good, we all do well. Where are we are at with that structure, that negotiation?
Mr. Moffet: Senator, I think you’re referring to the proposal that the so-called Pathways group has put forward to the federal government. Pathways is a consortium of the major oil sands producers. Yes, they have made a proposal to the federal government requesting various types of measures, including financial support for CCS and other decarbonization activities.
The government, at the moment, has made no commitment to provide everything the Pathways group has asked for. What the government has done is made a commitment to engage in negotiations. Those negotiations are under way and have not concluded. At this point, I can’t tell you what the final deal will be, the elements or the specific commitments that the federal government might make if a deal is arrived at.
The Chair: When you read the press, it looks like Alberta is prepared to pay maybe a third of that total cost. I think you’re looking for the federal government to pay maybe half of the total cost, and the companies would pay a proportion. Is that what we’re looking at? Is that how much money we’re talking about?
Mr. Moffet: Again, this is a negotiation. I think what you’re reporting is the company’s starting point, which may not be where we end up.
The Chair: You mentioned earlier that we’re going to reach the targets we envisaged. Is that assuming that you’re buying credits offshore from California or something? Or is that just going to be investment tax credit money?
Mr. Moffet: Our comments earlier about the likelihood of achieving our 2030 nationally determined target does not include any projected government acquisition of credits from other countries.
The Chair: Thank you.
Senator Galvez: Canada is particularly impacted by the planet warming. As we know, Canada is warming two or three times faster than the average of the planet. The Arctic is warming up five to seven times faster. The changes are happening very quickly.
That revision of science is it telling us that now we can, with certain precision, say that these industries in these areas cause these specific extreme weather events. Notably, I read one study concerning the atmospheric river that fell into the Fraser River Valley a couple of years ago.
In your predictions, how long do we have before — we are already having extreme weather events every year. It is a certainty that we will have similar events in 2024. How long do you think we have to develop because the three of you have said that we need new technology. So how long do we have to develop these new technologies?
Mr. Moffet: I don’t think any of us are well qualified to give you an answer to that.
Senator Galvez: Is it a year, three years, or 10 to 20 years?
Mr. Moffet: We can give you information about the government’s policies, about research and development and regulatory and other measures, but in terms of —
Senator Galvez: How old is this carbon capture and storage technologies? How old is it? Twenty years or more.
Drew Leyburne, Assistant Deputy Minister, Energy Efficiency and Technology Sector, Natural Resources Canada: Depending on when you start the clock, CCUS is, at most, 35 years old. Enhanced oil recovery, like the sequestration of carbon underground, turned 52 this year.
You have to measure technology development against scales that we see for other energy technologies over time. We are trying to accelerate all of those cycles, but the first solar panel was invented in the 1830s. The first commercial solar panel was sold in 1959. It is only now that we are starting to see the payback of decades of investment. All of the work we are doing collectively, but certainly in the Natural Resources Canada portfolio on the energy technology side, is trying to drastically accelerate those cycles so that what used to be a 20-year process might be a 5-year or 6-year process.
Senator Galvez: If we have the longest coastline in the world, and we go from ocean to ocean to ocean, and we have areas where there is the highest tides and areas where there is the highest waves, how do you explain that Canada does not have tidal maritime hydroelectric energy inventions? By the way, the solar panel was invented by a Canadian. What do we need? What type of injection do we need?
Mr. Leyburne: I’m happy to jump in on a general sense. I’m actually a member of the tidal task force that was created recently so I can speak a little bit to that. The short answer is that the way that certain resources get developed or not by province or territory will vary significantly based on what other alternatives are available. The reason why we don’t have, for example, as much offshore wind as other countries is largely because of the fact that we have hydro or cheaper onshore wind potential than other places might have.
On the tidal side, it’s often said that the Bay of Fundy is the biggest prize that you could get in tidal in terms of turbidity. The challenge is that it is the Mount Everest of tidal. Figuring out how to harness those powers has taken longer than expected. But there are a number of tidal projects under way in this country. There are about half a dozen that the federal government has supported along with provincial and territorial partners. We do see a potential role for tidal going forward.
[Translation]
Senator Verner: On another note, you are probably aware that the Conference Board of Canada produced a study for the Alberta government on the coming into force of the proposed 2026 federal regulations to cap industry emissions by 2050. However, among other economic consequences, between 82,000 and 151,000 jobs are expected to be lost across Canada by 2030.
A cumulative decline in gross domestic product from $600 billion to $1 trillion is also expected. Total federal government budgetary revenues are projected to fall by between $84 billion and $151 billion over the same decade. These figures are absolutely staggering and alarming.
Have you carried out a similarly thorough economic and fiscal impact assessments for your proposed regulation published in December 2023?
[English]
Mr. Moffet: The Conference Board of Canada report was published at a time when the only thing the federal government had done was said that we will cap emissions. In the 2030 Emissions Reduction Plan, we had also included a statement that if the oil and gas sector reduced its emissions in a way that is commensurate with all other sectors, it would reduce its emissions by about 42% by 2030. What the conference board did was assume that the oil and gas cap is going to require the sector to reduce by 42% by 2030, and they would mandate that. There will be no flexibility. What will it cost me? That’s the study that you have.
Since then, we have developed and published a framework which does not talk about 42% and has a market-based mechanism which introduces a number of compliance flexibilities. Yet, we are still not at a stage where we have published a draft regulation. With respect to the Conference Board of Canada, I think the information is a useful benchmark to consider, but it’s not a real study of the implications of the actual emissions cap regulation, which we even haven’t published yet.
[Translation]
Senator Verner: My question was about the economic and fiscal impacts, in terms of the numbers; we’re talking about job losses, gross domestic product, and so on. Have you done as thorough an assessment of the economic and fiscal impacts?
[English]
Mr. Moffet: We have started in that direction. Again, we will do that when we publish the draft regulations because the details of the regulation will have a direct impact on the costs that will be incurred by the affected parties and that will, in turn, have an impact on the knock-on effect on GDP, royalties, et cetera.
[Translation]
The Chair: If we take into account all the changes we are making, in a sense, if oil production is reduced, these companies will make less profit and, as a result, there will be a significant impact on the western economy. It can be done over a 10- or 15‑year period, but you have to admit that it is a positive economic factor, at this point, that will be reduced to nothing.
I believe that oil currently represents 5% or 7% of Canada’s GDP, which is a significant figure. I hope you’re not mistaken, that there’s a magic wand somewhere to keep them, but at this point, I don’t think it’s possible.
It’s a big deal; you can’t make people think there’s nothing there.
Mr. Moffet: Yes, it is a big deal.
[English]
We need to bring the discussion full circle to the presentation made by my colleague from the Canada Energy Regulator and my initial presentation where I said that in the period of time from now until the mid-2030s, the government is committed to establish a cap on emissions that does not have an effect on production that is different than the effect that will result from global market changes.
It is the global market that will decline in demand and require a significant part of the Canadian economy to transition. There is no getting around that. The question is how fast it happens, what kind of support the federal government provides and what kind of support the provincial governments provide. We’re not talking about discontinuing that activity now, but there will be a transition away from global oil and gas demand at some point in the future.
[Translation]
The Chair: I’d like to thank the witnesses and senators for the participation today. It was difficult at times, but I think we had a frank and relevant discussion. Thank you again.
(The committee adjourned.)