Environment Committee on May 17th, 2007

[David McGuinty, Liberal, Ottawa South, ON]

It's not called that anymore, Mr. Rochon, fortunately.

[Paul Rochon]

The other dimension of the plan, of course, is the regulatory requirements that will be placed on the transportation sector. In principle, those do not cost any federal money to the extent that they're regulatory requirements that would be placed largely on the automotive sector.

Then the third dimension of the plan is the actual emissions intensity reductions that are to be applied in the industrial sector. The administration of that system, presumably, would cost a certain amount of money, but I'm not knowledgeable enough on the exact cost of that at this time.

[David McGuinty, Liberal, Ottawa South, ON]

I asked the officials from the two other departments again yesterday about the offset system and the three-year grace period for new entrants.

Given that there are no parameters defined for offset systems, that it's difficult to cost participation at even 10% in CDM, and that all new market entrants are graced out for three years, wouldn't most Canadians say these numbers can't stand the test of analysis? How can we know that the number put forward of $8 billion a year is actually sound? How is this possible? Do I misunderstand modelling, or is there something that I'm missing?

In my previous life, for nine years it was very clear across the federal system that Environment Canada had extraordinarily limited economic analysis capacity. This work was normally done by Finance Canada, and the numbers were generated by them and not Environment Canada.

We heard even yesterday—

[The Chair, Conservative, Bob Mills]

Your 10 minutes have run out, sir.

[David McGuinty, Liberal, Ottawa South, ON]

—that NRCan was not involved whatsoever. So can you help us understand the offsets and the new market entrants? How can we trust the numbers?

[The Chair, Conservative, Bob Mills]

Go ahead, Mr. Gauthier.

[Denis Gauthier]

It comes back to the modelling. The modelling is done for a scenario over a period of years. In the first three years there may not be any reductions for the new entrants, but I gather that the modelling would take into consideration that in the future those reductions would materialize.

It's the same thing with the offsets. The offsets will have to be developed. I guess Environment Canada would know better about how the offsets will work, but eventually this is modelling the scenario up to 2015.

Is that correct, Benoit?

[Benoit Robidoux]

It's 2020.

[The Chair, Conservative, Bob Mills]

Mr. Bigras, please.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Mr. Chairman, my comments will be just as brief as those of the finance department.

I thought that the clerk was supposed to let the witnesses know that we wanted to hear opening comments on their parts. I hope that was done. Was a document circulated? Will there be a presentation?

[The Chair, Conservative, Bob Mills]

That was requested yesterday. Nothing was handed around, to my knowledge.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

In the most recent budget, what is the magnitude of spending with respect to the accelerated capital cost allowance for the purposes of encouraging technology in the oil sands sector?

[James Green, Chief, Resource and Environmental Taxation Section, Tax Policy Branch, Department of Finance]

Thank you, Mr. Chairman.

The government announced in the recent budget that the existing accelerated capital cost allowance for oil sands would be phased out over the coming years. At the same time, the government announced that the existing accelerated allowance provisions that apply for a variety of clean and renewable energy technologies—and this covers a range of things: wind power, solar power, geothermal, and so on—would be extended to investments made up until 2020. That provision provides a 50% writeoff.

As well, that provision is being extended to a variety of additional technologies. It's being extended to wave and tidal power, which is an emerging source of renewal energy that's now gathering steam in Canada. It's also being extended to cover additional applications of technologies that are already covered, like the scope of solar technologies, for example, being extended beyond industrial applications to a broader range of commercial applications. The minimum size restrictions on photovoltaic systems are being dropped. Additional waste fuels, for example, in the pulp and paper sector, are being made eligible, and additional sources of biomass from organic waste will be allowed.

Many of these are relatively new technologies in Canada, and the budget plan estimates that the cost over the next two fiscal years for these measures will be in the range of about $10 million a year.

With respect to the oil sands specifically, the government has indicated that, going forward, it will identify additional areas in which accelerated capital costs allowance and additional measures can be used to encourage investment in emerging technologies, like, for example, carbon capture and storage. The federal government is currently participating with the Government of Alberta in a task force on carbon capture and storage, which is expected to identify and make recommendations with respect to the appropriate role for government in that area.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Would the accelerated capital cost allowance for technology in the oil sands be approximately $1.4 billion per year?

[James Green]

If you're speaking with respect to the existing provision that provides accelerated CCA for oil sands, which is being phased out in the budget, this is a provision that applies to general investment in the oil sands. It's a provision that essentially accelerates the deductions that firms can take for their capital cost. So it doesn't change the total amount of tax on a project, but it changes the timing. It means that firms can take bigger deductions in the early years and lower deductions in later years. So they pay less tax in the early years of a project, and more tax in later years.

The fiscal impact of that for the government can vary quite a bit from year to year. It depends on the balance of projects that you have and where they're at in their life cycle. So for projects that are at an earlier stage, they are paying less tax, and then you have other projects that may be a later stage that are paying more tax.

We estimate that based on current economic conditions and based on projected investment over the next few years, the provision is currently costing and will cost the government for the next few years in the order of $300 million a year. That's a number that will gradually decline as the provision is phased out.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Was an environmental assessment performed on that measure before it was announced?

[James Green]

With respect to the decision and the announcement that was made in the budget to phase out this measure, there was a strategic environmental—

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

I'm sorry, I don't have the translation.

[James Green]

With respect to the measure that was announced in the budget to phase out the accelerated capital cost allowance for oil sands, as with other measures that are presented to the minister for the decision, the department conducted a strategic environmental assessment with respect to the implications of that decision.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Another measure announced in the budget involved providing tax incentives to owners of more ecological and energy-efficient vehicles. I would like to know why. I would also like you to tell me which criteria you used in order to establish these tax incentives and to determine which vehicles were efficient. I was surprised to see that owners of vehicles that consume 8, 9 and even, if I am not mistaken, 10 litres per 100 km—and I'm referring to 4-wheel drive vehicles—will be getting tax benefits.

Why is it that you are giving tax incentives for heavy vehicles on our roads? We're not talking about 6 litres for every 100 km but rather 10 litres.

[Denis Gauthier]

With respect to these vehicles, the incentives were proposed by Transport Canada staff who are specialists in energy measures for vehicles. There are two categories in the budget, that is, cars, and mini-vans and trucks. In the case of cars, a tax benefit of $1,000 is provided when the energy consumption of the vehicle is at most 6.5 litres per 100 km. With respect to efficiency, for every 0.5 litre less that the vehicle consumes, there is a $5,000 increase in the benefit. Therefore, if a vehicle consumes 6 litres or less for every 100 kilometres, then the incentive is $1,500. If the vehicle consumes 5.5 litres or less for every 100 kilometres, then the incentive is $2,000 which is the maximum available incentive.

In terms of heavy vehicles, that is trucks, commercial vehicles or minivans, the standard is 8.3 litres per 100 km. There aren't many vehicles in the 10 litre category. For commercial vehicles, fuel consumption has to be 8.3 litres per 100 km. The same 0.5 litre scale is used for those consuming less fuel.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

I have no more questions.

[The Chair, Conservative, Bob Mills]

You have one minute left, Mr. Lussier.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

My question will require a response that is much longer than a half a minute.

The table on page 9 of the government's document includes credits for early action, not exceeding 15 megatons. Was the minister of Finance consulted on that 15 megaton limit?

[Denis Gauthier]

We were aware of that limit, but I do not believe we were consulted on the issue.