Evidence of meeting #60 for Environment and Sustainable Development in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was impact.
A recording is available from Parliament.
Director, Economic Studies and Policy Analysis Division, Department of Finance
Within the plan itself?
Liberal
Director, Economic Studies and Policy Analysis Division, Department of Finance
The only way to account for any potential loss of Canadian business earnings would be to base our assumptions on the 2008 European market price, since that is where the only real market currently exists. We have to know the price. Since the current market price is very low, the losses would be minimal.
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
How do you predict technological innovation and its impact on the economy in your models--an econometric model, for instance?
Director General, Economic and Fiscal Policy Branch, Department of Finance
An econometric model would pick that up implicitly through investment, but unless one had an endogenous growth model that was specifically geared towards measuring that impact, typically models do not have an explicit variable for measuring technological progress.
Liberal
Francis Scarpaleggia Liberal Lac-Saint-Louis, QC
So that benefit, from a tough plan, would not be factored in.
Director General, Economic and Fiscal Policy Branch, Department of Finance
It would be factored in, as Denis mentioned earlier on, via the impact on investment, because there would be a positive impact on investment.
Conservative
The Chair Conservative Bob Mills
Thank you, Mr. Scarpaleggia. I'm sorry, your time is up.
Mr. Allen.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
Thank you, Mr. Chair.
I have a couple of areas I would like to ask some questions about. One is on the cost of the framework and the second is on the accelerated capital cost allowance.
With respect to the new regulatory framework, we had a presentation last week in the natural resources committee, I think it was by NOVA Chemicals, as I recall, and they said that over 1990 to 2003, the investment required to decrease 0.2% in intensity targets was roughly about $1 billion. So if we say that, we're talking about $5 billion for 1% and $10 billion for 2%.
Was any of that taken into consideration with industry that you know of, that kind of investment that would be required in terms of these models, and the appropriate spinoff effect in the economy for it?
Director General, Economic and Fiscal Policy Branch, Department of Finance
I'm not aware of consultations with industry; you'd have to check with Environment on that. A key element of models is what's called the elasticity of substitution, or the extent and the ease to which firms can substitute technologies in the face of a change in price, which is essentially what we're doing here.
So the models would implicitly have a historical estimate of those types of changes. But to my knowledge, there was no survey of firms done to estimate what would be required per firm, for example.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
Okay. With respect to the $7 billion to $8 billion a year and the cost to the economy—and we're doing this by sector, and of course some of the provinces are going to be impacted more than others with respect to the impact on the electricity industry. In New Brunswick and Nova Scotia, I can think of two that are.
Do you have any idea what the impact on electricity rates would be and what the tax impact of those electricity rate increases would do to the economy?
Director, Economic Studies and Policy Analysis Division, Department of Finance
I think the document published by the government had some estimate on electricity, and the impact should be fairly limited again, at least in the early years, on the price of energy. As for the exact number, I think they put some numbers in their documents, so I would in fact refer to those numbers.
You had a question about the regional impact too. Again, even though on the energy and for the regional impact I think those kinds of models are good in order to get a general idea about the aggregate impact, for the impact by province, by industry for different types of energy, for example, it's a bit early because the details of the plan are still not specified. So to do a thorough assessment of those things you need to have the specification of plans, which I think will be known by the fall, based on what the document is saying, after consultation with provinces and the industry.
So it's a bit early to talk about these regional and specific impacts.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
Okay, I'd like to go quickly to capital cost allowance.
During the study on the oil sands, there was a lot of discussion in committee about just wiping out the accelerated CCA. One of the concerns I always had is that no one could ever really quantify exactly what that is for all the issues you've brought about. There are nuances to it, like specific investments in each project in the oil sands and that. So when this $300 million—I'd heard that anything from $300 million to $500 million might be the case.
I have two questions. First, when did you really come up with this $300 million as the figure for what's going to be lost to the economy? Then, when that has replaced accelerated capital cost allowance for the new environmental, do we roughly know what kind of impact on the economy and government revenue that's going to have?
Chief, Resource and Environmental Taxation Section, Tax Policy Branch, Department of Finance
The $300 million figure that I spoke of earlier is an estimate that we developed in the course of developing the measure that was announced in the budget. It is a forward-looking measure based on announced investment intentions, and that's an average figure. It's a number that bounces around a lot from year to year.
Sorry, that's the fiscal cost in reduced revenue to the government by providing this additional allowance. It's not a measure of the impact on the economy of the investment induced; it's a fiscal cost to the government.
Going forward, the government will identify additional measures, as I mentioned, with respect to emerging areas like carbon capture and storage. Because the details of those things have yet to be determined, we're not in a position at this time to predict what the fiscal impact of those things will be.
Conservative
Mike Allen Conservative Tobique—Mactaquac, NB
So it's beyond the scope or purview of what you're looking at right now.
Chief, Resource and Environmental Taxation Section, Tax Policy Branch, Department of Finance
That's right.
Conservative
The Chair Conservative Bob Mills
Thank you.
We'll go for one question to Mr. Bigras, for three minutes maximum, please.
Bloc
Bernard Bigras Bloc Rosemont—La Petite-Patrie, QC
When you analyze the economic costs, the amount is about $8 billion, but when it comes benefits, the amount is about $6.4 billion in the area of health. You say that this represents only a fraction of the benefits that Canadians will enjoy.
I would like to know why you account for all of the economic costs, whereas you only consider a fraction of the benefits. Might we conclude that the benefits, as a whole, would represent a higher amount than the economic costs? Have you broken down the benefits in a way that would allow you to determine if they represent only a fraction of the advantages?
Director General, Economic and Fiscal Policy Branch, Department of Finance
Again, that is not something that we have done. However, you are referring to something that relates more closely to our well-being than to economic costs. There are models that allow for that type of calculation. There are, no doubt, people who would feel that a clean environment and clean air represent a benefit. It is something that cannot be easily observed.
We must realize that this concept goes beyond economic costs. It involves taking into account a whole host of factors that enhance our well-being.
Bloc
Marcel Lussier Bloc Brossard—La Prairie, QC
You said that there will be a 30% penalty if Canada does not meet its 6% five-year average between 2008 and 2012. What is that percentage based on? Would the total penalties be in the billion or in the million dollar range?
Assistant Deputy Minister, Economic Development and Corporate Finance, Department of Finance
Environment Canada or the people who negotiated the agreement would be in a better position to answer that question.
This is how I understand it; if Canada were to fall short of its 300-megaton objective at the end of the 2008-2012 period, there would be a new round of negotiations to cover the following five years. According to the Kyoto Protocol, Canada or any other country that does not meet its target will be subject to a 30% penalty. For example, if Canada has not met its 300-megaton commitment, the target will increase by 30%, which will lead to a 390-megaton deficit.
Bloc
Marcel Lussier Bloc Brossard—La Prairie, QC
You are referring to the quantity and not to the monetary value.
Assistant Deputy Minister, Economic Development and Corporate Finance, Department of Finance
A new target would be set for the second period. Unless I am mistaken, that is how I believe it will work.
Conservative
The Chair Conservative Bob Mills
Thank you, Mr. Lussier. That's three minutes. I'd like to get on to health.
Thank you very much for appearing on behalf of Finance. I know that members appreciated that.
I understand that a couple of you might be able to stay to provide any additional information. I think health is a pretty important aspect of this whole thing. I would ask whoever has to leave, to leave, and whoever is staying, to stay.
We have three people from Health Canada, and we'll get going as quickly as we can.
Thank you.
Conservative
The Chair Conservative Bob Mills
To begin, I'd like to welcome our members from Health Canada.
Mr. Warawa.