Environment Committee on May 17th, 2007

[The Chair, Conservative, Bob Mills]

I would like to explain to members that we do have a video camera, a video feed here as approved by the House in 2001. I believe we've had cameras before. It's a stationary camera and it stays behind us here. So that's just to advise you about what's happening.

I'd like to welcome our guests. Our first guests are from Finance, and we will go through the first round of 10 minutes each. I would ask you to be as brief as possible so that we get the maximum questions in. And we'll then go to a second round, which is five minutes each.

So we'll begin with an opening statement, which we asked for yesterday. If you have an opening statement, perhaps you would give us that to begin, please. I'm not sure who's giving that.

Mr. Gauthier.

[Denis Gauthier, Assistant Deputy Minister, Economic Development and Corporate Finance, Department of Finance]

Thank you, Mr. Chairman.

This morning I am accompanied by my colleagues from the Department of Finance, who work in the economic and fiscal policy, fiscal policy and economic development policy branches. In response to this committee's invitation, we will attempt to respond to the best of our knowledge to your questions on the economic and budgetary framework of the government's climate change plan.

We are at your disposal.

[The Chair, Conservative, Bob Mills]

Now, Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

That was a very short opening statement. Thank you very much.

Thank you, Mr. Chair.

Thanks for joining us. I'm hoping that Finance Canada officials, Mr. Chair, can stay with us throughout the two-hour session this morning as their Environment counterparts were kind enough to do yesterday. Health Canada officials are to come and join us here quite shortly.

So we're hoping you can stay on over the two-hour period. Maybe you can give us some reflection before I get into some questions, if that's possible.

Mr. Gauthier, yesterday I put several questions to Environment Canada officials with respect to whether or not an economic analysis had been undertaken before the plan was officially made public and was announced by the Minister of the Environment.

Maybe you can help us understand, again. At the end of April, the Minister of the Environment said the cost of implementing his emission reductions plan for industry will cost the Canadian public, he said, about $8 billion annually. We have had some information fed to us that in fact, before this plan was even announced, Finance Canada officials did not want to be involved in the Bill C-288 economic analysis that was presented by the minister at the Senate committee. The Finance Canada officials declined to be involved in the calculations and they did not agree to warrant the numbers, to substantiate the numbers put forward by the minister at that particular meeting.

That was the meeting when he announced that the cost of Kyoto compliance would be $4,000 per family, you will recall. If you don't recall, that was the number. Curiously, it was exactly the same as the number used by Preston Manning almost 10 years to the day, when Mr. Manning stood up in the House of Commons and said it would cost $4,000 per family to achieve Kyoto compliance, which led us to wonder whether or not the minister had even adjusted for inflation.

Can you tell us how Finance Canada was involved in the economic analysis that was conducted? We were told that a robust model was performed. We couldn't get any details. We don't know what the capacity of Environment Canada is to even conduct such models. Can you help us understand what role Finance Canada played with these numbers, particularly the $8 billion annual cost? Were you involved in crafting these numbers? Did you provide the econometric modelling or any kind of other modelling capacity within the department?

[Paul Rochon, Director General, Economic and Fiscal Policy Branch, Department of Finance]

Why don't I answer that question? We reviewed the Environment Canada results and provided feedback on the results. We do not undertake our own separate econometric analysis of their results, but we're satisfied they were generally reasonable with the caveats that the department issued with its report.

I believe the $8 billion you're referring to is the 0.5% of GDP that is estimated to be the economic cost of the government's regulatory plan. We also had a look at those estimates, and they seemed reasonable to us and generally consistent with prior work that the department has done and has published using general equilibrium models.

[David McGuinty, Liberal, Ottawa South, ON]

Were you involved in any of the modelling or number crunching that went on with respect to Bill C-288?

[Paul Rochon]

We had a review of the model runs that Environment Canada carried out, yes.

[David McGuinty, Liberal, Ottawa South, ON]

Do you warrant the numbers that were put forward?

[Paul Rochon]

They're reasonable. They're in the ballpark. That's a major change that we're talking about of 35%, a roughly one-third reduction in emissions over about three years, and we believe it would have a major impact on output and employment in the short term.

[David McGuinty, Liberal, Ottawa South, ON]

So when the minister stood up in Vancouver after a long flight and announced extemporaneously, without any evidence of it in the actual equal action plan or the regulatory framework, when he said that the cost per tonne of carbon would be between $100 and $200, did you warrant those numbers?

[Paul Rochon]

I'll let Monsieur Robidoux answer that.

[Benoit Robidoux, Director, Economic Studies and Policy Analysis Division, Department of Finance]

Again, the price they got, I think, was almost $200, and this is the price we would agree with, in the ballpark, if you want to achieve Kyoto objectives within the timeframe that Kyoto set up.

[David McGuinty, Liberal, Ottawa South, ON]

He wasn't talking about Bill C-288; he was talking about his own plan.

[Benoit Robidoux]

The price of $100 to $200 per tonne?

[David McGuinty, Liberal, Ottawa South, ON]

Yes, that's right. He said the cost to Canadian polluters would be $100 to $200 per tonne in excess of their regulated cap, or their regulated levels.

[Benoit Robidoux]

I think this would be a mistake on your side to understand, or on his side to conduct the right number. These numbers are way too high, because in Bill C-288 the price was in fact nearly $200. If I remember well, it was $190, or something like that, and this was reasonable given the effort requested in the timeframe requested. For the plan, the price would be quite a bit lower than that.

[David McGuinty, Liberal, Ottawa South, ON]

I need to understand again. You say the numbers, Mr. Rochon, are reasonable. Did you conduct the analysis?

[Paul Rochon]

We did not conduct that analysis; we reviewed it. We have reasonably extensive expertise with econometric models and have conducted analyses previously, in the late 1990s, with what were termed general equilibrium models. And given the extent of the shock, that would appear to us to be reasonable.

[David McGuinty, Liberal, Ottawa South, ON]

Who conducted the analysis?

[Paul Rochon]

It was done by Environment Canada's quantitative group, using the 2020 model, which is an engineering-based model that looks at the types of investment and other production adjustments that are required to achieve these emissions reductions.

Those impacts were then fed into what is called a macro econometric model, and the model in question used was Informetrica's TIM model. Then through an iterative process between the two models, the economic impact was determined.

[David McGuinty, Liberal, Ottawa South, ON]

Was the Environment Canada analysis done in-house or was it outsourced to an analysis or economic firm of some kind?

[Paul Rochon]

It was a combination of the two, but I'll let Benoit speak to that more directly.

[Benoit Robidoux]

I think you should ask that question of Environment Canada.

My understanding, when I discussed it with them, was that it was in-house, but there were some contracting parts within the project, so it could well be both. But I think they are better placed to answer that specific questions. But for sure, some of the analysis was done in-house.

[David McGuinty, Liberal, Ottawa South, ON]

Yesterday we heard from Environment and Natural Resources Canada, I think from both sets of witnesses, who said there would be a 20% cut across the economy. The target was 20% by 2020. What does that mean? For example, what is the large industrial emitters' share, and what is the consumer/public share, and how much federal money—you warrant the numbers—will it cost to achieve the 20% across the economy cut?

[Paul Rochon]

How much federal money? Well, under their plan, some federal money has already been allocated, for example in the 2007 budget, the ecoTrust.