Environment Committee on Feb. 6th, 2008

[The Chair, Conservative, Bob Mills]

I would like to begin by reminding members that today is our panel of economists. All of you have been itching to ask questions about the economics of Bill C-377, so this is your chance to go after the economics.

I would ask you to try to stay on subject. That's what the witnesses are here for.

I'd like to welcome our witnesses. Most of you have been here at one time or another, and we certainly are pleased to have you here again. Thank you for coming.

We'll begin with a brief presentation. Try to hold it to seven minutes or thereabouts, and then the members will have more time for questions.

We'll go in the order that's here, with Mr. d'Aquino kicking it off, please.

[Thomas d'Aquino, President and Chief Executive Officer, Canadian Council of Chief Executives]

Mr. Chairman, ladies and gentlemen,

good afternoon. It is my great pleasure to be here today representing

Canadian Council of Chief Executives.

Chair, I will present a brief introductory statement, stick to seven minutes, and then my colleague, John Dillon, and I will be pleased to answer any questions you might have.

As representatives of the Canadian Council of Chief Executives, we're very pleased to address the issue of environmental policy, an issue to which my organization and my fellow CEOs have accorded the highest priority.

I have reviewed Bill C-377, introduced by the leader of the New Democratic Party of Canada, Mr. Jack Layton, and while the sentiments expressed in the bill are noble, I fear that Mr. Layton's approach would divert us from the real task at hand.

The bill would set up a process to legislate a series of greenhouse gas targets from 2015 to 2050, but unfortunately, it provides no clue as to how these targets are to be achieved. It would be comforting to think that a simple act of government could get us to where we need to be, but if the past several years have shown anything, it is that setting ambitious targets is meaningless without the will to act by all segments of society and a solid consensus among all players on what needs to be done.

Now, let there be no doubt that turning around our growing greenhouse gas emissions is going to take time and enormous effort, and there is no silver bullet, nor is there any substitute for practical policies, sound analysis, and meaningful engagement about what changes we actually are prepared to make as businesses, governments, communities, and individual Canadians. We should be realistic about what is required, but also ambitious and creative about the kinds of policies that can make a real difference.

The latest initiative of my council to address the climate change issue was the creation last year of our task force on environmental leadership, which I co-chair along with Richard Evans, the chief executive officer of Rio Tinto Alcan, and Rick George, the chief executive of Suncor Energy. The task force, comprised of 33 chief executives from across Canada and drawn from a wide range of leading industries, forged an unprecedented consensus among Canada's business leaders.

In October of last year, we published what we call a policy declaration, in which we laid out five critical elements for an effective, sustainable, long-term plan, one that we believe will not only be successful in reducing Canadian greenhouse gas emissions but can also make a significant contribution to a global plan. It is called “Clean Growth: Building a Canadian Environmental Superpower”, and I have made copies available for all members of this committee in both official languages.

I was pleased to see that a number of our principles were echoed by the National Round Table on the Environment and Economy in its report last month setting out its recommendations for a climate change plan for Canada.

First and foremost, what the country needs is a more cohesive Canada-wide plan on climate change and air pollution, one that can make the most of the tremendous opportunity that we believe we as Canadians have to foster sustainable economic growth and superior environmental performance.

I want to commend the leadership shown by the Government of Canada in setting challenging greenhouse gas targets for Canadian industry, while at the same time recognizing the need to foster economic growth and technology enhancement.

In addition, a number of provinces have come forward with innovative ideas on how to address this complex issue, but what we lack, however, is sufficient convergence and cohesion around a Canada-wide approach involving all parties in Parliament and all levels of government—federal, provincial, territorial, and municipal. We need one set of targets and timetables for industry and, in our view, greater clarity about responsibility and accountability, in order to make the most effective use of public and private funds.

Such a plan must apply to everyone, and here I underscore the word “everyone”: large and small businesses, consumers, farmers, building owners, and public institutions, all of whom will have to do their part if Canada is to meet its ambitious targets regarding reductions in greenhouse gases.

Another key element of our proposal is to recognize the absolutely fundamental role of technology. There is simply no way to make meaningful reductions in greenhouse gas emissions without massive investments in new technologies. Business leaders in the council see this as a tremendous opportunity, since Canada has the natural resources and the technical, financial, and skills capability to be a leader in next-generation technologies such as clean coal, carbon capture and storage, nuclear, hydro, wind, biofuels, and other alternative energies.

A third element of our paper recognizes the importance of targets as a spur to environmental progress. We support the ultimate goal of achieving a substantial, absolute reduction in emissions of greenhouse gases, both in Canada and globally. At the same time, it is important that any target applied to Canadian industry recognize competitive realities and be set within an overall policy framework that allows profitable firms to increase their investment in new technologies.

A fourth necessity is to ensure that globally we have an effective and long-term plan that commits all major emitting countries to do more to constrain the growth of emissions around the world.

I believe that Canada can be a model to the world in demonstrating how to align public policy to strengthen economic and environmental performance. That brings me to one of the most critical elements of our paper, our policy declaration, and here I note our agreement with the recent report of the national round table.

I believe it's time to establish policy mechanisms around the appropriate pricing of carbon. I would tell the ladies and gentlemen of this committee that my organization said publicly that we supported the idea of putting a price on carbon as early as 1990. Appropriately set price signals encourage both business and consumers to change behaviour, and this can be done through emissions trading or environmental taxation, or some combination of the two.

Business accepts that there is a price to pay for our greenhouse gas emissions, and we have said so for a long time. But we have to be smart about how we design a price mechanism so that it accomplishes our environmental objectives and builds competitive advantage in Canada. Both emissions trading and environmental taxation have their advantages and disadvantages.

Cap and trade schemes have the advantage of a defined limit on emissions, but experience, especially in Europe, suggests there can be significant price volatility and difficult questions about fair allocation and emission rights.

Environmental taxation provides a clearer price signal and can be easier to design and administer. Relying solely on taxation, however, does not guarantee any particular quantity of emissions reductions. Any such tax must not discriminate against any particular sector or region and should be implemented only as part, in our view, of broader tax reform that is revenue-neutral and that aims to enhance our country's economic as well as environmental performance.

Increased revenues from environmental taxation could be offset by reductions in corporate and personal income tax, so that Canada can continue to attract the capital, innovation, and people to foster the technology shift that is critical to tackling climate change.

Governments also will need to think about their spending priorities. A strategy for climate change will require significant new public spending in areas such as public transit, clean energy infrastructure, and development of new technologies. This will require governments to change fundamentally how they spend, not just how they tax. Climate change must not become simply an excuse for governments to tax more and spend more.

Mr. Chairman, putting a price on carbon will mean real and potentially very costly obligations for everyone. There are ways to design our policies so that they do not place unfair burdens on vulnerable regions, sectors, or individuals, but we should not pretend that the cost is insignificant or that the policies need to focus on only driving reductions in Canadian industry.

I'll conclude with this. The reality is that we've been talking about this issue for 20 years, and it's long past time to get on with the job. Business has done a great deal already and is willing to make fundamental changes and the significant new investments that will produce a strong economy and a cleaner environment. We need to have a true Canada-wide consensus on the key policy elements and get everyone, including individual Canadians, pulling in the same direction.

Ladies and gentlemen, members of this committee, the ambition of Canada's business leaders in this regard is truly vast. We have stated, and I will repeat again today, that Canada has the natural resources and the technical, financial, and skills capability to justly aspire to environmental superpower status. I believe that you as parliamentarians have a critical role to play in moving Canada decidedly in this direction.

Thank you for your time and interest. Mr. Dillon and I very much look forward to answering any questions you might have.

Thank you very much indeed.

[The Chair, Conservative, Bob Mills]

Thank you very much, Mr. d'Aquino.

Dr. Rahbar, please.

[Dr. Shahrzad Rahbar, Vice-President, Strategy and Operations, Canadian Gas Association]

Good afternoon, ladies and gentlemen.

Thank you for the opportunity to appear before the committee as you deliberate Bill C-377.

The Canadian Gas Association represents natural gas distributors across Canada who deliver gas to around six million customers—individual homes as well as businesses and institutions.

I will touch upon three points in my remarks. I'll give you a brief overview of how we situate in the economy, give you specific comments on Bill C-377, and then wrap up by speaking to the opportunity to move forward and make real, meaningful, and quantifiable reductions in greenhouse gases.

Quickly, around natural gas and the economy, although in most public policy discourse you hear nothing about natural gas, we are a significant part of the economy: 26% of the energy end use—the numbers are in front of you—and something bigger when you look at individual homes for heating and businesses.

It's interesting. When looking at natural gas, as with any other fossil fuel, you look at where our emissions come from. The entire upstream delivery, transmission, and distribution account for a quarter of the emissions for our sector; 75% of the emissions occur at the end-use point, the six million homes and businesses whom we deal with. Our particular part of the emissions is actually fairly insignificant, less than 1%.

So where do we stand as an industry? We do believe in and are committed to being part of the solution to get Canada toward a carbon-lean future, as we would like to call it. We worked on our piece and our own emissions reductions. Our numbers are publicly available. We have reduced our own emissions, and we've been part and parcel of the conversations initially with Natural Resources, and subsequently with Environment Canada, to develop a regulatory framework for large industrial emitters. We think you need that framework. However, we also believe that without turning our attention to the other 50% of the economy, we cannot meet our obligations and our aspirations of actually getting to a carbon-lean future.

So what have we been doing with our customers? In addition to our own operations, we have been working with customers on conserving energy and on a variety of demand-side issues. We have seen progress, with the intensity of use and average use per customer declining in the past decade or so.

In my estimation, we have reached the point where we need to do something more than we have been doing. For the past two, almost three decades since the seventies, we have been focusing on discrete component improvements, meaning higher efficiency standards for discrete appliances and turning our attention to buildings. In our minds, the only way to actually meet the challenge of substantially reduced carbon in the long term is to have an integrated strategy for managing the energy demand in our communities.

I have specific comments on Bill C-377, and then I'll come back to the communities agenda and what I think is lacking in our current perspective and perhaps warrants some attention from you, ladies and gentlemen.

On Bill C-377, we agree with the need for federal leadership. The intent is laudable. We think we need federal signals that we are serious about reducing the carbon footprint of the economy. We'd like to see this issue transcend partisan discourse around whether this is real or not—we'd rather focus our energies collectively on getting ourselves there.

I don't quite think the bill makes the intent. I have a couple of reasons and some general comments.

Legislation is not the place, in our estimation, for this level of detail. The more detail you have of the nature that we see in Bill C-377, the less stable a platform you have for long-term action. Also, we look at the bill and wonder whether it's trying to afford the framework and the authorities where they already exist, and if they already exist, why do we need to set the legislation again?

Although it's not explicitly stated, the bill has definitely the flavour of again focusing on the large industrials alone. I said already that we believe the large industrials need a framework, but we also need a more economy-wide signal and a focus on the other 50%.

With respect to specific issues with the bill, the short-term targets are problematic. The various analyses done by the provinces recently in the National Round Table report would suggest the 2020 target of minus 25% is not actually doable, given where we stand today. Having us revisit the conversation on baselines we've been having for the past 10 years and trying to determine what happened 17 years ago, I think, is a bit of a distraction from focusing on what can be done on moving forward.

Not to repeat myself—but I will repeat myself—we do believe the large final emitters need to have a regulatory framework, but we also do believe that you need to focus on the other 50%. How you turn your attention to the other 50% matters. For the past 15 years, we've focused the discourse in this country entirely on the large final emitters. I'm not encouraged by the level of sophistication I see on the other 50%. We tend to flip-flop between thinking that good thoughts will get us there, or we absolutely need to be draconian and regulate lifestyle. I don't believe either of those are feasible options or ones that we should pursue. There's ample experience and enough evidence to suggest that a systems-integrated approach to our communities is what we need.

We need to look at our energy system as an integral part of the environmental question, not as a problem. The upstream energy sector exists to meet the demand for energy at our communities and businesses. So without focusing on the demand side, we're not going to get very far because that demand, as evidenced by the track record of the past 20 years, will continue to grow. So look at energy and environment as an integral whole; look at the community space.

Municipal governments have done very interesting experiments across Canada. The City of London did a model of an integrated plan versus business as usual. In their estimation, they can achieve up to 55% energy reductions within the community. Not only that, they bring in on-site renewables at a price-competitive range. They take advantage of the existing energy infrastructure, both gas and electric. They bring their on-site renewables. They look at waste in water and harness the energy from that. There are innovative, interesting solutions that need to happen. So why aren't they happening?

We don't have a price signal for carbon throughout the economy, and we need to have a consistent price signal throughout the economy, close enough to the point of consumption so that people who make decisions can see the impact of their choices and their decisions.

We are very encouraged by the recent focus of the National Round Table's report on the other 50% of the economy and would very much support paying a lot more attention to that space. It's an interesting space. It's diffuse. It has a large number of players, and it will require three levels of government working closely with one another, but it's doable. We're seeing examples appearing all across Canada, and we would like to see price signals that would allow us to replicate the demonstrations and actually move along with it.

In conclusion, I repeat that we support the need for an articulated vision and target to reduce the environmental footprint of economic growth, or both of them will deteriorate. Serious action, in our estimation, requires more than, but includes, the regulatory framework for large industries. It needs a price signal for carbon throughout the economy. Policy initiatives should reflect the need for an integrated approach to all our systems: water, waste, energy, land use. Bill C-377, although laudable, falls short of achieving that.

Thank you.

[The Chair, Conservative, Bob Mills]

Thank you very much.

Mr. Sawyer, please.

[David Sawyer, Economist, EnviroEconomics]

Mr. Chairman, members, and guests, thank you for the opportunity to speak on the economic implications of Bill C-377.

My name is Dave Sawyer. I'm an Ottawa-based economist working on issues of climate policy.

I am here neither to support nor to contend Bill C-377, but rather to discuss the economic implications of the bill.

What are the economic implications of the bill? Well, not surprisingly, it depends. More specifically, it depends on how it's designed and implemented, but since the bill is not specific on this point, and since you have asked me to come here and comment on the possible implications, I basically need to identify a policy package from which to provide some judgments or some information for you. I'll do that now.

The key elements of a policy package that I use and that I think are required to assess any sort of deep GHG reductions like this—i.e., good principles to basically design effective policy for GHG mitigation—include the main points that follow.

First, not surprisingly, to attain substantial reductions in 2020 while minimizing costs, we need economy-wide carbon pricing. This means, as others have said, cap and trade, a carbon tax, or some combination of the two. Recognizing, however, that cap and trade is the dominant policy for large final emitters and that cap and trade is difficult to implement for smaller emitters like you and me—our houses and our cars—the preferred and maybe most expedient approach is to have a revenue-neutral carbon tax for the remaining emissions. While I recognize a carbon tax does not resonate politically, the alternatives have higher costs, and frankly, Canadians may dislike income taxes even more than they dislike carbon taxes.

Second, an effective policy package would provide subsidies to low-emitting technologies such as carbon capture storage and renewables—renewable electricity or renewable transportation fuel. Targeted regulations for buildings, transportation, and other difficult-to-get-at emissions would also be required.

Third, there would be significant financial flows with carbon pricing, and we must decide how these are distributed, or at least I must think about these in my assessment for providing information to you. Some revenue from cap and trade is transferred among industry through trading markets, but some could also accrue to the public through auctioning, because there is value in allocating permits free—significant value, in fact, as the European system is demonstrating. A carbon tax shift could then have income taxes on households reduced or targeted to address adverse competitiveness impacts in disproportionately impacted industries, so there are income effects that carbon revenue can be used to mitigate.

For now, let us look at domestic action only, but later on I will revisit this.

I will also focus on 2020, because if we don't hit the 2020 targets laid out in Bill C-377—or Turning the Corner, for that matter—we'll not likely be able to achieve longer-term targets by mid-century, at least not without significant economic dislocations. Again, the round table talked about this quite a bit, but technology lock-in is the issue where you have high-emitting technology rolling forward if you don't address it early on.

So with this policy package in place—I gave you a vision of a policy package—I now need to specify what the economy and the emissions will look like in 2020. With an economy growing at about 2% annually between now and then, Canada's GDP will grow from current levels of about $1.3 trillion to $1.7 trillion to $1.8 trillion. Again, a somewhat uncertain number, but the economy is growing at some sort of rate around 2% or 2.5%. This growth will then increase emissions by roughly 15% from current levels, from about 750 megatonnes currently to something around 850 to 900 megatonnes. These are publicly available estimates from Natural Resources Canada. This means that to hit the Bill C-377 targets of minus 25% below 1990, forecasted emissions will have to drop by about 50% in 2020—drop by 50% in 2020.

This compares to a 34% decrease under Turning the Corner. So we basically can bracket the types of reductions that we as a nation are contemplating in 2020: 34% to 50% below business as usual.

So now to get on to the interesting bits. To assess the economic implications of this stylized policy package, I employed two models that are routinely used to assess mitigation targets. CIMS is an integrated energy and emissions model of the Canadian economy, and it's widely used by governments, industry, and NGOs alike. Complementing CIMS is a model called C-GEEM, which is a macroeconomic model suited to questions of macroeconomic impact in public finance.

What do the models have to say about the costs of these different targets? Essentially, applying an economy-wide carbon price, having subsidies for renewables, having targeted regulations and some smart tax shifting, the models imply carbon prices in the order of about $100 per tonne in 2020 for the Turning the Corner targets and about $200 a tonne for Bill C-377. They are somewhat uncertain numbers, but they give you an idea, a rough range.

Now the question is, what do these numbers mean? The economic impact of these carbon prices on GDP, on growth, could then range between about 0.6% of 2020 GDP for Turning the Corner and 1.2% for Bill C-377. We're looking at basically reductions in future GDP less than the forecast growth rate. So we're not talking about wrecking the economy, although there are some underlying assumptions here about early action, getting moving, and stringent policy. You must also recognize that there is a significant level of uncertainty in these numbers, as there is in all modelling, but this gives you a flavour for what you're looking at.

These conclusions assume efficient policies, and indeed the models can show that a lower target with poorly designed policy could be more expensive than a higher target with efficient carbon pricing. We could go on and on about these numbers, but simply, maybe the more important point is that policy design matters much more than the targets themselves.

So the policy package I have outlined will raise prices, with increases of about 25% in electricity, 15% in petroleum products, and about 10% in natural gas. Again, this is the order of magnitude and the numbers for you to get your head around, what this means, what's the “so what”.

The impact on oil production is not so clear, given the variable of carbon capture and storage. If carbon capture and storage is widely available, the cost impacts on that sector will be much lower. If it's not available, then there are larger, larger hits. Again, poor policy design would change these price impacts entirely.

This national picture masks some sectoral and regional variations. While I can't comment on the regional variation, I can say something about the sectoral impacts. While national GDP impacts seem relatively small, sector output for the energy-intensive sectors will fall, especially in sectors like petroleum refining and coal. The extent of this drop is dependent on what is happening in the rest of the world. If Canada acts more or less in concert with the OECD, the trade impacts will likely not be as large, with drops in exports but also in imports, because prices will be rising for foreign goods.

Still, competitiveness impacts will be real and significant for some segments of the economy, so the smooth macroeconomic picture nationally is not borne out at the sector level. This is not to say, however, that we don't or shouldn't seek reductions from these sectors—you have asked for some specific targets, so you need reductions from all sectors—but rather that we should design complementary policies to address disproportionate income effects; that is, we separate a carbon signal from an income effect.

As for the notion that manufacturing will move to China, I would submit that other factors are also influencing this business decision and probably need some closer scrutiny.

I'd now like to visit the importance of obtaining low-cost reductions internationally. At domestic reductions above 20% below 2020 BAUs—the two targets I mentioned are greater than that—domestic mitigation costs rise exponentially. This means that at the targets contemplated, costs are rising much faster than reductions, so to minimize economic impacts, a strategy to access low-cost international abatement opportunities is probably a good thing, assuming they're real and verifiable.

I'd like to conclude with a short discussion of the cost of inaction, shifting basically from discussion about costs to discussion of what we get, discussion of the benefits. In thinking about designing effective climate policy, at least from an economist's narrow efficiency lens, the economist would prefer cost-effective reductions at a level where the costs and benefits are balanced, but information on the scope and scale of the possible benefits of action is too uncertain to lead to recommending targets that balance costs and benefits, so we're not in a great place.

As a result, our national climate debate continues to be informed by only a conceptual understanding of the benefits of abatement or adaptation, while we have a very acute understanding of the costs. Because of this asymmetry in information, it is likely that we will continue to be locked into a cycle of questioning the appropriateness of action on targets, regardless of their stringency. Indeed, without a balanced view of what we get for what we spend, we will continue to argue about targets, discuss policy options, reveal the associated costs, and ultimately question affordability. I call this “Globe and Mail economics”. This focus on costs and affordability is one-sided and will ultimately lead to poor national outcomes.

Oh, yes—in conclusion, a little more focus on action and a little less on targets would be nice.

Thank you.

[The Chair, Conservative, Bob Mills]

Thank you, Mr. Sawyer.

Go ahead, Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Mr. Chair.

Thank you very much, folks, for being here this afternoon.

There are so many questions to ask. I'd like to start, Mr. Chair, by following up the line of questioning I put yesterday, which I think speaks to the whole question of the need for Bill C-377. I think it's important for Canadians to understand we're debating a bill that is going to shift targets, a bill that is going to guide Parliament based on science. I think that's the import of what Mr. Layton is trying to put through here, but I think it's also important for Canadians to know that it's impossible to know where we want to get to unless we actually know where we are now. In that sense, I want to link Bill C-377 to the government's plan. These are important questions for us to know in order to understand just how far off the government's plan may or may not be in relation to Bill C-377 and the aspirations and the objectives therein.

I'd like to ask a couple of core questions, first to Mr. Dillon and to Mr. d'Aquino. Will the government's plan achieve what it sets out to achieve? Will we see 20% absolute reductions in greenhouse gases by 2020? If you could help the committee, we've been looking for months now for any kind of evidence or analysis that was performed by the government to substantiate that claim and those numbers. Have you come across these numbers? Will the government achieve what it sets out to achieve?

[John Dillon, Vice-President of Regulatory Affairs, General Counsel, Canadian Council of Chief Executives]

Thank you, Mr. McGuinty.

We haven't done the analysis. I haven't seen that specific analysis. The one thing I would say is that it is the national target. As Mr. d'Aquino has indicated, what we've seen so far is a lot of focus on the large industrial emitters that produce less than 50% of Canada's emissions, so we're never going to get to that target without a plan that actually engages all Canadians and all sectors and involves all levels of government in putting forward measures that will accomplish that.

I don't have the analysis and I haven't seen it, but I would simply reiterate that it is a national target. Until we have the full suite of policies, as my colleagues have also mentioned, it's not possible for us to say today whether we can meet that target or not.

[David McGuinty, Liberal, Ottawa South, ON]

Mr. d'Aquino, please.

[Thomas d'Aquino]

Mr. McGuinty, I'd like to just add to what my colleague John has said.

I've been deeply immersed in this issue since the early nineties, and this is really an appeal to this committee and to you as parliamentarians, because I know we are preoccupied with meeting certain targets: I would make one very strong argument about the absence in so many of these initiatives that we have seen—and I don't think this is done out of any malice aforethought or an unwillingness to tackle what for all of us is an extremely important issue—of identifying this as a total Canadian problem. We see, time and time again, this focus on large industrial emitters, who, as we accept and have accepted for a long time, have a very important responsibility in dealing with this issue, not only in terms of meeting targets but also in terms of investing the new technologies.

The appeal I would make would be this: any purported policy, any purported bill, any purported initiative that does not lay out before Canadians a total plan that includes emitters, producers, and consumers will never, never be credible. It will never be credible on the numbers. In my view, it will never be credible politically. It will never be credible against the most objective assessments of what is a good, intelligent, rational plan in accordance with the best of public policy.

In a nutshell, we're saying that we've seen the provinces take some very important and constructive initiatives. We've seen the Government of Canada and the parties in opposition offer some very constructive ideas. If there's one thing that's missing, it is this total approach. I just wanted to emphasize that.

[David McGuinty, Liberal, Ottawa South, ON]

It's interesting. We've worked together in the past, in a previous life, at the national round table. I have to say, for Canadians who are watching or following or reading, that with all due respect, Mr. d'Aquino, that is the same line I've heard for a decade. I have heard from large industrial emitters the same line about the fact that the large industrial emitters can't move forward until all Canadians are fully engaged. It's a stock response.

I'm happy to see that your organization has created an environmental responsibility panel of some kind. I'm surprised that your task force on environmental leadership was only created last year. You were involved in all kinds of issues, all kinds of task forces, all kinds of round tables in putting together solutions over the last decade, as you rightly point out.

So I'm going to take from both your answers that neither of you has concluded, and I'm assuming that all of your chief executive officers for whom you speak would share your view, that the government's plan will not achieve a 20% reduction by 2020.

[Thomas d'Aquino]

What we've said, Mr. McGuinty, to be fair, is that we have not done the analysis.

I would submit, with the greatest of respect, that no one whom I've talked to.... There has been some economic modelling done on this. We come at it from the point of view of two things, and I think you've already heard some of the testimony today.

Number one, it would be totally incorrect to suggest that we have repeated a mantra that we will not take action unless everybody does. This is nonsense. It has no connection to the real facts. In fact, while governments fiddled on this issue for a decade and a half, we were calling for a plan, a plan that was comprehensive, that was total, and that had real numbers attached to it. To suggest for a moment that we are saying, “No, no, no, if the large emitters don't see equal action from others”—it's just simply wrong. It is not in accord with the historical record.

Secondly, it seems to me that the large industrial emitters are already committed to taking action, and in fact will be compelled to take action in one form or another in provinces and at the federal level.

My point here—and I assume this committee is dedicated to what we're dedicated to, and that is how we come up with something credible that's going to work for all Canadians—is that along with industrial emitters, if we're truly committed to building a plan for Canada, we have to accept the fact that we need something that's cohesive and Canada-wide.

[David McGuinty, Liberal, Ottawa South, ON]

I don't think the official opposition needs convincing, Mr. d'Aquino, that we need a national plan. We had four provinces announcing last week that they're going it alone. I think the quote was that the government was suffering from a poverty of ambition on climate change--a very well-crafted line.

I'd like to turn now to two other witnesses who are here with us.

Ms. Rahbar, did I hear you say that the government, under its plan, will not meet 20% or 25% reductions by 2020?

[Dr. Shahrzad Rahbar]

No, I didn't say that.

There's a graph somewhere in my presentation. I'm not an economist. For my sins, I'm an engineer, actually. So I had one of our economist colleagues draw me the graphs. I wanted to see what the National Round Table targets suggest the economy should do, what Bill C-377 is proposing, and what we said we would do in 1990 and didn't act on.

The history speaks for itself. We had a bunch of lofty ambitions that we didn't meet. The National Round Table suggests that the path we should be following is a slightly slower path--to slow down, stop, and reverse.

[David McGuinty, Liberal, Ottawa South, ON]

Can I ask you this question. Is the government's plan going to price carbon, and do you think it's going to price carbon at the right price?

[Dr. Shahrzad Rahbar]

Allow me to answer that indirectly, in that on the large final emitter side, we think the regulatory structure that might be emerging is probably adequate. We've been having this conversation for a decade and a half. Are we going to get this right within the last 0.05%? Frankly, I don't care. Let's get on with it; we can course-correct.

On the other side of the economy, I'm not seeing any signals that we're seriously looking at the other 50%.

[David McGuinty, Liberal, Ottawa South, ON]

Mr. Sawyer, can I ask you? Is the government plan going to price carbon?

I mean, this is no revelation. In fact, I'm sorry that the National Round Table spent so much time telling us that we need to price carbon. This has been known for some time. I wish they had actually performed the analysis to substantiate a cap and trade versus a carbon tax, or environmental tax, as Mr. d'Aquino puts it, and the merits of one over the other. Is the government's plan going to price carbon, and do you think it's going to price carbon at a sufficient price?

[David Sawyer]

The government's plan under cap and trade, assuming it's implemented, will place a price on carbon for 50% of Canada's emissions. The question is whether that price is sufficient to hit the longer term, the deeper targets. No, it doesn't look like it is, but then again we are 13 years away from 2020, so hopefully one would (a) transition the emission price, the carbon price, that's currently under cap and trade to the broader economy and (b) ramp it up significantly.

[The Chair, Conservative, Bob Mills]

Your time is up, sorry.

Mr. Bigras, please.

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

Thank you very much, Mr. Chairman.

I would like to start by congratulating you on your briefs. I took the trouble to read the briefs twice, not once, particularly the one from the Canadian Council of Chief Executives, the CCCE. In the seven years that I have been a member of Parliament, I have noted some developments at the CCCE. It recognizes that a price must be put on carbon and it has suggested some ways of doing that—a tax or a market.

Finally, the Council says exactly what the Vice-President and Chief Economist of the Conference Board said on January 31, and the government should be listening: "At the moment, we are behaving as though GHGs could be produced and emitted with no costs whatsoever."

The business community therefore recognizes now that there is a cost involved in greenhouse gas emissions. It cannot yet put a figure on this, but it does recognize that there is a cost.

On page 7 of your brief, you say, Mr. d'Aquino: "When rules do change, governments also must be careful to reward rather than penalize companies that have taken early action."

I understand what you are getting at in your brief, but what does it actually mean? When the result of a climate change plan is to move the reference year from 1990 to 2005, to you really think that this is rewarding companies? I am thinking of the Quebec manufacturing industry, which has reduced its greenhouse gas emissions by 7% in absolute terms since 1990.

Do you not think that we should go back to the 1990 reference year in order not to penalize companies that took early action? We would actually be penalizing companies if we use 2005 emissions as the reference level.

[John Dillon]

Thank you, Mr. Bigras.

It's a complex question, as you know.

Obviously, there are sectors of our economy that, for a variety of reasons, are actually below their levels of emissions in 1990, quite contrary to what Mr. McGuinty suggested earlier when saying businesses have been waiting. In fact, those businesses have taken action for a variety of reasons, and there are real emission reductions to point to since 1990. That was done in the absence of policy on the part of Canada and the provinces, and in the absence of a firm price for carbon. Those firms did things that made sense, because they were investing in new technology, they were upgrading, and they were improving their efficiency.

Now, there are other sectors in the economy that are part of this large final emitter system that have seen significant growth in their emissions, for reasons of expansion—all of which produce economic benefits for this country. So we have a wide range of factors to look at in terms of how to make a plan.

Going back to a base of 1990 may work for some industries and not for others. That's a decision the government will have to make. But we've said that we want to make sure it's a fair and equitable plan and that it actually provides incentives for companies to continue to make the investments in the new technologies, which, at the end of the day, are the only things that are going to produce real and sustainable reductions in emissions.

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

I would like to touch on the subject of new technologies, because yesterday, the House of Commons adopted a report of the Standing Committee on Finance, which said that measures must be taken to assist the manufacturing industry. These companies do not have access to the R&D tax credit, for example, simply because they are not making any profit. The manufacturing industry made an effort in the past and reduced its greenhouse gas emissions. It still has some polluting industrial processes that date back a number of years that it would like to modernize. The fact is that the Canadian tax system penalizes these companies just because they are not making a profit.

Would it not be time to provide access to these new technologies, as you say in point 2 of your brief entitled: "The Technology Opportunities", and to make R&D tax credits refundable? Is it not time to provide for a two-year capital cost deduction over a period of five years, and make these provisions of the tax system available to manufacturing companies? The federal government is cutting back on the options open to these companies. Of course, sometimes they want to change their industrial processes for economic reasons, but this would also have a significant impact on the environment as well.

[Thomas d'Aquino]

The issues you have raised are very important in our opinion, Mr. Bigras. We acknowledge that the manufacturing sector has been very affected economically, particularly in Ontario and Quebec.

If I may, I would prefer to answer in the language of Shakespeare, rather than in that of Molière.

I just wanted to say that in our view the way we tackle the environmental challenge—and this is what building an environmental superpower involves—means not only that we come at it with a Canada-wide comprehensive policy with long-term objectives that provide clarity to business, but also that at the same time we fundamentally re-examine the tax system, because the magnitude of change that is going to be required and that you are suggesting has already begun to take place is such that under the existing tax system of Canada, we are not going to be able to deal with this issue.

For example, we have said that should governments, or the Government of Canada, or Canada eventually move to some form of carbon tax, it would have to be neutral. What do we mean by that? What we mean is that certain sectors will be hit harder than others. It will mean that the price of carbon will add to the costs of running a business, and therefore we must intelligently revisit the tax system to ensure that there is, at the very least, a neutrality.

I would make a final point on taxation. One of the reasons we are so optimistic about Canada's becoming an environmental superpower is not just that we have the resources and the skills and the talent and the financial capability to do it; it's also because we believe that as a country we can come up with new approaches to public policy—of which taxation is a central point--that will allow industries that already exist to invest in the new technologies. We will not say to them that we're sorry, but they can't compete—they're out—and put people out of work and shut down towns, but we will look to industries that have had a long record of achievement and give them the time and the incentives to be able to retool themselves.

This brings us to why these long-term strategies are so critical. It's because many of the investments have to be made with a 15-, 20-, or 30-year time horizon, and in the case of the oil sands, a 100-year time horizon. That's why we've been calling for policy certainty. That's why we need it.

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

I have one final question, Mr. Chairman. Ms. Rahbar's brief startled me.

Ms. Rahbar, you say and I quote: "Baseline of 1990 distracts the focus away from action going forward towards mining data and reconstructing the past."

I found that statement startling. You seem to favour the policy whereby polluters are paid, rather than the polluter-pay policy. Should efforts made in the past not be recognized? Would the best way of promoting innovation, technological change and social and economic progress not be to tell companies that made an effort in the past that these efforts will be considered and recognized?