Environment Committee on Feb. 6th, 2008

[John Dillon]

Most of the economic studies that I've seen--and I'm not sure about the one Mr. Sawyer is referring to--usually assume that the rest of the world is acting in concert with Canada, or at least there are no major differences in the way we're acting. That's a critical assumption in any of this economic analysis.

If we're projecting out 10 or 15 years and saying that we'll only lose 0.5% or 1% of GDP growth or one year of GDP growth, you have to look very carefully at all of the assumptions that go into that, because if Canada has a policy domain that's significantly different from our competitors, not just in the United States but in many major emerging economies, then the impact is significantly different.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Dillon, I just want to be clear. I note that some lawyers have an economic background as well. Do you have an economic background as well?

[John Dillon]

No, I'm not trained as an economist.

[Geoff Regan, Liberal, Halifax West, NS]

I don't mean to accost you with that question. I want to understand the context of what you're saying for my own benefit.

[John Dillon]

We have several economists who work for us.

[Geoff Regan, Liberal, Halifax West, NS]

Let me ask Mr. d'Aquino, Ms. Rahbar, and Mr. Sawyer something. Last week we had witnesses here on a science panel, including members of the Intergovernmental Panel on Climate Change, who argued to us that we need to stabilize emissions worldwide by 2015.

What's your view on when we need to stabilize emissions and how urgent this is?

[Thomas d'Aquino]

On the issue of how urgent it is, I can only respond and say that if you take worst-case scenarios, you would say you'd want to be able to do it at least by 2020, but sooner would be better. The reality is that's not going to happen. All you have to do is look at a China that for the last 12 years has exceeded 10% real GDP, after you look at an India that in the last five years has seen growth rates of 7% to 8% to 9%, and then look at the Brazils, the Mexicos, the Indonesias, and on and on you go.

This is one of the reasons I know all of us have wrestled with what I would call the moral argument, that wealthy nations have built their riches, and now, why is it that we should presume the developing countries should pick up the responsibility?

I have a different answer to that question. While I'm very sympathetic to the moral argument that we in the west should consume less and give more room to the developing world to grow faster, I think in fact there is a very different answer to that question.

I visit China on a regular basis. The Chinese will take dramatic action to curtail greenhouse gases and to implement energy efficient technologies. Why? It's not because they want to be good to you or me or to say they're good citizens, but they will do it because they have no choice.

If you have visited China—and I expect you have—you will know that 16 of the 20 most polluted cities in the world happen to be Chinese cities. The majority of Chinese soil is toxic. The majority of Chinese rivers are toxic. These people love their children and grandchildren just as much as we do, and that is one of the reasons, in a number of areas, we're already starting to see startling leaps in technology.

So the issue of whether we should be making room for them and whether they should just simply jump ahead and pay no attention is not going to be relevant, because these people have to live, just the way we do.

But in answer to your question, we will not see stabilization by 2015, and what will that mean? I don't know what it will mean, but to come back to something that—

[Geoff Regan, Liberal, Halifax West, NS]

That wasn't my question.

In your view, do you disagree with that as a deadline?

[Thomas d'Aquino]

In my view, all of us should be pushing in the same direction as quickly as we possibly can, and if that means we get to a point where we can achieve stabilization by the year 2030, I will be a very happy camper. But to suggest that it will happen by 2015 is living in a dream world. It simply will not happen.

[The Chair, Conservative, Bob Mills]

Thank you.

Mr. Watson, please.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair, and thank you to our witnesses.

I think we're into some very interesting discussion here. I have a number of questions. I'm afraid I'm not going to have enough time to ask them. But I want to start with the targets, because this bill is predominantly about targets.

We've heard that they're scientific targets, reflecting, of course, the IPCC's targets—targets that were assigned, though, interestingly enough, only to developed countries. There was a decision made not to model targets for developing countries, and that decision was not based on scientific considerations—that is, whether there was enough data to quantify them—but on a values judgment. So the discussion about scientific targets in this particular bill has to be questioned on whether they are entirely based on science.

I agree that there is a problem here, but there is a legitimate discussion for policy-makers in this country about what Canadian targets should look like and whether or not we should be putting pressure on developing countries to assume targets. That's based on values decisions, so I think that is an important component of this.

But since we're here about the economics, Mr. Sawyer, every economic modelling is based, of course, on the assumptions you're putting in, and what you put in determines what you're going to get out of your analysis.

I want to ask you a sector-specific question. Have you done any modelling on effects to the auto industry, for example, and would you be prepared to if you haven't?

[David Sawyer]

The auto industry is an interesting case. No, I haven't specifically modelled that sector, but it is in the model, and it comes under other manufacturing or light manufacturing.

On the emissions from that sector, from production, there's no issue, really. It is really about selling cars and the transportation side, and what you do there. It seems to me that sector is very insensitive to the emission price, and that explains why emission standards and ethanol fuel standards are really being driven forward.

[Jeff Watson, Conservative, Essex, ON]

Exactly.

By GDP assessments, do you mean simply the cost of compliance, or do those include the income replacement cost you talked about? There is job loss and increased costs for energy, for example, that eat into fixed income for seniors. Are those costs reflected in your analysis of cost, for example?

[David Sawyer]

No, they're not.

GDP is not a great number or a great estimator of national welfare, meaning well-being. The model does kick that sort of information out, and the numbers aren't large, so you can think about it. Those are the types of questions that need to be asked and answered.

[Jeff Watson, Conservative, Essex, ON]

Have you any guess at quantifying that number, or is there any kind of--

[David Sawyer]

Which number would that be?

[Jeff Watson, Conservative, Essex, ON]

I mean the income replacement costs to getting ready.

[David Sawyer]

We don't have numbers for lost income, but you could look at the burden on households, and you could look at the burden on the various income strata—deciles they call them—to see the impact. Then if there is an impact, say in the cement industry, one designs policy to address it. You cut a cheque to the pensioner to deal with their rising energy costs.

[Jeff Watson, Conservative, Essex, ON]

Do economists do any modelling? For example, if these high-paying jobs are lost in the short term, there are effects for charitable giving in communities. The auto industries, for example, are some of the highest charitable givers. For those types of replacement costs, the government may have to step in and fund additional services, for example. Are those costs reflected in your analysis?

[David Sawyer]

No.

[Jeff Watson, Conservative, Essex, ON]

Okay.

Regarding price signals, let's talk automotive for a second. Thirty-five miles per gallon is the standard for the new U.S. reform CAFE, and that has to be achieved in two vehicle product cycles. If we harmonized with that type of regulation, for example, it would send a very definite price signal to the auto industry, one I don't have a specific number for. I don't know whether that's something you could model. That will affect transportation choices for Canadians: vehicle choice, materials, technologies, manufacturing locations, and changes to collective bargaining agreements potentially. There are a lot.

What I'm getting at, in terms of economic modelling, is that if you want to capture costs, there are a lot of costs that could be captured in here. Are some of those things addressed? Those are additional corollary things that we have to consider.

[David Sawyer]

No. This is the notion that sectoral impacts matter. At the national level, there is not a big impact. Again, those types of questions have to be looked at. One has to think about them and then one has to basically design a policy to address them.

[Jeff Watson, Conservative, Essex, ON]

Mr. d'Aquino, to come to your point about the profound transformative change--35 miles per gallon, for example--there are only two vehicles that match that target: one is a Honda Fit and the other is the Toyota Yaris. For those of us, say, with a family like mine, with five kids and a wife, we have a long way to go, and to do that in two product cycles we would begin to see how we must grapple with enormous short-term costs. I think that's something policy-makers have to be concerned about. I think we could all see the gains of spreading this out over the long term, but when we're talking about economic costs, we have to understand what the transformation is going to look like and factor that into our policy decisions.

Thank you, Mr. Chair.

[The Chair, Conservative, Bob Mills]

Thank you, Mr. Watson, and thank you, panel.

This has certainly been one of our better panels, I think, and I think everybody has learned something from this. If I had to summarize, what I heard was that we need to involve 100% of all people and all industries, and probably the other message might be “let's get on with it”.

I would like to thank you, panel.

I would like to remind the members that we have been invited to the EU ambassador's for dinner on Wednesday. I trust you all received that invitation in your office when it was sent out. It's next Wednesday. If you are interested, if you could let Norm know, he will pass that on to the ambassador.

Thank you very much. The meeting is adjourned.