Environment Committee on Nov. 26th, 2009

[Prof. Yazid Dissou]

When I talk about technological progress here, we need to take into consideration that if we happen to put in place a cap-and-trade system, we are going to get some revenue. The question will come to this: how do we use the revenue?

The point I'm going to make here is that taking part of the revenue that we get in order to subsidize our technological research and development--for example, to subsidize innovation--will help us, because just relying on the cap and trade, thinking this will solve the climate change problem, would be very difficult in the long run. As we keep growing and we keep the level of total emissions constant, the effort we'll have to make in terms of a reduction in GDP, for example, will increase. So in order to relax that constraint in terms of emissions, we need to find some ways in order to be less dependent on energy, for example, or to decouple energy and emissions to some extent.

That's the reason I'm talking about technological progress, and we need necessarily to fund R and D, research and development, activities in order to move forward on this particular program. That's what I mean.

[The Chair, Conservative, James Bezan]

Thank you. Your time has expired, Mr. Braid.

Before we kick off the third round, I just have a quick question for Professor Plourde. In your testimony you mentioned the bill and talked about some of the problems you have with subclause 10(1) as it relates to the regulations that are to be made in clause 7.

Again, it comes down to your comment that here at least you see some targets. Whether they're credible or not is an issue that you brought up, but there isn't a clear definition of how we do the interim planning and development of those policies and the regulations. I just want to get a little more feedback from you on what you, as an economist, see in that policy framework, if there is enough here to actually develop those interim measures to develop a credible final outcome.

[Prof. André Plourde]

I think the two, in some sense, are separable. If you think of this legislation as identifying a process, then the process itself would need to identify what the measures are. There doesn't appear to be in this any indication of measures specifically. So you need the regulations under this legislation that identify what the measures are, and then you need a plan--here's how we're going to get there and here's how the provinces, the territories, the municipalities, are going to play in. In and of itself, that's lacking in here, but that's probably the function of regulations as opposed to legislation.

[The Chair, Conservative, James Bezan]

Thank you. I just wanted to get a little more clarification.

We have roughly 12 minutes left. We'll start the third round and give three minutes to each political party.

Mr. Scarpaleggia, you can lead us off.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

According to Ms. Peace, representing the Pew Centre at our meeting last Tuesday, the North American emissions trading system will not be established before 2013-2014, according to the most optimistic of scenarios.

If so, how could we meet a 25% target? I know that we can implement other measures, but the idea of a carbon market is one of the main ones. In this sense, it will be practically impossible to reach the 25% target. I will ask my second question, and then I will hand over the floor to my colleague.

How can we be sure, if we are subsidizing companies for them to take on more energy efficient technologies, that this change would not have taken place anyways?

[Prof. Yazid Dissou]

Apart from the current climate problems, we must consider the life span of our energy resources, which is nearing its end. Beginning today, we must take measures to find the right technologies which will help us get around that situation.

Regarding investment for the development of new technologies, the problem is that there is a market deficiency, or a market failure. Indeed, when a company develops a technology, it does not necessarily recoup its investment. This is the main reason why governments need to intervene. They must correct this market failure by granting, even if it's only on a temporary basis, subsidies to allow these companies to develop the technologies we need.

[Justin Trudeau, Liberal, Papineau, QC]

Is there any time left?

[The Chair, Conservative, James Bezan]

You have 15 seconds.

[Justin Trudeau, Liberal, Papineau, QC]

Okay, quickly, the presentation we heard two days ago from the U.S. experts talked about the fact that it would be better to establish a Canadian plan independently of the American lawmakers' process and then try to merge the two. Do you think the clean energy dialogue the U.S. and Canada are engaged in is sufficient engagement to create a continental approach?

[The Chair, Conservative, James Bezan]

A very quick response.

[Prof. André Plourde]

It's hard to see how this focus just on clean energy will get to a broader context. It may be a first step, but it's a long way away, I would argue.

I don't think we have a choice but to devise a Canadian policy; however, develop it in parallel with what the Americans are doing so it's easy to bring together down the road.

[The Chair, Conservative, James Bezan]

Thank you very much.

Mr. Bigras, you have three minutes.

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

Thank you, Mr. Chairman. I would like to address the issue of adjustments at the border, particularly import tariffs. I was recently reading a report of the National Round Table on the Environment and the Economy, which said that adjustments at the border would be extremely costly for the Canadian economy.

As my colleague said a little earlier, three bills are being studied, including two which would impose important tariffs. One bill would apply these tariffs beginning in 2012—I stand to be corrected, however—and the other one would begin imposing them in 2030. That's one thing. In the meantime, Europe is discussing import duties, which the European Commission seems to support. That greatly concerns me. In fact, on Monday, the Premier of Quebec talked about this. Please understand that one-third of Canadian exports to Europe come from Quebec. Discussions are fairly advanced on a free trade agreement between Canada and Europe, which would increase Canadian exports to the old continent by 20%.

Is there not a risk that Canadian companies would incur additional costs if we do not commit to serious greenhouse gas reductions? Do you believe that an import tax would be detrimental to both the Quebec and Canadian economies, which seek to significantly increase their access to the European market over the coming years? If the agreement is signed, it could boost the Canadian economy by $12 billion.

My question is for both witnesses.

[Prof. Yazid Dissou]

There are two parts to your question. If Canada imposes tariffs to counter imports from countries which have not reduce their greenhouse gas emissions—

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

Actually, I am more worried about the opposite...

[Prof. Yazid Dissou]

I will first address that aspect. I have just completed a study in August which shows that, even if we think this kind of measure could reduce emissions in other countries, the net result would be an increase in Canada's production costs, or in any country which adopts these measures.

Let's look at the case of steel import from China. Chinese steel is used by our industries to produce goods. If we increase the tariffs on Chinese steel imports, it would simply increase our production costs and generally be bad for us. That is the first repercussion I envisage.

The second aspect concerns our industries which export toward Europe. They will basically be at the receiving end of measures taken by the Europeans. That's clear. If the Europeans apply import duties on countries which do not reduce their greenhouse gases, there is no doubt this will affect us, which is why we must also take measures similar to those of other countries.

In my opinion, applying these tariffs represents a threat for countries who have not yet taken measures to bring down their greenhouse gas emissions, it would be a means of persuading them to do so. But it's actually working. China has just announced that it will begin to take measures to reduce its greenhouse gases, if only slightly, by bringing down the intensity of its emissions. However, implementing these measures is bad for the country which does so in the first place, and it is also bad for the country which is targeted by this type of policy.

Generally speaking then, I would say that if one country imposes this type of tariffs, it would mean that everyone else will be forced to adopt a similar policy, including, of course, Canada—

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

Do you think this policy will pass the WTO test?

[The Chair, Conservative, James Bezan]

Merci beaucoup. Your time has expired.

Mr. Cullen, please.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you, Chair.

It's an interesting conversation with respect to the risk of tariffs. Europeans have mused about this at least for five years now in a serious way, and the Americans seem to be contemplating it in legislation as well. If this were another issue for the government, such as the imposition of a potential tariff on Canadian goods going across the border to the U.S. or across the ocean to Europe, I wonder if they would be taking it slightly more seriously.

We saw the “buy America” reaction from this government, which was a full court press trying to reverse it. It was unsuccessful in the end, but the effort was certainly there. We have some similar risk, I would suggest, on the horizon.

There was an attempt by some of my colleagues to somehow link the notion of differentiated targets between us and the U.S. to a differentiation in price, but I'm confused by that line of logic simply because an integrated cap-and-trade market achieves and establishes a price per tonne of carbon. And I'm taking the European example, for example, where countries have differentiated targets, they trade upon the same market, but the price for a German tonne of greenhouse gas is no different from a French or a Belgian tonne. Am I right?

Just for clarity for the record, the witnesses both nodded “yes”.

[Prof. André Plourde]

The only thing is that what you can't do with a single price of carbon is hit two different targets.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Exactly.

[Prof. André Plourde]

For example, if Canada were to have a more ambitious target than the U.S., then other kinds of measures would need to be brought in to reduce greenhouse gas emissions. But in terms of the permits themselves, unless there was something different in the design of them, there would be a single price.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you.

I think that's important, because there is some allusion being made that prices will be different for an operation on the Canadian side of the border on a greenhouse gas tonne than they would be to the south of the border.

A certain clause of this bill, clause 10, talks about the minister coming forward and producing a report both to Parliament and to the Canadian people outlining the past year's effort and then going forward over the next in terms of expectations and costs per tonne. I can recall a bill in which this Parliament moved well over $1 billion for an ethanol subsidy, a biofuel subsidy that was to go in to augment the price. We asked the government to cost that initiative time and time again. This was a specific money bill. Similar to the questions we're hearing from the government today, we asked the government to cost that bill as to the cost per tonne, and they were unable to. They are still unable to say how much greenhouse gas emissions were saved as a result of the expenditure by the Canadian taxpayer. So clause 10 requires that the minister come forward and as best as possible delineate what's happened and delineate the projections forward.

If this had been in place with Canada's previous iterations of climate change plans, do you think we would be in a better situation right now if the government of the day had to report every year going forward to Canadians as to what's happened?

[Prof. André Plourde]

I think you'd have more information in terms of what's actually happening. But what you don't have in this bill either is a cost-effectiveness issue. The bill does not ask the question of how you got there and the effort needed to get there.

[The Chair, Conservative, James Bezan]

Before I turn the final questioning over to Mr. Woodworth, I just want to follow up on one comment that Mr. Cullen made and see if you can give clarification. It's the difference in pricing of carbon between us and the United States. In the Waxman-Markey bill they are talking about carbon rising to a cost of $26 a metric tonne by 2019. You guys as economists must be familiar with the recent report that was put together by MK Jaccard, where they are stating that under the Canadian targets the carbon price will be around $100 a tonne, and if we adopt the Bill C-311 targets, carbon will have to go up to $200 a tonne by 2020.

I'm just wondering if you have comments on why there is this discrepancy if we want to have an integrated approach.