Environment Committee on Jan. 28th, 2019

[The Chair, Mr. John Aldag (Cloverdale—Langley City, Lib.)]

Good afternoon, everyone, and welcome back. This is our first meeting of the environment and sustainable development committee in the new year.

Before we get started, I would like to welcome Mr. Shipley, who is a guest with us today, and Ms. May, who is joining us.

Welcome, Elizabeth.

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Thank you, Mr. Chair.

[The Chair]

Welcome to our witnesses. We're really glad that each of you could be here with us today.

The way we work is that each of you will be given 10 minutes for your opening comments, and then we'll go into a round of questions, generally six minutes from each member, rotating among the various parties.

I use a card system. When you have one minute left, I will give you the yellow card. That's just a warning to be ready to start wrapping it up. That includes both time during your statements and during the question and answer period. When you get to the end of the time period you have been allotted, I will give you the red card. You don't have to stop mid-sentence, but when you get the red card, just wrap up your thoughts, and then we will move on to the next round of questions.

This is a continuation of a study we were working on before Christmas. It was on international leadership. The request or discussion from the committee was that we wanted to have a bit of time, so we're allocating four hours to discuss pricing pollution. That's really the theme today, under the context of international leadership.

As we get to each of you, I will introduce you.

Mr. Leach, would you like to start? I believe you're appearing today as an individual. With that, please start with your 10-minute opening statement.

[Dr. Andrew Leach, Associate Professor, Alberta School of Business, University of Alberta, As an Individual]

Thank you very much, Mr. Chair and members of the committee.

Thank you for inviting me today.

It's a pleasure to be here to make the case in favour of carbon pricing and to dispel some of the myths I think we've seen out in public on these policies.

By way of introduction, I'm an associate professor at the University of Alberta, where I teach in our energy and the environment program. For context, I've previously served as visiting scholar at Environment Canada, in 2012 and 2013, and as chair of Alberta's climate leadership panel, in 2015. So I think that makes me the only person who's worked on climate policy under Rachel Notley and Stephen Harper. Since 2016, just for your reference, I've also contributed some analysis to the federal carbon pricing program we're discussing in part today.

With that in mind, the fact that we are here today is a bit telling. Despite the fact that carbon pricing has been in place in Canada for 10 years or more in various jurisdictions, we're still seeing a discussion that relies a lot on staunch opposition and misinformation about these policies.

Despite this, there's near unanimity among economists that imposing a price on carbon is going to deliver emissions reductions at the lowest overall cost to the economy. You've probably heard this over and over again as people present to you. Let me put some clarity around why that is, and you'll probably hear the same message from my colleagues here as well. It's because leveraging the market allows individuals and firms to make decisions not just about how and when to reduce emissions, but also about how and when to emit. It allows those with the most information about the value of those emissions to make decisions as to whether or not to pay the carbon price. We know from principles of economics that to derive the maximum benefit from these policies, we want to apply them as broadly as possible across the economy.

With that in mind, I'd like to address, in my opening statement, a few of the common questions and myths that we see out there about carbon pricing.

I think the one that is most common today is probably the question of why we should tax consumer emissions or deal with the consumers at all. We see Canada's emissions often being painted, from all sides, really, as a large industry issue. I think the most recent incarnation of this is Premier Ford's call to penalize polluters, not commuters. Here's the problem with that. Nationally, about two-thirds of our emissions come from small emitters—buildings, houses, people, factories, etc.—not from large industrial facilities. In some provinces, that share is going to be over 90%. If you have a policy that exempts these emissions or only partially addresses them, that means you're going to end up with more expensive overall emissions reductions and punitive costs on a few industries.

What about impacts on low-income Canadians? Certainly, from our experience in Alberta, that was really important to the Government of Alberta, not to implement a policy that was regressive. Similar concerns come forward for rural residents. As economists, we acknowledge that carbon taxes may be, although not necessarily, regressive, and the concerns about impacts on households or rural regions are real. We need to keep our minds on that, that assessing distributional impacts is important, but also realize that, where these policies have been implemented, the use of carbon tax revenues has mostly been able to offset those concerns through lump-sum rebates, fiscal benefits, etc. With that in mind, though, we must also be careful not to claim that those rebates or transfers are sufficient to make everyone better off. They're not. There are still going to be those in every income group who are made worse off by the policies.

Another thing we must be careful to recognize is that even though the rebates are provided, this does not take away from the effectiveness of the carbon price. The price still applies on emissions. That's what changes behaviour: not the fact that people's disposable income decreases, but that the relative prices change. I do notice occasionally that those who have a lot of concerns about regressive impacts tend to become very concerned with redistribution of revenues to address those concerns as well.

Next, we have concerns about large industries, and in particular competitiveness impacts on trade-exposed sectors. I know you're interested in global aspects of carbon pricing here as well. I think that, first, we need to recognize that these concerns are real and that they particularly affect our resource-dependent provinces, including my home province of Alberta. But here also, economics research gives us a clear solution, which is allocating emissions credits on the basis of output and doing that with a carbon price, so that you don't reduce the overall profitability of the sector but maintain the price signal that exists on emissions and provides firms a reason to innovate. Not surprisingly, those with concerns about competitiveness also have concerns about these allocations, and we've seen, for example, the Leader of the Opposition calling them exemptions.

That's actually the area of a lot of my research, which is to look at “Does this behave the same as an exemption?” The answer is no, it does not. For example, for oil sands firms, you would see those firms capturing the same benefit from an emissions-reducing technology under a carbon tax or a carbon price with output-based allocations as they would from a carbon price alone. That wouldn't be the case if it were a straight exemption.

Relating to innovation, we see a lot of claims. I'll draw an example. We saw in the New York Times in December the U.S. Senate environment committee chair arguing that making energy as clean as we can as fast as we can without raising costs to consumers will be accomplished through investment, invention and innovation. This is pretty common. We see these put up as essentially a dichotomy: that we should either price carbon or innovate. I'd like to say that this is really a false dichotomy. Economists—David Popp is a great example of this—consistently find that price-based policies provide better incentives for innovation than do regulations, and they come without the expense of direct subsidies.

Lastly, does this mean that carbon pricing is a panacea or the only option available to us? Absolutely not, and it shouldn't be painted as such. Regulations, subsidies and other policies can have and have had large impacts on emissions. What the evidence tells us is that if you want to reduce emissions at the lowest total cost to the economy and provide the best stimulus to innovation, you do so through a carbon price.

Thank you for welcoming me here today.

I'm ready to answer your questions.

Thank you.

[The Chair]

Thank you.

Now we have Mr. Rivers, who is also appearing here today as an individual.

We'll jump right into it with your 10-minute opening statement.

[Dr. Nicholas Rivers, Associate Professor, University of Ottawa, As an Individual]

Thanks very much for inviting me to speak to you about international leadership and pricing pollution.

I am an environmental economist who studies the design of climate change policies. My research has touched on the cost-effectiveness of alternative climate change policies, the impacts of climate policies on the distribution of household income and the impacts of climate policies on greenhouse gas emissions. My comments today are based on that body of research.

l'd like to start by pointing to the overwhelming consensus among economists that the best way to tackle climate change is by imposing a price on carbon emissions. As you probably know, economists are not noted for agreeing with one another, so the recent statement by U.S. economists supporting carbon pricing, published in The Wall Street Journal, is notable due to the remarkable consensus on the issue. The statement in support of carbon prices is signed by all four living former chairs of the U.S. Federal Reserve, by 27 Nobel laureate economists—that's virtually every single living Nobel economist—and by 15 former chairs of the Council of Economic Advisers, among others. Similar statements have been made by Canadian economists, again representing a very broad cross-section of the profession. Similarly, in a poll of leading economists by the Chicago Booth School of Business, not a single economist disputed the idea of imposing a carbon price.

Economists consider a price on carbon to be the best approach to tackling greenhouse gas emissions, because it leverages the invisible hand of the market in reducing emissions. Without a carbon price in place, individuals and businesses have no incentive not to emit. They can use the atmosphere as a free waste dump. With an appropriate carbon price in place, individuals and businesses are given incentives to reduce their emissions. Likewise, a carbon price provides entrepreneurs with incentives to direct their research efforts toward low-carbon technologies. That helps make it cheaper in the future to reduce emissions, just as Andrew was saying.

Importantly, a carbon price provides lots of flexibility by allowing individuals and businesses to tailor their response to their own situation. This is a key feature that separates carbon pricing from a regulatory approach to reducing greenhouse gas emissions, and it is why carbon pricing is considered a much more cost-effective approach to reducing greenhouse gas emissions than a regulatory approach.

I'd like to take my time with the committee to bring up two points related to my research on carbon pricing. First, there is evidence that carbon pricing works and does reduce greenhouse gas emissions. Second, the economic costs of a carbon price are modest.

On the first point, evidence is now accumulating from jurisdictions around the world that have imposed carbon prices. This evidence shows that carbon prices have succeeded in reducing emissions. I have studied the case of British Columbia, which first imposed a carbon price a decade ago. My research shows that the $30 per tonne carbon price has reduced gasoline consumption and emissions by about 8% from where it otherwise would have been without the tax. At least three other studies using different data sets and approaches report very similar findings. Other studies have found similar impacts of the British Columbia carbon tax on diesel consumption and on residential natural gas consumption.

ln Alberta, carbon pricing has already substantially reduced emissions from electricity generation. Across the ocean, carbon pricing has been employed to reduce emissions from transport in Sweden, and to reduce emissions from industry in France, Germany and the United Kingdom. Just as in British Columbia, research on these cases shows that carbon pricing has reduced greenhouse gas emissions in the covered sectors. Of course, this shouldn't come as a surprise. When the price of something is increased, individuals and businesses consume less of it.

The second point l'd like to make concerns the economic impact of carbon pricing. ln places where a carbon price has been employed for some time, it is not possible to observe any impact of the carbon price on economic output. Either there is no impact, or else the impact is too small for us to measure. For example, British Columbia has had a carbon price for a decade, and over that period its economy has grown faster than that of every other Canadian province.

Economists have also conducted hundreds of modelling studies trying to estimate the potential impact of carbon pricing based on computer models of the economy, and here again there is substantial consensus. The impact of a carbon price on the economy will be very small. For example, the Stanford Energy Modeling Forum recently convened a dozen different modelling groups to estimate the potential impact of a carbon price, and all of them reported that the impact of such a policy would be very small, even if the tax level was raised substantially over time. A significant body of research also tells us that carbon pricing will be less costly than other approaches to reducing greenhouse gas emissions.

Overall, in my view, the carbon pricing approach chosen by the federal government is very well supported by the available evidence. lt will reduce emissions at very low overall cost to the economy and at lower cost than the competing approaches.

The approach Canada has adopted builds on 15 years of international experience with carbon pricing. It places Canada in the vanguard of jurisdictions that are seriously trying to tackle carbon emissions.

I offer one point in closing. While the evidence is clear that carbon pricing reduces greenhouse gas emissions, it is also clear that the level of carbon price currently adopted is not sufficient to reach our long-term environmental goals. A key focus for government going forward should be in building on this approach and clearly identifying the policies that will help us to dramatically reduce our emissions of greenhouse gases by mid-century and onwards.

Thanks very much for your time.

[The Chair]

Thank you.

Our next opening statement will come from Dale Beugin from Canada’s Ecofiscal Commission.

We'll turn it over to you for your opening comments.

[Dale Beugin, Executive Director, Canada's Ecofiscal Commission]

Thank you very much for the opportunity to speak to you today about carbon pricing. I represent Canada's Ecofiscal Commission, a group of leading economists from across the country. The Ecofiscal commissioners are also supported by an advisory board with representation from across the political spectrum.

Through multiple research reports, Ecofiscal has strongly recommended carbon pricing as the most cost-effective approach to reducing greenhouse gas emissions in Canada. Let me structure my remarks today around expected outcomes of carbon pricing relative to other policy options and other possible approaches.

The first area is environmental impacts. As we know, the main objective of climate policy is to reduce greenhouse gas emissions. To be clear, policy is required to achieve this objective. Absent policy action, our emissions will continue to increase and we will not meet our national objectives. Those emissions will contribute to global climate change, the costs of which will likely be very large. The recent national climate assessment in the U.S. highlighted global impacts and very large economic costs. Similar impacts might be expected in various sectors in Canada.

Both economic theory and policy experience are very clear that carbon pricing is effective in reducing greenhouse gas emissions. Carbon pricing creates incentives for businesses and emitters to avoid paying the price by taking action, whether that's adopting technologies or changing behaviour, to do so. In the longer term, it also increases the value of new emerging technologies that reduce more emissions at lower cost. As a result, as Professor Rivers indicated, carbon pricing can be a powerful driver of low-carbon innovation over time.

In practical experience terms, in B.C., according to rigorous research by various economists, we know that greenhouse gas emissions would be 5% to 15% higher if B.C. had not implemented its carbon tax. It reduced emissions from where they would otherwise have been. Early evidence also suggests that Alberta is shifting away from coal-fired electricity, in part in response to that carbon price. There were similar outcomes in the United Kingdom with their electricity system, and deep improvements in emissions intensity in Sweden, where they've had carbon pricing for a long time.

Notably, other policies can reduce GHG emissions. Regulations can require specific outcomes, whether through performance standards requiring levels of emissions intensity at a firm or sector-level basis, or even through requiring the adoption of a specific technology. Subsidies can also reduce emissions. They can use public dollars to provide incentives for emitters to adopt emission-reducing technologies, processes or behaviours.

Importantly, however, while all those instrument options can reduce emissions, they don't compare similarly in other interventions. Overall economic impacts are a great example. Carbon pricing can achieve a given level of emissions reductions at the lowest possible cost relative to those alternatives. The reason it does so is that it creates flexibility for emitters. Individuals and businesses can make their own choices about how and when they reduce greenhouse gas emissions to avoid paying that carbon price. That's why economic analysis finds that the impact on the economy, even of high carbon prices, is likely to be very small. Ecofiscal's own modelling projects strong economic growth under a carbon price in Canada that rises to $100 per tonne by 2027. No matter how that revenue is recycled back to the economy, growth remains strong and positive. Impacts on growth are very modest at most, and negligible in several of those scenarios.

B.C.'s carbon price has existed since 2008, and B.C. has some of the strongest growth in the country. The carbon price is not the reason for this performance, but B.C.'s experience does show that carbon pricing has not prevented strong economic growth in B.C.

What about those other policies? Subsidies are more expensive than carbon pricing for three reasons. They require governments to pick winners, choosing the technology or activities to be subsidized. Government is not always good at making those choices, and it is less good than the market at doing so. It also requires public dollars to fund those subsidies, which requires increasing taxes or reducing other government services. Finally, those subsidies are often paid to emitters who would have taken the action anyway, even in the absence of the subsidy. For example, Ecofiscal's analysis has found that subsidies for electric vehicle purchases cost about $400 per tonne of CO2 reduced. Part of the reason is that the subsidy was paid to purchasers of EVs who would have bought the EV even with no subsidy or with a much smaller subsidy.

Regulations tend to be more expensive than carbon pricing because they rely on government, not the market, to identify means or sectors or timing for reducing emissions. Flexible regulations, if implemented optimally and designed to rely on market mechanisms similar to carbon pricing, can come close to performing as carbon pricing does.

Here is one more example. Ecofiscal's analysis found that, historically, combinations of regulations and subsidies for ethanol cost around $180 per tonne of emissions reduced. Again, they supported specific technologies rather than being agnostic as to where and when emissions were reduced.

With regard to impacts on business, well-designed carbon pricing can reduce emissions while also protecting the competitiveness of Canadian businesses, even while some of our trading partners do not price carbon. Ecofiscal's analysis suggests that output-based carbon pricing can create incentive for industry to reduce greenhouse gas emissions by improving emissions performance, not by reducing production or shifting investment to other jurisdictions. This is the approach pioneered in Alberta under the specified gas emitters regulation and subsequently improved under the carbon competitiveness incentive regulation. It is also the approach being proposed in the federal backstop.

Carbon pricing provides advantages for businesses over other approaches such as regulations because it is simple and transparent, and it's also flexible, non-prescriptive and cost-minimizing. Perhaps for these reasons, the Canadian Chamber of Commerce recently indicated that it supported carbon pricing rather than regulatory approaches to drive a low-carbon transition in Canada.

With regard to impacts on households, when considering net impacts of carbon pricing on individual households, we have to consider the impacts both of carbon price and of the use of revenue generated. Credible analysis from the federal government finds that for 80% of households, rebates would exceed carbon costs under the backstop carbon pricing policy. Notably, these rebates would not undermine the incentive to reduce emissions. The rebate is independent of the carbon price itself. Emitters can reduce their emissions and generate that tax rebate. Finally, carbon pricing can also be designed to be fair. Rebates to households can ensure the policy does not disproportionately affect low-income households.

What about those other policies? Importantly, those other policies also have costs for households, though they would not have the benefits from revenue recycling. Regulations impose indirect costs on households, as businesses will pass on the costs that they require under regulations. As we noted before, to achieve a given level of emissions reductions, regulations would require greater overall costs than would carbon pricing.

Similarly, subsidies require additional revenue. That means either reducing other government spending or generating new revenue through new taxes, which will impose costs on the economy and also impose costs on households.

Let me sum up with these points.

Carbon pricing works. It is the most cost-effective policy option available to reduce greenhouse gas emissions. It can and should be designed to protect business competitiveness but also to ensure fairness for low-income households.

Thank you very much for the invitation today. I look forward to your questions.

[The Chair]

Thank you.

We'll move on to Mr. Mark Cameron, executive director with Clean Prosperity.

[Mark Cameron, Executive Director, Clean Prosperity]

Thank you.

I'd like to thank the committee for inviting me to appear this afternoon with such a distinguished group of fellow witnesses. I'm the only person here today who's not an economist. However, I have spent a lot of time in committee rooms like this over the years as a staffer to MPs and ministers, so I suppose I'm here to provide simultaneous translation from “economese” to English.

Canadians for Clean Prosperity is a not-for-profit organization that promotes market-based solutions to environmental challenges. In particular, since our foundation five years ago, we've been advocates of revenue-neutral carbon taxation as the best response to the challenge of climate change for the reasons that my fellow witnesses have given. We've also been active in the debates over carbon pricing across Canada, at both the federal and the provincial levels.

Today I want to talk about why carbon pricing, and the current federal approach with the carbon pricing backstop legislation, is so important and how it can help contribute to the international search for answers to climate change.

I note that the committee is studying the international leadership component of the pan-Canadian framework. I want to suggest that what Canada is doing with carbon pricing under the framework, and the federal backstop legislation that ensures its consistency across the country, is in fact an internationally significant precedent.

If Canada succeeds over the next few years in bringing together a national carbon pricing framework supported by the backstop, we will position ourselves as leaders internationally, and there is good reason to think that other jurisdictions, especially the United States, will take notice. If, on the other hand, our attempt to build national-scale carbon pricing falls apart due to politics, then Canada will serve as a warning lesson about the difficulty of carbon pricing, which may discourage further international action.

As you know, there are several different forms of carbon pricing, and Canada has had some experience with almost all of them.

First, there is a straight carbon tax, generally charged on all fossil fuel combustion, which British Columbia was a pioneer in implementing. In many ways, the B.C. carbon tax brought in under former premier Gordon Campbell is the textbook model of how a revenue-neutral carbon tax is supposed to operate. It has been extensively studied, including through the work that Dr. Rivers and others have done.

Second, there is cap and trade, where a jurisdiction-wide cap is set on emissions and where firms need to purchase allowances, usually through an auction, in order to emit. The European trading system and the Western Climate Initiative, based out of California, are two of the most prominent examples. Quebec is—and, until recently, Ontario was—a partner in WCI and brought this model of cap and trade to Canada.

Another variant is sometimes called “baseline and credit”, where firms are given a baseline level of allowable emissions, often based on the intensity of emissions as compared to their industrial sector. Depending on whether their emissions are above or below the baseline, they either have to purchase credits or can earn credits.

Alberta's specified gas emitters regulation, brought in under the Conservative government there in 2007, was an example of that. The current carbon competitiveness incentive regulation, which was designed with the help of fellow panellist Andrew Leach, and the federal output-based pricing system for large industry are based on this model. I'd add that both the Saskatchewan and the Ontario governments have very similar proposals for their industrial carbon pricing. Today, Saskatchewan actually has in place an output-based pricing system at $20 per tonne for its industrial sectors.

Yet another variant of carbon pricing is sometimes known as “carbon fee and dividend”. Under carbon fee and dividend, which is really a variant of carbon tax, a carbon fee is charged on all combustion emissions. The resulting revenue is then returned by government as an equal per capita dividend to all the citizens of the jurisdiction.

This model has had quite a lot of popular, grassroots support and some political support in the United States. Two organizations, the Citizens' Climate Lobby and the Climate Leadership Council, have been active proponents of the fee and dividend model. Several bills with bipartisan support have been introduced into the U.S. Congress based on fee and dividend models, although so far none have actually made it to a vote in the House of Representatives or the Senate.

In early 2018, a number of prominent American leaders and major corporations put their support behind a carbon dividend plan promoted by two former Republican secretaries of state and treasury, James Baker and George Shultz. If there is any type of carbon pricing that has a chance of succeeding politically in the United States with bipartisan support, it would likely be some version of a carbon fee and dividend system. The closest thing we have to a carbon fee and dividend system in the world today is the federal carbon pricing backstop legislation. It charges a direct fee, the fuel charge, on all fossil fuel emissions in provinces that fall under the backstop, and, by law, the federal government is required to return all revenue to the province or territory that it is collected in.

Last fall, the federal government announced that 90% of the fuel charge revenue would be returned directly to households as direct rebates, which would be equal per capita for the first tax filer in every household, with proportionate amounts for the spouse, or second filer, and dependent children. The remaining 10% would be redistributed to small business, schools, hospitals, and other organizations facing the carbon price.

Analysis, including research done by my fellow witness Dave Sawyer for Canadians for Clean Prosperity, shows that this kind of fee and dividend system would leave most households better off. In fact, the federal government estimates that eight out of 10 Ontario households would be better off after the federal climate action incentives.

What we're seeing play out in the four provinces in Canada, accounting for roughly 50% of our population and GDP, is the first large-scale test of how a fee and dividend model could work in practice. If this is seen to be positive and succeeds in reducing emissions while keeping most consumers and households whole from the price impacts, then this is going to be an important example internationally that will be looked at closely in the United States and elsewhere.

If it is undermined, and Canada unravels the progress we've made on carbon pricing, then we're going to make the path to carbon pricing much more difficult for other countries, which would not want to repeat the negative experience here. We've seen this happen with Australia and the recent protests in France. Where there is resistance to carbon pricing in one place, it can undermine progress in others. On the other hand, a successful implementation, as we've seen in the U.K. or British Columbia, can be a positive model to encourage action elsewhere.

Getting carbon pricing and the federal backstop right over the next few years is a key piece of Canada's international leadership on carbon pricing, and I hope the committee's report will reflect that.

Thank you very much.

[The Chair]

Thank you for those comments.

Finally, we'll move to David Sawyer from the Smart Prosperity Institute.

[David Sawyer, Senior Fellow, Smart Prosperity Institute]

Good afternoon. Thank you for having me here today.

My name is Dave Sawyer. I'm a senior fellow at the Smart Prosperity Institute at the University of Ottawa. I'm also a regulatory economist. I've been doing work in the last year for Liberal governments, NDP governments, and Conservative governments on climate policy, so I have some pretty good insight on the various views of governments and how they're implementing carbon policy within the federation. I'm going to talk a bit about where we are and do a bit of a state of play, and then finish my remarks.

Just three years ago, it seemed inconceivable that Canada, collectively, would be developing serious carbon policy that could see emissions peak by 2020. Our gap analysis now suggests that federal and provincial carbon policies together could, with some tweaks, achieve our 2030 emissions target while keeping economic impacts to a small fraction of annual GDP growth. Importantly, the emerging policy package that we see, which includes carbon pricing, regulations and innovation—including revenue recycling to deal with distributional issues that Mark and others talked about—appears sufficiently robust to cost-effectively scale ambition toward deeper decarbonization by mid-century, meaning that we have the architecture and the knobs and dials to tune the current architecture to go deeper if we choose.

But theory and modelling are not practice. In practice, siloed provincial policies and competing policy preferences continue to challenge the ability of Canada, together, to achieve cost-effective action. Blame successive federal governments that left the policy field open, allowing provincial leaders within the federation—obviously their jurisdiction—the space to step in or not. Step in many provinces have, with their own locally tailored carbon policies, giving us the jumble that now defines pan-Canadian climate effort. Also, blame partisan politics that continue to stomp on long-term economic risks.

The simple truth is that our domestic climate ambition is bundled tightly with the geopolitical expectations of our trading partners and therefore with our own geopolitical aspirations. As the world continues to demand more ambition—and in fact much of Canada's ambition has been driven externally, I would argue, certainly up until very recently—Canada, to keep costs in check, will need to address this policy fragmentation that exists.

So far, the federal government has done well to manoeuvre within the federation's fragmented policy landscape. lt has laid down a policy touchstone in the carbon policy benchmark in the pan-Canadian framework, developed in collaboration with the provinces, for Canada to accommodate tax and trade jurisdictions alike by allowing provinces to follow a minimum price schedule if taxing, or a quantity reduction aligned to the 2030 target if trading. There's flexibility there. You don't have to outsource your climate policy to the federal government if you're a province.

To address the competitiveness neurosis that pervades climate policy, the provinces and the federal government seem to be on the right track. The federal carbon price benchmark lays out a carbon-pricing hybrid for the large industrial emitters, or the emission-intensive, trade-exposed industries. The federal system mirrors and builds on current efforts in Quebec and Alberta, which use performance benchmarks to cost only a fraction of GHGs but, as Dr. Leach said, “maintain the price signal” to reduce emissions.

Of course, British Columbia, Saskatchewan, Ontario, Nova Scotia, Newfoundland and Labrador, and Manitoba now have all proposed or are developing similar carbon-pricing schemes for their industrial emitters. We expect Ontario to move in the near term to outline its new industrial carbon-pricing system. Yes, it's true: The “Resistance” has proposed carbon-pricing schemes. Why? It's simple—industry demands it.

They worry about competitiveness. We did work for 300 large industrial facilities in Alberta and Ontario, and competitiveness is top of their minds. By extension, it's top of governments' minds, obviously.

Most economists and policy wonks will in turn tell you that they like the federal carbon-pricing benchmark. lt pushes economy-wide carbon pricing while setting price or quantity standards to better align the subnational patchwork. This alignment is needed to contain costs, but by accommodating this provincial patchwork, the pan-Canadian framework has perhaps understandably kicked the can down the road. It has almost institutionalized these provincial silos, thereby running risks of locking in high-cost mitigation islands, with everybody doing their own thing at a high cost. This is what really keeps the policy wonks awake at night: a continuation of this high-cost fragmentation with misaligned carbon costs across policies and jurisdictions—high cost within policies, high costs across jurisdictions.

Of course, there is more to carbon policy than carbon pricing. Governments of all stripes understand this, with the pan-Canadian framework reflecting provincial carbon policy packages that include regulations, carbon pricing, innovation funding and co-operative governance structures. Currently, the federal government's forward regulatory plan has 14 or so regulations or amendments that are listed under development in advance of the carbon-pricing plan. Notable among these are proposed regulations for methane in oil and gas, as with Alberta; a clean fuel standard, as with British Columbia; vehicle regulations and HFC controls.

Most carbon policy folks will agree that this regulatory agenda makes sense. Existing equipment, building and vehicles regulations can be tweaked to address policy gaps, and importantly can be scaled to deeper ambition. Typically, they save folks money on the cost of operations of equipment in the long term. Economists can get onside, somewhat, with the regulations if they're performance-based, meaning they enable compliance flexibility to act a lot like a carbon price. The federal vehicle standards that Prime Minister Harper implemented have this trading carbon pricing aspect in them. We see more regulations emerging to that effect, and economists typically think that's a good way to go.

Still, support for more regulatory action is polarized: Either you believe regulations address market failures and deliver more reductions, or you think they are expensive relative to carbon prices. As with carbon pricing, there's debate and argument about the best way to go. Since regulations are good at hiding costs deep in regulatory impact analysis, politicians tend to like regulations because of the low political cost per tonne. If you want to get something done, quietly, you regulate and hide the costs.

As a last thought, one needs to think of carbon policy within the federation as so much more than carbon pricing. The challenge within the federation is not whether we should price carbon. We are already pricing carbon in a big way. Indeed, it is literally the law of the land, starting on January 1 of this year. As this decarbonization mega-trend intensifies, we need to work beyond politics to keep costs down and drive innovation that is globally salable. Then, of course, hardening our economic resilience to increasingly dangerous weather might also require a bit of attention.

Thank you.

[The Chair]

Excellent.

Thanks, everybody, for those opening comments. We're going to get right into the questions and answers.

First up we have Mr. Amos, for six minutes.

[William Amos, Liberal, Pontiac, QC]

Thank you, Chair.

Thank you to this august panel. It is really quite impressive to have you before us, a wonderful opportunity.

I'd like to start with Mr. Cameron. Are there any statements the other witnesses made that you're in significant disagreement with? Or would you suggest that in large measure you're in agreement with them?

[Mark Cameron]

I'm in large measure in agreement with all the other panellists, yes.

[William Amos, Liberal, Pontiac, QC]

How would you qualify the Conservative Party of Canada's discourse around the issue of pollution pricing?

[Mark Cameron]

Up until now, the Conservative Party of Canada has indicated that they support the Paris reduction target, Canada's INDC submission of a 30% reduction below 2005 levels by 2030. They voted in favour of that last year, which I think is an appropriate target. It was the target that was introduced by Prime Minister Harper. The Conservative Party hasn't been clear on how they intend to meet that goal. They said that they don't want to have a carbon price, at least a consumer carbon price. There has been some debate around industrial carbon pricing, but there hasn't really been anything put on the table in terms of how they would meet the rest of that 30% target.

[William Amos, Liberal, Pontiac, QC]

In terms of the quality of political discourse, other witnesses went into this issue, and I want to hear your comments about it. Some of us on the front lines have decried the paucity of quality debate.

[Mark Cameron]

There are two levels. I've been in discussion with Conservatives, both federally and provincially—

[The Chair]

Sorry, we have to stop for just a second. We've had a point of order called, so I just need to hear what the point of order is. I've stopped the clock.

Mr. Warawa, go ahead.

[Mark Warawa, Langley—Aldergrove, CPC]

Thank you, Chair.

The purpose of this is to hear from experts on the issue of putting a price on carbon. We're not here at this meeting, and it was not the mandate of the committee, to ask the panellists to critique different political positions, particularly going into an election. If this is what the committee now wants— to change the purpose of this study—then we need to know that.

The panellists today do not make a balanced panel. The panel provides one perspective on a complex issue. That was a concern that I expressed to you at the beginning of the meeting. The ideal is to have a panel that includes both sides of an argument. What we have now is one side, which for whatever reason.... I'm okay with it, but if we're now asking the expert panellists to provide a critique on political positions, that's not what this meeting was called for.

[The Chair]

I hear what you're saying. I'm not sure that's a point of order. You made your statement, and we have allowed some latitude in members. I'll leave that to Mr. Amos to consider as he moves through his questioning.

[Mark Warawa]

I would suggest that his questions are not in order. It's not the mandate of the committee to ask the witnesses to provide a critique on the political positions of the major parties. That's not what this study is for, and I believe his questions are out of order, which would be a point of order.

[The Chair]

At this point I'm comfortable, but I hear your point, so I would ask Mr. Amos to be aware of that perspective that's been put out. I think if we spiral down into a very partisan set of questions, we've been warned that it could lead to a non-positive outcome for dealing with climate change in Canada. We are talking about climate or the pricing of pollution within an international context, so I would encourage members from all sides to keep that in mind as they're moving through their questioning with our witnesses.

To the comment on the witnesses, each party was assigned witness numbers based on the number of seats here, so the Liberals were given six, the Conservatives three and the NDP one. The way it lined up is that the Conservative witnesses are available on Wednesday, so they will all be here that day, along with the NDP witness. Today we are hearing from many of the witnesses put forward by the Liberal Party. I just put that out there to address that question in the comment that you made.

[Mark Warawa]

Thank you.