Evidence of meeting #140 for Environment and Sustainable Development in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was fuel.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Chair  Mr. John Aldag (Cloverdale—Langley City, Lib.)
Robert Sopuck  Dauphin—Swan River—Neepawa, CPC
Peter Boag  President and Chief Executive Officer, Canadian Fuels Association
Joanna Kyriazis  Senior Policy Advisor, Clean Energy Canada
Massimo Bergamini  President and Chief Executive Officer, National Airlines Council of Canada
Geoffrey Tauvette  Director, Fuel and Environment, WestJet, Environment Committee, National Airlines Council of Canada
Todd Myers  Environmental Director, Washington Policy Center
Joe Peschisolido  Steveston—Richmond East, Lib.
Wayne Stetski  Kootenay—Columbia, NDP
Julie Dzerowicz  Davenport, Lib.
Carol Montreuil  Vice-President, Eastern Canada, Canadian Fuels Association
Ed Fast  Abbotsford, CPC

3:35 p.m.

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

Good afternoon, everyone.

Welcome, witnesses. We're sorry that we're a couple of minutes late getting started here. We're still finding the way over from our new quarters in West Block, or more importantly how to get out of West Block to get to our committee. Thank you for bearing with us.

We're continuing the study on international leadership. It comes under the pan-Canadian framework on climate change. Today we're going to continue doing that, looking at the price on pollution, or as others sometimes refer to it, the carbon tax.

The way we tend to work the meeting is that each of the organizations will be given 10 minutes to provide opening comments. When we get to the last minute, I'll hold up the yellow card, which means there's one minute left, and then the red card means your time is up. You don't have to end mid-sentence but wind up your thoughts at that point. After we have heard opening statements from everyone, we'll go to a set of questions back and forth between the members and the witnesses. Each member will have six minutes. It's really up to the members to manage their time but I will give the one-minute warning mostly to let the members know that's where they are with their time, and then whoever is talking when the time is up, just wind up your thoughts and then we'll go to the next round of questions.

I would like to welcome you back to the table, Mr. Sopuck. It's been a while since we've seen you here.

3:35 p.m.

Robert Sopuck Dauphin—Swan River—Neepawa, CPC

It's great to be here.

3:35 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

You've been a very important part of our committee over the last while, so it's good to see you again.

3:35 p.m.

Dauphin—Swan River—Neepawa, CPC

Robert Sopuck

You're far too kind.

3:35 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

With that, perhaps we can go straight to the Canadian Fuels Association.

Mr. Boag, if you're ready, we'll turn it over to you for 10 minutes.

3:35 p.m.

Peter Boag President and Chief Executive Officer, Canadian Fuels Association

Good afternoon, Mr. Chairman, ladies and gentlemen. Thank you very much for inviting us to appear before your committee today.

My name is Peter Boag, and I am the president of the Canadian Fuels Association. With me is my colleague Carol Montreuil, who is the vice-president of our eastern Canada division and our policy leader on the carbon pricing file.

The Canadian Fuels Association represents the industry that produces, distributes and markets petroleum products in Canada. It comprises nearly 95% of the transportation fuels that keep people and goods moving in our country.

Our members also produce asphalt, heating fuels and feedstocks for manufacturing facilities. We're strongly integrated with the petrochemical industry, for example. In short, our products support every sector of our economy, and our members comprise an important component of Canada's critical energy infrastructure.

While the fuel mix is changing, independent forecasts, including those from our own National Energy Board, show that demand for our products will remain relatively constant through 2040 at least.

You've asked for our perspectives on carbon pricing. We're pleased to do that today, both from a general perspective and, more specifically, with respect to the current federal carbon pricing proposal.

We support carbon pricing policies that adhere to the following six design principles: one, clarity and predictability; two, transparency; three, challenging but feasible targets; four, equity, and from our perspective that means no one jurisdiction, sector or entity is assigned a disproportionate burden; five, cost-effective outcomes supported by sound evidence; and six, economic and environmental performance balance.

Through that lens and those principles, we offer the following perspectives on the proposed output-based performance standard component of the federal carbon pricing backstop which will require industrial facilities, with a very few exceptions, to reduce their emissions to 80% of their current sector average, or pay a carbon tax on emissions above that benchmark. That is commencing January of this year. In other words, it's an emissions cap for industrial facilities that's 20% below the current sector average.

Let's start with the principle of challenging but feasible targets. For Canada's refining sector, the 80% benchmark corresponds to an emissions performance that even the best performing refineries in the world would struggle to achieve. This is illustrated on the first chart of the handout you have that shows the emissions performance of Canada's 16 full fuel refineries.

Refineries with the best GHG emission performance, the ones with the lowest carbon emission intensity numbers, are on the left side of the green curve. The green dot is the refining sector average. The red line at the bottom is the 80% benchmark set by the federal proposal.

The chart really tells us, and very simply, that the 80% benchmark has not been achieved and is likely unachievable, at least for the foreseeable future, by even the top performing Canadian refineries. The situation would be the same for more than 90% of the 200 refineries in all of the OECD countries.

This leaves the six Canadian refineries that currently would fall under the federal backstop really with no option but to pay their way out. They really don't have emission reduction opportunities of that magnitude to achieve that level of emissions intensity performance. Perversely, setting those infeasible targets will divert investment away to pay a carbon tax, and away from process and technology improvements that would actually reduce emissions.

This brings me to our next principle, and that's equity. The following chart, on page 4, compares the compliance costs through to 2022 for an average-sized refinery operating in a backstop jurisdiction versus refineries operating in other jurisdictions with their own carbon pricing programs, such as Quebec, the EU, or California, or with no programs at all, which really is virtually every other jurisdiction in the United States.

The cumulative cost for an average refinery in a backstop jurisdiction, as seen in that chart, is about $100 million over that compliance period ending in 2022. That's more than three times the carbon cost burden in any of those other jurisdictions. For refiners operating in New Brunswick and Ontario, that will come under the backstop, their carbon costs are four times those paid by or experienced by or encumbered by Quebec refiners under Quebec's cap-and-trade program.

This inequitable patchwork is compounded because refineries in these jurisdictions, perhaps with the exception of California, all compete in the same market. They supply fuels and they compete against each other throughout the eastern or Atlantic basin.

These market-distorting impacts raise significant concerns for us about our final principle: the need to balance economic and environmental performance. The risk is that, by imposing inequitable carbon costs on Canadian refineries, they become uncompetitive and vulnerable to closure. On this point, a 2017 study we commissioned by independent consultants Baker and O'Brien found that up to seven Canadian refineries, mostly those in eastern Canada, are at risk of closure, with disparate carbon costs a major factor in that risk.

It's really a classic case of what we call—and I'm sure you know—carbon leakage, where carbon costs in one jurisdiction cause energy-intensive, trade-exposed businesses, like refining, to lose out to competitors in other jurisdictions where carbon costs either don't exist or are lower than in their current location. Really, the upshot of that is that closing Canadian refineries erodes the economic benefits to Canada from our refining sector and simply shifts emissions to another jurisdiction. The economic benefits leak away and the emissions leak away to somewhere else. They're still happening; it's just somewhere else.

By doing that, it also makes us more reliant on fuel imports and potentially undermines the security of our fuel supply.

Reducing economic activity and simply shifting emissions to another jurisdiction is, from our perspective, clearly not achieving balance in economic and environmental performance.

In conclusion, let me say that we're not opposed to carbon pricing as a GHG emissions reduction policy. We support any well-designed carbon pricing mechanism that embodies our six principles. On the positive side, carbon pricing offers transparency and economists are generally unanimous that well-designed carbon pricing systems drive to the most cost-effective emissions reduction opportunities. But successful carbon policies, pricing or otherwise, need to respect other principles.

From the perspective of the principles of feasible targets, equity and balanced economic and environmental performance, the federal pricing backstop proposal in its current form does not pass the test.

Mr. Chair, I'll leave my remarks at that. Thank you for your attention. We look forward to your questions.

3:45 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

Excellent. Thank you.

We'll move next to Joanna Kyriazis from Clean Energy Canada.

You have 10 minutes.

3:45 p.m.

Joanna Kyriazis Senior Policy Advisor, Clean Energy Canada

Good afternoon, Mr. Chair, and members of the committee.

My name is Joanna Kyriazis, and I am a senior policy adviser for Clean Energy Canada, a climate and clean-energy think tank at Simon Fraser University. I am based here in Ottawa.

I'd like to spend my time with the committee today covering four points: the costs of climate inaction, carbon pricing as a key tool, the clean-energy opportunity, and why Canada needs a plan.

We spend a lot of time talking about the potential costs of carbon pricing and climate action. However, what about the cost of delay, or failing to act altogether? This is where I'd like to start today.

The fact is, climate change is already costing Canadians. Last year was another record-breaking year for damages caused by extreme weather events, at $1.9 billion in insured losses.

In July, a major heat wave swept central Canada, contributing to up to 93 deaths in Quebec. The elderly and those who had no access to air conditioning were the most vulnerable. Summer storms across the Prairies caused more than $240 million in damage. In August, heavy rains fell on downtown Toronto in a storm so strong, we are only supposed to see one like it once every 100 years. Union Station, a central transit hub, was flooded, and Bay Street business towers lost power. The event cost more than $80 million. That same month, wildfires blazed out west, causing British Columbia to declare a province-wide state of emergency for the second year in a row. Tens of thousands of people were evacuated from their homes.

Of course, each of these events has knock-on effects in other areas of the economy, whether it's damage to our tourism sector, disruption of our financial centres or increased health care costs due to more frequent visits to the hospital from smoke inhalation.

Homeowners are also getting hit. The average cost of fixing a flooded basement in Canada, for those who are unfortunate enough to be subjected to one of these events, is $43,000, and that's not to mention the missed days from work and the long-lasting psychological impacts this sort of event can cause.

Intact Financial, one of Canada's largest property insurers, is reported to have raised premiums by as much as 15% to 20% in response to increasing costs of weather-related damage. The Insurance Bureau of Canada estimates that up to 10% of Canadian properties may soon be too high risk to be insurable.

These are not costs we might incur in the future. They're not numbers being spit out by models. This is the price we are already paying, and these events are expected to increase in frequency and intensity with climate change. This is the price of inaction, and it is steep.

Luckily, we have solutions to protect Canadians and reduce costs to our economy. One of these solutions is carbon pricing. This is my second point.

As this committee has heard at length, carbon pricing works. Economists widely agree that carbon pricing is the single most effective way to cut carbon pollution. There are now 46 national jurisdictions and 24 subnational jurisdictions that either have a carbon pricing system in place or soon will.

Carbon pricing also has a proven track record internationally and at home. We need look no further than B.C. for evidence that a carbon tax works. Also, carbon pricing reduces emissions while supporting strong economic growth. The four provinces with carbon pricing systems in place last year, B.C., Alberta, Ontario and Quebec, led Canada in GDP growth in 2017.

Carbon pricing also drives growth in clean-tech and clean-energy sectors. It works by sending a market signal that directly impacts behaviour by rewarding those who make choices that reduce carbon pollution. What's more, it allows flexibility for businesses and consumers to choose how they'd like to reduce their emissions. They can either pay the carbon price or they can invest in clean solutions: heat pumps, energy storage, renewable natural gas or energy efficiency. By incentivizing these solutions, Canada is helping to grow its clean-tech industry, the global market for which is now estimated to be worth more than $5.8 trillion and growing. That is bigger than Japan's GDP, the third-largest economy in the world.

This brings me to my third point. The clean economy is a big opportunity for Canada, and Canadian companies are already emerging as clean-energy leaders. The global Cleantech 100 came out this week. This is a list that features the most promising clean-tech companies in the world. Guess what? Twelve of the companies on the list are Canadian.

Here are two other examples of what Canada stands to gain in the clean-energy transition. The first example is Corvus Energy. Corvus is a Canadian company that builds batteries for electric ferries. When Norway put out a call for more energy-efficient ferries, Corvus was part of the winning bid to supply batteries and charging stations for the world's first electric ferry. Norway's ferry operators have reported a cut in emissions of a whopping 95%, while operating costs also dropped by 80%. Corvus's success continues to boom, as it now provides battery power to hybrid and all-electric ferries around the world.

Another example is Canada's mining sector. Canada is home to 14 of the 19 metals and minerals needed for solar panels. We also have rich deposits of silver, nickel, copper and lithium used in wind turbines and battery technologies. Canada can claim some of the world's largest mining companies; think Barrick Gold and Teck Resources. For firms like these, growth in clean-energy technology represents a significant opportunity. Carbon pricing and other climate policies can help accelerate this transition and ensure that Canadian companies have a leg up as the world moves in this direction.

The final point I'd like to emphasize to the committee is that a do-nothing approach is not an option. Every year the World Economic Forum releases its global risks report where it ranks the world's top risks in terms of likelihood and impact. This year's report, which was just released, found that the failure to tackle climate change and extreme weather events are the most threatening global risks this year—not cybersecurity, not terrorism, not political instability, but climate change.

My question is, what are we waiting for? We need to act now. The solutions are there. It would be a shame to leave the most effective tool that we have to address this problem on the table.

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

3:50 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

That was excellent. Thank you for those comments.

We'll now move to the National Airlines Council of Canada. We have Massimo Bergamini and Geoffrey Tauvette as our presenters.

Gentlemen, you have 10 minutes.

January 30th, 2019 / 3:50 p.m.

Massimo Bergamini President and Chief Executive Officer, National Airlines Council of Canada

Good afternoon, Chairman and members of the committee.

My name is Massimo Bergamini and I am the President and Chief Executive Officer of the National Airlines Council of Canada. With me today are Geoffrey Tauvette, who is the Director, Fuel and Development, with Westjet, as well as the co-chair of our association's environment committee.

The National Airlines Council of Canada was established in 2008 and still represents Canada's four main airlines: Air Canada, Air Transat, Westjet and Jazz Aviation.

Today in Canada, commercial aviation has become the only practical way for millions to travel to be with family, for work, to access basic necessities, or simply to explore our vast country.

The era of elite jetsetters is long past. The 2016 Canada Transportation Act review, also known as the Emerson report, recognized this in its detailed aviation chapter.

The Emerson report also recognized how mounting fees and charges risked making our industry uncompetitive, particularly vis-à-vis U.S. carriers operating in contiguous markets.

Two years later, not only has there been no progress in bringing down government-imposed costs, but a number of recent federal initiatives will drive up the cost of domestic air travel and cause more Canadians to buy American.

This brings us to the question before us today. How do we align the fundamental role played by commercial air travel in the lives of Canadians with the global imperative to curb carbon emissions?

This debate has been framed by some as a kind of Hobson's choice between two seemingly virtuous but contradictory propositions: putting a price on pollution and stopping a job-killing carbon tax. We reject that characterization.

The National Airlines Council of Canada fully supports putting a price on carbon—or as some prefer, a price on pollution—including on carbon emissions from commercial aviation.

3:55 p.m.

Geoffrey Tauvette Director, Fuel and Environment, WestJet, Environment Committee, National Airlines Council of Canada

Our member air carriers have been leading the way in reducing carbon emissions for years. Not only is it a sustainable practice but it's also a way for us to hedge our costs going forward.

We still believe that market-based mechanisms should be the centrepiece of every carbon reduction strategy and that a carbon tax is simply the wrong policy for aviation for a number of reasons that Massimo will go into a little later.

A market-based policy should spur innovation, inform consumer choice and reduce emissions. The federal government's proposed carbon tax on aviation emissions will make air travel more expensive for Canadians and really will do nothing to help us reduce our emissions. Let's look at why.

Fuel typically represents the largest variable cost for airlines, often as much as 30% of our operating costs. I know this all too well, as I get to buy the fuel for my company. The volatility in the fuel prices and the supply challenges that we meet are great, especially in Canada where we have to import about 40% of our fuel. Our industry is also saddled with some of the highest government-imposed costs in the world. Reducing fuel consumption has become a question of survival.

Between 2008 and 2016, Canadian aviation has improved its fuel efficiency by more than 16%. Really, most of that comes from the investment in the new fleet in aircraft that we have put into operation. Alone, the four member airlines of NACC—Air Canada, WestJet, Air Transat and Jazz—will have spent $35 billion in fleet upgrades between 2012 and 2027.

There has been a massive investment that the aviation sector, including the airports and air traffic control, has made in terms of ensuring that we operate in a fuel-efficient way, such as through technologies on the aircraft, such as navigation procedures, NAV Canada having one of the best systems in the world and the airports building new infrastructure that's LEED and energy efficient. These have been measured and tracked in reports that we have worked on with Transport Canada since 2005. In fact, we have been voluntarily working with Transport Canada in terms of reducing our emissions and reporting on these on an annual basis.

We are a global business. Unfortunately, our technology is mature. For example, the latest equipment that we have introduced—the 737 MAX from Boeing and the 787s—are 15% and 20% more fuel efficient than the older aircraft that we were replacing, and these are best in class. This means that a carbon tax will simply not incentivize us to get further fuel savings and will do nothing further to help us cut and reduce our emissions.

3:55 p.m.

President and Chief Executive Officer, National Airlines Council of Canada

Massimo Bergamini

We have said repeatedly that as a market-based measure, the carbon tax is not well suited to commercial aviation in general and is particularly ill-suited in the Canadian context. We believe it would exacerbate commercial and emission leakage, curb growth in the visitor economy, and as it is currently slated to be rolled out, would cause significant market distortions.

That is why we urge the government to adopt a carbon offset system for domestic air travel that would align with the international model.

For us, these are not theoretical considerations. Allow me to illustrate with one example taken from a study we released earlier today that breaks down the cost of a carbon tax on air travel for Canadian families, as well as some of its impacts on our economy.

First, with a carbon tax on air travel, a family of four travelling to visit grandparents in B.C. from Ottawa would see the cost of a non-stop flight from Ottawa to Vancouver increase by $150 in 2022, almost $300 by 2026, and almost $400 by 2030. If they were unable to fly non-stop and had to connect through Toronto Pearson, the federal carbon tax on air travel would add $200 to the cost of their flight in 2020, $350 in 2026, and almost $500 by 2030.

By way of context, under the federal plan, that Ontario family—that same family—would be entitled to a $718 carbon tax rebate in 2022, meaning that 28% of that family's annual carbon tax allowance would be spent to offset the cost of one flight to visit grandparents in British Columbia.

According to our study, by 2030, a domestic carbon tax on air travel would add over $800 million to the cost of air travel in Canada. It's easy to appreciate the dampening effect this would have on a domestic tourism sector which, according to a recent study by Destination Canada, already struggles because of the high cost of air travel.

We want to propose an alternative flight plan to achieving clean growth in air travel.

First, it involves recognizing the cumulative effect on our industry, on our economy, and on Canadian families and communities of what Transport Minister Garneau calls the panoply of taxes and fees. From our perspective, a tax is a tax is a tax. It is an economic instrument, a tool that must be used wisely and effectively. Adding the word “carbon” to the word “tax” does not transmogrify it into something different or make it somehow inherently virtuous.

A carbon pricing plan for Canadian aviation must be pragmatic and reflect the particular economic circumstances of our sector and of the role it plays in Canada today, and the role it will play in Canada tomorrow.

Second, domestic policy must be aligned with the international consensus on carbon pricing as reflected in the 2016 CORSIA agreement.

Finally, it involves recognizing the breakthrough potential of commercially available biojet in contributing to decarbonization of air travel. If we're going to have a real breakthrough, given the maturity of our sector, it will be through the introduction of commercially available alternative low-carbon fuel.

Commercialization of biojet, unfortunately, has proceeded at a pace that is at odds with its potential breakthrough impact on our sector's carbon footprint. With demand for air travel projected to double over the next 20 years and a global imperative to reduce carbon emissions from all sectors, reducing our industry's global carbon footprint will require the development of a commercially viable supply of biojet. Yet the government's current approach seems more focused on achieving paper results than on addressing the challenges and embracing the opportunities that a biojet advantage mentality could create for Canada.

Canada would have an important natural advantage if it were to embrace a leadership role in biojet and biofuel development. It has sustainable feedstock, commercially available production technology, and an engaged and committed airline industry. Unfortunately, what appears to be missing is political will at this time.

To some, the backstop carbon tax is slated to come into effect on April 1. When it comes to air travel, there is still time for Canada to choose a better way forward. There is still time for an alternative that puts a price on pollution, produces real carbon emission reductions, incentivizes commercialization of low-carbon fuels, and achieves this without putting air travel out of reach for many Canadians.

Thank you.

4 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

That's perfect timing. Thank you.

Finally we'll hear from Mr. Todd Myers of the Washington Policy Center.

4 p.m.

Todd Myers Environmental Director, Washington Policy Center

Good afternoon, and thank you, Mr. Chair.

My name is Todd Myers. I'm the environmental director of the Washington Policy Center. For the past two decades, I've worked on environmental policy at the Washington State Department of Natural Resources, where we dealt with forestry, and then as an energy and environmental analyst at the Washington Policy Center.

Washington state's history over the last decade can be instructional regarding the politics and economics of carbon policy.

It's clear that increased levels of CO2 trap heat in the atmosphere and over time increase temperatures, even if there is debate about the level of impact. The challenge for policy-makers is how to make effective climate policy when there is scientific uncertainty while dealing with the political and economic risk of those policies. I've sat on both sides—as an analyst and in government—in trying to deal with these policies.

Bad policies can induce political backlash. Ill-considered policies waste money on efforts that are ineffective, squandering time and opportunity to address climate change.

Washington state's climate policy has faced all of these challenges, and legislators and the voters have repeatedly rejected carbon taxes, despite polling that shows people supporting reducing CO2 emissions.

In 2016, Washington state voters rejected a revenue-neutral carbon tax, initiative 732, which would have put a price on CO2 of $25 U.S. per metric ton, while reducing sales and business taxes. It failed by a wide margin of 59% to 41%.

Last year, voters rejected initiative 1631, which was a $15 per metric ton carbon tax that increased annually. The revenues would have been spent on a wide range of efforts to reduce CO2 emissions and fund social justice efforts. Despite having the support of our governor, it also failed, at 57% to 43%.

Legislators in Washington have also been reluctant to pass carbon taxes for obvious reasons. No carbon tax policy has even received a vote on the floor in Washington state's legislature in the last eight years, despite the fact that Democrats controlled the state House, or the House and Senate during that entire period of time.

Polling data and discussions with people across Washington state identify a few reasons why they have rejected the taxes, even in an environmentally conscious and wealthy state like Washington.

First, there is evidence that Dr. Roger Pielke Jr.'s “iron law” of climate change is in effect. People are willing to pay some price for the environment, but it has limits. During the campaign for last year's carbon tax, we created a simple online calculator that allowed people to estimate their first-year costs of the tax.

One call I received was emblematic of the polling results after the initiative failed. The man on the phone asked if I had created the calculator and asked me to walk him through it. When he realized the cost, he said, “Holy cow, I was going to vote for this.” He was willing to spend something, but it had its limits.

This is reflected in a recent survey by the Energy Policy Institute at the University of Chicago. Their research of 1,202 Americans last year found that many were willing to pay $1 a month more on their electricity bills to fight climate change, but when the cost went to $10 a month, support fell from 57% down to 18%.

Also, voters don't trust government to spend money wisely and they worry that promises won't be kept. I was generally supportive of the revenue-neutral carbon tax in Washington state and I voted for it, but when I spoke with others, pointing out that many of the households would see their tax bill decline under the initiative, the common answer from people was that they simply didn't believe the bargain would hold. People worried that other taxes would subsequently be increased, leaving everybody with higher taxes in the end.

Even good policy can be undermined by fears that when the other shoe drops, people will be left with a policy they oppose. After two decades in environmental policy, I have to say that I sympathize with this concern.

Finally, as has been discussed, not everyone can adjust to carbon prices. This manifests itself in two ways.

The first, as mentioned, was leakage. I won't talk more about that other than to say that we see this in the United States with the regional greenhouse gas initiative, where they have a cap-and-trade system, and whereas although United States manufacturing jobs have actually increased over the last several years, in the northeast where the cap-and-trade system exists, they have gone down. Essentially what they have done is outsourced manufacturing and then traded those products back in.

Second, it also applies to families for whom alternatives are costly or unavailable. For those who see no path to avoid the taxes, a carbon price doesn't mean helping the environment. It simply means more taxes.

These challenges, amongst others, add up to a consistent rejection of carbon taxes in Washington state and may help explain some of what occurred last year in Ontario.

Policy-makers also face the difficulty of creating policies that are economically sound and environmentally effective.

One challenge of a carbon tax is how to set the appropriate price. Yale professor Bill Nordhaus, who won the 2018 Nobel Prize for his work on climate modelling, outlined the costs and benefits of different temperature goals. He found that the optimal goal was about a 3.5°C increase by 2100. With a target of 2° by 2100, like the Paris climate accord, he found that the costs would outweigh the benefits by 4:1.

Now, to be clear, Dr. Nordhaus believes, and I believe, we should reduce our CO2 emissions. His modelling, however, is an important reminder of two points.

First, we need to be careful that we are not doing more harm than good. Signatories to the Paris climate accord are already facing the high costs of meeting the strict targets, and are failing to identify CO2 reductions consistent with their commitments in that agreement.

Second, to ensure that climate actions don't cost more than the benefits they provide, policy should focus on technology improvements that reduce the cost of limiting CO2. The cost-to-benefit ratios calculated by Dr. Nordhaus can be improved with technology, making energy efficiency and carbon reduction more cost-effective and bringing other temperature targets in line.

As you heard testified on Monday, regulatory approaches hide the costs of CO2 reduction, making it more likely to exceed appropriate price levels. That lack of transparency also makes it more difficult for individuals to respond effectively to avoid those costs and reduce CO2 emissions. With the many political and economic challenges facing carbon taxes, technology improvements offer the best option to reduce CO2 emissions in ways that are durable and effective.

Much of climate policy is focused on increasing prices to create a disincentive to emit CO2. A similar result, however, can be achieved by increasing the elasticity of demand of existing energy prices. Personal technology that reduces transaction costs of information increases the ability of individuals to effectively react to existing price signals without raising carbon taxes. Rather than focusing solely on the level of the carbon tax necessary to induce a desired behaviour change, we should also be considering how to help people change behaviour more easily. As noted in Monday's testimony, two-thirds of Canadian emissions come from small emitters. Lowering the cost for individuals to reduce their emissions is key to any successful CO2 reduction strategy.

These technology changes are not subject to the ebb and flow of politics. People don't give up technology that is saving them money, no matter who controls Parliament. There are several examples of this opportunity.

A mapping app called Cowlines, based in Vancouver, provides users three options to reach their destination: the fastest route; the least expensive way, including driving, transit and ride-sharing; and the most environmentally friendly way. Many users choose the environmentally friendly route, and they average about one kilogram of CO2 savings per trip.

Smart thermostats from Toronto-based ecobee and California-based Nest use information and artificial intelligence to help homeowners reduce energy costs while keeping their house comfortable. Nest works with some utilities in the United States to offer what it calls “rush hour rewards”, a voluntary system that reduces home temperature during peak electricity demand and offers monthly rebates.

This is not an endorsement of these products, but they are tangible examples of technologies that reduce CO2 emissions at existing prices. The opportunities to empower citizens with technologies are emerging rapidly, and policy options are in their early stages. The iPhone has only been around for about a decade, and yet it has massively changed our society and lifestyle. With that rapid change, it is hard to clearly identify policy options, but here are three options we should explore:

First, we should remove regulatory barriers that reduce the value of information technology. Electricity tariffs are often designed to protect consumers with the assumption that they do not have access to real-time price information and therefore can't respond. That is changing. We should, like Nest, allow consumers the opportunity to use those price signals to conserve energy and save money.

Second, federal, provincial and local government data should be transparent and available, being sure to protect individual privacy. The power of Cowlines is in the aggregation of dozens of disparate sets of data, and providing it in an understandable format for users.

Third, where there are specific challenges, government can offer prizes for technology solutions. Last year I was a mentor in the Fishackathon, organized by Toronto-based HackerNest and sponsored by the Government of Canada. Teams competed to develop smart-phone-based solutions to fisheries problems. The prizes weren't large, but the creativity of the participants was really amazing.

These are just a few approaches that can help incentivize technologies that bring down the cost of carbon reduction. Empowering people to reduce energy use is less subject to political reversals, works with citizens' interests rather than against them, and takes advantage of opportunities that are emerging every day.

The great inventor Buckminster Fuller once said, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” That's the opportunity we have in front of us.

4:10 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

Thank you to everybody for those opening comments. We have lots to think about.

With that, we'll get right into our first round of questions.

First up is Mr. Peschisolido.

4:10 p.m.

Joe Peschisolido Steveston—Richmond East, Lib.

Mr. Chair, thank you,

Thank you very much for all your presentations and wise words.

I'll begin with Peter. You talked about support for a mechanism to reduce carbon emissions. There are six principles, but you don't believe that the existing structure will work. Would there be any plan that you believe would work, that would reduce carbon and also maintain the economic effectiveness of your sector?

4:15 p.m.

President and Chief Executive Officer, Canadian Fuels Association

Peter Boag

Certainly in our engagement with Environment and Climate Change Canada, our main issue was around the feasibility of the target and the stringency of the reduction that would be imposed on our sector. Our view was in keeping with the principle of a challenging but feasible target, one that would be challenging for the industry but would also mitigate much of the inequity that the patchwork consists of today. This would have been achieved by using a target of 90% of the sector average. We provided a considerable amount of economic analysis around that.

You may recall that when the policy was announced, it was a blanket requirement of 70% of sector targets. This followed the initial round of analysis of phase one and phase two within the government. That was reduced to 80% across the board, with a number of sectors that were particularly energy intensive and trade exposed at 90%. Phase three analysis on many sectors did a considerable degree of work. It was certainly our perspective that we had provided a very compelling case with respect to the challenges that our sector faced, and that 90% would be more appropriate. That was not the decision. In our case, that certainly addresses the principle of challenging but feasible targets. It results in a higher degree of equity. It also resolves many of the issues around the imbalance between environmental and economic performance and the risk of carbon leakage that exists under the current system.

4:15 p.m.

Steveston—Richmond East, Lib.

Joe Peschisolido

I have one more question.

Tom talked about two factors, the appropriate price, which is the level, and technological change. Are there technological changes that the existing refineries could make that would help their economic bottom line and also their ability to meet targets?

4:15 p.m.

President and Chief Executive Officer, Canadian Fuels Association

Peter Boag

Let me first say that refineries and refinery operators have not been sitting still over the last number of years in terms of the continuous improvements they've made to their operations in areas of energy intensity. This is fundamentally an energy-intensive industry, and while there are some process emissions, much of the industry's emissions issue is associated with combustion. There has been lots of incremental activity when turnarounds are done and when maintenance is done. All of these opportunities to look at reducing energy intensity from a cost perspective as well from an emissions perspective are pursued.

The industry's track record over the last 10 to 20 years has been quite positive in terms of reducing energy intensity, improving efficiency and reducing costs and emissions. However, there are physical limits.

The low-hanging fruit has been picked. There are still some opportunities. Not all refineries are the same. Some are better than others, but that's a reflection of...these refineries have been around for a long time. They have different configurations. They were made to serve different markets and to produce different product slates, so it's very difficult to treat every refinery as the same.

That's the challenge around the feasibility. Virtually no refinery in the world has achieved the current target. As of January 1 of this year, that's what Canadian refineries are expected to achieve, or they have to pay. The challenge lies in the fact that the technology costs, if they are available, are so high that paying is the answer. This really doesn't reduce emissions.

4:15 p.m.

Steveston—Richmond East, Lib.

Joe Peschisolido

Peter, thank you.

Joanna, you mentioned that putting a price on carbon or on pollution works. You talked about the development of other economic activity. You also talked about a company called Corvus. Can you elaborate on that? Are there other sprouts of economic activity in Canada analogous to Corvus?

4:15 p.m.

Senior Policy Advisor, Clean Energy Canada

Joanna Kyriazis

Yes, absolutely. Carbon pricing does spur innovation and help to support our clean-tech sector. Another example is in Ontario. In 2017 there were 5,000 companies in Ontario's clean-tech sector, employing 130,000 people and generating about $20 billion in revenue each year. These companies were benefiting from the cap-and-trade system and the price signal that it was sending, as well as some of the ways in which the revenues were being recycled to support further emissions reductions, emerging technologies and whatnot.

A carbon price and other complementary policies are important to support these industries. In many cases, we've actually seen similar leakage issues for clean-tech companies where they're born in Canada, whether it's ecobee in Ontario or a Canadian solar company with a head office in Guelph or Corvus Energy. Many of these companies end up taking a large portion of their operations and the jobs to other markets where they can find more buyers. These are job and economic concerns that are worth considering.

4:20 p.m.

Steveston—Richmond East, Lib.

Joe Peschisolido

Joanna, thank you.

4:20 p.m.

Mr. John Aldag (Cloverdale—Langley City, Lib.)

The Chair

Thank you.

We're going to move over to Mr. Sopuck for six minutes.

4:20 p.m.

Dauphin—Swan River—Neepawa, CPC

Robert Sopuck

Thanks.

Mr. Boag, you're not going to have to worry about building new refineries once Bill C-69 is passed, so you can put that out of your company's business strategy.

I bristle when CO2 is termed a pollutant. We're all exhaling it right now. It's the first molecule in the photosynthetic equation and I really think it is disingenuous to call it a pollutant. The term “clean tech” implies that Canada has a dirty-tech economy, which I think is absolutely false. I have the numbers in front of me here: sulphur dioxide is down 50% in the last 15 years; lead, cadmium and mercury are down 80%. As to Canada's air quality in terms of particulate matter, all our big cities are well within World Health Organization guidelines. Nitrogen dioxide is the same, and so on. As somebody who's worked in the paper and oil and gas industries on the environmental side, I find it quite offensive to industry to imply that our industries are dirty, because they are not.

Ms. Kyriazis, Canada has 1.6% of world global emissions, right? Good.

You mentioned a number of things that are going on in Canada now that have to be dealt with. You're talking about floods, droughts, forest fires, extreme heat. I should just preface my own remarks by saying that I started a farm in 1979 and have had a bit of a track record in watching weather in prairie Canada. The 1980s were extremely dry; the 1990s were quite wet and the 2000s went back and forth between wet and dry, so you don't have to tell a prairie farmer.... I'm not being pejorative here, but those of us who live in that environment are well aware of the perturbations of weather.

You made a link between carbon pricing and ameliorating these effects. How will a carbon price in Canada ameliorate what you listed as the threats to Canada? You talked about forest fires, heat waves, and on and on. How will a carbon price in Canada—and only in Canada—deal with those issues?

4:20 p.m.

Senior Policy Advisor, Clean Energy Canada

Joanna Kyriazis

Carbon pricing systems have shown that they're successful in reducing emissions. Every emission or tonne of emissions reduced has a real impact, in terms of both avoided climate impacts and avoided health impacts from air pollution. The most recent Intergovernmental Panel on Climate Change report, the 1.5 report, shows us just how much of a difference 0.5°C in average warming can cause.