Environment Committee on March 29th, 2022

[The Chair, Liberal, Francis Scarpaleggia]

Given that it is 11 o'clock, we'll start the meeting

I would just like to mention that today we have Ms. May with us, and we have Mr. Chris Lewis substituting for MP Colin Carrie. On the Liberal side, we have Yvan Baker, who was a member of this committee in the last Parliament, substituting for Ms. Taylor Roy.

For everyone's benefit, I'll just go over the public health guidelines. We must maintain two metres of physical distance and wear non-medical masks when circulating in the room. MPs sitting at the table may take their masks off. Staff must keep their masks on at all times.

For the benefit of the witnesses, as you can ascertain, it's a hybrid virtual meeting. When not speaking, if everyone on the screen can keep their mikes on mute, that would be appreciated. When it's time to speak, of course, please unmute your microphone.

Today is the first meeting of our study on fossil fuel subsidies proposed to us by Ms. Collins. We have four witnesses in the first hour. Each witness will have three minutes to make an opening statement.

With us as an individual, we have Normand Mousseau, scientific director and full professor. We have, from the Canadian Chamber of Commerce, Mark Agnew, senior vice-president, policy and government relations. From the Canadian Labour Congress, we have Larry Rousseau, executive vice-president; and Tara Peel, political assistant to the president. From the Explorers and Producers Association of Canada, we have Tristan Goodman, president and chief executive officer.

I would first call on Professor Mousseau to provide an opening statement for three minutes.

Go ahead.

[Prof. Normand Mousseau, Scientific Director and Full Professor, As an Individual]

Thank you, Mr. Chair and committee members.

I'm a physics professor at the Université de Montréal, the scientific director of the Trottier Energy Institute and the scientific director of the Transition Accelerator.

I'll be speaking today about our work, including the “Canadian Energy Outlook 2021 — Horizon 2060” report. We used techno‑economic modelling to analyze the major transformations that Canada must make to meet climate objectives.

First, I'll set out some findings.

Some sectors, including the transportation sector, are technically difficult to decarbonize. Other sectors must be decarbonized quickly to offset the shortfall in order to meet Canada's targets.

The net‑zero emissions objective by 2050 doesn't allow for the introduction of transitional fuel. The goal now is to decarbonize all sectors. For example, natural gas isn't a transitional solution here.

The large‑scale use of biofuels isn't an acceptable solution for several reasons. These reasons are outlined in my brief, which I don't have time to read here.

Lastly, many infrastructures using oil and gas products have lifecycles of several decades. Any support for their renewal today will maintain these structures over time and create barriers to the achievement of climate goals.

In closing, I want to identify three principles for the subsidy review that build on these findings.

First, the subsidies in place mustn't support the use of fossil fuels. Instead, they must serve the social or economic objective sought. For example, if you want to support the fisheries sector, instead of funding fossil fuels, you must fund the sector directly.

Second, the subsidies must facilitate the transition to low‑carbon energy and mustn't constitute a barrier to this transition. The current subsidies are often barriers to decarbonization.

Third, the subsidies mustn't serve to maintain or increase greenhouse gas emissions and to maintain and develop new infrastructure that will contribute to greenhouse gas emissions. They must be compatible with the objective of net‑zero emissions.

I'll stop here.

Thank you.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Professor Mousseau.

I will now turn the floor over to Mr. Agnew from the Canadian Chamber of Commerce.

Mr. Agnew, you have three minutes to give your opening remarks.

[Mark Agnew, Senior Vice-President, Policy and Government Relations, Canadian Chamber of Commerce]

Thank you, Chair, and honourable members, for the invitation to participate in this committee's study on fossil fuel subsidies.

Certainly, as Canada's largest business organization, with member companies of all sizes in all sectors and regions of the country, the chamber welcomes the interest parliamentarians have taken in this critical issue.

The G7 and G20's voluminous communiqués over the years have regularly referenced eliminating fossil fuel subsidies. Certainly it makes for a great sound bite, but unfortunately I think a lot of the nuance has been lost in the conversation. The oil and gas sector plays a critical part in Canada's pathway to net zero, since without reliable supplies of energy there will not be the political conditions to enable us to have the push for decarbonization. Additionally, we need to have an approach to fossil fuel subsidies that recognizes the regional dynamics of our country.

I mentioned earlier the need for nuance. I want to briefly unpack that with three examples that all feed into the simple point that immense capital investment is needed in the transition to net zero.

First is carbon capture utilization and storage. CCUS plays a critical role in our net-zero transition, especially when looking at the 2030 time horizon. Industry is stepping up in a major way and we are seeing collaborative initiatives, such as the Oil Sands Pathways to Net Zero alliance. CCUS is a prime example of what some would see as a fossil fuel subsidy to industry, yet CCUS is not cheap, and without this tax credit there certainly is no credible pathway towards net zero.

Second is the net-zero accelerator initiative. We welcome the government launching this fund, which has the potential to play a vital role in derisking the deployment of new technologies by oil and gas companies, and certainly others in the economy, to align with both traditional and new business lines. Again, some would take this as a fossil fuel subsidy, but I think cutting off oil and gas companies from initiatives like this would certainly make our transition towards net zero much more difficult.

The third and final example is multisector tax measures, such as capital cost allowances. The Canadian tax code is already complex enough. Blocking certain sectors from accessing these types of tax credits would only serve to complicate and in some ways distort the tax code and make capital deployment much more difficult.

In closing, as I said at the outset, I hope the honourable members of this committee will understand that the fossil fuel subsidy issue is not a binary one. Phase-outs might make for a good sound bite, but certainly we urge careful deliberation to ensure that our net-zero transition is not inadvertently made more difficult.

Thank you, and I look forward to your questions.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

We'll go now to the Canadian Labour Congress. I imagine Mr. Rousseau will be speaking to us.

[Larry Rousseau, Executive Vice-President, Canadian Labour Congress]

Mr. Chair and honourable committee members, thank you for the opportunity to appear today. My name is Larry Rousseau. I'm the executive vice‑president of the Canadian Labour Congress.

The CLC is Canada's largest central labour body speaking on national issues on behalf of three million unionized workers, including tens of thousands of workers in the fossil fuel industry. For years, the CLC has been a passionate national and international advocate of just transition measures, so energy and resource sector workers already understand the grim reality of climate change. They are living it. They get the need to transition to clean and renewable sources of energy, but they insist, and we insist, that the transition benefits workers instead of occurring at their expense. Workers must see their own future reflected in a vision of a net-zero Canada. Otherwise, uncertainty, resentment and opposition will continue to frustrate the accelerated transition needed to meet our climate goals.

Meaningful just transition measures that emphasize creating good green jobs, training and upskilling opportunities, and a path to financial security and retirement for older workers are essential. That extends to supports for affected communities and the families of affected workers. Workers and unions must play a role in the decisions made about their future and the economic future of their communities.

We are eagerly looking forward to a just transition act, a just transition act that enshrines these principles. The Government of Canada recently committed to accelerate the timing of G20 commitments to phase out or rationalize inefficient fossil fuel subsidies from 2025 to 2033. In our view, inefficient fossil fuel subsidies should not continue to flow to very profitable energy companies. These subsidies, together with current windfall profits in the oil and gas industry, should be redirected towards just transition measures, rather than being funnelled into share buybacks, executive bonuses and special dividends that benefit a small minority of wealthy individuals. Instead of subsidizing profitable oil and gas companies, fossil fuel rents should be taxed away and spent on just transition and energy affordability measures.

Mr. Chair, my time is up. I'm ready to answer the members' questions.

Once again, thank you.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Mr. Rousseau.

I'll now give the floor to the representative of the Explorers and Producers Association of Canada.

Mr. Goodman, you have the floor.

[Tristan Goodman, President and Chief Executive Officer, Explorers and Producers Association of Canada]

Hello. Thank you very much for the opportunity to present today.

My name is Tristan Goodman. I'm the president and CEO of the Explorers and Producers Association of Canada, which represents independent oil and gas producers across this country.

First, I certainly recognize that, like other sectors, subsidies, incentives and supports to aid emissions reduction in the Canadian natural gas and oil sector is not without controversy and historical application. As Canada and the rest of the world grapples with the critical issues of accelerating the application of clean technology and renewables, an emerging crisis of energy affordability and the obvious issue of energy security, we face the need for a pragmatic approach to energy subsidies that supports all Canadians and our values and climate ambitions.

I should start by saying that the Canadian oil and gas sector is not seeking government subsidies that promote oil and gas exploration. Although these subsidies may have been common decades ago—for example, in the development in the 1970s of the oil sands—they are now a vestige of history. With a well-established sector such as we have in Canada, they are generally not needed. However, similar to other sectors in our country, we are interested in implementing climate ambitions in Canada rather than in other jurisdictions, and thus need to remain competitive with other nations and attract significant investment capital into this country.

The Government of Canada has implemented a series of globally leading GHG reduction policies that address the climate challenge and are successful in reducing emissions at scale, including from the oil and natural gas industry. We support the Government of Canada's stated goal of tackling climate emissions rather than considerations of production.

Similar to other sectors in Canada, programs are required to help mitigate the costs of critical but challenging government policies to ensure that oil and gas development occurs here in this country, while it is still needed, with strong regulatory standards rather than simply shifting production to other jurisdictions that lack real climate expertise and ambition.

The use of tax policies and the creation of such market mechanisms as a robust carbon offset market can go a long way to addressing these competitiveness challenges. Designed correctly, these types of tax and fiscal policies can be meaningful and effective mechanisms to reduce emissions in combination with a robust regulatory regime, which is now in place. Furthermore, these policies create substantive economic value in the country in the clean-tech sector, creating jobs and developing technologies with export potential.

I believe it is an error to classify as a fossil fuel subsidy government initiatives that support Canadian companies in implementing clean technology that reduces emissions through hydrogen development, geothermal, CCUS, methane capture, wind, solar and other innovations.

Thank you for your time. I look forward to your questions.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Mr. Goodman.

We're now starting the first round of questions.

Mr. Seeback, you have six minutes.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thank you, Mr. Chair.

I want to start off with you, Mr. Goodman. At the end of your testimony, you started to touch on what you consider to be—I guess I'm going to use this term—“good” subsidies. I think part of what we're going to be examining during the study at committee is this: What do we mean by fossil fuel subsidies, and what is being requested when we say the “elimination” of fossil fuel subsidies?

Could you expand on your statement and tell us what government programs or tax incentives and other things in the fossil fuel sector could be used to reduce emissions, such as CCUS and so on? How would you define “good” tax subsidies for the fossil fuel industry?

[Tristan Goodman]

I think in general I would look at that from a production standpoint versus a transition or a clean-tech application standpoint.

Decades ago, it was clear that there were a number of opportunities that Canada wanted to pursue to grow oil and natural gas production. I think with an emerging sector, those made some sense between 30 and 50 years ago. I think it's fair to say now that there is a well-established sector here. We're making some really significant changes in energy use. Those have already begun and will continue going forward.

The key is that what you're looking for really is a balance between how you maintain energy affordability for Canadians as well as, quite frankly, globally. The problem there is that it actually negatively impacts low-income Canadians the most. When you see these sorts of prices and you're not getting a response from the oil and gas companies in Canada or elsewhere to grow, prices continue to move up until demand decreases.

At the same time, on the other side, where supports, incentives and even subsidies work well is in the application of anything that is a clean technology. Some of those are very basic and very detailed. For example, in Saskatchewan and Alberta there's a great opportunity to tie in natural gas. That does reduce emissions immediately. That's been recognized by the World Bank, IMF and others. It's been done before in other provinces in the 1990s and into the 2000s, but then you move into some quite innovative pieces whereby oil and gas companies will seek to transition. Those are in things such as the great opportunity with hydrogen, CCUS and those sorts of things. They tend to be tax incentives or some other forms of support.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

If someone were saying that an oil and gas company should not be able to have the benefit of, let's just say some kind of a tax credit or tax deduction for investments in CCUS or other technologies to reduce emissions—because I think that's what some people are saying—what would you say to that?

[Tristan Goodman]

I do recognize that, unfortunately, there are those out there who, for various reasons, disagree with perhaps a specific technology, whether it's geothermal or CCUS or some hydrogen aspects. I personally think that's not valid. I think we're looking for GHG reductions as quickly as possible, and a pragmatic approach has to be taken.

The other problem we need to recognize is that oil and gas companies move up and down. Many of my members actually simply no longer exist. They didn't make it through the last downturn, and we are now obviously in an up cycle. This is affecting Canadian workers as we go through this, so we want to make sure that the investment stays in Canada, because what we don't want to do is.... I recognize there's this ambition to say there are substantive profits within these companies at this moment in time. The problem is that they invest across the world and their investors will dictate where they invest, so it's very hard for CEOs and others to put additional capacity in.

They have continued to move forward. There have been great gains there. That really can't be debated. I agree that it's certainly debatable whether or not that has been fast enough.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Mr. Mousseau, in your statement you said that LNG is not a transitory fuel; however, right now we have two steel plants in northern Ontario that are being transitioned from coal to LNG to manufacture steel. Each transition is going to save three megatonnes per year, which is an incredible reduction. How can you say that's not a transition fuel with the massive savings we're getting from just one project moving from coal to LNG?

[Prof. Normand Mousseau]

The issue is that the transition must take place over 30 years. Any investment that must be made again in 10 years is a lost investment. That's really the challenge of this transformation.

If we want to move to natural gas, it must be part of the transition to net‑zero emissions. A 30% reduction in greenhouse gases doesn't lead to net‑zero emissions, the goal that Canada set out to achieve.

When we carry out our modelling, we can clearly see that any way of keeping the natural gas somewhere will mean that the sequestration must be done elsewhere. However, sequestration is very costly.

[The Chair, Liberal, Francis Scarpaleggia]

We'll now turn to Ms. Thompson.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you, Mr. Chair.

I'd like to continue with the thread of the inefficient fuel subsidies. To Mr. Agnew, the Government of Canada has said that it will accelerate Canada's G20 commitment to eliminate fossil fuel subsidies, completing this by 2023, rather than 2025, and it has said that it will develop a plan to phase out public financing of the fossil fuels sector, including by federal Crown corporations.

Not all groups agree on what constitutes a fossil fuel subsidy within the Canadian Association of Petroleum Producers. For example, it has said that tax measures are not subsidies.

In your view, what should be considered as a fossil fuel subsidy? Are tax measures subsidies?

[Mark Agnew]

For all my sins, I have been involved with work at the G7 and the G20 over the years where we've spent far too much time agonizing over this very issue at the business advisory groups. If I'm being quite transparent about it, the language you'll see talked about in some of the businesses groups, because this is a very difficult thing to define, is “distortive” fossil fuel subsidies. That is how you might see it referred to in some of the documents that have come out of business advisory groups.

What I would say about the timeline is that it's very ambitious to try to phase all of these out by 2023, given the definitional challenges we face in agreeing on what the definition is. Having gone through some of the work that the Auditor General has produced, it has identified these very tricky things about how to define it. The risk is that we spend a lot of time chasing our tails in trying to define it but not really getting to the nub of the issue, which I think is what your question was getting at.

Mr. Goodman's answer earlier was a very good explanation of it, in that transition measures should be not something that we are, by any means, seeking to phase out. The chamber is on the record as being very supportive of CCUS. That would be a very reasonable approach to take to it.

The recommendation that I would give to this committee is to not get too hung up on whether it is a tax measure or it is a capital cost allowance. Is it a grant? Is it a refundable credit? You should be looking at what the outcomes are that this policy tool is working towards.

[Joanne Thompson, Liberal, St. John's East, NL]

To follow through on that idea of the outcomes, in your opinion, what should the key considerations for the Government of Canada be as it plans to eliminate fossil fuel subsidies and phase out public financing in the fossil fuels sector? Could you give a little more detail around that?

[Mark Agnew]

One item would be what the impact would be on our emissions profile. Is it a transition measure that will help deliver bang for our buck, if I could use that term? For instance, what will this mean for economic competitiveness? What will it mean for our trade commitments?

As the Canadian Chamber of Commerce, we're always very mindful of abiding by various WTO and other bilateral commitments where there are disciplines on certain subsidies that could be provided.

Those are some considerations I would encourage the committee to look at in its recommendations.

[Joanne Thompson, Liberal, St. John's East, NL]

I'm sorry to continue on in this thread, but I think it's important to clarify things.

There may be some public financing in support of fossil fuel production or consumption that's not classified as official fossil fuel subsidies, and that could remain in place after 2023. If this is the case, would there be a timeline by which to end such supports?

[Mark Agnew]

It would depend highly on the particular program. To use an example, we wouldn't want to see a CCUS tax credit end by 2025. These things are going to need to stick around for quite some time.

What I would say, to put the question in a different perspective, is the need for predictability in the funding streams that companies can tap into or their technologies. We've been very happy with the net-zero accelerator initiative. Can the government look to make that a permanent funding program? What you wouldn't want to happen is industry wondering every two to three years what's going to be around the corner and whether this tool will be available to it.

The planning cycles for these capital investments require people to think quite far in advance. That doesn't always necessarily align with parliamentary budgetary cycles that can be a little more fickle, if I can put it that way.

[Joanne Thompson, Liberal, St. John's East, NL]

Finally, in this thread, what would the greenhouse gas emission reductions be if such public financing were ended?

[Mark Agnew]

That's a question that I would have to get back to you in writing. I can do that.

I know witnesses don't like to deflect questions and look to others, but perhaps Mr. Goodman could advise on that.

[Tristan Goodman]

We could certainly examine that. The reality is that it really depends on which particular piece you're speaking about. Similar to you, what we're looking for are some additional definitions on what an inefficient subsidy is, what a subsidy is. It really depends on how they're classified.

Again, the key here is to look at GHG reductions while preserving.... We need to meet the existing demand. That's sort of the tricky balance. What we don't want to see is.... I thought there were some good comments earlier. During this period of time, we have to be careful with workers in this sector and we have to be careful with low-income Canadians. Those are the two groups that can, unfortunately, bear the brunt here if we're not careful during this period. It's not a question of whether we're moving through this.