Environment Committee on March 29th, 2022

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you for that answer.

The next question I have is for Mr. Mousseau. You mentioned in some of your answers earlier that carbon capture, utilization and storage will play a critical part. I think 10% was the amount that was mentioned as part of Canada's emissions reductions.

You also mentioned the importance of blue hydrogen as one of the pathways for reducing emissions in Canada. I was hoping you could speak a little bit more to that point and where the government policies are best placed to be able to assist in that type of a decarbonization pathway.

[The Chair, Liberal, Francis Scarpaleggia]

Mr. Mousseau, you have 45 seconds.

[Prof. Normand Mousseau]

First, we're not talking about utilization, but storage. You have to take out the word “utilization”.

In the case of blue hydrogen, it is a way to get energy that will balance electricity. In some parts of Canada, especially, it could play a role in terms of transportation, for example. It certainly could in the industrial sector and it could potentially in the construction sector. We're going to have to use that energy to try to balance the energy sources that will be required.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

We have now reached the end of our time with our first panel, who helped us launch our study on fossil fuel subsidies.

I want to thank all the witnesses for their testimony. We will surely take it into account when we draft our report.

We will now take a short break so that the witnesses in the second group can join the meeting. Then we will begin the second half of the meeting.

I'd like to thank the witnesses very much for attending the meeting today.

[The Chair, Liberal, Francis Scarpaleggia]

We'll resume.

We'll now move on to our second panel. Each witness will have three minutes for opening remarks. I'm assuming that for CAPP it is Mr. Brunnen who will be speaking for three minutes.

Is that correct?

[Ben Brunnen, Vice-President, Oil Sands, Fiscal and Economic Policy, Canadian Association of Petroleum Producers]

Yes.

[The Chair, Liberal, Francis Scarpaleggia]

Okay.

Go ahead, please.

[Ben Brunnen]

Good afternoon. Thank you for having us today.

My name is Ben Brunnen. I'm vice-president of oil sands and fiscal policy at CAPP, and I'm joined by my colleague Shannon Joseph, VP government relations and indigenous affairs.

We support the Government of Canada's desire to achieve international climate objectives, which will require innovation, major investment, a healthy industry and good public policy.

Our industry is not subsidized. I say this with confidence, especially when we look at our original G20 commitment.

Does Canada encourage wasteful consumption? No, we heavily tax production and consumption.

Do we impede investment in clean energy sources? No, incentives for renewables are at least as attractive as, if not more attractive, than oil and gas.

Do we undermine efforts to fight the threat of climate change? No, the current federal approach drives strategic and targeted investments aimed at reducing GHG emissions. Since 2009, Canada has eliminated eight tax measures deemed to be industry subsidies. In 2019, Environment Canada reviewed 36 programs across 24 departments that benefit oil and gas. None were deemed to be inefficient subsidies. Minister McKenna stated in June 2020 that her government had “eliminated” oil subsidies in the federal tax system.

According to Finance Canada in the 2017 Auditor General's Report, “remaining oil and gas measures are a ”part of the benchmark income tax system and that they would not generally be considered subsidies”.

However, there is targeted support for all sectors to invest in emissions reduction technology in partnership with government. Canada's emissions reduction efforts are incenting all sectors towards emissions reduction investments that are not otherwise economic, but this is not a subsidy. It is government policy to encourage behaviour that would otherwise not occur for all industries, not just oil and gas, and we are seeing the results.

Natural gas emissions intensity has decreased 33% since 2009. Oil sands emissions intensity has decreased 8% for in situ and 14% for mining. The oil sands pathways alliance declared an ambition to work together and with governments to achieve net-zero emissions by 2050.

It is because of this approach and the efforts of our industry that Canada is making meaningful progress to achieving our global climate commitments while preserving economic prosperity.

Minister Guilbeault has quoted a study saying that “the domestic oil patch is the largest spender on clean technology in Canada, accounting for 75% of the $1.4 billion spent annually.” We employ 400,000 Canadians and procure $4 billion in supply chain outside of Alberta. Total government revenues for our industry could be as high as $20 billion this year, including $5 billion in unanticipated incremental federal revenue.

I know there are proposals to increase industry taxes or limit capital, but Canadian governments are currently benefiting from higher taxes and royalties. Limiting access to capital or increasing taxes will only have negative effects on Canada's economy, energy affordability, emissions reduction progress and global energy security.

The crisis seizing Europe emphasizes the importance of energy security and environmental performance. The IEA forecasts that global oil and gas—

[The Chair, Liberal, Francis Scarpaleggia]

I'm sorry, Mr. Brunnen, but we're out of time. There will be time to raise these points in answers to questions.

Now we have Ms. Tucker for three minutes.

Go ahead, please.

[Bronwen Tucker, Public Finance Campaign Co-Manager, Oil Change International]

Good morning. My name is Bronwen Tucker. I co-lead the public finance program at Oil Change International, a research and advocacy organization focused on securing a just energy transition in line with a livable future. My work is focused on public finance and subsidies for fossil fuels across G20 countries.

First, I think it's important that this conversation is rooted in the context of the pace and the kind of energy transition that we need, so on this, last fall, the International Energy Agency published its first scenario aligned with net-zero emissions by 2050. It found, like many other previous studies, that there is no room for new oil and gas fields to be developed after 2021 and that oil and gas production must decline by about 3% to 4% per year after this.

This can be considered a minimum guideline for private finance. In terms of how governments are structuring their policies and subsidies, they should go far beyond this. It's also a global estimate, so Canada should be going much more quickly if it's doing its fair share. I think the bottom line is that the cost of not having a just and orderly transition away from fossil fuels is much more expensive in terms of dollars, in terms of good jobs and in terms of human lives and suffering. Not acting is much more expensive.

In this context it's clear that the definition of an inefficient fossil fuel subsidy is any fossil fuel subsidy, so this does not include support directly to fossil fuel workers and communities to transition, which is desperately needed. The most egregious subsidies are production-based, so these are ones that promote carbon lock-in, meaning that they commit us to infrastructure that is legally and financially designed to operate for decades to come. Subsidies are production subsidies even if they're given to a company to encourage marginally cleaner production, because they still ultimately free up fiscal space elsewhere.

We've seen this play out with the federal government's orphan well support as well as the 45Q CCS tax credits in the U.S., among a ton of other examples.

These kinds of emission reductions through CCS are incredibly expensive and not aligned with net zero by 2050 goals, because even perfectly functioning CCS, which does not yet exist, leaves behind 70% to 80% of life-cycle emissions of Canadian oil and gas.

The most egregious federal production subsidy in Canada is Export Development Canada's $13.6 billion a year, on average, in government-backed and often preferential support for oil and gas. EDC's activities mean that Canada gives the most trade and development finance to fossil fuels of any country in the G20. This EDC money also contributes heavily to Canada's worst ranking score among OECD G20 countries for all oil and gas production subsidies. Ultimately, it means that more oil and gas projects go forward than would otherwise be possible.

[The Chair, Liberal, Francis Scarpaleggia]

We'll have to stop there, unfortunately, but there will be time for answering questions.

Last but not least, we have Dr. Kim, please.

[Dr. Joy Aeree Kim, Lead, Fiscal Policy, United Nations Environment Programme]

Thank you very much, Mr. Chair.

As a UN technical expert, I would speak on this topic in a global context.

In 2020 globally governments spent $423 billion U.S. subsidizing fossil fuel production and consumption. To put this in perspective, when tracking public spending of 87 countries around the world during the pandemic, green recovery spending amounts to only $970 billion U.S. out of total spending of over $18 trillion U.S.

We believe that the reform of these inefficient fossil fuel subsidies can address the triple planetary crises of climate, nature and pollution, and we know very well that the reform of fossil fuel subsidies can help us to meet the Paris Agreement and climate goals. On the nature front, for instance, a study shows that a 10% increase in per capita fossil fuel subsidies increases the ecological footprint up to 1.5%.

The fossil fuel subsidy reform can also support financing green recovery and sustainable developmental goals. Globally, countries are facing very severe fiscal constraints right now to simultaneously respond to the pandemic, build resilience to climate change and get back on track to achieve sustainable developmental goals. The reform of fossil fuel subsidies represents a large potential source for social and green investment. Literature shows that just 10% to 30% of global fossil fuel subsidies could pay for the transition to a clean economy at the global level.

We believe that the first step toward the reform of fossil fuel subsidies is to improve transparency by measuring subsidies and tracking progress. UNEP is a custodian to the SDG indicator 12.c.1 on measuring fossil fuel subsidies and is approaching countries on measuring and reporting fossil fuel subsidies as an amount of fossil fuel subsidies per unit of GDP in a partnership in many countries.

Globally, countries are increasingly taking actions to reform fossil fuel subsidies. Between 2015 and 2020, at least 53 countries reformed their fossil fuel subsidies.

Overall, the successes and failures of past subsidy reforms illustrate economic and political complexity and underscore the need for tailored and effectively designed reforms. The current context of rapid increase in energy prices may make it all more politically challenging to address fossil fuel subsidy reform; however, it is important to note that the fiscal burden they bring is also swelling, and countries that fail to address the issue early on will pay a costly price later on.

We highly encourage Canada to continue its commitment to undertake the G20 peer review and advance internal reform efforts as committed under G7 to phase out by 2025 and encourage and enable others to follow suit.

Thank you very much.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

Mr. Mazier, you have the floor.

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Thank you, Mr. Chair.

Thank you to the panel for coming out this afternoon.

As we start this study, I would like to say that I support Canada's energy industry. It is critically important to our nation and to the world. I remember a previous witness at this committee stated that we should not demonize or idolize any source of energy, and I think that is a very important statement to remember as we work through these discussions.

To Mr. Brunnen or Ms. Joseph, if the oil and gas industry is limited to the access of capital, what kind of impact would this have on Canada, whether it be our economic status, energy security or global emissions?

[Ben Brunnen]

Thank you for the question.

Limiting access to capital for oil and gas would be detrimental to the Canadian economy for a number of reasons. First, I'd start with global emissions. We see Canadian oil and gas companies as some of the most responsibly developed oil and gas globally. Substantive and meaningful efforts are under way right now to reduce emissions, both in the oil sands and the conventional oil and natural gas side of things. Notably, there's the commitment to net zero by 2050.

Recognizing that the global economy is going to demand energy under any forecasted scenario and is going to grow, Canadian oil and gas should be the preferred choice. In fact, we estimate that we would displace higher carbon-intensive fuels globally with Canadian oil and gas. If we were to eliminate financing for Canadian oil and gas, it would actually be a detriment to global emissions reductions.

Secondly, we would be challenged in terms of security of supply. As we can see through the crisis in Ukraine, security of supply is such a key issue. Enabling us as Canadians and as the oil and gas industry to support our allies by providing safe, secure and reliable sources of oil and gas over the foreseeable future will help displace foreign and more hostile sources of energy.

Thirdly, if we were to limit access to capital for the oil and gas industry in Canada, it would have a substantial detrimental impact on the Canadian economy. It will likely lead to significant issues with respect to energy affordability and compound our inflation challenges that we currently see.

Overall, those are the challenges we see. We see a significant benefit in Canadian oil and gas being able to meet energy needs for all of those reasons that I've just described.

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Excellent. Thank you.

Again, this is for you two.

Do you believe that the purchase of the Trans Mountain pipeline is a subsidy and can you explain why?

[Ben Brunnen]

On that one, we defer to the ECCC review and analysis of subsidy. They did not identify it as a subsidy, largely because they see it as generating return for the government. This is merely an investment for the government that generates a return. They're going to be selling the asset to the private sector.

Purchasing this asset was a short-term need in the face of a short-term market failure with respect to the lack of support for the pipeline that was occurring, despite the interest that was in play from a national perspective.

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Okay.

Again, this is for you two.

All sectors in Canada are being asked to reduce their emissions. There are many government incentives to do so. Can you explain why these are necessary to reach Canada's climate ambitions in your sector and others?

[Ben Brunnen]

Investing in emissions reduction technology is often unproven and can be substantially costly. From a private sector perspective, I think for all aspects of the economy we would be looking for incremental costs that would be borne that would be difficult to support for investors, particularly investors who are looking at investing on a global basis. If we can't provide the returns to these investors, they'll simply invest in other jurisdictions or globally.

There is a market failure here. That's where the role of the government comes into play for all industries. If they could incent activity and technology that will help reduce emissions while maintaining competitiveness and economic prosperity, that's where there's that achievement of a mutual benefit in terms of government policy objectives as well as economic prosperity.

[Shannon Joseph, Vice-President, Government Relations and Indigenous Affairs, Canadian Association of Petroleum Producers]

Can I add one point?

It is that Canada is really beyond low-hanging fruit in terms of emissions reduction ambition. To go beyond that low-hanging fruit is going to require innovation by all sectors and an investment.

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Excellent.

This is for you two as well.

If Canada were to shut down our oil and gas industry or cancel every so-called subsidy that would be referenced in this study, how risk-prone are we to an energy crisis in this country?

[Ben Brunnen]

That's a great question.

I think we can see from the current crisis that it was building over time. Prior to the Russian invasion of Ukraine, this was building. Underinvestment was occurring globally in oil and gas, largely as a result of the focus on transition. It's illustrative of the duration that will be necessary to transition our economies.

We expect that we're probably going to be 30 million barrels per day short by 2030 in terms of global demand. If we were to starve or cut off any sort of financial, equitable support for the industry—and this isn't a subsidy; this is the benchmark tax framework—it would diminish investment and only create an additional energy crisis.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

[Ben Brunnen]

You're welcome.

[The Chair, Liberal, Francis Scarpaleggia]

Mr. Longfield.