Environment Committee on May 9th, 2024

[Monique Pauzé, Bloc, Repentigny, QC]

I apologize for interrupting you, but there are things you are saying that are in the recommendations in the final report of the expert panel on sustainable finance. Is that right?

[Andrew Chisholm]

Yes.

[Monique Pauzé, Bloc, Repentigny, QC]

I am going to ask you a question about recommendation 12 in your expert panel's report, very specifically, which proposes building export pipelines.

What connection do you make between the rules of sustainable finance and projects that are so specific?

[Andrew Chisholm]

First of all, if there is a transition plan on a country level, if there is a transition plan on a sectoral level or if there is a transition plan on a company level, they will involve actions that, to the extent that they align with Paris-based objectives and science-based targets, will need financing. Some of the gas that we all talk about may well be useful in the context of a transition for some period of time as a potential displacement of certain other much more harmful fossil fuels.

[The Chair, Liberal, Francis Scarpaleggia]

We have to stop there, unfortunately. The time is up.

Go ahead, Ms. Collins.

[Laurel Collins, NDP, Victoria, BC]

That's okay. I think I will pick up on exactly that point.

You were talking about gas. I think many climate experts and folks from civil society and indigenous groups would contest whether natural gas is an effective transition fuel and say we need to leapfrog.

The recommendation specifically mentions oil. You are advocating for oil export pipelines, which to me is shocking for an expert panel on sustainable finance. One thing that caught my eye was at the end of that recommendation: “a clear pledge from industry”.

Given that we've seen industry fail time and time again, greenwash, make climate commitments and then roll those back while making record profits, how are we supposed to trust oil and gas companies and the financial institutions that profit off them to recommend a pathway forward when we're facing a climate emergency?

[Barbara Zvan]

At the Sustainable Finance Action Council, we focused on oil and gas. If you look at the report, what is included is the decarbonization of the oil and gas sector. Why did we do that? About 30% of the emissions today are from the oil and gas sector. We will not meet our targets if we do not deal with this sector while we need to use their product. That is why we do it. It does not include the production of oil and gas. It includes decarbonization activities, such as methane, CCUS and those sorts of things. The provisos put in the report—

[Laurel Collins, NDP, Victoria, BC]

I have some questions about those as well, but I think the issue I'm trying to get to is that the recommendation is in support of specific export pipelines—to build them. I think what you're talking about is decarbonizing the production. We know that once the oil and gas are shipped overseas, they will be burned, which will increase emissions.

I'm curious to know if that played a role in your decision-making around recommending support for building oil export pipelines.

[Andrew Chisholm]

The comments that I would make have to do with, simply, a practical reality, which was even more true in 2019 than today. Roughly 80% of global energy needs currently come from fossil fuels. It's important that we have an orderly transition.

On the expert panel, we're strong advocates of the notion of transitioning and meeting our Paris-aligned goals in a science-based way, but recognizing, in doing that, that there needs to be a glide path. There needs to be a pathway so that we do not end up with a disorderly transition that can involve price shocks and a lack of supply, which would act in a counterproductive manner in our ability to bring society along the kind of direction and glide path we need.

[Laurel Collins, NDP, Victoria, BC]

I hear that, but the language used in the report is about Canada's “cleaner, more responsibly produced oil and gas”. Canada is home to the oil sands, which is producing some of the highest-cost and highest-emitting energy. It's the farthest from clean energy that I can imagine. Is that what your report—

[Andrew Chisholm]

We certainly concurred with some of what you just mentioned. In order for Canada to continue to be in a legitimate position to produce and export its fossil fuel-based product, it will be essential over time that we strive to be among the very lowest in terms of emissions intensity and cost.

[Laurel Collins, NDP, Victoria, BC]

Chair, how much longer do I have?

[The Chair, Liberal, Francis Scarpaleggia]

You have more than a minute.

[Laurel Collins, NDP, Victoria, BC]

Great. Maybe I will switch to some questions about the taxonomy itself.

You've already captured some of the reasons it might be different from the EU taxonomy, and while that taxonomy isn't perfect, the key difference that I see is the difference between what is considered a transition fuel and transition.... It appears to me that the EU is really looking for us not to lock in carbon-intensive assets, whereas the made-in-Canada one seems to have put in a bunch of loopholes that allow for that carbon lock-in.

[Barbara Zvan]

I wouldn't agree that there are loopholes. Remember that the taxonomy recommendation says that it has to be aligned with 1.5°C; it cannot extend the current lifespan of production; no new production is included; and it only includes the financing of decarbonizing the existing production. That's because right now the sector produces 30% of Canada's emissions and that's growing, so if we don't deal with decarbonizing the sector while we use it, doing everything else will be harder. That is why we included it.

The EU took a certain approach, but I can tell you that Australia is running with our approach. You have the Asian region doing transition. You have Japan doing transition through model cases, and you have New Zealand doing transition—

[The Chair, Liberal, Francis Scarpaleggia]

We'll have to stop there, unfortunately.

We'll start our second round, which is a five-minute round, with Mr. Deltell.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Thank you, Mr. Chair.

To our witnesses, welcome to your House of Commons committee.

Ms. Zvan, the nub of your argument relates to the taxonomy, which is a system of classification to help in directing capital to projects that are considered to be green or other projects that are considered to be less green.

To give you a very concrete example, I am going to tell you about a situation we are currently experiencing in Quebec. As we know, nothing is all black or all white; there are always grey zones. I am going to tell you about the Northvolt project, a $7 billion investment project for the battery industry. I have to come out of the closet and state my conflict of interest: I drive an entirely electric vehicle. That being said, the Northvolt project is an emotionally charged one in Quebec, unfortunately even for criminals: some thugs recently placed incendiary devices on the site of the Northvolt project. Obviously, that was denounced by everyone, starting with us.

Some say this project is excellent for the environment because we need batteries for electric cars. Others urge caution since the plant will be located on wetlands, or say the SOLO car is not necessarily the best solution from the environmental perspective, or believe there have been no consultations worthy of the name done for this project.

To summarize: On one side, some people think it is a good project; on the other, some people think it is not.

Ms. Zvan, do you think the project should be at the top, in the middle or at the bottom of the list?

[Barbara Zvan]

I don't know enough about the project to put it on the list, but the point of having a taxonomy would be for financiers to know if that project meets a certain level of specification scientifically, and then for us to ask whether it meets those requirements and have clarity on whether it's aligned. Right now, we don't have clarity at all. It's exactly that confusion and debate that slow down investors from being in those sorts of projects.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

I am going to give you another example. As my party's environment and climate change critic, I meet with dozens of groups every week or every month, including people from the manufacturing sector, who want to improve their environmental footprint. Recently, I met with people from the packaging industry who told me that in order to achieve the targets set by the government, packaging would have to be bigger and thicker. That means that in order to achieve the target set by scientists, more will have to be produced. In other words, the gain in efficiency that we think will be made by achieving the target is wiped out because something bigger has to be produced.

Do you think it is a good idea to continue to invest in a company that has realized that being required to follow the rules made by the government will result in it having a bigger environmental footprint, since production will call for having a thicker product, a product that is more complicated to produce and thus pollutes more? On the other hand, if it made a thinner product that still met the targets, its environmental footprint would unfortunately be considered to be too high.

What is your view on this? Do you see the situation as being positive, average or negative?

[Barbara Zvan]

When investors work with those sorts of companies, if we look at the engagement initiative, we would expect to see disclosure, how their capital is aligned and a transition plan.

Investors are very understanding if government puts in rules that say you have to do certain things, but we want to know what their long-term plan is for how they are going to meet the 2050 goals. It's different by industry, and we assess them differently by industry. If it's a government-imposed thing, investors take that into account. The problem is that we don't have companies articulating what their decarbonization strategies are at all.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Who will call the shots?

I would like to know who is going to determine what will be at the top of the taxonomy list and what will be at the bottom.

[Barbara Zvan]

The governance around taxonomies usually involves a council at the top, so think of it as a board. It's usually chaired by the monetary authority, with significant representation from the monetary officials sector, like the Bank of Canada and OSFI. Those groups would be equivalent here. They oversee the initiative. In the middle, there's usually a secretariat that the council picks to do the day-to-day work, which hires experts from different sectors to develop technical specifications. Those specifications are shared with industry and finance for feedback, and then they go to public consultation.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Who should pay for that?

[Barbara Zvan]

That is typically funded by the government, because investors want to see the government backing these things. It's about $4 million to do four sectors a year. That is easily recouped by a $10-billion bond issuance.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Go ahead, Mr. Longfield.