Environment Committee on April 5th, 2022

[The Chair, Liberal, Francis Scarpaleggia]

Thanks very much.

This has been a very interesting discussion and an excellent contribution to the record of testimony for our study. I want to thank all the witnesses for making time to be with us today to share their knowledge and insights.

We'll take a short break to connect the second panel witnesses, and we'll continue with our second hour.

Thanks again to the witnesses.

Many thanks for being with us this morning.

[The Chair, Liberal, Francis Scarpaleggia]

On our second panel, we have three witnesses with us today.

We have Dr. Christina Hoicka, Canada research chair in urban planning for climate change, and associate professor in geography and civil engineering at the University of Victoria.

We have Professor Éric Pineault, president of the scientific committee in the institute of environmental sciences at the Université du Québec à Montréal.

Then we have the Honourable Dan McTeague, president of Canadians for Affordable Energy. Welcome back to the Hill, virtually, Mr. McTeague.

We'll start with Dr. Hoicka for three minutes, please.

[Dr. Christina Hoicka, Canada Research Chair in Urban Planning for Climate Change, Associate Professor in Geography and Civil Engineering, University of Victoria, As an Individual]

Thank you.

My tri-council funded research focuses on the deployment of clusters of renewable energy innovations in communities in Canada and on nearly every continent.

I think that Canada can reach its 2030 targets, which are only eight years away, to uphold its pledge made to the UNFCCC if we follow the evidence on our fastest, cheapest options, which also improve social and economic benefits.

Critical and technologically viable opportunities for decarbonization include electrification of transportation; deep energy retrofits to buildings, which can reduce energy use by 50% to 80%, including heat pumps; and the rapid scale-up of waste heat capture for heating and cooling processes in cities and industrial districts.

To dramatically scale up heat pumps and electric transportation, we need to quickly scale up renewable electricity generation and new distribution and transmission technology to get this renewable electricity to where it's needed.

Peer-reviewed research shows that over the course of at least 50 years, public and private sector funding for research, development and deployment of nuclear and fossil fuels has been in orders of magnitude more than funding for renewable energy in Canada. Current reporting tells us that the fossil fuel sector is receiving $14 billion per year from governments, while renewable energy is receiving less than $1 billion in funding over four years. If we spent on renewables the way we spend on fossil fuels, we could direct financial regulatory knowledge and administrative resources towards our best possible pathway for meeting both our 2030 and our 2050 targets.

A dramatic increase in renewable energy is possible, as there have been tremendous technological advances. For example, renewable energy has become the cheapest option on the market, including compared to coal. Combining renewables and adding flexibility like load balancing and demand response can reduce the cost of storage.

According to the Organization of Economic Co-operation and Development and the International Energy Agency's “Clean Energy Technology Guide”, there are at least 38 technologies, including a range of renewable energy technologies, that are market ready and could be scaled immediately with the right supports.

According to my own research and analysis, Canada is not supporting these proven technologies to the extent needed to meet our climate goals. It will be an achievement to provide transmission to cities for electrification of vehicles and growth of population, buildings and industry. However, with the right mix of policy instruments that are regulatory, economic and knowledge-based, as well as administrative support for programs and support for communities to participate meaningfully, we can rapidly diffuse renewable electricity and empower communities, whether urban, rural or indigenous. This can be done in a socially and economically just manner.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

Professor Pinot, you have the floor.

[Éric Pineault, Professor, President of the Scientific Committee, Institute of Environmental Sciences, Université du Québec à Montréal, As an Individual]

Good afternoon.

My comments will be about two specific instances of grants to fossil energy projects. I'll begin by talking about the tax credit for carbon capture, utilization and storage, CCUS. I will then say a few words about the Trans Mountain oil pipeline, which I believe also represents a grant to industry.

After seven years of falling prices, there has been a rebound in the price of hydrocarbons since 2021, in the aftermath of the post-COVID recovery, caused by underinvestment in extraction capacity during the downturn. In Canada, our hydrocarbon extraction companies have potfuls of money, but rather than investing it, companies decided to transfer most of the benefits from these rising prices to their shareholders in the dual form of dividends and share buybacks. It's important to have this information in mind for what follows.

I will now address the question of what the subsidy that the tax credit for CCUS projects would amount to, by asking myself what the possible economic impacts of this subsidy might be.

My model will be the tax credit formula set out in the federal government's emissions reduction plan, the ERP. The use of CO₂ for the extraction of hydrocarbons is therefore excluded from my evaluation.

The initial economic impact expected is as follows: in view of high current prices, the low cost of a ton of CO₂ and the absence of any major investment programs in the sector, the amount of money saved by the industry as a result of the tax credit will enable it to invest everything while maintaining high transfers to its shareholders.

Let's look now at the second expected economic impact. The statement in the ERP says that the objective of the CCUS technologies for the oil sector is to maintain its competitiveness in the medium term, during which global demand will rise. The industry's CCUS projects aim at reduced GHG emissions per barrel, and not full decarbonization. At best, the credit will get an oil sands barrel into the world average for GHG emissions. I believe that it's a commercial policy and not a policy of transitioning towards carbon neutrality.

In terms of the opportunity cost to reduce emissions, it's a weak measure compared to policies on renewable energy and electrification investment, as our colleague just mentioned.

Geological sequestration is a necessity, but the CCUS projects currently being promoted by the industry are not, according to the most recent IPCC report, the best options. There are other sequestration options that would be more efficient.

In the tax credit under discussion, there is no link between the assistance provided in the form of a subsidy and the effective performance of decarbonizing the projects. Generally speaking, these projects have not thus far been achieving the stated objectives. They are underperforming.

Given that the technology is relatively new, and given the need for long-term development and lengthy amortization periods for all projects that are implemented, and the fact that projects are often tied to hydrocarbon extraction in the oil and gas sector, the tax credit might well behave more like a sturdy bolt than a lever.

The subsidy in question is therefore effective for protecting the industry against the risk of climate policies, but not very effective at achieving our GHG emissions reduction targets.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Professor Pineault.

Mr. McTeague now has the floor.

Go ahead, Mr. McTeague.

[Dan McTeague, President, Canadians for Affordable Energy]

Thank you for the warm welcome, Mr. Chair, even though it's only virtual.

Chair, it's a pleasure and an honour to be here, and I thank you for the invitation.

I'm going to keep my comments very brief. The issue of fossil fuels is indeed vast, as is the issue of climate change. Selecting one area in terms of subsidies brings about some interesting points and commentary, which I'm pleased to answer on as well as I can.

However, to my way of thinking—and we've heard this from previous witnesses—deferred taxes are not in fact a subsidy. In fact, if you look at the actual amount of subsidy, it may very well be negligible. Certainly, in the case of energy subsidies, which I think the committee's now realizing are extraordinarily difficult to define and to measure, it actually has little to do with costs directly from government.

Much is made of subsidies to oil and gas, and while there are some, no industry invests, in my view, more of its own dollars in innovation in Canada than the oil and gas sector does. The value it delivers is profound across society, across the country and, principally, in driving energy prices lower for consumers. It is the single biggest benefit for society's well-being. Without affordable energy our society will be plunged into profound difficulties. Those are the kinds of difficulties that have been expressed by previous witnesses here, which we're seeing every day now in the United Kingdom, Germany and the entire European Union.

A government that's committed to net zero and a just transition is a government determined to undermine affordability, a government determined to subsidize more, not less, at huge costs to society. Net-zero policies are destroying the U.K.'s economy. A just transition is about more government intervention, not less, and with it more economic dislocation for all.

Thank you for having heard me out and I'm now ready to answer your questions.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Mr. McTeague.

Mr. Dreeshen now has the floor for six minutes.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much, Mr. Chair.

To all of the witnesses, welcome.

Mr. McTeague, it's been a while, but I remember serving with you. Of course, when you talk about the deferred taxes not being a subsidy, I think someone who spent as much time on the industry committee as you did certainly understands that which makes this country roll.

Our oil and gas has been scrutinized, from the digging up of the very first molecule to the end of its life cycle, where we end up consuming it, yet we don't look at other energy sources through the same lens. For example, there seems to be a forgotten component when the government talks about electric vehicles leading the way to net zero. I know you've discussed the concept of the battery development that's needed to create the vehicles, and the 500:1 ratio as far as mining to the final product is concerned.

We talk about electric vehicles, but of course they are highly subsidized as well. The environmental and financial impact it has for Canadians is important.

As you mentioned, the oil and gas industry is innovative and engaged when it comes to reaching net zero. However, unlike hydro, solar, wind and other energy sources deemed green by this government, it's being demonized by existing and proposed environmental policies.

It seems as though no one who is leading the charge of EV acknowledges the strip mining and the violation of human rights in making batteries. No one seems to mention the cost of these vehicles, which puts them out of reach for most Canadians. It seems as if government is subsidizing industry, catering to the elite at the cost of jobs.

When I had a chance to speak to some people involved with hydrocarbons, of course they were talking about windmills. It takes 17 tonnes of material for a windmill, and seven tonnes of that is plastic. These things come from hydrocarbons. As we demonize one, we end up with problems in the other areas.

I'm just wondering if you could talk to us about the longer-term impact of this government's pushing EVs, and the negative effects it will have on taxpayers, who will be forced to subsidize the cleanup of these projects once investors have walked away with their millions.

[Dan McTeague]

I'm sorry, Chair. Who is that for?

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

That's for you, Mr. McTeague.

[Dan McTeague]

I'm sorry. I think we drifted a little.

I am agnostic on EVs. I think they're a wonderful drive. It's an interesting form of technology, but perhaps my bias is in having worked, Mr. Dreeshen, for Toyota Canada and Lexus prior to being a member of Parliament.

There's a company that's saying EVs are not the way they're going to go. Yes, they're going to qualify and they're going to put out certain models, but they're going to hydrogen. They see the future. They're not prepared to invest it in something as unreliable as an EV, which of course cannot exist without hydrocarbons. Neither the polymers, the resins, the asphalt nor the tires can be built.

Of course, we have to look at the amount of environmental damage that is caused. Five hundred thousand pounds of earth has to be removed in order to make your 1,000-pound battery. We know, of course, that there have been attempts to try to do this, but those batteries, at the end of cycle, cannot be replaced.

Rather than making it an ICE versus EV comparison, I think the idea behind all of this is no matter how we look at it, the idea of oil and gas simply disappearing because we wish it or because we set arbitrary dates for net zero won't make it any different. The reality.... I'm not sure when the committee decided to embark on this one specific aspect of the oil and gas sector, but I suspect it may have predated the war in eastern Europe. I think it's brought to light not so much the idea that we can double down on green renewables as a means of getting to where we want to be, but rather to recognize that oil and gas is a bit like Rodney Dangerfield's “I don't get no respect”.

The reality for most is that this is starting to become a growing concern globally, as countries—whether it's the United States, Europe or Asia—recognize that we have to look at the potential for greater growth in fossil fuels. For how we manage them and the best practices, I would stack up Canada's environmental record on its oil and gas sector against any other country in the world.

By the way, you mentioned my days as an industry critic, sitting on the industry committee itself. Your chair, Mr. Scarpaleggia, knows my work on the energy industry. There were very few members of Parliament who took on the oil and gas sector like I did. I can tell you, they don't like the fact that I predict gas prices a few days before. It robs them of tens of millions of dollars a year, which I help consumers with.

Having said that, on the issue of EVs, how much are we paying in subsidies? If we really want to look at major subsidies, I think we ought to look at what we're giving to the major auto manufacturers, which might be in and of itself a long-term goal. When we start going down that hole of subsidies, let's not only make sure we have a proper definition, but also say where our priorities lie.

Those subsidies would not be possible without the $20 billion to $30 billion you receive every year from the oil and gas sector.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

I think that's important because, of course, if you're going to build these vehicles and maybe you want to put in a battery or maybe you want to try some other way of electrifying it, you still need to have the oil and gas in order to make this happen.

In the short time I've got, I just want to go back to other things we have, like windmills and solar. Each of those has an environmental impact. Nobody seems to want to talk about that. They all just want to say, we'll get this new electrification. Everything's going to be fine.

Can you give us, in the 30 seconds that we have, some comments on that?

[Dan McTeague]

Look, I'm from Ontario. I know what the relative cost of oil and gas is before government intervention. It's a relatively cheap, affordable means of getting to where we need to be. I also know the cost of renewables, and the extravagant cost we're paying thanks to green energy and global adjustments.

My province has to incur $6.5 billion a year to subsidize the hydro rates that consumers are having to pay every year to shield them from what is essentially the full effect of the unbridled effects of green energy.

[The Chair, Liberal, Francis Scarpaleggia]

Thanks very much.

Mr. Weiler for six minutes, please.

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

Thank you, Mr. Chair. First, I'd like to thank the witnesses for joining today.

My first question is for Dr. Hoicka.

You mentioned in your opening testimony some of the opportunities that are available in renewable energy in Canada. Canada's grid at this point is, of course, already about 82%-83% non-emitting. The delivery of electricity is generally a provincial responsibility, so I was wondering if you could explain to this committee what role you see for the federal government to support the rollout of more renewable energy.

[Dr. Christina Hoicka]

I think the federal government can play a strong role and provide quite a bit of leadership in this area.

The first issue is that I agree that the electricity system is heavily decarbonized. However, as I wrote in my briefing note, if we really want to tackle transportation, electrification is a really big piece of that. I agree with the Honourable Dan McTeague that we need to consider affordability. That's why we need to consider things like public transportation that's electrified and electric bicycles, which I like to ride, as options, and make those affordable and available to everybody, but also safe and convenient. In order to electrify all of these things, we really need to expand the electricity system.

I'll give an example. The average car at peak load is about four times the average household peak load in Toronto. If you have the adoption of electric vehicles in cities, all of a sudden you have a lot of peak load on the system that you need to manage temporally, but also you're going to need more transmission. Broadly speaking, we need to expand the electricity system. There is modelling that was done several years ago, and there has been major technological development since then, that shows that, based on the technology then, it was entirely possible to have a 100% renewable energy system in Canada.

What role can the federal government play?

There are a few things. One is that the federal government can provide economic supports. There is a range of different types of economic instruments that can be provided. When those dovetail into each other, as we saw in Vietnam, there is basically exponential growth of renewables. The federal government can provide that.

The federal government can also work with provinces on provincial interties, because some provinces will have access to more renewable resources than others. The federal government also, if it's setting up a carbon pricing system, can bring some funds towards that.

The other thing is that, yes, electricity and energy are provincial matters. However, there's no reason the federal government can't provide carrots by removing some of the sticks that are in the regulatory system, which are limiting our ability to have a resilient electricity system in different places. By resilient, I mean ready to deal with the impacts of climate change. We're already seeing the impacts of storms. We're already seeing the impacts of massive heat waves, and all of these are affecting the reliability of electricity around the country.

The federal government is already working directly with remote communities, which is really important, but they can also be a really important area for deployment and innovation, and for technological testing to see how communities work.

Finally, the federal government can provide a lot of knowledge, training and skills, which is a really big piece of what we need in order to make this transition happen. By that I mean re-skilling. Also, the energy sector is the least diverse sector globally and in Canada. We need to have training of diverse communities and diverse groups in order to have new jobs in this area.

Additionally, the federal government can provide administrative supports. Those are really critical to the rollout of any of these things. For example, I read recently that the energy retrofit program, which is rightly focusing on deep energy retrofits, is far behind administratively in terms of the number of audits that are going through. There have been studies on the better buildings program that was done in the U.S. several years ago. Administrative supports in terms of tracking, in terms of workforce and in terms of rollout are also really critical. There are quite a few areas where the federal government can support this.

One more part is that the federal government can also support research and innovation in terms of the types of technologies that we'd like to be developing, particularly in cities.

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

Thank you.

Following up on that, you mentioned a number of the programs that are already in place through the emissions reduction plan, through “A Healthy Environment and a Healthy Economy” and the pan-Canadian framework, as well as through some of the programs we have that are being run by the Canada Infrastructure Bank. There are supports there for interprovincial transmission and smart grids. Otherwise, there's the SDTC and the strategic innovation fund.

With those programs, where do you see the gaps in supporting the transition to a more renewable energy future?

[The Chair, Liberal, Francis Scarpaleggia]

Unfortunately, we're out of time, but there may be other opportunities to provide answers to that question.

Madame Pauzé.

[Monique Pauzé, Bloc, Repentigny, QC]

I'd like to thank the witnesses for being here today.

Mr. Pineault, I'm very happy to see that you could come today, in spite of the problems we had last week. In your opening address, you gave a good explanation of the diverting issue by talking about carbon capture, utilization and storage, or CCUS, the effect of which would have been to slow down the transition and inflate costs.

If the government provides funding that is supposed to be combatting climate change, but instead supports the technologies that are harmful to this effort, can we conclude that what we have are in fact camouflaged subsidies to fossil fuels?

[Éric Pineault]

If we're talking about what is being planned as a tax credit to the CCUS, then it's a direct subsidy to industry. This industry considers that the carbon emissions of what it sells on international markets are too high. It needs to find a way to reduce the carbon footprint of Canada's output in order to be competitive in a market where, at the moment, people are starting to look at the carbon emissions of everything being sold. That's why there's going to be a shift towards these technologies, particularly in the oil sector.

It's a subsidy designed to stimulate innovation and investment. But I would argue that in the oil sector in particular, and the gas sector to some degree, the decarbonization is partial. It's not a tool that will lead to good outcomes. That's the argument I'm putting forward. It's a commercial subsidy. It's a commercial policy and not an environmental policy. It's a way of intervening in the production conditions for a product we produce and sell on international markets. It is definitely not a way of moving towards carbon neutrality.

[Monique Pauzé, Bloc, Repentigny, QC]

In your presentation, you clearly illustrated the decision made by big oil, whose profits are not reinvested at all and go instead to shareholders, who are already rich. By putting a ceiling on production now, the existing jobs will remain. There could instead be options to help the development of renewable energy sources. It seems to me that there is a lot of talk about workers to justify the fact that public funds are going to the oil and gas sector, which is already extremely prosperous.

I'm looking at the issue of transition from a rather complicated standpoint, but broadly speaking, what's happening is that workers are being used to say that nothing should change.

Do you have any comments on that?

[Éric Pineault]

We need to discuss the cycle we are in. The industry cycle since 2014 is one of consolidation and restructuring. It's not a cycle of development, innovation and extending production capacity, except in the gas sector, where there are specific dynamics in British Columbia's Montney formation. Elsewhere, there is industry consolidation.

If we look at the number of direct and indirect jobs per barrel of oil in Canada since 2014, it has been declining from year to year. Since 2014, the industry has consolidated and reduced its production costs, basically by reducing the number of workers it needs. It's wrong to think that it's an expanding sector. It's a sector that's consolidating. That's what the six largest oil extraction companies in Canada are doing. Not only that, but yesterday, Suncor announced that it would be withdrawing completely from the renewable energy sector to concentrate exclusively on CCUS, hydrogen and its oil sands assets. What we have is an industry that is restructuring.

So when people use the jobs argument, you have to be careful.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you.

In your presentation, you said that you were going to address the Trans Mountain question, but I don't think you've really had time to do that. I would therefore like to ask you to comment.

[Éric Pineault]

Okay.

I too consider the Trans Mountain project as an industry subsidy, insofar as the construction costs are at least four times as high as they ought to have been at the outset. The government paid an initial instalment of $10 billion. It was then announced that the private sector would be raising another $10 billion, but with a loan guarantee, to give protection to creditors. It's therefore a subsidy in the form of protection against the credit risk. That's a policy decision about an economic intervention the government can make, but it's important to acknowledge that it's a subsidy.

The fees that oil extraction companies pay to deliver their products also needs to be examined. Subcontracts have been arranged for $4 billion to $6 billion projects, not for $20 billion projects. The government is therefore going to have to pay the difference. If the oil pipeline is ever completed, the oil flowing through it will have to be subsidized because the price being paid by the oil extraction companies will not reflect the actual cost of building the infrastructure. That makes it a directs export subsidy.

Here again, it's a decision that a government can make, but it needs to admit to having made it.