Environment Committee on Sept. 23rd, 2024

[Jonathan Arnold]

Thank you for the question.

I think there are many elements of that legislation that align with the research we've done related to taxonomy and disclosure. I think that, broadly, there's a lot more effort that needs to be made in that regard.

To your to your earlier point, we released a report two years ago now called “Sink or Swim”, which really tried to divide up the the types of activities and the types of change that we need to see in the economy. We stress-tested the Canadian economy based on different global low-carbon scenarios. From that, we were able to see different impacts in what we call “demand-decline sectors”, which are fossil fuels. There, what really needs to happen is that those sectors—those businesses—need to transform into new business lines that align with net zero.

There's a second bucket of sectors we call “carbon cost sectors”. These are the sectors that are emissions-intensive, that need to reduce their emissions and will have demand through the transition.

[Monique Pauzé, Bloc, Repentigny, QC]

I'll stop you there, Mr. Arnold.

What I understand from your answer to my question is that you support Bill S‑243. You even think we could go further. Indeed, this bill also deals with taxonomy.

Mr. Coffin, it was music to my ears when you said we had to move towards a reduction. We welcomed the CEOs of the five biggest banks and they explained how they were contributing to the fight against climate change. You mentioned pension funds, but there's also insurance and all the other financial sectors.

Can you tell us how their actions affect climate change? That's my first question.

Secondly, I'd like to know how successful the establishment of a serious and predictable regulatory framework for insurance, pension funds and all other sectors of finance could be.

[Michael Coffin]

There's an awful lot in there.

For me, there's a real need, from the taxonomy question, to think about things that are genuinely transition and sustainable activities or transition finance. I think it's really important that oil and gas companies ultimately don't receive transition finance because they don't have to become anything. It's critical they move away from what they currently do, but they don't have to become anything. I think there's a real risk that companies will get financing through transitional green bonds to do potentially green things, but it actually helps to continue the financing for what they're doing.

Driving that stronger regulation is really important. That's particularly the case for things like carbon capture and storage and for things like natural gas and LNG. If you have regulations, the financial systems and the pension funds being, in some ways, hoodwinked by the industry that carbon capture and storage is a solution and that it's a climate-positive piece, that is actually one example of when the investment sector and investment community must really challenge what they are being told by industry—critically challenge it—and must not fall for, ultimately, these false solutions by industries that are perpetuating business as usual.

Crucially, government frameworks and regulation...and I've seen this through my work on a number of—

[The Chair, Liberal, Francis Scarpaleggia]

Excuse me, but I think Madame Pauzé wants to ask another question.

[Monique Pauzé, Bloc, Repentigny, QC]

I didn't hear the interpretation of the last sentences. Maybe it's because the microphone was open. I don't know.

[The Chair, Liberal, Francis Scarpaleggia]

Could you repeat your last couple of sentences, Mr. Coffin?

[Monique Pauzé, Bloc, Repentigny, QC]

In fact, I'm going to ask Mr. Coffin another question that's just about along the same lines.

Mr. Coffin, you started to give us some examples. Can you mention any countries, not companies, where the implementation of strict regulations, for banks for example, has really helped to keep investment away from the oil sector?

[Michael Coffin]

I think I can draw examples of the U.K., where I'm based, and we have the transition plan task force, which is looking at transition plans. That's for corporates of many natures. You have the corporates involved in the real economy, but you have the financial institutions as corporates themselves. That has clear guidance for banks and other financial institutions about how they should act to decarbonize their portfolios, including scope-3 financed and facilitated emissions, responding to climate-related risks and opportunities and then contributing to an economy-wide transition. You see that reflected in the banks.

Thinking more broadly, in Europe, an example would be BNP Paribas and how they have reduced and very rapidly declined their financing of fossil fuels. There are a number of other examples in Europe.

I think there are other regulatory things. I draw an example of the Advertising Standards Authority in the United Kingdom.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you. We'll have to stop there.

We'll go to Ms Collins.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

I'll start with Professor Dietsch.

First of all, thanks so much to all the witnesses.

If I understand your argument correctly, the green transition is unlikely to succeed in the way that we're currently approaching it. Really, fossil fuel investment has continued and will continue to remain strong. We've heard from previous witnesses during this study that one in five bank directors have an explicit connection to a fossil fuel company. We know there's a lot of overlap between the interests of the big banks and the interests of the large oil and gas companies in Canada.

Can you talk a little about how your suggestion—this credit policy—might impact that?

[Dr. Peter Dietsch]

Thank you.

The bottom line of my intervention is to say that it's not enough, and this is what current policies in both Canada and elsewhere are focused on. It's not enough to turn the tap on for green finance investment, because we have a financial system that is malleable and that is flexible. When we do that, we just get more and cheaper energy.

What we need to do is to actively turn the tap off for fossil fuel financing. Whatever the landscape of interests—the cross-holdings between companies, say, between the financial sector and the oil and gas sector—might be, I think effective regulation would prevent some of this investment from happening.

This allows me maybe to say something that I was going to say at the end, namely about what a credit policy could look like. For instance, you could charge banks that have a higher exposure to fossil fuels. You could charge them higher interest rates as the central bank, or you could require higher capital requirements. At the extreme, you could even tell them that if you get into financial trouble due to your fossil fuel holdings, we aren't going to bail you out. All of these are measures that would effectively incentivize those banks to reduce their lending to the sector.

[Laurel Collins, NDP, Victoria, BC]

Thank you.

My next question is for Mr. Arnold. You outlined the devastating costs of the climate crisis and how that's already having an impact on Canadian households, costing them billions, and said that this is going to increasingly be a drag on our economy.

Can you talk a little bit more about those two pieces, the disclosures, where we are now and what steps we need to take in order to be in line with our global peers? Then also, maybe I'll follow up with a question about the taxonomy.

[Jonathan Arnold]

Thank you.

Broadly, I think this just comes down to a big question of information not being standardized in a way that participants in capital markets can really use it such that you would see those risks starting to get priced into decision-making.

Right now, we do not have a good, full grasp of the physical risks of climate change or the physical costs of climate change. As a result, those are not getting priced into decisions. We still see housing developments, for example, being developed in areas that are at extreme risk of flooding, sea level rise or wildfires, so our adaptation team at the institute is doing work in this area to study that in more detail.

The same goes for transition risks. We don't have a standardized definition of what is “green” or “transition”. As a result, there are lots of different interpretations, and that creates ambiguity. The lack of standardized, credible information causes many investors to underinvest in the energy transition and to over-invest in things like oil and gas, which carry a higher transition risk.

[Laurel Collins, NDP, Victoria, BC]

On the taxonomy piece, we have heard concerning rumours about the government's potential intention to include LNG, a fossil fuel, in the sustainable finance taxonomy and to label that fossil fuel as sustainable finance.

Can you tell us your thoughts or reflect on that?

[Jonathan Arnold]

Yes. This is a concern that we take very seriously in the work we do and have done at the institute. As I referenced earlier, we published a paper earlier this year looking at what types of requirements might need to be true in order for an oil and gas asset to meet that transition label, and it is an extremely high bar. As I said, it would require commitments at the corporate level to have net-zero targets that include scope 3 emissions, which none currently do. At the asset level, it would require significant investments in new technologies to drive down emissions to get on a net-zero pathway.

We see that it is possible, but the framework that we have laid out would make that an extremely high bar, and there would need to be significant change within the industry, at the corporate level and at the asset level, for that to happen.

[The Chair, Liberal, Francis Scarpaleggia]

You have about 15 seconds for a comment.

[Laurel Collins, NDP, Victoria, BC]

Maybe I'll just ask the other two witnesses a yes or no question around including LNG as sustainable finance within a taxonomy.

[Michael Coffin]

It would be a clear no for me.

[Dr. Peter Dietsch]

No for me.

[The Chair, Liberal, Francis Scarpaleggia]

That's clear and succinct. Thank you for that.

We will go now to the second round, but I'm going to reduce each person's time by 40% so that we can finish this panel on time.

Mr. Deltell, you have the floor for three minutes.

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

Thank you very much, Mr. Chair.

I would like to thank all the witnesses for coming to take part in our consultation today. They are welcome in their House of Commons and their Canadian parliament.

Climate change is real, we all know that, and we need to adapt to its effects. As Mr. Poilievre said in his speech to a gathering of 2,500 Conservative activists in Quebec City a year ago, we need to offer tax incentives to reduce emissions using new technologies. Secondly, we need to speed up the process of giving green energy the green light. Canada has every advantage in terms of natural resources and energy, and we need to develop this potential to the full. Canada will be very well served by itself, first and foremost. We must also work hand in hand with first nations to develop all this potential, if this is to be done on a first nation's ancestral lands. These four elements have always been repeated by our party, and they were well defined by our leader, Mr. Poilievre, a year ago.

Mr. Arnold, earlier you said you were very happy to see the solar and wind energy sectors developing. In your opinion, if we put a lot of effort into accelerating the green process, whether it's solar energy, wind energy, hydroelectric energy, geothermal energy or even nuclear energy, will Canada come out on top?

As we've said before and we'll say it again, we need to speed up the process of giving green energy the green light.

[Jonathan Arnold]

Absolutely, yes, but speeding that up requires a stringent policy in multiple different ways.

I referenced the industrial carbon pricing system. The consumer carbon tax also plays a role. Clean fuel standards will play a role. All of the other policy initiatives that I mentioned in my opening statement around disclosure, taxonomy and transition plans will all play a role. This will not happen without a significant lift from policy and a ramping-up of the different types of policies we have today. We also need to introduce new policies to keep bending the emissions curve down.

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

Professor Dietsch, you said earlier that investments had to be made. Last year, the federal government decided to announce nearly $18 billion in direct subsidies to Volkswagen. So that's $18 billion for a single project.

In your opinion, could these funds have been used for other purposes, with the aim of making our economy greener?

[The Chair, Liberal, Francis Scarpaleggia]

You have 15 seconds.

[Dr. Peter Dietsch]

I didn't really say we should make investments; I said we should divest from the fossil fuel sector. There are many ways to do this, but, as I only have 15 seconds, I'll stop here.