Environment Committee on April 26th, 2022

[The Chair, Liberal, Francis Scarpaleggia]

Good morning, everyone.

I call this meeting to order.

I'll just go over some routine matters.

For those who are in the room, we're still under public health measures here on the Hill. We need to respect the two-metre rule. We need to socially distance. If you're around the table and you're socially distanced, of course you don't need to wear a mask, but all others in the room, including staff, should be wearing a mask.

For those who are appearing today as witnesses via Zoom, please keep your mike on mute when you are not speaking. You can, of course, speak in either official language.

I think that pretty much covers it.

Before we get going, though, I would ask members to adopt, if they wish to, obviously, the third report of the subcommittee on agenda and procedure.

Do I have agreement to adopt the report?

I see thumbs up and no objections, so the report is deemed adopted.

(Motion agreed to [See Minutes of Proceedings])

That was nice and easy.

This is our second-to-last meeting, as part of the fossil fuel subsidy study.

In the first hour this morning, we have Justin Leroux, who is appearing as an individual. He's a professor of applied economics at HEC Montréal, and co‑director of ethics and economics at the Centre de recherche en éthique. Also as an individual, we welcome Jason MacLean, assistant professor at the University of New Brunswick's Faculty of Law.

We also have representatives from Export Development Canada, Mairead Lavery, president and CEO, Justine Hendricks, chief corporate sustainability officer and senior vice-president of sustainable business enablement, and Sarah Fulton, senior advisor, environmental, social, and governance policy.

Each witness will have three minutes to deliver their opening remarks, and then we will proceed to rounds of questions from all parties.

Professor Leroux, we will begin with you. You have the floor for three minutes.

[Prof. Justin Leroux, Professor of Applied Economics at HEC Montréal, Co-Director, Ethics and Economics at Centre de recherche en éthique, As an Individual]

Thank you, Mr. Chair.

I'd like to thank the committee for the opportunity to contribute to this important discussion.

My contribution will aim at clarifying certain economic arguments and ethical concerns, but first I would like to get the definition of an inefficient subsidy on record. A subsidy is any government support that confers a market advantage. For example, a tax credit is a subsidy and the OBPS is a subsidy.

As far as inefficiency is concerned, economic principles tell us that any program that does not pass the cost-benefit test is inefficient. As a result, some fossil fuel subsidies, such as small and temporary programs that aim at providing energy security to remote communities until they can transition, may not be inefficient. However, most fossil fuel subsidies are inefficient because the oil and gas sector is already a profitable one. They amount to funnelling taxpayer money to shareholders and executives while undermining emissions reduction efforts.

Now I'll move on to the CCUS tax credit. I claim it is both inefficient and unethical. It is inefficient because the oil and gas sector has the wherewithal to invest in this technology on their own. If they do not find it profitable, it is because the reward for cleaning up—meaning the carbon price—is too low. It's better to increase the carbon price and use public dollars to support vulnerable households. It is unethical because taxpayer dollars should go towards furthering the transition, not slowing it down. CCUS is not a transition technology. It is a cleanup technology. It is imperfect and unproven at scale and it does not capture a host of other pollutants. If your teenager smokes cigarettes inside the house while Grandma is ill and getting worse from second-hand smoke, you don't buy your child an air purifier. You scold them when they smoke—that's the carbon price—and you encourage them to chew gum instead—that's the transition.

I would like to clarify a few things related to plastics, jobs and meeting global demand.

This discussion is not about the elimination of fossil fuels but about the elimination of fossil fuel subsidies. Those who fear a shortage of polymers, like plastics and rubber, should not worry. Whether it will ever arrive, the polymer crisis is far away and we'll tackle it then. Better to kick that can down the road than the climate can, if you will.

Next, the jobs argument is a fallacious one. Yes, removing subsidies may cost jobs in this sector, but these jobs are jobs that will be shifted to other sectors that require the valuable knowledge and skills these workers hold, such as the development of clean energy, energy consultancy and so on. This can be scary, especially for workers who are in the later stages of their careers. That is why public dollars are better spent on reskilling, upskilling and generous relocation packages for oil and gas workers and their families.

Finally, I am unmoved by the argument that the world needs Canadian oil and that we should step up our production to meet global demand out of solidarity with other countries facing an oil crunch. Meeting global demand is not the duty of Canada as a nation. Honouring our climate pledge is, and it is the best act of solidarity we can perform right now.

I'm happy to talk about other topics, like inflation and competitiveness, should you ask about them.

Thank you.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Professor Leroux.

Dr. MacLean, you have three minutes.

[Dr. Jason MacLean, Assistant Professor, Faculty of Law, University of New Brunswick, As an Individual]

Good morning. Thank you for the opportunity to discuss fossil fuel subsidies and Canadian climate and energy policy.

I'd like to make three points and signal their most important implications.

The first and most important point is this: The imperative of eliminating all fossil fuel subsidies is a means to an end, and we must not lose sight of the end goal. The end goal is not the elimination of all fossil fuel subsidies. The end goal is phasing out all fossil fuel extraction, production, export and use in Canada as soon as possible.

Eliminating all fossil fuel subsidies is a necessary but, in itself, insufficient means of achieving this end goal. Eliminating all fossil fuel subsidies may be the easiest of all steps necessary to phase out Canadian fossil fuel industry production, and it should be done immediately. Subsidies will only prolong and complicate this inevitable phase-out.

I'm mindful of the possibility that my statement this morning may sound radical outside the Canadian Overton Window. This is a testament to the fossil fuel industry's ongoing regulatory capture of Canada's climate and energy policy imagination, but this is not a radical proposition. It is based instead on leading independent, peer-reviewed climate science and policy research.

Climate modelling now shows that, in order to have only a 50% chance of limiting global warming to 1.5°C above the pre-industrial norm, rich producer countries, including Canada, must cut oil and gas production by 74% by 2030 and completely phase out oil production by 2034. Removing all fossil fuel subsidies is an important step toward this larger climate and energy policy goal.

Second, we can no longer afford—with great respect—to engage in semantic wordplay with respect to the meaning of the term “subsidy”, as so many in Canada are wont to do. There is no basis in international law or policy for distinguishing between efficient and inefficient subsidies, nor is there any basis for adopting a narrow definition of the term “subsidy” in relation to fossil fuels. The World Trade Organization's definition is well established and long-standing: A subsidy is a financial contribution by a government or any public body that confers a benefit. This is plainly a broad definition, and it's a definition that other international bodies follow, notably the United Nations Environment Programme.

Third, eliminating all fossil fuel subsidies will reduce greenhouse gas emissions and support the transition to decarbonization. In its latest major assessment report on climate change mitigation, the UN's Intergovernmental Panel on Climate Change discusses the following benefits of complete fossil fuel subsidy removal. According to the IPCC, removing fossil fuel subsidies will reduce emissions, improve public revenue and macroeconomic performance, and yield other environmental and sustainable development benefits.

Finally, I want to emphasize the three most important policy implications of these three points for Canada's current climate and energy policy.

First, the government should immediately cancel the Trans Mountain pipeline expansion project. The government should not approve or otherwise support any new fossil fuel development in Canada, meaning that it should also rescind its recent and improper approval of the Bay du Nord offshore oil project.

Second, the government should rescind the investment tax credit for carbon capture, utilization and storage announced in the recent federal budget, and cancel all other financial support—

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

[Dr. Jason MacLean]

Can I briefly make my third point?

[The Chair, Liberal, Francis Scarpaleggia]

Yes, you have five seconds.

[Dr. Jason MacLean]

Third, Canada must not only continue to raise its carbon price but also shore up all the loopholes.

Thank you very much. I look forward to your questions.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

We will now go to Ms. Lavery.

[Mairead Lavery, President and Chief Executive Officer, Export Development Canada]

Mr. Chair, honourable members, it's a pleasure to join you today, to assist the committee in its study of subsidies relating to the oil and gas sector, and to provide some insight into Export Development Canada's role in this industry.

This is a role rooted in EDC's mandate, which is to promote and support Canadian exports worldwide, across all sectors of the economy and in every region of the country.

As the committee may be aware, EDC operates on commercial terms providing financing solutions, equity and insurance. The funds we use for our export financing are drawn from our revenues, the returns of our commercial activities. Consistent with this model, EDC does not provide grants or subsidies.

Our mandate is also bound by the additional expectations of the Government of Canada and indeed the Canadian public that we help Canada meet the challenge of global warming. Growing Canadian exports, contributing to Canada's economy and responding to the crisis of climate change—this is our business landscape today, and it has been evolving dramatically in recent years.

As such, EDC's approach to oil and gas has evolved as well. In just three years, between 2018 and 2021, EDC's support for this sector has decreased by approximately 65%. EDC has committed to cease any new financing to international fossil fuel companies or their projects by the end of this year.

Today we continue to review our lending portfolio, making decisions on where to divest and where to end current international relationships that are inconsistent with our low-carbon goals. Of course, where we choose to invest is just as critical. Today, EDC is one of Canada's largest financial backers of clean technology. Over the last 10 years, we have facilitated approximately $20 billion in clean-tech exports. Last year, for the first time, our support for clean technology surpassed our support for the oil and gas sector. That is a trend we expect to continue.

EDC has worked with hundreds of companies, large and small, across all of Canada and across the oil and gas sector. From all of them we hear the same expectation: Canada's transition to a low-carbon economy must be orderly, and the companies engaged in that transition will require significant capital to make the green investments needed.

Just as EDC plays a key role in supporting clean technology, we believe equally that we can help oil and gas companies make their transition within a low-carbon Canadian economy. That is the balance EDC seeks to strike in this fast-evolving landscape.

Thank you for this opportunity. My colleagues and I look forward to your comments and questions.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Ms. Lavery.

We'll go to Mr. Dreeshen for six minutes, please.

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

Thank you very much, Mr. Chair.

Thank you to all of the witnesses who are here today.

As a politician and a person from Alberta, listening to some of the commentary I've heard here this morning gives me somewhat of a pause. I think about the amazing things that have been done environmentally in my province, and I try to look to the future as a world where we are looking at lithium pit mines and all of the other types of things that will be required in order to meet the government goals, whether they be in 2030, 2035 and so on.

I do believe that those people who are suggesting that we move as quickly as possible have their hearts in the right place and that they feel that this is something that will be useful. Sadly, if you think that your community and those of us who are members of Parliament.... If you think that in your community an open pit mine is going to be welcome, I think we're missing the point.

If people want, perhaps they can go up to Fort McMurray and take a look at what an open pit mine looks like after 40 years of reclamation. If that's what's going to happen in this country, then it'll be great for everyone.

I think the war in Ukraine has brought into focus a real energy dilemma, and there's a real dramatic shift in energy security as the world is no longer looking at the future through green-coloured glasses.

I want to speak specifically to EDC because I have been on international trade meetings throughout the world, and we have talked about how our businesses and our energy are able to help those people in places where they need to have a strong, functioning product so that they can do what is necessary to improve their lives. If Canadian energy is blocked from these markets, I'm sure that your offices in EDC would know what other countries will fill the void.

What type of strategy do you have such that it removes our ability to supply ethically produced and managed hydrocarbon products just to have these products replaced by other players?

[Mairead Lavery]

Thank you, Mr. Dreeshen, for your comments and for the question.

As I mentioned in my remarks, we think of this situation, the economy and environment, as two sides of the same coin. You can't address one without the other. There are economic opportunities and challenges linked to any environment action.

Our strategy at EDC is quite appropriate: It's that we continue to support Canadian companies. We indicated pre-COP26, last year, that we are withdrawing support for international fossil fuel companies and their projects and diverting our attention to the support of Canadian companies, and really working with the industry to understand their own pathway.

Many of the Canadian oil and gas companies have signed up to a net-zero commitment. We want to work with them to understand what that means, what that means for technology, for clean technology in particular, and their investments in research and development, so that we can be with them on that journey as they work towards a low-carbon future.

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

Thank you very much.

I think it's important for people to realize what you are saying about other international companies. You're not going to be including them in opportunities with Canadian research or Canadian dollars. It's going to be the Canadian companies doing as they have always done, and that is to be the most ethically minded and environmentally sensitive producers of oil and gas on the planet, and you are going to be working with them in order to make sure that works.

Now, the other point—and again we are talking about subsidies—is that we have heard around this table that money is lent to these companies at commercial rates and so on, which in itself is a subsidy, and that is why you hear about these billions of dollars where Canadians are subsidizing the oil and gas industry.

Can you talk a little bit about the commercial rates and the commercial aspect of EDC?

[The Chair, Liberal, Francis Scarpaleggia]

You have about a minute, Ms. Lavery.

[Mairead Lavery]

I would just say that very often we work in support of commercial partners, particularly the banks—the Canadian banks—so we are always operating at market rates. They may change depending on the outlook or the situation within a respective company, but we are very careful to ensure that we are always participating at market rates and often do that with other partners.

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

You can categorically say that it is not a subsidy that is being given to Canadian companies that are using EDC as one of the tools for management throughout the world.

[Mairead Lavery]

Yes, I can.

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

Thank you very much.

[The Chair, Liberal, Francis Scarpaleggia]

We now have Mr. Weiler, please.

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

Thank you, Mr. Chair.

I'd also like to thank our witnesses for joining the committee meeting today.

Last year, the IEA said that there should be no new unabated fossil fuel extraction projects going forward. Countries like the U.K., which also produces a significant amount of oil, have already directed their export finance to stop funding fossil fuel projects. This year, Canada has committed to ending overseas funding for fossil fuels.

In your testimony, you mentioned that EDC is committed to ceasing any new financing to international fossil fuel companies or their projects by the end of this year, which is a welcome improvement on EDC's commitment of a 40% reduction in the finance plan for fossil fuel this year.

My question for EDC, through you, Mr. Chair, is whether EDC is prepared to cease funding to unabated fossil fuel production this year.

[Mairead Lavery]

We made our statements, pre-COP26, that said we are absolutely exiting any new financing for international companies and their projects by the end of 2022. We have stated that.

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

Okay. I have a follow-up to that. Does that include unabated fossil fuel projects that are led by Canadian companies?

[Mairead Lavery]

We said that we would want to continue to review the domestic production and the domestic companies and our support for them. As with all EDC transactions, they involve a review of individual companies and individual transactions.

We just announced our sustainable bond framework, and indicated that we are pivoting our support towards transition financing and the reduction of GHG and making the production more efficient at this stage.

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

Okay.

You mentioned in your testimony that EDC had provided financing of $20 billion for clean-tech exports. How does EDC define what a clean-tech export is?