Environment Committee on April 26th, 2022

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

To be quite honest, you don't really care about the affordability of it. We're just going to shut down the oil and gas industry, and there's no regard for Canadians' ability to purchase energy in this country.

[Dr. Jason MacLean]

With all due respect, sir, that's not true.

If you refer to my opening statement, I quote at length from the most recent report of the IPCC on climate mitigation, which addresses the distributional impacts of this transition and suggests ways of addressing those particular distributional impacts. A subsidy swap is a very good way of doing that.

[The Chair, Liberal, Francis Scarpaleggia]

We're out of time, Mr. Mazier.

Ms. Taylor Roy, you are next.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much, Mr. Chair.

Thank you to our witnesses here today, not just for being here today but also for the work you're doing in your respective fields.

I was interested in the conversation that the member opposite was having regarding affordability. I think affordability for Canadians is a very good point, but I don't think it has a lot to do with fossil fuel subsidies. Our government is addressing affordability through a number of programs that we've introduced over the years. One of them is the climate action incentive, which provides a rebate. There are other things, like the Canada child benefit and programs of support for seniors and people who live with disabilities, and most recently, the child care program and dental care.

We can address affordability separately from fossil fuel subsidies. I think they're both important and they both need to be addressed, but I think our discussion today is around subsidies.

I have some questions for Export Development and Madame Lavery.

I really want to go to basics. There are a lot of questions about the definition, and I don't think the exact definition matters as much. If Export Development Canada is providing financial instruments, whether they're loans or guarantees, at market rates—and we are talking about the oil and gas industry, which is a mature and profitable industry—I'm wondering why they need your help. What are the market gaps that exist, and why is it that EDC needs to continue to support that industry?

[Mairead Lavery]

I would say that two things really came out. One is that there has been a withdrawal of support for the industry, and particularly the industry in Canada. One of your fellow committee members noted the situation vis-à-vis the U.S. and the withdrawal. We have seen a withdrawal of financial support for the industry itself. This means that while we have continued to reduce the level of financing support that we've put into the industry, there are players who have needed that support. That was particularly acute in 2020, with the geopolitical situation and then the onset of the COVID pandemic. That has been what has triggered it.

As we look to it now, what we really want to ensure is that the financing is going towards transition-type products. This is capital expenditure specifically focused on reducing greenhouse gas emissions. Actually having the capacity there, we hope will make sure that they put in place that capital expenditure faster.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you.

As a follow-up to that, why is it, especially if you're talking now about funding transitional programs and trying to get to things that fall into the ESG category, that the market isn't funding that? I've seen a real move in a lot of our commercial banks to ESG-type projects, and there's a lot of talk about that. Why are there still gaps, if in fact we're talking about programs that fall under that rubric, if you will?

[Mairead Lavery]

I think there are a few root causes for that one.

Sometimes it could be linked to the technology and that the technology is more new or not as well tested. You see that a lot in the clean technology space. Then, it's actually introducing it into larger producers. Early adoption of technology isn't something that the market necessarily does, either the financial market or the companies themselves, so that's one of the reasons why you see that.

I think the other one, which one of your other fellow committee members mentioned, is the actual taxonomy. One thing we don't have is a Canadian taxonomy; we didn't necessarily have even Canadian stress test parameters. So getting it into the language of the Canadian financial community and the investing community is really important. It was one of the reasons we went out first with our sustainable bond framework, to do that specifically, to actually put a taxonomy and language out there.

I fully expect that as conditions change, as I hope we see an acceleration towards 2050, the taxonomy will need changing. At the very least, it establishes a baseline. In working with our two partners, BMO and RBC, as well as getting it externally rated, we hope that will put confidence into the market and allow other financial players to come in. In that instance, we see ourselves as leading to try to encourage other investors.

[Leah Taylor Roy, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you.

[The Chair, Liberal, Francis Scarpaleggia]

I know the time goes quickly.

I want to thank the witnesses for a very engaging discussion that obviously helps clarify our thinking. That's the whole point of these meetings.

We'll now break for a short time to connect the next panel, and we'll take it from there.

Thank you again for appearing; we really appreciate it.

[The Chair, Liberal, Francis Scarpaleggia]

We will now move on to the next panel.

Today, we welcome Annie Chaloux, associate professor and climate policy specialist at Université de Sherbrooke. We also have Craig Golinowski, president and managing partner at Carbon Infrastructure Partners Corp. Finally, we are pleased to welcome Aaron Cosbey, senior associate at the International Institute for Sustainable Development.

Each witness will have three minutes for their opening remarks.

Professor Chaloux, you have the floor.

[Annie Chaloux, Associate Professor, Climate Policy Specialist, Université de Sherbrooke, As an Individual]

I'd like to thank the committee for the opportunity to speak at this meeting of the Standing Committee on Environment and Sustainable Development.

I'm an associate professor at Université de Sherbrooke and I specialize in Canadian and Quebec climate policy as well as international climate negotiations.

You will soon receive my more detailed brief, which presents my thoughts surrounding the committee's work.

First off, I will say that my remarks come at a time when the scientific community of the Intergovernmental Panel on Climate Change, or IPCC, and the international community have recognized the urgency of taking action on climate change.

Canada has committed to doing its part—

[The Chair, Liberal, Francis Scarpaleggia]

One moment, please, Professor Chaloux.

Is there a problem with interpretation?

[A voice]

Yes, she's speaking too quickly.

[The Chair, Liberal, Francis Scarpaleggia]

Professor Chaloux, please slow down for the interpreters.

[Annie Chaloux]

Okay.

[The Chair, Liberal, Francis Scarpaleggia]

You may resume your remarks, Professor Chaloux.

[Annie Chaloux]

Thank you, Mr. Chair.

Canada has committed to working together to reduce its greenhouse gas emissions by 40 to 45% by 2030, and to achieving net zero by 2050. It has also promised, through a series of international commitments, to end fossil fuel subsidies. Canada must reach this goal to retain its credibility on the international stage and do its fair share to deal with the climate crisis. It's about the consistency of Canadian climate policy, both at home and abroad.

As you know, time is running out. The most recent IPCC report demonstrates that we must stringently reduce our greenhouse gas emissions, and that that won't happen if we continue to support the fossil fuel industry—the main problem is that sector.

Fossil fuel subsidies simultaneously create three major issues with respect to addressing climate change.

First, no matter what you care to call them, subsidies support the production of greenhouse gases. If Canada supports this sector, it can't adequately curb its GHG emissions.

This in turn limits funding to low-emission energy. It slows the emergence of renewables, as subsidies to the fossil fuel sector prevent the real cost of the pollution generated by that sector from being attributed to it, to the detriment of renewables.

Finally, this hinders the energy transition. It provides additional funding for the problem, not climate change solutions. For example, redirecting oil and gas subsidies to the just transition rationale, whether to workers affected by the transition or to more vulnerable communities, would accelerate the transition and move the country away from its dependence on oil and gas.

[The Chair, Liberal, Francis Scarpaleggia]

Excellent.

We now go to Mr. Golinowski for three minutes.

[Craig Golinowski, President and Managing Partner, Carbon Infrastructure Partners Corp.]

Thank you, Mr. Chair, and thanks to the committee for inviting me to present today on this critically important issue.

Carbon Infrastructure Partners is a private equity firm that is invested in oil and gas production, and we've also created a fund product to advance investment in carbon capture and storage.

It is clear and urgent that we have to reduce greenhouse gas emissions caused by fossil fuels, and that reaching our net-zero goal by 2050 is an unprecedented challenge.

In the past 100 years, the global population has grown nearly fourfold to almost eight billion people because of reliable and affordable energy, largely from fossil fuels. Solving climate change by 2050 is not as simple as eliminating fossil fuels and may be self-defeating. The objective should not be to eliminate fossil fuels. The objective should be to eliminate greenhouse gas emissions.

I can summarize my message today in four key points.

One, we cannot reach net zero by 2050 without fossil fuels. It is simply physically impossible. Two, attempting to reach 2050 goals without fossil fuels raises serious risk for policy-makers and governments in their being able to sustain the long-term public support required for climate action. Three, while we cannot use fossil fuels without carbon capture and storage, this is the purpose of the investment tax credit announced by the government, and it needs to be promoted aggressively. Four, the investment tax credit needs to be complemented by the carbon tax. Investors in carbon capture and storage need to have certainty that carbon pricing is entrenched and that a new government cannot kill it or reduce it.

Let me qualify these points further.

First, we have 28 years to do away with 750 million tonnes of GHG emissions in Canada, and it is simply impossible to rally the magnitude of capital needed to invest in sufficient alternative energies.

Second, without sufficient and reliable alternative energy, in times of high energy demand, the risk is inherent that energy prices will spike. People will not be able to afford to heat and cool their homes, and industry will not be able to produce many of the products we all rely upon. This is not speculation. This is precisely what happened in Europe prior to the Russian invasion, where insufficient reliable alternative energies forced a surge in fossil fuel use, including coal, pushing natural gas prices to $60 per mcf versus $3 to $4, as it is now in Canada.

Support for CCUS is not a subsidy for the oil and gas industry, as some argue. It's a critical investment in reaching net zero.

[The Chair, Liberal, Francis Scarpaleggia]

This will be a topic of debate in the round of questions.

I'm sorry, Mr. Golinowski, I have to stop you at the three-minute mark because time is very tight.

We'll now go to Mr. Cosbey for three minutes.

[Aaron Cosbey, Senior Associate, International Institute for Sustainable Development]

Thank you very much for the opportunity to speak to you today.

The International Institute for Sustainable Development is a non-partisan Canadian policy think tank with over 30 years of experience and almost 20 years of globally respected work on fossil fuel subsidies in countries the world over.

Our 2021 report, which surveyed federal fossil fuel subsidies, found subsidies worth $1.9 billion. Our 2022 report, which focused on provincial subsidies, found subsidies in four different provinces of $2.5 billion. These are conservative numbers. Many of the intervenors you've heard have already told you that these kinds of subsidies, which increase consumption and production of fossil fuels in a time of climate crisis, are perverse and that they frustrate our commitments to achieving our Paris Agreement targets.

In my short time I want to focus on a specific category of fossil fuel subsidies, which are not those that increase production and consumption of fossil fuels—these have been well covered—but rather subsidies to decarbonize the oil and gas sectors.

We now have a target of net-zero emissions in those sectors by 2050 and a target of 42% decrease by 2030. There are two very different pathways that will get us there. One forces firms to undertake emissions reductions. The other forces Canadian taxpayers to fund them. The CCUS tax credit, budgeted at over $2.6 billion over five years, shows which pathway we seem to have chosen and it is the wrong pathway.

To be clear, we support many types of subsidies to address climate change. We can't hope to decarbonize industrial sectors like steel, cement and aluminum without major public subsidies and other support, but subsidies to oil and gas are not like subsidies to those other sectors in three ways.

Subsidies to steel, cement and critical minerals help ensure the viability of industries whose product the world needs more of, whereas all of the modelling agrees that we need less oil and gas to avoid catastrophic climate change.

Second, any public funds that result in more investment in oil and gas sectors simply build up assets that are at risk of being stranded. Our 2021 report, “In Search of Prosperity”, shows that post-2030 global demand for oil is going to be in secular decline, with low and volatile prices. If we don’t properly manage the ramp-down of investment and production in that sector, the economic impacts are going to be acutely painful for oil-dependent regions, communities and workers.

Third, subsidies to oil and gas are therefore inefficient. By any metric—pick your metric—those scarce taxpayer dollars would be more effectively spent supporting sectors that do have a bright future, like carbon fibre from bitumen, electric vehicles, green hydrogen, critical minerals, and on just transition measures for communities and workers in declining sectors.

In closing, the oil and gas sectors are not like other sectors. They are not an appropriate target for subsidies aimed at reducing emissions. We should be investing our scarce fiscal resources in sectors that have long-term prosperity in mind for Canada. We should not be encouraging investments in assets that are going to be stranded by global demand pressures long before the end of their useful economic life.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

I will go to the rounds of questioning. I'd ask you to be as brief as possible, so that we come in under the allotted time.

We'll start with Mr. Seeback for six minutes.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Mr. Golinowski, you finished your statement at, “Support for CCUS is not a subsidy for the oil and gas industry, as some argue. It's a critical investment in reaching net zero.”

Do you want to expand upon that? I'll give you a few more moments to talk about that.

[Craig Golinowski]

Yes, thank you.

The basic reality of it is that fossil fuel demand by human beings is growing today on earth, and that it's very, basically, impossible to replace fossil fuels. We need to reduce emissions, so carbon capture and storage provides the means to do that, but it's also the case that industries like cement, steel, power generation and ammonia fertilizer production essentially use fossil fuels to produce those products, and carbon capture and storage can be equipped to reduce the emissions from the use of fossil fuels in those particular situations.

The basic reality of it is that we need to meet energy demands from eight billion people, and we can see what happens if that starts not happening. Right now, globally, we have a very large fertilizer shortage. Ammonia fertilizer production in Europe was required to be reduced as a result of insufficient natural gas over the course of the past several months. Now we have an ammonia fertilizer problem globally.

These unintended consequences to eliminating fossil fuels can show up in various places, including in the production of food and in the production of solar panels. Solar panels are made from coal. The cost of solar panels has increased significantly in the last 12 to 18 months because coal prices have skyrocketed.

The point I'm simply making is that the energy system is a complex system, and ensuring that we have sufficient amounts of energy is how we will be able to reduce emissions. It costs energy and it costs capital and materials to reduce emissions, so this is a complex problem, and carbon capture has an important role.

I could talk more about how we finance that, but I'll pause there with respect to the general question.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thanks. That was very informative.

We had some testimony in the previous panel saying that Canada should stop producing all oil and gas by 2035. I think you would say invest in CCUS to reduce those emissions and continue to produce. I take it you'd agree with my statement there.

What do you think would be the effect to the Canadian economy if we stopped producing oil and gas by 2035 as was suggested by a previous panellist?