Environment Committee on April 26th, 2022

[The Chair, Liberal, Francis Scarpaleggia]

Great.

Mr. Carrie, please go ahead.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

Thank you, Ms. Lavery, and to all the witnesses for being here.

My first question is to you.

We saw a 2022 report. Environmental Defence found that in 2021 the federal government provided $8.6 billion in financial support to the oil and gas sector, which included over $5 billion in public funding provided through EDC.

In your opening statement you said that you do not provide subsidies and things like that. Where does that number come from in the Environmental Defence report?

[Mairead Lavery]

So that I am very clear, we do not provide subsidies. EDC has provided support to the oil and gas industry, and companies in the oil and gas industry. That number has been significantly reducing in the last three years. In fact, it has reduced by 65%.

I can't speak to the specifics of the Environmental Defence report, but I can confirm that in 2021 we did provide $4.4 billion in financial support to the oil and gas industries.

[Colin Carrie, Conservative, Oshawa, ON]

As I look at this entire issue, one of the problems we have is the agreed definition of what is a subsidy, and what's not a subsidy.

Could I get your thoughts on that? I come from Oshawa, and Oshawa has an auto industry. Internationally, it doesn't necessarily mean it's Canada's desire to play the game—if I can use that term—but if other countries are going to support their sector, and if we don't have some type of support, then our sectors die and the jobs go with it.

We see that with the energy sector, especially for national security, and we're seeing that with the war in Europe. I don't necessarily agree with witnesses who say that we have to phase out the sector 100%. I think that in the future we're going to have certain requirements.

Are there are any internationally agreed upon definitions that we could look at as far as what is a subsidy and what's not a subsidy?

[Mairead Lavery]

I am not aware of any agreed upon international definitions. I do understand that there are a number of government departments that are currently looking at that, and we provide our advice to them.

Export Development Canada has been operating for 76 years. We operate under OECD and WTO principles, which actually ensure that we are not conferring a subsidy, because it's a level playing field operation that we are part of as an export credit agency.

The work with our partners is to ensure we are really supporting commercial partners, like our banks, and ensuring that we're not conferring a subsidy. We are at market rates.

[Colin Carrie, Conservative, Oshawa, ON]

I appreciate that very much.

Again, my experience in Oshawa is that if there is something that is declared a subsidy, you're opening yourself up to WTO challenges, and things like that.

On another point, we've had different groups in front of us, and some of the things that oil companies do when they go into a community...They're producing oil and gas. They have support programs for different indigenous groups, and things like that.

Would this be something that people, or some players, would define as a subsidy of sort?

[Mairead Lavery]

I am not sure, Mr. Carrie. Typically, we would put that under the definition of community investment.

Under ESG and the way ESG definitions are changing, community investment, while appreciated and often needed in these specific communities, is not enough to deal with the environmental challenge.

When we look at the definitions, and when we look at what we're looking for, we are looking for specific action plans to address emissions reductions, and then looking for activities that companies are doing for their social licence.

You're absolutely right. We do see significant amounts of research and development in clean technology done by oil and gas companies. Oil and gas companies and mining companies are some of the largest supporters, through their supply chain, of indigenous companies.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much.

I do, again, have experience with Canadians who tend to be—and I hate to use the term—like Boy Scouts. Internationally, when you're looking at reporting things along those lines, do you know of different international agreements on reporting and transparency that you might be able to comment on?

I worry. Again, you see the east coast of Canada importing oil from places like Venezuela and Saudi Arabia, places where human rights are concerning. I think many of us make moral judgements when asking where this oil and gas comes from.

If we could have it through Canadian sources—

[The Chair, Liberal, Francis Scarpaleggia]

I'm afraid we're out of time, Mr. Carrie.

Mr. Longfield, for five minutes, please.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, Mr. Chair, and thank you to the witnesses.

I want to continue the line of questioning about EDC and the definition of subsidy. We have heard a couple of definitions in our meeting so far this morning. I know there are many more definitions out there.

You were mentioning to Mr. Carrie about the operationalizing of the word “subsidy” within EDC and the use of market rates as a way of ensuring that subsidies aren't being used to unlevel the playing field.

Is there more you can add to that comment?

[Mairead Lavery]

Certainly. Thank you for that.

It's just normal operational practice at EDC regardless of the sector. This is something we're very conscious of. We are there to fill market gaps and, therefore, always operate under market principles and practices. That means we are always benchmarking our rates, whether in our insurance products or our financing products, but very particularly in our financing products.

Oftentimes we are part of a commercial syndication or a commercial deal, so we have access to very specific information from commercial players on the rates in those transactions and, therefore, we would not be setting the specific rates. We would be taking the commercial rate in the specific transaction.

Where we are operating stand-alone, then we ask for evidence to prove the market rates, so we're always looking at previous transactions and monitoring the rates in the market, etc.

Hopefully, that helps answer your question.

[Lloyd Longfield, Liberal, Guelph, ON]

That does.

I think part of this study that isn't addressed in the room is the global market that we're operating within that has oil and gas as a commodity that's sought around the world and produced in many countries, including Canada.

The definition of subsidy that's being used in the world is one that is still in development. We don't have a solid definition. The World Trade Organization's definition is one that most countries are leaning towards.

The United States is a very significant player in this market and has operations in Canada that can easily move back to the United States—which we see in Alberta every time there's a drop in the price of oil in the global market.

How does EDC evaluate the opportunities Canada has in the global market, such as exporting natural gas or hydrogen that's produced in Canada?

[Mairead Lavery]

It's something that we continuously monitor. We do have an economics team at EDC that are monitoring Canadian export trends, as well as continuing to update themselves on the 196 countries we support around the world. They are continually watching that.

We don't necessarily get involved in the pricing of oil other than to understand the trends and what those might mean for the portfolio and the level of support provided to the industry overall from commercial banking partners, because that plays a significant role in the support of commercial players.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you for that.

You mentioned ESG briefly in one of your answers.

Could you expand on the environmental, social and governance aspect of risk management. We're looking at getting to a net-zero electric grid by 2035. I know that Electricity Canada is very keen on advancing that goal.

How do you use that in your decision-making?

[Mairead Lavery]

We use it everywhere in our decision-making, and we have come out very clearly and said it underpins all of our strategy.

Perhaps I may share with the committee some of the dilemmas that it can raise for you. One of the current dilemmas that is very challenging is, in fact, with respect to the solar industry. Of course, we all want to support it given that it's a renewable and an energy source for the future, yet there are significant challenges and questions of human rights in the solar supply chain.

This is where you cannot take the economy and environment as two separate questions. You cannot take the environment away from the social question, the just transition, the labour transition, the human rights question, nor can you take it away from what we would consider governance, which is responsible business, whether that includes ethical business conduct, proper financial conduct of transactions.... We need to have due diligence that looks at all of those elements.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

Ms. Pauzé now has the floor for two and a half minutes.

[Monique Pauzé, Bloc, Repentigny, QC]

I only have two and a half minutes, so we'll have to be quick.

Ms. Lavery, I have a request for you. You said that, for the first time, your investments in clean technology have surpassed investments in the fossil fuel sector. In the next few weeks, I would like you to submit a record of those investments to the committee.

Now I have a question for Mr. MacLean or Professor Leroux. They could both respond.

I'm going to circle back to what I said in the last 30 seconds of my previous turn. I said that in 2021, a total of $79 million was paid out to the top executives of each of the six largest oil and gas companies. At the same time, these companies say they can't transition without public funds. However, they're not innovating and they want to keep producing. What does that say to you?

Wouldn't the time wasted on defining what works and what doesn't be better spent starting a real transition?

[The Chair, Liberal, Francis Scarpaleggia]

Who would like to respond first?

[Prof. Justin Leroux]

I can respond.

I don't know the exact figures for the companies, so I will trust you on those numbers. Clearly, they're looking to secure the profitability of an industry and companies, and rightly so. It's important that they remain profitable. I'm talking about companies in general, not just those in the oil and gas sector. That said, profitability also means that the companies in question don't need assistance. It would be wrong to assist a profitable company. If they're as profitable as you say they are, then they can't justify getting subsidies or assistance—whatever you want to call it. There's no use debating whether or not they should get subsidies, in my opinion. The question is whether to support these businesses or simply let market forces play out.

[Monique Pauzé, Bloc, Repentigny, QC]

Would Mr. MacLean like to complete the response?

[The Chair, Liberal, Francis Scarpaleggia]

You have about 15 seconds.

[Dr. Jason MacLean]

I completely agree with that point. Fiddling with and playing semantic word games over “subsidy” versus “financial support” is deeply irresponsible and a waste of time. We have to eliminate all support to this industry.

Furthermore, on all these supports that industry is asking for, whether they're making record profits or not, I think that maybe there's a moral issue to that, but it's really beside the point. The climate science is clear. We have to phase out fossil fuel production and we have to do it quickly.

[The Chair, Liberal, Francis Scarpaleggia]

We're out of time, unfortunately.

Go ahead, Ms. Collins.

[Laurel Collins, NDP, Victoria, BC]

Thank you so much, Mr. Chair.

First, for Dr. MacLean, you have mentioned in the past the WTO and the UN Environment Programme definitions of fossil fuel subsidies. These are well established and widely accepted.

We've just heard from EDC that they're not familiar with well-established and widely accepted international definitions. Do you see a benefit for our Crown corporations, our government and Export Development Canada to adopt a broad, internationally recognized definition of “subsidy”? Why do you think the government hasn't done so?

[Dr. Jason MacLean]

Yes. I would say to those and to EDC in particular, with all due respect, that when it says it is not providing subsidies but is providing supports, it's drawing a distinction without a difference when it comes to phasing out fossil fuel production.

If it's going to continue to ignore well-established and long-standing definitions of “subsidy” that have been adopted internationally, which are very broad, then it ought to provide Canadians with the rationale for why, but really, we should move beyond this pointless debate. We shouldn't be propping up an industry that we know—and we don't have any choice about it, whether you like it or not—we have to phase out.