Environment Committee on May 5th, 2022

[Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you for your question. I agree that this is an important question and actually an important aspect of the question as to how to phase out fossil fuel subsidies.

On the tax side since 2007, if we include the recent proposal in budget 2022 to phase out the flow-through shares for oil, gas and coal exploration, that's nine tax ventures that have been phased out.

With respect to your specific question, the impact on jobs, for instance, and generally speaking the social and economic impact, that's part of the assessment we make every time as we look at one specific measure. When we present our advice to the Minister of Finance, in this case, it does include that assessment. If there's any doubt as to the importance of the potential effect of phasing out a specific subsidy, that's where the design of the phase-out and the time we give industry to adjust becomes quite important. When you look back to 2007, in the way that these tax expenditures have been eliminated very often there is a substantial period that is being provided to adjust.

[Colin Carrie, Conservative, Oshawa, ON]

Mr. Chair, if the officials could actually provide the estimates of the effects of eliminating these fossil fuel subsidies on the production, greenhouse gas emissions, employment, renewable energy and investment in the industry, it would be greatly appreciated. People are asking us for—

[The Chair, Liberal, Francis Scarpaleggia]

I'm sorry. We're going to have to move on. We'll make that request to the department. Hopefully we'll be able to get that information.

We'll go to Ms. Taylor Roy now, please.

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

Thank you very much, Mr. Chair.

Thank you to all the witnesses who are here today from the three departments to answer our questions on the elimination of fossil fuel subsidies.

I really want to address some of the international commitments we have made and have not made regarding eliminating fossil fuel subsidies, to better understand why our government has done some things and not others, and what progress we're making on that.

I'd like to ask you about two in particular, and I'm not sure who the best person is to respond. The first is the statement on international public support for the clean energy transition, which came from COP26. As I understand it, we are a signatory, one of the approximately 40 countries that signed on to that agreement.

The second one is the World Trade Organization statement on fossil fuel subsidies, which to me seemed very similar in some respects, yet I believe Canada, at least when I last looked, had not signed on to it. I'm not sure if we have now or if we had any particular plans to sign on to it.

I wonder if you could just speak a little bit about the role that the statement on international public support for clean energy that we signed plays in ending subsidies to the fossil fuel sector, and then I'll follow up with you on the other one. Thank you.

[Hilary Geller]

I think it would be most helpful if Ms. Vrany started on what we refer to as the Glasgow commitment, because NRCan is leading the work on that.

On the WTO issue, my understanding is that the Department of Finance is continuing to examine issues surrounding signing on to that, so unless he tells me otherwise, I think that's likely Mr. Jovanovic.

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

Thank you, Ms. Geller.

[Nada Vrany]

Thank you very much.

First of all, the statement the government committed to suggests that the government will prioritize support for the clean energy transition, consistent with the goals of the Paris Agreement and will end support for unabated fossil fuel energy. The public finance institutions operating in the international sphere will take a look at their processes and their policies and adjust accordingly.

The statement was made in November. We have, since that time, been working with other government departments very closely to understand how it would apply and what policies would need to be adjusted. We've also been speaking with our international counterparts to understand, particularly in those cases where it's been applied or implemented, what lessons they have learned. I would also note that there are other countries that are at the same place we are, which is that they are firmly in the grips of developing their implementation policy.

We're advancing on this we and take it very seriously. It's very important.

I hope I've answered your question, but please let me know.

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

That's great, and I'm really encouraged to hear that you are learning from best practices or what countries have done on this, because I appreciate the fact that it talks about prioritizing our support fully towards the clean energy transition. I think that's very important.

Mr. Jovanovic, then, would you mind commenting on the WTO?

[Miodrag Jovanovic]

Absolutely. Thank you.

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

I see it as being complementary and really important in terms of making sure we have a level playing field with other countries.

[Miodrag Jovanovic]

Absolutely, I think that Canada recognizes the importance of creating momentum at the international level in addition to Canada's commitment per se, which has been reaffirmed and accelerated in this regard. We think we play a good and key role, and Canada believes at this point that the role played through the G7, G20 and APEC is crucial.

With respect to the WTO statement per se, we recognize that at this point a relatively limited number of members have signed. I believe the statement that was issued last December was signed by 15 members. Some key members like the United States are still not there, so we're kind of in the process of assessing the value added in terms of additional momentum and what it creates, really, to participate in the additional initiatives, given everything else that is being done through other forums. This is something we continue to look at, absolutely.

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

Just as a quick follow-up, if I have time, I realize that it's not a large number of signatories, perhaps, but it does include the United Kingdom and the European Union, I believe.

I think the thing about this agreement that I thought would be helpful, perhaps, is that it talks about WTO transparency in reporting that will enable the evaluation. I think, from the perspective of the industry and us, it's important for us to be able to see what other countries are doing and have that transparent reporting. I would encourage the Department of Finance to look at that and perhaps be a signatory to that as well.

Thank you.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

I now give the floor to Ms. Pauzé.

[Monique Pauzé, Bloc, Repentigny, QC]

Thank you, Mr. Chair.

I thank all the participants for attending the meeting.

My first questions will be for the representatives of the Department of Finance.

How can the Government of Canada commit to eliminating inefficient fossil fuel subsidies when your department dismissed the Office of the Auditor General's recommendation that you define them?

[Miodrag Jovanovic]

Thank you for the question.

I'd like to start by clarifying the Department of Finance's response to the Office of the Auditor General in 2019, I believe.

The Department of Finance disagreed with the Office of the Auditor General's statement that the department had not established a definition of an inefficient subsidy.

We agreed to disagree on this.

The primary reason for our disagreement is that the Office of the Auditor General expected to get a very prescriptive and clear definition of an inefficient subsidy—

[Monique Pauzé, Bloc, Repentigny, QC]

Yes, but have you defined it, on your end? That's what I want to know.

[Miodrag Jovanovic]

You must understand the way the Department of Finance assesses the concept of inefficiency.

We are currently conducting a review with Environment and Climate Change Canada of fossil fuel subsidies, and as part of that exercise, we are refining the concept of inefficiency, if I can put it that way.

That said, until 2018, the Department of Finance assessed taxation measures based on the principles of efficiency and relevance. In the context of a fossil fuel subsidy, we were looking specifically at socio-economic, environmental and other effects to determine whether a measure was efficient or not. The department took context into account. So it was a contextual analysis.

[Monique Pauzé, Bloc, Repentigny, QC]

Yes. You're talking about 2019, but I'd like to go back to 2009, because that's when the Government of Canada committed to eliminating inefficient fossil fuel subsidies. In all that time, the government has yet to come up with a real definition.

In our sessions on this topic, we had witnesses who had a very simple definition: any benefit to the oil and gas industry is a fossil fuel subsidy.

I won't hide that I strongly disagree with your broad analysis of inefficient subsidies. The ultimate goal is not to reduce oil's carbon intensity, but to begin the transition. We have no choice but to make that transition.

In addition, witnesses told us that Canada's financial support for the oil and gas industry is 14.5 times higher than its financial support for the renewable energy sector. This is basically a disincentive to innovate in renewable energy. Are you restoring the balance between funding to the oil and gas sector, which is currently far too high, and the renewable energy sector, which is far too low?

[Miodrag Jovanovic]

If I may, I would like to clarify, because I think there's confusion around some important concepts.

From at least 2009, the Department of Finance used a fairly clear definition setting out the meaning of a fossil fuel subsidy in a tax context. In fact, this definition was in the Office of the Auditor General's report. There was no ambiguity.

For some years now, our annual report on tax expenditures has included our understanding of it, of taxation measures that support the production or consumption of fossil fuels. That was made clear.

The disagreement with the Office of the Auditor General lies in the definition of an inefficient subsidy. This is where, again, the department has—

[Monique Pauzé, Bloc, Repentigny, QC]

I see; that's where the misunderstanding happened. I'll stop you there, because time is running out.

You outlined a number of elements for which you seem to have a definition. Could you send those definitions to the committee? According to witnesses, it seems quite complicated to get them.

I'm going back to the carbon capture and storage tax credit. Some 400 scientists asked the government not to introduce this type of tax credit. After all, this industry is not short on money. Even former Environment Minister Catherine McKenna had serious reservations about the tax credit. In early March, she said that it was frustrating because the technologies that worked were already known and therefore there was no need to wait. She said there was no need for a tax credit intended for an already rich sector.

The government keeps saying it governs based on science. Why it didn't listen to the scientific community before creating the tax credit announced in the last budget?

[The Chair, Liberal, Francis Scarpaleggia]

Mr. Jovanovic, you have 30 seconds to answer the question.

[Miodrag Jovanovic]

The government's position on carbon capture technology is very clear. The tax credit proposed in the last budget is not an inefficient fossil fuel subsidy. In the emissions reduction plan that the government recently put forward, it is clear that this technology is critical to meeting the targets for 2030 and then those for 2050.

One of the reasons we certainly think this is not an inefficient subsidy is partly because of the way the credit was designed. For example, an important feature of this tax credit is that it will not be granted if the technology serves to increase per capita oil production.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you. That explains it better.

Mrs. Collins, you have the floor for six minutes.

[Laurel Collins, NDP, Victoria, BC]

Thank you, Mr. Chair.

Maybe I could follow up on my colleague's questions on CCUS. You said that this new fossil fuel subsidy...and it sounds like you agree that it is a fossil fuel subsidy but not an inefficient fossil fuel subsidy, according to your definitions, although your definitions don't sound all that clear.

This can be given to profitable oil and gas companies who are increasing their production overall. Is that correct? While it can't be used for enhanced oil recovery, it can be given—

[Miodrag Jovanovic]

Well, we are—