Thank you so much, Madam Chair. Congratulations on your appointment as chair of this committee.
Since I last appeared before this committee in October, the government has reiterated its commitment to making Canada an energy superpower. It signed a memorandum of understanding with Alberta, partially about securing access to tidewater for our product, and it has said that it will not implement the oil and gas emissions cap.
The Prime Minister has spoken of trade diversification, energy security and growth. These are the right instincts, but the policy architecture that governs how our industries operate has not caught up. The federal output-based pricing system, OBPS, remains the single most consequential mechanism shaping industrial carbon costs in this country, and it is still built on assumptions, models and design choices from a policy era whose effective goal was to constrain production, not enable it.
The OBPS does not merely set a carbon price. It serves as a federal backstop and, critically, as a reference against which every industrial carbon price by province is assessed. The federal benchmark uses the OBPS to define the minimum stringency the provincial systems must meet—the same coverage thresholds, marginal price signal and tightening trajectory. Provinces have design flexibility, but the OBPS sets the floor, and the composition of a province's economy determines the weight of that floor. In Alberta and Saskatchewan—where oil and gas extraction, conventional production, mining and upgrading comprise the overwhelming share of industrial emissions—meeting those minimum requirements translates into enormous coverage obligations, more than the price of a Timbit.
The mechanism by which these costs escalate is not the carbon price itself. It is stringency—the annual ratcheting down of benchmarks—that determines how much of a facility's emissions are subject to that price. Most sectors begin at 80% of their historical average intensity, declining by 2% per year. By 2030, that benchmark will reach 64%. The impacts of stringency are significant but not well understood. Stringency is a far more politically palatable way to burden our most productive industries than raising the carbon price itself—which, to be clear, is already also happening year by year. That is precisely because almost no one outside industry understands how it works.
This is all compounded by a deeply troubling feature of the OBPS: the way energy-intensive and trade-exposed, EITE, sectors are treated. Iron, steel, lime and cement all receive very high EITE status, so they are subject to a more favourable and slower tightening rate. Oil and gas extraction should qualify but does not. In fact, when you plot the thresholds that Environment and Climate Change Canada uses to determine very high status, the boundary is non-linear. It appears to zigzag specifically around conventional oil and gas production, excluding our largest and most trade-exposed sector from this favourable treatment.
Meanwhile, the models underlying these decisions are built on assumptions that are fundamentally disconnected from how the industry operates and makes investment decisions. ECCC uses equilibrium models that effectively assume that producers will continue investing in decarbonization past the point of profitability. That assumption may satisfy an academic framework, but it is a poor reflection of how capital allocation decisions are actually made. Companies do not invest to break even. They invest where they can earn competitive returns. If the policy environment makes those returns unachievable, capital moves elsewhere. It doesn't just absorb the cost.
This matters most for new facilities, not just existing ones. Most modelling only asks whether a carbon price will shut in current production. The far more consequential question is whether it prevents new production from being built—which, to be clear, we need to do if we want to expand our energy exports to the world, as the Prime Minister has said he wants to do. Smaller facilities below 100,000 tonnes of CO2 equivalent per year lack access, often, to abatement technologies like carbon capture or electrification, which are available to larger emitting facilities. For them, this is not an incentive to reduce emissions, as the policy promises. It is a flat tax levied in a volatile commodity market, punitive in downturns and still uncompetitive in good years. The policy framework for Canadian oil and gas needs to be competitive in order to attract the amount of capital into Canada needed to grow the economy.
The government says that it wants to be an energy superpower. You cannot get there by slightly dialing back the mechanisms designed to keep energy in the ground. The philosophy has to change, and those tools must change with it. The OBPS must be reformed so that the EITE risk assessment reflects the actual trade exposure of our energy sector. The large emitter threshold should be set at 100,000 tonnes, consistent with Alberta's tier system. Also, before any further tightening is imposed, a comprehensive, transparent review of competitiveness impacts should be conducted with provinces and industry at the table as partners, not as afterthoughts.
This country is extraordinarily resource- and energy-rich. We have the geology, the workforce and the regulatory maturity to serve global markets responsibly. What we lack today is a policy framework that recognizes these assets instead of taxing them into irrelevance. That is a gap this committee can address.
Thank you so much, Madam Chair.
I look forward to questions.