Evidence of meeting #34 for Environment and Sustainable Development in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was price.
A recording is available from Parliament.
Executive Director, Climate Action Network Canada
When I see that profits are going to be as high as $90 billion and that, until 2030, industrial carbon pricing would cost the equivalent of a Timbit doughnut per barrel of oil, I find it hard to believe the argument that the industry can't afford it.
Bloc
Patrick Bonin Bloc Repentigny, QC
Okay.
You mentioned a letter that you sent to the committee.
What are your key recommendations to really strengthen industrial carbon pricing?
Executive Director, Climate Action Network Canada
One point was raised earlier about the importance of maintaining policy certainty. They also talked about how important this has been in Norway to attract investment.
Our recommendations are as follows.
We have to make sure that the minimum price is high and that it gradually increases.
We also need to determine a credible trajectory beyond 2030. Right now, we know that in 2030, it should be $170 per tonne. What's going to happen between now and 2050? It's important to have certainty on that.
We also need to restore a level playing field across jurisdictions. The federal government must implement the federal backstop in provincial jurisdictions. Right now, it's not doing that.
We need to ensure that the effective price signal is not undermined by loopholes that permit offsets in emissions reduction accounts.
Finally, improving the transparency and durability of the carbon price signal is key.
Liberal
Conservative
Carol Anstey Conservative Long Range Mountains, NL
Thank you, Chair.
Mr. Keating, I want to pick up on the conversation we were just having.
We often hear about the profits in the oil and gas companies, but we don't often talk about the royalties to provinces.
Can you explain, for the benefit of the committee, what the impact is on the Province of Newfoundland and Labrador, in terms of offshore sector royalties that get paid to the province?
Chief Executive Officer, Oil and Gas Corporation of Newfoundland and Labrador
Certainly.
The fiscal system in Newfoundland and Labrador's offshore is fairly consistent among all the projects. It's a progressive royalty system, which means it grows over time as profitability increases. At any particular time, between 20% and 45% of every profit dollar flows through to the province.
This generally means that in 2025, there could have been in the order of about $2 billion in gross royalties from other forms of economic rent. For a province of half a million people, that's a pretty significant component. As I mentioned, it's almost 25% of the total governmental revenue.
Conservative
Carol Anstey Conservative Long Range Mountains, NL
Thank you so much.
This carbon pricing was implemented in 2019. For the benefit of the committee, are there specific cases where projects were delayed or scaled back due to the system?
Chief Executive Officer, Oil and Gas Corporation of Newfoundland and Labrador
I can't specifically say, with respect to this particular component.
I could say with some degree of confidence that the emissions cap policy probably bears more scrutiny with regard to, particularly, investment at the exploration phase. As I've said before this committee in the past, investors didn't see any opportunity for new projects so long as the emissions cap policy, as discussed, was in place.
Conservative
Carol Anstey Conservative Long Range Mountains, NL
Quickly, since you brought it up, do you have some concerns about the Alberta MOU based on the comment you just made?
Chief Executive Officer, Oil and Gas Corporation of Newfoundland and Labrador
Yes. The fact that it's not been resolved....
Actually, I should back up a bit.
I was very pleased to see that a grand bargain, so to speak, was struck. In my mind, we struck one in 2019 when we adopted an analog for the carbon price regime here for the offshore. I stood in front of rooms of 500 or 600 people in London and Houston and basically proclaimed that our emissions cap concern was largely being alleviated by virtue of this MOU, as it was communicated and as I understood it. Now I'm somewhat concerned that I don't see it formally resolved yet, and that it's still lingering.
For Newfoundland and Labrador offshore, I'd say that, on a scale of magnitude, the emissions cap is far more harmful to investment than, for example, its carbon pricing mechanism.
Conservative
Carol Anstey Conservative Long Range Mountains, NL
Thank you.
Something else that was recently mentioned was carbon leakage. It was brought up earlier.
Being that you are a person who is acutely in tune with the investment climate, especially around offshore development in Newfoundland and Labrador, I want to know what your thoughts are with respect to carbon leakage and the risk that we run of investment going to other jurisdictions that don't have policies that are as tight.
Chief Executive Officer, Oil and Gas Corporation of Newfoundland and Labrador
First and foremost, in terms of leakage from a practical, physical way and as a practical cross-jurisdictional perspective, they're both the same in terms of how our regime adequately protects ourselves from leakage, particularly in the upstream emissions category.
We look at each project on an individual basis as we set our benchmarks. We, again, provide for the particularities of those projects in a way that is meaningful for the operators to actively manage and reduce their carbon. In terms of leakage from a financial or geographical point of view, we're well managed by our system. As a practical matter, in terms of even fugitive leakage and emissions, an offshore platform can't provide for it. We don't see it. We don't have it. It's monitored 24-7.
Whether you're talking leakage practically or fiscally, I think our system is a robust one.
Conservative
Carol Anstey Conservative Long Range Mountains, NL
I'm talking more about the production of oil going elsewhere.
Chief Executive Officer, Oil and Gas Corporation of Newfoundland and Labrador
The investment is clear to me.... Right now, as I mentioned at the upfront, Guyana is attracting 60 billion dollars' worth of investment from international oil and gas companies. That's within the last five-year time frame, in which I said we had zero. Guyana had no active production in 2013 to 2015 when we were at our highest results from our licence rounds.
This has been a complete upside down—
Liberal
The Chair Liberal Shannon Miedema
Thank you, Mr. Keating. Time is up for this question.
We are now going to go to Mr. Greaves online for five minutes, please.
Liberal
Will Greaves Liberal Victoria, BC
Thank you, Madam Chair.
Good afternoon, colleagues.
Thank you to the witnesses for joining us today. My first question is for Madame Brouillette.
Thank you very much for your testimony. I very much appreciated how you spoke to the fact that the design of Canada's industrial carbon price is often misunderstood and sometimes perhaps wilfully misrepresented. I'm wondering if we could delve into one aspect of how output-based pricing operates in terms of providing funds back to the provinces of origin in order to fund decarbonization and green efforts.
Could you speak to how important a funding stream that provides to municipalities and provinces, as far as funding necessary investments in green and sustainable infrastructure is concerned?
Executive Director, Climate Action Network Canada
The first piece here to mention is that it's a federal policy, so there's a federal backstop. Provinces decide if they either take on their own system and comply with that federal backstop, or implement it according to their own policy design and circumstances.
The thing I'd like to mention here is that the backstop relies wholly on ministerial discretion, and it's unclear under which circumstances, if any, it's being implemented. If we want to make sure that we're seeing this revenue being directed to green projects but also alleviating consumer costs of energy—as we're facing right now—that backstop being implemented more thoroughly and systematically would be very important.
Liberal
Will Greaves Liberal Victoria, BC
Thank you for that.
Would it be fair to say that this is an important source of funding for those provinces and territories where the federal backstop does apply—that this is a valuable, necessary source of revenue for communities?
Executive Director, Climate Action Network Canada
Yes. I wish I had the numbers to tell you more about it, but I don't. Again, I'm happy to submit that in writing.
Liberal
Will Greaves Liberal Victoria, BC
Okay. Thank you for that.
I want to turn to the global level—you spoke to this in your comments as well, Madame Brouillette—in terms of what the potential implications for Canada are of missing the global market transition toward cleaner energy and lower emissions.
In your view, is there another policy lever available to the federal government that could achieve the same scale of emissions reductions as output-based pricing?
Executive Director, Climate Action Network Canada
I think the main policy tool that has been discussed is the emissions cap. The government has decided to move with the OBPS as the most potent tool for emissions reductions.
That said, we need to make sure, given that we're not going ahead, unfortunately, with the oil and gas emissions cap, that the current industrial pricing system is made a lot more robust in order to be able to deliver reductions comparable to those resulting from existing weak systems and the cap, and also to ensure that industrial carbon pricing is not the only policy tool we're deploying. Methane regulations are extremely important, especially for the oil and gas sector. Strong equivalency agreements with provinces who want their own regulations will also be really important.
Liberal
Will Greaves Liberal Victoria, BC
I appreciate your pointing out that there are multiple tools and policies that the government has in effect to try to address Canada's emissions. Perhaps to reframe the question, do you think it would be a strategic risk for Canada, in terms of achieving both our economic and environmental goals, to move away from a national industrial carbon pricing system?
Liberal
Will Greaves Liberal Victoria, BC
What would be the risks to Canada or Canadian investments of not keeping this policy?
Executive Director, Climate Action Network Canada
It would be incredibly risky. It would further entrench us in a North American fossil fuel economy, which seems to be the desire of President Trump in terms of the geopolitics that are happening right now.
Other countries and jurisdictions in the world, as I said earlier, are moving very fast to adopt and accelerate their adoption of electric-based technology. The war on Iran has increased that. Whether we're looking at France, China, Korea or India, those are markets that account for a very large share of the global population. We don't want to wake up in a couple of years and realize that we have invested in sectors that are not competitive in a net-zero economy.