Environment Committee on April 23rd, 2026

[Catherine Swift]

Of course, climate change exists; nobody's saying that it doesn't exist. The data are very clear.

Also, why is it that no country in the world has met any of their so-called Paris Agreement goals and whatnot, and people are completely falling away?

[Bruce Fanjoy, Liberal, Carleton, ON]

Thank you, Ms. Swift.

Mr. Cosbey, I want to touch on the competitiveness of our businesses in the future. My background, before I got into this job, was in business and marketing. Ultimately, the world's economy is going to electrify. We're seeing it already. It's not going to stop. Eventually, all of our industries will do so as well just because it's simply good for business.

When we do it relative to our competitors matters. If we're playing catch-up, then there's no competitive advantage. If we lead, however, it can improve the competitiveness of our businesses and the jobs they create.

Could you please comment on how timing matters with respect to how we address these issues?

[Aaron Cosbey]

That's an excellent question. To answer it, I would point to the evidence that the private sector understands the point you're trying to make here. As I said, if we look to the steel industry, over 100 existing or in-development standards are trying to testify to green characteristics of steel, and most of them are private sector led. Why would they bother?

In the natural gas sector, over 20% of North American natural gas is certified by either Equitable Origin or MiQ as sustainable. Two-thirds of it is Montney gas. Why would they go to that expense? It's because they understand implicitly that future markets for their products are going to be dictated by how they are viewed. Also, let's not forget that it's not just about market access; it's also about investors' concerns about their viability.

It's a fundamental, critical aspect, and the sooner you get out there, the better. The leaders in this rush to green are going to be the winners.

[Bruce Fanjoy, Liberal, Carleton, ON]

That being the case, why are there so many voices seeking to sow misinformation and disinformation that is helping to delay Canadians in addressing this problem? That applies to both individuals having a more affordable life by reducing their dependence on fossil fuels and businesses held back from the advantages of addressing this issue.

[Aaron Cosbey]

In some cases, it's just a clear example of vested interest. If you, for example, are a natural gas manufacturer, you don't want government subsidies or mandates for heat pumps.

In other cases, it's part of a broader push-back against regulatory overreach, where you're lumping together things like the industrial carbon tax, which is an efficient instrument, with an oil and gas cap or the consumer carbon tax, which I agree with, that had impacts. You're putting them all together in one big bundle and saying, “We hate it all.”

I'm not going to try to offer a rational explanation for it. It's a short-sighted interpretation of competitiveness and where the market is headed.

[Bruce Fanjoy, Liberal, Carleton, ON]

I think you hit on an important thing about the short-sightedness of it. The future does come at us quickly. What would you recommend as the most impactful things we could be looking at in order to get businesses to think a little bit more long term and skate to where the puck is going, rather than to where it's been?

[Aaron Cosbey]

I come back to our final recommendation. The carbon price can't do it by itself. If you want to incentivize decarbonization in the steel sector, you're going to need to provide them with policies that ensure low-carbon electricity—and we know how to do that—and that ensure that there's going to be green hydrogen available. You need first-of-a-kind subsidies, carbon contracts for the difference and tax incentives, all to complement the incentives that you give a carbon tax.

We know how to do this; that's not the problem.

[The Chair, Liberal, Shannon Miedema]

Thank you very much, Mr. Fanjoy.

Thank you so much to all the witnesses. That concludes our hour of testimony. Thank you for being here and sharing your perspectives with us today.

We will suspend briefly to switch over to the next set of witnesses.

[The Chair, Liberal, Shannon Miedema]

I call the meeting back to order.

We are continuing the final hour of our study on industrial carbon pricing.

We have two witnesses online for this hour. Thank you for being here with us today.

We have Ross McKitrick, professor of economics from the University of Guelph, joining us by video conference. From Fertilizer Canada, we have Michael Bourque, president and chief executive officer, and Nadine Frost, vice-president of industrial relations. Both are here in person.

Thank you very much for being with us today.

We are going to do five minutes of comments from the witnesses to begin, and then we'll go to questions from committee members.

Mr. McKitrick, the floor is yours for five minutes.

[Ross R. McKitrick, Professor of Economics, University of Guelph, As an Individual]

Thank you. I believe you also have Heather Exner-Pirot as a witness.

I hold a Ph.D. in economics from the University of British Columbia and since 1996 I've been a professor of environmental economics at the University of Guelph. I'm also currently serving as a special adviser to the United States Department of Energy.

In the early 1990s, I developed and published one of the first computable general equilibrium models of the Canadian economy, focused on modelling CO2 emissions and climate policy. Since then, I've published over 100 peer-reviewed academic papers and think tank reports on all aspects of climate change, including the development of tools for the empirical analysis of climate policy. My textbook, Economic Analysis of Environmental Policy, was published in 2010 by the University of Toronto Press.

For today's hearing, I am submitting a recent report co-authored with my colleagues at the Fraser Institute, entitled “Estimated Impacts of a $170 Industrial Carbon Price in Alberta and Canada”. This paper uses a computable general equilibrium model of the Canadian economy, which was previously used in the peer-reviewed economics literature to analyze the impacts of the federal EV mandate.

Our analysis compares two scenarios between now and 2030.

In the base case, the consumer carbon tax is removed, the federal industrial carbon tax is held fixed at its current level and the Alberta TIER price is allowed to remain at its current low level relative to the federal charge. The policy experiment consists of raising the federal industrial carbon tax according to the announced schedule but adjusted for inflation, while forcing the Alberta emissions charge to converge to the federal level. In line with the federal emissions reduction plan, the threshold for chargeable emissions under the output-based pricing system is lowered over time, so in addition to the rate increasing, the tax coverage rises as well. Also in line with the emissions reduction plan, we assume 10% of the tax revenues support new spending, and 90% are retained by the government.

The overall results are as follows.

The economy still grows, but more slowly, so that by 2030 national gross domestic product is 1.3% lower than it would otherwise be. For Alberta, the gap is 2.0%. Real income per worker is 1.1% lower nationally than under the base case, while for Alberta the gap is 1.6%. Much of the cost falls on capital rather than labour. Nationally, real after-tax labour income drops by 0.6% relative to the base case, whereas real after-tax capital income drops by 8%. The labour market contracts slightly, with a loss of about 50,000 jobs nationally, of which over 10,300 are lost in Alberta.

Our model projects that due to the industrial carbon price, greenhouse gas emissions will fall nationally by about 14% relative to the base case. The loss of real GDP works out to just over $300 per tonne of emissions reductions. The finding that the total economic cost of emission reductions is more than twice the real rate of the tax itself is common in general equilibrium modelling and is consistent with the well-established economic theory of the excess burden of taxation.

The impacts of the tax are not spread equally across sectors but fall relatively heavily on energy-intensive industries, which comes as no surprise. Some of the hardest-hit sectors include oil sands, natural gas, electricity and other utilities, refining, manufacturing and transportation.

I will conclude with three observations.

First, governments need to be honest with the public that meeting ambitious greenhouse gas targets is costly and involves a reduced standard of living. False promises that decarbonization will somehow make us better off only invite inevitable backlash when the costs become apparent.

Second, carbon pricing is, in theory, the most efficient economic mechanism for reducing greenhouse gas emissions, but the theory only applies when it is the only policy mechanism used. When emitting activity is also subject to burdensome command-and-control regulations, as is the case in Canada, the potential efficiency of carbon pricing is lost, and emissions reductions are achieved at unnecessarily high costs.

Third, climate change is a global issue and it is important for Canada to coordinate our policies with what our major trading partners are doing. It has been common over the past 30 years for countries like Canada to incur the costs of relatively aggressive climate policies only to see the emitting activity relocate to other jurisdictions. The result is that Canada loses the jobs and investment while global emissions do not go down.

Thank you.

[The Chair, Liberal, Shannon Miedema]

Thank you, Mr. McKitrick.

Before proceeding, I apologize for my brain and technology snafu. We do have other witnesses here.

Online, we have Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute. In person, we have Jason Clark, vice-president at New Economy Canada.

We will also be receiving testimony from those witnesses.

Next we will go to Mr. Bourque and Ms. Frost for five minutes, please.

[Michael Bourque, President and Chief Executive Officer, Fertilizer Canada]

Thank you, Madam Chair, and members of the committee for the invitation to appear today.

Fertilizer is essential to feeding Canada and the world. Roughly half of global food production depends on fertilizers. Meeting the food demands of a growing world population would be impossible without them.

Canada is a global leader in sustainable fertilizer production and manufacturing, producing and exporting nearly 40% of the world's potash to growing markets around the world. We are the Middle East of potash. Potash is a critical mineral and an essential plant nutrient.

Canada is also a significant producer of nitrogen fertilizer, supplying our domestic agricultural market and exporting to the United States.

Canadian potash is produced with 50% lower greenhouse gas emissions compared to other countries. Our ammonia fertilizers are manufactured with at least 30% lower net emissions intensity than other jurisdictions.

We are here today to contribute to the study on Canada's industrial carbon pricing regime and share the fertilizer industry's perspective.

I will now hand over to my colleague, Nadine Frost, who will continue.

[Nadine Frost, Vice-President, Industrial Relations, Fertilizer Canada]

The competitiveness of Canada's fertilizer industry is currently under threat. Our fertilizer producers and manufacturers currently face a disproportionate regulatory burden on carbon pricing relative to our global competitors.

Fertilizer production facilities are emissions-intensive and trade-exposed, putting them at high risk of competitiveness and carbon leakage impacts.

Fertilizer Canada completed a study with PwC last year to quantify the impact of Canada's current carbon pricing regulations on our sector. The study showed that the fertilizer sector is facing up to $1.32 billion in cumulative carbon costs from 2025 to 2030. Nearly 60% of the overall carbon pricing burden faced by Canadian fertilizer producers stems from indirect carbon costs applied to energy and electricity inputs, as well as transportation fuels, which are passed down costs to Canadian fertilizer producers and are beyond the industry's control.

Unlike our major international competitors, including Russia, Belarus and the U.S., Canada is one of the few countries to apply both direct and indirect carbon pricing to fertilizer production, energy inputs and transportation. This results in substantial cost increases to production that can't be passed down to customers in an intensely competitive global commodity market.

In other words, none of the other major fertilizer-producing nations competing in North America have implemented carbon pricing, which puts us at a competitive disadvantage.

Of course, the cost of carbon alone doesn't tell the whole story. If the cost of carbon is weighing down one side of the see-saw, the other side could be balanced by effective carbon credit markets, investment incentives and lower-carbon premiums. Unfortunately, the see-saw is not balanced for the fertilizer sector in Canada. We don't have an established global pricing premium on lower-carbon commodity fertilizer products. The investment tax credits have been designed with constrained scope and timelines, and we lack stability in the current carbon credit markets.

Given the strategic importance of fertilizer, it is essential to protect and strengthen our industry's competitiveness.

We are looking for government to recalibrate industrial carbon pricing and align the investment readiness of the fertilizer production sector to provide some relief from these impacts of carbon pricing.

While maintaining provincial jurisdiction, this recalibration should recognize fertilizer production in the highest-risk category of emissions-intensive and trade-exposed sectors and provide relief from tightening factors. For nitrogen manufacturers, we are also seeking relief on how industrial process emissions are captured for use as feedstock.

These changes are needed to address the very real competitiveness challenges we are seeing and to preserve and develop capacity for future investment in clean tech. This will support an environmentally and economically competitive fertilizer sector here in Canada.

We are not alone in raising concerns with the competitiveness of emissions-intensive and trade-exposed sectors. We contributed to a joint brief that was submitted to the committee on behalf of nine industry sectors that raised concerns with the recent discussion paper from ECCC. Our brief recommended a renewed focus on competitiveness, provincial and territorial flexibility, and revenue recycling under Canada's carbon pricing programs.

Thank you for your attention. We welcome your questions.

[The Chair, Liberal, Shannon Miedema]

Thank you very much.

We will now turn to Ms. Exner-Pirot for five minutes.

[Heather Exner-Pirot, Director, Energy, Natural Resources and Environment, Macdonald-Laurier Institute]

Thank you, Chair and committee members, for the opportunity to speak to you today.

We are at a very important moment in Canadian and global history—what Prime Minister Carney has called a “rupture”. The closing of the Strait of Hormuz, resulting in what the IEA calls the biggest energy shock in history, is highlighting the importance of security and diversity in the energy supply, and the harsh consequences for people and countries when they can't access or afford enough oil and gas. This is not just about people paying more at the pump. It is an omni-crisis that is affecting our transportation, manufacturing and food supply chains. Just about every human on the planet will suffer some consequences from the insufficient global supply of oil and gas.

Our allies are asking what Canada, the world's fourth-largest producer of oil and third-largest exporter of oil, can do to help. The answer is “not much”, except prepare so that we're in a better position the next time an energy crisis occurs, which is inevitable.

This crisis comes at a time when Prime Minister Carney has committed to making Canada an energy superpower, doubling non-U.S. exports, achieving data sovereignty, making Canada the fastest-growing economy in the G7 and spending 3.5% of GDP on defence. All those things are made possible by expanding the production, use and export of oil and gas. I would suggest none of them are possible if we don't.

The biggest limiting factor to expanding production and exports in the past decade has been overzealous climate policy. The policy put achieving our Paris Agreement commitments above all other economic, social and security goals. I would argue that the policy was most effective in making Canadian industry uncompetitive and transferring industrial capacity and investment to nations with lower environmental standards. This phenomenon is known as carbon leakage and is well understood and documented by economists.

This leaves us with a dilemma. How can Canada do its part in reducing emissions to mitigate climate changes—which are observable and oftentimes harmful—while not making ourselves weaker and poorer with burdensome regulation and shifting production and capacity to our competitors and adversaries, with no resulting impact whatsoever on global emissions?

I suggest to you that industrial carbon pricing should aim at making Canadian industry the best, not the smallest. In general, almost all Canadian production of oil, gas and minerals is among the best in the world on environmental performance. This is owing to our high-quality resources, robust environmental standards and relatively clean grid. Sticking with oil and gas, it is well acknowledged that Canadian LNG is among the least carbon-intense in the world. While our heavy oil rarely gets credit, it too is far less carbon-intense than crudes from other heavy oil producers like Venezuela, Mexico and Iraq. Refineries that need heavy oil need heavy oil. If they don't get it from Canada, they'll get it from dirtier sources.

According to Statistics Canada, emissions in the Canadian oil and gas sector peaked in 2014, even as we've added the equivalent of over two million barrels a day of production. The sector knows how to reduce emissions intensity and is doing it. Certainly, Alberta's industrial carbon pricing helped with this. Alberta was the first jurisdiction in North America to introduce an industrial carbon pricing scheme in 2007. It has undergone some iterations. The TIER system is not perfect, but it's pretty good. There has been talk of significantly changing that framework and making Canadian industrial carbon pricing more expensive and more stringent. The discussion paper lobbed by Environment and Climate Change Canada in December is the most concrete example of this.

I cannot understand why, in the middle of so much crisis and so much opportunity, Canada would do this to itself. Why would we deliberately make ourselves weaker and poorer? I strongly recommend that the federal government stop making our oil and gas and other energy-intensive and trade-exposed industries less globally competitive. It wasn't ever a good idea, but it is an especially bad one now. Alberta has a system, TIER, that works to find a balance between economic growth and reducing emissions. Let's not fix what isn't broken.

Thank you for your attention. I look forward to questions.

[The Chair, Liberal, Shannon Miedema]

Thank you, Ms. Exner-Pirot.

We will now turn to Mr. Clark for five minutes.

[Jason Clark, Vice-President, New Economy Canada]

Thank you, Madam Chair.

Good afternoon. Thank you for this opportunity. My name is Jason Clark, vice-president at New Economy Canada. We're an alliance of more than 70 businesses, labour organizations and indigenous partners. Together we represent over 485,000 workers and over $200 billion of annual revenue across such emerging and traditional sectors as manufacturing, electricity, mining, construction and clean technology.

What unites this diverse group is a shared focus on growing Canada's economy, creating well-paying jobs and ensuring that Canadian companies can compete and win in a rapidly changing global market. A clear, predictable industrial carbon price is the most economically efficient policy to underpin Canada's climate competitiveness while reducing risk for private investment at a time of unprecedented global trade uncertainty. It also drives innovation, reduces pollution over time and offers flexibility to provinces and territories. Carbon pricing works because it lets markets find the lowest-cost path to emissions reduction across the economy. A strong, predictable carbon price is a competitiveness benefit, not a cost burden. It allows Canadian companies to stay competitive in a global economy that is already pricing carbon at the border.

Today I'd like to focus on how a strong and predictable industrial carbon price signal supports three things: policy certainty and durability, access to global markets and cost-effective innovation.

First, on policy certainty, this moment of geopolitical tensions and shifting supply chains is driving investors to look for stable, predictable jurisdictions where they can deploy capital with confidence. We can crowd in investment and build major projects faster by providing policy certainty. A clear industrial carbon price is a central part of that. Alberta, as we've just heard, has had an industrial carbon price system in place since 2007. The federal OBPS has built on that approach. Looking ahead, securing an agreement between the Province of Alberta and the federal government on a ramp-up to a minimum effective carbon credit price of $130 a tonne is an important step for ensuring investor certainty and confidence across the country. The details of the future MOU matter.

Second, on access to global markets, Canada's economy is trade-dependent. All of our top 10 non-U.S. trade partners have a carbon pricing system. That includes middle powers like Germany, Japan and Brazil. Put another way, countries representing two-thirds of the world's GDP have adopted pricing systems. The European Union's carbon border adjustment mechanism, CBAM, is one clear example of a policy that is prioritizing goods from countries with strong domestic carbon pricing systems. Going backwards on carbon pricing will put Canadian companies at a disadvantage in precisely the markets we are trying to grow them in.

Third, this policy drives innovation. Industrial carbon pricing is an effective market-based mechanism that allows businesses to determine the lowest-cost path to reduce emissions and sends a market signal for innovative solutions. It also generates revenue that can be recycled back, helping sectors remain competitive and powering electrification and growth. For example, the decarbonization incentive program is already supporting 53 clean energy projects with $874 million.

Enhancing industrial pricing systems across the country can strengthen our competitive advantage even further. There are three practical steps governments can take. First, enhanced federal-provincial-territorial collaboration is essential. Second, expand and better integrate carbon credit trading across jurisdictions. Finally, implement financial mechanisms that strengthen credibility and trust to help de-risk major projects and accelerate investment, such as carbon contracts for difference or a price floor mechanism.

In closing, New Economy Canada's alliance supports a strong and predictable carbon pricing system, because we see it as a key driver of investment certainty and a cornerstone of Canada's competitiveness in a rapidly decarbonizing global economy. The global economy is moving. Building Canada as an energy superpower presents the opportunity to become one of the most climate-competitive jurisdictions while remaining flexible enough to ease global competitiveness concerns.

Thank you for your time. I look forward to your questions.

[The Chair, Liberal, Shannon Miedema]

Thank you very much, Mr. Clark.

We'll now turn to questions from committee members.

Ms. Anstey, you have six minutes.

[Carol Anstey, Conservative, Long Range Mountains, NL]

Thank you, Chair.

Thank you to the witnesses for appearing.

Dr. Exner-Pirot, I appreciated your opening comments with respect to both the moment we are in and the Prime Minister's commitment to make Canada an energy superpower. Can you speak to how this industrial carbon price might potentially compromise or undermine our ability to be an energy superpower?

[Heather Exner-Pirot]

We're obviously at a time when we need to attract a lot more investment if we want to expand our alliances with Asian countries. The Prime Minister has been to China, Japan and India to talk about sending more oil, natural gas and propane. You have to attract tens of billions of dollars of investment, maybe even more than $100 billion, here in Canada to fill up those potential pipelines.

It is true that investors will not want to come here if they aren't getting a meaningful return on investment and they look at the industrial carbon price. The uncertainty right now of not knowing what the industrial carbon price is going to be and of not knowing where we're going to go with the Alberta MOU is absolutely deterring that. They say that every day. People can say, you know, this industrial carbon price will make things more certain or will make us more competitive, but all the major industry associations and companies are saying it's not; it's making them less competitive.

I would suggest that to absolutely take advantage of this moment and provide more Canadian product into markets, we need to keep competitiveness foremost.

[Carol Anstey, Conservative, Long Range Mountains, NL]

Thank you for those comments.

In that same vein, could you speak to carbon leakage as a result of this policy?

[Heather Exner-Pirot]

I will—and I hate to talk about this while Ross McKitrick is on the line, because he's an expert in this.

Absolutely, the idea is that in the western world for the last several decades, where we've been preoccupied with lowering emissions and the Paris Agreement, an observable effect is that, while we lowered emissions or reduced energy-intense manufacturing industries in our countries in North America and in Europe, the consequence was that those industries offshored and went to other countries that had lower standards. The obvious outcome was that China gained industrial capacity—that's obviously now a security issue—and we have lost that investment in that manufacturing capacity.

It is very critical that, in our climate policies, we balance that competitiveness and maintain some kind of minimum ability to retain manufacturing in Canada, to have defence industrial capacity in Canada and to produce some of the minerals and the energy that the rest of the world needs. There are very few countries, other than Canada, that can export that kind of amount that makes a meaningful difference.

[Carol Anstey, Conservative, Long Range Mountains, NL]

Thank you so much.

We had the CEO from OilCo here, at our last committee meeting, talking about this impact on the offshore sector. One of the things he spoke about was the complexity of our system and also the moving targets, and that modelling is then done by investors, based on worst-case scenarios. Is this something you also hear?

[Heather Exner-Pirot]

Absolutely. When they're trying to build a business case for whether they're going to invest or not, they aren't going to look at the spot price, in the middle of the Strait of Hormuz crisis today, and say, “Oh, at $100, we can do all of these things.” They're going to look at what they thought was going to be possible in January, what will happen if the strait issue gets resolved. They need to have a very conservative number for what they think oil will be and what they can sell it for in order to decide whether to go ahead with that final investment decision, realizing, of course, that they have to get a return over many years. It's not just one year of an oil shock when prices are high; they have to think, “What will the price and the return be over the next 10 to 20 years?”

Having additional things that Canada puts on top but that our competitors do not is considered a risk, and it gets built into the price. Every time that price goes up, the opportunity for new production and more FIDs gets lower.

No one is saying that we should do nothing, but, absolutely, incrementally—and Professor McKitrick pointed this out—the higher that industrial carbon price goes, the more barriers that go on top, the fewer projects and the fewer jobs we'll get in Canada.

[Carol Anstey, Conservative, Long Range Mountains, NL]

Thank you so much.

I'd like to direct a couple questions to Fertilizer Canada. I'm wondering whether you could also speak to carbon leakage and what that practically means for Canada's fertilizer industry.