Evidence of meeting #70 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.
A recording is available from Parliament.
President and Chief Executive Officer, Mining Association of Canada
Certainly. You may know that there's a graduated royalty in Alberta. Probably Mr. Stringham can speak in much more detail to this than I can. But it is structured, as well, to allow the return to the original investor first, before the higher rates become applicable. Of course, in the current market circumstances, those rates have come to the 25% level very quickly for new operations.
I would add to some of the earlier points that oil prices have come off 18%—
Conservative
Rick Dykstra Conservative St. Catharines, ON
I realize that you'd like to comment further, Gord, but it's my time to ask questions, and I do want to ask you another one. Obviously the discussion has focused on Alberta today, but I'd like to get your impression, from a mining perspective, especially for the province of Quebec, of the benefits that the accelerated capital cost allowance provide for that province.
President and Chief Executive Officer, Mining Association of Canada
They are significant right across the country for the mining industry. It's historically a recognition of the risk. We're putting a lot of risk capital, upfront, into the development of projects when we are uncertain about the nature of the ore body as we drill it out, its consistency, and our ability to recover materials and concentrate them. It also is a risk with respect to future prices. In the competitive world, for that type of risk capital investment, all governments use some form of incentive--in this case, to level the playing field of risk vis-à-vis other types of investments.
So it is a hugely important issue in all jurisdictions that have mining in this country--Quebec, Ontario, British Columbia, and Saskatchewan.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Thank you.
Thank you, Mr. Dykstra.
We'll have Ms. Wasylycia-Leis for six minutes.
Judy Wasylycia-Leis NDP Winnipeg North, MB
Thank you, Mr. Chairperson.
Thanks to all of you for your appearance today, especially Mr. Caccia. Thank you for coming. It's nice to see you again.
Let me ask you this, Mr. Caccia, and Andrew. We've had a long-standing policy of eliminating the current accelerated capital cost allowance for the oil sands project. We are hoping that somehow, between this committee and the deliberations on Bill C-30 and the renewed commitment in Parliament to really deal with greenhouse gas emissions, we could maybe achieve something in this budget year. It might be wishful thinking, but we're going to keep trying to the end.
I'm wondering if you have any advice in terms of how we could make this a reality this year for the upcoming budget on March 19. Could you talk about it in terms of cost savings and money that could then be generated for other uses and to meet other commitments? Second, could you talk about it in terms of the urgency with respect to greenhouse gas emissions and the role the oil sands play in that and the whole question of the planet?
Program Manager, Green Budget Coalition
I commend your efforts to eliminate the ACCA. I think it would be a really important step forward, and we understand that there are, obviously, strong forces against that.
The recent revenue numbers suggest that the cost of the oil sands ACCA is anywhere from $40 million to $350 million. I think those moneys could be much more efficiently invested in renewable energies, and we know that with renewable energy, essentially, we have power potential that's out there being wasted every day as it flows through the air. The oil sands are a one-time thing. They can be used now, but I suspect that their value will only increase for our children and our children's children in future generations.
The political skills I'll leave to you.
Senior Fellow, Institute of the Environment, University of Ottawa
It seems to me that it is time to ensure that the Department of Finance is smoked out on issues related to climate change and that it be brought under the public light in a manner that will make it possible and allow for a profound change of the taxation system so that the economy will not be seen in isolation from the environment but that the two will be looked at at the same time.
The current system, as we have it, probably served a purpose up until the first oil crisis in the 1970s, but it has certainly not served us well ever since.
NDP
Judy Wasylycia-Leis NDP Winnipeg North, MB
To what extent would the elimination of this present accelerated capital cost allowance on the oil sands slow down the oil sands development? Would it?
I think there is another outcome—I hope—of this that would deal with the very serious problems that are happening in Fort McMurray that we all had a chance to witness when we were there as a finance committee. Would this actually help to it slow down? Would the oil companies actually see this as a disincentive, and would they voluntarily then reduce activity in the oil sands?
Senior Fellow, Institute of the Environment, University of Ottawa
Every time there has been a measure or at least the suggestion of changing the taxation system or existing laws in order to broaden them to include the significance of the environment, industry has threatened with unemployment, or with greater risks, or loss of opportunities, or with abysmal consequences. Every time, systematically, industry successfully and effectively uses that threat.
Well, here again we have the same phenomenon this morning. Industry is raising the issue of risk, the issue of unemployment, the issue of losing markets, the issue of an uncertain future. But the demand is rising all the time. The availability of their supply is decreasing. The future looks rosy for industry. There is nothing to be afraid of.
You guys are going to do extremely well, no matter what is done to the tax system. So I don't think there is any reason to be concerned about it.
The fact is, however, that we have an international commitment with Kyoto. We are anxious about 2012. We don't want to be penalized when we reach that year, when we will be fined for the tonnes that we will not be able to deliver. So we have every incentive to move.
One of the major incentives, which so far has been carefully avoided, should be the one of looking at our taxation system and modernizing it.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Thank you, Ms. Wasylycia-Leis.
I'm going to give three-minute rounds for the three speakers, because we have only ten minutes left. We have Monsieur Thibault, Monsieur St-Cyr again, and then Monsieur Del Mastro.
Monsieur Thibault.
Liberal
Robert Thibault Liberal West Nova, NS
Thank you, Mr. Chair.
My question is to Dr. Raymont.
I thank you very much. For having no preparation time, you gave an excellent presentation.
The oil and gas industry, particularly the oil sands, have been a great economic generator for Canada. We benefit from it in many ways. But there is the problem of the pace of development. In a sense, I'd like to see it grow, but I'd like to see that period of growth go 200 years rather than have those resources expire in too short a period of time.
It does benefit us across the country, there's no doubt. We hate to see our youth leaving for Alberta, but we're happy that they have a place to work in Canada, and we do sell from all across the country into that market.
The problem, other than this pace of development, is the greenhouse gas emissions and the point that you raised about our commercialization of R and D. I don't know if simply changing the tax structure or making it less efficient for investments in the oil sands solves any problem.
How do we in Canada structure so that we do commercialize our R and D and encourage investment in greenhouse gas emissions or new technologies, or remediation in other areas to compensate for this?
Chief Executive Officer, EnergyINet
Thank you for the question.
First of all, you mentioned the rate at which extraction of the oil sands may or may not take place. I think it's important to note that the reserves there are sufficient for many, many, many years at any rate, whether a high or low potential estimate of what those extraction rates might be. So we're not worried about that resource—
Liberal
Robert Thibault Liberal West Nova, NS
If I may just clarify quickly, Dr. Raymont, there's also the question of the amount of water resources needed for those extractions, and these other limits.
Chief Executive Officer, EnergyINet
Absolutely correct.
Several witnesses have talked about reality. The reality is that we absolutely must have the oil from the oil sands. There are no other sources of energy that can come on stream quickly enough to replace them.
The number one priority for this government and for you, as a finance committee, is to figure out a way to triage the environmental impact of the conventional energy sources we already have. Therefore I'm suggesting that if you tinker to some extent with this capital cost allowance, please do so in a way that will encourage innovative technologies to be deployed.
As I've said, encouragements for R and D don't really work. It is capital cost instruments and taxes that in many other countries have been shown to encourage the rapid deployment of innovative technologies in a commercial way.
I'm suggesting that since the oil sands are absolutely needed but pose an environmental challenge for us that we use this tax structure to help the oil sands producers and those who live in that area produce those oil sands with mitigated environmental impacts, which we can do by the deployment of new technology that can be encouraged by tax measures.
Liberal
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
I'd simply like to react to the last comment that was made.
We've already talked about the need for the oil from the oil sands. Most of that oil is exported to the United States. Canada doesn't really need it for the moment. Furthermore, while we drain our oil reserves to export them to the United States, the Americans are consuming very little of their own oil. They'll probably be the last ones on the planet to have oil. They'll have gotten it everywhere in the world and we won't have any more.
Mr. Dykstra somewhat misrepresented my remarks about economic activity. I don't doubt that a lot of jobs depend on oil, but it's a matter of choice. Are we going to generate economic activity in the oil industry, or in the renewable energy industries?
Renewable energies will make it possible to create jobs and will create tax revenues for governments. That's the same thing; it's merely a choice. Should our fiscal policy encourage development of an industry that, by definition is ephemeral, since oil resources aren't eternal? Should we encourage the development of an extremely polluting economy? Should we instead take the government's same financial and fiscal resources and invest them in clean energies that will really structure our economy and permit longer-term development?
We've talked a lot about accelerated depreciation. In my opinion, we can't seriously continue to encourage the fastest possible development of petroleum energies. Perhaps we should also assess provincial government incentives. Discussions are currently taking place on equalization, to determine whether or not we should include non-renewable natural resources in calculating equalization. Of course, that's not out of the question. It's an encouragement for the provinces to develop this sector of the economy to the detriment of other sectors, such as the renewable energy sector.
Do you think we should include these calculations in equalization?
Program Manager, Green Budget Coalition
Technically they should be included. This is a capital base that we can use now or our children can use later. It's an important piece of our country's national assets, and they should be included in the calculations.
Senior Fellow, Institute of the Environment, University of Ottawa
Mr. Chairman, what I would suggest to Mr. St-Cyr is to instead include the renewable sources of energy in the calculation of national security. The less dependence we have on non-renewables the better it will be for our national security.
That is why, for instance, the Government of Sweden announced last February that by the year 2020 it will be independent from oil imports. I don't know whether that will ever be possible for Canada, but the less we are dependent on imported oil the greater our national security will be.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Thank you. Merci, Monsieur St-Cyr.
Mr. Del Mastro, you have three minutes, please.
Conservative
Dean Del Mastro Conservative Peterborough, ON
Thank you, Mr. Chair.
I'll try to move from platitudes back to reality in my questioning.
Mr. Stringham, is accelerated capital cost allowance the same as a subsidy?
Vice-President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers
No, I don't believe so. I see a subsidy as being cheques written from the federal or provincial government to people, and it would be giving them economics that are coming from taxpayer dollars. This is a deduction of costs that would be normally deducted; it's just a different timing.
Conservative
Dean Del Mastro Conservative Peterborough, ON
Thank you.
Are some of the $27 billion of funds being contributed from the oil sector to the federal government, in your opinion, contributing towards a new green environmental agenda, money that we can invest into green initiatives?
Vice-President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers
Absolutely. The funds are going in to the government that are being put towards green initiatives. But not only that; it's providing revenues to the companies.
If you look at some of the largest providers of wind power, on the renewable side, they include TransAlta, Enbridge, Suncor, Nexen—companies that are also involved in the oil and gas industry. It's not an either/or. We need both forms of energy.
On tidal power, EnCana, one of the energy companies in the world and the biggest company in Canada, has a very large tidal power project.
When it comes to ethanol, we have Husky and Suncor involved in the ethanol project. So definitely it's going through the government, but it's also direct investments from the energy companies.
Conservative
Dean Del Mastro Conservative Peterborough, ON
Thank you, sir.
Mr. Romanow, you mentioned you were making a $4.6 billion investment into the oil sands. We as a committee had an opportunity to tour the Albian Sands facility, a facility that is quite modern, that recycles water. In fact, it maintains heat, so it doesn't use as much natural gas and has much lower emissions.
This type of move that's being pondered, to put an end to the accelerated capital cost allowance, would seem contradictory to trying to improve the overall emissions of the oil sands. If we want to improve the efficiency of the oil sands, it seems that we should be encouraging investment into new technology, which is what the ACCA does.
Would you concur with that statement?