Finance Committee on May 1st, 2018

[Pierre Poilievre, Conservative, Carleton, ON]

I appreciate your coming to assist him, but these are the officials—

[The Chair, Liberal, Wayne Easter]

I'm not coming to assist—

[Pierre Poilievre, Conservative, Carleton, ON]

— ho are supposed to answer these technical questions. This is one of the most basic questions that any officials would be asked whenever they introduce a tax measure. The government has its budget book, which is able to calculate out every other tax measure it introduces for the purposes of public relations, but when they're increasing taxes, we can't get any answers. These officials at this table would know if this modelling has been done.

I'm asking any one of them, has either of your departments calculated how much this carbon tax would cost Canadian families? Has anybody calculated that?

[John Moffet]

We've done a range of basic modelling and analysis.

[Pierre Poilievre, Conservative, Carleton, ON]

Good. Can you tell us then, for a median income family, how much would they pay typically on the original tax?

[John Moffet]

I don't have that information.

[Pierre Poilievre, Conservative, Carleton, ON]

Will you commit now to providing the committee with that information before we pass this bill?

[John Moffet]

I can't make that commitment.

[Pierre Poilievre, Conservative, Carleton, ON]

Why is that?

[John Moffet]

The government's position, based on the analysis we've provided them, is that the impact on households cannot be determined at this time.

[Pierre Poilievre, Conservative, Carleton, ON]

You just said you did modelling. So you have the modelling, you have the numbers, but you're just keeping it secret. Thank you. That's all we need to know.

[John Moffet]

That's actually not what I said.

[The Chair, Liberal, Wayne Easter]

Just for the committee's information, when we're dealing with officials, we're not under.... I know some people are getting antsy about the amount of time spent with one member, but members have the right to question officials on the budget implementation act until all questions are exhausted.

Mr. McLeod, then Ms. O'Connell, and then Ms. Lambropoulos.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you.

Thank you to the people who have joined us here to talk about the budget.

I'm from the Northwest Territories. The issue of carbon pricing created a lot of discussion. The Government of Northwest Territories has but together its plans and is ready to move forward. There are some things that we still needed to work out, including how it will impact our formal financing agreement, in particular, own-source revenues and clawbacks. I think we're just about there.

We still have some concern though. Given that the Northwest Territories is very remote, along with the other two territories, Yukon and Nunavut, we get all our supplies from other jurisdictions. For us, it's mostly Alberta. Yukon gets a lot from B.C., and for Nunavut, it's from Ontario and Quebec.

Any project, any kind of activity, requires us to get products from other jurisdictions. There is already carbon pricing in other jurisdictions: B.C., Alberta, Ontario, and Quebec. We are already paying for carbon pollution. That's included in some of the products we pick up.

Is there a mechanism to prevent us from paying twice, once when we get the product in the north and if it's resold? Is there a way to protect us from that? We could get a double impact from this if we don't do it properly.

[John Moffet]

In the pan-Canadian framework, the federal government committed to work with the three territories to estimate the impacts of carbon pricing on the territories. During the course of 2017, our two departments worked closely with each of the territories and produced three studies, which we shared with each territory. Those studies did indeed confirm that there will be direct and indirect impacts of carbon pricing and that some of those indirect impacts will, as you mentioned, arise from the fact that goods purchased from other jurisdictions will already have a carbon price embedded in them.

Your question is about whether there is a risk of double payment of carbon pricing. It's our view that there is no risk of that. I'll explain why.

I don't mean to demean the significance of the question, but let's take a simple example, a loaf of bread that's produced in a province and then shipped north. The fuel used to produce that bread would have been subject to a carbon price, so there will be a carbon price embedded in the cost of that loaf of bread. But there won't be an additional carbon price imposed on that loaf of bread in the Northwest Territories. The only way that the cost of that bread might increase as a result of carbon pricing is because of additional transportation costs associated with moving it to the store, and there may be a price on that fuel. It would, however, be a price on the particular fuel used to move the bread, not an additional price on the production of the loaf of bread itself.

That's one example. Another is that fuel is subject to the carbon levy in the federal backstop system, and the system that the Northwest Territories government is developing is also a levy system.

The levy is imposed on a fuel supplier or a distributor. If the fuel supplier is south of 60, then the fuel supplier would be paying the carbon price south of 60 only. If the fuel supplier is located in the Northwest Territories, then the fuel supplier will be paying it there. There aren't, though, two fuel suppliers paying two separate carbon taxes.

[Michael McLeod, Liberal, Northwest Territories, NT]

I'm glad you brought up fuel, because that's where I was going to go with my next question. There is carbon pricing on fuels, and fuels are used in all modes of transportation. In the Northwest Territories and Nunavut and Yukon, we use a lot of air travel to go between small communities.

I just travelled to the communities that I represent on the coast on the Beaufort Sea, and I listened to parents who were actually in tears because they couldn't go to visit their family in the next community or in the regional centre, because it's so expensive. Now we're going to include a carbon price that will make it a little more challenging to do that.

If they flew out of the country, however, they wouldn't have that problem, because we don't have carbon pricing on interjurisdictional sea or air transportation. Why is that? Why is there a difference? How did we come to that conclusion?

[John Moffet]

It may be useful to think of three types of air transportation: international transportation from one country to another; what we've called “interjurisdictional”, say from Yukon to Northwest Territories or Ontario to Quebec, so from one jurisdiction in Canada to another; and intrajurisdictional.

International aviation is going to be subject to carbon pricing starting in 2020 under a regime that Canada has signed onto, which was negotiated under IATA, the international aviation association. All of the large countries and major airlines in the world have agreed to be part of this system. It was essential that it be an international system because, as you can imagine, it would be difficult for one jurisdiction alone to put a price on international aviation fuels—airlines would simply fill up their planes somewhere else.

Canada was part of the negotiation of the system. This will apply in 2020, so for that reason neither any provincial nor the federal backstop system applies to international transportation.

Interjurisdictional transportation—from province to province or territory to territory—is not covered at the moment. What Ministers McKenna and Morneau have said is that they intend to address this gap. They have not decided how to address it.

The reason it's a gap is that no jurisdiction currently addresses interprovincial or interterritorial flights. This may be the one area in which the federal backstop applies beyond just in provinces that don't have a pricing system. We may need the backstop to apply also in provinces that have a pricing system but that do not address interjurisdictional aviation.

This would be complicated in your jurisdictional discussion. The decision was to get this system up and running and then to start those discussions.

I was in Yellowknife last week talking with the deputy minister of finance and made a commitment to the territory's deputy of finance and environment that they would be involved in those discussions and that one option—making no commitment as to the outcome, because that will be politically decided—clearly could be to have a different system for interjurisdictional travel between provinces and interjurisdictional travel going to the territories. At the moment, none of those flights is priced.

Intrajurisdictional aviation fuel is priced under the backstop system. It's something that can be completely controlled by the backstop or by an individual province and, consistent with the government's policy that pricing should apply to a broad suite of activities, it is included in the backstop system.

The final point I'd make, though, is that we're also in extensive discussions with each of the three territories about offering the services of the Canada Revenue Agency to provide whatever rebate system each territory wants to implement in order to address, for example, impacts of increased aviation costs upon households in remote communities, if the territorial government so chooses.

[Michael McLeod, Liberal, Northwest Territories, NT]

In the north—and you've probably heard this—we're quite concerned about the impacts of climate change. It's creating a lot of havoc, especially on infrastructure and our roads. One of the roads that we've just refurbished was nice two years ago, but it is already heaving—I drive on it all the time. It's something that's going to continue to plague our airports, which have started to see heaving. It's going to be significant over the next while and it's going to continue.

This is a mechanism to try to control that. However, we know that the impact is also going to affect us. It's going to affect us more in our smaller communities. Yellowknife, our regional centre, will be affected; however, we figure that for communities to which air travel is required and which at the same time have lower income, it's going to be a challenge to make this work.

I think the Government of the Northwest Territories has done a good job in its planning. If there were, however, a requirement to make a change, is there flexibility in this whole process to make an adjustment two years from now that would help offset some of the hardships it may cause that we may not recognize today?

[John Moffet]

Under the pan-Canadian framework, the first ministers agreed to quite a few things, and I'll mention three. The first was to put in place carbon pricing throughout Canada. The second was to put in place a carbon price that goes to $50 in 2022, and then to conduct a review of the impacts of carbon pricing before 2022, with the purpose of determining where carbon pricing goes. In addition, they also committed to an interim review in 2020, precisely the two-year period you're talking about.

There's a commitment to undertake a review, and that will be an interjurisdictional review that will involve all of the provinces and territories and the federal government. That will provide findings of the impacts to date and recommendations going forward. As parliamentarians, it's always within your authority to amend legislation. Similarly, many of the details of the federal carbon pricing system will be in regulations, and those can also be amended.

[The Chair, Liberal, Wayne Easter]

Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Thank you for being here.

I want to follow up Mr. Poilievre's questions. I didn't have a chance to read your study that was released yesterday, but I went through it quickly here. Mr. Poilievre talked about modelling. Maybe he hasn't had a chance to read it either, and we'll let it him get caught up, but appendix 1 speaks specifically to modelling. For some of the characteristics, it's not a secret that you can't provide the number; it's the fact that there are a variety of characteristics that need to be incorporated and looked at.

Let's talk about some of them that are in black and white, and not a secret. Again, that's not a catchy catchphrase or hashtag. Among other characteristics, it will include the following:

...provincial production and consumption patterns through a detailed input-output table and links provinces via bilateral trade. Each province and territory is explicitly represented as a region.

It later goes on to say:

The baseline for this macroeconomic analysis is Canada’s 2017 GHG reference case that was reported in Canada’s 7th National Communication and 3rd Biennial Report to the United Nations.... It includes the future impact of policies and measures taken by the federal, provincial and territorial governments as of November 1, 2017....

These are all important factors that I think would need to go into the modelling. In forecasting, it says:

key macroeconomic variables in the model such as GDP, the exchange rate, and inflation [rate] are [all] aligned to Finance Canada’s projections.

It goes on to talk about things like gas consumption by each province and consumption of other goods. This is what makes it so difficult to put a specific number on it, because, obviously, it's going to vary dramatically in each region. Mr. McLeod just gave some examples of how the north may be impacted differently.

What are the dangers of using outdated memos, and memos unrelated to this bill? What is the danger of not actually waiting for provinces and territories to come forward with their plans, with the economics provided for in their regions that are specific to those people? What is the danger of using fearmongering and Conservative tactics, and putting some random number on it instead of waiting for provinces and territories to come back and work with the federal government?

I know that having partnerships with provinces and territories is a new concept, but what is the risk of using outdated economic information and modelling that is not relevant to regional differences in this country? Again, it's the ability for provinces and territories to design their own systems that will provide the best return of carbon pricing revenues back to the consumers who probably need it most. What is the basis for ensuring that all of these factors are taken into account, and why is this bill focused on modelling that respects regional diversity? Why was that so important to Environment Canada and Finance Canada?

[The Chair, Liberal, Wayne Easter]

Who wants to take it? Mr. Moffet?

[John Moffet]

I can.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

You don't have to get to the partisan part that I included there, but in terms of the economics—

[The Chair, Liberal, Wayne Easter]

I hope not.