Finance Committee on May 7th, 2018

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Mr. Chair.

I would also like to thank all the witnesses who have come here today.

One of the great privileges of being a member of Parliament is having the opportunity to listen to very intelligent people who are experts in their field, and to exchange ideas with them. I would like to acknowledge the contribution each one of you is making to the development of policy in Canada.

Mr. Cross, I would like to emphasize that I am a great admirer of Statistics Canada and I would like to thank you for your 36-year career at the agency. It does you credit.

In a sense, that leads me to a bit of a surprise when I believe.... Perhaps I misheard your opening comments about how you felt about some of the proponents for having put a price on a carbon.

You said something along the lines that they are mostly people who are of an intellectual “elite”. Did I misunderstand that?

[Philip Cross]

No, I think that's.... I mean, we saw it in the previous presenters, and now in this one. The vast majority of the commentators in this area believe fervently that a carbon tax is the most efficient way of achieving this goal. They may very well be right. The problem is, though, that they have not been able to get that message through to the public, so they end up talking to each other. They convince each other, but the message seems to flop at the public. We saw exactly the same thing play out with the GST, with sales taxes. We seem to have not learned the lesson.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Then I would I see two things on that front.

First of all, when I listen to Mr. Elgie present and I take a look at the number of non-academics who are supporting.... I'm certain that all these companies that have signed on to the smart prosperity leaders' initiative.... There are over 150 companies, a whole bunch of companies, from the Desjardins Group to Enerkem, to all the major banks, to Cenovus, to big leaders.... It seems to me that these are not necessarily your academic elites, but people who are practising, who very much have skin in the game, who compete globally, and who really want to make sure that their companies remain globally competitive and at the top of their game. I'm just a little perplexed about how a person of your stature could still hold that point of view, which seems a little ad hominem.

[Philip Cross]

The average person, though.... I'm glad you raised that, because it was a point I wanted to make in response to Stewart's opening statement. Yes, large corporations like this are those that are best suited to deal with complex regulations. Large corporations tend to like a lot of government involvement in the economy. It's the small and medium-sized businesses that have a very bad reaction to this. It's a real imposition for them, and they don't have the resources internally to figure out how best to deal with a lot of these things.

Again, it goes back to.... Perhaps I shouldn't say it's just an academic bureaucratic elite. Mind you, when I say “bureaucratic elite”, I include most large corporations as large bureaucracies.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

My final point would be that it is those large organizations, large companies, and corporate Canada that have to do most of the trading internationally. They're the ones that will face global competition. As my former colleague said earlier, they're the ones who really have to understand where that puck is going to be and to play where that puck is going to be, as opposed to just trying to follow the play at every single stage. You have to anticipate. This is one of the ways, it seems, if you want to make a change on dealing with a climate change: you have to seek out the best ways of doing so at the minimum amount of disruption and cost.

It seems that there is a large consensus amongst people who are practitioners in the economy, as well as people who have given some great thought to this as academics or as researchers, that the single best way—and perhaps this is a question for Mr. Elgie, who can add to my comments—is for us to proceed with putting a price on carbon, that is, making sure that it does not become an externality, a free rider in the system.

[Prof. Stewart Elgie]

I think the first point is that this is a real cost, and part of Adam Smith's invisible hand is that free markets work when they charge real costs. The reason we have too much pollution in the world is that private markets don't naturally capture those costs and it falls upon government to actually be responsible for imposing that collective cost, so that markets work more efficiently, not just for environmental reasons but for economic efficiency.

One of the things I've found is that none of the people who oppose carbon pricing can come up with a more cost-effective way of reducing greenhouse gas emissions. They say that they don't like the cost of a carbon tax, but I've never heard a single one of them come up with a more cost-effective way to reduce emissions. I'm left wondering if they really believe genuinely in reducing greenhouse gas emissions or not. That would be an interesting debate to have.

I think in terms of this issue of how much the public gets it, there's probably some truth to it. I would say there are lots of things in terms of running an economy that not everyone understands. When the governor of the Bank of Canada changes the Bank of Canada rate, I'm not sure everybody, including me, understands all the reasons for doing that, but that's part of the reason why we have government to show leadership.

I think the average person does understand that the world is changing, when they look around them and they see more and more high-mileage vehicles and electric cars on the road, they see when they flip their electricity switch on that it's coming from clean sources, and they see more and more energy-efficient buildings. They see that the world is moving toward a cleaner, more innovative, low-carbon economy and that things are still working fine, that we can make that change, and they understand that we need to accelerate that change. Part of the reason we elect governments is to help them figure out how to do that.

Would it be great if every person understood all the economics of a carbon price? Sure, but part of the reason we have governments is to help make those leadership decisions.

[The Chair, Liberal, Wayne Easter]

Mr. Cross.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

[Inaudible—Editor] minutes of my time.

[The Chair, Liberal, Wayne Easter]

Your clock's wrong.

Mr. Cross.

[Philip Cross]

Just to follow up on the original question, yes, it is quite interesting that it is especially large corporations, not just in Canada but in the U.S. and in Europe, that are in favour of a carbon tax.

What is their motivation? Are they advocating for the type of $200- or $300-a-tonne tax that is needed to meet the goals, or are they trying to impose something, $50 or $100 a tonne, that would be an inconvenience to their smaller and medium-sized competitors? I'll let you speculate on what their motivation is. I don't hear a lot of them advocating for the $200.

[The Chair, Liberal, Wayne Easter]

Mr. Fergus, I'll let you go ahead with a short question.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Given the level of the proposed carbon tax that we have, how much would income taxes have to be reduced to compensate for that level of price that we would put on the carbon? Is there any estimate or any research that any of you have seen on that?

[Isabelle Turcotte]

I can only point to a figure that was stated earlier by Dale Beugin, which says that 10% to 12% of carbon pricing revenue is sufficient to address fairness and equity concerns for the bottom 40% of households in Canada.

If I may, I keep hearing the $200 to $300 figure. Is this from an assumption that this is what we're advocating for?

[Philip Cross]

No. I heard a lot of these numbers thrown out by Mr. Kenney at the end of his previous testimony.

[Isabelle Turcotte]

Right.

[Philip Cross]

I've heard a professor, and the name escapes me at the moment. There's one in particular at the University of B.C. who has very openly said that we're going to need at least a $200 a tonne target to meet our reductions.

[Isabelle Turcotte]

Is that if we were to meet our Paris targets through only a carbon tax?

[Philip Cross]

Yes.

[Isabelle Turcotte]

But no other measure, which we are not suggesting.

[Philip Cross]

Right.

[Prof. Stewart Elgie]

The other point, too, is that one thing we know about technology innovation is that, if you had asked someone 20 years ago what it would cost to have a laptop or a smart phone, they would have said thousands and thousands of dollars based on the current technology. Part of what we'll do with things like an economic incentive for carbon pricing is drive down the costs of technology. It's the reason why the costs of wind and solar have gone down 80% in the last eight years, and you've seen a similar decline in the cost of electric car batteries. Pricing plus other incentive measures are driving down the costs, which are actually reducing the costs of transitioning to a low-carbon economy. In most parts of the world, many parts, it's actually cheaper to produce energy through wind and solar now than it is through coal.

Your point about storage is a valid one. We're going to have to make that same kind of breakthrough on energy storage for that to be a sustainable baseload, but there are lots of really bright people working on doing that, and whoever cracks that one is going to make a lot of money. Let's make it here in Canada. We've got some players who are in the game on that one.

[The Chair, Liberal, Wayne Easter]

Before I turn to Mr. Kelly, this is just on this discussion on the message getting to people. The experts or bureaucracies are talking to themselves. I talk to farmers and fishermen a lot. I campaigned a campaign on the green shift. I can tell you it wasn't a pleasant campaign. They're very worried, even though they're exempted, at least in the federal legislation on fuel, which is their biggest cost.

By the same token, I can tell you from my experience in Prince Edward Island. Maritime Electric is through the province...30% of the energy comes from windmills. When that first started, even though everyone was complaining about the cost of electricity, you had the option of buying the more expensive electricity, and I did myself. A lot of farmers went to the more expensive electricity, even though they were complaining about the price of electricity, because it was clean.

Part of the problem here is that the public really doesn't trust governments to be revenue neutral. It came up in the discussion previously. The public doesn't believe us when we say that this carbon pricing will be revenue neutral.

How do we change that, or can we?

Does anybody have any brilliant answers?

Stewart.

[Prof. Stewart Elgie]

I guess I'd start by questioning the issue of whether or not carbon pricing must be revenue neutral.

I think governments make choices about how to spend tax monies all the time; that's part of the fundamental reason we elect governments. I'm a co-founder of the Ecofiscal Commission, so I believe in everything it's done. I think there are a lot of strong economic arguments for taking carbon tax revenues and reinvesting them in tax cuts. Probably if I were elected, I'd put a lot of the revenues toward that.

When government reinvests in the economy, whether it be in clean infrastructure, public transit that lowers the cost for people to get around, home energy incentives that lower people's fuel and heating costs for their homes, incentives for companies to invest in clean technology and increase their profitability, those are all investments in the economy, too. Those are all investments that can actually reap economic rewards. In fact, your government is making a massive investment in infrastructure on that very same argument, that building the physical and technology platform for the future is a really smart investment in the economy.

I think there is a strong argument for tax cuts. If you look at the modelling we've done at Ecofiscal, for example, reinvesting the revenue in technology incentives, both for businesses and homeowners, you see it generates almost the same positive economic outcomes as reinvesting it in income tax cuts.

[The Chair, Liberal, Wayne Easter]

Mr. Kelly, we're on five-minute rounds.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

I have a brief question for Professor Elgie.

In response to Mr. Albas' question about carbon leakage, you spoke of the danger of a lose-lose scenario, where production simply shifts to a different jurisdiction. With that in mind, I'd like to return to something you said in your opening statement. You mentioned that the three CEOs of the largest oil and gas companies operating in Canada have signed on with your initiative.

Can you tell me how many employees those three companies have laid off since 2014? How many billions of dollars of investment have been redeployed to jurisdictions outside Canada, by those three companies?