Finance Committee on May 7th, 2018

[Andrew Van Iterson]

Broadly, our definition would be that it relates to economic activities that leave one jurisdiction and go to another because of differing carbon prices, in this context.

[Philip Cross]

I'd agree with that. It's imposing a tax on domestic production, and not imports. You end up just substituting imported carbon emissions for formerly domestically produced ones.

It is possible to devise a tax that would account for that, but none of the carbon taxes we're talking about in this country address that problem at all.

[Isabelle Turcotte]

There are many elements that will influence competitiveness of any industrial sector, and the federal government's backstop does provide a measure, through the output-based pricing system, that protects these industries against one element, which is a difference in carbon price between the price in Canada and the price in a competing jurisdiction.

[Prof. Stewart Elgie]

As the father of five-year-old twins, I'm an expert in leakage of all kinds. I'll talk about the carbon kind.

What you don't want is what my colleagues alluded to, which is that firms simply move across the border and continue to emit the same emissions they would have emitted in your country, and keep all the revenues and jobs there. That's the lose-lose option.

What you do want, though, is to keep your firms here and give them an incentive to be among the leaders in low-carbon production, because then they're going to get ready to compete where the world is going.

You want to have both, which is why you want to ease the economic transition. That would be the same as we did with an economic transition on the free trade agreement here for a few years, as you moved from a closed economy to an open one. There will be an economic transition here. Things like output-based pricing, things like accelerated capital cost allowance, and things like revenue recycling help firms as they make the transition to being low-carbon competitive without having to move elsewhere to do that.

It shouldn't be a long-term solution. In the long term, free markets are going to determine this, but this country has supported firms during economic transitions for a hundred years, and we should do the same here.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I want to appreciate what Ms. Turcotte said specifically within Canada, because Bill C-74, in essence, is taking away the ability of a province. Let's give the example of Saskatchewan, which has built itself on being competitive with its neighbours. You also have northern territories, like Mr. McLeod's, where the cost of living and the cost of doing business are so much higher, so to be imposing a centralized framework upon them basically may seal up Canada inter-jurisdictionally between provinces and territories. Now actually—with the United States being at a different rate—I think we need to have more discussion now.

Here is what the B.C. NDP provincial government describes as carbon leakage in its 2018 budget:

...industries that compete with industry in countries that may have low or no carbon price. If...industry loses market share to more polluting competitors, known as carbon leakage, it affects our economy and does not reduce global greenhouse gas emissions.

This, of course, is in B.C. with a carbon tax already. I should say that my end quote here is on gas emissions, so this is coming from British Columbia, with a carbon tax already.

We've already seen a lower price that was first installed by former premier Campbell and his government, where the cement industry was hard hit and has continued to receive subsidies and has struggled to maintain its market share.

I believe that the B.C. NDP are also quite worried about one of their favourite industries, which is pulp and paper, and you know we all have our favourite industries. I think the rising cost in the carbon tax, as set out in Bill C-74—as of April 1, we saw gas prices go up in British Columbia because they are moving $5 per year—will only get worse.

What obligation do we have as parliamentarians to ensure that, for those industries where many families are impacted, and those small and medium-sized businesses will be impacted, we are able to stem this issue of carbon leakage? I would open that to anyone.

[The Chair, Liberal, Wayne Easter]

Who wants to go?

Ms. Turcotte, you're the one who is looking restless. I'd say you're on deck.

[Isabelle Turcotte]

We do want to address these competitiveness issues. However, I don't think that the federal carbon pricing backstop should address intra-jurisdictional competitiveness issues. It is a challenge to address those issues with our foreign competitors. We are still in the process of developing those output-based standards, which will provide a relief and a protection for those sectors. However, Canadian society overall has a responsibility to meet the Paris targets for many reasons, including for the cost of inaction that we heard my colleagues refer to earlier. The output-based pricing system is also a subsidy to industry. It should be said that if we reduce the industry's responsibility to reduce greenhouse gas emissions, we're increasing the burden elsewhere.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Will the United States meet their Paris targets?

[Isabelle Turcotte]

Personally, I would not want to have Trump as my role model.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm just asking the question because I think it's relevant. We have tax reform in the United States. Mr. Elgie gave the example of a capital cost allowance that gives a real advantage to American producers.

[Isabelle Turcotte]

I would say that regardless of Trump's decision to withdraw from the Paris Agreement, which he cannot do until one day after the next election, there's an initiative in the United States called “We Are Still In”, which is a gathering of private and public sector organizations and states that are taking even more ambitious action to compensate for the lack of federal leadership.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I would suggest the chances are they won't, and I imagine that other countries will struggle with these kinds of things, particularly on the competitiveness.

Mr. Cross, in your submission you talked directly about the increasing uncertainty in economic relations between Canada and the United States, and the rolling back of certain corporate...whether it be regulatory measures or tax relief, or tax cuts in the reform bill.

In your expert opinion, what impact do you foresee a national carbon tax having on the competitiveness of Canadian industries vis-à-vis the United States and other non-carbon tax jurisdictions?

[Philip Cross]

I think it's just part of a wide range of policies that are making Canada less competitive. I think we're already seeing it show up in the investment numbers, for example. There is a semi-annual survey that was released this morning on business investment in the U.S. It's calling for a 10% increase. The same survey six months ago in the U.S. called for a 2.7% increase. That's a radical upgrade of business investment plans in a very short period.

Meanwhile, according to an annual survey conducted by my former colleagues at Statistics Canada, Canada is headed for a fourth consecutive decline in business investment. That gap between 10% in the U.S. and a small decline in Canada is probably the most distinctive difference between the two countries that I can point to these days, and probably has the most risks for Canada in the long term.

I would be quite concerned about it.

[The Chair, Liberal, Wayne Easter]

Thank you all.

Mr. Dusseault.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Thank you, Mr. Chair.

Thank you all for being here today.

My first question deals with something a witness said earlier, that we should not ask people to change anything and they should continue living their lives as before, as if nothing was wrong.

If human activity and the behaviour of the majority of human beings on earth do not change, will we really be able to combat or mitigate the effects of climate change? Is it realistic to think that we can fight climate change if we do absolutely nothing about the activities and habits in our lives?

Mr. Cross seems to have an opinion on that.

[Philip Cross]

I would like to start.

The issue is knowing how we want to bring about that change. Do we want it to be imposed by the government? Do we want to change the relevant prices, which would certainly encourage young people to modify their behaviours? Do we want a technological change that does not cost too much?

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

The fact remains that we need to change. That is probably clear to everyone, except to Mr. Kenney. In fact, he seemed to be saying earlier that, if people want to keep driving to the rink in their big SUVs, they have the right to do so with no penalty.

Perhaps Mr. Van Iterson has something to say about the matter.

[Andrew Van Iterson]

I think it's a valid question, and I don't think it's about penalizing anyone. Clearly, most of us, hopefully all of us, around this table understand that climate change is a major challenge and a huge risk to society. The solution involves changes. The best solution involves changes that have the least disruption to people's lives and provides the most benefits. That's why carbon pricing is the prime policy option that I've heard of. It allows people to choose. It gives them the incentive to choose the options that work best for them.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

It is certainly a recurring theme. We are hearing that, among the available tools that are likely to allow us to reach our goals, this seems to be the most worthwhile.

Mr. Cross, you said that, before taking action through political means, the issue has to be better known, better accepted, by the public. I wonder how we could make this solution, really the most promising solution, better known, when we know that, even in 2011 and 2012, political parties were still demonizing what some called “the NDP’s carbon tax”. I remember that, because I was also in the House and, at least 10 times a day, we heard it being talked about as the most diabolical plan ever in Canada. People said that we must have nothing to do with it.

How can we make the solution better known and accepted?

[Philip Cross]

I have no answer to that. For example, Mr. Elgie said that there is a very strong consensus among economists that taxes on consumption are preferable to taxes on income. Economists have never been able to convince the general public of the merits of that approach. I could be elected tomorrow if I opposed the GST.

Perhaps the question is better put to those in favour of a carbon tax rather than to me.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

Perhaps it is, indeed.

Mr. Elgie, would you like to make a comment?

[Prof. Stewart Elgie]

Briefly, just to correct what I said, almost all economists agree that a carbon tax is the most cost-effective way to reduce greenhouse gas emissions.

I would like to say a couple of things. We've heard from a couple of people this idea that there's a choice between putting a price on carbon and spurring technology innovation. It's actually not a choice. The two are integrally related. You need both. Part of what spurs technology innovation is the idea that you may actually sell that technology someday. What helps you sell that technology is having a price on pollution.

Part of the reason we don't see adequate levels of clean innovation, even though carbon and other kinds of pollution are a real cost, is that pollution is not priced by the economy. This is what economists call an “externality”. Even a conservative right-wing economist like Milton Friedman used to tell his University of Chicago students that his free market theories don't work when it comes to pollution, because private markets don't price pollution.

Putting a price on carbon is one of the critical things you need to drive the invention and the adoption of these clean technologies. It's not the only thing, but it's vital.

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

In terms of a price on pollution, we often hear that, in a number of areas, polluters should clearly pay for the pollution they create.

In the 21st century, does it make sense, in your opinion, that people should have to pay if they pollute, or if they send their waste somewhere, to landfills, for example? It can be done through taxes, municipal, provincial, or any other kind.

In your opinion, is that notion logical, given that, in most other areas, it is already taken for granted, and that we are currently just catching up in terms of a carbon strategy?

Ms. Turcotte, do you have any comments on that, or on any of the other questions I raised?

[Isabelle Turcotte]

Yes. In terms of making sure that the public understands and accepts the plan to put a price on carbon, we just have to explain how it works, rather than exploiting unbalanced information for one’s own purely political advantage.

I would say that we agree with the polluter-pay principle—and when I say “we”, I mean the Pembina Institute. However, we recognize that it is not the only tool Canada has in the face of climate change. We also have regulation, and we can fund innovation. Those three measures have to be combined.

[The Chair, Liberal, Wayne Easter]

I'm sorry, but we'll have to end it there, Pierre. We're over the time.

Mr. Fergus.