Finance Committee on May 7th, 2018

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Gentlemen, if I can have your attention, please, I love the spirited debate. That's a great Canadian thing.

To the Ecofiscal Commission—and I apologize to the rest of the panel—you and I have spoken many times with Mr. Ragan about this. The mechanism in place to get to our Paris targets is multi-faceted. It's not just one thing. A lot of it is going to happen through innovation, through new technologies that are going to come into play. I reference what Daimler and VW are doing over in Germany with their automobiles in adopting electric vehicles.

Is that not correct? Is that not where we should see the puck going?

[Dale Beugin]

I think there are clear benefits to putting in policy now rather than waiting. The longer you wait, the more expensive it's going to be to drive these changes.

As to the specifics of exactly where the market is going, the great advantage to carbon pricing is that you don't need to know for sure. You can get the market right, set the prices right, and let the market respond, let businesses identify where they see opportunities. Businesses choose where they want to develop new technologies and new processes that reduce more emissions at lower cost. That's how carbon pricing works.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Exactly, and we want to keep the environment attractive for business to invest. We're number two in the world, just slightly behind the United States.

[The Chair, Liberal, Wayne Easter]

Thank you all.

I want to make one comment. As I sit here and listen to this debate, I think we've had a really good discussion. Canada is going to be left out of being part of the solution if we don't address the climate change issue, but I would say to all those folks who demonstrate against our pipelines and the ability to get our resources to market, that's not a solution either.

For provinces such as Alberta and others to come on side, I think they have to see that the people in the environmental community are on side in allowing us to deal with climate change. We also have to get our product to market. I just wonder sometimes in this country.... We're a country with natural resources like no other, yet we can't find a way of getting our product to market, and we can do it in a way of lowering greenhouse gases.

Jason, I know the difficulty, as you do, of federal-provincial issues, but this country has more opportunity than any other in the world in terms of our natural resources, the size of our country, and everything else. We have to find a solution that balances climate change against the ability to get our resources to the market, and do the right thing for our kids and our grandchildren. That's where I'm coming from.

Thank you all for the discussion. I think it was a lively discussion. I want to end by saying that we have to find a way of bringing the sides together here and getting to a solution.

With that, we'll suspend for two minutes and bring up the second panel.

[The Chair, Liberal, Wayne Easter]

Colleagues, we'll reconvene. As I think everyone knows, we're dealing with Bill C-74, the budget implementation act on the February 27, 2018 budget.

Welcome to the witnesses here this afternoon. We'll start with Green Budget Coalition. Mr. Van Iterson, welcome.

[Andrew Van Iterson, Manager, Green Budget Coalition]

Thank you very much. Mr. Chairman, honourable committee members, I would like to thank you all for inviting the Green Budget Coalition to speak to you today.

The Green Budget Coalition has been active since 1999. It is really unique in bringing together the expertise of 20 of Canada's leading environmental organizations, including many groups you would know well, such as Ducks Unlimited, the Nature Conservancy of Canada, CPAWS, and Nature Canada, which collectively represents over 600,000 urban and rural Canadians from coast to coast.

The Green Budget Coalition's mission is to present an analysis of the most pressing issues regarding environmental sustainability in Canada, and to make a consolidated annual set of recommendations to the federal government regarding strategic fiscal and budgetary opportunities. We work on a wide range of issues including climate change, energy, nature conservation, first nations health, and freshwater and waste-water issues.

Today, I would like to address two points. I'd like to discuss carbon pricing, of course, and then also talk about some important progress in budget 2018. I'm really echoing messages that were in our recommendations for budget 2018, which we sent to you all last year and discussed with senior representatives of all of your respective parties.

First, I would like to express the Green Budget Coalition's strong appreciation for budget 2018's investment of $1.3 billion over five years to create and manage protected areas and protect species at risk. This unprecedented federal investment has a potential to be a game-changer for nature conservation in Canada and could help move Canada from laggard to leader in terrestrial and marine conservation.

We're also appreciative of other funding measures in budget 2018, particularly the $1 billion for environmental laws, new funding for first nations drinking water and waste-water systems, protecting whale species, implementing and enforcing the federal carbon pricing system, and for science and research.

How this historic $1.3-billion investment is allocated will be critical to determining whether Canada delivers on our commitment to protect at least 17% of our landscape and 10% of our oceans by 2020, to substantially exceed this target in the long term, and to recover species at risk. Consistent with our past recommendations, the coalition encourages the government to allocate most of this funding to partnerships by supporting the involvement of provincial, territorial, and indigenous governments, as well as other partners, including for provincial parks and indigenous protected areas, and to primarily allocate the rest to support federally led expansion and more effective management of federal protected area networks.

The coalition and our members are very interested in continuing the constructive dialogue we have had with you and your colleagues and government officials to ensure that we maximize the impact of this important federal investment.

Second, on carbon pricing, I would like to reiterate the Green Budget Coalition's strong and long-standing support for implementing an effective price on greenhouse gas emissions. Climate change poses a major risk to Canadians, to the nature that Canadians hold dear, and to the nature that successive governments over the years have made major investments into protecting. A price on carbon is an important element to any climate change plan, applying the polluter pays principle, and giving incentives for businesses and individuals to reduce greenhouse gas emissions, move towards cleaner energy sources, and contribute to phasing out fossil fuels. We support combining a carbon price with measures that protect financially vulnerable Canadians and with measures to address competitiveness concerns that are targeted, transparent, and temporary.

Along with other strong government measures, research shows that a carbon price that continues to ramp up every year to 2030 is needed for Canada to reach its 2030 greenhouse gas emissions target. The sooner that we take substantive and effective action on climate change, the more effective it will be and the less it will cost Canadians. Supporting the implementation of an effective price on carbon now is an important step forward that, years from now, you will all be able to look back on with pride.

To conclude, I would like to thank you all for inviting the Green Budget Coalition to appear before you today. I look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Turning to the Macdonald-Laurier Institute, we have Mr. Cross, senior fellow. Welcome.

[Philip Cross, Senior Fellow, Macdonald-Laurier Institute]

Thanks for having me back.

Polls show that a majority of Canadians don't understand or have never heard of a carbon tax. This demonstrates the gulf between them and the largely academic-bureaucratic elite who advocate this tax. For nearly three years, pro-carbon tax governments and bodies such as the Ecofiscal Commission have controlled the commanding heights of this debate with funding and media support that the fossil fuel lobby can only dream of, but they have failed to parlay these huge advantages into public understanding and support.

The main economic selling point for a carbon tax is that it leads to a better tax system. However, this is strictly based on several conditions, including being revenue neutral; every dollar raised by the carbon tax must be offset by lower income or payroll taxes. These promises were quickly forgotten, revealing it as just another tax grab that antagonized people concerned about the economy. Meanwhile, the promised reduction of carbon emissions is already falling short because the levies were not enough to materially change behaviour, disillusioning environmentalists—except some of them. The carbon tax did not bridge the gap between these two opposing groups, speaking for the environment and the economy, to create the social licence to build a pipeline. Finally, the election of a U.S. administration uninterested in its own carbon tax meant higher energy costs in Canada automatically put our industries at a competitive disadvantage without any prospect of lower continental emissions, making the whole exercise both costly and pointless.

For a trading nation such as Canada, raising the cost of domestic production but not taxing imports based on their carbon intensity penalizes our producers. This may curtail Canada's carbon emissions but does nothing for global warming if production simply moves to countries with lower emissions standards. Meanwhile, Canadian exporters are at a competitive disadvantage with the U.S.

As a practical matter, proponents of the tax have not disclosed what level of tax will be required to achieve Canada's climate change commitments. The case for a carbon tax has been disingenuous; advocates rarely discuss publicly how high a carbon tax is needed to attain the lower emissions targets, if that really is the goal. Is the current $50-a-tonne carbon tax the long-term ceiling for a carbon tax? If so, then they admit that most of the reduction in emissions is going to come from technology or regulation, since a $50-a-tonne tax has little impact on behaviour given its inelastic demand. Or is there a plan to raise the tax towards $200 a tonne, the level more transparent economists say is needed to change societal behaviour enough to move significantly towards emission reduction targets? However, saying so risks public support, so this is rarely mentioned. The Canadian public usually has a good sense when they are not being addressed in a forthright manner.

The politicians who most enthusiastically support a carbon tax are identified with left-wing governments such as in Ontario and Alberta. This has politicized carbon taxes, reducing their potential appeal to the broader base of the population concerned about climate change but hostile to a carbon tax. Instead of cultivating broad-based support, proponents of the carbon tax smugly stayed inside the safety of an echo chamber with their left-wing supporters and declared victory while demonizing opponents as dim-witted fossils from another era.

Without public support across the political spectrum that would ensure its long-term viability, the tax risks disappearing after its opponents are elected. The GST shows how easy it is to get elected by promising to reduce or eliminate an unpopular tax, even if it is universally beloved by academics and bureaucrats. The failure of carbon tax advocates to gain the support across the political spectrum that legitimizes a tax and insulates it from election results reduces the very efficiency of the tax, which is supposed to be its major advantage. The rush to impose a carbon tax before properly building public support for it lowers its efficacity because even when implemented, people don't believe it will endure and therefore do not invest in the lifestyle changes that would enhance energy efficiency and not just trim energy consumption.

The carbon tax is also unpopular partly because short-sighted, tax-hungry politicians refused to offset it with cuts to other taxes. More importantly, it imposes immediate costs on the vast majority of Canadians who still drive to work and heat their homes with fossil fuels while the benefits lie decades in the future. Finally, the federal and Alberta governments must shoulder the blame for failing to deliver on their promise that a carbon tax would buy social licence for pipeline construction, with the Kinder Morgan proposal the latest example.

There are two fundamental flaws in the academic assumptions underpinning the carbon tax. First, it assumes that changing long-standing behaviours is best accomplished by tinkering with the price system. This ignores that the true miracle of capitalism is not the efficient allocation of resources through the price system, although that is certainly one of its attributes, but its unmatched capacity for relentless innovation and technological change.

Game-changing new technologies are needed to combat climate change, not government fiddling with relative prices. The fact that our knowledge of how economics works in this area is limited to modelling the price system and not innovation is a reason to be skeptical about economics and to strive to better understand innovation, rather than focusing on the limited and less important areas economics purports to understand.

Second, having claimed that a carbon tax is the most efficient way of reducing greenhouse gas emissions, and hence climate change, carbon tax advocates assume that slowing climate change itself, via a carbon tax or any other mechanism, is the most efficient way of improving the human condition. Bjorn Lomborg, the self-styled skeptical environmentalist, convened a panel of experts to ask how limited resources could be allocated for the maximum benefit. Fighting climate change ranked 17th out of 30 initiatives, behind feeding preschool children, more immunization, fighting malaria, increased crop yields, and implementing early warning systems for natural disasters like tsunamis and earthquakes. Climate change ranks low because it imposes large economic costs while delivering uncertain benefits decades in the future.

We have many pressing needs that our current state of technology deals with more effectively than climate change.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Cross.

Turning then to the Pembina Institute, we have Ms. Turcotte, senior analyst.

Welcome.

[Isabelle Turcotte, Senior Analyst, Pembina Institute]

I'd like to thank the committee for the invitation to appear today. I'm Isabelle Turcotte, senior analyst at the Pembina Institute. We're a national non-partisan think tank that advocates for effective and strong policies to support Canada's clean energy transition, and we've been doing for over 30 years.

My comments will be limited to part 5 of the bill today. Canada has an unfortunate history of not respecting its promises on climate. We pulled out of Kyoto and we're on track to missing our Copenhagen target. We made another promise in Paris and collaboratively, over a year coming back from Paris, we developed a new plan to keep this promise. This plan was qualified by Canada's commissioner of the environment and sustainable development as, “likely one of the best plans we’ve seen to date”.

This is great news for Canadians who, according to a recent poll, want to see credible action on climate change. Indeed this poll showed half of Canadians would only consider voting for a party committed to fighting climate change. Ninety-one per cent of Canadians believe we have a moral responsibility to do so for future generations.

Let's be clear about what our options are. There are three policy options to reduce carbon pollution. These are, number one, putting a price on carbon that results in market-based emissions reductions due to a price signal. Number two is to regulate specific actions that result in emissions reductions, for example, the new federal methane regulations. Number three is financial support and subsidies for innovation or deployment of emissions reductions technology. For example, there's the low carbon economy fund, which will help provinces leverage investments in clean growth. Canada's climate plan combines all three options.

According to the economist and Nobel prize laureate Joseph Stiglitz, a well-designed carbon price is an essential part of any strategy to reduce emissions in an efficient way.

Here are four reasons to price carbon pollution.

Number one, it is the lowest-cost pathway. As was discussed by my colleague from the Ecofiscal Commission, carbon pricing not only involves lower costs than other policy approaches, but the GDP cost is low in absolute terms. Number two, it lets industry chose its own path. Number three, it offers stability and predictability. Carbon price gives that consistent signal to promote the investments we need today to create that competitive low-carbon economy of tomorrow. Number four, it ensures transparency and fairness. Carbon pricing reflects the polluter pays principle and contributes to distributing costs and benefits equitably, avoiding disproportionate burdens on vulnerable groups through revenue recycling. As was discussed earlier, only 10% to 12% of carbon pricing revenues are needed to address equity concerns for the bottom 40% of households.

A price on carbon is becoming the norm around the world, and from an economic competitiveness standpoint Canada cannot be left behind. Luckily, in 2017 pricing carbon pollution became mainstream economic policy in Canada. Pricing systems are now in place in the four largest provinces. The same poll I mentioned earlier found that 78% of Canadians support putting a price on carbon.

Here's what we know about the impact of carbon pricing in these provinces. In 2017, Quebec, Ontario, Alberta, and B.C. were the four best-performing provinces in terms of GDP. The data soundly refutes the misconception that a carbon price hurts economic competitiveness and growth. In B.C., the carbon tax generated a net benefit for taxpayers and reduced taxes on employment, investment, and economic growth. B.C.'s carbon tax did not disproportionately affect low-income households. In fact, the opposite is true, it was progressive.

The federal government is now moving forward to ensure that carbon pricing is applied across Canada and we support this. According to the federal government, a pan-Canadian price on carbon would cut carbon pollution by 80 to 90 million tonnes by 2022. Our own analysis at Pembina, using our energy policy simulator, which is Canada's first free open source tool, shows that even larger reductions are possible. To put this 80 to 90 million tonnes into perspective, Canada needs to reduce its emissions by about 215 million tonnes by 2030. This cannot be achieved without carbon pricing.

As we sit in this room, Canadian diplomats are finishing another day of negotiations at the Bonn Intersessional, representing Canada, collaborating in good faith to implement the Paris Agreement. Pricing carbon is one of the most direct ways the Canadian government can support its own diplomats in doing the very difficult but important work of convincing the rest of the world that we are capable of following through on our climate commitments.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Turcotte.

Now we have Mr. Elgie with the Smart Prosperity Institute. He's a professor at the University of Ottawa.

Welcome.

[Professor Stewart Elgie, Professor, University of Ottawa, Smart Prosperity Institute]

Thank you, Mr. Chair and members, and thanks for inviting me.

I'm here today wearing two hats. I'm the chair of the Smart Prosperity Institute at the University of Ottawa, which is one of the major economic environment think tanks and research institutes in the world. We've got over 100 of the world's leading researchers on innovation and clean growth. We were just awarded the largest research grant by SSHRC to spend six years working with them to try to figure out how you drive clean innovation and growth across the economy.

For my second hat, we also have a leadership council that has 30 CEOs from across Canada's economy, mining, forestry, oil and gas, banks, and others who share this ambition.

I want to speak to two main points today. The first point is why carbon pricing is important for Canada's economy, and second, why it's the most cost-effective way to reduce emissions. If I have a minute, I may add one more about a tax incentive.

Let me turn to my first point.

Carbon pricing is a good idea not just for the environment but for Canada's economy. Don't take my word for it. Here are the words in a letter written to the Prime Minister and premiers by a group of prominent CEOs across Canada recently:

Building a high performance, low carbon economy is a major economic opportunity and a vital environmental responsibility for Canada....

The world’s most advanced economic players are hard at work forging cleaner, more innovative economies, fuelled by a desire to compete in a changing global marketplace – one with huge potential to spur growth in all parts of Canada’s economy [including resource and manufacturing sectors]....

...Putting a price on carbon, to reflect the real environmental costs, is the most cost-effective way to reduce emissions, stimulate innovation and drive energy efficiency....

...the revenues can be used to advance climate and/or economic goals....

[Carbon pricing is an essential part of the] mix of...policies (incentives, infrastructure and investment) [needed]...to drive clean innovation – which is the key to generating climate solutions and securing Canadian competitiveness and jobs in a low-carbon world.

That is from environmental radicals like John Manley; the heads of mining, forestry, aluminum associations; Dominic Barton; and CEOs representing over $300 billion in revenue and a million jobs across Canada.

In my materials, you'll see quotes from each of them setting out why they think carbon pricing is critical to clean innovation and competitiveness for Canada. It's the same reason why more than 150 companies have signed on to the carbon pricing leadership coalition, including all five of Canada's big banks and three major oil companies, why seven of the 10 largest economies in the world now price carbon, including China, which just brought in the world's largest carbon pricing market, and 10 U.S. states, representing 30% of the GDP.

Carbon pricing isn't a left-wing or a right-wing idea. The three first carbon pricing systems in Canada were all brought in by centre-right governments. In B.C., Alberta, and Quebec it's been championed around the world by conservative leaders from Arnold Schwarzenegger to Preston Manning to Angela Merkel. It's just a good idea.

One of the major benefits is driving clean innovation, which is becoming a critical factor for global competitiveness in the years ahead. You can already see it beginning with the massive technology advances we've seen in clean energy and electric vehicles driving down costs and driving up markets. This trend is going to scale it across the economy in turning resource sectors, agriculture, and manufacturing, to create global economic opportunities estimated at more than $23 trillion by the World Bank, including resource and manufacturing sectors by 2030.

We just completed the most in-depth study ever done in Canada on how to drive clean innovation. This is the insomnia cure. This is the short version which was released by a group of 28 CEOs last month at GLOBE. The short version states that unleashing clean innovation by the private sector requires a mix of smart policies, incentives, infrastructure, and investments, but most important of all is carbon pricing, because it sends a signal that ripples across the economy.

The second point I wanted to make is that carbon pricing is the most cost-effective way to reduce emissions. You've heard several people speak to that today, so I won't say much on it other than that almost every credible economist supports that idea, and there's not much they agree on, I would add. There's tons of evidence and experience to support it.

Just look at B.C., in our own backyard. It brought in a carbon tax in 2008 that ramped up over five years like this one. In the time since that came in, if you compare B.C. to the rest of Canada, it has reduced GHG emissions by 7% more than the rest of the country, and its GDP has outperformed the rest of Canada by double in that period.

The evidence doesn't support a claim that the carbon price was the reason for the better economic performance, but it certainly didn't hurt the economy. It's the same story in Europe. If you look, over eight years, since its ETS came in—this is an OECD study that just came out comparing firms covered by Europe's price to those not covered—the ones covered by it have reduced emissions by more than 11%, and outperformed the other firms on revenue, growth, employment, investment, and innovation.

It's also not a perfect system, by the way. Quebec and Ontario have done better.

Part of the reason for that is that the revenues from pricing can be reinvested in the economy. They can be reinvested in tax cuts, as British Columbia has done—taxpayers have come out ahead by more than a billion dollars because of the reinvestment—or it can be reinvested in incentives for energy efficiency, clean vehicles, or firms to invest in clean technology, as Ontario and Alberta have done. It's one of the reasons why the four strongest economic performers in the country last year were the same four provinces that priced carbon.

The last point, just to make it briefly, because this is the finance committee, is that the CEOs on our leadership group are very concerned about competitiveness, and I'm sure all of you are, too, particularly in the wake of the U.S. tax cuts. When we released this “Clean Innovation” report last month, one of the recommendations made was—in addition to going ahead with carbon pricing, which is critical for innovation—to pair it with targeted tax incentives, one of which is an accelerated capital cost allowance for all clean technology. In the U.S., they've given an accelerated capital cost allowance for all technology, even dirty technology. Matching that just for clean technology would send a signal that would reduce emissions, increase investment in Canada in leading-edge technology, and be good for reducing costs for firms and competitiveness. I recommend that to you.

To wrap up, this country has a history of far-sighted policy leadership to prepare Canada for major economic changes. We did it 30 years ago when we realized that the world was moving towards freer trade. Even though we were a nation built on economic protectionism for a century, the Conservative government at the time got ahead of the global change by bringing in a free trade agreement. It also signed the UN Framework Convention on Climate Change, by the way. It was the same government that did both.

We're at that same kind of moment now. The world is moving towards a low-carbon economy as a fundamental economic shift. We need that same kind of far-sighted policy leadership from our governments today. People will look back on it in the same non-partisan way that we look back at the free trade agreement as a wise decision for Canada's economy.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Elgie.

We're now going to seven-minute rounds, starting with Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you to our panellists for coming today.

I think that we've heard in the last two panels that there's an overwhelming consensus—except for one panellist, who we shall not name—that the facts support a price on carbon. Now we can disagree on what type of price that will entail, the process of that price, whether it should be revenue-neutral, but the facts do support that pricing carbon will lead to a reduction in GHG emissions.

We also know, factually, across the world, when you look at any economist or any environmentalist, that the earth is getting warmer. Over the next century, it's supposed to go to an increase of 3 to 5.3 degrees Celsius, which is the biggest increase that we will ever have had in the history of planet Earth. That's a challenge. Like Stewart said, Canada has to be forward thinking. It has to meet this challenge head on.

You mentioned that, across the globe, economies that have done carbon pricing have had stronger economies and good economic growth. Can you please talk to that a little bit more, even outside of the Canadian context, so we can see what other jurisdictions in the world have done, a carbon price, and their corresponding GDP growth?

[Prof. Stewart Elgie]

You need enough years to be able to draw any kind of real conclusions, which is why Europe is the best place to do this. It has had carbon taxes going back to the 1990s in five or six countries. I've put two studies in my materials because a picture is worth a thousand words. One of them looks at the six countries that brought in carbon taxes in the 1990s, and what it shows is that over a period of about 20 years, those countries, if you isolate just the effects of the tax shift and nothing else, reduced carbon emissions by anywhere from about 3% to 6%. Those are relatively low taxes. They also saw GDP gains—not big ones, but anywhere from zero to 1%, so frankly within the range of error of the models.

Second is the OECD study that compared, under the European system, firms that are covered with those that aren't covered. Again, the firms that were covered by the carbon price had 11% greater emission reductions, but you'd expect that. What it also found is that they outperformed the firms that were not covered in terms of revenue, investment, employment, and innovation. The same study found that there was almost no evidence of economic leakage, which means firms moving elsewhere for competitive reasons. Part of that is because you reinvest the revenues as a way of creating economic incentives to spur clean growth in your economy.

Even Australia, while it had its carbon tax in, actually did better than the OECD average in terms of economic growth, and did better in terms of reducing emissions than it had before and after the carbon tax. It may not have been a political success in Australia, but it was actually a good policy while it was in place. There's only two years of evidence.

[Raj Grewal, Liberal, Brampton East, ON]

Yes, there's always a balance between politics and policy.

[The Chair, Liberal, Wayne Easter]

Ms. Turcotte wants in as well.

[Raj Grewal, Liberal, Brampton East, ON]

Absolutely.

[The Chair, Liberal, Wayne Easter]

Anybody who wants in, just raise your hand and I'll catch you. We do have a fair bit of time left.

Go ahead.

[Isabelle Turcotte]

Thank you.

I just wanted to add something to this conversation on the impact of carbon pricing through the regional and greenhouse gas initiative. This was a cap-and-trade program that was put in place in 2009 in the northeastern United States. It joined nine member states. Interestingly, under Governor Chris Christie, New Jersey pulled out of RGGI and is now wanting to join. He's on track to join again, and so is Virginia. So the RGGI members will go from nine to 11 members soon.

On the latest analysis on the impact, I'll just give you a few numbers here. RGGI provided $1.4 billion in net economic benefits. It led to the creation of 14,500 job-years, generated over $2.8 billion in revenue from permit sales, and very importantly, it halved CO2 emissions in member states. Also, it cut in two power prices in New England.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you for your answers.

Stewart, you spoke about providing more incentive to become more green, especially from a competitiveness standpoint. You spoke about the reduction in corporate taxes in the U.S. Obviously a lot of firms in Canada are concerned with that. We're concerned with the flight of capital. Having said that, we've had very strong economic growth last year, and we're expected to be above 2% in GDP growth this year.

You mentioned the capital cap allowance for clean technology. Can you explain how that would be very favourable for Canadian firms and the Canadian economy?

[Prof. Stewart Elgie]

Part of what this proposed backstop bill does to help deal with the competitiveness issues is...output-based pricing, which is a good idea. Basically, major producing firms and exporters will still have all the incentive to reduce, but the total cost of carbon price to them will be reduced dramatically. So, you get the benefits of a price without all the economic costs.

But to add to that incentive, basically what a carbon price does is it incentivizes these firms to spend a bunch of money adopting leading-edge low-carbon technology, which is a good thing. It positions them for where the economy is going. In the short run, it's still a cost. It's still an investment.

If you give an accelerated capital cost allowance, it basically reduces the cost of investing in the very low-carbon technologies that you want the firms to invest in. That saves them money, but it saves them money in a targeted way by promoting investment in the kinds of clean technologies we want. And it's a tax incentive that promotes investment in Canada. The money has to be spent here in order to get the credit for it.

If you think about the things the U.S. has done, you'll remember they brought in a 100% capital cost allowance for anything, including a coal plant. That's not a great idea. But targeting it in Canada to support investment and the kinds of technologies that we want to prepare our economy for in the future is a really good win-win solution.

[Raj Grewal, Liberal, Brampton East, ON]

My last question is simply this. If I think about Brampton East, carbon pricing doesn't come up much in my riding. I represent a riding that's the second most diverse riding in the entire country, with 86% of the population associated with a visible minority. Having said that, we're a very well-to-do riding. It's an upper middle-class riding where the average house price is between $800,000 to $1 million. I have never had one call on carbon pricing. If I were to try to explain carbon pricing to my father, he would just turn to me and say, “What are you talking about?” But if I can talk to him about the recent windstorm that took shingles off our roof, or talk about the recent weather changes and give him concrete examples, he may try to understand why there needs to be a climate change policy in this country.

You are the experts. And I know one thing for sure. When my dad votes, I know he's a little biased and votes for me. He expects that his vote will be made for a member who will listen to experts when it comes to policy that will not only be for Canada today, but Canada in the future.

I'd like to thank you, on behalf of all Canadians, for the work that you do. Climate change is super important, and our government is going to do everything we can to ensure there is a price on carbon.

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Albas, you have seven minutes.

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

Thank you to our witnesses.

I hope MP Grewal can count on the support of his own father in his own riding.

Politics aside, I think, Mr. Elgie, you had pointed out that in the United States they have created the equivalent of a CCA, capital cost allowance, where within one year it can be used toward any kind of equipment including, as you said, a coal-fired facility. I think that illustrates the example that if we were to do something similar here, only for clean technology, many people would say that many of those clean technologies are much more intermittent than a coal-fired generation facility. I'm not arguing for coal, but I am saying that it's a competitive challenge because coal can be done quite cheaply in comparison to intermittent energy sources.

I think this raises the bigger question of competitiveness, and I do also think we need to discuss carbon leakage.

Mr. Chair, I'd like to ask a question of each of the witnesses. Mr. Elgie talked a little bit in his presentation, and so did Mr. Cross.... What is your definition of carbon leakage, and in regard to Bill C-74? I just would like to hear what you have to say about those two things—your definition of carbon leakage.