Finance Committee on May 8th, 2018

[Gervais Coulombe]

Yes.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

When did it end?

[Gervais Coulombe]

I think we completed the first round of consultations at the end of June. Subsequently, there were further consultations on the legislation for about a month. That consultation took place in early 2018. There were two rounds of consultations.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Could the committee have the list of companies that were consulted?

[Gervais Coulombe]

I am not sure the list was made public.

I'm going to turn to my colleague, John Moffet.

[John Moffet]

We can certainly give you a list of all of the industry associations and companies and other interested parties that have participated in these consultations. They've been very extensive, so it will be a long list.

[Gervais Coulombe]

Okay.

[The Chair, Liberal, Wayne Easter]

Mr. Albas.

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

Thank you, Mr. Chair.

Thanks to the officials for being here today.

In British Columbia, due to some skepticism from some quarters—I won't say where it's from, Mr. Chair—the premier of the day, when they installed the carbon tax in British Columbia, said that they were going to have the Auditor General review every year and confirm—I believe it's done through the budget document every year—that 100% of the revenues got recycled.

Would the Auditor General of Canada have a similar review of the monies that come in and come out due to this backstop regime?

[John Moffet]

There is no such provision in this legislation.

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

I would imagine that if the Auditor General wanted to review any portion, there could be an analysis done.

[John Moffet]

Absolutely, yes.

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

Thank you.

Following through on what Mr. Poilievre had mentioned earlier regarding the possible purchase by a future government of carbon credits internationally, that obviously is not in any of the long-term projections of the fiscal framework at this time. I'm asking the Department of Finance officials.

[Gervais Coulombe]

It is especially unrelated to the purpose of the bill that we are currently studying. Those are hypothetical questions that have no connection to part 5.

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

Such a move, I imagine, would be—

[Gervais Coulombe]

So we are not able to answer that question.

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

I'll move to something that we can speak to more.

I want to briefly mention equivalency, because when the premiers met in Vancouver with the Prime Minister to talk about a Pan-Canadian agreement in this area, there were some reservations. For example, the former premier, Christy Clark, had mentioned the issue of equivalency and that the carbon tax in British Columbia was much different from the cap-and-trade system was rolled out by both Ontario and Quebec, where some emitters could be exempted completely. That's not how it works.

In fact, Mr. Chair, you'd be surprised that the province of British Columbia does include farmers, and there's no exemption for them. While this federal backstop doesn't include farmers, I hope that earns your condemnation of British Columbians.

[The Chair, Liberal, Wayne Easter]

I know.

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

With regard to this, when there's equivalency, has there been any modelling done to find out the equivalency of this federal backstop to other jurisdictions? Is it more like British Columbia? Or, is this a stand-alone regime in which you haven't compared apples with apples, so to speak?

[The Chair, Liberal, Wayne Easter]

Mr. Moffet, you wanted to get in on this earlier.

[John Moffet]

Yes. I would respectfully correct that statement. British Columbia's carbon tax explicitly does not apply to coloured fuel used on farms. It does not apply to gasoline and diesel. It's virtually the identical exemption we've incorporated into this legislation.

However, that wasn't the main point of your question.

The federal carbon pricing system that's established by this legislation is most similar to the carbon pricing system recently implemented in Alberta. It's obviously different from both the cap- and-trade system in Quebec and Ontario, and the carbon tax in British Columbia.

The point of the document entitled “Pan-Canadian Approach to Pricing Carbon Pollution”, which is what we refer to as the standard or benchmark, is to establish some broadly comparable criteria that can be applied across all three types of carbon pricing systems, recognizing that direct comparability, or any kind of a legal equivalency test, would not be possible, because the systems work fundamentally differently.

British Columbia's system works by explicitly imposing a price, and then the market responds, achieving whatever reductions that flow from the behaviour changes resulting from the price. The cap-and-trade system imposes an absolute limit on emissions, and then a price emerges in the market as a result of the scarcity of the permits that correspond to the limited cap. The Alberta and federal systems are known as hybrids, because they impose an explicit price on fuel, but they have a trading system for large industry.

What we did in the benchmark, or standard document, was to establish some criteria that would ensure that any system that's designed along one of those three lines would be broadly comparable, but we would not be able to make a claim that the carbon price in both systems would be the same. We know they're not the same in Ontario and Quebec versus that in British Columbia, nor did we require that any given province achieve a given level of emission reductions.

The starting point, then, was not an allocation of emission reductions or reduction burden. The starting point was to have a broadly comparable set of systems in place, respecting the flexibility of jurisdictions to design their own.

One of the core criteria is the scope of application. Regardless of the system, whether it's an explicit price or a cap and trade, the federal standard stipulates that the system should apply to substantively similar sources of emissions similar to the British Columbia tax. The reason for that is that the B.C. system was the first to set the foundation for carbon pricing in Canada.

In our estimation, that system applies to virtually all emissions that can be routinely measured, with a few exceptions, namely, gasoline and diesel used on farms, and some inter-jurisdictional marine and aviation fuels.

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

On aviation, for example, British Columbia doesn't have a carbon tax on jet fuel, because it is worried that it would distort and move business to other parts of the country or internationally.

I'll just lump these next questions together out of expediency, because I don't want to take too much time. In the case of a province not charging or taxing jet fuel, this backstop does for travel within that province or territory. Manitoba is charging a lower carbon price. New Brunswick is apparently proposing to rename existing gas taxes, and call them the carbon tax.

How do you then have some sense of equivalency? Are you going to have it in some provinces like Manitoba? If it doesn't raise the price, will there be two prices, one federal and one provincial, or is that yet to be mapped out and is not contemplated by this legislation?

[John Moffet]

The basic question is, what happens when provincial systems diverge from the standard? Let's start with this year. This year, provinces will submit a description of their existing or proposed systems by September, and then the government will determine this fall whether those systems align with the benchmark. If they do, great. If they don't, either in whole or in part, then this legislation will allow the government to impose part or all of this system in that jurisdiction.

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

In British Columbia we'd have a federal carbon jet fuel tax for intraprovincial travel. In Manitoba, if they don't raise it past $25 per tonne, you would have a federal one on top of that.

[John Moffet]

The answer on aviation is no, because the starting point for the benchmark is British Columbia's system. Although the federal pricing system prices intraprovincially, we have said in our standard that it's good enough for a province to match the scope of the British Columbia system.