Finance Committee on May 8th, 2018

[The Chair, Liberal, Wayne Easter]

We shall call the meeting to order.

As everyone knows, we're dealing with the budget implementation bill, Bill C-74, and we are continuing from where we left off with our previous discussion on part 5.

The officials are here first to deal with the proposed greenhouse gas pollution pricing act. I think we're about to continue further questions.

Are there any?

Mr. Albas.

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

Thank you, Mr. Chair.

Thank you again to the officials for the work that you do for Canadians.

In regard to your comments last week, Mr. Moffet, you mentioned to this committee that part of the government's plan includes, obviously, a carbon tax or, as you like to refer to it, a price on carbon. You also mentioned that there would be further need for regulations for certain elements and for environmental policy.

However, you also said there would be a need for innovation. You said specifically that there would be market failures, thus innovation would be necessary. By “market failures”, did you mean market failures as a result of markets not being properly formatted or created in a way that they can function smoothly? Or did you mean market failures as in certain industries—let's say, paper and pulp in British Columbia—where if the price of carbon goes up too high, then subsidies would be necessary for them to operate in a cost-competitive atmosphere?

[John Moffet, Associate Assistant Deputy Minister, Environmental Protection Branch, Department of the Environment]

Yes, I did use a very general term, “market failures”. Maybe I could just expand on that a little. There are various scenarios in which carbon pricing on its own either won't work or won't work fast enough. It's for that reason that the pan-Canadian framework also includes regulations and financial incentives for innovation. I'll give you a few examples.

One very straightforward one that the chair will be familiar with is that carbon pricing can only work when it's imposed on something we can measure accurately and systematically. It's for that reason that we don't impose carbon pricing on methane emissions from livestock. We know it happens. There's no generally accepted way to measure, monitor, report, and attribute it to an individual farmer. There's no system and there's no way to use carbon pricing to address that kind of issue. You need a different kind of measure to create an incentive to reduce that kind of emission. That's one area where, with the market itself—and maybe “market failure” is not the right term—the use of a carbon price wouldn't work.

At the other extreme, an example of emissions we absolutely know about and can measure are emissions from electricity generation facilities that are coal-fired. We know those are major contributors to greenhouse gas, but we also know that investments in electricity generation facilities cost tens of millions of dollars and have a capital lifespan of decades. To ensure that no further investments are made in coal-fired electricity generation, rather than rely on a price signal that would increase over time and that may or may not deter future investment, the government chose, in addition to carbon pricing, to also regulate those facilities. This would provide clear direction to the Canadian economy and to provincial governments and others that might invest in electricity generation that certain types of investments will no longer be allowed, regardless of what the prevailing carbon price would be.

On your question as to whether there are industries that might be adversely affected, the position of the government is not that a carbon price—and I'm going to use a double negative—should not be imposed on those facilities, but rather that those kinds of considerations are more realistically to be considered regional industrial policy and can be best dealt with by means of decisions that provincial governments can make about carbon pricing revenue return. As an intermediary policy, the government has also put in place various financial programs that can be used, among other things, to, for example, enable industry to invest in energy efficiency or in low carbon technology to enable them to minimize their exposure to a carbon price.

I hope that answered your question at least in part.

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

I have a better understanding.

Thank you.

[The Chair, Liberal, Wayne Easter]

Are there any further questions?

If there are any over here, put your hand up.

Mr. Dusseault, then Mr. Kmiec.

Go ahead, Mr. Dusseault.

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

I would like to come back to the concept of revenue neutral. You said that it was possible to redirect funds to the provinces. You deliberately avoided saying that those funds would go back to the provincial governments that do not have a system and that will benefit from the federal backstop.

Has it already been decided how the funds would be redirected to the provinces, or to the jurisdictions, as you say?

The money could go directly to funds for green policies or technologies. This could help companies change their consumption habits or their technologies. Otherwise, it could be allocated to the people through a rebate system like the one that Alberta uses. Yesterday, this was again discussed in committee. Under that system, the less fortunate people in Alberta end up with more money in their pockets. Yesterday, it was estimated that, for the less fortunate, the cost was about $218 a year and that the Alberta government gave them back about $290 a year.

How are you going to redirect the money to the provinces?

[John Moffet]

Thank you for your question.

The law provides two things. First, it requires that the government return all direct revenue to the jurisdiction, but then it provides discretion as to how to do that. It can return the money to the government or to designated persons.

Minister McKenna has stated publicly that provinces or territories that ask for the backstop to be applied will receive the money directly to the provincial or territorial government. So far, although it has not been made formal, a number of governments, New Brunswick and Yukon, for example, have indicated that they want the backstop to be applied, at least in part.

Then we have the issue of a jurisdiction that does not ask for the backstop to be applied but where the federal government determines there is not a system in place that meets the federal benchmark. All I can tell you at this point is what the law says, namely, that it provides the government with these two options. If the government chooses not to return the revenue to the provincial or territorial government, it will need to designate persons, and the government has not yet made any public indication of how it will do that or who those persons might be. Will it be in the form of a technology fund, will it be directly to households, or will it be some combination of all those are options? That decision has not been made yet.

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

So you're asking this committee to give you the discretion to decide how to reinvest the funds in those provinces because you haven't made up your mind yet?

[John Moffet]

The government hasn't made up its mind; that's true. What's in front of the committee is the law that provides for that discretion.

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

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. Dusseault.

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Going on to the rebate again, I noticed the same thing in these different sections, namely, that the government will have the ability to rebate it in any way it wants to. Am I understanding this? There's a difference between what the law says and what the government has said it would do.

My reading of the legislation is that if there is a rebate system, the federal government can determine exactly who will get the rebate, what manner the rebate will be remitted in a particular province, and the specific individuals or companies that might get it. Am I correct?

[John Moffet]

I'll defer to my colleagues, but I think that's broadly correct.

Again, if the federal government chooses not to return the money directly to the provincial or territorial government, it would first have to designate persons by means of regulation. So there will be a transparent public process by which the government will designate how the money will be returned.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

It's a cabinet process, right?

[John Moffet]

Yes.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

That's not public; the public is not invited to cabinet, right?

There's the Canada Gazette. Do you mean that is a public process?

[John Moffet]

Yes.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

The majority of the public doesn't read the Canada Gazette. But it's there, you're saying.

[John Moffet]

It's a standard regulatory process. I'm not sure if you're asking me a question or making a comment.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

In section 48 of the regulations, the wording you have is that the minister must pay a rebate in respect of fuel or combustible waste in a listed province to a person of a prescribed class or a person meeting prescribed conditions in the amount determined in a prescribed manner if prescribed circumstances exist or prescribed conditions are met.

That's the catch-all term to mean that even if there is a disagreement between the federal and provincial governments over how the rebate works, they could impose one. That's just the law. I'm not saying that the government would do that.

Does the law give the federal government the ability to overrule the provincial government in the rebating system if it so desires?

[Pierre Mercille, Director General (Legislation), Sales Tax Division, Tax Policy Branch, Department of Finance]

You're pointing to section 48, which is actually not the rebate that was discussed before. That is the money to be returned to the jurisdiction of origin.

This is a different rebate. There's a full division about some.... There are a number of limited rebates that businesses that have paid the fuel charge might be entitled to receive in certain circumstances.

I can give you one example. If a person brings fuel into a listed province, which is the province in which the fuel charge would apply, at the time the person brings the fuel, they will pay the charge. If subsequently the person decides to remove the fuel from the listed province, the person who paid the fuel charge might be entitled to a rebate of that fuel charge if they become registered with the CRA.

This is a particular example of a situation where a rebate has been identified as being desirable to ensure that it is the fuel that is consumed in the listed province that is subject to the pricing.

The provision you're pointing out right now was put in place to address potential future issues that could be identified by stakeholders or by the CRA, and to allow the government to be in a position to rapidly address a situation that is not in line with the policy intent of the legislation.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thanks for that clarification.

How many different rebate mechanisms are in the legislation?

[Pierre Mercille]

There's a rebate for fuel that is removed from the listed province. There's another rebate. I can explain that one to you too. It's that—

[Tom Kmiec, Conservative, Calgary Shepard, AB]

I just want to know the total number of the types of rebates.

[Pierre Mercille]

There's a rebate for fuel removed from the listed province. There's a rebate for fuel brought to a covered facility. There's a rebate for fuel used in a non-covered activity. There's a rebate for net fuel quantity; this deals with the special rules for the carriers. There's a rebate for an annual net fuel adjustment, which is a special rule for rail carriers. As you pointed out, there's a provision for rebate by regulation. There's a general rule for rebate of a charge paid in error.

That's basically it.