Finance Committee on May 8th, 2018

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

Mr. McLeod's territory doesn't come up with its own price on carbon, and the federal backstop is applied to the Northwest Territories. His constituents will be paying an intraterritorial jet fuel cost, while people in British Columbia will not. Is that correct?

[John Moffet]

The territories are under a different situation. In the pan-Canadian framework, the federal government made an explicit commitment to “develop solutions” with the territories, recognizing their unique circumstances. The Prime Minister, Minister Morneau, and Minister McKenna each had meetings with the three premiers of the territories last week and reaffirmed the commitment to develop solutions and to address, in particular, the issue of aviation, which all three premiers raised.

I can't tell you, because no decisions have been made about exactly what that solution will be—

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

This federal backstop, though, implements the regime as originally proposed. Is that correct? That meeting has not changed the legislation. It's dependent on whether or not future legislation is changed, or if those territories come up with their own version of a cap and trade or a carbon tax.

[John Moffet]

The precise fuels to which this legislation applies will be provided for in the order that lists the jurisdiction.

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

That is the scheduling by Governor in Council.

[John Moffet]

I think your basic suggestion was that if this bill is passed, the federal government would have no choice but to apply a price on intraprovincial and intraterritorial flights in the territories. The answer is no, because there would still be discretion to address that issue via the scheduling process.

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

This doesn't create full equivalence. There is some room to move for the province or territory or federal government. It's not an absolute. Is that correct?

[John Moffet]

This legislation imposes one system. This system is not identical to every other provincial system. That's one point.

The second point is that the standard, which is outside of this legislation, also does not require identical systems with identical outcomes or identical price impacts.

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

It sounds like a free-for-all.

[John Moffet]

I would refer you to the document we issued, the “Pan-Canadian Approach to Pricing Carbon Pollution”, which articulates a pretty clear set of criteria. We followed up that document with two further guidance documents, which are public and on the website. I can provide those to the committee. There are now three very detailed documents that provide criteria that attempt to provide jurisdictions with the flexibility to design their own system, while meeting some common, basic criteria.

The fourth thing we've done is that the deputy minister of Environment and Climate Change wrote a letter last week to each of his colleagues specifying the kind of information that we want to see from provinces in their description of their system, to enable us to determine whether their systems are aligned with that federal standard.

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

Well, the office of the environmental commissioner had asked for information from provinces like Quebec, so she could evaluate whether they are making their so-called goals. They refused to co-operate. They didn't. I would hope that kind of information would be part of it and could be verified by someone like the environment commissioner.

[The Chair, Liberal, Wayne Easter]

Are we ready to move past this division? We're not.

Before we go to Mr. Kmiec, I think it's important to put some facts on the table regarding the systems in the United States that we discussed earlier. The Ontario and Quebec systems are based on cap and trade, which has been in place in California for a long time. I do think it's interesting that yesterday it became, I believe, the fifth-largest economy with a cap-and-trade system in place. There is a mandatory cap-and-trade program in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, and Vermont.

There's an impression being left that this is just us. There's a lot of stuff happening at state level in the United States—maybe not at the federal level. I just think it's important for us all to realize that it is happening in the United States, which is our biggest competitor and our closest neighbour, and the fact that California, yesterday, just became the world's fifth-largest economy, I think is important to note.

Mr. Kmiec.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Thank you, Mr. Chair.

I want to turn to clause 195, the offset credit system. There are about 200 pages in this omnibus piece of legislation that deals with the budget, but then there's this offset credits system that's created in a very short little clause, 195. What's imagined by this? What is this for? Whom does it seem to cover? It gives the minister the ability to set credit price, and it provides for some user fees. What is this supposed to cover?

[John Moffet]

This provision provides the authority to create a federal offset system. It doesn't require the creation of a federal offset system. The government has announced that at the moment it has no plans to create a federal offset system. Nonetheless the legislation provides it with the authority to do so.

What is an offset system? Well, first of all, why do we need offsets? We need offsets because the output-based pricing system established under this bill, for large emitters, provides for three forms of compliance.

If you emit more than your emissions intensity standard allows on an annual basis, then you owe compensation for the amount by which you were over your standard. You can provide that compensation in one of three ways.

You can pay a fixed amount per tonne, and that amount would correspond to the fuel charge. Second, you can submit a surplus credit. For example, I may emit more than my standard, and my colleague Mr. Giguère might emit less than his standard. If he emits less than his standard, the government has to issue him surplus credits for the amount by which he was below his standard. Let's say he's 10 below. He has 10 credits that he can sell. I can buy his credits, and I can submit those surplus credits for compliance.

The third way I can comply is by acquiring offsets, so that's why we need offsets. What is an offset? An offset is a term that was developed—well, first came into prominence under the UN system over 10 years ago. The idea is that there are certain activities that are regulated, so you have to achieve certain emission reductions. There are other activities that you only undertake because the government gives you money. I get some money, so I reduce my emissions. There are other kinds of emission reduction activities that you might undertake if you were able to get some money for it. In this circumstance you're not getting money from the government. You can get money from an offset. If I can demonstrate that I've taken action primarily motivated by the opportunity to sell an offset credit—so I wasn't legally obliged to do it, but I reduced my emissions—and I can demonstrate that I've done that in a way that actually reduced emissions and I have third party verification to show that I reduced my emissions by a certain amount, by one tonne each year, I'll get one credit per tonne, and I'll be able to sell those emissions.

Why do we have this system? It creates a market incentive for actors who are not subject to the regulation, who are not legally obliged to reduce their emissions, to find ways to reduce their emissions. The incentive is that they can receive compensation for doing so.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

But at the beginning of your statement you said that the federal government is not pursuing this, so why do you want the authority?

[John Moffet]

To be clear, we are not establishing our own system. The provinces of Ontario, Quebec, British Columbia, and Alberta already have offset systems. The Province of Manitoba has announced that it will be establishing an offset system. The provinces of Nova Scotia and New Brunswick have announced they are planning to develop their own offset systems.

The way we can operate under this legislation is that we can recognize offset credits generated under the federal and provincial systems. At the moment, significant offsets are being created and recognized under provincial systems. This legislation gives us the authority to recognize those offsets and to say, for example, that this practice, as recognized by the Government of Alberta pursuant to their offset protocol ABC, is a recognized offset credit for the purpose of compliance with this legislation. Then my company can acquire one of those credits and submit it to the federal government for the purpose of compliance with this legislation.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

But this allows the federal minister to issue offset credits.

[John Moffet]

Yes.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

If the provinces are doing this already, why would you need authority to do it yourselves?

[John Moffet]

This falls into the category of many of the provisions that Mr. Mercille has described where there may be a desire to do this in the future. Indeed, some provinces and some industries are asking us to do this.

As I explained, many provinces already have their offset systems. Some are planning to develop them. Some are not. Entities in those other provinces may at some point ask the federal government to develop a federal system.

This is just authority to create an offset system if at some point in the future it's decided that would be useful.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Right, but right now it's not going to be done by the federal government so that goes back to my question of why are you asking for authority to be able to do this when you are going to return later with a more fleshed-out piece of legislation that would create the offset. I doubt the provinces created their offset system through five lines of regulation. This offset system is all by regulation.

[John Moffet]

The Province of Nova Scotia's is less than five lines.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Less than five lines for the entire offset?

[John Moffet]

It's typically done by regulation.

[Tom Kmiec, Conservative, Calgary Shepard, AB]

Let's not repeat their mistakes.