Finance Committee on Sept. 25th, 2018

[Joel Neuheimer]

That's also a good question. I have two quick examples.

On the forestry management side of things, there's a huge overlap and sometimes a very uncomfortable partnership between the federal government and the provinces when it comes to administering the sustainable forest management rules and goals that we have across Canada. That's something, quite frankly, that we need to do a better job of, especially when we look at some of the work that's taking place on species at risk. When it comes to species at risk, there's a lot of very valuable knowledge that lives in the provinces. If the federal level of government is going to do anything when it comes to an issue like that, it needs to make sure that it's taking full advantage of that knowledge that exists in the provinces without trying to reinvent the wheel.

My second example, like the first one, is also an urgent example. It's the truck driver shortage in Canada. Many businesses like ours struggle on an ongoing basis to get the rail service that they need. We're located in rural and remote communities. The nearest railway is hundreds of kilometres away, typically. That can be problematic. When you need to turn to a truck, you have a tough time getting one. There are so few truck drivers that it drives up the cost as well.

In the federal and provincial scenes, there's a disconnect. The provinces have most of the power there, but there's an urgent issue for business to fix or ease the truck driver shortage. Surely the leaders at the federal and provincial levels could get together and do more, more rapidly, to help with education and training to make it easier to bring people on to drive trucks, or maybe do more via immigration.

I hope those two examples were what you were looking for.

[Blake Richards]

Another question occurred to me when you were talking about the truck driver shortage, and I might have our friends from CAPP comment on the regulatory process as well because I imagine that they would have some concerns here. Is it one of those cases where we have such difficulty with some of the processes and with Bill C-69 that it's just going to get worse, that what happens is you can't get pipelines built and, therefore, rail is being used to ship oil, displacing other products from being on rail?

Now you're saying that there's an issue due to truck driver shortages. Is this one of those things where it kind of cascades down? What are your thoughts on that, Mr. Neuheimer?

[Joel Neuheimer]

Oil and gas are a bit different from forest products. I don't think trucking is really for the volumes you need to ship. Correct me, if I'm wrong.

[Blake Richards]

I guess what I'm getting at here is that, because you can't get pipelines, you're displacing other things because oil is being shipped by rail. Am I imagining that or does that sound...?

[Joel Neuheimer]

Now I understand the question. You're absolutely right; it's a huge problem.

I just read a couple of weeks ago in The Globe and Mail that CN is shipping 50% more crude in the last quarter than it did the previous quarter. I'm very happy for that railway. That's part of its business, but as soon as you start reading things like that, that causes heightened anxiety in our sector and other sectors that basically need that capacity in the rail system, quite frankly.

Yes, if we had some pipeline options, that would certainly benefit us on the rail side in our business, and it would also ease the pressure with the truck situation that we talked about. You're absolutely right.

[Blake Richards]

Is that it?

[The Chair, Liberal, Wayne Easter]

Yes, that's it. That's seven minutes.

Just so we're clear, I think you were saying on the last point that, because capacity in railway is taken for oil because there are no pipelines, there's less ability to move other products by rail and truck. Is that right?

[Joel Neuheimer]

It certainly reduces the capacity that's available to us and other sectors, like mining for example. Yes, it does, unfortunately, which is too bad because the Canadian economy suffers and the communities that depend on those industries suffer. We need to fix that. We need to do better on that one.

[The Chair, Liberal, Wayne Easter]

Mr. Julian, you have seven minutes.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Mr. Chair.

I'd like to go to you, as well, Mr. Neuheimer.

I represent a riding that, after the softwood lumber sellout was signed, lost 2,000 direct and indirect jobs. We lost Canfor, Interfor and Western Forest Products. They all went down within six months of the softwood lumber sellout, and the sector has never recovered. In my area of British Columbia, Fraser Mills, where my father worked, used to be a very vibrant wood production facility, but it's now a parking lot for raw log exports. Where hundreds of people worked before, now there's just a handful of people working. When I see my high school buddies who worked in the wood sector and are no longer working there because of bad government policy, I understand your call for putting into place smart government policy, so that rather than killing those jobs, we're actually building a vibrant forest products sector.

I'd like to come to your points around market access and research and development. You're indicating a request for $22.5 million a year for market access. That sounds to me to be the minimum, really. We see that other international trading partners invest many times more in export promotion support than Canada does. We do a lamentably bad job on that. I would like you to comment on the market access funding. How much was received last year to support our wood products export? This year you're asking for $22.5 million.

Second, as to research and development, Canada is last in the industrialized world when it comes to the production of patents and the production of doctorates. We have done a very poor job in terms of research and development. How important is it to put in place innovation funding so that Canada can actually compete with the kind of research and development that we're currently not doing?

[Joel Neuheimer]

Thank you very much for the question.

I think if we broke it down into three buckets, it would help respond to your question. You have, in bucket one, research and development activities and investment, and in bucket two basically taking those new technologies and de-risking the risk of taking them to the marketplace, and then the last one is actually out there in the marketplace promoting them. Those are three buckets, I think, that are very important for us, which hopefully you see reflected in the submission.

People know us for the dimensional lumber we've made for the last hundred years. What we're really determined to do is to get people to know about the new forest products that we want to make—engineered wood products, much more sophisticated, much stronger than two-by-fours. As part of the partnerships we're asking for here this morning, we want to basically put these new forest products, their development and their export to overseas markets, on steroids. Those old forest products are great money-makers, but we want to make this transition to these new forest products and take these forest products to the markets.

For the overseas market development last year, I believe it was somewhere in the neighbourhood of $7 million of funding we received. Don't forget it's a partnership, so the industry is also putting up its own $7 million. It's sometimes referred to as 50¢ dollars. It's a partnership when you look at those investments.

With the uncertainty of our best trading partner to the south right now, going into Asia more deeply with these newer products that I'm talking about is more important than ever before. Also don't forget about using more wood, and this kind of goes to the bill that your colleague Mr. Cannings had great success with passing in the last session. We really believe that wood is part of the solution to the GHG challenge. Again, that's a great opportunity to get into those markets and help those countries reduce their greenhouse gases.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much for that.

I would like to note the $7 million last year for market access. The U.S. cattle industry alone, in terms of U.S. government support, is about $60 million a year, and for the European community to support their wine exports, about $120 million. We're talking about one of our major industries where we're giving peanuts compared with what our major competitors are doing. Thank you for that.

I would like to go on to Mr. Savoie.

On the whole issue of the excise tax, we had a debate in this committee about an excise tax now being imposed by the federal government on medical cannabis. Many people are reacting very badly to it, understandably. It cuts down access to medical marijuana that people need for pain management.

What you're proposing is an excise tax on sugary drinks. I don't think anyone would defend sugary drinks. The health impacts, as your brief indicates, are significant. To what extent do you think we could shift the ability of Canadian low-income consumers to access good food, which is a major problem, as you know, by putting that excise tax in place?

[Yves Savoie]

There are two aspects. There is obviously the impact of the tax, which will cause substitution. We have seen it in Mexico. They have introduced an excise tax on sugar, and people are switching. Because sugary drinks have no nutritional value in fact for low-income families, switching to tap water is probably the best choice. However, there are obviously other choices. Cow's milk, unsweetened almond milk, or other milk substitutes are also attractive.

The most important aspect is the fund that would be created through the levy, which would have as its focus to help deal with issues of food insecurity, for instance, subsidies for whole fruits and vegetables. Think about it as a voucher or a prescription for the healthy foods in groceries, and then you're helping to address one of the fundamental issues, which is that people who have lower incomes have the worst health outcomes.

When we think about the social determinants of health, we know that lower socio-economic status is among the most intractable things to change. It impacts mortality and it impacts quality of life.

If you implement things like healthy foods in schools for all children, you're addressing these questions in a way that palliates the impact of lower socio-economic status. You get both substitution and the benefits of the expenditures through the fund created by the excise tax.

[The Chair, Liberal, Wayne Easter]

I'm sorry, we will have to end it there.

Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

I represent the Northwest Territories, and I really welcome this discussion. I think this is an issue that has to be brought to the forefront.

When I grew up in a small aboriginal community, almost everybody drank pop. I still live in an aboriginal community, and almost everybody drinks pop. With a lot of people I went to school with, when it was lunchtime, that's what they had for lunch. It was pop and chips, because there was really nothing else.

This is a big issue. We still see barge-loads of pop heading north, I mean, to the Northwest Territories, Nunavut, Yukon. If you can imagine barge-loads as big as this room with cases of pop stacked, that isn't going to last the whole winter.

It is a big issue. Some of our ministers in the northern governments have stated that they would like to introduce some kind of levy. They are looking at doing more consultation. We all recognize that we have to address the issue of heart disease and obesity. At the same time, there is a concern that they will overly penalize the poorest in our territory. A lot of times, they have limited options. In some communities, you're not going to turn that tap water on and drink it. I challenge some of you to come and try to drink some of our tap water.

There is a very big challenge when we try to get healthy foods in our communities. Does that mean we're going to start bringing more planes, flying in more food? I don't know how that's going to work. It's almost a double whammy. If we're going to bring in this levy, then how do we find the substitute in the north?

I know in the south that it will be a lot easier. In the north, we're talking about a huge challenge. The addiction to pop in the north is probably, per capita, the highest in this country.

[Yves Savoie]

The rates of cardiovascular disease among indigenous populations are twice what they are in the average population, as you well know. It's a major priority for Heart and Stroke.

In communities where there's no access to fresh water, you probably know that people say an excise tax will be a real issue. Let's remember that some of the bottling companies that bottle soda pop also sell water. For the same volume, if you think of a bottle of Dasani water or the bottle of Coca-Cola, the bottle of Dasani water on reserve will be 30% more expensive than the bottle of pop. The cost base is actually cheaper for the Coca-Cola because there's added sugar and syrup in it and the bottle of water is just water.

The excise tax would not only invite switching to the bottle of water, which is today more expensive, so it reinforces the pattern about which you speak, but I think the most important thing again is that the fund that would be created would provide resources to improve programs, such as the programs that allow northern indigenous communities to have better access to better food.

This has to be a priority and this is the opportunity that's available in the excise tax, which would make it a priority to actually repair the situation that you illustrate. I share with you in making that an urgent priority through the healthy fund that would be created by the excise tax.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you for that.

My next question is to CAPP. The issue of offshore has been a big one in the Northwest Territories, the Beaufort Sea and the reduction of sea ice has allowed more ships to come through.

There are all kinds of concerns over the lack of navigational aids, but it's also an issue with the oil industry. We have a lot of permits out there, but we don't have a plan for oil spill cleanup. We don't have a port in the Beaufort Sea, in any of the communities or in that area at all. We have no coast guard presence. We have no navigational aids. You're not going to find a buoy anywhere in the Beaufort Sea.

Last year or two years ago, I think we had 70 ships come through. We had one that got hung up and we're lucky it got pulled off safely. We also had fuel barges that were stranded because they went into shallow water. We have offloading of fuel barges onto other fuel barges. We're just asking for trouble because anything could happen.

I wanted to know if you could tell us what it would take to make it a more welcoming place for the oil industry to come and do more exploration. Is it more infrastructure? Is it a navigation system? Is it all of the above? Maybe you could give me some insight into what industry is thinking.

[Ben Brunnen]

Thank you for the question.

It's a good discussion. We view the northern opportunity as largely more of a nascent industry. There really isn't a strong level of production. There are a number of challenges that exist accessing that resource. You've listed many. Foundationally, there needs to be the supporting infrastructure and programs that are in place to establish that framework for oil and gas companies to develop their northern leases. There also needs to be a willingness from the federal government to prioritize this as an area for development.

Largely when we're in a situation where we have a high-quality resource, but really limited access to it and some relatively significant risk in terms of accessing that resource, driven by the conditions of the area, groups need to come together collaboratively to find ways to reduce and eliminate that risk. Some of that part would be on the design, protocols and procedures of the industry, but we would also need a component from the federal government to enable that and create the supporting services and infrastructure that would position the investment to manage the risk, be profitable and deliver the local benefits.

[The Chair, Liberal, Wayne Easter]

Thank you all.

Before I turn to Mr. Van Kesteren, I have a question for CAPP as well. What's your estimate of the Alberta discount because we don't have access to other markets, other than the United States?

Second, I want to bridge this gap between the subsidy issue. Mr. Vaughan from the International Institute for Sustainable Development is working to identify and eliminate largely indirect subsidies through tax treatment to fossil fuels, which is you guys, and you're saying that CAPP firmly disagrees with the current views on what constitutes a subsidy. How are we going to bridge that gap? Who wants to start?

[Ben Brunnen]

I'm happy to engage in this discussion.

I'll start with the subsidy discussion and then perhaps we can get into the market access, some of those competitiveness challenges, if you will.

I certainly appreciate the subsidy discussion. It's a good opportunity to really understand the various issues. As far back as 2000, the federal government has been examining whether fossil fuel producers receive preferable tax treatment when compared to, say, the renewable sector. In particular, the commissioner of the environment and sustainable development at the time concluded:

Overall, we found that with a few exceptions, federal government support today for the energy investments, including support through the tax system, does not particularly favour the non-renewable sector over the renewable.

However, there is the G20 commitment, in 2009, to eliminate inefficient fossil fuel subsidies that “encourage wasteful consumption” and “impede investment” in energy sources.

There are two components to that. The first is the wasteful consumption and that really focuses on subsidies to consume. Canada doesn't have subsidies to consume. In fact, Canada does the opposite. They tax consumption of fossil fuels at the consumer level. The G20 commitment looked more closely at the consumption side of things. We've looked at IEA numbers and ranked countries from consumption subsidies. Canada isn't even on the list. There is one that's interestingly on the list, which is Argentina, which is ninth, so with the joint audit of subsidies with Canada and Argentina, it will be interesting to see the results that come from that.

That said, there's the other side of this subsidy piece, which is “impede investment in clean energy resources”. Evidence from this government has indicated that tax measures for renewables, such as accelerated capital cost allowance and measures for deducting intangible capital have received expansions and extensions for the clean resource sector in 2012, 2013, 2014, 2016 and 2018. That side of things, where we're talking about impeding investment in clean energy resources, we don't think applies in this instance, largely as a result of government's overt actions to support.

Looking at the oil and gas sector, despite the 2000 report from the federal government, you see we have examined federal government tax reforms over the last number of years and have identified 11 specific tax measures that were removed from 2003 to 2017, including the budget last year, which was the year of reforms to the CDE program. As a result—

[The Chair, Liberal, Wayne Easter]

Can you sum up? I have to give Mr. Vaughan the chance and I'm taking time away from members.

[Ben Brunnen]

The Department of Finance has also affirmed that the existing tax framework for Canadian oil and gas is not subsidized. It was in the 2017 Auditor General's report. Our assessment and analysis here, we think, clearly indicates that there is no subsidy issue for the upstream oil and gas side of things. In fact, we'd like to see the federal government affirm that so that we can move forward to addressing the more pressing challenges, such as GHG reduction and/or eliminating consumption subsidies globally.

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Vaughan, can you bridge the gap?

[Scott Vaughan]

The debate on the definition has been under way now for over 10 years. It's based on the World Trade Organization definition of what the subsidy is. My colleagues in our Geneva office have been working on this over the last 10 years with the OECD, with the International Monetary Fund, with the International Energy Agency. I think from Canada, the story is very good, from the previous government to this government.

There is still residual at the federal level—about $200 million. ACCA is one. Flow-through shares is another. When you look at both federal and provincial, you see it's about $2 billion. Within the global scheme of things, Canada doesn't rank because if you combine all the subsidies to fossil fuels, it's about $500 billion a year, and that's one of the challenges, both from a treasury draw but also, then, for meeting Paris and other targets.

What I would just end with is.... We could go on with this for hours, but I know you're not going to let us. Canada has agreed to do a peer review process, where other countries, including the United States, two years ago, to their Department of Energy said, let's sit down and go through each one of the tax measures, measure by measure, and then get to a classification. I think this is a good story, but Canada isn't quite able to declare victory.

[The Chair, Liberal, Wayne Easter]

Okay, that gives us some further information.

Mr. Van Kesteren.