Finance Committee on Oct. 17th, 2018

[Mark Plamondon]

Thanks very much. We echo the comments on the capital cost allowance. We find that has been one of the factors for companies to make decisions on where they locate their next capital project for value-added manufacturing of energy products.

In addition to that, in our submission, we also suggested that the government look at doubling the strategic innovation fund, which is a fund that could be coupled with some of the programs offered by the provinces. In Alberta, the provincial government has offered the petrochemicals diversification program.

What we're seeing here is supports to help these large-scale, value-added manufacturing facilities, to help them de-risk the large-scale capital investment that is happening. We're seeing that supports in the order of the equivalent of 10% capital have been what's helped companies make the decisions for various jurisdictions.

That's a good investment for Canada because the initial capital build is a few years, and there's that initial support, but these facilities are in the ground and are competitive and operate for decades, 40 to 50 years. They provide good, stable middle-class jobs for Canadians, plus all the indirect jobs, for decades.

[The Chair, Liberal, Wayne Easter]

I think Mr. Scholz wanted in and Mr. Morningstar and then we'll have to go to Pat.

Go ahead, Mr. Scholz.

[Mark Scholz]

There are three items, Mr. Chair, that I think you can do in the short term.

I'm not a parliamentarian and I don't entirely know all the processes for governance. However, I can tell you that, first of all, the government needs to look at Bill C-69 in the Senate and then come back to the table and consult with industry. Our industry is facing an existential crisis with this legislation, particularly with the pipeline and major infrastructures.

Second, we need to reinstate the federal excise tax exemption on our heating oil for drilling and service rigs. Third, I'll echo the 100% of capital investment being expensed in the first year.

[The Chair, Liberal, Wayne Easter]

Wesley.

[Wesley Morningstar]

I'd like to add one more point around the carbon tax. We heard this morning that the cost to a B.C. producer is about $100,000 to drill a well on the basis of the carbon tax. At the same time, we're importing natural gas from Marcellus in Pennsylvania. There's no carbon tax paid on that gas. We're bringing oil from Saudi Arabia and from the Middle East down the Gulf of St. Lawrence, and there's no carbon tax paid on that. It's a matter of competitiveness with respect to the carbon tax.

[The Chair, Liberal, Wayne Easter]

We did a tour of the Irving Oil refinery in New Brunswick when we were there.

Mr. Kelly.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

Mr. Scholz, you mentioned in your remarks the loss of $40 billion a day to the Canadian economy.

[Mark Scholz]

That was $40 million a day.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay, with $40 million a day, I can only imagine how many thousands of jobs that means. There are many unemployed in the oil and gas industry in my riding. The loss of tax revenue on the Alberta discount.... We we could probably fund every budget ask we've heard around this table in all of our committee travels if we could close that gap.

Can you talk about what the loss to the Canadian economy and to Canadian governments, at both federal and provincial levels, means in public service that we are actually exporting to the United States?

[Mark Scholz]

I could certainly share with you a number of studies that would corroborate a lot of the pieces we're concerned about with respect to both taxation and jobs. I'll just reiterate my earlier comment when it comes to the decisions that service companies are making because we don't have proper regress and we are not getting proper value for our products, with E and Ps, or the producers not being able to get the needed cash in order to deploy in the basin.

On the rig fleet alone, the fact that we've lost maybe 300 drilling rigs means that when that equipment leaves to the United States the chance of that equipment coming back is very remote. Those business decisions have been made because of the four long, gruesome years of a downturn, and unfortunately I don't really see any indications that things are going to improve anytime soon.

When you're left in that type of a situation and scenario, the sustainability of your business is really what you're trying to accommodate. That means you have to look at other jurisdictions that can provide you a reasonable return on invested capital in order to satisfy your shareholders and bondholders.

I'm not sure if that entirely answers your question. I think this is a real issue.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

They're excellent points.

[Mark Scholz]

It's a timely issue, and we have to get serious about egress.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

My question really was around the actual loss of the ability for our governments to fund public service, but your points are extremely well taken, and I thank you for that answer.

[The Chair, Liberal, Wayne Easter]

We are going to go a little over time, but I think that's fine. We have Mr. Julian, and then Ms. Rudd.

Oh, sorry, did somebody want in?

Mr. Morningstar, sorry, I didn't see you.

[Wesley Morningstar]

Some quick numbers that we've calculated indicate that a loss of revenue for governments at all three levels, at a $40 U.S. differential, is about $17 billion to the Canadian economy. That's a loss of government revenues.

[The Chair, Liberal, Wayne Easter]

I think former premier Frank McKenna did a study, and that's the number he came up with as well—$17 billion. That's a lot of money.

Mr. Julian.

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

I have three quick questions, Mr. Chair.

First, Mr. Morningstar, given your last comments, I believe you're saying that you support the idea of a carbon border levy. Is that correct?

[Wesley Morningstar]

A carbon border levy...?

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

Yes, for the natural gas from Pennsylvania or when we're talking about overseas—

[Wesley Morningstar]

Yes, certainly in jurisdictions where other competing entities do not have to pay that carbon levy, yes, we would support that, for sure.

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

Okay, thank you very much. I thought that was very interesting testimony, and it's something that has not come up. You're the first to mention it, but I think it's extremely important for us to consider as a committee.

Second, Madame Tremblay and Monsieur Plamondon, coming back to this issue of the differential, the companies that are involved in value added aren't suffering from the differential. Husky and Suncor are two examples. Isn't that really a solution, ensuring that we get full value of the resources by making sure that we're doing value-added upgrading, refining and petrochemical here in Canada?

[Mark Plamondon]

Yes. There is no question that part of the competitive advantage for the value-added industries is the low-cost feedstock that they're seeing for their operations.

In looking at the diversification of the economy as a whole, we think that the value-added manufacturing of our oil and gas resources is a way to have a countercyclical business. It complements, in my view, the export of the commodity because it is countercyclical in terms of the profitability associated with the value added.

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

Thank you.

Finally, Ms. Lane, it's very interesting that Canada West Foundation is producing a western electrical grid paper. I'd like to know when that's coming out. That has, of course, enormous ramifications. In the U.S., the renewable energy market is exploding—four times the market potential over the next 10 years. In terms of renewable energy, in terms of geothermal, wind and solar, all of which have enormous potential in Alberta, is that report going to study the importance of having an electrical grid and a smart grid, such as we have in northern Europe, which would allow Alberta to really benefit from the clean energy boom?

[Janet Lane]

I believe so. I believe that our author has been looking at all of the different types of energy. It's in layout this week—

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

Wow.