Finance Committee on Feb. 3rd, 2020

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

I have no problem with that.

I believe we've had a history of being very flexible on that. There may be people who will be regularly spelling off other members on the committee. If we can have a general agreement that people who are regular participants at the finance committee have access to the documents, I have no problem supporting the motion.

[The Chair, Liberal, Wayne Easter]

I believe Pierre-Luc Dusseault had access the last time as well.

Are we agreed on that?

(Motion agreed to)

We shall suspend until 5:30.

[The Chair, Liberal, Wayne Easter]

We will reconvene. As people know, we are continuing on the study of pre-budget consultations for 2020.

First of all, I want to welcome everyone here—and Mr. Brunnen by video conference. I know that everyone received very short notice, so a heartfelt thanks to all of you for preparing your submissions. That goes for those who prepared pre-budget submissions that were in by the middle of August and those who have come forward tonight as witnesses.

We will have everyone present first. Then we will go to questions from members.

I guess we'll start with you, Mr. Brunnen, via video conference from Calgary, Alberta, for the Canadian Association of Petroleum Producers. Please try to hold it to five minutes. The floor is yours.

[Ben Brunnen, Vice-President, Oil Sands, Fiscal and Economic Policy, Canadian Association of Petroleum Producers]

Thank you, Mr. Chair and members of the committee.

Thank you for hosting me here today. I represent the Canadian Association of Petroleum Producers, which represents the upstream oil and gas industry in Canada.

A strong oil and gas sector can help government achieve its priorities of growing the middle class, reducing our carbon footprint and expanding our collective prosperity. Canada ranks at the top of major oil-producing countries in terms of control of corruption, rule of law, government effectiveness, environmental protection and social progress. With global energy demand expected to increase, along with an increased focus on GHG emissions reduction, Canada is uniquely positioned as the global hydrocarbon supplier of choice. Through our technology investments, oil sands emissions intensity has decreased by 20% and is now on par with the global average crude blend. On the conventional side, we are committed to reducing methane emissions by 45%. Our regulations are more stringent than those of most other jurisdictions, including in the U.S.

Continued technology investments have the potential to achieve substantial additional reductions. However, in order to achieve this vision, government and industry need to work collaboratively. Despite a positive uptick in investment for 2020 for our industry, we continue to struggle to attract capital. Total equity raised in 2018 was about $650 million, down 94% over the past five years, which was the lowest level on record in 27 years. This has led to lower investment and fewer jobs. In fact, Alberta has 50,000 fewer jobs than it should have, had job creation kept pace with demographics, since the recession. Our total capital investment is about a third of what it was in 2014. Conversely, U.S. oil producers raised $19.4 billion from debt and equity markets in 2018. This severe reduction in our access to capital comes as the industry continues to be a leader in cost reduction and ESG performance.

We see an opportunity for the government to work collaboratively with the oil and gas sector and position Canada to be the global barrel of choice. This concept was echoed by the federal expert panel on sustainable finance, who recognized, and I quote:

Canada's oil and...gas companies are competing against major sovereign producers...that face little pressure for transparency or risk of divestment.... Divestment from these public companies essentially transfers market share from the minority producers most obliged to act responsibly and transparently, to monopoly producers without similar obligations.

The panel further indicated that “[a]chieving Canada's sustainable growth potential will require a sea change in the interaction between innovation, policy and regulation...and investment patterns.”

However, in order to achieve this vision, we need the right fiscal and innovation framework driven by close collaboration between the federal government and industry. Therefore, CAPP recommends that the federal government launch an innovation and industrial strategy table involving industry and the ministries of finance, NRCan, ECCC and innovation and economic development. The table would develop the strategy and coordinate investment in technology that would help achieve substantial emissions reductions and investment growth in our sector.

From a fiscal perspective, we recommend that the Department of Finance affirm that existing oil and gas tax measures are not subsidies, as stated by the Department of Finance in the 2017 Auditor General's report.

Finally, there are several fiscal measures that the government can implement that will increase our competitiveness, including reforms to large corporation tax administration, interest expense deductibility, and access to capital for small and medium enterprises. I would be happy to discuss these further during the Q and A session.

In closing, CAPP believes that Canada's oil and natural gas sector presents a significant opportunity for inclusive growth that provides broad benefits to all.

Thank you for this opportunity to present to you today. I look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Brunnen.

We're turning, then, to the City of London, with the Honourable Ed Holder, mayor, and Mr. Thompson, manager of government and external relations.

Welcome, Ed, a former MP who's been around this table a few times—on this side, though.

[Ed Holder, Mayor, City of London]

Thank you, Mr. Chair. Yes, it feels a little different, I must admit, to be on this side of the table. It's the first time, and hopefully not the last. I'd like to thank you and members of the Standing Committee on Finance for the opportunity to appear before you today. As you've indicated, I'm joined by Adam Thompson, manager of government and external relations with the City of London.

As the largest urban centre in southwestern Ontario, London provides economic and social opportunities for all 2.5 million residents of our region. We embrace our role by providing the infrastructure, jobs and amenities that people rely on each day. We recognize that we rely on our region's success, much as our region relies on our success.

In advance of the development of budget 2020, I'd like to focus today on the theme of connection. As a mid-sized city, London connects services to people, people to their community, and the community to the world. I'd like to touch on each connection point individually as all parties weigh in on priorities for the year ahead.

First, on connecting services to people, London continues to grapple with a people crisis. Providing safe, affordable housing for our residents remains a systemic challenge. With average rental market vacancy rates in London at 2.1%, and below-market rental units closer to 0%, we continue to struggle to meet the needs of not just Londoners but residents across the region.

At the same time, growing challenges persist in the area of mental health and addictions. In response, the City of London has moved forward with our core area action plan, which outlines nearly 50 initiatives to respond directly to homelessness, health issues, safety and security in our downtown and create a positive environment through attracting people to the core.

Connection forms the heart of our plan. The plan includes the development of 40 resting spaces where individuals can come off the street, shower and have a warm meal; 20 stabilization spaces where individuals can find medical attention and support while in crisis; and 10 supportive housing spaces. We are actively working with the Province of Ontario to secure the necessary investments into medical personnel to provide primary staffing for these spaces.

In addition to providing the direct supports people need, this program will free up essential capacity in our hospitals, providing an estimated $7.5 million per year in emergency room occupancy savings.

We've all seen the long lineups of ambulances and emergency vehicles at our hospitals, which are required to wait with people experiencing crises until a hand-off to medical staff can occur. By providing an alternative, we aim to free up approximately 5,700 hours of police time and 9,200 hours of EMS time per year, time that could be reinvested into serving our community.

The Government of Canada can help the City of London advance this work immediately. With nearly 30% of our homeless population self-identifying as indigenous, we know there is a desperate need for community-based, culturally appropriate resources. Under the reaching home strategy, targeted funding under the indigenous stream is available to support municipalities and local indigenous service providers. While we do not receive funding out of this sub-stream today, future access would support immediate initiatives to open resting spaces, stabilization spaces and supportive housing spaces in a matter of mere months. We have a plan for a pilot program before the Government of Canada, and I'm hopeful that we can move ahead with this immediately.

As London continues to focus efforts on connecting critical services to people, we are also undertaking bold action to connect people to their community. At my recent state of the city speech, I spoke about our vision of becoming the first major city in Canada to have a zero-emission public transit fleet of buses. We will do this by moving away from diesel to a fully electrified fleet.

In April 2019, London City Council declared a climate emergency. We are taking that pledge seriously, not only by our words but by our deeds. Public transit emissions represent as much as 40% of total emissions where London has direct or indirect influence. Even after electricity costs are factored in, our estimates show that a move towards electrification would represent substantial operational savings each year. These savings will only increase as the cost of fuel rises.

Transforming our public transit system would generate significant savings and provide millions of additional dollars each year, money that could be used to invest further in programs to tackle the needs of our most vulnerable residents. The London Transit Commission will be moving forward with a significant study to explore net-zero public transit options over the coming months.

While this work progresses, we are looking for additional details from the Government of Canada as to how the federal government plans to partner with cities and communities. Budget 2020 provides an excellent opportunity.

Finally, we are focusing on a greater connection of London to domestic and international markets. Within the strategic plan, our vision as a council emphasizes London as a leader in commerce, culture and innovation, our region’s connection to the world. I recently met with the leadership of Via Rail, alongside the new president of Western University, Alan Shepard, to explore expanding rail connections across the province and, ultimately, the country.

London operates the fourth-busiest Via Rail station in Canada. Our station operates within Canada’s busiest economic corridor, with nearly $23 billion moving between southwest Ontario and the greater Toronto area each year.

Our residents and businesses, and the economic potential they represent, continue to be held back by a lack of options to move between London and Toronto, as well as London and Windsor/Detroit. Private vehicle and freight traffic on Highway 401 is expected to double over the next decade, heightening safety concerns along this high-frequency corridor. Additionally, increased congestion will continue to cost our economy and impede economic growth if we do not urgently invest in alternative means to move around the entire rail corridor from Windsor to Quebec City.

Our conversation with Via Rail will remain a priority in the coming year. Connecting mid-size communities like London will require federal investments into Via Rail to expand the fleet and the service offerings for our people and our businesses. I look forward to a meaningful discussion with the Government of Canada in the coming months.

I would like to thank you for the invitation to present today. I would like to acknowledge that we have two of the four great members of Parliament from London at the table today. I must say, London has fully embraced our place as a regional hub for southwest Ontario. I look forward to further exploring our focus on connection and providing answers to questions from members of the committee.

Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you, Ed.

From the Insurance Bureau of Canada, we welcome Ms. Dreff and Mr. Stewart.

[Craig Stewart, Vice-President, Federal Affairs, Insurance Bureau of Canada]

Thank you, Mr. Chair, for the invitation and the opportunity to speak to the standing committee today.

I'm Craig Stewart, vice-president of federal affairs, and I'm joined by Nadja Dreff, our chief economist at Insurance Bureau of Canada or IBC. We are the national trade association representing Canada's private home, car and business insurers.

I'm going to speak to three topics today. The first is protecting Canadians from escalating climate risk, particularly flooding. Second is protecting Canadians from a severe earthquake. Third is the importance of transitioning Canada to a low-carbon, resilient and competitive economy by 2050.

First is climate risk. Flooding is the single greatest climate threat facing Canadians today. Last January, on behalf of the National Advisory Council on Flood Risk, I presented financial options for addressing flood risk to federal, provincial and territorial ministers responsible for emergency management. The national advisory council had been appointed by then minister of public safety Ralph Goodale, after the 2017 floods across eastern Canada. After 18 months of consultations, we delivered a report that detailed a comprehensive solution that would ensure that every Canadian would be financially protected from flooding, irrespective of the risk they face.

In part because of that work, six different cabinet ministers have flooding as part of their mandate letters. Together, they are to deliver a coordinated action plan on flooding. However, for that to happen, some foundational work must be supported through the federal budget.

We can separate Canadian properties into three groupings. Properties in group one are at the highest risk and will flood predictably every 10 to 20 years. Group two, still at high risk, will flood predictably at least once every 100 years. Group three represents everybody else. Flooding for these properties is an unpredictable accident, if you will. This group, which represents about 90% of Canadian properties, can be insured by regular overland flood insurance. However, other solutions are needed for the remaining 10%, those in groups one and two.

Those in group one, which will flood predictably every 10 to 20 years, can be addressed either through home relocation programs, called strategic retreat, or through significant home retrofits that elevate their homes, or possibly through investments in flood defence infrastructure.

Those in group two, those within a 100-year flood interval, should be insured through a public-private partnership, a specialized high-risk insurance pool, which is what happens in many countries, such as the U.S. and the United Kingdom. If these homes are also de-risked through home retrofits or investment in flood defence infrastructure, they could join group three and be eligible for the regular insurance market. Our goal is to reduce the number of Canadians in groups one and two over time.

To meet mandated ministerial commitments, three items should be included within the budget 2020 fiscal framework.

First is dedicated funding to design and cost a high-risk insurance pool and an associated program of strategic retreat. This process should be consultative and include consideration of indigenous and other vulnerable populations. As part of this, funding is needed to align public and private flood risk models. If insurers, banks, realtors and governments do not have a common, reliable and accurate flood map, Canadian consumers will not be well served.

Second, funding is needed for a home retrofits program that addresses flood resilience as well as energy efficiency.

Third, funding is needed for targeted flood defence infrastructure through an expanded disaster mitigation and adaptation fund. Infrastructure Canada must have the internal capacity to deliver such funding and should be supporting capacity in smaller communities that lack the expertise to apply for it.

The second topic I will address is Canada's financial resilience to an earthquake. Every developed country at high risk of earthquake has a public-private partnership in place designed to ensure financial stability and protect consumers in the case of a significant event—every country, that is, except two: Italy and Canada.

Canada has two high-risk populated regions: southwestern British Columbia and the Quebec City-Montreal corridor. Finance Canada is currently researching solutions as part of the financial sector framework review, and we are in full support of this work.

Budgetary language reflecting a commitment to finding a solution within a specific period of time would be welcome. Furthermore, IBC recommends that the federal government foster the appropriate financial regulatory environment that allows insurers and re-insurers to be part of the climate and earthquake risk solution. This means ensuring that OSFI regulations do not unduly impose insurance capacity constraints, which could negatively impact insurance affordability for Canadians.

Finally, we wish to wholeheartedly endorse the recommendations of the expert panel on sustainable finance. Ms. Zvan, as a member of that expert panel, is better positioned to speak to these. However, we would like to underline that the fourth recommendation—for a Canadian centre for climate information and analytics—is foundational, in our view, for promoting resilience.

Referring back to flooding, any investments in flood mapping should be linked to the creation of this centre. The private sector will help to pay for this data; governments do not have to complete flood mapping all on their own.

Thank you again, Chair, for the opportunity to present to you today. I'll close by saying that, as climate change could be considered a central theme for the upcoming federal budget, Canada's P and C insurers have a clear message. If adapting to flood is not an explicit part of a climate plan, that plan is not relevant in terms of the single greatest climate threat facing Canadians and their pocketbooks today.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Turning to the Macdonald-Laurier Institute, we welcome senior fellow Phil Cross.

[Philip Cross, Senior Fellow, Macdonald-Laurier Institute]

Thanks for having me back.

I'm the former chief economic analyst at Statistics Canada, so the perspective I bring is one of macroeconomics, the broad trends. I believe there have been two dominant trends in Canada's economy over the past decade, neither of which is discussed enough, if at all. We are stuck in a period of persistent slow growth, while at the same time Canada has seen its debt levels soar. The combination of these two makes Canada vulnerable to a downturn in the turbulent global economy.

Chronic slow growth can be demonstrated in a number of ways. The per capita growth of real GDP, or incomes, over the 2010s was 1%, the lowest since the 1930s. Decadal growth does not lie about the long-term trend of growth. It cannot be dismissed as a misfortune from transitory events. Even more remarkably, slow growth in the 2010s was not dampened by even one recession. Instead, it reflects subpar income gains persisting year after year.

Another thing to highlight with regard to how weak growth has been is this: After the economy peaked in 2008, growth over the next 11 years was no better than in the 1930s after its peak in 1929. Rather than the boom-and-bust cycle of the 1930s, we have had persistently slow growth since the 2009 recession, leaving cumulative GDP growth exactly the same as in the decade after 1929. Slow growth is not as spectacular as the 1930s depression, but its long-term effects are just as insidious and corrosive. This is particularly true of the misguided focus on income distribution. The income of average Canadians has stagnated because of slow overall growth, not because the fruits of that growth are growing disproportionately to those of upper income.

Even as income growth has slowed to a crawl, Canada has racked up one of the world's largest debt burdens. According to the Bank for International Settlements, Canada's debt-to-GDP ratio stood at 306 in 2019, up one third from 2008. This compares with an average increase of 13.8% in advanced market economies.

The BIS alone among international organizations warned of the perils of excessive debt growth and trade imbalances leading up to the great financial crisis. Since then, the BIS has repeatedly warned about the negative consequences for long-term growth from relying on monetary and fiscal demand stimulus while ignoring structural reforms that enhance productivity.

Most recently, the BIS has explicitly warned about Canada's debt, stating that when it comes to “aggregate credit...vulnerabilities...Canada, China and Hong Kong SAR stand out, with both the credit-to-GDP gap and the [debt service ratio] flashing red.” In assessing credit conditions, it found Canada at risk for all four categories. No other country was found at risk for all four indicators.

Canada's high level of borrowing reflects how all sectors have gorged themselves on debt since interest rates were cut to historically low levels during and after the 2008-09 recession. Each of the three sectors of domestic demand—that is, households, corporations and governments—has raised its debt load to about 100% of GDP. Canadian households led the borrowing binge with household debt rising to 100% of Canada's GDP. This is the highest of any nation outside of Denmark, and nearly twice the G20 average of 60%.

Non-financial corporations in Canada have borrowed the equivalent of 119% of GDP, more than any other major industrial nation. Borrowing by Canada's government stood at 85% of GDP, not far behind the 98% in the European area and 99% in the United States, both of which had to spend liberally to bail out their banks during the great financial crisis. Government borrowing in Canada is more skewed to the provinces, because our federation is the most decentralized and because provinces are especially vulnerable to slumps in key export markets and are unwilling to adjust their spending accordingly.

The combination of weak income growth and high debt levels leaves Canada in a very precarious position if either interest rates rise or global growth slows significantly. The lesson that we should have learned from the 2008 financial crisis in the U.S.—2010 in the EU—is that debt very quickly can become unbearable when the economy slumps. Downturns usually necessitate extensive government intervention, at which point a seemingly benign government fiscal position suddenly becomes acute.

How did Canada's economy become so vulnerable, and why is there so little discussion of the risk of slow income growth and high debt? Much of the problem is that orthodox economic thinking has a stranglehold on macroeconomic policy-making and research in most nations, including Canada. Every temporary slowdown elicits calls for more monetary and fiscal stimulus to demand, with no recognition of the price they exact from potential growth over the long term.

Worse, the guardians of economic orthodoxy apparently resist self-examination or external criticism, even from leading economists such as Larry Summers, William White and the BIS.

While most economists are reluctant to acknowledge a threat from excessive reliance on short-term demand, stimulus and high debt levels, many ordinary people sense the precariousness of the current state of the economy. This is why so many Canadians feel anxious about the state of the middle class and their own finances. While the unemployment rate is low, as older members of the labour force retire, Canadians experience daily the difficulty of servicing their debts, generating higher incomes, and the struggles of their children entering the labour market. It is time to reject the continuation of policies that have obviously failed to generate growth over the long term, and instead prioritize the creation of income over its distribution.

Thank you. I look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Cross.

Turning to Les Producteurs de lait du Québec, we have the director general, Mr. Bourbeau, and Mr. Letendre.

[Bruno Letendre, Chair, Les Producteurs de lait du Québec]

Thank you, Mr. Chair, for inviting us to appear before the committee.

I’m going to turn the floor over to our general manager, who will be giving the presentation.

[Alain Bourbeau, Director General, Les Producteurs de lait du Québec]

Good afternoon.

We are here today on behalf of the Producteurs de lait du Québec, but the issues we'll be discussing affect all of the country's dairy farmers.

Although dairy producers make up a small part of the population, their contribution to Canada's economy is substantial. They operate more than 10,300 small businesses across the country, and dairy production is often one of the main sectors driving regional economies. Those 10,300 businesses account for nearly $20 billion of gross domestic product, not to mention $3.8 billion in tax revenue for cities, provinces and the federal government. What's more, our businesses generate 220,000 direct, indirect and induced jobs. All that to say, our sector makes a tremendous contribution to Canada's economy.

We are here today mainly to make you aware of the issues and impacts related to the trade agreements signed by Canada in recent years. There are two parts to my presentation. First, I'll touch on the agreements and their major impacts. Then, I'll summarize our top requests.

Two agreements came into force in recent months. To begin with, the Canada–European Union Comprehensive Economic and Trade Agreement, known as CETA, was signed in 2013 and came into force in 2017. Under the agreement, access to 1.4% of Canada's market was conceded. That's the first chunk of the market that was conceded in an effort to conclude an agreement. The second agreement I want to mention is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, known as the CPTPP. Under that agreement, an additional 3.1% of Canada's market was conceded.

We recognize that trade agreements play an important role in the country's economic prosperity, so we are not calling into question the fact that Canada has signed such agreements. However, as all the analysts have pointed out, in order for Canada to sign those deals, the dairy sector had to pay a heavy price. We were used as a bargaining chip so the country could benefit from the deals.

Thankfully, in the last few months of 2019, the federal government announced a $2-billion compensation program for concessions in the two agreements. Although that may seem like a lot, it represents only a portion of the financial losses producers will suffer permanently for the concessions made. Keep in mind that, under Canada's dairy policy, farmers committed to producing the quantity of dairy products needed to meet the population's needs, and to do that, they made an investment, a long-term investment. Clearly, then, the concessions are having repercussions on them.

I'd like to highlight some key elements in one last agreement, the Canada–United States–Mexico Agreement, known as CUSMA. In fact, legislation to implement the agreement was recently introduced in the House of Commons. With this agreement comes an additional 3.9% in market access that was conceded. That’s on top of market concessions under the other two agreements. I can speak to the various facets at greater length when we get into questions, but this agreement has something the other two don't. In addition to granting the signatories market access, Canada agreed to impose a cap on skim milk powder exports by Canadian companies. The cap will have financial implications that weren't factored into the estimated losses related to the tariff concessions. The measure, which requires Canada to pay a surcharge when skim milk powder exports exceed 35,000 tonnes in the second year, will result in losses of $15 million to $20 million in the first year, and those numbers will continue to rise.

To conclude, I’ll turn to our demands. Our first demand concerns the first two agreements. In relation to CETA and the CPTPP, we are asking the federal government to clearly set out, in its next budget, the terms and conditions for payments of the remainder of the $2-billion compensation package it pledged to deliver. An initial amount of $345 million was paid out this fiscal year, and I must say it went quite smoothly. When that happens, it’s worth mentioning. We feel it’s important to do that. It’s a good thing. However, we are calling on the government to make clear in the next budget the terms and conditions under which it will follow through on its commitment as regards the remaining $1.4 billion.

Our next demand relates to CUSMA. We are asking that the next budget take into account the impact of the tariff concessions by setting out a mechanism to deal with the precedent-setting losses resulting from the export cap. To that end, the government should act to limit the negative financial impacts by concluding an administrative agreement with its American and Mexican counterparts to ensure the measure applies only to the signatories—in other words, the U.S. and Mexico—not the global marketplace, as CUSMA stipulates. In our view, the measure has the effect of reducing trade, which runs counter to World Trade Organization agreements.

I’ll leave it there for now. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

We'll turn then to the Ontario Teachers’ Pension Plan, with Ms. Zvan, chief risk and strategy officer.

Go ahead. The floor is yours.

[Barbara Zvan, Chief Risk & Strategy Officer, Canada’s Expert Panel on Sustainable Finance, Ontario Teachers' Pension Plan]

Good evening, everybody, and thank you for having me here.

I am actually representing the expert panel on sustainable finance this evening versus my organization.

I am here to speak about the recommendations in our report called “Mobilizing Finance For Sustainable Growth”.

We were a four-member panel, and maybe I'll just start with how we think about sustainable finance. We think about it in terms of channelling the financial sector expertise, its ingenuity, and its influence toward challenges and opportunities posed by climate change, so think of Craig's comments around floods.

It includes revisiting all aspects of finance. Think capital flows—where they need to go, how we invest. Think risk management, with the approach to which we get insurance; or my day job, risk assessment; or how we think about financial processes around what we disclose, how we value assets, and what oversight is included.

The report is really a package of 15 practical, concrete recommendations spanning the essential market activities, behaviours, and structures to make sustainable finance mainstream.

What will success look like? It is when climate-conscious investment and risk management become business as usual. It needs to become embedded in everyday financial decisions, products, and services. It is when we stop referring to “sustainable finance” because it has become synonymous with simply finance—and let's understand that today, it is not.

For clarity, finance is not going to solve climate change, but the things that are—innovation, clean electricity, energy-saving buildings and climate-resilient infrastructure—all require a lot of investment. That's where finance is critical; what gets financed gets done.

The world isn't standing still. The U.K., the EU, China and many other regions across the world have appreciated the importance of laying a strong framework for sustainable finance in their countries.

Canada can be a global leader. Canada has a world-leading financial system with a well-earned reputation for sound governance, risk management, and regulations. Our considerable strength in conventional finance will play a critical role in delivering the financial ingenuity and capital flows required to execute Canada's transition and resilient objectives.

The panel's recommendations are organized in three pillars. It's about 50 pages, so I won't go through a lot of detail, but it is classified into three buckets that I will hit briefly.

First, it is about moving the conversation from burden to opportunity, building a strong foundation and then accelerating the growth in much-needed financial markets and products.

Let's start with pillar one, which addresses the need to shift Canada's climate change conversation from burden to opportunity. What does that look like?

Recommendation one is about laying out the vision, so Canada will say that we need the pan-Canadian framework. We have a net zero, but what does that mean in terms of the investments we have? How can we take those statements and say, “Here are the things we need to do, and here are the investments for the private sector to start looking at?” How can we articulate to them where the dollars are needed, and what is the return on risk characteristics that can be found?

Recommendation two is around using tax to incentivize RRSPs into sustainable finance. This is less about the dollars that it will create, and more about the change it would create in the financial sector, where financial advisers will have to answer to clients with regard to where the products are to help solve climate change. This will reverberate into those organizations and cause the sector to start training, educating, and creating products that are useful to solve climate change.

Recommendation three is about creating a sustainable finance action council. You see this in many of the other countries that made a commitment, bringing leaders together from both government and the private sector to talk about what to prioritize, how to action and how to keep the private sector engaged in the conversation as the government works through changes with the private industry.

Those are the key things that would really create a strong signal and motivate the financial sector to start going.

In terms of pillar two, it is classified as the foundational element. Think of Craig's comment on data and the flood plan. The data and creating a data analytics hub can be something that can be done collaboratively with both government and private industry to help ease the burden. It is an effort that's required to do climate analysis and to change it into business analytics.

The next area would be things like disclosure. What should companies disclose? Are we committed to the task force on climate-related financial disclosures framework? It shows a big commitment to disclose. To be honest, investors fill in the gap when there's nothing to disclose, and they don't fill the gap on a positive side.

The third would be around a clear statement that is consistent with fiduciary duty, so, for example, we who manage money for others have to act in the best interests of others. The climate change consideration is consistent with fiduciary duty, and there are many ways to lay that foundation.

Looking to provide what we would call support for the ecosystem, a lot of financial professionals will go to their associations, which are not-for-profits, to develop it themselves, and to create training material on climate is hard.

Last, supporting the efforts that are already under way at OSFI and the Bank of Canada in terms of bringing into the regulatory framework would be a very key pillar of the foundational element.

These would be just a few examples of how you create the foundation to take sustainable finance to the mainstream.

In pillar three, it's really about developing and scaling market structures and financial products that could offer transformative economic benefit for Canada in building a low-emission climate-smart future. There are seven main recommendations and a lot of sub-recommendations. However, they all align closely with the themes of the pan-Canadian framework and focus on the financing needs of the critical sectors of the economy: clean technology, oil and gas, infrastructure, buildings, electricity generation and transmission, to name a few.

Just give you a couple of examples in this sector, one would be around the effort today to engage the fixed-income market—by far the largest market. In Europe, you would have seen the effort around building a green taxonomy. This is really shorthand for what qualifies for a green investment, so investors can bridge the gap between climate knowledge, science and investment. For Canada, it would eliminate most of our key sectors. There's a recommendation for the panel to actually focus on Canada becoming a leader in developing a transition taxonomy. How can we help our sectors like oil and gas transition and make it easy for investors to understand what qualifies? It makes the return on effort easier, making liquidity better. This is work that's already started in the private sector today.

Leveraging the Canadian Infrastructure Bank would be another key area. It's a strong establishment in terms of the idea, but, when we look at it, it could really help with bringing people together around being proactive, and looking at how you bring the private sector with a pipeline of opportunities. So that's a tweak in terms of its mandate.

I'll end perhaps where the report begins.

Canada has a strong, diversified and resource-rich economy; a world-leading financial sector; and excellent capacity for innovation. By harnessing these advantages, Canada can be among the leaders in the global transition to a low-emissions future, as a trusted source of climate-smart solutions, expertise and investment. Realizing this ambition will require a committed alliance between business, government and civil society; and determined investment.

We would support a budgetary commitment to help lay this foundation in 2020-21, through working groups and efforts around all the recommendations in the panel's report.

Thank you for having me here tonight.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Zvan.

Thank you, all, for your presentations.

We'll start with a six-minute round, with Mr. Cooper first. Keep in mind that we also have someone on video conference, Mr. Brunnen from Calgary.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Thank you, Mr. Chair.

Thank you to the witnesses.

I'm going to direct all of my questions to Mr. Brunnen of CAPP.

Mr. Brunnen, you noted that capital investment today is at one-third of the level of 2014. I think it was about $81 billion in 2014 in the oil and gas sector. You would agree that a significant factor in that massive decline in capital investment is related to the competitiveness gap that Canada finds itself in, relative to other oil and gas-producing jurisdictions. Would you agree?

[Ben Brunnen]

Absolutely. Competitiveness of our industry has been a key factor hindering investment. Whether it's the overall cost burden on our sector related to market access, incremental costs, regulatory delay and investment uncertainty, those factors combined have put Canada at a disadvantage relative to other jurisdictions, where we've seen an increase in investment in comparable assets.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

I read that, from a competitive standpoint, Bill C-48 and Bill C-69 have not helped.

[Ben Brunnen]

Both of those pieces of legislation, I would say, have hindered the investment and attractiveness of oil and gas in Canada.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

And likewise has the carbon tax?

[Ben Brunnen]

In our view, the carbon tax, from a design perspective, needs to take into consideration emissions-intensive trade-exposed factors that help recognize.... If it's designed in a way that does not hinder competitiveness but still effectively gets towards the outcomes of achieving emissions reductions, that would be the ideal outcome. Until we see the certainty in that space with respect to what we could see coming through clean fuel standards, etc., there is a fair lack of confidence with respect to the framework.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Fair enough.

I know you've cited three fiscal policies. I only caught interest expense deductibility. I'd like you to elaborate on those, but before you do, I did raise earlier with department officials the issue of the accelerated capital cost allowance introduced in the fiscal update of 2018. It will be phased out around 2023 or 2024. Would you support making it permanent? Second, would you support 100% deductibility, immediate deductibility, more in line with the U.S. policy from the tax reforms there in 2017?

[Ben Brunnen]

I appreciate your suggestions, absolutely.

Deductibility of the capital cost allowance is actually the single greatest factor that has an impact on competitiveness, next to market access. It's not necessarily a reduction in taxes so much as it is a deferral of payment. It's especially important for high capital-intense sectors and industries with long lead times, so cash flow-positive.

We've seen the federal government recognize this through the fall economic statement in 2018, through the 100% deductibility that it provided to the manufacturing sector, etc. For oil and gas, it was provided with some incremental deductibility capacity, but it wasn't on par with what we had seen in other industries.

If you think back to when the oil sands were created, 100% deductibility was put in place to drive that investment. It was actually the third source of global supply growth between 2006 and 2015, so effectively it worked very, very well. We would absolutely support introduction of 100% immediate deductibility for capital cost allowance for our sector, but, at a minimum, making permanent the changes from 2018 would be very favourable.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Now I'll allow you the opportunity to elaborate on it. You cited three policies. Again, there was interest expense deductibility. I didn't catch the other two you listed off at the end of your presentation. I'll leave you time to elaborate on those points.