Finance Committee on March 21st, 2023

[Eric Usher]

Okay.

Very briefly, climate change is a critical crisis, but we have to acknowledge that there are other crises, often interlinked. One aspect of addressing climate change is.... It's estimated that one-third of the ways to mitigate emissions will be through what we call “nature-based solutions”. That's, essentially, better management of biodiversity. The Kunming-Montreal global biodiversity framework—we call it “the Paris moment”—provides for biodiversity in nature. It's an important starting point. There's a lot of work to be done.

Within the finance industry, we're seeing increasing awareness. There's a new disclosure framework called the “taskforce on nature-related financial disclosures”, which will be providing information and feeding into the ISSB with respect to how corporates—including banks and other financial actors—start to disclose the nature risks in their portfolios.

That can take a wide set of issues. We have to acknowledge that nature is a very complicated issue. When you start to break it down, you have to understand what the impact is on, let's say, the die-off of pollinators, if you're doing a lot of lending to agricultural businesses. Does that impact your borrowers? Would they have a hard time paying you back? You need to start to understand these nature-loss issues.

That's one critical recommendation.

It terms of taxonomy, I would mostly refer to what Robert Youngman mentioned. Within the Canadian context, it's not so much a question of “What is green?” but “What is greening?" or “What is transitioning?”. It's a critical issue for a resource-intensive economy like Canada's. We have to acknowledge that there won't be one transition taxonomy, globally. It will have to be region-specific and heavily reliant on.... The financial sector will want to see transition pathways for each sector and understand how taxonomies help them allocate capital to an industry that is not green today but has the potential to green over time, through certain types of investment allocations. The taxonomy will be key to that.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. That's very helpful and clear.

We know the International Sustainability Standards Board was stood up. Do you see that as a helpful body, in terms of creating some of that harmony of standards across the different jurisdictions?

[Eric Usher]

Absolutely. The IFRS is the set of financial accounting standards used by most jurisdictions in the world. The fact that they stood the ISSB up means most corporates, globally, will be looking to this body to establish the new standards and...how to disclose on these sustainability risks. That isn't to say they're going to be more ambitious or detailed, but they will drive convergence, which—as we heard earlier in the discussion—is going to be quite important.

Yes, there are high expectations for uptake being driven through the ISSB.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much.

My last question is for Mr. Youngman.

In March of this year, the OECD put out a report, “OECD Economic Survey of Canada”. There is a chapter on decarbonizing Canada's economy. In it, there is a statement that “Canada's serious ambition to reduce emissions by 2030 and hit net zero by 2050 are backed up by an increasingly complex suite of mitigation policies.”

When we talk about Canada's climate emissions plan, our discussion typically centres on a price on pollution. Would you be able to elaborate a bit on the other measures that help make this package complete?

[Robert Youngman]

That's a good question. Not having authored that study, I will be a bit imprecise.

Carbon pricing and the minimum carbon price set at federal level would seem to be very important. Measures to encourage investment, perhaps through tax credits, can be very helpful. There are emissions trading schemes in some jurisdictions. I'm sure that there's promotion of EVs and many other measures. I would think that measures tied to timelines, achieving these targets and checking on progress on a regular basis are very important.

I recall 20 years ago, when Alberta started working on emissions trading based on an emissions intensity approach. At the time, it was brand new and seen as not quite that ambitious, but times have changed and it's got more ambitious. I think early action and building on that are a good recipe for success.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Dzerowicz.

Now it's over to the Bloc and MP Garon, please, for two and a half minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Mr. Chair.

Mr. Youngman, I share your concern and that of others here today about projects which will undermine the goals of the Paris Agreement under the guise of greenwashing.

I can think of several Canadian projects, including the expansion of the Trans Mountain pipeline, which was paid for out of the pockets of Canadian taxpayers to the tune of $30 billion.

I can also think of investments made in new oil sands wells, as well as in the Bay du Nord extraction project, which was approved, if not encouraged, by the current government and which will allow for the production of one billion new barrels of oil.

We're talking about green finance, but I have some questions.

What investor will want to make the effort and take Canadian standards seriously if the Canadian government itself is the worst example with regard to its own taxonomy or the taxonomy suggested by the sustainable finance action council, a committee which the government itself struck? Don't you think there is a lack of credibility?

[Robert Youngman]

What I might say is that governments as a whole, across the OECD and elsewhere, have a challenge about defining eligible activities for funding, including in the wake of recovery efforts from COVID. The objective is trying to steer investments in areas that are consistent with the Paris Agreement and social objectives.

Many governments have not developed these taxonomies. The EU is one that is a pioneer in this area and is trying to apply a taxonomy—

[Jean-Denis Garon, Bloc, Mirabel, QC]

I'll have to interrupt you, as I don't have much time left.

Regardless of the taxonomy, to reach the goal of decarbonization or a net-zero emissions economy by 2050, is authorizing one billion new barrels of oil compatible with the transition, with decarbonization?

[Robert Youngman]

I would go back to previous comments about what the IEA and UNFCCC have said about new investments in fossil fuel exploration and development. Overall, the broad case is that they're not compatible with 1.5°. There are a number of governments that have done this, nevertheless.

It is a challenge moving forward. We are currently quite behind on addressing this issue.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Garon.

Now it's over to MP Blaikie. You may want to get back to that last question that you posed.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Indeed, so I'm going to pose it again more briefly. Then I'm going to add a second question.

The first question is, what role does having a carbon budget play in terms of investor certainty and attracting investors to a particular jurisdiction?

To go on to my second question, sometimes at this table and sometimes at other tables that I sit at around this place, what we've heard a lot about from a number of industries—whether it's auto manufacturing, the aerospace industry or the electricity industry and generation, transmission and distribution—is that Canada doesn't do any industrial planning and that there doesn't seem to be a cohesive sense of direction in respect to government investment, government regulation and where an industry is at, and also that industry requires more of a framework in order to be able to attract private investment.

I'm wondering about the extent to which you think planning around decarbonization and meeting our Paris commitments could create tables, not only where we talk about decarbonization and how to meet emission goals, but to bring a more generally cohesive strategic approach to certain industries that will make it easier to attract more investment, rather than the narrative we sometimes hear, which is that any level of government involvement will simply dissuade private sector investors from participating.

I leave it to either panellist to address either question.

I see that Mr. Usher has his hand up.

[Eric Usher]

Thank you.

I would say that carbon budget is kind of what you get at the end of the exam. On the investors or the financial actors, for them the carbon budget is...I don't want to call it the “pass/fail grade”, but it's an aggregate number. What they really look for at a sectoral level are credible transition plans. They understand that the aviation industry is going to be more challenging than, let's say, the power sector, and the steel industry is going to be different from the cement industry.

As for what they will expect, they'll say for the steel industry, for example, “We want to see a plan that's going to decarbonize it, is globally competitive but credible and will include policy incentives and include technology innovation, and we want to know what role we can play in driving that pathway, increasing the risk of those who are falling behind and driving capital towards those who are leading ahead.” That's what they really look for in governments: to create these credible pathways.

To your question in terms of an industrial policy for transition planning, we believe that is important. Now, of course, every country goes around planning in different ways, but this is a new type of policy, certainly, that they're looking for, because they're fearful that if there's not a credible plan, what they invest in today, next year or next decade might be outmoded, because of changes in innovation or changes in policy frameworks.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Blaikie.

We are now going to the Conservatives and MP Lawrence for five minutes, please.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much.

I do want to follow up on the question from my Bloc colleague with respect to Canada taking leadership.

Let me be clear. It's not that I don't believe that Canada should take a leadership position—I do. I just find some of the logic a little bit difficult to stomach or to follow.

The logic goes something like this, I believe. If Canada, as a resource-rich country, decides that it's going to hit the brakes hard, make the transition very difficult for our economy and get to net zero at a breakneck speed, these other countries around the world will look at that and go: “Okay, wow. Canada has done it, so we will too.”

Let's look at some of the countries that are at the top of the emissions list, the ones that will really make the list. China is number one at 27% or 30% of the total global emissions. Are you telling Canadians that the People's Republic of China is going to look at Canada and go, “Oh, wow, they destroyed their economy at a breakneck speed to get net zero and we're going to follow”?

Better yet, another top one of the worst emitters in the world is the Russian Federation. Are you honestly telling me that Vladimir Putin, who has an unprovoked, unnecessary, illegal war against Ukraine and has absolutely no respect for international norms, is going to say, “Hey, wow, Canada has reduced their emissions by 5% this year so we're cutting ours and we're getting to net zero”?

In what world does that make sense, guys? Is that what you're honestly telling Canadians?

[Robert Youngman]

If that question was directed at me, I'll give it a try.

Canada is one of 195 countries that signed on to the Paris Agreement. Globally, in order to avoid the worst impacts of climate change, including on Canadians, we need to get to 1.5°, and countries have adopted their targets to reach that. Every country is going to struggle with that. Canada, in addition, has rich resources, as do Norway, the U.S. and others. We do see exceptions out there. As I mentioned earlier, it's going to be very challenging to see which governments will not be willing to pump the last barrel of oil. This is part of the overall challenge of the just transition. I'm not saying that this is easy at all, but the overall calculus is still the same. So then the question is how we work together globally and—

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I'm just going to jump in there, if I may. As I said, my time is short. I do appreciate your being here.

The reality is that if we don't get some of the major polluters in the world on board, we will not be able to achieve the 1.5°. If we do not get the People's Republic of China, the United States of America and India on board, it's not happening. Would you agree with me on that?

[Robert Youngman]

There's a recent Financial Times article questioning whether the 1.5° target is still within range. It will be quite challenging, and all countries every year at the UNFCCC and at the COP event will receive this question: Can we achieve it? Unfortunately, there's no choice for us other than to try.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

No, I agree, but in terms of focusing our resources, what I'm trying to say is should Canada's pressure not be as much outward as it is inward? In terms of taking leadership, yes, we should definitely do our part in the transition, but the reality is that if we are going to truly fight climate change, we need to have an impact internationally.

We need to get countries that are large polluters.... Canada is at less than 3%. You said that the People's Republic of China is at 27% plus. If they were to convert, for example, their coal-fired plants to natural gas, that would be equivalent to Canada's entire emissions several times over.

And instead of getting to the point where we are shutting down our industrial economy, should we not be focusing on helping other countries reduce their emissions?

[The Chair, Liberal, Peter Fonseca]

Please give a very short answer.

[Robert Youngman]

I think everybody would.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

We are now moving over to the Liberals.

Welcome, MP Turnbull, to our committee. You have five minutes. Please go ahead.

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you, Mr. Chair.

Thank you to our witnesses today.

I really appreciate your being here and the expertise you bring to this very important discussion and study that we're doing. I'm happy to be a visiting member of Parliament on this committee and to participate in the discussion with you. I think you've already offered some really great testimony.

One thing that comes up in these conversations a lot is Canada's ability to remain globally competitive in this fast-changing environment in which we can see many jurisdictions around the world moving quite quickly to mainstream sustainable finance. I think that, for good reason, we can all agree that our ambitions need to increase in this area, and I know you believe in that.

But I think one of the challenges is how we, as policy-makers, can offer a predictable regulatory environment that all market actors can participate in and have confidence in, right down to the Canadian public.

I want to ask a couple of questions. I know that one of the things that the sustainable finance action council, which has developed our green and transition taxonomy and the road map, has offered is a three-tiered governance model that ensures that the taxonomy continues to evolve.

I wonder if I could ask you, Mr. Youngman, whether you see other international examples of governance models in which taxonomies are anticipated to evolve and whether that's a best practice.

[Robert Youngman]

Thanks for the question.

The ASEAN countries are developing a taxonomy framework with a traffic light system. The lower tier is principles-based, recognizing that some of the economies have much lower GDP per capita than others, and so it's going to be a stretch for them. Then there is a middle range, where there are some thresholds for activities that are introduced. Finally, there are some stringent thresholds at the top. That seems to be a useful context in the ASEAN setting.

The EU has set its sustainable finance taxonomy. It has put forward a proposal on transition finance; however, if that were to be put in place, it wouldn't be for several years. Nonetheless, there is quite a substantive difference between what the proposal put forward on the recognition of transition activities, and what is allowed under the existing....

Those are two examples I'd put forward.

[Ryan Turnbull, Liberal, Whitby, ON]

That's great.

One concern that comes up often in these conversations around the difference between green and transition investments is if the transition investments will take finance away from full market actors into these higher emitting industries where we're trying to mitigate risk.

Mr. Usher, maybe I'll go to you first for a comment on that.

Then, Mr. Youngman, I'm interested in what you have to say on whether this is the case or whether we can ensure that the green investments are actually getting primacy and preference.