Finance Committee on March 21st, 2023

[Robert Youngman]

One thing I might say is that I believe that in Canada, in terms of values, there's a recognition of stewardship in thinking of future generations and the question of what sort of world we can give to future generations. In that context, it's essential that we redouble efforts globally to reduce emissions and that governments engage with the knotty problems of actually getting there. There's tremendous progress that has been made in terms of cost reduction, and probably unrealized progress that would come from unleashing private sector innovation, the natural ability to innovate. With that, as well as individual behaviour, you will end up with a cleaner economy and a better feeling about how this generation has handled its stewardship responsibilities.

[Eric Usher]

Maybe just to add to Mr. Youngman's comments, change is the only constant today in industry. There are very few industries that are protected from disruption.

I think what we're seeing in terms of the climate crisis is that there are a lot of good examples around industry actors and that industries as a whole are embracing this change and moving forward. This is, in many instances, the largest economic investment opportunity the economy has seen in decades, so I think there is a lot of capacity within Canada. We talked about the minerals sector. There's a whole finance industry that is very good at backing investments in the minerals sector, and that's going to be needed as we move into critical minerals and other areas. So there are a lot of benefits and a lot of opportunities.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chatel.

Members and witnesses, I'm looking at the time. We've got about 20 or so minutes left. As we do, when we don't have time for a full round, we divide the time equally, so that will be about five minutes per party.

We'll start with the Conservatives.

I have MP Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

I want to follow up on a previous conversation with my colleague about some of the costs.

There was a report a year ago from McKinsey suggesting that it would cost the global economy $9.2 trillion to move to net zero. Is that a report you're familiar with? I'd ask any of our panellists.

Do you have any comments on whether you think it's higher or lower, and what costs will be borne by governments versus by the private sector? Where do you think the costs should be best placed? Should the private sector pay for this? Should the government pay for it? Should consumers pay for it?

Mr. Usher.

[Eric Usher]

Obviously, the economic opportunities are in the trillions of dollars, and we know that, and industries are going to change at that scale. I think it depends on what perspective you look at, and much of the analysis shows that this is not a net drag on the economy. As we build out of a crisis, as was the case in the post-World War II era, significant investments in the economy are good for the economy. In many ways, this is the crisis of our times, and the solutions will create a lot of economic growth and opportunity. Of course, there are changes across sectors and industries, winners and losers, and, therefore, a good industrial strategy will be key.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Usher.

When you say that it won't have costs or that it will be a net benefit, are you relying on a study that shows the other costs associated or the other benefits, or is it more that it's a good idea because we'll create investment opportunities?

As far as I can tell, there are a lot of folks in the ESG space making a lot of money in that completely unregulated space, and there's a ton of greenwashing going on.

[Eric Usher]

Yes, I think this is a parallel issue. Greenwashing is a concern, and this is why a good financial regulatory regime is quite important to prevent that.

With regard to the study you referred to, it looks more at the economic costs of making the transition. There will be impacts on specific industries. This is why this term “just transition” is critical, and why the role of government is critical in making sure that job training and retraining enables communities to shift over as required.

That is different from the ESG discussion. We would not see the ESG world as perfect; it has its challenges, as we're seeing. The notion of being in prudent risk management in paying attention to risks, which is part of the ESG, is being shown over and over again to be critical. Look at Pacific Gas and Electric. That was the largest bankruptcy due to climate change, because they weren't paying attention to the costs of forest fires and extreme heating, and we're also seeing this in Canada.

It's all about prudent risk management, and that's where we create economic prosperity, managing that effectively through this transition.

[Adam Chambers, Conservative, Simcoe North, ON]

In Canada, RBC's report says that it will cost $2 trillion to get to net zero by 2050. Apparently, governments today spend about $15 billion a year. That number has to go to $60 billion a year.

We could be the best global citizens and do all the work, but if the United States, China, India, Brazil, Russia and others don't follow, we're asking a lot of people to pay a lot of money without necessarily knowing that it will have a significant impact.

I appreciate the dialogue we've had here today. I hope we get really tight on what we mean by benefit and what we mean by cost. I think that's important so that there's transparency around what things cost. I am somewhat skeptical that we're going to get there on a very linear path.

Thank you, Mr. Chair.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Chambers.

Now we'll go to the Liberals and MP Dzerowicz for five minutes, please.

[Julie Dzerowicz, Liberal, Davenport, ON]

Oh my goodness, I thought I had a lot more time to prepare, Mr. Chair.

I will continue with the line of questioning that Mr. Chambers had started. I'm a little bit surprised—because I have a lot of regard for my colleague—by this line of questioning.

I will say to you that if we do not try to do everything we can to try to get to net zero under a good regulatory regime and with prudent risk management and some of the other key things that we talked about today, we will be far worse off. The costs would be much higher. We're all policy-makers here, so if we put our heads in the sand and say that it sounds like a lot of money, that we're not quite sure if we'll get there because it sounds really complicated, that it's going to be difficult and it won't be linear, so let's not do anything—that's crazy.

Climate change is happening. Have you guys actually seen The Intergovernmental Panel on Climate Change report that just came out yesterday? It raised not one alarm bell, but a massive number of alarm bells. They're saying we are not on a path that is going to limit our climate change to 1.5°C.

It is urgent that we stop sort of figuring out if it's $2 trillion or however many trillions of dollars. The cost of not doing everything we can in a responsible way with good policy to bring public sector partners under good risk management under a good regulatory regime is unacceptable. That is why we are here doing this study.

I'm trying to see what my question is, Mr. Chair, because right now I'm finding what I just heard a couple of minutes ago a little bit crazy. Again, I have high regard for my colleagues on the other side.

Recently we've been talking in Canada about the importance of green hydrogen. I wouldn't mind getting some thoughts on why Canada should continue to invest in it.

Maybe I'll get both Mr. Youngman and Mr. Usher to speak on that.

[Robert Youngman]

Green hydrogen is one of these enormous opportunities that Mr. Usher referred to. It essentially will play a key role in heavy industry and moving it away from current emissions-intensive activities, while still being able to deliver steel and other products that the economies need.

Innovation in that area is essential. The opportunities from innovation and essentially from exporting are also enormous because globally there will be a huge demand for green hydrogen. To the extent that Canada wishes to foster that activity, there could be benefits in terms of exports.

[Julie Dzerowicz, Liberal, Davenport, ON]

Mr. Usher, do you have thoughts on that? Okay.

I know that a year ago our federal government launched an inaugural green bond program, which sees proceeds earmarked to finance projects with environmental benefits, such as renewable energy or clean transportation.

Can you talk about the importance of green bonds and some of the impacts they have had in other countries?

I will direct that to either one who wants to respond—Mr. Youngman or Mr. Usher.

[Robert Youngman]

Mr. Usher, do you want to have a shot?

[Eric Usher]

No, other than to say, yes, there has been a lot of growth in green bond markets in recent years and also in sustainability bonds. The financial sector is getting more comfortable with these types of instruments. We do believe they're part of the solution. I know the OECD has done important work on that.

[Robert Youngman]

Thank you.

I would just say that the green bond markets have grown significantly. Maybe with respect to Canada's green bonds, the new horizon for green bonds is linking green bond issuances to financing the transition.

I think Japan will have announcements on this by the end of the year on its plan for financing the transition through issuance of these instruments. I think it could provide an important signal about the seriousness of the government to meet its targets.

[Julie Dzerowicz, Liberal, Davenport, ON]

How much time do I have?

[The Chair, Liberal, Peter Fonseca]

You have 30 seconds.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much to both of you. It was an excellent discussion. Thank you so much for your contribution today.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Dzerowicz.

Now we'll go over to MP Garon from the Bloc for five minutes, please.

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

Thank you, Mr. Chair.

I will continue in the same vein as my colleague Mr. Chambers and my Liberal colleague.

My question is for Mr. Usher.

We are talking about the cost of the transition. I get the impression that the transition is highly technological, that it will require massive levels of investment, capital and engineering, and that it will bring significant added value. Speaking of green jobs, it was said a little earlier that these are well-paid jobs because they involve a lot of technology.

I have the impression that once in a while people confuse costs and investments.

If a private company puts money into the transition and creates well-paid jobs, it suddenly becomes an investment. However, when a government wants to do the exact same thing, it becomes a cost to the taxpayer. Indeed, if anyone is the least bit familiar with how the economy works, they would know that investment generates capital, makes the transition possible and ultimately leads to economic growth. The green economy will be part of this economic growth.

First, I'd like to know if, in your dealings with business people, they would normally consider an investment as an expense or a cost, as we've been hearing today.

My second question is as follows. In your view, if we are to believe that the transition will be very costly, don't we risk missing out on one of the most important industrial revolutions in the history of humanity?

In other words, don't you think that if we don't move forward with this revolution as quickly as possible, innovation, jobs and technology will happen elsewhere, and that at some point we will have to import them?

[Eric Usher]

I would just briefly agree with the comments, but with one add-on. We talked about externalities earlier. One of the problems with measures of economic growth in terms of GDP is that the latter doesn't properly capture externalities. There is a growing body of research and publications around the notion of how you “value in”, essentially, investments in what will address things like carbon emissions in a way that works in the national accounts.

You're absolutely right; the private sector believes in investing, and those same investments, when government makes them, are sometimes described as costs, but they're actually...or certain types of those can be investments in the transition in working with the private sector to move in the right direction.

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

Thank you very much.

My final question is for Mr. Youngman from the OECD.

I looked at what has been done in Europe over the last three or four years. I found the Emissions Trading System Review; the Revision of the Effort-sharing Regulation for sectors not subject to the emissions trading system; and the Land Use, Land Use Change and Forestry Regulation Review. All of these have been done recently. I found a review of the CO2 emission standards for cars and vans; the review of renewable energy standards; the revision of the Energy Efficiency Directive in Europe; the overhaul of energy taxation; the revision of the border carbon adjustment mechanism, an area where Canada lags far behind; the revision of the sustainable fuels standards for aviation; and the revision of the Energy Performance of Buildings Directive. I will stop there, as I will run out of time.

These are the many advances which have been achieved in the last several years and where Canada, it seems to me, is behind. Of course, all is not lost and there might be a way to move forward in this area.

I would like to ask you the following question. Is Europe a model in terms of regulations and standards, and also of the ability to quickly adapt regulations over time when the economic environment changes?

Should we follow their lead?

Should a country like Canada, which often finds it hard to move quickly, be more flexible and act more swiftly?

[Robert Youngman]

Europe is an interesting model. It may not be one that can be directly applied to Canada, but their approach in taking a whole-of-government look at how you can accelerate investment for the low-carbon transition is important. They have thought about sustainable finance, as you are doing now, across different government actors, and have thought not only about costs but also incentives and opportunities. That, I think, is an important example that Canada can take. There are examples from around the world, too, about what works. Perhaps the U.S. example might be of interest with tax credits. It all depends on domestic circumstances.

It's certainly not too late. If anything, now is a good time to see how to increase progress, as the IPCC report indicates. So we all need to move faster.

[The Chair, Liberal, Peter Fonseca]

Thank you, gentlemen.

Now we'll move to the NDP and MP Blaikie. This will be our last five minutes of questions.

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

Thank you very much, Mr. Chair.

I was just contemplating that sometimes listening to certain Conservative colleagues at the table invokes the image of the 19th century shoemaker who objected to the cost of investing in machinery, a strategy the success of which can be evaluated by walking out onto Sparks Street and trying to find a shoemaker.