Finance Committee on June 13th, 2023

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

Thank you.

Ms. Zvan, in the last budget and in the last fall economic statement, we saw the government announce a suite of investment tax credits that are meant to incent private investment in the new energy economy, except that we're in a place where Canada doesn't have a legislated and clear taxonomy.

I'm wondering how important you think it is for the government to move on a properly implemented taxonomy, hand in hand with the regulations and guidance that they say they will publish on the investment tax credits in the near future, so that we don't end up in a scenario where there is kind of a bespoke set of criteria for the ITCs that may or may not align with whatever ultimately that taxonomy is. What does it mean for investors to have an open question as to whether the ITC taxonomy and definitions are going to, in the end, align with the green taxonomy that some of us around this table hope to see soon?

[Barbara Zvan]

Thank you for that question.

I'll just start. A taxonomy is a tool, but it's an incomplete tool. It is a tool that is part of the foundation that you need to really implement climate change.

IMF calls it the climate architecture data disclosure and it's a taxonomy. All other rules and requirements would be built from that. Earlier, the U.K. and EU were mentioned. Those are built from their data disclosure and taxonomy.

Without that clarity and without the credibility of it being overseen and aligned with science, clarity plus consistency brings capital. Without those two key elements, you will not draw in the foreign direct investment and the domestic players in the way that you need to.

I would talk about green bonds, for example. In 2018, green bonds were 3% of the bond market. Today, I believe it's over 18%. There is demand for this type of investment that you can draw in. I think having that clarity and consistency is the core foundation for any other program working, or regulation.

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

Would you agree that as the government defines these investment tax credits, this is an opportune moment to get clear on a larger taxonomy so that investors know that the preparations they're making or that their clients are making as they move ahead with new energy projects are going to be consistent with whatever the green finance taxonomy ends up being? This is instead of leaving that an open question and potentially having investors or their clients prepare for one set of rules and then find out that actually there's a different set that came down the pipe, so to speak.

[The Chair, Liberal, Peter Fonseca]

A short answer, please, Ms. Zvan.

[Barbara Zvan]

Yes.

How's that?

[Voices]

Oh, oh!

[Barbara Zvan]

Yes, absolutely.

[The Chair, Liberal, Peter Fonseca]

There you go. That's as short as it can get. Thank you very much.

Members and witnesses, we're moving into our second round of questions, and we're starting with the Conservatives for five minutes.

MP Lawrence, please.

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

Thank you, Mr. Chair.

I'll address most of my questions to Mr. Darwall.

I believe that the academic evidence would show that Canada is facing a productivity crisis and an economic growth crisis. Over the last 10 years, our economic growth has been 0.8% per capita, and that's the lowest since the Great Depression. The reason for this is relatively clear and well known, although sometimes lacking media attention. I believe we lack for capital investment. We don't have a framework that's workable with respect to innovation. Quite frankly, despite having the hardest-working, smartest people in the world here in Canada, we are lacking for productivity

The Canadian energy sector has a GDP per capita 10 times that of our average, and I have yet to see, and would love for any one of you to table what the GDP per capita is in the green industry, because I suspect it's far less than in the energy sector.

Mr. Darwall, I thought you spoke very intelligently when you talked about the difference between reducing supply and reducing demand. If in fact we reduce supply dramatically and cap it artificially through government regulation or otherwise, it's my heartfelt belief that this will hurt Canadians who are the most vulnerable. We've seen the impact over the last eight years of these Liberal economic policies, which have doubled the number of people at food banks and created an affordability crisis, the likes of which we have not seen for decades.

Mr. Darwall, whether we want to make the transition or not is another discussion, but don't you believe that this transition, if not done eloquently and over a sufficient amount of time, could have a significant impact on our productivity and our GDP per capita, worsening an already precarious situation?

[Rupert Darwall]

Thank you very much.

The IEA in its “World Energy Outlook 2022 ” would completely agree with you on the point that demand reduction has to proceed faster than reductions in supply. If you don't do that, you will have higher prices. It's obviously a serious problem at the moment across western economies.

The other point the IEA is very clear on is that the energy transition is regressive in terms of productivity. You need 25 million more people. You need $16.5 trillion more in capital.

I hear a lot about winning races and so forth and Europe. Europe is not an economy you want to emulate. I would give that very strong advice. That's the other point I'd make.

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

Thank you very much.

Just to reiterate some of the things that you said perhaps in a little bit simpler terms, in order to make the economy go, we need workers; we need money, and we need to be able to produce things efficiently and effectively. From the IEA's study, to produce the same amount of energy, or I believe you said 6% or 7% less, it will require significantly more money and significantly more human resources at a time when Canada is facing both capital and labour shortages to be less productive. Is that a fair summary or simplification of your comments?

[Rupert Darwall]

That's correct. I'd also add that it inevitably involves having lower wages. The wages in the hydrocarbon sector are higher than in the renewable sector. It's as simple as that.

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

Just to reiterate a bit of what you said there as well, I mentioned earlier that GDP per capita was over $600 per worker per hour. The Canadian average is, I believe, just over $50, so it's more than 10 times that.

Productivity, of course, is the ability of a country to deliver services and to make goods. That's the real value. We can print money, but that's just artificial and fake and results in exactly where we are today.

Is it a fair summary—and please disagree—that transition, especially if not done eloquently and if we're focused on reducing the supply as opposed to managing the demand, stands likely to make Canada a poorer nation?

[Rupert Darwall]

Yes, it will make Canadians poorer. There are also big macroeconomic impacts from the energy transition of a big structural cost-push impact on inflation.

If, again, you're looking eastward across the Atlantic, the one country, I think, that Canadians should look for inspiration is Norway. Norway is like Canada, rich in natural resources. The one thing they are not giving up on is oil and gas. They say that their oil and gas is necessary for the energy transition. The energy transition is extremely energy intensive and materials intensive.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Darwall.

Thank you, MP Lawrence.

Now we go to the Liberals and MP Dzerowicz, please.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you so much, Mr. Chair.

I want to thank all of our witnesses today.

I think this is an extraordinarily important study. I'm going to start off with two comments.

I'm glad that our Conservative colleagues care about productivity. I will say that I hope maybe they'll consider taking for our next study reducing interprovincial trade barriers, as that will lead to economic growth and increased productivity.

Maybe this comment is just in general. I'm a passionate climate activist. I care about green finance. I read the sustainable report the minute it came out a few years ago. I will tell you, though, that every single time we do the study, I always have to familiarize myself with the terms.

I find that we use a language that is not easy for the common person to understand. I say this as a general comment. I'm constantly trying to figure out how I can relay back to my constituents what I'm doing and what I'm discussing. I don't find the language necessarily very easy to translate. Taxonomy, I'm sort of like, oh, my gosh, is that tools? Is it more than tools? It's now architecture. They are three separate parts. It's not an easy thing.

I just say to all of us that the more we use language that is easy, I think the better it is for us to bring people along.

My first question is for Ms. Bardswick.

As chair of SFAC, you've talked about bringing 21 financial institutions together, three levels of government and engagement of domestic and international stakeholders. From your perspective, is there a common understanding of what needs to happen, and is there common agreement between these stakeholders?

[Kathy Bardswick]

Before I answer that question, Mr. Chair, I would like to add to the previous question's response with the fact that the oil sands production in this country from 2014 to 2021 increased 27%, yet employment in the same sector decreased by 20%. In 2022, that employment number decreased another 6%, so I would suggest there is not necessarily a direct tie-in to reduced production generating reduced employment, but rather increased production is also generating reduced employment.

I just wanted to add that perspective to the previous question.

Regarding the question associated with alignment, I think what really encouraged me to agree to chair the Sustainable Finance Action Council was the unique opportunity to, first and foremost, bring the three subsectors of the private financial system together and ensure there was alignment within that group. This is because there isn't necessarily—there hasn't necessarily historically been—alignment on a number of these issues when you look at the banking industry versus the investment or pension industry and then the life and property and casualty insurance industry. It has really served, first and foremost, to bring these folks into the same room at the same time dealing with the same issues and ensuring that alignment, and we do not send a report out to our government ministry sponsors without that agreement and that sign-off, that support.

Secondarily, when we work alongside the Official Sector Coordinating Group, the intent there is really to ensure that we at least understand and can incorporate into our thinking the positions and the areas of focus and the priorities that those organizations are bringing, that the public sector is bringing. There isn't necessarily a requirement for alignment from A through to Z, but it's really important that we at least, out of the gate, have an appreciation for and listen to each other's perspectives as we take on our respective mandates.

I will say on reflection over the last couple of years there has been, in my view and in my experience, an opportunity for us to do better work within each of our respective areas because we do have that increased level of understanding, appreciation and listening.

[Julie Dzerowicz, Liberal, Davenport, ON]

Thank you. I'll also thank you for responding, too, on the oil and gas side.

My next question is for Ms. Zvan.

In answer to the question around the clean economy tax credits, you said that we need to be able to get data disclosure of alignment to science and I think clarity around regulations.

Can you talk a little bit about data disclosure? Can you dig down? Where are we at? Do we have data gaps? How well are we doing on that? What more do we need to do?

[The Chair, Liberal, Peter Fonseca]

Ms. Zvan, I'll need a quick answer on this one.

[Barbara Zvan]

I'll just refer to the SFAC work as well. There is a data work stream and many sources of data gaps have been identified both in the physical risk adaption side as well as in climate mitigation around emissions. That's really the alignment for ISSB with both adopting what was SASB, the Sustainability Accounting Standards Board, which I would highlight actually came from investors asking for that to be done to a total of $85 trillion, as well as the TCFD. I think those are two critical pillars and why they were core elements of the expert panel and core elements of the SFAC work.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Dzerowicz.

We'll go back to MP Garon.

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

Thank you, Mr. Chair.

My question is for Ms. Segal.

The fact that it's so hard for countries to work together in a coordinated way has often been a major enabler for inaction. We saw that happen in the case of tax evasion. At the time, countries argued that if they did something, the capital would move elsewhere. Ultimately, some countries took individual measures, leading to the Organisation for Economic Co‑operation and Development's blacklist of jurisdictions, among other things. The realization was that there is value in leadership. Isn't the climate finance situation somewhat similar? We keep waiting for the next country to do something, and ultimately there's a lot of inaction.

Here is my question: Could Canada show more leadership when it comes to climate finance?

I know that you support Senator Galvez's bill, as does the Bloc Québécois, by the way. I'd like you to take this opportunity to tell us which aspects of the bill could help Canada become a leader and serve as a model to some of our trading partners.

[Julie Segal]

Thank you for your question, Mr. Garon.

We are certainly at a time when policy leadership is an opportunity on climate finance. I mentioned a number of other jurisdictions that are moving in this direction, including most of Canada's largest trading partners.

An important piece here would be to recognize that Canada is currently behind other countries when it comes to setting climate finance rules and regulations. OSFI, the main federal financial regulator, put in place guideline B-15 a few months ago, which requires disclosure, essentially reporting on emissions, from large, federally regulated financial institutions. When they came out with that, they recognized that the first piece of infrastructure in climate finance regulation put us about three to five years behind other countries when it comes to financial supervision on climate change.

OSFI is very much looking at this from the risk perspective. What are the risks from climate change to financial institutions? They recognize that moving that forward, which was quite a significant effort for them, put us where other jurisdictions were three to five years ago. If we want to move into a position of leadership, if Canada wants to attract capital for the green transition and be recognized as a leader, we have quite a bit of work to be done, and we've outlined a few of those, me and other colleagues in our testimony here today.

I will point to the proposed climate-aligned finance act. That bill is a very comprehensive piece of policy legislation for what is required to bring Canada's financial system, our banks' pension funds, in line with Canada's existing commitments under the Paris Agreement. Senator Galvez, when drafting that bill—

Pardon me. Is my audio coming through all right?

Again, I'd like to thank the member for his question.

[The Chair, Liberal, Peter Fonseca]

Yes, but time is up, Ms. Segal. Maybe you can expand on another member's question to get back to this.

[Julie Segal]

Sure, thank you.