Evidence of meeting #88 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was analysis.
A recording is available from Parliament.
4:30 p.m.
Liberal
The Chair Liberal Joël Lightbound
I call the meeting back to order.
Mr. Masse had a chance to start his questioning while we were suspended, but we've resumed this meeting.
You'll have the official time soon, Mr. Masse.
We'll now turn to Mr. Turnbull for six minutes.
October 5th, 2023 / 4:30 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Thank you.
Thank you, Mr. Giroux and your team, for being here today. I appreciate your work, your office and all the work that you do. I have lots of questions for you. I've read the report. I'm really glad you're here today to answer some questions.
You mentioned in your opening remarks that, as I think we all know, a standard economic impact assessment looks at direct, indirect and induced impacts. Did you look at all three of those in your modelling?
4:30 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We used the Trillium Network's report, and they looked at the direct, indirect and induced economic impacts of each of the nodes.
4:30 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
If I may, in terms of the indirect impacts, which cover the business-to-business transactions across the value chain, there are some reports here from Electric Mobility Canada, for example, that....
You yourself in your report have said that you've only actually covered a small portion of the value chain in the EV supply chain. If I'm not mistaken, you've actually excluded about 91% of the actual value chain. I can quote from the report:
Cell manufacturing, which will occur at the Volkswagen plant, only represents a fraction of incremental revenues (8.6 per cent) across the supply chain.
Why did you choose to narrow the scope of your report and not include the rest of the supply chain? Obviously, it moves the break-even analysis out quite significantly if 91% or 92% of the supply chain is missing from your analysis.
4:30 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
What we did was look at the impacts of the construction and operation of these two plants—the direct impacts, the building of the plants and operations; the indirect impacts, the impacts on suppliers that will produce input to the plants; and the induced impacts or the job creation and economic impact created by having these jobs in communities.
We chose not to consider these other nodes because, as the Trillium Network report itself states, these other nodes will require additional government subsidies and government assistance to the tune of between 20% and 30%. We didn't include that because it's not happening yet. There's no guarantee that this will happen. As is stated in multiple pages of the Trillium Network, there's no guarantee that this will all take place domestically or take place in Canada. It could take place elsewhere.
The assembly of electric vehicles, for example, as you mentioned, is an important segment and an important part of the value chain. The most value added takes place in the assembly of electric vehicles. To my knowledge, there's not yet a Volkswagen plant for the assembly of electric vehicles in the country.
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Thank you for the response, but with due respect, I find that when you look at only one node, as you've admitted here, you're essentially excluding a lot of the indirect impacts across the entire value chain. Of course, that narrows the scope of your work and would change the....
I understand the point you're making about guarantees, but do we have any guarantees, truly, about what's going to happen in the future? We do not. I think you can admit that all economic impact assessment and modelling is based on a series of assumptions. Can you please comment on whether all the models, no matter what impact assessment you do, are based on a set of assumptions?
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
All of them have to be based on a series of assumptions, especially if you're looking into the future. The only way to have some level of certainty is to look at the past.
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
That's correct—yes. The probability of your future predictions being accurate is increased the more you look at the past and see those past behaviours. Is that right?
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
What was the IO model, the input-output model, that you used? Did you use a simulation model? Did you use a standard IO model? What cross-industry impacts did you really take into consideration?
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's not us; it's the Trillium Network.
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
I'm sorry. I don't mean to interrupt, but I just want to clarify. You relied on that IO model and didn't do your own. Is that right?
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Exactly. We looked at the Trillium Network study and the caveats and assumptions that they made to come up with their rather exhaustive and complete impact. It's over 100 pages. It takes into account an input-output model, which is simplified.
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Can I also clarify, though? Didn't you modify their assumptions to some degree? You relied on their IO model, but you only focused on one node. Isn't that correct?
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We focused on the nodes that were the subject of the subsidies that the government announced in April and July.
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Right. That excludes all of the rest of the indirect impacts, which we don't have guarantees on but could very likely, given a fulsome analysis of the transactions, take place across the entire value chain.
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
We excluded these other nodes because they would very likely, as the Trillium Network stated, require additional government subsidies. To include these other nodes that you mentioned, including the EV assembly plants that will require unknown amounts of subsidy, would be introducing an unknown into an equation where we're trying to estimate the payback period of—
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
Respectfully, can I dig into that a little bit further?
You're saying that you excluded those other nodes because they would have required additional subsidies. Why would additional subsides be a reason for excluding those additional nodes across the value chain?
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It is because the level of these subsidies is not known. The level of these investments is not known. That's why it's difficult to include, for example, an EV assembly plant when we don't know whether it will be built. We don't know whether it will be built in Canada. We don't what size it will take or the level of subsidies that will be required to have that additional EV plant in the country. It's very difficult to take into account lots of unknowns that may never materialize.
4:35 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
I think my point, Mr. Giroux, is that all of the modelling you're doing is based on a set of assumptions. In fact, all of it is essentially a construct that we're modelling to predict the future that we don't have any guarantees over.
Why would you have chosen a more narrow and, in my view, a slightly pessimistic view of how things will turn out in the future? That, obviously, changes the analysis and extends the break-even period to, you say, beyond 20 years.
You've said that you've been optimistic about that. I think you've been incredibly pessimistic about that.
4:35 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I think I've been quite optimistic to a large extent, in fact.
The reason we decide to use and how we decide to use certain assumptions versus others is based on our professional judgment as well as that of our peers. Also, the fact that when we look at studies that are provided to the government or to parliamentarians, we also have to look at what the ultimate objective of the authors of these studies are. If they're doing a study to promote certain interests, we have to take the assumptions that they use with a certain grain of salt, knowing where they are coming from.
In my case, I work for parliamentarians. I work for the benefit of the taxpayers and Canadians, so I don't have a vested interest in being overly optimistic or overly pessimistic.
4:40 p.m.
Liberal
Ryan Turnbull Liberal Whitby, ON
We have a vested interest in building an EV supply chain to help increase the economy, fight climate change, meet the demand and make these once-in-a-generation investments, so in a way, doesn't government action in the future actually impact the model in terms of how certain we can be it will turn out positively or negatively?
4:40 p.m.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I'm not sure I can comment on what the overall impact of these investments will be on society. My motivation in doing this was to look at whether the stated payback period for the government was really five years or if it was longer or shorter than that.
The appropriateness of the policy is beyond my mandate. It's up to people like you and legislators to decide whether it is appropriate to provide these types of investments, taking into account much more than just numbers and government revenues.
4:40 p.m.
Liberal