International Trade Committee on Nov. 18th, 2022

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call to order meeting number 37 of the Standing Committee on International Trade.

Today's meeting is taking place in a hybrid format pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.

I would like to make few comments for the benefit of the witnesses and members.

Please wait until I recognize you by name before speaking. When speaking, please speak slowly and clearly. For those participating by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking.

With regard to interpretation, for those on Zoom, you have the choice at the bottom of your screens of floor, English or French. For those in the room, you can use the earpiece and select the desired channel.

As a reminder, all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard. Please also know that during the meeting, you're not permitted to take pictures in the room or screenshots on Zoom.

In accordance with the committee's routine motion concerning connection tests for witnesses appearing by video conference, I'm informing the committee that all witnesses have completed the required connection test in advance of the meeting.

Should any technical challenges arise, please advise me. Please note that we may need to suspend for a few minutes to ensure that all members are able to participate fully.

Is everything good with our interpreters, Madam Clerk? It looks like everything is functioning properly.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Tuesday, September 20, 2022, the committee is resuming its study of potential trade impacts of the United States Inflation Reduction Act of 2022 on certain firms and workers in Canada.

We have with us today, from the Business Council of Canada, Trevor Kennedy, vice-president of trade and international policy, by video conference. We have, from the Carbon Infrastructure Partners Corporation, Craig Golinowski, president and managing partner, by video conference. From the Explorers and Producers Association of Canada, we have Chris Montgomery, vice-president of policy. We have the Parkland Corporation, represented by Ryan Krogmeier, senior vice-president of supply, trading and refining. Finally, from the United Steelworkers union, we have Meg Gingrich, assistant to the national director, by video conference.

Welcome to all of you.

Can everyone who is participating by video conference please turn on your camera?

[Colin Carrie, Conservative, Oshawa, ON]

Excuse me, Madam Chair, but I have a hard time hearing you. I can see you talking, but for some reason I can't hear you. Could we run another quick check?

[The Chair, Liberal, Judy Sgro]

Yes.

Go ahead, Madam Clerk.

[The Clerk of the Committee, Ms. Dancella Boyi]

Mr. Carrie, can you hear me speaking?

[Colin Carrie, Conservative, Oshawa, ON]

I can hear you now. Thanks.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

I'm also being told that no one can hear the sound through the Zoom application. It has nothing to do with Mr. Carrie.

[The Chair, Liberal, Judy Sgro]

Do you want me to try reading out—

[Craig Golinowski, President and Managing Partner, Carbon Infrastructure Partners Corporation]

I'm still unable to hear the chair speaking.

[Trevor Kennedy, Vice-President, Trade and International Policy, Business Council of Canada]

I can't hear anything either.

[Meg Gingrich, Assistant to the National Director, United Steelworkers]

Neither can I.

[Trevor Kennedy]

I'm glad it wasn't just me.

[The Chair, Liberal, Judy Sgro]

No, it wasn't.

We'll have to suspend for a few minutes.

[The Chair, Liberal, Judy Sgro]

I'm calling the meeting back to order.

Please raise your hand or shout if you cannot hear.

Everybody is good. Nobody is raising their hand and nobody is hollering.

Welcome to all of you.

Go ahead, Mr. Virani.

[Arif Virani, Liberal, Parkdale—High Park, ON]

Could I raise an administrative matter for 30 seconds?

[The Chair, Liberal, Judy Sgro]

Yes, if it's 30 seconds.

[Arif Virani, Liberal, Parkdale—High Park, ON]

It will be 30 seconds.

Madam Chair, I've had discussions with representatives of all of the parties, and I'm wondering if, with consensus, the committee could direct the clerk to inquire as to whether our Friday meetings might be able to commence at 12:30 instead of 1:00, which would facilitate many of us getting back to our ridings earlier on Friday afternoon.

Thank you.

[The Chair, Liberal, Judy Sgro]

We'll do that inquiry. Is everyone clear on that? Whether we can do it or not will depend on discussions with the interpreters, the departments and the rest of it, but it is a point well raised. We will report back at our next meeting if we can or as soon as possible.

Mr. Kennedy, you have up to five minutes.

Go ahead, please.

[Trevor Kennedy]

Thank you, Madam Chair and committee members, for inviting me to comment on the trade impacts of the Inflation Reduction Act. I'm going to refer to it as the IRA today.

Canada's prosperity and living standards depend on trade, the bulk of which is with the United States. A previous version of the IRA, the Build Back Better Act, would have discriminated against Canadian-assembled automobiles and severely undermined the integrity of our integrated auto sector.

We therefore were pleased to see that the IRA created a clear carve-in for North American goods and content in the battery electric vehicle supply chain. Unfortunately, in a number of other areas, the IRA poses a clear challenge to Canadian competitiveness and, by extension, Canada's ability to attract and retain investment. Our economy is going through a once-in-a-century energy transition. If Canada does not take action soon to respond to the IRA's generous support incentives for the clean economy, we could see a significant shift in long-term trade flows across North America, combined with a loss of well-paid jobs.

In the fall economic statement, the Deputy Prime Minister announced new investment tax credits for clean technology and clean hydrogen. She said the government is committed to making it more attractive for businesses to invest in Canada to produce the energy that will power the net-zero global economy.

Unfortunately, there's a significant lack of detail about those tax credits. For example, imagine you're an investor looking to build a major wind-to-hydrogen project of the sort that the Prime Minister and the German Chancellor discussed this summer. For a project like that, you need wind turbines. The fall economic statement said there will be a 30% tax credit for the purchase of those turbines. That's a start, but investors will want to know whether the tax credit will apply to the cost of the foundation on which the turbines sit. Does it apply to the labour that will be required to build the turbine, and what about the road that must be built to the site of the turbine and so on? Until those details are available, a project of this sort is unlikely to go ahead.

I should point out that investment decisions are being made not just in the energy sector. Across our economy in sectors as diverse as agri-food, manufacturing and retail, Canadian companies have made ambitious commitments to achieve net zero. If you're a company with operations in Canada and the U.S. and you're looking to invest to reduce your carbon footprint, the incentives are better and the rules are clearer in the United States.

In the fall economic statement, the government listed a number of areas in which it plans to bring forward significant measures or additional actions to level the playing field between the U.S. and Canada. This includes the launch of the Canada growth fund, specific labour conditions that will apply to companies receiving the 30% clean technology investment tax credit, any additional technologies that will be eligible for the tax credit and further measures to incentivize clean-tech manufacturing.

To repeat what I said earlier, the details surrounding these measures need to be defined as soon as possible, and we can't afford to delay. That's why the Business Council of Canada has called on the government to bring forward its next budget in the first quarter of 2023, and ideally before the end of February, consistent with the traditional budget cycle.

Also, in budget 2023, the government must follow through on recent commitments to improve regulatory certainty and expedite approvals for natural resource projects such as LNG, critical minerals and clean electricity. The Deputy Prime Minister has spoken about the need to make progress in those areas so that Canada can help our international partners improve their economic security and achieve their climate change goals.

In closing, let me repeat that in the face of the IRA and a rapidly changing global environment, Canada must act with urgency to secure its fair share of investment and economic activity. Failure to do so will have a significant impact on future North American trade flows for the years ahead.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Golinowski, you have five minutes.

Go ahead, please.

[Craig Golinowski]

Thank you, Chair. It is an honour to be invited to present on these critically important issues.

We're hear to discuss the Inflation Reduction Act generally, and I will speak more specifically to the deployment of carbon capture and storage and how that relates to the United States and Canada.

First, in the recently passed Inflation Reduction Act, the United States significantly upgraded the 45Q tax credit for CCS in both value and ease of use, particularly by introducing the direct pay mechanism. The value for carbon capture was increased so that geologic storage is eligible for $85 U.S. per tonne, and enhanced oil recovery is eligible for $60 U.S. a tonne. In effect, the United States will now become the largest buyer of carbon in the world. That's unique and notable in that the United States sees that its role is to buy carbon at scale.

Second, the United States understands that to attract capital markets to carbon capture and carbon management generally, the economic signal needs to be strong and clear. If the government overpays for carbon in the near future, industry will create scale and, through economies of scale, reduce costs. Therefore, over the medium term, the government will end up getting more tonnes of CO2 per dollar committed, so policy certainty and ease of converting carbon credits into cash are two critical features of the Inflation Reduction Act.

Third, if Canada continues not to be competitive on CCS and carbon management, investment capital from Canada in our pension sector and the banks will in fact be deployed into the United States, creating industrial jobs there and helping the United States achieve their 2050 goals.

Fourth, Canada must increase policy certainty of carbon pricing through perhaps a contract for differences or a production tax credit, and increase the ease of converting carbon credits into money through either a contract for differences mechanism or a direct pay mechanism.

These themes of increasing certainty, increasing value and increasing the ease of turning carbon credits into cash are what Canada must be moving towards.

I want to conclude by saying that support for carbon capture is not a subsidy to oil and gas. It's a critical investment in reaching net zero. It's essential for the cement industry, the steel industry, the power industry and the ammonia fertilizer industry.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Montgomery, you are next, for five minutes please.

[Chris Montgomery, Vice-President, Policy, Explorers and Producers Association of Canada]

Thank you, Chair.

It is a pleasure to be here today on the unceded traditional territory of the Algonquin people to discuss two different approaches to climate policy by Canada and the United States.

I'm here representing the Explorers and Producers Association of Canada. EPAC represents over 80 Canadian upstream oil and natural gas producers that produce more than 60% of Canada's natural gas and more than 30% of the country's oil, primarily from conventional resources.

EPAC members are reducing their GHG emissions, as evidenced by the national inventory report. Specific efforts include significant reductions in methane emissions, the operation of existing and advancement of future CCUS projects, and diversification into hydrogen and renewable resources.

Canada has taken a compulsory policy approach to climate ambition that includes a price on carbon, prescriptive regulations for methane, the clean fuels regulation and a proposed emissions cap on the sector. On the other hand, the United States Congress has failed to pass meaningful climate policy and is instead providing billions of dollars in cash and tax incentives through the Inflation Reduction Act, or IRA, to achieve reductions. The Supreme Court of the United States has also consistently undercut the ability of the President to regulate the oil and natural gas sector through executive order. The contrast in approaches has made it more challenging to attract investment into Canada for the deployment of emissions reductions technology, and it undercuts the clean-tech ecosystem that traditional industries have spurred here in Canada.

As the Deputy Prime Minister has acknowledged, Canada must correct this cross-border disadvantage by shifting its focus from a pure sticks approach to one that includes more carrots in order to maintain the country's climate leadership. EPAC has proposals to address two specific gaps created by the IRA in CCUS and methane mitigation.

First, regarding CCUS, members should know that EPAC represents the operators of three of the four largest operating CCUS facilities in the country and has other members that are actively investing in new CCUS projects and technologies. The government should be congratulated for its CCUS investment tax credit, or ITC, which helps make these projects more economical. However, with the IRA including a guaranteed tax credit of $85 per tonne of carbon sequestered, capital for CCUS projects has shifted from Canada to the United States. As publicly stated by Entropy, a subsidiary of EPAC member Advantage Energy, this is because enhancements through the IRA have created a stronger CCUS incentive market in the United States with significantly more carbon pricing certainty.

The government can close the gap created by the IRA in three ways: by introducing a production tax credit in line with the IRA, which would be EPAC's preferred approach; increasing the inclusion rate of the current ITC; and guaranteeing a floor price on carbon through a version of carbon contracts for difference.

Second, Canada is a world leader in methane emissions reductions and is set to lower these emissions from oil and gas by 40% by 2025. Canada risks losing its leadership position because of the $850 million the IRA provides to the U.S. oil and gas industry for methane monitoring and mitigation. However, Canada can maintain its leadership position and further reduce emissions provided government maintains a reasonable regulatory approach and provides targeted supports to reach the most difficult emissions. To this end, EPAC recommends that government repurpose unallocated money from the emissions reduction fund, which is money already committed to industry to help monitor emissions, advance needed technological development and further gas conservation efforts.

Thank you to members for the time.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We have Mr. Krogmeier, please, for up to five minutes.

[Ryan Krogmeier, Senior Vice-President, Supply, Trading and Refining, Parkland Corporation]

Madam Chair and honourable members, thank you for the opportunity to attend today's meeting.

My name is Ryan Krogmeier. I am the senior vice-president of supply, trading and refining at Parkland Corporation. We are a Calgary-headquartered Canadian multinational company with a presence in 25 countries, including Canada and the United States, and those in the Carribean and Central and South America. Every day we serve over one million customers through our consumer brands, which include Chevron, M&M Food Market, Ultramar, Pioneer and many others.

We also own and operate a refinery in Burnaby, British Columbia, that currently supplies about 25% of B.C.'s transportation fuel and 30% of Vancouver International Airport's jet fuel. We were the first in North America to use our existing refinery infrastructure to coprocess such renewable feedstocks as Canadian canola and tallow alongside conventional crude oil to produce fuels that have less than one-eighth of the carbon intensity of conventional fuels.

Earlier this year, we announced plans to increase our low-carbon leadership by building a stand-alone renewable diesel complex within the Burnaby refinery and exploring the possibility of producing sustainable aviation fuel. Once completed, these projects will help reduce related greenhouse gases by approximately two megatonnes per year. This is the equivalent of taking more than 700,000 cars off the road, or approximately 25% of B.C.'s passenger vehicles.

The North American fuel market is very integrated, meaning that Canada competes with the United States for investment and supply of biofuels and low-carbon fuels. Today, Canadian producers stand to be at a competitive disadvantage with our counterparts in the U.S. due to governmental incentive imbalances between the two jurisdictions.

The Inflation Reduction Act's passage expands several provisions that incentivize the production of biofuels, such as the blender's tax credit and a producer tax credit. Furthermore, the IRA creates a new credit for the use of sustainable aviation fuel. Given that no comparable incentives exist in Canada at present, the impact of these tax credits in the United States places Canadian producers of low-carbon fuels at a competitive disadvantage. They allow American producers to create low-carbon fuels at a lower net cost, possibly to export into the Canadian market and sell at a lower cost, and they consequentially discourage demand for domestically produced low-carbon fuels.

A supportive incentive environment is needed to ensure a level playing field for domestic low-carbon fuel production and to ensure that compliance with domestic regulations, such as the clean fuel regulations, is not done entirely via imports from other markets. Relying on importing low-carbon fuels would also hinder growth within several Canadian industries, including agriculture and forestry, whose feedstocks are used in the production of low-carbon fuels that contribute to our nation's emission reductions.

With these considerations in mind, I would like to table the following recommendation. The Government of Canada should rapidly pursue new support mechanisms for low-carbon fuel production domestically, including the introduction of equivalent low-carbon fuel producer tax credits in budget 2023. Tax credits should apply to all low-carbon fuels produced, blended or coprocessed in Canada for a period of at least 10 years, and should acknowledge the additional supports needed for Canada to produce sustainable aviation fuel. These tax credits or equivalent supports would not only encourage the development of low-carbon fuels in Canada, but also provide investment clarity and certainty for domestic producers and the associated supply chain.

In closing, we encourage the committee to carefully examine the economic implications of the Inflation Reduction Act for Canadian producers of low-carbon fuels. We were pleased to see in the government's fall economic statement the acknowledgement that these incentive imbalances between the two jurisdictions will pose a competitive challenge to Canadian companies and the recognition that additional measures will be needed in budget 2023 for biofuel producers. We look forward to further details on these measures.

Thank you again for your time. I welcome any questions you may have.

[The Chair, Liberal, Judy Sgro]

Thank you very much, sir.

Ms. Gingrich, you have five minutes, please.