International Trade Committee on Nov. 22nd, 2022

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Mr. Masterson, do you have any comments about carbon border adjustments to level that playing field?

[Bob Masterson]

I think they'll be incredibly complex, and by the time we figure them out, it will be too damaging.

Just to be clear, our sector is not against carbon pricing. The proposals I talked about have all been introduced despite the Canadian carbon pricing going to $170 per tonne within the next decade.

It can be a major incentive, but we have to ask what we are doing with the revenues. If those are simply moved out of the productive sectors and set aside for other reasons and we're not putting things back in the way the American IRA does, then we have a significant problem.

Yes, it can spur on the type of activity we want, but we still have to think about what the cost of capital is at the end of the day, and whether Canada is maintaining a competitive landscape to attract these investments.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We will go to Ms. Lewis. Welcome to the committee today. It's nice to have you here.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

Thank you, Madam Chair.

I thank the witnesses for their testimony today.

My first question is for Dr. Dufour, through the chair.

Thank you, Dr. Dufour, for your explanation of the illegality of the IRA.

You highlighted three points that I find very interesting. They are the violation of the national treatment principle, the violation of the most favoured nation status under the GATT and the violation of the Subsidies and Countervailing Measures Agreement.

I'm sure that you're familiar with the Canada feed-in tariff case that was before the dispute settlement body. They actually invoked an exception under, I believe, section 8 for the Subsidies and Countervailing Measures Agreement. The exception was that if there's a new industry, that would not be deemed to be a violation of the most favoured nation status under the GATT.

Do you believe that the U.S. would invoke this exception and perhaps even have climate change viewed as a global public good? Because these industries will be new industries, do you think that this would be a viable exception?

[Geneviève Dufour]

Thank you for that very technical question. I'm not sure I've considered all the factors you mentioned.

That said, I've read much of what experts have been saying since August, and I haven't come across anyone who has raised that. It's a tough question to answer, but, on the surface, I don't think that exception could be invoked.

Frankly speaking, it would be pretty hard for the Americans to justify their legislation. I didn't provide a proper legal opinion earlier. I kept my comments more general. The U.S.'s Inflation Reduction Act of 2022 contains a lot of measures, but that doesn't mean that each of those measures amounts to one of the violations I mentioned. Everything really has to be dissected.

All of the experts whose comments I have read or with whom I have spoken have been pretty unequivocal about the act: it really violates the basic tenets of international trade and very few exceptions could be invoked to warrant its implementation. Certainly, the U.S. could cite national security in relation to the countries of concern, but it probably couldn't invoke national security as grounds for all the measures in the act.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

Thank you so much, Dr. Dufour.

My next question is for Mr. Masterson.

You highlighted that the criteria to get on the “good” list aren't transparent. That's highly problematic, because if we're very serious about protecting the environment, we want transparency. Even though the IRA framework is not the perfect framework, at least there is a framework.

Do you believe that Canada needs a similar framework? Without it there's a lack of transparency, and I'm assuming that would present some barrier to economic development.

[Bob Masterson]

Absolutely. Let me share with you an example.

Alberta has a major chemical-producing sector that had no new investments for more than two decades. The NDP government introduced 500 million dollars' worth of tax credits. It was a competitive process. They selected two, with over seven million dollars' worth of proposed investments, but here's the thing: They had 26 applicants and they had to turn away more than $40 billion in investment because they had to pick winners and losers.

In Alberta, the government eventually moved to the U.S. state-style approach, which is, “Here are the criteria, and if you meet these criteria, you qualify for these incentives.”

In Alberta, our sector now qualifies, if you have the right investment, for 12% to 15% of the capital cost of the project. Suddenly, now I'm here before you telling you that we have 15 projects worth $30 billion to $40 billion of proposed activity.

That's the illustration of the difference between saying, “We have some money, so make an application. It depends on the government of the day and it depends on whether you're on the naughty list. We don't know the criteria, so you might win or you might lose” and saying, as the U.S. does, “It's available to everybody; bring your capital. We want your capital”.

It's pretty clear.

[Leslyn Lewis, Conservative, Haldimand—Norfolk, ON]

Do you know how to get on the naughty list?

[Bob Masterson]

No. I'm just trying to use something different than the carrot and the stick. You've heard about carrots and sticks a lot. I thought I'd try to spice it up for you.

[The Chair, Liberal, Judy Sgro]

It's much spicier. It's much more interesting. Thank you.

We have Mr. Miao for five minutes, please.

[Wilson Miao, Liberal, Richmond Centre, BC]

Thank you, Madam Chair. Thank you to all the witnesses for their testimony to the standing committee.

First I would like to ask Mr. Eaton a question through the chair.

Your website makes mention of how clean innovation and growth is essential to the Canadian economy across all industries. Which sectors have the greatest opportunity to implement clean innovation? How can Canadian companies use programs such as the Canada growth fund to accelerate clean innovation?

[Derek Eaton]

Thank you.

I think the sectors that we've identified as offering the greatest opportunities for clean growth in a net-zero transition are the ones that I mentioned at the beginning: electric vehicles and the battery supply chain; carbon capture utilization and storage as a sector or a technology; biofuels, especially sustainable aviation fuels; hydrogen; alternative and plant-based proteins; mass timber and related forest wood products; critical minerals, again related to the battery supply chain; and ag tech.

These are areas where decarbonization involves a tremendous amount of innovation. In some cases it's much more advanced, as we know, as in the case of hydrogen, as we've heard today. In some of these other areas, a much longer research or innovation pathway is required.

I do agree with what is being said by some of my fellow witnesses: We do need investments. We see that the Inflation Reduction Act makes clearer incentives than we have in Canada. Some of these sectors, for the investments especially to pursue these innovation pathways, require a certain amount of coordination.

We can think about the overall investment envelope that we're talking about. The figure that was mentioned earlier in this session, for example, that was estimated by RBC, was $2 trillion in total, or $80 billion per year. Actually, the capital is scarce. We need to take a strategic approach to ensure that particularly for these growth opportunities.... The reason we're worried about the growth opportunities is that at the moment, 20% of our exports of goods and services come from the oil and gas sector. Over the next 20 to 30 years, we can likely expect the value of those exports to decrease. Where is the value going to increase across our other sectors?

That's why we look at these emerging innovative green or clean competitiveness opportunities.

[Wilson Miao, Liberal, Richmond Centre, BC]

Thank you.

You also co-authored an article in the National Observer on how the Inflation Reduction Act “paves a path for Canadian action on clean growth”.

What aspect of the recent fall economic statement positioned Canada to realize the potential for clean growth? What steps do you think the government should take to further its action on it?

[Derek Eaton]

The fall economic statement advances a little more clarity on a couple of points, in particular the Canada growth fund, which is a key instrument of our net-zero industrial policy, although there are still question marks there. That's perhaps the brightest light within the fall economic statement.

I would say that some of the announcements around our tax credits are perhaps encouraging, but we're failing to provide the certainty in terms of the actual specifics of those instruments as well as the certainty in terms of the actual mechanics. An example is hydrogen. Are we providing tax credits based on an overall investment, or are we providing, as in the U.S., tax credits based on a kilogram of hydrogen produced?

There are some encouraging signs, but I think what I would like to emphasize is that even with the Canada growth fund, we are concerned that we're creating an array of funding instruments from the strategic innovation fund to the net zero accelerator initiative to the Canada growth fund, and each of these is being set up effectively in isolation from the others. There are certain barriers to pursuing particularly these medium-term investment pathways that are not going to be overcome. It's going to be too difficult for the market participants to work out where those pathways are and to access and combine these various financing mechanisms. Although in general they are well conceived, it's the strategic aspect of them that's important—identifying where the strategic opportunities are and ensuring that those funds are aligned with strategic opportunities. That means taking more than a passive approach and just accepting applications.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Thank you to all of our witnesses. We do not have sufficient time to start another round, so I want to thank you all for very valuable information and for sharing your time with us today.

I will suspend for two minutes, and then we have to go into committee business following the suspension.

[Proceedings continue in camera]