International Trade Committee on Nov. 29th, 2022

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

I'm calling to order meeting number 40 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, and therefore members are attending in person in the room and remotely using the Zoom application.

I need to make a few comments for the benefit of 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 screen of either the floor, English or French. For those in the room, you can use the earpiece and select the desired channel.

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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 and our translators are connected and looking forward to helping us through our meeting. Should any technical challenges arise, please advise me and we will suspend in order to ensure that all members have access to translation.

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.

Today as witnesses we have with us from the Canadian Agri-Food Trade Alliance, Claire Citeau, the executive director.

Welcome back again.

From the Canadian Association of Energy Contractors, we have Mark Scholz, president and chief executive officer, by video conference. From the Canadian Renewable Energy Association, we have Evan Wilson, senior director of policy, regulatory and government affairs, by video conference. From Electricity Canada, we have Francis Bradley, president and chief executive officer. From Renewable Industries Canada, we have Don O'Connor, an adviser, by video conference.

Thank you to all our witnesses for making the time to participate today.

Ms. Citeau, I invite you to make an opening statement of up to five minutes, please.

[Claire Citeau, Executive Director, Canadian Agri-Food Trade Alliance]

Thank you, Madam Chair.

Good morning.

I'm pleased to be here to share preliminary views on behalf of Canada's agri-food exporters on how the American Inflation Reduction Act—or IRA—may impact our sector and what we believe Canada's response should be.

As you know, the IRA offers major tax and funding incentives to build out the clean energy sector in the U.S. As a result, Canada is responding with its own set of incentives, many of which were recently announced in the fall economic statement.

Given that our mandate focuses solely on trade liberalization, I’m going to focus my remarks on one main trade policy theme, which is the need for Canada to remain globally competitive in the agri-food sector by increasing its investments in manufacturing and ensuring parity in investment manufacturing with our global competitors.

Within the IRA, $40 billion is being earmarked for agriculture, forestry and rural economic development, with nearly half of that for conservation programs. The act is also providing over $3 billion in loans to farmers, ranchers and foresters in underserved areas. To be clear, CAFTA members are not looking for loans or direct payments such as those found in the IRA.

Canada is the fifth largest global agri-food exporter, so countries around the world depend it for their food security. To do so, exporters must have competitive access to world markets guided by the principles of rules-based trade. We also need to ensure that Canada remains a competitive jurisdiction. For agriculture and food, investment in food machinery and equipment in particular has been on a steady long-term decline in Canada.

A recent report by the C.D. Howe Institute titled “Weak Business Investment Threatens Canadian Prosperity” reveals that manufacturing and equipment investment in Canada has been flat since 2009. The report explains that much lower investment per worker in Canada than abroad tells us that businesses see less opportunity in Canada.

Canada lags behind the United States and other OECD countries regarding investment. Between 2015 and 2019, manufacturing investment across 31 OECD countries averaged a total of $1.77 trillion per year. Canada attracted less than $22 billion annually, accounting for only 1.2% of the OECD total, which is the lowest proportion among our G7 counterparts and Mexico. By comparison, the U.S. received 23 times this amount, while Mexico received 10 times our amount.

Similarly, in the crop sector, investment parity with the U.S. is key to unlocking Canada’s full potential as a biofuels producer. Today, biofuels are the only viable, low-carbon energy alternative for powering vehicles such as tractors, heavy-duty and transport trucks, buses, locomotives, and mining and forestry equipment. The fuel market is integrated across North America and Canada competes with the U.S. for investment. The U.S. has several well-established programs that have created a robust biofuels production industry. The IRA introduced a suite of new tax credits that will apply to fuel produced at a qualified facility in the U.S.

The IRA, as such, incentivized production in the U.S., which will ultimately influence the investment climate in the renewable fuel production space in Canada. Investments are necessary to help enable biofuel production in Canada and help support a domestic market for agriculture feedstocks grown in Canada.

To summarize, the IRA poses a challenge to Canada's ability to attract and retain investment, and by extension, to Canada’s global competitiveness.

As I conclude, I’ll reiterate one of CAFTA’s core beliefs and its primary raison d’être by saying that as a trading and export-dependent nation, we know what our recipe for success looks like when it comes to agri-food exports. We must remain a forceful global champion for free and rules-based trade and be competitive in global markets.

The IRA has made clear that the U.S. intends to lead in a variety of sectors going forward. This is forcing Canada to respond or risk losing investment, market share and overall speed to market. With the right policy choices at home, we can make this happen. This is also precisely why our members have asked for more industry-government collaboration—to prevent issues from becoming problems.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. Citeau.

We'll go on to Mr. Scholz for up to five minutes, please.

[Mark A. Scholz, President and Chief Executive Officer, Canadian Association of Energy Contractors]

Thank you very much, Madam Chair and members of the committee.

My name is Mark Scholz. I'm the president and CEO of the Canadian Association of Energy Contractors. We represent 97 drilling rig and service rig members on the front lines of energy security and transition that currently operate a fleet of 456 land drilling rigs and 755 service rigs in northeast British Columbia, Alberta, Saskatchewan, Manitoba and offshore Newfoundland.

Our workers and member companies will be in higher demand as development continues to grow for geothermal; helium; carbon capture, utilization and storage; natural gas; in situ hydrogen; lithium extraction from brines; and potash, to name just a few. We are excited to not only move forward with the development of emissions reduction technologies but also set a global standard and road map for developing sustainable resources, building upon our record as the world's premier responsible energy supplier of choice.

While we understand that Canada cannot respond in kind to the Inflation Reduction Act given our market size and structure, our association recommends that Canada work within its own policies to spearhead innovation in energy transition and give us the tools needed to lead decarbonization efforts, thus not only matching U.S. ambitions but also surpassing American climate mandates.

To that end, our association has developed a white paper that recommends that the federal government introduce a refundable tax credit for up to 50% of the capital investments required to accelerate the deployment of carbon-abating technologies in the energy services sector. Our members want to switch from diesel to proven less carbon-intensive technologies. This policy would significantly advance emission reduction in the industry, helping Canada meet its targets under the 2030 emissions reduction plan and outrun the U.S. on decarbonization within our sector.

We have provided a copy of that report to the clerk and the committee. We would urge the committee to consider its recommendations.

Most recently, we were encouraged to see some of our white paper concepts reflected in the federal government's 2022 fall economic statement. The government's continued support for the innovation and workers necessary to grow Canada's economy was indicated in the inclusion of the clean technology investment tax credit and the various labour provisions. Both these pieces are significant to remain competitive in Canada, as losing investments domestically directly affects the projects and sites we work on.

To further our competitive advantage, we recommend that the clean technology ITC be clarified to specifically capture drilling rig and service rig technologies for the 30% refundable tax credit and to provide a partial carve-out for drilling and service rig technologies that would significantly decarbonize projects by 20% to 30%. We want to decarbonize some of the highest-emitting technologies to draw on hydrogen, electricity and other clean energies. In particular, we want to move some of our rig technologies off diesel to lower-emitting natural gas when operating in regions without infrastructural capacity for a full net-zero technology transfer.

Labour was also a notable piece to us in the fall economic statement, as one of the greatest challenges facing our sector is the shortage of skilled personnel. We are glad to see the energy workforce's concerns and the proposed implementation of the sustainable jobs training centre and the sustainable jobs secretariat. Again, we would encourage the inclusion of our sector in this work as we lead the transition to cleaner energy sources.

With drilling activity and job creation finally on the slow rise after a seven-year slump, and knowing that the future of clean energy runs through our workforce, it is vital that we have enough workers to realize our emissions reduction goals. We need to ensure that we are neither losing our people to the other side of the border over better labour advancements nor losing investments and funding for our industry as a whole.

Madam Chair, I would like to thank the committee for this opportunity. I look forward to the questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Scholz.

Mr. Wilson, you have up to five minutes, please.

[Evan Wilson, Senior Director, Policy, Regulatory and Government Affairs, Canadian Renewable Energy Association]

Thank you, Madam Chair, and committee members for the opportunity to provide comment today on the impacts of the Inflation Reduction Act on renewable energy in Canada.

CanREA, or the Canadian Renewable Energy Association, is the national industry association representing wind energy, solar energy and energy storage in Canada. Our members deliver low-cost, reliable and scalable solutions to meet Canada's net-zero commitments.

First, I will give a quick outlook on our sector. Currently, renewables meet about 7% of our electricity demand in Canada, with 15 gigawatts of wind and 4 gigawatts of solar capacity across the country, most of it deployed since 2005. The CER's 2021 energy future report projects that wind and solar capacity in Canada will grow by 83% by 2040 based on current policies, and by 239% in the evolving policies scenario.

Looking ahead at net zero—which is not included in any of these scenarios—we need to figure out ways to accelerate wind, solar and energy storage deployment in order to meet our net-zero goals.

CanREA's 2050 vision provides a three-step process to meet net-zero by 2050. First, is grid decarbonization by 2035. Second, is electrification of nearly all energy needs, powered by an expanded clean grid. The third is the use of green hydrogen to provide energy for hard-to-decarbonize sectors in our economy.

Low-cost solar and wind will be foundational for all three of these steps. They not only provide the lowest-cost electricity, but they are mature technologies. They can provide proven, effective emissions reductions today, without the need to wait for R and D or commercialization.

Our vision concludes that we need to increase wind and solar capacity by over tenfold in the next three decades. We need to attract $8 billion in investment annually in order to power this transition and create 800,000 direct and indirect person-years of employment.

The Inflation Reduction Act makes this more complicated than it was six months ago. It's really been a game-changer for our sector. Canada's response to the IRA will be critical for our ability to meet net zero.

The IRA sets out a framework for investment in grid decarbonization and has created an environment that our members say is like a gravitational pull attracting investments to the U.S. We're now facing a fierce competitive landscape. Absent an effective response, we may delay Canada's net-zero success.

This isn't just about the dollars spent in the IRA. There are also a number of policy issues that are impacted, creating a competitive destination in the U.S. That includes long-term certainty over 10 years. We know what the programs will look like over 10 years.

There is a strategic approach that links renewable generation investments to infrastructure that supports them. Transmission, supply chains and the like are also covered by the IRA.

There's also the well-timed distribution of incentive dollars, which pushes investments over the line rather than coming late in the process.

We really need to think about how we match the strategic ambition of the IRA to ensure that we get investments to support net zero in Canada. If we move rapidly enough on this, there is time to do so.

We want to acknowledge that Canada has shown strong leadership on net-zero emissions via regulations like carbon pricing, a commitment to a net-zero grid by 2035, as well as by investing almost $15 billion annually in net-zero spending.

These are really commendable efforts and we do want to celebrate them. But to succeed, we need to take even further steps to match the IRA. I get a lot of questions about what this looks like. We think that overall the steps that were announced in the fall economic statement are a really positive start to this conversation, both with the acknowledgement of the IRA and the commitment to refundable investment tax credits for wind, solar, energy storage as well as green hydrogen. Efforts that Mr. Scholz talked about regarding employment are also very important. We look forward to working to support all of these efforts.

Other steps that could be taken to match the IRA include stronger regulatory signals that provide long-term certainty with the development of a longer term carbon pricing so we know what carbon pricing will look like—at least in 2040 and in the net-zero era—and a strong and effective clean electricity regulation. As well, financial support for things like transmission and smart grids can help get clean electrons to market. We think federal participation will be crucial to ensure accelerated deployment and affordability across the country. As well, strategic focus on supply chain development will help relieve ongoing pressure and potential backlogs and ensure that they're not compounded by the impacts of the IRA.

We think that these steps will result in emissions reductions now and set Canada on an effective, affordable and achievable path to net zero.

Thank you to members and the chair for the opportunity to present today. I look forward to our conversation.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you, Mr. Wilson.

We'll go to Mr. Bradley for up to five minutes, please.

[Francis Bradley, President and Chief Executive Officer, Electricity Canada]

Thank you, Madam Chair.

I would like to thank the members of the Standing Committee on International Trade for inviting our organization to take part in this important study.

My name is Francis Bradley and I am president and chief executive officer of Electricity Canada.

Electricity Canada is the national forum and voice of the electricity business in Canada. Our members generate, transmit and distribute electrical energy to industrial, commercial, residential and institutional customers across Canada.

We're here today to study the potential trade impacts on Canada of the United States' Inflation Reduction Act. In essence, this is a conversation on how Canada is to remain competitive in the face of massive U.S. federal investments in support of climate priorities and the energy transition.

For the electricity sector, the IRA presents a significant challenge in attracting and retaining clean energy investments in Canada. Our concern is that investors will see the United States as a more appealing jurisdiction to make clean energy investments in. This risks slowing our own progress towards the decarbonization of our grid.

The recent fall economic statement is a good first step in ensuring that we keep pace with the United States and remain competitive in attracting investments. Electricity companies in Canada have been asking the government to accelerate investments and to develop the mechanisms that will enable us to make Canada’s grid green by 2035 and bring the country to net-zero carbon emissions by 2050. The fall economic statement begins that process of acceleration.

In particular, we are pleased to see the launch of the Canada growth fund, which will reduce risk and support investment and deployment in clean technologies like CCUS and hydrogen that will be necessary to build a non-emitting electricity grid.

The $250 million investment in training will help build a labour force that will meet the needs of our net-zero future.

The funding to accelerate approvals for major projects by expanding the capacity of regulatory bodies will be vitally important, given the large infrastructure challenges facing us over the coming years.

The FES includes investment tax credits, or ITCs, for a broad range of electricity technologies like small modular reactors, battery storage and wind, solar and water power. Electricity Canada is pleased to see these incentives.

Canada must keep up the pace. The government must accelerate the realization of a stable and supportive investment climate. The FES begins that process and puts us on the right track, but more is needed. We are hopeful that this trend will continue in budget 2023.

In building on the FES, we look forward to continuing the conversation to maximize these efforts, first by finding ways to support non-tax paying groups like Crown corporations, municipalities, and indigenous groups. Second is expanding supports for large hydro and nuclear projects, which will be a key part of that energy transition. Third is prioritizing technology agnosticism in clean technology supports to allow for all to compete on an even playing field, including emerging technologies.

The government must also remove undue cost, delay and impediment for clean electricity project developments and operation. We recognize that the FES does take a step in that direction by providing additional funding to regulatory bodies. We look forward to seeing how this is implemented and hope to have the opportunity to participate in that process.

Electricity Canada will be submitting a letter to the Department of Finance in the coming weeks on ways to address these. We’d be happy to share these suggestions with the committee once this is finalized.

The Inflation Reduction Act reminds us that we must move faster, not only to remain competitive with the United States but also to meet our own climate objectives. Addressing climate change and building electricity capacity for Canada to achieve net zero is a massive undertaking. We need to take bolder and faster steps if we want to achieve these things by the deadlines the government has set.

The number 4,781 is the number of days left before the end 2035, by which time the government has committed to a net-zero electricity grid. This is not a lot of time. Tomorrow it will be 4,780 days. Ensuring that Canada remains competitive is an important piece of building out a clean, affordable and reliable electricity system for the decades to come.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Bradley.

We'll go on to Mr. O'Connor, please.

[Don O'Connor, Advisor, Renewable Industries Canada]

Thank you to the chair, vice-chairs and committee members for having us here today to speak on behalf of Renewable Industries Canada, the national representative of Canada's first and foremost renewable fuel producers.

My name is Don O'Connor. I'm a long-time technical adviser to Renewable Industries Canada on carbon policy. As well, I'm the president of S&T² Consultants, a firm specializing in understanding energy and environmental issues worldwide, including life-cycle assessment, which is a significant and monetized mechanism in the new federal clean fuel regulations, as well as programs such as the low-carbon fuel standard in California.

I work closely with energy companies that produce or are required to blend renewable fuels on both sides of the border. It's this international renewable fuels perspective and how it relates to Canada's ongoing economic competitiveness that I hope to offer to you today.

Canada is an energy-dependent economy. As a country, we're a superpower in energy production, we're an expert in fuel distribution and a very heavy fuel user. This is fundamental to our economy, our climate commitments and the background needed to properly assess the risk and the opportunities for Canada given the U.S. Inflation Reduction Act.

Committee members already know how intensely competitive, trade-exposed and regulated the Canada-U.S. fuel market is. Canadian biofuels are not an exception. The U.S. IRA is proposing to invest $369 billion U.S. in clean fuels. It very well may be a once-a-lifetime investment bonanza for American renewable fuel producers and firms.

To give a few examples in the program, American ethanol producers will be subsidized $115 Canadian per tonne for implementing carbon capture and storage. In Canada, there's a proposed one-time investment tax credit, the details of which are still to be determined. Biomass diesel can get a production tax credit of up to 36¢ Canadian per litre if it's produced in the United States. Sustainable aviation fuel produced in the U.S. can get up to a 63¢-per-litre subsidy. Here in Canada, the credit is zero. Lastly, clean hydrogen production in the U.S. can get up to a $4.05 Canadian-per-kilogram production credit under the IRA. In Canada, there are no production incentives, though the details of a 40% investment tax credit is being considered.

Renewable Industries Canada appreciates that it might not be practical to attempt to match the windfall offerings of the U.S. IRA outright, but it can be a means to level up our thinking and make our policies more effective and more competitive. At the same time, making poor choices can be as much a detriment to economic growth as inaction. Caution must be taken to avoid pitfalls and false assumptions under the guise of competition.

With this in mind, RI Canada has a short list of recommendations, which I'm happy to elaborate on in the committee questions.

First, investment tax incentives are not production incentives. Production incentives, like the ones in the U.S. IRA, pay out, and continue to pay out, based on the amount of fuel produced. An investment tax credit, like what is being considered for some clean fuels in Canada, is essentially a one-time refund of a portion of the investment costs. Both have benefits, but policy-makers should be realistic and properly recognize that these credit mechanisms are different. They are not equal and are not perfectly interchangeable.

Unlike some U.S. incentives, the production credit will only be available to U.S. producers and will apply to products used in the United States and products exported to other countries. Without a targeted and effective Canadian credit mechanism, it becomes likely that future renewable fuel production will be built predominantly in the U.S., and if history repeats, the IRA production credits will continue well beyond the two years that are announced in the bill.

Second, the more that policies recognize the difference between carbon intensity and activity, the more competitive Canada can be.

Canadian programs like the clean fuel regulations and the price on carbon do a better job of recognizing the benefits of low-carbon fuels, but they are not a solution to competitiveness. U.S. producers that export to Canada will get the benefit of both the production credits and any benefits in Canada from having a lower carbon intensity. Canadian producers of low-carbon fuels exporting to the United States will get neither.

Third, we could go a long way by accelerating and deepening the policies Canada already has. The government's clean fuels fund will be helpful for the development of new technologies in Canada. It needs to be rolled out quickly so that it can play a role in producing the fuels that Canada will use to meet our 2030 clean fuel regulations requirements.

Finally, any progress we make can be undone if we inadvertently weaken the market demand signals here at home. Clean fuel regulations will be an important part of reducing the GHG emissions for the transportation sector. The regulations are not the most aggressive in the world, or even in Canada. It's important that there be no backsliding and weakening of the regulations. Any additional credit-generating opportunities that are added to the existing regulations will not produce further emission reductions, but will rather just change where the reductions come from.

In the U.S. renewable fuel program, when they export renewable fuels they do not count toward their domestic renewable fuel targets. Canada—

[The Chair, Liberal, Judy Sgro]

I'm sorry, Mr. O'Connor, but I have to interrupt. Thank you very much.

[O'Connor]

I've finished—

[The Chair, Liberal, Judy Sgro]

Any remaining comments can possibly be delivered while you're answering questions from the members who are anxious to get started on the question period.

We have Mr. Seeback for six minutes, please.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thank you very much, Madam Chair.

It's nice to see you again, Mr. Bradley. We've spoken at several committees about electric generation. I want to talk a little about that. As you mentioned, as we're doing this transition we're going to decarbonize the electric grid, but we also have to expand the electric grid at the same time. We probably have to double or triple that if we're going to get to the zero-emission vehicle standards.

On that, at this committee Mr. Kingston said that we're quite behind on the charging infrastructure and the actual number of chargers.

When we talked at the last committee about the expansion of the electric grid and how we're going to expand it, Mr. Gorman said, ”This question keeps me up at night.”

I have asked you about this, and you said it's not really the federal government's responsibility to build out the electric grid. But when the federal government is mandating zero-emission vehicles, the electric grid is going to have to be expanded.

This is going to cost a lot of money. For example, in Ontario, OPG is already $15.1 billion in debt, so if one were to just say to OPG that it needs to double its electric grid, where will the money come from? It is the same thing all across the country.

Do you agree that the federal government is going to have to take a role in this? This is a national project of mandating zero-emission vehicles, and the government says we're going to have all this electric battery capacity here, it's going to be wonderful, but we probably need to be able to plug the cars in somewhere and generate the electricity.

What are your thoughts on that?

[Francis Bradley]

Thank you very much for the question.

It is the critical question, absolutely. When we look at a future that will require two to three times more electricity to be able to meet our 2050 target, how are we going to do that? How are we going to achieve that?

The short answer is yes, absolutely, there is a critical role that the federal government needs to play. There is a role that every level of government needs to play. The kind of effort that is going to be required to triple our electricity capacity, to decarbonize the economy between now and 2050, is going to be absolutely transformative.

It isn't simply a matter of supporting charging infrastructure for electric vehicles, as you point out. It also is a question of where the electricity is going to come from, where's the transmission going to come from, the distribution networks, and so on. This is certainly something we are very much seized with within the sector.

Precisely what is the role of the Government of Canada? This is one thing that we're very interested in getting a handle on. For several years, one of the things we've been asking for is a national electrification strategy so that we have a very clear idea of exactly where the federal government will be stepping in.

There have been very significant actions that the government has taken to assist in it, but it hasn't all been stitched together in an overall and coherent strategy.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

If it doesn't get stitched together, what are the chances that we're actually going to meet any of the objectives? If the government doesn't take the leadership role, which to this point it doesn't seem to be taking, how are we going to stitch this all together?

[Francis Bradley]

Yes, I would agree. Without a clear idea and without a clear plan, it's difficult to see how we will all arrive at that destination, which is again why we've been asking for several years now for a national electrification strategy that we can all get behind—

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

It may be why Mr. Gorman says it keeps him up at night.

[Francis Bradley]

Mr. Gorman and I are on the same floor in the same building. The same things keep me up at night that keep Mr. Gorman up. I think everybody in the electricity sector is very concerned about our ability to meet those commitments. It's why I continue to talk about how many days there are until the end of 2035.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Right.

[Francis Bradley]

We recognize the urgency in this, absolutely.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

I wish it would keep the government up at night.

I want to ask Mr. O'Connor about the following.

Production incentives, you said, are much better than investment tax credits. I want to give you the opportunity to expand on that and why it's going to be so critical for Canada to do something better than their investment tax credits if they want to be competitive with the United States.

[Don O'Connor]

With production tax credits, for every litre you produce, you get funding. In the U.S., it goes through the tax system, but it's repayable, and they have direct pay, so it's a direct government incentive for every litre you produce.

Investment tax credits are built around the amount of money that you've invested. They are not related to the cost of production. When you have fuels that cost more than the fossil fuels that they are replacing, because they have lower carbon intensity, they need that help to level the playing field.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

And a business—

[The Chair, Liberal, Judy Sgro]

You have 27 seconds remaining.