Natural Resources Committee on Feb. 5th, 2013

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We're here today for a two-part meeting. The first part of the meeting will deal with witnesses from the Office of the Auditor General of Canada, and the second part will deal with witnesses in the continuation of our study on innovation in the energy sector.

For the first part of the meeting we have witnesses, as I said, from the Office of the Auditor General of Canada. Scott Vaughan is Commissioner of the Environment and Sustainable Development. Welcome to you, Commissioner. We also have Kimberley Leach, principal, sustainable development strategies, audits, and studies; Bruce Sloan, principal, sustainable development strategies, audits, and studies; and Andrew Ferguson, principal, sustainable development strategies, audits, and studies. Welcome to you all.

We will carry out the questioning as usual. We'll start with a presentation from the commissioner. I just want to make sure that all members of the committee know that we're going to adhere strictly to the times that each member gets for questioning. So if you ask a bunch of questions when you're a minute from the end of your time, the witnesses will have one minute to answer that bunch of questions and I will adhere to that.

To the commissioner and others, as we get to the end of the member's time, you may be asked to give a very succinct answer. Hopefully that won't be the case, but it could be.

Let's get on with the business we're here to deal with in the first half.

Over to you, Commissioner, for your opening statement.

[Scott Vaughan, Commissioner of the Environment and Sustainable Development, Office of the Auditor General of Canada]

Mr. Chair, thank you very much. I'll try to be as brief as possible in an opening statement.

Mr. Chair, I'm very pleased to join this committee and present the findings of our fall 2012 report, which was tabled in the House of Commons this morning. Our report examined several environmental programs and activities intended to support sustainable natural resource development. Given the central role of natural resources in the Canadian economy, it's critical that environmental protection keeps pace with economic development. I am concerned by the gaps we found in the way federal programs related to natural resources are managed.

Let me start with our audit of marine protected areas.

Protecting commercial fisheries and marine species like whales and sea turtles, as well as their habitat, is important to relieve the growing pressures on our oceans and ecosystems. Over the past 20 years, the federal government has made limited progress on its commitments to set aside areas to protect Canada's marine biodiversity.

Fisheries and Oceans Canada and Parks Canada have established 10 marine protected areas, but the network that is needed to safeguard marine species and ecosystems does not yet exist. Moreover, Canada has protected less than 1% of its oceans and Great Lakes, compared to the 10% target it agreed to achieve.

We noted several areas of progress in establishing marine protected areas right across Canada; however, that level of protection falls short of what the Oceans Act calls for.

In the second chapter, Mr. Chair, we noted that oil spills from offshore platforms are an important risk faced by the marine environment. Our report examined the Canada-Newfoundland and Labrador and Canada-Nova Scotia offshore petroleum boards and the support they receive from federal departments.

We found that while the Canada-Nova Scotia and Canada-Newfoundland and Labrador boards have adequately managed the day-to-day environmental impacts of offshore oil and gas activities, they and their federal partners need to do more to prepare for a major oil spill. We identified several deficiencies that limit the offshore's ability to take over the response. For example, the boards and federal entities have not tested their collective plans or joint capacity, and roles and responsibilities are not always clear in the response plan.

Our report also examines environmental financial guarantees and absolute limits related to four sectors for which the federal government is responsible: mining in Canada's north, spills from oil tankers, offshore oil and gas platforms, and nuclear power.

Turning to the limits companies are liable for in case of spills from offshore oil platforms and nuclear incidents, we found that these limits were out of date, and significantly below levels set by other countries.

The government needs to review its absolute liability limits in the nuclear and offshore oil and gas sectors. We found adequate systems regarding the federal government holding of approximately $11 billion in financial guarantees to cover site remediation costs. By contrast, we found several shortcomings in the oversight of the $500 million the government holds in financial guarantees for the mining sector in Canada's north.

These shortcomings include insufficient guarantees as well as significant gaps in mining inspections required by regulation.

This report also includes a study of federal support to the fossil fuel sector. At the G20 meetings in 2009, Canada committed to rationalize and phase out inefficient fossil fuel subsidies. We found that the federal government has taken action in line with this commitment.

Direct federal spending to support the fossil fuels sector has decreased since 2000, and a significant portion of support is now directed to cleaner technologies. At the same time, the study identified a number of tax incentives that remain in place and provide a significant portion of support to the fossil fuels sector.

Finally, Mr. Chair, I'm pleased to present the annual report on environmental petitions. This year we received 23 petitions requesting information from government ministers on a range of environmental topics. Petitioners have repeatedly raised concerns about the toxicity of substances used for hydraulic fracturing of shale gas and the lack of public disclosure of those substances. There are some 200,000 hydraulic fracturing wells in Canada, and that production number is expected to double over the next 20 years. With the oil and gas sector exempted from reporting pollutant releases, the government cannot know if Canadians are adequately protected.

Mr. Chair, I'll end my opening statement there. We're happy to take your questions.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you for your presentation, Commissioner, and thank you very much for your service over these past years. It's very much appreciated by the people of Canada.

We go now to questioning. We'll start with Mr. Anderson, on the government side.

Go ahead, please, Mr. Anderson, for up to seven minutes.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair.

Thank you for coming today. Thanks to some of the folks who showed up who may not be regular members of the committee but who are certainly interested in these issues.

I'd like to talk to you about the reduction in direct federal spending. You just mentioned it in one sentence, in paragraph number 17. Could you go through a little about what has happened since 2006? Give us an idea of how the subsidization has been reduced.

[Scott Vaughan]

With pleasure. I think this is actually an extremely positive story and a positive finding. The reason, from an environmental perspective, is because those subsidies actually have a measurable link in terms of greenhouse gas emissions.

The direct spending in the fossil fuels sector, compared, for example, particularly to the 1980s, has gone down dramatically, and at the same time, since 2006, there's been an increase in spending and public support or public subsidies to support cleaner technology. Within that, the biggest increases are for cleaner technology from natural resources programs related to carbon capture and storage.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

So a percentage of that, something like 97% of the direct spending, is to research and development. Is that correct?

[Scott Vaughan]

That's correct. About 97% is R and D, and more than 50%, just a little over 50%, of the direct spending is for cleaner technologies.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay. Could we go through a bit of the tax treatment, how that's changed as well, and the things you've found we've reduced subsidization for in that area?

[Scott Vaughan]

I'll turn it over to my colleague, Bruce Sloan.

Very briefly, there are two main tax expenditures. One of them is for accelerated capital depreciation for the oil sands area. That's about $1.5 billion over five years, over $300 million per year. That's due to be sunset by around 2014-15. Again, that's significant progress in terms of eliminating a tax measure that contributed indirectly to greenhouse gas emissions.

There is a second one for flowthrough shares for the mining sector. I'll ask my colleague, Mr. Sloan, to respond.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Sloan.

[Bruce Sloan, Principal, Sustainable Development Strategies, Audits and Studies, Office of the Auditor General of Canada]

As the commissioner has said, a number of the features have been phased out over the last number of years, things like earned depletion or Canadian exploration expenses, Canadian development expenses. Budgets over the last three or four years have set out a phase-out period of anywhere from three to four or five years, so within a few years those tax subsidies or tax differentials will be gone. An example would be that the accelerated capital cost allowance for oil sands will disappear within a few years.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

You've done your study basically on energy fossil fuels and have not taken a look at renewables. Could you give us an explanation as to why you chose just to focus on one section and not on both of those to give a bit of a bigger picture for Canadians?

[Scott Vaughan]

It's an absolutely great question. When we were scoping this, we looked specifically at what the statement was, the obligation under the G-20 commitment. Under that, it was to look at it to identify, reduce, and eliminate those subsidies related to the fossil fuel sector.

But, sir, I think you're absolutely right. There is the other side of the story. We've done this as a study, and we very much welcome your views to look more fulsomely at this, the broader picture of direct support in renewable energy. We touched on that indirectly for the carbon capture and storage, but I think there's a much bigger story to tell, which is to look at the whole thing. I think our office would be very interested in going back if there was interest from this committee.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Overall, is the government moving in the right direction, in your opinion?

[Scott Vaughan]

Without question, the government is moving with direction on this important issue. The reason, I would say, is twofold. One is that you don't want to have one measure undermining the commitment this government has made to reduce greenhouse gas emissions through regulations. And then related to that, you want to make sure there's policy coherence. So I think this is moving in the right direction, in terms of both tax management and environmental policy.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I'm going to switch topics a bit. I heard your press conference. They asked about tanker safety. You said that Canada has been a leader in tanker safety—is that correct?—and that other nations have looked to us for some direction in that.

[Scott Vaughan]

What I said was on the particular issue of looking at absolute liability caps for preparedness for tanker spills, and on that we've said that Canada's amounts are absolutely in line with the international system, with the IMO, for example. In setting those international standards, Canada has been a leader.

Canada has waited to see what other countries have done. It's been very proactive in the International Maritime Organization in looking at appropriate absolute liability limits.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Did you take at look at the safety changes—the double hulls, the pilotage, and those kinds of things—or were you just looking at the financial aspects?

[Scott Vaughan]

We looked only at the financial aspects, but we did note in the chapter that there are now requirements in Canada for double hulling as well as for other safety requirements. The safety record of tankers is quite strong.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Were you aware of the attempts we have made to raise the nuclear liability limits as well?

[Scott Vaughan]

I have—

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I didn't notice that mentioned in your report.

[Scott Vaughan]

Yes. In the report we said there have been a couple of attempts to go through the required legislative changes to change those limits, but as of now, they remain at $75 million.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Right. The government has been committed to seeing that through.

How much time do I have, Mr. Chair? Just a couple of minutes?

[The Chair, Conservative, Leon Benoit]

You have one minute.