Hello, ladies and gentlemen. Thank you for inviting me.
I am very pleased to appear before the Standing Committee on Natural Resources.
I will start with a brief introduction on the Paris agreement and the nature of clean technology firms. I will address three barriers to adoption of clean technology and will make three recommendations on de-risking its adoption.
Despite the collective ambition that yielded the landmark Paris agreement and despite the enhanced commitments to climate action by countries embodied in their nationally determined contributions, including Canada's, the world is still far away from collective action to keep global temperature increases to well under 2°C.
I would like the committee to know that after Russia and China, Canada's is the world's third most GHG-intensive economy on a GDP basis, the most GHG-intensive economy on a per capita basis, and the ninth-largest emitter in absolute terms. Your work on de-risking clean technology adoption is therefore vitally important.
In regard to clean technology innovation, Canada invests a great deal in de-risking technology, whose primary purpose is remediating or preventing environmental damage. According to firm-level research, in 2015 some 28% of R and D for Canada's more than 800 clean technology companies was publicly funded. Two-thirds of Canada's clean technology firms are engaged in commercializing their products; that is to say, they have proven that the technology works at scale and are looking for markets in which they both can improve environmental performance and also either increase revenue or decrease costs. This has just been described by Mr. Love.
The committee's work on methods for de-risking technology is vital. I would like to focus my remarks on recommendations to de-risk the markets for these solutions, the markets that I have just described. This is because clean innovation solutions are ready now, before markets for these solutions have formed. This situation is due to Canada's investment in programs during the past 15 years.
Clean technology firms operate capital-intensive business models because they invest in all three of R and D, manufacturing, and distribution. Think of the way Henry Ford and Massey Ferguson established the concept of dealerships for their products. Their dealers put forward their homes as security; that's how they attracted capital to the industry.
I'll speak about three risks to the adoption of clean technology solutions.
The first is that there are no net prices on carbon pollution because fossil fuel subsidies are in place today. Clean technology firms operate in areas in which prices for the commodities they replace, including energy derived from oil and gas, are volatile and in which prices for the externalities they reduce, including carbon, are in fact still negative.
Yes, we will have negative carbon prices in Canada for some time. This is because in Canada we have tax expenditures in the form of subsidies to the fossil fuel industry. In Canada these tax expenditures, under the most conservative method of calculation, are estimated to be $3.5 billion in direct fiscal subsidies and $3 billion in publicly funded loans.
The second risk to adoption of clean technology solutions is that regulators assume no innovation in setting environmental performance standards. Canada does not have accountability methods requiring that environmental regulation, whether federal or provincial, stipulate that best available technology be used as the benchmark to establish environmental performance standards.
This means, for example, that when methane regulations are established today, there is no requirement to consult with either academic researchers or clean technology firms to ensure that regulatory standards reflect what is made possible by innovation. In the U.S., civil society ensures that this happens; in Canada, it's not yet the case. There's a very good example of that quite recently with methane regulation.
Also, where permits and approvals are required to implement new technologies, delays are lengthy, because authorities grapple with assessing new technologies based on precautionary principles and legacy technology.
For example, they're used to regulating a certain kind of solution to an environmental problem, and when a new solution comes up, it's hard to figure out how to give permits for these new solutions. If we were to imagine clean technology firms in a sports league, we would picture on the one hand a newly established and very talented team of millennials playing on a field not yet served by lighting, a stadium, or a transportation system for the spectators. Their older opponents—people of my generation—are on the other hand playing on a covered field that is level, well-lit, and well-served by public transportation and other regulatory infrastructure.
A third barrier, speaking of infrastructure, is within infrastructure investments. There is predetermination of how electricity, mobility, water, and waste water services should be delivered, and therefore it tilts the playing field away from innovation towards legacy solutions. Meeting environmental protection goals such as Canada's commitment to the Paris agreement will require investment in infrastructure, and innovation can play a role in this to both improve performance and reduce costs. However, today Canada has no mechanisms to stimulate the adoption of best available technology as part of project assessments for infrastructure.
I'd like to make three proposals for Canada.
The first is for increasingly stringent standards for energy infrastructure. In November 2016, Minister Catherine McKenna set an aspirational goal for Canada's electricity sector to be 90% non-emitting by 2030. Today, it's at 83%, and getting to 90% will be largely achieved by phasing out coal. However, if natural gas is the primary replacement for coal, getting beyond this target will be difficult to achieve, so how will we avoid lock-in and stranded assets, for example, in natural gas infrastructure? Implementing increasingly stringent performance standards will de-risk markets for technological innovation for the natural gas industry.
Second, I'd like to recommend a principles-based approach to capital cost allowance. Today, fiscal advantages are in place for the fossil fuel industry and for sectors that can lobby to their advantage. If our tax code was subjected to a principles-based assessment of its alignment with our Paris treaty obligations, these tax expenditures would be identified and the money they represent—in the case of fossil fuel subsidies, $6 billion—could be redeployed much more cost-effectively and in a way that is transparent in terms of both outcome- and performance-based principles, such that markets for innovation would be de-risked.
My third recommendation is for full cost accounting of infrastructure, including a price on carbon for the length of the useful life of the infrastructure. In establishing criteria for long-lived infrastructure, full life-cycle cost accounting for these projects, including a shadow price on carbon for the life of the project, will stimulate innovation. This, combined with the principles of best available technology, will ensure value for money while de-risking markets for innovation.
I applaud the committee's work on de-risking clean technology adoption, and I look forward to your questions.
In regard to de-risking technology in terms of performance, you have a policy paper from my research at the Centre for International Governance Innovation, both in French and in English. In its policy recommendations section, there is a reference to a de-risking fund, which you may refer to in regard to Mr. Love's matter.
Thank you.