Thank you so much for having me speak to you today, even if I couldn't make it in person.
I'm an associate director of research at the C.D. Howe Institute. For those who are not aware, the C.D. Howe Institute is an independent, not-for-profit, research institute whose mission is to raise Canadian living standards by fostering economically sound public policies.
If I knew better than anyone else what the future of the oil and gas sector looked like, I'd currently be scuba diving off my own private yacht somewhere in the Caribbean. But here I am.
What I can point to is what the policy priorities for government should be to help foster an innovative and sustainable oil and gas sector in the future. I will be discussing a C.D. Howe Institute publication on the future of Canadian energy policy. It was published earlier this year. This paper, which you should receive from the clerk sometime soon, outlines the key priorities for Canadian governments of all levels for 2016 and beyond. It's blissfully short, and it's great bedtime reading, so I encourage you to take a look at it when you can.
There are four main themes that policy-makers should have in mind. First, the government should do more to improve the global competitiveness of Canada's energy sector. Second, governments need to earn social acceptance for Canadian energy to access global markets. Third, Canadian governments need to create collaborative governance institutions both at home and globally. And fourth, governments need to foster the innovation that Canada needs to realize the energy system of the future.
As I'm speaking to a federal committee, I'll focus my remarks mostly on matters within the power of the federal government. With the recent and sustained drop in oil and natural gas prices, energy producers are looking at how they can reduce their costs. Taxes are very high at the top of that list. In particular, municipal property taxes are becoming increasingly important costs for business.
At the federal level, the emerging competitiveness issue for the energy sector in 2016 and beyond is the potential fallout from the new government's campaign commitment to phase out what they term as “subsidies for the fossil fuel sector”. Its specific commitment was limited to making some exploration expenses deductible only in the case of unsuccessful exploration. This proposal has major implications for the competitiveness of the Canadian energy sector. Before making any changes, the federal government should take stock of the much bigger picture of what a good tax system should look like. I'd be happy to discuss this further during the question and answer period.
On the second theme, getting Canadian energy to world markets will remain a key priority for 2016 and well beyond. Having a robust regulatory approval system is critical for governments and the energy sector to ensure that Canada's energy products get to the world market safely and in an environmentally friendly, socially accepted way. But social acceptance entails more than the regulatory process. It requires that governments take the lead in areas outside the remit of regulators.
It's important that regulatory bodies are asked to adjudicate only on issues they have the power to address themselves. In the case of pipelines, such matters as greenhouse gas emissions should not be part of the regulatory approval process. A greenhouse gas policy led by governments would mean that a regulatory decision on building a pipeline would have no net effect on Canada's emissions.
But that's not what the federal government is doing. Instead, Canada's new federal government has pledged to revise the process the National Energy Board uses to approve pipelines to include upstream greenhouse gas emissions from energy production facilities that might serve a pipeline.
This new federal policy is a mistake for two reasons. First, requiring the National Energy Board to consider upstream emissions of greenhouse gases in its pipeline approval process could exceed the constitutional grounds for federal government reviews and intrude into provincial jurisdiction. Second, counting upstream greenhouse gases against an interprovincial pipeline would be economically costly without actually resulting in a reduction of emissions.
The federal government should put all means of getting oil to market on a level playing field. That means it should not rule against the pipeline because of its potential effects on upstream emissions.
Also, we can't forget the importance of rail, which has become increasingly important for crude oil exports because of the recent delays to pipeline approvals. Although the recent drop in oil prices has meant a drop in crude by rail shipments, we have to remember that shipping oil by rail has many inherent benefits of, say, flexibility and a lower set of costs beyond just reducing reliance on pipelines.
The question is how can Canada earn social acceptance for energy infrastructure to get built in this country. Governments themselves should demonstrate to the public that they will not interfere in regulatory decisions, and they should allow sound but timely regulatory reviews of projects without directives to decide one way or the other. Industry bodies and companies themselves should make better use of international benchmarks, certifications, and reporting requirements to demonstrate best-in-class regulatory adherence.
The key element isn't just that Canada have a best-in-class and independent regulatory system. We likely already have that. We must be seen to have a best-in-class and independent regulatory system. So what should governments do outside the regulatory process? Some form of carbon pricing, either by the federal or provincial governments, would be a more effective means of reducing emissions than blocking pipelines.
This brings me to my third point about collaborative governance. Carbon pricing likely will be the key collaborative governance issue in 2016 and beyond, and the new federal government will need to tackle a provincial policy patchwork on greenhouse gas policy. The four largest provinces have carbon prices in place or are planning to introduce them, and this decentralized approach has many merits. The best kind of carbon pricing policy in Alberta is likely very different from that in Ontario or B.C. or Quebec. With the provinces clearly demonstrating leadership in this area, the federal government should play a role limited to facilitating interprovincial linkages between carbon pricing regimes.
This brings me to my last point that Canada is going to need new technologies in order for us to reach our emissions reductions target. How are we going to foster the innovation that creates this new technology? We cannot just throw money at research and development subsidies in the hope that people will start using that technology. The research from around the world shows that a price on carbon alone without any research subsidies is about 95% as effective as a combined policy of carbon prices and research subsidies.
Carbon pricing is critical because it creates a demand for clean technologies in the broader economy and doesn't just push the supply of new technologies with subsidies. Rather than focus innovation and diversification policies on what is physically produced in Canada, governments should also think about fostering Canadian companies to become global leaders in the specific technologies they are best at applying.
In sum, Canadian governments need to think about how to improve their policies in four key areas: first, improve the global competitiveness of Canada's energy sector; second, help earn the social acceptance for access of Canadian energy to get to world markets; third, create collaborative governance institutions; and fourth, foster energy innovation.
With that, I'll be happy to take any questions
