Natural Resources Committee on Jan. 31st, 2022

[The Chair, Liberal, John Aldag]

I think we have quorum here. I'm ready to start. I believe all of the parties have people ready to go. With that, I will call the meeting to order.

Welcome, everyone, to meeting number two of the House of Commons Standing Committee on Natural Resources. Pursuant to Standing Order 108(2), the committee is commencing its study of the emissions reduction fund—onshore program. Today's meeting is taking place in a hybrid format pursuant to the House order of November 25, 2021. Members are attending in person in the room or remotely using the Zoom application. Please note that the webcast will always show the person speaking rather than the entire committee.

I will take this opportunity to remind all participants that screenshots or taking photos of your screen is not permitted. Today’s proceedings will be televised and also made available via the House of Commons website.

Given the ongoing pandemic situation and in light of the recommendations from public health authorities, as well as the directive of the Board of Internal Economy on October 19, 2021, to remain healthy and safe, the following is recommended for all those attending the meeting in person.

Anyone with symptoms should participate by Zoom and not attend the meeting in person. Everyone must maintain two-metre physical distancing, whether seated or standing. Everyone must wear a non-medical mask when circulating in the room. It is recommended in the strongest possible terms that members wear their masks at all times, including when seated. However, as you can see with me, when you have the floor—when I've recognized you—you can take your mask off to speak. We ask that you put your mask back on when you've finished your intervention. Non-medical masks, which provide better clarity over cloth masks, are available in the room.

Everyone present must maintain proper hand hygiene by using the hand sanitizer at the room entrance. Committee rooms are cleaned before and after each meeting. To maintain this, everyone is encouraged to clean surfaces such as the desk, chair and microphone with the provided disinfectant wipes when vacating or taking a seat.

As the chair, I will be enforcing these measures for the duration of the meeting, and I thank the members in advance for their co-operation.

To ensure an orderly meeting, I would like to outline a few quick rules to follow. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of either floor, English or French audio. Members and witnesses may speak in the official language of their choice.

For the members in the room, if you wish to speak, please raise your hand, and the clerk and I will do our best to keep track of the speaking order. For the members on Zoom, please use the “raise hand” function and you will be placed in order. As I’m sure you can all appreciate, it can sometimes be challenging, as we saw at our first meeting, when members raise their hands both in the room and on Zoom. The clerk and I will manage the speaking order as best we can, and we appreciate your patience and understanding in this regard.

Before speaking, please wait until I recognize you by name. If you're on Zoom, please click on the microphone icon to unmute yourself. For members in the room, your microphone will be controlled as usual by the proceedings and verification officer. When you're not speaking, your mike should be on mute.

As a reminder, all comments by members and witnesses should be addressed through the chair.

To begin, we had agreed to attend to some committee business before we start with our first witness.

The first item is to adopt the report from the subcommittee meeting on January 24. The report was distributed to all members last week. If the members prefer that I read the report in full, I can do that now. Otherwise, in the interest of time, if all members have already read it and if everyone is in agreement that they are ready to adopt it without debate, we can proceed that way. What is the wish of the committee?

I see Mr. Angus is nodding in favour of adopting. Is there any opposition to that?

Okay. We're ready to proceed. I'd ask somebody to move a motion to adopt the report.

Mr. Maloney moves to adopt. Do we need a seconder?

Mr. Angus.

(Motion agreed to)

Thank you.

We also need to adopt the budgets for our first two studies. They were also distributed to the members last week. These budgets essentially cover the costs of phone lines and headsets required for our meetings. The first is for the study of the emissions reduction fund—onshore program, in the amount of $1,725; and the second is for the study of a greenhouse gas emissions cap for the oil and gas sector, in the amount of $7,125.

Is it the will of the committee to adopt these two study budgets?

[Some hon. members]

Agreed.

[The Chair, Liberal, John Aldag]

Thank you. That concludes our committee business.

Now we'll get into our first panel on our study of the emissions reduction fund—onshore program.

For our first panel, we have the Office of the Auditor General. Joining us remotely, we have Jerry DeMarco, commissioner of the environment and sustainable development. Welcome, Commissioner.

We also have James McKenzie, principal, and Sylvie Marchand, director.

As we get into both panels I'm going to try a timekeeping trick I have seen on the Hill. I have a timer, and when we get to the last 30 seconds, I'll give you the yellow flash. When time has run out, I'll just hold up the red card and ask you to wrap up your thoughts. You don't have to cut off mid-sentence, but we'll get into the questions then. I'll do the same for the presenters.

In our first and second panels, witnesses will each have five minutes for opening statements. I'll give you the 30-second warning and the cut-off time. When we get into rounds of questions, I'll do the same.

With that, we will now turn it over to the commissioner of the environment and his colleagues to start with their five-minute opening statement, and then we'll move into our first round of questions and answers.

Thank you.

[Jerry V. DeMarco]

Thank you, Mr. Chair. We're happy to appear before your committee this afternoon to present the results of our report on the emissions reduction fund. I'd like to acknowledge that this hearing is taking place from the traditional unceded territory of the Algonquin Anishinabe people.

Joining me today are James McKenzie, the principal who was responsible for the audit, and Sylvie Marchand, the director who led the audit and the team.

Greenhouse gases emitted by human activities are causing climate change around the world. Under the Paris Agreement, Canada committed to reducing its annual greenhouse gas emissions to 40% to 45% below 2005 levels by 2030. Canada has also committed to reaching net-zero greenhouse gas emissions by 2050.

Meeting these targets will require deep and real reductions in greenhouse gas emissions below the levels recorded for previous years. In November 2020, the government launched the onshore program of the emissions reduction fund, which was part of Canada's COVID-19 economic response plan. The government saw the $675-million program as a way to help struggling companies in the energy sector deal with lower oil prices during the pandemic.

The audit focused on whether Natural Resources Canada designed and implemented the onshore program to achieve value for money and to ensure that the anticipated reductions of greenhouse gas emissions after 2023 would be credible and sustainable. Overall, we found that the department did not design the program to ensure value for the money spent or credible and sustainable reductions in greenhouse gas emissions in the oil and gas sector.

When designing the program, the department did not apply greenhouse gas accounting principles or the concept of additionality, which is that emissions reductions should not be attributed to the program if they would have happened regardless, by complying with regulations. More than half of the total reductions targeted by the program had already been accounted for under the federal methane regulations. The department therefore misstated what the program could achieve.

The department stated that one of the rationales for the program was to help maintain jobs in the oil and gas sector. However, we found that the department didn't list job retention as an eligibility condition or an assessment criterion for funding decisions.

We found that the department assessed companies' financial viability and added risk controls and monitoring for all companies. For example, the final contribution agreements included procedures to mitigate the risk of default and to help ensure that projects would be completed.

We also found that the department's expectations for the 40 projects funded in the program's first intake period were overestimated. For 27 funded projects, companies had indicated in their submissions that projects would increase oil or gas production. However, the department didn't factor in the emissions from increased production into its estimations. Had these emissions been accounted for, they would have lessened or even outweighed the emission reductions expected from these projects.

Lastly, the department didn't fully assess value for money on the basis of the cost per tonne of reduced greenhouse gas emissions or the number of jobs maintained.

To help Canada achieve its national targets for reducing greenhouse gas emissions, Natural Resources Canada should make sure that its policies, programs and measures are based on reliable estimates of the expected emission reductions.

We made six recommendations as a result of this audit. The department agreed with four and partially agreed with two.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.

Thank you.

[The Chair, Liberal, John Aldag]

Great. Thank you for your opening comments and for your brevity. You're in just under the five-minute mark.

We will now go to our first panel member, Ms. Goodridge, from the Conservative Party.

Ms. Goodridge, you have six minutes. Please proceed.

[Laila Goodridge, Conservative, Fort McMurray—Cold Lake, AB]

Thank you for your presentation here today. It was quite enlightening.

In the recent report, you noted the following:

We found that Natural Resources Canada overestimated the reductions in greenhouse gas emissions that it expected under the Onshore Program.

Can you go into detail as to how they overestimated these reductions? More specifically, would you say that these overestimations seemed unattainable in your initial review?

[Jerry V. DeMarco]

I'd like to respond to that question by using two examples. One is the concept of additionality, and one is the concept of looking at the entire emissions or the net emissions, as opposed to one aspect of emissions.

On additionality, the answer is highlighted in our report, with the exhibit showing the graph that tries to depict the notion of additionality. It's a question of whether this fund resulted in the reductions attributed to the fund or whether other factors were at play. In this case, it was the methane regulations.

If one funds the same activities that were going to happen anyway with the methane regulations, one cannot say that those emissions reductions were attributable to the program. By failing to carve out the cause and effect of the program from the methane regulations, there was an overestimation because the concept of additionality was not utilized properly.

A second aspect is the net emissions question. The figures provided by the department do not provide the big picture in terms of the total effect of the funding on the facilities and the equipment at issue. We wanted to know what the net effect of the program was, not just the emissions attributed to the piece of equipment that was being upgraded at the site. This is a problem, because many of the applications that we reviewed that produced the facilities indicated that they would be increasing production. However, those increases in production, which could offset the emissions reductions from the equipment being installed, were not factored into the estimations of the department.

[Laila Goodridge, Conservative, Fort McMurray—Cold Lake, AB]

Thank you for that. You mentioned that in your opening statement.

Did you speak to any companies that received these funds when doing your report? If so, did any mention that they felt the overestimations were clear?

[Jerry V. DeMarco]

I will ask a member of our team, Sylvie Marchand, to talk about the procedures that were taken in this audit.

[Sylvie Marchand, Director, Office of the Auditor General]

We did not interview companies. However, we talked to department officials. That was the scope of our audit.

[Laila Goodridge, Conservative, Fort McMurray—Cold Lake, AB]

When doing an audit, if you're not speaking to companies, how can you so clearly state what you did in your report?

[Sylvie Marchand]

We looked at the submissions and analysis that were done by the department. In effect, the submissions are the official statements by the companies, so they are the declarations of what they expect will be achieved by their project.

[Laila Goodridge, Conservative, Fort McMurray—Cold Lake, AB]

You spoke to no companies, and there was no follow-up with the companies after their initial reports.

[Sylvie Marchand]

I know it is backward-looking. We looked at what was done in the past, and in the past, the only thing that the department did was stop the implementation of the fund and assessing submissions.

We analyzed the design of the program. We did not assess and monitor the results of the projects once the facilities had implemented the technology. That was not in the scope of our audit.

[Laila Goodridge, Conservative, Fort McMurray—Cold Lake, AB]

Your report also says the following:

We found that Natural Resources Canada did not follow key greenhouse gas accounting principles or a standard when preparing its estimates of expected reductions in emissions.

Did anyone explain to you why they weren't accounting for these principles?

[Sylvie Marchand]

If you read the report, the department somehow was confident that its approach was properly accounting for the emissions reductions, but when we asked them whether they were following these ISO standards that ensure the credibility and replicability of the estimates of expected emissions reductions, they confirmed that they did not use these standards.

[The Chair, Liberal, John Aldag]

That's great. I'm sorry to have to cut you off there. That's the end of the first six minutes.

We'll now move to Ms. Dabrusin from the Liberals for six minutes in her first round.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

I really appreciate the opportunity to talk with you and to get your feedback, which we got from your audit. It's helpful to have it.

I actually want to start with some of the basics, to be truthful, about methane, because I think methane reductions are important as part of GHG emissions as a whole. When I looked at it, it looked to me as though the top source of Canada's emissions from methane is the oil and gas industry.

Would I be correct in saying that?

[Jerry V. DeMarco]

Yes.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

The majority of those come from venting and from leaks. I'll need you to actually answer, not because I'm trying to put you on the spot but because then there's an answer.

[Jerry V. DeMarco]

Yes. Thank you.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

That's perfect. Thank you.

From what I understand, methane emissions are actually a more—for lack of a better word, although you might have a better word—toxic source of global warming than CO2 is.

Is that correct?

[Jerry V. DeMarco]

I wouldn't use “toxic”, but their warming potential is much greater than that of carbon dioxide. Their residency time in the atmosphere is shorter, but for the time that the methane is in the atmosphere, the warming potential is much greater. That it's a more potent greenhouse gas is another way of looking at it, rather than more toxic.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

I apologize. That's why I was looking to you for the word. That's where I was going.

My understanding is that we have regulations in place that are addressing methane emissions.

[Jerry V. DeMarco]

Yes.