Natural Resources Committee on Jan. 31st, 2022

[Charlie Angus, NDP, Timmins—James Bay, ON]

Sorry to interrupt, but you called this a subsidy. If we're increasing production and attracting investment into the oil patch, that's a subsidy. Isn't that what the focus of this program is?

[Jerry V. DeMarco]

Yes, this fund is a type of subsidy, agreed.

[Charlie Angus, NDP, Timmins—James Bay, ON]

It is a subsidy.

Then you stated that you were “surprised” and “disappointed” that Natural Resources Canada wasn't tracking whether reductions happened at all. I used to work for first nations and arts groups before, and we got piddly little amounts of money. If we didn't deliver, we didn't get the money, and the feds were all over us, yet we see $134 million given out to oil companies with the objective of helping to keep our planet from being destroyed, and Natural Resources Canada doesn't track whether the job was done. How is that possible?

[Jerry V. DeMarco]

Things we hoped to see when we carried out the audit were measures and targets related to what's called “value for money” or the optimization of resources. Value for money under Treasury Board guidance looks at relevance and performance. There are questions about relevance now because the raison d'être of the program, in terms of depressed commodity prices, has changed quite considerably since the infancy of the program. Performance—in terms of measuring costs per tonne, costs per job saved and so on—was missing as well. It was a poorly designed program; there's no doubt.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Okay, so it's a subsidy. They're not even checking whether or not we're dealing with methane, which is destroying our planet. You present your report to Natural Resources and they shrug it off. You say that you were quite disappointed with the responses of the department, and that it “doesn't bode well”.

Given such a damning indictment, in which you say Canada has to stop going from failure to failure, are you telling us that the department's response, as you say, “doesn't bode well”? What does that mean?

[Jerry V. DeMarco]

Well, they agreed with only four of the six, and they partially agreed with two of the six. In one of the responses to recommendation 4.40, they did not seem to even understand the idea of baselining emissions reductions, so there are problems with that.

It's also interesting that, in recommendation 4.93, they talk about the need for the program to be based on financial need. This is a question you can pose to the department on—

[Charlie Angus, NDP, Timmins—James Bay, ON]

Sorry, can I get clarification? It's whose financial need? Is it the oil companies of Canada? Is this program worried about their financial needs when we're talking about methane? Is that what the department's focus was?

[Jerry V. DeMarco]

Well, it's their response that I'm referring to.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Wow.

[Jerry V. DeMarco]

I can't speak for them.

[Charlie Angus, NDP, Timmins—James Bay, ON]

No, I know you can't, but a government that has made commitments internationally to reduce greenhouse gas emissions.... The minister's staff and department are saying that their focus was on the financial needs of big oil and not actually on reducing methane. That was their response. I find that shocking.

[Jerry V. DeMarco]

Well, the point I was trying to make was that they agree with us that they should be basing decisions on financial need. That goes to the relevance point and value for money. The question you may want to pose to the department is whether that financial need—and I know you disagree with the premise for it overall—is still present in round three, now that commodity prices have rebounded sharply since the onset of this program.

[Charlie Angus, NDP, Timmins—James Bay, ON]

There were $18 billion in subsidies given to them last year, and this government is focused on the financial need of big oil. I'm just shocked by that.

[The Chair, Liberal, John Aldag]

We're out of time on this one.

Now we'll move to round two, which is 15 minutes. That will take us pretty much to the end of this first panel. I think our next panel is pretty much set up. Once we go through four rounds of questions, we'll wind this one up.

For panellists on the second panel, who are waiting, you're up in 15 minutes, so get ready.

First up in our second round, for five minutes, is Mr. Maguire.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you, Commissioner, for your presentation, and thanks to the staff with you today, and for the work you did on this report.

In response to what Mr. Angus just asked, for the department to come up with no understanding of baselines in this program.... Could you just explain, Commissioner, why there was seemingly a lack of baselines? Of course, this was to support industries as well as to create jobs, with the overall idea that we're reducing methane.

Could you just explain how we even measured that, if we didn't know what the baselines were?

[Jerry V. DeMarco]

That's an excellent question. I will summarize what's at page 15 and onwards in the report. I would commend you to look at that after the hearing.

Baseline is really important. We have an exhibit that explains that. From the baseline, you can then determine what the effect, the causation, is with respect to the fund, or in this case the fund and the methane regulations. Without a proper baseline, essentially your equation for determining the emissions is off on the wrong foot, right off the bat. You need a baseline to project out what the emissions will be, not just this year but in future years as the methane regulations come into force. Only then can you determine what effect the fund is having in addition to the methane regulations, for example.

If you don't have a proper baseline, then you're going to have a faulty result from your calculations.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you. The plan even planned for a 25% default rate in the companies that applied for the fund. We knew how many companies and jobs in the sector were at risk of disappearing right from the start, apparently, when they put it in place. I know what baselines are, obviously, but if we didn't have one in this particular instance, I don't know how you measure this. I thank you for the report, but I don't know how you solve that issue.

Did you find any evidence at all that the government asked...? I guess that would be a repeat of a question that my colleague asked. You already answered that there was no consultation with the companies. If that's the case, what recommendations would you make now to the department on how to determine whether or not the funding is retaining jobs?

[Jerry V. DeMarco]

On the question of value for money and retaining jobs, there's essentially no criterion for approving a project that's based on that objective. You have an objective of retaining jobs, but you don't have an eligibility criterion from the applicants saying that they will retain this number of jobs, or this number of jobs per dollar spent, and so on.

It goes back to basic performance management. If you have an objective of retaining jobs, you need to establish a target and a way of measuring that, and of measuring the efficiency which which the target is being met. Those are all absent, so you'd have to start from scratch on that.

[Larry Maguire, Conservative, Brandon—Souris, MB]

How do you work with a plan that planned for a 25% loss of companies in this whole area as well? Perhaps you could expand on that.

I have another question as well. This was a seven-year program to be paid back before the end of that seven-year period. All the money was to go out in 2021-22, these two years, to reduce methane and then be paid back. What criteria has the government used, and how does it measure whether we're on track or not to reduce methane?

[Jerry V. DeMarco]

They did some tests looking at financial viability. That's where they came up with the 25% default assumption you mentioned a few minutes ago.

It should be pointed out, too, that on the loans, there's the default question. They are prepared to potentially write off up to 25%. That's the assumption they made. However, there's also the nonrepayable portion, which is a straight subsidy. There are loans and then what they call the nonrepayable portions of the loans, which to the average person would be considered a grant. That's not coming back to the taxpayers of Canada.

[The Chair, Liberal, John Aldag]

We're out of time on that one.

Mr. Maloney, you have five minutes for questions.

[James Maloney, Liberal, Etobicoke—Lakeshore, ON]

I'd like to thank you, Mr. DeMarco, and your colleagues for being here today and giving us a rundown of your report and the recommendations therein.

I just want to say this: I'm glad to be here. This is my first time being at a committee meeting in person in almost two years. You'll forgive me if I look for my mike boom throughout this meeting.

My questions will focus on process, Mr. DeMarco. Your colleague said that you do not look at results of the program and you didn't speak to any of the companies who applied for or received funding. Is that standard operating procedure in an audit process?

[Jerry V. DeMarco]

Recall that we're auditing the government's program. We're not auditing the private sector directly. We audited the application process and the disbursement of funds. We looked at whether they were measuring results, because we were auditing Natural Resources Canada. We were not auditing, as we don't have access to each individual company's books, the way their own private auditors would for each of the companies.

We audited Natural Resources Canada and their documentation and their measures for determining value for money and sustainable and reliable reductions. My focus was on Natural Resources Canada's work.

[James Maloney, Liberal, Etobicoke—Lakeshore, ON]

Fair enough, but how do you measure the appropriateness of criteria for a program like this without looking at the results? You've made some statements today that are pretty definitive in terms of the outcomes, and that they were measurable or not measurable, or successful or not successful.

I'm puzzled at how you make those statements without actually looking into the results yourself.

[Jerry V. DeMarco]

We make those statements based on good principles of design for a program such as this.

Recall that we got into this right after the first intake period, so the funds had just gone out and the equipment, for the most part, was still being installed or was about to be installed. We weren't waiting for the whole $675 million to be disbursed and all of the equipment to be installed, and then looking back at the mistakes years later. We were looking at this after the first intake period, because we wanted to look at whether there were flaws in the design of the program, not just the results that we'd be able to measure with a follow-up thereon.