Thanks very much, Chair, and thanks for my opportunity to present the views of IISD to the committee hearings on the ERF.
As a general proposition, IISD has concerns about subsidies to the oil and gas sectors, whether for decarbonization or for other purposes. They have a long history of work in this area, both in Canada and internationally, and Canada unfortunately has a long history of unfulfilled commitments.
To be clear, we support well-crafted subsidies that facilitate the coming industrial transformation. Clearly, the government has a significant role to play in helping Canadian heavy industry to decarbonize on the road to net zero, be that in steel, aluminum, cement or pulp and paper, but oil and gas is not like those other industrial sectors, in three important ways.
First, subsidies to oil and gas may lead to increased viability of industries whose products ultimately we need less of, not more of, if we are addressing the climate change crisis. Second, that means that every dollar spent supporting oil and gas is a dollar not spent supporting the sectors of the future, those that will provide long-term growth for Canadian workers and families. Third, support to oil and gas risks signalling that there's no need to prepare for a time when demand for its products is no longer at its current strength. It risks making the eventual transition more painful for dependent workers and communities, and it risks contributing to the financial crisis of significant stranded assets.
Those problems are significant to subsidies in the oil and gas sector, but they're layered on top of risks and pitfalls that are inherent in any industrial subsidies. It's a long list, but among the key concerns are that they can create vested interests that will advocate for their continuation after the subsidy is no longer necessary. They can blunt incentives to move toward energy transition and, of course, they can violate the “polluter pays” principle.
To help ensure that Canadian taxpayer dollars don't create those kinds of undesirable outcomes, IISD has developed some basic principles, some of which have strong relevance to the ERF. These are in part derived and adapted from a set of guiding principles and recommendations on green spending in the COVID recovery plan, our “Green Strings” report. This was submitted to the government in 2021 with the support of 12 other Canadian environmental organizations.
Of particular relevance here is the principle that no support should be offered that lowers the cost of production for gas and oil installations. No support should be offered to comply with existing or pending regulations. Supports should only go to applicants with credible plans for net zero by 2050. Finally, support must be accompanied by clear signalling on Canada's vision for the future of the sector and meaningful commitment to just transition for affected workers and communities.
Given the pitfalls inherent in subsidies, which we know in some depth, our clear preference would be for strong, effective regulations that reduce methane emissions in the oil and gas sectors. But we don't currently have those, and it may take years to get them, so as a second-best solution we see a role for programs like ERF.
We're happy to see improvements in the ERF in the third intake. Some of them are aligned with the principles I just described. We're particularly happy with the principles that projects have to fully eliminate all continuous sources of intentional routine venting and flaring, that projects must exceed the regulatory requirements, pending and current, and that projects must show a detailed financial case for additionality of the emissions reductions they claim to be financing. All of that is good.
Unfortunately, we predict that the increased stringency is going to mean very few applicants, so very little methane is going to be reduced in the third intake, which is a problem. Other witnesses have stressed the urgency of reducing methane emissions. There are immediate and cheap reductions. We know that from the ERF's experience in this area, and we know that from other international experience. Where does that leave us? I come back to it. It leaves us with strong and effective methane regulations with two primary objectives: eliminating completely intentional venting and flaring; and better accounting for, and reducing, leakage.
The pneumatic gas-actuated controllers, the main source of intentional emissions, have technological substitutes available, and they are cheap. These should be regulated out of existence. All other sources of known intentional emissions should be metered. As it is, we don't know the scale of the problem, so how can we address it? How can we make credible commitments? We need more frequently mandated surveys to find and fix leaks. Those unintentional emissions are a big part of the discrepancy that we see again and again with measured and reported emissions.
In closing, the first best option is strong regulation in this sector. The second best option, until that first best happens, is to make room for the kind of strong regulations that will reduce methane emissions, but this is strictly second best. To deal with the problems of that second best, refer to our principles on how to administer subsidies and support to sectors like oil and gas.
Thank you for your time.