Natural Resources Committee on Feb. 2nd, 2022

[The Chair, Liberal, John Aldag]

I call this meeting to order.

Welcome to meeting number three of the House of Commons Standing Committee on Natural Resources. Pursuant to Standing Order 108(2), the committee is continuing its study of the emissions reduction fund onshore program. Today will be our second and final meeting to hear from witnesses on this study.

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 would like to 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. Non-medical masks are required to be worn in committee rooms and may only be removed when the member is seated in their place during the meeting and is speaking; however, it is strongly recommended that members wear their masks at all times, including when seated. Non-medical masks are available in the room, and they provide better clarity over cloth masks with respect to the interpreters being able to hear our conversations or our interventions.

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 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 rules to follow.

Interpretation services are available for this meeting. You have the choice, at the bottom of your screen, of English, French or floor. Members and witnesses may speak in the official language of their choice, and I'd ask all witnesses and our members, when speaking, to allow time for our translators to keep up with what you're saying, so don't go too quickly.

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'll be placed in order. As I'm sure you can all appreciate, it can sometimes be challenging when members raise their hands both in the room and on Zoom, so the clerk and I will manage the speaking order as best we can. We appreciate your patience and understanding in this regard.

Before speaking, please wait until I recognize you by name. If you are 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. This is a reminder that all comments by members and witnesses should be addressed through the chair.

With that, I am ready to move right into our first panel. This is an exciting day, to have our minister and departmental officials here so early on in our study.

Welcome, Honourable Jonathan Wilkinson, member of Parliament and Minister of Natural Resources. Joining the minister we have, from the Department of Natural Resources, Mollie Johnson, assistant deputy minister, low-carbon energy sector; Debbie Scharf, director general, clean fuels branch; and Michael Layer, program manager, clean air and energy research.

I'd now like to welcome the Minister of Natural Resources, the Honourable Jonathan Wilkinson, along with the officials who will be with us for the first hour. We'll then proceed with a second panel of witnesses for the second hour of today's meeting, starting at 4:30.

Minister Wilkinson, you may now proceed with your five-minute opening statement, before we move to questions and answers.

[Jonathan Wilkinson, Liberal, Minister of Natural Resources]

Thank you, Mr. Chair, and thank you to the committee for the invitation to be with you today.

The global economy is changing and changing rapidly. It's changing largely because climate change demands it, and markets are responding.

Just as any business has to interpret and react to changes in the business environment, countries, to sustain and enhance their prosperity, must also be capable of thoughtful response and action. This means that we must focus on actions to mitigate climate change while ensuring that there are economic opportunities in all parts of the country.

The emissions reduction fund's onshore program was designed as a COVID support program to contribute to both of these objectives.

In 2020, due to COVID, the oil and gas sector faced record-low prices that created significant financial strain and threatened tens of thousands of jobs. The emissions reduction fund was designed as a targeted COVID emergency support program that had two key objectives: to maintain jobs for oil and gas workers in Canada at a time of record-low oil prices and to ensure that work continued on reducing methane emissions at a time when emissions reduction would not be high on the agenda of firms whose finances were being stretched.

The program made significant progress on both of these objectives, and 99% of recipient companies were small and medium-sized enterprises. The program has been praised by mayors of communities like Estevan, Saskatchewan; Brandon, Manitoba; and Slave Lake, Alberta for the jobs saved within mostly small and medium-sized firms.

We estimate that, a year after completion, these projects will reduce the CO2 equivalent by 4.7 megatonnes. That's like taking a million cars off the road.

As I mentioned, this program was specifically established as a COVID‑19 support measure. And it was a program that was supported, not only by the sector, but also by a number of environmental organizations.

For example, the Pembina Institute described the fund as “one of the few programs around the world” that confronted the health crisis, created jobs and “contribut[ed] meaningfully” to reducing emissions. The David Suzuki Foundation said that the program will achieve outcomes that go beyond the methane regulations and that 97% were achieved at a cost below $20 a tonne, something they said was “a notable achievement”.

Today, the oil and gas industry's acute economic crisis of 2020 has passed, but the climate crisis remains. So we are amending the program to ensure that it confronts that crisis.

In re‑evaluating this program, we have taken into consideration the feedback presented by the Commissioner of the Environment and Sustainable Development.

Three important changes have been made for the third intake of the ERF. These changes will continue to accelerate the reduction of methane emissions. Going forward, the fund will only support projects that fully eliminate methane emissions from existing sources in oil and gas operations. Current Canadian regulations do not require zero venting or flaring from existing sources, so these projects will achieve additional emissions reductions.

The fund will apply strengthened criteria to ensure value for money, which is in line with the commissioner's recommendations. We will implement a cost-per-tonne threshold. We will require applicants to demonstrate that the project could not move forward without this funding, and we will determine the minimum funding required.

Finally, the fund will enhance the visibility of GHG emissions reductions by providing greater transparency on the emissions that are counted per project. We will engage an ISO-certified contractor to review and verify the program's methodology for assessing GHG reductions. We will require applicants to submit two GHG emission reduction plans to confirm the incrementality of the reductions.

These changes will enable high-impact methane reduction projects for Canada and will help drive Canada toward achieving its target of a 40% to 45% reduction in greenhouse gas emissions by 2030.

Once again, thank you for inviting me to speak to you today.

[The Chair, Liberal, John Aldag]

Thank you, Minister, for your opening statement. You're below the five-minute allotted time, so that's fantastic. We can get right into some questioning.

I should have mentioned that we're going to use the time-keeping system that we used last time. I'll give you a yellow card when there are 30 seconds left, and a red card when your time is up. Don't stop mid-sentence. Finish your thought, and then we'll move on to the next round of questioning.

From the Conservatives, Mr. Melillo has the first round of questions for six minutes.

It's over to you.

[Eric Melillo, Conservative, Kenora, ON]

Thank you very much, Mr. Chair.

I'd like to thank the minister for making the time to join our committee today. I appreciate that.

Minister, you speak of the transparency that this program provides. However, a report by the Commissioner of the Environment and Sustainable Development found that Natural Resources Canada overestimated the reductions in greenhouse gas emissions that it expected under the onshore program.

This is a question for you, Minister. Do you believe that this overestimation was a result of human error, or was it deliberately misstated?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

The discussion with the commissioner—and I've had a number of discussions with him about this—relates to the boundary conditions. The commissioner took a much broader definition of the boundary conditions.

Our focus was on the source of the emissions and the reductions that took place within that source. If, for example, there was another project miles away that was started during the course of the program, it was not counted. We were focused on reducing emissions at the source.

In that context, this program reduced 4.7 megatonnes of CO2 during the first two intakes. It succeeded significantly in ensuring that there was a continuing focus on methane reduction during a period of very significant financial stress for the companies in the oil and gas space.

[Eric Melillo, Conservative, Kenora, ON]

Thank you, Minister.

When you and officials from your department became aware that this had been overstated, were there any prompt changes to the program or any action taken by yourself or those in the department?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

Again, I don't agree with the characterization of “overstated”. The boundary conditions that were used in developing and implementing this program were based on the World Resources Institute greenhouse gas protocol, which is used globally for GHG reduction projects. It provides for the accounting and reporting of GHG reductions. I would note that in terms of methodology, it is what the International Energy Agency itself utilizes.

There's a difference in perspective with the commissioner in terms of the boundary conditions. I would tell you that if you're focused on the source of methane emissions—which I think we must be if we're looking to reduce them—the reductions were about 4.7 megatonnes during the first two calls for proposals, which is about a million cars off the road.

[Eric Melillo, Conservative, Kenora, ON]

Thank you.

In keeping with your talk about the reduction targets, the emission reduction target, if I'm not mistaken, was between zero and 3.7 megatonnes for CO2. In your view, would a reduction goal of zero be acceptable?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

As I said, the focus of the program was twofold. It was to maintain jobs in the oil and gas space at a time when we actually had negative energy prices for a period of time and there was a lot of stress in the sector. It was also to keep companies focused on reducing emissions from these sources.

[Eric Melillo, Conservative, Kenora, ON]

But would you consider—

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

The focus was on—

[Eric Melillo, Conservative, Kenora, ON]

—a reduction of zero emissions a success, as that is—

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

What I'm saying to you is that the actual reductions were 4.7 megatonnes of CO2 equivalent, which is the equivalent of a million cars off the road [Technical difficulty—Editor] successful.

[Eric Melillo, Conservative, Kenora, ON]

Okay. Thank you, Minister.

You noted this in your opening remarks, and I believe you've mentioned it in the past as well. Sort of in defence of the underperformance on emission reduction, you've claimed that the program has helped to create jobs and helped to save jobs. However, I note that the program doesn't include job retention in its criteria for eligibility or funding assessment.

In your view, Minister, how could the government actually guarantee that this funding would lead to Canadian jobs being saved if it wasn't a requirement set out?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

I think it was pretty evident to anybody who was observing what was happening in the sector that there was significant concern about the loss of jobs, just given the nature of what was happening with respect to energy prices. Given the circumstances and the timing, there was no reasonable or credible way to have this information provided up front, so we designed the program to obtain these figures following the project's implementation. These will be publicly reported.

I would say that the anecdotal evidence is entirely clear. Many service companies and technology companies have been employed to make these things happen. In communities like Estevan, Slave Lake and Brandon, the mayors have put out statements saying, effectively, in the case of the mayor of Brandon, “The project has supported economic activity and jobs in our region and will meaningfully reduce emissions.” Again, on that score, I think the program has been successful.

[Eric Melillo, Conservative, Kenora, ON]

Thank you.

I have a simple question as a follow-up to that. Given that, as you claim, job retention was a goal of the program, what would be a rationale as to why that was not baked right into the eligibility rules?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

Well, as I said, this was brought into place very rapidly in order to respond to what was an economic crisis in the sector. It was something that many in western Canada were calling for. What we did, in order to respond in a reasonable period of time to the crisis that existed in the sector, was to bring forward a program that said we recognize there is this challenge; we recognize that people are going to be laid off; we're going to respond to that; and we're going to require the reporting on job retention numbers at the back end of the program. They will all be public.

[Eric Melillo, Conservative, Kenora, ON]

I don't have much time left, so I'll hand it back to you, Mr. Chair.

Thank you.

[The Chair, Liberal, John Aldag]

Great. You were coming to the end of your six minutes, so thank you.

Mr. Chahal, you have six minutes for questioning.

[George Chahal, Liberal, Calgary Skyview, AB]

Thank you, Chair.

Hello, Minister. Thank you for joining us today.

On Monday, we had the opportunity to hear a number of interesting perspectives on the emissions reduction fund. As the MP for Calgary Skyview, I'm deeply interested in the future of our energy industry. Thousands of workers, many of whom live in my riding, have built careers in energy. Programs like the emissions reduction fund and others directly impact Calgarians and our economy.

Could the minister highlight for my constituents how this program has benefited our economy since its launch and how it has contributed to ensuring good-paying jobs for Calgarians?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

Thank you very much for the question. Of course, the fight against climate change and the transition to a low-carbon economy will benefit all regions of this country. This fund was set up to achieve two things—to maintain jobs during a period of significant economic stress for the sector and to ensure that we had a continuing focus on reducing emissions.

A number of companies have benefited significantly: 24 companies, including companies like Danzig Resources and NuVista Energy, located in Calgary, signed contribution agreements in Alberta for a total of 52 projects. That represents about $80 million in federal funding. Projects funded in Alberta have helped to maintain jobs for many skilled workers, some of whom include environmental engineers and those who work in the trades.

[George Chahal, Liberal, Calgary Skyview, AB]

Thank you.

Minister, we know how difficult the pandemic was throughout the economy as it relates to employment. Calgary's energy sector had experienced intense challenges well before COVID-19, and the additional blow was devastating for so many local businesses. Our government immediately took leadership and stood up for struggling workers by introducing programs such as CERB and the Canada emergency wage subsidy.

Many successful recipients of the emissions reduction fund came from Alberta during a time when COVID-19 was causing economic challenges across all sectors and for businesses of all sizes. Could the minister highlight the intent of this program upon its initial launch?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

As you have pointed out, certainly the program was launched in the midst of the pandemic, when businesses were facing a lot of uncertainty and we were seeing record-low prices for oil and gas. It was intended as a COVID response measure. It was designed to support and ensure that workers and their jobs would be protected. It was also intended as a climate measure to ensure that companies were able to continue to focus on reducing emissions during this very difficult time.

As I said, 24 companies in Calgary were recipients of this, for a total of $80 million. I would also say that it helped to continue the work that was being done on technologies that will be a comparative advantage for Alberta, in the context of being able to export these technologies, going forward, around the world.

[George Chahal, Liberal, Calgary Skyview, AB]

As a member of Parliament for Calgary, I hear a lot about the importance of a competitive energy industry that allows our innovators to put forward creative solutions to the challenges our world faces in energy, chief among those being reducing emissions in the fight against climate change. In order to access investment and signal to the market that our industry is committed to hitting our emissions targets, private sector firms and governments need to work collaboratively to create conditions for innovation while remaining competitive in a global marketplace.

Could the minister explain how the ERF will work to increase competitiveness and improve investor confidence within the sector?

[Jonathan Wilkinson, Liberal, North Vancouver, BC]

Certainly investors and purchasers of energy commodities are increasingly demanding lower-carbon energy products. That's true around the world. By significantly reducing methane emissions and implementing continuous accurate metering and reporting, companies can verify emissions reductions and emissions intensity improvements associated with their products. These companies are able to improve investor confidence and may be able to access premium energy markets that demand high ESG performance.

With respect to innovation, this program and the methane regulations themselves actually drive significant innovation with respect to technology development and implementation, something that I discussed at length on a couple of different occasions with Minister Nixon in my previous portfolio, which is an area that will, again, be a source of comparative advantage in the future.