Natural Resources Committee on Feb. 14th, 2022

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

What are some of the metrics we would be looking at to determine that?

[Dr. Josipa Petrunic]

An obvious one would be cost profile versus timeline to deliver, for sure, and ridership—

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Is 10 years to even start a project a justifiable delay?

[Dr. Josipa Petrunic]

To be frank, in the rail sector that can be reasonable, but timelines tied to deployment and ridership numbers are pretty critical metrics to use.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Okay. Given the context of addressing climate change, do you think 10 years from a funding announcement to even getting a foot of rail built on a major project like the green line is acceptable? Do you think that should be changed in light of Canada's net-zero emissions targets?

[Dr. Josipa Petrunic]

Yes, it should be changed. Ten years is a long period of time.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Excellent. It sure is, isn't it? It certainly is for the people in my community—

[Dr. Josipa Petrunic]

For any transit....

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

—for north central Calgary. They've been let down for a long time by both city council and this government.

Thank you, Ms. Petrunic.

[Dr. Josipa Petrunic]

You're welcome.

[The Chair, Liberal, John Aldag]

Excellent. Thank you.

We will now go to Ms. Dabrusin, who has six minutes.

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

Thank you.

What was interesting in listening to the witnesses was different ideas about the structure of what goes into an oil and gas cap.

If I could start with Clean Prosperity, there was a focus on direct pricing as opposed to cap and trade. In that conversation, though, comes up the issue about what the impact is on international trade for our products.

What's the role for border carbon adjustments as part of this, and what should we be thinking about when we're designing it, if we're focusing on direct pricing as our system?

[Michael Bernstein]

Border carbon adjustments, or some equivalent policy at our border, are absolutely critical if we're going to proceed with more ambitious climate policy. What we don't want to do is apply high charges to domestic industry in a way that just moves them overseas and does nothing for emissions. We have to have a border carbon adjustment or some equivalent.

One advantage of moving to a stricter pricing system and one that applies eventually the full carbon price to industry is that you will also be able to rebate that carbon price for exports. Our current regulatory-based system, the output-based pricing system, would not allow rebates to exporters.

I think border carbon adjustments are critical, and I think they should be done in tandem with moving to a full carbon pricing system over the course of this decade.

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

You referred to “or some equivalent”. What would be the “some equivalent” we should be thinking about if it's not a border carbon adjustment?

[Michael Bernstein]

There are other approaches. There's pushing for a minimum global carbon price. There are climate clubs, in which tariffs are applied more broadly to countries that are not part of the club. But the use of border carbon adjustments is certainly a leading option.

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

Thank you.

Monsieur Beugin, you also referred to the need to account for international shifts. What do you see as the role for border carbon adjustments, and what do you think of the other options that might also be out there to take into account those shifts?

[Dale Beugin]

Thank you for the question.

I agree with Mr. Bernstein that the issue of leakage and competitiveness is one that has to be taken seriously. You don't want to be driving emissions reductions through production shifts to other jurisdictions with your policy.

Border adjustments are one solution. The existing system, the output-based pricing system, is also designed to address this problem. It creates an incentive to reduce emissions by improving the emissions intensity of production rather than by decreasing production. Fine-tuning that system and using it as an instrument still remain an option. It can complement border carbon adjustments, but they can also trade off between the two of them. If you were to shift to border carbon adjustments, that would allow you to raise the emissions intensity benchmarks in the output-based pricing systems.

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

In your mind, border carbon adjustments would actually be an effective tool as part of the program we'd be putting in place if we were putting in a cap on the emissions from oil and gas.

[Dale Beugin]

They can absolutely be an effective part of the system. They are complicated administratively. It's the only downside.

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

Is there anything you would flag for me as something I should be thinking about in the complicated...?

[Dale Beugin]

There's good research out there that is longer than a 30-second sound bite. The issue of collaboration and coordination of other countries is really essential. Canada would want to do this with the U.S. or the EU as part of those carbon clubs that Mr. Bernstein is referring to.

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

That's great. Thank you.

While I still have you, because I believe you suggested cap and trade, Mr. Bernstein suggested that it would take too long. What's your response to that?

[Dale Beugin]

There's more than one way to create these incentives. It could be, as Mr. Bernstein suggests, by increasing the price of carbon over time for the average cost in those output-based pricing systems. The trade-off is certainty in price versus certainty in quantity. That trade is hard to avoid.

With a cap-and-trade system, you can't establish that certainty at the emissions level if that cap is contained to the oil and gas sector, in particular. There is more than one way to do this and they each have advantages and disadvantages.

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

When you made the evaluation, you thought the cap and trade was a better way to go.

[Dale Beugin]

If the government's intent is to establish certainty in emissions levels in that sector—as has been the focal point for discussion—and if that is required, a cap-and-trade system can better deliver that certainty.