Thank you, Mr. Chair.
Members of the committee, I'm pleased to present my thoughts on the climate crisis and Canada's energy sector. My 11 years of experience as a university professor and researcher, particularly on reducing greenhouse gas emissions, inform my views.
Greenhouse gas emissions generated by economic activity are a classic negative externality issue: Consumers and producers have no private economic incentives to consider the impact their emissions have on climate. Economic efficiency can be restored by introducing emissions pricing, incentivizing consumers to lower their demand for emissions-intensive products, and incentivizing producers to change their production processes and their product lines.
Of course, there are imperatives other than economic ones that can lead individuals and organizations to take action to reduce their greenhouse gas emissions. Moral, reputational and image considerations, among others, come into play. In the business world, these other considerations can take the form of various standards or certifications. Environmental, social and governance criteria are a good example. In a previous era, the triple bottom line was used to represent sustainable development objectives implemented in a business context.
Nevertheless, recent comments by Suncor CEO Mr. Kruger show that economic issues, particularly profitability, remain central to the decisions Canadian businesses make, including businesses in the energy sector. That's why economic incentives to reduce greenhouse gases must be maintained if Canada is to meet its international commitments.
There are various types of economic incentives, including taxes and subsidies. Taxes and subsidies have different fiscal implications for governments, but they also have various peculiarities for non-renewable natural resources like oil and natural gas. Because policies to combat climate change generally increase levels over time, for fossil fuel developers they can mean a tougher competitive environment or even an implied threat of expropriation. In response to such gradual policies, developers might therefore choose to accelerate their fossil fuel extraction while there is still time. This accelerated extraction also leads to accelerated greenhouse gas emissions, and therefore climate change.
This phenomenon, also known as the “green paradox”, doesn't manifest itself in the same way in all situations. It's more pronounced when energy transition policies are based on regulatory approaches and subsidies. Conversely, when policies are based on pricing approaches, chances of a green paradox emerging are much lower, if not non-existent. It's worth noting that cap-and-trade systems like the one in Quebec, which allow emissions to be banked but not borrowed, help reduce the green paradox phenomenon. This mechanism encourages emitters to reduce their emissions beyond the targets set by governments at the outset of policies, to secure greater flexibility as policies become more binding.
I'd like to emphasize that the green paradox is not important enough to call into question the gradual aspect of greenhouse gas emission reduction policies. The need to allow time for technological innovation, reorganization of supply chains, replacement of durable goods and changes in consumption habits, among other things, supports policies that gradually become more restrictive. The long-term investments that businesses and households must make to adapt effectively to these policies are also an argument in favour of advance announcements with clearly defined long-term objectives.
These factors tip the scale toward carbon pricing policies to reduce greenhouse gas emissions. They allow for a gradual approach, with long-term objectives, while also minimizing the risk of a green paradox. The advantages of carbon pricing policies are worth bearing in mind at a time when we are not yet clear of the inflationary environment. It might be tempting to substitute them with subsidy or regulatory policies, or even have no policy at all, to reduce the burden on consumers. In my opinion, it would be preferable to offer one-off support to consumers while businesses adjust to new low carbon production methods and consumers change some of their habits and replace some of their durable goods. That way, carbon pricing policies will enable a more efficient transition of corporate production. Consumers will have more affordable products to choose from.
Thank you for your attention. I'm ready to answer your questions.