Thank you very much.
Thank you for inviting me today. I'm pleased to be here to speak to you about this very important issue.
Canada will undoubtedly require more stringent policies to meet its commitments, its international and domestic commitments, to reduce emissions. I strongly support and have worked on the implementation of these policies, but with that in mind, I'm not convinced that a regulatory cap on emissions from the oil and gas sector is needed.
A sector-wide declining cap on emissions could represent a financial, technical and constitutional challenge, and lead to less cost-effective emissions reductions attributable to Canadian policies.
The oil and gas sector is Canada's largest emitting sector. Oil and gas production accounted for 191 megatonnes in our last inventory year of 2019, which is just slightly more than the 186 megatonnes that we measured for transportation. Importantly, forecasts show that these emissions are unlikely to decrease meaningfully unless more stringent policies are imposed.
There should be no question that oil and gas production contributes substantially to Canada's emissions. As Professor Keith so eloquently said, the emissions embodied in Canadian hydrocarbon production are a significant source of global emissions. Absent significant decreases in emissions from the oil and gas sector, Canada's goals will become increasingly challenging and eventually, for all intents and purposes, impossible to meet.
When you say something like that, a lot of times people will respond and say that the emissions intensity has been improving. I'd like to point out that this is not consistently true. The average Canadian barrel of oil has become more emissions intensive over the past three decades. The reason for that is simple. More of our barrels are coming from the more emissions-intensive oil sands. More of those oil sands barrels are produced using more emissions-intensive in situ processes. Within individual sectors the stories have been good, but overall there is not as much to sing about as some might have you believe.
The story is slightly better for natural gas, but there we only see a slight long-term decrease in emissions intensity.
What's driving this story? We know that the biggest driver for production and thus for emissions in the oil and gas sector are factors beyond our own borders, like commodity prices. Commodity prices are influenced by everything from technology to global development to the war that we've all been talking about these last few days.
High prices will generally mean more willingness to invest to maintain production in spite of carbon policy changes, but that type of analysis begs the question of whether oil prices, combined with carbon pricing and with a regulatory cap on emissions are going to lead, as Professor Keith said, to sufficient investment to decouple emissions from production.
My belief, like his, is that this is unlikely to happen, perhaps for a slightly different reason. Echoing some recent statements from industry leaders, there's just not enough long-term certainty on the policy side. There are some measures that can close this gap, like tax credits, etc., but a regulatory cap doesn't get you farther towards that goal.
The next thing I'd point out is that, in arguing for the Greenhouse Gas Pollution Pricing Act before the Supreme Court, the Attorney General argued strongly that economists support carbon pricing because it's the most cost-effective way to reduce emissions. They cited my own testimony before the finance committee of this House to support that claim, so I have to stick with that.
The cost-effectiveness of carbon pricing comes from applying the same price to a whole set of emissions—to as many emissions as you can.
With that in mind, I would ask two questions.
First, would we want more stringent policies applied on some sectors than on others?
Second, even if we did, do we need another mechanism or another policy to do so?
My answer to both of these questions is no.
I say we do not need more stringent policy on one sector than others and we do not need new policies, even if that is what we choose to do. Carbon pricing gives us all the tools we need.
That emissions in one sector are more resilient to carbon pricing is indicative that there is more value there per tonne of carbon emitted, which is what carbon pricing drives our economy towards. The judgments about whether that value will be present in the long term are generally not best made by governments. But, if government chooses to do so, Parliament has the means to ensure that carbon prices are reflective across the investment, production, export and combustion decisions related to hydrocarbons.
The carbon pricing regulation is there. The clean fuel regulations, the Bill C-69 measures and the tax code are all there.
In conclusion, if this proposed oil and gas cap is just an expression of what we expect policies to bring, so be it, but I question the need for and the efficacy of a new regulatory mechanism.
Thank you. I'm sorry for being 10 seconds over.