Speaking Notes for Adam Auer, Vice President, Environment and Sustainability, Cement Association of Canada
May 3, 2018, Ottawa, Ontario
Check Against Delivery
Good morning Madam Chair and Senators and thank you for the opportunity to address you today.
Allow me to begin by noting that the Canadian Cement industry has, for over a decade, consistently championed strong action on climate change, including putting a price on carbon.
Let me put that statement into context, because I think it may offer you some level of confidence that carbon pricing can deliver on its promise of reducing greenhouse gas emissions while protecting the competitiveness of Canadian industry.
The Cement Association of Canada represents all manufacturers of cement in Canada. Our industry contributes $76 billion in direct, indirect and induced economic impact and employs directly and indirectly almost 160,000 Canadians, many in highly skilled, well-paying jobs.
As Canadian governments have moved toward carbon pricing, many well-regarded think tanks, including Canada’s EcoFiscal Commission, have studied the impact of carbon pricing on competitiveness. The results are consistent: while the competitive impacts of carbon pricing are quite small in aggregate, certain sectors are at high risk, and the cement sector is consistently among the most vulnerable. Cement production is in fact recognized globally as an Energy Intensive Trade Exposed sector or “EITE.”
So as the Canadian cement industry has championed carbon pricing as the foundational element of good climate policy, the details matter. When governments design carbon pricing systems, they must be attuned to the reality that our competitors in import and export markets don’t have similar pricing systems. Failure to consider EITE competitiveness puts Canadian industry on an unlevel playing field and leads to “carbon leakage” – the displacement of emissions and their associated economic activities and investments to markets without the same carbon pricing pressures.
We can share with you a real-world example. At $30 per tonne, British Columbia’s carbon tax doubles the cost of fossil fuels used in BC’s cement kilns and has resulted in significant loss of market share to imports from the U.S. and Asia. When B.C. introduced their carbon tax in 2008, cement imports in the province climbed from less than 6%, to a peak of over 40%, resulting in plant shutdowns, lost investment and economic opportunities in B.C. and, perversely, a net increase in global GHG emissions associated with the production and transportation of cement from import markets. The B.C. cement industry is a case study in carbon leakage.
Thankfully, the Federal government appears to have learned from the B.C. example. While we are in the early stages of consultation on the details of the federal treatment of EITE sectors under the Greenhouse Gas Pollution Pricing Act, the proposed Output Based Pricing System Regulatory Framework adopts, in principle, a proven approach to mitigating leakage that we hope, once finalised, will mirror three essential EITE measures found in the Alberta, Ontario and Quebec pricing systems.
- First, these systems use a production weighted or “output based” pricing model that only charges EITE sectors for emissions above an undiscounted carbon intensity benchmark. As long as the initial benchmark is realistic, this approach maintains a consistent and predictable market incentive to reduce GHGs, allows industry continued flexibility in the face of variable market cycles, and secures a measure of protection from compliance costs that would significantly disadvantage EITEs against foreign competitors.
- Second, all of the provincial systems distinguish between combustion-related emissions (emissions from the fuels used to heat our kilns) and process emissions, which are irreducible emissions from the chemical reaction at the heart of cement manufacturing.
- Thirdly, all of these systems recycle a portion of their carbon pricing revenues to accelerate low carbon capital investment at EITE facilities.
Together, these measures can be very effective in ensuring that carbon pricing supports ambitious yet considered transition toward a low carbon economy, including for the most vulnerable sectors of the Canadian economy.
Let me offer two final thoughts as I conclude. We acknowledge, as the Federal Government itself has acknowledged, that carbon pricing alone will not achieve Canada’s Paris commitments. Complementary measures are needed. These, whether the Clean Fuel Standard or others, must be assessed together with carbon pricing for their aggregate competitiveness impacts in order to avoid undermining the integrity of the carbon pricing system.
Secondly, as a major purchaser of goods and services, the Government of Canada must help boost the low-carbon market signal that carbon pricing sends by aligning procurement, especially procurement of infrastructure, with climate objectives, using cradle-to-cradle lifecycle assessment to “pull” low carbon innovations, including low carbon cement, into the market.
Thank you. I look forward to your questions.