Proceedings of the Standing Senate Committee on
Energy, the
Environment and Natural Resources
Issue 2 - Evidence
OTTAWA, Tuesday, December 7, 1999
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:43 p.m. to examine issues relating to energy, the environment and natural resources generally in Canada.
Senator Mira Spivak (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, our first witness today is Mr. Mark Nantais, who is from the automotive industry.
I am sure you are aware, Mr. Nantais, that this committee went through the legislation dealing with MMT sometime ago, and we are certainly pleased to see how this has all been resolved.
Perhaps, before I ask Mr. Nantais to proceed, I should just name the panel of witnesses for the benefit of the committee: Faye Roberts, from General Motors; Blake Smith, from Ford; Larry Robertson and Janak Singh, from DaimlerChrysler; and Mr. Mark Nantais, from the Canadian Vehicle Manufacturers' Association.
Would you proceed, please, Mr. Nantais.
Mr. Mark Nantais, President, Canadian Vehicle Manufacturers' Association: It is a pleasure to be here, Madam chairman. We will talk to you today about an exciting program that we call the Auto Makers' Choice.
The Auto Makers' Choice program was recently launched by Canada's leading auto makers. That includes DaimlerChrysler, Ford, General Motors, Jaguar, Mazda, Saab, Saturn and Volvo cars of Canada. We are particularly pleased to be here because this is an unprecedented initiative that is characterized by inter-industry cooperation. It is a market-based, promotional program that is pro consumer choice. Most important, it is better for the environment.
Government has recognized the benefits of the "total systems" approach under which fuel quality supports vehicle technology. Government has asked for industry's cooperation on the whole vehicle-fuels relationship, and we are responding on several fronts, but certainly the Auto Makers' Choice fuel endorsement program is one of the major initiatives that we are putting forward in response. This is particularly important given the fact that the auto industry has moved forward in a dramatic way relative to emissions performance of vehicles in terms of reengineering and redesigning.
It is readily established that air quality is a major challenge. It is well-documented and is in our view perhaps the most serious and immediate environmental issue that has to be managed. It is a key concern in Canadian urban centres, particularly in the Windsor-Quebec City corridor, in Vancouver and in some isolated areas in the Atlantic provinces.
Health Minister Allan Rock commented that scientific evidence shows that there are important health benefits to be gained by reducing sulphur in gasoline. The reduction of sulphur in gasoline under the Auto Makers' Choice program is one of the key elements.
Let me just give you an indication of how successful the auto industry has been in reducing smog-caused emissions from our precontrolled period. We have volunteered to introduce a low-emission vehicle program into Canada to be fully introduced in the 2001 model year, which is one year from now. By virtue of that program, hydrocarbon emissions will be reduced by over 99 per cent. Oxides of nitrogen, another criterion pollutant for which we are responsible, are being reduced by over 95 per cent.
Those levels are achievable when we have the right fuel, which is fuel that contains sulphur levels at about 30 parts per million on average.
If I may, I will just show you a slide that illustrates pollution management as it is applied to the internal combustion engine. You can see that we have made substantial changes to the engine, as well as to the after-treatment controls such as catalysts and what not, to achieve very low emissions. This technology is, however, becoming limited in its capabilities and it requires appropriate fuel quality. Consequently, we have to go straight to the source of the pollution now, which is the fuel quality. We are achieving levels that are so stringent, we are finding that the fuel quality itself is responsible for a lot of the emissions that come out the tailpipe. In other words, the quality of the exhaust emissions is really a function of the quality of the fuel that goes into the engine.
Let me switch gears now and talk to you specifically about the program itself. Just to give you a general overview, this is, as I stated, a cooperative industry initiative. It is open to all vehicle manufacturers, oil refineries and independent gasoline retailers. In other words, this program is not meant just for the big oil companies; it is for virtually everyone who supplies fuel in Canada. It is voluntary, it is national in scope, and it is, indeed, pro consumer choice. There are well-demonstrated, documented environmental and health benefits derived from the reduction of sulphur in gasoline and this overall fuel specification.
In terms of our objectives under the program, clearly, we want to make cleaner fuels available nationally as quickly as possible. We want to improve air quality. We acknowledge the fact that motor vehicles do play a role in air quality in ground level ozone or smog. This is another element of our overall strategy of having clean fuels in vehicles to improve air quality.
The program is intended to reward environmental leadership, and for those fuel suppliers who are willing to step forward ahead of regulation, this program recognizes them in the marketplace. Generally, it is extremely important to improve public awareness as well as customer satisfaction. That is also very much a factor of the fuel under Auto Makers' Choice.
A key element of the program is that the Auto Makers' Choice logo is available under non-exclusive license agreement to any fuel subscribers as long as they meet the prescribed criteria -- that is, the fuel specifications. The logo is intended to appear on any pump that contains the fuel that meets the recommended specifications. If the pump does not have that logo, it does not contain Auto Maker's Choice gasoline. It is open to all those fuel suppliers.
It is part an overall promotional program that involves the communication materials that we provide to customers of the auto industry, through their dealerships, through company Web sites, through association Web sites, and through customer assistance 1-800 lines. So there is a broad range of promotional activities from the vehicle manufacturers' side and through the dealer network.
On the oil fuel suppliers' side, not only do they capitalize on much of that promotional activity, but they will develop their own advertising campaigns with the use of specific auto makers names as endorsements. Essentially, all those companies that you see on our car topper can be part of their campaign, if they wish, as endorsements.
I want next to point out some important aspects of the fuel specification that we developed, and I have a chart that gives that fuel specification, or at least the most critical elements of the overall recipe for Auto Makers' Choice gasoline. In the first place, it was based on the World-Wide Fuel Charter. I believe you have a copy of that charter. It is a document that provides recommendations relative to fuel quality as it relates to various categories of emission control systems around the world. This was developed by auto makers worldwide. Virtually every auto maker had a role in developing this document.
In addition to that, the Auto Makers' Choice specification, while based on the World-Wide Fuel Charter, also builds upon our existing CGSB guidelines in Canada. An important aspect here is that the World-Wide Fuel Charter is setting the direction for future fuel requirements around the world.
I will just mention some of the key aspects. Sulphur is right at the top. It is important to get levels of sulphur down for a lot of reasons -- for the environment as well as for health benefits. Deposit control additives for the intake valve, the fuel injector and the combustion chamber are all positive fuel attributes that we are striving for, and we are also seeking the elimination of any heavy-metal or ash-forming additives. We also have what is called the driveability index, and achieving that index as part of that fuel specification is an assurance for better cold starts, better warm ups, and overall better vehicle drivability.
Taken altogether, this is what we call a more holistic approach -- in other words, a holistic recipe that provides overall better performance of your vehicle.
We are often asked what the benefits of Auto Makers' Choice gasoline are? One benefit is crystal clear: if all Canadians had access to Auto Makers' Choice gasoline, it would be the equivalent of removing 2 million older cars and trucks from Canadian roads in terms of reducing smog causing emissions. That would be an astounding achievement. For policy makers, adopting the total systems approach where the fuel supports the technology must be one of the most effective and immediate environmental initiatives to improve overall air quality.
What should the next steps be? Auto Makers' Choice is already consistent with the new Canadian Environmental Protection Act and, because it is market-based, it emphasizes consumer choice. however, it is our opinion that the government really needs to reinforce its own policy. It needs to give consideration to options that will accelerate the introduction of low-sulphur gasoline. There are several examples around the world where economic instruments, such as excise tax differentials, have been demonstrated to be highly effective policy tools, particularly in the transportation sector, to encourage consumers to change their behaviour and to accelerate things into the marketplace.
You may have noticed in the information package that we provided to you that we included, for your edification, a document entitled "International Case studies: Fuel Quality and Excise Tax Differentials." I strongly encourage you to look through these examples, because the results that have been achieved by virtue of undertaking and utilizing some of these tools in the marketplace have been dramatic in terms of accelerating the introduction of cleaner fuels and, of course, reaping the environmental benefits.
I promised that we would keep this presentation short, being more interested in your questions and the dialogue that will follow, so I will just give you a quick summary. First, with respect to clean fuels, appropriate fuel quality is absolutely critical to optimize remission reductions from vehicles and to improve air quality. In the future however, fuel quality will actually be what we call an "enabler." It will enable the possibility of bringing forward cleaner and more fuel efficient technologies, such as, for example, direct injection gasoline engines and fuel cells. These technologies are on the horizon and are not that far off.
No longer can we continue to treat fuels and vehicle technology as anything less than a total system. That is why inter-industry cooperation under the Auto Makers' Choice sets the benchmark for the future. Consumers can make a more informed choice and they have access to information about the fuels they are purchasing, which currently they do not have on a wide-spread basis.
There are very real environmental as well as health benefits. They are well-demonstrated in the government data that has been put together. Auto Makers' Choice underpins government's clean fuels policy and government, as I have said, must consider what it can do to accelerate the introduction of these cleaner fuels. One example would be a tax differential that would favour the cleaner fuels.
We would strongly recommend that, if this committee can keep the clean fuels issue on the agenda and if we can find ways for support for excise tax differential or some other economic policy that accelerates the introduction of these clean fuels, the environmental and health benefits will be very dramatic.
Madam Chairman, I will conclude there, and I would be pleased to entertain any questions that the committee may have.
The Chairman: Before we begin questioning you, I believe senators would like to hear the representatives of Irving Oil give their presentation.
Mr. Arthur Irving, Jr., Irving Oil Limited: Madam Chairman, I intend to refer to the slide presentation booklet that you have, if I may.
Honourable senators, Irving Oil is a privately owned company from New Brunswick. We are in our third generation. We operate Canada's largest oil refinery. This year we are celebrating our 75th anniversary. We make up approximately 50 per cent of Canada's petroleum exports out of our one refinery. There are 18 refineries in Canada, and ours accounts for 50 per cent. Approximately 30 per cent of the exports of New Brunswick come out of our refinery.
On the second page you can see one of our stations in New Hampshire. We are one of two North American refineries that handle supertankers. One is at Port Hawkesbury, which Senator Buchanan, I believe, is very familiar with, which is able to receive supertankers, and of course there is our refinery. The tanker pictured there is our Irving Galloway, which is a double-hulled supertanker commissioned two years ago in Japan. The photo below is, as my brother would say, a beauty shot of our refinery.
We are presently undergoing a $1 billion upgrade. It is the largest refinery capital project in North America in over a decade, and presently the largest refinery project underway in the world. These are pictures that are approximately two months old. That is the crude tower being lifted. Our crude unit comes on line on March 31, 2000 and our "resid" cracker will come on line on October 8. That will be the largest of its kind in the world. We make up 13 per cent of Canada's refining capacity and 7 per cent of the retail market in Canada.
Having given you that background, let me get to the heart of the issue. On Page 5 you can see something glaring: as usual all the wealth is centred in central Canada; Quebec and Ontario are hoarding Canada's sulphur content in gasoline.
There are three refineries in Atlantic Canada. With respect to sulphur levels, at present our refinery is running at 150 parts per million in Canada. The Canadian average is about 450. We are about one-third of that, or about 15 per cent of the Canadian maximum. As part of the attempt to lower emissions, we are very proud to be associated with the Canadian Vehicle Manufacturers' Association, and we will be going to 30 parts per million for 2001.
Just to put things into perspective for you, when we say that we are at 150 parts per million, here, on page 6, are some random samplings of various branded outlets. The yellow line is an importer in Montreal, and that is 1,000 parts per million. We are at 150 parts per million, going down to 30. There is product being landed in the Port of Montreal that is 1,000 parts per million, and yet it is within the guidelines. Basically, in other words, if you have an off spec cargo, you zoom towards Canada.
The Chairman: That is oil that is imported into Montreal?
Mr. Irving: That is correct. There are two refineries in Montreal and probably four terminals. Most of the gasoline imports into the Port of Montreal come from Europe, typically.
Mr. Michael Hanrahan, Refining Division, Irving Oil Limited: The health and environmental impacts of reducing the sulphur content in gasoline has been documented by the government working group on sulphur in gasoline and, in particular, the government's Health and Environmental Effects Panel study that was concluded in 1997. Some of the numbers there are startling, including 2,100 fewer deaths, 2,400 fewer hospital admissions to name two of the benefits associated with reducing sulphur in gasoline.
The monetary health benefits of reducing sulphur in gasoline will exceed $7 billion over the next 20 years. So it is also a significant reduction in the financial burden in Canada.
The federal government has responded well with the pending "sulphur in gasoline" regulations. In June of this year, the Minister of the Environment, then Minister Stewart, announced that sulphur levels in gasoline would be cut approximately in half by between 2002 and 2004, and they would be roughly a tenth of what they currently are by 2005. We were glad to see that Minister Anderson reaffirmed the commitment to these regulations in the most recent Speech from the Throne.
We believe, and our industry colleagues the auto manufacturers also believe, that greater success is achievable. We would like to see the regulations remain in effect and remain firm, but we would also like -- and we challenge other of our industry colleagues to concur -- to see the deadlines moved up by three years. With programs like the Auto Makers' Choice, with companies that are committed to the environment and the health of Canadians and with some government leadership, we believe we can achieve that common goal.
Irving Oil is committed to leading the way to providing low-sulphur transportation fuels. Part of the $1 billion refinery upgrade project that Mr. Irving mentioned is an amount of $100 million that is devoted to environmental controls. There are six environmental controls, four of which are 100 per cent voluntary. They are new standards placed on us by the Irvings. The other two are environmental controls that will be input ahead of regulation. One of those is our selection of a desulphurization technology for gasoline. It is not currently in full scale operation anywhere in the world, but the pilot scales are proving very successful, and we have every confidence that this is the right technology for us. The unit we have commissioned is 58,000 barrels a day, and that will be operating by October 8, 2000.
One of the units under construction is by Motiva, Texas, which is a joint venture of Texaco, Aramco and Shell. The other unit that we are constructing ahead of regulation and in support of federal government initiatives would be our combined wet scrubber. All the flue gas from the new equipment will feed a common wet scrubber and will reduce sulphur dioxide emissions as well as reducing particulate emissions, and that supports Canada's acid rain strategy as well as the Canada-wide standards for particulate matter.
Mr. Irving: I might just mention that you are seeing something very unusual, having an oil company sitting with three auto manufacturers and the association itself. Typically, the oil companies like to boil oil and the auto manufacturers like to manufacture cars and they like to do those things on their own. However, we are very excited to play a role in what the auto makers are doing with the low-emission vehicles. Obviously, these vehicles are key to lowering emissions; but to have suppliers like ourselves involved is also key, especially when there is compatibility.
Let me give you an example of where we have not worked well together in the past. Say the oil companies want to provide natural gas or propane to Atlantic Canadians and the consumers have to make a harsh trade off and take out the trunk of their car in order to put in some fuel tanks. That is not the vehicle they want to drive. It is the fuel that the oil company wants to supply and it is the car that the auto makers can supply, but it is not really what the consumers want. What we have today in our service stations is gasoline that is available now, and you can go down to the auto dealerships, anybody of any income bracket, and buy these vehicles. That is the first time that has happened.
The next page is rather exciting, because it shows the Presidents of General Motors and Ford and the Vice-President of DaimlerChrysler at the initial launching in Moncton, New Brunswick, of the Auto Makers' Choice gasoline. Using the various promotional pieces is our way of educating consumers about sulphur in gasoline and making the environmental choice.
We did a survey in New Brunswick. The good news was that approximately 80 per cent of New Brunswickers said that they would probably switch gasoline companies if the gasoline was environmentally more friendly. The bad news was that only 2 per cent of New Brunswickers knew that there was sulphur in gasoline. It is a matter of education.
The auto makers are providing low emission vehicles. Irving Oil is providing low sulphur gasoline. What we need now is a third partner, the government, to achieve significant market penetration. As I said at the beginning, Irving Oil had 6 or 7 per cent of the outlets in Canada. That is not a significant market penetration.
Mr. Hanrahan: It is important that market penetration be national and coast-to-coast. It must be federally driven. We cannot have fractured regulations in Canada. Just over the last couple of weeks, the State of New York has been considering adopting Californian gasoline standards. They are currently lobbying Georgia and Massachusetts to do the same. We cannot have British Columbia moving off on its own or Atlantic Canada going off on its own with ultra low sulphur gasoline. Fracturing the country like that will result in boutique type fuels that cannot penetrate the market.
Significant market penetration would help to protect the independent retailers and maintain a healthy competition. Certainly the Canadian Vehicle Manufacturers' clean fuel endorsement program will raise consumer awareness, and the consumers can play a significant role in achieving market penetration.
The Canadian federal government historically has used the excise tax tools to achieve market penetration. Common examples are leaded and unleaded fuels, and most recently with the use of propane and natural gas for transportation. For instance, propane and natural gas for the last few years have been excise tax exempt when using cars, so there is that 10 cents a litre differential between the propane gas and the regular gasoline that one would put in a car.
In the United Kingdom, in order for them to achieve significant market penetration of ultra low sulphur diesel, which is really the predominant fuel in the U.K., they also used a duty differential in that instance. The difference is that that was a real fuel that the majority of the population used. That is the reason for the difference in success between the two.
The U.K. is not alone. Another example would be Sweden. In a matter of years, they had near 100 per cent market penetration of their ultra low sulphur diesel. In the U.K. and in Sweden market penetration was achieved six years and nine years, respectively, ahead of regulations. That is quite an impressive track record.
Based on our knowledge of refining technology and our knowledge of desulphurization technology, taxes, and the Canadian gasoline marketplace, we have put together an illustration of what accelerated market penetration could be achieved with the use of an economic instrument. Based on this, we see roughly three-quarters of Canadian gasoline being ultra low sulphur gasoline, as much as two to two and a half years ahead of schedule, which is remarkable.
What would the cost of this program be to the government, if we used, for example, a 4 cent per litre differential between the two types of fuel? Actually, it would be a revenue positive program, with $270 million over the six years of the program, with health and economic benefits of approximately $2 billion.
In conclusion, promoting ultra low sulphur gasoline, which is the correct term for gasoline in the 30 parts per million range, clearly demonstrates positive action by the federal government, promotes health and environmental benefits and <#0107> and this is important to the petroleum industry -- it would avoid an eleventh hour scramble to comply. Our fear is that, since we are investing now, we do not want large oil companies going to the federal government in 2004, waving purchase orders and saying that they have ordered the equipment but need three more years to order a particular piece of pipe. We are concerned about that.
It will not impact Canada's global competitiveness. It will enhance it. It will demonstrate our international, environmental leadership. It would promote the cooperation and the total systems approach, because government, auto makers, and the refiners and petroleum industry all have common customers. We look forward to this government making ultra low sulphur gasoline a reality.
Senator Cochrane: Obviously this new fuel will cost more to refine. The world prices of oil are rising. Consumers are concerned because the price of fuel has gone up. There is rumour that it will continue to rise. How much more will this new gas cost? How much per litre will it cost? That is what the consumer looks at.
Mr. Nantais: The government studies have found that the production of low sulphur gasoline will be in the area of one to two cents a litre more. We anticipate that the Auto Makers' Choice fuel will be priced competitively with conventional gasoline. While there is a cost to producing low sulphur gasoline, I do not think it will be an undue burden on the public. Certainly some of the polling done recently suggests that if the cost is not significantly more, then people will elect to purchase the more environmentally friendly product.
Mr. Irving: We are one of the few industries with curbside pricing, where you can see the price of the product as you are driving along at 60 kilometres an hour, or faster, so that you know the price of the gas before you even pull in to the station. Price is important, first and foremost, and in New Brunswick there is no extra cost to consumers for Irving gas. You can buy Irving gasoline at the same price as Esso gasoline directly across the street; but ours has 150 parts per million or less while theirs is something quite different.
Obviously, there is a cost to refining in order to get down to the lower sulphur content, but we have a self-serving interest, which is reflected in our marketing. We are seeing New Brunswickers vote with their steering wheels towards more environmentally friendly products and, hopefully, that will drive our volume up and spread our costs out over more litres for the same amount of overhead.
Senator Cochrane: You are producing this new fuel now.
Mr. Irving: That is correct.
Senator Cochrane: In New Brunswick?
Mr. Irving: That is correct.
Senator Cochrane: Irving Oil has signed on to this program. What other companies are interested in signing on at this moment?
Mr. Nantais: We have had several inquiries and a number of meetings with other oil refineries or fuel suppliers who are interested. Everyone is invited in Canada to join this program. At this point in time it would not be fair to those companies to get into disclosure, but I can say that we have had a number of inquiries and a number of meetings with other interested parties.
The fact that Irving Oil has stepped out as a leader is a benchmark and is a signal to other oil companies and fuel suppliers across Canada to join. We are hopeful that we will have some additional players very soon.
Senator Cochrane: Will this new gas reduce the emissions in older cars and trucks?
Mr. Nantais: It is absolutely clear that all vehicles on the road will operate more cleanly and better overall with this fuel. There are new vehicles that require it and are designed to run on it, but older vehicles will benefit as well.
Senator Cochrane: What companies have these new vehicles on the road now that are designed for this new kind of fuel?
Mr. Nantais: Any low emission vehicle is designed to run on a lower sulphur gasoline. All auto makers in Canada have agreed to adopt the national low emission vehicle program voluntarily, 100 per cent, by 2001.
Senator Cochrane: So all new vehicles that come up in 2001 will be ready for this?
Mr. Nantais: Some are ready as we speak.
Senator Cochrane: Is this new gas available in the U.S.?
Senator Buchanan: At Irving Oil stations.
Mr. Irving: Yes. It is no secret that, of the G-7 countries, Canada would probably be dead last in respect of the sulphur content in gasoline. Where we export our product -- and we export 50 per cent of our production -- the specs are more demanding than the specs for the product in Canada, so we have made this fuel available there.
Senator Chalifoux: I am from Alberta. All I know about gas is that it comes out of the well, and we are busy fighting over dry wells and live wells and things like that.
Mohawk has a gas with ethanol. What is the difference between that gas -- because they really charge quite a bit more for their gas -- and the unleaded and the supreme?
Mr. Larry A. Robertson, Manager, Vehicle Environmental and Energy Programs, DaimlerChrysler: The Mohawk gasolines have the ethanol component in them, possibly up to 10 per cent. That is under the CGSB guidelines. What ethanol has shown on older cars is a reduction of carbon monoxide emissions from older technology vehicles. That is how it has been developed over the years.
With new technology cars, however, the tightness of control involves more need for tighter fuel controls. The fuel program we have put together covers many of the parameters you saw today. What we did not touch on was oxygenates, ethanol being one of them. The program does not exclude ethanol, but in the performance aspect of the fuel, from the drivability index stated and some of the other parameters under CGSB, it must be produced in such a way as to provide the required performance of the fuel. Aside from that, ethanol, good or bad or indifferent, is not the issue. It is the fuel package itself.
I am not aware of the parts per million in the Mohawk fuel, but I would expect that, since they rely on other gasolines to make their formulations, it may have higher sulphur. So it may not have the performance of this particular program gasoline.
Mr. Nantais: Nothing in our license agreement or the fuel specifications of the Auto Makers' Choice would preclude any product that contains ethanol up to 10 per cent. Conceivably, you could have Auto Makers' Choice gasoline that meets the specifications and still contains ethanol, and you quite likely will see it. I believe this is the case with Irving Oil. There will be Auto Makers' Choice available in all grades of octane. Nothing precludes or restricts companies in any way from offering the full slate of products as Auto Makers' Choice.
Senator Chalifoux: What is happening in Alberta? I Shell, for example, watching what you are doing at Irving Oil?
Mr. Irving: I cannot speak for the rest of the oil industry. You have seen Exxon, Mobile and a number of oil companies merge. Everyone is in consolidation mode. We had a rationalization meeting not too long ago, ourselves. We were going to rationalize our refinery, it was a short meeting. We are running at one to none, so we decided to hang in there. In all seriousness, we can do this.
We have a pace-setter refinery in Canada. It is Canada's only pace-setter refinery. Obviously, you do not want to invest that kind of money into a poor performing type of asset.
You asked an interesting question a moment ago about ethanol. In Canada, you have 10 cents a litre excise tax, but in Newfoundland or B.C. -- and you mentioned that ethanol costs more -- actually, the federal government has eight and a half cents excise tax as opposed to 10 cents. So if you paid more for that, the federal government has actually reduced the taxes on it. That is an interesting buying experience.
Senator Chalifoux: One of the independent retailers about two years ago went on strike and charged his gas minus the taxes. It was one whole evening. He was charging 26 cents a litre and all the rest was taxes. What is your opinion on that? How do you see us as a committee looking to help you with this? What is your ultimate goal in working with us here?
Mr. Irving: We certainly would not advocate higher taxes for our customers. We are not here to promote that. Irving Oil did not patent the process of how to take sulphur out of the gasoline. This is an inclusive program, not exclusive. We are not using proprietary technology. This is off the shelf. What we need is followers.
We are excited about being first in Canada in offering this program. We need followers. We stepped up to the line and we have looked to the left and right, and there is nobody there with us. We do not mind being first for a certain period, but we would like to see the government stick to its regulations and step up the pace, because there are benefits.
The cars are coming out; some of them came on to the market last year. They are rolling onto the showroom floors as we speak. Next year they will be completely out. The fuel is not matching up. The consumers are buying all these cars. It is like buying a CD player for your car, but you cannot buy CDs to stick in it. It is great in New Brunswick that you have it, but you must have more market penetration.
Senator Chalifoux: I have a 1995 Jeep that I run all over the place. How would this fuel affect my 1995 Jeep?
Mr. Robertson: The fuel should enhance the overall performance and even the long-term durability. What may not been obvious in some of the discussion on sulphur and the immediate results on emissions is the detergency aspect, the cleanliness aspect. That will help the durability.
Our vehicles are being designed for 120,000 miles of operation, so anything that helps in the long-term, such as detergents to keep them clean, and helps in the short term, such as lower sulphur, will enhance the operation. That is not to say that there are not different quality fuels now, but this will help maintain the emission performance designed into the vehicle.
Senator Christensen: I have a 1969 Volvo. How would it work on that?
Mr. Robertson: I am sure it will operate the same.
Senator Christensen: On the issue of emissions and energy efficiency, certainly the new cars coming out are more compatible with this type of low sulphur. How does that compare to older cars that are not manufactured for it? Is there a decrease in efficiency? Are there more emissions? If not, why are they coming out with new ones?
Mr. Nantais: We must understand that a vehicle's maintenance and service history plays a big role here. There is no question that Auto Makers' Choice gasoline overall is better for the vehicle. It is intended to help it run cleaner. Certainly, if a vehicle is well-maintained and operates on this fuel, the fuel efficiency will be as it should be for that vintage of vehicle given its service record.
Senator Christensen: What about operating in extreme temperatures? I am from the Yukon, where we are looking at temperatures of 40 or 50 below zero. Does that create problems?
Mr. Robertson: No. In the World-Wide Fuel Charter you will see that climatic operation is addressed -- summer, winter, the heat of the desert right to the cold of the North. It is part of the package, while building on CGSB standards that already encompass Canadian operation. This has the other enhanced properties, too, to provide the performance year round.
Senator Christensen: In the extraction of the sulphur from the oil, what is happening? Is it being combusted or is it being withdrawn, saved and used in other areas?
Mr. Hanrahan: Thank you for asking that question, Senator. Our refinery burns a variety of crudes ranging from sour, sour Arabian, right through to sweet crudes and Scotia Shelf condensates. We do burn a range. The sulphur is removed from gasoline, and our refinery, on a per-barrel through-put basis, emits the lowest amount of sulphur in Canada. We take the sulphur from the gasoline and convert it into two products: sulphuric acid, which we use in the refining process to make zero sulphur gasoline; and elemental sulphur, which we sell to the fertilizer industry.
Senator Christensen: If this committee is looking at making recommendations, what are two recommendations you would like to see this committee make to government?
Mr. Nantais: One would be to support the government's existing policy on low sulphur gasoline and move it forward to 2001 in terms of the overall effective date. The second would be to devise some sort of instrument, such as an excise tax differential, to accelerate the introduction of this fuel.
Mr. Irving: A third recommendation would be that the federal government should consume nothing but Irving gasoline.
The Chairman: The department does have an alternative fuels program.
Senator Kelleher: Senator Eyton, who was not able to be here today, and I discussed this last night, and we wondered if any refiner could produce this type of gasoline or if there was some sort of a patent or trademark process whereby they would have to pay make it? Is it a question of upgrading your refinery?
Mr. Irving: Virtually every refinery in Canada can make some quantities of low sulphur gasoline, some more than others. In our case we are blending some components that are 0 per cent sulphur gasoline with gasoline that is cracked off a cat cracker that is higher in sulphur. The end result is a blend. Parkland, for instance, is a refinery in Alberta that makes 100 per cent low sulphur gasoline or no-sulphur gasoline. The bad news is that they are only one-twentieth the size of our refinery. Every refinery can make some portion of the product now.
Senator Kelleher: It is not an exclusive right that devolves to Irving Oil?
Mr. Irving: No. There are some refinery technologies that are patented by Exxon, and you can buy the rights to those, but there are different vendors of the technology.
Mr. Hanrahan: There is a variety of technologies out there. The one we have selected, both Irving Oil and Aramco, Texaco and Shell will also be using. It is the same technology. Phillips 66 in the U.S. has another technology, and some refineries in California are using a completely different technology. So the larger petroleum companies that have billion dollar research and development budgets all tackle it independently, but the technology is there for anyone who would like to purchase it.
Ms Faye Roberts, Government Relations, General Motors of Canada Limited: The benefit of the program itself is that it is structured in such a way that any refiner who can produce a quantity of this gasoline can license with us and sell it under the logo. The program does not insist that all of their retail outlets offer it, but it just increases the amount of choice.
Mr. Nantais: The licence agreement for the use of the Auto Makers' Choice logo costs $1.
Senator Kelleher: You can probably afford that. If this fuel is not available, for example, where we poorer people in Ontario live, what can we do about it? Here we have these nice new cars coming out with these apparently nice new engines, and we cannot receive it here for a few years. What is our option? What do we do?
Ms Roberts: With respect to the committee here, senators have a special impact on these kinds of things, so I will answer it as if you were just a consumer, understanding that you are not.
Obviously, this has been offered to all oil companies and refineries operating in Canada. We are hopeful that others will come on board. We would advise our customers to ask their regular fuel provider when they plan to become part of the program.
Senator Kelleher: Irving Oil have said in their testimony today that they do not plan to charge any more for this new type of gasoline.
Am I correct in my understanding?
Mr. Irving: Yes; that is correct.
Senator Kelleher: Can consumers across Canada generally expect the same thing? Will the influence of competition be such that when that gas comes to Ontario it will not cost consumers more?
Mr. Irving: Some interesting things have happened recently. East Coast refineries have access to foreign crudes. Until October, refineries in Ontario have not had that access. They have been pipelined from central Canada. Recently, the Montreal refineries have sourced their crude through the Port of Portland, Maine. There is a pipeline from the Port of Maine to Montreal. There is a crude pipeline between Montreal and the Ontario refineries, which, for the first time, has been reversed. As a result of that reversal, there are now 200,000 barrels a day of foreign crude oils moving west into the Ontario refineries. Therefore, the Ontario refineries have access to the same crudes that we on the Atlantic Coast have.
One of the comments that you will hear is that Ontario has the highest sulphur content in Canada. The reason for that, they say, is that they are having to use Canadian crudes. Therefore, they contend that the East Coast refiners are competitively advantaged. However, as of October 1, 1999 that is no longer true. In fact, our refinery consumes the highest sulphur crudes, Arabian crudes.
Senator Kelleher: Theoretically, there is a pipeline charge to the Ontario refiners that you would not have?
Mr. Irving: No <#0107> and that makes us competitively advantaged. However, we are competitively disadvantaged given that we are making gasoline in a city that has a population of 100,000. The Ontario refiners are within a 100-mile radius of 6 million people. Therefore, there are disadvantages and advantages on each side.
Senator Kelleher: How does this fuel endorsement program differ from the sulphur regulations?
Mr. Nantais: The Auto Makers' Choice specification relates to much more than just sulphur. It is a recipe that involves many different positive fuel attributes. It differentiates itself by the fact that it is not just one element. It is many components of an overall, more holistic, cleaner fuel recipe. It is much more than just sulphur.
In terms of timing, we are accelerating the introduction of this fuel from 2005 to 2001. What that means is that, without the fuel, consumers who are buying new vehicles that have this technology are not receiving the benefits. Therefore, by virtue of bringing forward the fuel to match the timing of the technology as it is introduced into the marketplace, consumers receive the full benefits of what they are purchasing.
Senator Kelleher: If you live in the Maritimes.
Mr. Nantais: That is right. We are looking for new players here. We have had meetings with other companies. When you look at some of the fuel surveys, it looks like some of the other companies in Canada, maybe even some exporters into Canada, are definitely able to provide quantities of this fuel and meet the requirements of Auto Makers' Choice.
Senator Buchanan: I want to congratulate Irving Oil, our Maritime refinery, the largest in Canada, on being the first to receive the Auto Makers' Choice endorsement. It could not have happened anywhere else but in the Maritimes, and I am proud it happened to Irving. I put nothing in my gas tank except Irving Oil. I use your card all the time, whether I am in Nova Scotia, New Brunswick, P.E.I., Maine, or New Hampshire -- or even Quebec, if I get there. Tell your father and uncles I said that. I met your grandfather for the first time in 1969, when I was Minister of Fisheries and Public Works in Nova Scotia. I met him at a trowel trade fair.
What is the difference in sulphur content in your regular, plus, and supreme gasolines?
Mr. Irving: According to the program, all three grades are less than 150 parts per million. It is an interesting question because on Jul1, 1999 BP Amico began a program of launching low-sulphur gasoline. The first city they introduced it into was Atlanta. It was supreme-grade gasoline. On October 13, 1999, they did Chicago; Paris and Istanbul followed. They are involved in a 40-city tour of launching low-sulphur gasoline. However, it is supreme-grade gasoline, whereas ours is in all three grades.
Senator Buchanan: I want to congratulate you all. It is a wonderful program. The rest of Canada should catch up with the Maritimes.
Mr. Nantais: I appreciate that.
To add to Mr. Irving's comments, in terms of what is occurring around the world, we have just seen on the part of Germany a move to 10 parts per million. In Japan, the level is already at approximately 10 parts per million, maybe 30 parts per million. Countries that you would not expect, Thailand, Taiwan, have levels of sulphur much lower than that of Canada.
Senator Kelleher: Taiwan could use something for all those scooters they have.
Mr. Nantais: This is the direction around the world. As we introduce cleaner vehicles, jurisdictions around the world are now recognizing the benefits of a total-systems approach, where the fuel supports the technology. That is what provides the maximum bang for the buck. That is what provides maximum environmental quality in terms of improving air quality.
We no longer have an option here in Canada. We must move in this direction. We have no choice. If we want to benefit from some of the technologies related to fuel efficiencies and cleaner technologies, we require the fuel side of the equation to be addressed. We are willing to work in partnership with the oil industry to get Canadians the fuel they require, sooner rather than later.
The Chairman: The new emissions technology was to come out in 2001. When we were dealing with the MMT issue, the automakers claimed that the new emissions technology could not work properly with MMT in the gasoline, that it result in gumming up the works. What is your view as to what government should do in view of this particular dilemma? Is it as much of a dilemma as you originally envisioned?
Mr. Nantais: We, as an auto industry, have not deviated from our position with respect to manganese additives. That is still a concern to us. If appropriate fuel is not there, the vehicles will not operate as they are designed. We are still very concerned about the fact that MMT, or manganese additives, are now permissible in Canada. We continue to experiment with the Canadian vehicles on the road and the Canadian public from a health standpoint. We have not deviated from our position in terms of the adverse effects of manganese additives.
The Chairman: How long would it take for the rest of the refineries to come to a point where they would meet -- those are legislated standards that you must meet and you must meet them by 2001, right?
Mr. Nantais: That is not quite correct. We have said that we would voluntarily adopt the national low-emission vehicle program here in Canada. In other words, we would adopt the low-emission vehicle technology on Canadian vehicles that currently exists on the U.S. program vehicles.
The Chairman: So the Canadian emission standard is still lower?
Mr. Nantais: Technically, what is on the books is that which exists for 1998 vehicle emissions.
The Chairman: I had not realized that.
Mr. Nantais: We as an auto industry have stepped out ahead of the regulation in Canada.
The Chairman: What year will the sulphur regulations, which will be stricter, come into force?
Mr. Nantais: The first step is in 2002, which requires 150 parts per million on average; step two, which will take effect in 2005, is 30 parts per million on average.
The Chairman: The refineries will really have no choice. In terms of the timetable for all of the other companies to hop on board, do they have enough time? Obviously, they must do it. You are doing it now. If they do not, will they be in violation of the law?
Mr. Nantais: That is correct.
Mr. Irving: For ourselves, this takes long-term planning. It has been on the horizon for some time; it is not a surprise to the oil industry. We have been aware of this since 1995. It is moving around the world. I would have thought that there would have been capital expenditures starting to occur, planning occurring in other Canadian refineries. That is the concern we have.
You have hit on an important point. How can all these refineries rush through the gate at the last minute? There are only so many vendors and contractors to install this equipment.
The Chairman: Not to mention the cost, which they need to amortize over a few years.
Mr. Irving: I cannot speak to the cost. There is the Canadian Petroleum Products Institute, which we do not belong to. We have a difference of opinion on this whole subject. They have estimated on the Web site that it will cost their industry $1.8 billion for the Canadian refineries to move up to international standards on the sulphur. I can say that our cost, being the largest refiner, is significantly less than what their estimates have been.
The Chairman: That is always the case. This reminds me of what the pulp and paper mills had to go through in terms of changing their equipment, their infrastructure, for lower emissions. They had to bite the bullet.
To summarize, you are looking from government to move the timetable forward to 2001, to look at an excise tax to favour the better fuels -- in other words, to look at incentives so that the consumer would be induced to buy the better fuels -- and market penetration. I do not quite understand how the excise tax and the market penetration go hand in hand. I see what you have showed us, but you think that will really hasten the process.
If you had your druthers, this is what you would want our committee to advocate to our government; is that correct?
Mr. Irving: First, to ensure that regulations are firm.
The Chairman: So there is no back-sliding.
Mr. Irving: Yes. Second, there is a strong and compelling argument to have significant market penetration early. We are, in essence, competing against an implicit subsidy for high sulphur producers. It is not what we put into our gasoline, as far as detergents and all that is concerned; it is what we take out. We want the government to use the excise tax, which is used in alcohol, tobacco and gasoline, to change consumer behaviour.
The Chairman: You have made a very good argument here. I want to thank you for demonstrating what Michael Porter of the Harvard Business Review has said, which is, that if you want to be competitive in today's market you must be green and that it pays to be environmentally sensitive. That is true. If we are to come to a place where our planet is a little better, we must rely on business. They are the people who are the movers and shakers.
Perhaps the committee will invite the other oil companies to come here and explain what they intend to do.
Mr. Nantais: We are really excited about this program. We think it will be very effective. When you use the market base to reward leadership, and in this case our partners like Irving Oil, others will follow, and the sooner the better. Look for Auto Makers' Choice logo on the pump nearest you.
The committee adjourned.