Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 12, Evidence - April 8, 2003
OTTAWA, Tuesday, April 8, 2003
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:11 p.m. to examine and report on emerging issues related to its mandate (implementation of Kyoto).
Senator Tommy Banks (Chairman) in the Chair.
[English]
The Chairman: With us today is the Minister of Natural Resources, the Honourable Herb Dhaliwal; Mr. Howard Brown, Assistant Deputy Minister; Mr. Bryan Cook, Director General, CANMET; Mr. Neil MacLeod, Director General, Office of Energy Efficiency; and Mr. David Oulton, Head, Climate Change Secretariat. Thank you gentlemen for returning to speak to us.
Minister, you have an opening statement, which I invite you to make.
The Honorable Herb Dhaliwal, Minister of Natural Resources: Thank you very much, Mr. Chairman. It is a real pleasure for me to be here. Let me apologize for the few minutes that I am late. I do have a presentation that will probably be about 10 to 15 minutes in length, and then we will have questions.
As I said, it is a pleasure to be here today to speak to you about one of the most pressing issues we as Canadians are currently facing — climate change. We are already seeing the impacts of climate change, particularly in our western and northern regions. Over the long term, it will have serious implications for all of us — for our health, economy, future and our children's future.
Responding to the questions raised by climate change is a duty we simply must fulfil. The decisions and choices we make today will dramatically shape our world in the years to come.
Mr. Chairman, I am confident that we have the answers within our grasp. Those answers will be based on sustainable development, promoting economic growth and social progress while protecting our environment. The answers will be based on innovative environmentally friendly technologies and looking at the ways we lead our lives and do business through climate change lens.
Indeed, Mr. Chairman we have a responsibility to act now for future generations of Canadians. To act responsibly, we will have to look at all options. We will have to ``think outside the box,'' to use the popular catch phrase, and change our perspective on how we do things.
As you know, climate change is a high priority issue for the Government of Canada. We are committed not only to leading the way, but also to showing the world that it is possible to meet both our environmental and economic goals.
Our commitment was shown in the Climate Change Plan for Canada, which details the steps that Canada must take to meet our climate change objectives and reduce greenhouse emissions. Our commitment was clear when we ratified the Kyoto Protocol this past December, and our commitment was reinforced in Budget 2003 when we dedicated $2 billion to help implement Canada's plan. At least $200 million of that funding will be used to support the development of longer-term climate change technologies. This is in addition to the more than $1.7 billion that we have already put into programs to address climate change.
Our Climate Change Plan for Canada which we released last November, points the way forward to achieving our Kyoto targets. It is a product of ongoing consultation with the provinces and territories as well as interested stakeholders. Consultations will continue.
The longer-term challenge that we have before us is to create a low emissions energy economy with sustainable development at its heart. It is not to prevent or reduce economic growth. It is a plan that will allow Canada to do its part and to do it in a way that enhances our quality of life and takes advantage of Canada's economic strengths. That includes the sustainable development of our natural resources.
Our plan is about improving energy efficiency, investing in technology and developing and promoting cleaner sources of energy, such as renewable sources, including wind energy. Our plan is based on clear guidelines. Our economy cannot be put at risk, and no region will bear an unfair burden. We must also provide a favourable investment climate.
Today, I should like to talk about the progress we have made so far in a number of climate change areas, particularly the economic opportunities that come with responding effectively to climate change; innovative climate change technologies; renewable energy sources such as wind power and small hydro; industrial competitiveness, in particular industrial emitters; forest and climate change; and the role of individual Canadians. Unquestionably, our action on climate change is motivated by a concern for the well-being of future generations.
Strong environmental stewardship, however, is much more than altruism. The global market for environmental products, technologies and services is estimated to be $1 trillion a year with exceptional growth potential. Those countries, in particular those companies that develop the best technologies will find themselves in an enviable economic position in the years to come. The investments we make now to help us reduce greenhouse emissions will pay dividends environmentally and economically as we go forward. Acting now makes more than just environmental sense. It makes good economic sense. It means new business opportunities, new markets and new jobs.
As my colleague the Minister of Finance said when we delivered the 2003 budget, ``We can, and must, expand both our environmental and economic advantage as we meet our climate change goals.'' We want the world to knock on our door when they are looking for innovative ways to address climate change. Mr. Chairman, that is it not just a possibility; it is already happening.
The question then becomes: How do we ensure that Canada is at the forefront of climate change solutions? New technologies will be fundamental, whether it is improving energy efficiency or finding cleaner and renewable sources of energy. Innovation and technology are central to achieving our climate change goals.
Developing innovative technology will not happen overnight. It takes time, and it takes money. However, creativity, knowledge and dedication pay off in the end. That is a powerful combination as we work toward addressing climate change.
I am proud that so many Canadian companies, such as Westport Innovations, Ballard, Hydrogenics, ATS, Iogen, Mabarex and many more are developing environmental technologies. They have put Canada at the technological forefront.
Mr. Chairman, Canada is pursuing a wide range of new climate-change technologies: Hydrogen and fuel cells; solar power; wind power; carbon dioxide capture and storage; biomass; and alternative transportation fuels. These technologies hold great promise.
Fuel cells, for instance, have the potential to revolutionize how we produce energy. They could reshape the automobile industry, slash emissions and create new jobs and economic opportunities. Twenty years ago, the Government of Canada recognized the potential of this technology. That is why we have been investing in hydrogen fuel cells for the past two decades. Canada has been leading the way in this technology. Today, major automobile manufacturers are looking at ways to use fuel cells. We have companies working on the infrastructure we will need to make fuel cells truly viable in the marketplace. In the long term, the potential for fuel cells seems almost limitless.
Mr. Chairman, I understand that, while on your recent fact-finding trip to San Francisco, some of you had an opportunity to drive a Toyota-and-Chrysler-built hydrogen fuel cell vehicle. On March 20, we announced a $620,000 contribution to Hydrogenics, a leading fuel cell company. Our investment will help Hydrogenics build refuelling technology for fuel cells. We are also supporting Hydrogenics' fuel cell transit bus project that will be demonstrated in Winnipeg.
The successes continue. Westport, through its joint venture Cummins Westport Inc., installed a natural gas fuel system at a waste-water treatment facility in Grande Prairie, Alberta.
We are now testing a prototype mining locomotive that is powered by a hydrogen fuel cell. The locomotive, the only one of its kind in the world, can work deep underground without polluting the air supply, improving worker health and safety and reducing costs. My department, Natural Resources Canada, has put its financial resources and expertise into this groundbreaking technology.
In our February budget, we boosted our support for Sustainable Development Technology Canada by $250 million, bringing our total investment in SDTC to $350 million. This funding will help turn technological potential into reality, by developing and demonstrating innovative clean air and air quality solutions.
On March 20, we announced $3 million in funding for three Quebec companies, Bio-Terre Systems Inc., CO2 Solutions Inc., and Mabarex Inc. and their partners.
As I said at the outset of my remarks today, emerging renewable energy sources such as wind power and related technologies are a key part of our climate change strategy. Canada is a world leader in the use of renewable energy, which includes hydroelectricity, wood, solar, wind, and earth and biomass such as agriculture products. Seventeen per cent of Canada's primary energy supply is from renewable energy sources, compared to an average of 6 per cent for the OECD countries.
The Government of Canada has been investing in renewable energy sources for many years. During the past two years, we have implemented initiatives worth about $350 million to encourage markets for renewable energy sources. Only two weeks ago, we announced a $2.6 million investment in the Cypress Wind Power Facility in Saskatchewan. The Cypress facility is part of our $260 million wind power production initiative that will increase the amount of wind power available in Canada by 500 per cent.
The Government of Canada is doing its part. We have committed to purchasing at least 20 per cent of the electricity used in our facilities across Canada from green power sources. We are purchasing wind power in Alberta, Saskatchewan and Prince Edward Island. That green energy is helping people power their homes in Prince Edward Island, and commuters in Calgary ride the wind on the C-Train.
Solar energy is another promising area. Canadian innovations like the Solarwall for ventilation air heating and the EnerWorks water heating system have broken new ground, cutting both emissions and energy supply costs.
Honourable senators, we need to increase the use of renewable energy. Our plan sets a target of having 10 per cent of all new electricity generation come from emerging renewable sources. Now more than ever before, we have an opportunity to build a cleaner, more sustainable energy future through renewable energy developed right here at home in Canada.
While emerging renewable sources hold tremendous potential, it is important to remember that fossil fuels will remain a major part of our energy mix for decades to come. That is why we are committed to finding ways to produce and use the fuels as cleanly and efficiently as possible. For example, Canadian scientists in our private sector are perfecting the best techniques to capture CO2 and store it underground.
Only last month, we invested $5 million in the Weyburn CO2 Monitoring Project, the world's largest such project. This is in addition to our previous contribution of $1 million. In Canada, the potential for CO2 capture and storage is significant, particularly in Alberta and Saskatchewan. Estimates suggest that as much as 75 megatons per year of CO2 could be stored. We have the necessary technologies, but we need to show that they are commercially viable. Innovation and technology are central to achieving our climate change goals.
If we are to meet our climate change goals and ensure a vibrant economy, it will take a commitment by all — governments, industry and Canadians. Our large industrial emitters, the oil and gas sector, electricity, and mining and manufacturing sectors account for about half of Canada's GHG emissions. They will have a crucial role to play in Canada's approach to climate change. They are also the economic lifeblood of hundreds of communities across the country, so striking the right balance is key.
During our discussions with them, industry brought forward a number of legitimate concerns, and we are moving quickly to address them. We will ensure that the cost of carbon credits is no greater than $15 per ton of carbon dioxide through the first Kyoto commitment period. We have adopted the covenants' approach to greenhouse gas reduction as a central element of the plan. The reduction target for large industrial emitters will be no more than 55 megatons. Any further reductions will come through incentives.
Our plan reiterates that early actors will not be disadvantaged, a commitment that federal, provincial and territorial environment ministers agreed to in 2000.
We clearly understand the need for flexibility in the negotiation of covenants with large industrial emitters, and the government has stated that they will consider competitive issues in moving forward. We have two objectives here that are mutually supportive, namely a strong economy and an effective plan to address climate change.
Now, let me turn to the issue of Canada's forests and their role in helping us adjust to climate change. Forests can be carbon sinks, effectively absorbing CO2. That means that Canada's forests already play a role in lowering GHGs. For example, a single tree can absorb many tons of carbon dioxide during its lifetime.
The carbon sinks provisions of the Kyoto protocol present new opportunities for our forest sectors. I am particularly excited by the possibilities presented by afforestation — planting trees on marginal farmland and other suitable areas. Our Forest 2020 strategy will help fulfill the potential contribution that establishing fast-growing, high- yield forest plantations can make toward our climate change objectives. Over the next five years, we are aiming to have 400,000 hectares of fast-growing plantations. This strategy will also help diversify farm incomes and rural economies, while providing employment and business opportunities for Aboriginal communities and rural Canadians across our country.
To deal with climate change, we will all need to take action — companies of all sizes, governments of all levels, and individual Canadians. We have implemented a number of climate change programs to encourage action. We are expanding the Canadian industry program for energy conservation to help small and medium-size enterprises become more energy efficient. We want new buildings to be 25 per cent above the existing Model National Energy Code for Buildings by 2010. The government will reduce its own emissions by 31 per cent below 1990 levels by 2010. We want 10 per cent of all new electricity generation to come from emerging renewable resources.
We have called on Canadians to take the ``one-tonne challenge,'' to cut their personal greenhouse gas emissions by one ton, which fundamentally means becoming more energy efficient. The 2003 budget will help Canadians by bolstering programs outlined in the plan. We will raise awareness of energy saving tips, share the costs of home energy audits and improve public transit, among other things. I believe that representatives of the Office of Energy Efficiency appeared before this committee last month and discussed some of these programs in detail.
In conclusion, we have a clear and detailed strategy to meet our climate change goal and to remain economically competitive. At the same time, we must be flexible to take advantage of new opportunities and technologies to respond to new circumstances.
We are already working with the provinces, territories and stakeholders on energy efficiency, technology development and renewables. That work will continue as we move forward.
The climate change plan for Canada is ambitious, but achievable. It points Canada in a direction that will take us to an even brighter future.
What we do today will have a dramatic effect on the world our children and grandchildren will inherit. Years from now, Canadians will look back and see that we took a step in the right direction. All of us — members of Parliament and senators — have a responsibility to lead the way. I know that Canadians can count on your support and personal effort to address climate change. This is our responsibility. It is a responsibility we cannot shirk.
Senator Kenny: Welcome, Mr. Dhaliwal. It is a pleasure to see you here.
I was wondering whether your comments constituted a complete list of federal initiatives. If they do not, is it possible for you to provide the committee with a more complete list? We are interested even in relatively small initiatives. We would also be grateful if your officials could provide us with provincial or territorial initiatives of which they are aware, and with information on non-governmental initiatives. Perhaps they could provide a brief description of the impact they are having and what direction they seem to be going in.
The committee is looking for assistance in developing intelligence about what is happening from coast to coast at different levels. Clearly, your department and your officials are well situated to have this sort of information.
Mr. Dhaliwal: It is not possible for me to speak to all that you have asked. That is because, first, there are many federal initiatives, only a few of which we have highlighted. We will provide you with a comprehensive list of all federal initiatives.
Many provincial and territorial governments are involved in their own initiatives. We will try to gather together as many as possible.
Recently, I spoke to a group of private sector companies which, on a voluntary basis, have registered to reduce greenhouse gas emissions. For example, Kwantlen College in British Columbia had a program to reduce greenhouse gas emissions. They have been extremely successful. In fact, they were given an award for their achievement.
There are government institutions and groups in the private sector all very much participating in the climate change program to reduce greenhouse gas emissions. We will happily put a list together for you. Action is being taken right across the country on reducing greenhouse gas emissions.
Senator Kenny: I am grateful for that, minister. I do not think it comes as any surprise to you that this committee has bought into helping you search for that elusive ton. The more information or leads you can give us, the more our work will be facilitated.
Senator Spivak: Thank you for appearing, minister. My question has to do with the amount of emissions, that is, the size of the challenge, as well as the time factor.
Based on models that come from your department, as well as from the National Energy Board's projections, the Canadian Electricity Association has said that there will be about a 40 per cent increase in their emissions, if it is business as usual. The Canadian Chamber of Commerce told us that, since the commitment demands compliance in each and every year of the five-year period which takes us to 2012, they do not know if that is achievable.
I ask you about the Canadian Electricity Association because we heard that some jurisdictions, such as British Columbia and Manitoba which have the Power Smart program, are working all out to get there; however, about another 50 per cent are not. What are you planning to do with those utilities that are not yet on the Power Smart program?
My first question has to do with the difficulties of the challenge. We have not really done anything for 10 years. In fact, we have only increased our emissions. We now have a huge pile of emissions to overcome. We must also take into account a time period which seem to the business community to be very difficult to achieve.
You have outlined some wonderful things here. However, how will we, on a voluntary basis, get people to comply so that you achieve what you want to achieve? In the eyes of business, it looks a little pessimistic.
Mr. Dhaliwal: Senator, it is a tremendous challenge. It will require the cooperation of all levels of government, of industry and of all Canadians to do their share in reducing greenhouse gas emissions. Our challenge is to meet the 240 megaton reduction while carrying on business as usual.
We are being more flexible with business by moving to a covenant whereby we have a clear contract situation in working with industry. That is one thing that will offer industry some flexibility.
We have given those industries that are affected the most, such as oil and gas, a guarantee that it will not cost them above $15 per ton. One of their concerns is that they are making huge investments, which are truly 25- to 30-year investments, and they need to understand what their costs will be as a result of Kyoto. One of the things we did for them was to cap the cost at $15 per ton, allowing them to make decisions.
We are trying to be more flexible in working with those businesses that will be hit harder than others. We are trying to divide this among all the groups which are working at this. For individual Canadians, there is the one-tonne challenge. It is 55 megatons for the large emitters. Of course, there is our own commitment as the government. We are also working on incentive programs. For example, we are spending $250 million on the wind power initiative. We are providing a subsidy of 1.2 cents per kilowatt-hour to companies that use wind power. Another initiative called Forest 2020 whereby we can increase our carbon sinks.
This is a large program. As such, we can divide this challenge among everyone to meet our 240-megaton target. Some will face a greater challenge. Some companies are already working on this. In fact, many companies have done extremely well. They have been working on it because it makes good economic sense for them — they save money.
Senator Spivak: I am particularly interested in the energy-providing utilities. Are they part of this $15 cap?
Mr. Dhaliwal: All large emitters, such as a major coal plant, are part of this cap.
Senator Spivak: What about all of those that are not in the ``power smart'' game? In California we found that the power generating companies were administering the incentive programs and so forth. They seem to have met with large success, although I am not sure that my colleagues would agree. Apart from all the other considerations, this is a way to get the most bang for your buck. They say that they will have a 40 per cent increase. This is only with some of the power generators following a power-smart type program. What about the others? Will the government give incentives or make suggestions? This is a way in which you can have a major impact. At least, they found that worked in California.
Mr. Dhaliwal: You mentioned the Power Smart program. I was very actively involved in that when I was at B.C. Hydro as vice-chair. Power Smart was a program that emphasized that it was much better for the utility to have people use less power than produce new power. It was actually cheaper. It was more cost effective to have programs to promote using less power than to create new power. B.C. Hydro is very active in that area.
Some utilities have also adopted new programs whereby they say that half of any new power that they need must come from renewable energy. I believe that B.C. Hydro is one of those companies. They are setting a portfolio standard that forces them to buy.
There are many ways in which to deal with that. We will talk with the provinces about how they can do that.
For example, we will talk with those power producers that use coal to produce power. We are looking at the cleaner burning technologies in which the U.S. is investing. We are also investing in finding ways that coal can be burned much cleaner, and therefore, reduce greenhouse gas emissions.
Some of it is through technology. Some of the provincial utilities will encourage renewable energy through incentives or they will buy technology. P.E.I., as an example, is using wind energy. They are involving the public. They are telling them, ``We have some green power, but it costs a little bit more. Are you willing to sign up to pay an extra dollar or two for that?'' They have been fully prescribed so that they get the public involved to buy renewable wind energy.
There are many ways in which the utilities can get involved. Some have a different challenge from others. Some utilities are Crown corporations and some are in the private sector. It varies, but they will all have to do their share to reduce greenhouse gasses, although they will have to use different methods.
Senator Spivak: You are optimistic that despite the misgivings of the industry itself about the time line and the extra emissions that they think they will have, that this will be achieved within the time frame? You will achieve your goal within the time frame?
Mr. Dhaliwal: They also have flexibility in that they can have offsets. They can be involved in Forest 2020. They can be involved with someone who has a large amount of marginal land to plant trees to absorb CO2. We not only have opportunities for them to improve their operations, but if they want to invest other projects that will give them credits, they can do that as well. That is part of the flexibility.
Senator Spivak: In other words, it will not be mandatory. You will rely on a cooperative effort between the provinces and the federal government, mostly on a voluntary basis?
Mr. Dhaliwal: No. We have said that all the large emitters would be required to have 55 megatons. That will be divided between the different industries. We are working on how they will achieve. That is the next stage of implementation. For the large emitters, it will be mandatory. We are working with the small and medium-sized ones.
Senator Kenny: You talk about the customer being prepared to pay a few extra dollars for green energy. I have heard about this mythical customer out there somewhere. I am sure that we could track one or two down. However, every time I have seen a survey on the subject of people's views on the environment and issues such as we are discussing today, everyone is in favour of it until you associate a price with it. As soon as you associate it with a price, the 32 or 37 per cent that liked it suddenly drops down to 13 per cent or 7 per cent.
Have you run across new data that you could share with the committee that would indicate that in fact Canadian consumers no longer disassociate themselves from environmental projects when a price is associated with it? Are they still the same old folks who like it as long as you stay out of their jeans?
Mr. Dhaliwal: That is a good question. It depends on the cost. In the example that I gave you about P.E.I, it is about $1 or $2 extra a month on a bill for green power. I would say that in the lower end, Canadians are generally willing to pay.
Senator Kenny: Sixteen cents a lire was a shock to at least one government.
Mr. Dhaliwal: That is why I say that it depends on the price range. In the surveys that we have done, Canadians are willing to pay some extra money for their environment. Of course, the higher the cost, the greater the resistance.
Senator Kenny: Can you describe the sensitivities to us? What is the elasticity on that? Give us a some examples that would indicate how much more someone would be willing to pay.
Tell us if there is a regional breakdown on this? We would be curious to know if there are parts of the country that accept this more than others.
Mr. Dhaliwal: I will see if we have polling results. I know that there was some polling done. I do not have cannot remember the details showing that Canadians were willing to pay more.
We are seeing much interest on the part of Canadians to participate in the Kyoto challenge one-tonne challenge. People are showing interest in having home audits done and in converting to programmable thermostats to reduce the temperature at night. There is a lot of interest by Canadians in playing their role.
We need to work with young people who are much more motivated. My young children always make me think more often of the environment. They suggest shutting the car off when it is idling. We are working on things like that as well.
Senator Kenny: We older people are cold most of the time, so we want sweaters.
Mr. Dhaliwal: I do not think that we are as sensitive to the topic. My children certainly are much more sensitive to what we can do. Most of us follow a recycling program now. Our children motivate us. Therefore, working with young people to make the change is making us more aware.
Canadians will take on the challenge of reducing greenhouse gas emissions by the challenged one ton. It is a behavioural change that will come in time. We are attempting to do that through advertising, promotions and encouraging people to buy energy efficient appliances. We are also providing some funding to encourage people to make that change. We are looking to private sector to provide funding.
There will be an entire array of programs. My view is that Canadians will be willing to pay a little extra for the environment, but obviously the resistance increases as the cost increases.
Senator Kenny: I was simply asking you to provide any data you have to us. It is not that we do not believe you, minister, it is that we are interested in having this quantified in a way that time does not permit at a hearing of this sort.
Mr. Dhaliwal: We will provide that.
The Chairman: We have been looking at the efficacy of efforts to get people to do that. I suspect we will ask you in a few minutes about the success of the present campaign.
I think everyone in industry knows that the government has agreed, and it has seemed to assuage the business community, on a $15 per-ton cap for trading or buying credits. How was that arrived at? It is a nice neat figure, but did we ask for $20 and they suggested $10, so we sawed off at $15? What is the rational behind that $15 a ton? Is that a number that we know the large emitters can handle? Have they all said, ``Yeah, $15 is okay and we can live with that''?
Mr. Dhaliwal: Partly it is a negotiated figure. We said that we thought the range would be, over the long term, $5 to $10 a ton. The business community at the time were saying we were way too low and that it would be much higher than that. I think it was something that the business community could accept, but it was also something, in terms our risk as a government, that we could accept. Our range was between $5 and $10, and not above $15 a ton, so it was negotiated, and both business and the government felt they could live with it.
The Chairman: There is international emission trading going on now. Do we know what the going rate is today?
Mr. Dhaliwal: My understanding is that it is between $3 and $7 a ton, depending on where you are. So far, it is within the $5 to $10 that we had predicted.
The Chairman: You said to Senator Spivak that the large emitters, in the aggregate, had to find 55 megatons, and that that was not voluntary but in fact mandatory. What happens if they do not find that? What is the penalty? How will it be assessed, and to whom? How can you break it down between this smokestack and that smokestack and say, ``You owe $1 and you owe $14''?
Mr. Dhaliwal: That is a very good question, senator. One of the things we are working on now is how to implement that and how to ensure that all the large emitters fulfil their responsibilities if we have a covenant that gives a clear contract for them to provide that. If we do not have a covenant, we need a regulatory process. We would like to ensure that we do not have huge regulations and a huge staff inspecting every company. We expect compliance in some way. We are working with industry to make it simple and easy so they can comply.
This is a major work that Mr. Brown is doing now. He is trying to determine what sort of backstop we need to ensure that there is full compliance. Do we need financial penalties? Are there other things we can do? We want to develop that by working with the industry, and work is going on now on how to ensure that we can implement this and ensure that all companies, the large emitters, are doing it. We do not want companies to go right to the end of the period and say, ``Sorry, we have not complied.'' We want to be able to progress and ensure that they carry out the reduction and the commitment that they have made, and this is part of the work that is being done now.
The Chairman: Will each large emitter, that is to say, each proprietorship that is a large emitter, each Corporation, undertake some kind of covenant or agreement or contract?
Mr. Dhaliwal: They have a choice or option. We are working with the different industrial sectors.
The Chairman: An association could do it?
Mr. Dhaliwal: Yes. We are working with associations. They know what they are responsible for and what their share is. We will work with them as to how they want to divide that up.
The Chairman: Has anyone signed anything yet?
Mr. Dhaliwal: I do not know. I do not think we have any signatures on it yet. This is the ongoing work that we will do. We will be as flexible as possible for industry, either on the covenant or through a regulatory process.
The Chairman: You are confident about this, obviously. Do you have any kind of time line in mind as to when you will be able to say, ``This sector of the economy, or this particular business, has in fact agreed to a covenant, and we have worked out the deal, and it is done and here it is''?
Mr. Dhaliwal: We hope that in the next three to six months we will have some good results. That is our objective. Whether we will or not, time will tell, but we hope in the next three to six months to have some concrete results from this.
Senator Spivak: On the subject of what works and what does not, even for emissions trading, I understand that the department will be doing a fairly extensive analysis of what is going in the United States, in Europe and other jurisdictions, such as California. Is that going on quickly, or will that take a while, or what is the story with that?
Mr. Dhaliwal: We are sitting down with industry and working with them. We know that in Britain, for example, they have used a covenant approach. They sat down with each sector and worked out and signed contracts. Some industries may want that; others may not. Our goal is to sit with the industries and work out a plan with each sector, and that is what we are doing now. Mr. Brown is doing this to ensure that we have a simple implementation program that industry can carry out and that we have an appropriate compliance program that is not bureaucratic but fairly easy for them to deal with.
Senator Christensen: During the debates prior to the signing of Kyoto, the provinces were putting forward rather vigorous opposition to the signing of that accord. Yet, in your presentation, you sort of implied that the provinces were doing a great deal. In the very short time that we have to meet our requirements, what steps are your departments taking to get the provinces onside and working with us?
Mr. Dhaliwal: It is very important for us to cooperate and work with the provinces if we are to be successful in meeting our Kyoto obligations. We want to look at any bilateral agreements that we can have with a province, and we are very open to bilateral agreements. We think it is important for the provinces, the municipalities and territories to adopt a Kyoto friendly program. Municipalities looking at building opportunities can increase insulation to reduce the cost of heating. Provincial governments, also within their own buildings, can look at ways to reduce greenhouse gas emissions.
One way we will be looking at it is through the $1.7 billion we have announced in the budget, to see how we can leverage that money by working with the provinces. We could say, ``Here are some funds. If you are willing to work with us and cooperate with us, you can leverage those funds.''
Industry itself is also putting a lot of pressure on the provinces because they do not want to create a lot of duplication. They are saying, ``Work with the provinces and ensure that we do not create overlap and duplication.''
I gave the example of B.C. Hydro, which has set up a portfolio standard whereby 50 per cent of any additional power they need will come from renewable energy, so they have already started the process and are doing that.
We are encouraging other provinces, and one way we can do that is through bilateral agreements. Some provinces, of course, are doing more than others. Quebec has been a strong supporter and is doing more. Manitoba, for example, is looking at opportunities to build an east-west electrical infrastructure so they can take advantage of hydroelectricity they can produce and sell to Ontario. Every province has different priorities, and they are working with us to see how we can accomplish this. Of course, many of provinces will be looking towards some of the $1.7 billion to support them.
The federal government also has other instruments that we are using, such as the $3 billion infrastructure program we announced in the budget. We will be looking to utilize that money with a climate change screening as well to ensure that we get maximum benefit. For any infrastructure money that is spent, we need a screening of the climate change agenda. We can also say to the provinces, ``You have to fulfil certain responsibilities and obligations under Kyoto to access certain funds.'' There is a variety of instruments we are looking to work with. Some provinces are doing a good job; others we need to work together with to do more.
Senator Christensen: Are you seeing cooperation?
Mr. Dhaliwal: Yes, I think we will see good cooperation. There was a lot of debate and a lot of tough words, but once we get over that, I think you will see more cooperation from provincial governments. I have had discussions with the Premier of Prince Edward Island and ministers from Manitoba, all of whom want to work with us.
Senator Christensen: One of the other things we are looking at in this whole package is the purchase of international emissions credits. How can we verify that we are buying actual credits?
Mr. Dhaliwal: They will be verified through an international organization. Perhaps Mr. Oulton can explain more about that.
Mr. David Oulton, Head, Climate Change Secretariat, Natural Resources Canada: That is currently in place. You can get credits now if you are doing projects, for example, that are certified in Third World countries. They can generate reductions that are usable in countries that have obligations. A process has been set up by the UN to ensure that those credits are producing real, verifiable reductions. In essence, they certify them so that you know you have valid currency. Any Canadian company wishing to go on the international market will know that they can buy these and that there is certification behind them. They would know that it is a good, solid credit.
Senator Christensen: As to the ``one-tonne challenge'' for individuals, most Canadians like a challenge. There must be a certain amount of leadership to create the challenge and the feeling that we are trying to meet a goal and that everyone must do his or her part.
During the last crisis, I did a total wrap on my house. I am now looking at ways by which I can meet my one-tonne challenge. For instance, an old hot water heater can be replaced with a newer one. Have you any idea, minister, as to what your one-tonne challenge will be?
Mr. Dhaliwal: That is a good question. I am having an energy audit done on my house to see what improvements I can make there. We had a vehicle which ran on a combination of natural gas and gasoline. We now have a vehicle that runs solely on natural gas. There are sometimes problems when you have a combination of both. This has forced us always to use natural gas and not gasoline.
I am more conscious of our thermostat. I also want to put in a programmable thermostat to reduce our heating costs. As well, my house has a solar panel which, I admit, I did not put in but which was there when I bought the house.
We can do little things. When you are not at home, you shut off your hot water heater. Because I have two homes, I shut off the hot water and turn down the thermostat in the house I am not occupying. I hope to do more than what is required to meet the one-tonne challenge.
Senator Christensen: As individuals, how do we measure those emissions?
Mr. Dhaliwal: The energy audit gives you an idea as to how well you are doing. Perhaps someone else can talk about how people can find out whether they are meeting their one-tonne challenge.
Mr. Neil MacLeod, Director General, Office of Energy Efficiency, Natural Resources Canada: The minister mentioned the $1.7 billion in the budget to be spent on climate change. Part of those funds will be dedicated to the one- tonne challenge. Over the course of the next few months more specific decisions will be made about how much of that $1.7 billion goes to what areas, including the one-tonne challenge.
In the meantime, we are developing tools that Canadians can use. For example, if they have a furnace that is 25 years old and they want to buy a high efficiency furnace, they can use one of these tools to find out how much they will save. These tools will allow them to make these calculations themselves fairly readily. We want to make these tools available to everyone so that they can measure their own contribution.
Senator Kenny: On the subject of emissions trading, have you examined whether or not it is a viable policy for the government to purchase emissions in order to affect their price?
Mr. Dhaliwal: Are you asking: If the government were to purchase emissions would that have an effect on the price?
Senator Kenny: Obviously, it will have an effect. It will drive up the price. Therefore, there is a higher premium for people to save more. If you can buy one ton for a few bucks, you will buy the ton. However, if you have to pay thousands of dollars, you might look at obtaining more efficient equipment.
Mr. Dhaliwal: Emissions trading creates a situation where people go to the lowest cost first. Emissions trading is all about making sure that companies, which have the opportunity, at the lowest cost possible, can sell to those companies who have higher costs. They can buy and trade.
As far as government buying them, we expect the private sector to be out buying them, not government. If the government anticipated a shortfall, we could do it. However, we do not anticipate that the government will spend huge amounts of money buying credits.
Senator Kenny: You have thought about it seriously. You have examined it and you have rejected it is what you are telling me. It is not much different from the sort of policy Unocal had where they said, ``If you have a vehicle more than 10-years old and you can get it to our parking lot, we will pay you $400,'' or whatever amount it was, and they collected their emissions credits that way. It was probably the smartest $400 that Unocal ever spent. It sounds a little silly to say, ``We will buy your clunker,'' but we all know that in so doing they were getting the older cars off the road, which was a smart deal for the environment.
I am suggesting a variation on the theme. If you are telling me that the talented people we see around here have examined it, you have reviewed it and, after a thorough examination, you have rejected it and it is not workable, then that is terrific. If you have not, will you look at it?
Mr. Dhaliwal: There are some things we can do. For example, in the Forest 2020 initiative the government can encourage others to invest in those areas. There are also companies, such as B.C. Hydro which, at one time, paid $50 for your old water heater when you replaced it with a new one. They gave you $50 to encourage you to buy a more efficient one.
Senator Kenny: My question, minister, is simply this: Would it be cheaper to purchase the credits to drive up the price than to have a policy to subsidize new water heaters? That is all. Have you looked at it? If you have and you have determined that it does not make sense, then that is terrific. However, I have a feeling it might fit in and be more cost effective than some of the programs you are looking at. Do you have the figures that will demonstrate that?
Mr. Oulton: I suspect you raise this matter because in the plan published in November it said that one of the options being looked at was whether it would make sense for the government to look at purchases of international credits on the international market. That was one of the options that was going to be brought before ministers for further discussion.
Senator Kenny: I just want the figures.
Mr. Oulton: That is something that still needs to be looked at. The idea behind it was not one of buying credits now, because the market is very thin right now and there are few international credits, it was, rather, once you got to the first commitment period, 2008 to 2012, you would be in a situation where the government could sit back and answer the question: ``What is the cost of us using our resources to buy credits versus the cost of actually helping Canadians reduce in Canada?'' It is hard to make that decision now in abstraction from when you are actually down the road. The investment that is being put in now is all being put into Canadian reductions because what you can do best now is get reductions in the Canadian market so that you do not have to buy international credits. It was put in there as a contingency to consider in the event that you were in a situation where you do have an active international market. The thought was that you would not affect the international price much at that time because it would be such a big market. The bigger issue is whether you are better off using that money domestically.
Senator Kenny: When it is a low market, you can get them cheaply. In fact, you make the market. Do you understand what I am saying?
Mr. Oulton: Yes.
Mr. Dhaliwal: Part of the $1.7 billion will be based on the cost of carbon for the different programs. That will be examined. How do we get the maximum bang for the dollar that we spend?
Senator Kenny: You might get a better bang this way.
Mr. Dhaliwal: That is right. We have to examine the costs of carbon and where we get the maximum for the dollar we spend. That will be part of the analysis.
Senator Kenny: My question was: `Have you had a chance to examine that? Mr. Oulton implies you have not. When you do, we would like to see your numbers. We would like to see your scratchpad.
Mr. Dhaliwal: These are Canadian programs. When we evaluate how to spend that $1.7 billion, one of our concerns will be the cost of carbon and another is the coal benefits that we must take into consideration.
The Chairman: I am not sure I understand one aspect of the question. Minister, you said quite rightly that people will go for the best cost. Individuals may say, ``I do not mind paying a couple of bucks more on my electrical bill this month to help out.'' However, if I am in big business, and I answer to shareholders, I will want to tell them that I have achieved the non-penalty status in my obligations under the covenant in the least expensive way possible.
There is one aspect of the answer to Senator Kenny's question which I do not yet understand. Would the Government of Canada intentionally use its buying power to, in effect, manipulate the market? The object of this exercise is to reduce emissions, not to set up trading. If I operate a smokestack that has a lot of time left on it, and I can buy my way out of this for $2 or $3 a megaton, then that is what I would do. The optimum price from the standpoint of what we want the end result to be per megaton is $14.99. At that point, I would look at my smokestack and say, ``It is cheaper for me to put on a scrubber than to pay $14.99, and I do not get any help from the government until I get to $15 and a bit.''
Part of Senator Kenny's question was whether we have contemplated manipulating the market to that extent.
Senator Kenny: I object. There has not been a whisper of manipulation here, chair. It is about participating actively in the market.
The Chairman: Have we considered participating actively in the market?
Mr. Dhaliwal: We are certainly not interested in affecting the market price. We do not plan to have a program. Some of these decisions will be made by the private sector.
If it will cost company A $10 to make improvements within their own company, when they can get company B to do it for $5, it is to everyone's advantage to have company B do it, because overall we are reducing greenhouse gas emissions at a lower cost. For me to buy from company B at $12, when I could do it at $10, then I would do it within my shop.
When you have an emissions trading system, you catch the lower hanging fruit, as they say. In that way you have the maximum bang for the least amount of dollars to reduce greenhouse emissions. That is the fundamental concept of emissions trading.
The government has no plan to disrupt that market system. There might be something in the future, however, if we are short on targets. Currently, we have no plan to buy and sell carbon.
Senator Milne: Regarding the one-tonne challenge, this committee may have some mutual benefits that could be shared. We could assist by advertising for you how people can meet the one-tonne challenge. There are certain people on this committee who have some expertise in getting ink out there in front of the public. That is very important because there has not yet been enough publicity on this particular issue.
You spoke about Forest 2020. I should like to know a bit more about the program. I would caution you about ever claiming that this will help to diversify farm incomes. As the owner of a 50-acre forest lot, let me tell you the realities of trying to grow Christmas trees unless you have a large acreage of land. When we first started with Christmas trees, we cut every second tree and let the ones in between grow as permanent trees.
Starting from eight years after we bought the land to about 15 years after we bought the land, there was a certain amount of income coming in every December or November. Then, for the next 20 years there was nothing. There was no income whatsoever but there were still costs. For the next crop we got a few thousand dollars, but not much more. It will be another 10 years before we can get another crop off the land.
I caution you that, when you talk about diversifying farm income, it will certainly not work that way.
I do see some diversification in farm income if the government can do something about the production of ethanol. Meeting the one-tonne challenge will be much easier if people can have much more readily available fuel that contains ethanol to use in their cars. Will the government move on this? Is it starting to fund the groups of people who want to build some of these plants? It is high time it happened.
Mr. Dhaliwal: That is a good question. I met with a rural caucus on this very issue. We do have some existing programs like the 10 cents per litre excise tax that was exempted for ethanol. We have $140 million in loan guarantees to support it. We are investing large amounts of money in R&D.
We said clearly in our climate change plan that we want to improve the production and use of ethanol. In fact, we have laid out a fairly ambitious plan that by the year 2010 we would like to have 1.4 billion litres of ethanol used, which is a seven-fold increase from what we use now.
Part of the discussion on the $1.7 billion is: ``What more can we do for renewable energy?'' Ethanol, of course, will be part of that discussion on how we can improve the use of ethanol as well as ensure that it is produced within Canada. This will be very important. The matter was also mentioned in the last budget.
Senator Milne: They keep mentioning it, but I never see actual footings being set for more plants. That is what is needed.
Mr. Dhaliwal: Good progress is being made. Some of the provincial governments recently announced increases in tax reductions. In Manitoba, I believe, there was an announcement of a reduction of 12 cents or 14 cents a litre.
At the last meeting of the ministers of energy, I raised the issue of whether we could have a mandate for ethanol use. We could not obtain a consensus, but we now have a committee to determine if we can have a national strategy for increased use of ethanol. Work is being done. There is more progress in some provinces than others.
Senator Milne: Are you relying on the provinces to do this?
Mr. Dhaliwal: No, we are taking the lead role.
Senator Milne: I was hoping that some of the federal money would be for this and also for R&D on biodiesel.
Mr. Dhaliwal: Yes, part of the debate that will happen in the ad hoc climate change committee will be regarding the funds being spent. One of the areas of discussion is ethanol and what more the federal government could do. I cannot give you the ultimate position because it will be a collective decision as to how we spend that money. We have given serious consideration to ethanol.
Senator Kenny: I was not going to raise this issue, but since Senator Milne has brought the subject to our attention, I cannot help but ask you to comment on the issue from a leadership perspective. I know you are aware of the questions that currently reside on the Senate Order Paper. There are 50 questions to every minister and every Crown corporation. One of those questions has to do with the use of ethanol. It has to do with those vehicles that are not operating on natural gas or on propane or on some clean fuel. It points out to the ministers that there are two different stations, different companies, neither of which I know of anyone around this table has an investment in, that are within five kilometres of the Peace Tower that provide ethanol at 10 to 12 per cent blend at exactly the same price as their regular gasoline, and they have been doing that for a number of years.
I can tell you with assurance that on the previous two occasions when I have asked the question, there has been an appallingly low response from your colleagues in cabinet about asking their chauffeurs to take their cars five kilometres to fill up with an ethanol blend, even if it is a very low ethanol blend. These questions have just come on the Order Paper — it is an annual event, as you would appreciate — again at the start of the new fiscal year.
Is there anything you can do to encourage your colleagues? We know you provide leadership in terms of your vehicle, and we heard you just discuss it now. However, can you encourage your colleagues to set an example by driving those five kilometres just down to the Queensway? Two stations straddle the Queensway, one on each side. They are open for business. The price is identical. Can you help us with this? Can you crack the whip?
Mr. Dhaliwal: Let me say to Senator Kenny that he has done a tremendous amount of work on the use of alternative fuels, and I commend him for his good work and his bill in the house. I have been very supportive. He has come a long way. He is forcing government to move not only to use ethanol but to use alternative fuels.
I know that some departments have done a better job than others. I think that at NRCan, we have a good record, and we will continue to improve. Other departments need to do more.
I hope that more and more of my colleagues and others will move towards alternate fuels, particularly the use of ethanol. I will ensure that they are aware of this opportunity that exists and encourage them to do that.
I can tell you my own experience. I remember back in the 1980s, I converted my 1979 Cutlass Oldsmobile to propane. I saved 50 per cent on the running costs every month. My maintenance costs dropped 30 to 35 per cent. The engine life doubled. I think my engine life went to 350,000 kilometres, and it still ran like new. You could barely hear the engine. There is tremendous opportunity with alternate fuels, and we have to take advantage of it.
Senator Kenny: The story has it that you converted an entire taxi fleet to it and became rich in the process and cleaned up the environment in the lower mainland almost single-handedly. What we are asking you to do is to head over to 311-S —
Mr. Dhaliwal: I never challenge senators on their statements.
Senator Kenny: — and to knock on the door of the guy who lives in 311-S and see if he can get a document before cabinet, or have him say, ``Anyone who wants to continue to sit around this table next week better bring me a receipt showing that you filled up at the right place with the right fuel.'' Maybe that is the ticket to cabinet. ``As you come in, leave your receipt at the door. If you do not have one, take the five-minute ride down and come back with a full tank.'' That would be a good system.
Mr. Dhaliwal: I will do whatever I can to convince my colleagues to take your excellent advice. I will pass that on to them. I will also send the minutes of this meeting to all of them.
Senator Kenny: Senator Milne mentioned this. I was just dotting the Is and crossing the Ts.
Senator Milne: The use of ethanol and biodiesel has been a concern of mine for quite some time. It would be an easy solution for many people.
The Chairman: It is not difficult to imagine — to oversimplify it — the proprietors of the service stations to which other government vehicles just in this town alone go waking up one Thursday morning and saying, ``What happened to all my business?'' If it is all over there, that guy will pick up the phone to whoever supplies the gasoline and say, ``Send me some ethanol now.''
Senator Kenny: Watch the price go up.
The Chairman: We will leave that part out.
Mr. Dhaliwal: When I was in Quebec recently, I rode on a biogas bus. This is actually doing quite well. They have a person who is using biodiesel. This program is working extremely well. As you know, in the budget we reduced the excise tax on that as well. That will lend more support to that. This is something that can be done fairly easily. They have someone who distributes this, and it is working very well. They have a mini bus and a number of buses that they call biogas buses, but they use biodiesel.
Senator Milne: The first diesel engine invented by Rene Diesel ran on vegetable oil.
Senator Finnerty: The issue of ethanol use was one that I was excited about when I though you and Minister Goodale were going to fast-track this. However, that has not happened. All kinds of people ask me, ``When will we get ethanol?'' The knowledgeable consumers know that it is cheaper to run your car on ethanol, as well as more efficient. When I was driving across the States to attend a conference in San Francisco, I was surprised at how many places had ethanol stations. It was wonderful. I kept hoping that this would happen soon in Canada.
Mr. Dhaliwal: One of the areas that we will be discussing as part of the allocation of the $1.7 billion is what more we can do on promoting ethanol.
Senator Finnerty: When the caucus comes to North Bay next summer, I want them to fill up at the ethanol station in Winnipeg and drive back home and see the difference.
The Chairman: Minister, you referred a moment ago to the ad hoc cabinet committee, which is relatively new. The Deputy Minister of the Environment mentioned in testimony before a committee of the other place that you and Minister Anderson are both now reporting on this file to the new ad hoc committee through Minister Vanclief. Have I got that right?
Mr. Dhaliwal: Yes.
The Chairman: Can we draw any connotation about ethanol from that? Does that complicate, in your view, as I think it does in mine, the question of who is in charge here?
Mr. Dhaliwal: We have always had a climate change committee working. That goes back to the time we started dealing with Kyoto.
The Chairman: Yes, but it was not chaired by the Minister of Agriculture.
Mr. Dhaliwal: No, it was chaired by someone else, and more recently it is chaired by the Minister of Agriculture.
The decision that will be made on the allocation will be based on a collective decision that will be recommended to cabinet. The Minister of Finance, and others, will be there as well. It is a fairly large committee involving many ministers, and their input will be put into the end-decision. All ministers will be putting forward what they think are important proposals, and there will be some tough discussion. We will have to, at the end of the day, decide how that is allocated.
Mr. Vanclief is a big supporter of ethanol, as you know. He recognizes how important it is for the farming community as well as the overall environment. I am sure he will articulate his positive view toward it. Whether he will be able to sway one or the other, it is not for me to say. Certainly, I think there is good support around the table for supporting ethanol. The question is how much.
The question is, ``How much?'' In the U.S., they have a larger subsidy for ethanol than we do, particularly in the farm belt. As a result, their production is much higher.
The Chairman: When our committee was in California — and I did not accompany them — one of the things the members came back with was a feeling that it was the view of many of the organizations in California that direct — wherever it came from — consumer incentives had to be in the mix to achieve the ends that they all had in mind with respect not to conservation so much but efficiency, the kinds of things you have been talking about.
Is the ad hoc climate change committee, which I presume would view efficiency and the resulting conservation as a good thing, considering, or has it considered, direct consumer subsidy incentives in one way or another, such as the kind you talked about, for example, $50 for your old water heater or something like that, or tax breaks, or whatever; and, if so, where is that discussion at the moment?
Mr. Dhaliwal: We have not yet gotten into those detailed discussions. We might consider some incentives such as, if you bought a hybrid vehicle as opposed to a regular vehicle, would you pay less tax on it?
Some of those things will be discussed. However, we are not at that point yet. We will be looking at incentive programs.
The Chairman: Since every motor vehicle manufacturer will have a hybrid vehicle on the market within two years, at the outside, as we understand, that kind of incentive would be very much in the interests of the automotive industry and in moving them in that direction, would it not?
Mr. Dhaliwal: We are looking at two things in terms of the automotive industry. We are looking to the industry to improve efficiency by 25 per cent. Of course, the industry would say, ``We want to produce many hybrid cars, but unless we get the price down, and unless the government puts incentives in place, people will not buy them.'' They would like us to offer incentives and therefore create a bigger market for them. That is why we will be looking at what kind of incentives we can provide.
We are also looking to industry to ensure that they improve the efficiency of vehicles by 25 per cent.
The Chairman: To oversimplify, if I were a big motor company, I could try to sell 25 per cent of my total sales in a year as hybrid cars, at one extreme, or I could try to reduce the emissions of all my vehicles by 25 per cent. Can you give us an indication of in which of those two extremes the industry might be heading?
Mr. Dhaliwal: I do not know. We would want to give them that flexibility as long as, at the end of the day, they were increasing fuel efficiency by 25 per cent. If they found it more advantageous to do that with all their fleets, that would be one option. As government, we should be flexible and let them have the choice. As long as they meet the end goal, that should be our priority.
Senator Spivak: In the five years from 2008 to 2012, will industry be aware of how much they have to reduce each year and, if they do not reduce, how much they will have to do in the next year? How will that work? I realize that there is no penalty in the end. It is not a very strong stick. I am sure people want to do well. The utilities are saying that with business as usual they are only looking at a certain amount, something in the order of 4 megatons, but they will need a business plan. How will all of that work?
Mr. Dhaliwal: That is a very good question. We will need to have ways to ensure there is compliance. Must it be regulatory? Could there be financial penalties? What do we need to do to ensure compliance? The details of that are still being worked out.
Senator Spivak: With regard to trading emissions, each year that total will have to be reduced. It is not just a matter of having a free market in trading emissions, the emissions will have to come down by a certain amount in order to meet your targets.
Mr. Dhaliwal: I am not sure I understand what you mean when you say that they have to come down.
Senator Spivak: The universe of greenhouse gas emissions has to come down.
Mr. Dhaliwal: Yes.
Senator Spivak: It is not like you can trade in any old way. The total has to come down, otherwise what is the point?
Mr. Dhaliwal: Yes, the total greenhouse gas emissions, as compared to ``business as usual'' has to be reduced.
Senator Spivak: Exactly. Therefore, there must be some control of that market to ensure that the total level comes down each year. I suppose that is another detail you are working out.
Mr. Dhaliwal: What would be business as usual if we did nothing? The objective is to meet the 240 megaton total. We expect companies to reduce by some amount each year. We have to work out the mechanics of it. We expect large emitters to take action to reduce their greenhouse gas emissions on a yearly or regular basis.
There may be some exceptions. Some may say, ``We are investing a huge amount of money in this new technology that may not come into play for five years. Can we wait that period of time?'' We may have to look at some areas that may require some special effort.
Senator Spivak: This goes back to a different aspect of what Senator Kenny was talking about. It is the choice between buying international emissions from Russia, for example, or spending that money here so that you end up reducing emissions. That is the point. Thank you.
Mr. Dhaliwal: We expect that the vast majority of the money will be spent here in Canada to reduce greenhouse gas emissions.
Senator Eyton: I am not quite sure how emissions trading will work. My understanding at this moment, and you may correct me, is that if I acquire the right credit for emissions trading, that is a perfect credit against what is otherwise my obligation.
Mr. Dhaliwal: Yes.
Senator Eyton: What Senator Spivak was talking about was the disincentive implicit in a system like that because, in effect, it allows the bad guy to minimize his cost, make no investment in terms of curbing his emissions, always knowing he has a market where he can get a perfect credit on an emissions trading system of some sort. It seems to me that has to be wrong.
What I think Senator Spivak was talking about was there being some challenge so that you cannot always have a perfect credit for emissions trading, otherwise the bad guys will keep on as they have. For example, there are a number of individuals in the U.S. who have become very rich because they are the bad guys. They are the last buyer of every polluting industry. In fact, they take money home because they are prepared to offend the general community and governments. They compete in the courts and resist enforcement in every possible way.
An emissions trading credit or certificate is really kind of a state sanctioned blessing to do less than your share. How can you challenge individuals who are prone to do that so that, over time at least, they are obliged to be better at what they do?
Mr. Dhaliwal: That is a very interesting and complex question. As we move forward, as this is only the first phase, companies can take risks — and it is a risk on their part — that they will always get carbon at a lower cost than the cost of investing to reduce their own emissions. This is part of risk that they will be taking. If I had a company, it might cost me a little more to put in new technology to reduce greenhouse gas emissions than buying it. However, if I had a longer-term view of it, I might conclude that I would benefit from spending the extra money. I do not know what the carbon price will be in the future. Therefore, I might be willing to pay the extra cost to do it within our operations because in the long term I would be better off.
This is only phase one of Kyoto. For the world to continue to make progress, we will have to do much more than what we are doing in phase one. These are some of the risks people have to take.
Senator Eyton: What about a facility that is emitting CO2 and other things but it has, say, a 15-year life. It seems to me that a businessman operating such a business would say, ``I am okay. I can buy.'' You could participate in and buy futures and fix your costs. He might figure that he could run his facility without making an investment. He might be a burden on the community, but he could buy his way out of it with futures in the emissions trading business.
Mr. Dhaliwal: A business would have that choice. The advantage with emissions trading is that, for every dollar that we spend in our economy, we are getting the maximum bang, because we are encouraging those people who can reduce carbon at the lowest price to act first.
Eventually, the other people will have to act, because the low hanging fruit will be taken in the first five or 10 years. In the future, it will become more expensive to reduce it more. The choice will be whether to spend less money now in the hopes the costs will stay the same or face spending more money in the future.
If you have a plant that will go out of business in 10 years, and it is cheaper to buy the carbon, your choice will to be buy it. I do not think that is so bad because it encourages those people who can do it cheaper to do it first. Thus, every dollar spent will be at a lower cost. Overall, we would reduce greenhouse gas emissions but at a lower cost and have a more competitive economy.
Senator Spivak: They also have to factor in what kind of money they will save by changing their plant technology. The experience thus far has been that many companies have saved a tremendous amount of money.
The Chicago Board of Trade has had the only experience with emission trading. I do not know how that has worked out.
Mr. Dhaliwal: Are you referring to the emissions trading market? We do not have a mature market yet. It is a little early to say how it will work out.
Your point is well taken. Many of these options are good business because they are saving money when they convert to lower energy intensity. Some companies will do it because it will save them money in the long term. Many have already done it. Sometimes it requires a major investment upfront to save that money. Others will do it because it will save on energy costs.
The Chairman: Honourable senators, I promised the minister that we would be done by 6:45 p.m.
Senator Milne: You may need to respond in writing to my question, because you may not have time to answer. I asked you about Forest 2020. I did not get an answer to that question.
When you talk about a sustainable future for all Canadians you talk about expanding the Canadian industry program for energy conservation. Who is setting up these standards both for this and for the new buildings to be 25 per cent above the existing Model National Energy Code? Are you working with the industry to develop new standards? Will there be a bench-line standard?
I believe that Mr. Brown is working on covenants with the private sector. I would like to know whether he is having any success on those covenants. That is very important.
Mr. Dhaliwal: I will comment on Forest 2020. I apologize, I did not respond to your question the first time.
You are right in that to be really effective you need large areas. We are talking about hundreds of thousands of hectares of land. It would require some government involvement, because, as you have pointed out, there is a large upfront cost and it takes a long time to get your money back.
Senator Milne: You do not want to have to live for 10 years on $5,000.
Mr. Dhaliwal: The upfront cost is very large. We will need to have government support for that, but there may be large companies that would prefer to do that because it is more cost effective. They could work with farmers by leasing marginal land on a long-term basis, or managing it. You must have large players with huge amounts of time. It would have to be major companies. However, we think that there will be an opportunity in the rural communities of which farmers can take advantage.
We will be looking at this as part of the discussions. Do we want to put money into Forest 2020? It is an opportunity at which we should look closely.
Some models have been completed. For example, if we put in about $137 million, we could leverage about $950 million, which means about 400,000 hectares being planted. That would do two things, one of which would be to preserve our existing natural forests by putting less pressure on them.
Senator Milne: It would preserve our existing unnatural forests.
Mr. Dhaliwal: It could go both ways, I guess. It could also provide fibre in areas where there is a shortfall closer to where it is manufactured. It could have some advantages, but all the details have to be examined, and we are doing that..
The second part of your question related to covenants. Mr. Brown has been working on that. It was not part of our initial plans for climate change, but we wanted to give flexibility to the industries. We provided this as an option for them. Mr. Brown has not negotiated any covenants yet, but perhaps he can respond briefly on that.
Mr. Brown: I cannot say that we have successfully concluded any negotiations, because we have not started negotiating yet. During the past three or four months we have consulted extensively with business, civil society, environmental groups and labour. At the same time, we have been working around Ottawa on some of the very difficult legal and policy questions that we need to resolve in order to decide how we will move forward on this.
My expectation is that we will have a first round of negotiations with industry in May and June. I hope to sit down with all of the major associations and industry groups in that time period and put our demands on the table to let them know what we want them to do and to see if we can identify the key issues from their perspective. We would then return in the fall and proceed.
The minister said that maybe three to six months from now would be a better time to ask how successful we have been. I am not sure that we will be in a position to have signed covenants six months from now, but we may have memoranda of agreement.
The signature on the covenants also depends on the backstop to which the minister referred. That may take legislation.
The Chairman: You may be assured, Mr. Brown, that we will be asking you about that in the future.
Mr. Dhaliwal: We did not answer the question on the building code appropriately. We are working with architects and municipalities. Mr. MacLeod can give you a more comprehensive answer.
Mr. MacLeod: You prefaced that with a question regarding the Canadian industry program for energy conservation. You asked what we are talking about when we talk about a focus on small and medium enterprises. This initiative has been around for several years, but historically the focus has been on the large industrial companies simply because when we work with them we have gotten more bang for the buck because there are so many more emissions.
Now that the federal government is moving toward a covenant approach for large industry, we realize that the small and medium-sized industries are too small not to be covered, but they are left without programs, so we will have to customize some of the programs we do have. Smaller companies typically do not have enough capacity to have an energy manager on their payroll, for example, so we intend to provide the services to enable them to better know how they can reduce their emissions in a cost effective way. That is the focus we are putting in that area.
In fact, over the winter we did a survey of these smaller enterprises through the associations to ensure that they can tell us precisely the kind of services they need in order to reduce their emissions. Those survey results will be coming to us around the middle of the spring.
As to the buildings area, one the proposals we have is to make all new buildings at least 25 per cent better than the model code. For a few years we have had a program in place whereby we actually pay financial incentives to anyone building a new building, as long as it is 25 per cent better than that code. The more energy they save, the more we give them, with a certain cap, of course.
Senator Milne: You are not setting up guidelines; you are letting them decide how to do it themselves.
Mr. Brown: We do a little more than that. We have provided special training modules to architectural schools across the country, because that is where these changes must be made. If you make them in the architectural schools, it will roll out. With this as a basis, and working with the provinces, we hope that, by the commitment period, that will be the standard for all new buildings.
Senator Eyton: My question has to do the tar sands, which is part of the Canadian heritage. We all know that the oil reserves in the tar sands are greater than those of Saudi Arabia. Billions of dollars have been spent and billions more will be spent. Many projects are currently ongoing. What is the government's attitude toward the tar sands and its further development as it becomes increasingly more important to our oil production?
Mr. Dhaliwal: The tar sands an important part of our economy and a very important part of future contribution to the wealth of this country. We would not want to do anything to hurt that opportunity, and that is why we will be working with the industry towards finding out how to improve its efficiency. In the past 15 to 20 years, the Government of Canada has spent a lot of money on research and development to help the industry reach the point where it can be efficient. Much headway has been made in the cost of a barrel of oil and also in terms of energy use. We will be looking at how we can support investment in R&D as well as in energy use. A study is currently being undertaken on using nuclear energy to support the ongoing energy demands of the tar sands, rather than using more and more natural gas.
The tar sands will be a very important part of our economy. We need to ensure that it continues to grow and continues to be a dynamic industry. Not too many countries can say they have 350 billion barrels of non-conventional oil reserves, as we have. We want to ensure that we continue to have investment in that industry.
The Chairman: Thank you very much Minister Dhaliwal and gentlemen.
The committee adjourned.