Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 16 - Evidence, April 26, 2007
OTTAWA, Thursday, April 26, 2007
The Standing Senate Committee on Energy, the Environment and Natural Resources, to which was referred Bill C- 288, to ensure Canada meets its global climate change obligations under the Kyoto Protocol, met this day at 8:39 a.m. to give consideration to the bill.
Senator Tommy Banks (Chairman) in the chair.
[English]
The Chairman: Good morning. I see a quorum; hence, I shall call the meeting to order. This is a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources, which is now considering Bill C-288, to ensure that Canada meets its global climate change commitments under the Kyoto Protocol.
Appearing before us this morning, on behalf of the Canadian Manufacturers and Exporters Association, is Jayson Myers; with us from the Canadian Electricity Association is Eli Turk.
Before we begin, should like to briefly introduce you to the members of the committee. Senator Willie Adams is from Nunavut. Senator Fernand Robichaud represents New Brunswick. We also have Senator Lorna Milne from Ontario, Senator Grant Mitchell from Alberta and Senator Mira Spivak from Manitoba.
Gentlemen, we are delighted that you are with us this morning. Mr. Myers, you have the floor.
Jayson Myers, Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters: Mr. Chairman, senators, I should like to speak to this set of notes that I believe have been distributed to you, in regard not only to Bill C-288, but about what we believe a framework for achieving real reductions in greenhouse gas emissions in Canada should look like, and particularly from a manufacturing and industry point of view.
For manufacturing, for much of Canadian industry, good environmental performance is something that our customers are demanding, our shareholders are demanding, the public is demanding — and frankly this is good business. The key message here is this: How do we make doing something good for the environment also something good for the economy? I believe that can be done. I am concerned, though, that if we focus on unrealistic targets — and I believe the Kyoto target to be unrealistic — we would lead to counterproductive outcomes. That is the experience we have had over the last 10 years of talking about how we would put this together.
I also want to make the point that manufacturing is a pretty important part of the Canadian economy. In fact, all of the Canadian industrial base, the electricity sector, the oil and gas sector — these are all crucial parts of a Canadian economy and the prosperity of all Canadians. Getting these things right is very important for the Canadian economy and for the prosperity of all Canadians. Getting things right is also very important for effective environmental policy. I will say a few things about that.
In terms of looking at key policy objectives, we should be aiming at achieving real emission reductions in Canada. In order to do that, we require a tremendous acceleration in what I call technological progress. That can be measured through emissions intensity, but technological progress in this sense is a combination of fossil fuel sources of energy and a tremendous improvement in the way we use energy, in energy efficiency. It is that combination of factors, the fuel switching and energy efficiency, that lead to reduction in greenhouse gas emissions.
If that is the objective, then the issue becomes: What are the technological solutions and what are the investments that have to be put in place in order to achieve that? If we approach it from this point of view, there are solutions that are good for the environment and good for the economy.
Although the slide I am showing you dates from 2003, in terms of the breakdown of greenhouse gas emissions in Canada, the manufacturing sector accounts for slightly over 13 per cent of the total. The industrial sectors combined for about half. Let us keep in mind that the electricity, oil and gas sectors are energy-producing sectors that are providing energy to Canadians. We have an integrated economy, with an integrated energy system. Let us keep in mind that an economy runs on energy. We drive our cars to work, we heat our homes and we produce things — all of which requires energy.
Therefore, the real debate here in terms of how we reduce emissions is how we replace fossil fuel sources of energy with non-fossil fuel sources, the technologies required to do that and the appropriate time lines in order to achieve that.
Looking at the manufacturing sector as a whole, if the problem were only a manufacturing one then manufacturing has surpassed the Kyoto target. In the overall sector, between 1990 and 2003, production rose by almost 50 per cent over that period of time. It was a pretty strong period of growth in Canadian manufacturing. However, because of investments in new technology and the replacement of old technologies, emissions fell over that period of time by 7.4 per cent. When I talk about technological progress, that is, emissions intensity, it fell by 38 per cent. We have seen a tremendous increase in productivity and in emissions intensity in those types of investments in technology that led to emissions reduction.
The next graph shows the breakdown. Why did that occur? Half of it occurred because companies were becoming more energy efficient. They were replacing old machines and equipment with new technologies. They were doing that because it made good business sense. They had to become more productive and they had to become more competitive. It was that investment in new technology that, along with the productivity benefits, resulted in emissions reduction. They were becoming more energy efficient.
About 30 per cent of the reduction came from the replacement of industrial processes — again, investment in new technology. Approximately 20 per cent came from switching away from fossil fuels to less carbon-based sources of energy, and in fact, much of that switching to electricity. It could be argued that that just puts the burden on another sector, but clearly the electricity sector is a far less carbon-intensive source of energy than the oil and gas sector. It was that combination of factors that led to the 7.4 per cent reduction.
The average is 7.4 per cent. However, the chart I am now showing you shows reductions in GHG emissions by sector: the steel sector, down 17 per cent; the non-ferrous metal sector, down 16 per cent; the chemical sector, down 43 per cent; the pulp and paper sector, down 33 per cent. In fact, the entire resource processing sector in Canada achieved a 20 per cent reduction in emissions between 1990 and 2003. Hence, this sector has made tremendous progress already in reducing emissions.
Capital investment has led to that emissions reduction. As I said, this was generated as a result of the replacement of old, less productive technology with new, more productive, more energy efficient and less carbon-intensive forms of production systems, of technology. As can be seen here, the blue line shows capital investment by manufacturers. The red line shows the change in emission intensity, the technological progress that led to the emission reduction, but in this chart it can be seen how closely tied that emission reduction progress is to capital investment.
The lesson for manufacturing is that investment in new technology is what led to emission reduction in that sector. The lesson for all Canadians is that that is what will lead to emission reduction across the economy. It is the replacement of old cars with new cars, of old fridges — beer fridges — with new fridges. It is retrofitting our homes; it is replacing old transportation systems with new urban transit systems. It is replacing fossil-fuel-generated sources of energy with new and non-carbon-based sources of energy. The key question is: What timelines are required to do that?
However, what I wanted to reinforce is that investment drives environmental performance. Investment decisions are made for all sorts of reasons. Manufacturers did not reduce emissions because they were investing only to reduce emissions or become energy intensive. They reduced emissions because they were becoming more competitive and more productive — and along with that achieved tremendous reduction in greenhouse gas emissions.
That is the challenge, I think. How do we accelerate technological progress? Then there are a couple of issues. In this graph, the red line shows economic growth. The green line shows Canada's emissions performance. Over the last 30 years, we have seen a 1 per cent improvement in technological progress — in emission intensity. The Canadian economy is growing at an average of about 3 per cent per year. Emissions are growing about 2 per cent per year. The difference is the technological progress caused by improved energy efficiency and the introduction of less carbon- intensive sources of energy.
To put that into perspective, then, to go from where we are now to meet Canada's Kyoto obligation of 6 per cent reduction from 1990 levels would require, if we started right away, somewhere in the level of a 30 per cent or 35 per cent reduction in emissions over a five-year period. That would require an acceleration factor of 8, 700 per cent acceleration, in this rate of technological progress.
The questions around this become: How feasible is this? Are there the technologies? From an industrial point of view, because it takes time to put these technologies in place, is this feasible within the very short time lines we now have to meet the Kyoto obligations?
There are alternatives to this, if the object is to meet the Kyoto target. The one alternative — and this is an alternative I do not think anyone wants to see — is a 30 per cent curtailment in economic activity. It is not possible to visualize what that would mean to the economy. The economy would simply implode. As well, that alternative would not lead to much in the way of emission reduction, because Canadians would not necessarily react well even to the beginning of that depth of a curtailment in economic activity.
The other alternative is to purchase emission credits from other countries. If you set targets and industry cannot achieve those targets, then pay a $15-per-tonne fine, or whatever the fine is, and pass the cost of buying international emission credits on to industry. That was the objective or idea behind the large final-emitter system that had been touted a year or two ago.
I would rather see that money being invested in Canada to achieve real emission reduction in Canada through the application and investment in new technology. Let us do what we must to reduce emissions in this country. However, that must be done over a realistic time frame. We need energy efficiencies and we need the development of alternative energy sources.
The other point I want to make — and this is based on the experience we have had with the large final-emitter system. If we cannot achieve these targets — and we see policy measures being put in place — only focusing on an unachievable target often leads to counterproductive outcomes. This is what we saw in the large final-emitter system. That system would have required industry, manufacturing, to continue to reduce greenhouse gas emissions on a business-as-usual basis. Therefore, the chemical industry, which had already achieved 40 per cent emission reduction, would have had to achieve another 40 per cent emission reduction, but that was never seen to be a contribution to emission reduction under that scheme. They would have had to reduce by another 8 per cent, which would have left them with a total emission reduction in the range of 80 to 82 per cent. That is not feasible for the industry. They could buy their way out of that, at $15 a tonne.
If everything you did was not counted toward the Kyoto emission goals, why would you do anything? You could buy your way out at $15 a tonne, which is pretty cheap, given the investments you would have to make in technology to achieve these targets, that penalty would become a carbon tax imposed on the industry. I do not think those are very productive ways of putting in an environmental policy and achieving real emission reductions.
Let us do things based on a realistic time frame, what technology can actually deliver, and let us do things right, do things that actually provide incentives — not taxing industry, but providing industry with incentives to put in new technologies.
I have provided a couple of graphs. I will not spend a lot of time talking about this, but I wanted to demonstrate what the manufacturing industry is facing today. There is tremendous competition and a soaring dollar, and companies cannot pass along higher costs. Over the last five years, pricing has been flat in manufacturing. The closer to the customer you are, the more likely prices are falling. All the costs of doing business are up; energy costs over this period of time are up by almost two thirds. There is not a large profit margin in manufacturing to make these investments in new technology. That is why capital spending has slowed, and why environmental performance has levelled off. Energy efficiency and emissions has levelled off since 2000. It is because profits are under pressure.
This is how I think about profit. In an average eight-hour production shift, how long does it take manufacturers to cover operating costs, financing and capital depreciation, and pay tax? Last year it took, seven hours and 52 minutes. Manufactures, on average, had eight minutes to make money. It is that money that goes into the investment in new technology — not only new technology, but new product lines, training, innovation, entry into new markets, everything companies have to do to be competitive today in a pretty fast-paced international market.
What we have seen is capital spending and emissions performance levelling off. What we should be doing, rather than taxing and taking more money away from industry, is providing incentives so that industry can make more investment in new technology and achieve more in the way of emission reduction.
Manufacturing in this country is at risk. We have seen a number of plant closures — almost 3,000 plant closures over the past two years. Profit margins are razor thin. We have 2.1 million Canadians whose livelihoods depend on manufacturing. For each Canadian employed in manufacturing, there are three other Canadians in the services industry, farming and primary sectors whose livelihoods also depend on manufacturing. We have to get this right. Let us do things for the environment, but let us also make sure that we are not eroding one of the key bases of the Canadian economy.
We can do things right for the environment if we focus on realistic targets for emission reduction, based on what technologies can deliver, if we provide the incentives for investment and put in place as simple, as cost-effective and as low-cost a compliance system as possible. A major concern is that we do not want a patchwork of multiple regulatory systems to try to achieve something on emissions and create even more compliance costs that are not charged directly, in the form of a tax, but at tremendous cost in terms of different inspection and measurement systems, et cetera. All of that has to be put in place, but let us have a harmonized system here across the country that makes that as simple and low cost as possible.
In short, I do not believe the Kyoto target can be met if what we are talking about is achieving real emission reduction in Canada. It can be met, probably, if we spend $25 billion a year over the next few years in putting technology into China and Russia and reindustrializing rapidly growing industrial, competitive countries.
That money would be better spent here in Canada in achieving real emission reduction. However, let us do that over realistic time lines, with incentives in place to encourage industries to invest, with a regulatory system in place, with targets and measures in place that make sense in terms of technology, that are in line with investment cycles, but also with the support of Canadians. At the end of the day, the industrial sector serves Canadians. The lifestyle of Canadians is the question here. The key questions are as follows: What options do we have? What are the options in terms of energy sources? What are the options in terms of transportation systems?
Manufacturing can be the solution to this, but we have to build in the right incentives to encourage further progress to be made and not lead to counterproductive outcomes.
[Translation]
Eli Turk, vice-president, Canadian Electricity Association: Mr. Chairman, members of the Standing Senate Committee on Energy, the Environment and Natural Resources, I thank you for this opportunity to speak to you about climate change and the role of the electricity industry.
[English]
Founded in 1891, the Canadian Electricity Association is the national forum and voice of the evolving electricity business in Canada. At the heart of CEA is a core of corporate utility members, generation transmission and distribution companies. In addition, there are major electrical manufacturers, corporate consulting firms and several other companies within CEA's broad structure.
The Canadian electricity sector supports the objective of addressing global climate change, but we need to do so in a practical and efficient manner, consistent with our economic and regional realities, capital stock turnover cycles and technology commercialization.
CEA member companies are committed to taking effective action on climate change and providing reliable, affordable and sustainable power to Canadians from coast to coast. Electricity is consumed extensively in the residential, commercial and industrial sectors on a continual basis. The ability of the electricity sector to provide reliable power is vital for economic growth and future prosperity of Canada. Increasing demand for electricity makes this challenge even more profound.
History shows that electricity demand grew by 1 per cent to 1.5 per cent per year over the last decade. New forecasts predict similar growth demands in the next decade. This growth is inescapable. New appliances are more efficient, but there are more consumers using them. Businesses and industrial processes are more efficient, but population and economic growth creates more businesses, buildings and manufacturing facilities, all demanding more electricity. Consequently, we will need new investments in electrical generation, transmission and distribution to continue to power the growing economy. It is estimated that Canada will need nearly 60,000 megawatts of additional electricity supply by 2020 to meet both system demand growth and plant retirement needs.
Over the past decade, the electricity sector has made significant progress in managing its air emissions and making investments in the development of cleaner, more efficient technologies. It has reduced emission rates of nitrous oxide, sulphur dioxide and particulate matter, which are common pollutants that lead to air quality issues like acid rain and urban smog. Its greenhouse gas emissions rates are also stabilizing. Nationally, the Canadian Electricity Association system has a GHG intensity of approximately 220 tonnes per gigawatt hour, significantly less than the GHG intensity of electricity systems in most developed and developing countries. An example of progress includes a 2005 commissioning of the first super critical coal generation unit in Alberta that is co-owned by EPCOR utilities and TransAlta Corporation. The Genesee III unit uses less coal and operates at higher temperatures than conventional boilers. Its CO2 releases are approximately 18 per cent lower than the current Alberta coal-fired generation fleet average. However, there is no single technological answer to reducing energy demand and environmental impacts. Thus, all kinds of energy production and associated transmission, distribution and end-use technologies should be considered in a sustainable approach to climate change.
CEA members support the objective of effective domestic action on climate change based on capital stock turnover and technology commercialization. Given the long life of generation assets and the lack of currently available robust technological solutions for controlling CO2 from existing facilities, a sustainable domestic climate change policy will be needed to preserve regional fuel diversity, to enhance investments in new technologies, to promote new energy efficiency measures and to reduce regulatory barriers to new projects.
Regional fuel diversity is an important element, because one solution that works in one region might not work in another region due to resource availability and technological limitations. British, Manitoba, Quebec and Newfoundland are rich in hydro. Alberta, Saskatchewan and Nova Scotia depend predominantly on coal. Ontario and New Brunswick have an established nuclear fleet in their mix of sources, which also includes coal, gas and hydro. P.E.I. developed its own wind energy capability to supplement power it receives from neighbouring New Brunswick. Wind and other emerging renewables are being deployed in all parts of the country. In addition to this diversity, there are differences within fuel types, such as coal, with some provinces using bituminous coal and others using sub- bituminous and lignite coal. In short, maintaining diversity is key across the Canadian system — diversity that reflects the availability of different fuels in the various regions across the country.
Obviously, there are environmental pressures associated with each and every generation technology — there are no exceptions. So, too, environmental pressures are posed by the transmission and distribution of electricity, and efforts are being made to keep these to a minimum. However, either in the generation or in the transmission distribution of electricity, there is a need to remember that improved environmental performance requires significant investment. This means investment in new technologies, in efforts to improve performance of existing technologies and in initiatives to improve our energy efficiency.
Canadians need electricity, and they want it to be reasonably priced, reliably delivered and environmentally sound. Meeting those goals requires a constant flow of capital resources into the industry. Technology development demonstration and commercialization are key to reducing GHG emissions in the electricity sector. We believe the federal government has an important role to play in partnership with the electricity sector to commercialize promising technologies, such as integrated gasification-combined cycle, also known as IGCC, oxy-fuel combustion with CO2 capture, as well as other conventional and emerging renewable technologies. Federal government support of technology development and deployment is important.
Technology funding is especially crucial at the demonstration and commercialization stages where financial risk is too high for one proponent to absorb. By making the right investment now, Canada can further drive important technological innovations over the next decade, resulting in sustainable GHG emissions reductions over the long term.
The solution to climate change should also include energy efficiency and demand-side management. The federal government, in partnership with the provinces, territories and industry, can play a pivotal role in coordinating and promoting energy efficiency measures and advancing technologies that help to reduce end-use demand. A long-term and sustained commitment to energy efficiency policy and programming is required to ensure market transformation. Significant gains have been achieved through building standards and advances in end-use equipment. However, more needs to be done. Government-industry partnerships can ensure that support is directed to the most promising areas of development and that focus is maintained on areas of greatest need.
Regulatory burden and delay, including duplication of process, result in lost opportunities and increased costs, hindering the ability to build essential infrastructure to meet customer expectations. Reducing regulatory barriers to the development of new electricity infrastructure is essential to both minimize the environmental footprint and to ensure ample supply to meet Canada's electricity needs. We need to ensure that regulatory timelines for project approvals are clear, consistent and coordinated. If properly implemented, the newly established major projects management office can be instrumental in meeting these objectives.
As this committee considers Bill C-288, it is important to keep in mind these basic messages: A sustainable approach to reducing GHG emissions requires all sectors and individual Canadians to do their fair share in the short, medium and long term. The framework for such action must be practical and based on regional realities, capital stock turnover cycles, technological development, commercialization and behavioural changes by all Canadians.
Thank you, Mr. Chairman. I would be pleased to take your questions.
Senator Spivak: Mr. Myers, everyone is aware of the current competitive environment in manufacturing and the context of your message today. The problem for the committee is reasonable timelines, because we might not have much time. According to Mr. Jim Hanson, from NASA, who talked about climate change, we might have only 10 years to act before it will be too late.
On page 12 of your written presentation, you state as follows:
The Large Final Emitters —
We are talking here about large final emitters.
— system would have been ``effective'' in meeting part of Canada's Kyoto obligations through the purpose of emission credits — it was the only ``effective program to have been announced to date. But, it would not have improved the environment.
I think you are wrong, because the environment is global. For example, if Alcan were to sell solar ovens to developing countries, that would reduce greenhouse gas emissions. My question is about the penalty of $15 per tonne. However, first, I shall make a comment. Mr. Avrim Lazar, from Forest Products Association of Canada, said that the single most important thing in this respect is to have a faster capital cost accelerated writeoff. Would you comment on that? In my view, that would be better than the GST reduction. To my question: What would you think of a penalty set at $30 per tonne? Some have said that that amount would be necessary to provide an incentive for emission credits. Again, they do not have to go to Russia and China because they could go to other places. The system is transparent, which ensures that these credits are properly implemented.
Mr. Myers: We are very supportive of putting in place a system that will encourage Canadian businesses to transfer environmental technologies abroad. That is a very important part of coming up with a global solution, which is important. That goes to the valuation of what these emission credits are.
The reason we are talking about $15 a tonne or $30 a tonne has nothing to do at all with the cost of putting these new technologies in place. It has everything to do with trying to come up with a cap that would limit the amount Canadian companies or consumers would face in an international trading system. We are talking $15 a tonne because right now we do not have an internationally effective market for carbon credits because we do not have a globally capped credit trading system. Therefore, you could easily buy emission credits at one point for as high as $30 a tonne, and then the market collapsed in Europe and it went down to about $2 a tonne. Many investors got burned in that process, but that tells me that we do not have an effective, well-regulated market. If we did, the price of emission credits would rise to the least cost of the technology that would be put in place. The price of the emission credit would reflect the new technological solutions.
As we look at the Alcans of the world, along with the other great Canadian companies that we have in investing in other countries, the cost of these technologies is much more than $15 a tonne. If we really are talking about putting in a workable system, we should not be regulating this market. Let us make the market work, but let us also realize that the cost of these emission credits will be far higher than $30 a tonne. It will probably go very quickly up to the range of $135 to $150 a tonne — because that is the price of the emission credits, if you look at emission-trading schemes within particular companies.
We really do need to do much more work in trying to develop this market. It is very important. Market mechanisms are the only way we can provide the incentives and the technology, but it will be very expensive to do that. Frankly, $15 a tonne is not an effective market rate to incent behaviour, and neither is $30 a tonne. If we are talking about a higher rate, then we better be very clear on the economic consequences.
Your other question was about accelerated depreciation. This is an extremely important point if we are looking at replacing old equipment with new equipment in manufacturing and electricity and in other sectors of industry, even for consumers. In the last budget, the government brought forth a two-year writeoff for manufacturing. That measure in itself probably will do far more to achieve emission reduction than the regulated approach. That is the type of incentive that companies need. The problem in the budget, however, was that there is basically a two-year window for companies to take advantage of that. It is very difficult for companies to plan, procure, customize technologies and put them in place — and they must be operating before you can take advantage of this accelerated capital cost allowance — within a very short period of time. Investments in new technology is an extremely important incentive to promote the type of capital turnover Mr. Turk and I were talking about, investments in new technology, but we must do this on a serious basis and look ahead at how we can extend that window so that we are seeing these investments over a period of time.
Senator Spivak: Is this an area where this committee could perhaps exert some influence?
Mr. Myers: It would be very important.
Senator Spivak: Wal-Mart is going into an accelerated program with suppliers. They have already done a huge amount vis-à-vis transportation, and they have saved a tonne of money. How do you think this will affect Canadian manufacturers?
Mr. Myers: That is a really good example of an important customer forcing Canadian manufacturers to improve their environmental management systems.
Senator Spivak: You to have to buckle under.
Mr. Myers: That is what companies have been doing, and that is why companies have been able to reduce emissions.
The Chairman: Mr. Myers has to walk out of this room at 10:15 to catch a plane. Bear that in mind, please, in respect of questions.
Senator Mitchell: Thank you, gentlemen, for attending. It has been interesting. One thing is evident in this kind of debate — and it has been for decades — is that industry, and often governments, when arguing against doing something, argue the highest cost possible. Clearly, that would be indicated in your arguments. Yet, there is so much evidence that once you actually begin to do it, the incredible creativity and intelligence and drive and commitment of Canadian industry is always able to do these things and always able to find the lowest cost. Once you get from the economist to the engineers, you go from highest cost to the lowest cost. Our engineers are capable of doing that.
Lee Iacocca, in 1973, when he was still with Ford, said this about catalytic converters: ``It will cause Ford to shut down and would result in reduction of gross national product of $17 billion, increased unemployment of $800,000, decreased tax receipts of $5 billion at all levels of government, so that some local governments will become insolvent.'' That never happened. When it came to CFCs, DuPont warned that the cost in the U.S. alone would exceed $135 billion and that entire industries would fold. That never happened. When it came to acid rain, there was going to be an acid rain recession, and that never happened.
We just heard the Forest Products Association. They have achieved six times their Kyoto objectives. It did not hurt their industry. It absolutely helped their industry.
My question is to both of you: Do you and your industries accept the science of climate change? If you do, clearly the science of climate change dictates some level of reduction. You are suggesting that your industries would be capable of some other levels of reduction, not as low. Do you have any science that would support that that level of reduction that you can do, you say, will solve the problem which climate change science dictates? Do you accept the science and, if you do, do you have science that supports your conclusion about level of reduction being sufficient to solve the problem?
Mr. Turk: As I said in my opening remarks, the electricity sector is committed to moving on climate change, so that is a given. The issue becomes one of timing. As I indicated, our industry is very capital intensive, so there are capital stock turnover cycles. In terms of the technology roadmap, we are trying to accelerate that as fast as possible. IGCC and oxy-fuel are two technologies that would be very important for Canada, IGCC particularly in Alberta and oxy- fuel particularly in Saskatchewan. Saskatchewan is now a world leader in oxy-fuel technology development. SaskPower, a Crown-owned utility, is moving very aggressively. The question becomes: How quickly can we deploy that technology? That technology can have significant reductions in CO2, and if we look at CO2 capture we are almost talking about zero.
The question is, where does Canada go, but more important, as Senator Spivak pointed out, this is a global issue. When you look at the fuel mix in places like China, India and the U.S., there are just incredible coal reserves there. No doubt China will be moving aggressively in putting in more coal plants. During the Kyoto period, we may be putting two to three new plants in Canada. In China, we are talking about two to three new plants a week potentially, in terms of the amount of development.
Senator Mitchell: That is a fantastic market for Canadian manufacturers.
Mr. Turk: It is important that we move aggressively and develop the technology. The electricity sector is committed to moving in that. Our companies are some of the world leaders in terms of developing those particular technologies. If we can accelerate the technology roadmap, we can get some significant reductions. There is no doubt about it.
The Chairman: Mr. Turk, you asked a rhetorical question: How quickly can the industry move? Is the answer ``as quickly as Saskatchewan''?
Mr. Turk: Point well taken, Mr. Chairman. Saskatchewan is moving very aggressively as a world leader, and our other companies are moving in the same direction. All the thermal utilities in Canada have been moving fairly aggressively. They have set up an organization called the Clean Coal Power Coalition to move that technology. Therefore, I would say they are all moving fairly aggressively.
I suppose the question becomes: When does the technology become commercially available and scalable? That comes down to when one of Mr. Myers' companies comes to our utilities and says, ``We can establish a clean coal facility for this cost, these will be the output costs, and I will guarantee the results.'' Until a company can actually backstop that with a financial commitment that they will guarantee the results, it is not commercially available. That is really the defining moment.
Several of Mr. Myers' companies, for example, GE and others, are moving aggressively to get into that market. The question is: How much expertise can Canada develop to then also be a world leader in terms of being able to deploy those technologies? We are looking at trying to set up some centres of excellence in terms of clean coal technology here in Canada.
An example in Saskatchewan, again, is the Weyburn CO2 capture project. That particular project is now using enhanced oil recovery by pumping CO2 into existing wells.
The Chairman: We import that CO2 from the United States.
Mr. Turk: We do, in fact; that is a reality. However, it is definitely a project here in Canada that has global implications. The International Energy Agency has been involved in that project as well. Canada is seen as a world leader in this, in terms of development.
Senator Milne: Except for reducing our own CO2.
Mr. Turk: No, absolutely; I cannot disagree with you.
Mr. Myers: The point here is how we accelerate this investment in technology. Clearly, this is a great business opportunity for anyone who can develop the solutions. How do we accelerate that investment?
With respect to the question about the science, it is pretty clear that the climate is changing. The scientists are showing that that is linked to a rising level of greenhouse gases. It is not simply the generation of emissions in greenhouse gases. It is also the fact that over the past century we have cut down a lot of trees around the world. We have taken away the ability of the earth to absorb a lot of this carbon. That is a factor as well.
What concerns me, looking ahead, is that the people who are looking at these issues are saying that, even if we can all meet the Kyoto target, it will delay this process, but it will not stop it. In terms of accelerating technology, we should also be looking at what we have to be doing in terms of adaptation. The climate, the weather patterns will be changing, and we better be prepared to adapt to that as well.
The name of the game here is how to get the technologies in place and move quickly. The forestry industry, the manufacturing industry and some of the sectors that have achieved 40 per cent reduction in emissions have done it clearly because it makes good business sense to do it. The one message that you can deliver to government, to Canadians and to other levels of government is that we need other policies to be aligned behind this goal. I will give you a good example.
Ballard Power Systems. We have pumped millions of dollars into a company that has a tremendous technology. However, it was the City of Chicago that took that technology and piloted it in buses using fuel cells. We seem to be unable to put in place the procurement systems, the policies, the measures required to build on the technological successes that we have in Canada. Canadian technologies are being used around the world more than here in Canada itself. How do we build an innovation policy that goes to commercializing and investing, as well as leadership and alignment? You are talked about the opportunities in China. We need trade policies in order to ensure that we have access to the Chinese and Korean markets, for example.
Senator Mitchell: This is music to my ears. In your whole presentation, I do not see one thing about — and I will sound more aggressive than I really believe because I appreciate what you are doing and respect it — accelerating the process, about getting government to give you trade policies, about getting government to give you the alignment of policies to allow us to do this and take advantage of all this technology. In fact, if this is the presentation you are making to Mr. Baird, it is no wonder he is coming out with the stuff he is. He talks about why we cannot do and why we have to slow it down. In your presentation here today, you were talking about why we have to slow it. Now you are asking, ``How do we accelerate it?'' Good, we are making progress.
When I hear you talk about three electrical power plants in China a week, I am saying, holy mackerel, that is a market, we better be there and we better get there. Instead, we have a government that does not know how to spell ``leadership,'' a government that is back in the 19th century saying, ``We can't do this, we can't do that.'' Industry, like your groups, may actually be pushing him and giving him some sense that that is a credible position. It is not. We have to begin. Therefore, I thank you for your positive message now that we can begin to do things.
Can you give specifics? What could government do to help us develop oxy-combustion? What could government do to help you develop IGCC? What could government do to give you the background, the structure, the framework so that Canadian industry can compete in the world and win in this very important area, instead of hearing over and over again, ``We are defeatist; we cannot do it; it is too much''? That is nonsense, it is not too much. We have to do it and we can do it. I believe I have more confidence in you than you do.
Mr. Myers: This is the presentation we make, not only to Mr. Baird but we have made it to Mr. Dion as well. On pages 16 and 17, you will find the recommendations for what is required to accelerate technological progress.
Accelerate CCA is an important measure. Let us look at providing investment tax credits for these targeted investments.
What are the 10 major problems we have in Canada? I would say Nanticoke is one. What are the 10 easy things to solve? Instead of investing lots of money into R&D, which is all very good, we can invest billions of dollars looking for a solution to the electricity issues.
I live in Guelph. I do not have any option but to drive a car to my office, which is near the airport in Toronto. If I want to get to the airport, I am motorized in some way. We need other options here. We have lived in a world of low- cost energy for a long time. We have built a culture, our communities and everything else, around that fact. That is going to change very quickly. We really have to look at regulation, for example.
Toronto does not want to put in systems that can vaporize garbage because the environmentalists are telling Toronto council that that is bad for the environment, so they are sending the garbage to landfill sites in Michigan and in London. Landfill is one of the fastest growing sources of greenhouse gas emissions in this country.
In other cities, when processes are put in place that improve the environment, the tax rates increase.
One of the key points is that we need concerted efforts to encourage not only these investments but also a regulatory system that makes sense, one that does not see one level of government penalizing people who try to make progress with regulations set in place for totally different reasons. A message that could be delivered is that we must get our act together. No one will install a new electricity system or build a less carbon-intensive manufacturing plant without going through a tremendous array of environmental, site and municipal approvals, and so on. We need to determine how we can speed up that process because it is good for the environment and for the economy.
Senator Mitchell: Mr. Myers, you said that this committee could deliver that message. I would love to hear you deliver the message to Mr. Baird and Mr. Harper — that government should stop telling you what you cannot do and that government should stop being an impediment. You could ask Mr. Baird and Mr. Harper to provide a framework and structure that will allow your industry to do what you know the industry can do. This committee will deliver that message. Are you delivering that message?
Mr. Myers: Yes, we are delivering that message as well.
Senator Mitchell: It is not getting through. Mr. Baird appears before this committee and talks in the same terms as your original presentation — you cannot do it.
Senator Adams: I was an electrician at one time; I have been a senator for 30 years. I am not sure the public understands what it costs to run their fridges, stoves, dryers, as well as appliances. Not too much has changed with respect to dryers; the kilowatts with respect to the element are the same, I think. The heat system might be a bit better in the dryers. The same is true with respect to light bulbs. I saw a document about one month ago on some of the new light bulbs on the market, that they can pose dangers because they overheat and start fires. The problem is that these new light bulbs can be installed in any fixture. You can even put a 300-watt bulb in a porcelain fixture. However, some fixtures indicate a maximum wattage. I have heard about people in the North putting a 100W light bulb in a 60W fixture. How could we have better control of this kind of thing? Is there a way to better coordinate the wattage capacity of the fixtures with the available light bulbs? This is especially important in the North where there are long periods of darkness and where hydro costs are so high. We pay more than $.45 per kilowatt in Nunavut.
We might consider the fresh water lakes and rivers and even the sea for future energy sources. At times, when I am flying around the communities, I look down and see the great expanse of open water between the islands, with a tide and a current. Every six hours the tide changes. Maybe that would be a good place for a hydro-generating plant. We need to look into such ideas for future energy sources. The Nunavut energy department should look into this.
The light bulbs in individual houses are not changed to lower wattage in the same way that more efficient bulbs are used in government and commercial buildings; and that is a problem. New houses should be more energy efficient and have fixtures that take lower wattage bulbs and the manufacturers should make lower wattage light bulbs more readily available.
Mr. Turk: Thank you, senator. In terms of your opening comment about being associated with the electricity sector, it is our view that being associated with the electricity sector is a great stepping stone to higher office in Canada.
As you know, senator, I have spent a great deal of time in Nunavut and have been to Grace Fjord on a couple of occasions. I am sympathetic to your comments and the cost of energy in the North as well as the limited kinds of energy that we can use in the North. Obviously, we are looking at some interesting options. I recently had some discussions with the President of Nunavut Power Corporation, and hydro is one area that holds potential development. They have been over to Greenland to look at new technological developments. You pointed out the possibility of tidal power. That is another area in which some of our Canadian companies are world leaders. Nova Scotia Power operates a tidal power plant and is looking at underwater potential, which is similar to wind power. Canada is a world leader in that area.
Coming back to your point on technology and energy efficiency, there is no doubt that they constitute a key component. As Mr. Myers pointed out earlier, the most graphic examples include the highly efficient fridges. If you look at the curve on energy efficiency on fridges, it is almost a poster child in terms of how to reduce energy consumption. As Mr. Myers pointed out, if the original fridge ends up in the basement as a beer fridge, then you have not had any savings — with my apologies to the beer industry. My point, senator, is that it is important to have policies that address such realities. For example, Hydro Ottawa has had a very aggressive program of take back, whereby if you replace your appliance, they will take it back as an incentive to make that replacement. You have to get the old technology out of the energy consumption game and replace it with a more energy efficient appliance. If you simply add to existing energy consumption, then you are not ahead of the game.
Washers, dryers, fridges, light bulbs are all excellent areas in terms of energy efficiency. Lighting in the commercial sector is almost 14 per cent of energy consumption. In terms of building retrofits, that is a key component. A great deal of work has been done up North to make lighting in buildings more energy efficient. I agree with you whole heartedly, senator, and our companies have been moving fairly aggressively and need to continue to do so.
Two companies, Manitoba Hydro and BC Hydro, have a power smart program that promotes energy efficiency. The program material has been exported to demonstrate what can be done to promote energy efficiency. We have made some progress, but there still much room for improvement in terms of behaviour and technology.
Mr. Myers: You raise a couple of very interesting points that perhaps point out the importance of replacing old equipment in industry and in homes. A good example is the cars that we drive. On average, cars in this model year are 35 times more energy efficient than they were 10 years ago. If we really wanted to reduce emissions, we would frankly encourage every Canadian to go out and buy a new car. That is good for industry. However, we have to get rid of the old cars, because if we are driving those around as well and if the old fridges are being used as beer fridges, then we are not making too much progress. We really have to focus here on what does work. Part of it is technology, but a very large part of it is the turnover.
The other interesting thing we have to look at is that there are trade-offs. With the new bulbs, for instance, there is a mercury issue. How will we dispose of the mercury? If we are looking at new sources of electricity, clearly, the nuclear option is very important, but there are environmental concerns there, as there are with hydro development. If you are putting in systems that reduce smog, you are using more energy and therefore will be emitting more greenhouse gases in an industrial process. We have to look at these issues. There are environmental trade-offs. We need some way to incorporate all of these environmental issues in where we are going with technology. It is a very complex issue.
Senator, we do talk to government departments, provincially and federally, and we try to come up with solutions. We have been talking to CIDA for a long time about structuring our development aid around environmental improvement and making sure that Canadian industry is a part of it. Our message has not been heard by CIDA, but it has been heard by AusAID. When the tsunami hit Indonesia, AusAID, in partnership with the Australian manufacturers association and the Australian industry association, put a contest in place to come up with a $100 home. The cost of these homes right now is $80 U.S. They brought everybody together. New technologies were developed. This is not a shack we are talking about here. Standards were put in place. These homes are wired for Internet. They are homes that have been built according to the standards that are set — the purpose of this, of course, was to provide housing for Indonesia. Why could we not do similar things in terms of energy efficiency? Set the standard and provide a reason for companies to develop the technologies.
As Mr. Turk said, at the end of the day, the technologies may be there, but the question is whether they will be cost competitive in terms of other technologies. We really have to focus not only on developing the technologies but getting the costs down so these alternatives are cost effective.
The Chairman: That house would not work very well everywhere, unfortunately.
Mr. Myers: Probably not, but maybe a $200 house.
Senator Adams: I am interested in these light bulbs and how people in the public could use them. They could replace a 100-watt bulb with a 25-watt bulb and get the same lighting, but they need to put terminal protection in there. I used to be an electrician and worked with ballasts. If you do not have terminal protection, you could have problems.
Mr. Turk: Senator Adams, several manufacturers have made large financial commitments in terms of developing the light bulb technology. I would assume that that kind of thing will be addressed in the way that you are envisioning it.
Senator Angus: Gentlemen, we are all on the same page in terms of the overall objectives. At the end of the day, we are here to discuss Bill C-288. The real reason we have invited you here is to ask you if you have any suggestions on Bill C-288. I am asking you both to respond to this. Mr. Myers, you have talked about realistic time lines. I do not know what a realistic time line is, frankly, in terms of the manufacturing industry or in terms of all of us, citizens. Mr. Turk, you talked in similar terms about being realistic and adopting an approach that, at the end of the day, will be best for Canada. If I understood you both, buying these credits et cetera is not the way to go. We have to do it here on the ground; we have to reduce the emissions here and reduce the CO2 in Canada, not get our credits and meet our targets by helping other people. Could you both comment on that in specific terms of the bill?
Mr. Myers: In terms of realistic time lines, over the course of the discussion about Kyoto all sectors of industry have a much better sense of what technologies are available, what is feasible in terms of their investments and what can be achieved over five years or beyond in terms of any sort of targeting for emission reduction that should be developed. Every industry is different. Every type of technology will be appropriate to a particular industry. We really need to stretch targets that are developed in line with what sort of technologies are appropriate for each industry.
Let us be very clear that if we are looking at meeting the Kyoto target through emission reduction in Canada it would entail reducing fossil fuel energy consumption in this country by 30 per cent over the next five years. If we wait until 2010 to do it, it will involve a reduction of 40 per cent in a period of two years. I do not think that is a realistic target. I do not think we would get the approvals in place. To pick on Mr. Turk's sector for a moment, even though we would displace 30 per cent of fossil fuel generated electricity by nuclear, we certainly would not get the approvals in place for doing that. The magnitude of meeting Kyoto through domestic emission reduction is huge.
Yes, we can probably buy our way out of this, and the Commissioner of the Environment and Sustainable Development probably is saying that that will probably cost $25 billion, but there are probably ways of doing that that would lead to market opportunities offshore if we can transfer Canadian technology to do that. We do have big environmental issues here in Canada. It would be more effective to be investing that money into development of technology by industry. That will take longer than five years — which is the key point.
In terms of Bill C-288 meeting the Kyoto target, I do not think that is realistic. Setting targets in relation to where investments are going and the technologies that could be put in place very quickly, and then making sure we have the tax systems, the support for the innovation and the regulatory systems in place — that is where we have to go. Try to get all the provinces onboard in five years to set even common regulations to meet this target. That will not happen in five years.
Frankly, we should have been working on this issue 15 years ago, and that has not happened, and it will not happen overnight. If you look at the Kyoto target, that is overnight.
Mr. Turk: As I pointed out earlier, for our industry, capital stock turnover is key. The question is how quickly we turn over that capital.
Senator Angus: You referred to a cycle.
Mr. Turk: Our plant is anywhere from 30 to 50 years. When you are looking at that kind of investment, it is a large amount of capital. There are two gaining issues. One is how quickly do we develop the technology and get it in a robust, commercially available and cost-effective framework. The second issue, as Mr. Myers pointed out and as I pointed out in my opening remarks, is the challenge of just getting through the regulatory processes, of being able to deploy some of these technologies. Even wind projects or hydro projects, which are low or non-emitting, take a while to get online.
If we look at the technologies in terms of clean coal, there still will be a regulatory process, and there is a question concerning the length of time for that regulatory process. It can be anywhere from three to 10 years. That is a long process so it is really important to try and get it right.
As I indicated in my opening comments, the current government announced a major projects management office. We see that as a very positive development. We are going to be working to try and make that work and accelerate the process. It does not mean less regulation. It just means more effective and hopefully quicker regulation in terms of being able to meet a multitude of stakeholder objectives. It is not a question of going to the lowest common denominator, it is a question of how quickly can we get to the nub of the issues, address them and find out what is in the national interest in terms of moving forward. That is a key issue, no doubt about it.
In terms of the short-term targets, it is certainly a challenge for our industry, but we are working aggressively to get the technology in place. The companies are not waiting. They are making investments today in terms of trying to deploy that technology, but we are talking about large investments.
Coming back to the technology question and the government role, let us look south of the border at the FutureGen project, which is the U.S. government's project to try to deploy clean coal in a commercially cost-effective manner. The project is driven by industry, but 80 per cent of the funding is coming from the federal government, in terms of saying, ``This is of national interest. We really need to move on this and we are going to move aggressively.''
The Asia-Pacific organization, which is basically six countries that have gotten together — India, China, South Korea, U.S., Australia, et cetera — is very focused on the technology track in terms of saying that in terms of trying to solve this we need to accelerate the technology.
Again, the technology track is very important — accelerating the technology, getting it robust and commercially available. Second, the regulatory process to deploy that technology is key. Those are two key issues in terms of our sector, no doubt about it.
The Chairman: Today's discussion would be a nice discussion if it were taking place many years ago, as you have said, Mr. Myers, about what should we do and what should consider. However, the question before this committee now is whether to recommend to the Senate to pass a bill that has already been passed by the House of Commons. We need to answer Senator Angus's question with your answer to the question: Should we recommend the passage of this bill?
Senator Angus: That is exactly where I was going. Picking up on Senator Mitchell's comment, with a view perhaps not to being defeatist but to being more positive, our job in reviewing this proposed legislation, and not only this bill but others that come before us, is to see if it is workable, whether it will fly and, if not, how it can be improved to make it fly.
My next question was going to be — and I think it fits right in with the question asked by Senator Banks — have either of you or your organizations done any study of this bill, in view of today's appearance, and have you any suggestions on how we could improve it, other than defeating it completely, because we are not going to be defeated?
Mr. Myers: In terms of the purpose of the bill, which is to meet Canada's Kyoto target, it is not realistic. There have been 10-plus years of involvement in trying to come up with solutions. Senator Mitchell, we have not been obstructionist. We have really tried to focus on what does work here. I am very concerned that if the bill is passed and the government is committed to meeting Canada's Kyoto target it will lead to, as I said before, counterproductive outcomes. This then becomes a major liability for any industry. That liability will be factored into investment and financial decisions. What we may see is simply investments not being made in Canada in new technology, or investments being made in other countries where companies are not subject to these provisions.
Hence, I would recommend this bill not be passed, but I do recommend that another set of realistic and aggressive targets be put in place.
Senator Angus: In your view, this bill as drafted would have quite grave consequences. Do I understand that correctly?
Mr. Myers: Yes. We need some realism in this. If we are focusing on emission reductions, if the entire manufacturing, electricity, and oil and gas sectors were all to achieve a 30 per cent reduction in emissions over the next five years, if that were possible, the growth of consumer emissions in the other sectors of the economy is so large that that 30 per cent reduction in industrial emissions would be the equivalent of only a 10 per cent reduction overall. Right now, we are 30 per cent above. We would still have a gap of 20 per cent. I am not saying no to all progressive measures, but this is the graph here.
Senator Angus: Which page is that?
Mr. Myers: I am referring to page 10 of our document. The graph here shows the magnitude of our challenge. In five years, how do you turn this situation around in 10 years so that this trend line goes down? I have not seen anything, apart from very well-meaning targets being set here. I have not seen the technology; I have not seen the investment. I do not see any of the incentives required to turn this trend line down and get 700 per cent acceleration in investment in new technologies that will actually reduce emissions over a period of five years.
Mr. Turk: I have gone through the bill in detail. Our organization does not formally have a position on the bill, but I will offer a couple of comments that are important within the context of looking at the bill. As I pointed out in my earlier comments, in terms of looking at mid-term and long-term targets, that would be an important context, senator, within a larger framework. As we have been discussing here, there is no doubt that this is a global issue, and without having an international framework, where China, India and the U.S. are not participants, it is very difficult to envision a global solution to this. China and the U.S. make up a large percentage of what will be the future emissions. Within that context, those would be important considerations for the committee as you do your work.
Senator Angus: I find that very helpful.
Senator Milne: Mr. Myers, I appreciate very much the positive things that you have said here. You have made excellent suggestions vis-à-vis what government should be doing to improve the situation in the manufacturing sector. I have to say, however, that when you throw out the scare figure of $25 billion, it does not impress me a whole lot, because it seems to me that that is about the same amount that was spent on a GST reduction rate, and I do not think any single Canadian has even noticed that in their pocketbook. I am really not terribly impressed by that.
However, your positive suggestions are excellent. Whatever happens with this bill, we may want to add remarks to our report, and some of these positive things that government can and should be doing should be added into those remarks.
The Chairman: Along with the ones we have urged on governments for many years now.
Senator Milne: Exactly, to reinforce. Nothing like the drop-of-water technique — and eventually you hope you get through.
Mr. Turk, I am concerned when I hear you talk about reducing regulatory barriers. You say that reducing regulatory barriers to the development of new electricity infrastructure is essential to both minimizing our environmental footprint — and then you go on. I agree very much with speeding up the regulatory process. My husband was involved in the long-distance transmission of different kinds of energy and my son now is involved. I know the regulatory hurdles that they have to cross, so speeding up the process is excellent. However, as soon as you say ``reducing,'' I get very concerned because I know what will happen if you start reducing these barriers. There are companies out there that will just go ahead and say, full speed ahead, keep your eye on the bottom line, damn the environmental torpedoes, just do what you have to do to get the job through as quickly as possible.
Therefore, I am very concerned about any talk about reducing regulatory barriers. Speeding up the processes, yes, but reducing the barriers, no way. That is not really a question, but I invite you to respond.
Mr. Turk: It is always a pleasure to have a dialogue with Senator Milne; in fact, I know her son, and he is an excellent gentleman.
Senator Milne: I think so.
Senator Kenny: What about her husband?
Mr. Turk: Even better.
Just to be crystal clear on this, we are not talking about less due diligence. I do not want to leave any misconception. We believe structured due diligence in terms of environmental impacts is important, in terms of ensuring that we look at all the concerns of all stakeholders and all the environmental concerns.
The only issue, again, particularly for our sector, as was pointed out by Mr. Myers, is that we are really responding to demand. If consumers want more electricity, we are responding; if industry wants more electricity, we are responding. In the end, it is a public good, to a certain extent, and what is in the public interest. The question is how we come to a conclusion in terms of what is the public interest in a more efficient manner. That does not mean less regulation; it just means more efficient regulation.
Therefore, I absolutely do not want to leave this committee with the impression we are talking about less regulation; we are talking about trying to make it more efficient. In Ottawa, there may be different views in different departments, and those different views do not necessarily get resolved. We are saying that, at a certain point, the federal government probably has to come to a consolidated view as the Government of Canada on what is in the public interest. If we are stuck trying to mediate between different federal departments, it is not our role and it is not effective. That is the kind of thing we are talking about.
Then, of course, there are regulatory issues at the provincial levels as well as the municipal levels. In certain cases, for some of our companies, some wind projects have not gone ahead because of municipal concerns. We would like to know that probably earlier than later, and if we are going to get a no earlier, so be it; however, we want to make sure that is in the public interest and that we can define that efficiently. Again, it is not less due diligence or less regulation, it is a question of trying to get to the issues in a more succinct and effective manner.
Mr. Myers: With respect to the international action abroad, first, the $25-billion figure is not our figure. That figure came from the federal government's environmental commissioner in terms of the estimate.
If we were talking about a structure in Kyoto that would reward the export of Canadian technology to those countries like China, India, Brazil and Mexico that are not part of the Kyoto framework but are responsible for most of the growth in emissions, it would actually reduce emissions in those countries. We could then meet our Kyoto obligation in one year, and surpass it, because we export more than $5 billion a year in the way of these technologies. However, we are not talking about that here. The Kyoto framework does not provide for that type of acknowledgement.
This is another problem. If we really do want to accelerate the export of technologies to reduce emissions here in ways that provide incentives for Canadian companies, then I do not think the Kyoto framework is really an appropriate way to do that just because of the way it is structured. That is the type of thing that we should definitely be trying to achieve.
[Translation]
Senator Robichaud: I have the feeling that I have heard two presentations this morning. First, you have told us that the situation is very alarming and then you have suggested some solutions. You have said that some of the industries that you represent have met the Kyoto objectives, and even greatly exceeded them, because it made good business sense. They have made profits and they have been very successful. So, why could other industries not do the same?
[English]
Mr. Myers: For all of manufacturing there are some industries, particularly the resource processing industries, the paper industry, the wooden products industry, aluminums, non-ferrous metals, steel, concrete, fertilizers, food processing, these are industries that are highly capital intensive, highly energy intensive and where it makes a lot of sense to become more energy efficient simply because of the high cost of energy. That is why that reduction has led to real bottom-line improvements in productivity and emission reduction.
Those are the major emitters. If you look at other sectors of the manufacturing that are more secondary manufacturers, the automotive industry, the IT industry, electronics, machinery industries, they are not as large energy users. These industries also have reduced emissions, but not as much as the resource processing industries.
Senator Robichaud: Is there room to improve?
Mr. Myers: Yes. There is always room to improve. I will share with you two things we are doing as an association where we are helping our members to improve.
Everyone today is focused on bottom line results, on providing value to their customers, and in so doing eliminating all sorts of non-value activities. The use of energy is a huge waste. In regard to space, if you can reduce inventories you are not running as many heaters to keep your warehouses heated. If you can speed up your manufacturing process, you are not using energy all the time and thereby you are reducing the energy use.
We are incorporating good management practices as an important way of reducing energy and as an important way of reducing greenhouse gases. That is an important way of making money, because you are saving here.
One organization I want to recognize is the Canadian Industry Program for Energy Conservation, under NRCan. This is, in my view, the only federal agency I know of across government that does a very good job in putting programs in place to assist industry across the board in saving energy and reducing greenhouse gas emissions as a result. They do an excellent job.
Another program we are engaged in, because waste in one industry is a feedstock in another, is running a waste- profit program. We are bringing companies together — a company whose by-products it would otherwise dispose of together with a company where those by-products can be used as feedstock in another sector. This is saving companies money as well as reducing their environmental footprint and reducing their emissions. There are extremely innovative ways of doing this. At the end of the day, the chemical sector has had a 40 per cent emission reduction; the wood products, the forestry industry, the paper industry down by 20 per cent; aluminums down by 20 per cent. All of that really made good sense for those industries. The end of the day from my perspective is how we can continue to encourage progress here.
We have to be clear that you start with the easy things you can do. If you make a lot of progress, it becomes harder and harder and more and more costly to bring in new technology. If we are to try to change behaviour, and not just industry, but consumers too, then we need the right incentives in place, and that is where we have to go forward. As I say, it makes good sense for industry to do this and, at the end of the day, if you can sell new technologies, if you become a solution to the problem, there is a lot of business in there for everyone. It is not just industry. There are also the financial traders and lawyers and designers and the engineers and everyone else. You have to focus on the solutions and ensure the investment works.
[Translation]
Senator Robichaud: The new government was forced to act because, when it was elected, industry could have had the feeling that there was no need to rush because the new government had clearly stated that it did not believe in climate change. However, through popular pressure, it was forced to change and to start taking some measures.
Do you not believe that, through popular pressure, the whole process that you have described will be greatly accelerated?
Mr. Turk: In principle, as I said earlier, there is in our industry the matter of technological infrastructure renewal. It is important that technology be renewed. Several of our companies are making very significant investments to develop new technology aimed at reducing greenhouse gas emissions. However, as a second component, the regulatory process is also important. Technology might be ready to put new infrastructures in place but the regulatory process might take three to five years and that is an important issue.
Certainly, our companies are very interested in these issues and in the expectations of Canadians. Some are spending a lot of money to try and understand the expectations of Canadians but I can assure you that many have been making significant investments for many years to try and reduce greenhouse gas emissions and that everything that can be done is being done. However, there still remains the issue of replacing our infrastructures, which is a key issue for our industry. There are huge opportunities to achieve unbelievable reductions. The question is one of timing and of accelerating the development of new technology as well as ensuring that the regulatory process allows that new technology to be put in place.
[English]
Mr. Myers: It is very much an issue of what customers and consumers want and what they are demanding. The environment and emissions reduction have become a very important political issue, and it is one that has become very important for Canadians. My wife's friends had a party about a month ago where they wanted to get together over wine and cheese and talk about important issues. They selected Kyoto and greenhouse gas emission reduction as their topic. Everyone agreed that something had to be done because the climate was changing and it was going to be the end of our lifestyles as we know it. This was in downtown Toronto, and everybody drove away from that meeting in their SUVs. There was a sense that, yes, it is important, but in terms of the lifestyles, the types of consumer choices we all make, are we all making the right choices, in terms of what we need, to lessen the environmental footprint? A part of this as well is what sort of options we have here. As I say, I live in Guelph, and my office is in Toronto. I do not have any choice but to sit on the parking lot known as the 401. If that road ran better, I would be emitting fewer greenhouse gases as a result of my commute every day. You can say, yes, you can move closer to Toronto, and I probably could do that, but that is pretty expensive for me. Yes, I could take public transit, but it would add about three hours to my trip, which is already a two-hour drive as it is these days. What options do I have here as a consumer and as an industry?
Senator Robichaud: You could move to Alberta.
Mr. Myers: Yes, move up to Fergus again.
The Chairman: Office rent is cheaper in Guelph.
The Chairman: Mr. Myers, we must excuse you, because you have an airplane to catch. It is after 10:15.
Senator Kenny: Would it not be better to take the train to wherever he is going?
Mr. Myers: I am leaving because I am going to the lockup in Toronto related to the government releasing its targets. We are all flying to Toronto, and then we will all be flying back again about three hours later. I am not so sure we are off to the best start here.
The Chairman: Thank you very much, Mr. Myers. Mr. Turk, can you stay for a few minutes? I have a few questions to ask you based on things Mr. Myers mentioned, and then, senators, we have one very short housekeeping question to answer in camera immediately after the meeting otherwise concludes.
Mr. Turk, Mr. Myers has just mentioned the main point. What do consumers expect and demand, and what we will do about it? I will throw out an idea and ask you to comment on it. If you take a snapshot of the fisc at any given point, there is no difference between tax forgiveness, whatever you call it, incentives or whatever they are, on the one hand, and writing a cheque, on the other hand. They are exactly the same thing from the standpoint of the government. They do not make any difference. You either write a cheque or you say you are going to pay less tax. They are exactly the same thing, except one happens faster. The cheque is in the mail. The question is whether folks are prepared to pay that.
You have heard this argument before. Everyone understands that if we want to have a new hospital, we have to pay for it. Everyone understands that if we want to increase the size of the Armed Forces, we have to pay for it. If we want to fix the potholes in our streets, we have to pay for it. No one quite gets yet that, when we consume electricity and natural gas and water, we have to pay for it. The suggestion has been made by others that consumers in Canada are not yet paying the properly internalized cost of those things that we all consume. We are not paying the right amount, because when we consume water and when we consume electricity and when we consume natural gas or coal or whatever, an ancillary cost is piling up over here, and that will be dealt with by someone else later. We do not want to bother with it now, but we could reasonably estimate what that cost might be, or at least that there will be a cost, and build it into the price that we pay today for water, gas, coal, nuclear energy, whatever we use.
Do you and does your industry subscribe to the idea that one of the directions in which we have to move is a more realistic one with respect to consumers paying an internalized cost for the product that you sell to us?
Senator Kenny: Surely, it would be better to pass it on to our kids.
Mr. Turk: You raise an important point. No doubt, the true cost of electricity is not necessarily always reflected in the electricity prices. There are a few drivers there. One is that it is obviously a very politically sensitive question. For some of our utilities, it has been difficult to move the price. As well, the many costs involved in electricity pricing are not fully understood by some of the regulators across the country. That dynamic is one issue, and another issue is the full internalized cost of producing electricity. Ultimately, we have to move in that direction, there is no doubt.
The Chairman: We are a long way from that.
Mr. Turk: There is definitely a way to go and we are committed to trying to keep prices as reasonable as possible while reflecting the true cost of production and so on.
The Chairman: There are two sides of reasonable — reasonable in terms of how much I pay and reasonable in terms of the reality.
Mr. Turk: Simply put, we are committed to providing competitively priced electricity. When you benchmark us against other global sectors, whether we as efficient and producing competitively priced electricity, to which we are committed. In terms of moving to the true cost of electricity, that must happen. Naturally, it follows that it will have behavioural impact.
You talked about people's expectations. There is no doubt that everyone is committed to moving forward on the environment. They will say that they will pay more for electricity, but the question is how much will they pay? At a certain point, enthusiasm will drop off because a certain elasticity will develop in terms of people's appetite for paying more. The move to realistic pricing has to be done in a reasonable and measured way. Ultimately, we have to move to true-cost pricing, which will help us on the energy efficiency side, because the economics in terms of energy-efficient appliances, in terms of energy-efficient products, becomes more attractive to the consumer. You have raised an excellent and important point.
The Chairman: Mr. Turk and Mr. Myers, thank you for appearing today.
Senator Spivak: Mr. Chairman, if I may, if we submit our questions in writing would the witnesses respond in kind to the Clerk of the Committee.
Mr. Turk: Absolutely, senator. If you have questions or wish to obtain additional information, I would be pleased to cooperate.
The committee continued in camera.