Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 11 - Evidence - June 25, 2008
OTTAWA, Wednesday, June 25, 2008
The Standing Senate Committee on Energy, the Environment and Natural Resources, to which was referred Bill C- 33, An Act to amend the Canadian Environmental Protection Act, 1999; and Bill C-474, An Act to require the development and implementation of a Federal Sustainable Development Strategy and the development of goals and targets with respect to sustainable development in Canada, and to make consequential amendments to another act, met this day at 9:14 a.m. to give consideration to the bills.
Senator Tommy Banks (Chair) in the chair.
[English]
The Chair: Good morning, ladies and gentlemen. My name is Senator Tommy Banks, and I have the honour of chairing the Standing Senate Committee on Energy, the Environment and Natural Resources.
Before I begin, I would like to introduce to our guests and to the audience on television the senators who are here with us. On our guest's immediate right is Senator Nick Sibbeston who represents the Northwest Territories. Next to Senator Sibbeston is the Senator Cochrane who represents Newfoundland and Labrador. On Senator Cochrane's right is Senator Bert Brown who represents Alberta. To our left is Senator Elaine McCoy also from Alberta. Next to her is Senator Myra Spivak who represents Manitoba; Senator Willy Adams who represents Nunavut; Senator Lorna Milne who represents Ontario; Senator Jim Munson who represents all of us at one time or another, but actually Ontario; Senator Colin Kenny who represents Ontario; and our deputy chair, Senator Nolin.
Today we will continue our examination of Bill C-33, An Act to amend the Canadian Environmental Protection Act, 1999. This bill seeks to give the government the power to regulate the renewable content in fuels by amending that act.
Appearing before us today are Mr. Pat Mooney, Executive Director of the ETC Group; Mr. Ian Lordon, Communications Officer, Beyond Factory Farming Coalition; and Ms. Colleen Ross, Women's President, National Farmers Union.
We thank you for taking time to be with us today. We would appreciate it if you keep your remarks as thorough and as concise as possible in order to allow the greatest possible amount of time for questions.
Senators, we are constrained by time, as you know. I will be keeping a sharp ear and a sharp knife. We are here to listen to the views of our guests and we are here to ask them questions. There will be time later for us to express our individual opinions about the bill. This is not it; today is the time to ask questions.
Senator Kenny: This is a radical change then, Mr. Chair.
The Chair: Yes, a radical change.
Mr. Mooney, I will ask you to begin. You have the floor.
Pat Mooney, Executive Director, ETC Group: I will begin by confessing that I am not an expert on biofuels. I feel as though my life has been hijacked by biofuels over the last few months.
I know something about food security or global food and agriculture issues. I guess that is why I have an opportunity to appear before you today and I appreciate being before you.
Maybe I should say the issue of biofuels has been a bit of a shock for me. I have attended three international meetings in the last few months where the topic was not biofuels but, suddenly, the whole international discussion became biofuels. One meeting was a major conference that took place on agriculture biodiversity that was held in Bonn, Germany, in May. It was a two-week conference, known officially as Conference of the Parties to the Convention on Biological Diversity (CBD) or COP 9, which Canada hosts in Montreal, though the meeting was in Germany.
The entire debate turned out to be about biofuels and whether they were good or bad for the environment and whether they were good or bad for energy issues. Certainly, a major concern expressed by governments was that biofuels were a real problem for food security. However, that was a biodiversity convention meeting.
I went right from the Bonn meetings to the Rome food summit held at the beginning of June. Biofuels and bio- energy were on the agenda. There were three topics, including, first and foremost, the food crisis and how that links to bio-energy issues and climate change.
It was a large summit with 181 countries present. It became hijacked by the fight over whether biofuels were good or bad for food security and for the environment. I felt to such an extent that other issues were not addressed. The other really important questions around that, especially the issue around climate change, were not discussed.
I was more surprised in an earlier meeting in April. I was invited by a major conference called BioVision that is held every year. It is a global meeting of scientists; about 2,000 scientists come together every year. There is a strong industry and government representation look at the current state of play of biotechnology. I was invited to speak about nanotechnology, not about biofuels or biotechnology. However, again, at this global meeting of 2,000 scientists, the only resolution that was finally passed at the end of the conference — in a conference that does not allow resolutions — was a resolution that opposed biofuels. There was such a range of scientists and political actors at the table that I was astonished that biofuels became the topic.
I urge the Senate to delay a decision and spend more time looking at this issue. I think the scene is changing day by day and week by week. There is a new draft report coming out of the U.K. that was released to The Guardian a couple of days ago. It will be out either tomorrow or it might be delayed until next Monday. Apparently, it will force a major change in the U.K.'s position on biofuels. We are hearing of other reports all along the way being developed by the World Bank or by the Food and Agriculture Organization. I am on one FAO committee that has organized on this issue and that will have a meeting on the topic next year.
I think the scene is changing and it is important not to rush into an issue where, at the end of the day, when you look at ways out from who is on which side on the topic, that is changing itself. Neither side seems to be able to deliver a sort of knockout blow that says, ``Here is the clear evidence, the absolute proof, that this is really good for us; this will be beneficial.''
You would think that after all of these years and discussions and experimentation in Brazil and in Canada and the West, as well, if there were a clear knockout case to be made for biofuels, it would have been made and we would know. We would not be arguing whether it is a ratio of 1.2 to 1 or 1.25 to 1; that kind of discussion would be resolved. It is not. It continues to appear in the press and scientific journals constantly. That should worry us.
At the biodiversity convention meetings in Germany, we had this strange feeling that all of Africa was asking for a moratorium against any development of biofuels. They were saying, ``Please go no further.'' They are asking for an end to subsidies in Europe. On the other side, we had the European Union — 27 countries — that wanted to change their position. We talked to them individually. They wanted to shift from supporting biofuels but they could not. Brussels, as a group, had made the decision months before for the negotiations and they could not turn the ship around that fast. One country after the other is saying it knows it is a problem and that it has to address this issue.
Africa is the hungry continent; the continent for whom it was a problem. The world is saying to them that this is an industry that they can develop and take to their hearts as Africans. Africa is saying, ``We do not want this. We do not trust how this will play out for us.''
Everyone basically ignored Africa. It was Brazil, the United States, Canada and the European Union that pushed through their position. Even then, with enormous caveats saying, ``We are not so sure about this; it needs to be studied more'' and so on. However, they did not agree to the moratorium.
The same situation arose at the Rome food summit. We had Brazil, the United States and the biofuels industry as the protagonists and Europe on the other side that after a week of gaining more experience and developing more uncertainty, becoming rather quiet on the topic, not wanting to push too hard on the issue.
Again, Africa was saying they do not want this. It was dangerous for them and is a great risk for their food security. They did not want anyone to go in that direction.
I was invited by the FAO to debate the issue with British Petroleum and the former President of Niger to discuss the range of issues for governments. Three points stood out in the debate. I would suggest these three points should be looked at by the Senate committee and, I hope, by the Canadian public very broadly.
First is that we always tend to want to say we are only doing something for our country. It will only be for Canada or Brazil and will not have an impact beyond that. Having dealt with agricultural commodities for the last 40 years, I find that remarkable. There is never a time when what we decide to do about agriculture in Canada does not affect the rest of the world. There is always a knock-on effect from what Canada does in wheat, corn or canola production, et cetera that affects global food prices and stocks and who grows what where.
I talked to a colleague from Paraguay a few days ago who told me that soybean production is moving into the forest lands in Paraguay. Soybeans are not used for biofuels; therefore, I could not see the connection. She answered that the connection is that corn is being grown in the old soybean producing areas for biofuels and soybeans are being pushed into the forest areas.
Those kinds of links and connections are happening around the world and they can have an enormous impact. Unless we can be assured that the unimaginable has happened, that is, we can isolate Canadian agriculture from the rest of the world, whatever we decide in Canada regarding fuel and food crops, will have an impact on the rest of the world and an impact on food prices.
Looking at the arguments about pricing in the world's food supply and how much of it is influenced by biofuels or other factors, look at who is saying what on this topic. On one side, you have the United States government and the fuel industry saying only 2 per cent or 3 per cent of the increase in prices can be traced back to biofuels. On the other side you have the IMF, the International Food Policy Research Institute which is supported by the Consultative Group on International Agricultural Research affiliated with the World Bank and the World Bank saying that the impact of biofuels on food prices is 30 per cent and up to 65 per cent under some conditions.
I do not understand why the World Bank and the IMF would bite the hand that feeds it in regard to the United States government if it did not have to. They are saying those things because they have a point. Biofuels have a major impact on food prices.
Logic says that you look at who is saying these things and what are their interests. I do not see what interest the IMF and the World Bank have not to try to support to the United States. Basically, they could not because biofuels have a large impact.
The second issue is that of climate change. We see ourselves in a food emergency, which will last for decade by all considerations. It is not only a year or two. It will last for the next 10 or 20 years. Within that time frame, we know there is this food emergency and we know that food stocks are the lowest they have been in decades. However, we also know that climate change is coming and we do not know what will happen to food production because of climate change.
A few days ago I heard remarkable testimony from industry representatives suggesting that there is much more land available. They said the FAO suggests there is all this land we can use. That is true if you cut down all the forests and get rid of the protected areas, national parks and the tsetse fly in Sudan. Then there is land. Otherwise the land is used. It is not there.
We simply do not know what will happen with crop production in the years ahead. When I was in Rome I saw FAO data that by 2030 — in 20 years time — corn or maize will not be grown in Africa as a crop. It simply cannot be grown because conditions will make it untenable. Yields will drop so low that there will be no point in growing maize. Currently, that is their major staple crop.
In regard to the Canadian Prairies, I was in Saskatchewan a few weeks ago. People there were telling me that the bottom half of the province will be a dust bowl.
When someone says do not worry, we have extra land and opportunities here, we do not know what will happen with climate change. Therefore, to impose upon an extraordinarily fragile food security situation by adding a whole new factor is simply incredibly risky and dangerous. It is a new pressure that we will not be able to reverse once it is established because the demand in the industry will be structured for it.
We must be sure what we are doing because if we are not sure, people will starve. The estimate now is that we have 100 million more hungry people in the world than we had six months ago. Some estimates indicate that it will increase to 290 million more hungry people by the end of this year. To add to that pressure and to throw the factor of biofuels into this equation does not make sense to me.
Whether it is at scientific or biodiversity conferences or the Rome food summit, there seems to be a consensus emerging that the current situation is not good. Generation one biofuels do not work very well, but we should not worry because generation two biofuels are coming down the road. We can relax because that will take care of all the problems for us.
I have some worries about that. It was interesting to hear the industry representatives talk about how you can convert rubbish and algae into fuel. Without question, that is very interesting. It is absolutely fascinating. I hope it works, but we do not know for sure that it will.
That is not what is being done now. We are talking about the land area in corn and canola production, which is the big issue. It was unusual to have an industry lobbyist present to you what is not happening yet. He did not talk to you about what is happening, which is about corn, canola and sugar cane production around the world today. This is where the impact will be for the next 15 to 20 years. The scientists and governments I talk to about these generation two biofuel developments believe that commercial yields — if the process works at all — are that far down the road.
We will continue to have the current problem of taking biofuels from major food crops for a long time to come. This will all occur in the context of the current food emergency and climate change.
Is that rational, then, to assume generation two biofuels will come? I cannot imagine that it is. It does not make sense to me that we rely on this theoretical thing that we are not quite sure what it will be exactly. Will it be an enzyme manufactured that will gobble up cellulosic fibre? Will it be restructuring of the corn plant itself so the stalk is more consumable as is being developed in California?
There are several possibilities. No one can put his or her finger on which it will be, how it will work and what its impact will be. However, let us trust it, let us have faith and pie in the sky when we die. That does not make sense.
How can we do this to ourselves? I have sat through and been part of many food summits over the decades. I have heard these forecasts of not to worry, hunger will not be a problem in the future and we will take care of that. I was in high school in Winnipeg in the 1960s, when I heard John F. Kennedy say we have the means and the capacity to wipe hunger and poverty from the face of our earth in our lifetime; we need only the will. He was wrong. It did not happen.
I was at the World Food Conference in Rome in 1974, which was a very political summit during the last food crisis, and heard Henry Kissinger say that within 10 years no child will go to bed hungry. That is not true. That did not happen.
I was at the World Food Summit in 1996 in Rome when our government joined other governments in saying that by the year 2015 we will have half the number of hungry people we have today. It was to go down to 415 million from 830 million. Today, the number of hungry people is 862 million. It has gone up, not down.
The estimate is that by the year 2020, there will be 1.2 billion hungry people on this planet. Instead of reducing the number by half, we will increase the number of people who are hungry by one-and-a-half times.
I have heard governments say for a long time that they will solve the problem of world hunger, that there is lots of land, that they will increase crop yields or that they will take care of the water problem. It has never happened. What has happened is energy consumption has increased as well as the number of hungry. I would like to see proof that what is being decided today, perhaps by the Senate, will truly be something that will not impede upon the health and well- being of that 1.2 billion people who will be hungry.
I doubt that will happen. I worry that we will grab at straws and hope our usage of fossil fuels will be reduced by 0.65 per cent or 0.7 per cent by the biofuels industry because of this bill. It is so marginal. We could reduce fossil fuels by that amount by simply slowing down our cars by one mile per hour. Yet, it would cost $2.2 billion to do it in terms of the bill. Pumping up our tires could have the same effect without costing that kind of money.
With this bill, we would be setting in place the infrastructure and an industry that will not get rid of the problem in 5 or 10 years. It will still be there. If Saskatchewan or Alberta were to dry up and could not produce the required yields, the infrastructure would disappear and we would have to turn to California or Brazil or Indonesia. Some of the governments in Africa at the food summit said please do not do this.
Colleen Ross, Women's President, National Farmers Union: Thank you for taking the time to reflect upon and investigate the potential impacts of Bill C-33. In an effort to be thorough, there are several points that I must include.
I congratulate the Senate on its recent and timely release of Beyond Freefall: Halting Rural Poverty. I appeared before the Standing Senate Committee on Agriculture and Forestry just before the release of the report and spoke to corporate profits and a generation of farm income crises. Today, I find myself before this committee talking about the same thing but within a different context.
There are several recommendations in the 460-plus page report of the Standing Senate Committee on Agriculture and Forestry. I refer this committee to one recommendation in particular and that is that Agriculture and Agri-Food Canada and key producers conduct a thorough assessment of the impacts on the rural economy by the biofuels industry. The report includes three additional recommendations: that a review be undertaken of the positive and negative effects of biofuels development on the rural economy; that an analysis of risks versus rewards for rural communities and farmers be undertaken; and that the impact of bio-refineries in communities and the opportunity costs to the rural economy of government supports to biofuels sector be examined.
It is evident today that this review has not taken place and that avid supporters of this bill are either ignoring vital information, have not done broader consultation or have selective hearing loss.
At this time, part of the $2.2 billion attached to this bill would be better spent on sectors in agriculture and the environment other than biofuels, such as exploring ways to reduce our energy consumption and build sustainable security food systems across Canada. Currently in global history, world food stocks are at a historic low. We need to pause and contemplate the message we are sending to world leaders and global partners before we proceed with a financial commitment that will appear to prioritize fuel over food. In 2006, the National Farmers Union sent a report to the United Nations and to the prime minister warning that world food stocks were at a historic low. Our warnings were completely unheeded and ignored. What do we have today? We have a global food crisis.
The claim that the biofuel industry will require less than 5 per cent of our grain to be siphoned off for fuel production is not specific enough. It seems that 5 per cent is the magic number in that the amount of fuel that will be replaced by biofuels will only take 5 per cent of our land base and will take only 5 per cent of our grain production. However, would it be 5 per cent of a bumper crop in a perfect farming year, when there is an abundant surplus, or would it simply be 5 per cent of our net harvest in any given year for an indeterminate amount of time? How would we meet our domestic food needs, our trade obligations and our new commitment to feed fuel plants with food? Would we continue to drive our grain stocks down to the elevator floors?
Corn prices soared again this past Monday, setting a record high of nearly $8 per bushel in the wake of catastrophic floods across the U.S. Midwest Corn Belt. Floods have inundated millions of acres of cornfields, triggering fears of a smaller than expected crops. Hence, more ethanol plants are either shutting down temporarily or the planned expansion and construction of new plants is being put on hold. This reaction to the flooding is happening because the success of this industry depends on cheap grain and other proposed inputs. There are no cheap ingredients for farmers or for the environment. Extraction happens from the ground through to the processing of biofuels. We have to ask a serious question, as always: Who pays? Who truly profits?
With about 2 million acres of cornfields, Ontario produces about two thirds of the Canadian corn crop. If the weather this year holds out, many farmers could harvest sound profits for the first time since the mid-1970s. In the mid-1970s, according to a net farm income graph available from the National Farmers Union, from Agriculture and Agri-Food Canada and Statistics Canada, there was a blip in income that lasted for about two years. Net farm income fell to well below zero and has stayed at that level for more than 10 years.
Farmers might have enough income to pay odd some of their substantial capital costs and years of accumulated and relatively unpaid debt. The food success and the agricultural export success in this country have been buoyed by subsidies from farmers through debt and through off-farm jobs. Yet, input costs are higher than ever. Corn is a greedy crop and most of the inputs, if not all, depend on the fuel industry. Due to the horrendous rise in the costs of fertilizer and fuel, it is estimated that 46 per cent of the cost of growing corn this year will be on fertilizer and the balance will be on fuel and chemicals. All depend on the fuel industry. Those costs will eat away any potential for real profit. Fuel is used for planting, manufacturing, transportation and application of fertilizers and chemicals. It is used for drying crops and transporting them to the ethanol plants.
These costs will be incurred and paid for by the farmer who, at the end of the harvest, will sell the crop at the price determined by the Chicago Board of Trade, CBOT. Farmers cannot store crops as they do in the U.S. for unlimited amounts of time waiting for prices to increase. Over the past few years, corn has been well below the cost of production. In the past couple of years, it has been conservatively about $135 to $140 per tonne for production. We are seeing that going up substantially this year. We cannot afford to hold onto the corn crop in the hope that the price goes up. It has to be sold at harvest, or shortly thereafter, to pay off input loans, mortgages and other outstanding bills.
I have heard the words of several proponents of Bill C-33 and I have read some of the Hansard debates. I really do not have much time for that type of reading because I work full-time on the farm. Like Mr. Mooney, I am not an expert on biofuels; however, I have had more than 25 years of experience in farming, building local sustainable food systems and working in development.
I have heard it said that biofuels are the biggest change to take hold in agriculture and the greatest opportunity for the agriculture industry in Canada for least the last generation. I have to ask: is biofuels bigger than NAFTA? Is it bigger than the multilateral trade agreements that we were promised would benefit farmers to the WTO? Despite the promises of open markets, deregulation and free trade, farmers have not profited. Over 20 years of free trade has resulted in close to a $1 trillion in agri-food exports but farmers have received little of that benefit back on the farm.
Farmers have invested hope and serious capital into their farms. This year there promises to be good returns on our crops. I am looking forward to harvesting my soybeans this year and receiving a fine amount of money for them. I signed a contract for some of my soybeans; yesterday I talked to the person who I sold to locally, and he is offering me another $75 a tonne on top of what is left in the field that I have not contracted, plus the $6 a month bonus for storing it on my farm.
I am looking forward to paying a little bit of personal debt this year. However, I know this window of opportunity — as always, as it was in the 1970s — is a small window and it will close very quickly. Is Bill C-33 just another silver bullet? How can it possibly be all that it is promised to be for farmers when we already do know very clearly that the success of the biofuels industry is completely dependent on cheap inputs, with farmers the main source of those inputs?
I want to talk about farmers' cooperatives because I have read a bit about that. Farmers' cooperatives have basically failed to get off the ground in the biofuels industry. Several people I know have personally invested several thousand dollars, some of it borrowed from the Farm Credit Corporation, into the Seaway Valley Farmers' Energy Co-operative Inc. ethanol plant in Cornwall.
I was approached. I bought my farm 12 years ago, when I moved here from Australia with my family; and within a week, someone came knocking on my door inviting me to invest in the Seaway biofuels plant. At that time, we thought it was not a bad idea. I was filling my car with ethanol. It is renewable; we grow it and make it into fuel, so I am supporting the environment, my farm and my neighbours who are growing corn. I thought it was a good idea.
However, after further research as more information became available, I no longer put ethanol into my car. It is okay to change your mind. In reading some of the Hansard reports, it seems that changing your mind about something once you get more information is a bad thing, but it actually shows great wisdom and strength.
Some of the people who invested in the Seaway plant never saw their money again. The venture failed to get off the ground and was formally cancelled 12 years after it was initiated. The City of Cornwall originally thought it was a good idea; but after doing an in-depth assessment of the impacts of having an ethanol plant in their city, they changed their minds. They decided that this was, in fact, not a good idea for the people of Cornwall, regardless of the jobs that it would potentially create.
The MP residing in Cornwall — a great warrior in the defence of Bill C-33 — could not even convince his own hometown of the benefits of this evidently great hope for the future.
An inside investor reported to me that competitors from the biofuel corporations do not want farmers' co-ops in their midst because they do not want to see farmers that are powerfully integrated from the ground up.
It is the position of the National Farmers' Union that farmers must be paid fairly for their work. Farmers that I know, and myself, need to earn a profit, as any business does. Our concern is that the cost to farmers will be too high and that the cost to the environment will be high. It already has been, not only in Canada but globally. There are no real benefits to the environment and the conversion ratios are not worth the extraction.
I am a program manager for an international development organization called Heifer International. My task is to carry out the mandate of the organization and its donors. That mandate is to end poverty and hunger and care for the earth. I fear that Bill C-33 and its implications will further poverty and hunger and deplete soils. We need to practise a precautionary principle here and take sober second thought.
The Chair: Thank you, Ms. Ross. I want to be sure that you are concurring with Mr. Mooney; you are opposed to the passage of this bill at the moment, is that right?
Mr. Mooney: We are saying that it should be delayed.
Ms. Ross: It should be delayed for more discussion.
Ian Lordon, Communications Officer, Beyond Factory Farming Coalition: Thank you for the opportunity to appear before you today. I hope you will forgive me if I read some prepared remarks. Otherwise, I am afraid I may forget to call your attention to one or several of our concerns.
The issues raised by this bill are extremely important to the future of agriculture in Canada. I am representing the views of the Beyond Factory Farming Coalition, a national organization of citizens' groups promoting socially responsible livestock production in Canada.
We help communities that are dealing with problems caused by factory farms and factory farm proposals. We support alternatives to industrial livestock production, and we promote livestock production that we feel is safe, fair and healthy for the environment, farmers, workers, animals, communities and consumers.
You may ask, what does any of this have to do with a bill that aims to promote biofuels production? In a word, everything. Everything because biofuels production, and specifically ethanol production, involves what can be fairly described as a symbiotic relationship with industrial livestock production. In other words, rarely, if ever, does an ethanol plant get built without access to a huge herd of cattle packed into a nearby feedlot.
The reason for this is that the major by-product of ethanol production is vast quantities of distillers' grains, also known as spent mash, which would be costly to dispose of if it were not sold as feed. For example, an ethanol plant that produces 15 million litres a year of ethanol must dispose of almost 15,000 short tonnes of distillers' grains per year.
Distillers' grains do not keep well, and with fuel costs being what they are, transport is unattractive. As a result, the business model being promoted for the establishment of an ethanol plant is to install a feedlot next to it and integrate the two operations.
To give you an idea of the scale involved, the same plant manufacturing 15 million litres of ethanol a year will require 28,000 head of cattle to consume the distillers' grains it produces. Those animals are kept in cramped conditions next to the plant, receive a steady supplement of antibiotics to ward off otherwise inevitable outbreaks of disease and produce enormous amounts of manure — almost 60,000 tonnes annually.
That manure, unfortunately, is unique in several respects. To begin with, several studies have demonstrated that feeding cattle distillers' grains will double the incidence and concentration of E. coli bacteria found in their manure when compared to cattle fed a diet without distillers' grains. This particular strain of bacteria, E. coli 0157, is the same strain that claimed the lives of six people in Walkerton, Ontario, when it contaminated the municipal water supply there in 2000. This bacteria was also responsible for a number of meat recalls throughout North America over the years as a result of manure from the animals' gut coming in contact with, and contaminating meat at packing plants, as it inevitably does from time to time.
It follows that increasing the incidence and concentration of E. coli 0157 in cattle manure will also increase the likelihood of dangerous meat contamination at a packing plant. At best, when detected, this results in an economic loss and expensive recall. At worst, it results in tragedy.
The impact of mandatory ethanol content in fuel, and thus increased feeding of cattle on distillers' grains, does not only increase risk for human health but also escalates the impact of factory feedlots on the environment. In addition to E. coli 0157, manure from cattle fed distillers' grains contains higher levels of phosphorus. A recent University of Iowa study found that cattle fed a diet of 20 to 40 per cent distillers' grains produced manure with phosphorus levels 60 to 120 per cent higher than normal.
Phosphorus runoff from excess manure spreading is one of the leading contributors to algae blooms, many of them toxic, witnessed in hundreds of lakes across the country in recent years. Dramatic increases to the number of cattle fed a diet of distillers' grains will not reverse this trend. If the targets proposed by Bill C-33 are met, if 5 per cent of gasoline consumed annually in Canada is replaced with domestic ethanol, it likely also means that 7.7 million tonnes of phosphorus-rich manure will hit the ground every year.
There is another important question pertaining to distillers' grains to which we do not yet have an answer. That is, what are the potential consequences of exposing cattle to antibiotic-resistant bacteria? Distillers' grains are treated with antibiotics, such as virginiamycin and penicillin, prior to fermentation to prevent bacteria from flourishing in the warm, wet grain mixture reserved for the yeast that produces ethanol. Antibiotic resistance develops in the bacteria, which can be introduced to the food system via the distillers' grains fed to the cattle. Equally unknown are the consequences for human health when people eat the meat from livestock raised on such a diet.
We know that cattle already on a regime of antibiotics, consuming feed laden with unknown quantities of antibiotic resistant strains, will certainly create an environment that favours the development of resistant strains of bacteria such as C. difficile. This might be an interesting experiment, but I would prefer more carefully controlled conditions, and I am not sure it warrants a $2-billion subsidy.
Finally, in addition to posing a threat to human health and to the environment, Bill C-33 also threatens family farms in Canada. By subsidizing ethanol production, this bill creates a competing market for feed that is already raising costs for small livestock producers to the point that many are reducing herds or exiting the business.
Worse, after paying more to feed their cows, they will then compete for buyers with animals raised on factory feedlots — feedlots integrated with subsidized ethanol distilleries. In short, this bill has the potential to transform the cattle industry by pushing independent family farmers out of the market.
If ever there were a case for sober second thought this is it. Do Canadians really want to spend $2 billion to fill 5 per cent of their gas tanks with low-octane ethanol? Will they still think it is a good idea if it means transforming rural communities by replacing family farms with factory feedlots; if it means algae blooms are more severe and more commonplace; if we could be at increased risk of infection from E. coli 0157; if it could lead to the development of antibiotic-resistant diseases? This is no decision to hurry into, and even if the House of Commons has elected to rush to endorse this legislation we, at the Beyond Factory Farming Coalition, hope the Senate will wisely take the time required to obtain satisfactory answers to the questions we have raised here today before voting on Bill C-33.
The Chair: Thank you to all of our guests, and I hope you will now entertain questions from senators.
Senator Munson: What sort of delay are you requesting? Are you telling us not to approve this piece of legislation?
I do not normally sit on this committee, but I am on the Standing Senate Committee on Human Rights, and I am curious. This bill has more to do with energy. It is about diverting food from tables into food for fuel. From listening to your testimony, I am hearing that this bill will increase the number of hungry people worldwide without providing a sustainable option for Canada's farmers.
Am I correct in seeing this issue as more than an energy issue but as a human rights issue; in other words, if we read our UN reports, the right to food?
Mr. Mooney: On October 16, World Food Day, we will have the UN Special Rapporteur for the Right to Food from the UN Human Rights Council here in Ottawa that day to make a presentation. We suggest that would give adequate time for us and others to bring to the Senate hearings representatives of farmers in Asia, Africa and Latin America who are experiencing biofuels in Brazil, Indonesia, Mali and Senegal, to provide testimony to say what is happening to them because of biofuels now.
The previous human rights rapporteur, Jean Ziegler, specifically said that this was a crime against humanity before he left office. The new human rights rapporteur, Olivier De Schutter, from Belgium, has taken the same position. We would like to see him have a chance to testify before this committee.
Senator Munson: Many senators wish to ask questions. I thought I would open up the debate on the human rights aspect. Do I understand correctly that you believe October is the time, after we hear about that report, to come back and reassess this piece of legislation?
Mr. Mooney: Yes, that is correct.
Senator Spivak: I cannot resist saying this: When I was a kid herding cows, cows ate grass.
What percentage of biofuel plants are farmer-owned? We were told a lot of them are. We were told the money would be benefiting farmers in that way because they would be partners in biofuel plants.
Ms. Ross: I do not know of any that are successfully up and running here today in Ontario. Evidently, there might be some new initiatives in the Prairies. The one I have first-hand experience with is the Seaway Valley Farmers' Energy Co-operative Inc. For 12 years they tried to get an ethanol plant up and running. The Conservative government offered them $10 million, once they proved that they had enough farmer investment. However, in 12 years they could not rally enough confidence in the industry or amongst farmers to invest adequately in the plant. The Conservative government pulled the $10 million before the initiative was even formally tanked.
Not much support exists for farmer-owned cooperatives because when farmers own a cooperative and vertically integrate from the ground up that gives farmers a lot of marketing clout. There are cooperatives out there, but they are what they call predatory cooperatives that are actually corporate cooperatives and not farmer-owned cooperatives. I have not seen any; certainly not in the eastern Ontario corn belt.
Interestingly, less than 100 kilometres away from where the Seaway Valley Farmers' Co-operative was located, an industry-based ethanol plant is now being built. That plant is under construction right now and is directly across from the Prescott grain elevators.
Senator Spivak: In terms of your request for delay, would you think that as the United States has set a time for perhaps looking at the benefits of cellulosic ethanol — because cellulosic ethanol has a huge potential to limit — that in your suggestion, we should perhaps spend more time looking at that and comparing that with food?
Mr. Mooney: A major report is coming out either tomorrow or next Monday from the U.K. that I think will change the views of Europe on the situation of biofuels. Other studies have been drafted; one being a report drafted by the United Nations Conference on Trade and Development, UNCTAD, in the last few days. I have not seen the final version of it yet. They were looking at biofuels. More work is being done by the Food and Agriculture Organization of the United Nations, FAO, on biofuels over the next couple of months.
We believe if we can get through the summer, and perhaps September, it will be possible to have those studies to look at, evaluate and see how they fit into the scheme of things for Canada as well. It would also give us an opportunity to bring other people here from around the world. We will arrange for them to — we are not asking the Senate to pay for this though we would be glad if you would — testify and explain what it means for them and how it is affecting them.
Again, October 16 is World Food Day and that is why the rapporteur for food from the human rights council is coming here. That would be an excellent opportunity to again hear directly how this impacts human rights and food security.
Ms. Ross: May I ask a question?
What cellulose source are we talking about in the context of Canada?
Senator Spivak: They are talking about everything, including algae, switchgrass, straw and waste from restaurants. The question is whether there will be enough for a commercial operation, if you took all those.
The Chair: Over the years, this committee has heard about significant government investments in, for example, the Iogen Corporation, whose processes are based essentially on using cellulosic sources as a feedstock as opposed to grain sources as a feedstock. The nature of Senator Spivak's question was whether any of you have either knowledge of or an expressed preference for cellulosic processes, as opposed to grain-based. I believe you have said that you are not experts in biofuels, but that was the nature of the question.
Ms. Ross: The reason I asked Senator Spivak that question is because there is a lot of talk about biomass, which is using corn stover and straw. Soils and biomass go together. As a farmer, I get asked this all the time. I grow wheat and rye; I have fantastic, clean straw, and people want to buy our straw. It is much more beneficial for us to plow that straw, that biomass, back into our soil to feed our soil. It ruins the soil to continue to remove that biomass. The soil needs that biomass. It is not economically viable for us to remove that biomass. It must be raked, baled and transported. There are many costs associated with that procedure.
Mr. Mooney: There is no point in Canada from going from peak oil to peak soil and losing it there.
Senator Milne: Mr. Mooney, in January you put out a communiqué called: Food's Failed Estates = Paris's Hot Cuisine: Food Sovereignty — à la Cartel?
You say the global market for agri-fuels is predicted to jump from $22 billion, in 2006, to $150 billion in 2020. That is an enormous increase. Of course, this bill, if it is passed, will add to it.
Do you know if any of these figures that you quoted in January include funding for research on how to make the production of ethanol from biomass or bio-sources more efficient?
Mr. Mooney: Yes. There is a great deal of funding for that kind of research. That study I am quoting was from bio- era, which is a consulting firm based in Cambridge, Massachusetts. It was based on their study in 2007. They have done a more recent study a couple of months ago as well, but I think they hold to the same pattern of figures: The figures have not changed.
Their estimate is that venture capital investments — which is mainly for research initiative companies — went up about 46 per cent last year, perhaps more than that by the end of the year. They expect it will keep on increasing. There is certainly research going on there.
I am not sure we need to have the public purse involved in that research. It is encouraging that companies are exploring that, looking at algae and the means of using rubbish. No one expects that will amount to even 1 per cent of the biofuels market down the road. It will be a very small part of the market, but it is encouraging to see it done.
Senator Milne: Mr. Lordon, you were talking to us about myths in the biofuels area. In myth number six you talked about dried distillers' grain as valuable and desirable for livestock production and the fact that it is potentially harmful to human and livestock health.
You talked about the increased risk of certain strains of E. coli and phosphorus, as the P part of the NPK equation in fertilizer. The other two are nitrogen, N, and potassium, K.
Many of the studies this committee has been doing include concerns about NOx and SOx production and nasty things we are putting into our atmosphere. Of course nitrogen is part of the NOx equation. You say that is worse than carbon dioxide. What sort of evidence do you have for that comment?
Mr. Lordon: There have been several studies conducted. There is one by the UN called Livestock's Long Shadow. I believe it is referenced at the end of the second document that was circulated. You will notice that the authors of both of these briefs I have handed you are Glen Koroluk and Cathy Holtslander.
The Chair: The first brief, including the one to which you now refer, was distributed because it is in both languages. The second has not been distributed because it is only in one language.
Is it the wish of senators that we should distribute the second document, which is only in English?
Senator Milne: Yes, please. At least to me.
The Chair: Do we agree?
Senator Milne: I will stand up and walk and get it.
The Chair: Do you agree, members, that we should distribute this document, notwithstanding it is in one language only? Agreed? Please distribute it. Thank you.
Sorry, senator. You might want to wait a minute until we have the document to which Mr. Lordon has referred. It is on its way.
Mr. Lordon: We are a small organization and we could not afford to have it translated before the hearing.
The Chair: We would be happy to translate it for you, Mr. Lordon, if we have enough notice.
Mr. Lordon: As I was saying, the authors of both of these are employees of Beyond Factory Farming. They could not be here today because of previous commitments.
From what I understand — I have only been studying this brief for a week, to be honest — nitrogen is a far greater contributor to greenhouse gas emissions. In fact, industrial livestock operations contribute more in terms of greenhouse gases than transportation. Some 18 per cent of greenhouse gases in the world are directly tied to livestock production and intensive livestock production. That is because they produce a lot of nitrogen, and methane as well.
Senator Milne: Those are world figures. Do you know the figures for Canada, where we have higher rates of transportation than many countries of the world?
Mr. Lordon: That is true. I imagine it would probably even out, but I suppose the important point to take away from this is it is very substantial and significant. It is a serious concern. If one of the things you are aiming to do is reduce greenhouse gas emissions in the atmosphere, perhaps encouraging an industry that involves intensive livestock production is not the best way to go about it.
There is a debate raging right now that suggests that perhaps ethanol is really a wash when you consider the other factors involved in the production of the ethanol itself in terms of greenhouse gas emissions. It could be no better, and perhaps even worse than gasoline.
Senator Milne: What sort of evidence do you have that increased ethanol production in the use of the spent mash actually would harm a small family meat-production operation?
Mr. Lordon: At this point, the information is fairly anecdotal. I do not think there have been any solid studies conducted on this subject. Biofuels production is an emerging industry. Unfortunately it is one of these things where I think it will be difficult to determine the extent of the effect of the industry on family farms until the horse has left the barn, so to speak.
Senator Milne: There are so many family farms going under right now that it is hard to tell the cause and effect.
Mr. Lordon: We firmly believe this would contribute to that trend. It would accelerate the trend, if anything. It certainly would not reverse it.
The Chair: Can you talk a little about the specific question that Senator Milne asked? Your written submission suggests that nitrogen dioxide is more harmful, specifically, than carbon dioxide.
Mr. Lordon: Again, I will have to beg off: I cannot remember the figure off the top of my head, but it is exponentially more harmful. I think it was something like 280 times more harmful than carbon dioxide.
Mr. Mooney: It is orders of magnitude.
Mr. Lordon: Statistically it is very significant.
The Chair: Harmful as a contributor to greenhouse gases? Is that the context in which you mean?
Mr. Lordon: That is the context, yes.
Senator McCoy: That has all been counted in Canada's greenhouse gas inventory. When we talk about CO2 equivalents we include all six greenhouse gases, right?
The Chair: I just wanted to ensure that in the context of greenhouse gases, it seemed to be more harmful than CO2.
Mr. Lordon: It is 296 times more powerful as a greenhouse gas than carbon dioxide.
The Chair: Thank you. I guess you have not yet met Senator Grant Mitchell, who is to my left. He represents the Province of Alberta.
Senator Mitchell: Thank you to each of you for appearing. This is one of those difficult issues and very difficult debates. I think you are aware, Mr. Mooney and I met last week, and I appreciate him going to that effort.
My huge concern is with climate change. We have a government that has done nothing, and now we are getting to a point where we might actually have something in this bill that will contribute to reducing climate change. I am not saying they are doing this bill to reduce climate change. They are doing it because they believe it is good for farmers. From my point of view, that is good. It is debatable, but I believe it is good for farmers.
My orientation is both of those things, but I am very concerned about climate change. I want to encourage this government to do something. The issue is whether it is really reducing the carbon footprint. I believe it is. I think most of the debate is that it does not reduce it; it is how much it reduces it by. There is much indication that if we go to the second generation and start using cellulosic, algae or any number of things that we will, in fact, reduce it significantly.
I think Mr. Lordon actually said it is at least a trade-off. My argument is if it is at least a trade-off and we have a chance for going to the second generation, why not force it, continue going down that road and push? I think there are some powerful economic reasons why ethanol producers want to get off corn; it is expensive.
Is it not true, however, that ethanol is produced less expensively than gasoline? Is fuel not an input into food price and that, in fact, there is a direct relationship between the cost of fuel and the cost of food? If ethanol is cheaper, does it not, therefore, have a downward pressure on the cost of food? If it were removed, would food prices not go up further as a result of fuel input costs going up because it would all be gasoline? Would that not be true?
Mr. Mooney: No, to be perfectly honest.
Senator Mitchell: I just do not understand the math because it is cheaper.
Mr. Mooney: You have to take into account who is subsidizing what and where. That is why the IMF said that 30 per cent of the food price increase is due to biofuels. It has applied pressure, which has increased food prices around the world, and it will continue to do so for some time to come. That is the straightforward assumption.
You have to look at what we are calculating in all of this. Are we taking into account the freshwater demands for the biofuels? Are we taking into account what land is being used and what impact it will have on the environment in the change of that land use?
Last week, we heard it took three litres of fresh water to give us one litre of ethanol. That totally excludes the consideration of the water demand to produce the crop. It is quite irrelevant whether or not that water is irrigated or falling out of the sky.
The Chair: Mr. Mooney, I will interrupt and ask a question. When you talk about water use, are you talking about water being used in the process of converting grain into ethanol or water needed to grow the crop? You have referred to both of those uses.
Mr. Mooney: I am talking about water being used for the full life cycle, which is from growing the crop right through to completion.
The Chair: I do not want to interrupt your answer to my question, but we need to understand this. Corn, for example, in the main in Canada, we are told, is not irrigated. The rain falls on it.
Mr. Mooney: Sure. It still —
The Chair: We do not save that water if we do not grow that corn.
Mr. Mooney: No, but the rain either falls on food or it falls on fuel, and it is falling on fuel that could have been a food crop. You have to take that into account. To suggest it takes three litres of water to get one litre of ethanol, get a life. The life cycle has to come from the production of the crop. If you take that into consideration, then the ethanol cost, on average, is 1,000 litres to get one litre of ethanol and, on average, 9,000 litres to get a litre of biodiesel.
The source of that, to be clear, is from the Chief Executive Officer of Nestlé Corporation speaking at Davos in January of this year as interviewed in The Wall Street Journal. It was suggested last week it was some crazy NGO or something, as some viewed it.
If you look at studies completed by the International Water Management Institute in Sri Lanka, which is one of the centres of the World Bank, it looks at the cost of water in developing biofuels. It says the range is between about 1,000 litres and 4,000 litres to get one litre of biofuel. That is a huge cost that is not normally calculated when we look at these things, and it should be calculated.
Frankly, a couple of months ago, I looked at 16 studies for 16 different countries in terms of climate change and how their major crops will be affected in terms of temperatures for those crops in those countries. In every single case, if you look at the conditions under which those crops were grown in the last half of the last century, from 1950 through to 2000, and you look at the climatic conditions they will be grown in, the best estimates done by Stanford University from 2050 to 2070, there are no similarities to the growing conditions. We will be growing crops around the world that have never encountered those temperatures before in history. We do not know if those crops will survive or be able to grow in those countries, not one single case.
We are venturing into a climate change environment that agriculture has never experienced, and we are imposing upon that this new challenge of biofuels. I think it is foolhardy to hope that we will do something in biofuels with a bill like this without fully understanding that impact on climate change.
If we take the logic of saying the current bill with $2.2 billion will allow a 0.7 per cent decline in the use of fossil fuels, if you do the calculations, you can save the world for about $200 billion. That is not the way to go. The way to go, I think, is in conservation of resources, pumping up our car tires, slowing down our cars and changing some of our approaches to living. It certainly does not make sense to me to put a new demand on the food supply at a point when the climate is so vulnerable.
Senator Mitchell: It seems to me that one of the huge and overwhelming impacts on food production is climate change. We are not doing enough about it. I believe if we press, we will get to the second generation. I think that will happen much faster than you argue; I think it is happening right now, in fact. There is much evidence that it will happen even more quickly.
Anything we do for climate change will probably require some government intervention and support. Carbon capture and storage will require government input. It does require government subsidies to look at getting to the second generation, and most of the government investment is on second generation.
The Chair: Senator Mitchell, we are not here to debate with the witnesses; we are here to ask them questions.
Senator Mitchell: I am sorry. Ms. Ross, in your testimony and in the press release we received, essentially you say — and it is true — as food prices go up, input prices go up. There is no point in grain prices going up because input prices will always go up. It says that right here.
How do you get out of that cul-de-sac? How will farmers ever make more money if that is the case?
Ms. Ross: Historically, fertilizer prices follow grain prices. If you look at the graph, you will see that when grain prices go up, fertilizer prices follow it. Any opportunity for us to capture any potential profit is siphoned off automatically.
I hate to say that we farmers are relatively hopeless in the marketplace, but we are users of inputs. At the end of the day, we have very little control on the marketplace. That is just the hard reality.
I said that we exported in Canada close to $1 trillion since we signed NAFTA and WTO trade negotiations. Very little of that has trickled down to the farm gate. We export 80 per cent of our agriculture. I do not understand when I am hearing and reading from other witnesses that for the first time in a generation there will be great opportunity for farmers in Canada. If we have not profited from 80 per cent of export, how will we profit from 5 per cent going into the biofuels industry?
I do not see the figures there. The biofuels industry cannot be successful with grain prices the way they are right now. Where is this opportunity for farmers, except that we can grow more and sell more? Economies of scale do not work, either. It used to be the bigger you were, the more you made. Now it is the bigger you are, the more you lose.
Senator Mitchell: How do you break out of that? Would you argue, therefore — and I am not — that governments or somebody has to control input prices, fertilizer prices and fuel prices?
Ms. Ross: Yes. Regarding fuel prices, we need to put a cap on them. When I used to farm in Australia, we used to get a diesel rebate.
One of the reports from FAO said there should be a guaranteed grain price paid to farmers for whatever went into the ethanol plants, but that will not work. That is not the way the real world works.
Look at what has happened to the Canadian Wheat Board. It is the most powerful farmer cooperative in the world. It is internationally recognized, but the corporations do not like it because it puts them on their knees. What they are doing is eating it from the inside out.
Senator Mitchell: This government is, yes.
Ms. Ross: That is why they do not want farmer cooperatives.
Senator Mitchell: Mr. Lordon, your point is that intensive livestock factory farming is producing more methane, more greenhouse gas than family farming, but ultimately, if there is X demand and it is being met currently and you did not have factory farms, the family farms would have to produce the same amount of beef. Therefore, they would produce the same amount of greenhouse gas.
I would like to shift to family farms. There is something to that, but I do not see how shifting to family farms will make any difference over all. I do not see how your argument applies in this case.
Mr. Lordon: We are not arguing for a shift to family farms. We argue that you do not encourage a shift away from family farms by supporting this legislation. Also, when you subsidize factory feedlots, you are liable to reduce the price of meat relative to what people are capable of producing under the current conditions. By reducing the price of meat, you are going to increase the demand for the meat because it is the law of supply and demand. If you lower the price, more people will eat it. Yes, it could potentially have a more pronounced impact that we would see otherwise.
Senator Milne: I want to ensure I heard correctly what you said, Mr. Mooney. You said that usage of water for the entire life cycle — seed in the ground to ethanol in the tank — is 1,000 litres to 1 litre of ethanol.
Mr. Mooney: Yes.
Senator Milne: For diesel, you said it is 10,000 litres.
Mr. Mooney: It is 9,000. This was from the Nestlé Corporation. The estimates being used by the International Water Management Institute include that range but say it is normally more between 1,000 and 4,000 litres for biofuels in general.
The Chair: Senator Brown is the sponsor of this bill in the Senate. You have the floor.
Senator Brown: Thank you, Mr. Chair, and thank you to the witnesses.
Mr. Mooney, I believe you said southern Saskatchewan will be a dust bowl. I wonder what research you have to show that will happen.
Mr. Mooney: It was a statement made to me by a scientist at the Saskatchewan Research Council in March.
Senator Brown: It was a statement.
Mr. Mooney: He had the study, which I have not read. That was his summary of the study, which he was doing.
Senator Brown: Ms. Ross, you seem to say that co-ops were not an answer to biofuels or anything else. Are you aware of Federated Co-operatives in Saskatoon?
Ms. Ross: Yes.
Senator Brown: It is an interesting co-op. It does $5 billion a year in business. It is run by farmers, supplies 235 co- ops from the Manitoba border to the coast of B.C., I believe. It also owns an upgrader, and it is the first co-op to produce what is called ``red diesel.'' Red diesel, apparently, gives about 50 per cent more life to farm tractor engines.
Saskatchewan and Alberta grow a lot of canola crops, and, I believe, Manitoba grows a little bit of them. When canola crops are harvested, they are put into salad oils and that kind of thing. If they are frozen, then are no longer consumable by humans because of the bitter acid content. That is one of the things they have been experimenting with, namely, using them for biofuels in Alberta because it is no longer a food stock.
How much Ontario corn is used for human consumption, and how much is used for cattle, hogs and other consumption?
Ms. Ross: Thank you for those questions. I have read a little about early frosts in the Prairies, which they often have, and the crop is frozen in the ground. There is some research being done on the conversion rates from green canola into fuel. That is in the early stages yet, and from what I have read from the biofuel industry, they do not even know the answer to how effective it is. When it is frozen at that state, the sugars are still very low, so the conversion ratio will not be great.
According to what goes into livestock production, feed and food in Ontario, when we sell our corn crop in Ontario, we will either contract through a broker, which I have done as a farmer. I do not know where my corn will end up. It could end up in food or fuel or feed. We do not know. We are not selling directly to an end user. Unless I can contract directly with, for example, Casco, then it goes directly into food.
Recently with Casco, which is right on the St. Lawrence River, when grain prices were slightly higher than in the U.S. and when the Canadian dollar was not as strong, they were choosing to buy American corn over Canadian corn, and farmers in Ontario could not move their corn because the end users of our corn, whether it was for food or for feed, were purchasing offshore. They were purchasing from the U.S.A. The reason so many of these ethanol plants are on the St. Lawrence River or very close to the U.S. border is it is a lot easier to ship it right across the border and dump it in the processing plants.
Whether it is going for food, feed or fuel, there is still little benefit for farmers who are at the mercy of the end buyer.
As far as the cooperatives go, I know the example of the Seaway Valley Farmers' Energy Co-operative and investors that I know who were instrumental in trying to get this off the ground. There was no government support for that venture. The $10 million that the government promised that cooperative was withdrawn. The government did not want to see it get off the ground. It was a farmers' cooperative.
Farmers' cooperatives can work very well if they are run properly. Unfortunately, sometimes farmers will run a cooperative like they are running their farm. We need to do it better than that. It has to be more professional, and that is why the Canadian Wheat Board has been so incredibly successful.
Senator Brown, you know about the Canadian Wheat Board; do you not?
Senator Brown: I know very much about the Canadian Wheat Board.
Ms. Ross: What is happening with the Canadian Wheat Board? That is a fantastic example. When I travelled internationally and spoke to the Australian Wheat Board, they want to see the end of the Canadian Wheat Board, too, because they know it is a force to be reckoned with.
Senator Brown: Excuse me, but the Canadian Wheat Board is not a co-op. It is a government regulation that was imposed many years ago.
Ms. Ross: It is a farmer-elected board, and it is farmers that elect that board, at least they did previously.
Senator Brown: Anyway, that is not the point of my question.
Ms. Ross: I thought we were talking about cooperatives.
Senator Brown: My point is what percentage of corn in Ontario is called ``sweet corn,'' which is for humans, and what percentage is for animal feed.
Ms. Ross: Sweet corn is not the same. Sweet corn is what is eaten when it is fresh in the cob. I grow sweet corn commercially. Sweet corn and field corn are two different things. Field corn that goes into commercial production is harvested in a dry state so that it can be made into maltodextrins or coarse starches. Sweet corn does not go into that production. Sweet corn is picked when it is in the milk stage. You boil it and eat it on your plate. It is a different kind of corn.
Senator Brown: I would like to know the percentage.
Ms. Ross: Sweet corn is a horticultural crop, basically. The percentage is minimal. I live an hour south of here, in a corn belt. The percentage is miniscule.
Senator Brown: The percentage is miniscule. That is my point.
Ms. Ross: Sweet corn is not even in the equation.
Senator Brown: The corn grown for food, for human consumption, is about 15 per cent in the United States; 85 per cent is for animal consumption. That was the information I was trying to get from Ms. Ross.
You spoke about nitrogen fertilizer. Nitrogen is the main component of fertilizers that Western Canadian farmers use for injecting into the soil. Ammonia fertilizer is the biggest component that uses nitrogen. The comparison between nitrogen use and CO2, I think, has no relation. We would not grow crops in Western Canada if we did not use nitrogen fertilizer. The three main components of fertilizer are nitrogen, phosphorus and potash.
I do not know why we are bringing biofuels into the equation and whether or not there is nitrogen involved. Nitrogen is involved in all fertilizer. When you break down manure, as you said, you get nitrogen. That is not part of the problem.
My question to all of you is: How do we prove whether or not biofuels are useful and can become economical with anything less than 5 per cent, and go ahead and experiment? Certainly there will be failures and there will be successes. I have already seen some successes in Alberta. I have also seen some failures in Saskatchewan. I think that if we are going to give farmers a chance to make more money with their products — and I was a farmer until 1999 — the only way we can get there is to experiment and to try to develop and monitor the cost. For instance the cost of water in producing something is considered water usage; it is not consumed water. Plants take in water and give off water.
The Chair: Are we coming to a question, senator?
Senator Brown: Yes. I want to know what research has been done to show that biofuels are actually consuming water rather than using water. Do you have any research on that?
Mr. Mooney: The issue is not that, in my mind. The issue is whether that water will be used to grow food or to grow fuel. It is not a question of whether it is reusable or not; it is reusable probably in either case. The point is, at that point, when it falls out of the sky, will it feed people or not? If it is water that is being used to grow fuel, then it is not going to be water that is used to grow food. That is the fundamental calculation. Everything else, it seems to me, is illusory.
I thought you asked how we show that the bill is useful, that a 5 per cent figure will have some value. It seems to me we are a long way down the road with this bill to still be wondering about the answer to that question. If you are still wondering about that, I encourage you to consider delaying passing the bill until you have a good answer.
Senator Brown: The point I am trying to make is that without experimentation on a broad basis throughout all plant products right across the country, I do not think you can prove whether it is economic, useful, sustainable, or any of those things. My question is where is your research to show that we should stop this bill because it is not any of those things — that it is not economical, that it is environmentally unsafe and that it will not do good things for farmers? I want something more than statements by people who are just saying that they do not think this is good. I want some research, because there is research being done on proving that biofuels are useful, economical and a benefit to farmers. Until I hear about research that proves the other side of the coin, I do not see how we can say let us not go forward and let us not try this out. That is like saying the brothers at Kitty Hawk, North Carolina should not have tried to fly.
Mr. Mooney: I would still argue that it is for those who are advocating spending $2.2 billion to have those clear answers, rather than those who are saying: Let us think about it more carefully and be assured that we have the right answers. There is a FAO study looking at biofuels in three countries — Peru, Thailand and I cannot remember which country in Africa; I think it might be Ethiopia — trying to assess what has been the impact of biofuels in those three countries and what will be the impact.
Many studies have been done looking at the impact of sugar cane in Brazil, corn in the United States, and palm oil in Indonesia and Malaysia. I am not an expert in biofuels, as I said, but it is shocking to me that this is still an intensely debated issue. As the minister said when he first came to the committee, you get one study one day, another study the next day, one group of scientists say this and another group of scientists says that. Someone should be delivering a knockout blow, for $2.2 billion, and there is not a knockout blow. It is still being debated. It is still not clear.
Senator Brown: That is precisely what I think the $2 billion is for, to deliver the goods as to whether it is a good or bad thing. At the rate we are spending money, at $150 a barrel — or $137 or $140, depending on where it is this morning — we are eating up billions of dollars every month.
Mr. Mooney: We can get it for you wholesale. We can do it for a lot less than $2.2 billion. If you do a meta- evaluation of the studies that have been done, take a few months to study those evaluations, consult with FAO, UNCTAD, the World Bank, you will get that figure and the studies you need, without any trouble and unbiased, from international agencies, and it will not cost you $2.2 billion.
Senator Brown: That will not prove anything about its economy and whether it will be beneficial to farmers in general. It has to be done on a scale that is larger than a laboratory experiment or a study. There is only one way to prove whether something works in the economy, and that is to get out into the economy and try it.
Mr. Lordon: That experiment is already under way south of the border. Maybe it would be better to wait and see the results of that experiment. The problem with investing $2.2 billion, with this particular bill, is that it invites structural changes. For all we know, we might be putting hydrogen-filled blimps into full production. It could have consequences for the economy, and I think it might be better to take a more cautious approach.
Senator Brown: How do we solve the immediate problem? Two or three years ago, we were consuming 75 million barrels of oil a day worldwide. We are now consuming 85 million. I agree that we need to cut back, but we also need to find ways to have alternate fuels, whether wind, biofuels or what have you. We have to take measures to do a lot of things. Blowing up our tires will not save 10 million barrels of oil a day. We have to do something that is possibly much more beneficial. I know that farmers are being benefitted already because I have seen some of the results. I know a person who has the valve system for switching from blended diesel to pure diesel and it is copyrighted. I know it is commercial on a small scale.
The Chair: What is your question?
Senator Brown: How do we prove whether it is commercial on a large scale unless we go beyond what individual farmers can do?
Mr. Mooney: Generation one has had a couple of decades of experience on the Prairies. Would that not be a good starting point?
Senator Brown: I have no examples of what I would consider to be Canada-wide success, proving it on a commercial scale. First, you have you to be able to deliver it to places where you can distribute it, like a gas station. That is one of the biggest problems. If you do not have a large enough supply, it will never get done.
The Chair: I think the question has been asked and answered, if I have it right. Do you have another question, Senator Brown?
Senator Brown: No.
Senator Cochrane: Mr. Mooney, you made reference to our witnesses that were here last week. You pointed out that the commercial viability of algae and garbage is not yet certain.
I am being the devil's advocate here. How will we know what opportunities might exist if we do not support the industry? I see Bill C-33 as a means of encouraging the development of new technology and knowledge.
Do you not agree? How would you suggest that we explore the potential of such technology?
Mr. Mooney: I think we probably agree, senator that we should encourage that kind of research in algae and in terms of conversion of rubbish. We also heard last week that animal renderings could be used for fuel for cars, and so on. Of course, there is the danger of mad car disease. Frankly, all of those kinds of experiments can be encouraged and, in fact, they are being done.
I was with a group of 35 venture capital companies in Switzerland, last fall, talking about biofuels with them and looking at the second generation issues. They are putting money into it; that work is happening. They are not sure when or if it will pay off but they are working on it.
Let them do it. That is what they do well. I found it astonishing last week that, when we talk about fuels today and the future, we are talking about corn, cane and canola. Those are biofuels. However, the discussion last week with industry was virtually entirely on this unexplored area — looking at boutique operations in Ontario and Quebec, which have aspirations of becoming bigger but at this stage are not and where, I am being told by industry, that the solutions — if they get them at all — will be 10 or 15 years down the road.
That research is being done. I thought it was illusory to have the discussion not on corn, cane and canola, which is where most of the investment will end up, rather than on this small niche area.
Senator Cochrane: You must agree that most industries that begin are boutique industries; they start small. I should not say ``most.'' However, many industries start small and they grow to become huge industries. That is business.
Mr. Mooney: Most of those that start small end up dead.
Senator Cochrane: I disagree with you. You have to start somewhere. That is my point.
Senator Nolin: I have two questions. Did you receive an answer to the letter of April 18?
Mr. Lordon: I would have to look into that. I do not know. I did not write it.
Senator Nolin: I would be interested to know if there was an answer.
Second, I hope the three of you read the bill. Let us agree that we will wait just for the sake of my question. Is there anything in the bill that we should amend or change? It is mainly the regulatory power of Environment Canada. Are the contents of the bill okay with you and, if not, what should we change?
Mr. Mooney: I have no principal objections to the bill as such, other than I think we do not have enough information. The idea of supporting renewable energy should be absolutely encouraged. I do not think there is enough information available for us to clearly say if this is a good or bad approach.
I believe the scene is changing so rapidly that in even three or four months from now, we will have a different environment in front of us in terms of data we can analyze and understand. I have seen it change a great deal since April of this year. It will keep on changing.
It really is a request to delay. It is not a request to kill the bill. It is a request to pause and ensure all the information has been gathered. I guess you hear this all the time: The sober second thought of legislation. That is why you are here.
Senator Nolin: The EU is looking at implementing legislation that would allow only certified biofuels. Are you aware of that legislation?
Mr. Mooney: Yes.
Senator Nolin: Should we amend the regulatory power to allow such a scheme in Canada?
Mr. Mooney: Certification would be a step in the right direction.
Senator Nolin: That is why I am asking you the question. There is nothing of that sort in the bill now. Should we amend the bill to look at that direction?
Mr. Mooney: I understood that when the regulations are negotiated — and that would be a process against the negotiation — that those options are still available. Is that not the case?
Senator Nolin: That is why I am asking the question. We have in front of us the power to amend the regulatory power that will be given to the department. Should we include in that authority a scheme similar to the one EU is contemplating?
Mr. Mooney: They should be asked to look at a certification scheme. I worry about this, senator — and I am not trying to avoid it — because some certification schemes turn out to be negative. It depends on how they are sorted out; they can cause as many problems as they create. Let us be clear: It comes down to, again, how that certification will be done.
Senator Nolin: If I understand it properly, the EU is including environmentally-friendly criteria. Should we do the same?
Mr. Mooney: Yes, they are negotiating amongst themselves what they mean by environmentally friendly.
Senator Nolin: We can have our own definition of what is ``environmentally friendly.''
Mr. Mooney: It would be excellent to have that clearly stated.
The Chair: Mr. Lordon, will you undertake to find out whether you have had a reply to that letter. If you have, will you send a copy to the clerk, please?
Mr. Lordon: Certainly.
The Chair: How soon could you do that?
Mr. Lordon: I could do so by the end of the day.
Senator Brown: I would like to ask a question for those who are concerned about whether it is even possible to make it economical. Are you aware of Brasilia and sugar cane? Brasilia, Brazil is a multi-million population city. It is the first city in the world that is not dependent on hydrocarbon fuels. Their fuels are based strictly on sugar cane and they use even the refuse of the sugar cane to fire their plants, to produce the ethanol.
Mr. Mooney: That is right. The issue is still hotly controversial in Brazil. You have the MST, Brazil's Landless Workers' Movement, which itself is divided over whether it is beneficial to agriculture in Brazil. Small farmers' organizations in Brazil are hostile to sugar cane production. A report from Human Rights Watch warned against the impact of sugar cane production on child labour in Brazil. I am also aware of those studies.
Senator Brown: I would like to ask a question about the human rights issues you have just brought up. As a farmer, I have heard people bring up the suggestion that food is somehow a right in the world. I agree that everyone has a right to good food. However, farmers also have a right to survive economically. Everyone talks about the disappearance of family farms but nobody worldwide is concerned about preserving farmers. No one was knocking on my door to ask how many bank loans I had or did not have at any time.
I do not see how we can solve the food crisis in the world until we are willing to pay globally for the food that is necessary and get it to the people who need it.
The Chair: I think Mr. Mooney could spend about two hours on that subject.
Ms. Ross: The FAO recently released a report recommending a ``radical shift'' away from industrial agriculture towards more sustainable place-based agriculture. The news release said that the old paradigm of industrial, energy- intensive, toxic agriculture is a concept of the past.
I want to refer back to what Senator Munson said about human rights issues. This is, in fact, a human rights issue.
We have also talked about going back to the family farm model. I think we need to go back in time and that doing so is a progressive step forward. When the Wright brothers took off, if they had crash landed, they would have only killed themselves. There is more at stake here.
We look at models in Brazil, Indonesia, the Philippines and Papua, New Guinea producing palm oil, sugar cane, cellulose and biomass on marginal lands. There is no such thing as marginal land any more. People live on the marginal land and if people do not live there they rely on such land for hunting and gathering and small-scale sustainable farming.
We need to sit back. It is the premise of this bill with which we have a problem — these myths and false promises that this legislation will benefit farmers. There is historical data and research in Canada and globally showing that these schemes do not benefit farmers economically, they do not benefit the environment and they do not benefit the farms.
An energy intensive model of agriculture will drive this train and whether that train is filled with biodiesel or ethanol, the conversion ratios simply are not there.
We are saying, slow down; there is much at stake here. Canada calls itself an environmental and social global leader. We need to be environmental and social leaders and human rights activists to say we need to re-examine this bill. We need to look at the ramifications for Canadians and Canadian farmers.
If we are still talking about this today, then the work has not been done. If it is such a good idea for industry, why does industry not invest its own money? Industry is already making record profits and should invest its own money in further research instead of $2 billion from taxpayers.
Senator Brown: A $400,000 combine is difficult to finance on the family farms we have now. How would we go back to the family farm?
Ms. Ross: We can have incentives to keep people on the farm. We are bleeding farmers and we are losing young farmers. How can we keep them on the farm?
None of the schemes we have had thus far have provided any incentives for young people to farm. If we look at the statistics from Agriculture Canada in late 2007, the highest proportion of farmers that we are losing are those under the age of 40. I am considered a young farmer in this country.
We need incentives in this country to get people back on the land and to keep them on the land. We need to make it economically viable to do that by developing local sustainable food systems in this country.
Senator Munson: Recently, a special rapporteur to the UN General Assembly submitted an interim report on the right to food whereby governments, including Canada, committed to reducing the number of malnourished persons around the world by half by 2015. That is our government's position.
Are the majority of Canadian farmers on your side of the argument?
The Chair: Ms. Ross, will you begin your answer to that question by telling us who the National Farmers' Union represents? What proportion of Canadian farmers do you represent and where are they?
Ms. Ross: Our farmers are located from Vancouver Island to Newfoundland and we also have members in the Yukon. We have over 10,000 family farm members across Canada. We are also members of the international farm organization, La Via Campesina, which has over 500 million members.
I am a farmer. I have farmed for 25 years. I am surrounded by farmers. You are a farmer by trade and nature. It is not only what you do, it is what who you are. I know there are some senators around the table today who now have an off-farm job; they are no longer farming, but working here in Ottawa. They have exited industry for very good reasons and I would like to hear about that.
Farmers are desperate. We come from generations of farming. It is not simply something you decide you will be. It is difficult to be a farmer and stay on the land. We have a lot going against us.
Farmers operate from year to year. In 2008, farmers are not thinking about whether their produce is going into biofuel, the ethics behind ethanol and the world food shortage. They are simply happy that for the first time in a generation, they will make decent money this year and can keep on farming next year.
They are not doing the conversion ratios. They are not reading the data that I have spent a lot of time researching and that my colleagues here today are presenting to you.
Farmers are busy with our heads down trying to keep our farms viable. It is not that we do not want an opportunity for farmers to remain in the industry. This is one year where they can remain in the industry. Whether their grain goes to feed, food or fuel, they need to pay their bills.
Mr. Mooney: I want to add something because the right to food as a human right was raised. There is the right to food and farmers' rights in the UN. That was established through the International Treaty on Plant Genetic Resources for Food and Agriculture in 2004 by the FAO. The treaty includes farmers' rights as a concept that is not well elaborated. I was involved in those negotiations and the term, ``farmers' rights,'' is one that is my organization coined in 1985 that is now in the treaty.
Canada was the first country to ratify that treaty. However, Canada did not do a good job of defending farmers' rights in those negotiations. The treaty allows for looking at the balance between the right to food and the right of farmers to live decent and sustainable lives.
I would encourage senators to look at that concept of farmers' rights and, perhaps, to ask this and previous governments to put more muscle behind the concept of farmers' rights.
Senator Sibbeston: I am curious about the determinative U.K. study that Mr. Mooney referred to earlier revealing the future potential benefits of biofuel.
I come from the North. While we talk about areas of the country becoming dust bowls, if global warming proceeds, the North — one-third of Canada's land mass — may be available for farming in 20 to 50 years. I do not know what Senator Adams thinks about that. There is a lot of ice and snow at the moment. They do not grow potatoes up there, as they say.
Are you suggesting that study could be determinative in terms of how other countries proceed with biofuels?
Mr. Mooney: That is what I have been told.
I have heard about the study from two different sources. During the food summit in Rome, there was a half-day session spent on the issue of biofuels for governments. At that time, the U.K. government offered a verbal summary of the report as it was being released. They did not go into detail, but they said the good news, as they put it, was that there was a benefit to biofuels under ideal conditions in terms of the environment and climate change. However, they did not say more than that. They said the benefits would be under ideal conditions, which I never see. I do not think farmers ever see ideal conditions. The bad news was in terms of cost and the impact on food prices, which they thought was severe. The study was provided to The Guardian newspaper last week, and my colleagues in the U.K. were allowed to read a copy of it. They found that the study will have a significant impact on both the U.K.'s position and that of the European Union. Perhaps we will know differently if it comes out tomorrow, which was the plan, but we are told that it might be delayed until Monday.
Senator Sibbeston: Canada seems to be headed toward the biofuel industry in spite of all our fossil fuel. Is this an indication of our sophistication, strength or development to go down this road? The United States, the U.K. and Europe seem to be much more advanced in dealing with this issue than Canada. We are neophytes in terms of suddenly deciding we ought to do something about biofuels. Is it true that Canada is at the back of the pack in this respect?
Mr. Mooney: Yes; Senator Mitchell is right in saying that governments in Canada have done nothing useful about climate change for a long time. It is a much more evident issue for farmers and societies in the European Union and in Europe in general than it is for farmers in North America.
I am not sure what action would indicate sophistication. The consciousness of the problem is much more intense in the U.S, the U.K. and Europe than it is in Canada. In terms of the desire to find alternative solutions, Germany is trying to move to 20 per cent renewable energy sources and Sweden is trying to move to the same goal, I believe. The intense search happening in Europe has not been experienced in Canada.
There is a caution to note as well. In North America, we seem to think that every problem has a technological solution and that we do not need to develop policy or do any heavy lifting, in terms of social justice. We seem to think that we have only to ask a ministry to invent a solution for us and if that does not work, we ask them to invent a second solution for us. I find it depressing that we do not do the heavy lifting. Former U.S. President Kennedy was right in 1963 when he said that their generation could end hunger, but the heavy lifting to solve the problem never happened. Today, we are two generations from that experience and we still have not solved that problem.
Senator Sibbeston: Some countries do not have fossil fuels so I can understand their need to develop other systems of fuels. However, Canada has so much oil and gas that it makes one wonder why we are entering this business of biofuels.
Mr. Mooney: Senator, that point is an excellent one but farmers need help. There is no question about that. Farmers have been treated horribly in this country for decades, but I would not try to invent a technological fix to that problem. Rather, I would look at where the profit has occurred in the industry. The global food price has gone from $5.5 trillion in 2004 to a projected $8.5 trillion next year, but the farmers will not see any of that increase because it will go to the retailers, wholesalers, pesticide companies, fertilizer companies and seed companies. If we truly want to do something for farmers, then we need to give them a better share of that profit, and that is where social policy must come in, not a technological fix.
The Chair: Senators, because we started late this morning, we will go to a second round of questions. I will allow each senator a short question and a short response from the witnesses.
Ms. Ross, do you have a brief intervention?
Ms. Ross: I refer back to our previous discussion about the right to food. It is odd to frame basic sustenance as though it were a luxury and to put it in the same framework as farmers having a right to make a living. What is the difference between basic sustenance, nutrients and breathing? Does it mean that because we have a right to air and water, we have a right to food? If we give somebody a right, we can take away that right. We are talking about basic sustenance, not about overproduction.
In my presentation, I mentioned the global food shortage. Given that, this is not a good time for Canada to pass a bill that would inject $2.2 billion into research that focuses on food for fuel. The visuals would not be good for Canada, a progressive leader in social justice and human rights.
Senator Spivak: I have a short question. I know about the cost benefits for farmers over the last few years because I spent 15 years on the Standing Senate Committee on Agriculture and Forestry and came to know that farmers have no market clout.
Do you have any idea how much of the $2.2 billion will go to individual farmers?
Mr. Mooney: It would be a good idea to ask that question of witnesses from the industry.
Senator Spivak: Okay.
Ms. Ross: When I read Minister Ritz's comments, I realized that he could not answer that question. The money is not for farmers but for the development of this technology. It is another silver bullet or techno-fix promised as a solution for farmers. It is the premise of this bill that the National Farmers Union and I, personally, have a real issue with.
Farmers are great at embracing technologies. We are not luddites, but the problem has been that we have embraced these technologies but they fail to embrace us back, in terms of any real economic benefit to farmers. NAFTA and WTO have not benefited, and all these other technologies that we have embraced have not benefited farmers economically. As you know, Senator Spivak, the stats show that result.
Senator Spivak: I have one more short question. As far as I know, 22 scientific studies have been done on related emissions. Mr. Mooney, do you suggest that we will have more emissions? Most studies have shown that there is no appreciable increase in greenhouse gases. Which studies are you looking at?
Mr. Mooney: I believe the minister addressed that question at the beginning of his presentation at the last meeting of the committee, such that each study results in a different report. We are moving toward a greater consensus. Over the last few months, reports in science magazines have begun to indicate the direction. Work by the United Nations Conference on Trade and Development, UNCTAD, and by the Food and Agriculture Organization of the United Nations, FAO have attempted to do a meta-evaluation of the reports to help us understand this better.
The Chair: Do farmers not benefit now from the sale of their crops to ethanol producers? Is there a serious question as to whether this production is a benefit for farmers?
Ms. Ross: Not all farmers are selling their crops to ethanol producers.
The Chair: Those who sell their crops to ethanol producers are doing well, are they not?
Ms. Ross: They have been doing well since the late 2007 crop year and this year. This period is like the 1970s blip in farm income.
The Chair: We do not know that, do we?
Ms. Ross: Yes, we know that.
The Chair: You know it is a blip?
Ms. Ross: Grain prices have gone up, in particular in the U.S. Midwest after the floods where corn is selling for $8 per bushel. Immediately, ethanol plants closed their doors and ceased further construction because they cannot afford to operate, based on those high corn prices. Grain prices must be pushed down for ethanol plants to remain in production because they rely on cheap grain.
Senator Munson: Does the Canadian Federation of Agriculture agree with your position?
Ms. Ross: I have the brief of the Canadian Federation of Agriculture with me today.
The Chair: They will appear before the committee another day, senator. We will ask them.
Senator Munson: I want to hear what they say.
The Chair: Do you agree with their position, Ms. Ross?
Ms. Ross: Their position is based on many myths and on giving false hope to their members.
The Chair: We will remind them of that.
Senator Munson: That is fine; I was only looking for a lead story.
Senator Milne: You talked a lot about the amount of money that the government is investing in biofuels, but that money is already there. It is already committed, whether we pass this bill or not.
When I read the bill, there is nothing in it about a 5-per-cent requirement in fuel; there is nothing in it about money whatsoever. This bill is only enabling legislation.
It also has a clause that it must be reviewed within one year after the subsection comes into force, and every two years thereafter. A comprehensive review of the environmental and economic aspects of biofuel production in Canada should be undertaken. Where is the danger?
Mr. Mooney: The danger was expressed by the minister and by industry, I thought, the other day when they said clearly that they felt if the bill was not passed immediately, the signal would be sent to industry that cold water was being poured over their hopes for the future. They say it must be passed right away.
My impression was that many senators around the table were skeptical of that assertion. However, I think they are saying that if this bill is passed, they will sense that they have the go-ahead — they see a market clearly — to move ahead on that market.
Maybe after the first year, we will not know anything about anything. However, two, three years or five years down the road with a review, it is hard to imagine that someone will say we will stop this production after the infrastructure has been built and the investments are there. I do not think that happens. Senators obviously have more experience than I do with this matter, but it seems rare to launch something like this production, with a whole new structure being created for energy, and then back away from it.
Senator Milne: If Ms. Ross is correct, it will not be launched. The industry will not be able to afford to buy corn or wheat, at whatever price it is, to produce ethanol.
Mr. Mooney: I thought she said that the corn price will drop.
Ms. Ross: It will drop. Farmers once again will sell our crop below our cost of production. That is the trend, and it is an historic trend. We will subsidize ethanol plants with farm debt and our farm income.
The Chair: I have one final question before we hear our next witnesses. The bill, as it is presently constituted, says it would be a good idea if there are reviews of this legislation on occasion. It does not say that there will be or that there shall be. It says there should be.
Do you have a view on that item?
Mr. Mooney: There should be a review; and there should be a sunset clause in the legislation, which may be 10 years or 15 years down the road with evaluations along the way. Unless a deliberate effort is made by the government to evaluate it carefully and to say, yes, this requirement for a review is clear, then that option would die.
The Chair: Rather than the bill saying it would be a good idea if there were reviews, your view is it would be better if it said ``there shall be'' or ``there will be'' reviews, is that right?
Mr. Mooney: Yes, absolutely.
The Chair: Thank you for your intervention. Unfortunately, we will not have time to write you if we need further information as we will deal with this bill quickly. However, thank you for your time.
Honourable senators, we have appearing before us now, from Oxfam Canada, Mark Fried, who is the policy coordinator.
Mr. Fried, thank you for your patience. We started late because of a technical difficulty, and because of that I will ask senators to agree that we will continue this meeting until 12:15 p.m.
Is that agreeable with you, Mr. Fried?
Mark Fried, Policy Coordinator, Oxfam Canada: Yes, that is fine.
The Chair: Senators, I remind you, and Mr. Fried, to be as thorough but as brief as we can to allow questions, and I remind you that we are not here to debate the issue. There will be time for that later. We are here to hear what the witnesses say and to ask the witnesses questions. The witnesses have little interest in knowing our views are. It is our business to be concerned with what their views are.
Mr. Fried, you have the floor.
Mr. Fried: Thank you all for the opportunity to appear before you.
[Translation]
Thank you very much for the opportunity to share with you Oxfam's views on biofuels.
[English]
I am especially pleased that you have taken up this issue because it is one that we believe is in dire need of sober second thought. Oxfam Canada, as you may be aware, is an international development agency. We provide humanitarian relief in situations of emergency. We have had quite a few of those, increasingly in recent months and recent years due, many would say, to the effects of climate change.
We also undertake long-term community development, which indeed has been challenged by the changing climate. We also undertake policy advocacy on issues where we feel that policies are a key problem or a key solution to the situations our partners that we are working with in the communities face.
Biofuels is one issue we believe is urgent. We need to pursue it because of the dramatic impact on communities where we work overseas. I have asked the clerk to distribute to you a policy paper that we released today. It is a brand new paper from Oxfam on the issue of biofuels.
[Translation]
The French version will be available later today on the website. I will send it to the clerk.
[English]
I apologize that it was not ready this morning.
This research paper is the fruit of a year and a half's research, reviewing the recent science on biofuels and climate change in particular, and reviewing the impact on developing countries of expansion of biofuels production in industrialized countries, as well as the potential for biofuels to be part of a positive solution for the need for energy security in developing countries. It includes an in-depth study of Tanzania, Indonesia and Brazil, and we conducted field research in a number of other developing countries.
I am not the author of the report. I confess that. It was written by one of my colleagues in the United Kingdom, but I was involved in reviewing the terms of reference and several drafts and in debating what our resulting conclusions should be. My comments today are based on the results of this report.
You may wonder why Oxfam is concerned about biofuels. We have two primary concerns. One is the impact of biofuels development on food prices, which was mentioned by some of the witnesses this morning. The second is the impact on climate change. Each has a huge effect on the people living in poverty.
We believe biofuels have some promise for reducing greenhouse gases and for providing energy to isolated communities, but produced under the current technologies for use as transportation fuel, as is contemplated here in Canada, they offer little if any savings in greenhouse gases and they have serious side effects on the price of food.
Most seriously, we fear that relying on biofuels as Canada's primary solution to the challenge of climate change will postpone urgent decisions on moving ourselves to a low-carbon economy.
Regarding this particular bill, Bill C-33, it is well intentioned, and we support the promotion of renewable fuels, but as with many laws, it did not contemplate the impact on the poor or on people living in poverty. Seriously, the government's position seems to rely on outdated science regarding climate change. It may well end up harming some of the most vulnerable people here and abroad.
A central problem is the unintended impact on food prices. Biofuels take large volumes of staple crops off the market for food and so biofuel demand creates scarcity and drives up prices. The World Bank estimates the price of food has increased by 83 per cent in the last three years. The International Monetary Fund will say that half the increase in consumption of major food crops last year was related to biofuels. The World Bank suggests 65 per cent of the price rise was due to demand for biofuels. The IMF is somewhat more conservative and says as much as 30 per cent of the price rise was due to the new biofuel mandates in the United States and the European Union. Naturally, if this bill passes, they would add Canada to the list.
The Chair: Is the contention that the price increases in food so far, until now, have been increased to that degree by the use of grains as fuel?
Mr. Fried: We are looking only at the year 2007.
The Chair: This is not a projection then but their estimate?
Mr. Fried: That is right; to date.
Naturally, mandating minimum content of biofuel and gasoline is not the only cause of rising food prices, but it is a significant driver because it diverts food crops and agricultural land from food production to fuel production.
The generous subsidies and tax breaks given in the United States and the European Union, which totalled approximately $15 billion last year, have made it so that the fuel value of crops is greater than the food value. It is no surprise, then, that despite bumper crops in a number of commodities, global grain reserves are at an all-time low.
The International Food Policy Research Institute has named the outsized support for biofuels in the U.S. and the European Union, and we will add Canada if this bill passes, that acts as a tax on food because it raises the price we pay for it. This tax is felt most dearly by the poorest people because poor people pay a much larger per cent of their income on food; usually between 50 per cent and 75 per cent of their income.
Biofuels, as was pointed out earlier, not only consume food directly, they also compete with it for land, water and other inputs and therefore push prices up further. The problem is not only in the crops used for biofuels, which in the case of Canada would be corn and canola. Obviously, they directly consume food crops. As the price for corn is boosted artificially by the policies of wealthy governments, farmers switch from other food crops. Notably the switch has been from soy into corn, and therefore it pushes up the price of soy. Because corn and soy are used for feed crops, it pushes up the price of poultry and pork.
By some estimates, the current biofuels rush, if it continues as forecast — to answer the chair's previous surmise — could result in at least an additional 600 million hungry people by the year 2025. There are currently 800 million hungry people in the world — that is, people that do not have enough to eat. Their estimate is based on a rise of 16 million hungry people for each percentage increase in food prices.
Biofuels are not the only factor, I repeat, but it is one we can do something about. Unlike the weather or growing consumer demand in China and India, demand for biofuels has been created politically. It is created by policies — such as encapsulated in this bill are you considering — in the United States, the European Union, and will be in Canada, which essentially create demand. If it is created politically, we can reduce it politically.
A second unintended side effect of biofuels demand is the scramble for land, which is potentially displacing — has already displaced in the case of Indonesia — vulnerable communities, frequently indigenous people and more often than not, women. Women's property rights are poorly protected in most developing countries.
In Indonesia, they have identified 20 million hectares for palm oil expansion; much of it currently on community lands being used for food production or rainforest. This displacement is being driven by the European Union's biofuel support for canola, what they call rapeseed oil. Canola is going to fuels, therefore palm oil is replacing canola as the food source. The expansion for palm oil is threatening access to land of vulnerable communities for this reason.
Canada's mandate for producing biodiesel from canola would add fuel to this fire.
The second major issue is climate change, as I mentioned. That issue is of enormous concern to Oxfam Canada, because vulnerable people in poor countries already pay a high price due to our inaction on climate change. Extreme weather is causing death, injuries, illnesses and mass migration in countries around the world. The recent typhoons in Burma and the Philippines are the most recent events in that vein.
Biofuels were promoted originally as being carbon neutral as far as greenhouse gas emissions are concerned. That is, they would fix as much carbon from the atmosphere as would be released when they were burned. This was one of the great bonuses: We would have not only energy security because we could grow our own fuel, but we would tackle climate change at the same time.
Of course they are not, because one must consider not only when they are burned, but the whole process: the life cycle of the product from when they are grown, the inputs to grow them — particularly fertilizer and pesticides — the machinery they use, the transportation and processing, et cetera.
Some biofuels emit much less carbon dioxide than gasoline, even when measured throughout the life cycle. The Canadian government model, it seems — judging from the presentations the government has made — is based on a science of about four years ago, when it seemed that ethanol could save greenhouse gases. There were implied savings of about 13 per cent to 37 per cent of greenhouse gas emissions per litre. However, the science has progressed, and it is a rapidly developing field.
We understand more about biofuels today, about the true impact. Recent science casts serious doubts on the real greenhouse gas savings. I point to the work mentioned this morning of Nobel laureate Paul Crutzen about the emissions of nitrous oxide, which occurs when the nitrogen-based fertilizers break down. Nitrous oxide is a greenhouse gas 296 times as potent as carbon dioxide, as far as the effect on climate change. Mr. Crutzen found that the release rate is three to five times as much as in his previous analysis.
Contemplating that finding tips the balance sufficiently in our mind to think that using biofuels from corn or canola, grown with fertilizers as is done here in Canada, may increase greenhouse gas emissions rather than improve them.
There is also the issue of land-use change, which I noted previously, for which the science has also progressed. Biofuels demand is rapidly extending the agricultural frontier in poor countries, both directly and indirectly. Converting forest, wetlands and grasslands into agricultural uses releases massive amounts of carbon, previously held underground, into the environment.
Any savings of greenhouse gases by biofuels over gasoline is thus undermined, and must be taken into account in your calculations. This information is something that the analyses completed several years ago — which the government relies on — did not take into account.
There is the problem of indirect land-use changes. Transferring production of our farmers into corn rather than soy because of biofuels demand will stimulate Brazilian farmers to grow more soy further into the rainforests. They produce ethanol from sugar cane, which is not grown near the rainforest, but soy production is in the rainforest.
In the report, we note calculations regarding how long it will take to pay back the amount of greenhouse gases released when the agricultural frontier is expanded. In this case, it would take 320 years to pay back. That is, the advantage from burning ethanol rather than gasoline — if there is an advantage — will take 320 years to pay back the damage created in expanding the agricultural frontier.
A similar story exists with the conversion of canola crop into fuel in Canada; it will stimulate more palm oil production in Indonesia.
Other methods are far more cost effective for addressing greenhouse gases, particularly in the case of transport. Vehicle efficiency standards, more efficient driving methods and speed limits are much cheaper and less risky. Remember that even if the entire global production of grains and sugars were converted into ethanol and biodiesel — obviously we would not have anything to eat — it still would cover only 40 per cent of global fuel needs. Biofuels are not an answer to our fuel problems. They impose this great risk on climate change and on food prices.
All that said, we do see some potential in biofuels. There is a section in our paper on the pros and cons for developing countries in pursuing a biofuel program as part of their development strategies. We note that even Brazil's ethanol industry from sugar cane — which is the greatest success story — has struggled with myriad problems. It is a success today, but it has been hugely expensive; something that only a country as wealthy as Brazil could possibly undertake. Indeed, it is not certain how much longer that industry will be economically viable.
Where we have seen the greatest potential is in addressing energy poverty in poor and isolated communities not connected to a national power grid. We have an example in villages in Northern Tanzania where they collect castor beans. This bean can be pressed for its oil. The children collect it during recess at school and it is pressed into oil. They can burn it in the generator right there and they have lighting in the evening to study by. It is a lovely solution on a small scale for a particular community.
Also, the oil can be useful as a cooking fuel, we think, in communities where wood or cow dung is used primarily for cooking. Where up to five hours a day of a woman's time can be expended just collecting wood and cow dung, it can be a positive effort. The key is that it is small scale and a local source where it makes sense.
We also think it is important to pursue research into second-generation biofuels — ones not made from food — which could be more cost efficient, energy efficient and carbon deficient. Of course, these biofuels may not be. Second generation may face the same problems as the first generation, primarily our extensive and energy-intensive agricultural system, which is where a big part of the greenhouse gas emissions in biofuels comes from.
We encourage investment in technologies that do not require extensive monoculture, therefore not risking food production or the lands of vulnerable people. It could be from things such as municipal waste, crop residue, or non- arable feed stocks, like algae, as was mentioned this morning.
I note that some people presume support for first-generation biofuels — the current technology we have today — will help spur investment and research in second generation. It could have the opposite effect, because investment is made in the first generation; the plant is there, the technology is in place, crops are planted and the system is set up. Transforming a technology is expensive and costly. When people invest in one, they sometimes stick to that technology. It has a residual effect.
As was mentioned by some senators this morning, besides arguments about climate change and energy security, this bill is about supporting Canadian farmers. Oxfam Canada believes that the Canadian government should support Canada's farmers to ensure a healthy and vibrant rural economy, but we believe that offering huge subsidies to the biofuel industry and creating a mandate for minimum biofuel content in gasoline is a poor way of doing so. The unintended side effects of rising food prices and worsened climate change will be felt dearly by some of the most vulnerable people on the planet.
If biofuels become an excuse to avoid urgent decisions on reducing our greenhouse gas emissions to address climate change, then we will all pay a dear price.
If recent science on biofuels was shown to provide significant greenhouse gas emission savings, we might recommend trying to deal with the food price problem another way and say the emission savings are worth it, because climate change is such a huge challenge. However, the fact is, as I stand now, biofuels will not accomplish that.
We have four recommendations. We suggest that you set high standards for biofuels on two counts. First, that they must offer real greenhouse gas emission savings based on the full life cycle of the product and based on the most recent science available, including emissions from land-use change and fertilizers. Second, they must not undermine the food security of poor people; in other words, biofuels must not be made primarily from food.
We hope those criteria can be incorporated into this bill. We hope you reject the mandated minimum biofuel content for gasoline until biofuels can fulfill these two criteria. We hope you are moved to dismantle the subsidies and tax exemptions for biofuels that do not meet these criteria because they are, in fact, damaging the livelihoods of poor people.
With some of the savings from dismantling the subsidies and tax breaks, we hope you promote research and development into second generation biofuels by prioritizing those technologies that do not threaten the land security or food security of vulnerable peoples, and in more cost-effective methods of reducing greenhouse gas from transport.
Thank you for your attention and patience. I look forward to answering your questions.
The Chair: Thank you, Mr. Fried. You are right that, traditionally, investors want to see the life of a plant amortized over enough time that they can receive their investment back at a reasonable profit, and that expectation is reasonable. That is a factor.
Senator Nolin: Reading quickly through your document, do I understand you to propose that recent science indicates that in Canada, production of ethanol emits more greenhouse gases than gasoline?
Mr. Fried: We said that the most recent science indicates that finding.
Senator Nolin: Specifically in Canada, what science is saying that?
Mr. Fried: The science is specifically regarding, as one example, the release of nitrogen-based fertilizers, nitrous oxides.
Senator Nolin: In Canada?
Mr. Fried: The study was not about Canada; it was the phenomenon itself. Science does not deal with the place.
Senator Nolin: By production cycle —
Mr. Fried: In Canada, nitrogen-based fertilizers are used commonly and widely in those centres. Farmers will understand that they are used everywhere. The resources from Paul Crutzen's study are in the paper. I believe it is from the Journal of Physics, but I cannot remember the exact name of the article.
Senator Nolin: It is not specifically on the production cycle of ethanol only in Canada?
Mr. Fried: It is not only in Canada, no.
Senator Spivak: I am interested in land use, and I wonder if you can comment. Of course in the United States, they are looking for a release of the farmers' obligation to leave conservation land fallow, and in Brazil there is some talk — I do not know if it is real or a myth — about whether the rainforest is being cut and used for biofuel. I am not sure about that.
Because we are dealing with Canada, has your study looked at the amount of marginal land that is available and what that impact is on, say, the boreal forests or the watersheds, et cetera? I am interested in the land-use question.
Mr. Fried: I can answer only that a study was done by the Parliamentary Library, which we refer to in our study. It suggests that, to fulfill the 5-per-cent minimum content, it would require planting more than half of Canada's current corn crop area with corn for ethanol, in addition to planting 10 per cent to 12 per cent of the wheat seeded area. This conclusion means a significant amount.
The Chair: The research we have, to which I think you are referring, says 49 per cent for the corn and the additional wheat area.
Senator Spivak: I am aware of those figures. If there is continuous subsidy, people will scramble to plant as much as they can. Have you looked at how much marginal land is available, if it is suitable or how that availability will impact on land use generally?
Mr. Fried: That is a good question. Oxfam has not looked into the question of land use in Canada. We can say land use is a significant problem in Brazil and Indonesia, the two case studies we have undertaken in this report.
Senator Spivak: It is a problem?
Mr. Fried: It is a serious problem. Biofuel demand is driving the agricultural frontier into the wetlands and rainforest area; not directly for production of biofuels, but for production of those food crops that biofuels are displacing.
Senator Milne: With respect to the production of biofuels, you talked about Indonesia, and that the land once used there for rice production is being used for various and assorted biofuels. Your statistics all seem to come from somewhere outside of Canada.
Do you know how much rice-producing or food-producing land has been converted to something else?
Mr. Fried: I do not have that particular statistic in the back of my mind.
Production of biofuels not only directly displaces the production of other food crops but does so indirectly because it displaces the production of food. It is not the land that is grown for biofuels but the land grown for other food crops to replace the biofuels that causes significant impact on climate change and on greenhouse gas emissions. That is the concern with the spread of land in Indonesia.
Senator Milne: You mentioned it would take 130-some odd years —
Mr. Fried: 320 years.
Senator Milne: It would take 320 years to pay back the amount of carbon that would have been reduced from the atmosphere as a result of the cutting of the rainforests in countries like Brazil.
It seems to me that, in effect, because Brazil can produce ethanol from sugar cane more cheaply than we can here in Canada — it is a much more efficient crop to produce ethanol from — that basically by subsidizing the production of ethanol, we are subsidizing the production of ethanol in Brazil because it will be a lot cheaper to produce there than it will be for many Canadian crops. How are we helping Canadian farmers?
Mr. Fried: One issue I did not go into in the presentation but that is touched on in the report is the issue of tariffs on Brazilian ethanol. Canada's tariffs are not high but the European Union and United States have high tariffs on Brazilian ethanol.
By the way, Brazilian ethanol from sugar cane is much less damaging to climate change. There are real savings on greenhouse gas because of the nature of the crop, the nature of the process and the nature of the technology. The production of ethanol from sugar cane also does not damage food security in the same way because sugar is not a basic staple food.
Based on our study there, Brazilian ethanol has many positive aspects and it is produced efficiently and cheaply. It would make sense that, if Canada is thinking of having a 5-per-cent minimum, we should import it from Brazil rather than grow it here where it will have significant impacts on poor people around the world.
Senator Milne: In effect, these subsidies that the government has announced will have that effect. The subsidies are not in this bill. They were already announced by the government and I assume they are budgeted for. If Canada becomes a dumping ground for ethanol from Brazil, will it effectively remove ethanol production from Canada to Brazil?
Mr. Fried: I would not describe it as a dumping ground, by any means.
Senator Milne: However, if we had lower tariffs than the U.S. and Europe —
Mr. Fried: The government has proposed subsidizing the industry so it can be competitive and sell to the United States, essentially.
The Chair: However, if we were to import feedstock from Brazil, we would be subsidizing Brazilian farmers?
Mr. Fried: We would provide a market, certainly. We would create a market. To reach the 5-per-cent minimum mandate, we would need to plant nearly half the corn-seeded area and 10 per cent of the wheat-seeded area, so we will be importing biofuels to reach that 5-per-cent minimum.
Senator Milne: That mandate, though, is not in the bill. There are no figures in this bill.
Mr. Fried: My reading of the explanatory notes from the House of Commons version is that these regulatory changes are needed so the government can establish its minimum mandate.
Senator Milne: They would do it by regulation but it is not in the bill.
Mr. Fried: However, without the changes in the bill, they cannot make the regulations, I understand, but I am not an expert on that part.
The Chair: I have two supplementary questions, one to Senator Spivak's question and the other to Senator Kenny's.
Senator Spivak: If we drop the tariffs in the EU and the United States on Brazilian ethanol, Brazil would completely eradicate the rainforests because of the huge demand.
Mr. Fried: Sugar cane is not grown in the rainforest. It is grown in a different part of the country. There are undoubtedly problems with the Brazilian ethanol industry, primarily ones of labour exploitation of workers in the sugar cane fields. However, we have an overriding crisis in climate change. We need to find ways to deal with it. We think that Brazilian ethanol is part of the solution.
Senator Kenny: I was curious as to your comment that we would be subsidizing Brazilian farmers. If we are buying their product, we are not subsidizing them. We are buying their product.
Second, I did not understand Senator Milne's comment about protecting Canadian farmers. Surely, we are not talking about using tariffs to protect Canadian farmers if they do not produce ethanol as efficiently as other places.
Where would that leave Canadian consumers? We should think about them and provide them with the lowest fuel costs possible. The idea of having tariffs appals me. Why would we not seek the lowest possible cost of fuel?
The Chair: That is the question, Mr. Fried.
Mr. Fried: It was the senator who said it is a problem. I did not say it.
Senator Kenny: I want you to defend her.
The Chair: Let me put it in context. The point I made was: The Canadian people would subsidize an industry that might purchase its feedstock from a foreign source.
Mr. Fried: That is right. That may well occur.
Senator Kenny: Subsidizing someone is sending them money above their cost to produce it.
The Chair: You cannot paint the dollars pink, senator.
Senator Kenny: Buying a product from someone is not subsidizing them.
Mr. Fried: What would be subsidized is the purchaser, the process, the development and the distribution, et cetera. However, I agree with Senator Kenny that low tariffs make sense. We should not raise tariffs. We argue in the report that Europe and the United States should lower their tariffs on ethanol.
Senator Kenny: Farm tariffs are the bane of our existence around the world. They distort markets and cause untold grief.
The Chair: Mr. Fried, are tariffs not the principal problem of the reduction in local farm production in parts of the world by small farmers? The EU and the United States have such heavy farm subsidies that dumping occurs, and it puts local farmers in South America and Africa out of business.
Mr. Fried: That is a major problem and something Oxfam has campaigned on, and done a lot of policy work on, in the last five years. The major problem is that subsidies drive down the prices for crops. Now we have seen the flip side of the problem, which is the sharp spike in food prices despite the continued high subsidies and high tariffs in Europe and the United States.
Senator Sibbeston: Oxfam is a world-wide organization that deals with poverty amongst people in the world. I appreciate you making lot of your points about the amount of poverty; higher food prices have pushed 100 million more people into poverty and so forth.
I wonder if we, as Canadians, in dealing with a bill like this, should not be more or less concerned primarily with the Canadian situation, and not worry as much about the world situation. Would that be fair or right? Is it un-Canadian to think more of only Canada? If we were to focus on a situation in Canada, what would it be?
I do not see that there is as much poverty in our country. We have Aboriginal people in our country that need a lot of help. If we only focused on helping them, would that not be a good approach? Rather than worrying about the world, should we not worry about the situation at home first?
Have you given any thought to the situation in Canada, rather than thinking worldwide?
Mr. Fried: Oxfam Canada has a program in Canada, and we are concerned about poverty in Canada. The reason we cannot think only about Canada is because both the fuel system and the food system are global, and climate change is a global problem. What decision you make on this bill will have an impact on the poor communities we work with in Africa, Asia and Latin America.
You have it in your hands either to drive climate change further and cause more extreme weather, or you can begin to turn the corner on climate change. You can feed higher food prices or you can say, we will not do that; we will do something different. I think you have to consider the world, unfortunately.
Senator Sibbeston: I appreciate that. However, is it un-Canadian to think, let us think of ourselves first? Let us worry about our country and situation. Let us not worry about the world so much. Let us do what we can here in Canada; let us deal with our problems. Let us deal with the situation of Aboriginal people in our country before we give money to other poor people in the world.
Is that a fair view? I live in the North. I live comfortably and happily in the North, away from the crowds and the millions of people in the South. I am happy there. I see my world from that view.
I appreciate that the bigger society thinks about the world and is affected by it. However, from the perspective of many people, they see only their neighbours or the next 50 miles away. They do not see Asia and Africa. I am wondering if you are being too global in using arguments to convince Canadians based on the situation in the world.
Why can you not simply focus on Canada and the situation here? Why are your arguments not about the situation in Canada rather than talking about the millions of people in the world that are going hungry?
Mr. Fried: I had the opportunity to visit the North last month. I was in the Yukon and the Northwest Territories. People there expressed extreme concern about climate change.
Senator Sibbeston: They are, but people are not starving in the North. You can go out on the land and you can get fish.
The Chair: We have to let the witness answer your question, Senator Sibbeston.
Mr. Fried: I would suggest that Canadians are thinking globally. The people I speak with are concerned about the world.
However, Oxfam is what Oxfam is. We are concerned about global poverty in Canada and everywhere in the world. That is who we are.
Senator Sibbeston: I appreciate that.
Senator Munson: Our previous witnesses asked us to delay this legislation until, at least, October when there would be more discussion and a more balanced approach to what we are discussing today. Are you in favour of us delaying this piece of legislation?
Mr. Fried: If you are not prepared to reject it outright, certainly, I would be in favour of delaying it.
The direction that the government is moving in promoting first-generation biofuels is mistaken. It has serious negative impacts on food security and global climate change. I would suggest that it requires much more study before going forward. Therefore, I would support a delay.
Senator Munson: What would be your recommended time line on introducing a freeze on implementing new biofuel mandates?
Mr. Fried: It is related to the two criteria I suggested at the end of my remarks. First, when it can be demonstrated with the most recent science that the entire lifecycle of biofuels actually reduces greenhouse gases rather than increases them significantly; and, second, when it can be shown that it will not have a negative impact on food prices worldwide.
When we can demonstrate those then let us go forward with that technology if and when it is developed.
Senator Munson: You have talked about the human right to food security, and we discussed developed countries. When countries are developing, they do not have food and there is a security issue at times. The issue is much bigger than energy production. It touches economies, ecosystems and industries.
From your perspective, is this an issue that pits corporate growers — the mega-farmers — and energy producers against small family farmers?
Mr. Fried: We do not analyze the issue in that manner in the report. Certainly, corporate interests are pursuing their own ends and small farmers are involved. We are concerned about what happens to the small farmers.
There may be benefits from biofuels for small farmers. We see examples in the large industries in Brazil and Indonesia. Indonesia has seen significant benefits for small farmers growing palm oil to sell to the biodiesel industry. However, the risks are great and national policies are needed to mitigate those risks.
Small farmers never have the clout that large corporations have. Unless there is political will from government to defend the interest of small farmers, those farmers tend to pay a very dear price.
The Chair: What specific risk were you referring to?
Mr. Fried: The risk of being thrown off your land and of being paid a price below the cost of production.
Senator Mitchell: Mr. Fried, I appreciate your participation in the debate. I am concerned about climate change. I want to do whatever we must to fix it.
If ethanol was being produced by second-generation technologies exclusively from sugar cane, would most, if not all, your concerns be alleviated?
Mr. Fried: It depends how those technologies turn out.
Senator Mitchell: It is provided that they reduce the carbon footprint and, probably, would not be competing with food. I am referring to second-generation biofuels such as those from municipal waste, which are being developed by the Canadian company, GreenField Ethanol, and cellulosic developments, algae, et cetera.
Mr. Fried: I would agree that those hold great potential. We should support research and development in those areas.
Senator Mitchell: It is true that there was a 20 per cent excess of corn production over demand in the U.S. last year. The emergence of the current food crisis — there has always been a hunger crisis — seems to have emerged at exactly the same time.
I am not diminishing the food crisis. It is unacceptable.
However, how do you attribute the emergence of that food crisis at the exact time that we had an excess of corn production?
If your argument is that somehow ethanol is eating all that corn up — pun intended — and creating that crisis, it seems to be a contradiction in economic forces.
Mr. Fried: It is not Oxfam presenting this argument; it is the International Monetary Fund and the World Bank that are saying it.
Senator Mitchell: However, I am asking you because you have a lot to say about this.
Mr. Fried: I am not an economist.
However, my understanding is that the future's market for commodities fluctuates. It is not based only on a particular crop year and a particular country; it is a global market. A significant harvest in the United States in a particular year does not seem to have diminished this speculation, which is based, perhaps, on the fact that there is a mandate in the United States and the European Union for a huge increase in biofuel consumption. This gives producers and investors the notion that there will be a huge demand and that the price will rise.
Senator Mitchell: I would argue that it is more likely that the speculation has little to do with ethanol pushing up food prices. There is an overwhelming relationship between fuel prices pushing up food prices and the obvious emergence of climate change. Climate change is diminishing food production on a large scale elsewhere in the world.
I would say that speculation could be pushing up food prices and ethanol is a relatively small portion of that equation.
Mr. Fried: This is an argument put forward by the biofuel industry in attacking Oxfam a few weeks ago. The reality is that the ethanol program consumed a quarter of the entire corn harvest last year in the United States. This year, it is expecting to consume close to a third of the production.
The IMF estimates that ethanol production accounted for half of the increase in demand for food crops last year. It is not Oxfam saying that; it is the IMF.
Senator Mitchell: We can argue statistics. You have some and the others have some.
I do not want this to sound frivolous, but a very large portion of grain production goes to producing beer. Therefore, beer is competing with food too, but that argument is not made.
Mr. Fried: I will certainly not make that argument today in Ottawa.
Senator Mitchell: It is an interesting argument. All types of agriculture products are used for things other than food.
Mr. Fried: The question is the quantity.
Senator Mitchell: Exactly. How often do you drive to get beer?
Is it not the case that one of the significant problems in world hunger is not that there is not enough food — although often there is not — but it is the political problems of having it delivered to the places that need it?
We find that repeatedly. Political forces, often in developing countries, simply use food as a political weapon and do not deliver the food provided by charitable organizations and governments around the world to help their population.
The Chair: Do you take that as a question, Mr. Fried?
Mr. Fried: Yes, certainly. In humanitarian crises in particular, political problems are often serious and block the delivery of food assistance. The problem we have with the increase in food prices today is that it is not in particular countries, it is around the world. It is true that there is sufficient food in the world to feed everyone, but the problem is the distribution: Who gets to eat and who has the money to buy it.
The reality today is that there are more obese people in the world than there are hungry people in the world. That turned around four or five years ago. I would say that it is not the political decision to block food assistance but rather the political system by which people remain poor and cannot afford to buy food.
I would hope that the policy changes needed to fix that would encourage production of food to eat rather than food to burn as fuel in cars.
Senator Mitchell: I do not know if it is in this paper because I have not had time to read it, but I believe that Oxfam made the point that subsidies to biofuel production in Canada could rise to $1 billion per year by 2010. My information is that about $1.5 billion goes to ethanol producers, which can be both grain and others, over nine years and that a $500-million fund is directed specifically at research into second generation, not into food production for ethanol.
Where do you derive the figure of $1 billion in one year?
Mr. Fried: I cannot explain that figure off the top of my head. If the figure is not correct, I would be happy to revise it.
Senator Mitchell: Is it not possible, if food and grain prices are up, that Third-World grain producers will be paid more and that that would be good for their economies?
Mr. Fried: The rise in food prices is a double-edged sword. We have been arguing for increases in food prices for a number of years. That is why we want the subsidies in Europe and the U.S. to come down so that the price will rise and farmers can make more money. The problem is the rate at which it has risen.
The reality is that most poor farmers around the world are also net consumers of food. They produce food, but they buy much of their food; in fact, more food than they produce. The price of some staples has tripled over the last six months. It is untenable and becomes a short-term humanitarian crisis.
In the longer term, slowly increasing prices at the farm gate so that farmers may receive it is better. That will happen and will encourage more investment in agriculture. I hope that the Canadian International Development Agency, CIDA, will put more of its money into agriculture.
Senator Mitchell: Food prices have tripled in the last six months.
Mr. Fried: That is so on certain commodities.
Senator Mitchell: It is difficult for me to see how you can relate that so powerfully to ethanol. Certainly, ethanol production has not tripled in the last six months.
Mr. Fried: There is no one-to-one relationship. It is a complex phenomenon. The World Bank says that 65 per cent of the increase in food prices is due to the demand for biofuels. Perhaps it is only 20 per cent to 30 per cent but whatever the percentage, it is significant, and that is the issue we are dealing with today. The demand has been created politically and can be reduced politically.
Senator Spivak: Apparently last year's food stock surplus was at about the lowest level it has ever been in history, at about 1 million bushels or so. The problem is not only the distribution but also the supply. What do you say to that reduction of surplus food stocks?
Mr. Fried: That is true. International grain reserves are at their lowest level in decades.
Senator Brown: Everyone can agree that the world economy is operating on a system of supply and demand. How does Oxfam propose to reverse this supply-demand equation? I ask that because food prices have gone up in response to the fact that there is a zero stockpile of food.
In the past, there has always been more than we needed in the world, but over the last seven years, it has been decreasing. How can Canadians support farmers if we do not give them alternate markets for their produce so that the number of Canadian farmers does not continue to dwindle?
It seems inevitable that at some time in the future, we will not be able to produce enough food to support our export market. It is a fact of life that in Saskatchewan today, there are more farmers over 70 years of age than there are farmers under 35 years of age. We lose more farmers every year.
You seem to be at cross purposes by saying that we should not allow our farmers to become involved in alternate markets that would allow them to continue to produce. Some farmers will never become involved in a single crop. That will never happen because they cannot afford it. They have too much experience with markets that rise and fall. Farmers are smart enough to become involved in commodity prices. We have commodity people dealing in oil commodities and raising the price, and we have farmers dealing in agri-commodities and raising the food prices.
Mr. Fried: The question about supply and demand is a good one, and I am glad you asked it.
Naturally, prices respond to supply and demand. The demand that has increased so rapidly for food is, in part, due to the demand for biofuels and the conversion of food crops into fuels. That demand has not grown out of the market. Rather, it has been set by the minimum content regulations in the European Union and the United States. It is a political decision, and it would be a political decision for Canada to follow suit. It is not a free-market question but a question of intervening in the free market to create a demand. Our view is that because of the negative impacts on some of the most vulnerable people in the world, this is not an appropriate way to intervene. There should be better ways to support Canada's farmers. I am with you that we have to support Canada's farmers, but we have to find better ways.
Senator Brown: I would like you to give us a better way. We have been competing against European and American farm subsidies ever since World War II. This bill is the first thing I have seen that will be positive for Canadian farmers to have alternate markets. Rather than simply condemn the idea, give us a better answer.
Mr. Fried: I am not placed to give you that answer as to how Canadian farmers should be supported. I would say that the supply management system in dairy, poultry and eggs seems to have worked quite well for farmers, and the Canadian Wheat Board seems to have worked quite well for some farmers.
The Chair: It depends on whether you live north or south of Red Deer, Alberta.
Senator Brown: That one I cannot ignore.
Mr. Fried: I would suggest that we have to balance the advantages to Canadian farmers with the damages to other poor and vulnerable people. We have to find a way that will not harm those who are vulnerable.
The Chair: Mr. Fried, you have read the bill. Is it an energy bill or an agricultural bill?
Mr. Fried: It is difficult to know, to be honest. I would guess that there are two motivations and that it is being sold with a third motivation. That it supports Canadian farmers seems to be the primary motivation.
The Chair: Is that not a good idea? Following on Senator Brown's question, our farmers have been competing unfairly with subsidies in the U.S. and in Europe. Perhaps this is a shot at market advantage for Canadian farmers. Is it not time for that?
Senator Kenny: Did I hear you mention marketing boards?
Mr. Fried: Canadian farmers certainly deserve the support of government. My concern is that other people not be sideswiped and hurt in the process. First, hungry people around the world are being hurt because of rising food prices. Second, we would all likely be hurt if this were to become an excuse to not act aggressively on climate change.
Senator Brown: It is contradictory to not try to help farmers grow alternate markets. If you cut that off, they will go into other markets, and they might not be producing exportable food either. The arguments here are beginning to focus very narrowly on damage or help for the Canadian farmer. One way we can do that is give them an alternate market.
I go back to the supply-demand equation. If you follow the supply-demand equation, then you have to produce more in order to lower food prices in the world. I do not see how we can expect farmers to do that without ensuring that they have a return.
We have been three generations now from the Second World War, and we have not done it.
The Chair: The question is, do you agree with that, Mr. Fried?
Senator Brown: My question is, how do we do it? We need answers, not problems.
Mr. Fried: I would suggest that the answer should not lie in creating artificial demand for fuel — turning food into fuel.
The Chair: Senators, next we will hear from Mr. Tony Macerollo, Vice-President of Public and Government Affairs for the Canadian Petroleum Products Institute.
I have a bit of housekeeping to do before we hear from our next witness. We are scheduled, and the notice given was that we would do clause-by-clause consideration of Bill C-474, the sustainable development strategy act, at five o'clock today. I would suggest that since we are behind, we will go on with this set of panels until 4:15. If you are agreeable, we will go directly into clause by clause at that time so that we can be done earlier.
We will finish our consideration of Bill C-33 for today and go to clause by clause immediately thereafter on Bill C- 474. Is that agreed, senators?
Senator Spivak: Why do not we give them an extra 15 minutes? We could do it at 4:30 or 4:45 p.m. It is not a big deal.
The Chair: All I am suggesting is that when we are finished our consideration today of Bill C-33 — and it will go until at least 4:15 — that we immediately move into consideration of Bill C-474 rather than having an interregnum.
I would ask your agreement to do the same tomorrow when we hear from tomorrow morning's panels on Bill C-33. When those panels are concluded, we should go directly into clause-by-clause consideration of Bill C-33 tomorrow, rather than waiting until the prescribed time. Is that agreeable to senators?
We have two panels of witnesses tomorrow morning: one at 9 and one at 10. We should be done by 11 or shortly thereafter, and then we can go immediately into clause-by-clause consideration. Is that agreeable?
Senator Nolin: Do our witnesses tomorrow know that we will go into clause by clause right after the testimony?
The Chair: I believe they do, but we will ensure that they do.
Senator Milne: If we are going into clause by clause, and having one panel at 9 and one at 10, these are not large panels then. We will not have much time to question them.
The Chair: We can cheat by a few minutes. The first panel is not a panel, it is one person. The second panel is two or three people.
All I am proposing is that when we are done with that, when we are concluded and are all happy, we will go directly to clause-by-clause consideration. As Senator Nolin reminded me, we will explain to the witnesses tomorrow that we will go directly into clause by clause as soon as we have concluded questioning them.
Senator Spivak: Will this preclude any discussion prior to clause by clause?
The Chair: No.
Senator Nolin: We can discuss it as long as we want.
The Chair: I do not mean that I will ask all in favour and then we will finish; we will begin our clause-by-clause consideration immediately.
Is that agreeable to senators? Okay, thank you.
We now resume our consideration of Bill C-33. We are joined by a new panel from the Canadian Petroleum Products Institute, CPPI: Tony Macerollo, Vice-President, Public and Government Affairs; Gilles Morel, National Director; Don Munroe, Senior Advisor, Environmental and Fuel Quality; and Michael Kandravy, Director, Regulatory Affairs.
Mr. Macerollo, you now have the floor.
Tony Macerollo, Vice-President, Public and Government Affairs, Canadian Petroleum Products Institute: Before we start the formal presentation, and with your permission, we do have specific material pertaining to Bill C-33. Unfortunately, there was not time to translate my specific presentation, but all the rest of it is fully bilingual, and I would like to distribute that.
The Chair: Is that agreeable to members?
Hon. Senators: Agreed.
Senator Nolin: Exceptionally, we agree.
Mr. Macerollo: Honourable senators, thank you for the opportunity to meet with you today to discuss some very important matters associated with Bill C-33. The effects of this bill are important to many stakeholders, the largest group being consumers.
Bill C-33 is essentially enabling legislation to allow the federal government to regulate transportation fuels at the terminal level, and to regulate in such a way that fuel providers can meet these regulations on what is called a pool average.
The impact of this bill can only be fully understood in terms of its broader purpose, namely, the intention of the government to use this new power to establish ethanol and renewable diesel content in gasoline and diesel that Canadians buy for their everyday use. Therefore, in many respects the legislation must be seen in the context of its intent.
The Canadian Petroleum Products Institute, CPPI, is a national association of major Canadian companies involved in the refining, distribution and marketing of petroleum products for transportation, home energy and industrial use. Collectively, we operate 15 refineries, representing over 80 per cent of the Canadian refining capacity, and supply over 7,000 branded retail outlets with transportation fuels across Canada. The members of CPPI, as well as two other operators and importers, will hold the biggest set of responsibilities for the implementation of this policy. The second responsibility centre will be all those retail operations that sell to the consumer on a daily basis.
I will keep my presentation brief and try to focus on the realities that my members face at this point, not six months ago; there is some new information to add to this discussion.
As a general rule, CPPI does not support mandates because we believe mandates are questionable at best unless they are driven by clear, science-based measures to improve the health, environment or safety of Canadians. Economics, for the most part, should be done by the marketplace.
In the case of ethanol mandates, CPPI supported and worked with the Canadian Renewable Fuels Association because the proliferation of provincial mandates and the creation of boutique fuel markets is both creating disruptions in the supply networks and adds unnecessary cost to provide products to Canadians.
Against this reality, CPPI urged the federal government to take leadership and follow the framework laid out in our joint paper with the CRFA: namely, federal leadership, a competitive environment, technological advancement and neutrality, policies that induce the ability of renewable fuels to drive down GHG emissions — life cycle emissions analysis — and open borders.
Honourable senators, this is not a menu but rather an all-inclusive framework. It is our belief that all conditions must be met for success. For the moment, I will speak to just two problem areas.
In addition to federal leadership, a competitive environment is critical. We do not have that competitive environment at this point in time. As we said in our presentation to the House of Commons committee, in the 2007 budget, and subsequently confirmed by the House of Commons, the Excise Tax Act was amended to repeal the tax exemptions for renewable fuels, including biodiesel and alcohol-based fuels, and to ensure that renewable fuels are included within the excise tax structure that applies to gasoline and diesel fuel.
Over the same time as the ecoENERGY for Biofuels Initiative, at least $1.5 billion over the same nine-year period has been cut that would otherwise have had the effect of keeping the cost of biofuels in line with regular gasoline and diesel. In effect, this translates into no new net investment in biofuel production.
By contrast in the United States the subsidy regime provides $30.6 billion over the same nine-year period to boost production, with approximately $9 billion directly to farmers and $2.5 billion to ethanol producers. Following a 1-in- 10 rule, at least $3.1 billion in Canadian subsidies are required to sustain a level playing field. As has been demonstrated in the United States, a federal blender's credit is the preferred method of supporting ethanol production. The equivalent of Canada's federal blender's credit was terminated on April 1 of this year.
We will never win a subsidy war with the United States, and as a matter of policy CPPI does not support subsidies as they distort the marketplace. However, in the absence of comparable arrangements with our largest trading partner, we do not have a competitive environment. We may fall short of expectations that renewable fuels in Canada will easily compete with the same products south of the border.
The next critical feature for success of a renewable fuels framework is technological advancement and neutrality. Technology neutrality has been the hallmark of good Canadian public policy across all fields of innovation from telecommunications to transportation fuels.
In the CPPI-CRFA policy statement, I draw your attention to the statement that while today ethanol is the dominant renewable fuel, other renewable fuels, such as biodiesel, will enter the marketplace as the economics, consumer acceptance and production technology continue to evolve. We support the government requiring 5 per cent renewable content, as opposed to specific products, based on gasoline volumes by 2010, and 2 per cent renewable content based on diesel and home-heating fuels by no earlier than 2010 and no later than 2012, conditional upon the successful completion of a testing program designed by all stakeholders.
A national policy must recognize and encourage new technologies for producing renewable fuels. To this end, the biofuel requirement should be flexible enough to include any future renewable fuel technologies that may not be commercially or technically viable in today's marketplace.
As we speak, new bio or green technologies are coming into the marketplace. Most references are made to cellulosic ethanol and renewable diesel. As we speak, advanced biofuel technologies are coming into the marketplace; these are fuels beyond grain-based or cellulosic ethanol and biodiesel. They are fuels, such as those produced by the Ottawa- based company Ensyn Technologies Inc., that use a thermal process to turn residual forestry, post-consumer wood and agricultural biomass into bio-oil.
I advise you to listen to their perspectives as well in the consideration of this bill, which gives the Governor-in- Council considerable powers under environmental legislation to give effect to what is essentially an economic strategy. For commercial use, these products must meet the test of reliability that is the hallmark of existing fuel choices, and they must be cost competitive for the consumer.
We are conducting leading-edge research, preparing and presenting information workshops for Canadians who wish to make biofuels work for them.
On March 30, 2005, a biodiesel workshop entitled ``Questions a Fleet Manager Should Ask Before Opting for a Biodiesel Blend'' was held in Vancouver, where our goal was to ensure seamless performance when new products are put into a fuel tank.
On January 22, Canada's largest cold-weather, on-road demonstration of renewable diesel was officially launched in partnership with CPPI, the federal and Alberta governments and a diverse multi-stakeholder group.
The Alberta Renewable Diesel Demonstration, managed by Climate Change Central, comes after months of laboratory testing of various fuel feedstocks and production processes. Shell Canada is the demonstration's ultra-low- sulphur diesel supplier and the renewable diesel blender and distributor through the project's temporary facility being operated by Shell Canada at its Sherwood Terminal.
Over 60 trucks of various sizes have hit the road throughout Alberta as its climate poses some of the most extreme challenges to renewable biodiesel use. The demonstration will provide hands-on, cold-weather experience for fuel blenders, distributors, long-haul trucking fleets and drivers. We are proud to be a part of this diverse stakeholder group.
Currently, we are working with Natural Resources Canada and Environment Canada on a proposed biofuel research program designed to understand and address issues with biofuel mixtures under specific Canadian climate conditions. The all-weather test facilities at Imperial Oil Limited's research facility in Sarnia will be used to test low- temperature operability in heavy-duty engines, fuel storage for multiple applications and thermal and oxidation stability of heating fuels under seasonal variations.
This research is not complete, but it is important because while Canadians may tolerate getting marginally less energy as a result of adding biofuels, customers do want seamless reliability.
Honourable senators may know that class-action lawsuits have been launched in California against some American fuel providers alleging, among other things, that ethanol as an additive has been linked to faulty performance of marine transportation components. CPPI believes that fuel providers should be saved harmless from unintended consequences, and CPPI would welcome language in this bill that provides for some form of liability protection that may result from the imposition of the mandate by government through regulation.
Through you, Mr. Chair, I draw your attention to the date of the CPPI-CRFA policy declaration — December 2006 — in contemplation of a mandate that would begin in 2010. CPPI members have always maintained that this type of initiative requires a good three years of planning in order for economic investments to be made. Refiners and marketers will only make these investments when the law or regulation is promulgated. Assuming that you pass this law now, and the regulations are completed by the end of this year, my members will have less than one year to make the necessary investments to be ready for the 2010 mandate. CPPI cannot promise that this is doable.
In some parts of the country, ethanol is not easy to source locally, and ethanol does not travel through pipelines. These challenges are most significant in Atlantic Canada. Regionally bound refiners and marketers will not have the same ability to meet national pool averages. As a result, it will be critical that the regulations are crafted carefully with a view to maintaining a competitive and level playing field.
Finally, let us remember why this bill is being considered by Parliament. It is about efficient regulation and to allow for biofuels production for the sake of the environment and the economy, as indicated in the bill's summary.
While countries such as the United States pursue renewable fuel policies based on energy independence and security, this is not the case for Canada and is not likely to be the case in the near term.
Canada has an abundance of natural resources that, with sound stewardship, will provide energy security, value- added jobs and economic growth for the benefit of all regions.
A national renewable fuels strategy is not the panacea for the challenges posed by climate change — they may be one day — but for the moment, I think we can agree that scientists, engineers, health practitioners and modelling experts are still working on the real solutions to climate change, and we are a ready partner in that research.
As such, we welcome the statutory requirement for a periodic review and a comprehensive review of these provisions. This will allow new scientific findings to come to light and, broadly speaking, to determine, through full life-cycle analysis, options that make real contributions to climate change. It will also allow stakeholders to identify all unintended consequences.
Thank you, honourable senators, for your time and attention to our views. I would welcome any questions that you may have.
The Chair: I would like us all to be very clear on your position. Thus far, we have been talking a lot about ethanol and the requirement for 5 per cent ethanol content in gasoline sold to Canadians by a given time.
You seem to be saying that it should not all be ethanol, although this bill is silent on what it is. This bill merely empowers the government to make regulations. Are you saying that it is a little precipitous, in terms of the timing, to allow your industry to do the right thing?
Mr. Macerollo: I present two practical issues to you. The first is from a CPPI position. In principle, with the notion of technology neutrality, we believe in a 5 per cent renewable content, rather than specified product. That gives people choices to make decisions that presumably meet the goals of the framework. Second, in respect of the timeline, when we are talking about planning or building a refinery, it takes time to buy the materials needed to put the infrastructure in place. If we are all doing it at the same time, there is only so much around at any given point in time. If we are doing it right, we are taking about three years.
The Chair: Is it the Canadian Petroleum Product Institute's view that the time set out in the present bill — if there is a time set out in the present bill or in the things contemplated in that bill — is a little too early for you to bring it off?
Mr. Macerollo: It is tight. Because there are ethanol mandates currently in place in some provinces, most notably Ontario, some of that infrastructure work will have already been done.
For example, in British Columbia, which will not only have a federal mandate but will also be contemplating a provincial mandate for 2010 — right at the same time as the Olympics — that is a lot of infrastructure to get into place in a very short period of time. While I cannot speak to individual company strategies, what I can say is that we are really being pushed to the limit.
Mr. Morel may have something to add.
Gilles Morel, National Director, Canadian Petroleum Products Institute: Allow me to say that so far in Canada, about 2.5 per cent of biofuels are already put into the product mix. Generally, that inclusion in the product mix occurred where it was most efficient to do that. For example, in large centres, by modifying one large terminal, you could capture a big chunk of a market. Fifty per cent of the market in Ontario is around Toronto. Minimum infrastructure modification allows for a huge input of biofuel.
Depending on the detail and how complex and far-reaching the proposed regulation is, those economies of scale will no longer be available, and we will have to start to duplicate numerous investments into smaller facilities all over the country. To this extent, our industry requires much more time in order to first understand the requirement and then be able to deliver a seamless product to the general population.
The Chair: I am sorry for pursuing this, but I want us to understand what is being said here. As we understand it — I think it will all be in regulations — the plan seems to be, as you said, a pooled measurement of these things.
There are places in the country in which companies that are members of your institute exist, whereas Mr. Morel and you have said that there is not easy access to either a distribution network or access to the biofuels that would be mandated. Do I understand correctly that the time crunch is a little too short to do that?
Mr. Macerollo: Yes.
The Chair: What would happen in the case of one of your members, such as North Atlantic Refining Limited? They are on an island.
Mr. Macerollo: Yes.
The Chair: Would getting them revved up to meet the national standards by this time pose a problem?
Mr. Macerollo: I cannot speak to the individual company specifics, but I can tell you — this is in the public domain — that no ethanol production facility exists in Newfoundland. No massive biodiesel type technologies are available. The only way to bring ethanol in for the short term will be by boat, and you have to be very careful because ethanol by its nature mixes well with water. That is why we enjoy the odd cocktail with water. It does not separate back out, however, and North Atlantic Refining Limited will not be able to take advantage of a national pool average because they do not have a national footprint.
The Chair: That sounds as though it will be a problem.
Mr. Macerollo, you said that you welcome the statutory requirement for periodic and comprehensive review. There is no statutory requirement in the present bill.
Mr. Macerollo: It was my understanding that there was.
The Chair: It says that there ``should'' be. It does not say that there ``shall'' be, and that is a big difference.
Mr. Macerollo: We would say that in the context of a very fast-evolving framework there must be regular scrutiny. There has been a principled debate over many years about the degree to which government should be legislating stuff versus regulating stuff and the degree to which that provides Parliament with oversight. This is a wide-ranging power that you are giving the Governor-in-Council, and the only opportunity for typical regulatory scrutiny is through the Senate and House of Commons Standing Joint Committee for the Scrutiny of Regulations, which, if it did all of the regulatory review that it had to do, would never stop sitting.
As you contemplate giving this type of power to government, we would recommend a mandatory review.
The Chair: I want to commend honourable senators' attention to clause 8 of the present bill, which says the following:
Within one year after this subsection comes into force and every two years thereafter, a comprehensive review of the environmental and economic aspects of biofuel production in Canada should be undertaken by such committee of the Senate . . . .
That is not mandatory. I gather that your position, Mr. Macerollo, is that it should be mandatory.
Mr. Macerollo: If you are intending to give this regulatory power to the Governor-in-Council, yes.
Senator Munson: To follow on what you have been talking about, I wonder why we are in such a hurry. The strategy to make biofuels 5 per cent was introduced in December 2006, correct?
The Chair: This bill, however, was introduced in December 2007.
Senator Munson: Here we are at the end of June, and we are rushing to someone's timetable to pass this before we leave. I am wondering; we heard witnesses this morning from Oxfam Canada and other groups having their own arguments. One group wants a freeze and another group wants a delay at least until October, until we hear more arguments from the international community on biofuels.
Would you agree with that sort of timetable, perhaps October, or some sort of freeze before we do anything?
Mr. Macerollo: In 2006, we were telling everyone to hurry up because we needed to get the predictability for the investment timing. That is when we were saying that you have to move. Now we are in a situation where whether you move fast or not, we are in a tight crunch.
Senator Munson: How much time do you need to adapt, a year, another two years?
Mr. Macerollo: Typically, from the date of the promulgation of the regulations, we need three years. The reason that we need this is because, as you well know in politics, the intention to keep a promise is there, but sometimes there are unintended consequences. My members will not invest cash until they know it is the law. That is the element of certainty.
They were not in a position to make those investments. They will not make those investments until it is law. I can tell you that one year to be up and running seamlessly, with no unintended consequences, is hazardous. I will give you one example. When we do an ethanol blend of gasoline, the original product is gasoline, which is refined in a refinery, it goes out to the terminals, then to a gas station and then into your car. With an ethanol additive, we have to reconfigure the properties of gasoline and turn it into reformulated blendstock for oxygenate blending, commonly referred to as RBOB, and ethanol. We cannot just whisk gasoline and ethanol together. It is RBOB and ethanol. RBOB does not work in the car by itself and ethanol does not work in the car by itself. If we do not have both, we do not have fuel.
The Chair: I am sorry to interrupt, but we have to be sure what we are talking about here.
If we recommend to the Senate that they pass this bill tomorrow, it becomes law, and you will then have the time that is contemplated in what we think the government will do. If we were to not do that and if we were to make amendments to this bill, that cannot happen until, at the very earliest, September of 2008.
Mr. Macerollo: The problem is already here. The three-year timeline has already passed. We will be in a crunch, regardless of whether the government maintains its desire to proceed with a 2010 mandate.
The Chair: I want to remind senators that this bill has no date in it. We are talking about angels on pins here, to a degree. This bill empowers the government to make regulations, and we all think we know what those regulations will contemplate. Those regulations and the date that you are talking about are not in this bill.
Senator Munson: On one other subject we discussed this morning, I have a question about the human rights aspect, the right to food, fuel and the right of farmers to do what they want to do in a democratic society with all of these rights combined.
Does the Canadian Petroleum Products Institute have a view in a time of food scarcity and rising prices that this bill is too risky to implement, especially since the benefits of climate change are debatable? Do you have views on this part of the puzzle?
Mr. Macerollo: We all have our personal views on the broader horizontal issues on what has unfolded as a fairly controversial issue around the world. CPPI's area of expertise is figuring out how to do it in the context of maintaining our collective reputation with the consumer, that we deliver a predictable and reliable product.
We do not have a formal opinion, however, on what the driving motivation is behind this, be it agricultural or what have you. If it is climate change and air pollution, then we would agree that the science is not conclusive.
Senator Munson: I have one other argument on the big guy versus the little guy. In other words, the squeeze is on with trying to save the family farm, yet the big producer is trying to save themselves and bigger profits and so on.
Mr. Macerollo: I think we need to step back a bit. Some companies do have operations, including one of my members, Suncor Energy, which has a large ethanol production facility, as does Husky Energy. However, for all intents and purposes, there is no industry in this country as yet. It will take a long time for it to get up and running.
To the degree that there is an economic policy driven by agriculture on the part of the government, we would defer to others who are better experts.
The Chair: I want to remind you that I live in Alberta, as do four of the members here. I have been putting 10 per cent ethanol gasoline in my gas tank since 1989. Therefore there is some aspect of development in that industry and the capacity to make use of ethanol fuel at 10 per cent, which is double the requirement.
Mr. Macerollo: There is no question about that. However, we are not at the point of being able to pursue a mandate that requires the numbers of litres that I referred to in my presentation.
The Chair: Further to Senator Munson's question, would you expand on your contention that this is, for all intents and purposes, an economic bill?
Mr. Macerollo: It is an economic bill. Let us do the order of priorities in terms of when you look at this through the lens. If you are doing this for climate change, principally, as opposed to the creation of a new industry in Canada, then we recommend that you wait until the science and technology develops further.
If you are doing this to grow an industry, that is an economic measure. You are doing it through environmental legislation. However, as I am sure you have heard from other proponents that this is about growing an industry and providing alternative revenue streams, neither of which we have a specific opinion on. However, by definition, I think that makes it an economic instrument rather than an environmental instrument.
Senator Spivak: I have a couple of questions. First, you state that you will get marginally less energy from putting ethanol in this. Does that have anything to do with the development of flexible-fuel cars, or is it a separate question?
Mr. Macerollo: There is a bit of a relationship there. Let me try to capture this. Ethanol does not carry the same energy value as gasoline. To put it in more blunt terms, if you were driving E85, you will either have to have a bigger tank or you will fill up more often. On the specifics, I will refer to Mr. Morel to talk more about the properties involved.
Mr. Morel: Generally, if you strictly look at the volume of product, ethanol has about 30 per cent less energy per litre. For example, if you were to drive 1,000 kilometres where you would normally require 100 litres of gasoline, if you were using ethanol, you will require 130 litres. There is not a one-to-one relationship. Due to the density, you need about 30 per cent more ethanol volumetrically to achieve the same driving distance.
On a 5 per cent mix, the 5 per cent that is in the gasoline is less efficient, so you have a slight drop. On 10 per cent, maybe you lose 2 per cent to 3 per cent of driving volume.
The Chair: Mr. Morel, the number that you were talking about when you said 130 litres by comparison with 100 litres, that was for E85, is that correct?
Mr. Morel: That was for pure ethanol. E85 is a relationship — 85 per cent to 100 per cent.
Senator Spivak: This has no connection, then, with the price of gas, does it? How do you evaluate the emissions reduction here — and I know there are many differences — with what has been put forward as higher energy efficiency standards for cars and even tires? Have you looked at that?
Mr. Morel: Perhaps I could refer the senator to a publication from the federal government. Natural Resources Canada publishes once a year their EnerGuide for automotives, taking into consideration the various efficiencies. You are correct that there are some efficiencies associated with an E85 vehicle. However, NRCan published fuel economies for all the vehicles sold in Canada, whether you operate it on pure gasoline, E85 or a mixture of gasoline.
Senator Spivak: I am talking about the standards for cars. What I am asking you is: If we had better standards, such as Corporate Average Fuel Economy, CAFE, for cars, would that translate into more or less greenhouse gas emissions than changing the fuel into cars with all that that means for the life cycle? That is my question.
Mr. Macerollo: You are talking about a variety of menu choices that the government has at its disposal to try to achieve policy outcomes. CAFE is a controversial issue that undoubtedly the automobile makers have very specific views on.
What I can tell you is that in the context of requiring a renewable mandate like ethanol in gasoline products, there are issues. As we know, the science proves that second- and third-generation bio-products have great potential. However, there is a lot of debate over the degree of improvement that you do get with the technology as we know it today that is commercially applicable versus the certainty of other models that the government could entertain.
I will address the gas price issue next. The United States has a heavy subsidy program. If you did not have that subsidy, by definition, ethanol is more costly to produce. The subsidy in the United States is actually specifically designed to bring ethanol down to the price of gasoline in order to make it attractive in the marketplace.
Senator Spivak: What is the cost per unit to produce ethanol compared to gasoline; one litre to one litre?
Mr. Morel: A lot of people have tried to answer that question. There is no straight answer, because it depends on where. For example, people from Brazil have been quoted internationally indicating that they could produce ethanol with sugar cane at between 14 cents and 18 cents per litre. Some manufacturers in the U.S. were producing it for 40 cents to 50 cents a litre. However, the reality is that because we are dealing with a commodity, the cost has less to do with what the consumer would see versus the market. The market determines the value of a product. Whether it costs two more cents to produce or not, at the end of the day, that probably has less impact than the international market.
Senator Spivak: Yes, but I am talking about commodities. I am talking about soybeans, corn, wheat and canola. You are saying right now you do not have a comparative cost?
Mr. Morel: One of the primary reasons is that whoever was planning to build a facility to blend ethanol three or four years ago, for example, based his or her economics on the price of canola or corn at the time. Today is not reflective of that price. Those economic changes impact the assessment — no one predicted that wheat would be $8 a bushel, for example. It is very difficult to predict anything and it also makes the analysis for future investment much more difficult.
The Chair: Were the cost prices that you were talking about, Mr. Morel, direct, or are those internalized costs, taking into account all of the other costs that are not taking place in the plant?
Mr. Morel: Not necessarily. However, one way to answer the question differently is that we have been tracking the price of ethanol gasoline in the U.S. over the last three or four years. Generally, those prices are closely associated with the price of gasoline plus the blender subsidies my colleague referred to earlier. If the price of gasoline was $2.50 per gallon, the price of ethanol would reflect about $2.50 per gallon plus 54 cents per gallon, which was the blender subsidy at the time.
Historically, there is a significant relationship. It is not to say that through a period of high fluctuations, those gaps could increase or narrow. However, over time, the price of ethanol in the U.S, which is the largest market, is following the price of gasoline plus the value of the subsidy.
The Chair: Is it always higher than the price of gasoline?
Mr. Morel: I cannot say it is always higher, there have been exceptions. In the first week of July 2007, there was an anomaly from the long time trend. However, it is usually higher.
Senator Nolin: In your remarks, you talked about liability protection. I would like you to elaborate on that. What is the type of protection you seek?
I was reading your remarks in front of the House of Commons committee and you did not refer to that.
Do you know which part of your remarks I am referring to?
Mr. Macerollo: I do.
Senator Nolin: Where do you see that amendment in the bill and do you have text to propose for us?
Mr. Macerollo: This is an example of what has happened since the discussion started. That is the reason why this has not been introduced in the House.
Senator Nolin: We are not saying that you should have raised it there. It is not a problem.
Mr. Macerollo: I am simply giving you the reason. More information has come to light. It is attracting more media coverage in British Columbia. I will refer to Mr. Morel on the technical aspects. However, broadly speaking, there are problems with many older pieces of equipment. In particular, not everyone owns a new boat. A very large consumer information effort is required to ensure that people do not make mistakes. That information gap has manifested in litigation against American fuel providers. I do not have specific language for you here. In an ideal world, the intent would be that we would work together with government to distribute the kind of information that needs to be understood by every consumer who has anything from an old snow blower, to an old boat or lawn mower.
Senator Spivak: Or a personal watercraft.
Mr. Macerollo: Or a personal watercraft. In the absence of that information, we think we are an unfair target because it was not our fault. I will refer to Mr. Morel on the specific technical issues.
[Translation]
Senator Nolin: Mr. Morel, perhaps you can answer my question. I remember, perhaps ten or so years ago, we studied a bill on changing the formula of gasoline. Do you remember the debate about additives? I had the distinct impression, and I still do, that the change was legislated. A state agency tells you what the formula is and you produce it. The responsibility therefore lies with the body that tells you what to make. Hence my questions about the kind of protection you are looking for in the bill.
Mr. Morel: Let me answer your question. There are two considerations. The first is about the existing quality standards, and then Canada under the CGSB, the Canadian General Standards Board. The CGSB decides what product quality is necessary for petroleum products so that the products are acceptable to the consumers. There is a national standard that determines the quality of petroleum products.
Senator Nolin: Are you saying that there is an outcome, a performance associated with a product, and that is the standard that you meet?
Mr. Morel: Exactly.
Senator Nolin: And you must reach that level of performance?
Mr. Morel: Yes, we must meet it. Now, under the Canadian Environmental Protection Act, there are other requirements, such as the ones you mentioned about the changes to the formula of gasoline. The act specifies other requirements dealing with toxic products, such as sulphur in gasoline and diesel fuel, for example. These are the substances that were affecting vehicle exhaust emissions.
We have been doing that for ten years. The industry has done a lot of work on it. Now, when we come to biofuels and ethanol compounds, our industry's objective is to try to make sure that, when the regulations are finally in place, we know exactly the standards that we must meet and we will be in a position to provide a product that will meet all those demands. We know very well that there are some uses for which the product is not necessarily recommended, such as for old systems, for small crop-dusting aircraft and for use at sea. The difference here is when there is a mandate, the government is legislating a product that, we know in advance, cannot be used everywhere. It is compatible with 98 or 99 per cent of the uses, but, when an application in inappropriate, as we have seen in California, there can be lawsuits involving hundreds of millions of dollars against companies for having provided these products, and all the companies were doing was conforming to government regulations. We do not deal with legislative text or making amendments.
Senator Nolin: You are asking a lot. You are saying that you do the commercial production and we are responsible if your product causes problems for the people consuming it.
Mr. Morel: In our document, we have suggested that there should be provisions to prevent lawsuits against producers or distributors of products that meet legal requirements.
Senator Nolin: What difference is there with a product that you make in order to meet a performance standard? No legislative protection protects you against poor manufacturing or poor development of your product.
An act does not use the word ``mandate.'' There may be a government policy, but no law requires you to have one, not the way our system works, anyway. You are saying that the government wants such and such a blend and that the government should protect you. I do not see the connection.
[English]
Do you understand my concern? We are talking about a lot of money. I am not sure this bill was contemplating such spending. You are raising a huge constitutional problem. I do not want to get into that debate, but that is what it is.
Mr. Macerollo: This speaks to a governance issue for your consideration and that is the degree to which you are giving Governor-in-Council wide-ranging authority to make law through regulation versus allowing Parliament specific oversight of their intentions. We know of their intentions with this bill but it has a much broader power. We know the precise intention for this empowerment on one issue only. If the details of the regulation were in the proposed legislation, then we would be talking about specific line items that deal with our concerns.
I am not necessarily suggesting to the committee that I have an overnight solution but I am suggesting that this approach can have an unintended consequence — uneconomic activity, as seen in California.
Senator Nolin: I understand your concern but you have to understand our concern.
Mr. Macerollo: I understand.
Senator Nolin: You are asking us to protect you on the production of a product and we are saying that the regulation is in place. You already respect regulation on producing products and now the government will ask you to add a substance to that product and you will keep your responsibility as a manufacturer.
Mr. Macerollo: A fully functioning marketplace operates efficiently when everyone has access to the information required to make proper consumer choices.
Senator Nolin: I was saying that on another subject.
Mr. Macerollo: If we were to do this quickly, consumers would not have full information and they could make mistakes that ultimately cause their machines to break.
Senator Nolin: We should aim for properly informed citizens so they are able to make the proper choice.
Mr. Macerollo: Respectfully, you have to balance those considerations against the fundamental driver for doing this in the first place. We can also learn from mistakes in other jurisdictions. That is the luxury we have of a U.S. experience entrenched in a framework. We are seeing problems that we can learn from without exposing citizens to them.
The Chair: That was an important question. Anecdotally, if I had a boat with two internal Chevrolet engines that burn gasoline and the only gasoline I can buy, because of a government mandate, messes up my motors, I will sue the guy that sold me the gasoline. Is that what we are getting at?
Mr. Macerollo: There is potential for that happening.
Senator Cochrane: I draw your attention to page 5 of your presentation that states:
In some parts of the country, ethanol is not easy to source locally, and ethanol does not travel through pipelines. These challenges are most significant in Atlantic Canada. Regionally bound refiners and marketers will not have the same ability to meet national pool averages.
We talked about fuel cells and Ballard Power Systems Inc. When we were in B.C. years ago, we faced a similar problem in that we did not have the outlets where these car cells could be plugged into. I believe that only Vancouver has fuel cell buses today so it has not gone beyond that. I refer you to page 2 of your presentation where it states. ``The members of CPPI as well as two other operators and importers will hold the single biggest set of responsibilities for the implementation of this policy.''
Please explain.
Mr. Macerollo: Simply put, senator, the refining operations will prepare the ethanol blended fuel, will prepare the bio and renewable diesel blends, will transport them to gas stations and, in many cases, will sell them to consumers. We make it into a usable consumer product and bring it to consumers.
Other economic players in the strategy are responsible for making the ethanol but not for making the fuel. They make the additives. My members, Irving, Federated Co-Op and importers of product will ensure that we are held accountable for ensuring the 5 per cent pool average of ethanol or a 2 per cent pool average of biodiesel. No one other than my members is held to account.
Senator Cochrane: What would you like us to do with the bill?
Mr. Macerollo: I would like to see a requirement for a regular review and language in respect of the liability issues that I have raised, but I recognize that is a much bigger beast. I understand that. I do not know if we can do this because the House of Commons did introduce a specific reference to biofuels in the proposed legislation by stating that there should be a review. We would say there must be a review. I would like to get something on technology neutrality but I would have to confine myself to that section but in 24 hours I was not able to provide that exact drafting for you, although I could do that by tomorrow.
Senator Cochrane: That would be great, thank you.
The Chair: We might pursue that.
Senator Mitchell: Which of your member companies produces ethanol as well as petroleum?
Mr. Macerollo: Suncor has a major facility in Southern Ontario and Husky Oil has a major facility in Lloydminster, Saskatchewan.
Senator Mitchell: Is it fair to say that your members view ethanol as competition for gasoline?
Mr. Macerollo: No because this is an additive. E85 might become a competitive option but the delivery system would still be the retail gas stations. E85 requires retrofitting stations at a cost of $150,000 to $200,000 per station. Much has to be done in order to carry that product.
Senator Mitchell: At page 5, your document states, ``A national renewable fuels strategy is not the panacea for the challenges posed by climate change . . . .''
Does your organization have a public specific policy on the existence of climate change and what causes it? Do you take a position on that issue?
Mr. Macerollo: From the refinery to the pump we talk about our approach to climate, which is a comprehensive policy statement. There has been much debate over the major components of climate change, what occurs naturally versus what is a function of human activity, and what should be done to mitigate versus what should be done to adapt. We are in discussions on virtually all of those data points. We are part of the current discussions with the government's climate change plan. It has been a long and exhaustive process. An 18 per cent reduction is a significant requirement. The duplication of federal and provincial frameworks is causing us concern because of the potential for double burden, at a minimum. Air pollution causes us concern as well, which is local, and climate change is global. Policy on climate change needs to be no less rigorous than that of the WTO framework in order to make it work.
Senator Mitchell: Your membership seems ambivalent to the reasons for climate change.
Mr. Macerollo: ``Ambivalent'' would not be the correct word.
Senator Mitchell: You say you are involved in the debate on all the different sides.
Mr. Macerollo: I say that we agree that climate change is happening. We agree that it requires a policy response, but we do not have the magic bullet.
Senator Mitchell: Have you taken a position on a preference between a carbon tax and a cap-and-trade system?
Mr. Macerollo: No. We are working on all of those options right now, but I can tell you that to the degree that you provide certainty in the marketplace you will have decisions follow a logic business route.
Senator Mitchell: Generally, a carbon tax provides certainty?
Mr. Macerollo: It can provide certainty. It depends on how it is constructed. We have some members who will experience it first-hand in British Columbia in several days. I can offer some illustrations, some peculiarities. In Alberta you have refineries operating under a different kind of climate change plan. They bring product into British Columbia, and that is good, presumably, because it is efficient, but with the patchwork of climate change plans, I regret to say that you are turning some of us into guinea pigs.
Senator Mitchell: One motivation for this bill comes from our patchwork of ethanol and biodiesel programs. In fact, to some extent this bill is moot because even if it were not passed, Ontario and Alberta and other provinces across the country are doing it, with others to follow. If it is going to happen, it is probably better that it happen in a non- patchwork way, to extrapolate your argument.
Mr. Macerollo: That is why, back in 2006, we said to hurry up.
Senator Mitchell: You mentioned the 18 per cent reduction is quite significant. Do you think a 2 per cent rise in temperature is quite significant?
Mr. Macerollo: I presume it is very serious.
Senator Mitchell: It is massively significant. We have to do something. Your industry has provided some leadership but needs to provide more, and should not be ambivalent. It should be driving this thing. Climate change is a real problem.
Mr. Macerollo: I repeat, senator, we are not ambivalent. I can guarantee you we will not miss a point of input on any of this matter.
Senator Mitchell: Does your organization have a specific initiative on carbon capture and storage? How far along are you in that area? People say that secondary technology on ethanol will take forever. I am saying I am not so sure. How long will it take to get carbon capture and storage for some of your members?
Mr. Macerollo: The carbon capture storage provisions under the existing federal framework principally benefit the upstream or the downstream, and refining being downstream we will have limited access to that as an option. It has been extended to us, but the application will be limited. Again, the indication is that the government will go equipment- prescriptive rather than technology-neutral, so we may not be able to catch those benefits.
The Chair: That was a neat recovery from a bootleg question.
Senator Milne: I want to talk about alcohol. I know of the problems with ethanol because I spend a lot of time sitting in the passenger seat of a Model A driving around Canada. I know when we start to fill my gas tank up in Saskatchewan the car begins to cough. It is a 1931 car and it does not handle ethanol very well.
Mr. Macerollo, you brought up the question of the excise tax exemption. It was phased out as of April 1 this year.
Mr. Macerollo: Correct.
Senator Milne: You mentioned $1.5 billion being cut out from the ecoENERGY program. This has affected you.
When the Minister of Agriculture was before us, I asked him about the producer incentive that this government has promised to bring in. He could not answer any questions as to what it might be. Have you any idea what this so-called producer incentive will be that will replace the excise tax break that you had?
Mr. Macerollo: Essentially, in broad stroke function, the government has shifted the amount of money. It has not increased money to a biofuel strategy. It has taken it by moving it from, in effect, a blending credit to a producer credit. Producers get a subsidy as a function of their production.
Senator Milne: The producer is the farmer.
Mr. Macerollo: The producer is not necessarily the farmer; it is the producer of ethanol. The farmer may own the ethanol facility.
Senator Milne: Yes, or not, as we just heard this morning.
Mr. Macerollo: They may or they may not. We prefer a blender's credit, but we would argue for both in the context of our comprehensive strategy with CRFA, to be clear. We need both. In the United States, the various states provide the production incentive, but it is the federal government that provides that big — and it is big — 51 cents a gallon subsidy to blend. The purpose of putting it at the blender stage is to make it acceptable to the consumer. It makes it essentially the same price as normal gasoline.
The whole point behind the subsidy is so that people will use it. It will only be used by people if they see it as being essentially indistinguishable from the original product.
In the United States there is still a subsidy being paid by the consumer. It is a hidden subsidy, because if there is less energy content but the price is still the same as a regular litre of gasoline, the consumer pays for the loss of energy.
Senator Milne: However, the loss of energy is not the 30 per cent to which Mr. Morel referred. It is 30 per cent of the 5 per cent, which is one and a half.
Mr. Macerollo: That is correct. We did say it was marginal, but it nevertheless adds up.
Mr. Morel: If you were to look at the total quantity of gasoline in Canada, being 40 billion litres, 5 per cent of it becomes 2 billion litres; it is 30 per cent less efficient overall. To do exactly the same economic activity in driving, you will need 41 billion litres of the finished product as opposed to 40 billion.
Senator Milne: Also, when you were making your presentation you spoke about changing the language to reflect a 5 per cent average renewable content. When you read through the bill, the only words you see in there are ``fuel'' or ``biofuel.'' You do not see ``ethanol'' in there. It is not in the bill.
It seems to me, Mr. Chair, that what we are hearing this afternoon, as we heard this morning, are concerns about what might or might not be in the regulations that flow out of this bill. That is not something we can do a whole lot about right now.
The Chair: It is a concern that we always have with any kind of framework legislation.
Senator Milne: The only thing I can see that would help at all, and I ask you to comment on it, is if we amend the bill to change the word ``should'' to ``must,'' or ``should'' to ``shall,'' where it says:
(6) Within one year after this subsection comes into force and every year thereafter, a comprehensive review of the environmental and economic aspects of biofuel production in Canada should be undertaken by such committee of the Senate, of the House of Commons or of both Houses of Parliament as may be designated or established . . . .
Mr. Macerollo: I can tell you that based on my experience in a past life in government and politics, governments interpret ``may'' versus ``shall'' and the bureaucrats interpret them very differently. ``Must'' or ``shall'' sets a work plan in motion. ``May'' may set a work plan.
Senator Milne: The wording in the bill is ``should.''
Senator Spivak: Even if you put the word ``shall'' in there, it does not mean ``shall review.'' That does not mean the government could change the regulations. They can not change the regulations.
Mr. Macerollo: That is a dilemma, senators, which is why I shared this. At a very principled level, this is about how much power you are giving a government and for what purpose. We went through the same thing under the Small Business Loans Act when we went from a heavy legislative text to one piece of legislation and many regulations. The House of Commons committee I know was very concerned about that at the time. I can only impress upon you to use your good judgment in allowing and being very careful about what kind of framework legislation you provide the executive branch. It is a dilemma.
Senator Milne: Without any concrete suggestions, there is not much we can do about it, other than changing a little bit of wording in the bill.
Mr. Macerollo: A little bit each step of the way can add up to a lot eventually.
Senator McCoy: I am sorry if this question was canvassed in French, but technology does fail, so I was not able to understand that exchange. I want to get it clear in my own mind exactly who is doing what to whom and who is paying for what in the process of introducing gasoline that includes either ethanol or biodiesel by fiat.
Your publication here tells me the cost breakout for gasoline at the pump. Really I am just stepping back to get the clear pass. As I understand it, your members are affiliates or subsidiaries of the same companies as the upstream oil and gas companies, so Petro-Canada is a member, Shell, Imperial Oil, et cetera, and they have 15 refineries. Are they buying the raw materials from which they make gasoline? Is Petro-Can buying it from another division within Petro- Can? Is that how that operates?
Don Munroe, Senior Advisor, Environmental and Fuel Quality, Canadian Petroleum Products Institute: Yes, our system works that way. We do not necessarily always buy crude from ourselves. We buy crude on the same price as the open market. Our upstream profits are separate from our downstream profits.
Senator McCoy: Now you have your major input or your major feedstock and then you do your refinery. You need additional products in order to come up with gasoline or jet fuel or whatever the product; is that right?
Mr. Munroe: Correct.
Senator McCoy: Do you manufacture to certain standards?
Mr. Munroe: We follow CGSB, Canadian General Standards Board, standards for all of our fuel.
Senator McCoy: We are talking about changing those standards.
Mr. Munroe: The standards have been changed.
Senator McCoy: To what?
Mr. Munroe: With the inclusion of ethanol or biodiesel.
Senator McCoy: Those standards have already been changed.
Mr. Munroe: We have worked a number of years adding those. There is a 5 per cent less biodiesel standard. There is no standard of biodiesel above 5 per cent and for ethanol there is a 10 per cent standard. There is nothing above 10 per cent in ethanol yet.
Senator McCoy: As I understand it, by 2010, you will be required to buy a certain amount of ethanol from the market.
Mr. Munroe: Yes.
Senator McCoy: And that goes into your product?
Mr. Munroe: Yes. The thing that most people miss, and this does not seem to come out too well, is that we have to change the gasoline to add the ethanol. The gasoline is no longer sold as gasoline, as Mr. Macerollo mentioned before. If you have a standard in one province that is different from standards in other provinces, then you end up with boutique fuels, fuels that are made to take that much ethanol, so you end up with a different fuel. You could end up with a different fuel in each province.
Senator McCoy: Let me understand that. You do not add the ethanol until you have your final product, your gasoline, which would be final if it were not for this requirement? It is a top-up, then, an additional process.
Mr. Munroe: It is additional to our stock, yes.
Senator McCoy: You get it to where it is today, then you have to do something to the gasoline, plus you have to buy ethanol, plus you have to blend it, then you put it into your distribution system?
Mr. Munroe: Yes, but from the final terminal on, because we cannot pipeline it. Most of the country is served by one pipeline or another. Gasoline and diesel fuel can be pipelined, but biodiesel and ethanol cannot.
Senator McCoy: Can E85 be pipelined?
Mr. Munroe: E85 cannot be pipelined. It is mostly ethanol.
Senator McCoy: Can the blended gasoline be pipelined?
Mr. Munroe: No.
Senator McCoy: Not at all?
Mr. Munroe: No.
Senator McCoy: That is the distribution side. Here you have your product. You are where you are today. You have bought your ethanol. That is part of your balance sheet. You do something to the gasoline to make it receptive. Presumably, then, you have had to add capital equipment at the refinery in order to make what you called RBOB — reformulated blendstock for oxygenate blending.
Mr. Munroe: That is right. That is the biggest chunk of those three years we are talking about. The distribution network is where the terminals can be changed.
Senator McCoy: I just want to know what you have to do with RBOB. We will get to the distribution in a minute, please. I am a slow, ploddy thinker.
Mr. Munroe: The volatility of gasoline increases with the addition of ethanol. The volatility is the rate at which it gives off vapours, so it evaporates quicker with the addition of ethanol. We must make gasoline at a lower value of volatility so when we add the ethanol it comes back to the same volatility that the car requires.
Senator McCoy: Is it a whole other tower? What is it?
Mr. Munroe: Exactly. It is either a debutanizer or a depentanizer, depending on your refinery. It takes the very light ends out of the gasoline.
Senator McCoy: It is yet another capital project.
Mr. Munroe: Yes.
Senator McCoy: Where I come from, we generally think of the Alberta industrial heartland. That is primarily where our refineries and upgraders are. We want CCS money for our upgraders too, which is downstream.
Mr. Macerollo: It is considered upstream from a federal level.
Senator McCoy: The feds think of it that way. I guess that is all right.
Now we have another tower at the refinery. Now you have put your ethanol in, have mixed it, and are distributing it. Now what do you do?
Mr. Munroe: We mix it at the final terminal, so the ethanol has to be shipped by truck or rail to the final terminal where we pipeline our gasoline still, and we mix it there at the final terminal at the blend rack where it goes into the truck, and then it is delivered to our retailer or wholesale network.
Senator McCoy: In the truck?
Mr. Munroe: In the truck, yes.
Senator McCoy: How much is distributed by truck now? You are saying it will all be distributed that way.
Mr. Munroe: The distribution does not change at the point; you have just added ethanol to it. To Mr. Morel's point, low volume increase is because of the lack of energy, but overall the volume does not really change. There is no more trucking than there was before the ethanol is added to it.
Senator McCoy: Because your distribution system is already there?
Mr. Munroe: It is already in place, yes.
Senator McCoy: Did I hear someone say that at every corner gas station I pull into you also have to add something?
Mr. Macerollo: You heard it from me, but I will directly refer to Mr. Morel. Studies have been done just for E85 that suggest a capital cost in the neighbourhood of $150,000 to $200,000 per retail station. Regarding E5 or E10, what would be the nature of the capital costs, Mr. Morel?
Mr. Morel: For E5 or E10, the existing infrastructure is generally compatible. A minimum investment into filter, tank cleaning — the normal maintenance procedure — will do it. To put in simple terms what the mandate does for the refining industry, essentially the components of the 5 per cent biofuel or the 2 per cent biodiesel are such that when added, to meet the customer's expectations, it requires modification of the bulk of the production.
Putting 10 per cent ethanol in gasoline means that we need to modify the whole volume that is made at the refinery. Putting 2 per cent biodiesel into diesel means, you have to have a different type of diesel. This is the complication. The issue is not making 2 per cent biodiesel, making 500 million litres of biodiesel or 2 billion litres of ethanol. The impact for our industry is that we need to look back at the whole 40 billion litres of gasoline-blend stock and change that. It goes down the pipeline, but until it is finally blended with the ethanol, that gasoline is useless. That is the risk.
The customer is subjected to the finished product including the modification at the refinery, the transportation to all the finished points and the blending with the ethanol. This is why, as Mr. Macerollo mentioned, we need some time. This just does not happen. It is not just taking the gasoline that goes to the terminal today and adding ethanol on top of it. That would not work well in your car.
Senator McCoy: You have put a new tower in your refinery — or whatever you are doing — because, as you say, all of your gasoline or diesel must be readied for the blend. I understand that part. Who pays you for that investment? Is that out of your own pocket?
Mr. Munroe: The same people who paid for the sulphur out of the gasoline; it is a cost of the industry.
Senator McCoy: I think I heard you say that you are not increasing the cost of gasoline at the pump.
Mr. Munroe: No, one good thing I can say is I have absolutely nothing to do with pricing. I have no idea how they set the price.
Senator McCoy: It is a cost imposition on the refineries to comply with this regulation.
Mr. Munroe: Right, it is just a marketplace price.
Mr. Macerollo: There are some market dynamics you need to keep in mind. If all players in a market have to incur the cost, to a degree, it is easier to pass it on to the consumer. I am not saying it will, but it is generally easier if everyone is bound by it.
However, it is a fungible product. A lot of stuff moves across the border. There is a 51-cent subsidy below the border, which is a good attraction; and it does not have to be American blending or an American product. You end up, among other things, with uneconomic movements of product in order to catch subsidies. There are examples in the United States where palm oil will come across the Pacific just to land in American territory, blend a little bit, get the dollar subsidy on the diesel side and then ship it to Europe.
Mr. Morel: And catch a blender subsidy again in Europe.
Senator McCoy: That is what Senator Brown referred to as the good side of the supply and demand market. That is what markets are supposed to do, make these decisions, or lead you to making these decisions. It is fair to say this is an industry cost. It is fair to say, though, that you did accept that this cost would be part of your future when you announced your agreement in December 2006.
Mr. Macerollo: It was based principally, we believed, on a train that had left the station.
Senator McCoy: Yes, we fuel the trains as well.
Mr. Morel: Some of your senators represent Alberta and the Western provinces. You can see that the main gasoline is made in the refinery in Edmonton, and it must be distributed from British Columbia to Ontario. If you have a different recipe every time it crosses a border, it becomes extremely difficult and creates inefficiencies in the system. For 30 years, our industry tried to optimize an efficient system across Canada; and all of a sudden, we are splitting it into small chunks.
Senator Spivak: Do you hear that signal at the crossing?
Senator Brown: Can you tell us how long Husky and Suncor have been producing ethanol?
Mr. Morel: Suncor has been producing ethanol since 2004, but they have been blending it in their gasoline since 1997 or 1998, I believe. I could be wrong by one or two years, but Suncor has been marketing ethanol-blended gasoline for probably about 10 years.
Senator Brown: What about Husky?
Mr. Morel: Husky has been producing ethanol since the 1990s. I do not want to quote a date. I am not sure. The business started with what used to be the Mohawk company, which had a small ethanol plant that then merged with Husky and became Husky. They have been marketing since —
The Chair: I think 1989.
Mr. Morel: Thank you, senator.
Senator Brown: Is there a benefit to the engine life of an ethanol blend?
Mr. Munroe: I have not seen any proof of that one way or the other. Ethanol is a solvent, so it keeps things cleaner. I have not seen anything to prove one way or the other that engines last longer.
Senator Brown: It would seem if it keeps the engine cleaner, it would probably make it last longer. What about biodiesel? Is there a benefit to engine life for biodiesel?
Mr. Macerollo: That is why, among other things, we are doing this demonstration project in Alberta. We are seeking a pilot project through the Imperial Oil facility. Canadian truckers generally have been reluctant to embrace the product because all it takes is a bad example somewhere to make everyone concerned. The bad example that everyone likes to refer to is Minnesota. It got cold one day and the trucks stopped. That is the superficial description, but that is why we are doing the demonstration projects — to raise confidence.
Senator Brown: I understand that is a problem if you do not have a proper blend of diesel, summer and winter diesel. We used to deal with that all the time, if you did not have winter diesel, your tractors would stop too.
Mr. Macerollo: Exactly.
Senator Brown: I used to have a diesel truck that if you did not get the right winter diesel soon enough when the temperature dropped, it would stop.
An Australian biodiesel group claims that it doubles the life of a transport truck engine at B20, which is a 20 per cent blend. Are you aware of those statistics?
Mr. Munroe: Most of the time when someone refers to a study like that it is because biodiesel has higher lubricity than regular diesel. Once we made ultra-low sulphur diesel, the lubricity of our natural diesel came down significantly. If you look at straight ultra-low sulphur diesel, and you add the biodiesel, where you get the lubricity, most of those claims are that is why the engine will last longer.
What people leave out is that we have respect for lubricity and we add additives to our ultra-low sulphur diesel to bring that lubricity back up. It is not quite fair in the sense that we have replaced that lubricity and therefore we are right back where we started. The biodiesel adds it naturally; we add it with an additive, but that is usually what it is based on. It is the lack of wear in the engine because of the lubricity in the biodiesel.
Senator Brown: It is not really a negative to have a biodiesel blend, then, if you do not have to add additives.
Mr. Munroe: No, it is not negative. The biodiesel does add lubricity.
Senator Brown: Do you think that Suncor and Husky will quit making ethanol if this bill does not pass?
Mr. Macerollo: You would have to ask them. I can tell you that they have obviously developed business cases before some mandates were in place, so they have an economic rationale that has been accepted by their respective boards.
We come back to this notion that this is an industry that does not yet exist. There are some companies that exist doing this, but it does not fall into the scale of an industry yet. We know there are other uses for these products, so it is difficult to see that decisions would depend on this bill.
Senator Brown: I am curious because Husky-Mohawk, through their Mohawk stations, seems to have been selling ethanol blend for well over 20 years now, and I have bought it myself. I do not usually buy it because I buy from a Calgary co-op specifically and I do not know where the gas comes from. I occasionally buy Mohawk if I am someplace outside of Calgary. I have never seen any difference or heard any complaints about it.
Mr. Macerollo: That is actually our point, which is that where it is economic to do so it will happen. They did not need to find a business opportunity. They did not need a mandate to find a business opportunity there, and that is why we believe that the marketplace is the best determinant of these kinds of things when it is of an economic nature.
If we were having a discussion where we were looking at orders of magnitude on environmental considerations, then the discussion would look considerably different.
Senator Brown: Can you not buy pure ethanol and add it to gasoline now if you want to?
Mr. Macerollo: By yourself?
Senator Brown: Yes.
Mr. Macerollo: I do not think it is recommended.
Senator Brown: I am asking if it is done.
Mr. Morel: Are you talking about individual customers?
Senator Brown: I am referring to a can of ethanol that you could put into your gas tank.
Mr. Morel: To a large extent the experience in the last 10 to 15 years in Canada has been that in an area where it was not blended at the terminal directly has been done in what we call splash blending. A producer or someone who has storage for gasoline could take a load of ethanol in a truck, add gasoline on top of it, or the other way around, and drive through the various service stations.
That is not recommended by the CGSB because it could lead under certain conditions, depending on the weather, to some problems. Ethanol and gasoline, if they are not mixed properly, could separate. On a cold night, for example, you could have some water in your tank or you could have problems.
Generally, the practice is that it is preferable if it is properly blended right at the terminal so this separation issue does not occur. That is essentially the direction where all the U.S. and where most of Canada is going also.
Senator Brown: The reason I ask that question is because it seems to be that some people are doing this. You made the comment that you had to change your gasoline in order to lower it if you were going to add ethanol to bring it back up to the same volatility. I wonder why people are doing this arbitrarily if they do not feel a benefit.
Mr. Munroe: Well, they will not feel any benefit, but if it is a hot day and they have been running their car fairly hard, shut it off and then went to start it again, that high volatility could mean you would get a lock in the fuel line. It is more of an issue with a 1931 car than it is with a fuel-injected car; nevertheless, fuel lock is not an unusual thing and that is why there is a CGSB standard for volatility. I believe that they are taking a chance when they do it.
Senator Mitchell: This has been very interesting. Mr. Macerollo referred me to this climate change document and it is very interesting. I note that your industry, the refining industry, has dropped its greenhouse gas emissions by 7.5 per cent below 1990 levels, which surpasses the requirement of Kyoto. Did that hurt your industry at all? In fact you say it increased efficiencies and it was good for business.
Mr. Macerollo: Energy conservation and energy efficiency is part of a good business plan. I cannot describe the specifics of each company. If you would like to hear some insights from Petro-Canada, they can give you one insightful example.
I will say that we have been taking this pretty seriously for quite some time. Don Munroe may want to add something from a Petro-Canada perspective.
Mr. Munroe: Our energy intensity is one of the things we have been tracking. I spent 25 years in refinery. It has always been top. The biggest user of petroleum fuel is our industry. We use a lot of energy to run a refinery. It is more of an economic savings for us to decrease our greenhouse gases, and I believe it was mostly based on that.
Senator Mitchell: That emphasizes my point. However, over and over again we hear from industry — not necessarily you — that it will wreck the industry and wreck the economy to pursue Kyoto or climate change. It is implicit in this government's ambivalence at best, and at worst reluctance to do anything about climate change, yet over and over again we have had the foresters association 44 per cent below 1990, chemical producers, manufacturers, refiners, it is all been good for business.
It says here that you use 12 per cent less fuel than you did in 1990, but you are producing 7.5 per cent fewer greenhouse gases. Why would it not be 12 per cent fewer greenhouse gases if your energy intensity is improving and your efficiency is improving?
Mr. Munroe: Most of that is probably in losses in removing sulphur from gasoline and sulphur from diesel fuel. It is a very high-energy, expensive job, with high pressures, high temperatures to be able to get that sulphur out of the product.
Mr. Macerollo: In relation to the comment about what you have heard repeatedly from groups, it comes back to predictability in decision making. This country was operating under a 1990 assumption and a Kyoto commitment for a very long time. When the agreement was signed, that sent a signal to the business community, which developed individual business strategies that would have reflected the certainty, as they knew it.
Senator Mitchell: When the government reversed all of that in 2006, I suppose it threw a monkey wrench into it.
Mr. Macerollo: The 2006 base does cause us some problems, not the least of which was we were in the middle of desulphurization at that point, which, as Mr. Munroe indicated, caused an increase in our CO2 emissions because it is an intensive removal process. If it is being done for environmental purposes and the science is clear then there is a path forward. Therefore 2006 is a problem, but 1990 was, in effect, the equivalent of a price signal, if you like, that people planned around.
Senator Mitchell: Yes, and it worked.
The Chair: I have to throw in parenthetically, in case some do not know, and I am sure Mr. Munroe will agree, that while your industry strongly resisted the removal of sulphur, depending on the commodity prices, for a couple of refiners, on occasion it has turned out to be a profitable thing to be able to sell sulphur. Am I correct?
Mr. Macerollo: Is there a big market for sulphur?
Mr. Munroe: No, not from the by-product for sulphur, but it does become a commodity that you can sell.
The Chair: You have been very good witnesses; thank you very much.
We are joined by Roger Samson, Executive Director, Resource Efficient Agricultural Production Canada, REAP- Canada, and by Bob Friesen, President, Canadian Federation of Agriculture.
Roger Samson, Executive Director, Resource Efficient Agricultural Production Canada (REAP-Canada): Resource Efficient Agricultural Production Canada is a research and educational organization that works in the area of sustainable biofuel development and sustainable agriculture. We have been working for the last 18 years in Canada on sustainable biofuel development. We have also worked overseas in developing countries on poverty alleviation programs for the last 11 years.
Many of you would have the brief that I gave to the House of Commons standing committee, and I have made a small brief to give to you today. I have five points to cover around the sustainability of this proposed legislation.
As many of you know, there is the sustainability problem in terms of the feedstock supply today. Canada increasingly will be relying on U.S. corn to make ethanol to implement Bill C-33. The reason for that is that U.S. corn is currently the cheapest high-starch grain widely available for ethanol producers, and Canada has no appreciable land base to further expand corn production.
In fact, the Quebec government has abandoned corn for ethanol as a policy because it lacks environmental promise and they have problems with things like blue-green algae in the province.
Corn production in North America historically has a problem with production issues. Four times since 1970 there has been a 30 per cent reduction in the crop. That is about one year in nine that there is a collapse in corn production because of environmental weather problems.
Annual crops like corn are highly sensitive to extreme weather. One reason we have worked on developing native grasses like switchgrass for the past 18 years is that the crop is resilient and can handle floods and droughts.
The second point is financial sustainability. As many of you have read in the papers today, the corn ethanol industry is in crisis because corn prices have gone over $7 per bushel and natural gas — a major input — is $12 per million BTU. Much of the U.S. corn ethanol industry will not be operating this summer and fall if these commodity prices stay that high. Corn is addicted to inputs. It is not efficiently running on solar energy. The two major inputs are fossil fuels and corn. Corn is dependent on fossil fuels, like natural gas, for fertilizer to dry it. That is why we have been looking at other options.
The question is what will the Canadian government do if the ethanol is not available. There is a mandate of inclusion, and the industry cannot sustain operations. Will it increase subsidy, further raising the value of commodities of grains and oil seeds, further fuelling food inflation, or will it simply pay the biofuel industry not to operate when its fuel sources are too expensive?
Even before the corn ethanol financial crisis, using virgin oilseeds to produce biodiesel is not financially sustainable on a large scale with 20 cents per litre biodiesel incentives. Does the federal government plan to further increase incentives if annual grains and oilseeds stay at record prices? Many of you may have seen the brief we gave to the House of Commons standing committee. It was a 14-page brief, and in it we cited a recent report we did. We calculated that in the province of Ontario the cost of mitigation was $378 a tonne with the current incentives available for ethanol producers in the province. You multiply your incentive by your offset efficiency and you get this $378 a tonne. Is there any price too high to pay for corn ethanol and biodiesel CO2 offsets if we are trying to prime the pump and get this industry going?
My third point is the global food situation. In 2007-08, serious food inflation affected many countries, especially developing countries where food is not highly processed. The Food and Agriculture Organization of the United Nations, FAO, report on their website indicates that the global grain supply grew by 4.6 per cent last year. Therefore we did not have a supply problem globally. The farmers of the world had a great year.
However, carry-over stocks were reduced by 5.2 per cent. There was a demand problem, not a supply problem. It was equivalent to 22 million tonnes of grain taken out of the residual food basket of the cereal supply of the world.
If we assume biofuels were used for 100 million tonnes — and that figure comes from the FAO — we can calculate that world carry-over stocks of grain would have increased by 12 per cent if we were not using biofuels. Those people who are saying that there is no connection between biofuels and global grain prices are not doing their math. Logically, global grain prices would have declined appreciably if we had that 12 per cent increase in food stocks at the end of the year.
It is obvious food crops or biofuels have an appreciable impact on food inflation when their usage or non-usage can so dramatically influence the carry-over world grain reserves.
How far will food inflation go this year, when we have a production problem? We are having one of those one-in- nine years. We have a production problem this year and are seeing dramatic increases in corn and meat prices. We are seeing more food inflation.
Is there a plan to deal with the hunger crisis that will flow from rising food and inflation in a bad production year? The FAO says that $30 billion is required to feed the hungry. The consequences of regular crop failures have not been considered in Bill C-33.
My fourth point is the Canadian situation. Agriculture and Agri-Food Canada estimates that corn production in Canada in 2008-09 will decline by 15 per cent while corn ethanol production will increase by 14 per cent. Canadian carry-over stocks of corn are projected to decline by 22 per cent, despite a 14 per cent reduction in corn use for livestock feed. These numbers do not add up. In 2008, Canada is apparently growing an ethanol industry on imported feedstock and depleting grain reserves. With the world corn shortage in 2008, Canadian taxpayers are effectively financing corporations to reach deep into the world food basket to take someone else's food and turn it into fuel.
The impact on Canadian households is related to food inflation. On average, Canadians spend about $7,000 per year, per household, for food purchases. If Canadians experience the average 5 per cent to 10 per cent food inflation that other industrialized countries are experiencing, this could amount to an increase of $350 to $700 per household. There are 12.5 million households in Canada. This could be equivalent to $40 billion to $80 billion over the nine-year lifetime of the Bill C-33 program.
The economic impacts of food inflation on Canadian households will dwarf the $2 billion that Bill C-33 will cost over those nine years.
Point five is a better path forward. I have included two figures at the back, and you can flip to them. These are analyses that we made in conjunction with European scientists looking at the province of Ontario and what the net energy gain is. Let us say we ran out of fossil fuels tomorrow. How efficiently could we capture solar energy, grow it on farms and fuel society? What you will see in this chart is that bio-heat and biogas — these technologies on the left side — are more efficient than what the government is supporting on liquid biofuels.
If you look at the far right, you will see what Bill C-33 is supporting. The lighter area that I have in yellow on my copy is actually the net energy gain. That is basically your profit. You can consider the red the expense; those are your fossil fuel inputs. The light colour — on your copy it is the white — is your energy profit. You can see that the energy profit of growing grasses for pellets is 700 per cent higher than liquid biofuel. Biogas — what the Germans are developing — is 600 per cent higher.
Then let us go to the last chart and how this translates into greenhouse gas mitigation. This proposed legislation is designed to help farmers, help improve the environment and increase energy security. This is the mitigation potential. With grass pellets we can have 7 tonnes to 13 tonnes per hectare of mitigation. If you look at the far left, you will see for grain corn ethanol in the province of Ontario, 1.5 tonnes of mitigation. You can get anywhere from 5 per cent to 800 per cent higher greenhouse gas mitigation from that same acre or hectare of farmland if it is used in more resource- efficient energy production systems to help Canadian farmers.
Going back to the fifth point, the better path forward, there are several options available to be supported by effective legislation that can produce 700 per cent more net energy gain in greenhouse gas offset than this proposed legislation. Those technologies come from Canadian farms.
Unfortunately, advisers to the Canadian Minister of Agriculture and Agri-Food must be misinforming him, because when he testified here at this committee, he said that his agency was supporting biogas and pellets in an appreciable way.
As a scientist who has worked in this field for 18 years, I can say that right now there is the least amount of funding we have ever seen in this area. There are effectively no incentives and no appreciable research when compared to the generous funding provided to develop liquid biofuels.
To correct this deficiency, we have proposed a more progressive approach towards creating parity incentives for renewables. This approach creates no fuel mandates and it picks no winners. It simply represents a policy framework to support the development of the bio-energy and renewable sector that levels the playing field. We call it the 12345 program, and it is based on incentives per gigajoule of energy produced. A gigajoule is the metric measure of energy analogous to the BTU or British thermal unit.
In the 12345 program, 1 stands for one national renewable energy climate change program; 2 stands for $2 per gigajoule of green heat; 3 stands for $3 per gigajoule of biogas; 4 stands for $4 per gigajoule of green power and liquid fuels; and 5 stands for a 50 per cent reduction of greenhouse gases in a fuel switching application to receive this incentive.
We believe that modest carbon incentives and modest renewable energy incentives are the best policy instruments to create a dynamic and competitive bio-energy and renewable energy sector in Canada.
I strongly suggest that Bill C-33 has major social, environmental and economic sustainability issues. There are options to amend and improve this proposed legislation, but first the Senate of Canada should ask the federal government why no sustainability analysis has been put forward with regard to this proposed legislation. It is evident that the greenhouse gas mitigation estimates provided to the Canadian public are scientifically unsupportable. There is no plan for what will happen when extreme weather strikes and food supplies shrink. The government has made no analysis of the food inflation impacts of using food as fuel. The Canadian government is imposing on Quebec a Canadian regulation that the province has declared has no appreciable environmental benefits.
Is Canada progressing as a nation when we develop policies that cannot fit into the definition of sustainable development, being defined as development that meets the needs of the present generation without compromising the needs of future generations?
For the sake of Canadians and the less fortunate and impoverished nations, we hope that the Senate of Canada will be informed, engaged and objective when they review this bill and that they will put the broad interests of Canada and Canadians ahead of all other concerns when developing this legislation.
The Chair: Using the switchgrass examples that you have shown, what would be the land coverage implications of growing that much switchgrass? We have heard about land use and how much land it would take for corn, but will switchgrass take up a lot of space as well?
Mr. Samson: With one acre of switchgrass, you replace seven acres of corn in terms of the greenhouse gas mitigation. If the legislation is designed to mitigate greenhouse gases, you have one seventh the competition with an acre of corn.
The other advantage of switchgrass is that it is well adapted to marginal farmland, so it is not directly competing with the food basket, which is producing annual food crops. We are more competing with marginal farmland. As Mr. Friesen will say, these farmers are suffering right now. They have problems with livelihood; they still have low incomes because there is only a modest recovery of their prices.
The Chair: Could you grow switchgrass in the Palliser Triangle?
Mr. Samson: You could grow other drought tolerant grasses that are native to Southern Saskatchewan. Switchgrass is native to Southeastern Saskatchewan. Prairie sandreed is native to British Columbia. There are adapted native grasses for each part of the growing regions of our agricultural zones, and they are much more efficient energy collectors. They operate on solar energy efficiently.
Bob Friesen, President, Canadian Federation of Agriculture: I am of mixed emotions this afternoon. Perhaps I should not have come as early as I did, because I am not sure whether to follow my notes or simply make counter-arguments to what I have heard.
Suffice it to say that Mr. Samson makes an interesting and valid point. We want to pursue the science as much as we can in improving the production of biofuels. My comments as to the past panel may be a little less gracious, but I will interject that into my comments as I go along.
Let me say first that the Canadian Federation of Agriculture, CFA, represents farmers from across Canada. We count as our members a general farm organization from every province, as well as numerous commodity organizations. I believe my comments are supported by the Grain Growers of Canada as well as the Canadian Canola Growers Association. There is a lot of support for what I will say.
CFA members take seriously their responsibility in trying to come up with opportunities for farmers and trying to create revenue streams for farms. They take seriously their responsibility in coming up with ways of empowering farmers and having farmers be solution providers, which is key in today's environment. How can farmers provide solutions to some of the challenges that we see? As well, it is becoming more and more important to ensure that we create strong crosswalks between farmers, the farm industry and the Canadian public.
Environmentally, farmers are willing to be accountable as well as solution providers to any of the environmental challenges we may have. There are many opportunities when it comes to ways of being environmentally sustainable, with opportunities that we may have in areas such as solar power, wind power, bio-digesters, biofuel production and carbon credits.
We would certainly urge the Senate to approve Bill C-33 as quickly as possible. I heard part of the discussion with the last panel, and I thought I had gone back in time and was listening to the world-is-flat argument. This is a no- brainer. These guys have the technology to do everything they argued they could not do because they did not have the technology. If our ancestors had been so small-minded when it came to innovation, from what I heard here, we would not be anywhere. Other countries have passed us and are lapping us when it comes to biofuel production and technology and when it comes to innovation and opportunities for the agricultural industry in the area of biofuel production.
Five per cent and 2 per cent are peanuts compared to what other countries are doing. We should have done this years ago. If we had been out of the gate faster on this one, Brazil would not be as far ahead of us as they are. In fact, they are far ahead of the U.S., and the U.S. is far ahead of us. The public is expecting us to be accountable and responsible when it comes to doing whatever we can for the environment. I will go into that later.
Let me list some of the reasons why we feel this bill is important. First, we need competitive policy in Canada. We are sometimes accused of having farmers that are not as competitive as farmers in other countries. That is not the problem. We have some of the most competitive farmers in the world, but we do not necessarily have competitive policy. The U.S. has out-competed us in agricultural policy in the past, and we need to be out of the gate much quicker.
If you look at U.S. farm income, Canadian farmers were making their way through the worst four years in net farm income in their history while, at the same time, U.S. farmers were making their way through the best four years of net farm income in their history, with record low farm debt, and our farmers had a record high farm debt.
What were the solutions in the U.S.? It is tempting to say that U.S. farmers received a lot more subsidies, but subsidy figures are getting much closer. U.S. support for farmers and Canadian support for farmers are getting closer and closer, but the U.S. has been far more strategic in the way they flow their support, and part of it is with the way they address their biofuel industry. Of course we think it is unfair that they flowed so much money into the corn industry to create a biofuel industry, but now they have a strong biofuel industry and we are playing catch-up. Again, this is about providing opportunities for farms and creating revenue streams.
This is also about empowering farmers. We need to find ways of empowering farmers, and there is no better way than to create alternatives and different options for farmers so that they can avail themselves of those opportunities.
I think we have two objectives environmentally. First, we want to create less reliance on non-renewable resources. I could not help but think of that when one of the previous panellists said that their companies use a lot of their own product. They certainly do. It takes 1.23 BTUs of fossil energy to manufacture 1 BTU of gasoline energy. They use a lot their own products.
When it comes to biofuel manufacturing, the numbers range from 1 unit of BTUs providing 1.36 BTUs of energy when it comes to biofuel manufacturing to as high as 1 unit to 3.5 units. However, the science is there to say that there is a net benefit in producing biofuels and ethanol. There is also enough science that tells us that we create fewer greenhouse gas emissions. There is a net benefit in producing ethanol and biofuels in that it creates fewer greenhouse gas emissions.
Therefore, the science is there to show a slight benefit. When it comes to the life-cycle equation of biofuel production, the sky is the limit. We have all kinds of potential to increase yields, to go to more and more no-till, even with corn production. There is lots of potential to be more efficient when it comes to fertilizer use.
Another point is the fact that the public expects us to try to be responsible, both when it comes to less reliance on non-renewable resources as well as when it comes to reducing greenhouse gas emissions. Again, farmers can be solution providers. We can create that stronger crosswalk between farmers and the Canadian public and say, ``Look, we hold our heads up high in being as responsible as we can and being solution providers to these challenges.''
Biofuel manufacturing is also an issue of rural development. We would say that the more biofuel manufacturing we have across Canada, the better off we are. We would rather have that than one or two very large companies in certain locations in Canada. We would like it spread across Canada because it helps with rural development and it would reduce transportation when comes to moving the product around. There can be a benefit there, as well.
There was another interesting point and I could not help but think that it is a little bit like the food safety issue and the animal welfare issue: What are the expectations of the Canadian public? The train is out of the station when it comes to the fact that the public sees a benefit to biofuel production, both less reliance on non-renewable resources and reduction of greenhouse gas emissions. They expect it.
Regarding animal welfare and on-farm food safety, it was not our buyers' who said, ``You have to do this.'' It was our buyers' customers who said, ``We expect you to tell the farmers to do this.'' I believe the same thing will happen with ethanol and biofuel content: the Canadian public will demand that our gas companies include it in their product. Do we want to produce the feedstock and manufacture the product ourselves when we meet with the social objectives and expectations, or will we import from other countries like Brazil and the U.S.?
We need to get out of the gate faster on this issue and avail ourselves of the opportunities that are there, notwithstanding what Mr. Samson said as far as improving the science. Of course, we need to improve the science. We already have cellulosic science in producing biofuels and using biomass to produce biofuels. We need that and move towards it as fast as possible.
I will talk about the global food crisis. I attended an International Federation of Agricultural Producers meeting in Poland two weeks ago. There are about 100 country members. About 75 per cent of those are developing countries. There was no talk about reducing biofuel production around the world. In fact, there was more talk about how we can avail ourselves of these opportunities. Regarding food shortages, they said that there are piles of food everywhere in their countries. The problem is distribution and lack of infrastructure to bring the product to market. The other problem is that there is a lot of fallow land not being used because of the increase in input cost and the lack of infrastructure.
There was general agreement that we have enough productive land and technology around the world to produce both for the biofuel industry and for the production of food. In fact, interestingly enough, it is also about empowering farmers in developing countries. Some farm leaders from developing countries came to the meeting and asked what increase in commodity prices we are you talking about. Brokers and buyers were exploiting farmers in those countries by not disclosing the price of those products. I will not go into detail now. However, if you want a discussion about what some of the problems are with regard to the food crisis and people not being able to afford the increased grocery prices, I have to say that we have to figure out how farmers can be profitable and people can afford to eat. It is unacceptable that people cannot afford to eat and that people are left hungry. I can tell you later during questions how the World Bank, the FAO, the International Fund for Agricultural Development, IFAD, and the International Monetary Fund, IMF, are part of the problem.
I will be looking forward to any questions you may have.
The Chair: Tell us why the IMF and those guys are part of the problem.
Mr. Friesen: We heard from the representative from India saying — in fact, there was a World Bank representative there — that have no ability to flow money to where it is needed in developing countries. They have to flow it to governments. There structure forces them to do that way.
The gentleman from India said that, of the billions of dollars the World Bank flowed into India over the years, agriculture has never seen a penny. He told us that between 30,000 and 50,000 farmers a year commit suicide in India because it is a matter of honour if their farms fail. He said they have not seen any money for agriculture from the World Bank.
The IFAD does good projects in developing countries. However, when a project is done, they leave and there is no sustaining power behind the project. Therefore, they need to stay there and ensure that the project is maintained.
Before the IMF helps a least developed country, they force that country to deregulate and to eliminate all domestic support. At the time when the agricultural industry most needs regulation and support for development, a country is forced to eliminate those. There is no hope to develop an agricultural industry. In fact, if one was skeptical, one might think that the IMF countries want that because they would like that market themselves. They are not too interested in developing the agricultural industry.
The problem with the FAO is that they do not consult with farmers. They do not consult with the International Federation of Agricultural Producers. The only time IFAP has ever been consulted was when they forced themselves on a meeting to try to tell the FAO what the actual problems were and what some of the real solutions in those countries would be.
Those are all very important organizations in improving the food distribution around the world, to improve affordability and to ensure we have sustainable agricultural industries in developing countries. Those organizations need to make sure they get their feet on the ground and do exactly that.
Senator Mitchell: Mr. Friesen, from the both sides of this discussion — and we have had witnesses on both sides — I think there is a sense that there are secondary technologies that even those who are opposed to ethanol as it is being produced now would generally accept under secondary technologies. There is lots of evidence that those technologies could reduce the carbon footprint.
However, those opposed argue it will never happen; it is taking too long and it will be 15 or 20 years before those technologies will affect things. Could you give us insight into how close you feel those second-generation technologies are? Some of them are in commercial production right now.
Mr. Friesen: I do not know the science behind it and I do not know how close we are. I am saying that if we do not get out of the gate on ethanol and biofuel production as we know it today, we will not be ready for the new science that will continue the industry.
You heard criticisms earlier that we do not have the technology, that we will have to retrofit, and retrofitting will cost a lot of money. There should be regulation to ensure that gas companies must take the cost of retrofitting out of the billions of dollars of profits they make and ensure those increased costs do not accrue back to the consumer.
They were saying the technology is not there. Why is the technology not already there for them to do a better job at blending? Other countries have it. The industry should have seen this coming.
If we wait until we have improved the other signs, we will simply sit around and wait for other countries to lap us again.
Senator Mitchell: I have mentioned before how it is interesting that at a time when farmers start to get paid for their products, we go after those farmers and say it is their responsibility to subsidize food for the world. We do not go after the oil companies, the fertilizer companies or anyone else to restructure in order to feed the world, but we go after farmers. I do not think that is fair.
Not being able to pipeline ethanol raises another possibility to which you alluded. I would like you to elaborate.
It will reduce transportation and we will have to build refineries closer to where the blending is done. Do we not avoid the problem with oil refining where the refineries are often built in locations that do not seem to benefit Canadians? The oil sands are far away from the refineries. This way you would have more localized initiatives.
Mr. Friesen: We would certainly support that.
As you say, building the refineries closer to where the blending is done does two things. It reduces transportation and increases opportunities for farmers across Canada, not only in specific areas.
Beyond that, it is a tremendous tool for rural development. It will increase opportunities for farmers in the area and opportunities for employment.
We have been grappling with rural development for years. We are losing people in rural areas and we talk about how we can develop rural areas. The best way to spur rural development is profitability in the primary production sector and employment opportunities in rural areas. We think this is a great way to do exactly that.
Senator Mitchell: Mr. Samson, you mentioned your five-step way to stimulate alternative or biofuel production. Would the $2 per gigajoule for green heat and $3 for biogas, et cetera, be direct subsidies?
Mr. Samson: Yes, they would be subsidies to the fuel producers.
We did analysis funded by the BIOCAP Canada Foundation, which is based at Queen's University, looking at the cost of mitigating one tonne of greenhouse gases and how we can better protect Canadian taxpayers' investments by supporting renewable energy. We looked at the entire portfolio of renewable options and chose the most important province in terms of energy consumption, Ontario.
We did the analysis and came up with a spectrum of costs. We are now doing it across Canada for another foundation. In the province of Ontario, the cost to mitigate one tonne of greenhouse gases is $378 per tonne for corn ethanol; $100 per tonne for biodiesel; and technologies like wind energy, biogas and grass pellets replacing coal were $50 per tonne or less.
Everyone wants farmers to do well and we want to see demand enhanced to help farm prosperity. However, we can also invest in these other technologies that can complement some of the other activities the federal government is supporting, such as biogas that reduces manure, odour and pollution, and grass pellets grown in marginal farmland that we can use to heat greenhouses to keep food costs down. There are great opportunities.
We did the first analysis in Canada to look at the incentives government is providing and the costs of mitigating greenhouse gases. The cost is a function of two things: the incentive per gigajoule and the efficacy. Corn ethanol reduced emissions by 21 per cent. However, grass pellets reduced it by 90 per cent and wind energy reduced it by 98 per cent.
We need to understand better the science of greenhouse gases and how to invest taxpayers' money. The technology is actually ahead of the policy in understanding how to create policy instruments to reduce greenhouse gases efficiently. This is why many people say you need to put a price on carbon, which is what some of the political parties now are promoting.
We say you need to put a price on renewable energy production. Do it on a gigajoule basis and try to create parity with the fuel you are replacing.
The reason we establish $4 per gigajoule for green heat and liquid biofuels is because they have the most value in the marketplace. Biogas replaces natural gas and has less value. Grass pellets would replace coal and natural gas. Therefore, we created this model of $2, $3 and $4 per gigajoule. It gives us parity rather than the government saying let us pick this one.
Senator Mitchell: Do you believe in carbon taxes?
Mr. Samson: We think modern carbon taxes are an effective approach at mitigating greenhouse gases. It is one of the ways to protect industry and help them to create green renewable energy incentives to help them further. It is a carrot and stick approach.
Senator Mitchell: Finally, you say the grass pellets avoid the problem of displacing land used to grow food because they would be grown in places where you could not grow food anyway.
Mr. Samson: REAP-Canada has developed the most efficient system in the temperate world to use farmland to mitigate greenhouse gases. We are using fast growing native grasses adapted to our undervalued land that can provide significant levels of prosperity improvement for farmers. The technology exists today to process them into pellets at low cost. The capital cost for a pellet plant to produce a unit of energy is $5 per gigajoule. The capital cost for the cellulosic ethanol plant proposed for Saskatchewan is $278 per gigajoule. It is 50 times more.
Senator Mitchell: Mr. Friesen, you alluded to carbon credits. There is a tremendous market for that. It has already been aggregated in Alberta due to a minimal cap-and-trade initiative by the Alberta government.
Is it true, for example, that growing grass pellets could result in farmers being able to sell the pellets and being able to sell the credits because they are reducing carbon, if only we had a market in this country?
Mr. Friesen: Yes, we support that initiative. I am not sure whether Mr. Samson is referring to the specific initiative in Quebec where the government is paying farmers for creating larger buffer zones than what the regulation requires. Those larger buffer zones create a strong crosswalk between the public and the farmer because there are larger buffer zones around the water and lakes, and farmers are growing switch gas and turning it into pellets. It is an alternative fuel and provides a carbon credit. We support the push to develop that science.
Regarding carbon credits, you are right. Alberta is ahead of the rest of the country. We have been pushing for a long time to create that revenue stream for farmers on carbon credits. Farm organizations in the U.S. have already facilitated the trade of carbon credits for their farmers for some time. Canada is behind on that as well.
Senator Mitchell: If you took the approximate price that carbon credits are being sold for by Alberta farmers — money being given to farmers to invest in their farms and to feed their families — we could achieve Kyoto targets with between $1.5 billion and $2 billion per year at that price.
This federal government is saying it will bankrupt us. It is nonsense. We simply need to get on it and do what is possible.
The Chair: Mr. Friesen has made it very clear. He wants this committee to recommend that the Senate pass this bill now. Mr. Samson, what do you want us to do?
Mr. Samson: The Canadian government needs to do a complete sustainability analysis on the bill. The Senate should request that, because I do not think you have enough information to make a balanced decision on this right now.
At the meeting I attended at the House of Commons committee, I suggested that one thing they can do is support other technologies. Providing support to other technologies would help to support farmers through the production of biogas and grass pellets, adding to their target. We know that the science on those mitigations is much stronger. There needs to be a much deeper analysis of the cost respecting food inflation. The numbers I have presented are not unrealistic with $40 billion to $80 billion equating a 5 per cent to 10 per cent increase in the food bill. That is a lot of money.
On the second point, greenhouse gases science is such that it is 21 per cent mitigation with corn ethanol, 80 per cent with biogas and 90 per cent with grass pellets. We can apply incentives in those technologies and go further with our investments.
Rather than go 5 per cent and 2 per cent ethanol, I would recommend a closer study. We do not have enough information to make a proper decision on the best sustainability development policy for Canada. Look at scaling it back if you want to help the liquid fuel industry, provided there is broad support across Canada. Rather than selecting 5 per cent and 2 per cent, choose 2 per cent and 1 per cent. Step it up once the sustainability is demonstrated. From a mitigation standpoint, we see other, more efficient options where the government invests its money, and the impacts of those would be less on food inflation and would help farmers.
Mr. Friesen: My staff would kill me if they heard me use this analogy, because I have probably worn it out: Wayne Gretzky was asked once why he was so good. He said that he learned to go where the puck was going to be. He did not go where the puck was or is. He I learned to go where the puck would be. We can sit around and talk about this for another five or ten years. By the time we have decided what we want to do and determined the science, other countries will have discovered other science. We need to get out of the gate now because it is already too late; we should have been out sooner. Let us develop the science that Mr. Samson is talking about, absolutely, and let us replace corn and canola with biomass. Let us do this now and develop the science. We will talk until we lose opportunity after opportunity.
Senator Spivak: Mr. Friesen, the previous witnesses with whom you take such umbrage said that this bill is basically a subsidy to producers. One received $6 million to build the Lloydminster facility. I have asked this question of every witness: How much of this $2 billion will individual farmers receive? How many now or in the near future will own and build the facilities?
Mr. Friesen: First, as long as the Canadian consumer is paying oil companies $150 per barrel, I do not think they should talk about a subsidy to anyone. Second, as far as we know, the incentives announced by the government are directed at the manufacturing level. We have talked about creating incentives so that there is producer involvement at the manufacturing level. That is how they did it in the U.S., where if they had 51 per cent or more producer involvement, the incentives were greater. There are different ways of doing that. At the moment, the incentives announced are aimed only at the manufacturing level. Farmers are not getting any of it.
Senator Spivak: Yes. That is a big problem, as you have heard.
High prices for grains are in everyone's interest, in particular farmers'. What is your view? Have you done any forward analysis to determine what the demand for food will mean to prices for farmers over the next five years, or even the next few years? I ask this question because China and India are going up the food scale.
Mr. Friesen: Yes, that is a truly interesting discussion. As I said earlier, we have enough productive land around the world and the technology to produce enough food and enough for the biofuel industry. A large part of the current bubble that we have in commodity prices has to do with speculative buying. Not only has demand created a high price, but also the drought in Australia for quite a few years has been a factor. Two years down the road, we could look back and say: What food shortage?
We also have to understand what it means when we say ``food shortage.'' That is a bit like looking into one's fridge and saying that instead of one week's worth of groceries, I have three days' worth of groceries. We are not out of food, but we have less food in the pipeline than we have had for years and years. The stock to use ratio is at record low, for sure. If everything works out, that could change quickly.
Senator Spivak: Do you expect food prices to stay high?
Mr. Friesen: There are two perspectives. First, in Canada, we have seen a 0.5 per cent increase in food prices. In Europe it has been just over 7 per cent, and in the U.S. it has been 5 per cent or 6 per cent. Food prices will stay high as long as the commodity prices stay high.
Senator Spivak: I would be interested in knowing your views, perhaps in written form, of how those commodity prices could result in more money for the farmers and less money for everyone else. That is a question for the future; it is not relevant to today's discussion.
Mr. Samson, we heard about biomass and the fact that it is needed for the soil. We also heard about spent mash and antibiotics. Did you look at that in your research, in particular biomass?
Mr. Samson: I have been involved with other scientists studying how much straw we can take off fields and the sustainability of doing so. It is modest in terms of the impact on soil erosion and long-term loss of organic soil matter. We are able to take modest amounts from areas in Western Canada. We are talking about 2 million to 3 million tonnes each year. However, we also have a problem whereby every one year in ten, we harvest short straw. The seed producers are coming up with more semi-dwarf varieties each week to gain greater yield for farmers. Thus, we have less and less material available.
A cellulosic ethanol plant requires about 500,000 tonnes to 600,000 tonnes of biomass. The procurement range for that is 400 kilometres return haul. If you put up a pellet plant or a briquetting plant, you can do that in 60 kilometres one way to a plant. There is a dramatic difference in the amount of energy expended at a smaller plant, such as a biogas facility or a pellet plant.
I wrote papers about cellulosic ethanol in 1991 and made a brief to the House of Commons Standing Committee on Agriculture that it was a good thing to mitigate greenhouse gas. If you look at the House of Commons record, you will see it there. I do not believe that cellulosic will have an appreciable impact on greenhouse gases. In 1991, the scientists wrote in the American Journal of Science that it would be cost competitive with the dollar of gasoline by the year 2000. The year is 2008. The rack price of gasoline is $3 per gallon and cellulosic ethanol is not commercial. There are no commercial plants except for one up North that produces wood alcohol for medical applications. Cellulosic ethanol is still in the research phase.
Senator Spivak: The company is Iogen Corporation.
Mr. Samson: Yes, 10 or 12 companies in the U.S. want to develop products, but no one is commercial. Globally, 442 pellet plants are producing pellets commercially. We do not have any research problems. We can use more research money, but for the most part, the technology is together. We know how to grow grass, pelletize it and burn it.
We have a policy crisis. We do not have the infrastructure to allow us to develop policy to compete. We have a subsidized competitor, and we do not have any subsidies.
I am frustrated because I have worked on this for 18 years. I know it is the most efficient system to help farmers and the environment and yet we are not finding the reward system from the federal government or even from some of the provinces.
Senator Spivak: I share your pain. Tell me about the spent mash.
Mr. Samson: I cannot comment on that. I do not have a chemistry background.
Mr. Friesen: The cattle industry has utilized the by-product from ethanol production. It is not as viable in the hog industry. You can only add a certain level, but in the cattle industry it is utilized widely.
Senator Spivak: Yes, but we heard there is a problem with the amount of antibiotics in spent mash. We heard that this morning.
Mr. Friesen: Antibiotics?
Senator Spivak: The use of antibiotics is extensive, to make sure that this works out well.
Mr. Friesen: I am not aware of having to increase antibiotics, because antibiotics would be used to prevent bacterial outbreaks in a herd.
Senator Spivak: It creates superbugs.
Mr. Friesen: I do not know how that is related to ethanol.
Senator Spivak: It is a by-product.
Mr. Samson: I have worked a bit in the feed industry. It is low-level exposure to antibiotics in the food of livestock. Ideally, there would not be any antibiotics in the food reaching livestock because it can create resistance in humans.
Mr. Friesen: Antibiotics are not used in the production of corn. Antibiotics are used sometimes at a preventive level and sometimes at a therapeutic level. It really is not a matter of using distiller's corn that exposes animals to more antibiotics, because they are not used in the production of corn.
You thought it was irrelevant as far as food prices and how much food prices are going up. I do not think it is irrelevant at all.
Senator Spivak: I did not say it was irrelevant.
Mr. Friesen: That is why I would like to answer it. I appreciate that question. It was a very good question in that the ethanol industry has been blamed for the increase in food prices or the increase in the price of bread. The fact of the matter is that doubling wheat from $5 a bushel to $10 a bushel should result only in a 10-cent increase per loaf of bread, which is nothing. I know that there was a major bakery that indicated in a newspaper that it would have to increase the price of its loaf of bread by 40 cents because of the increase in price to farmers, but that is not correct. Doubling the price of wheat only increases the cost of a loaf of bread by 10 cents.
Senator Spivak: My question was not the price to the consumer but whether the increase in commodity prices will result in a better share for the farmer, the producer. That is my question, how to go about that.
Senator McCoy: Mr. Friesen, I am having a hard time getting this down to some kind of tangible basics that I can understand. We have some evidence from the Library of Parliament regarding the acreage that will be devoted to corn, wheat and canola production in order to manufacture ethanol and biodiesel to satisfy what is proposed as a mandated renewable fuel standard.
I do not know whether you have this information. I look at these numbers and ask myself what the significance of this is. Does this mean that if we grow 4.6 megatons of corn in Canada in 2010, that will somehow require a depletion of other crops? Is that a necessary leap?
Mr. Friesen: Now that the commodity prices are higher, farmers are actually breaking up land that at previous prices did not yield them enough to make a profit. Now with the commodity prices being higher, more land is being put into production.
I believe about 11 per cent of our corn crop is being used for ethanol currently. If we increase the production of biofuels, that, of course, would increase the number of corn acres that we would need or the amount of productive land we would need to produce for that biofuel industry.
Keep in mind also that we probably export just in Western Canada alone about 80 per cent of our grains and oilseeds production. There is a lot of production there that we can use for our domestic industry, which is currently being exported.
Senator McCoy: The theories are one thing, but the reality is another. In Canada, in the next five or ten years, is it a fact or a myth that increased corn, wheat and canola production will be a bad thing? I have not heard a definitive analysis on that. As you were saying, it could produce more corn. There may be some land that is simply not in use at the moment that would be turned into use, so in fact we would simply increase our production. Would there be no downside to that?
Mr. Friesen: No. We do not believe there is a downside to that at all.
Senator McCoy: We do not have that analysis in front of us. We have pieces of the puzzle, but we do not have the analysis as to what this would actually require us to go through, in my view.
Mr. Friesen: The information you would be looking for is what percentage of our arable acres would be needed or used for the production of biofuel.
Senator McCoy: As well, what are the consequences of devoting whatever we have? Will there be less food product available if this production level for biofuels is pursued? That is the question. It is not a possibility, but will it be? That is what I would like to know. No one has given us the answer.
I apologize for my ignorance. Is the livestock industry a member of the Canadian Federation of Agriculture?
Mr. Friesen: The Canadian Pork Council is, yes.
Senator McCoy: What is their position on this?
Mr. Friesen: Their position is that the grains and oilseeds sector should avail itself of whatever opportunities it has. The only stipulation is that if incentives are to paid for producing corn or any other grain and oilseeds crop for biofuel, that it not be subsidized in a way that increases the price of feed for livestock. The way the U.S. did it, it did not. They subsidized all their production, so it did not create a higher price for livestock producers than it did for the ethanol industry. In other words, CFA members said if you are going to pay an incentive for corn production, do not just pay it to those producers that are supplying the ethanol industry.
The Chair: I did not fully understand the concern Senator Spivak raised about the antibiotics that get into cattle feed. Is that not a problem if we have cattle eating mash that contains antibiotics? Will that not end up in the meat?
Mr. Friesen: I am not a scientist when it comes to how you create ethanol out of corn, but it is totally new to me that there are antibiotics in corn.
The Chair: We heard this morning that antibiotics are used in the manufacture of ethanol to limit the growth of bacteria during the process. Therefore, when you have distillers' grain coming out at the end of the process of ethanol, which is ordinarily fed to cattle, it will contain antibiotics. We heard that is a concern.
Mr. Friesen: If that is the case, there is a simple solution to that — withdrawal.
The Chair: Withdrawal of what?
Mr. Friesen: Withdrawal of the feed X number of days before you ship the animals. That is what producers do now when they use antibiotics, either for therapeutic or preventive use. They withdraw the antibiotics X number of days before the animal is shipped, and there is rigorous testing to ensure there is no antibiotic residue in the muscle meat when the animal goes to market. There are ways of preventing that as well.
The Chair: The Canadian Food Inspection Agency is probably already doing that.
Mr. Friesen: That may be.
Senator Munson: Thank you. It is late in the day, and we have to make a decision some time tomorrow on this proposed legislation. I am curious about who speaks for farmers. We heard rather compelling testimony this morning from the National Farmers Union, people who have said that mandating 5 per cent ethanol content will aggravate the global food crisis but offer little or no proven benefit to the environment or farmers.
You are here this afternoon with another compelling argument: Let us get out of the gate; we are slow and we have to move faster.
I hear two messages within the farming community of this country.
Mr. Friesen: I am not here to arm-wrestle any other farm organizations. All I can do is tell you who our members are and the number of farmers that we represent through our membership, and then you make the judgment.
Senator Munson: From your perspective, let us say we buy into the idea of amending this legislation, not moving as quickly as some would like us to move, like yourself, and take another look between now and October when there would be more witnesses and perhaps a more thorough debate on this issue. What would happen? Do you say we are further behind and that we will not be able to compete in the global marketplace?
Mr. Friesen: It certainly leaves us far behind to avail ourselves of further opportunities in the agricultural industry, but let me ask this question: In what way would passing this proposed legislation prevent any of the things that Mr. Samson, for example, has suggested, including doing more research, continuing to monitor the industry, and figuring out how can we get better at this, use better science, use other products?
We believe all of that can be done and would be encouraged to do exactly that, but to stop the bill on the level of ethanol, we do not think will change the level of ethanol. We believe the public will expect it of us; it is already being done to an extent here, and it is already being done in many other countries. We believe this is a proactive way of availing ourselves of opportunities. As we do that, we continue to improve the science and the environmental footprint and continue to reduce greenhouse gases.
Senator Munson: I sit on the Standing Senate Committee on Human Rights. I am replacing another senator on this particular committee. On the Human Rights Committee we have heard many arguments about the right to food, and you seem to be making another argument for the right to fuel.
When I read headlines from around the world about what is happening in many countries with food scarcity, it makes me worry. We sit here debating the right to fuel and the right for our farmers to make more money, which is fine. However, at the same time, there is a concern out there as we do this it becomes tougher for the poorer people, and there are security issues at stake. We live in a global environment. We do not live behind the doors of Canada's borders simply to make money and more profit.
Could you address this from a human rights perspective of those who today are looking at Canada for the right to have food, our food, as opposed to our fuel being produced by farmers?
Mr. Friesen: First, we do not think it is an either/or situation. Second, I think CFA members would argue that this does not increase our entitlement to fuel. In fact, it says let us reduce our use of non-renewable fuels and replace it in part with something else.
As for the increase in the price of groceries, again, it is not an either/or as to whether there will be food or fuel for people. We can do both. Regarding the price of food, it is unacceptable that people cannot afford to eat. There is no question about it, but we think that problem needs to be solved in other ways rather than blaming farmers for availing themselves of other opportunities than just producing for food or saying that if farmers are profitable then people cannot afford to eat so we need to make a choice. We do not think we need to make a choice. We think farmers can be profitable and there are ways to ensure that people can afford to eat and ways to ensure that enough food is produced.
For example, we meet people from Zimbabwe every time we go to an IFAP meeting, and they tell us horror stories about how that country used to be a state-of-the-art net food exporter. Now they are a net food importer, and people are starving because they are not producing enough food even for themselves. There are solutions to ensure that people have enough to eat and can afford to eat.
Senator Munson: Mr. Mugabe will have to answer to that one day.
Mr. Samson, may I have your point of view on the rights issue?
Mr. Samson: We can look at this and say it is not a discussion of food-versus-fuel but rather of how to use agricultural land to meet the needs of a global society. If we can invest in research and development in developing countries to improve their food security, we should do that as Canadians. It is tragic that CIDA has divested from agriculture, and the Senate should recommend more support for agricultural research and development. I firmly believe the same as Mr. Friesen, that it is prosperity for rural farmers in developing countries that will help drive these countries into a better economic situation.
We were benefitting rural farmers everywhere but were disadvantaging the urban poor, and the urban poor are being hammered by food use for fuel. They are not eating processed wheat or corn, like cornflakes, for breakfast. They are eating corn, so that is why the impact on food inflation is more dramatic in countries like Sri Lanka than it is in places like Canada. We eat processed food; they eat raw, unprocessed food, in terms of the manufacturing process.
In sub-Saharan Africa, people are typically spending 60 per cent of their budgets on food. We spend 10 per cent. The poorest households in Canada are spending 15 per cent. If we increase food inflation in those developing countries, we hammer those households. I have worked in developing countries. I spent six months a year in rural areas in the Philippines. I understand food security. I have seen starving kids, and it is not a pretty sight when everyone in the community is less than five feet tall because they have had malnutrition for so many consecutive years.
If we are using food as fuel, we need to be conscious about the international implications of that. Scientists like me and other crop scientists do not believe in food for fuel because it does not make sense from an energy standpoint, and it is terrible foreign policy in terms of the implications on global society.
Why are we putting the incentives? You have seen my data. Other scientists support this data. We are investing in the low-efficiency instead of the high-efficiency technologies. By supporting something like Bill C-33, we are parking our dollars there while we are starving the dollars that should be going to efficient technologies. After 18 years of research, we have so little funding from the federal government, and we have the most efficient technologies in the temperate world, and I find that is a tragedy.
Senator Milne: Mr. Friesen, when you came before the committee in the House of Commons on this bill, you said that by fulfilling the mandate set out in this bill farmers are making an important contribution to the environment. Yet, everything we heard today, including from Mr. Samson, is telling us the opposite. It is telling us we should not pass this bill immediately. We should delay it and perhaps amend it. How do we get around that?
Mr. Friesen: As I mentioned earlier, there is enough science that tells us it is more efficient to produce ethanol than it is to manufacture gasoline. It uses 1 unit and you get 1.23 units or BTUs of gasoline. With ethanol, it is flipped the other way.
Even if you use the smallest number that we have, it is 1 unit to 1.36 units. There is enough science that shows us there is a small benefit. Depending on the analysis you use, it could be bigger, but even if you use that small number, there is enough benefit — notwithstanding that we can continue to improve. Whether it is yields, more efficient fertilizer use or different ways of producing and using biomass, the sky is the limit when it comes to improvements we can make, but there is already some benefit.
Senator Milne: I like the idea that ethanol plants can be located closer to where the fuel is blended, which would scatter them across the country. Mr. Samson suggests using switchgrass to produce ethanol in Ontario. What would you grow in Newfoundland to produce ethanol?
Mr. Samson: Basically, the regions of the country have comparative advantages. Newfoundland is not an efficient place to produce ethanol because they have no cheap biomass. If they could produce anything, they could produce wood pellets to replace heating oil, which is displacing petroleum. Newfoundland should have incentives to develop wood pellets to replace heating oil in the province. That would be the most efficient way in that province to help reduce greenhouse gases by displacing petroleum.
If you look at the numbers I presented, the corn ethanol produces about 1.25 times as much energy, as Mr. Friesen said, as the fossil fuel inputs. However, technologies such as biogas produce 5 to 8 times as much energy; switchgrass pellets produce 14 times as much energy. If we saw this as a horse race, it looks like the federal government is betting on the donkey. I use that quote at our meetings and farmers understand it.
Our website is getting so many hits right now because people are starting to talk about this and realizing that efficient technologies are emerging. The corn ethanol industry is collapsing in the U.S. right now; investment money is dropping. They are looking to park their money somewhere else, and they are looking at our website and at other people's websites for new technologies.
Senator Milne: How close are we to being able to provide pellet-burning furnaces for every coal-, gas- or oil-burning home? How close are we to being able to do that or to convert Nanticoke to switchgrass pellets?
Mr. Samson: There are 442 plants in the world producing energy pellets today.
Senator Milne: How many are in Canada?
Mr. Samson: There are maybe about 25 in Canada; I am not sure of the number.
Senator Milne: They are probably in B.C.
Mr. Samson: Yes, and there are some in Quebec. However, if you look at it in terms of pellet boilers, countries like Sweden have 70,000 pellet boilers in the country already installed, as does Germany. These are relatively simple technologies that can be scaled up quickly. It would be a great opportunity for Ontario.
Senator Milne: Boilers are a hot water heating system, which means houses have to be completely converted, too.
Mr. Samson: We are starting with greenhouses. We started with greenhouses two years ago, using crop milling residue pellets because the feed prices were so low. Those greenhouses went from natural gas, to agricultural pellets, to U.S. coal because the U.S. dollar went down. Coal got cheap and livestock feed prices went up, so we could not use these crop milling residue products more affordably. If we had incentives, we could easily displace coal from Southern Ontario greenhouses. Instead, farmers are converting natural-gas-fired greenhouses to coal-fired greenhouses in Ontario, and there is no legislation to stop it.
Senator Milne: Mr. Friesen, how much more land could we grow corn on in Canada? Most of the corn-growing land is in Southern Ontario and Southern Quebec, and most of it is already growing corn.
How much more could we convert to corn?
Mr. Friesen: There used to be a fair bit of corn production around my farm in Manitoba as well, and there is not a lot of corn production there. We can produce more corn.
Senator Milne: You can grow corn in Southern Manitoba as well? I have never seen it there.
Mr. Friesen: In fact, in Southwestern Manitoba.
Senator McCoy: There is a lot in Southern Alberta.
Senator Milne: In addition to sugar beets.
The Chair: We grow lots of corn in Alberta, but it is at the expense of what? What else do you not grow?
Mr. Friesen: There is also canola production for the biofuel industry, which is very valuable.
Senator Cochrane: My mind is on the same wavelength as Senator Munson's — the human aspect. I would like both of you to say whether or not these are your concerns. We heard this morning that if this bill is passed, and if we continue on with where we are going within this bill, we could double the E. coli in farming; we could have meat contamination, and we could have risks for human health.
That was mentioned this morning. Do you agree with any of those observations? It is the human aspect that I am concerned about as well.
Mr. Samson: Personally, I think the biggest human health impact is malnutrition. We know there are 100 million more people that are in trouble from malnutrition today than there were a year ago globally. The FAO is saying they need $30 billion to feed those people. Who will pay for that? Also, if food prices keep going up, we will lose another tier out of the low end in terms of not meeting their needs. We are paying a huge human price for a small environmental price.
Canadian farmers are prospering because of these rising prices. We need to continue to support Canadian farmers but find ways to mitigate the prosperity impacts of the Canadian farmers. We can do that by choosing non-food crops on marginal farmlands as a way to develop our bio-energy sector to add value to the Canadian farm sector, to help Canadian farmers but also not reach as deep into the world food basket.
Canada imports 1.5 million tonnes of corn today from the U.S. If the U.S. has a reduction in its crop this year, we are effectively competing with the poorest people in the world for that corn for fuel. For the taxpayer in Ontario, with the combined federal and provincial incentive that is provided to the ethanol producer, it works out to a subsidy of 16.7 cents a litre, which transfers to $64 a tonne for the corn. Effectively, there is a subsidy for the corporation to buy corn. They get $64 a tonne from the Canadian taxpayer to buy U.S. corn, which competes against the poorest people in the world for that same corn. That is a terrible problem.
Mr. Friesen: I know one gentleman that uses all the mash, the by-product from one ethanol plant, to feed cattle in the feedlot. I never heard him say he has had a serious problem with E. coli or with bacterial infections. There are ways of preventing that. I have not heard that he has increased E. coli. As for antimicrobial resistance, experts around the world would agree it comes more from improper prescriptions and improper disposal of human pharmaceuticals than anything that comes out of the livestock industry.
We do not believe that people going hungry is an either/or situation. First, most unprocessed corn that is eaten is white corn, not yellow corn. That does not prevent the price from going up, but this cannot be between farmers being able to competitively sell their product and people eating. We do not believe it is an either/or situation. It is unacceptable that there are people who cannot afford to eat, but we do not believe that supporting this bill will decide whether people can eat or whether farmers in Canada can get some profits out of one more option they may have.
Senator Spivak: Mr. Friesen, do you happen to know the numbers of people in the United States who are affected by infections from food and how that number compares to Canada? We are not just talking about E. coli; we are talking about the creation of superbugs through the excessive use of antibiotics, not only for humans but for animals. Even though this is not the sole cause, why do we have to add to it?
Mr. Friesen: I attended a World Health Organization meeting on antimicrobial resistance. There is general agreement that antimicrobial resistance comes more from the improper prescription, over-prescription and improper disposal of human drugs than it does from livestock.
We have a rigorous regulatory system in Canada that does not allow for the use for food of processed livestock that has antibiotic residues. The tests are rigorous. In fact, our export markets in the cattle industry and in the hog industry are even fussier than our own regulation, so we could not afford to go there.
Senator Spivak: I would like to see the research studies on that. What I have looked at is the opposite. I would like to be able to refute that, if you have the information.
The Chair: Were you asking Mr. Friesen to get that information for us?
Senator Spivak: Yes, I would like to ask him to do that.
The Chair: Is that a fair thing?
Mr. Friesen: Are you asking for the testing results of animals that go on the processing line and the incidence of antibiotic residue, or are you asking for any study on antimicrobial resistance?
Senator Spivak: Any studies that you have would be welcome.
The Chair: When you have them available, Mr. Friesen, would you send them to our clerk? Thank you.
Senator Brown: Mr. Friesen, have you read Bill C-33?
Mr. Friesen: Not recently, no.
Senator Brown: Have you read it in its original form?
Mr. Friesen: Quite a while ago, yes.
Senator Brown: Did you see anything in it that restricts the bio-feedstocks that can be used for biofuels? I have read the bill.
Mr. Friesen: No, we did not see anything that restricts what can be used for the production of either ethanol or biofuels. That is why I suggested earlier that this bill's passing would not mean that we cannot pursue all the science available to us.
Senator Brown: We seem to be focusing on one fuel here, corn. In Alberta, all the corn we produce, which is substantial in Southeastern Alberta, is all for human food. It is not for biofuels, not for animal feed, but for human consumption, and it is called sweet corn.
What will happen to the price of food if the oil price continues to rise? Some people are saying it is headed to $150 a barrel and up; others are now saying the sky is falling and oil will go to $200 a barrel. What impact would that have on farmers and their ability to produce food?
Mr. Friesen: First, there has been an escalation in fertilizer and fuel prices, which is well over 50 per cent of grains and oilseeds producers' input costs. That has had a impact to the point where even this spring farmers are investing three times the money they did a year ago, so of course they need the better prices and they need good yields.
The production of ethanol in the U.S. has contributed to the increase in the price of corn, but there have been many other factors; for example, the price of oil, droughts in certain parts of the world, and speculative investment in commodities have had a huge part in it as well.
Senator Brown: The most interesting figure you have given us today is that it takes 1.23 BTUs of fossil energy to produce 1 BTU of energy. Is that correct?
Mr. Friesen: That is the information we have, yes.
Senator Brown: We seem to be having a duel between universities here. A study from the University of Chicago, the U.S. Department of Energy, shows biofuels use 0.7 BTU per BTU of energy produced. That is a significant difference.
Mr. Friesen: That is the same study that also says 1.23 BTUs of fossil energy are used to produce 1 unit of energy.
Senator Brown: It seems to me it is not about the right of farmers to have fuel; it is about the right of farmers to economically be able to produce more food. If we cannot find a way to get them to where we do not lose farmers continuously because of the high prices of everything, how can we expect them to stay in business? Is it not fair to say that this is a good way to try to increase the amount of fuel available through biofuels and thereby put at least a nominal amount of pressure on the market, which is supply and demand, so that we actually end up reducing the price in the end? If we switch to switchgrass and include all the other biofuel things, will that not inevitably put pressure on oil to some day stop going up?
Mr. Friesen: One would certainly hope it would do that, yes. To preface my comments, I want to say it is unacceptable that people are starving and cannot afford to buy groceries, but our U.S. counterparts will tell you that one reason they went into the ethanol industry is that they were losing money producing corn for either livestock feed or crops for food, so they had to do something that would keep them on the farm.
The more options and alternatives farmers have, the more competition there will be. There is no better way to empower a farmer than to have an ethanol manufacturer bid on the same bushel of corn as a feed mill or anybody else does. We do not believe it is an either/or situation. We think both can be done adequately.
Senator Brown: Are you aware that the federal government has a $500-million Sustainable Development Technology Canada fund? If you are aware of the fund, do you know what it allows?
Mr. Friesen: No, I do not know what it allows in detail, and I am not sure how much of it has been utilized or who has been utilizing it, but yes, we are well aware of that fund.
Senator Brown: Apparently it allows outside investment and financing for commercializing cellulose ethanol and the next generation biofuels from waste products.
This is more of a comment than a question. Someone was talking about the credits that they give European farmers for green zones around cities, and they are starting to do that in Canada now I believe. The thing that bothers me is not the credits. I believe every farmer deserves all the credits he can get for protecting the environment.
However, in Europe, they have 27 countries that started trading credits. They got up as high as $50. It comes from the University of Liverpool, which now says that those same credits dropped to as low as $3 a share because they started giving away credits to promote the whole idea of credits. Last week a fellow by the name of Greg Weston suggested they are now trading for pennies per share.
Have you thought about the future of credits at all and whether we should have credits for someone who actually does reduce carbon emissions, or whether we should allow companies that want to continue to pollute to buy those credits?
Mr. Friesen: That is an interesting point. With regard to agriculture, we believe farmers should be paid for carbon sequestration that has come as a result of their changing their tilling practices, covering lagoons, using bio-digesters, whatever they are doing to reduce greenhouse gases. We believe farmers should benefit in a revenue stream.
The Chair: In answer to Senator Brown's second-to-last question, you were talking about the fact that in the United States, at the farm gate, there were farmers who could not successfully make a profit growing corn, and so the new market was created so that they could. We have heard before that the move to biofuels is not an energy move, not an energy policy question; it is, rather, an economic and agricultural policy question.
What you just said sort of sounded like that. If I am standing at the farm gate with my commodity and there are three willing bidders rather than two, that is good for me as a farmer. Has it been done in order to solve an environmental problem, or has it been done as a means of a quasi-subsidy for growing corn?
Mr. Friesen: I believe it has been multi-faceted. Yes, it is an economic issue, definitely. All other things being equal, if everything was flush and it improved the plight of farmers, even then it would be a benefit. However, it improves the economy on the farm and it is a bonus. That is why I said earlier that farmers are willing to be solution providers. It improves the economy on the farm. By improving the economy on the farm, by creating another alternative or option for farmers, it is a bonus that it also provides a solution for the environment, either through the reduction of greenhouse gases or through the reduction of reliance on non-renewable sources.
The Chair: Therefore the environmental benefit is an incidental result?
Mr. Friesen: It is not at all incidental. It is a strategic way of looking at agricultural policy where we can be solution providers, and at the same time it improves the economy. The same way we look at on-farm food safety programs. How can we brand Canada by having strong on-farm food safety programs? Of course the health of consumers is not incidental, but it helps us provide a social objective and it also improves our position in the marketplace.
The Chair: I have one final question. You said that this would not preclude our doing all the other stuff — continuing the developmental science and the research that goes into it. We all recognize that for industry to contribute to and avidly pursue new technologies, there needs to be a financial interest there.
You are a man of the world. You know if someone builds a plant and people invest in the plant, that plant will be expected to continue to operate in that way for the reasonable length of amortization of the life of the plant; otherwise, industries could not survive.
Would that not be an impediment to continuing that development? I know you have to jump in at some point, but if we build an infrastructure that is built on using corn and canola, for example, will that not slow down the other investigations?
Mr. Friesen: What I am saying, somewhat in retrospect of your other question, is that if we see the environmental benefits, both with regard to greenhouse gas emissions and reducing reliance on non-renewable resources, we see the benefit to the farm economy. It is a win-win situation right now. If we do it right now, there are all kinds of innovative ways that governments can move industries in directions. Once the science is there, I am sure a bill will come up that will create legislation that will move us in that direction.
In the meantime, let us not waste too much time just talking about the what-ifs, if we can already see there are benefits, see what is happening in other countries and see that it is inevitable in our own country. We can do it because there is no loser, and then we can go on to the other science.
The Chair: The benefits to farmers are right here, right now, and irrefutable; right?
Mr. Friesen: That is right.
Senator Mitchell: Mr. Friesen, is there any way to break this apparent contradiction? That is, if grain prices begin to go up, grain farmers make more money, but feed prices go up and it kills the livestock farmers. Is there any way both of them could do well at the same time? Can you imagine such a situation?
Mr. Friesen: That is an excellent question. Especially in an agricultural industry as diversified as Canada's is, it would be nice if we could all make money at the same time. It is a serious challenge. If we had not had record slaughter numbers in the hog industry in the last year and a half and if our dollar had not gone to par, hog producers could make some money, even with the feed prices where they are at.
Hog farmers right now are very close to break-even, even with the feed prices and where the dollar is. However, that is because the cash price has improved somewhat. You make an excellent point. That is always a tough one.
Senator Mitchell: Mr. Samson, in relation to pellets, how would it work? Is it economic at this point? You are saying it is not, that it needs more investment. What do you see? Would it be a power plant fuelled by pellets within 60 kilometres of growers? That is very interesting.
Mr. Samson: Basically, the concept is that thermal energy is our biggest energy need in Canada. We use more energy for thermal applications like heating and process heat than we do transport. Transport represents about 25 per cent of our energy use. Thermal energy, in most industrialized countries, represents about 50 per cent of our energy needs. Logically, if that is our biggest energy source we are using, that would be an efficient way to offset. As it happens, it is much easier, as I showed you, to offset thermal energy to heat this building than it is to run a plane on pellets. That is a difficult thing to do.
We should be conserving our fossil fuels and matching the energy quality to the end-use application. The most difficult thing we can do is turn farmland into growing plants to produce liquid transportation fuels. That is what we are supporting. Maybe the problem with this technology is just too simple. If you grow grass, you pelletize it and burn it.
Senator Mitchell: Would I burn it in the furnace in my basement or in a central plant that is at the end of the street?
Mr. Samson: I heat my house with a pellet stove. The greenhouses in Ontario, the penitentiaries in Kingston, cheese factories, ethanol plants — there are all kinds of applications. Rather than putting liquefied natural gas facilities into Quebec to bring natural gas into Quebec and Eastern Ontario, we could be growing grasses in Eastern Ontario and Quebec and using those as an energy source to fuel the ethanol plants. Cheap thermal energy will actually drive prosperity, not just for farmers but for the entire economy, particularly in Eastern Canada. Eastern Canada is in grave difficulty because it is losing its competitiveness in terms of its energy costs. One way to change that is to provide incentives to start up an industry for thermal energy offsets.
The simplicity is that we know how to make pellets. The alfalfa dehydration industry has been operating in Canada for 45 years. It is basically the same technology. You just change the dyes and the process and you produce pellets.
Senator Mitchell: Could you ever produce enough to heat Toronto?
Mr. Samson: Logically, you start step by step like the Chinese do. We are working with Chinese companies to help develop grass pellets to replace coal in China. China has 1.5 billion tonnes of coal. We will not replace that in one year; it is a step-by-step process. Canada could start with incentives to help pellet producers enter into the markets to replace coal in greenhouses in Ontario.
The Chair: Could it ever replace it as opposed to displace some of it?
Mr. Samson: We think that high-quality energy forms like heating oil and natural gas will lose their competitive advantage against bio-heat or pellets in thermal energy applications because it is not that difficult to heat a jail or a penitentiary with pellets as opposed to bringing Russian natural gas into Quebec, setting up a liquefied natural gas facility and pipelining it into Kingston, Ontario, to heat that penitentiary. We could be using central Ontario farmlands to grow the grass to heat the penitentiary.
Senator Mitchell: At some point, are you not then displacing food?
Mr. Samson: As I mentioned earlier in my brief, in terms of the greenhouse gas mitigation impact, one acre of grass replaces seven acres of corn. We do not need to use the best-quality land to grow grasses. We can use marginal farmland. That is actually what we have in surplus right now. We do not have surplus corn land, or else we would destroy the hog industry.
The Eastern Canadian beef cattle industry is a sunset industry. We could be helping those farmers to grow grasses on that land in order to provide pellets.
The Chair: You have both been very patient. I am sorry to have kept you as long as we did. I hope you will accept our collective apology.
At the request of several senators, we are reverting to our plan and we will take a small health break for 15 minutes, during which the meeting will suspend. We will come back to do clause-by-clause consideration of Bill C-474 promptly at five o'clock.
The committee suspended.
The committee continued in public.
The Chair: Honourable senators, I call the meeting to order. We need to switch gears. According to the agreement at which we arrived, we will move to consideration of Bill C-474 and to determine our recommendation to the Senate.
Before we get to the main question, I want to direct your attention to two things. You have before you some papers. I would like you to read the part that says ``Observations to the tenth report of the Standing Senate Committee on Energy, the Environment and Natural Resources.'' It begins: ``Your committee fully supports the objective . . . .'' You will know what that is.
To remind senators where we are, the committee determined at it last meeting that, with respect to Bill C-474, it would allow the clerks, our researchers and I to propose comments or observations to attach to our report. That was done on the basis of the understanding I think we arrived at that we were thinking of recommending the passage of Bill C-474, notwithstanding some disagreement we had with some aspects of its content.
Please read the observations. My additions are underlined. Then please continue to read a letter, a copy of which you will have received from the Auditor General's office. It includes a recommendation for a couple of amendments that they would like to see in it.
It is a simple recommendation, with respect to the times at which the commissioner may report back. I am referring to a letter of June 25, from the Auditor General, that sets out an amendment to the present bill. Proposed subsection 23(4) says:
The Commissioner shall include in the report referred to in subsection (2) . . .
The amendment would add the words ``or in the report referred to in section 7.'' That is the addition.
The rest of the proposed subsection continues:
. . . the results of any assessment conducted under subsection (3) since the last report was laid before the House of Commons under subsection (5).
I think we would want to make an addition to that given the nature of our proposed observations. The amendment that has been proposed by the Auditor General also refers only to the House of Commons under subsection 5.
If I understand our consensus correctly, this committee would recommend to the Senate the passage of Bill C-474, and we would attach to it the observations in the style that you see here. We would do so on the understanding that you would authorize me and the deputy chair to modify the Auditor General's proposed amendment to be consistent, to include references to the Senate and to incorporate those into our observations. That would be like saying that we will introduce a bill of amendment in the fall, which would have the following effects. We would add the amendments that are proposed by the Auditor General.
On that understanding, I would like to proceed. However, I will allow you time to read what is happening there, to ask questions and for us now to discuss this bill before we go to clause-by-clause consideration. Are there any questions?
Senator McCoy: I am doing this on the fly. I had circled this when we met the other night with Mr. Godfrey. We went through Bill C-474 with him. Do clauses 10 and 11 not run into the same problem? I am sorry; I am a little cross- eyed. All I am trying to say is that in our observations we have mentioned only clauses 5, 7 and 9, and I am wondering whether we need to ensure that that problem does not arise in more clauses than those that have been noted.
The Chair: Subclause 10(3) would have to be modified in the same way.
Senator McCoy: As would subclauses 11(2) and (3).
The Chair: I do not want us to try now to draft the amendments.
Senator McCoy: I agree, but if you have mentioned clause 9 and clause 7 in the bill as being those that actually refer only to the House of Commons, then you have, in fact, enumerated them. My point is that we should either eliminate all enumerations or be exhaustive. Due diligence has not been done on this draft of observations.
The Chair: Correct.
Senator McCoy: I will get to the point and put it bluntly rather than trying to be polite.
The Chair: We will redraft the paragraph and make reference to each of the occasions.
Senator Nolin: Or we can say ``for example,'' and list all other sections where the Senate is omitted.
Senator McCoy: However you do it, just make sure it is accurate. I do not think you have been well served. It is not accurate.
The Chair: You are right. We missed some. Therefore, we can be more general and not list any and we can deal with the amendment itself later. Actually, that is probably a better idea, so we will do that.
Therefore, the thrust of the observations would be changed from the point that is made in it, and we will amend it to ensure that Senator McCoy's point is taken into account. We will add to it a section talking about the recommendations proposed by the Auditor General.
I want to assure you that the point of the Auditor General's recommendation for an amendment is only to allow the report of the commissioner to be made timelier, in case it does not happen to coincide with one of the regular reports of the commissioner. That is the point that Ms. Fraser has made as suggested by the commissioner.
Senator Brown: You might be able to do both things by using the words ``for example'' between the clauses you list. We will use those as an example of what you are talking about, and then you say ``and all other places the Senate was not mentioned.''
The Chair: That is exactly what we will do.
We would be looking for your approval now if we continue along the line that I understand we have been following. That will be a recommendation to be made tomorrow at four o'clock from this committee: we recommend the passage of this bill. We will append observations that I would ask you to authorize Senator Nolin and I to prepare, which will add the Auditor General's point and the discussion we just had. Senator Cochrane moves what I have said.
Senator Nolin: Should we adopt the clause-by-clause consideration first?
The Chair: We should, but I wanted to ensure that we had a discussion before we go to that.
Senator McCoy: I would like to be on record saying that I am not a supporter of this strategy. I sympathize with taking Mr. Godfrey's bill forward, particularly since he has resigned his seat. I know this is dear and near to his heart and he has worked hard on it. I have a high regard for Mr. Godfrey.
In the circumstances, it would be good if we could see Royal Assent given to this bill after he has laboriously negotiated its way through the House of Commons. I have sympathy for that.
I have no sympathy for the fact that he and others missed the references to reporting to the Senate. Being on this side of the divide, I would prefer to see us include an amendment to this bill that would add the Senate in the appropriate section.
That is my position.
Senator Nolin: That is what we should normally do.
The Chair: We would normally do that.
Senator McCoy: I simply want to be on the record saying that. I understand why this is going forward and I understand why most people will vote in favour of the motion. I am sympathetic to that.
The Chair: Thank you. You are exactly right.
Senator Milne: I move that we proceed to clause-by-clause consideration of the Bill C-474.
The Chair: Is it agreed that we proceed to clause-by-clause consideration of Bill C-474?
Senator McCoy: Have we already voted on the motion that was put forward?
The Chair: No. The suggestion was that we would talk about the observations after we completed consideration of the bill.
I would entertain a motion, should someone wish to make one, that we approve the bill before us in its totality as we have done previously, rather than doing the clause-by-clause consideration and then discuss the observations that we will attach.
Senator Nolin: We will probably do that on division.
The Chair: However it happens. We will see what the motion says.
Senator Mitchell has moved that we approve Bill C-474 in its entirety as it is before us. Is it agreed?
Some Hon. Senators: Agreed.
The Chair: It is agreed on division.
The committee has approved the recommendation to the Senate that the bill be approved at third reading tomorrow.
Is it agreed, honourable senators, that we should consider appending observations to the report?
Hon. Senators: Agreed.
The Chair: Is it agreed that the chair and the deputy chair be empowered to approve the final version of the observations being appended to the report taking into consideration today's discussion and with any necessary editorial, grammatical or translation changes required?
Hon. Senators: Agreed.
The Chair: Is it agreed that I report this bill, with observations, to the Senate at the first opportunity?
Hon. Senators: Agreed.
The Chair: Thank you, senators.
Senator Nolin: Is there any other business?
The Chair: We will meet again tomorrow morning at nine o'clock.
Honourable senators, for an important piece of business, I require a motion that we go into camera for a moment. I will entertain a motion to go in camera.
All in favour?
Hon. Senators: Agreed.
The Chair: Opposed?
We are in camera.
The committee continued in camera.