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Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 11 - Evidence - June 26, 2008


OTTAWA, Thursday, June 26, 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, met this day at 9:07 a.m. to give consideration to the bill.

Senator Tommy Banks (Chair) in the chair.

[English]

The Chair: Good morning. It is my pleasure to welcome you to this hearing of the Standing Senate Committee on Energy, the Environment and Natural Resources, which is continuing its consideration of Bill C-33, An Act to amend the Canadian Environmental Protection Act, 1999.

My name is Tommy Banks and I am a senator from Alberta. I have the honour of chairing this committee. Before we begin, I would like to introduce you to the members present. We have with us Senator Nick Sibbeston from the Northwest Territories; Senator Ethel Cochrane from Newfoundland and Labrador; Senator Bert Brown from Alberta, who is the sponsor of this bill in the Senate; Senator Grant Mitchell from Alberta, who is the Liberal opposition critic of the bill in the Senate; Senator Mira Spivak from Manitoba; Senator Willie Adams from Nunavut; Senator Jim Munson from Ontario; and Senator Pierre Claude Nolin, who is the deputy chair of the committee.

Our guest today is Mr. Chris Damas, who is an investment analyst and also the President of Balanced Capital Management Inc., BCMI, his own investment research company.

Thank you for taking the time to appear today. We would appreciate it if you would make your opening remarks. Please keep them as brief and concise as you can in order to allow for questions.

Chris Damas, Investment Analyst, as an individual: Thank you for giving me the opportunity to speak to you this morning.

I have spent 24 years in the investment business as an equity analyst, trader and portfolio manager. I am now an independent research analyst focusing on energy, fertilizer, agriculture and biofuels. Before that, I was an organic chemist. I also consulted on pollution abatement technology for the forest products industry. I have a lot of experience evaluating biotechnology ventures and commodity industries.

You may ask why I am here and what is my interest. A couple years ago I had a friend call me in Barrie, Ontario, to tell me that an ethanol plant was going up in the neighbourhood. I asked, "What is your concern, Brenda?'' She said, "Well, they could have an explosion in my backyard.'' I responded, "You do agree, Brenda, that if we did not have any railway derailments, we would not have railways in Canada and we would not have any industry.''

That was my attitude. It was before Christmas, December 2006. I spent the Christmas period looking at ethanol more closely. That was a long time ago.

I have spent a lot of time looking at this subject as an organic chemist, commodity analyst and businessman. My company also does stock trading for a living. Like many farmers, I am stuck with prices I cannot control.

My objective here is to see policies adopted that lead to a free competitive market that benefits Canadian farmers, fuel producers, grain users and consumers. I want to see policies that are sustainable not only environmentally, but financially.

In pursuit of the twin goals of fiscal discipline and accountability, I believe we should not burden the taxpayer with unjustified spending, nor should we reward a few companies for importing commodities or taking speculative commodity risks at the taxpayer's expense.

I would like to describe some of the challenges to corn users in Ontario if additional subsidies for corn ethanol plans are instituted. Due to the Ontario Ethanol Growth Fund and the federal Ethanol Expansion Program subsidies, as well as the ecoENERGY for Biofuels proposed subsidies, biofuel promoters are planning on constructing ethanol plants in Ontario with annual capacity totalling 1.83 billion litres of ethanol per year. Together with existing Ontario ethanol production, this represents a total requirement of 230 million bushels of good quality corn supplied every year. This far exceeds the available Ontario corn harvest.

Although the Ontario corn harvest has been hovering around 200 to 230 million bushels for the last 10 years, a large part of that harvest stays on the farm and is not available for resale. It is used for livestock feed.

As in a hockey game — I know this analogy was alluded to yesterday by Mr. Bob Friesen, but I had it in my notes before him — it is more important to see where the puck is going than to see where the puck has been.

Ontario farmers had a bumper crop harvest of a record 275 million bushels in the 2007-08 crop year. Farmers were excited by the prospect of corn ethanol and a record amount of acreage was planted. Most of this corn was planted at the expense of other crops. Unfortunately, only one small Ontario corn ethanol plant was opened in 2007, and farmers have apparently now tempered their enthusiasm.

Ontario corn-planted acreage for 2008 is estimated to drop from 2.1 million acres to approximately 1.8 million acres, a drop of 15.5 per cent from last year. Ontario farmers chose to plant winter wheat late last year in record amounts, supplanting the energy crop, corn.

Historically, Ontario has had to supplement domestic supply with another 50 to 75 million of imported bushels. Due to the surplus in 2007, Ontario corn sales have recently been flowing outside the province of Ontario to the province of Quebec and to the state of Michigan.

I want to remind you that most of the Ontario corn ethanol plants are still yet to come on line, although some are forward-buying their corn requirements for 2008 and 2009.

What about other participants in corn-utilizing industries? How are they faring?

This week, the owner of Casco, what used to be Ontario's largest corn-processing company and maker of value- added products, was sold to Bunge, a larger agricultural processing company. The owners, shareholders and executive management likely saw the Midwest floods and other clouds on the horizon and decided to bail out.

The latest corn ethanol plants are being sited on the St. Lawrence Seaway, the Great Lakes and the St. Lawrence River, as well as north of Montreal, or on class one rail lines, the largest high-speed, intercontinental rail lines. There are two words to describe this location choice: American corn. Recently, a grain merchant told me that the older plants without this transportation access would be "smoked.''

In Ontario, if current prices for crude oil, ethanol and corn keep up, the combined provincial and federal subsidy will equal 21 cents per litre of ethanol produced. That is 27 per cent of the current wholesale price of ethanol.

The Ontario and federal governments are effectively underwriting corn ethanol producer commodity losses right now. Ironically, I do not think these subsidies will prevent major losses in this volatile margin business. How are we to guarantee that all users of corn have equal access on fair terms to corn grown in Ontario? I suggest that Bill C-33 and the ecoENERGY for Biofuels subsidy program ensure at least two things to maintain fairness in the marketplace and that funds are sent to where they can support Canadian farmers: First, that there is a minimum Canadian content in the feedstock used for subsidized Biofuels; and, second, that Canadian farmer co-op owned biofuels get preferential treatment under the statute and regulations to follow.

The Chair: Mr. Damas, have you considered the implications of the preferential treatment under NAFTA?

Mr. Damas: Yes. I debated whether to put it in that clause. It might violate some WTO, tribunal statutes or regulations. I throw it out to you that, rather than large, public, industrialized ethanol plants, we prefer to give the farmer co-op more of a shake. I believe that some of the integrated farmer co-op plants integrated with livestock lots are more economic and make more sense than some of the larger plants.

The Chair: I want to remind honourable senators that this bill does not directly refer to any of the things that Mr. Damas has talked about. This bill gives the government the authority from Parliament to make regulations respecting biofuels. Those regulations, which may contain X per cent and X dates, are not contained in this particular legislation before us.

Senator Spivak: Do you know of any farmer-owned ethanol co-ops that exist? I have asked this question of other witnesses.

Second, for example, Husky Energy has an ethanol plant in Manitoba and in Saskatchewan. Apparently, 75 per cent of the ethanol is imported from the United States. That is the information — I wanted to know if you knew. You have raised an interesting question. They get a subsidy for American corn. Is that accurate?

Mr. Damas: There are several farmer co-op-owned ethanol plants in the United States. For example, United Ethanol is owned by United Cooperative. I looked at the North American market, which I believe we are integrated with. There are several in the U.S. Unfortunately, most of them are private and I do not have access to their public financial statements. United Cooperative has United Ethanol in Milton, Wisconsin, for example.

Is Pound-Maker owned by a co-op in Alberta?

As far as Husky Energy is concerned, which I am familiar with, I have not had any public information that suggests the corn is from the United States, but it could be true.

Senator Spivak: You said in your testimony that even if they import the corn from the United States, they still get the subsidy.

Mr. Damas: The proposed subsidy?

Senator Spivak: Per litre of production.

Mr. Damas: It is my understanding there is nothing in the ecoENERGY for Biofuels subsidy that would cause American-imported corn to prevent the subsidy from being obtained.

Senator Spivak: You have made certain suggestions, and the chair has just indicated that this is only a bill talking about regulation, but I presume the companies are most anxious to get this bill so they can continue their operations. This bill is important for them to proceed. It is not like the bill is neutral. Are you suggesting that we amend the bill? What is the gist of your recommendation?

Mr. Damas: I understand the premises of this biofuels program are threefold: one is to increase the supply of fuel; another is to provide benefits to the environment; and the third is to reward rural Canada. It seems to me that if the corn is imported from the United States, the last objective has not been obtained.

Senator Spivak: I do not know about the other two, either. According to what you are saying, there does not seem to be enough corn in Ontario to provide for ethanol plus all the other things, such as feed. Is that the basis of your testimony?

Mr. Damas: Yes. I am speaking mainly of corn ethanol in Ontario. That is what I am most familiar with. The amount of corn used for feed has been dropping. There could be other reasons for that in Ontario.

The amount for human and industrial uses, which is what ethanol is lumped into, has jumped in the last year. In 2006-07, it jumped to about 47 per cent of corn production from about 36 per cent the year before, mainly because of the Suncor Energy plant starting up in July 2006.

Senator Spivak: According to The Globe and Mail, some companies in the United States are going broke because of increased commodity prices and other factors. Some of the testimony we have heard seems to indicate that the only way this could be profitable is if you had cheap grain or cheap corn.

First, what is the possibility of prices going down? Second, what will this do to farmers in the end? By that I mean, who will benefit? The producers will, but what about the farmers?

Mr. Damas: There are two different investment markets targeted by the proposed subsidy. One is venture capital — the next generation biofuels fund, $500 million — but the other is targeted at traditional ethanol. Corn ethanol is the most well-developed technology to produce fuel ethanol. I do not necessarily believe that a low corn price is required.

This is what is called a "crush'' or a "strip business'' in commodities. They strip the starch from the corn. It is not a narrow-margin business; it is highly volatile. It is similar to oil refining margins.

I do not believe it is necessary to have a low corn price to have profitability. You just need to have a higher ethanol price. You have to have a positive spread. Farmers could benefit. Unfortunately, as has been well discussed in this committee, there are many forces affecting grain prices, and it is not clear which one is which.

Senator Spivak: Right, but why are these companies going under?

Mr. Damas: There are well over 100 operating ethanol plants in the United States.

Senator Spivak: Too many?

Mr. Damas: There are another 100 or so being constructed and another 100 being planned. For a lot of them, the plans have disappeared.

There is a dead list of ethanol plants going bankrupt. They make a list. Every week there is a problem, such as deferral. VeraSun, the largest corn ethanol producer in the United States, other than Archer Daniels Midland, has just sidelined two plants. They are the biggest, so they should have the highest efficiencies and be the lowest cost producer, and they have delayed two plants.

We cannot just say "food.'' That is a hot word. It could mean a lot of things. It could mean corn flakes or tortillas in Mexico. We cannot just say "ethanol plants.''

It is just like farming, and I am sure Senator Brown would know more about this than I. There are higher yield and lower yield farms, so you get averages. It could be the invisible hand of Adam Smith taking out some of the weaker stock of the ethanol plant community.

The Chair: When you said Archer Daniels Midland sidelined two ethanol plants, did they put aside the plans to build them or did they shut down existing plants?

Mr. Damas: That was VeraSun, senator.

I was in Iowa last year looking at some of the VeraSun plants. I believe one of the sidelined plants was in Minnesota and is not finished being built. That was one of them. I cannot remember the other one. I did not bring VeraSun's statements with me.

Senator Spivak: The key question is, just like everything else, is this a growing pain? A lot of them will go broke and some of them will thrive — it is not really a death knell for the industry.

Mr. Damas: It highlights that this business is volatile. In a certain fashion, the government has become a partner in this business.

Senator Spivak: Supposedly, Archer Daniels Midland is the biggest beneficiary of the subsidies. They are getting 51 cents a litre, or something like that.

Mr. Damas: All of the fuel blenders in the United States benefit from 51 cents per gallon.

Senator Spivak: What proportion of the market does Archer Daniels Midland have?

Mr. Damas: That is a good question. They used to be the biggest. Since the last couple of energy bills — the 2005 Energy Policy Act and the 2007 Energy Independence and Security Act, there have been a lot of other plants built. VeraSun is number two, with 1.6 billion gallons of ethanol.

Senator Spivak: Are you aware that 23 U.S. senators, including Senator John McCain, have written to the environmental defence industry asking for a moratorium on subsidies to ethanol?

Mr. Damas: Yes. I believe Kay Hutchison from Texas has led that.

Senator Spivak: What are they after? Do they want the industry to stand on its own feet?

Mr. Damas: They are trying to reverse mandatory renewable fuel standards that are similar to the federal government's proposed 5 per cent and 2 per cent.

Senator Spivak: This will mean a reduction of the subsidies. They will not get the subsidies, or will they?

Mr. Damas: I have not read their deputation, but I believe they have an issue with 36 billion gallons in 2022. Nine billion gallons of ethanol use from all sources was mandated for this year and production is running around 8.5 to 9 billion gallons. That is a nationwide mandate. I am not sure if it is a pool average, as in Canada's proposed regulation. I hope that helps.

The Chair: Just so we understand the answer you gave to Senator Spivak, the intent of the U.S. senators is to reverse the mandatory requirement for biofuel content. Is that right?

Mr. Damas: I cannot speak for Kay Hutchison and John McCain. I am not that important a person.

Senator Milne: You made two suggestions that somehow the government should ensure that there is a minimum mandated Canadian content in any ethanol used here; and also that they should somehow get some money to Canadian farmer-owned cooperatives that are producing ethanol. However, your answer to Senator Spivak was not about Canadian companies; it was about American companies. Are there any farmer-owned cooperatives in Canada that are presently producing ethanol?

Mr. Damas: If you do not mind, I will consult my notes. Do you mean corn ethanol?

Senator Milne: Yes.

Mr. Damas: No.

Senator Milne: What about any ethanol? I know that some is produced from woodchips, wood waste.

Mr. Damas: Husky owns the two in the Prairies, and I understand Pound-Maker is in Alberta.

Senator Milne: They are not farmer owned.

Mr. Damas: I do not believe so, not yet.

Senator Milne: Will Husky be some day?

Mr. Damas: There are not yet any farmer co-op owned plants. I know Senator Brown mentioned a possible plant in Unity, Saskatchewan, if that is correct, which would be co-op owned.

Senator Milne: Therefore, your second point is defunct before it even begins. How can we ensure there would be certain Canadian content in any ethanol that is used in Canada?

Mr. Damas: I know this committee wanted some amendments, something with some beef — no pun intended. I am not a lawyer, so it would be difficult for me to draft legislation at this eleventh hour.

In any event, I throw that idea out if the desire is to promote Canadian rural industry. I read a report recently about rural poverty that was drafted by the Standing Senate Committee on Agriculture and Forestry. Two years ago, this industry was in a shambles; it had been long suffering. It seems to me ironic that large industrial ethanol refineries should be importing American corn to promote farmers in the neighbourhood. That does not sound correct to me, Senator Milne.

As the chair mentioned, this may not pass the smell test in terms of international trade agreements. I would point out that a grain merchant told me that some of these regulations were basically a way around GATT. I thought GATT was pretty old.

Senator Milne: It certainly is.

If this government goes ahead with its announced plans — they are not in this bill; this bill is just enabling legislation — which would all be in the regulations that none of us has seen yet, the chances are that it would end up subsidizing ethanol production outside Canada or subsidizing Canadian producers of ethanol buying their corn outside Canada.

Mr. Damas: I guess myself and others who have spoken before you are trying to influence the outcome of the regulations. I have read the bill and I understand it is open-ended. It is a technical adjustment to the Canadian Environmental Protection Act, so I do not expect my amendments to be instituted today.

Senator Milne: That is quite a definite answer.

Does Canada import ethanol from Brazil, which is the world's largest producer?

Mr. Damas: I understand that some Brazilian ethanol has been produced to satisfy the Ontario renewable fuels standard, RFS.

Senator Milne: Can it be shipped by tanker?

Mr. Damas: I do not have any information or data on that, although I assume it comes here by fuel tanker.

Senator Mitchell: Mr. Damas, I am from Edmonton, which has been a leader in blue box recycling for years. It has become part of the culture in Edmonton. Yesterday, an announcement was made that Enerkem and GreenFieldEthanol have partnered with the City of Edmonton to build a biofuels plant that will use municipal waste to generate the biofuels. That raises the issue of the significance of the timing of this bill.

Apparently, there is a great deal of investment pending, some sort of certainty in this market. Currently, it is quite patchwork because several provinces are doing it provincially and differently. This bill would allow for a pan- Canadian administration of the issue.

Are you aware of pending investments for other companies involved in this? Are there other planned investments of the kind of capital that could be brought to bear in Canada as a result of the need for meeting these ethanol fuel standards?

The Chair: Senator Mitchell, I do not know if we have blown anything, but the announcement about that plant is being made today.

Senator Mitchell: We have the press release.

The Chair: It is being announced today at 2:30.

Senator Mitchell: The media advisory came out yesterday. I am sure that everyone will know about it.

Mr. Damas: Are you speaking of traditional ethanol, Senator Mitchell, or next generation ethanol?

Senator Mitchell: I am speaking to both.

Mr. Damas: I have a database of all traditional ethanol plants in North America. On cellulosic ethanol, biodiesel and other projects, such as algae diesel, I do not have much information. I have a file on them, but these projects are a little farther off in their fruition.

It seems that there is no standardization in the renewable fuels standard across Canada, and this bill would not provide one because it is under some standards and over others. Alberta does not have a renewable fuels standard. Yes, it would give Alberta a 5 per cent renewable fuels standard but is it critical to this plant? I do not think I could answer that question. This announcement means that the actual ethanol produced would be several years away.

As an investment analyst and venture capitalist, I would want to know that the government was serious about producing a world-class industry. If I may say so, I think 5 per cent and 2 per cent proposal is a little timid.

Senator Mitchell: That is interesting.

Mr. Damas: It indicates that perhaps some of the homework has not been done on this issue. It is like dipping your toe into the pond to see how the water temperature is.

Senator Mitchell: Clearly there is pressure on Canadian ethanol producers to import corn from the U.S. because U.S. corn is so heavily subsidized. Is that right? As is so often the case, European and U.S. grain and other agricultural product subsidies mess up international markets. It creates pressure and we cannot compete in many ways.

Mr. Damas: I do not see it that way. At the moment, I see it purely as a matter of supply and demand. There is not enough corn in Ontario to supply the proposed ethanol plants. You, I and all committee members know that not all those plants will be built. Business is business and if prices of corn stay above $7 per bushel and ethanol does not respond in price, which it has not done, then some of those plants will not be built and all of that corn will not be needed. Perhaps two thirds of the proposed plants will be built. I mentioned that 2.3 billion litres of corn ethanol in Ontario will require 230 million bushels of corn, so a plant will not be particularly concerned with so-called cheap American corn. The bids on corn in Ontario for these plants are at times $1 less than the Chicago delivered price. The freight rate to Chicago is 55 cents to 60 cents. In fact, they are discounting the Canadian corn by another 40 cents to 50 cents. It is a case of wanting your corn to be sold to the plant, and accepting what they will give you for it, otherwise, they will get it in a bulk freighter from Toledo.

Senator Mitchell: Are you aware of what portion of the ethanol produced in Canada is corn versus other grains?

Mr. Damas: I could easily do the calculation.

Senator Mitchell: Do you have a rough idea?

Mr. Damas: We have 465 million litres of corn ethanol in Ontario. In Quebec there is an additional 130 million to 150 million litres, although I could be corrected on that. I would say that about 600 million litres out of 1 billion litres quoted, which equates to about 60 per cent.

Senator Mitchell: Mr. Damas, you alluded to the fact that you are not certain about the status of second generation technology development or how long that might take. Can you share some insight into that.

Mr. Damas: I have had a great deal of experience in forecasting industries that take a long time to get to fruition. As you know, there are two different technologies — syngas versus enzyme breakdown. I understand from my chemist friends that both are still viable. It is a matter of cost, of proving the scale-up, and of getting the financing for the projects. I enjoyed hearing the debate about whether it would be 3 to 5 years or 10 to 15 years. Why not throw a dart right in the middle.

Senator Mitchell: That would make it 7.5 years, which would not be bad. If grain prices were to stay as high as they are today, it would put much more pressure on ethanol producers to find cheaper sources. Certainly, municipal waste could be one of those sources. Therefore, market forces might facilitate such a process.

Mr. Damas: Not necessarily a higher corn price but a higher fuel price would accelerate interest in this technology. It could be considered the Holy Grail of fuel venture capital. My concern is that it does not strand many assets invested in corn ethanol. Similar to Ontario Hydro, we could have a couple of billion dollars in plant stock, and retrofitting a plant to another technology can create emissions problems.

Currently, we have a standard cookie cutter design for corn ethanol, depending on the model wanted — the 40 model, 50 model or the 108 — by ICM Inc. and Delta-T Corp. in the U.S. These plants are designed carefully to produce high-volume amounts of corn ethanol with, hopefully, low emissions. I should not say that because it has been debated by many people. I am not sure it would that easy to retrofit a 400-million litre corn ethanol plant to use solid waste from municipalities or wood chips as the feedstock.

Senator Mitchell: Peripherally related to this are carbon offset markets. What do you think of the usefulness of those as a financial mechanism to promote investments in farms and other small businesses to facilitate climate change initiatives?

Mr. Damas: I think that is the way to go. I will be humble here. I do not know enough of the details. Senator McCoy was here, and I know she is vice-chair of "climate change central.'' I do believe you cannot manage something unless you measure it.

Senator Mitchell: That would be a way to measure it.

Mr. Damas: Unless you value carbon emission reductions, you cannot reward those who are doing it. To a certain degree, government regulation is trying to step in, and it is a well-intended but slightly clumsy way to create what the free market could do if we properly valued the reduction of carbon in the marketplace. Here I am, getting my 15 minutes of glory, but I think others could probably answer that better than I.

The Chair: Mr. Damas and guests, we have received a message from Mr. Robin Speer of the Canadian Renewable Fuels Association, telling us that POET is the largest ethanol producer in the United States; that Pound-Maker, out of Saskatchewan, is farmer owned; and that IGPC is a farmer-owned corn supplier in Aylmer, and that GreenField has a very large component of farmer investors in that company. I wanted to convey that message to you.

Senator Munson: Mr. Damas, you mentioned that 5 per cent and 2 per cent were "a little timid.'' To put it into context, do you think that Canada can produce the amount of biofuels required under this broad strategy by the government, or will it have to import fuel?

Mr. Damas: I believe that the 5 per cent and 2 per cent are related to ethanol, not corn. It does not tell you where the source is. I want to make that clear. I am not saying it is timid from a food-grain derived or oil seed-derived biofuel. We have to include all possible sources.

In the short term, I do not believe we can do better than 5 per cent and 2 per cent because if gasoline production is anywhere from 30 to 40 billion litres a year in this country, we would need 2 billion litres of ethanol just on the gasoline side. We only have 1 billion now. It will take a couple of years to get a couple more plants on line. I do not believe we can do better than the 5 per cent right now. I think we need a longer-term plan to ensure that we could satisfy that demand from other sources.

We have a wood products industry in northern Ontario that has just been hammered, companies such as Tembec and Cascades, in Quebec. New Brunswick has a lot of hardwood. The senator from New Brunswick is not here.

Senator Munson: I am from New Brunswick, but I am an Ontario senator. New Brunswick really is suffering: Bathurst, Campbellton and Dalhousie. I come from Northern New Brunswick, and it is really tough.

Mr. Damas: Yes, it is very tough. I have done a lot of consulting in the forest products industry, pulp and paper mills. There are mills all over Canada, and they would benefit from cellulosic ethanol from wood waste. I believe that longer term we would be able to satisfy a higher RFS than 5 per cent and 2 per cent; I am just not sure it is from corn ethanol in Ontario.

Senator Munson: Do you think Canadian-made biofuels should be protected from outside competition?

Mr. Damas: I do not believe so. I think tariffs are anathema. I believe if we want to get some cheap ethanol, we might just get some more Brazilian ethanol, but it does not satisfy the other goals of rural and manufacturing stimulation.

Senator Munson: I am replacing another senator on this committee, and I have found this debate fascinating. We listened to a lot of people yesterday. I went over my notes last evening from previous testimony from the industry. We have to have some kind of balance here. We are supposed to be a chamber of sober second thought. We are going to discuss this and move to clause-by-clause consideration of the bill later this morning.

Yesterday we listened to the arguments — almost for the first time in an extensive way — and we heard the National Farmers Union, which you heard, and then we heard the Canadian Federation of Agriculture, both passionate about this piece of legislation, on both sides of the fence. Being a senator whose grandfather was a farmer, I am not confused, but I could be swayed this way or that way.

You listened to the testimony yesterday, and I am curious how you feel when you hear that kind of argument on both sides of the fence and which way we should go as a Senate committee.

Mr. Damas: I have heard a lot of exhortation from this side of the bench and a lot of enthusiasm and a lot of fear. I think we should have less exhortation and more perspiration. We should roll up our sleeves and have a professional consulting report integrating the fuel business in North America, if not globally. I have not heard any terms such as "low-cost producer'' or "return on investment'' or "economies of scale.'' The multiplier of benefits has been debated heartily: How many jobs and how many dollars will this create?

Many questions have been raised, but I do not see the answers. I cannot believe we are going to legislate without having professionals who also understand the commodity business, which is a tiger. I think the farmers and the corn ethanol producers got a tiger by the tail when they decided to have a fully tradeable commodity in Chicago as their input.

Senator, I do not know if that answers the question, but I cannot comment on what other professionals have said. I have read their comments, and I would like to do a little fact checking myself.

Senator Munson: From the perspective of government, this gives the government the right to develop what you are talking about, rolling up the sleeves, and it gives the government a strategy to put some pieces of the puzzle together as we move on.

Mr. Damas: I hope that when the regulations are created and the subsidy plans are instituted, the investment aspects of these projects are carefully studied. We are in a nice spot here in Canada. We have a lot of excess government tax revenue from the petroleum industry, and we have surpluses, I believe — the last time I looked — at the federal level, though not at the provincial level in Ontario. We are spending some of that money. Are we spending it the right way?

We had a gentleman here who thinks switchgrass pellets are the way to go. Another fellow believes algae biodiesel is the way to go. I believe the venture capitalists should make those decisions on the high-tech industry, and corn ethanol plants should have a government hand to ensure they do not do something with our money that does not make sense from a business standpoint.

When I went to business school and completed my MBA — I think there is a director from Dome Petroleum here — I remember Dome Petroleum as the icon for what not to do in business.

Everyone at this table has said oil is going up. As a contrarian in my business, that means oil is going down. The Shanghai Composite Index has been hammered in China, and usually that is an indicator that the economy will turn down. Let us be aware that if oil goes back to double digits, not triple digits, that we do not strand a lot of these plants.

Senator Kenny: Do I get equal time, Mr. Chair?

Mr. Damas: Sorry, that was a long answer. I hope that answered your question, senator.

Senator Munson: What does that mean, being a director? I am just an aging reporter. No one will make me a director.

The Chair: Senator, you are a director of Canada.

Senator Munson: What a humbling thing. I hope Bert Brown agrees with that.

The Chair: We will allow the ex-director of Dome Petroleum to make a comment, should he raise his hand, but first we will go to Senator Brown.

Senator Brown: Mr. Damas, you have done an awful lot of talking about corn ethanol. I do not believe the bill mentions corn ethanol at all. It mentions biofuels and is trying to find a way to see which ones are viable. Do you think there is no need for pilot projects to get biofuels off the ground and prove whether biofuel from switchgrass is better than from corn or wheat, which they have been experimenting with for years now in Red Deer in Alberta? They have been producing ethanol from wheat, and they are trying to produce it from wheat straw. They are also experimenting with barley. The wheat they use is actually soft white wheat, which is not used for bread; it is used for feedstock for cattle.

Do you not think this is a little less over-the-hill than the way the Americans went? This is limited to 5 and 2 per cent, I believe. The mandate of the Americans I think was 15 per cent and 10 per cent biofuels. When you turn loose a tiger that big in America, you get 100 plants overnight. There is no doubt some of those plants were probably not planned properly, were not well located and did not have enough financing behind them, so naturally they failed. We are taking a much more measured approach here in Canada with 5 and 2 per cent.

While $2 billion sounds like quite a bit of money, do you not think that a pilot project would be required to do it Canada-wide? This is not centred in Ontario, nor is it meant to be. There are experiments in B.C. in forest products; there are experiments in Saskatchewan and Alberta. The advisory that will go out today at 2:30 and was referred to earlier is related to waste of every kind in the city of Edmonton. I do not think that would happen if we did not have a plan to help get it off the ground.

I am trying to think of other examples, but one of the best ones would be what happened during the war when we ran out of natural rubber. There was an incredible effort to produce synthetic rubber. Now every car in the world runs on synthetic rubber. They do not run on natural rubber any more.

I would like to know what you think of projects like that. Do you not believe that there must be a stepping stone process for something like this that is Canada-wide?

Mr. Damas: Thank you for that lucid question. That is more telling me than asking me. It is very interesting.

There is a lot of regional disparity and many regional differences in this country. To a certain degree we are trying to get a one-size-fits-all policy here. The arable land is 88 million acres and Saskatchewan has 41 per cent of that. Ontario only has 10 per cent. We are trying to develop regulations that make sense for everybody.

The other disparity is that a corn ethanol plant off the rack from ICM at U.S. $2-plus per gallon is not the same as developing a pilot plant. One is venture. One will require a lot more care and feeding to get to work.

Wheat has more protein than corn. The gluten tends to gum up the plant, so some of these high-protein, low-starch wheats will have to be supplanted by low-protein, high-starch wheats, as you know.

Some of these projects, such as NextGen Biofuels Fund, should be in the province of venture capital, and we only put $500 million in the next-gen technology fund. That should be a billion dollars. The Japanese are moving very strongly in that area. We really have to look at what other countries are doing. We are behind in many industries, such as wind and solar. I believe some of these next-gen technologies are the way to go.

Does this bill satisfy this? It gives an indication that the government will put its foot in the water and give some assurance that there is 5 per cent. It will also get the oil refiners and the gasoline retailers to pony up. Someone here yesterday mentioned that the ethanol price was above the gasoline RBOB, which is reformulated blendstock for oxygen blending. It means gasoline without oxygen. Basically, it has been under the gasoline price RBOB for two years at least because they will not use the stuff unless they are mandated. They will not use the ethanol in spite of the 51 cents. The problem is getting the horse to the trough, but you have to get it to drink.

This is a step in the right direction, but I still believe that we have not done a full-scale analysis of this business. We are becoming partners in business here, so we had better make sure we do the right thing. I know that venture capitalists will not touch this unless there is a 30 or 40 per cent annual return expected down the road.

I hope that is a good answer.

Senator Brown: It is a very good answer. I am pleased to hear that you think it is a good first step.

The Chair: It was I who mentioned the price. I was talking about the price at the pump in Alberta. Ten per cent ethanol gasoline, which has been sold in Alberta for years, is, in my experience, always a little more expensive than regular gasoline.

Mr. Damas: You have made this point several times. It is interesting that for 20 years we have had 10 per cent ethanol in major centres. Some of the retrofits have been made. Will this bill change anything overnight? Not really. It will make it difficult for Newfoundland to get ethanol.

I do not want to say anything gender-specific, but it is half-something and you cannot be half-something.

The Chair: We get your implication.

Senator Brown: This whole idea is that the pool is supposed to be 5 per cent, not 5 per cent in Newfoundland or 5 per cent in New Brunswick or 5 per cent in Alberta. It is supposed to 5 per cent nationally.

Mr. Damas: Therefore, it will not change anything in Newfoundland.

The Chair: That depends on whether the regulations are made to apply to every supplier, which is a question that will only show up in the regulations.

Mr. Damas, you have been a most interesting witness. Your answers have been much appreciated and they are very useful to us. I thank you for taking the time to come here and meet with us.

Senators, we now have with us our next witness panel. I have two requests. We have a presentation that has been prepared by our present guests, which is in French only. Senators, may I have your permission, notwithstanding it is in one language only, to distribute it to the committee?

Hon. Senators: Agreed.

The Chair: In addition, this morning Senator Mitchell raised a matter of a media advisory from the City of Edmonton, of which I have copies. They are also in only one language, which is English. May I have your permission to distribute it to the committee?

Senator Nolin: Yes.

Senator Spivak: According to our rules, people can submit in whatever language they like. That is perfectly legitimate.

The Chair: Absolutely. However, when it comes to distributing documents that are only in one language, we require the permission of the committee.

Appearing before us now, from the Coalition QuébecKyoto, are Thomas Welt, Professional Engineer and Member of the Executive Committee, and John Burcombe, Member of the Executive Committee. Thank you for taking the time to be with us today. We are very grateful. Please make your opening remarks, following which members of the committee will have questions.

[Translation]

Thomas Welt, P. Eng., Member, Executive Committee, Coalition QuébecKyoto: Honourable senators, we thank you for inviting us to give you our opinion.

I am a retired engineer, a member of the Ordre des ingénieurs du Québec. I have been active for about 15 years in the search for ways to fight climate change. I am involved in discussions on climate change, both nationally and internationally, and on reducing greenhouse gases.

Beside me is John Burcombe, also an engineer. We have both been active in this cause for decades; we have sat on the same committees and taken part in the same discussions. We are both members of the Executive Committee of the Coalition QuébecKyoto.

The Coalition QuébecKyoto is made up of about fifty organizations in Quebec, with members from various sectors, including the environment. We are committed to honouring the Kyoto Protocol and to reducing greenhouse gases.

We e-mailed a letter that has been distributed to you, in which we set out our position on Bill C-33. Our position is clear: we disagree with the bill.

[English]

I would like to say that we are not, in principle, against biofuels, but we are in principle against biofuels that we call "agrofuels'' that are in competition with food. We are, in principle, against that type of biofuel.

[Translation]

We will discuss several aspects of the bill. First, I would like to talk about greenhouse gases. In theory, Bill C-33 seeks, in large part, to reduce greenhouse gases.

But does it really?

It is said that, once the 5 per cent of ethanol and the 2 per cent of biodiesel is in place, there will perhaps be a reduction in greenhouse gases in the order of 2.7 megatons. But it is not very clear what the real reduction will be. There are all kinds of studies on the matter. Some say that there will be an efficiency of 1.3 or 1.4 — the efficiency index was discussed yesterday — others say that it will be much less. Other studies show that the effect will be negative, that is, that the amount of greenhouse gases that will have to be put into the process will be greater than the reduction achieved at the end of it.

So will the reduction in greenhouse gases actually end up at 2 megatons, 3 megatons, zero megatons, perhaps even a negative number? That is not the real issue.

In 2010, the forecast is that transportation will emit about 200 megatons. Canada's total emissions will be in the order of 800 megatons. Let us look at that. What are we talking about? A potential reduction of greenhouse gases of a fraction of one per cent. That is what 2 or 3 megatons from 800 megatons are: a small fraction of one per cent. So the idea that ethanol will, as proposed, have a significant impact on greenhouse gases, is not the case.

The impact is very small; we do not even know if it will be positive. Basically, the idea that this ethanol process will have an effect on greenhouse gases is not real. All the more so because, as has been said many times, it will be so hard to measure, for two reasons. First, because it is such a small part of the whole and second, because there are so many theoretical and other factors that will be very hard to factor in. We do not know whether this ethanol process will really reduce greenhouse gases.

I do not think that this is the main reason to move in this direction. There have to be other reasons, but reducing greenhouse gases does not seem to be the real reason to do it. Greenhouse gases are not the real reason behind Bill C- 33.

John Burcombe, Member, Executive Committee, Coalition QuébecKyoto: Mr. Chair and members of the committee, I am very pleased to be here this morning.

[English]

I could not help wondering, as I passed field after field of corn on my way here this morning by train, whether that corn would end up as food or as fuel.

As Mr. Welt mentioned, what is the real purpose of this law? I thought we wanted to reduce greenhouse gases; yet, this bill will do nothing, it seems, to reduce the use of transport fuels. It will only replace some of the non-renewable fuel with so-called renewable fuel.

It appears that this bill will do nothing to reduce total quantities used. Why has the government chosen to take this path rather than introducing other measures that would reduce fuel use in general rather than simply changing from one type of fuel to another? If reduction of greenhouse gases is the reason for this legislation, it should be evident what the reduction will be, and that is not evident.

I will make a comparison with the regulation that is being introduced in Europe. The European directive on renewable fuels has been known since 2003, and it will come into force in 2010. This regulation is also to be in force in 2010, yet the regulation has not even been defined. There is only an idea of what it will contain, but no details. It is very difficult to know how it can be fully enforced in 2010.

Yesterday, the petroleum distributers said that they need three years from the time of knowing exactly what the regulation contains until they can comply with it. It seems that the goal of 5 per cent ethanol in 2010 will be extremely difficult to achieve.

Another aspect that came up yesterday dealt with possible health effects. In the original 2006 notice of intent to develop a federal regulation requiring renewable fuels, one sentence reads:

A preliminary assessment by Health Canada indicates that there are no expected health impacts associated with ethanol use at blends of up to 10 per cent.

How does one interpret that statement. Does that mean that if it is more than 10 per cent there will be effects? Even at 10 per cent, does it mean that there are effects but that they are not sufficient enough to worry about? Has the committee asked Health Canada to appear before it to explain in more detail what the health impacts might be?

There was talk yesterday about possible contamination of distillers' grains, that is, what is left over when the ethanol has been taken from corn and is used as animal feed.

I missed the beginning of that discussion, so I do not know whether the committee was informed of the actual work being done by the Canadian Food Inspection Agency on that topic. In fact, a draft policy paper that was put out for discussion in April of this year having to do with a draft regulation of distillers grain derived from by-products from the ethanol production process. Stop me if you already know about this. I would like to read one sentence from that paper. It states:

Ingredients such as enzymes, microorganisms, processing aids, antimicrobial drugs, and any toxic metabolites (e.g. mycotoxins) originating from the starting grain material, may concentrate in by-products during ethanol manufacturing and potentially be harmful to animals and subsequently to humans (through residues in meat, milk and eggs).

There is a sense of questioning there that needs to be looked at closely. Has the committee thought of asking representatives of the Canadian Food Inspection Agency to come and describe what the problems might be?

This leads me to mention that according to the list that I have seen, we seem to be the last witnesses that the committee expects to hear from. This is unfortunate because there is so much new information coming out right now. For instance, the Oxfam report that was mentioned yesterday is now available. The committee will not have time to look at it if it stops studying this bill today. There is also the Gallagher report from England, which some say is due out tomorrow or Monday. If you stop your work today, you will not have time to look at that and take into consideration all this new information on biofuels before deciding whether you should move to the next step of approving this bill.

As a citizen hearing the news of food problems throughout the world, I wonder how we can be thinking of using food for fuel. We need to think twice about what we are doing, as the Europeans are now, and take time to consider all this new information. I hope that the committee will consider delaying the passage of this bill in order to do more work and receive more information to make a proper decision.

The Chair: Thank you, Mr. Burcombe. We are grateful for you being here.

You are correct; you are the last witnesses we will hear from before proceeding to clause-by-clause consideration of this bill. You are very welcome to stay and see that process and learn what its outcome will be since none of us know because that is something that will be determined by the committee.

Senator Spivak: I am interested in the organizations you represent. Are these all the environmental organizations in Quebec or are they more general? Could you give me some idea about your organizations? You mentioned there were about 50.

Mr. Welt: Yes. They are not all environmentally oriented. Probably the majority are, but we have all kinds of other organizations. We even have political parties that are part of this group.

The only thing we ask is to defend the Kyoto Protocol and to ensure that greenhouse gases are reduced as much as possible. This is our objective. This, in fact, is the only objective of this group.

Senator Spivak: Which political parties? The National Assembly of Quebec agreed that they would implement Kyoto, did they not? Am I wrong?

Mr. Welt: The assembly has agreed to implement, as has the Parliament of Canada. Despite all these agreements, in Canada, as you know, greenhouse gases have dramatically increased when they should have decreased.

We are there to see that what has been promised is achieved. The start-up of this coalition came about once we had a project to make a gas-fired plant. All Quebec energy is generated essentially by hydro. At one point in time, Hydro- Québec decided to have a gas-fired plant. We were opposed to this. This was the start of the coalition, when we said that a gas-fired plant would produce greenhouse gases. In fact, we have succeeded. The plant was not built.

I hope this answers your question.

Senator Spivak: Which political parties are supporting you?

Mr. Welt: I do not know if we should say.

Senator Spivak: The Green Party?

Mr. Welt: Absolutely, as well as the NDP.

Mr. Burcombe: The Bloc Québécois.

Mr. Welt: We have also had ADQ, Action démocratique du Quebec, which is a party of Mr. Mario Dumont. We do not really care what kind of parties they are as long as they support this unique objective.

Senator Spivak: You suggest that we should not rush into this and should check a few more things. Is that your recommendation?

Mr. Welt: I wish to say that the debate about this issue has not really started.

[Translation]

Senator Spivak: You can speak in French if you like; we have an interpretation service.

Mr. Welt: The debate on the matter has not really started. When the House of Commons passed Bill C-33 on third reading, there was no media reaction, nothing but total silence. Very few people are aware. Canadians are not aware, because, basically, there has been no debate. There must be a debate.

You have the opportunity to start the debate. The Senate is, by nature, a chamber of reflection. It can play its role. There must be a debate; opinions must be expressed. If you extend your deliberations, many more organizations will come to meet with you and you will hear all kinds of other opinions. We are putting forward one opinion. I am not saying that it is necessarily the right one; perhaps our proposal is not right. But we are against it. The debate has not started. There must be a debate. As for democratic transparency, there is none. Bill C-33 has been passed.

I would just like to say that Bill C-33 is much more wide-ranging than we can imagine, because it deals with the problem we will have in the future and with knowing how to really solve our problems in a post-petroleum era. It has an impact.

Can biomass achieve anything? What is its impact? Nothing along those lines has really been discussed. This bill is moving much too quickly. There must be a debate. Nor is it just a Canadian debate; it is now being held on an international scale. When the European community proposed the use of biofuels, there had not yet really been any debate, but it is now beginning and it will go on for a long time.

Is biomass a real solution? What kind of biomass? Will it be an agrofuel, or will agrofuels be impossible to use, meaning that another kind of biomass must be used, a kind that does not compete with the food security of third world countries?

We are suggesting that you continue your deliberations and that you invite others to come and provide evidence. There are all kinds of opinions on the matter. Our suggestion to you is that the debate must continue.

Senator Spivak: Thank you, sir, very much.

Mr. Welt: I do not know if I have answered your question.

Senator Spivak: It is a great pleasure to see you here.

Senator Nolin: Good morning, gentlemen, and thank you for making the trip here.

I read your brief with interest. You bring up the question of the periodic review of this bill's effect. That concerned us too — the way in which the bill was originally drawn up. If I told you that our committee has in its mandate the authority to examine an act like this, though it is not mandatory, would that address your concerns? Do you see the paragraph in your text that I am referring to?

Mr. Welt: I understand your question perfectly. In our view, this bill is a step in the wrong direction. So it would be better to not take that step and have to put it right later. Let us say that, in two years, you see that it really was a step in the wrong direction. Meanwhile, you will have been spending taxpayers' money, but without putting the effort into real solutions. If you find out in two or three years that it was not good, our energies will have been spent on bad solutions. It is better not to head in the wrong direction from the outset.

If you do it anyway, for sure you have to have a way to make corrections. When it comes to choosing between the words "shall'' or "should,'' we feel that "shall'' is better than "should.'' It would be good to correct that.

Senator Nolin: You think it should be mandatory, then.

Mr. Welt: Yes, but we suggest that you do not close the door to debate right now.

Senator Nolin: If we talk about the real nature of the bill, you are aware that the bill permits the Department of the Environment, the Governor-in-Council, that is, to implement regulations that would allow gasoline blends. That is what the bill allows; it does not mention percentages — the regulations would do that.

I add this little preamble to my question in order to take you to the second part of your brief. It looks like you are in favour of alternatives to agri-fuels. You call them, as we do, second-generation biofuels. You are not opposed to that option, correct?

Mr. Welt: In principle, we are not opposed; once again, the second generation really needs to be looked at. Is it really the way to go? It may be that the second generation is as bad as the first.

"Second generation'' does not mean "panacea.'' It is just the second generation. We have to see what it implies, analyze it, and see if it is worthwhile.

Senator Nolin: When you say "analyze,'' what do you have in mind? Do you mean that the government would have to look at the anticipated consequences of any regulations before they are implemented?

Mr. Welt: Yes, absolutely.

Senator Nolin: If I told you that the Environmental Protection Act already provides that kind of protection when the government implements regulations, would that answer your concerns?

Mr. Welt: For me, that is not enough. We need a much more in-depth examination to see if the new generations of processes for producing ethanol do what it is hoped they will do. If they do not, we must think of something else.

As I said, from our perspective, we do not know why the government has chosen this route to try to reduce greenhouse gases, if that is really the intent of this bill. We feel that there are other approaches, other ways, that should have a higher priority than this one. A simple reduction in fuel consumption would have the same effect at much less cost, in our view. Why not legislate vehicle efficiency rather than start putting ethanol in gasoline?

Senator Nolin: You are quite right, Mr. Burcombe, and I will not dispute your opinion, but we have a bill to deal with. The government has taken a political position, and the bill is the expression of that position.

I go back to the protection that is already in the act. It says that the Governor-in-Council may make regulations allowing blended gasoline. Deciding on those regulations means that the government thinks that it can make a substantial contribution to preventing or reducing air pollution. It is already provided for in the act.

So, the Minister of the Environment, before going before his cabinet colleagues, must have undertaken an analysis in order to convince himself, and his colleagues, that the regulations he was proposing on blended gasoline were going to reduce air pollution.

Are you satisfied with that, or do you not feel that it is enough?

Mr. Burcombe: We do not feel that it enough because we are getting into something that will be a waste of time if the results do not turn out to be as anticipated. A few years ago, ethanol or renewable fuels were seen as a panacea, as Mr. Welt mentioned. But now, opinions are changing and new analyses are resulting in other ways of looking at it.

So, if the intention really is to reduce greenhouse gases, we feel that this really is not the way to go. If the bill has other goals, that is another story, but if our aim is to reduce greenhouse gases, we do not think that this bill should be passed.

Senator Nolin: Just so that I am certain that I understand your position correctly, Mr. Welt, you mentioned in your opening remarks a quite minimal reduction in greenhouse gases in the big picture of Canadian emissions. We have charts and figures from Natural Resources Canada, and I want to make sure that, when you make that statement, I understand what amount, or which gasoline-ethanol blend, you are referring to.

One of the information items tells us that a fuel made up of diesel and 2 per cent bio-diesel produces 1 to 2 per cent fewer emissions of greenhouse gases. Is that the kind of blend you had in mind?

Mr. Welt: I used the figures in the announcement of December 30, 2006 — when the bill was announced — 2.7 megatons and a document prepared by Senator Banks, I believe, that mentioned 4 megatons.

First, the figures of 2.7 or 4 megatons are not supported, they could be lower. A number of studies say so. I have with me a study from 2005 — we can pass it around — that says that not only will greenhouse gas emissions not be reduced this way, they will increase. A review of the preliminary documents from the recent FAO conference says the same thing. Yesterday, one of your witnesses, Mr. Samson, mentioned 2 megatons.

Basically, figures vary and, anyway, 2.7 megatons out of 800 megatons is a small fraction of one per cent. That is the reality. Even if we take the figures in the government's own announcement, 2.7 megatons, it is a small fraction of one per cent: it could be a quarter of one percent, half, or zero.

I do not know if I have answered your question.

Senator Nolin: Yes. Thank you.

[English]

Senator Spivak: I want to draw your attention to the Canada Gazette, Part 1, December 30, 2006, page 4529. Senator Nolin mentioned the Governor-in-Council may make regulations. However, the Canada Gazette says there will be increases for VOCs, for NOx, et cetera. The Canada Gazette actually specifies this. I suppose these are for smog.

There is a contradiction here between what the CEPA says and what has actually been stated in the Canada Gazette, which accompanies this bill. We are already in contradiction. I just wanted to point that out to the two gentlemen.

The Chair: Gentlemen, I want to focus your attention on the bill before us, which I presume you have carefully studied.

I will carry one of Senator Nolin's questions a little further. This bill does not say the word "ethanol.'' It does not talk about what "feed stocks'' might be. This bill does not refer to any percentage of anything and it contains no date. This bill is simply the government coming to Parliament and asking for the authority or permission to legally regulate biofuels and make necessary changes to CEPA, 1999.

You have asked the committee not to recommend that the Senate pass this bill this afternoon. What measures do you oppose that will be authorized by the bill, as opposed to things that might happen?

[Translation]

Mr. Welt: The December 30, 2006 announcement specifically states the reasons why the bill would be passed. Anyway, if a bill has nothing in it, why make it? In a word, it says that, once the bill is passed, the regulations will require 5 per cent ethanol and 2 per cent biodiesel. That is what the announcement said. Basically, it shows what they are going to do.

[English]

Mr. Burcombe: We all know what is behind this change to the act. Most of the discussion in this committee has been about the intention to regulate or about the content of the regulation — possible regulation — rather than the law. I think in everyone's minds, we are voting on the intent of the regulation rather than the law itself.

The Chair: That is the problem I want to point out to everyone, including those watching this broadcast. It is something this committee and others has been wrestling with for years. This is what we would generally refer to as framework legislation. Successive governments have begun to use this type of legislation more frequently, asking Parliament for permission to do whatever. This results in difficulties that we have had with this and other prior legislation.

I want to make clear that this bill concerns the government simply asking Parliament for the authority to do things they have said they might do. We do not know exactly what those things might be.

Senator Kenny: The reason people have difficulty with this bill is because it is a blank cheque. It is asking the legislature to transfer its powers to the executive. Ultimately, it will be a bit of a leap for the legislature to give up powers to the executive when the executive is not prepared to define the nature of those powers. One can well understand those of us standing on the edge of the cliff thinking, "My goodness, is that not a long leap and are they not bold to ask us for a blank cheque?''

The Chair: Exactly.

Senator Mitchell: It is not entirely a blank cheque because the government has actually said it would be E5-B2 and cars cannot do more than E10, so we know that is the limit.

I am always reluctant to give too much power to this government. Having said that, I do want to congratulate you and your organization for the work you have done and do on the Kyoto Protocol.

I share your grave concern about the climate change crisis. In fact, it is that grave concern and a profound frustration that has brought me to support this bill. This is the closest thing that this government has done that in any way, shape or form that approaches doing something about climate change.

I understand the debate about how effective this bill will be. I also note the point in your written presentation that among the many solutions that could exist are second generation biofuels. In order to confront an issue as massive as climate change, first, it will be easier than we think, but, second, it is a frontier. We need to get started. We will make mistakes, but unless we get started and begin to drive and open up the market forces and the potential for people's creativity to be applied, we will not get anywhere.

There was huge criticism of the way carbon credits were auctioned in Europe. The first round was not perfect. However, if we had not done the first round, we would not have gotten to the second round and we would not have a market that I believe is beginning to work.

We are on the cusp. Given that nothing ever seems to work, most of us are so cynical and frustrated that we think that this will probably not work. On the other hand, we have to get past that and say there is room for leadership, creativity and harnessing market forces to get done what is right to get done.

The Chair: That is a very good expression of opinion. Will it result in a question to the witnesses?

Senator Mitchell: Among the many solutions you talk about, you do not mention whether you would see a preference between a carbon tax — a price on carbon — or cap and trade.

Mr. Welt: We issued a communiqué; perhaps you have read it. We support the carbon tax, but we say that the carbon tax is not sufficient in terms of value; $10 per tonne is nothing, practically, and even $40 will change nothing. It must be much higher and it should also comprise a carbon tax at the pump.

Take the case of Quebec, where electricity does not genreate carbon emissions. The majority of all emissions are from transportation — cars. It is nearly 40 per cent of emissions in Quebec and 25 per cent in Canada. For Quebec, if the carbon tax is not applied to gasoline, it will not provide any change in the province.

We supporting a carbon tax, but we also say that one does not exclude the other. What is important is not a carbon tax or a cap and trade system. What is important is the way it is enacted. If the carbon tax is very small, it will not have any effect. If the cap is very high, it will not have an effect. It depends on the limits and the structure and how those two factors are organized. Our coalition has issued a communiqué on this subject.

Mr. Burcombe: A carbon tax puts a fixed price on carbon but does not fix any particular overall reduction of CO2, whereas the cap and trade puts a fixed cap on the emissions but does not fix the price to achieve it. There is a place for both of them.

Senator Mitchell: Absolutely. There is a carbon tax now on gasoline, 10 cents a litre, which is $42 a tonne. You can argue about the doubling of the price at the pump.

Clearly, with cap and trade comes trade, so you would be supportive of a carbon credit market. Should it be international or should it be limited regionally?

Mr. Welt: It could be international if it is possible to do it internationally. It all depends on how it is organized. If the cap is dramatically different in Canada as compared to the European Union or the United States, then it cannot work; it is not the same thing. In principle, it should be as large as possible — if it is possible. It all depends how it is organized and what are the ingredients of the cap and trade system.

Senator Mitchell: One of the trade-offs is that in the practical world of public policy you have to do things that are not perfect. Sometimes you have to start with a smaller carbon tax; maybe you have to start with lower caps, too, but we have to get started, absolutely.

Senator Milne: My question follows on from those of Senator Mitchell. I believe this government tabled this particular bill and announced what they intend to do in the regulations because they have done so little so far to meet the Kyoto commitments. Yu have made it abundantly clear that you are against the bill, as have so many of our witnesses. What would you do in addition?

You spoke to Senator Mitchell about cap and trade and about a carbon tax, Mr. Burcombe. You spoke about regulating cars and emissions presumably from cars, since the emissions are particularly high in Quebec. What else would you do to help Canada meet our Kyoto obligations?

Mr. Burcombe: I believe that we should be heading more toward the electrification of transport. Electric cars are viable, particularly for urban areas, although people do not seem to realize it. I know that longer distances in Canada make them less attractive than elsewhere in the world. However, countries like Israel have brought in a system to promote electric cars. I think Denmark has also done so. Certainly for Quebec it would make a lot of sense because our energy is already mainly hydroelectric, and electric cars would be virtually free of emissions.

The European regulation allows for not only ethanol but renewable energy sources to be taken into account as if they are reducing greenhouse gases in the same way as ethanol. A renewable energy source is defined as a non-fossil fuel energy source such as wind, solar, geothermal, wave, tidal, hydro power, biomass, landfill gas, sewage treatment plant gas and bio-gas. Once those energy sources are converted to electricity, they can be used for transport and would have, to my way of thinking, much more effect than current ethanol production methods.

Senator Milne: I thank you for your suggestions. It is difficult to know what we can do about this bill because, as the chair has suggested, this is just enabling legislation. We have no input whatsoever into government decisions on the regulations. It usually takes one year to develop the regulations that support legislation. Perhaps we could make strong recommendations to the government on what it should consider in the regulations. It is quite clear that due diligence has been absent on this bill.

Mr. Burcombe: That is why we believe this committee should continue its work on Bill C-33 and continue to hear witnesses and read the information that comes out daily on the subject. If the committee ends its work today, it will not be able to consider and take into account the two new reports that will come out.

Senator Milne: You suggested the Gallagher report from Great Britain. What is the second report?

Mr. Burcombe: The Oxfam report on biofuels, entitled, Another Inconvenient Truth: How biofuel policies are deepening poverty and accelerating climate change, was alluded to yesterday.

Senator Milne: Yes, it was released yesterday.

Senator Brown: I understood you to say that ethanol from corn production does not produce more energy than it takes to produce it; is that correct?

Mr. Welt: Some studies show this. If you are interested, I have a study showing that this is negative. Not only does it not produce more, but it also increases greenhouse gases.

Senator Brown: Could you tell me the name of the study?

Mr. Welt: Yes, I can provide you with a copy because I have it with me. There are many studies on the subject that provide all kinds of figures.

Regardless of whether it is slightly positive or slightly negative, we will not talk about the negative. If it is 3 megatonnes or 4 megatonnes, it is still a tiny percentage of Canadian greenhouse gases. Canadian greenhouse gases are forecast to be 800 megatonnes by 2010. By doing what the government intends, it would be a small fraction of 1 per cent. In addition, you cannot measure it. It is impossible to assess whether it is real, and it might not be real. It might be imaginary to measure for two reasons: First, it is very small and does not have much of an impact; second, it is a theoretical figure that is difficult to assess in a practical sense.

Senator Brown: We have a copy of a U.S. Department of Energy study done at the University of Chicago that indicates it takes 0.74 million British Thermal Units of fossil energy — carbon — input to produce 1 million BTUs of ethanol for refuelling stations. The other side of the graph states that in producing gasoline from petroleum, it takes 1.23 million BTUs of fossil energy to produce 1 million BTUs of gasoline. Subtracting one from the other, the net result is 0.49 million BTUs, which means that 49 per cent less fossil fuel is required to produce ethanol than to produce gasoline by using petroleum energy.

Senator Spivak: What are you talking about? What kind of ethanol?

The Chair: He is talking about the production of ethanol from corn.

Senator Brown: It is corn ethanol.

Senator Spivak: Is it E85 or E10?

The Chair: It is the basic production of ethanol from corn.

Senator Brown: It has nothing to do with the blend. It takes 49 per cent less fossil fuel to produce corn ethanol than to produce gasoline. In other words, it takes more petroleum energy to produce gasoline than the quantity of gasoline produced.

Senator Spivak: Yes, I understand that. However, in some of the charts —

The Chair: Senators, there will be time for discussion among ourselves. Our purpose for now is to ask questions of the witnesses.

Senator Brown: Mr. Burcombe, you understand that Bill C-33 is not only about corn for ethanol and food and that the plants right across this country are already producing ethanol. This bill is designed to do two things. First, it is meant to regulate the fuel product being put into our vehicles so that when we fill up at a gas station, the ethanol content will be compatible with the engines of our cars. Second, it is to improve the kind of ethanol plants we have now to what we will have in the future as we prove each one of these things to be either good or bad.

The Chair: I assume your explanation to the witnesses of the bill's intent is leading to a question.

Senator Brown: Do you believe that the bill is dangerous in any way to the environment? Do you think it is a way to improve the environment? They are announcing today in Edmonton the first bio-waste ethanol plant in Canada.

Senator Mitchell: In the world.

Senator Brown: Yes, I guess it is in the world. The ethanol will be produced entirely from waste material. Perhaps we should be thinking about what is down the road and the best case scenario instead of worrying about what the worst case scenario might be. Do you believe that we should move forward to try to improve the production of biodiesel and ethanol fuels to save energy?

Mr. Burcombe: Certainly you can move forward, but you do not need to regulate 5 per cent ethanol in gasoline to do that. These new developments would probably proceed in any event, or they could proceed with specific funding from the government for new development. Why regulate that all gasoline has to contain 5 per cent ethanol just so that we can move forward to new processes? Those new processes could be encouraged and funded separately from the requirement of 5 per cent ethanol in all gasoline.

On your point of comparing the production of one litre of gasoline to one litre of ethanol, the best thing is to not use either one. The best thing is to abstain from using that litre of fuel because that would provide the greatest greenhouse gas reduction.

Senator Brown: I agree 100 per cent with you that reducing our consumption of energy is probably the highest priority.

The point is that we have a system working now that cannot be changed, and we have companies right across the country trying as best they can to improve the environment through the use of ethanol and biodiesel and prove that it is not only economically good but better for the environment. The government, in order to help them, must have regulation for their dollars. They have to be able to say, "We will look at what you are doing, monitor it and help to finance it; we will look for good results in the future, and if we do not get them, we will not give you any more money.''

The Chair: The question is: Do you agree with that?

To follow up Senator Brown's point on regulation, you would agree that sometimes market forces by themselves, on the one hand, and doing the right thing, on the other hand, do not always achieve desired results, and that sometimes governments must take the responsibility to regulate and require people to do things.

There is a perfect example having to do with fuel. If I am a refiner and distributor, the cheapest thing I can do that will aggrandize the interests of my shareholders is nothing. I do not want to modify my plant, put in any new additives or buy ethanol from anyone, regardless of its source.

The same thing was true when we wanted the refiners to remove sulphur or lead from gasoline. The cheapest thing for them to do was nothing. They would not have done it if it had not been required of them by government; is that not so?

Mr. Burcombe: Yes. However, the overall result of this legislation, this modification of the law, is that the result of putting 5 per cent ethanol into gasoline is under question. We do not know what the effects will be. Reports are still coming out that will help you decide whether it is beneficial or not. As we have said already, it is premature to decide whether this bill is good or not.

Senator Brown: I make the point that we have been selling ethanol at 10 per cent in Alberta for over 20 years.

Senator Mitchell: My question is along these lines as well. This bill facilitates not only corn-based, grain-based, food-based ethanol, you could argue, but it also facilitates the kind of thing that has been announced in Edmonton, which is exactly what we want to facilitate and encourage.

It is true that oil companies are in competition with ethanol to provide fuel. If there were not a requirement by government for ethanol to be included in oil companies' gasoline, how would you ever think, Mr. Burcombe — because you made this point — that it would occur? What leverage would ethanol companies have, even if they had waste-based ethanol, to force their competitors to accept their product and sell it for them? There is no leverage. It would not happen. You must have legislation like this.

Mr. Burcombe: If there were a big enough price put on CO2 and if the ethanol production method were sufficiently efficient and good that it could create all these carbon credits, then there is obviously an incentive for the companies to develop these systems; people would support them and you would buy the ethanol. Ethanol would be that much cheaper because it would be supported by carbon credits.

Senator Mitchell: Or cap and trade, which is essentially this. In a sense, this is the cap part, not the cap and trade. I think this would not have happened as quickly as it is happening if it were not for this kind of initiative.

We do not have much time. We have to get this going. There is a lot of infrastructure in place and a lot of thought around the world — 20 years in Alberta. I have read the Nature Conservancy article and the Science Magazine article; they are not analogous of what is happening in Canada at all. I think there is huge potential for this, and this announcement is proof of that.

The Chair: Now the witnesses know what you think.

Senator Sibbeston: Mr. Chair, why do we not conclude this discussion? We are getting to the point now where we are just arguing with the witnesses, and I think we are past the point of asking them questions. Let us get on with the business at hand.

The Chair: That is a good suggestion.

Thank you very much, gentlemen. We appreciate the time you have taken this morning to spend with us.

Mr. Welt: I want to thank you as well for having us here and allowing us to express our views.

The Chair: Senators, we will go immediately into further discussion. I have asked Mr. Salter, Ms. Ryan and Ms. Kerr to appear before us briefly because Senator Nolin and I have a question that we thought would be interesting to ask these officials.

Senator Sibbeston: Who are they?

The Chair: Mr. Michael Salter is Senior Policy Adviser for Strategic Policy Development at Agriculture and Agri- Food Canada; Ms. Helen Ryan is Director of Oil, Gas and Energy for Environment Canada; and Ms. Catherine Kerr is Senior Policy Analyst with Natural Resources Canada.

It is our intention to have a short health break before considering the bill amongst ourselves, but I wanted a final opportunity for committee members to ask questions of government officials.

Senator Nolin: Ms. Ryan, you have heard me asking questions about paragraph 2 of section 140 of CEPA. Do you have it in front of you?

Helen Ryan, Director, Oil, Gas and Energy, Environment Canada: Yes. When you refer to paragraph 2 of section 140, are you talking about the amendments or of CEPA?

Senator Nolin: It is in CEPA already. It is not included in Bill C-33, but it will apply to section (c.1) of section 140, paragraph 1. I am answering my first question.

Second question: With respect to paragraph 2, when your minister proposes a new regulation to cabinet, he must first satisfy himself or herself and then cabinet that any regulation under paragraph 1 (a) to (d), including (c.1), that:

. . . is of the opinion that the regulation could make a significant contribution to the prevention of, or reduction in, air pollution resulting from

(a) directly or indirectly . . .

Everyone has the rest of the text. What is your reading of that wording? You have heard the discussion we had about Bill C-33. When your minister introduces all the regulations under Bill C-33 dealing with the blending of fuels, will he have to convince the cabinet of what I have just read?

Ms. Ryan: That is correct. In order for a regulation to be passed, we have to satisfy that that condition is met. The minister must be of the opinion that it will result in a significant contribution for the prevention of or reduction of air pollutants. We look to quantify what those would be and then make the recommendation to Governor-in-Council. In there, there are the provisions around what type of reductions would occur or what type of contribution the regulation would make.

Senator Nolin: It is not only the minister but the cabinet as well?

Ms. Ryan: Yes. The Governor-in-Council makes the recommendation.

Senator Nolin: Cabinet needs to be convinced that there is "a significant contribution to the prevention of or reduction in,'' which is not only slight. You heard the previous witnesses saying that the global scheme of total greenhouse gas emissions is so small that we should not care. It is a false pretence that we are doing that for the prevention of greenhouse gas emissions. Is it significant?

Ms. Ryan: I believe the question you are asking me is that when the minister recommends to the Governor-in- Council whether or not a regulation would be passed dealing with reducing greenhouse gases, would that contribution be significant? The law states that they have to meet this test. That is the provision that must be passed before they can move forward with the regulation. It is quite clear that the Governor-in-Council has to be of the opinion that there will be a significant contribution.

The Chair: I want to ensure that I understand the answer to Senator Nolin's question. CEPA as it now stands, unamended, requires that it be demonstrated to the Governor-in-Council that there be a significant contribution to the prevention or reduction of air pollution?

Ms. Ryan: The Governor-in-Council has to be of that opinion, and that is the core provision.

The Chair: That is in CEPA now?

Ms. Ryan: That is correct.

Senator Nolin: How do we check that outside of cabinet? Do we take your word? It is in the law and we are a country governed by the rule of law. How do we convince ourselves that you have done that? How do we revise your decision?

Senator Spivak: Are you kidding?

Senator Nolin: No. It is an honest and fair question.

Ms. Ryan: I do not make decisions. It is the minister who makes the recommendation and the Governor-in-Council has to be of the opinion. From a facts perspective, we provide advice around what these benefits would be. Assessments are done concerning the implications of the specifics around the regulation. The actual assessment is done as it relates to the regulation being put forward. There must be a specific analysis done on what the derived benefits would be from that regulation.

Senator Nolin: In the 60 days that your regulation will be open for public discussion, Canadians will have the power to comment on your regulation?

Ms. Ryan: Absolutely.

Senator Nolin: If they do not agree with your affirmation and want to contest your analysis of the significant reduction or prevention, what do they do?

Ms. Ryan: If I understand the question correctly, you are asking about someone who, during the regulatory process, submits information stating that he or she does not believe that this analysis is appropriate. Normally what happens is that a review is done of the information that comes in to see if the assessment is substantiated. Have new studies been conducted? Was information missing? That is taken into consideration and advice would be provided to either change the provisions in the draft regulation or it would move forward.

It depends how the comments come in, but the comments have to be addressed following the public comment period and then the necessary changes or adjustments are made. That information is taken on board and the assessments are conducted around it.

The Chair: We heard testimony this morning, and perhaps in previous days as well while considering this bill, regarding the contribution that would be made to the reduction of greenhouse gases if the things that we now think would be applied under the amended CEPA were put in place. They are not significant in the view of some. If in fact they are less than 1 per cent, could that be properly characterized as significant?

Ms. Ryan: With respect to greenhouse gas reductions, given the significant nature of the problem we are facing in terms of escalating levels, we are looking to find a means to make reductions in all places. If you are asking for my opinion about whether the level of reductions achieved by this means would be insignificant, no, I do not think they would be insignificant. Analysis done around it. My colleagues at Natural Resources Canada do the modelling concerning the magnitude of those reductions.

Senator Kenny: Have you ever been present in the room when the minister has had this discussion and endeavoured to convince the Governor-in-Council?

Ms. Ryan: I am not certain I am clear on the question.

Senator Kenny: I am not asking you to give away a cabinet confidence. I am asking whether you have been there and watched the process.

Ms. Ryan: I do not sit at cabinet, so if you are asking whether I sit at cabinet, no, I do not.

For the development of a regulation, a regulatory package is put forward, which includes an assessment of its benefits and impacts. We are required to submit a regulatory impact assessment statement of the provisions in a regulation. The minister makes a recommendation, which then goes to the Governor-in-Council. A cabinet committee reviews it and then deliberates, following which a decision is made on whether or not the government wishes to move forward.

I do not participate in that process. It is not a process in which I am involved. We are involved in the preparation of the regulatory package.

Senator Kenny: Could you define for the committee what might constitute the Governor-in-Council? How many ministers might that include? Would it be three?

Ms. Ryan: It is more than that.

Senator Kenny: The more precise question is: What is the definition of "Governor-in-Council''?

Senator Spivak: Is it one?

Senator Kenny: Three.

Ms. Ryan: I do not know the answer to the question in terms of what the quorum requirement is for the committee that meets on it. I cannot answer that question.

Senator Kenny: It is, perhaps, an unfair question to ask you if you have never been to one of these meetings, but would you characterize it as essentially a staff exercise with a rubber stamp at the end of the day?

Ms. Ryan: You are asking me whether I believe that the legal process we have put in place in Canada to pass regulations is a rubber-stamp process. I would unequivocally state that I do not believe that to be the case.

Senator Kenny: That is because you have watched the process and understand it.

Ms. Ryan: I say that based on my understanding of how regulations are put in place. I do not sit at cabinet; I am not privy to those discussions. I am not at liberty to talk about issues that are put before cabinet.

In terms of the process that Canada has in place, this is our regulatory process. From my personal view, I believe that it is not one that people take frivolously. I do not sit there, so I cannot speak from experience.

Senator Kenny: Is your personal view based on reading Corry, or is it based on actually seeing how regulations come forward?

Ms. Ryan: You are asking me whether it is based on my observation personally of the discussions that occur around a regulation. I have already answered that question. I do not sit there. I am not privy to those conversations.

Senator Kenny: My point was that this process involves a great many regulations that are put through in a sausage- like fashion. The process is principally organized, staffed and operated by officials, and the political input or the cabinet input is minimal. If we are looking at a process like this and saying, "Go ahead; we have confidence in the Governor-in-Council dealing with it,'' it is not just abrogating things to cabinet but to officials as well.

The Chair: Thank you, senator. You have been there.

Senator Kenny: I actually have.

Senator Milne: Mr. Chair, I have been overwhelmed by the amount of paper handed out to us during our hearings, including one that has just arrived in front of us, hot off the press, still warm. I gather it is a CCA biofuels report. There is absolutely no opportunity to read it. I have no idea who the CCA is.

The Chair: It is the Canadian Cattlemen's Association. The reason I asked for it to be distributed is that I thought it had been. Senator McCoy had asked if we had heard from them. I thought we had, but, in fact, we had not, so I took the liberty to have it distributed to members.

Senator Milne: I am also upset about this clause-by-clause briefing binder arriving on Bill C-33. Did you provide this?

Michael Salter, Senior Policy Advisor, Strategic Policy Development, Agriculture and Agri-Food Canada: No, we just received it ourselves.

Senator Milne: It is almost unheard of for a committee to receive a briefing binder 30 minutes before it moves to clause-by-clause consideration of a bill that it has been studying for some considerable amount of time. It is unacceptable.

The Chair: I was going to mention to whoever provided the briefings books, which are now utterly redundant, that they did not provide enough copies so our analysts could have some.

Senator Milne: I will gladly hand my copy to one of the analysts.

The Chair: I think we will put them aside for the moment.

Senator Spivak: Since there are many studies, and some say that there will be negative results in terms of this CEPA section, what is the process by which you analyze those studies? It is obviously not a transparent process because you have already said that you cannot talk to us about the discussions that go on in this regard. We have received 22 or 23 studies or summaries of them.

The Chair: Senators, in the nature of those kinds of questions, we must remember that the government must be allowed to govern. It is the government.

Senator Spivak: Who says not?

The Chair: I want to remind us of the context. This process applies, as Senator Kenny has reminded us, not to this government but to governments, and a long succession of them.

Senator Spivak: May I just explain to the chair that in my years here in the Senate we have seen many regulations. There are differences in how you can criticize the government, and I am absolutely aware of those differences. I know the government has to govern; otherwise, we would have anarchy.

The Chair: The question has been asked.

Catherine Kerr, Senior Policy Analyst, Natural Resources Canada: Multiple studies are used to inform the analysis around the GHG reductions associated with the various fuel types. Those are available on our website. We have received several requests in docket format, ATIP requests, et cetera, for the analysis that supports what we have provided. Those are available to you. In fact, last week, when Vicky Orsborne was here, she spoke about some of the key ones that are used to inform the analysis around the GHG model, and I have those available.

Senator Spivak: That is helpful; thank you.

Ms. Kerr: I have my copy. It is part of the back-up material that was provided, I believe.

Senator McCoy: I have not received them. We will take that up with our clerk.

Ms. Ryan: It was a two-part question. You were also questioning the transparency of the information that goes forward.

Senator Spivak: She just answered it.

Ms. Ryan: The other thing I wanted to mention is when a regulation is put forward, the regulatory package, including the regulatory impact assessment statement, all of that information is published in the Canada Gazette for a 60-day formal comment period. It is all made available to the parties. In advance of that stage, pre-consultations are often held with the parties in an effort to find available information and studies that have been conducted so that the analysis will be informed by the views of all interested parties.

Senator Spivak: I am glad you mentioned the Canada Gazette, because in the Canada Gazette of December 30, 2006, there is mention of smog. It mentions the percentage of VOCs and NOX, et cetera, on page 4529.

How do you reconcile what is published in the Canada Gazette, as it refers to Bill C-33, with CEPA? In other words, you have already published assumed emissions. You may not want to answer this question now and perhaps we can get information on it later.

Ms. Ryan: Although I do not have the document you are referring to in front of me, I believe it is the notice of intent that was published in the Canada Gazette.

Senator Spivak: That is right.

Ms. Ryan: The information you have indicated refers to studies that have been done on some contaminants. Some go up and some go down depending on the feedstock and sources of them. We have to assess the overall benefits of it. On the air pollutant side, there are things going up and things going down. From the technical assessment, the view is that on balance it is equal, that is, there is not an overriding benefit for the first generation. That is with regard to the ethanol production.

On the greenhouse gas side of things, however, the assessment is different. When the staff are putting forward a recommendation and when the decision is being made, air pollutants and greenhouse gases are being considered. The notice of intent is identifying the implications for the air pollutants because some go up and some go down, and then it refers to the benefits derived from the greenhouse gases.

That assessment is for ethanol. For the assessment on putting renewable content in diesel, this provision no longer holds true. There is an actual benefit in terms of air pollutants as well.

Senator Spivak: After the 60-day review process of the regulations, cabinet makes its decision. As you know, parliamentarians cannot amend regulations. Am I correct that after this valuable process, cabinet makes the decision?

Ms. Ryan: Are you asking me about regulations being enacted after provisions are in place in a statute?

Senator Spivak: The public has input into the review process, but parliamentarians cannot amend regulations once they are made.

Ms. Ryan: The process for amending a regulation is the same as for passing a regulation. It is the Governor-in- Council that has the authority to amend regulations.

The Chair: Those regulations will also come before the Joint Committee on the Scrutiny of Regulations.

Senator Spivak: Yes, I know that.

Senator Milne: Are amendments to the regulations also pre-published in the Canada Gazette for public input?

Ms. Ryan: A regulation made under CEPA has the same provisions. The amendments to the regulations are published in the Canada Gazette for a formal comment period as well.

Senator McCoy: It is all very confusing. We are anticipating having a renewable fuel standard, and the purpose of Bill C-33 is to make that a regulation. I had imagined we would see a declaration that all fuel sold in Canada shall have 5 per cent diesel and 10 per cent ethanol. That is the premise under which I thought we were operating.

The Chair: This bill would authorize the government to make such a regulation.

Senator McCoy: That is the regulation we are all anticipating. Under which piece of this legislation will that happen?

Ms. Ryan: Your question is with regard to the changes being made to CEPA and how that relates to future regulations?

Senator McCoy: Yes. What will the renewable fuel standard be?

Ms. Ryan: The changes before you relate to providing the enabling authority, which would then allow for a regulation to be put in place.

Senator McCoy: Which section, subsection or paragraph will the renewable fuel standard be written under?

Ms. Ryan: It will be written under the fuels division.

Senator McCoy: Yes, Part 7, and which section?

Ms. Ryan: There are a number of provisions, and the regulation has not yet been written. The specific provisions under the fuel division that are used will depend on the nature of the regulation. I could give you a general indication, but it will depend on the specifics of how the regulation is written.

Senator McCoy: The renewable fuel standard has nothing to do with pollution, then. I am a little confused.

The Chair: The term used throughout is not "renewable fuels'' but "biofuels.''

Senator McCoy: That word does not even appear in Bill C-33. The bill talks about blending of fuels, but not about biofuel, renewable fuel or anything else of that nature.

Senator Spivak: It has no standards.

The Chair: It talks about blended fuels and the blending of fuels. That is what this bill is about.

Senator McCoy: However, that has nothing to do with pollution.

The Chair: The bill does not prescribe anything. It provides authorization from Parliament to make regulations; to regulate biofuel.

Senator McCoy: That is why I am asking which of these it will be under. Following our deputy chair's questions on the specifics of subsections 140(1) and (2), I am beginning to wonder where the renewable fuels standard is meant to emerge. I thought that while we had the expert staff members here I would ask that question.

The Chair: The only place it appears in the bill before us is in proposed subsection 140(6) on page 3 where it describes the kinds of studies of efficacy that ought to be undertaken by committees of Parliament to determine whether the regulations promulgated under this bill have had a beneficial effect.

Senator McCoy: I see.

The Chair: That is the only place that that kind of term appears in the bill.

Senator McCoy: If we are going to talk about that and the question is answered by the witness here as far as she is able to do so, in light of the fact that the regulations have not been written, it is hard to predict which sections you will called to aid —

Ms. Ryan: I can clarify. The provision you are talking about relates to the ability to regulate the blending of the fuel. Generally speaking, when we add ethanol to gasoline, it must be done after the point of production. Currently, the authorities under CEPA regulate at the point where the fuel is produced or imported or the point where the fuel is sold. We can regulate at those two points. This will provide greater clarity that we can also regulate at the point where the fuel is blended. As we try to design an efficient regulation, it is important to be able to figure out what point along that spectrum is the most appropriate place to regulate.

The reason I cannot give you a specific answer about whether we will use that specific provision or not depends on the actual writing of the regulation. The writing of the regulation has not been done. The provision allows the flexibility to design a regulation that can get at the players involved at any point along that chain.

When you ask what sections of CEPA we would use for that regulation, the specifics actually have to be written to say, "Do I need to put this provision under this section?'' because there will need to be monitoring and reporting on all of those elements.

Senator McCoy: Going back to the deputy chair's question, the minister needs to be convinced that there is a significant contribution to the prevention of or reduction in air pollution. CEPA considers greenhouse gases to be pollution.

Ms. Ryan: Could you pass along the specific wording?

Senator McCoy: I think you have it. I gave you that earlier. It is subsection 140(2) of the current act.

Ms. Ryan: It refers to the "significant contribution to the prevention of, or reduction in, air pollution resulting from . . . .'' Is the question whether or not greenhouse gases are deemed to be pollution?

Senator McCoy: Yes.

Senator Spivak: The United States has said that they are.

Ms. Ryan: Sorry, I was seeking clarification from the lawyers.

Because the term we use under the toxic provision is "pollutant'' and greenhouse gases are defined as a pollutant, the pollutant then contributes to the pollution.

Senator McCoy: To contravene that then becomes a criminal offence, as I understand it, which is another topic altogether. Let us leave it there.

Senator Milne: The longer we have the officials here, the more questions I have for them.

Section 140(3) of CEPA states:

A regulation may distinguish among fuels according to their commercial designation, source, physical or chemical properties, class, conditions of use or place or time of year of use.

The replacement clause turns it over completely to the Governor-in-Council on recommendation of the minister. It reads:

The Governor in Council may, on the recommendation of the Minister, make regulations exempting from the application of subsection 139(1) any producer or importer in respect of any fuel that they produce or import in quantities of less than 400 m3 per year.

In other words, all the specificities in the present CEPA are being removed by replacing that subsection. Could you assure this committee that the Governor-in-Council will still be able to make regulations regarding all these different specific aspects once this section of CEPA has been amended?

Ms. Ryan: You are referring to the amendment to subsection 140(3)?

Senator Milne: That is right.

Ms. Ryan: We say:

The Governor in Council may, on the recommendation of the Minister, make regulations exempting from the application of subsection 139(1) —

Senator Milne: That is precisely what I read to you.

Ms. Ryan: The purpose of this exemption is only for those small quantities. The exemption does not remove those broad provisions.

Senator Milne: It does. It replaces the present subsection 140(3) in CEPA.

Ms. Ryan: There are two changes that happen. The general provisions that we spoke about are consolidated into another section under clause 5. The specific exemption is for the very small quantities.

Senator Milne: It is for the small amounts, thank you.

Ms. Ryan: Those provisions remain in place.

Senator Milne: Where in this bill are they transferred?

Senator Nolin: They are transferred to section 330. What we have now in subsection 140(3) is moved to new section 330(3.2).

The Chair: The provisions stay.

Senator Nolin: They are even enlarged.

Senator Mitchell: Ms. Kerr, could you give us a quick summary of the conclusions of those studies that your department has done that you have referred to? What I am looking for is the net carbon reduction that your studies have concluded. These are studies based on Canadian experience, are they?

Ms. Kerr: With respect to the net as an umbrella level, more energy is available in the ethanol than the fossil energy required for its production and use. This compares with gasoline, where I think we had established earlier this morning that more fossil energy is used in the production and use of gasoline as opposed to ethanol.

The Chair: Could you give us a ratio? We have heard varying numbers: 1.25, 1.36.

Ms. Kerr: For corn-based ethanol, the energy balances that we have state that 0.64 units of fossil energy are required to make one unit of energy, whereas with gasoline the figure is 1.27 units, so about twice the amount is required.

Senator Mitchell: Do you have a way of translating that into the number of reduced tonnes of carbon?

Ms. Kerr: In terms of the life cycle GHG emissions associated with conventional ethanol, there is a 30 to 40 per cent reduction; canola-based biodiesel is 60 per cent; and next-gen is estimated at 80 to 100 per cent.

Senator Mitchell: Are those studies based on the Canadian experience?

Ms. Kerr: This is based on our model, which is called GHGenius, the only one of its kind in Canada and one of few in the world based on a life cycle analysis. It is informed by and the manner in which it is used is based on various reports and studies. We have an extensive list of that, which has been provided.

Senator Mitchell: Peer reviewed?

Ms. Kerr: Yes. Very few studies that are peer reviewed have found the opposite to be true.

Senator Spivak: Petroleum producers were concerned about liability due to injury and damage to marine fuel tanks and other equipment. Does clause 2(5) of Bill C-33 adequately cover that particular concern?

Ms. Ryan: When you say petroleum producers were concerned about damage to marine fuel tanks, what exactly do you mean?

Senator Spivak: With respect to ethanol, there are a number of legal cases in the United States about damage to certain boats because of the use of ethanol. I do not know enough about it.

The Chair: We heard yesterday from the Canadian Petroleum Products Institute that in California lawsuits were initiated against the providers of fuel to boats because the fuel has destroyed or harmed the motors of the boats. These providers were asking to be saved harmless from such a thing.

Ms. Ryan: You are asking me whether the provisions in the change would address that issue. My answer is that the provisions in CEPA would not specifically relate to a company's liability around a product that it provides to someone.

When we look at issues of including items like the appropriate tanks necessary for these fuels, education and other things must happen to ensure the integrity of the tanks to prevent things from getting into them. That is the case regardless of the provisions you are regulating. If the fuels have contaminants in them, it can be problematic because of their nature. The provisions in the bill would not address that issue.

The Chair: Thank you, witnesses. We are grateful that you came. It turned out to be useful for us.

Honourable senators, next on our agenda is to commence discussion on clause-by-clause consideration of Bill C-33.

Senator McCoy: Before we commence with clause-by-clause consideration, I would like to clarify the source of this document that has been circulated, which has a footnote saying CCA Biofuels Report.

Being from Alberta — putting my regional hat on — I was concerned that we did not have any representation from the livestock industry. As you recall, yesterday I asked the representative of the Canadian Federation of Agriculture whether they were members of that group and if he was representing them. He said he was not. I think the Pork Council of Canada was the only other livestock industry representative from which we heard.

We have a very large beef industry in Alberta. I know they have been concerned about the impact of ethanol plants, in particular, on their feed stocks for beef cattle in Alberta. Over the past several days, I have been communicating with one of their representatives, who happens to be in China. She emailed me a copy of a report that the Canadian Cattlemen's Association prepared in August 2007, which I had my assistant print out and deliver here this morning. I believe one of our staff members accepted it. You have a copy of this report without the cover sheet.

This report is dated August 20, 2007. It contains very useful information. However, I do not want committee members to be under the impression that the Canadian Cattlemen's Association has officially put this evidence forward. I am pleased that their point of view is before the committee.

To summarize briefly, in August 2007 their position was that they would support a biofuel strategy for Canada with some caveats. The biofuel strategy should be transitioned into a free market approach explicitly and expeditiously. They have other recommendations including that we learn more about how the biofuels industry would impact the beef livestock industry, a considerably large interest for Alberta. They also make a number of points regarding cereal grain research that would facilitate the objective to have both the biofuels industry and a healthy, competitive, cost-effective, livestock industry in Canada.

I will not say more about it. However, I want to put on the record that the information before you is one year old and has not been put before the committee by the Canadian Cattlemen's Association itself, but it is of relevance. I wanted to ensure, as an Albertan, that we had that perspective in mind as we discuss Bill C-33.

The Chair: The National Farmers Union told us that they represent the interests of some cattle producers and the CCA appeared before the House of Commons committee in consideration of this bill. Our attention had been directed to that previously.

Senator Milne: I want to lay some conditions down in advance.

I intend to vote for this bill on the condition that we attach observations about the reservations I think all of us had from the evidence presented to us. I hope you have a translator lined up.

The Chair: In order to understand the mechanics, do you propose that we write those recommendations before we report to the Senate with respect to the bill?

Senator Milne: I can tell you what I would like to see in the recommendations if the committee wants to hear them.

The Chair: I suggest that if we want to attach comments to our report to the Senate this afternoon, we should start preparing them now. You may want to get a pencil out now because drafting comments by committee is a difficult thing to do.

Senator Milne: I have been writing.

Senator Spivak: Is it time for me to make my motion?

The Chair: Not yet because I want to conclude the discussion first. We have not yet gone to clause-by-clause consideration. We are now discussing the bill.

Senator Spivak: I have to make my motion before clause-by-clause consideration.

The Chair: We have not yet begun formal consideration of the bill, and there is a process we must go through before we do that.

Senator Mitchell: I would like to reinforce the testimony of Ms. Kerr from Natural Resources Canada, which has very strong Canadian-based, peer-reviewed research that indicates considerable positive pickup on the greenhouse gas front relating to ethanol production, even as it is with grains. There is tremendous pressure with the prices of grains at these levels for these organizations to begin to do what they already want to do, which is to go to second generation fuels.

There is a second point I want to make. I know there is concern about the word "should'' in the clause that talks about annual reviews. Subclause 2(8) on page 3 of the bill states:

. . . should be undertaken by such committee of the Senate, of the House of Commons or of both Houses of Parliament. . . .

We senators control the Senate committee. "Should'' becomes "we can do whatever we want to do'' in that regard. There is certainly a presence among the members of this committee that we would want to review on a periodic, regular and frequent basis. That gives me some comfort in the strength of that particular clause.

The Chair: To clarify, Senator Mitchell, you are almost right. Committees do not quite decide on their own what they will do. They do that on the basis of a reference that has been made by the Senate chamber to its committees.

You are correct in saying that under our present order of reference, which is approved at the beginning of every new Parliament, this committee can arbitrarily decide to do that, as we were intending to do with our CEPA review. It turned out to be referred specifically by the Senate. You are right, this committee can do that, but I do not know about the House of Commons.

Senator Spivak: In response to Senator Mitchell's comments, I do not want the record to show that this is the definitive report on greenhouse gas emissions. I have looked at about 22 reports of various kinds, and this is the only one that stands out with such figures.

You would have to know how to compare apples with apples rather than apples with oranges. If you are looking at a litre of pure ethanol and a litre of gasoline, it is a different story than if you are looking at different life cycles or if you are taking into account the NOx and the land.

I am not advocating one study or another. I am merely pointing out that, thus far, this is not an area where there is certainty.

Senator Brown: I want to comment that actually two studies were actually completed, one by the Canadians who just testified. Their differential was 63 per cent in favour of ethanol. There was also the Chicago study, which I read earlier, and the differential was 49 per cent. More than one is very large on the positive side.

I think what causes the confusion is that no one from the petroleum industry told us that they use more fossil fuels producing a litre of fossil fuel. They actually spend 1.23 litres of gasoline producing 1.23 litres of gasoline. It is not in their interest to do that, so why would they?

The Chair: Members should know that we invited CAPP, the Canadian Association of Petroleum Producers, to appear before the committee. They declined because they argued this was a downstream and not an upstream issue. We did invite them to address that question.

Senator Nolin: Earlier this morning, we talked about the Standing Joint Committee on Scrutiny of Regulations. For those of you who are not members of that committee, as I am, I would argue that because of the wording of subsection 140(2), which I questioned the Environment Canada officials on, I strongly argue that the Minister of the Environment should be invited in front of that committee to explain the significance of the contribution to the prevention or reduction of pollution.

Given the way the legislation is already written, I think the committee is entitled to have the minister explain how significant the regulation is and why it was taken.

The Chair: As explained to me by Senator Nolin, that would be the only way in which that committee would be able to assess the regulations. That committee is constrained in its study of whether regulations are consistent with the enabling legislation that authorizes them to be promulgated. There are ultra vires and constitutionality issues. It is the demonstration of the significance of the reduction that Senator Nolin is referring to that would be the hook.

Senator Nolin: Otherwise, we could not do it because it is a policy question. The committee is not entitled to question policy, but to scrutinize the legality of the regulations.

The Chair: As much for the benefit of those who are watching, of whom there are many, I will exercise my prerogative to characterize what we have heard. I hope you will correct me if I am wrong.

This is a bill in which Parliament authorizes the government to make regulations respecting fuels. The amendments made in Bill C-33 to the Canadian Environmental Protection Act, 1999, would permit the regulation of blended fuels, which may or may not include ethanol and which may or may not include other additives that may be derived from various sources: corn, cellulosic or next generation technologies. That is all the bill does. This is Parliament authorizing the government to make those regulations.

We cannot now be certain as to what those regulations will be. We cannot say for certain that the government can make regulations to do with announcements they have already made with respect to policy intentions. We cannot be certain they will not take into account things that have been learned in the interim.

We have heard the bill characterized as a "blank cheque'' and as providing the government with powers far too broad to do things. That is a characteristic of framework legislation, which I remind you has been used by successive governments of all colours.

At the other end of the stick, we have also heard that this legislation is absolutely essential to the progress of development of things that will be in the interests of the ecology, economy and farm community in Canada. We have heard from both ends of the stick. I think it is safe to say that we have heard compelling arguments on all sides of those questions.

We have heard arguments that this bill should be delayed in order that further study can be undertaken. However, it would not be further study of the bill; it would be further study of the subject area that might be dealt with in regulations coming from the bill. We have heard on the other end of that stick that, if we delay this bill, the industry that will be given the responsibility of actually making these things happen will be severely disadvantaged. The time line in which they have to do that — about 18 months — will be shortened by at least four months, and that would work a hardship on them. We have heard testimony to that effect.

In that slight encapsulation, I think I have described the things we have heard and the nature of the decision at which we must now arrive, which is whether we will report this bill this afternoon.

I now propose that, with leave, we move to consideration of the bill. Is that agreed?

Hon. Senators: Agreed.

The Chair: I would ask you, rather than going to clause-by-clause consideration, whether you might wish to consider a motion concerning the bill as whole.

Senator Spivak: You have described what has happened slightly on this side and not on this side because the majority of our witnesses were not in favour of this bill.

Therefore, I would like to move that the committee not now proceed to clause-by-clause consideration of Bill C-33 in order that the committee could do a cost-benefit analysis of what the government is proposing in terms of the 5 per cent and the 2 per cent.

I am a champion of lost causes. It is not that I expect this to be a huge success. However, it is important for those people who came before us to know that there is at least one person who has heard them.

Let me explain my reasoning. First, this is not a radical suggestion. The Gallagher report, which has just come out, has called for more research — that is the basis of the report in the United Kingdom — into the indirect impact of biofuels on land use and food production. As I mentioned earlier, 23 senators, including Senator John McCain, have petitioned to deviate from the mandate in the United States. These are not casual observers.

Here are the reasons that I think we need to conduct what I would suggest is sober second thought. To begin with, considerable and new scientific understanding and economic analysis has become available since December 2006, when the government presented its biofuels policy that Bill C-33 would implement. We do not know, for example, what the net energy balance would be. Our researcher did not get that information.

It is not clear whether the subsidies to the manufacturers will assist farm incomes. The biofuels subsidies, as we heard very clearly, are for manufacturers. It is not clear what the farmers would do.

There is no mandate for certified biofuels that the government has told us about; in other words, that there must be a certain level. The testimony we heard today does not really address that issue. It says maybe 1 per cent, but it does not say that anything that should be subsidized should have a certain level.

The Chair: A certain level of Canadian content, is that what you mean?

Senator Spivak: Yes, for emissions.

We also have absolutely no idea whether first generation biofuels will lead to second generation. In fact, we heard that it might be the opposite.

The point is that there is a lot we do not know. I am sure that if we had not rushed, if we had not been faced, as usual, with a cut-off date, we would have taken much more time to look into these issues.

What is the downside of taking time to study this bill? I know the manufacturers say the sky is falling, but the truth is, as we heard from the Canadian Petroleum Products Institute, it will take them three years before they can blend the ethanol into the gas. They explained very clearly what that means and how long it would take. What are we talking about here? We are talking about pressure to accept something that is totally open-ended.

That is all I have to say at the moment. I know there will be many who will disagree with me.

The Chair: There is a motion on the floor. Speaking to the motion is Senator Munson.

Senator Munson: I am speaking to why I am here.

As I said before, I was a replacement for Senator Trenholme Counsell, who is the senator who sits on this committee, to ask a lot of questions. I have enjoyed the exercise thoroughly over the last two days. In fact, I walked into a debate that I had limited knowledge about before, but I have more now.

However, I have to attend a rather important news conference, and I will not be able to participate in the debate anymore. It is a news conference of importance to me and importance to a person I once worked for.

Senator Spivak: I have one other thing to add. It is something that was not discussed here, except very briefly, which is what was in the Canada Gazette on the smog implication. Let me just put this into the record. This is from December 30, 2006, Part I of the Canada Gazette. There will be:

. . . increases in transportation emissions for VOCs (0.5 per cent to 1 per cent nationwide; 3 per cent to 5 per cent in areas where renewable fuels are to be introduced), NOx (0.5 per cent to 1 per cent nationwide; 4 per cent to 6 per cent in areas where renewable fuels are to be introduced), formaldehyde (2 per cent) and acetaldehyde (48 per cent).

However, I want to be fair. There will be:

. . . decreases in transportation emissions for CO (1.3 per cent to 3.6 per cent), benzene (1.7 per cent to 6.2 per cent), PM (0.5 per cent of the diesel inventory), and GHGs (0.4 per cent to 0.6 per cent) . . . .

That is what they said in the Canada Gazette when they introduced this.

Senator McCoy: That is with respect to ethanol.

Senator Spivak: Yes, with respect to ethanol.

The Chair: I am not sure I asked my question properly. When you referred to the idea that there ought to be a certification process involved for biofuels, is that certified on the basis of their quality or their origin?

Senator Spivak: It is in the United Kingdom, and I am not clear, but it lends a degree of knowledge about greenhouse gas emissions.

Senator Mitchell: I know we all appreciate the difficulty of this debate, to which there are two powerful sides.

Senator Spivak: One side is more powerful than the other.

Senator Mitchell: I want to say, first, invoking Senator McCain's initiative does not give us insight into his motivations. In fact, I would not be surprised whether he is very comfortable with supporting petroleum companies, and they are in competition with ethanol. I would like to set that aside a little bit.

I would also like to say that I think that the idea of specifying a certified biofuels process would be an excellent observation to make. That is a very good suggestion on your part.

I also want to point out that NRCan was not referring to a single study; they were referring to over a dozen studies. The more recent report out of Britain does not apply to Canada. I have read that. It is not all that powerful in some of its analysis, conclusions and assumptions, and it does not apply to the Canadian situation.

If we delay, there will be huge ramifications for this industry. There is still time for us and many other groups to apply more pressure and influence the government to move toward second generation and to emphasize and expedite that process. If we do not start on climate change, work with what we have and make it work, then we delay something that we do not have the time to delay.

The Chair: You are in opposition to the motion.

Senator Mitchell: Yes.

Senator Sibbeston: I am sympathetic to the motion. It is interesting that the world seems to have embarked on a process to find an alternative to fossil fuel. Progress has been made in a number of areas but recently, that progress seems to be in question, perhaps because of the food shortage and the question as to whether biofuels help to reduce greenhouse gases. I recognize that Canada is a small player and has recently become involved in the process of finding alternative fuel. In Canada, we have a tremendous amount of fossil fuel, and it would seem that there is much more in the Arctic. We will never run out of fuel. I understand that we are taking this initiative primarily to reduce greenhouse gases.

If that result is in question, then it undermines the rationale for going down this road. I am sympathetic to Senator Spivak's motion but I would not necessarily take it all the way, as it were. I recognize that voting against this bill would be akin to bucking the trend. Everyone seems to be enthusiastic or happy that we are finding an alternative fuel in ethanol. Who in Canada does not support that goal? Who in Canada does not want to see a reduction in greenhouse gases? That rationale has put us on this road and if there is any doubt, then we have to question more.

I am sympathetic and likely to vote with Senator Spivak but, after that, we will see.

Senator McCoy: I too am sympathetic to Senator Spivak's motion and to the position of the chair. For more than a decade, I have been active on the climate change file and working to move things forward in my home province of Alberta, and in Canada through the Senate. There is a great tendency to find the potholes in that road and use them to procrastinate in taking action. Without doubt, there is no single solution or panacea to reducing greenhouse gases. We need a broad-brush approach. Biofuels seem to be the promising avenue to pursue. It is obvious that there are implications to their deployment that we had not considered even five years ago, when we started promoting biofuels, although we have had more experience with ethanol and we have known more about it over the years than we have known about biodiesel or biogas, which have not been the focus.

My question is in the interests of moving forward and recognizing that we know less than we thought we knew, and that there is more to know than we thought we needed to know about responding to climate change and reducing greenhouse gases. Keep in mind that the committee is able to make recommendations and that it would receive an order of reference hopefully from the Senate for an in-depth study. Perhaps we can take the pith and substance of Senator Spivak's motion and use it to develop a reference for an in-depth study of the issue this fall, which then would help to inform the development of regulations. We have heard that the regulations have not been written but I would be surprised if there were not some drafts in someone's bottom drawer.

The Chair: We will see them tomorrow morning.

Senator McCoy: I know that people who watch the Canada Gazette have ways of knowing when that comment period begins, which tends to be a 60-day written comment period. Senators are paid to do more in-depth and long- term studies and we can help to amplify the possibility and opportunity for people to bring in more information. That information would help to inform the regulation-making process. As well, it might be a way to maintain momentum on the file and to begin to develop a much more nuanced understanding than anyone seems to have in Canada.

The Chair: As Senator Mitchell pointed out, the committee is able to undertake such a study on its own volition, given the existing order of reference from the Senate. We would need to change the work plan of the committee because that study is not in the work plan of the committee now. As long as the committee works within the terms as set out in the order of reference, it can set its own agenda at any time. As you know, since you have been here we have often interrupted the prescribed work plan. We are able to do that.

The other side of the argument is that when the bill is passed, it is passed. The likelihood of a bill to amend coming forward and having much effect after this bill has passed, has received Royal Assent and has come into force is not impossible but it is remote.

Senator McCoy: I agree but I do not think that the outcome of more in-depth hearings on this issue would be directed to amending the enabling act. I hope it would have some influence on the regulations, policies and programs put forward by the Government of Canada.

The Chair: It could certainly do that. Senator Spivak, if you speak now it will have the effect of closing the debate on the motion.

Senator Spivak: I do not want to speak now but I want an opportunity to speak after.

The Chair: You will be the last speaker.

Senator Adams: I did not have many questions for the witnesses over the last two days. We heard that the majority of people do not want to see the bill pass and would like to see more study of the subject matter. You said that, in some way, after the bill has been passed, we would be able to hear more witnesses, although I do not know how many we would hear from, and how much it would change the intent of the bill. In the meantime, where I live no one grows corn.

The Chair: Not yet.

Senator Adams: We have a great deal of natural gas, oil and other resources but the companies produce nothing.

We heard from witnesses in the Standing Senate Committee on Fisheries and Oceans about China and other countries building ice-breakers in the Arctic. The Japanese are building liquefied natural gas tankers in the Arctic. They are not coming to where I live. I will abstain.

The Chair: On the motion?

Senator Adams: On both.

The Chair: Okay: Thank you for that.

Are there any further comments on the motion?

Senator Brown: We had several good witnesses on both sides of the issue. What convinced me more than anything was the report from the University of Chicago, even over and above the report from our Canadian people. The report talked about the difference in consumption of energy to produce energy: 49 per cent. In other words, we would save half a litre in consumption of fossil fuels to produce bio-energy ethanol over producing fossil fuel gasoline by consuming fossil fuel gasoline.

The Chair: Are you talking gallon to gallon?

Senator Brown: Gallon to gallon or litre to litre or tonne to tonne: It does not matter, it is the same percentage. For every litre of fossil fuel energy we burn to produce ethanol, according to the University of Chicago, there is a 50-per- cent advantage, or 49 per cent, to be specific. However, if we produce fossil fuels by burning fossil fuels, we end up burning more. In other words, 1.23 litres per litre of gasoline is consumed just to produce one litre.

Our Canadian studies elevated that to 63 per cent. I am not sure where the difference comes from. There may be reasons. They said something about the entire life cycle of ethanol products from growing it from switchgrass or corn; they may have been talking specifically about corn.

It looks like it would be useful to go down this road to find out whether these things pan out on a commercial scale. At the same time, if the price of grain goes up because of it, it will force them, as Senator Mitchell has already said, to explore more and more alternatives, such as switchgrass and a lot of other things.

Also, the announcement this morning by the City of Edmonton about using entirely waste products to produce ethanol is a huge step forward. If they prove that to be successful, I do not think we are limited by the amount of garbage we produce in this country, or any other country, for that matter. If we can move from waste products into ethanol through this process, as a second generation of production, I am all for it and I would definitely vote for it.

The Chair: For the information of members, the Edmonton project to which Senator Brown has referred is not experimental; it is an industrial-level, commercial-level plant. The tabletop has already been done.

The other side of that argument that we heard, Senator Brown, is that if we need to put 100 gallons of blended fuel into our tanks, 95 of them will be reformulated blendstock for oxygenate blending, RBOB, and 5 of them, under the presently contemplated plan, would be ethanol. The reduction would be a percentage of the percentage. We also heard, on the other side of that argument, that blended fuel, in terms of consumption, is less efficient than present gasoline.

Senator Mitchell: Those figures that Senator Brown is referring to are BTU to BTU. It is not a question of litre to litre; it is BTU to BTU. It is energy equivalency.

The Chair: Right, but 5 per cent of the blended fuel will be ethanol.

Senator Mitchell: That issue is a different one. Yes, unless we can make it more.

The Chair: Is there further discussion on the motion?

Senator Spivak: What I propose is cost-benefit. We do not know the costs and the benefits. What Senator Brown suggests is contradicted by many other people. We need to know what we are comparing. I am not saying he is wrong; I am saying it is not clear.

Let me talk about the cost. What are we willing to pay? According to the Resource Efficient Agricultural Production, REAP, Canada people, it will cost about $378 to produce a tonne of corn-based ethanol. We have not really looked at the cost.

I understand what people think about here in terms of wanting to go to a step that ensures we look at how we can put this piece into the whole greenhouse gas emissions equation. I am not against that step. However, I think we are buying a pig in a poke, because after we pass these regulations, you had better say you trust the government, Senator Mitchell. These regulations are for the producers. It does not say which producers, or for what. There is $500 million for the second generation technology.

These are my views. I understand the majority of the committee does not share these views, but I am glad to have them on the record. I have heard from many people and many witnesses who want the Senate to do due diligence and provide sober second thought, and we have not done that.

The Chair: By way of confirmation, Senator Spivak, I think you said that the $378 per tonne was the cost of producing it, but I think the testimony we heard was that amount was the cost of reducing a tonne of greenhouse gases, GHG; CO2 in particular.

Senator Spivak: Can I quote this passage from the REAP Canada presentation?

The Chair: Yes, please.

Senator Spivak: Under "Financial sustainability,'' it says:

In the province of Ontario we have analyzed GHG offsets to already cost $378 per tonne of CO2 mitigated from corn ethanol. Is there any price too high to pay for corn ethanol and biodiesel CO2 efforts?

The Chair: I misunderstood you. I thought you had said that was the cost of producing ethanol. It is the cost of reducing a tonne of CO2.

Senator Spivak: This is from REAP-Canada.

The Chair: Do you have the motion written down, Senator Spivak?

Senator Spivak: I did not write it down.

The Chair: Okay, we understand it.

Senator Spivak: It is not to go to clause by clause consideration.

The Chair: It was moved by the Honourable Senator Spivak that the committee not now move to clause-by-clause consideration of Bill C-33 but that we allow for a cost-benefit analysis of the government's 5-per-cent and 2-per-cent proposal.

All in favour of the motion?

Some Hon. Senators: Agreed.

The Chair: Opposed to the motion?

Some Hon. Senators: Nay.

The Chair: The motion is lost. Shall we proceed to clause-by-clause consideration of Bill C-33?

Hon. Senators: Agreed.

The Chair: Do you want to register an abstention, Senator Adams?

Senator Adams: No.

The Chair: Shall the title of Bill C-33 stand postponed?

Some Hon. Senators: Agreed.

The Chair: Shall clause 1 carry?

Some Hon. Senators: Agreed.

The Chair: Returning to my first question, were there any opposed to standing the title?

Senator McCoy: Did I understand you to say that we would prepare observations before we consider the bill, clause by clause?

Senator Nolin: That is after.

The Chair: We will come to that.

Senator McCoy: Thank you. That is what I needed to know.

The Chair: I will start over again, for the sake of the record. Shall the title stand postponed?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried.

Senator Spivak: I want to be registered in opposition to the whole thing.

The Chair: That is fairly clear.

Shall clause 1 carry?

Some Hon. Senators: Agreed.

The Chair: Opposed?

Senator Milne: On division.

The Chair: Senator Spivak, will you allow me to say in respect of these, "on division'' as we go through them?

Senator Spivak: Yes.

The Chair: Shall clause 2 carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Shall clause 3 carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Shall clause 4 carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Shall clause 5 carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Shall clause 6 carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Shall the title carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Does the committee wish to consider appending observations to the report?

Senator Milne: Yes, definitely. I suggest that the observations ask the government to do due diligence before the regulations that ensue from this bill are published in the Canada Gazette, first, to ensure that Canada's tax dollars are being prudently used to produce a significant result; second, to ensure that the industry is able to process and mix the fuel as required in the bill or in whatever regulations they propose —

The Chair: And by the time it is contemplated in the regulation?

Senator Milne: Yes: "Is able to'' covers both time and ability.

Third, to ensure that Canadian producers, the farmers, can meet the demand; fourth, to ensure that human health will not be compromised in any way by this bill, although parts of the clauses of the bill seem to demand that; and fifth, to ensure that any new information coming out more recently than past studies be taken into consideration before these regulations are promulgated.

The Chair: Have senators clearly understood the nature of the proposed comments?

Senator Spivak: Can I add one thing: that it be clear that farmers' incomes will be affected advantageously by this policy?

Senator McCoy: That sounds good. Can we also adopt some of the wording from Senator Spivak's motion in terms of the cost-benefit analysis, whether we say that we want to undertake one ourselves or do we put it into a framework of asking the government to do so, although I prefer not to ask cabinet to undertake that analysis but to further the notion that we follow up on Senator Spivak's excellent motion?

Senator Milne: That comes in under due diligence. It should be part of the first part of the observations.

Senator McCoy: It is not precise. You are asking the government to do it and, therefore, you are not following up yourselves. My point is, can we not make some observation that we ourselves are interested in this follow-up? Also, I would like to include the words "cost-benefit analysis'' in there somewhere.

The Chair: We can say due diligence including a cost-benefit analysis in devising the regulations.

Senator Spivak: I think the government can easily say they have done their cost-benefit analysis. If cost-benefit analysis is to be done by a more neutral body, it will probably be the responsibility of this committee to do it.

The Chair: Right: We should append to the comments that it is the intention of this committee to examine the efficacy of the regulations that are put into place. We can add that intention.

The advantage of including the words "significant benefit'' and "cost-benefit analysis'' — and this is prescient of Senator Milne — is that it would make it clearly fall within the purview of section 4 of CEPA, which will focus the attention of those who are concerned to make sure it is consistent with that section. That addition is valuable.

Senator McCoy: We are getting there but one of your phrases put me back on the table here, and that is, you say to review the regulations. With respect, we could be of great assistance to Canadians in supporting and facilitating the public debate before the regulations are written or finalized, or at least during the time in which they are being formulated. Do not wait for the regulations; continue this discussion that has been started. Witness after witness and email after email have said that we do not know enough; we need better public debate. Events around the world are rushing forward in ways that we have no idea how Canada is contributing to them. This is the substance of the evidence we have heard, and Senator Spivak has been good enough to encapsulate that substance in her motion.

We have not deferred the bill. We said to put the framework bill in place but to honour the calls for some responsibility. Witnesses have said, let the senators at least further this call for an in-depth public debate. That would mean having the debate before the regulations are in place, it seems to me.

Senator Spivak: I could not have said it better myself.

The Chair: Yes, but we do not know when the regulations will be put in place.

Shall we start on this tomorrow and sit through the summer to do that?

Senator McCoy: That would be great.

The Chair: I am in favour of that suggestion. However, I do not think we will find leave from the Senate to sit through the summer. I point out that the reference to cost-benefit analysis in the recommendations relates to proposing that the government should do that, not that this committee can do that. The committee does not have the means of conducting a cost-benefit analysis, and will not be able to obtain the means. We could hire it out, but we do not have the resources. It is beyond our capacity. It is a recommendation that the government conduct that cost-benefit analysis in its consideration of devising the regulations.

Are we agreed with the recommendations as we have heard them? Before we go there, Senator Milne, I presume you have them written down?

Senator Milne: I handed over my scribbled, re-scribbled and written-over notes, but I would be willing to have the chair and the deputy chair of the committee take a look at them fast because they must go to translation before this afternoon.

The Chair: Honourable senators, is that agreeable?

Hon. Senators: Agreed.

The Chair: Senator Nolin and I will look at, approve and cause to be translated the attachments to go with the report of the bill.

Senator Spivak: I want to say fine, put them in for the government, but I do not believe that we cannot obtain enough volunteer help in terms of witnesses from around the country to look at a cost-benefit analysis. We already have some of it, but not enough. I think we could do it.

Senator McCoy: I agree with Senator Spivak. I also agree that the Senate could put some resources behind this item if we were to put it forward. I disagree with the chair's assessment of the feasibility of conducting a study.

The Chair: The committee will resume its consideration of its work plan when Parliament resumes.

However, by way of argument, I point out that if I were an outside person, I would consider seriously the question the usefulness of a cost-benefit analysis done by volunteers who would, by definition, come with an interest.

The only way we can conduct a cost-benefit analysis that has any value is by the application of an absolutely objective set of criteria, which we could devise. Then, we must engage someone to do it.

Senator Spivak: Not at all; we had an investment analyst here. I do not think he was on one side or another. There are plenty of consultants, probably, at the Royal Bank of Canada, RBC. I am sure on this issue, which is such a crucial issue, witnesses would appear. When I say "cost-benefit,'' I am not talking only about the financial cost. I am talking about everything.

It seems to me that all the people who are anxious to go post-haste with this bill should not be afraid of a cost- benefit analysis because they are convinced it will come out great.

The Chair: Perhaps I misunderstand the term "cost-benefit analysis.'' If we, the committee, conduct a cost-benefit analysis, we could have, without exaggeration, as you all know, hundreds of witnesses appear before us, but then the analysis, the subjective analysis, one assumes, or the objective analysis, if we can do that, would be done by us, and I would not qualify that as a cost-benefit analysis.

Senator McCoy: Fair enough.

Senator Spivak: Here is a suggestion: What about the Auditor General and the Commissioner of the Environment and Sustainable Development?

The Chair: That is a different question. The Commissioner of the Environment and Sustainable Development is empowered under Bill C-474 and otherwise to look into questions like this one. As you know, we co-operate closely with the commissioner of the environment from time to time.

Senator Spivak: Here is the point: We can ask them to do it, but it is not like a public debate. The point of the committee undertaking something is that the debate is public.

Once the regulations are in the government's hands, we do not know how the government will act on them. We can put public pressure on the government by having a public debate.

I am not pushing this approach.

Senator McCoy: I am. I will.

Senator Spivak: I am not because my objective was to postpone the bill.

Senator McCoy: To move past this contretemps, Senator Banks, you say that perhaps your understanding of the words "cost-benefit analysis'' is not exactly what we are talking about here. I think that point might be legitimate. It is a term of art.

If one were to say something more along the lines of an analysis or a review, et cetera, it could take us off that high centre, and we could proceed to examine that legislation.

The Chair: I suggest that whether the committee in September, or whenever we return, decides whether and how to do that will depend on the state of the regulations at that point and whether a draft is available, whether they have been published in the Canada Gazette and in what state — they may be in the middle of the 60-day period. We do not know. It is not possible to add that recommendation.

I think we have heard strongly that the members of this committee wish to revisit this question.

Thank you, Senator Milne, for the draft of the recommendations. Senator Nolin and I will look at them now, approve them and send them to —

Senator Nolin: Do you have the mandate to report as soon as possible?

The Chair: Honourable senators, shall the bill carry?

Some Hon. Senators: Agreed.

The Chair: Opposed? Carried, on division.

Is it agreed that I report this bill, with observations, at the first opportunity to the Senate?

Hon. Senators: Agreed.

The Chair: Opposed? That is unanimous.

Thank you, senators. The meeting is adjourned.

The committee adjourned.


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