Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 3 - Evidence - April 20, 2010
OTTAWA, Tuesday, April 20, 2010
The Standing Senate Committee on Energy, the Environment and Natural Resources is meeting today at 5:34 p.m. to study the current and future state of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[Translation]
The Chair: Good evening and welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is David Angus. I represent the province of Quebec in the Senate and I am the chair of the committee.
[English]
With me this evening is: Senator Grant Mitchell, the Deputy Chair, from Alberta; Sam Banks and Marc Leblanc from the Library of Parliament; Senator Richard Neufeld from British Columbia; Senator Tommy Banks from Alberta; Senator Paul Massicotte from Quebec; Senator Elaine McCoy from Alberta; Ms. Lynn Gordon, clerk of the committee; Senator Judith Seidman from Quebec; Senator Linda Frum from Ontario, Senator Dan Lang from the Yukon Territory; Senator Robert Peterson from Saskatchewan; and Senator Bert Brown from Alberta.
[Translation]
I would like to welcome Mr. Pierre-Olivier Pineau, Associate Professor at the HEC, École des hautes études commerciales, which is affiliated with the Université de Montréal.
[English]
Founded in 1907 by the Montreal Chamber of Commerce, HEC Montreal has become one of the top locations for management training and research in Canada.
Professor Pineau is especially interested in electricity and energy policies. It is very apropos that he has agreed to share his thoughts with us in the context of our study on energy. He has put specific focus on investment models, institutional reforms and market integration.
[Translation]
His research is primarily focused on public policies in the electricity and energy sectors. Professor, I would like to welcome you once again.
[English]
We appreciate your coming to appear this evening. I believe you had a chance to speak to our researcher, Marc Leblanc, prior to your appearance. You have supplied us with a PowerPoint deck that I understand you will take us through. All honourable senators should have a copy of this material available in both official languages.
Pierre-Olivier Pineau, Associate Professor, Department of Management Sciences, HEC Montreal: Thank you, it is an honour to be here. I am an energy policy specialist who focuses on electricity reform, but tonight I will speak more broadly about energy issues and energy demand.
HEC Montreal is a business school based in Montreal. We were the first to be established and were founded in 1907. We have 12,000 students who we teach in English, French and Spanish. I teach in English, but, of course, my first language is French. I started my career at the University of Victoria where I taught for five years. I had the pleasure to be there when Senator Neufeld was the Minister of Energy, Mines and Petroleum Resources for British Columbia. I sometimes commented on electricity reforms and energy policy in British Columbia. I loved my five years in British Columbia, but I went back to Montreal where I now live.
The Chair: We all had the privilege of listening to a major speech in the Senate about the linguistic duality in Canada — English and French. The speech was delivered in both languages and illustrated the richness of our great country. You obviously had the opportunity to live in both major regions, British Columbia in the West and, in particular, in Quebec. You are well qualified to help us understand how we can put together a policy framework for a national energy policy for Canada. Thank you again for coming.
Mr. Pineau: I will speak more about demand and less about the supply side of energy. I assume that you have heard much about the supply side. I do not believe we have an energy supply problem; we have more of an energy demand problem.
The focus of my presentation will be on how we can use less energy to make Canada richer. Having a productive society is the key element for growth in our society. We need to be more productive and one way is to perform the same activities with fewer inputs. We do not use our energy inputs wisely.
I will talk about three sectors. First, we do not trade enough electricity across Canada. Second is the transportation sector. Transportation costs too much for Canadians. There are ways to make it cheaper, which is where we should aim our energy policy. Third are our buildings. Our buildings are losers, pun intended. We lose too much energy from our buildings, and that does not benefit anyone.
I have two general slides that show how Canadians use energy. These slides will give you a sense of the diversity in energy use across Canada. Regarding how Canadians use energy, you see that energy use is about transportation. This is the primary sector where we use energy. When we discuss energy policy, we have to talk about transportation policy. The main reason we produce and refine oil is to fuel our cars for transportation. Energy means transportation. We have to keep that in mind.
Almost all of our transportation is based on refined petroleum products, which is key to understanding where we are now in terms of exposure to high oil prices. If emissions are a problem, transportation is the key source of greenhouse gas emissions.
I will not talk a great deal about industry, although it is a major sector. Industry uses energy to make profits, and have been the first sector to become energy efficient. Their energy costs are so high in their overall cost structure that they are the first sector to make energy efficiency investments. It is much less the case in the transportation and residential sectors, where we use energy to heat our homes. Even in the commercial and institutional sectors, energy efficiency problems are huge. We use energy in buildings. That is why I say that buildings are problematic.
I will start with electricity, because electricity is key to our society. The total amount of energy we use is about one half what we produce in Canada. That means we produce twice that amount. I will give you a number here of 8 million terajoules, which is the equivalent of 3.5 million barrels of oil per day. We consume as much energy as Alberta, Saskatchewan, and other provinces produce in terms of oil. If we only used the oil we produce in Canada, it would cover our needs. Of course, we also produce natural gas, hydro electricity, nuclear electricity and coal. We produce a lot more types of energy in Canada. We produce twice what we need.
We export some energy, we use some of it, and some of it is used for producing electricity. On the next slide, you will see a graph indicating the electricity that we produce: 75 per cent from non-emitting sources, hydro power and nuclear power plants, and 25 per cent from coal and natural gas. Only 25 per cent of our electricity in Canada is produced with fossil fuels. That is a problem because it is expensive, as we will see, and it is also emits a lot of greenhouse gasses, and we may have a goal of reducing these emissions.
Moving to the next slide, we see that the four main provinces use energy in different ways. These numbers indicate energy consumption per capita per sector. That is how much energy we use in the industrial sector for each Canadian, which is 75 gigajoules. Forget about the numbers. What is important here is the relative size of these bars. Ontario, which is the grey bar, has the lowest industrial consumption per capita. That is because the economy of Ontario is largely based on services and does not use so much energy. In Alberta, natural resources have a huge importance to industry, and therefore Albertans need to use a lot more energy for their industrial activities. Ontario uses much less energy per capita in the industrial sector.
The population is taken care of because it is per capita, so that is per person. In each province, it is the amount of energy divided by the number of people in that province. Bigger and smaller provinces are reflected in these bars.
In the transportation sector, for example, Quebecers use 60 gigajoules per year to travel, whereas Albertans use 117 gigajoules per year, which is almost twice the amount of energy for transportation. In the residential sector, some provinces use more energy per capita than other provinces. That is not explained by the industrial structure of the province. That is because of how people use energy to move themselves and to heat their homes. The major differences illustrate the diversity in terms of how Canadians use energy.
The point I want to make is that we could learn from some provinces that are better at using energy, and we can understand why some other provinces use more energy. There could be good reasons for using more energy per capita, but there might be good lessons from provinces that use less energy per capita. They can deliver the same kind of housing or transportation services by using less energy. There might be hints.
I want to jump into the electricity sector. On slide five, you see the price per kilowatt hour on the horizontal axis. For example, in Nunavut, they pay 45 cents for 1 kilowatt hour of electricity. That is why they use very little electricity. The per capita consumption of electricity in Nunavut is less than 5,000 kilowatt hours per year. That is the vertical axis on the chart. In provinces such as Quebec, Manitoba and British Columbia, where the price of electricity is very low, about 6 cents per kilowatt hour, the per capita consumption is extremely high. There is a relationship between what you pay and how much you use. All economists understand that the more you pay for something, the less you will use of it. You know it costs more so you find alternatives. You find ways of doing what you need to do by other means.
Why do some provinces have such low prices and others such high prices? The price differential between B.C., Manitoba, Quebec, Alberta and Ontario does not appear to be so big here, but it is actually a 50 per cent price differential. B.C., Manitoba and Quebec pay about 6 cents per kilowatt hour, and in Alberta and Ontario, it is about 10 cents per kilowatt hour. That is about a 50 per cent increase. Therefore, Albertans and Ontarians use less energy. Price is not the only factor. There are other features, such as climate and industrial structure. Price does not explain everything, but it does explain a lot.
How can we have low prices in some provinces and high prices in other provinces? Some provinces are blessed with extremely cheap hydro power. British Columbia, Manitoba and Quebec have extremely cheap hydro power that they keep for themselves to maintain low prices within their provinces to the pleasure of consumers that benefit from these low prices. The problem with that is that while they benefit from low prices, they do not make energy efficiency investments. They do not think about insulating their homes or using less electricity. For example, they heat their basements. My parents have a cottage in Quebec, and heat that cottage to 10 degrees Celsius all winter long. That is not energy efficient but why would they bother turning down the thermostat when electricity is relatively inexpensive?
Ontarians and Albertans pay a much higher price for their electricity. The sad thing is that when consumers feel happy with their low electricity prices, they consume more and do not sell it in the market price. As a result, they do not make revenue. When these provinces do not export their electricity to other provinces, other provinces have to pay higher prices for their own electricity. Ontario is investing billions of dollars in renewable projects, but we could achieve the same goal by sending more hydro power from Quebec to Ontario. That would avoid the need to invest billions of dollars in Ontario. It would lower the price of electricity in Ontario. Quebecers would make more money in terms of selling electricity at a higher price to Ontarians. Of course, they would have to pay a higher price in Quebec in order to make some of the energy efficiency adjustments that would allow them to make energy savings and allow them to export more electricity.
There are many energy savings possibilities in Quebec, B.C. and Manitoba. We all have energy efficiency agencies, and they always say so much electricity could be saved if only people would do these things correctly. Without reducing their quality of life, consumers could save a lot of electricity, ship it to other provinces or to the United States, and make a great deal of money.
Basically, what we have in these provinces in terms of energy policy is akin to the National Energy Program we had in the 1970s, where we were saying you have to keep the oil within Canada; you cannot sell it at the world market price. In B.C., Manitoba and Quebec, we say you have to sell the electricity at the local cheap price; you cannot sell it at the high market price on the other side of the border. That is not good because we are not optimizing our resources. Ontario shares similar issues because of regulated prices for hydro and nuclear power.
A very important goal would be to change that policy in order to allow for more interprovincial trade. There would have to be a non-regulated price in Quebec, B.C. and Manitoba in order to allow prices to increase to some extent.
Although it sounds politically infeasible to pay a higher price in Quebec and Manitoba — and Senator Neufeld knows very well that it is hard to make people in B.C. accept paying a higher price — the good news is that people are more and more willing to pay a higher price for energy. That is why I showed you that nice bullfrog on slide six.
I just discovered a company — and I have no connection to it, I do not have any shares — whose slogan is "pay more for energy.'' They want to attract consumers by telling them to pay more for energy because they will sell you green energy.
I am conducting an experimental economic study in Montreal, where I take people into a room and explain to them why it would be good for them as a society to pay more for electricity. Fifty-two per cent of my subjects were willing to pay more for their electricity when the social, economic and environmental benefits of paying more for electricity were explained to them.
It is hard to explain it well, but we can get the message through to consumers. That is key; when you explain why it is good to pay more for electricity, people make adjustments. Basically, the reasons are that you make society richer, you avoid some emissions and you promote energy efficiency much more efficiently than we do now.
In order to have these benefits, you need to be able to trade. You need to have a free market for electricity between Ontario and Quebec, Alberta and British Columbia. Some countries have done that.
On the next page is a map of Norway, Denmark, Sweden and Finland. These countries have a common Nordic electricity market. They do not share a federal government or have any institution in common. They decided to harmonize their electricity rules to be able to trade freely across their jurisdictions. They have a single market price for electricity. Norway is like Alberta and Quebec combined; or if you think the match is better, Alberta and British Columbia combined. They have a lot of oil and hydroelectricity. They actually produce all their electricity with hydroelectricity. They decided to sell oil and electricity at the market price to their consumers. If you are living in Norway, you pay a lot for your electricity and your oil because you pay the market price. That is what we need to say to Quebecers, as well as Manitoba and B.C.; pay the market price for electricity. The Nordic countries seem far away. People say that is too far; we cannot do comparisons with them because we are too different.
In the United States, on slide 8, 13 states — we call that the PJM Interconnection — have decided to pool their electricity and buy it at a single market price. All these states pay a single market price across jurisdictions. They have one electricity market; they trade and they all profit by being able to use electricity from a cheaper place when it is available and to reduce the costs in another place.
The basic premise of our society is that trade is good for everyone. We are applying that in almost every field, except for electricity in Canada and the U.S., with the exception of small locations like the PJM Interconnection. Many states are still regulated like Canada in terms of electricity, where there is provincial jurisdiction, and we do not think outside of our borders. We are missing tremendous opportunities to make more money, make Canada more productive and reduce greenhouse gases.
The Chair: Please clarify the acronym PJM.
Mr. Pineau: It stands for Pennsylvania, New Jersey and Maryland, the three initial jurisdictions to merge their electricity markets, and then other states joined them.
I know electricity markets are under provincial jurisdiction and it is difficult for the federal government to become involved in their business. However, first, we need to explain to Canadians why it is good to pay more.
Some companies are doing it. The company I showed you is explaining to consumers why it is good to pay more. The federal government could do that. It could say why it would be good for some provinces to increase the price of electricity, thereby reducing the price of electricity in Alberta and Ontario. If Ontario was importing more electricity from Quebec, the price in Ontario would decrease while it would increase in Quebec. That would be good for everyone.
The federal government could encourage more energy dialogue between provinces. There is already an Atlantic Canada Energy Research and Development centre. That dialogue broke down somehow when there was a plan for Hydro-Québec to buy New Brunswick Power, but it will start again now that Hydro-Québec is not buying New Brunswick Power.
By the way, Hydro-Québec buying New Brunswick Power was a win-win situation. That is exactly the kind of integration I am advocating. It was not done in the right way in a sense that it was a purchase and a takeover by one company of another company, but it was still a nice integration in order to benefit from low costs in Quebec and high prices in New Brunswick.
There is this Canadian Agreement on Internal Trade. Many of us are unaware that free trade within Canada is problematic. We have more free trade with the United States than among provinces. There is a chapter on energy, but this chapter is empty; there is nothing in it. There is a 200-page agreement with an empty chapter on energy because provinces could not agree on free trade rules for energy.
There is a need to write that chapter. If this Senate committee could push for writing such an energy chapter in the currently existing Agreement on Internal Trade, that would be a major step forward. Of course, the goal would be to increase trade among provinces.
The federal government is negotiating free trade agreements internationally and energy services are included in these agreements. These free trade agreements are there to open the market. By opening the market, you cannot limit your market to one province. You cannot tell Hydro-Québec to give low prices to residents of the province first; all provinces should have access to the low price.
If you open the market, someone in Ontario could go to Quebec and say I want to buy electricity. Hydro-Québec will currently not sell electricity to someone based in Ontario at the cheap price of Quebec. They will say go to your Ontario supplier. If you open the market, you will allow anyone to come to Quebec and say I want electricity. Of course, it is sensible politically to keep the low price in Quebec. However, if there is such a price differential and you open the market, the price must increase to be more harmonized across provinces and reap the benefits of trade.
This is an area where the federal government could more actively negotiate to have energy services included in free trade agreements, as was supposed to be the case in the free trade agreement of the Americas and as is still being discussed at the Doha round of negotiations at the World Trade Organization. Negotiations fell apart a few years ago over agricultural subsidies, but energy services were part of the package.
A big chunk of our emissions come from the electricity sector, which is essentially the second most important sector in terms of greenhouse gas emissions. If we want to deal with greenhouse gas emissions, we need to deal with the electricity sector. It would be relatively easy, technically speaking, if to ship more hydro power to Alberta, Ontario and Saskatchewan. The neighbouring provinces could supply some additional hydro power. That would reduce greenhouse gases and make everyone richer, because it would decrease prices in these provinces and increase profits in the other provinces through trade.
The first sector in terms of greenhouse gas emissions is the transportation sector. It is the first sector in terms of energy consumption. We use a lot of oil in that sector. Where do we use that energy? There are four areas: boats, trains, planes, and on the roads.
The empty road you see on slide 10 is using 76 per cent of all the energy used in the transportation sector. Boats and trains are very efficient. Planes are not that efficient, but consumption is limited because we do not use them that much. We do everything on roads.
The road category has two parts. What is sold at the gas station accounts for 62 per cent of all the energy, trucks and buses account for the other 14 per cent. If we remove the trucks and buses from the 76 per cent, we remove 14 per cent. Therefore, cars, light-duty trucks, and SUVs use 62 per cent of all the energy we use in the transportation sector. This is where we use our energy.
The orange section of the pie represents retail pump sales. This brings almost no productivity gains for society. Whether you come to work in a big or a small car, you are not more productive at work; you just use more energy to transport yourself. It does not help Canadians or the economy to become more productive. The more oil you use to transport yourself, the less productive you are because you spend more money to go from A to B. That costs us a lot of money.
Slide 11 shows how much we spend per year on transportation, including road, air, rail and marine transportation. The total is $184 billion every year, and the bulk of that is for road transportation. Road transportation is $160 billion per year, mostly from car ownership. Owning a car and fuelling your tank is where you spend most of the money. Then, of course, we have to pay for roads and for the land on which we build these roads, and the maintenance on those roads. This involves a lot of cost. The taxpayer is subsidizing the maintenance of the roads. The money we pay in fuel taxes and car registration does not pay for all the road maintenance.
Of course, people then buy their cars. On average, Canadians spend $4,000 per year for their car. That does not include the social costs of transportation. There are many accidents on the roads, amounting to $15 billion per year. That is how much we pay to heal all the people involved in road accidents. That is a lot of money.
It took me two hours to come from Montreal. It took almost half an hour on both sides to get out of and into the city. I tried to be productive. I would have liked to take the bus or train, but I did not have time because I had a commitment this morning. I had to spend an hour in delays. My time is not that valuable, but still that is a loss. It is a loss to society. I do not grade students, prepare courses or make presentations when I am stuck in traffic. I had no option. That is the cost of delay.
There are issues of air pollution, breathing problems and asthma. Many people suffer from asthma. That is a direct yearly health cost from roads. These figures are not from me or from Greenpeace; they are from Transport Canada.
Can we do better? My answer is yes, even if we stick with our cars. Slide 12 shows that our fleet of cars in Canada is making 21 miles per gallon. That is 11 litres per 100 kilometres. If we were in Great Britain, we would use 25 per cent less energy to cover the same distance. We would go 25 per cent further with the same gallon of gas. They are more productive because they use the same amount of gas but go further. Even the most British province in Canada, Quebec, is much higher than Great Britain. I am just saying it is the most British province because Quebec is the closest to Great Britain in terms of automobile fuel efficiency. The least British, if we can say that, taking fuel efficiency as a standard is Alberta, using 12 litres per 100 kilometres.
We are not efficient in moving around, we could be more efficient. We could make productivity gains by using less input to do the same thing.
Then you might tell me the technology is not there and we just passed legislation that will decrease our consumption. The Canadian government recently agreed to match the American emission standards for new cars. I would like to say I am proud of that new legislation; however, what we are aiming at within five years is what the European Union achieved last year.
In slide 13, you see what we are aiming at an average fleet consumption of 6.87 litres per 100 kilometres by 2015. That is actually more than what new cars in the EU achieved last year. Our goal for 2015 is what the Europeans achieved last year. I am sadly not proud to be Canadian when I see such standards, because the technology is there; it is available. Why can we not use it? It is beyond my understanding.
On slide 14, you see the technology. I draw your attention to the Chevrolet Cobalt, which is a nice car that can fit five people. The consumption and emissions standard of the EU is what we are aiming at in three years. The emission standard is how much greenhouse gases we emit per kilometre. That is how the standards are designed. We want to achieve 178 grams per kilometre in three years, as an average, for the whole fleet of new cars. We could have that right now, but for some reason we allow the sale of less efficient cars.
You could tell me that people need bigger cars and that we are born with the desire for bigger cars and it is the dream and instinct of everyone to have a bigger car. That might be true, but advertising helps to make that instinct grow in our minds. To give you a figure, 24 per cent of all money spent on advertisement is spent on cars and SUVs. It might be natural to like big cars, but some companies try to sell us bigger cars. It is not that we need them, but they look good on TV, so we want them.
I have nothing against advertising. Advertising is good and provides a lot of information. However, if we think we have an energy problem and if we think energy is important, then we have to realize where we use energy. We use it in cars, and some people are spending a lot of money to make people think they need bigger cars than they actually need. That is counterproductive.
Your committee is trying to solve our energy problem, which means solving the transportation problem, while some companies are trying to push for bigger cars. This puts Canadian consumers in a situation where they have to spend a lot of money to purchase and fuel their cars. It will, unfortunately, result in more accidents, increased air pollution, increased delays and make the whole of society less productive.
Slide 16 shows solutions to explain the rationale for better policy. We need to explain what kind of economic, social and environmental gains we can achieve from a better transportation policy. The federal government could increase the federal fuel tax to fund alternative operation modes of transportation, such as public transit. There is a lot of public transit and there could be more trains between cities like Edmonton and Calgary. That would be marvellous. If you have taken the train recently, it is problematic. I have taken it, and it is not a pleasure. It could be a pleasure. It is a pleasure to take the train in Europe.
You could redirect some federal infrastructure funding from roads to public transit and rail. We could have more ambitious greenhouse gas emission standards. I am not saying the EU is better in any way, but we can learn from them in some aspects. They are more ambitious than Canada in terms of emission standards. Why can we not have the same ambition?
The last point is why taxpayers have to support the automobile industry. Why do we subsidize carmakers that advertise their big cars when we actually need smaller cars? We subsidize our automobile industry. We recently provided loans to companies that should have gone bankrupt. The market would have told them they did not plan well for the future, their products were not good, they did not manage well and they should go bankrupt. We live in a capitalistic system that lets bad companies fail; instead, we helped them when we have an energy problem.
That is something I have a hard time explaining to myself. The answer is political, and I fully understand the political implications. We still must have courageous policies, especially energy policies. We have to be courageous and make the right policy choice to bring the policy toward something that will make Canada more productive.
The third sector I want to address is our buildings. Slide 17 shows that we use most of our energy to heat buildings. In the residential sector, 63 per cent of all energy is used for heating purposes. Fifty per cent of our energy consumption in the commercial and institutional sector is used for heating and 6 per cent is used for cooling.
Our houses are energy losers or heat losers. Heat escapes from the house through walls, windows, doors, ventilation, the basement and the roof because of poor insulation. Fifty-eight per cent of Canadians live in such houses. They could save money if they had a better insulated home. They could reduce their energy bill if they had better insulation. Of course that means they would require a capital investment to renovate and to better insulate. It would make them more productive because they could do other things with their money. Investing in insulation is profitable from a financial perspective.
Why do people not invest in better insulation? It is a lot of trouble. They have to think, they have to talk to other people and organize renovations. It is a complex procedure. They think why bother investing in the house if they will sell it in five years? Even if they do not sell in five years, they think they might sell it and do not want to make the investment. Real estate agents also tell them to renovate the kitchen and bathroom. That is where they will make their money. Insulating the house is not a good investment in terms of resale value. We could change that view.
Slide 19 shows the huge variations across Canada. Let us look at the example of a detached house in Alberta and in Manitoba. These provinces have the same climate. The energy consumption per square metre is 22 per cent less for the Manitoba house. The Manitoba house is more efficient.
The Chair: Why?
Mr. Pineau: It is more efficient because of its building codes. I do not have the exact answers because I did not do a study of Manitoba. These are statistics from the Office of Energy Efficiency at Natural Resources Canada. I can provide the sources for all the statistics, which are mostly from Transport Canada or Natural Resources Canada.
Building codes and enforcement of those codes vary by province. One of my recommendations is to have stronger national building codes. We have the National Building Code of Canada, but provinces can adapt the national building code to their own desires. We could improve that by having a stronger building code requiring builders to build better houses. Even if the house costs more initially, everyone would gain over the long run.
Senator Banks: Do you think the winter is shorter and warmer?
Mr. Pineau: Yes. We are now using more energy to cool our homes in the summer. Hydro-Québec determined that milder winters would reduce electricity consumption and that the increased summer consumption for air conditioning would not offset the decrease in consumption for heating. Hydro-Québec wants to lower consumption to have more energy available for export. Their incentive is to reduce energy consumption in Quebec. British Columbia and Manitoba also want to have more electricity for export. It is hard to tell British Columbians, Manitobans and Quebecers to reduce consumption when they pay such a low price for energy. Slide 20 shows the bigger the household income, the more energy use.
Senator Peterson: Maybe we should pay them less.
Mr. Pineau: That would not be my advice. That means they have the resources to invest in insulating their home. We are not asking poor people to spend a lot of capital in insulating their homes because they do not use much energy. Richer households with more money could invest in insulation. We could support them by providing grants or incentives to encourage richer people to invest in their homes. They are now investing in their kitchens or bathrooms. That is a good investment, but it is not a great energy policy investment.
We are here to talk about energy policy. We need to direct incentives so people invest in what is good in terms of energy consumption. A recent survey published by the Office of Energy Efficiency of Natural Resources Canada indicated that one out of five households across Canada has never made any changes to improve the energy efficiency of their home.
What can we do? We can explain why it is good for people. It is not that people do not know what is good for them, but they sometimes have short-term views. We can help them to see the bigger picture. The federal government could be involved in explaining that bigger picture.
We can have a stronger national building code. Building codes are a key issue. We can ensure provinces implement these building codes. Promoters are interested in building new homes for quick sale. These homes are not the most energy efficient. Recent trends in some provinces show that in some places, new homes are less efficient per square metre than those built 10 years ago. Such changes to the building code would improve our productivity.
Everything I am saying would make Canadians richer, because they would invest first or change their habits. In the short- mid- and long-run, they would use less energy. They would have more money to spend on other things. The money spent on other things would be good for the economy, and that would be productive. At this point, we are just burning the money. We are burning it in our tanks and in our homes by not using hydroelectricity well and, in some provinces, by burning coal and natural gas.
There are environmental gains to be made. All of that would actually reduce greenhouse gas emissions. My argument and the main point is that even if we do not think it is good for its own sake to reduce greenhouse gas emissions, reducing energy consumption the way I suggest would be good for the economy. It is good for the Canadian economy to be more productive and do the same things with less energy. It is achievable; we can do it. Some provinces are better than others. We can change the rules in terms of electricity trade and that is what we should aim for.
I will conclude there, because I would only repeat myself if I were to say more.
The Chair: We thank you professor for that revealing presentation. You are not a socialist. You have given us interesting leads for our report, tying this to the productivity factor and being more productive and using less energy at the same time.
Senator Mitchell: I am very interested in what you are saying, Professor Pineau. The relationship to productivity and the relationship between reducing use and making more money are unique ideas we have not heard before.
The Chair: We hear them often in the Conservative Party.
Senator Mitchell: Why do not you act on them? I would like to see them in your policies.
The Chair: We will.
Senator Mitchell: My question is with respect to electricity. You are talking about selling it across Canada and about selling it north-south. What are the costs to creating the grid that goes east-west? Are you talking about selling it north to south as well to the United States?
Mr. Pineau: Currently, we do both. We do sell north-south and east-west, but there is not a single grid going east- west. I am not saying we should build such a grid. I am saying that British Columbia could have more trade with Alberta. There is one connection; BC Hydro is trading with Alberta.
Currently, what hydro producers are doing is not good for the environment, because they are buying coal electricity at night to save water in their reservoirs to sell during peak hours back to Alberta and Ontario. As another witness said, Ontario is exporting more electricity to Quebec than it is buying from Quebec, because Quebec is buying much of its electricity at night from Ontario, from the coal power plants, when it is very cheap. They do it to save water. When the price is high, they can resell the electricity saved during the night to Americans and Ontarians at a higher price. It is good financially, but environmentally speaking, it is not good because of the increased nighttime coal production.
My answer is that in the short-term, the interconnections are there. We would need to bring them to a higher capacity. That can be done. Interconnections are built for 50 years, a long time horizon. They are major investments, but they last a long time. We are planning many new transmission lines. Newfoundland is planning some transmission lines to bring power from Labrador to the United States or to New Brunswick. These lines will be there for 50 or 100 years. We do have lines, but they are not fully used. Of course, if we increase trade and allow more for energy flows, we will need to increase the capacity of these lines. It is not that expensive to do.
Senator Mitchell: Much of what you are talking about is changing behaviour, particularly on the consumer side. Everyone agrees you have to price carbon. Would you use the cap-and-trade system or carbon tax?
Mr. Pineau: I would go carbon tax, because it brings stability and predictability to businesses with a fixed price. That money can be reused for reducing taxes, or my advice would be to use these revenues to offer alternatives to consumers. As an energy user, I pay a tax for carbon, but what else can I do? I have no alternative. With that tax, you finance alternatives. You can put a carbon tax on carbon, which would basically affect gasoline and natural gas prices, but if you do not offer alternatives to people, such as a bus that will pick them up, then they are stuck and they have to pay the tax. Through these taxes, we want to fund other ways of transporting them so that people gain. Even those who continue to use their cars gain by paying the tax because fewer people are on the roads so they are not jammed in traffic. If you increase the price of gasoline through a carbon or fuel tax, fewer people will take their cars. They will take public transit, and then you free up roads. The people paying more pay for quicker transit, because there are less traffic jams because there are fewer cars on the roads. You must use the money to fund alternatives for people so that they are not stuck paying the tax. You want them to be able to avoid paying the tax by giving them alternatives. The tax will be mostly on gasoline, so you need to give people alternatives.
Senator Mitchell: Looking at the figure, it is compelling when you think about the impact of transportation on energy emissions. In some senses, as you point out so well with your Chevrolet Cobalt argument, it is not the most difficult thing in the world to do if we want to do it. If you took 30 per cent of all our emissions, and you say roughly 2.5 billion gigajoules come from transportation, and then 60 per cent of that is cars, that is about 18 per cent of all we do. If you could cut out one third of that, you are one third of the way to our objective.
Mr. Pineau: It is at no cost to the Canadian economy.
Senator Mitchell: We save money. How would you do it? Beyond carbon tax, how would you change that behaviour to get people to want to drive smaller cars at less cost?
Mr. Pineau: People respond to economic incentives. You need to have a higher price somehow, through some kind of fuel tax or carbon tax, and then provide good alternatives. Buses, trains and subway stations can be nice. You do not have to make them as ugly as they are most of the time. When you take the train, you can work, relax or sleep. If you drive, you cannot sleep, you cannot work. Therefore, there would be real benefits by providing funding to these public transit systems through these revenues and making them attractive to people. People will realize they are more productive and rested. When they arrive home, they are not stressed. They are happy.
Senator Neufeld: Thank you for your presentation. I agree with some of what you said, and some I do not. I agree that price is the main function in consumers consuming less electricity or gasoline or whatever. You stated that industry is profit driven, so they are much more careful about their energy use. That is not what I found in British Columbia. Until the stepped rates went into place, industry continued to consume. Interestingly enough, after stepped rates went in, when they got to that point, they started to implement more efficiencies. That is pretty standard.
I always have a problem, professor, when we compare ourselves to a little piece of Europe. In one constituency in British Columbia that I represented, you could put Britain in it and lose it. People drive large vehicles because they have to.
Mr. Pineau: No.
Senator Neufeld: Just listen carefully — because they have to. Maybe you should have come to Fort St. John with me and spent a good winter there in the oil and gas industry. Then you would see the reason why they do. There is a good reason for it. Much of that same thing happens in Alberta.
I am not saying it for all the cars in Victoria. To me, that is la-la land. That is not what takes place out there in the real part of British Columbia. Some people do have to use larger vehicles.
I know the price of electricity in some of those countries in Europe. When it is 30 cents and 45 cents a kilowatt hour, you are darn right you will use less. Also, your work is a lot closer than what it is running for perhaps 400 kilometres, for someone where I come from, to go to work on a daily basis.
I totally agree with the premise that higher prices drive it. If you want to die as a politician, bring it up very high quickly.
When you say electricity trade would be improved if we improved the tie-ins, we have two between Alberta and British Columbia, one in the north and one in the south. It still does not change the way electricity is consumed. At night, industries and people do not consume electricity like they do during the day.
To say that you can level all those prices and all of a sudden everyone is paying the same rate and you are utilizing everything better, you have to change the way everyone lives and works. At night, the consumption dies way down and that is why coal plants have to sell electricity at about 2 cents, or 1 cent or 1.5 cents, whatever the market is.
British Columbia works on the market. We buy, sell and trade on the market, and we are net importers. We are not net exporters. How do you deal with that issue, professor? Tell me about how you do that.
Mr. Pineau: For cars, I fully —
Senator Neufeld: I am talking about electricity.
Mr. Pineau: Quickly, we have a rural population in Canada and that rural population actually does need larger cars, trucks and pickups. In cities that is much less true. The majority of Canadians live in cities and they do not need their pickup trucks. If you look at the pickup trucks, they are always empty and clean. That says a lot.
Senator Neufeld: You have too much pavement in the lower parts of the provinces; that is probably one of the reasons.
Mr. Pineau: In terms of electricity, it is true there are things we cannot change. There will always be fluctuations between night and day. I am all for trading so I am all for buying when it is cheap and storing water. Again, it is price incentives.
People can delay some of their consumption. For example, with respect to the dishwasher, do you have to wash your dishes right after dinner? It is easier now to program it and start it during the night. The same goes for washing clothes. You can program your washing machine and do it at night. There are some savings here.
For example, for water heaters and water tanks, in some provinces like Quebec the water is heated with electricity, not with natural gas. You can heat such items during the night and if well insulated they do not need to be heated during the day. There are applications, things you can actually shift for night use and day use, and that is one of the gains you could make.
The major gains are in insulation, having better buildings, better thermal envelopes, so you reduce energy consumption. Quebec residents heat their homes night and day. If they had a better envelope, they could easily reduce their consumption by 10 per cent, 15 per cent or 20 per cent and shift that electricity to Ontario.
I am not saying that we should destroy the electricity business in Alberta and Ontario by having only hydro power sold to these provinces. I am saying that we can export or bring interprovincial trade to a higher level. That would mean higher prices in British Columbia, Manitoba and Quebec so that people make the energy efficiency investments that are currently not profitable to make because prices are too low.
They will not buy the Energy Star appliances because it is not worth buying them. They will not insulate their houses because it is not worth it with the current prices. That is what I am saying. We can free up some electricity in these provinces and sell it at a better rate in other jurisdictions.
The Chair: You have made a big point about the internal trade barriers that we have in this country, which have been bad for productivity. It is well documented. In the Council of the Federation, which has been going for a few years and is getting together, do you see any improvement? Is that a forum where these measures that you have mentioned can be accomplished?
Mr. Pineau: Every year, provinces meet to continue negotiations. In 2009, a press release stated that the council made progress on energy, but they did not mention the type of progress.
I am just saying that is one forum and they are already having discussions. If the federal government would say, we will help you harmonize and ensure there is one common rule for Canadian provinces that is something I think the federal government can help provinces to harmonize.
They are already working on that. They might need some support. They might need to see that the federal government supports such issues. I have never heard anything from the federal government on the New Brunswick- Quebec integration in terms of electricity — Hydro-Québec taking over New Brunswick Power; I have not seen anything.
What is the federal position on such integration? The National Energy Board should have something to say. The National Energy Board has the power on interprovincial trade, and that is an interprovincial trade agreement.
The federal government could have said we support that, but we want to make sure New Brunswick also wins in that deal. I think they would have won, anyway. Still, having a federal government that supports such issues would be great.
Senator Lang: I want to follow up on interprovincial trade. Senator Neufeld and you pointed out that there is trade between British Columbia and Alberta. I gather there is trade between Ontario and Quebec, but you mentioned that we should change some of the rules. What rules are you talking about? My understanding is that if both jurisdictions decide to do it, they have the right to do it.
Mr. Pineau: In terms of the possibility of trading, there is no problem. Provinces can trade as much as they want in terms of electricity. The problem is price. If you are a consumer in Alberta, you cannot buy directly from BC Hydro.
If I live in Quebec and I come to Ottawa to buy milk, I can buy it from any retail store in Ottawa or I can buy gasoline, but I cannot sign a contract with Ottawa Hydro. Why do only Quebecers have a right to sign a contract with Hydro-Québec? Why can Ontarians or Albertans not sign a contract with Hydro-Québec? Why are these low prices reserved for Quebecers?
That market access is a barrier to trade. Not everyone can come into the market and buy. You have to change these rules in terms of accessing the market so anyone can buy at the rate posted by BC Hydro or Manitoba Hydro, et cetera, which is not feasible now. If you make it feasible, many of consumers' contracts would be shifted over to BC Hydro. Of course, BC Hydro cannot supply electricity to Alberta. Trade that is happening now is only between producers, not consumers.
The Chair: Professor, it all sounds logical, but let us say Senator Lang wants to buy his hydro from Quebec and let us say someone in P.E.I. wants to buy theirs from B.C. How do they deliver it?
Mr. Pineau: Over such a long distance it is difficult. Beaufort Power is producing in different jurisdictions. They put the electricity in the grid. It is like a pool. Someone else at another point takes some of the electricity. In theory, it is no problem. This is only a financial contract. Then you have engineers working the system to ensure the system is in balance, so that whoever takes electricity, someone is putting electricity back. Technically it is feasible, but legally it is not feasible.
Senator Lang: I want to move on to the emission performance targets. You point out that we are looking at 6.48 litres per 100 kilometres by 2016. Meanwhile, presently in Europe they have 6.78. Is that because it is a gas-driven engine versus diesel?
Mr. Pineau: That is part of the reason. The cars are smaller and more efficient. They are lightweight and use diesel fuel. We have bigger and heavier cars. It is a combination. Diesel is part of the explanation, but it is not the only explanation.
[Translation]
Senator Massicotte: Thank you for being here, Professor Pineau. I must say that I really like your optimism about the possibility of convincing consumers to pay more for the same product. I would like to point out that there are several premiers in Canada who would like to have your services and proficiency. There are also several companies that would hire you as marketing vice-president.
That being said, I am also convinced that the market, through consumer price increases, will help us make consumers and industries more efficient. We know that everybody reacts to prices. However, the challenge lies in the way people handle the situation. The logic is clear, but there is an enormous political challenge in getting consumers to the point of acceptance.
I would rather talk about the fact that, if we keep an open mind to free trade, we see that we operate in an international market context when it comes to oil and even to electricity. At this point, the Canadian government is saying that we cannot change anything when it comes to carbon taxes or the cap-and-trade system, since a large percentage of products, such as oil, are world commodities. So, we must follow U.S. policies and wait and see what the Americans decide to do. Are we going to deal with this issue by imposing a carbon tax or a cap-and-trade system, or by bringing in regulations? What is your opinion on this subject? Do we need to see what the Americans are doing before we take action and decide what policy to adopt?
Mr. Pineau: I believe that we should never wait to do good things. It would be a good thing to reduce energy consumption, so we must do it now.
We could do this without putting oil companies in a difficult situation because carbon tax essentially applies to energy consumers. Who consumes energy? Where are emissions produced? Eighty-five percent of emissions are released when gasoline is being used, not when it is being produced. Consumers will be the ones paying the carbon tax.
On overhead no. 3, a graph shows that consumers will really be the ones paying the taxes related to transportation. Oil companies will not pay much tax because they release relatively small amounts of CO2 during the production process. In addition, we could introduce a tax exemption on exports.
Senator Massicotte: The government is reacting to that argument, which, I believe, is valid. During the last election, Canadians clearly expressed their feelings about Stéphane Dion's plan. They clearly rejected the idea of a carbon tax of any kind. So, there is no political interest in going forward with this initiative. Do you agree with me on this point?
Mr. Pineau: Yes, politically speaking, the situation is very difficult. I do not think that Stéphane Dion was the best person to explain to Canadians why a carbon tax is a good thing. We must also acknowledge the fact that people are allergic to the word "tax,'' as it has a negative connotation. So, it is very hard for politicians to explain how a tax could be a good thing.
The government provides society with a great number of extremely important services. We enjoy our justice, education and health care systems. Your appearance here today is funded by all of Canada's taxpayers. Therefore, taxpayers should recognize the quality of our institutions. Generally speaking, we need to explain more clearly to Canadians why paying taxes is a good thing, and that doing so provides us with services we value.
Senator Massicotte: So, we must come up with a better sales pitch. Canadians will be willing to pay more if we become better salespersons.
Mr. Pineau: If we do a good job of explaining the economic, social and environmental benefits, I think that Canadians will understand. For this to work, not only Canadians, but political parties as well, need to show a high level of political maturity. This maturity, however, is rarely, if ever, found in Canadians and in political parties. However, I am a firm believer that by explaining the reasons for change to Canadians, we will be able to convince them to accept it.
[English]
The Chair: I cannot help but suggest to Senator Massicotte that maybe he should ask Mr. Dion to come back and explain.
Senator Brown: Thank you for your presentation. I found it very interesting. I could agree with all the comments of Senator Neufeld, but I want to expand on whether or not you have factored in the huge distances that we have for transporting food. Some of our food, for six months of the year, comes all the way from Mexico, and some of it from as far south as Argentina. The kind of horsepower needed to have those trucks climb the mountain ranges in between is fantastic.
Let us focus in the first instance on natural gas conversions. Your own chart shows us that natural gas is much less polluting and right now is one of the cheapest energies we can obtain.
Mr. Pineau: We need trucks, but trucks are not the problem. If you look at slide 10, you see that trucks comprise only 14 per cent of our energy consumption. Cars and individual transportation is the problem, comprising 62 per cent. Trucks could be made more efficient, but they are not the problem.
With respect to natural gas, we have shale gas. It seems that Canada has even more natural gas than we thought. We should develop that carefully, because there are water and environmental issues we have to deal with. The problem with natural gas is that the current price if low. However, because of that, people will start using natural gas a lot and prices will double. My prediction is that prices will double within two or three years and we will go back to prices that we had two or three years ago.
Senator Neufeld: I agree with you. You just said the price of natural gas will go up. I agree with Senator Brown with regard to using natural gas for transportation fuels in the future. In fact, it will be part of what we use. However, the prices will go up, and that will create conservation because people will not drive as much.
Mr. Pineau: I am not against cars. I am just saying we could shift some of the transportation towards public transit, trains and buses. Some people are willing to do that, and we can do it more efficiently. Even if we are using cars, we could use more efficient cars that are available right now. Because of the financial incentives, people do not go for these cars.
Senator McCoy: Thank you very much. It is a very refreshing approach. By following the consumption path, at least for domestic use of energy, it could be a very useful research approach for our study. I wholeheartedly agree that it would free up some of our resources so we could sell them elsewhere and make more money. I do like that equation.
The Chair: Colleagues, I think we all agree with Senator McCoy. This is a helpful and useful approach.
[Translation]
I sincerely thank you for being here this evening; your presentation was extremely useful to our study.
[English]
Also, it reflects extremely well on HEC Montreal. Thank you for appearing.
Our second witness this evening is Professor David Keith who was in the newspapers again this weekend. He is a prominent and well-known director of the Institute for Sustainable Energy, Environment and Economy at the University of Calgary where he is the Canada Research Chair in Energy and the Environment.
Professor Keith has worked near the interface between climate science, energy technology and public policy for approximately 20 years. His work in technology and policy assessment has centred on the capture and storage of CO2, the technology and implications of global climate engineering, the economics and climatic impacts of large-scale wind power and the prospects for hydrogen fuel.
The professor has served on numerous high-profile advisory panels, such as the U.K. Royal Society's geo- engineering study, the Intergovernmental Panel on Climate Change, IPCC, and Canadian blue ribbon panels and boards.
Professor Keith has provided the committee with three documents, which I have circulated to all honourable senators. These are entitled, "Dangerous Abundance,'' a chapter excerpted from Carbon Shift: How the Twin Crises of Oil Depletion and Climate Change Will Define the Future; "Research on global sun block needed now,'' an article co- authored with Edward Parson and Granger Morgan; and, "A win-win-win solution'' an article from The Globe and Mail co-authored with Thomas Homer-Dickson.
David Keith, Canada Research Chair in Energy and the Environment, University of Calgary: Thank you for having me via videoconference. I will be in Ottawa this weekend with my children, but we could not work out a convenient time for me to meet with you in person.
I circulated those documents because I thought they might be useful, but I am not sure I understand your agenda entirely. I will offer a few opening remarks and then I will take your questions. I will say four short things to provoke a discussion.
The first regards energy research and development. I do not mean only academic research and development, but developing energy technologies and expertise and the clean energy industry. Canada needs to focus. It is a very different situation in the U.S. I spend more of my time in the U.S. than in Canada in terms of advisory roles on these topics. In the U.S., it is more plausible to talk about letting the market decide and having a broad front approach.
While Canada is a wonderful country and a dynamic place, it has a population of only a little over 30 million people. Given the realities of competition, the global energy market and markets for clean energy, if Canada attempts to do everything across the board — to have serious wind power, nuclear, solar and advanced fossil fuel industries — we can be certain to not succeed. It is painful to say, but it is quite clear.
I would refer the committee to the report of the Bruneau commission headed by Angus Bruneau about four years ago. I served on it and thought it was remarkably well run with good staff that focused on Canada's energy research and development needs. We tried to make that point strongly in the report.
My second point is about general climate policy. Obviously, we all understand that Canada cannot move far ahead of the U.S. even if we want to because the economic consequences would be hideous. That does not mean all we can do is to wait passively for the U.S. to decide. That is probably not a successful strategy for Canada because when the U.S. decides, it will make small adjustments to laws in deliberate ways to push out Canadian competitors. People are not fools; this is real politics.
There are other options. There is the international framework negotiation option. More relevant, countries can make contingent commitments. Many scholars have thought about this, but some countries have attempted to do it.
This would be an option where Canada commits to some level of carbon price — whether through a tax or whatever — explicitly tied to what the U.S. does. Everyone would have confidence that Canada is really doing something, and we are legally bound to do it, but the extent to which we do it is somehow linked to what the U.S. does. I would like it to be linked so Canada is doing more than the U.S. These overlapping contingent commitments are a more credible way to build international action on climate change than the UN-style initiative where 192 countries negotiate with each other having effective veto.
Third is a generic comment about technical advice to government. I am proud to be Canadian; I grew up in Ottawa; I love lots of things about this country. However, I have spent about one half of my career in the U.S. I am disappointed by the quality of institutions that provide independent, high-quality science and technology advice to government in Canada. They are far weaker than some of our major competitors. This has nothing to do with any individual person or government. Some of this goes back to getting rid of the Science Council of Canada decades ago.
For example, in the United Kingdom, I deal with David Mackay and I will see him along with Bill Gates this week. He is the Chief Scientific Advisor to the Department of Energy and Climate Change. He is one of the best people on the planet on this topic. He reports to chief scientists in the U.K. through an independent reporting system. A staff of people is designated to provide high-quality, independent advice to critique what the minister's staff produces. It is a useful system and Canada has no comparable system.
The U.S. National Academy of Sciences is able to produce substantially high-quality, largely independent reports — not every one — that governments are free to ignore, but they are useful. The Royal Society of Canada is not set up to serve that function.
For example, other organizations in the U.S. such as the Government Accountability Office are now set up to produce high-quality technology reports on specific topics for Congress separate from the presidency. Those reports provide invaluable information separate from what comes to the U.S. Congress from ministries.
This is not expensive. Canada could do some of this very cheaply. It ought to be bipartisan. Who could be against receiving better technical information? The lack of that information makes it harder for Canada to make crisp decisions.
I will leave it at that. I might offer general comments about the state of the energy and environment debate in Canada and why we seem to be so stuck.
The Chair: Thank you, professor. In response to your initial remark that you are not sure about our agenda, we have a mandate from the Senate to do a study on the energy sector with a view to narrowing our focus. You have just suggested that we need to focus in this country. You suggest that we must advise the government as to what might be an appropriate national clean energy policy. To that end, we heard Bruce Carson from Calgary University last Tuesday. He mentioned your name very favourably and urged us to hear you. His organization is doing a study not unlike what we are doing, as is the EFI, Energy Framework Initiative, by big gas and big oil, and a few other industry- driven groups.
We are trying to work with bodies such as the Canada Energy Council, which is affiliated with the World Energy Council, so that there will not be duplication of effort. We want to come up with something focused and useful. We are still at the early stages of becoming conversant with the issues. One of our colleagues calls it becoming energy literate. We are aware that a little bit of knowledge is a dangerous thing for lay people like us, but we are doing our best, and the idea would be to have you help us along.
Mr. Keith: It is wonderful that the Senate is trying to do this. It could be my fault that I missed reading preparatory material. It is a broad enough realm, and I am not sure where I might be helpful, but I am happy to try.
Senator Mitchell: Knowing your background and having worked with you for that day at the workshop in Calgary with Preston Manning and the group we broke out with, I am sure you will not be able to help yourself but be helpful. Thank you for joining us.
I would like to follow up on your discussion of the chief scientist and the structure that could be in place to give technical advice to a government. Could you summarize or list those things? Chief scientist is one thing. Are there others?
Mr. Keith: The U.K. system is a parliamentary system, obviously allied to ours, or we are allied to theirs. As I understand it, and I am not expert although I know some of the people involved, each ministry has a designated chief scientist who reports, I assume, to the deputy minister, but also reports to the U.K.'s overall chief scientist. Those people have a relatively small staff. This provides an independent track of science and technical advice and a way to critique what comes up through the ministry. The point is that it provides an independent back door.
The chief scientist reports to cabinet, or to the PCO, presumably, or whatever the U.K. calls their PCO equivalent. I do not know the exact details, but I do know there is that basic reporting relationship. When the government has serious technical questions, it can go to the chief scientist of the various departments and get the technical answer that is different from the straight answer you get as part of ministerial policy. It is connected to it, but it not the same thing.
The U.S. has John Holdren, in the Office of Science and Technology Policy, inside the White House, and that office has a staff of tens. It is not a cabinet position because there is no department, but it is high level, coordinating position that runs across a whole gamut of science and technology issues, from nuclear security and arms control to energy and environment, which for Mr. Holdren is a big focus. That is a sort of central office. Typically, that office has some of the best people you can think of, and they really know these issues in the U.S. You mentioned Ted Parson, who is Canadian as well, served in OSTP in the White House two administrations ago. People of high calibre serve there and provide independent advice to the U.S. government through that office. Again, there is not a Canadian equivalent, to my knowledge.
Finally, the U.S. National Academy has funding and a structure and system that allows it to produce high quality, serious substantive reports that typically balance the various sides of an issue and separate technical facts from values in a useful way, and those reports play a pivotal role in U.S. science and technology policy. The Royal Society attempts to do the same thing here, but it really does not for reasons that are not any disrespect to the people but just the way it is structured.
Senator Mitchell: Not unrelated, but the other side, that is to say, government not just receiving or understanding information but government helping Canadians to understand that information. From the interview and other things I have read, I get a sense of the frustration that many people feel that there is all this science, and people are sceptical about it, or Canadians have not embraced it or do not understand the consequences of climate change. You actually used strong language in outlining those consequences. We do not need a new technology to reduce emissions; we need a new technology to convince people that they need to reduce emissions. How do you further the debate in a way that is constructive and gets people to understand?
Mr. Keith: That was the third point that I did not make, so I will talk for a minute about how I see it.
The climate science debate has sort of taken over the debate about what we should do. Behind that, really, it mostly is not a debate about science. This is a bit of caricature, but hopefully it is useful. You could say there are "enviros'' and more left wing groups, that have a list of climate science facts, which in my opinion pretty much are facts, but then they have a list of what they think are the solutions. This is a caricature, but there are significant groups and NGOs in the country who think that some combination of small, decentralized power and renewables and efficiency gets you there and that is the right answer, period. The debate has broken down in that people are essentially leaping between the facts about climate science to the assumption that is what you must do.
At least from my point of view and that of many people in the energy expert community, it is by no means clear that is the only set of solutions. I would say that if we are actually serious about managing the climate problem, which means getting to zero emissions in the rich countries on the scale of less than a human lifetime, then you will have to do some of the big, ugly things, because some of them are much cheaper and more plausible. You will not want to throw away major technologies like nuclear power that are actually one of the only ways we know how to make giga-watt scale, zero carbon electricity that you can build around the planet today.
You want to take other big, ugly industrial technologies like that and get serious about doing stuff that is cheap. We are caught in a situation where there is a boutique idea that we should all put solar cells on our roofs, and yet the actual cost of that doing that in Ontario, with the feed-in tariff, is effectively well over $1,000 a tonne CO2. At the same time, people are saying it is much too expensive to do nuclear CCS, carbon capture and storage, which have cost factors of between 10 and 5 times cheaper per amount of carbon saved.
That is not to say other technologies are without flaws. They all have big flaws. Any large-scale energy technology has many environmental and social impacts that should concern us, but the debate is sort of walking up on a very narrow prescribed set of solutions. What happens is people in maybe the energy business side of the world see those solutions as untenable, and they fight it by arguing that climate science is all wrong, even though presumably most are educated enough that they do not really believe climate science is all wrong.
Senator Mitchell: I was intrigued by your article in Nature magazine entitled, "Research on global sun block needed now.'' In that article, you discussed SRM, solar radiation management. You made a number of interesting points about it. Is that kind of technology real and doable? I think you are saying that but I would like to hear you elaborate.
Mr. Keith: That topic is probably taking half of my time now. It is a very hot topic and I would be happy to talk about it. It might be worth the committee hearing that.
It has nothing to do with the energy debate, but it is relevant. To give you a sense of how hot the topic is, I have been before an U.K. parliamentary committee and U.S. house science committee on that topic in the last few months, so it has been going crazy.
I think what is clear is that you could do it. If you wanted to, you could make the world cooler by putting reflective particles in the stratosphere at a cost that is effectively zero; it is so much cheaper than other things. However, it is clear that it will not completely compensate for the environmental impacts of CO2 in the air. At best, it might — and I say might because there is not enough research to know for sure — reduce some of the environmental impacts of CO2- driven climate change.
There are two other things to say about it. It is certain it can act quickly. It is a fact about CO2 emissions that even if we cut emissions very quickly, we will not see an effect on the climate for half a century or more. This is the very long time scale of CO2 in the atmosphere, which is the thing that cuts both ways.
It is the central reason people like me are very concerned about climate change. It is not the amount we see now, which is trivial; it is the expectation, based on the science, that if we keep doing what we are doing, CO2 will build up in the atmosphere and over the coming century, we will see climate change literally 10 times larger than the climate change we have seen in the last half century.
That CO2 builds up very slowly, so if you stop all emissions today — which you obviously cannot do, short of a global war — you would still have the climate problem because the effect of the CO2 lasts in the atmosphere for thousands of years. Therefore, one fact about putting reflective particles in the stratosphere is it cools the planet down quickly — in a year. We know that is true because big volcanoes do that. It is not clear this current volcano will do that; but Pinatubo, for example, put 10 million tonnes of sulphur in the stratosphere and the planet got one-half a degree colder within a year in the early 1990s.
There are also profound geopolitical concerns. I have been at meeting trying to bring together senior foreign policy leaders, some with nuclear security expertise.
Just to give an example, there is some evidence the Chinese government is becoming more concerned about climate change. They are concerned about weakening of the Asian monsoon, which may have impacts on feeding the population. People who think about these things argue that Chinese governments change when they cannot feed people.
If they decided to try to cool off the oceans near China to increase the monsoon strength, whether it works or not, who cares? Let us say they do that and let us say the Indians think it is making their monsoon worse. Again, it hardly matters what is really happening. These are two nuclear-armed states. We do not have a mechanism for settling disputes about how to set the thermostat, so there are very real concerns about what these technologies mean.
I could go on and give you my standard situational story for a whole session if you wanted, and I could recommend other people. In practice, to my knowledge, essentially nothing is happening in Canada. I am involved in the lead group in Washington, D.C., which is helping structure the way funding will work. I am involved in the U.K. Royal Society panel; but as far as I know, there is no action on that in Canada. I have had basically no discussions with Canadian governmental people on it.
Senator Peterson: In the matter of carbon capture and demonstration projects, how close do you think we are to commercialization?
Mr. Keith: You will never commercialize unless you put a price on carbon. Pretty much anything you do to reduce carbon emissions costs more than doing nothing. It is always cheaper to use the atmosphere as a free waste dump. Therefore, we must find some serious ways to discourage the use of the atmosphere as a waste dump.
I prefer a carbon tax with income recycling. I think the way you pitch that is you say that income taxes and corporate taxes are taxes that discourage working. Technically, that is what they do; they are taxes against employment.
We want more employment and we want less carbon. If you figured out a way to clearly argue that it would be revenue neutral — you cut personal income taxes and corporate taxes and increase the carbon tax at the same time — I think there is a lot of evidence to say that would be most effective thing to do.
However, whether you did it that way or just had outright bans or cap-and- trade, whatever, if you do not do those things, then these technologies will never become commercial — wind power or CCS. If you pulled away the incentive for wind power, it would collapse.
Senator Peterson: I agree. We were at the Globe 2010 conference a month or two ago and some of the presenters said that industries and governments will have to collaborate more and share their scientific information, which does not seem to be happening. Is it a proprietary issue or do they not want to share?
Mr. Keith: If industries develop a proprietary technology, they want to profit from it. I will give you two examples. Alstom Power, one the largest suppliers of heavy equipment to the power industry in the world — many of those Chinese power plants are basically their designs — is spending $150 million or $200 million a year developing CCS technology. They have a contract now, funded through the Alberta government, to do a post-combustion capture plant at TransAlta's Wabum facility.
I think that is quite exciting technology because post-combustion capture on power plants is what we would have to do if we are going to deal with the Chinese fleet. I keep hearing the Alberta government saying Alstom should somehow be sharing all this technology. The bottom line is that is not a deal.
I know quite well the guy who is the chief VP of technology at Alstom and they would walk away. That would be against their investors' interests. This is a free market economy. There are real benefits to Canada in encouraging Alstom to do that, but if the deal is Alstom has to turn all its cards up, there is no deal. That is just basic to the way markets are structured.
I started as kind of a socialist left wing guy. We need to think about how to get open competition and innovation to happen but, in general, that does not happen in a mode where everyone shares everything.
I think CCS has two completely different parts, the capturing part and the storage part. The capturing part, to me, can be run like a normal business because everyone can measure the performance. In a normal business, we can see what works and does not work and what it costs.
The storage part involves long run potential risks to the public and actually does not cost very much; all the cost is capture. While I believe that the capture part should be run pretty much along the normal lines of competition that we would apply to wind power or solar power or what have you, for the capture part, I think we should demand substantive public involvement. You could even argue it should be done on a utility basis, because it does not cost very much and we have a long run public interest in ensuring public safety. You cannot rely on company liability to do that because the risks last longer than companies do.
Senator Lang: I want to refer to your article called "Dangerous Abundance.'' It is an interesting read and it brings outs much information vis-à-vis energy and the question of climate change.
In your opening remarks, you referred to the fact that there are going to have to be some major decisions taken as far as the energy field is concerned if we are going to deal with the question of these greenhouse gas emissions and our problems with the climate.
You mentioned both hydro power and nuclear power in your article. You obviously are very knowledgeable in the energy area. On the question of nuclear power and the expansion of it in Canada, for example, are you satisfied that all the safety requirements are in place; that we, as Canadians, can say that this is a safe way to go as far as our major energy needs are concerned?
Mr. Keith: Safety of what? What are the big concerns that people have about nuclear power? They are waste, reactor safety, cost and weapons. People have different ideas of what they think are the most serious issues. The one that worries me by far is weapons. By most normal measures, nuclear waste is extraordinarily safe compared to other things we deal with in technological societies. After weapons, I would probably put reactor safety. While the public must be worried about nuclear waste as their first issue, I and probably most people in the expert community have a difficult time understanding that.
To give you a sense of relative risk, first, all energy technologies are risky. The coal-fired power plant fleet in North America today kills something like 10,000 people a year by fine particulate air pollution. That is not left-wing propaganda. That is pretty much the hard epidemiological data. Even Chernobyl, which we assume will not happen here because it was the product of a nutty Soviet system, killed fewer people than one year's operation of the existing power plant fleet.
The truth is that we are making choices where nothing is perfect. If someone tells you nuclear power has no risks, they are lying. We have to compare risks, and the risks from nuclear power, at least those normal risks, look tiny to me.
My central concern about nuclear power, and which way I would vote in a referendum, would depend on the day; I do not have a fixed opinion about it. Much of it depends on what technology is running it. If I have big concerns about nuclear power, they are either about the dysfunctional nature of the North American and Canadian industry or about weapons.
If the West begins a major focus on building nuclear power to deal with climate change, which I think one can argue would be a good thing to do, there is no question you will diffuse that technology worldwide. This is a world where there are a lot of angry people and we still settle disputes with war. The size of an object that destroys Ottawa is that big.
Senator Lang: I am not sure I heard you correctly. You spoke about dysfunctional companies. Is that what you said?
Mr. Keith: Let us go to the U.S. example first and then I will tackle Canada, which is in some ways worse.
This is a pretty general view in the industry. I now sit on the advisory board of the U.S. Electric Power Research Institute, the lead industry association, so I see many of the nuclear industry people. I think many of them would agree that during the U.S. reactor build; almost every single reactor was different. In general, for each reactor there was a reactor vendor, the utility and a prime contractor. In almost no case did the same three collaborate on more than one project. There was very little learning by doing. There was a kind of chaos with a lot of stuff being built quickly. Not surprisingly, there were huge cost overruns. That was different from what happened in France. France had a disciplined focus on building the same thing and gradually building it better, and the results speak for themselves.
In many respects, during the big build up, the U.S. nuclear industry did badly and you can see it in their reliability statistics. Many of those reactors 20 years ago were only available as generating power 70 per cent of the time. Now we see a big consolidation in the operators. The cost of operations has fallen dramatically and now many reactors are operating over 100 per cent of original capacity. There has actually been an increase in the amount of power generated in the U.S. even as we have seen some reactors closed.
Canada is an odd case. Canada has this unique reactor technology that is not part of the world mainstream now. There were lots of good reasons the technology was developed during the war and there were lots of smart people involved, but I think Canada has a hard choice to face. Either we put in massive money — double, triple or quadruple the amount of money we are putting in — and try to compete so that we are serious about winning competitions in China to build those reactors, or kill it.
At the time of the Bruneau commission, we had our staff check. The nuclear people did not give us this number first, but our staff from NRCan proved it. We were spending about $200 million per year of Canadian government money flowing into AECL, and the prospects for having a serious commercial advanced CANDU seemed to be small.
Senator Lang: I want to refer to your carbon coal liquefaction. You referred to the number of plants going into China. Would you comment on that?
Mr. Keith: It is hard to know the number. I have many friends who do this for a living and no one quite knows. It is an area where each consultant has a different view. These plants take coal and gasify it — or there are some other methods — and turn it into gasoline, diesel. This has been done commercially. It was developed during the war. Indeed, the Germans ran a big chunk of their war effort on it. I sometimes get frustrated when Albertans in the business community say it is risky for us to try coal gasification; it is high-tech, new technology. I think to myself that the Germans were managing to do this in large scale while getting bombed in the 1940s. It is something that we clearly know how to do and it is done in large scale around the world. Sometimes industry says this it is a way of getting out of doing stuff.
The Chinese are doing this. They are investing in a lot of $20,000-barrel-a-day-class plants. They see it as a hedge against oil price increases, but it is a hedge that will produce a lot of CO2 emissions unless they capture it.
The Chair: Professor, you referred to the fleet of coal-fired power-generating operations. Were you talking globally?
Mr. Keith: That was the North American number. The Chinese number is higher.
The Chair: You spoke about what it does to the lungs and so on of the individuals working there, and you gave a staggering number.
Mr. Keith: I am not talking about the individuals working there. I am talking about all of us. Fine particulate air pollution comes from a mixture of sources, such as cars, power plants and other sources. There are also some interesting indirect sources. Cattle feeding operations make nitrogen that does this as well.
This fine particulate air pollution in North America kills something in the order of 5,000 to 10,000 people a year. That is what we get from epidemiological studies, where you track hospital admissions versus air quality measures.
The Chair: I am told that every two days there is a new coal-fired plant being built in China. Do you have an analogous number for the rest of the world, Russia and so on?
Mr. Keith: In the rest of the world the numbers are much bigger for total air pollution, although the sources vary. In North America, in the rich world, we have scrubbed cars pretty well and we do not have local combustion in cities anymore. Globally, much of the burden of fine particulate air pollution falls in the poor world, and it is from indoor cooking. In the poorest parts of the world, this falls on women who are indoors over cooking stoves, which we do not do anymore. There is different mortality in different parts of the world.
China is in a transition state right now. We often think of China as being hideously dirty, and there is certainly some justice to that. However, in the Chinese coal-fired power plant fleet, they have actually installed more sulfur-scrubbing capacity than the U.S. has. This is a sign of the Chinese government reacting to the complaints — they have protests where they shoot people, and they admit it — about environmental quality in China by actually beginning to get serious about regulating.
Senator Banks: The Minister of the Environment spoke to us the other day. I have the impression that the energy industry is anxious to do something once they know the game rules. The other day when the minister spoke to us, he was unequivocal in his answer to a question about cap-and-trade, which was asked by Senator Mitchell. The minister said that if the United States does it, we will; and if the United States does not do it, we will not. I would like you to tell us whether you think that unequivocal answer is a good thing.
Second, I would like you to expand on your comment that we were wrong in saying this is the problem and here is the solution. What are we missing in that connection? The way most of us have been thinking is here is the set of problems and how do we solve them? What process should we use instead? Is it as simple as those science advisors you talked about?
Mr. Keith: Those are difficult questions. I believe that I heard three. First, I will comment about whether industry is serious in saying they want certainty so that they can move ahead. Second, I will comment on cap-and-trade and then I will address the last question.
I have been in Calgary for six years and I love the town. It is an amazingly innovative and dynamic place. I came here as a professor and a bit of a Liberal. I found it wonderful how much I have been able to talk to people who run the energy industry and how open-minded they have been. I enjoy that. I have heard endlessly the statement: If those government people get their act together, we are ready to go. At first, I took the comment at face value but now that I have thought about it, I realize it is not that simple. If certainty were a $100 per tonne carbon tax, they would not like it. They want certainty at a low price. You also hear odd statements about certainty, such as: We cannot make business decisions without certainty. Hold on. Every business, especially the oil business, naturally makes decisions in the face of uncertainty all the time. It is their job. Sometimes the idea that government people should be certain and then it will be okay is a bit of a talking point that might not reflect their real views. That is not too brutal to say.
In cap-and-trade, my guess is that the minister is probably correctly representing what Canada would do in the near term in a sense that if the U.S. comes with a clear cap-and-trade program, I cannot see that Canada would not get in. If the U.S. does not, it seems possible but less likely that Canada would do it.
Certainly, as I am sure that you have heard from other people that the sentiment in Washington is moving strongly away from cap-and-trade, which has to do with the financial crisis, and every revelation about Goldman Sachs makes it worse. People are skeptical about a complicated trading system that has a lot of room for gaming and gives away a great deal of potential value in these tradeable permits. More people in the U.S. are coming to see that as much as no one likes a tax, most of the things that look plausible in the U.S. Senate are effectively taxes with a different name. I think it is a good thing. Whatever it is, it is a fact.
On your last point, I was probably a bit vague. I am contemplating two things. We would all do better if we were to separate fact from value in the environmental debate. There are some facts about how much the climate might change and there is uncertainty about them if we do nothing. There are numerous environmental values in how much we care about our great-grandchildren versus people here today or how much we care about people elsewhere in the world versus ourselves or how much we care about nature versus pure human interests. People have legitimate differences of thought on those issues. People can legitimately argue that we should not do much about climate change because they would rather stay focused on global health and disease. It is not my view necessarily but it is a coherent view. Sometimes, the shrillest advocates for climate change do us a disservice when they say, "Here are the facts of the science, we must do solar and renewable, and efficiency in this exact way.'' That is not a credible argument. Between those two views are the difficult decisions that all of us as a society and you in the Senate have to help us think through. Technical experts cannot give those decisions. They can help to tell us the facts but these hard questions about how to trade off different people's values are the ones that you folks are the experts on. We would all do better if we tried to be crisp about dividing those two things. On my street in Calgary, people are not arguing about the climate science because most of them who say that it is wrong have never read anything about it. They argue somehow about whether Ottawa should control their lives or what they think about the way government ought to manage environmental issues.
I hope that was helpful.
Senator Seidman: Dr. Keith, you began your presentation by giving us three or four provocative statements that would encourage discussion. I would like to go back to the very first provocative statement you made when you said that Canada needs to focus, we are only 30 million people and we cannot do everything.
If I understood correctly, we cannot do everything — wind, solar, nuclear and tidal. Would you be able to elaborate on this? How do we decide where to focus? How do we convince those we need to convince that we ought to focus on those things? How do we operationalize it? Perhaps we cannot get to that tonight.
Mr. Keith: I will start by passing the buck and saying that ultimately you folks are the experts on how we decide. These are inherently political decisions, as they should be. Politics is there to solve big social problems.
Let me speak to the need to focus. I am thinking about the environmental strategy and industrial strategy. In the right places, wind power can be a very cost effective and important way to produce low-carbon electricity. Canada is installing a lot of wind power, so you might say there is a wind industry in Canada. However, it is not a wind industry that will produce the kind of returns that employ people in the way that we are employed here because it is a service industry. The core industry of building wind turbines is a big industry with enormous intellectual property and huge value added, but none of the companies is in Canada. For example, I have served on government panels, such as with NRCan that are supposed to fund research. These small amounts of money — $100,000 here or $100,000 there — are supposed to help professors do wind energy research and development that is supposed to spin off into the commercial world. People are just not aware of the scale of this business because this is now a global industry in the area of about $20 billion per year or greater. We will not build a wind company in Canada like Vestas unless we give it the same kind of focus that we gave Bombardier. That is the kind of competition we are up against.
For better or worse, there are many different opinions. We have had a systematic support in the aerospace industry based in Quebec with the combination of Pratt and Whitney and Bombardier. As well, we have had a successful export business. It was government policy to do that and hard decisions were made. We will not have a wind turbine business with that kind of value added in Canada just by installing wind turbines because most of the money will flow out of Canada to the manufacturers of the turbines.
Another example of the kind of choice you have to make is CANDU. The current course is simply pouring money down the drain. You either go big or carve out a little niche where we can win, or you quit.
The Canadian nuclear industry is not just CANDU. SNC-Lavalin has the EPC contract for the Pebble Bed Modular Reactor to be built in South Africa, which is one of the most exciting new reactors in the world. It is inherently safe, more environmentally friendly and is better technology. Real Canadian expertise is involved in it, but they are not the lead.
We simply have to make a decision, which each government knows. I have talked to people in both parties and have learned that they kind of know it but find it a politically difficult decision to make. The bottom line is: We have to make decisions. I am not saying that we should put all of our money into carbon capture and storage or into solar, but we have to make strategic decisions so that as a country, we can win on this and be passive on that. Those decisions should connect what we do for incentives for both industry and research.
If we decide not to compete seriously and build the industry and technology of advanced solar — I am not saying we should not, I like that technology — we need to take the money we are putting into that and put it into something else. That is what we need to do. The need is pressing and well understood, but how to do it is difficult in this country because we have such asymmetries. Quebec and Alberta have very different energy systems and these are natural, inherent political tensions. We must find a way to work within those tensions and still do it.
I do not know the answer, but I am convinced we could do much better than we are doing now.
Senator Seidman: Thank you very much. More that is provocative to think about again.
Senator Neufeld: Thank you, Dr. Keith, for being here. This is a very interesting conversation.
I would like you to expand a little bit on solar energy. You just mentioned that you are a fan of that alternative.
What caught my attention was when you said the feed-in tariff in Ontario is equivalent to about $1,000 per tonne GHG. I understand the part about using it on houses — not a feed-in tariff so much, but to heat their hot water and so on — but large-scale solar. I am told we should be using large-scale solar.
What is the dispatch capability of large-scale solar? Please give me some sense of how large an area you would have to cover with solar panels to produce 100 megawatts of electricity.
Mr. Keith: There are two completely different kinds of solar technology in play in the world. One is solar thermal, where we take sunlight and with mirrors, we heat up some fluid, like water, and then we spin a turbine. That is called solar thermal. Then there is solar photovoltaic, the solar cells with which we are familiar. Right now, solar thermal is considerably more competitive than solar photovoltaic. If you want to build industrial scale solar thermal today, there is no question it wins.
The second reason solar thermal wins relates to your question about dispatch. One of the problems with solar PV is it is extraordinarily variable — much more so than the solar industry typically admits. With my colleagues at Carnegie Mellon University — I am also a professor there — we have thousands of hours of second-by-second data from some of the big U.S. solar farms. The variability was more than we expected, or many people in the solar industry expected. The cost of that variability in the retrograde is high. The cost of the solar is even higher than it looks because of this rapid variability. There is obviously no ability to dispatch solar PV at all; it is on when the sun is on.
Solar thermal is different. With solar thermal you can store the high-grade heat and run the turbines off peak. Also, if you invest in the turbines you can have low capital costs and have a gas powered back-up. That, in terms of the cost versus carbon equation, looks pretty competitive.
Solar thermal, I would say, is getting serious, but only in very sunny places— nowhere in Canada. If solar thermal is going, it will be going in Southern Spain. There is a lot of talk about big solar thermal it in the Sahara. It is going in the Southwest U.S., but I do not see large-scale solar thermal in Canada ever. There is not much sun nor is it matched to the demand cycle very well.
Right now solar PV is so expensive that the only reason to build it is in the hopes it will get cheaper. If you care just about carbon and look at the current costs you would never put solar panels on your roof. The reason people do it is they hope that it will buy down the cost of solar in the long run.
The group at Carnegie Mellon has done a fair amount of work on this subject. Let us say you want to buy down the cost of solar. Is it better to do it by supporting the current industry, which is partly locking in the current incumbents, or put a lot of money in a bunch of high-risk, high-payoff research and development that could potentially get to much cheaper solar PV? My view is it might be a better strategy to do the latter. The truth is we are a long way from reality on solar PV. It is a factor of roughly 10 times higher than the cost of other low carbon energies.
On the answer about the total amount of area, solar uses remarkably little area. It is one of the more energy-intense systems, so the energies are small. A 100-megawatt facility would be 10 million square metres. That is one of the good things about solar and one of the reasons why, in the long run, it may be part of the energy system. It has a small land footprint.
Senator Neufeld: Could refresh my memory a little bit about revenue-neutral carbon tax?
Mr. Keith: This is politics, no way around it. For full disclosure, I had phone calls with Dion's guys — not that they necessarily they took my advice.
Here is what I think is key. This is purely politics, not technical. If you tell people you will take money from a tax and give it to all the pet things the "greens'' like, like funding for solar-run roofs, or funding for whatever green technology someone likes, then you are building a new government program with a new tax. I think that is politically unpalatable. Indeed, it should be. Governments are as big as we want them to be in terms of fraction of GDP. That is my personal view.
It is crucial, if we are going to sell this, to find a way to make it look revenue neutral. Every dollar of that tax that is new — it is a new tax — is a dollar of less tax somewhere else in the system. Then you can sell it in a way that I think is powerful.
I am an academic — and obviously it has not been successful — but it seems to me that income taxes and corporate taxes are taxes that are effectively taxes to discourage work and employment. If we focus on reducing those taxes and instead shift our taxes to things we do not want, like emissions, we can have the same total tax burden, the same money coming into governments, and do it in a way that would allow us to lower corporate and personal income taxes and get at a problem we care about. Done right, I naively believe that must be sellable because it is so efficient. The potential advantage of a carbon tax is extraordinary in administrative simplicity and resistance to gaming.
Senator Neufeld: In my home province, I was part of a government that instituted a revenue-neutral carbon tax. There is a tax on all carbon consumed in the province at the pumps and if you heat your home with natural gas. It does not include the large emitters because the plan was that cap-and-trade would take care of them. It is revenue neutral by law. All that tax must be returned in tax savings to individuals and to corporations. We continue to drop their personal and corporate taxes as the province moves forward.
That would fit relatively well with what you were talking about. I can tell you it was not politically easy to actually sell that, but our premier is a good salesman at times and he sold it.
Have you studied that a little bit? It is pretty new, and the only one around that we are aware of. As I say, it is two years old and spread over three years, so we would get to about $30 a tonne in three years' time. That was a number chosen because all the experts told us that is probably where it would be.
Mr. Keith: I thought it was terrific. It may be one of the cleanest systems that exist in the world. I should have said to you before that British Columbia is to be saluted for that.
I also got some insight into the processes they used to make decisions. I was very impressed. They had several different consultative systems. They had meetings where the cabinet just talked with experts. I was in one day and I had 45 minutes with most of the cabinet. David Suzuki spoke after me and the Canadian Association of Petroleum Producers was before me. They apparently had weekly meetings where they listened to a range of views, which was a healthy thing to do. I do not live in B.C. or know the details, but my impression is it was a pretty careful process where they thought about it seriously beforehand and I, for one, can say they did a really nice job.
Senator Neufeld: Thank you. I wanted to get that onto the record.
Senator Lang: Dr. Keith — I know it is getting late in the evening and people want to move along — you sound more and more conservative as we move along. I think that is a good thing.
I want to refer to your comments about nuclear power. We talked about the difficult decisions that have to be taken if we are going to deal with the pollution, whether in Canada or otherwise. I asked you about the safety of nuclear power and you went through a number of items and then said you are not too sure how you would vote on that issue on any given day.
I must say that took me aback because I was hoping to hear from you either a yes or no if you felt that was one alternative power source that we should choose. Are you saying that perhaps we should concentrate, like British Columbia, on the expansion of hydro power where possible? These are the decisions that we will make if we replace the situation we face now.
Mr. Keith: Maybe I misspoke. I think nuclear is absolutely one thing that has to be on the table. If you look at a handful of the low-carbon big technologies applicable around the planet, it is one of a very small number of big players, no question.
I am completely opposed to people ideologically discounting it out of hand. What I meant when I said how I would vote, I think there are some real structural problems in the industry, and the problem with nuclear weapons is one that concerns me greatly. Some of my teachers were people involved in the bomb project. I had a chance to present to the JASON Group in the U.S., so I know some people in the nuclear security world. I think my students and many young people seem to forget that we live in a world full of nuclear-armed countries, but I do not, and so I still take that danger seriously and I think there is some connection, and that is hard to evaluate, which is why I say that on some level I do not know.
However, there is no question that nuclear power has to be on the table in a serious way, and in the end, I think we must find a way to make it part of the solution, because if you think really long term, we want energy systems with small footprints. I am an environmentalist. I like to have a small footprint on the land and we want things that produce large amounts of low-carbon power. Many renewables cannot be used on the global scale without having a big environmental impact; so, the idea that you will power any significant part of global civilization on biomass is absurd. Even wind power, if you scaled it up to something in the order of one tenth of global primary power, starts to have big environmental impacts. On that ground, I take nuclear power seriously, but we must shape the industry in some ways and may need to innovate about nuclear power plants.
To connect to weapons, sorry to be technical, most nuclear power plants now are on a once-through cycle where we mine uranium, maybe upgrade it then run it through the reactor and then it is waste. If we just do that, there is not enough uranium to run a global system when nuclear is a big piece of global energy mix. If you do reprocessing with various advanced fuel cycles, then it is easy enough to have essentially inexhaustible power from nuclear, but then you can get into a situation where you are making bomb-available materials and here enters politics.
I will tell a story about France. If you want to do recycling or reprocessing as the French do, you would ideally like to put all of it inside one ring fence, so you bring the fuel in. Fuel is not very risky in the hands of terrorists because it is protected by its own radioactivity. You cannot pick up a fuel bundle from a reactor or you would die. During the reprocessing cycle, you make plutonium. Plutonium is safe; you can pick it up in your hand, and so you can steal 10 kilograms — that is all you need to make a bomb — and carry in a briefcase. Once you have mixed it back into fuel rods, it is hard to steal again, so ideally, you would like that process to be in one ring fence with guards and guns around it, and any sane person would do that.
However, politics is politics. I am certain that the French people wanted it all in one ring fence because that is the secure thing to do. However, it involved a jobs program, so they ended up with one part of the processing cycle, I forget which half, maybe the fuel fabrication half, in Marseilles and the other half in Northern France. As a result, they are moving plutonium between the two areas. This is a world where we have al Qaeda. There really are concerns. If we start a large-scale process of doing that around the world, it makes those materials more available to terrorists. I wish we lived in a world where that was not a concern, but it is. I am in favour of nuclear power but we must think differently.
As an example of something exciting, Bill Gates has invested in a company called TerraPower, which is innovative technology with no reprocessing and no refuelling for 30 years and could be pretty cheap. That is an example of the kind of innovation the nuclear industry needs from outsiders.
The Chair: Professor, you mentioned that Canada is not only confined to AECL in terms of our nuclear involvement and you mentioned SNC with Canadian experts doing a project. I think you said the project is in South Africa. Is that right? Could you give us more detail on that project?
Mr. Keith: One of the more exciting nuclear technologies anywhere is something called a modular, high- temperature, gas-cooled reactor. There are a couple of varieties, one of which is called the Pebble Bed Modular Reactor, PBMR, which is a high efficiency reactor. These reactors seem like they would be much safer, and you could imagine them being much cheaper for two reasons. One, they are inherently safe. That means you could dynamite the main pressurized tube and nothing would happen. They are safe for basic physics the way medical reactors are safe; they cannot run away.
Many of us who are optimistic about this think if we built those reactors you could then reduce many of checks and balances we have built on top of reactors to try to make the reactor safer, which drives the cost. Currently, most reactors are safe only because of a bunch of active safety systems that add to the cost. These modular reactors might be cheaper because they are inherently safe and because they are smaller so they could be built in a central facility, where you would build identical reactors and get learning by doing industrial scales. People have talked for years about this exciting project.
Right now, only the Chinese and South Africans, very strangely, are pursuing this seriously. At least a year and a half ago, but I could be out of date; SNC-Lavalin had a major stake in the EPC contract, engineering procurement construction contract, for the PBMR. I forget the details. I say that because it is an example of exported expertise in the Canadian nuclear industry, which is not just purely associated with CANDU.
The Chair: Dr. Keith, on behalf of my colleagues at the Standing Senate Committee on Energy, the Environment and Natural Resources, I would like to tell you how very pleased we are that we could get together in this medium. It is not our first choice, not yours or ours. Now that we know you will be here tomorrow, you have piqued our curiosity. I hope we can stay in touch with you as we go forward. We are treading on ground that we are nervous about too because it is so technical.
What you just said about the nuclear really puts it in perspective. Here is an obvious way to go, and yet you pointed out all the reasons why it is the real way to go scientifically but geopolitically scary. Thank you so much for being available this evening. I hope we have an open invitation to call on you for more input as we go forward.
Mr. Keith: Thank you very much for giving me the opportunity and I am sorry I was not there in person. I would relish the opportunity to do it in person some time and would be happy to find ways to help and find ways to pull in other people from my institution or elsewhere to help.
The Chair: Terrific. The meeting is adjourned.
(The committee adjourned.)