Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 6 - Evidence - May 11, 2010
OTTAWA, Tuesday, May 11, 2010
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 6:07 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good evening, honourable senators and Mr. Gibbins. This is an official meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. We are starting later than the appointed hour of 5 p.m. because of activities in the chamber of the Senate that prevented us from sitting. I extend our apologies to the witnesses.
We are here to continue our study on the energy sector and the development of a framework for a national energy policy.
I am Senator David Angus from Quebec. Present today are Senator Grant Mitchell from Alberta, deputy chair; Mark Leblanc and Sam Banks from the Library of Parliament; Senator Tommy Banks from Alberta; Senator Fred Dickson from Nova Scotia; Senator Bert Brown from Alberta; Lynne Gordon, our clerk; Senator Robert Peterson from Saskatchewan; Senator Dan Lang from the Yukon; Senator Paul Massicotte from Quebec; and Senator Judith Seidman from Quebec.
Dr. Gibbins, you have been highly recommended to us. I believe you have followed our study.
Dr. Roger Gibbins is on video conference from Calgary. He is President and CEO of the Canada West Foundation, a well-known public policy research group based in Calgary operating across the four western provinces. Prior to assuming the leadership of the Canada West Foundation in 1998, Dr. Gibbins was a professor of political science at the University of Calgary where he started his academic career in 1973 and served as department head from 1987 to 1996.
An ongoing appointment as a professor of political science continues his association with the University of Calgary. Dr. Gibbins has authored, co-authored or edited 22 books and more than 40 articles and book chapters dealing mostly with Western Canadian themes and issues.
Dr. Gibbins, I believe you know Bruce Carson, who appeared before our committee. I understand you do not have any opening remarks but that you will make a few unscripted comments about what you understand we are doing, what you think of it and what you think about our focus. Then perhaps we will have some questions for you.
Roger Gibbins, President and CEO, Canada West Foundation: That is fine. I have some roughly scripted remarks. I apologize for not having them before you and in a format that can be used by the translators. It was the way the day unfolded.
I will be brief in my opening comments. I want to mention why I have come to the conclusion that a national energy strategy is essential for the country. I want to talk a bit about how we have tried to move a national conversation forward. Then, briefly, I want to talk about the Canada Health Act as an analog for thinking about a national energy strategy. I will take only a few minutes.
I think the rationale for a national energy strategy is something that you are all familiar with; you have been wrestling with this issue in one way or another. I will make six quick points:
First, energy is so important to the Canadian national economy that it seems strange that we have a policy void. Energy is so important to our exports and to the internal functioning of the economy that I do not think we can let that void persist.
Second, it is also important that energy policy be more than the residue of what we do on other fronts. My concern is that, while we act on the climate change file, energy becomes an afterthought. I think energy is too important for that assignment.
Third, I agree with what the Government of Canada has been saying about the importance of aligning Canadian policy with American policy. It is difficult to do because we do not know what American policy will be. However, it is even more difficult when we do not know what our own policy is. We have nothing at this time to align with the Americans.
Fourth, it is a question of scale. I am not sure it makes sense for a country of Canada's size to have 14 different federal, provincial and territorial energy policies. It makes no sense whatsoever when we consider that Alberta has about the same population as San Diego County. It makes sense to have an energy strategy with a national framework.
The fifth point has come up a lot in discussions with the business community: There is a concern that an overly provincialized energy policy will fragment an already badly fragmented economic union.
Finally, it is important for western Canadians to be involved in this discussion. They ought to "hold the pen," in a sense, in drafting what that national energy strategy might look like.
We tried to move this national conversation along in a number of ways. We have run a couple of projects, trying to test how concerned western Canadians are about the ghosts of the national energy program. I found the ghosts seem to be much more alive in Ottawa than in the boardrooms of Calgary. When we talk to western Canadians about the need for a national strategy, it seems to strike them as such an obvious question that it is hard to get that engagement going. They see it as essential.
We have been trying to work through other think tanks. The initiative that Bruce Carson was talking about is one that we have been involved in.
The last point I will make before turning to questions is that I have been trying to suggest that the Canada Health Act is a useful model or analog for thinking about what a national energy strategy might look like. The Canada Health Act has a set of guiding principles; six words. It is amazing actually. The six words are public administration, comprehensiveness, universality, portability and accessibility. The act then links those six words with the provincial administration of the health care system in Canada.
The act works well. I think we can work along the same lines in thinking about a national energy strategy and using federal, provincial and territorial governments to devise a set of strategies. Looking at provincial and territorial implementation, there must be some federal oversight role and some federal funding as a lubricant and as an encouragement for the pursuit of national energy objectives. I think it can be done.
It is a tough policy challenge, but so be it. That challenge is not an excuse for inaction on the part of the Government of Canada.
I will be happy to answer your questions.
Senator Mitchell: Thank you, Dr. Gibbins. I read Canada's Power Play: The Case for a Canadian Energy Strategy for a Carbon-Constrained World. It is an excellent work and encouraging to me as I member of this committee because it addresses exactly what we are doing; namely, the framework of the framework we are trying to develop.
One point you touched on today and emphasized in the paper is the question of jurisdiction. That emphasis underscores much of what we are talking and thinking about because we have a concern about how to integrate federal-level national strategies with the 13 other jurisdictions.
I am interested in your health care strategy. To bring it down to six words, do you have the six words that we can use under the national energy strategy that will capture the coordination of federal and provincial jurisdiction? Are the words the same ones?
Mr. Gibbins: I wish I did, although some of the words are part of the way in which we talk about energy policy — words like security, efficiency and conservation. I think we mat not be able to boil it down to the Canada Health Act model, but the basic principles of what we are trying to do are there.
We want a system that is secure, safe, reliable, compatible with the environmental objectives of the citizens of Canada, and one that somehow recognizes our unusual situation as a net exporter of energy. It is unusual among the countries of the Organisation for Economic Co-operation and Development.
Senator Mitchell: Exactly, thank you. One thing you talk about in your report, which struck me as interesting is this idea that the government might have a role to play in educating people about energy and about climate change. I have often said that we do not need many more new strategies to reduce carbon emissions; we need a new technology to help people understand they need to reduce emissions.
What kind of a role do you see the government playing, and how aggressive can the government be?
Mr. Gibbins: The Government of Canada has recently played an educative role in trying to convince Canadians that climate change and global warming are issues they should pay attention to, though the government did not do so originally. However, I think Canadians are doing more of the educating and the Government of Canada is doing more of the listening.
We have had educative efforts; Rick Mercer talked about the one-tonne challenge, and we have a lot of public relations about conservation and what we can do. I think we lack an attempt to illustrate to Canadians the complexity and importance of the energy system itself within the country and the role that energy plays within the national economy.
The fact that energy makes up 25 per cent of our exports, for example, is important for Canadians to consider in thinking about what the conversion to a low-carbon economy might mean for the country going forward.
Senator Mitchell: You mentioned the necessity of pricing carbon. Of all the things we should do, is pricing carbon the number one priority, or close to it?
Also, what is your choice of mechanism between carbon tax and cap and trade?
Mr. Gibbins: I have come to a reluctant conclusion. Keep in mind I am a political scientist, not an economist. That is an important distinction.
My conclusion is that, in the final analysis, any successful attempt to address climate change issues will involve putting a price on carbon. My concern has always been that we might use pricing mechanisms that focus only on the production side of energy, not on the consumption side, and that redistribute wealth in ways that may be inappropriate.
I think carbon taxes of some sort make sense. They provide the revenue that will make a national energy strategy easier to achieve, and I think the strategy should be as straightforward and transparent as possible. What troubles me about cap and trade systems is they are so difficult to understand, and their impact on the economy and on regional redistribution is difficult to interpret or to project. If carbon is a problem, put a tax on it and let us make the system work.
Senator Mitchell: Often, our strategy discussions go into this question of power and energy going north-south; yet facing that, there is this idea that maybe we need an east-west power grid. The argument against that grid is the expense. Have you given any thought to that question?
Mr. Gibbins: The notion of an east-west grid pops up a lot, particularly in terms of Manitoba's integration into a regional or national energy grid. I have become more confused rather than less confused over time with this notion, and I do not believe I have any real insight or expertise to offer the committee. I wish I did, but I do not think I do.
The Chair: Before going to Senator McCoy, I will put something before you that a witness said at our last hearing in terms of a grid, in case you did not see it. Richard Marceau, who was a professor from the University of Montreal, talked about electricity, a smart grid and trying to lever that into a more efficient system. He said in Canada the Rocky Mountains, for these purposes, begin somewhere between western Ontario and the Ontario-Manitoba border, because of the way things are. Does that make sense to you? In other words, it is fine from Manitoba west to B.C., and from Ontario east, but it is the linkup that is the problem.
Mr. Gibbins: I believe he is right, although the complications going west from Manitoba to Saskatchewan are considerable as well. The other thing to keep in mind is that, in all probability, our primary markets — our growth potential in terms of energy — lie to the south. There is not a whole lot of demand on the east-west side.
What might drive the east-west connections are concerns about security and energy self-sufficiency. These things might be important; but the market demand, for better or for worse, tends to lie to the south rather than to the east or west, wherever we happen to live in the country.
Senator McCoy: I am delighted to see you engaging in what is becoming the beginning of a national dialogue on energy. I agree with many of your comments that it is time for us to build a consensus across the country.
I think your expertise, as you say, probably is with governance — how we govern ourselves and how a consensus in a federation like ours emerges over time. I want to probe that subject a little bit.
There is one other item, as a preface — an acknowledgment that the complexity of the energy story is grounded in the differences in resources that exist in each region. The different mix in Quebec, for example, in the resources they have available to develop is considerably different from what you and I have enjoyed in Alberta.
Given that regional diversity and given our federated country, what insights can you give us in how we might build a national consensus that will be positive and take us forward?
Mr. Gibbins: You have identified how tough a task this consensus will be. A couple of things come to mind. First, we have to build this consensus from the provinces and territories.
I am not saying that the initiative cannot start from Ottawa. There is a catalytic role that the federal government can play, but this policy debate has to have provincial and territorial governments around the table, not only because of the complexity, but also because the provincial governments, in particular, have huge constitutional responsibilities and leverage when it comes to this issue. That is the starting point; the table must be broad.
Second — and here I will go back to the analogy with the Canada Health Act — we can argue that a hip replacement in Alberta is somewhat similar to a hip replacement in Quebec. There may be some differences at the margins about how we go about the surgery in the two provinces, but the differences are at the margin. Therefore, we can have a reasonably tight-knit system.
On the energy side, we have to recognize that the system will be much more loosely knit. We will never have a set of principles that will tie the hands of provincial governments to the degree that the Canada Health Act does in terms of health care administration. That cannot happen because of the differences you have noted.
We begin with that and say that variation is a fact of life; we will live with it. What we have to do to bring provinces to the table is, first, recognize that variability; and, second, recognize that the provinces have a real stake in some kind of national coherence, particularly when it comes to negotiating with the United States.
We are not big players on this side. Saskatchewan, which is a big energy player, has a population the same size as about 650 cities around the world. We are not big players. Therefore, the provinces have something to gain by wrapping a national strategy around their own interests and aspirations.
Senator McCoy: To probe further, I know you have had a long history with the Canada West Foundation, CWF, of exploring the needs and strengths of our municipalities; in many ways celebrating the policy initiatives and innovation that is driven at that local level. There might be useful thinking we can explore as to the role of municipalities in our country, both in supporting a strategy but also perhaps in developing one — maybe particularly on how we use energy in this country. I throw that possibility to you. It may be a bit premature because we are early in this dialogue.
Mr. Gibbins: There is a great deal of policy innovation at the municipal level in Canada. It would be a terrible mistake if the actions we took at the federal-provincial level in some way restricted that innovative capacity of municipal governments. Just as we do not want a strategy that locks up provincial governments, we do not want a strategy that locks up municipal governments because that is where the innovation is taking place.
The strategic issue is how many people we bring to the table at the first instance. The reality is that we have a lot of work to do at the federal-provincial level before we can expand the dialogue to municipal governments.
Senator McCoy: I encourage you to make the acquaintance of Peter Tertzakian, and to understand fully what he says. I spent two or three hours with him today. He is a Calgarian whose books have been translated into several languages. Our deputy minister of Natural Resources Canada is a fan and sponsored the lunch today along with other energy backers.
Mr. Terkzakian pointed out today that we really have only one market for our international sales of energy, the United States. The market is levelling off and other factors are leading to the conclusion that the U.S. will not need much more of our energy, especially in the natural gas industry, because of the shale gas the Americans have in such plenitude. In contrast, China, Korea and Japan are keen on our supplies.
Mr. Tertzakian's point is that Canada needs to enlarge our understanding of where our growth markets are situated to maintain the prosperity of our country. Have you included Mr. Tartzakian in the conversations you have had?
Mr. Gibbins: The simple answer is that I consider Tertzakian to be the single-most important thinker on energy policy and evolution in Canada. He tries to shift the focus from supply to demand.
The warning signal he sends about the possible diminishing American market is to be taken seriously. We are currently locked into a continental market. That situation has serious implications for the long-term issues. Therefore, a national energy strategy might include what steps Canada can take to diversify energy markets, as one of its components.
Senator Massicotte: I would appreciate your thoughts on what happens in the United States. Canada is obviously integrated with the American economy. Therefore, we must consider what they will do to finalize what Canada will do.
Are there things Canada should start to do immediately and not wait for the U.S.? Much of Europe has progressed in developing technologies and practices to achieve energy efficiency.
Mr. Gibbins: I completely agree that there is risk in waiting for the Americans. It may turn out to be a long wait. When an American policy framework evolves, it may be either incomplete or incompatible with Canadian interests.
I think we must do a couple of things. First is the work the committee is doing. We must identify our energy interests and aspirations. We talk about an alignment with the United States, but alignment with what? We do not even know where Canada is positioned.
Second, there are steps Canada can begin to take. We can begin to tackle the market issue Senator McCoy mentioned and to explore how to address the energy security concerns Canadians might have. Canada has not gone far in terms of conservation and demand reduction for energy. We look at how to supply more energy for the system. We have not looked as carefully as we should have at how to reduce demand.
If we can start the national discussion, at the very least Canada is better prepared when the Americans come knocking. If they do not come knocking, we will not be left high and dry, as I am afraid we might be, given the complexities of the conflict within the American congressional system currently.
Senator Massicotte: In your report entitled Canada's Power Play, you talk about the need for technology to get things done. Some experts participating in our committee hearings say that Canada should focus on certain energy forms to develop a specialty, and not import 100 per cent of our clean technology needs.
Does that view have merit in your opinion? If it does, which energy form do you think we should focus on to develop technology internally? For example, wind turbine technology is foreign as are most of the technologies.
Mr. Gibbins: We should not exaggerate our ability to break new ground in many of the renewable energy technologies. Canada does not have a large domestic market. We are behind the curve in many developments occurring in Europe. We do not have a large amount of investment capacity.
I say with some reluctance that, for many of the renewable technologies, Canada will be adopters, not adapters. We will not be at the frontier.
I think Canada can be at the frontier of better production of conventional energy resources. Our strength is oil, gas, coal and hydro. Those are the things we have done in the past that we do well. If we can better those technologies, I think that is the path forward.
For example, I am pessimistic that Canada can overcome the tremendous investment that the Germans have made in wind power. Canada has no competitive advantage in such areas. Therefore, we should return to our strengths, which are in the areas I mentioned — hydro and hydrocarbons.
Senator Massicotte: Regarding the Americans, there are three price indicators one can choose — cap and trade, carbon tax or regulatory measures. There seems to be a risk that the American approach will be on a regulation-only basis because it is politically less transparent. Some people are demotivated by it.
You strongly favour pricing carbon. Is that not an inefficient way to have a price indication of carbon costs?
Mr. Gibbins: I am much more supportive of a transparent, direct pricing of carbon. The regulatory option in the U.S. is the fallback. It has also become the most likely option the Americans will pursue.
Unfortunately, it makes the American environment that much more difficult for Canadians to penetrate. The regulatory environment is heavily legalistic. It is a difficult environment for Canadians to operate in. I think Canadians will be better off with clearer legislative guidelines, goals and objectives. My concern is that we will not have those guidelines, goals and objectives from the United States in the short term. Canada will be handicapped by that situation.
Senator Banks: Mr. Gibbins, it is good to see you again. I seem to see you frequently on different subjects, but this is a valuable subject.
This committee previously studied the question of what will motivate efficiency on the consumer side. We looked at the few jurisdictions in the world that seem to have had success — some larger jurisdictions and some smaller.
We came to the conclusion that we need to have all the factors in place. We must have education, cajoling, urging, incentives — both carrots and sticks — leadership and legislated regulation.
Your example of the Canadian Health Act is good, but to be crass, the Canada Health Act works because there is a hammer, and that hammer is money. The Canada Health Act is enforceable because the feds send money to the provinces. I suggest that, without that money, it would not be enforceable.
What is the hammer in a national energy system or set of guidelines that the feds can employ to mandate such a system's use?
Mr. Gibbins: If you look at almost any successful federal-provincial program in Canada's history, there has been a financial element and some degree of federal transfer of funds. That leads me to conclude that money has to be an element of a national energy strategy. It links back to taxing of carbon.
It also means that we identify national objectives that can be reached through provinces and we make federal resources available to bring the provinces on board. For example, if the federal government invests heavily in technological development, that becomes a significant carrot for provincial governments.
We are probably looking more at carrots than sticks here, but some degree of carrot will be an important part. That is the Canadian experience, and it is not bad, but it means the federal government cannot have a national energy strategy on the cheap. There has to be real financial muscle behind it.
Senator Banks: Do you think you can find a carrot that will apply in both Alberta and Quebec, to use two disparate examples? They are both big producers of energy, but they produce it in different ways.
Mr. Gibbins: I think any national strategy has to bridge the hydro and hydrocarbon economies in the country. It has to find a way of doing that.
If we look at the hydro side, again keeping in mind I am not an expert here, we have seen a lot of interesting developments in terms of hydro production: small-scale hydro production, in-river production, et cetera. What will be the long-term role of big hydro projects we have seen in Quebec?
Trying to integrate different kinds of localized hydro production in the larger systems is a rich area of policy innovation and policy challenge. There is a role for the federal government in encouraging that work, which is different from the work it might encourage in Alberta. For example, it might be linked more to carbon capture and storage, or something more related to the hydrocarbon economy.
Senator Banks: We have been looking for the magic third word to follow "national energy" and you have hit on "strategy." Is that the right word for us to use? Any word that does not begin with "p" will be okay.
Mr. Gibbins: I could even live with "program." Jimmy Carter was president of the United States when we brought in the National Energy Program in Canada. Because we did so badly 30 years ago does not mean we will always do badly.
"Strategy" is not only an attempt to avoid an awkward word but it captures the essence of what we are trying to do: Lay out a set of objectives and tools for getting there. It is a strategy for provincial, territorial, municipal and federal governments. To my mind, strategy is what we are talking about rather than a single, concrete program. It is more than that; it has to be more than that.
Senator Banks: Do you agree, though, that if we make guidelines in such a strategy, they will have to be guidelines that are enforceable?
Mr. Gibbins: Yes and no; enforcement comes through financial tools. Enforcement also comes through governments recognizing that they are responding to common electorates; that they have common interests and aspirations. My own view of the federal system is not as threat-bound as we often portray it. We have greater room for good will. At the end of the day, we also want flow of financial capacity to make it work.
Senator Lang: I have a couple of questions. You have not mentioned nuclear power as an alternative to clean energy. I want to hear your comments on that energy.
Mr. Gibbins: We are drifting on the nuclear side. We have not figured out in Canada yet whether nuclear should be an important or significant part of our energy strategy going forward. Again, there are regional differences that come into play in a major way.
We are involved in the nuclear side as a supplier of uranium ore to places around the world. We are active in nuclear energy. We have not figured out what role we should play on the energy electrical production side. At some point, the federal government has to be drawn into that area and think through the extent to which nuclear is part of our energy mix going forward.
I think it should be. However, I do not bring a great deal of expertise or experience to that conclusion. My gut response is that, in the long term, if carbon reduction is the challenge, nuclear will be part of the solution in some way or another. Do not take my opinions to the bank on that.
Senator Lang: Like you, I see two alternatives. I see hydro and nuclear, if we are talking about clean power and dealing with the carbon footprint that we face here in Canada, and if we looking to have clean energy.
I want to move into another area. I have not heard you mention the question of environmental assessments and the costs associated with going ahead with significant and large projects. What is your position in perhaps combining the federal-provincial assessment program together as one, as opposed to having the two systems, which obviously results in years of wait instead of months before any final decisions are made on some of these projects?
Mr. Gibbins: If I was God for a day and could do one thing, it would be to enable federal-provincial environmental procedures. To my mind, it does not make sense to complicate project development by having these dual systems. The governments in Canada have been making reasonable progress on that issue. However, the view from the business community seems to be that the environmental assessment process is still longer and more drawn out than it needs to be, and that view seems to be correct.
Senator Lang: I want to go to another area, which is the question of carbon and greenhouse gas emissions. In this report, it states that Western Canada accounts for 54 per cent of greenhouse gas emissions, compared to 30 per cent for Canada's population overall. That means Alberta and Saskatchewan, for example, compared to the rest of the country.
How will we bring those two forces together under one roof, knowing that the carbon footprint, and thus costs, in the East are much less, as opposed to the West?
Mr. Gibbins: We can do a couple of things. First, we look at the consumption of energy, not simply the production. In other words, if Alberta and Saskatchewan produce power that is consumed elsewhere, the consumption of that energy is important. We are making a mistake by focusing entirely on the production side.
Second, when we look at the reinvestment of any federal revenue that is generated by whatever we happen to do, we want to inject that revenue back into where the problem is; we want to ensure we target revenue to the production side, if that is important, but also to the consumption side.
Alberta and Saskatchewan, particularly, are a big part of the carbon problem in Canada. They have to be a big part of the solution. That is fair enough. That is admitted readily in the provinces. However, let us also share the load to a degree, so that someone who consumes energy in Toronto pays roughly the same price, if you like, as someone consuming energy in a similar fashion in Whitehorse, Vancouver or Calgary.
Senator Lang: I will go for that.
The Chair: What, the Whitehorse part?
Senator Lang: Yes.
Senator Peterson: You coined the phrase, "the national energy strategy," which I like, but you also said there is more concern in Ottawa about this strategy than in the regions, which I am surprised at. I thought it would be the opposite. If it is true, it will help us start this process.
Because the study is so vast and energy is everywhere across the country — everyone has a part to play — there is a possibility we can start a dialogue without the fear of pitting one region against another. To start that dialogue, what are your thoughts on a joint federal-provincial conference?
Mr. Gibbins: You have to find a catalyst. This is why the think tank community and people like Bruce Carson have been involved in trying to build momentum outside of governments to encourage governments to enter that policy space.
In our work, we have been trying to provide evidence that we can have this conversation without running a serious political risk. We want to demonstrate we can talk about national energy issues in the West and not be beaten up politically for doing so. We are trying to create a safe space, not totally safe, but a safe space.
How do you provide that catalyst? At some point soon, a federal-provincial-territorial discussion makes sense. We have not used that tool for a long time in Canada, and this issue is one where it makes sense to bring everyone to the table. We need to bring them to the table, though, on the assumption that hammering out the framework we are talking about is not a one-off thing; the starting point is a catalyst, but it is a starting point to educate Canadians in a way about why this issue is so important and why we should pursue it.
Senator Brown: I was glad to hear you speak about consumption as opposed to development. How do you see the path of the huge transfer payments being reconciled with a national policy on the varieties of energy in the different provinces? We will be developing the policy at a time when alternative energies are coming on stream almost daily.
Mr. Gibbins: We have a number of programs in Canada that redistribute wealth from one region to another. Some of those programs are explicit, like the equalization program; some are more implicit — they do it because that is the way they are set up.
I am supportive of an energy policy that is an energy policy, not a redistributive policy. I am not arguing that we should not redistribute wealth in the country. To my mind, that argument is separate, and we have separate mechanisms for that redistribution.
However, I want to strip an energy strategy of those redistributive elements to the extent that we can, recognizing that if there are federal investments in energy, they will look different from one region to another. They will be different in the Bay of Fundy than they are in Calgary or Whitehorse. We can handle that difference.
Senator Dickson: I appreciate your insightful comments, particularly with regard to the need for this committee to recommend federal legislation. Why do we need federal legislation? I believe, like you, that energy, being 25 per cent of the economy of Canada, is vital. Therefore, we should give serious consideration on this committee to such an act. I suggest that it be the Canada energy strategy act; get rid of the word "national."
Staying with your analogy of the Canada Health Act, coincidentally, Senator Keon will soon retire from the Senate, as you are probably aware. He was involved in the 2002 Kirby-LeBreton report on our health care system in Canada. One of the lead recommendations of that report was the creation of a national health care council. In other words, how do we keep the dialogue going, because governments change from time to time? How do we involve the private sector? The National Health Care Council filed its first report in 2009. The report was entitled: Value for Money: Making Canadian Health Care Stronger.
Assuming the act is in place and the House of Commons buys the recommendation, if that is a recommendation, how do you see the dialogue being carried forward? Will it be through something like the National Health Care Council or will we leave it to government?
Mr. Gibbins: I have not thought about this issue much, but it seems to me that energy plays such a huge role in the provincial and national economy that I am not concerned in the short term about keeping that discussion going. As we go forward, we will have shocks of one sort or another that will affect the energy system in Canada — whether they are blowouts in the gulf, international agreements on climate change or whatever. We will not have a smooth sail on this issue.
I think the impact of technological change and environmental shocks will keep that debate lively. I am more concerned about starting the debate than keeping it going. Maybe I am too optimistic there, but I do not think it is a concern.
Senator Lang: I want to move back to an earlier question in reference to the possibility of a carbon tax, cap and trade and regulatory costs and how these things affect pricing for energy.
Has your organization given thought to when the price of oil reaches a certain point — we have accepted the principle that we, as consumers, will have to take every opportunity to conserve — at that stage, maybe a carbon tax or a cap and trade is not necessary. I see them as another tax, and oil will be more expensive to me as a consumer if it is taxed. Perhaps you can comment on that issue.
Mr. Gibbins: It is a difficult question. As was mentioned earlier, I think an effective strategy is a combination of pricing mechanisms and regulation of other things.
For example, price alone will not reduce demand sufficiently without creating significant social inequity. If I look at my income, I can probably withstand a doubling of the price of gasoline without it having any detrimental impact on my quality of life. Many other people cannot stand that price, either because their income is lower or because their consumption is greater because of where they live or whatever. Price signals are important if we want to encourage conservation, but they will not take us where we need to go.
The second point that comes out of your question is that when we begin thinking about a strategy, we have to consider both high- and low-price scenarios and make sure we test the robustness of that strategy against those two things.
Peter Tertzakian is right. We may be looking at a low-price environment, which is a different environment than if the price of oil is $200 or $300 per barrel.
That scenario must be tested. Regarding my last point, price signals must be part of the picture, but price signals alone will not take us where we want to go unless they impose unacceptable social inequities within the country.
The Chair: Dr. Gibbins, unfortunately, as much as we want to continue, we are nearing the end of our delayed allocated time.
However, before we conclude this part of the evening, can you tell us about the Canada West Foundation? I understand it is an independent policy organization, but it must be financed by someone. Who controls the foundation and what do you mean by "independent"?
Mr. Gibbins: On good days, I like to think I control it, but I am unsure.
The Canada West Foundation is a charitable organization. Approximately 65 per cent to 70 per cent of our funding comes from projects supported by the governments of Canada — federal, provincial and municipal. Those governments are our largest source of funding. Corporate funding accounts for between 2 per cent and 4 per cent of our revenue, depending on what we happen to be doing at any particular time.
Therefore, we are not in the pockets of the oil patch. There are days when I wish we were in their pockets, but we are not. We are driven by a larger set of concerns about the continued prosperity of the Western Canadian economy, in which energy is part of the package.
The Chair: That is helpful. You put the words that I was hoping you would on the record.
I will conclude with the belief that we can return to you. You may come back to us on this study we are undertaking, which I understand you favour.
Mr. Gibbins: I will be delighted to help out in any way I can. Thank you for this opportunity.
The Chair: Thank you.
We are privileged to have in our second panel witnesses from Sustainable Development Technology Canada. SDTC is an independent foundation recently set up by the government. They were generous to us during the Globe 2010 Conference. A number of committee members attended the conference in March 2010 in Vancouver and attended your press conference when you released your report. We discovered that we each had items to discuss with one another.
We are pleased to welcome Dr. Vicky Sharpe, President and Chief Executive Officer of SDTC. SDTC's mission is to help develop and commercialize clean technologies to strengthen economic and environmental performance in Canada. As founding CEO, Dr. Sharpe increased the investment pool from $100 million to over $1 billion, and mobilized private sector capital resulting in $1.6 billion of clean technology projects currently under SDTC management.
With over 25 years of experience in the energy industry, Dr. Sharpe successfully integrated sustainable development into business practices, which is the core business. She served on numerous committees, including as international adviser on sustainability issues representing the Canadian energy sector on the Asia-Pacific Economic Cooperation Business Forum. She chaired both the National Advisory Board on Energy, Science and Technology and the board of directors of Clean Air Canada Inc.
With Dr. Sharpe this evening are Sailesh Thaker, Vice-President, Industry and Stakeholder Relations — who I think most of us met in Vancouver — and Rick Whittaker, Chief Technical Officer and Vice-President of Investments.
I think the witness knows what we are trying to do. I have had the pleasant privilege of meeting with Dr. Sharpe to go over where we are and what we are about, and she has communicated that information to the two gentlemen she is with.
I felt, and I hope you agree, that she has a lot to contribute to our deliberations, because she has seen energy in terms of a clean air or clean energy dialogue, as well as Canada becoming a clean energy superpower. With all the buzzwords thrown around indiscriminately, I think we can put a real face on it.
Dr. Sharpe, I believe you have a statement, which has been circulated, and you also have a video that is in English but will be translated and is available in French on the system, if you follow what I am saying. How will we proceed, Dr. Sharpe?
Vicky Sharpe, President and CEO, Sustainable Development Technology Canada: Thank you, Mr. Chair and senators. I appreciate the opportunity to be here this evening with my colleagues. We are trying not to be too nervous and we hope we can contribute to your deliberations.
If it is acceptable to you, I want to talk a little about the organization and the opportunity we have had to form our opinions. Then we will talk about the key elements to success on commercializing clean tech. At that point, we will look at the video. If that does not work, the video is available through our website, or we may also provide you CDs.
The Chair: That is good.
Ms. Sharpe: After that, I will go on to the aspects around the clean energy superpower that we believe are important, as well as the recommendations.
The Chair: Perfect; please go ahead and we will stop when you say so.
Ms. Sharpe: I want to be clear that the video is available in both languages. It is translated.
The Chair: I was trying to express what the clerk told me. I think I had it right.
Ms. Sharpe: We are privileged at SDTC to be able to work with a wide range of companies that are in the process of developing clean technologies. We have learned how they need to function and how they need to be financed to reach the market. As the chair said, we are oriented towards connecting with business and the private sector to ensure there has been optimum use of public funds, and that we hand off the responsibility and financing to the public sector.
We are an arm's-length foundation that reports through the Minister of Natural Resources Canada to Parliament, and we also have equal support where we are funded from Environment Canada. Consistently, we have conversations with Industry Canada. We play a lot with the departments.
As the chair rightly said, we have funded a large number of projects and have had the privilege of working with those companies. Our mandate is essentially to take ideas or research out of the laboratory and de-risk the technology; focus the companies on the market that will be receptive to that technology, and then move those real world applications into the private sector.
In the process of moving those technologies to the private sector, we are also able to address environmental benefits derived or produced by these technologies. Although the benefits are identified as clean air, climate change, clean water and clean land, 89 per cent of the technologies we have supported provide at least two environmental co-benefits. Some 65 per cent of them provide three. Therefore, we often have a double or triple hit in terms of benefits on the environmental side, which is important. In that way, we do not tend to need to segment it.
Our underlying thesis is that we can do good things for energy and the environment, and do so in a business-like way; they are not counter-productive but completely integrated. Three quarters of our portfolio is focused on clean energy.
The Chair: How were you funded at the beginning and how did the organization grow in the amazing ways I mentioned in my first sentences?
Ms. Sharpe: We started out as an idea that had $100 million from the government at the time. We started in 2002, and it became apparent there was a distinct opportunity in Canada to do something. We were inundated with requests.
People had not understood at that time the issue around "clean;" people did not say we are producing "clean technologies" but rather advanced materials or we are looking at reducing air pollution. However, the idea of clean technologies had not been coalesced.
Then, future funding was based on the strong uptake that brought the fund to $550 million for what we call the SD Tech Fund. That fund, as you will see in the innovation chain in point 2 of the brief, shows that we are addressing what is called the "pre-commercial gap" that is a critical issue, not only for clean tech, but for innovation more broadly writ across Canada, in that we have research that is in the lab. We are good at our universities and colleges at producing research, but we do not cross the gap. It is too early for private sector investment. Therefore, this point is an ideal position where government can step in and provide those incentives.
The second fund is a $500 million NextGen Biofuels Fund that was put in place by this government. It is intended to address another important component around the commercialization of clean technologies, which we call the high capital expenditures, CAPEX, gap. Perhaps people are more familiar with information technology and communications investment that are low CAPEX and provide quick returns. Those companies have been the darlings of the investment community.
However, as you can imagine, the investments for clean energy are more substantive. Those high capital equipment requirements are not readily met; they do not work with the venture industry. They require debt financing. Those institutions are not ready to step up to this plate on this technology risk.
As part of the government's strategy around a renewable fuel standard, the government wished to have a mechanism to attract investment for non-food-sourced biofuels and to ensure we meet our obligations to reduce the impact of fuel use in Canada using next generation biofuels. That mechanism is what the second fund addresses.
The Chair: It sounded at first like you were a venture capital agency. However, as you say, these CAPEX-type things are not love money and the organization is sort of a hybrid.
Ms. Sharpe: It is most certainly a hybrid. I think with some of our early stage work in the SD Tech Fund, we are comparable to the venture community, although we engage in an inordinately large amount of company coaching. whereas If the company were to apply to a VC, the VC would say, we do not like what you have to offer, go away, whereas we say, what you are offering looks to have value for Canada, therefore, let us help build it.
You are right, chair, in that this clean energy area requires a different kind of involvement, therefore, we might step in more like private equity. In the case of the NextGen Biofuels Fund, we operate essentially like an equity player because the banks will not provide debt in the way that they do that.
Our first fund is based on providing grants to companies. It is early stage and high risk. In the latter fund, the NextGen Biofuels Fund, because we are working with high performance technologies that have not reached scale but have proven their abilities to operate, those moneys we provide are repayable. The intent is that, after a while of running these large-scale production plants, SDTC, and, hence, the government, can step out of the project, the project can be restructured, and hopefully debt will replace our play and provide repayment to the government.
Both funds are complementary. If I draw your attention to the diagram in the brief, you can see they flow through. Ultimately, we have to bring these technologies to market. If they do not reach the market, they do not provide the economic returns or environmental benefits to Canadians.
The Chair: You are referring to the diagram on page 3?
Ms. Sharpe: It is section 2. The diagram on point 2 addresses the pre-commercial and high CAPEX gap.
The Chair: Does everyone have that diagram on page 2?
Ms. Sharpe: An element we want to bring to your attention that is critical for the commercial success of the technologies is to recognize that a majority of the innovation in Canada comes from SMEs. Our experience at SDTC is the same; for 92 per cent of the projects and technologies that we support, IP resides with a small- or medium-sized enterprise, often a small one. If you look at section 3, you can see that diagram.
Senator McCoy: We have a nation-wide audience with us this evening and you are using the alphabet soup approach. I caught SME and IP; do you mind explaining those terms?
The Chair: Small- and medium-sized enterprise.
Senator McCoy: I think you are making important points and I want to hear them in full English.
Ms. Sharpe: My apologies; if you look at point 3 in your document, you can see a slide that shows that small- and medium-sized enterprises are the ones that are driving innovation in Canada, not only in the clean tech arena, and importantly so here. They are the ones that have taken the intellectual property, IP, out of the universities and they have them.
Often, companies are staffed by no more than 10 individuals, often less, who have then worked hard, often for 10 years, before they can reach a stage where they can put their technology into the marketplace and derive a return.
The small- and medium-sized enterprises, SMEs, are obviously responsive; they are fast to act and light on their feet. They are, however, under-capitalized and do not necessarily have the connectivity they require to the kind of companies that will buy their technologies and that will be the end-users.
In SDTC, we have what we call go-to-market consortia. When we fund a project, we require that the project contains an end-user or host for that technology, as well as any other player that is necessary to take that technology to the marketplace. That means the technology is more likely to be successful, and also that the technology's performance is not a better mousetrap for the sake of a better mousetrap, but the performance characteristics have been defined by the end- user and therefore will be market-relevant.
That element is a key one. In fact, we also spend time meeting with either associations that represent groups of end- users — such as the Canadian Electricity Association for utilities — or with large corporations to introduce them to these innovation opportunities.
If I can draw your attention to section 4, talking about the point that I have already touched upon, we have an ability to move these technologies to market more extensively and rapidly if we have that hand-off to the multinationals. They can often be an entity that will license the technology, but we need to see them move the technologies to market quickly.
As you can see in the diagram, we are working with a combination of names that you will absolutely recognize, such as EnCana in the oil sands, SNC Lavalin and Cascades, and Loblaws on the retail side of things. However, we also have internationally known companies that will allow us to reach into the export markets.
If I can draw your attention now to slide 5, you can see that whatever the government does here through SDTC or other entities, they should put in only a small amount of money in total, relative to what the private sector needs to do. We must attract money from the private sector. That means we have to be a jurisdiction that warrants that interest in investment, and also we need to ensure that we capture the right investors.
If you look at some of the things we have done, we have an initiative called "follow-on funding." We meet with people in other countries to attract their interest. We work extensively, for example, with the Toronto Stock Exchange; a large proportion of their venture companies are from the SDTC portfolio, and we introduce qualified investors to our companies that are looking for financing.
I draw your attention to the fact that we have attracted, for 37 of our companies that have either completed their SDTC project or are completing it, over $1 billion of follow-on funding. The government receives a double leverage, first to take on the projects and then obtaining money from the private sector to make these companies successful and profitable.
Interestingly, the foreign direct investment numbers presented here represent about 50 per cent of the monies coming into our companies. This amount is 20 per cent higher than we have on average for Canada. One other message we have here is that clean technology is an export and an international global opportunity. We have been able to attract interest internationally. We have world class technologies here in Canada to be proud of, and foreign direct investment is an illustration that we are moving that way.
The Chair: To be clear — again, it is a terrific story — these companies and the government not only gives them the seed money, but introduces them to equity investors going forward. You do not take any stock in these companies and you do not put anyone on the board; is that correct?
Ms. Sharpe: We are not allowed; we are prohibited in our funding agreement from taking any involvement. Sometimes we have a little bit of a discussion amongst ourselves as to the fact that we wished we had been able to. We might have attracted good returns. However, we are not permitted any involvement for the first fund.
The Chair: Are you nearing video time?
Ms. Sharpe: Yes, I will say quickly that, in point 6, an integrated and responsive policy environment will lead into a bigger story. However, we have done a lot of work on trying to understand what will be required by industry.
One hears great discussion about how technologies and technology road maps are great. We have worked with industry to look at the vision of where they wish to be in terms of their progress and productivity in the future. Then we have worked with them and other key stakeholders to determine how they can meet those needs. The needs are a combination of technical and nontechnical requirements, and those needs are then shared more widely.
They are called the SD business cases. Our first one was for the oil and gas sector. We also have them for biofuels, hydrogen and renewable electricity. That work is on the supply side of the equation. On the utilization side, we have energy efficiency in commercial buildings and also industrial and commercial transportation — big areas of environmental impact, but also big areas for opportunity to change.
Those business cases are all available on our website. You have, I believe, an example of one of them in your package. If you want them on a CD or in a report, we will be happy to provide those as well. Essentially, we recognize the importance of how we can move these technologies forward.
I will make one other comment on point 7 and then look at the breadth of the portfolio. You can see that Canada has a huge capacity whether in cleaner fossil fuels, clean energy production or clean energy end use. We have seen over 5,000 different companies that are in our database. We have reviewed over 1,700 applications. Whatever direction this committee chooses to focus on, I am sure Canadian companies will be able to step up to the plate.
[Video played.]
Ms. Sharpe: If the committee wishes to take the opportunity to visit some of our companies to see the breadth of the technologies you can help enable, we will be delighted to show you. We can visit companies either in Ottawa or across the country.
The Chair: I am sure we will take the opportunity.
Ms. Sharpe: I want to highlight some of the things we recommend. We have demonstrated there is much to be done.
The diagram in point 12 of our document talks about opportunities where we can move. It is an abatement curve, which allows you to understand technology opportunities, their cost-effectiveness and a sequencing of emphasis for different technologies. The model was developed by SDTC and McKinsey and Company based on proprietary data. We "Canadianized" the abatement curves you may have seen for other countries. We did this work with colleagues at Environment Canada and Natural Resources Canada. A wealth of information is behind these curves.
We have data that makes this model relevant, not only for what we can do in Canada, but it allows the ability to determine where our efforts are best directed toward export opportunities. As a nation with 70 per cent of our gross domestic product as export products, Canada needs to look at that area.
It also shows what kind of methodologies to approach in debates around pricing carbon. Some methodologies are cost-effective and require regulatory changes to encourage adoption by the public at large. Other methodologies have more technology risks and are more expensive. These methodologies will benefit considerably more from federal support.
Recognize that we create many opportunities through high-quality, knowledge-worker green jobs. We looked at a study referenced in point 14 on an alliance with which we work that identified the multiples achieved by supporting these technology jobs — 50 per cent more for photovoltaics than for highway construction; and nearly twice as many jobs in biomass as healthcare. There are big opportunities to achieve benefits.
The federal government, in our view, can play a vital role in a national energy strategy. Some of the ways government can play this role are listed in point 16. Provinces clearly have the ability and are well-suited to pull the levers around taxation incentives for ratepayers, such as feed-in tariffs executed at the provincial level. National harmonization must recognize differences across the provinces.
However, the ability for Canada to be recognized internationally is a federal role. The need to mobilize private- sector capital to make this country one that attracts investment here rather than to other countries is another important role the federal government can play.
The overarching responsibilities that the federal government has leads to stewardship for the innovation chain around all technology but, obviously, around clean energy in your deliberations. Statistics on efforts across the marketplace show that whereas Canada produces good intellectual property and products, Canada is not turning that effort into a return as much as we should. Business expenditures on research and development place Canada in the middle of the pack within the Organisation for Economic Co-operation and Development. Again, this expenditure is an area of opportunity for the federal government to ensure Canada is in the right place to be successful.
I will stop to take questions.
The Chair: It is all fascinating.
I was in the United States at a Canada-United States Inter-Parliamentary Group session this past weekend. We had a discussion on geothermal energy. There were people who think that geothermal is the ultimate energy source. Why are we looking to solar and wind energy when the earth itself has the capacity to heat and cool?
Geothermal energy is right in the middle of your curve; it is tiny. Have you any comments on geothermal energy? Is there a future for it in Canada? Should we be developing it?
Ms. Sharpe: In our view, geothermal splits into two things. There are heat pumps and geothermal for heating residential homes, and that is a technology I believe you have talked about before. It is reasonably cost-effective and has a long payback. That technology is for the residential customer.
Geothermal for power generation is an entirely different matter. Typically the places where that technology has been exploited are New Zealand or Iceland, where they have thermal resources that happen to be near the surface.
There is an opportunity in the long term to look at deep-core drilling for geothermal. However, that is not available now and will not be for a long time. There might be some opportunity, but we would say that the ranking you see in the middle of the curve is the residential application, not the power generation one.
The Chair: Does residential include, say, an office building?
Ms. Sharpe: It can. We completed a project in Okotoks, Alberta, where there was a central ground-source heat pump field that fed a subdivision of homes. It was therefore a linked solar energy capture. That is something that is possible for a large number of homes.
The only issue when we go to commercial buildings is more difficult access to ground in urban environments. Often thermal ice storage is another mechanism that might be more suitable for commercial applications, such as an office building.
Senator Banks: My understanding of Okotoks is that it is not exactly the kind of deep geothermal energy you are talking about; it is a storage facility; right? The sun is used to heat water and the water is stored in the ground.
Ms. Sharpe: You are absolutely correct. That is not deep geothermal.
Senator Banks: In your recommendations for an energy strategy for Canada, in point 16, you said "the Government can play an active role in defining and bringing to bear Canada's national energy strategy." That role is consistent with what we have heard all along. That implies there is such a thing. Is there such a thing, or are you it?
Ms. Sharpe: We are definitely not it. There is a need, and industry now says they want that strategy. Industry needs a consistent message that is long term. Then they will make those long-term investments, but we do not have one sitting there.
We are saying we believe there will be significant value in the SDTC McKinsey work because we still have more to do. Again, with your indulgence, once we have done more of that work with our colleagues, we will be delighted to bring back to you some of the things that will be specific about where the biggest opportunities are for the lowest cost.
Senator Banks: The words that should follow Canada's national energy strategy would be, "if we had one." We do not have one yet.
I do not know if you heard Dr. Gibbins speaking. He was the witness who preceded you today. He made a point I will ask you to comment on. If I understood him correctly, he said with respect to alternative energy sources that we are so far behind the curve — that was his word when speaking of Canada — that, in his view, we are likely to be adapters and users of technologies that are developed elsewhere, as opposed to innovators. I do not know if you heard him say that.
The Chair: It was a specific reference to wind; he highlighted wind. I do not know whether he restricted the comment to wind.
Senator Banks: Alternative energy is the game you are in. Is he right or wrong?
Ms. Sharpe: First, we do need to focus, and we need to focus on our strengths. In what I call the standard supply renewable technologies that everyone talks about — wind and solar — there is no doubt that some of the European countries have made 20-year commitments to building that technology and ensuring it is successful.
However, the market is some $6.5 trillion of clean energy opportunity globally, which includes wind and solar. We believe that we can tap into that opportunity where we have strengths. Canada has known strengths in its sensors, systems and metallurgy area, our mining areas, as well as building on the things we have done through Nortel and other companies.
We have taken those areas of strength and supported two companies, 6N Silicon and Arise Technologies, both of which are helping to produce silicon more cheaply. If you look at the way we work, we are trying to bring that technology down the cost curve so it becomes more economically viable. If those companies are successful, they will have a huge export opportunity.
We are behind in some ways, in a macro sense. We should not be in the business of building large turbines. They are built in Europe. However, the components of those systems that increase reliability and make them more cost competitive, Canada has an opportunity to contribute. It will also access that large global marketplace.
I am talking about silicon for solar. The two companies I mentioned are producing cheaper silicon for solar applications. On the wind side, we have companies that have gearless drives, because the drives are often a source of failure. Why are these wind farms still not fully competitive? They do not have the reliability that they need. Again, we have Canadian technologies that will improve the performance of wind farms. I think the market is targeted, but we should not be out of the market entirely.
Senator Banks: Can you give us a thumbnail of success and failure? I ask because betting on technology is a dangerous thing. A lot of people bet on VHS as opposed to the alternative, and the alternative won. One is a demonstrably better technology; beta technology is infinitely superior to what RCA won with in the end.
Do you bet sometimes on the wrong horse? What is your average? Are we in danger of betting on the wrong horse?
Ms. Sharpe: It is a good question. We have a failure rate around 12 per cent.
Senator Banks: Can I invest in your company?
Ms. Sharpe: We would be delighted. People talk about the possibility of picking winners, and that might not be good at a strategy level for the government in that the government should enable that environment, but SDTC, working with industry, is in the business of trying to pick winners. We pick several companies that can compete, and we believe that is the way to build strong companies.
Senator Banks: In a sense, we are all investors, are we not?
The Chair: We are not getting the returns, though, but neither is Dr. Sharpe and her colleagues. I do not know whether this is the time but I want to confirm for the record that you have an executive by the name of Angus, and he is chief operating officer but he is no relation to this Angus, is he?
Ms. Sharpe: No, he is not.
The Chair: He has nothing to do with this chair.
Senator Brown: Your draft mentions coal-fired plants. They are important to my province and also to the United States. The biggest source of energy the U.S. has is coal. Are you having success in having coal-fired plants outfitted with better scrubbers or producing some kind of technology for those plants?
Ms. Sharpe: Yes, we are. Coal is an important resource and in terms of cost-effectiveness, coal-fired plants are cheaper than some of the alternatives.
We have a number of cleaner fossil fuel projects. One of them is with SaskPower, looking at the reduction of mercury from those plants. It has been successful; it is completed. In fact, it will enable these coal plants to meet the regulations earlier than is currently required.
Also important, when we look at the issue of carbon capture and storage, those technologies will work only if there is a relatively clean emission stream from the plant, and one of the poisons to the catalysts that can capture the CO2 is mercury. This is a piece of work that will contribute in both areas, so yes, we do look at that.
Senator Seidman: You are doing interesting work. We are talking a lot about national energy strategy or policy. I am curious whether you and your company have any integrating or overarching approach to the types of projects that you fund and support. If you do, what is that approach based on? Is it based on current trends, some kind of strategic decision-making, your own priorities or competitiveness?
Senator Banks mentioned that we have heard from witnesses that we are behind the curve in Canada on a lot of these new technologies. One witness talked about focusing our attention on one particular approach that we can all get behind and fund, and make it our thing in Canada. Can you talk a bit about this focus?
Ms. Sharpe: I will be happy to. I will throw a rock into a pond, which is that if you look at the economic sectors in Canada, we are obviously highly privileged to be able to have a natural resource sector and many other resources that enable us to have the quality of life that we do. Whether it is forestry, wood and wood products, agriculture, oil and gas or biomass-derived technologies, of which we have a significant leadership in both the knowledge area and the feedstocks, if those industries are to remain, they must be competitive globally.
When we talk about focus, we are talking about focus that enables the competitiveness of those sectors. What we are also talking about is introducing not only efficient technologies, but new ones that will allow different revenue streams that will allow them to be stronger. We want to move some of these commodity-based activities up the value chain and compete. Therefore, we should focus on our sectors.
I think it is inadvisable to look for one solution that will help us get out of that mix, because that would look at a complete disruption of our economic model. When we have a range of technologies that we develop, we provide a menu of technology solutions to those sectors and they pick the ones they need.
For example, in the wood products area, we work with a company that has a white wood pyrolysis mechanism. It takes a waste stream and turns that into a number of products, including resins that may replace chemical resins for making particle board, and also energy.
We have another technology, using the same kind of thing, which produces food colorants. If you use barbecue sauce, that flavouring comes from a Canadian technology that is made from waste wood. We are taking waste streams for a business that needs to strengthen its markets and finding new sources of revenue. We think we should offer those ranges of things; do not pick only one answer.
How do we decide which projects to support? We have, as I said, these SD business cases. They are lengthy, but we say to industry: What do you need to succeed? Then we figure out where they want to be and how we can provide technology solutions to them. Combined with that process is a wide range of policy options, which would be interesting to this committee, that could improve and accelerate the market uptake of those technologies.
When we receive applications, we say: Do they meet what Canadian industry is calling for? Do they meet global export opportunities?
Is that the information you are looking for?
Senator Seidman: Yes, that helps to a great extent. Thank you.
Senator McCoy: I have two questions. First, you mentioned GERD. I can never remember what the first initial in the acronym means.
Ms. Sharpe: Government Expenditures in Research and Development; and BERD is Business Expenditures in Research and Development
Senator McCoy: It is usually expressed as a percentage of GDP.
Ms. Sharpe: That is correct.
Senator McCoy: President Obama recently announced his target for government expenditures on R & D at 3 per cent of GDP; the target was for government and business, was it not?
Ms. Sharpe: I do not know the new statement. The figures that we have are that the U.S. business expenditure is 1.8 per cent of GDP. Canada spends 1 per cent of GDP. When I say "Canada," I do not mean the government; I mean the industries.
Senator McCoy: I think the President of the United States, in his push for a green economy, has announced that he wants that to reach 3 per cent of GDP.
Ms. Sharpe: Yes.
Senator McCoy: Do you recommend that approach as a piece of the overall energy strategy we are looking at?
Ms. Sharpe: I think that is a wonderful suggestion. The mechanism to entice increased business investment will address many of the points we have raised here about suitable investment environment incentives to involve them.
We have a real issue, not only in the fact that we need to double investment — or treble it in this case — but also the number of industries that are investing money is a small number. We have lost entities like Nortel, so we do not have the same kind of investment with many spinoff benefits. I think that is an excellent idea.
Senator McCoy: It will also be part of the Senate tradition. One of our previous senators came out with a technology policy about 30 years ago and recommended that target as well.
I want to turn to this abatement curve. I encourage you to speak to this abatement curve directly. This is the first abatement curve I have seen for Canada. I have asked a number of people if I could get my hands on it. I am thrilled you have created it. It is a useful communications device.
I want you to explain it. Show why this draws us into the frequently called energy efficiency areas, and why also, even though it is expensive, we are driven to the carbon capture and storage options.
Ms. Sharpe: I will be happy to do that. The reason you have not seen it before is that it has been created only recently. It is brand new, hot off the press. An explanation would not be reasonable without turning to my colleague, Rick Whittaker, who has done a lot of the work behind generating this curve. I will, with your permission, hand that question over to Mr. Whittaker.
Rick Whittaker, Chief Technical Officer and Vice-President, Investments, Sustainable Development Technology Canada: To this question, first, I will clarify that this curve is an overlay, an insight into Canadian emerging technologies on a global basis. Canada still does not have an abatement curve per se. Canada needs to develop an abatement curve, and that is part of the work we are carrying out right now.
We realized that Canada contributes 2 per cent to the global climate change problem, yet we have solutions that seemingly, in our theory, are globally relevant. What are the opportunities globally? The curve you have as a result of phase one of our work asks where Canadian technologies apply globally on this global abatement curve. We find that Canadian technologies are relevant to 72 per cent of the clean technology solutions globally. That situation spells opportunity for Canada to say, let us focus on exporting some of our clean energy technologies.
If we are truly looking to develop a national energy strategy or Canada energy strategy, maybe we can look at what areas and strengths we should focus on. Maybe we cannot be that big player in wind, but perhaps we can focus on some areas of our mining and metallurgical strengths. That is what is identified at least in part of this curve. The next step of the work is to figure out what other mechanisms the Canadian government has beyond technology. Policies, for example, protect our forest areas and those things at our disposal to address the climate change problem.
The last comment I will make on this slide is that the left-hand side of the curve implies doing things on energy efficiency; doing things around regulation as opposed to looking at cap and trade or carbon tax or price on carbon and those types of things. There are probably many things we can do that are already cost effective but are not done because there are other barriers in the way. Maybe that focus is an easy place to start.
Senator McCoy: In other words, if we read the scale on the left-hand side of this abatement curve, it is minus $80, or in this case, 80 Euros per tonne of CO2. to achieve the amount of CO2 reductions, reading across the horizontal. The thickness of each of those columns then tells how much CO2 we are eliminating or using.
Ms. Sharpe: Yes, that is correct. The amount of CO2 is indicated by the width of the column.
Senator McCoy: The vertical curve tells us how much it costs. It is cheap, and almost half of the activities are on the payback side of the scale, which is a revelation.
Mr. Whittaker: Right.
Senator McCoy: This is an overlay of a European curve — or is this the McKinsey abatement curve in the U.S.?
Mr. Whittaker: This is the Version 2 of the Global Greenhouse Gas Abatement Cost Curve. They have charted it for over 22 countries and 60 regions. It is a big global data set. This is our purview of 184 companies that we have had. We visited 5,000 and narrowed it down to 184, which we funded with validated data to whatever degree we could on cost and abatement. We looked at what it means when we overlay this data on top of that other global data set, and that is the phase one part of the work.
Senator McCoy: Will you build one that is, strictly speaking, Canadian as well?
Mr. Whittaker: That is the intent.
Senator McCoy: When do you anticipate having it ready?
Mr. Whittaker: There is a proposal before the departments right now to conduct that work. There is lots of support and interest in doing this work. If all goes well — we are able to fund this project for the next phase — we can have results as early as this fall.
The Chair: Is "the department" NRCan?
Mr. Whittaker: NRCan and Environment Canada.
The Chair: The two?
Mr. Whittaker: Yes.
The Chair: How much are they asking?
Senator McCoy: Yes, how much are you asking? Do you mind saying?
Ms. Sharpe: We will let them fund it. We funded the first part, and it will be in the order of several billion dollars —
Mr. Whittaker: Million.
Ms. Sharpe: — that they will put into it. We do not have that capacity. It is not inordinately expensive, considering the quality of the information that will be so useful.
The Chair: Is that the type of thing that comes from the Clean Energy Fund? Are you seeking a specific appropriation?
Ms. Sharpe: No, it is not for SDTC. We will do the work with our colleagues, but they will pay for it out of their operating budgets. We do not need to go to that level. We have an agreement that it needs to be done, and they will find the money to complete the next two phases.
Senator McCoy: You can quote me as saying that I am very much in support. Through our clerk, the chair and the steering committee, can you please keep us apprised of your success, if it comes? I think it is something we should include in our study as soon as possible, if we can.
Ms. Sharpe: We will be delighted to share that information with our colleagues.
Senator Mitchell: First, I am interested in how your funding is doing. I think you received $550 million for the SD Tech Fund and you received $500 million for the NextGen Biofuels Fund. How much of that have you put out and, therefore, how much have you left to invest?
Ms. Sharpe: For the SD Tech Fund, we have allocated $464 million up to the end of last year. At the normal rate that we see applications, we anticipate that the fund will be fully spent by the end of this year. In fact, the climate change and clean air part of the fund is already expended, and we are looking for a modification to allow us to move some of the money over to keep going. We have a real issue of momentum to keep our companies viable and going, and that is a point we wish to see addressed, if possible.
The NextGen Biofuels Fund is one where we have a good strong deal flow opportunity. We see a number of strong applications. Canada has leadership in the area of next generation biofuels. We have made only one small commitment to date, the reason being that the fund specifies that we must have commercial scale technologies. What the whole world has found — the U.S. has had the same experience with the funds that the Department of Energy has put forward — is that the technologies are not ready for large scale. They still have more work to do to scale up. However, we anticipate that this year we will see four more applications. We have one that is at a certain stage of development, so it is not being drawn down at all almost.
Senator Mitchell: When you ask for an adjustment in the buckets or silos of money, do you want to take money out of the NextGen Biofuels Fund and put it into the SD Tech Fund?
Ms. Sharpe: They are very different funds in terms of the funding agreement, the contract we have with the government. There was a strong policy requirement for that funding, so it is not our decision. We have not looked at that question. We think there is a real capacity for the NextGen Biofuels Fund to do things around agriculture and forestry that can produce the biofuels and therefore have a long-term benefit. What we are saying is that the SD Tech Fund should stand on its own merits and obviously seek recapitalization explicitly for that fund.
Senator Mitchell: The money the government gives you and that you invest is not outright expenditure by the government. The 10 per cent or 12 per cent you lose might be, but it is advanced money that you then invest. You cannot receive equity, but do you invest it at an interest rate?
Ms. Sharpe: No, we do not even do that. The original policy intent was, because there was no clean tech market we needed to kickstart that market and the money is provided as a grant. There is no repayment on that grant. We do not receive a return at all, except that the government will have —
Senator Mitchell: You are paid back by successful companies?
Ms. Sharpe: No, we are not. The government receives returns because companies hire people and the companies pay taxes. We have conducted job analysis where we have seen in only 25 of our 184 companies maybe 500 jobs created in last two years. We have also conducted an assessment on another 47 that have manufacturing-linked technologies that they could create in the next four or five years about 4,000 direct jobs; no indirect or anything else. The return to Canada comes through the creation of jobs and tax revenues.
Senator Mitchell: I think you have already implied the answer to this question, but do you have more opportunities than you have money to invest in them? You are not pushing the limits to find anything to put money into, are you; are there lots of good opportunities? That is the first part of the question.
There are other funds; you are competing with the $15-per-tonne cap and trade fund in Alberta. I do not know what they call it. Is there enough business out there?
Ms. Sharpe: There absolutely is enough business. We have a philosophy. We use the word "invest" because we treat the funding that way. We make decisions like a private-sector investment, except we integrate the environmental benefits into the decision-making.
We find that the companies that come to us, however, often come prematurely. Therefore, we work with them behind the scenes to develop their business plans and produce the capability to access money.
We can keep funding. We have not seen a reduction in the number of applications. We see the value in that funding and we can produce more capable Canadian companies.
We do not compete with the other funds in the other provinces. In fact, SDTC has provided advice behind the scenes on our methodology, which has been well reviewed by the Auditor General and it received a strong bill of health from the Auditor General who said our processes are solid.
We have worked with the BC Innovative Clean Energy, ICE, Fund and the Alberta Energy Environment Technology Fund, which is the compliance mechanism in Alberta. We have also worked in Ontario with their funds and we have relationships building in Quebec. We see our provincial colleagues as an opportunity to collaborate, co-invest and move the technologies forward.
I have one third point around whether Canada receives a return for the investments it makes in us. Our interim third-party evaluation was conducted, represented to the board in June 2009, and they carried out a cost-benefit analysis using the methodology that is accepted by this government. It was found that there is a return of 12 times the money that has been put into technologies or companies by SDTC.
To give you the range of numbers, on 25 of our companies, the public put in $62 million through SDTC and the scenario of forecasted benefits ranges from about $446 million up to over $1.3 billion. The medium range is $750 million dollars returned on $62 million invested by us.
We believe that distinct value is provided.
The Chair: Those are the 25 top companies?
Ms. Sharpe: Those are 25 of the companies that are closer to market.
The Chair: I see; the others are not as close.
Ms. Sharpe: We have not looked at others yet because they are further from market; therefore, there are greater assumptions to be made. It was better to work with the smaller data set.
We are obviously hoping that number will multiply extensively. If you look at our website, we have the results of the interim evaluation and management's response to it.
It is early days. We have been around only eight years. However, the evaluator commented that this return was exceptional for the life of the fund.
Senator Mitchell: My last question concerns nuclear. I think you have had experience one way or another with that source. We are interested in knowing what its prospects are as an alternative fuel source to coal-fired electricity plants.
Ms. Sharpe: SDTC has not funded many nuclear projects. We have one fusion project, which has potential. It has been evaluated as being one of the highest opportunities, in the U.S. as well, but to be clear, it is many decades away.
We have other opportunities that can provide additional help to the nuclear industry, but in small ways. Therefore, I would not say we speak for that industry extensively. I have a background in it myself, but it is a long time ago. Obviously, nuclear is a way of producing energy that has a big benefit from a greenhouse gases emission perspective. Therefore, we see a lot of potential value in that area.
The safety of the heavy water-moderated technology is one that is appreciated and I do not think I am telling you anything you did not already know in saying the decision whether we will help move our nuclear industry forward is a national one. We need more international sales. Our domestic side is obviously important and it represents a large percentage of use in Ontario. However, that is a big question.
The Chair: Regarding nuclear, you are absolutely right. We have been told that the government is trying to work towards that national decision. There are conflicting views. We have been impressed by what goes on in France. Even though the Ontario experience has been mixed — or maybe one went in a different direction than one should have — we see value. This is preliminary in our work. It sure looks like the kind of "Aha! moment" if the decision were made to go nuclear.
Lately, the tea leaves suggest maybe we are going the other way.
From our point of view of making recommendations, as you have so helpfully done in your paper, are we whistling past the graveyard in recommending serious consideration on nuclear? Is this energy so expensive — we tried it and missed the boat — we should not even waste time on it?
Ms. Sharpe: It is an expensive technology and it is rarely built according to the initial costs put forward, so there is an issue with the total cost. However, once up and running, these nuclear generating stations are not as expensive.
However, the real issue is their capacity factors. When most in Ontario were put in place, they were in the 80 per cent or 85 per cent — the top 5 per cent of nuclear technology, globally. It is after they have run them for a while and how they run them that defines whether they are a long-term alternative. Many issues, frankly, are not with the technology. The issues are with management.
The Chair: We also see the name SNC-Lavalin from your impressive list of big private-sector enterprises that help you introduce your people and so on. We have been advised that SNC-Lavalin have a nuclear solution that they are dealing with perhaps in South Africa at the present time.
Do you know anything about that project? We are planning to bring SNC-Lavalin here to find out, but I have a sense that it could be exciting.
Ms. Sharpe: I would be beyond my competence to talk about that.
The Chair: We knew you had a background and were in the industry for a while, were you not?
Ms. Sharpe: I was, but it was a couple of decades ago.
Senator Peterson: Thank you for your presentation. I have a couple of questions. You indicated you are associated with the Petroleum Technology Research Centre in Regina, and the investment is going well. There is also the International Test Centre for CO2 Capture at the University of Regina. Are you associated with that centre? Have they approached you or have you had any discussions?
Ms. Sharpe: No, they have not approached us. We have three projects with PTRC. However, we are not directly involved in the other organization.
Senator Peterson: I ask because they have a pilot project on the capture of CO2 at Boundary Dam, which is a coal- fired generating station.
Ms. Sharpe: We are familiar with that project. You will find that Natural Resources Canada has a lot of carbon capture and storage. A large portion of the Clean Energy Fund is directed towards CCS, including the coal-fired plants. They have been the larger funder in this arena more recently, but we have not been approached and we are not involved. PTRC is involved in this initiative, as I understand it, and we work with PTRC.
We have a CCS project called Aquastore, which is one of the largest tests to look at storing carbon dioxide in a saline aquifer. We are contributing to the knowledge in the arena.
Mr. Whittaker: We are involved in the SaskPower Boundary Dam and Poplar River project as well, from the mercury scrubbing point of view, which is the precursor to CO2.
Senator Peterson: Yes, it is coming along well, so I wondered if they had contacted you.
I have a question on point 7 and clean energy production. You do not show nuclear in the figure. Is that because you are not involved? It is emission-free so should it not be there? There is new technology with modular stations as low as 450 megawatts, which can be expanded as the demand increases. Do you think we should keep nuclear on the radar screen?
Ms. Sharpe: It is an important area to be analyzed and the decision needs to be made by the government as to what kind of emphasis they wish to place on it. The costs required to build out, modify or strengthen the Canadian nuclear technology, are in orders of magnitude larger than the monies SDTC has had available. We have focused everywhere else because we can make a greater return for Canada and help a far wider range of industries. Nuclear technology is outside our bailiwick from that perspective.
Senator Mitchell: I understand that. Perhaps you could have another box in the chart, which would be, another clean energy source that we cannot become involved in it because it is too expensive. There are 46 new builds happening around the world, so it is not some fantasy; it is real. I want to keep it on the radar screen as a clean energy production source.
Senator McCoy: We want an abatement curve for Canada so that we will have nuclear around here somewhere.
The Chair: It is a big percentage already.
Senator Banks: I gather there is nothing rotational about your two funds. Once you have spent them, they are gone, and you will not have them back, absent new parliamentary appropriations.
Ms. Sharpe: That is absolutely correct.
Senator Banks: When a new technology is developed, there is a lab version, a tabletop version and a field version. Do you invest in any or all of those versions? Do you invest in the last stage when it becomes practicable, one assumes, and will work on a commercial scale?
Ms. Sharpe: Thank you for the opportunity to clarify. We do not invest in anything that is on the bench. In some instances, we look at piloting a small scale technology not in a theoretical environment. Rather, it is still in the field but it might be small scale. The other piece of our mandate is demonstration, which is usually a large enough scale illustration of the performance of the technology in a real world application. That is where our real emphasis is and where there is not the kind of capital from the private sector that will make that stage happen.
Senator Banks: You do not invest at lab level?
Ms. Sharpe: No.
Senator Banks: You do not invest at tabletop or bench level, except rarely. You come in when the technology is proven and will probably work to build something that is commercially viable?
Ms. Sharpe: No, it is not proven. Our mandate is development and demonstration. Any technology that we look at is pre-commercial and pre-revenue. We take it out of the lab. Say someone is working on a project in the university and it is funded by the Natural Sciences and Engineering Research Council of Canada, NSERC, or someone like that. Say the intellectual property is taken by a professor, who leads the university project or spins out a business to test a first- level scale up. If we consider that technology to have a big enough market potential, then we will take an early-stage risk, which is the development piece of our mandate. Energy from waste is another excellent area of opportunity for Canada. End-users such as municipalities or others will not take the risk that something operating at a small scale will perform satisfactorily and not put them into jeopardy by using that technology prematurely. We will provide money for a large scale up.
The Chair: Senator Banks, I was glad you asked that first question but I was surprised that you did not do the logical follow-up question. I wish you would.
Senator Banks: That would be for a member of the government to do.
The Chair: It is more appropriate that it not be.
Senator Banks: Do you anticipate new parliamentary appropriations so that you can continue your work or will you retire to Barbados?
Ms. Sharpe: We never anticipate anything.
Senator Banks: Have you asked?
Ms. Sharpe: We have asked, and we have had considerable support from a number of ministers. They invariably become captivated by the private sector orientation and the work that is done. However, a number of elections have taken place, which means a change of minister in each case. That change has not always been helpful. We have also gone through an economic downturn, which absolutely impacted some of our opportunities.
We can all work somewhere else in the private sector. Everyone in SDTC comes from the private sector. I was not planning on retiring yet. We are excited about how Canada can succeed internationally with what we have. We have been to Europe, the Middle East and Asia. When these sovereign wealth funds or large corporations look at what we have to offer, they tell us that they did not know Canada had so much capacity in clean technology. We want to see the fruits of our endeavours and the invested public monies turn into big wins. We are definitely working in that direction.
Senator Banks: When it comes down to it, to continue to be effective on the same scale, you need another $1 billion.
Ms. Sharpe: That is a nice-sounding number.
The Chair: Senator, you are doing okay so far but you have not closed the deal. I suggest that if members of this committee are as enthusiastic and excited about these prospects as the chair of the committee and these witnesses seem to be, what can we do to aid in the sustainability of the SDTC?
Ms. Sharpe: We appreciate your response, given your knowledge and work. If we are involved in some of your recommendations, I am sure that will be most valuable. Frankly, if we see the focus on some of the technologies and markets that we believe have value, and you provide recommendations around those technologies, regardless of SDTC, those recommendations will be enormously beneficial to those companies and to the country.
The Chair: We did not mention earlier, as I probably should have done, that we have been on CPAC network this evening and on the World Wide Web, which is specifically beamed into the Mégantic—L'Érable constituency of the Honourable Christian Paradis. Let us hope that they have been listening attentively to these hearings.
It is 8:30 p.m. and you have another event involving many of your companies tonight. Because of our delay in the house, you are running a good one and a half hours behind. For that, I truly thank you most sincerely on behalf of the committee and all our colleagues in the Senate. You have done a superb job. I hope that we will have another meeting as we finish the first phase of our study with our report in early June.
We will return in the fall and begin with the various sectors. We will look at that curve, will we not, Senator McCoy, and diversitfy our focus a little.
Thank you, Mr. Whittaker, Dr. Sharpe and Mr. Thaker. It has been a most enjoyable session.
Ms. Sharpe: Thank you. It has been a privilege.
(The committee adjourned.)