Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 20 - Evidence - March 3, 2011 (morning meeting)
ST. JOHN'S, Thursday, March 3, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:08 a.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 morning. I am calling to order this session of the Standing Senate Committee on Energy, the Environment and Natural Resources as we continue our most enlightening trip here in Atlantic Canada. Today for the record we are in St. John's, Newfoundland.
We have just arrived here from Charlottetown, Prince Edward Island, whence we came from New Brunswick before that, and before that Nova Scotia, all in the space of the last three days, continuing our fact finding mission as part of our study on a future strategic framework for Canada's energy system. We keep hearing those buzz words everywhere we go — the need for clean, renewable, sustainable sources of energy and more efficient supply and consumption of electricity and other sources of energy. Over and over again we hear that the cheapest and most sustainable form of energy is that which you do not use at all, the conservation part.
We are very blessed this morning, colleagues, to have with us the president and CEO of Nalcor Energy, Mr. Ed Martin. We have heard a lot about you in the other three Atlantic provinces, and we are all most impressed by what appears to be a real major project for Canada at large, to say nothing of Newfoundland and Labrador and Nova Scotia. Without further ado, sir, you have the floor, and after we hear from you we will be bursting with questions.
Ed Martin, President and Chief Executive Officer, Nalcor Energy: Thank you, senator, and hello to all the other senators. It is a pleasure to be here.
In preparation for today, I was looking through some of the documentation that this Senate committee is attempting to achieve. I had a look at Attention Canada! Preparing for our Energy Future, the committee's Phase I document. I commend you on getting the data out there and helping. It was easy to understand what today's purpose was. I thank you for that.
A couple of things obviously struck me, a few phrases, and I sort of built my presentation around those. There were challenges and opportunities of provinces upstream and downstream energy systems. There was a main objective stated: to identify areas where greater regional and pan-Canadian collaboration can be achieved. Also, you wanted to gain an appreciation of big policy questions and also learn about specific initiatives. I think I will hit all of those today as I go through the presentation.
What I would like to talk about primarily in a moment is the first phase of the Lower Churchill projects and give you a flavour for where that project is. There are lots of questions, which I hope I am asked, but I am hoping to address some of those in my presentation, things like ``Will this happen?'' That is a great question. It makes me chuckle a bit, but for folks who have not been too close to it, I think I can shed some light on just where we are with that.
The Chair: Mr. Martin, if I could just interrupt you briefly, that sounds exactly like what we want to hear. However, I omitted to introduce ourselves to you so that you get a real idea of who we are. You know that this is one of 18 standing Senate committees. This is, we think, the committee that is right up to date with the flavour of the month, the year, the decade, the century.
I am David Angus, a Quebec-based senator. I chair the committee and have been a senator for 18 years. The colleague to my right is Senator Grant Mitchell. He is the former leader of the Alberta Liberal Party, a very distinguished and adroit parliamentarian, and we are very privileged to have him as our deputy chair. To his right we have two wonderful resources, Marc LeBlanc and Sam Banks from the Library Parliamentary. Senator Robert Peterson is from Saskatchewan. He is a former director of Cameco Corporation. To his right is Senator Dan Lang, a former cabinet minister and legislator from the Yukon Territory. I call him the pit bull from Whitehorse. He is one of our very esteemed members.
To my left I guess you have already had an interface with our wonderful clerk, Lynn Gordon, who keeps this road show going in a well-ordered way. To her left is Senator Richard Neufeld. He also has a lot of experience in energy, having served for I believe eight years as a minister in that portfolio in British Columbia.
Another former cabinet minister is to his left, Senator Elaine McCoy. Every time I sit down and chat with her I find out more strings to her bow. She is a very talented and experienced woman who has been a great inspiration to us in putting together this study because she sees it from many different perspectives. To her left is the only elected senator, from Alberta as well, Bert Brown.
There are other members of the committee, but this is the travelling group. Our Maritime senator is Senator Fred Dickson, from Halifax. You may know him. He was with us there. Unfortunately, he has some medical challenges, so he stayed in Nova Scotia today. I guess that covers it, sir. My apologies for the interruption.
Mr. Martin: Thank you. Before I get into the specifics of the Lower Churchill, I find it useful to come up to 30 thousand feet or so and lay some background in terms of the future for Newfoundland and Labrador — where we are headed, what our energy plan generally says — because that really sets the scene and helps us link this part of the project directly into some of our long-term thinking.
The first thing I would like to do is talk a little bit about our provincial energy plan. When I first came into this role about five years ago, I came out of the oil and gas business primarily out west for many years in Calgary and the Saskatchewan areas, and I came home many years ago working primarily in the offshore. My background is mostly large projects. I have been involved in one way or another with Hibernia, Terra Nova, White Rose and these types of projects over my career. I had a great opportunity to come into this role.
First thing when I came into this role working closely with the province, we decided a couple of things. We thought to ourselves that we have a tremendous amount of wealth and resources here, but our track record over the years would be spotty at best in terms of putting the right kind of deals together for us. We can all remember the types of deals from a national perspective that everyone refers to, but I will not go into those today. We said we had to get things right here because we had a big opportunity, so we stood back and documented where we were. We wanted to put a plan forward and make sure we got this thing right as we went forward.
Nalcor Energy — and I will speak a more about Nalcor in a moment — in conjunction with the provincial government leading the effort sat down and put together an energy plan. It is great reading, and we can get you copies if you need them, but I thought I would just lay out the four or five key issues from a high level that are relevant to today's discussion.
The Chair: We would be pleased in the fullness of time through our clerk to have that plan, though, if you do not mind, a hard copy. Thank you.
Mr. Martin: It is great reading, and I love to point to it because one thing we can say is that everything we do in Newfoundland and Labrador with respect to energy, whether oil, gas, hydroelectricity, wind, biomass, et cetera, is laid out in that plan. If you read that plan, you know exactly what we are all about because we have left nothing out, and it lays out the road map from now until 2041. I used 2041 because the first thing in the energy plan was that we said we had to look long term. We said we had to look out 30 or 40 years. We have to look to the next generations because that is where we will make the right decisions today.
We picked 2041 because that is a key date for the province. That is the date that the contract on the Upper Churchill River expires, and at that point, that is a game changer for the province. There is no question about that. However, in preparation for that, we had to make sure we are looking to that moment. Therefore, in our long-term plan we picked that time frame, up to 2041.
The second thing is that we said we had to itemize exactly what our resource base is, all of our resources, and we call it our energy warehouse. We documented all of the resources we have in production, development or planned. That was probably the most fundamental principle or fundamental direction that we laid down, which sounds simple now, but at the time it was interesting that it took so much dialogue.
We looked at a couple of interesting curves. I have not included them, but the curves basically look at what would happen if we developed all of our oil and gas potential, which is a non-renewable resource obviously. We laid out a production profile for that over many years, and it is a very exciting picture, but that picture is always on a downward trend because it is non-renewable.
We then mapped out our renewable energy next to it. That is our hydro and our wind primarily. Interestingly, it was a steadily increasing curve because it is renewable. It is there always, and you continue to build on it.
Those curves cross at a couple of interesting points. That is when we said to ourselves that it is pretty obvious what has to happen here: If we want to leave a legacy for future generations and think long term, the best way to transfer some of this oil and gas wealth to future generations is not simply to put it away in a fund but to invest it in renewable infrastructure, at least a portion of it. We have come to realize that we have to make some changes here. We have to get connected; we have to find a way to get all of our renewable resources into the rest of Canada as well as meet our own needs. If we focus on building that infrastructure over the next period of time, that is the biggest gift that we could leave for our future generations. That led us basically to the principle that we will take a portion of our non-renewable revenue stream — and this first time in history we have been able to do that — and we will invest it into renewable infrastructure in some form for future generations to ensure that they are in a better situation.
If you look at what is happening, the oil and gas is starting to fade away, but if you look at our warehouse, and I will talk about that in a second, and we have the wind and the hydro and the various renewables that we will be accumulating over the next 30 or 40 years, we are looking to position ourselves as one of the strongest jurisdictions in the world from a renewable energy perspective. It is a strong revenue stream that is essentially forever. From a Canadian perspective, what is better for the country? A strong Eastern Canada anchored in strong financial long-term benefits in Eastern Canada benefits the country. That is sort of our vision of where we are headed with respect to our non-renewables to renewables.
The Chair: I am sure you will do this, Mr. Martin, but just to make sure, the name Nalcor is obviously second nature to you, but to us it is sort of a hybrid. We are not just sure how it fits in. Is it your public utility down in this part of the world, or is it a separate thing from your power company? Just situate that if you could. I am sure there are shareholders and things.
Mr. Martin: Absolutely. Another great piece of the energy plan is that the province said we know a couple of things. We know we have some very well-educated people. We know that they are very experienced, particularly in energy because we have been at it for many years now. However, we do not have a large population, and if we are going to do this right and compete, we want to find a way to get these resources pretty much collected in one general area so that we can bring our best and brightest together from an energy perspective. That was the genesis of Nalcor.
The energy plan also breathed life, as I call it, into Nalcor. Nalcor is simply Newfoundland and Labrador Corporation, nothing too fancy. We were not interested in a fancy name. We were interested in long-term stability from an energy perspective. Nalcor suited us.
When I first came into this role, I was hired in as CEO of Newfoundland and Labrador Hydro, which is a Crown- owned utility. It is a typical provincial utility with very strong people, very well run, and generally provides generation and transmission and a big piece of the rural distribution for the province. I was asked in conjunction with my leadership team to take that entity and turn it into a broader energy corporation that would cover off all the things that we are talking about. It would sort of be the implementation and execution arm for the provincial government policy.
We have evolved over the past several years from Newfoundland and Labrador Hydro, which is still a key entity of ours. Nalcor is the overall holding company, and under Nalcor now are Newfoundland and Labrador Hydro and Churchill Falls (Labrador) Corporation. We also own and operate the big Churchill Falls plant up north. As well, we have an oil and gas division, which holds the province's interests in the offshore developments, the equity acquisitions that we have achieved as well as some exploration licences in onshore Western Newfoundland. We are growing that business. We have a fourth division in the Lower Churchill projects. As you will see, that is a very large undertaking that certainly from Nalcor's perspective warrants a division.
We have another division, Bull Arm Fabrication. That is a very large fabrication site that was constructed during the Hibernia days to build Hibernia; it is still in operation, a world-class facility, and we own and operate that. Substantial portions of the Hebron project will be going into that facility shortly for construction. We also have an energy marketing arm. We are growing that, but we will become one of the largest users internally as well as externally of electricity and oil and gas in Eastern Canada, maybe Canada. We are beginning to build our energy marketing group to market all of that energy for us over the long run.
We have grown from hydro and have grown into Nalcor. Nalcor is still a 100 per cent Crown-owned utility owned by the Government of Newfoundland and Labrador. There is no question that that is the way it is intended to stay.
The Chair: Those six divisions are all corporate subsidiaries?
Mr. Martin: Yes, they are. Some are incorporated companies and some are just pure divisional subsidiaries, but we treat them as six individual businesses with six individual leaders. Although we have a lot of integration, we treat them each as their own business.
The Chair: Great. Thank you.
Mr. Martin: That is the energy plan. I mentioned long-term focus, our energy warehouse, the significant principle of non-renewable to renewables, the creation of Nalcor, and also from an overview, we thought to ourselves, as I mentioned before, that this is an opportunity to get it right. We know from experience that in the long term, win-win arrangements are what we have to have. There are so many things for us to do, and we have found that any experience we have had with arrangements that are not win-win has not help us. As we move forward, that is what we found with this recent arrangement with Nova Scotia and Emera and Nalcor and Newfoundland and Labrador. That was our mindset: Let us make this a win-win arrangement. Everyone has some successes in here because we see this as step 1 of a many-step journey over the next 40 years. We wanted to lay the foundation of the right business framework before for our first step on this journey over the next 40 years.
The Chair: We heard from the folks in Nova Scotia, your new partners, that of course for years they always felt they were at the end of the line and then they were cut off. But now they feel they will just be a key stop on the energy highway, depending on how you look at it coming from up here and going down there or the other way around.
Mr. Martin: It is a great benefit for Nova Scotia. They are not at the end of the line. However, just think about Newfoundland and Labrador. There is no end of the line for us. We are the line. For the last hundreds and hundreds of years, Newfoundland and Labrador, particularly the Island, has been its own system, and I often say it is the only other isolated system in North America besides North America. Once again it is a win-win situation, but as good as it is for Nova Scotia to not be the end of the line, we are pleased to be the end of the line because for the first time in history we will be connected both ways to Canada directly. The immense benefits of that are not only for Atlantic Canada on a reliability perspective, because a huge source of generation is coming into the country directly, but also from Newfoundland and Labrador's perspective — just think of the reliability improvements in our province. For the first time we have access to other energy because those lines can go both ways.
We are in a situation now where if we do have an ice storm — and we have had many over the years, naturally; the weather in Newfoundland is always fun to deal with — we will be able to access the rest of North America to help us with energy. I think our Newfoundland and Labrador hydro utility has been so strong because we have had nowhere else to turn. When the lights go out here, it is only us, and we have built our system and operated our system in that fashion. However, what a huge benefit to our Newfoundland and Labrador hydro people who for the first time in history are looking at being linked up both ways to be able to access the rest of North America to help us with energy. We say that is a nice little benefit, but the bigger benefit I will show you in a second is what North America, and Canada in particular, will get from Newfoundland and Labrador — access to the kind of energy that we have coming. It is unprecedented.
The Chair: To clarify for those of us from the other part of the country, when you say both ways, one way is back up through Labrador, across the Strait of Belle Isle and up through Labrador and on into Quebec and the rest of Canada that way and also down to New Brunswick, I suppose, and the other Atlantic provinces that way; and then the other way is through a subsea cable from the Island over to Cape Breton. Is that correct, sir?
Mr. Martin: Absolutely, senator. That is a great description.
Once again, if we look a little longer term, that is just the beginning. Right now if you look to the Quebec route, we are trading up to 300 megawatts per year through Quebec with our recall power that we have from the Upper Churchill. For years Hydro-Québec purchased that from us at the border, but we recently took the decision to move that ourselves, which is an exciting change for us. It is a beginning, with more to come.
We are continuing to work with Quebec with respect to open access for other portions of this project. We are in regulatory discussions with them, and as is typical with regulatory discussions, they come and go and go up and down. However, we are working through that. It is just one of those things that we have to get through. I believe that not only will we have this Maritime route, as we call it, but also there is no question that we will end up working our way through Quebec with Quebec because the benefits are so immense.
The second part of this project is Gull Island, which I will talk about in a second. Muskrat Falls to the Island and to Nova Scotia is one phase, but Gull Island as a second project is a 2,250-megawatt project, and if we flow that into and through Quebec under open access rules, it is clear that there will be tremendous benefits to Quebec as well because the tariffs on that alone would be about $160 million per year every year forever. Plus the upgrades that we understand would have to be put in place could be likely well over $2 million frankly, and we would put that in to the Quebec system. We would get the benefit of that, but that is open access and Quebec would also get the benefit of the extra infrastructure. We think as we work through these regulatory discussions, taking a longer-term view, that the benefits are just so immense for Ontario, for Quebec, for Atlantic Canada even with that side of things that we see a future there.
We have also come to the conclusion very rapidly that we need both routes. This is not an either-or in our minds because the amount of generation that we will come up with in Newfoundland and Labrador is unprecedented. We have immense potential. If you look at the existing transmission and what we would have to build in the various inter- ties that exist throughout the country and between ourselves and the United States, we will need both routes.
We are pretty excited about step 1 here. Way or another over the last four years we have been working diligently from a hydro perspective on both Gull Island and the Muskrat and on a route through Quebec and a route through Maritime with the understanding that it was not a question of if or which one. It was a question of which combination first. That is our viewpoint.
What we have landed on is that the first combination, our best combination for a whole bunch of reasons, is Muskrat Falls, an Island link and a Maritime link. However, remember that is just step 1. There is a lot more mixing and matching and a lot more to come.
To go back to your point, senator, we are linked up both ways. It is great for Newfoundland and Labrador, but it will be better for the country because of what we are bringing to the table over the long run into Atlantic Canada, Ontario and Quebec.
The Chair: I know that in this country of ours it is always a little awkward having people like the citizens of Newfoundland and Labrador sitting around the table with the Quebecers and discussing, but we have heard about the La Romaine project being a new initiative in Quebec and fairly eastern towards Labrador. When they are talking about that, do they sit down with you, and do you sort of coordinate ultimate access to the same transmission lines, or is that a little bit too futuristic, idealistic?
Mr. Martin: Well, you are right at the nub of that, senator, because we have initiated that conversation. If you look at what has happened over the years, in Newfoundland and Labrador I think we are in a situation once again.
A couple of things have changed. Our financial situation has improved significantly with respect to our oil and gas, and we want to invest that properly. In addition to that, the United States opened up its market to open access to build that kind of access and improve its market. Quebec, rightly so, with its wealth of hydroelectricity and its expertise, said it would like to participate in that market, which is a brilliant move. That is what we want as well. However, to participate in the U.S. market, the United States requires any jurisdiction coming in also to offer open access. Quebec offers open access, and it is managed by Hydro-Québec. Hydro-Québec offers the open access and manages who gets it and how it works. That being said, because of those changes, we said that makes sense to us, so let us apply into that system, and we will pay the tariffs, as I mentioned. We will pay the upgrades, which are part of it, and once we pay our way through, we will also be utilizing the Quebec line, but paying handsomely for it, as we should.
We have initiated that; we have the applications in; and we have been working with Hydro-Québec and the Régie de l'énergie, their public utilities board, I guess, their appeal authority, for the past five years to try to complete that application. I think to say that we have a difference of opinion is true. I certainly do not want to get into that here today. However, my point is that there is a system we are working through, and through that framework Quebec provides is how we are initiating those discussions.
La Romaine is a good example. La Romaine was ahead of us in the cue. That is fine. I am sure they are building some infrastructure that we would likely access. We come in after them. We would have to build some extra and pay for it, and the way it works then is that if Quebec wanted to take a look at Petit-Mécatina, which is another provincial development down the road, some of our infrastructure that we put in would benefit them. That is the way this goes.
We have applied, are in the process and are actually working through our differences of opinion on that right now. That is how we are engaging with respect to an open access perspective.
The Chair: That is very helpful.
Mr. Martin: If you refer to page 4 of the handout, there is the energy warehouse, which is an important piece to take a look at. With this simple pictorial, we are trying to indicate why we are so fixated on getting this right. Looking at the smaller blocks in front, for instance under hydro, you see 6,700 megawatts in the bottom; that is what we have in development and production right now. The 6,000 megawatts is what we have left to come. That includes the Lower Churchill and others. From a wind perspective, we have just over 50 megawatts in operation, but we have an amount greater than 5,000 megawatts of potential wind activity. I believe we have more; both Labrador and Newfoundland have great wind regimes, as you have probably experienced over the years as you have visited our province.
In addition to that we have very large hydro developments. When you marry hydro and wind, it is a marriage made in heaven because it basically firms up the wind: You sell power from the wind, and as the wind is blowing everything is fine. When the wind stops blowing, what happens? With hydro, when the wind is blowing you store the water and do not produce, and the water just builds up behind the dam. Once the wind stops, you just let the dam down. The water can really instantaneously fill in behind the wind, and therefore you can almost turn wind into a hydro product by virtue of marrying those two elements. We have very large hydro resources and very large wind resources, so when we say greater than 5,000, there is no question about it. We know it is coming after the hydro because the hydro is the most cost-effective, but it is there and it is coming.
Then we turn to our non-renewables. We have just about 3 billion barrels of oil in development and production. There is an estimated 6 billion barrels yet to be brought on line. From a natural gas perspective, 10 trillion cubic feet is discovered, and the expectation, by independent estimates, is that there appears to be greater than 60 trillion cubic feet more to come.
There are other sources of energy in Newfoundland as well as in other provinces, such as biomass and such, but we tend to focus on these four because the resources are so large. We know that if we focus on these now, the rest will come later. As you can see, a large non-renewable to large renewable — and you get our point about making the exchange and making sure that we are building the infrastructure to end up green as the blue sort of reduces over time.
The next slide is a pictorial of Nalcor and where we have come from. I have already talked about that. I wanted to lay that context because it sort of gives you an overview of our passion, and it is the beginning of the story when you ask whether this is going ahead. I wanted to start laying the groundwork that apart from the fact that it is, there is no choice. This will happen. It is happening, and we are well on our way to getting there. It is nice to lay that scene to give you an idea of where we are headed.
I have many comments on oil and gas, but I will defer those to another time. That is a big part of our business, and with the interest in the progress and the speed at which the Lower Churchill projects are moving ahead, I thought I would focus on those today to give you a flavour of what is happening and get you up to speed as much as I can.
The Chair: You have all these offshore resources that are actually in production. Do you import any oil and gas, any crude and so forth, from Libya or elsewhere in the world?
Mr. Martin: We do import some at the refinery here. It is our refinery at Come By Chance. It is tooled for a heavier sulphur fuel, so that is an import. We do not have a piece of that plant, so I could not give you an actual source. The type of crude we are producing is a very light, Brent-like crude, and what that refinery uses is a different mix. We are importing, but we are certainly exporting a lot more than we are importing. Our Holyrood plant, which is a very large, very old thermal plant that generates about 35 per cent of our electricity, also imports bunker C. There are great people at that plant, a great operation, but from an environmental perspective it is problematic for us, and part of our Lower Churchill development is to replace that plant. Over time, the import of thermal oil or gas or whatever will cease. From an electricity perspective, essentially we turn ourselves into a 100 per cent renewable province when the Churchill comes on.
The Chair: Wonderful. Thank you.
Mr. Martin: When people talk about the Lower Churchill, I always like to make it clear that really the Lower Churchill development is the Lower Churchill developments plural. There are two generating plants. This is in Labrador. The original Churchill Falls plant, the 5,500-megawatt plant, has been in operation for 40 years. We operate that, and the majority of the output is sold to Quebec. That sort of sits on top of a plateau in Labrador, and as the river flows down from there to the Atlantic, there are two developments downriver, the Upper Churchill. The first one is Gull Island. That is a 2,200-megawatt plant. To give you some flavour there, I think Nova Scotia at eight o'clock on a cold winter's morning with the toasters on peaks at around 2,200 megawatts. That could be enough to provide Nova Scotia power on the coldest day of the year.
The Chair: Is that in the future, or is Gull Island actually up and running now?
Mr. Martin: Gull Island is in the future. Both of these projects are coming.
The Chair: That is what we thought.
Mr. Martin: The second one downriver is Muskrat Falls. I will talk to you more about that one here today. It is an 824 megawatt plant. It is downriver from Gull Island and much closer to Happy Valley-Goose Bay, closer to the coast.
As I said, the Lower Churchill generation projects are actually two projects. We have always planned to stagger those projects, naturally. Good construction best practice is that you start one, and as you develop your expertise and get it to a certain level of construction, you just move your resources over to the next one, much like they do in the oil sands or any other large project. Our decision has been which one first. That has been tied into which transmission peaks first, remembering that both routes and both generating plants are needed. We have been working for the past four years to decide on what is the first combination, which I will talk about in a second.
Senator Peterson: For comparison purposes, what is the output of the Upper Churchill?
Mr. Martin: The Upper Churchill is 5,400 megawatts. We provide between 15 per cent and 20 per cent of Quebec's electricity needs with the Upper Churchill.
Senator Peterson: Thank you.
Mr. Martin: Is it okay to be going back and forth like this?
The Chair: Absolutely.
Mr. Martin: Rather than have a formal presentation, I would rather keep going with the questions.
I have been asked this next question so many times I do not even wait for it anymore. I just put in a picture, which is on page 7. People will ask me whether this submarine cable between Nova Scotia and Newfoundland is viable. Of course it is a fair question because most people who ask it are not involved in the business. Anyone who is involved in the business will know that this is very old, very proven technology. To give that flavour for you, I included a picture of Northwestern Europe. You will see all the black lines up there. Those are the subsea lines that currently exist. They are in operation. Most of those lines are larger and longer than we are proposing. Up in the left-hand corner of that picture you see a little red line; that is a two-scale comparison of what we are proposing, compared to what is in Europe today. On the left-hand side there are several great examples, for instance NorNed, which was just commissioned. It is a great one to look up on the Internet if you ever want to get a little bit of data because it is bigger, longer, and larger than what we are proposing, but it is recent. There is a lot of great news about it on the Internet. It connects Norway and the Netherlands.
Senator Lang: How long is what you are planning?
Mr. Martin: Approximately 180 kilometres and 500 megawatts. Actually we are putting in two 250-megawatt lines for redundancy, for a total of 500 megawatts for our first leg, which is what this project will be. This is our first one, but we put some examples down to give you a flavour. This is definitely proven technology.
On our engineering team we have the engineers and the companies in Europe who have worked on this. They are part of our engineering team, so we have lots of great data on this. We have done all the seabed surveys. We have had vessels in the water for the past two summers. They have mapped out the bathymetry of all of the pathways that this will go. Actually there are several; today I think there are three fibre optic cables subsea that have been there for many years linking Nova Scotia and Newfoundland. My point is that this is not anything new.
Is it feasible? All I say to you is absolutely yes, first of all. Second, on our team as well we have several experts who have spent most of their careers with the offshore oil companies who are close to 300 kilometres offshore on the Grand Banks with three platforms and all kinds of undersea pipes to connect to loading platforms and to connect the subsea. It is called Iceberg Alley. For the last 25 years we have managed a huge subsea undertaking with the oil pipeline, and we have many of those people on our staff now. We are talking about electricity now, not oil, but I wanted to let you know from an expertise perspective what we have been able to achieve in this province. Subsea technology is far from bothersome to us; it is something we are very comfortable with, and it is obviously feasible. It comes down to a cost issue.
The Chair: In local vernacular, it is not rocket science, boy.
Mr. Martin: Yes. You will not scare us with that stuff, a little bit of ocean-going technology.
With that as a background, I want to walk though in some detail the arrangements we have made with Nova Scotia and Emera, because until you hear the logic behind what we have done I can understand why there are questions. When you hear the logic, I am convinced you will understand exactly what we have done here. I will spend a bit of time on this.
We have a map in front of us. There is no page number on the map in your package, but it is actually page 8 and follows the slide we were just looking at. I will have a couple of reference points for you there. On the map you see Churchill Falls and Labrador. That is the existing plant. Just downstream is a yellow line connecting Churchill Falls and Gull Island. That is Gull Island. I have mentioned that that will be our second Lower Churchill development. There is another yellow line from Gull Island to Muskrat Falls. There is a little pictorial of that dam, up in the right- hand corner. That is the one we are developing first in this go around. If I look from Churchill Falls down through the Quebec side of things, I could spend a whole other two hours talking to you about our plans into Canada through that route, and that is, as I said, still very active. I do not mean to say that we are not immensely active in Quebec and Ontario and through that route; it is just that because of time limitations I wanted to focus on this particular combination today and leave that combination for another discussion.
The Chair: The only thing is that for those who know the geography more, the Romaine project is pretty darn close to the green there when you think about it.
Mr. Martin: There is no question. You come down just a little south of Gull Island, and it is right around the corner, as they say.
You have mentioned La Romaine a couple of times, senator, but there is a point I want to talk about, too, because I have heard some questions in the press and elsewhere. With respect to the loan guarantees and so on that this particular project is talking to the federal government about, a key point that comes up is why would we subsidize something that might compete with a Quebec project or with another project that does not get that kind of subsidy.
I need to throw a couple of points out there. For me the key one is if I stand back and look at what this project has the ability to do. We have talked about connecting Atlantic Canada, connecting Newfound and Labrador, creating step 1 of bringing another 12,000 to 15,000 megawatts of clean renewable energy into Canada. This has never happened before. This is an absolute Eastern Canadian, Eastern North American, game changer.
I come back to the question of whether, if we are thinking in those terms, we would ever have built a railway or the highways. It is that kind of fundamental change that we are introducing into Eastern Canada. Then I come back to the competition perspective, and I say we have to ask a different question. I think that this is not a question of competition. The question is where will we get the energy we need. It is an entirely different equation here. We have looked at all of the supply estimates and reports from Ontario, Quebec, Nova Scotia, New Brunswick, P.E.I. and Newfoundland, and New England and New York. We put New England and New York aside and looked at Canada first. What those numbers are telling us is that when we marry the upcoming demand, which is very conservatively estimated in most of those plans because of the current recession, and we look at all the plants that have to be replaced — and we excluded nuclear, assuming nuclear is rebuilt in Ontario — there will be a shortfall of approximately 14,000 megawatts of electricity in Eastern Canada. That is Ontario, Quebec and Atlantic Canada. We looked at what is on the books.
The Chair: When? Is that in 2041?
Mr. Martin: No, that is in around the 2030 time frame, which in this business is just around the corner because it takes so long to construct these plants. In Eastern Canada alone, excluding nuclear, there is a 14,000-megawatt shortfall. We have reviewed the plans, and approximately 7,000 megawatts of projects are planned, excluding ours, which leaves a shortfall of approximately 7,000 megawatts for which we do not have any documented plans right now. Quebec is suggesting there is more to develop down the road. We are suggesting there is more to develop, but even when we add all those on, including the Churchill, we are still short. We are still short in Eastern Canada. That is not even including nuclear. There are 12,000 to 14,000 more megawatts of nuclear refurbishment planned in Ontario. If Ontario folks changed their minds on some of that, that would be an addition. We have not looked at New York and New England yet, which are even larger requirements coming up in the same time frame. I do not think the question is that we are looking at a 200- or 300-megawatt export opportunity here.
Will that change the face of North American energy? I do not think so. Do we need it? Yes. Do we need Gull Island? Yes. Do we need more in Quebec? Yes. We do not have enough, and the question here becomes not whether it is a matter of competition; rather, the question is how do we spur competition. How do we bring enough energy into the market to meet our needs when we do not have it? We will need it all. That gets back to my point that any jurisdiction in Canada would want to be bringing as much power and energy as we can into the system with those kinds of shortfalls. Why would they not? Why would we not?
I go back to the analogy that that is how we built this country with railways and highways and getting these things off the ground. These are absolutely essential things, so it is not a matter of looking at it that way. It is a matter of we have to have these projects. Newfoundland and Labrador is a big part of it.
We will service our needs first — there is no question about that — but for the amount of resources we have, we look at Ontario's needs. We look at Atlantic Canada's needs, and we continue to look even at the United States if we are interested in that, but Canada first. In Canada, we need each other. There is no question about that. I just wanted jump right on that because I have been following the news, and I shake my head sometimes and I say it is just the wrong question.
I will go back to the arrangements we have just made. In that context, for this phase we are proposing three distinct pieces. The first is Muskrat generation, which is basically Muskrat Falls and the two yellow lines. We will build some transmissions through to Gull Island and Churchill Falls. That is the generation project. It is a $2.9-billion undertaking. That is 2016 dollars, no interest during construction included. That is excluding interest during construction. In 2016 dollars, that piece is $2.9 billion.
The Chair: Is that from Muskrat over to the Strait of Belle Isle?
Mr. Martin: No, it is Muskrat Falls, the plant, plus those two yellow lines, one from Muskrat to Gull and one from Gull to Churchill. They are two transmission lines. We add those pieces together, and that is $2.9 billion.
The Chair: That is not part of the Muskrat project.
Mr. Martin: Yes, it is.
The Chair: Oh, it is.
Mr. Martin: I will tell you why. From an environmental perspective, these two projects have a very small footprint compared to the Upper Churchill. The Upper Churchill is on a plateau; it had a huge bank of water up there, and there was some significant flooding at the time. As you come down the river and these projects come down a river valley, a very deep gorge, and therefore the flooding is captured by the gorge. Compared to the Upper Churchill, which is probably in the range of 2,500 square kilometres, actually in total 5,000 square kilometres of water in a reservoir, Gull Island is 85 square kilometres — 85 square kilometres versus 5,000 square kilometres — and Muskrat Falls is 41 square kilometres because it is all captured in the narrow valley. My point is that we have an agreement with the Upper Churchill to share the larger water space, and we need those transmission lines connecting us back to those developments so that over time we can share in the large reservoir there. Anywhere you connect to a transmission you can share water, in other words. That is why that is part of the project.
The Muskrat Falls dam itself is approximately $2.5 billion. Those two transmission lines are approximately $400 million, and together that is the $2.9 billion.
Senator McCoy: For comparison, what is Hebron in total project costs?
Mr. Martin: I can give you a range there. We are a partner in that development. We have a 5 per cent interest, so we like the operator to speak about numbers. The partners probably want definite numbers, but in a range of plus or minus, you are talking about $4 billion to $6 billion, roughly speaking. It is in that range. That project is a similar size. When Hibernia was completed many years ago, I think it ended up somewhere around $5.4 billion, in the range of $5 billion to $6 billion, just to give you some order of magnitude there.
Senator Neufeld: From Churchill Falls to Gull Island and then to Muskrat Falls with transmission, how far is that, and what size are those transmission lines?
Mr. Martin: That distance is about 200 kilometres, roughly speaking, and the lines are currently planned to be 345 kV lines.
Senator Neufeld: Did you say 345?
Mr. Martin: Yes, 345 kV lines. An interesting point that we are stressing is that these are transmission upgrades that not only are helping the project but also are helping everyone in Labrador. In Labrador at Happy Valley-Goose Bay and Labrador West, as demand starts to grow there, particularly from a mining perspective and other growth opportunities, we are finding that the existing infrastructure that has been there for 40 years is starting to reach some of its limits. These types of developments are also beefing up transmission and giving us additional expansion opportunities in Labrador as we move forward.
Senator Neufeld: What is the cost for those lines? You said it fairly quickly.
Mr. Martin: It is $400 million.
Senator Neufeld: It is $400 million, and the $2.5 billion then is for the total construction and commission of Muskrat Falls?
Mr. Martin: Yes, of the dam. That is correct. That is 2016 dollars, without IDC.
The Chair: We saw a headline the day before yesterday in Nova Scotia saying that Metis bands oppose the Muskrat Falls project. Are those Metis bands up on the Labrador side?
Mr. Martin: Yes, they are. They are on the Labrador side. You are likely aware that they have filed in court to attempt to have an injunction against the hearings. We will have to see how that develops in court. All we can say is that they are another very significant interested group. We have been consulting in depth with all the groups up there, but this particular group we have either met with or asked for a meeting up to 25 times. I know the Canadian Environmental Assessment Agency is funding them about $180,000 for studies and certainly their participation. Nalcor has put another $300,000 into their hands to do the same. We have been working hard with this group and many others, including the Quebec Innu. We have spent many hours in many meetings with the Quebec Innu, the Labrador Innu and many other interested groups up there, from the Grand Riverkeeper on to various chambers of commerce and so on. We have been putting a tremendous amount of effort into sharing information with them, engaging with them working with all these groups. I think today we are starting hearings in Labrador, and we are looking forward to the next 45 days because not only do we have all the work we have done to date, but what more could we ask for than an open 45-day session. The whole purpose of that is to work through it.
The Chair: Who conducts those hearings?
Mr. Martin: It is a joint federal and provincial panel that obviously, by definition, has been jointly appointed. It is a full-blown environmental review with a joint federal and provincial panel. I do not know exactly how long the panel has been in operation, but we have been working at this for a couple of years.
Senator Lang: How many people live there?
Mr. Martin: In Labrador in that area there are approximately 25,000 people. I do not have exact numbers, but the largest concentrations of people are in Happy Valley-Goose Bay and in Labrador West on the other side. The total of those two communities, plus Churchill Falls, plus Nain on the coast, in rough numbers, could be 12,000 to 15,000 or more of the 25,000. We have a tremendous amount of population all along the coast. The population centres there are primarily Labrador West, Happy Valley-Goose Bay, Churchill Falls and a large contingent on the coast.
Senator McCoy: You said earlier it was $2.9 billion without IDC. What is IDC?
Mr. Martin: The actual definition is interest during construction. The way it works is that if we start spending money in 2012, we will start expending more capital in 2012, and then interest accumulates.
Senator McCoy: I just did not know the acronym.
Senator Neufeld: You said it is $2.5 billion to develop Muskrat Falls. Is it 840 or 850 megawatts? I guess it must be the geography or something, because that sounds relatively cheap to me to build that many megawatts. What is involved with that that gives you that advantage? It is, by the way, a huge advantage; it is a wonderful advantage. It certainly brings the cost down for the electricity if you can develop the electricity relatively cheaply at a $2.9 billion total.
Mr. Martin: Senator, there was an independent report. I forget the name of it, but we put it into our environmental assessment. That independent report indicated that these are the two best projects in Canada today. These are two of the great ones that should have been done 40 years ago, but for a whole bunch of reasons things just could not get organized.
Your question was why, and it is just natural geography. A large part of the effectiveness of a hydro development is the actual geography around a particular site, and here it is just tailor made for a hydro development. The other thing is what they call the head, which is basically the drop from the plateau to sea level. The actual head, or the drop, in Labrador is dramatic, and the combination of the geography around the site itself and this particular natural drop is why these projects are so great. You can just imagine if you take a lot of water and run it down a pipe that is really not that inclined, it comes out sort of slowly; but if you run water through a pipe like that, it comes out hard and hits the turbines. In essence, it is just the geography and the topography up there. As I said, these are two of the last great ones.
Senator Neufeld: I do not want to belabour it any longer, but is it then mostly rock, and the drop is how many metres or how many feet?
Mr. Martin: At the tailrace of Churchill Falls, which means you bring the water in and where it comes out at Churchill Falls, within five feet, I think it is about 425 feet above sea level. I cannot remember exactly what Gull and Muskrat are, but obviously they are gradients of that. The thing is the force is coming from the 425-foot drop.
Senator Neufeld: Is it mostly rock?
Mr. Martin: It is Newfoundland, I guess, yes. There is a lot of rock, but actually there is a lot of overburden at this particular site, so it will not be a huge blasting initiative. To get down to the rock, we will be removing a lot of dirt and overburden, so we do not have a huge amount of rock problems at these two developments.
Senator Mitchell: I want to pursue something you said a little earlier, and I want to get in here before we run out of time. This is interesting. This project will produce power that will replace a good deal of coal-fired power at this point, it seems to me. Do you have a rough idea of how much of that power will actually be replaced by this project? Second, and I am going somewhere with this, it seems to me that, rightly so, the reduction in coal-fired plants or the phasing out one way or another has been driven by this new federal regulation, this federal announcement. That is great. Therefore, does that not argue for the federal government's perhaps giving you the loan guarantee? It is another argument that you are doing this in part to fulfill a replacement required by federal regulation and you are asking for a loan guarantee, so perhaps that is the way the federal government can participate, given that it is driving this.
The Chair: First of all, are you asking for a loan guarantee?
Mr. Martin: Yes, we are asking for a loan guarantee. Absolutely. I will address that from an overall perspective, because I was thinking about this question last night and made a few notes for myself. I will answer your question directly on the greenhouse gas, GHG, reductions, but the question is why a loan guarantee. I have broken my thinking into four sections for why this makes sense for the country.
First, and we have talked a lot about it, this is a project of national and regional significance. There is no question about it. As I said, we are hooking up Newfoundland and Labrador, but we are bringing so much generation into the mix. It is a game changer for Eastern Canada.
From a GHG perspective, you mentioned the current Canadian government's goals. With this project alone we are looking at about a 4.5 megatonne reduction in GHG emissions in Atlantic Canada. Gull Island, as we pursue that, will add significantly to that. It will add another 10 to 12 megatonnes, and these are Canada numbers. In Newfoundland, we will knock off 1 megatonne to 1.5 megatonnes by closing Holyrood. We will be 100 per cent renewable.
Then there is Nova Scotia, and my compliments to Nova Scotia: Nova Scotia has put in some of the most aggressive GHG reduction targets in the country, and this is becoming big piece of the mix for them.
Senator Mitchell: You cannot do it without it.
Mr. Martin: You cannot do it without it.
Nova Scotia came to us, and if we get a chance I will talk a bit more about the deal, but they were very creative in saying, ``If we do not do this, we will have to do that,'' which is a combination of maybe wind and biomass. They said that will cost this much; and they asked whether we could do hydro for that, because hydro is a sweeter product; and we could. That is how we started the arrangements with Emera in Nova Scotia. It became sensible for them to do it, and in our case we were building a project to replace Holyrood. We were spilling 60 per cent of the water. We were not even using 60 per cent of the energy, and it still worked for us. All of a sudden we came to them, and it started to work for Nova Scotia. I will talk more about that in a second.
To come back to the question of why a loan guarantee, you know it is of national and regional significance, and GHG in particular. There are economic benefits; this is a $6.2-billion project, and experience has shown that we have some great numbers here. Big pieces are coming to Newfoundland, but a huge piece goes to Quebec and Ontario and Atlantic Canada. That is the way these projects have been because of the manufacturing capabilities in those areas. You have seen huge benefits come into all of Eastern Canada, including Ontario and Quebec. We are still coming out of a recessionary period. It provides increased regional stability and increased security of supply for the country, and it enables other regional renewables if you are looking at other wind developments in P.E.I., Nova Scotia or New Brunswick; hydro can firm them up as well as it can firm us up.
Also it is a key component of this east-west grid people talk about. I will say that in Newfoundland and Labrador are doing our part on this. We applied for open access, and we are paying a fortune to get that pushed through. We will be paying significant dollars in Quebec to make that work. We are looking to add another piece here on the east-west grid. Many people are talking about it, but I will say that we are in here doing something about it, and we think it is great for the country.
Put that aside for a second. This next point is probably not the greatest point, but I did some research last night and I had my people take a look at why people are looking at this any differently than from a pan-Canadian view. I had my people pull out chunks of assistance that the federal government has put into other major infrastructure projects across this country. I do not know why we are focused on one little project here saying, ``That's different.'' We looked at Ontario and many examples, and of course the auto industry jumps out. In Quebec the aerospace jumps out when you look at the things that have happened there over time. Out west it is carbon sequestration. With carbon sequestration, are we potentially increasing the amount of oil that could be added into the Canadian economy worldwide? Yes. Should the government be increasing supply and helping Canadians increase supply? Yes. Does this sound familiar? That is the kind of thing that we are talking about here.
Then there is also the point that in this particular case, the benefits of a loan guarantee go directly to the ratepayer. That is a key point. The benefits flow right through us into the rate base. They are not stopping in Emera's pockets, or Nalcor's or the those of the governments of Nova Scotia and Newfoundland and Labrador. Because Canada has a stronger economic base than Atlantic Canada, the loan guarantee would cut interest rates. What you are doing really is transferring cash from bankers to the ratepayers.
Senator Mitchell: Mr. Martin, that is a very powerful point. The question was raised in our hearings in Nova Scotia about what guarantees would they have that those savings would be passed along to actual Nova Scotia ratepayers? Would that simply be a given, or would that be a question of how the negotiation went between Nova Scotia and Newfoundland in your organization? That is a critical thing.
Second, I would just say that you make a very powerful case, and I would add to the list that the oil sands, which are a great economic boon to this whole country, certainly Newfoundland — I am from Alberta so thank you for sending all that wonderful workforce to us — were developed with direct federal government equity participation. The government owned a chunk of Syncrude and put billions of dollars into research and all kinds of support, in addition to carbon capture and storage. I think there is a strong argument there.
In part, this project is replacing coal-fired plants, which has been required by a federal policy. The federal government is a participant already. They cannot just walk away, wash their hands, and say we will not give you free money, because it will not really cost them anything.
Mr. Martin: I came out of the oil business. It is a great business. It was the right thing to do, and it is making the country better. Turn it around. Bring it in. This is the same kind of thinking.
Senator Mitchell: Exactly.
Mr. Martin: We are talking about the big energy game changers here in the country, and we think it is, from a partnership perspective, a hell of an opportunity for the country.
The Chair: Thank you.
Mr. Martin: I will not revisit this, but earlier I was trying to address some jurisdictions thinking that it is a competition. I think I have already addressed that. We would just like to turn that thinking around and say, ``Look, the shortfall is massive that is coming, and it is coming in Canada. This is not a matter of compete; it is a matter of where are we going to get the energy.'' When we put all that together from a loan guarantee perspective and compare what is happening in the rest of the country, we think this is one of the best opportunities for the federal government to jump in and be part of it. It is a partnership.
Senator Neufeld: When you put together all the costs — the $2.9 billion for the first part for the transmission and whatnot and then Gull Island after that — do the costs make economical sense totally on their own to develop these projects? I think $2.5 billion for an 824-megawatt dam is pretty cheap in comparison to what happens across the rest of the country. Is it economical to do it, putting aside loan guarantees, that you can actually reduce the rates to the delivery points with that kind of development? If there were a guarantee, would you please tell me what percentage of an end-user rate would be reduced? Would that be a half a cent a kilowatt hour at the homeowner end, or what would it actually be?
Mr. Martin: Your first question is whether the project could stand on its own without a loan guarantee. I will answer that directly, but I will give a little background first. Obviously the question comes up, and people will say, ``Well that is a tricky question, is it not? If you can go ahead without a loan guarantee, why do you need one? If you cannot, well the project is not economic, so we should not be backing a loan guarantee.'' We digested all that, and I and many of my compatriots in Ottawa have been working for four years and never asked for anything. I just kept going up explaining the project and saying, ``I want to tell you what we are doing, and I will not come up and talk to you about any type of investment opportunity until we have an economic project that I can show you.'' Everyone thought that was a great idea.
We do have an economic project without a loan guarantee. It will go ahead without a loan guarantee. However, in my mind, that is not the point. The huge benefit to this country that will come with this project and others is to me future building, particularly on the eastern side of the country, and it is a huge investment opportunity for the federal government. We tell the government, like we tell any banker or investment group looking at a suite of investments in terms of where to put their investment money — and if the federal government is thinking of its investments as structured to be good for the country, if that is what drives the government's investment opportunity — that we have a big answer right here, and you can put this up next to anything else in the country, and it is something that you want to be part of.
Your second question was on reductions to ratepayers. I cannot speak for Nova Scotia, but in Newfoundland and Labrador, talking about IDC and other things, we are talking about potentially knocking up to 2 per cent off the percentage interest that could be charged. That would translate through to reducing the cost of the project itself by close to 15 per cent, but when that trickles down to the consumer, because of our structure, it is about a 6 per cent to 7 per cent decrease to the actual end consumers on their bill at the end of the month, roughly speaking. When it all translates through, that is how it works because when we add this to our mix, there are still other costs. A full 15 per cent does not flow through because it is being merged in with a whole bunch of other costs that already exist. When it gets to the end consumers, we are using a number of a pure 6 per cent to 7 per cent reduction for the end consumers on their monthly electricity bill.
Senator Neufeld: That is 6 per cent or 7 per cent of about what? Would 8 cents a kilowatt hour to the end user on average be correct or close?
Mr. Martin: I can get that for you shortly, senator.
Senator Neufeld: Thank you. Second to that, using that analogy, I think it is a great approach. I think these are great ideas, so do not get me wrong. Further to Senator Mitchell's comments about a reduction in greenhouse gases, would you say, then, that every project in Canada, regardless of what it is, if it economic or right on the edge of being economic for generating clean electricity, should be backed with loan guarantees from the federal government? I think there are other projects across Canada doing much the same thing you are talking about, although maybe not on such a grand scale. Would you say that those projects should just fall into the realm of a loan guarantee from the federal government?
Mr. Martin: Senator, I would say that we cannot skip over the term ``grander scale.'' I think that if other projects in the country can offer the types of things that I just went though, they should be on top of the list along with us. I do not know whether they are there. I do not want to repeat it all again, but we are talking about linking Newfoundland and Labrador both ways to the mainland of Canada for the first time in history, bringing the opportunity for up to 15,000 megawatts of clean energy, changing the face of the GHG reductions in Atlantic Canada, creating a situation in Atlantic Canada for the first time where we are coming together as a business unit, which will only make the country stronger. Add up all those things, and I do not think they are small at all. If any other project in the country can bring that much of a game changer into a major region — we are covering off New Brunswick, P.E.I., Nova Scotia, Newfoundland, Quebec and Ontario, touching six provinces in making a huge difference — if anyone can bring that to the table, then yes, they should come to the top of the list as well.
Senator Mitchell: There is another element to this. It seems to me that if you actually displaced 4.5 megatonnes of GHGs and there were a carbon market at $30 a tonne, you would have another $135-million worth of credits that you could sell to somebody else. If we just get on to setting up a carbon market in this country, we might have even more economic opportunity — or sell them to Europe.
Mr. Martin: That is a very good point. In our economics on the Island, we have not included any cost of carbon because we wanted to be somewhat conservative in our economics. However, you are right, and I think that is another good point. I believe the federal government is setting targets and is progressing in issues. I know it is a complex issue, but this project will be built before those types of markets come into play. What are we going to do in the interim? We will not be in a position to take hold of those in time for this project, and we have to move ahead.
Senator Mitchell: Thank you. That is too bad.
Senator Lang: Turning to the financing, you mentioned resource revenue being allocated from primarily the oil and gas industry and your proceeds there. What commitments have been made? How much money are we talking about?
Mr. Martin: I will use rough numbers because obviously it is iterative. If there is a loan guarantee on the table, that impacts our financing structure; if there is not, it impacts our financing structure. However, assuming that we are going with reasonable project financing, at $6.2 billion you would have to look at an average of 70-30 debt equity. We are talking about 30 per cent of $6.2 billion, in the range of $1.5 billion to $2 billion equity. Those are rough numbers. If there was no loan guarantee, likely the amount would grow because that is the very nature of this thing. We are trying to get something set up for future generations, so we would probably ask the province to get more heavily involved. It is an order of magnitude sort of thing.
Looking at what the province has done here, I really have to compliment the province. When I first came into this role, Newfoundland and Labrador Hydro had a debt-laden structure for several reasons. We have gone from a debt- equity ratio of 88 per cent to 90 per cent. Right now we flip that around. The province has been investing in Nalcor in preparation for this project and the oil projects. On our balance sheet now at Nalcor, we are down to about 40 per cent or 45 per cent debt, and the rest is equity for the purpose of preparing for this financing. The province has already been committing capital on the table so that we are getting ready. Now we are here, and what is happening as we go to the financial markets is a big piece of what is there. They are saying no, you are structured properly and that piece is okay. What is the province doing? What is the federal government doing? Where are we? We are trying to put all those pieces together. The province has definitely been taking an aggressive stand and really doing what it said it would do with respect to infrastructure spending.
The Chair: I am sorry for all these interruptions, but I think this is how we all agreed it would work well. You carry on.
Mr. Martin: I would like to spend five minutes on the map because I think it is very good to understand this project. As I mentioned, there are three pieces. There is Muskrat Falls. There is the gold line from Muskrat down to Soldiers Pond, which we call the Island link. That is a $2.1-billion undertaking in the same 2016 dollars prior to IDC. Then there is the red line we are calling the Maritime link, and that is $1.2 billion.
The key point I want to make here, and this is a critical point regarding the structure of this project, is that when we first started this, setting aside the red line for a second, Newfoundland and Labrador needs to have additional generation built in the 2015 time frame. That is just the planning of the system. Our demand is growing even though we had some paper mills closures. Vale Inco is now opening up a smelter, and there is just normal demand growth. Our people have told us with rigorous analysis that we need to build something in 2015 to catch up on capacity. There is no problem. They have looked at all the options and have said that the most cost-effective option for Newfoundland and Labrador to stand alone is to build Muskrat Falls and an Island link, each an isolated Island opportunity where we would continue on to build some small hydro and wind and replace it with a thermal plant.
Many options have been looked at, and taking them all together, the best option for Newfoundland and Labrador is Muskrat Falls and the Island link using only 40 per cent of the power of Muskrat Falls and having no use for the other 60 per cent. In essence, that is moving ahead because it is system planning.
When that was done, we had 60 per cent of the power left, and we said, naturally, let us find a home for it. We had to stand alone, because the security of supply is just generation planning. You cannot depend on anyone else to meet your own needs; certainly from our perspective as an Island we have been in that mindset for the past 100 years. We just cannot get energy. We have to be stand-alone. Once we determined that we had 60 per cent of the energy left, what were we going to do with it? Would we let it flow over the dam? Actually, no. We had been talking with Nova Scotia and Emera, and as I mentioned earlier, what they were going to pay versus what this would bring them worked for us. That was an arrangement for 20 per cent of the power. They took an additional 20 per cent; it is good for them and good for us. That ended up building the Maritime link. They said, ``We will translate that equation into we will build a Maritime link for $1.2 billion. We will access 20 per cent of the energy for 35 years. After 35 years you own the line 100 per cent for $1, and for the following 15 years then it is wide open for us.'' We can take that 20 per cent back if we so wish, or we can do another deal with them. Plus any capacity on that Maritime link, over and above the 20 per cent, Nalcor owns and operates.
Now we have 40 per cent to Newfoundland and Labrador, 20 per cent to Nova Scotia, and 40 per cent is still left. Now we are landing at Lingan with 40 per cent of the power, and in essence that piece of it is of no cost because it would be wasted power if we did not use it. Then we made an arrangement with Nova Scotia that because we are closing some of their coal plants, they opened up transmission in Nova Scotia. We are going through on existing lines, paying only as we go. Instead of building new infrastructure, we are using existing transmission in Nova Scotia. In New Brunswick, Emera had purchased the Bayside gas plant, which came with 260 megawatts of transmission capacity. This is only in the summer, but we only need it in the summer because we are using all the power in the winter. Now they assigned those rights to us and we have it to the Maine border. At the Maine border they have ownership interests in Maine and in New England, and they own Bangor Hydro Electric Company, which had acquired a company called Maine Electric Power Company years ago, and that company came with some grandfather congestion rights. If there is any congestion at that border, even though there is nothing available right now, whoever has those rights flows first. They have assigned those rights to us. Now we are through into New England for probably $12 or $13 per megawatt hour, if we want to go.
I do not think we will go there. I think what will happen is that we will sell most of it in Atlantic Canada. We had to get access to a market for the first time in our history so that we can go and sit at the table with other provinces and say, ``Now we are on equal footing. Now let us talk. At least we are sitting here as two equals at the table. Now let us talk deal.'' We had to get through. Now that we are through, I think probably we will end up selling most of our power in Atlantic Canada, if the price is right. We have many discussions happening there.
That is a great arrangement over there, and Emera also backstopped us. If any of those transmission pieces fell away, we asked them to commit to buy from us at the same price anyway. In other words, take the risk out of the transmission issue, and they did that.
In exchange for that, they were looking for additional investment. They are a private company, and it is great. They came in and asked to invest in Newfoundland. We said, ``As long as we maintain control of the transmission system.'' We made arrangements whereby they will take $600 million of the $2.1-billion gold line as their investment. We think that is a great exchange. Plus, we were trying to reduce our capital requirements somewhat, because we were looking ahead to Gull. We do not feel we need to be loading up on transmission capital investment when all the value is in the generation. We said to ourselves that that works for us, as well; we introduced a new company into Newfoundland and Labrador, a good company that is bringing capital. It is a fair exchange all around, and plus we are conserving capital as we turn our attention to Gull down the road.
That is the essence of the arrangements there. We said, ``Let us make this work.'' Between two companies and two provinces thinking win-win, working together with a fair exchange, we have landed on a project that is economic. It works from a pure economics perspective. Once again, in summary, this is economic, all the reasons I talked about. We can move ahead. Should the federal government be involved? We think it is a great opportunity.
The Chair: What are the total needs of Newfoundland and Labrador for power per year?
Mr. Martin: Actually, 40 per cent of the power from this project will meet all of Newfoundland and Labrador's needs, and we will be 100 per cent renewable.
The Chair: That is 320 megawatts?
Mr. Martin: We will say 300 to 500 megawatts. I do not want to get into the technical pieces of it, but roughly speaking it is about 300 to 500 megawatts. The reason for that is that in the winter it might be 500 or 600 megawatts, and in the summer it might be a lot less. However, you have to remember that that is now. Our load is growing, and it will grow to a point that our estimates indicate that in 2041 we will use all of this power. The extra 40 per cent will all come back to Newfoundland.
These economics work even when we assume we build nothing else, because that is the way we wanted to do it, on a stand-alone basis. In reality what will happen is that we will pull power back; capacity will be created here that we have access to. That will spur more development in our other hydro and wind opportunities both in Labrador and on the Island. We have not got those in the economics because we did not think it was prudent, but that is in effect what will happen. We will continue to build. We will continue to push power out, and that is only on this configuration. At the same time, as I said, we are continuing our attention on Gull and the other routes. This is just step 1, as I mentioned, in a 30-year or 40-year plan, and this one works.
I am finished mostly, but I would like to take more questions. I would also like to have an opportunity to address the question of whether this thing is moving ahead. Once again, there is no way you could know, but I really feel compelled to talk about it because we are so far along. I really want to let you folks know that this thing is going. I have to get your heads around that. Do we have time? Do you have any questions?
The Chair: Yes, absolutely. We have talked to your assistant back there. If you can stay longer than the allocated time, then we have the time.
Mr. Martin: Senator, I will stay here forever, if it means moving us ahead.
The Chair: Take your time on this one. I have all six senators on my list for questions after you are done. Make sure you have told us the things you want to tell us first, please.
Mr. Martin: I will skip ahead to page 17, if you want to follow the presentation. There is a lot of great data in there. I think I have addressed most of it, and obviously you can read it yourselves. Page 17 is entitled ``Project Status,'' which is what I want to touch on now. The next page is called ``The Gateway Process,'' and this is once again up pulling up 10,000 or 15,000 feet. This is typical project execution thinking. It comes out of all the major companies and has been in our company for many years. This is a picture of how we organize our thinking. This gateway process is the best practice of project execution for big projects, mega projects like this. We have learned from long experience that you have to set the rules up at the front end and put down what has to be done to be able to get to a point where you want to stop, review, make another decision before you commit bigger dollars. That is what each of these gates does. We have laid out what has to happen, what has to be given the thumbs up at every stage of the way. When we hit one of these gates, we stop, back up, run all the numbers again. We check to make sure we are still making sense here.
A couple of months ago we passed through gate 2. That means a huge amount of work had to be completed, and we have been four years at it. I will talk about what that work is in a moment. Gate 2 is getting us to a point that says we are ready to continue to move ahead and to spend money while we are waiting on our environmental approval and a couple of other things. We cannot control the environmental schedule, but we are in hearings. If we get that and a couple of other things and our financing in place, we are prepared, and we have decided to continue to spend. Once we get those in place, we are ready to pass to gate 3, which is shovels in the ground. We expect we will be ready to do that by year end.
The Chair: You keep saying ``if'' you get that. It is not ``if,'' is it?
Mr. Martin: I never want to step in front of the environmental process, so excluding the environmental process, which we are not doing, we are definitely a go. However, I have to say ``if'' because that is a process that we are married to heavily, and we want to get through it properly, and whatever that takes, we will do it. Provided that comes through properly, in a way that is acceptable, then it becomes a fact that we are going. However, I have to say ``if.'' The environmental piece is critical to us.
Senator McCoy: This is not the Atlantic Gateway process; this is a generic project decision-making pathway.
Mr. Martin: That is absolutely correct, senator. We use this throughout our business. We have very detailed lists of things that have to be complete prior to passing through a gate, and I have pulled out five or six of those key things that you would be most interested in to give you an idea of where we are and just how far we have come if we pass through that gate. Those categories are on page 19. I want to talk a little bit about where we are in engineering, our Aboriginal file, environmental, market access, project execution and financing.
From an engineering perspective, on page 20, we are looking at three projects: the generation project, Muskrat Falls and Gull Island. We have done a significant number of engineering studies. We have had three summers in the field doing things such as borehole drilling to test the depth of the overburden, to test any type of rock interfaces that may be there and to understand what is out there. We have analyzed our long-term hydrology history over the past 40 years, and we have ourselves to a point where we understand this job and have costed it out to a point that enables us to pass though gate 2.
On the Labrador-Island transmission link and the Maritime link, we have established the corridors. We have had the vessels out doing the bathymetry, as I mentioned. If you look at what is happening between Newfoundland and Labrador, we created two teams, a tunnel team and a subsurface team. Both teams did their engineering, and we have come to the decision that we will lay cable on the sea floor. A huge amount of work has gone on to make those decisions and de-risk those things to a point where they are acceptable. The engineering is to a point where we understand the job. Remember, this has been going on for 40 years. We have taken a lot of the old data from previous attempts and added to it and modified it and reassessed it, and we have used that as a basis for our costing.
The Chair: It is pretty obvious from what this chart shows and what you are saying that many of the preliminary things for Gull, even though it is the next project, are being done at the same time, for both projects.
Mr. Martin: Absolutely. We had to because we were not deciding which one first. We knew they were both coming, so we moved them along in total lockstep.
The Chair: Going back to the page on the gateway process, it seems you are not far from gate 2 for Gull, as well.
Mr. Martin: That is absolutely correct, senator. There, I think market access is the piece that we want to lock down. To go through gate 2, one requirement is that we need to have a term sheet in place with an acceptable partner to say that we have access through to market, and it has be to documented. We have that with the Emera arrangement. With Gull Island, we have to complete our discussions with Quebec, and when those are complete, that will get us essentially to the same place we are with Muskrat.
On page 21 I want to talk a little bit about our Aboriginal consultation. This is something we are very proud of at Nalcor. We have formed a tremendous relationship with the Innu Nation of Labrador. We have worked together now for over two years. It has been a 20-year or 30-year outstanding issue, and we have managed to be successful in building trust between ourselves. We have actually put together three detailed agreements between Nalcor, the Province of Newfoundland and the Innu Nation. The first of those three is the Lower Churchill Project Impacts and Benefits Agreement, which is critical. The second one is the Upper Churchill Redress Agreement, which redresses the issues the Innu had with the original development 40 years ago. Also, we have done the provincial piece of the land claim agreement; that is the third one. Those documents are completed, initialled and in essence are sitting there waiting to come off the shelf. The federal government is the only governmental institution constitutionally that can finalize the land claim, and that piece is in progress right now with the federal government. Once that piece is completed, that is the last piece in the puzzle; then these things can be pulled off the shelf, and they are ready to go. It is not like we have to start from scratch or have any discussions. Every word is documented in those agreements, initialled, ready to go; they are complete agreements.
The Chair: We saw your announcement. The two Innu chiefs were there. Was that separate from the Metis, or is that the same?
Mr. Martin: The Metis are a separate interest group. I have mentioned already some of the other consultations we have been doing with some of the other interest groups, including NunatuKavut, previously referred to as Labrador Metis Nation. We also deal with the Quebec Innu from a consultation basis, and obviously the Inuit people are also on the coast. We are doing consultations with all of those groups.
The point here, though, is that this is not something we are beginning. This has been a two- to three-year endeavour that is ready to go as soon as the federal government completes its piece. One other thing I will say is that, in conjunction with the province, our approach right from the outset has been not to announce a project first and then try to get things organized. We have been a little bit under the radar for the past four years, but we have been getting to a point where we passed through gate 2 before we said we are moving. What you are seeing here is what is happening and what has been happening behind the scenes for the past four years — a huge amount of effort.
On the environmental assessment, I mentioned the generation project, Muskrat and Gull. Hearings are beginning today. There has been a huge amount of data collection and several rounds of questions. Some of our most detailed questions have come from Hydro-Québec, interestingly. We have spent many hours replying to questions from our good friends in Quebec, but here we are ready to move ahead to the next section. On the Labrador-Island transmission link, we are looking to register that environmental assessment. In February 2009 we registered for environmental assessment. We are waiting for the draft guidelines because they have been released, and now we are very close to filing our environmental impact statement for that particular project. Actually, we registered, and it has been decided the type of review will be a comprehensive study report, which is a big step, and the guidelines have been issued by the federal government and the province. We have been preparing for that so we have our submission ready. That will be going into the process within the next month or two. We will submit our environmental impact statement, and that will be in the latter part of that process at that point.
The project registration for the Maritime link is currently under development, and we expect filing in mid 2011. Schedule-wise we are fine with that because obviously the timing is a trade-off: You want to be early, but you do not want to be too early because of IDC and such. The actual window to lay cable for this, to lay that much cable, is approximately two and a half to three months. We have a weather window of about five and a half months every year. Our dilemma now is whether we should go a year earlier to buy ourselves an extra five months or wait. In any event, even under both of those scenarios we are pushing out that, so we are not expending that cash too early, and that gives us time with the environmental assessment. We have built in the time frames that are required, and it all matches up in our schedule.
The Chair: Whatever window you choose to start in for the Maritime link, how long actually does it take?
Mr. Martin: It takes about two and a half to three months to lay both cables.
There are really only three large, well-known companies that actually produce this cable worldwide. You bid that, and they come in and help you engineer your specs; they build the cable, and they have the vessel to lay the cables. It is a whole package. As I showed you, the Europeans are very used to doing it. We build the stations on either side, which is where we connect. Of course any of the on-land transmission is business that we and Emera have been in for 50 years. We build all that stuff on land, and then the company takes over, commits a vessel and does the full lay. Those companies have done that many times before, which really takes the risk out of the actual lay for us. The process takes about two and a half to three months.
The Chair: If it all goes according to plan, when will those two cables be laid? Will that be 2012?
Mr. Martin: There is a good summary in the back, so if you give me just a minute to get there I will give you a high- level schedule of when all this will happen.
Page 23 is our commercial market access, and I have talked a lot about this. We have done a huge amount of market access work, and we are continuing. We have this combination ready to go now, and we have signed our term sheet and are turning it into formal agreements by year end. We are continuing with our Quebec discussions.
From a project execution perspective, we have had an extensive, very experienced Nalcor project team in place for the Lower Churchill for several years. The vast majority of these people are Newfoundlanders and Labradorians. We have had the good fortune of the last 25 years based on some other investments that the federal government made in this province with Hibernia at one time. You ask about the success of those types of investments by a federal government: Look at the equity Newfoundland and Labrador has developed in these large projects over the past 25 or 30 years. Most of our people are in huge demand from the Exxons and Chevrons of the world and the Suncors and Huskys, and they are here. They are working here. They are working all over the world. We have had the good fortune to bring many of these people back onto this team. We have many Newfoundlanders and Labradorians but a lot of deep expertise on our Nalcor team.
Almost a month ago now we went through an extensive process with our engineering procurement and construction management, EPCM, contractor. The way we are structured, Nalcor will sit on top, strong owner team. On the next level down we wanted to get a lot more people and expertise and bodies from an engineering perspective for detailed engineering. We want people to help us with the large procurements we have to make. Once that is done, we want some additional expertise from some very experienced folks in the hydro business to help us with the construction management layer of expertise. They will sit on top of the big contractors who will actually build this job. This is a typical mega-project structure.
There is this piece below our team, the EPCM. Three bidders qualified. One was Black & Veatch out of the United States; one was Hatch out of Ontario; and one was SNC-Lavalin out of Quebec. They were three great bids from three great companies. From the pure business perspective, SNC Lavalin won this particular arrangement. They put the best package on the table, so we awarded that contact to them, and I signed it about a month ago. They are in the process of mobilizing here to the province, and all the engineering will be done here. This is business to us. We know SNC Lavalin is a worldwide company. They have operations in Alberta, the Middle East, Quebec, Atlantic Canada, Newfoundland. We are excited about our relationship there, and that is in place and is happening. They are mobilizing people as we speak here into Newfoundland.
The first step is the more detailed engineering, which we hope to get accomplished in the next 12 to 18 months. At the same time we are looking to place long lead items with them in support and following that they will be our construction management firm that will help us with more expertise there.
From a financing perspective, we have a comprehensive investment evaluation process. We have tremendous talent in-house, but we have also hired PricewaterhouseCoopers as our consultant from an investment and financing perspective. We have a rigorous risk evaluation process in place. We are entirely in line with the province with respect to that, and we are heading for market sounding in the second and third quarters, Q2, Q3. We have kept in touch with the market, but obviously the worst thing you can do is create market fatigue. You do not want to be in financial market month after month; people see where it is going. We have been laying groundwork. We are going in now, and we are ready. When we go in, we are ready to pull the trigger and make our move here.
The federal loan guarantee discussion is critical here because it will change the structure one way or another, so we are trying to expedite things to say where we are. Once we understand that, that will complete our approach to the markets and such.
The Chair: There is so much talk about this federal loan guarantee. Now you just said the key words. You said this is key to your financing. Where does it stand, as formal discussions taking place with the Department of Finance in Ottawa? How is that working? I thought it was sort of being run up the flagpole when we first heard in Nova Scotia. Clearly this is basic to your whole deal.
Mr. Martin: It is basic because, once again, it is a key piece of information. When we go to the market, obviously we need to understand whether it there or not because it will have a huge impact one way or another. I am not saying we will not proceed, obviously, but it will impact our structure. When the Prime Minister and the Premier met here several weeks ago, I think — I want to make sure I am repeating the right phrases — I believe the Prime Minister indicated that they were going to look seriously at it. They were going to ensure that they had the information they needed to make the right decisions. I am involved myself with some of our people, and we are meeting and exchanging the information that the federal government is looking for. That is as much as I can say right now, but we are certainly in an information-exchange process right now.
The Chair: A formal ask has been made. The process is being followed. It is a businesslike deal, and good luck.
Senator Peterson: Are you considering paying a fee for this guarantee?
Mr. Martin: That is the type of thing that will have to be discussed, so I would not want to —
Senator Peterson: I understand, but it could be a part of the mix.
Mr. Martin: It could be a part. If we look at the types of loan guarantee guidelines that are out there from the federal government, the types of things they have done before, we have obviously looked at that and so have they. Those types of things are all part of it.
The Chair: There is a lot of precedent for that in the commercial world.
Mr. Martin: Yes. We are looking to do a business deal. We said that from the outset. It will be beneficial for the ratepayer. We will negotiate hard, but it is a business deal. I am pretty proud of the Province of Newfoundland and Nalcor that we have been doing some deals: Hebron, Hibernia South, the White Rose arrangements, Vale Inco, the Innu arrangements, and many other deals. In this part of the country, we have been trying to get these things moving. I am trying to be reasonable, but to us it is a business arrangement. Put it on the table, and let us talk about it.
The Chair: Thank you.
Mr. Martin: In the final pages there, I did a very high-level summary of what will happen each year. Once again, it depends on the environmental assessment, which is our primary focus right now, but if the timing suits the schedule, in 2011, at the end of this year, we would like to be in doing site clearing, getting our accommodations ready. In 2012 we are looking at actually bulldozers and shovels going, clearing the reservoir.
With respect to the transmission link between the Island and Labrador, we are starting horizontal directional drilling because we have discovered that because of some of the ice situations in Labrador and the Island, the ground comes over and there are a lot of natural faults where it drops and there is natural protection. Instead of the 9- kilometre crossing, we will leave 16 or 17 kilometres of cable to snake around its natural protection. Near shore, though, it is a bit more problematic, so we have decided to drill out to a certain point. It covers off there, and we come up and follow the natural contours.
In 2012, for instance, the drilling will start, and it just goes on and on, senators, to give you an idea of the types of things you can expect to see happening. I am hoping just to lay some groundwork and answer your question about when and how quickly this thing will proceed.
The Chair: You have done a wonderful job, sir, and as you will notice the whole deal was supposed to end at 10:30 and it is now just going on to 11 o'clock. Luckily we have time, if you do, sir, and as I say I have all my team on the list. We will start with Senator Mitchell.
Senator Mitchell: Many of my questions have been answered. It was a very compelling presentation. You have been focusing so much on this project, but early in your presentation you mentioned wind. I want to go there briefly because it is a classic alternative energy source. One question that comes to my mind is this: Given that you have so much capacity for hydro and that hydro very likely will be less expensive than wind ultimately, why would you bother developing wind at this stage? Why not exhaust hydro and then look at wind?
Mr. Martin: That is our intention. As I said, we are taking a long-term view. It is all coming to market. Hydro is more cost-effective. The other thing is that for both sources of electricity we have the same issues on transmission access. On top of that, wind is much more scalable than hydro. That is one thing about hydro projects. They are large infrastructure projects, so we have to build 824 megawatts at one time. You cannot build 200 megawatts on hydro and carry on, so you have to make your arrangements to deal with a larger infrastructure project. With wind, we can break it down into whatever increments we want. It is very scalable, which is also a reason that it comes after hydro. Those are the reasons: Hydro is more cost-effective; the same transmission issues have to be dealt with anyway; and wind is much more scalable. Hydro is just such a tremendous product, and it also firms up the wind. When we put those things together, it is definitely a sequence. We made our decision that it will be the hydro first.
However, I would say based on our long-term plan, make no mistake, look 30 years out and there will be a tremendous amount of wind development here in Newfoundland as well, and it will be benefiting us. I keep selling it a bit, but I am passionate about it. It is a lot of wind energy for the rest of the country as well, which will need it.
Senator Mitchell: That is great. Thanks very much.
Senator Lang: It is very interesting for people like me to come here and see how well you are doing. I want to commend you and Newfoundland. It really makes me feel good as a Canadian to see how well things are going here.
Mr. Martin: Thank you, senator.
Senator Lang: I want to go to the environmental assessment. You have mentioned it a number of times, and you have said ``if'' the environmental assessment process goes the way you would like it to go. You have talked about a harmonized environmental assessment process, so I am assuming that once a decision is taken by that joint body that will be the decision, and we are not dealing with appeals for another federal assessment by itself. That is the first question.
Second, I am wondering about the U.S. market. You mentioned it as well, but you went back to the Canadian market and said you felt we would be able to utilize that almost in totality. Perhaps you would like to expand a little bit on your comments on the U.S. market and your access to the U.S. market and how it relates to the costs that would be charged there as charged in Canada.
Mr. Martin: On the environmental side, we have poured so much into this that we are confident that we have done the proper amount of consultation. I could not explain to you the reams and binders of paper that we have filed, and we have been pleased to do it. I am talking about stacks of binders in response to questions on everything from the effect of the project on certain trout species in parts of the river to what will happen to some of the timber that is flooded, from the effects in the environment to what will affect the local communities. You name it, we have had the studies. We have addressed it. We have had consultations, so we are confident that we are doing the right things.
As for an appeal, I cannot speak to that. All I will say is that we are confident in the process. It is a federal- provincial panel. My understanding is that they make the recommendation. They determine the effects; they document it. Then they give us a ruling, and my understanding is that whatever happens, it goes to the ministers to approve. We are confident that we have done all the right things, and we are following the process. I believe we will be successful.
The Chair: The U.S. market?
Mr. Martin: In this particular arrangement, we do have access through to New England. That gives us access to an energy market plus a capacity market. I believe what will happen will be pure economics, but Nova Scotia has more needs. We have more needs, so from Newfoundland and Labrador's perspective, we will likely trade, if we have to, in the spot market, because as our needs grow in Newfoundland and Labrador, assuming that we will have further development in Labrador and in Newfoundland, that 40 per cent of power we can monetize, but we can also pull it back instantly. If we have to open a new mine or a new smelter, we have power available for Labrador, and we have power for the province any time, but in the meantime we are putting a dollar figure to it. That is a benefit to us.
When you come back into Nova Scotia or New Brunswick, the way the market works is that we will pay a tariff through Nova Scotia and a tariff through New Brunswick. We will pay an entry fee into the U.S. That is just the business. If Nova Scotia or New Brunswick or P.E.I. were buying power from New England, they would have to pay a tariff also, an import fee, and another tariff. In my mind, with the needs of Atlantic Canada, once you start coming down to our own world, we can save tariffs and they can save tariffs. That means the price starts to go up, and in that particular scenario Nova Scotia has more renewable needs, and we have an idea of what the alternatives are. All of a sudden we have a situation where we have alternatives, and they have alternatives. Now we come to the table together and let us see whether we can do something where both of us are getting the energy. We may get a little bit more for the energy and they may be paying a little less for the energy, and that is where I believe the deal will come together in Atlantic Canada.
One more point on that is that hydro is such a great product. P.E.I. is a great wind jurisdiction. The other thing access to a New England does is this: I would suggest that what they might be interested in is a capacity product. They do not want any of our energy until the wind stops blowing. We will say that is fair. There is deal space in there. We will say we will backstop them when they need it, and they will pay a fee for that, but when they do not need it, we will not sit there. We still have a spot market opportunity.
It is critical to get through because it puts us eyeball to eyeball with all of our other provinces where they are on an equal basis. Now we have that done. It actually increases Atlantic Canada's opportunities in the ways I have just described.
Senator Brown: It has been a fascinating and thorough study, and I am amazed that you got this far without having to ask for a loan guarantee from the government.
I would like to ask a couple of questions. One is on the cables. Do you know what the life of the undersea cables is? Can they be retrieved at all and rebuilt or whatever it takes to renew them?
Mr. Martin: We are using a life of 50 years in our economics. We have evidence of cables being in service much longer than that, up to 75 and 80 years, but we are using 50 years. Our engineers are telling us that is a very acceptable design parameter.
As or replacing them or fixing them, absolutely; actually, it is not that difficult. It is one of the things we did de-risk. We are not putting in a 500-megawatt cable or a 900-megawatt cable. We are putting in two 250-megawatt cables, and we are putting in three 450-megawatt cables up north. That gives us redundancy and helps all of what you just talked about.
From a repair perspective, it is interesting. It is not that difficult because it has been done before. What happens is that the vessels have the capability to go in, and say there happened to be a fault, which is very unlikely — we do not have a lot of documentation of that happening — you can cut the cable, and the vessels can bring it up, splice it, drop it, bring the other one up, splice it and drop it. Rough estimates indicate it takes five to eight days to repair those. Absolutely the ability is there, and we are in water depths that we can work in. It works for us, and we have the information to say that not only will it probably not happen but also we can repair it.
Senator Brown: Thank you. I guess I understand the reason why you are planning to produce capacity that is not needed now with the three hydro projects. Obviously your basin at the Upper Churchill has to be much larger than the ones downstream in Gull Island and Muskrat, so in Churchill Falls they have to spill a lot of water that does not go through the turbines. That would leave Gull Island to produce its maximum and still spill water. I guess that is the share water agreement that you were talking about. Then the water before it gets to the ocean is final on Muskrat Falls, and they can probably produce almost everything they could get because they have to deal with more water than anybody else at all. It all has to be going to the ocean. The do not have a basin large enough to put that in.
Mr. Martin: Most of what you said there is correct, senator, but I will clarify a couple of points. The water management agreement is a great arrangement because obviously, and the province has legislated this, we are using the same water three times. That is fantastic. Those two yellow lines connecting Muskrat and Gull and Gull and Churchill are so critical because when you trade water you are really trading electricity. The expectation in our planning is that neither facility will spill. We will have an overriding board to look at that and coordinate it. The Upper Churchill will not spill, but if there is extra water coming they let that run through, and if Gull or Muskrat does not need it, the extra power Gull or Muskrat produces will be used to meet Upper Churchill needs. Upper Churchill will bank that electricity, and some day when the water is low and Gull or Muskrat needs more power, then Upper Churchill will exchange that power.
What happens really with three developments like that and a proper water management in place is that you likely minimize your spills and you trade electricity. If a certain amount of water has to come through, you balance them all out. You take all the electricity that is produced and not spilled and you put it in a pot and split it up properly, and you keep account of that so that you make sure you are not wasting the water.
Senator Brown: We had a witness not too long ago who thought that it would be possible to produce enough electricity — hydro and wind — to do away with fossil fuel altogether and to produce hydrogen also from electricity, and that would give us a fossil-free world. Do you have a comment on that?
Mr. Martin: The future will be an interesting place. I will tell you one thing, and we can give you more information on this pretty soon. Separate from all of this, Nalcor has a research and development project going on in a small community called Ramea in Newfoundland. We believe it is one of a kind. It is a remote community — it is not linked. It runs on diesel, and Newfoundland and Labrador Hydro runs the plant. Several years ago we went in on a research and development project, and we put wind next to the diesel. The technology is the computer motherboard technology that allows when the wind stops blowing for the diesel to kick in. We got that working. About four years ago we stepped up to the next level and added hydrogen storage to that project. We are looking to complete commissioning and have it fully up and running mid this year. Actually, we are in the middle of commissioning as we speak. Where we have added hydrogen to that mix, if the wind is blowing and power is not required, we are storing it as hydrogen. Therefore, in the dead of winter, it is wind first, then hydrogen is stored, and then the diesel cuts in.
Senator, I am certainly not saying that we will replace all of our thermal needs in the country with this, but we are optimistic that we will have a solution that will usually reduce thermal needs in rural areas. If we get the technology proven, it is that kind of technology: You take that and try to expand it elsewhere. We can all dream into the future, but there is potential there.
The Chair: I take it Churchill is at the top, and the water flows from sort of southwest to north to the watersheds. Is that the direction of the flow?
Mr. Martin: Yes, it would come down heading east.
The Chair: East? Heading east?
Mr. Martin: East, yes.
The Chair: Yes, northeast.
Senator McCoy: I have a very simple question. What actual cost is there to the federal government if it issues a loan guarantee?
Mr. Martin: My understanding is there would be no cost. I would expect that the government would have to record it on its books somewhere. My understanding of the financial markets and the size of the federal government is that, although this is a large project, in the context of what the federal government's asset base is, it certainly will not have an impact on a credit rating of the federal government. Therefore, we do not see any associated costs. What we do see, as I mentioned, is a transfer of potential wealth from a bank or financier to the ratepayer.
Senator McCoy: Second, there is an article in the January-February 2011 issue Atlantic Business, Atlantic Canada's leading business magazine in which you apparently provided a couple of predictions. They say the source is Nalcor. Regarding rates, you are predicting that once Muskrat is in place it will be a 16 cent or 17 cent per kilowatt hour charge to residential consumers.
Mr. Martin: That sounds about correct, senator. Those are the numbers I wanted to check.
Senator McCoy: Yes, but you are quoted here as saying that. Today it is currently about 9.5 cents.
Mr. Martin: I do know, and this is a critical point we should talk about, that if you put the Lower Churchill aside and the Island link aside and assume that we do not do that, our estimates for the next five years indicate that because every extra bit of energy that we use comes from Holyrood, our thermal plant — and we apply independent projections for where thermal fuel is going — rates, if we do nothing, will increase approximately 37 per cent from now until 2017. If we do nothing, rates will increase approximately 37 per cent. This project will arrest that increase. Instead of being tied to a price of thermal fuel, which projections indicate will continue to increase, hydro facilities — and we run many hydro facilities — are usually at around a little less than 1 per cent on an escalation in general. What you are seeing in our curves is that doing nothing is like this. With this project, we arrest that increase and we flatten the curve forever.
Those are facts that I do know. I could get the actual pure numbers for you, but I just do not have them at my fingertips here right now.
Senator McCoy: I think we can rely on this article.
Mr. Martin: Yes.
Senator McCoy: Holyrood is fired by fuel oil, you are saying.
Mr. Martin: Yes, it is. It is one of those very old plants. As a matter of fact, I know the province has committed in days past prior to this decision to put scrubbers and precipitators on Holyrood, depending the on the outcome of this. If we look at the alternative to the Lower Churchill, that is why this is working for us; the expenditures are well in excess of $3 billion of additional capital to remain isolated as well as the cost of fuel. That is why this is working. Scrubbers and precipitators alone are estimated in the $600-million to $650-million range if we have to add them to Holyrood. That does not take care of our GHG issue; it just takes care of our sulphur and NOx and SOx.
If you are trying to understand why it works, these are just a couple of data points to see the types of things we will be faced with if we do not progress this project.
Senator McCoy: How old is Holyrood?
Mr. Martin: I think it is well over 40 years old. It is due.
Senator McCoy: Another suggestion that has come our way while we have been on this Atlantic tour is the suggestion that the National Energy Board be given an extended mandate, one that would allow it to play a greater role in interprovincial electricity matters — possibly as an honest broker rather than as a dictator, but still have it available for facilitating interprovincial or regional arrangements. I do not know whether you have thought of that, but I invite you to comment if you have.
Mr. Martin: I would say it is an understatement that I have thought about it. I will give you a couple of examples first. I often suggest to people that we are dealt a set of cards here, and Newfoundland and Labrador is working through an east-west grid situation. I talked about that earlier. I often ask this question: If Alberta had to apply to Saskatchewan to move oil across its borders and live by the outcome of whatever Saskatchewan said, or vice versa, how would that fly? We are moving energy between provinces.
I stand back and look at what is taking place in other jurisdictions. New England, for instance, in their open access had a similar arrangement with several companies owning and controlling the transmission and such. They took the control and administration of the transmission and put it into the independent system operator, ISO New England. They put it into a relatively independent body with appeal provisions allowed into FERC, the Federal Energy Regulatory Commission out of Washington, which is a central body, as we are talking about. New Brunswick has actually taken it out of the power company and put it into IESO, the Independent Electricity System Operator. Nova Scotia is a little bit different. Ontario has formed a separate system operator. If you go into a Quebec situation, as we are dealing with, the system operator has remained with Hydro-Québec. Hydro-Québec is the system operator. It has not been pulled out of Hydro-Québec. When we apply in, we do not apply to the IESO, we apply to Hydro-Québec for access. They are the ones that administer and tell us what will happen and how it will work. Appeals from there go to the Régie, which is a provincial body, and that is where we are right now — appealing with the Régie. At this stage, we will see where we go next.
Do I think that it would benefit the country? Absolutely. Once again, putting aside the provincial differences and trying not to get into any of that, I will not repeat all of the messages, but the situation is that we have up to 15,000 megawatts of clean energy available after our own needs, and we have Ontario sitting over there dealing with its feed-in tariff issues, looking for hydro power to firm up some of the investments it made in its feed-in tariff programs with solar and wind, its nuclear refurbishment, plus the actual needs of Ontario's aging coal and other plants, and you are sitting here in this country saying, ``Come on. What are we doing here?'' A federal oversight.
To me it is just so simple. We are a country; we have a competitive advantage in clean electricity; and we are sitting here and not dealing with it. We have to do something about this because this is not a short-term competitive thing. You look at 30 years or 50 years out in terms of where this country is going. If we do not get this thing organized, we will be giving a competitive advantage away to the U.S. because everything will go stateside. Everything will be pushed stateside because we cannot deal with it. The U.S. is dealing with it. It will be great for the country, and everyone will win. You look at the investments we would make in Quebec or Ontario or anywhere. We are prepared to pay the money to put the investments in and pay our way. That is not a problem. To me it will come. It just has to come.
Senator McCoy: Earlier you hesitated to use the phrase ``nation building.'' I would encourage you to adopt it. I think that the stronger every one of our regions can be, the stronger we are together all across from sea to sea to sea.
Mr. Martin: I could not agree more. What we are trying to do is build the business case. We are trying to lay the numbers on the table and say, ``This is what works.'' As far as nation building goes, we can talk about it, but I think others need to take that up. I think our job is to put the business case on the table and show the numbers and say, ``Look, you were wondering whether it works. We have something here. It works.'' Nation building becomes easy then. We are trying to make it as easy as we can.
Senator Neufeld: Thank you for a great presentation. I appreciate the information. How large is Gull Island?
Mr. Martin: It is 2,250 megawatts.
Senator Neufeld: That electricity can go either way, right? It can go out through Muskrat Falls or through Churchill and down? Where is it planned for the transmission for that? Do you have to increase the capacity of what you are talking about now if you want to build Gull Island?
Mr. Martin: Yes, we would. For many years when we looked at the Lower Churchill projects, we brought some thinking to it that if you try to be all things to all people, these things do not work. I use the oil sands as a good example. In these massive projects we are now seeing that companies are starting to break these down into bite-sized chunks naturally. It is good business. We did the same. We said we needed to get a project here that works economically and is favourable to the region. Let us get one off the ground. We built this for Muskrat Falls. There is not enough capacity to move all of Gull. There is excess capacity, but not enough. We would have to either build more this way or go through Quebec. That was a conscious decision.
What is our vision? Once again, I do not like to narrow ourselves down because there will be a business solution to this issue, but I would be less than honest not to say again that, looking at coming in through Quebec into New Brunswick and Ontario — and I am sure Ontario thinks this is fantastic — that would be a great route. If not, we will see. We have a 30-year or 40-year plan. We will develop these projects for all the reasons I talked about. We will just find a way.
Senator Neufeld: Do you have an estimate of what it will cost you to build the generation and the transmission for Gull Island?
Mr. Martin: We do have some costs, but we have not published those. I will say that because both of these projects are tremendous projects, I think it is rather evident that if you have a lot more megawatts, the unit cost is even more attractive on Gull than it is on Muskrat. In our case, if you look at our decision process about finding something to meet Newfoundland's needs and replace Holyrood, this is the project for us. It beats our other alternatives, so it is a smart move. We looked at Gull too, doing it with an Island link, but even though the unit cost was lower, the capital costs are higher because it is bigger. Just for our needs in Newfoundland, Muskrat is the right option for us right now. On a unit cost basis over the long haul, Gull Island naturally is a bigger plant and a great river. The unit cost is even more attractive than Muskrat.
Senator Neufeld: That is what I was trying to get at. I appreciate that you have not published those costs. That is fine with me.
You say that Nalcor also has the oil and gas part. Can you tell me just a little bit about how that works? I do not want to extend the time too long. Do the revenues flow to the province? Do you just manage the process, or what happens there? When you are talking about electricity you are going to build electricity. When you talk about oil and gas, are you building anything to do with oil and gas, or is it the private sector that does that? Where do those revenues flow and those kinds of things? It must cost something to do what you are doing.
Mr. Martin: In our energy plan we laid out our long-term vision. We switch our attention to oil and gas. We believe, based upon our international experience, that oil and gas is a strategic asset. We have looked at many jurisdictions throughout the world that have been successful. We use Norway as a good example. We look at three legs on the stool to make sure we get this right. There is a regulatory leg, a fiscal leg and an equity leg.
On the fiscal side — by that I mean royalties, takes and everything else — we have worked on the structure of our royalties here. Therefore, the government takes in revenue on royalty.
On the equity side, this is where we come in. We have purchased equity in these projects, and we are paying our way. Nalcor is receiving revenue as any other owner, as a Suncor and Exxon would. We are a participant the same as they are. That gets us at the table. They are great investments for us, and it gets us at the table as well in terms of understanding where the business is going and assisting with the direction.
Senator Neufeld: Nalcor is a Crown corporation, right?
Mr. Martin: Nalcor is a Crown corporation. A good example in Norway would be Statoil.
Senator Neufeld: I am familiar with Statoil.
Mr. Martin: The same kind of thinking.
The third leg on the stool is the regulatory piece. Just let me talk about that for one second. I will not go into it in depth. We believe there is joint management of the offshore here panelled through the Canada-Newfoundland and Labrador Offshore Petroleum Board. There are several things we are working on and are looking to work with the federal government on in terms of how best to spur our industry here. We compare ourselves. We have a basin here that is bigger than either the U.K. North Sea or the Norwegian North Sea. Our potential appears to be greater. Our finding rate when we drill has been better than the U.K., but not as good as Norway, but good, really strong.
The Chair: Is that the Orphan Basin?
Mr. Martin: That is one of the basins. There are several basins here. On top of that, if we are drilling 180 wells, they have drilled in the thousands. Exploration is key. How do you spur exploration? Well it is a combination of things, and we believe we have to redo how we manage data here at the Canada-Newfoundland and Labrador Offshore Petroleum Board in terms of making it publicly available like they do elsewhere in a computer format that can be used immediately.
We also believe the land tenure system here is a system that is not as aggressive as other areas in terms of letting other entrants in. There are three or four more other things that we are working on — as I say, I cannot do it today — but we certainly will be talking to the federal government about ways that we can increase exploration. The potential here offshore of Newfoundland compared to those other basins is that we are totally untapped compared to some of these other jurisdictions. Obviously we have had huge success here so far. We have to get more exploration going, and we have some ideas on how to do that.
The Chair: We are down to our final senator. I think you have been very patient, Senator Peterson, but I also know you will be very brief.
Senator Peterson: That was a great presentation. It is an exciting project, and I certainly wish you all the best.
As you stated, this project is going ahead. Getting into the area of dollar and number control, I got an email from Nova Scotia the other night saying they have been told the link was going to be $1.2 billion and it has already ballooned to $1.8 billion. Well, they do not realize that there are two different numbers, because there is an extra $600 million in the line. You start getting this happening very quickly.
At what stage will you be able to start fixing numbers that you can feel confidence in, and what would the sensitivity be to change?
Mr. Martin: We are confident in the numbers now. As we go through decision gate 2, there is a certain amount of work that has to be done, and we have done the right amount of work. We are confident in the numbers right now.
Our next step, as I mentioned, is that we are doing more detailed engineering through our EPCM contractor. That will give us more data. We have built in contingency.
I will say the $1.2 billion has not ballooned to $1.8 billion.
Senator Peterson: No, it has not, no, but that is what starts these things.
Mr. Martin: Yes, exactly. As I mentioned, $1.2 billion is 2016 dollars, no IDC, just to be clear. Nothing has changed at this point. We have contingency built in. What we have to bring to the table is best practice initiatives to be able to control the costs. As I mentioned before, all this comes down to front-end loading the work, doing all the work we are doing up front so that as we move ahead we understand these things. People will ask whether there will be cost overruns. I have been involved in these projects many times. In some areas there are cost under-runs, and in some there are cost overruns. I cannot sit here and say that these projects will never be a higher cost than we say they are now. I mean how could you say that?
Our job is to put the estimates on the table based on best practice engineering and costing principles right now at the stage any international private sector project would be and to say, ``This is our best estimate with what we have right now; we believe it.'' We have done all of the right things with respect to that, and we are confident where we are right now. As time progresses we will see, and we will keep people informed, but our job is to bring best practice to the table and control these costs as they should be controlled and get this job off the ground.
Senator Peterson: I agree. Good luck.
The Chair: Mr. Martin, you have been tremendous. I think it is a two-way street. I know you wanted to get the message out clearly and put to rest some of the myths that are out there that are not accurate. I also believe, and correct me if I am wrong, that you have been here speaking on behalf of the Government of Newfoundland and Labrador, and that Premier Dunderdale and the Minister of Energy were unavoidably absent from the province today and could not be with us here today. We certainly send our regards to them. We have met their colleagues in other parts of Atlantic Canada, and everyone has assured us that there is an initiative for regional cooperation in this very critical area. Do I take it you folks are totally on board with the regional cooperation?
Mr. Martin: Extremely so, senator. I like the fact that we are demonstrating it, and we are continuing discussions. I believe that we want to be a big part of this regional development. We think it is the right thing. I refer back to Scandinavia, which is a great example of the great countries in Scandinavia that have maintained their individual identities but still work very closely together on energy, the same as we are proposing. They are next to some of the largest markets in the world with Germany and Western Europe, and as smaller, well-educated countries that are maintaining their individual identities, they are working very closely on energy, very closely on the very types of things we are talking about. We think it is a great example, and that is where we want to be. We are fully in tune with it and tremendously supportive.
I should have mentioned that Premier Dunderdale and Minister Skinner did send their regards. We are comfortable though because we are strongly aligned with the province on this, obviously with the energy plan and where we are going. The province is our shareholder. They are obviously — I hesitate to behind this — I mean this is a provincial initiative, and as I say we are the execution arm, and the premier and the minister send their regards. I am certainly delivering the messages that they are aligned with.
The Chair: Thank you, sir.
One of my colleagues has quite correctly noted that on the front page of your document it says ``Confidential and commercially sensitive.'' Clearly you understand once we are on the public record here there is not much we can do. You are comfortable. You have come to a public hearing. This is not secret.
Mr. Martin: No, I am comfortable with that, senator, no problem.
The Chair: I knew you were. Thank you so much. I think there are some things you agreed you would give us further input through our clerk.
Mr. Martin: Yes.
The Chair: Those hard copies you mentioned about the plan out to 2041 may be of great interest to us. Thank you so much.
I will now move ahead with the next witness, colleagues, who has been extremely patient.
Jackie Janes is the senior policy advisor from the Office of Climate Change, Energy Efficiency and Emissions Trading, CCEEET.
Ms. Janes, without in any way taking away from the import of what you have to tell us, I would draw the attention of the senators to your document. On page 6 it indicates that you report directly to the premier of the province. You will tell us more about it, I am sure. Without further ado, you have the floor.
Jackie Janes, Senior Policy Advisor, Office of Climate Change, Energy Efficiency and Emissions Trading: Thank you very much, Mr. Chair. Hello to all the senators. Thank you very much for the opportunity to be here today.
I know we are pressed for time, so I will try to move through the material quickly. I have prepared a presentation that I propose to talk to you about if that is acceptable to you. It is very pertinent that you have just been talking about regional cooperation because climate change is another issue on which there is a need for regional cooperation that, of course, extends beyond Canada to the whole globe.
At the bottom of page 1 of my presentation, you will see that I propose to give a bit of context on the province. I will skip over the parts that Ed Martin has covered because he has very eloquently described the elements of the province's energy warehouse. I will talk a little about the province's vision and commitments as they relate to climate change and energy efficiency and look at the province's approach to this issue and the unique circumstances of the province. We have put together a number of recommendations to the committee to inform your thinking as you move on to develop your report in due course.
Moving onto the second page, I wanted to start by providing an overview of the new Newfoundland economy, and the chart illustrates the extent to which we are an energy-intensive, industry-based economy. It is very important to the provincial economy. The two key points to note in the chart are that mining and oil extraction, which are both capital- intensive, high-value resource industries, account for just under 30 per cent of our economic output in real terms. That compares to about 5 per cent nationally, so they are extremely important.
The other thing to note is that we have a small and narrow manufacturing base in the province compared to Canada as a whole.
Moving on to the next slide at the top of page 3 — Mr. Martin covered these points — we have a very enviable energy warehouse. The key point that I would like to note here is that that means the province has a unique perspective on the climate change debate because we have the extensive non-renewable resource and the extensive renewable resource, so we straddle both sides of the debate in that respect. However, I will not talk in any more detail about that slide because it was covered.
Moving on to the slide at the bottom of page 3, this illustrates that the province is a significant exporter of energy. As you can see, even at the moment, our domestic energy production has grown significantly over the last decade, and that has been driven by offshore oil production. Even in 2008, most of the energy that we produced, we exported.
The key point to note from a greenhouse gas perspective is that 91 per cent of our greenhouse gas emissions actually come from energy-related combustion.
The Chair: Would that be from Holyrood Generating Station?
Ms. Janes: Holyrood is a major emitter. Four economic sectors are responsible for greenhouse gas emissions: Holyrood is responsible for a significant percentage, offshore oil refining, mining and newsprint.
The Chair: Is Come By Chance the main refinery?
Ms. Janes: Yes. There is only the one refinery in Come By Chance. In order of importance, it would be offshore oil and then newsprint. However, because of the closure of some of the mills in Grand Falls, newsprint has been of declining importance from a greenhouse gas perspective.
In 2008, which is the last year for which full provincial data is available on greenhouse gas emissions, that large industrial sector — the mining, the offshore oil refining, electricity generation and newsprint — was collectively responsible for 54 per cent of provincial greenhouse gas emissions, so that is a huge quantity.
After that sector, the next largest source of emissions comes from transportation at 33 per cent of greenhouse gas emissions. The remaining emissions come from buildings, waste and a very small per cent, 1 per cent, from forestry and agriculture.
Moving on to part 2, the province's vision and commitments, the slide at the bottom of page 4 is a reiteration of what Mr. Martin said in his presentation. The central vision of the provincial government's 2007 Energy Plan was that we were looking to transform the province's non-renewable resource endowment into a sustainable economy pad by renewable clean energy for future generations.
Clearly, as Mr. Martin said, that will assist this province to reduce its greenhouse gas footprint, but it will also potentially allow jurisdictions outside of this province in Canada and potentially the U.S. to also reduce their greenhouse gas footprint.
Turning to the slide at the top of page 5, you will see that in the 2007 Energy Plan, the province also committed to developing three strategies. One was to develop an energy-efficiency strategy, the first that this province has put in place. The second strategy was to put in place a new climate change action plan. The first one was published in 2005. The third strategy, given the importance of the energy-intensive large industry to our greenhouse gas footprint, is to develop a greenhouse gas strategy for the energy-intensive sector.
The slide at the bottom of page 5 shows the policy commitments that the province has entered into. The first one, to improve energy efficiency by 20 per cent by 2020, was adopted at the Council of the Federation in 2008. A consistent commitment related to energy efficiency is to reduce all overall energy use in homes, buildings and industry by 20 per cent by 2020 below business as usual. That was adopted last year at the Conference of New England Governors and Eastern Canadian Premiers, NEG/ECP, which, from a Canadian perspective, involves Atlantic Canada and Quebec.
Also under the NEG/EPC forum in 2001, they adopted a series of regional greenhouse gas targets, which are listed at the bottom of the page. There is a target to stabilize greenhouse gas emissions at 1990 levels by 2010 and to reduce by 10 per cent below 1990 levels by 2020 as a region. There is a far more aggressive target by the middle of the century that was consistent with the science at the time the target was adopted.
That creates the policy framework for the province as it relates to energy efficiency and climate change.
Part 3 of the presentation concerns the province's approach in unique circumstances. As the chair noted, I am the senior policy advisor to Premier Dunderdale. I report directly to her, and I set up a new central agency in government called the Office of Climate Change, Energy Efficiency and Emissions Trading, which was only established in 2009.
The office is responsible for policy and strategy developments in recognition of the importance that the province places on this agenda, the desire to provide top-down leadership on it and the fact that climate change is a very complex and crosscutting issue. As you will appreciate, it has environmental, economic, social and political ramifications, and the province wanted to avoid any silo-based thinking going forward. The office cares as much about the economic impact as the environmental outcomes and as the social ramifications, so we are an honest broker working with all departments within government.
The Chair: Do you mind if I interrupt you on that?
Ms. Janes: No, not at all.
The Chair: It seems to be a very forward-thinking initiative. How did you become that person? Do you have background expertise in this field personally?
Ms. Janes: You can probably tell from my accent that I am not a native of Newfoundland and Labrador.
The Chair: Well, we thought you might be a denizen of the British High Commission in Ottawa. They are very big on climate change.
Ms. Janes: That is actually my background. I worked for the British government for over seven years on climate change and energy efficiency, first as an international negotiator related to the Kyoto Protocol and the United Nations' negotiations for four years, and then I headed up the unit preparing for the United Kingdom's presidency of the G8 in 2005. If you recall, the then Prime Minister Tony Blair decided to make climate change a priority at that presidency. Therefore, I was responsible for leading that stream of work.
Following that, I headed up a team of about 50 officials responsible for actually walking the walk in the U.K., developing policy and programs to deliver greenhouse gas reductions in the U.K. and also responsible for the U.K.'s energy efficiency policy and strategy.
I am married to a Newfoundlander, and as those of you familiar with the province will know, the one thing any Newfoundlander wants to do is to return home. He was living with me in London and had a fantastic opportunity to come back here to help build the province, so I came with him.
The Chair: Was that in 2008?
Ms. Janes: Yes, in 2008. I was very fortunate to have the opportunity to bring some of my knowledge and experience from a European context to the province to help build policy and framework here.
The Chair: Colleagues, Ms. Janes' CV is in our binders.
Senator Peterson: I notice that you report directly to the premier. Do you have any connection to the Minister of Natural Resources or the Minister of Environment and Conservation at all?
Ms. Janes: That is a good point. I work very closely with those ministers. There is no formal reporting relationship, but the Minister of Natural Resources remains, of course, the spokesperson for energy efficiency for the government and the Minster of Environment and Conservation for climate change. Therefore, any work that we do on their areas of responsibility, we route through those ministers.
The government has set up an ad hoc cabinet committee on climate change and energy efficiency, and it is co- chaired by those two ministers. Also on that committee are the Minister of Finance; the Minister of Innovation, Trade and Rural Development, which is the economic department; the Minister of Intergovernmental Affairs; the Minister of Transportation and Works; and the Minister of Municipal Affairs. There is a real cross-government effort to drive this issue forward.
The Chair: Was that in place under Premier Williams as well?
Ms. Janes: It was Premier Williams who took the initiative to establish the office, so I was originally his senior policy advisor.
The thing to point out, though, is that the office's roles and responsibilities solely relate to policy and strategy development, developing the evidence base necessary to have evidence-based strategy and working to try to integrate these issues into departments' thinking. We do not implement programs or services or regulations. Those responsibilities are retained by departments.
The Chair: Excellent. Please proceed.
Ms. Janes: Moving on to the slides on page 7, I wanted to just flag a couple of the unique circumstances that the province faces as it relates to this agenda because I think they are very interesting.
The total amount of renewable energy consumed by the province has ranged from about 81 per cent to 89 per cent, as a total province, between 2003 and 2009. That fluctuation has been driven by changes in the industrial structure, particularly newsprint. If you look at just the island portion of the province, the figure is somewhat lower, 75 per cent to 88 per cent over the same period. Mr. Martin spoke very eloquently about the isolated grid and the reliance on Holyrood; this is the explanation for that.
Clearly, because of low-growth projections, the proportion of renewable electricity deployed within the province will decrease in future unless the thermal diesel plant at Holyrood is replaced by electricity from Muskrat Falls. That is critical from a climate change perspective.
In the 2007 Energy Plan, the government did commit to decommission Holyrood and replace it with clean, renewable power from Muskrat Falls when that development took place. Because of low growth between now and 2017, which is the estimated time for first power from Muskrat Falls, we estimate that that will displace 1.2 million tonnes of greenhouse gas emissions within the province alone.
That will bring the province to about 98 per cent of renewable electricity generation when Muskrat Falls comes on stream. It also leaves a vast amount of energy that is surplus to domestic requirements, and there are clearly many opportunities to export that energy elsewhere in Canada to displace carbon-intensive fuel generation, a power generation such as in Nova Scotia.
Looking at the slide at the top of page 5, the key issue from a climate change perspective is that in most jurisdictions where they have a significant amount of fossil fuel generation, energy efficiency is often one of the most cost-effective ways to reduce emissions. Because we are moving to a situation where 98 per cent of our electricity will be renewable, there will not be that same economic driver in this province. However, that is not to say that energy efficiency is not regarded as tremendously important for a range of other reasons with which you are all thoroughly familiar.
The Chair: One of the more striking, yet seemingly smaller, things that we have seen in our three-day whirlwind tour is that home heating in Prince Edward Island and New Brunswick rely heavily on emitting sources. How are homes in Newfoundland heated?
Ms. Janes: Many homes are still heated by oil; but more and more homes are being heated by electricity. You see the figures going up over time because of new developments, new build. At the moment, with Holyrood, from a greenhouse gas perspective, it is more efficient for people to burn oil in their home because it is a more efficient factor. However, when Muskrat Falls comes on stream, obviously electricity will have a lower footprint. At the moment in this province, we do not actively encourage people who have oil-heated homes to switch to electricity because that just means Holyrood, which is a very dirty, diesel and thermal generating plant, would have to work harder. In future, however, there may be, from a greenhouse gas perspective, more of an emphasis on encouraging fuel switching.
The Chair: Are you not into the alternative of burning wood pellets and the like? I only ask that because you have these large pulp and paper industries that are phasing out, yet the source is there. I would imagine that that requires new stoves and new infrastructure.
Ms. Janes: It is a very good point. We are very interested in the wood-pellet business, and we have a number of mills in the province that produce pellets. At the moment, the primary market for those is abroad, looking to Europe really. Because of their greenhouse gas regulations, there is a very robust market for bio-fuels. There have been initiatives by the government to try to increase interest in wood pellets, including giving grants to households to install pellet stoves. However, at the moment, the market is by no means big enough within the province to absorb the quantity of production.
Senator Neufeld: I understand your point where unlike other jurisdictions, energy efficiency will not deliver many greenhouse gas reductions in the electricity sector. However, that should not curtail Newfoundland from looking at energy efficiency from a point of using less electricity just because you use electricity; I do not think it should be that way. Maybe I am misunderstanding you, but can you tell me where Newfoundland fits on that scale of average household use? There are charts that measure this. Are you in the high end for electricity or in the low end because many things can be done to reduce electricity consumption?
Ms. Janes: You are absolutely right. I do not mean to say that the province is not absolutely committed to energy efficiency; it is. It is a key pillar of the 2007 Energy Plan. I completely agree with you, senator, that there are many reasons other than just reducing greenhouse gasses to support energy efficiency. Actually, if you flip ahead to page —
Senator Neufeld: I do not want you to jump ahead in your presentation; I will listen to that when it comes. We were given some information yesterday — that is why it is topical to me — that shows Newfoundland almost at the very bottom of the scale in energy-efficiency spending per capita as compared to all other jurisdictions. In fact, it is almost off the scale; it is hardly anything. Can you tell me why that would be?
You can disregard the greenhouse gas — not that that is not an important issue —but why are you that low?
Ms. Janes: I think the province is trying to take the new strategic approach toward energy efficiency that was signalled in the 2007 Energy Plan, and they are trying to develop the evidence base to put money in where it is most cost-effective to give the best return. Spending has not been as high as other jurisdictions, but, of course, spending is only one measure or instrument to drive energy efficiency. The government has been doing other things, for example, building its buildings to a LEED Silver standard and using other tools of that nature.
The point I was trying to make about renewable energy is that when you are looking at the economics of how much money to put into energy efficiency, you look at all the benefits that energy efficiency can give. When you have such a large percentage of renewable power, you do not get the same benefits from a GHG perspective.
We are, at the moment, working with the utilities to look at the programs that we have in place and what can be done in future. I think it is a work in progress. The province is aware of its performance relative to other jurisdictions and is really committed to looking at that and seeing what needs to be done going forward.
Senator Neufeld: Perhaps I can give you some numbers. This is the chart that was given to us by someone who specializes in energy efficiency yesterday. For energy-efficiency spending per capita, the highest is $45 per capita and Newfoundland is at $2.50 per capita. The average of the top three is around $30 per capita. It is significant. When I am talking about this amount of $45, these are jurisdictions that have a similar generation capacity to Newfoundland. Almost 95 per cent of it from clean hydro sources. I think it is a good question and something that I would like to get a good answer to.
Ms. Janes: Thank you.
Moving on to point 6 on page 7, clearly there is theoretic potential to use renewable electricity to power surface transportation in the future; transportation as a whole is 33 per cent of our greenhouse gas emissions, and two thirds of that is surface transportation. That would require appropriate infrastructure technology development.
We are the most rural province in Canada, which pose particular challenges. Mr. Martin mentioned the remote off- grid communities, and there are some slides later about the project that he mentioned in Ramea to look at solutions for those communities.
As I mentioned earlier, a very large percentage of our emissions comes from the energy-intensive, trade-exposed industries. They also generate about 50 per cent of our provincial GDP. That is very critical. In some of those sectors, such as offshore oil, there are very limited abatement opportunities. I hope that gives a flavour of some of our circumstances.
Moving on to the recommendations that we wanted to present to you today, the first one really relates to the need for better information. In the federal survey data for the energy sector, we know that there is not full coverage of all of the province's industrial sites. For example, two of our three offshore oil fields and one of our three major mines are not included in the data. As energy data forms the basis for the greenhouse gas estimates, this might have an impact on the federal government's estimates of provincial greenhouse gas figures.
We do know, however, that the federal government does incorporate some additional facility-level data in their greenhouse gas estimates. Also, we know that with precipitation and temperature changes there will be changes to rainfall that could affect hydroelectricity and changes in temperature, which will affect the number of heating and potentially cooling days per year. Of course, that will affect energy demand.
Finally, many communities had their power supply interrupted during the recent effects of Hurricane Igor at the end of autumn 2010. Therefore, we know that climate change will bring more extreme weather, and we need to understand what the implications are for the security of the energy infrastructure and supply. Better information and cooperation between provinces and the federal government on that is warranted.
I will move on to the next slide about greater certainty. Businesses, as you can appreciate, need certainty to plan. They need to manage risk and, in the absence of knowing what the regulatory framework will look like at a federal level, when it may come on stream and how it will affect those sectors, it is very difficult for businesses to plan effectively.
We have seen from think tanks in Canada and the U.S. that the longer we take to start taking serious action to reduce emissions, the more costly it is to meet those targets. That is because we will lock in more and more inefficient capital over time.
Businesses in the U.K. often used to say that they needed long, loud and legal signals. In other words, they wanted long-term signals; they wanted them to be clear; and they wanted them to provide as much certainty as possible. I think that is true of our economy, as well.
Moving on to page 9, in 2010, the provincial government published a discussion document on climate change and energy efficiency. It was a public document designed to solicit a dialogue and input from the public on the strategic direction of the government.
In that document, the government said that it wanted to consider how a value could be placed on greenhouse gas emissions because this would create a financial incentive for businesses and individuals to consider the climate change impact of their activities. I think that, looking at your document that you published last year, that is an issue that is covered in there.
Moving on to page 10, a key consideration for the province and a recommendation that we would make to deal with this agenda going forward is that we need to take account of the competitive considerations of the energy-intensive, trade-exposed sectors in our economy. In this province alone, the large industrial sector consumes 45 per cent of our energy and emits 54 percent of our greenhouse gas emissions. That 54 per cent does include Holyrood, which, of course, is not trade-exposed. If we subtracted Holyrood from that it would be down to 45 per cent. These industries, the trade-exposed ones are price takers in international markets. However, we see ways forward, and energy efficiency is an obvious example. It is a win-win-win; it can reduce production costs, improve competitiveness and reduce greenhouse gas emissions.
I want to give you a very practical example from here in the province of an investment that is happening. The refinery here is investing a huge amount of money, multiple millions of dollars, to increase its productive capacity by 13 per cent, so it will increase production up to 130,000 barrels of oil per day. However, it will simultaneously reduce its greenhouse gas emissions by up to 20 per cent. That is because it will be using energy more efficiently. It is a win-win- win; it will reduce its production costs, and thereby be more competitive in international markets, and we will have the ancillary benefit of reducing greenhouse gas emissions. It is those types of opportunities that we want to identify going forward.
The chart at the bottom of that page illustrates our perspective on the interface between energy efficiency and climate change. In the middle, in the green zone, are the really strong synergies between those two agendas: By reducing reliance on carbon-intensive fuels, we reduce greenhouse gas emissions; and there are also big economic opportunities associated with innovation, new markets and new jobs.
However, as the senator said, even if all our energy was renewable tomorrow in all sectors, transportation, as well as electricity, there would still be a very strong argument for energy efficiency for the reasons cited in the yellow part of the left circle: It reduces fuel bills, improves competitiveness, improves consumer welfare, avoids the need for expensive new generation, frees up more clean power for export and enhances energy security. The province is really committed to looking at how it can improve its performance as it relates to energy efficiency going forward.
Turning to the next page, another recommendation that we would put forward for your consideration is that any framework that is developed as it relates to greenhouse gas reduction in the future needs to provide companies with flexibility because some industries do have very limited cost-effective abatement opportunities. It is really important that they have alternative ways to comply with requirements to reduce greenhouse gas emissions and are not just required to reduce the emissions at the facility at any cost. The offshore oil industry is a good example of that.
The chart at the bottom of page 11 comes from work that the province commissioned last year on carbon pricing. The overall approach of the study was to focus on what quantity of greenhouse gas reductions could be achieved at different prices of carbon by both 2020 and 2030. The Y-axis shows the cost of reducing greenhouse gas emissions, and it goes up from $0 to $300. The X-axis shows the percentage of emissions reductions achievable at different prices of carbon. Our goal in undertaking this work was to understand the abatement opportunities in different sectors of the provincial economy.
The chart shows a typical marginal abatement cost curve, and in this instance, it is for the mining sector. It shows that substantial carbon reductions can be achieved in the sector by 2020 and 2030. However, the level of those reductions very much, of course, depends on the economic drive, the price of carbon. Shown in green, the largest component, the largest opportunity for reducing emissions is fuel switching to renewable electricity. The blue proportion is a move to biodiesel, and the grey section is improvements in energy efficiency linked to capital turnover. The key point to note on this slide is that there are a range of onsite abatement opportunities for firms in this sector at all different prices of carbon.
I want to contrast the last slide with the slide the top of page 12. This is a marginal abatement cost curve for the offshore oil industry. You can see immediately that even at carbon prices of $300 per tonne, there are limited abatement opportunities in both 2020 and 2030, and those opportunities hinge on biofuel technology. The offshore oil industry accounts for 17 per cent of provincial greenhouse gas emissions, and unlike mining and onshore oil, our offshore oil industry with its geographical position, as Mr. Martin said, of over 300 kilometres of the coast cannot switch to renewable electricity to reduce emissions. It does not have that option.
As you are all aware, these producers operate in a highly competitive international market, and in the absence of a global carbon constraint, the imposition of a command-and-control regulatory framework to reduce emissions onsite no matter what the cost would be basically detrimental to the economics of oil extraction, and it would lead to the premature abandonment of the fields.
The key point I want to make here is that it is not that this sector cannot play its part in efforts to reduce greenhouse gas emissions but that any approach needs to be carefully designed to ensure that the sector has flexibility to resort to alternative and more cost-effective compliance options, such as contributing to a technology fund at an agreed price per tonne of emissions or investing in offsets.
The Chair: Can you move quickly? We are running behind.
Ms. Janes: Absolutely.
The Chair: We have it in writing anyway.
Ms. Janes: I think we can draw to it to an end in a few minutes.
Recommendation 6 relates to energy efficiency. I think this is motherhood and apple pie. There are many benefits associated with it. An approach to energy efficiency needs to cover all sectors of the economy and all fuel types. It needs to drive both conservation, so behaviour, as well as technology efficiency, and it needs to transform markets. The following slides really just speak to that.
Page 13 shows that you cannot just focus on electricity. You have to look at other sectors, for example, transportation. Forty per cent of our total energy consumed is in the transportation sector. We also need to cover all fuel types. Electricity is important, but as you can see from the chart, 64 per cent of the energy consumed in the province is from refined petroleum products.
To generate a step change in energy efficiency, this province is mindful of the fact that it requires both an effort to drive the behavioural change, so conservation, as well as an effort to generate better efficiency though the adoption of new and existing technologies. There are a whole range of instruments at government's disposal and as part of our strategic process, we are looking at the role of those different instruments and trying to learn from other jurisdictions. The benefit from knowing that you have more that you can do is that there are others you can learn from, and we are certainly looking to work with our provincial colleagues in other provinces to do that.
There has been a great deal of focus on carbon capture and storage, and it is true that is a very important technology, and it needs a lot of investment going forward. However, it needs to go hand in hand with efforts to ensure that proven technologies that face barriers to deployment are also incentivized.
Canada is committed to generating 90 per cent of its electricity from renewable sources by 2020, so we need large hydro developments such as Gull Island. For large-scale hydroelectricity that means issues about transmission, east-west transmission, and also pressing for hydroelectricity to be defined as renewable in U.S. states because that all improves the economics of the projects. In addition to large-scale technologies, we also need to think about other challenges. There are small-scale challenges, but they are still important.
Page 15 speaks to the point that Mr. Martin made. The map on the left-hand side shows a community — it is an island actually — Ramea, off the south coast of the province. We have numerous small communities here. They are off grid. They are remote, and their populations are dispersed, so providing power is very difficult and expensive. To address this challenge, as Mr. Martin mentioned, Nalcor Energy has been leading the charge to look at the use of wind and hydrogen. It is a very innovative approach that could have relevance to remote communities across the world.
The point that I want to make on page 16 is that climate change is, of course, a threat. We are all familiar with the potential adverse impacts that could be associated with temperature and precipitation changes, and there are real concerns associated with the economic impact and environmental effectiveness of action to reduce emissions in the absence of global mitigation action. That means the design of any federal framework needs to take into account competitive considerations and the need for flexibility, as I mentioned earlier.
The point of this slide is really just as a reminder that even given that context, we must not focus just on the risks because there are tremendous opportunities for Canada to innovate and develop new products and services to capture new markets and create jobs. For example, there is a technology that was developed and commercialized here and is being exported in North America to enable people to see how much energy they are using in real terms. There are opportunities for win-wins. One of the opportunities we have been investing in over the last two years is improving the efficiency of low-income houses. We have had a two-year pilot project, and through that, we have found an average energy savings of $700 per year to low-income houses, and that is a sustainable reduction year after year.
The final slide is a summary of the recommendations. The point I want to make is that although this province is only responsible for 1.5 per cent of Canadian greenhouse gas emissions, we are committed to playing our part in tackling the problem and being part of the solution. We take it very seriously.
Given the scale of the climate change challenge and the scale of your challenge as a committee, I wish you luck with that going forward. Thank you very much for the opportunity to be here today.
The Chair: Thank you very much for an excellent presentation.
Unfortunately, colleagues, we have run out of time. However, the way I will manage this is to go over time a little and have our two climate change experts, Senator Mitchell and Senator Lang, ask questions at opposite ends of the spectrum.
Senator Mitchell: Thank you, Mr. Chair, and thank you, Ms. Janes.
I bring an intense interest in climate change to this committee, and that is what the chair is alluding to. I am very impressed by what you are doing — you personally and the policy decision, for example, first, to have your role and, second, not to bury it somewhere deep in a department but rather to actually make it a part of the premier's office so that when you speak, you clearly speak with a good deal of authority or backing, and this is not to be taken lightly.
One of the things that I note is that there are governments that do not do very much in this country. I would say that the national government is not. The government in British Columbia is absolutely like your government. You are a province that has a huge stake in the oil and gas industry, and, at the same time, you are making these huge initiatives and commitments.
What is the philosophy? What brought Premier Williams to this point? How does he explain this? Maybe you could give us some of the motivation so that we can understand why this province does it and other provinces that have the same stakes in the oil industry, perhaps, and the federal government that sees it is having a stake, do not do it?
Ms. Janes: From a provincial perspective, everything is driven by that vision in the 2007 Energy Plan. We see climate change as a threat from the impacts on this province. They are considerable. Some of the impacts of climate change have to do with more extreme weather events such as Hurricane Igor that we saw last autumn, which caused considerable damage and upheaval in this province. Climate change means impacts on our coastline, more coastal erosion and more intense weather. Ninety per cent of the population of this province lives on the coast.
We also see impacts because we are uncertain what will happen. Forestry is an important industry here, but we have seen what is happening in British Colombia with the pine beetle and how that had an impact on the economy. We know that with milder temperatures and the earlier onset of spring, there might be other diseases and pests, perhaps related to human health, that will move further north. Lime disease, for example, did not exist in this province until earlier this decade, and now there is infected ticks being found across most of the province.
We see huge impacts, and we see huge impacts related to the industries that power our economy, our resource-based industries. For example, with climate change, we know there will be changes to the salinity and temperature of the ocean. Fishing is an incredibly important industry for this province; it is part of its culture.
Therefore, we see the potential impacts and want to adapt and prepare for those as much as we possibly can, but we know also that there are limits to adaptation. We want to be part of the solution. The fact that climate change is happening is a given here in this province. The view is that the environmental argument is over. The issue now is really an economic one. How do you want to position your economy going forward?
We are moving into a carbon-constrained world. We do not know the speed. There may be blips on the way that mean things do not happen as rapidly as some people would like or have envisaged. However, it is happening; it is inevitable. Therefore, do you want to be a winner or a loser? Do you want to decide how to position your economy and where you will be in 10 years or 20 years time so that you can be a winner or not?
I can speak with some authority about the U.K.'s position on this. The U.K. has been a leader on the climate change debate, but it has been very much driven by economic considerations. The European Union established an emissions trading scheme in 2005. However, the U.K. was the first economy in the world to have an economy-wide emissions trading scheme. It had that scheme in place in 2001. It did that because it wanted to learn; it knew that London was a financial global centre and wanted it to make it a centre for emissions trading and saw that as an opportunity.
That is why I wanted to finish with the point on slide 8: There are huge opportunities, but you cannot put your head in the sand. You have to look at what that means for your economy and try to drive your economy in a manner that makes sense.
Senator Mitchell: It is brilliant, fantastic. You said, ``Therefore, do you want to be winner or a loser?'' That is exactly it.
The Chair: Winning is more fun.
Senator Mitchell: There are huge opportunities, and you are getting them, and we are not; we are missing this at the federal level.
My next point is emissions trading, in B.C., they have the Pacific Trading Corporation that, for example, will figure out a way to have a zero-carbon footprint. Even Alberta, to its credit, has a kind of a cap-and-trade program where they have farmers producing and money is going to farmers for credits. What are you proposing in that regard?
Ms. Janes: The province has not taken a firm position on that. We have done two rounds now of consultations with the large industrial sector and have been looking at three potential approaches toward reducing emissions. The first is the trading approach. The Western Climate Initiative is the only game in town at the moment as far as trading goes. There is the Alberta-type approach where you have a regulatory approach, but you have flexibilities such as a technology fund and offsets. The third approach is evident in B.C. as well, which is using carbon taxes and looking at that to incentivize action.
At the moment, we are analyzing all three of those and the different impacts on our different industries. The benefit of being a small province is it is more possible for us to develop a tailor-made approach.
With respect to emissions trading I would say, however, that from a theoretical perspective, the challenge of being such a small province is emissions trading does not make sense for this province to do on its own. Really, as you will appreciate, you have to have enough liquidity in the markets. You need a certain scale, and the bigger the market, the more cost-effective it is because the more cost-effective abatement opportunities you uncover.
Whilst we are interested in what is happening in emissions trading, there needs to be that scale. One of the key drivers for us is looking at how we can, putting the opportunity hat on, find value from this agenda, so looking at getting value from our renewable resource in which we are seeking to invest.
Senator Lang: I want to make one observation. I think it is unfair to say and make the observation that the national government or other provinces are not taking any initiatives in this area. It has to be made very clear for the record that incremental steps are being taken.
When you put $5 billion into a green infrastructure fund, and it is allocated across this country to meet some of our environmental targets, that should not be underestimated. We have taken emission standards and increased those standards in the auto industry; it will take a number of years to do that. They are the major emitters of emissions in this country. Let us forget the oil sands and your offshore oil.
The other point I would make is that there are major technology-driven funds being allocated again by the national government in conjunction with the provinces for carbon sequestering, which is a significant step forward.
I object to this idea that because the federal government happens to be of a certain political stripe — and I put this to my colleague — it is not doing anything, because they are. They are working with the provinces and the United States in coming to grips with this problem. The question is how we get there. That is where I agree with you, and I think your presentation was very well done.
Ms. Janes: Thank you.
Senator Lang: My concern is that when we rush to get a carbon tax or a price on carbon, no one around this table should be under the impression that Joe Lunch Bucket will not pay for this.
We talk about industry as though they are separate and apart. They are selling a commodity, and that commodity will be bought by you, me and everyone else. What concerns me — and I would like to look at your past experience — is that when the carbon-trading program was put into Europe, you were talking about a $40 barrel of oil, a $50 barrel of oil. We are talking about $100; they are projecting $150 or maybe $200 for a barrel of oil.
I would like you to make an observation on that aspect of it. Have you taken that into effect? Some of us on the other side of the discussion are saying that the price of carbon will take care of itself because the price of oil is so high that we will have to take steps obviously to rid ourselves of this dependency on oil because we cannot afford. I rest my case.
The Chair: Did you want to respond?
Ms. Janes: I would just make the observation that I think that is absolutely right. The higher the price of oil goes, the more incentive there is for people to innovate to find alternatives that may be a lower cost, so that in itself does generate innovation and technology development.
I think the challenge is that if you look at the science on climate change, the Intergovernmental Panel on Climate Change, IPCC, in their fourth assessment report — and a fifth assessment report will be coming out in a few years — it is clear that the problem is very urgent. If we leave technology to develop at its own speed, it will not develop fast enough. If you look at the International Energy Agency's projections, it really needs government investments such as those that are happening in carbon capture and storage in Alberta to really drive it. Technology will be key, and prices of relative resources and generation will also play a part.
The Chair: Thank you very much, Ms. Janes. That was a tremendous presentation.
Colleagues, this brings the morning session to a close.
(The committee adjourned.)