Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 11 - Evidence - Morning meeting
CALGARY, Thursday, December 1, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:17 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 colleagues, honoured guests, and others sharing with us these deliberations on the various social and other media. This is a special meeting of the Standing Senate Committee on Energy, the Environment, and Natural Resources as we continue our cross-Canada dialogue with Canadians talking about energy and trying to develop a greater awareness in the Canadian people about how important energy is to our collective future, given the many extraneous forces, not the least of which is the population boom, which could be up past 9 billion by 2050.
The increasing need for energy amongst developing nations is not going to go away. We in Canada, of course, are the largest consumers of energy on a per capita basis on the planet, and we have been studying in this committee, for over two and a half years now, the energy sector in Canada, with a view to seeing if there is a need, and we believe there is, to develop a strategic policy framework to help Canada deal with our energy future, to have a more sustainable, cleaner, and more efficient system, given that we have been very blessed in this country with such wonderful resources. I think Canadians have tended to take that for granted over the years. Now it is time to take stock to understand why the lights go on when we turn the switch and things like that.
We are very blessed this morning to have with us two real leaders in the energy sector in Canada: Hal Kvisle, the former Chief Executive Officer at TransCanada; and Harrie Vredenburg, Suncor Energy Chair in Competitive Strategy & Sustainable Development at the University of Calgary.
I would like to take a moment to say a word about Mr. Kvisle. He appeared before this committee. Senator Banks and I and others were in this same hotel, I think, certainly out here in Calgary on our way a few years ago up to Edmonton and the CANMET labs and up to Fort McMurray, and you shared some views with us at the time, which I think were quite prophetic and have, in part, led to this study.
Then a little later I ran into Mr. Kvisle at the horrendous Copenhagen COP 15 Climate Change Conference where we both were aghast at what was going on — 35,000 people coming to a conference for 12,000 people, snowstorms, and no communication systems that worked. We found it a hard way to connect with the players, so we set up shop in downtown Copenhagen.
At that time I heard about the wonders of nuclear, which was on my mind. When we got the study going, Mr. Kvisle, we actually went up to Bruce and we had a look there at the facilities. We went to Darlington; we went to Chalk River, and kind of satisfied our appetite. This was pre-Japan. We were really impressed, not only with the senior management at Bruce but also at Darlington and the fact that Ontario has such a large percentage of its electricity generated from nuclear.
Senator Banks and I went to France and saw how they are not spooked by it, and they have over 93 per cent of their electricity. So we have not ruled it out as one of the key elements or ingredients of a future mix.
Perhaps it is useful to just tell you who we are. We are the Standing Senate Committee on Energy, but also the Environment and Natural Resources, and we believe that of course the environment and the energy and the economy are the three big Es, and they are intrinsically tied up with each other.
I am a senator. I was introducing myself yesterday as the portly little green senator from Quebec, showing how I have evolved from not a very green senator.
My name is David Angus. I am from Quebec, and I am the chair here; and this is Senator Grant Mitchell, not an unknown personality here in Alberta. He is our very able deputy chair.
To his right are the very fine people from the parliamentary library, Marc LeBlanc and Sam Banks. They help us record the wisdom that we learn in our travels. Then we have another Banks, my predecessor as chair, Senator Tommy Banks of Alberta, and we have Senator Nick Sibbeston from the Northwest Territories, who keeps the Shawn Atleos of this world honest when they testify and keeps them on the ball.
To my left is our wonderful clerk Lynn Gordon, and Senator Richard Neufeld, who, as I think you know, was a minister in this field in B.C. and was responsible for really having a great vision about an energy future. If there is any example to be found in Canada, we think British Columbia is a pretty good place to start, to see how they have been able to introduce sustainable things into the businesses there and find that they go straight to the bottom line. People have woken up to the fact that it is just not a terrible extra cost.
Senator Paul Massicotte is originally from Manitoba but is a good Quebecer now and a fine senator. Last, but not least, we have Bert Brown, the only elected senator from right here in river city.
That is who we are. I have long bios for both of you, but I really do not think you need a long introduction, either of you, and we have the material in our binders.
Mr. Kvisle, you are retired. We hear about TransCanada and we think of you. We read about Keystone. We did the nuclear thing. We were hoping when we went to nuclear, TransCanada had more or less pulled out or was pulling out of the bidding wars for AECL, which left the field open to a Montreal firm.
We know that both of you have a wide range of knowledge. You, I guess, have been fed some lines by our colleague Senator Elaine McCoy, who will be joining us soon and will be with us all day and this evening.
Over to you now. Which of you will go first?
Harrie Vredenburg, Suncor Energy Chair in Competitive Strategy & Sustainable Development, University of Calgary, as an individual: I will start with a bit of a more global perspective, and then Mr. Kvisle will go from there.
You have touched on some of the things I want to say. We will start there. I want to talk about three things by way of introduction. The first is global energy demand, what is happening, and I will just pull that apart a little bit; the second is supply issues; and then the third is policy issues, particularly around greenhouse gases and where that leaves Canada. That is kind of where we want to start. You may want to go through the deck we have put in front of you.
First of all, population growth, and Senator Angus referred to this. When I was born in the early 1950s, the population of the planet was around three billion. We just surpassed seven billion about a month ago. If you flip to the next page, it looks like it may be continuing on like that, or there is some suggestion that with increasing wealth in emerging economies, this may be leveling off. The United Nations has various scenarios, but even the lowest scenario gets us almost to eight billion as a global population.
Population growth and energy consumption are almost closely linked as it is. If you look at the next slide, you see where the demand is coming from, and this is just a simplified slide. The industrialized world is largely flat. Most of the new demand for energy is coming from the emerging economies.
The next slide is a map of the world, and I think this one is kind of telling because it is not just the population growth. It is that finally, by the early 21st century, we are as a planet succeeding in sort of seeing the Third World or the poor countries being developed. That is a good part of what is driving global energy demand. If you look at that map, you will see that in Canada, a country of 30 million or so, we have a growth rate over the last 10 years in GDP per capita. That is general wealth of people. There are problems with GDP per capita, but generally it is a measure of the wealth of the individual. We have had a growth rate of 2 per cent, while Western Europe, the euro area, has been at about 1 per cent. If you look at China, which we are all very familiar with, the growth rate in GDP per capita over the last 10 years has been 10.6 per cent on a base of a population of 1.34 billion. India, which we are familiar with as well, has 8 per cent GDP per capita growth. There is an increase in wealth, that is, a growing middle class in these places, on a population base of 1.23 billion compared to Canada's 30 million. Even Sub-Saharan Africa has almost 6 per cent growth rate on a population base of 800 million.
The growth that we are seeing in energy demand is a consequence of population growth still and increasing wealth in all these places in the world. If you look at the next chart, you see that many of these countries are aspiring to our Western lifestyle, and they have got a ways to go in terms of their growth in GDP per capita, but that is what they are aspiring to. That is what is happening around the world. The bottom line in terms of demand is that we have got rising global demand for energy around the world, but it is driven by Asia specifically and the developing world or the emerging economies. That is where the global growth is.
In terms of supply, we have all heard about peak oil. These are some charts from the original paper Dr. M. King Hubbert presented back in 1956 saying the United States would have peak oil production by the early 1970s. He was largely right, although more recently we may be revising that, which I will get to in just a moment.
He also predicted that world oil production would peak in the early 2000s, and there have been a number of questions of whether that is happening. The media talk about this as being kind of flaky, but the reality is that in the late 1990s, there were a number of scientific papers in the top scientific journals that suggested this may be happening, journals such as Nature and Science and Scientific American.
What does this actually mean? Basically, his argument was that what happens at the individual well level happens at the basin level and also happens when we look at a macro level of a whole area like the lower 48 states of the United States and, by extension, would happen at the world level.
When you get to that peak point, or that flat point, it takes more energy, more money to develop beyond that, which is why we are now into, as you see in this peaking chart, oil sands and deep sea. The economics is there that we can develop those things.
The Chair: You are saying, in a nutshell, that when one uses that buzz word or phrase "peak oil," the definition is that it reaches a level at which it then incrementally is more costly to explore?
Mr. Vredenburg: Exactly. I usually hesitate from using that term because it has been so maligned, but I throw it out here because it is out there regularly so we may as well deal with it.
The Chair: Sure.
Mr. Vredenburg: It does means that is why we are going into oil sands and into deep sea, all of which are more expensive in general in terms of a marginal barrel to produce, and they also produce more greenhouse gases, which is another consideration.
However, not all are more expensive; that chart showing the peaks shows that heavy oil and oil sands come in, deep sea comes in, but also, as a consequence of this economics and technology, as the price goes up, people put on their thinking caps and start figuring out ways to get at stuff that we have known about all along. As we have seen with the shale gas revolution, suddenly a new technology comes in, which gives us access to a shale gas resource in that case, which drops the prices significantly for a significant period of time. We also see that same technology in oil, in tight oil formations, like the Bakken in Western Canada.
When the economics are such, when the price is high enough, we get technology unlocking resources that we have known about in many cases, such as the shale gases and oils, such as heavy oil around the world and bitumen around the world, as that other little map here shows as well. Technology allows us to get at that.
There is lots of oil left on the planet. However, it is generally more expensive, though not always, and it requires new technology and requires a high price to stimulate the production.
The Chair: Interestingly enough, if you do not mind me interrupting, we did visit the CANMET NRCan labs in Devon late yesterday, another place where we had been before, but they repeated what they told us 10 years ago, which is that they have some very wonderful technology that they have developed, but it is on the shelf because the big oil and the big exploiters have infrastructure that is not geared to using the new technology, so there is a resistance to using it at this time.
I think we find that a bit anomalous. Can you comment on that?
Mr. Vredenburg: I am happy to. I think that is what is known in the literature as technology lock-in.
The Chair: Yes.
Mr. Vredenburg: People are tied to what they have already got, and they are reluctant to move on.
I should say, though, that there are probably half a dozen smaller — not all smaller, but a lot of technology development is actually going on right here in Calgary and up in the oil sands region. There are a half of dozen companies from Cenovus to Laricina, Petrobank and a number of other companies that are doing things that are some of these new technologies. They have not, in many cases, reached commerciality yet because this industry is characterized by very big costs.
When you do innovation, and I focus a lot of my research on innovation, this is not the kind of innovation you see in the IT industry where you can start in your garage with a couple of dollars and a couple of friends and then make it big. You have to spend a lot of money to innovate in this business, and it takes a long time.
The investment cycles are such that you have to be able to sustain this for many years, and it takes a lot of money. It is both the dollars and the time factor. You are quite right that the larger players have generally been hesitant to get involved in these because of these things.
The Chair: Thank you.
Mr. Vredenburg: The bottom line on that is that as we get to the plateau — and I will not use the "peak" term anymore — supply challenges in oil lead to generally higher prices, which is probably the environment we are moving into, and volatility. Volatility is brought on because, as the prices are high, we get these new technologies coming on or new resources coming on. They tend to come on in big blocks rather than incrementally.
The final thing I want to talk about is policy from a global perspective. In terms of policy, climate change is probably the big one, and you will see a big red dead over that. As we are sitting here, people are sitting in Durban, South Africa. You were talking about Copenhagen, and I think Durban is probably putting the nails in the coffin of the Kyoto Protocol.
Some of the issues around there are costs of dealing with these kinds of things and burden sharing. You will see on the next slide about Copenhagen, the big issue of China being the largest emitter, but China is the factory for the world. We all use products from China, and yet China gets hit with those.
We have the same issue here in Canada, in Alberta, that for the oil that is produced here, we take the hit for the greenhouse gas emissions, but others of course are consuming the product. It is one of the problems with Kyoto, but there are many other problems with Kyoto.
The point I want to make, on the next slide, is that California in 2007 introduced the low-carbon fuel standard. Generally when California introduces something, it is not long before the rest of the United States jumps on the bandwagon. We have seen that, and on the next slide there, 11 states adopt their low-carbon fuel standard. You see rumblings even in China of China's looking at this sort of thing.
I do not think the greenhouse gas emissions issue as a policy issue is dead, despite the fact that Kyoto is probably dead. I would suggest that we are moving to a carbon-constrained world.
The International Energy Agency's, IEA, report that came out last month suggested that if we were to get to the level, what they call the 450 Scenario, that is 450 parts per million of greenhouse gases, which is what some suggest we need to avoid going beyond the two-degree increase in global average temperatures, we need to reduce the CO2 emissions into the atmosphere, and it suggests we have to do a significant reduction to get there. A number of policies on the books in many countries, which they look at from the IEA's perspective, suggest that even if we go that way, a lot of reduction will be happening.
How do we get there? That is where we get into market share of different types of primary energy producers. The next chart you see there was put out by Stanford University, but they are speculations. Will renewables take a bigger piece? The bottom line, as far as I am concerned, is that we are going to need all forms of energy, and fossil fuels will still be part of the scenario decades out from here.
What does it mean for Canada? In my perspective, we need to be looking at all the different options because of this situation that energy demand is going to be increasing around the world, and we need to be looking at the value of the energy in use. We need to look at energy conservation. We need to look at renewables.
Canada has something like 1 per cent in wind energy at the moment. Renewables is higher because of our big hydro, but wind is very low. Other jurisdictions have much higher. We need to be doing that, in my opinion, in part because we need all forms of energy and in part because Canada cannot afford to be seen as a dirty energy producer in the world if we are going to be exporting our product. That has to be part of the picture.
Natural gas for the foreseeable future is going to be relatively inexpensive because of the shale gas revolution. That should be a major part, in my opinion, of this transition to a lower-carbon future.
Canada should be looking at high-value exports. We are one of the few countries in the world that are still able to develop major hydro. I was recently in Newfoundland, and the big Lower Churchill hydro project there could be very interesting for Canada from an export perspective.
The next bullet point I think is also part of your question, Senator Angus, in terms of these new technologies. We need to be looking seriously at policies to stimulate these low-carbon upgraded and refined oil products, exporting those rather than bitumen and the bitumen as it is produced right now. That has two different components to it. One is lower carbon in situ oil sand development. Eighty per cent of the bitumen reserves are in situ — that is, the stuff that you develop under the ground that you cannot mine at the surface. The technologies that you are alluding to are largely focused on in situ development. In my view, there are technologies out there at the pilot or at the lab stage that could be productively developed that could produce this in situ bitumen with a lower carbon footprint.
There are also opportunities for upgrading and refining in Canada, which I know is a controversial topic, and we could do that with some of the things, like North West Upgrading in this province is looking at with CCS, carbon capture and storage, for enhanced oil recovery.
This is actually one of the few places in the world where there could be a market for CO2. It has to be a stream of pure CO2, so you have to build the refineries right and you have to get pipelines to the places where it can be used, but I think conceptually it is possible to do that. Again, the economics are probably here, and it certainly would help Canada's reputation in terms of export if we can clean up the way we produce these fuels.
Nuclear you mentioned. I testified before the Senate Finance Committee on the AECL divestiture. I think nuclear is part of the future, and it is something Canada had a first start at with AECL. I believe that is part of what we should be doing, both in Canada and in terms of technology, getting back into the technology game and playing a role because it is being developed. It is being developed in those developing countries, those emerging economies, and there is an opportunity for Canada to play a role there.
Also, I believe that Canada has a role as a technology leader, in terms of exporting technology and management know-how. As various countries around the world develop, there are oil resources around the world. Canadian technology is fairly cutting-edge and we have Canadian management know-how in these things. I see Canadians developing this around the world, but we have got to be doing it in-house because the first question people ask is, "So what are you doing in Canada?"
The last page is more just general things on the idea that we should be looking at becoming a more sustainable society, if for no other reason than so that we do not get labelled as the exporters of that dirty stuff. Canada, in my view, should be seen as being one of the energy and sustainability leaders in the world.
I think I should stop there. I have probably gone over the 10 minutes.
The Chair: That is wonderful stuff.
First of all, I think we are one of the most green and sustainable countries already, and it is the image that has to be changed more than actually what we do, it seems to me.
In terms of developing and exporting our technology, we had a wonderful presentation from the folks from the National Research Council, and they opened our eyes to the extent to which Canada is making its name really well globally in this area, which is good to know.
Mr. Vredenburg: It is not just the pure research, but a lot of the companies right here in Alberta have always been leaders, not necessarily in the sustainable technologies, but in horizontal drilling and the latest sort of technologies in oil, and that has already been a role that Canadian companies have played. I think this is a natural extension, but probably a bit of stimulus to encourage that sort of thing would be valuable.
The Chair: Super. Thank you very much, Mr. Vredenburg. We will go to Mr. Kvisle, and then we will question you both as a panel.
Harold N. (Hal) Kvisle, Former Chief Executive Officer, (Retired), TransCanada: First of all, I would like to note that many of the slides that are presented here were generated by my former colleagues at TransCanada. Carl Calantone, who is here with me today, does a lot of that work at TransCanada. I am retired from TransCanada but am still involved with the company, and I do work with management there as an adviser to them. I wanted to disclose that right up front.
The Chair: We saw your email address and somebody said, "Oh, no, that is his old email." I said, "No, no, it will work."
Mr. Vredenburg: I am also a director of Petrobank, which is a public company. I should disclose that. Sorry, I should have said that, to be up front about disclosure. It is one of the companies involved in some of these technologies as well.
The Chair: That is very good of you, sir. In this world we all have to disclose our holdings in TransCanada and Suncor. Go ahead.
Mr. Kvisle: It is fine to disclose them. I would encourage you not to divest them.
The Chair: Well done.
Mr. Kvisle: On slide 3, I have included a couple of slides here just to provide a little background to some of my thoughts. First, on TransCanada, the footprint there, I think it is reasonable for me to share my thoughts based on my experience over the last decade with that company. One of the things that you will see there is a very large pipeline system that goes from Alberta and, in fact, covers most of Alberta and traverses the country to Eastern Canada.
One of the points I want to make here is that we have an enormous amount of infrastructure in North America that is very valuable to our society. In the case of TransCanada, for example, a gas system that moves natural gas from Northern Alberta and Northeastern B.C. right through to Toronto, Montreal, and Quebec City would cost today more than $50 billion to construct this infrastructure, and it has a regulated rate base today of around $10 billion. People pay tolls based on a rate base of 10 billion and get the benefit of infrastructure that has a replacement value of about five times that. That just reflects inflation in the capital cost of building these very large projects, and we need to keep this kind of infrastructure running for the long term.
Today people look at the glut of natural gas in North America, and it looks very attractive to build pipelines from, say, Fort St. John to Kitimat on the West Coast, liquefy natural gas and export it to Asian markets where the price is much higher than it is today in North America.
However, there are questions here. If you look at my map, you will see that there is a dotted line for the Alaska gas pipeline. Seven or eight years ago the time had come for that pipeline. Now today we look at it, and maybe the time has gone for that pipeline.
Similarly, the Mackenzie Valley, by subjecting it to a six- or seven-year regulatory review process, we effectively prevented it from being built, and luckily perhaps. If it had been built, maybe today we would regret it, that it would have cost a lot of capital, and we just do not know how it would turn out.
You will see up in the state of Alaska that I have shown a short dotted line that goes to the Port of Valdez. Today there is no more logical, natural gas export project out of North America than moving Prudhoe Bay gas to Valdez and exporting it. It certainly makes more sense, in my mind, than bringing that gas down to Alberta, although I would note that the proponents of the project, TransCanada and ExxonMobil, do continue to examine both alternatives because these companies are looking 10 to 20 years out at what will the gas supply demand picture be like then. Maybe it will change as much in the next seven years as it has changed in the last seven, and the year 2025 comes and it once again makes sense for Alaska gas to be coming to the continental market rather than to the export market.
One of the challenges we face with big energy infrastructure is that it typically has a 30- or 50- or 70-year life. It is very difficult to predict what energy supply and demand circumstances will be that far into the future, and we need to recognize the value of some of what we see here.
The last point on that map that I would like to make is that we are building pipelines today that are the safest and most technologically advanced pipelines in the world. Canada's leading pipeline companies, Enbridge and TransCanada, are unquestionably the two best pipeline companies in the world.
If you look at the number of technological advancements in steel strength, pump station design, compressor station design, fuel efficiency, safe operations and reliability, there are no other pipeline companies in the world that have achieved the same standard as TransCanada and Enbridge. It is certainly not Gazprom like in Russia, where they have a much higher incidence of explosions, accidents and technical difficulties.
We built a lot of pipelines in the 1960s and 1970s that continue to operate very safely and reliably, and these pipelines were built with minimal regulatory review. They were built by professional engineers and construction teams that knew what they were doing, and remarkably today many of the construction techniques in the field are the same as they were back in the 1970s and 1980s. The only thing that has changed is that companies today employ armies of lawyers to get these things through regulatory processes that are really beyond belief.
I just want to lay that issue right up front, that most of what you see on that map could not be built today. You could not get a regulatory approval to do it.
You hear this alarmism from opponents of these projects. People who know how to build pipelines know that the Keystone pipeline from Alberta to Texas is a relatively modest challenge. This is not difficult compared to the pipeline we built over the Andes in South America, compared to what we are building in Mexico today, compared to building a pipeline from Fort Nelson to Kitimat. Those are a little bit more complicated projects — the Alaska Highway pipeline. All perfectly doable. We know exactly how to build them and exactly what to do. By comparison, Keystone is an easy project, and yet you look at what has happened to that.
The other bit of background that I want to provide you with is on slide 4 on the bottom of the same page. Over the past year I served as the co-chair of the Alberta Environmental Monitoring Panel for the Alberta government, and we were looking at what does Alberta need to do to meet and exceed the very best global standards of environmental monitoring, primarily focused on the oil sands region but more broadly on the province as a whole.
I wanted to leave with you the four key recommendations. I have attached to the back of my pack our submittal letter to Minister Rob Renner at the time. To summarize very quickly, we propose that Alberta create an environmental monitoring commission that would be an independent, science-based, operationally excellent organization that would be responsible for baseline monitoring, effects monitoring, and overall state of the environment monitoring, primarily and initially focused on the Lower Athabasca oil sands region looking at air, land, water and biodiversity, but over time expanded to include all of Alberta.
One interesting note I would leave you with is that in the six months that we did detailed work and had a very strong, scientific group of scientists with us and heard a lot from different advocates and agencies that submitted their views to us, it became very clear that the oil sands are the third or fourth environmental issue in Alberta in terms of impact on the environment by a very wide margin. The cities of Edmonton and Calgary are number 1 and 2, much larger than the impact of the oil sands. The third position would be a contest between the forest sector and agriculture in Alberta, the oil sands being somewhere down the list. That is why the Government of Alberta is interested in environmental monitoring for the whole province.
Our third recommendation is that it needs to be a scientific information agency; we were not proposing the creation of another regulator. This would provide information to government regulators, industry, and other stakeholders.
Fourth, and I think important perhaps to your committee, we strongly recommended that there should be greater collaboration between Environment Canada and the different environmental agencies here in Alberta, and this should not be a contest between the two levels of government to see who could take the leading role but, rather, an area for scientific collaboration between the two. Those are the two that I would offer.
I have one other involvement these days that I just mention in passing. I am the chairman of the board of the Nature Conservancy of Canada, so I just say that to let you know that I do have some serious and significant environmental interests. I am not just here speaking as a dirty oilman to your committee today.
I have here a group of slides that I am going to run through very quickly. I just wanted to leave some hard, factual information with you.
Slide 5 shows the energy infrastructure investment that is going to be required over the next 25 years by region of the world. This is generated by the IEA World Energy Outlook, and interestingly, you will see that North America is still the region that will require more energy infrastructure investment than any other part of the world.
A very significant part of that is in power, shown in the dark purple, and the reason for so much investment there is that we have an enormous number of coal-fired power generating stations that are going to reach the end of useful life over the next 25 years. We have a very large grid of electric power transmission in North America that is tottering on the brink of failure at any moment, and a lot of it must be replaced.
It is just interesting. It is a breakdown there of where this very major investment would go. That number is $6 trillion over the next 25 years. You could think roughly $100 billion a years in the power sector and a $100 billion a year in the oil and gas sector just to keep the lights on and provide motor fuels, accommodating very little growth. This is the kind of investment that is required every year in North America to keep this business running, the power sector, oil and gas.
It you look at the bottom slides, it shows there are many other parts of the world. I did not show Canada here, but Canada is really one tenth of the United States in terms of our oil demand. You can see that North America is pretty much going to be flat-lined, but there are other areas of the world that are going to grow very significantly.
Slide 7 puts a different spin on what you hear from many organizations that over the next 10 to 20 years we need to convert to solar and wind and other forms of green power and get off oil. There is a very strong off-oil agenda amongst some activist groups in North America today, and this is simply not realistic.
This is the International Energy Agency's outlook for North America. Look at U.S. motor gasoline, the bottom wedge. Unlike China or certain other developing countries, it is not growing by leaps and bounds, but we see motor fuel demand remaining in that 10 million to 15 million barrel a day range if you include Canada, Mexico, and the U.S., and it will remain relatively flat for a long time. You simply cannot change these enormous energy delivery and consumption systems overnight the way some people would have us do.
Slide 8 at the bottom is the outlook for Canadian oil production. That is a CAPP forecast, and it shows the very significant role of oil sands in situ, SAGD — steam-assisted gravity draining — and the great technological advances that are being made in SAGD production. This is a great innovation by Canadian companies, and when we talk about Canada being a laggard in terms of innovation, research and development, I would hold this out as a sector that is contrary to that. Great advances have been made.
On slide 9, the United States cannot be written off these days as a source of crude oil. If you look at their tradition conventional sources, yes, in decline, and for a country that consumes about 20 million barrels a day, their conventional sources are way down. However, it is tight oil, the Bakken play in North Dakota, for example, and natural gas liquids coming from things like the Eagle Ford shale play down in Texas that will really make the United States a significant force in terms of crude oil production into its own economy.
Similarly, on the bottom of that page, you will see that the big game changer in natural gas has been shale gas from U.S. sources, and it is not to dismiss shale gas in Canada. We have enormous potential here, but it is certainly more attractive for a producer to generate Marcellus gas close to the market in New York and Pennsylvania and places like that. We are challenged with natural gas growth in places like the Horn River Basin of Northern B.C. just because of the distance from market and the very significant cost of operating in such a cold environment.
You will see a green wedge there that we call B.C. unconventional, and it is a pretty big volume, growing to 5 Bcf a day. That is a great success story, I think, for the Canadian industry, and again it represents really remarkable technological advances that Canadians ought to be proud of.
Next is slide 11. Mr. Vredenburg talked a little bit about peak oil, and I would like to talk about peak gas here on this slide. In 1995 we had been through a period where gas demand had grown from 60 to 70 Bcf a day, and then all of a sudden demand stopped growing.
Well, it did not stop because people no longer wanted gas. It stopped because we had reached the limits of our productive capacity of conventional gas in North America, and the gas price had to rise towards $10 an Mcf in order to ration that scarce supply. However, the market worked. As the gas price rose to $10, it made it possible for people to try different things — drilling horizontal wells into tight shales and then multiple fractures, and be darned if that technology did not work, and now it is economic at less than $5 an Mcf.
You see that the growth is once again commenced as we went through a period of peak gas, and then it emerged out the other end with new technology. That total supply line, really — what is called total demand at the top is also equal to total supply since there is relatively little gas going in or out.
You can see that electric generation, as we convert aging coal-fired plants to cleaner-burning natural gas, this is the main driver of natural gas in North America.
On the bottom of that same page, we show coal going down, perhaps not quite as dramatically as some people would expect, but we have more than a trillion dollars in North America invested in power generation facilities. To take an investment of that magnitude and turn it into wind farms or solar panels or something like that in a hurry, this is a 50-year exercise that we are on.
This is why Canada's commitment to Kyoto has failed. When that commitment was made, the analysis was not done that would show that you cannot possibly get there by 2012. This is a 50-year undertaking to shut down and replace this kind of infrastructure with something else, and we still have a very long period ahead of us.
Just to sum up on that, on slide 13, environmental impact here is not driven by activities of the oil sands or by power companies running their plants. In the end, it is driven by consumers, and more than 80 per cent of the emissions from a barrel of oil are generated by the consumer, by the vehicle driver. About 15 per cent are driven in production and refining, but if there were no consumers, there would not be any production and refining.
In the end, all of these things are driven by end-use consumption, and if we want to reduce emissions, firstly, we have to aim for a reduction in energy-intensive activities. Can we convince North America consumers to drive their vehicles less? Are they prepared to change their habits?
I would argue that maybe a carbon tax is the way you do that, but let us not fool ourselves — that would not happen over 18 months. A carbon tax will take 10 years to have an impact because it will cause people to buy smaller cars. It will not cause them to change their driving habits very much until they buy a smaller car.
Finally, advances in electricity supply: Electricity is a great source of hope here, I think, on the environmental front. Electric vehicles and other electric mechanisms can replace a lot of the hydrocarbons that we consume. Clean electricity sources, nuclear notably, can replace so-called dirty coal, but equipment replacement takes time, and in this case you are talking about a 30- to 50-year time cycle.
I am just going to skip over a number of the next slides that show you things. Maybe I will just pause for a moment on slide 16. Slide 16 is very interesting. It shows in the blue circle, in Northern Alberta, the greenhouse gas emissions that come from the oil sands. It shows in the caramel-coloured circle the greenhouse gas emissions that come from Canadian coal plants, and it shows in red circles the CO2 that is emitted by coal-fired plants in the U.S. You can see the magnitude. This chart represents more than a trillion dollars worth of power generation facilities that are going to take some time to construct.
I provided a number of comments on the regulatory challenges, on the value of imminent domain, on enhancing energy security, but if I could take you forward, and I will conclude on this, to slide 23. On slide 23 I want to talk a little bit about the economic value of North America being self-sufficient in energy.
When we import a barrel of oil from overseas, we send a cheque for $100 for that barrel to some foreign location, and there has been much discussion about ethical oil and about the security concerns of funding other regimes and things like that. I am not talking about that. I am just talking about $100 that leaves North America, and there is about $10 a barrel by our analysis that comes back to pay for equipment and services and supplies.
When you drill wells in the North Sea, they do not use a lot of North American equipment. When you drill wells in Southeast Asia, increasingly much of the equipment comes from China and other places like that. The Koreans have become the leading offshore rig builders in the world, and most of this other equipment is coming from places other than North America.
However, here, when we drill marginal, lousy oil wells in places like North Dakota and Drayton Valley and Grande Prairie and pursue activity in the oil sands, we have a very high cost structure. Of the $100 in revenue that is generated from a barrel, $80 of that flows back to North American service and supply companies, $20 a barrel for field development costs, and in the oil sands that is $40 a barrel. Field operating costs are $20 a barrel on average. In the oil sands it is more than that. Corporate overhead and professional and technical costs are $10 a barrel. It costs $10 a barrel to move Alberta oil to an end market somewhere else in North America, and then of course there is our government's benefit to the tune of about $20 a barrel in taxes from royalties.
The difference between importing a barrel and growing our own is $70 a barrel, and that is a conservative number. On one million barrels a day, that is $25 billion a year spent in North America, and with a normal GDP multiplier, that has a GDP impact in North America of more than $100 billion a year.
These are enormous numbers, and that is on one million barrels a day. We have the potential in North America to add five million barrels a day of self-sufficient oil and still dramatically reduce our oil consumption through more efficient vehicles and other processes.
Just to summarize, on page 25, technological advances in shale gas and unconventional oil would allow us to be energy self-sufficient if we had the regulatory processes that enabled us to do that. Canadian oil sands are a large and reliable source. Vehicle replacement, if we want to convert to a cleaner vehicle fleet, we have to have a 10-year time frame as we look at that. Power plants, we have to have more than a 20-year time frame. Environmental reviews must be free of inappropriate political influence if we are going to serve the public interest.
I would note that Canada's National Energy Board is an excellent and independent regulator that is almost entirely free of political influence. I am not criticizing the NEB at all here. The cost and feasibility of green solutions are frequently underestimated. We have got to address these development benefits and concerns with the public.
I would just conclude I think we need strong political and energy industry leadership to address the issues, engage our public and stakeholders, and restore credibility and really get the economic benefits of this very large industry more fully communicated to the public. I will leave that with you.
The Chair: Thank you very much, sir.
We are faced, colleagues, with a bit of a dilemma. We have a wonderful roster of other presenters coming. My master to my left says we have 10 minutes for questioning, and I have a list that would take us until Friday. Let us try to each have one question, and let us try to make them crisp and also the answers, gentlemen, if we could.
Your presentations were super, and they evoke many questions. Senator Mitchell, please proceed.
Senator Mitchell: Thank you very much. I am very impressed, but I will try to make this my top priority question.
The minister of energy for Norway was quite surprised that we would be considering carbon capture and storage and not have a carbon tax, although we do have some carbon taxes interestingly across the country.
Yesterday, Eric Newell presented and said he does not see how we could do carbon capture and storage without a carbon tax. You have presented that carbon capture and storage is probably one of the core key kinds of technologies we will need if we are going to confront the reputational pressure. Even if people do not want to accept the consequences of climate change, there is no debate that there are some economic consequences of the world's thinking we are not dealing with it. That is key.
However, it is not happening. You mentioned that we need industry leadership, we need political leadership, but what is the industry doing to say, "Look, we have to deal with this. We have a reputational issue. We need to get this carbon capture and storage, and we need a carbon tax to do it. So, government, will you do that so we can get some structure and some certainty and some motivation to allow us to do it effectively."
Mr. Vredenburg: I think there is something happening along these lines. The North West Upgrading here in Alberta is one of the things that is working along those lines. This is a new upgrader and refinery, which intends to capture CO2 from the upgrading and refinery process and capture it into a pure stream of CO2 that can be used for enhanced oil recovery for which there is a market here in Alberta. It is not everywhere in the world, but the reservoirs here in Alberta are a potential market for that.
There could be other places in the world that this could also work, and part of what I think we need to be doing is moving into these technologies.
The Government of Alberta has provided funding for these initiatives. A number of other companies are doing other types of things — Swan Hills Synfuels is another one that comes to mind, and of course the Cenovus project in Saskatchewan.
Certainly some sort of carbon pricing, in my opinion, would be helpful to move this along further.
Mr. Kvisle: I am a proponent of a carbon tax but not to facilitate projects like carbon capture and storage. I think a carbon tax is necessary to focus the consumer and to reduce demand for some of these things and change consumer behaviour. I think we should look at it that way.
When it comes to carbon capture and storage, about 2 per cent of all of the different applications that people consider actually make sense. I think the North West Upgrading one that Mr. Vredenburg just mentioned is a good example where you can design a new plant from the ground up to provide for carbon capture and storage. However, people talk about retrofitting CCS facilities onto existing coal-fired plants, for example, as being the solution that will enable coal-fired generation to continue. That is a bad move. From an engineering point of view it is absurd. When you look at what is required to capture and compress and put that CO2 into the ground from an existing power plant, 40 per cent of the electricity produced by that plant will be used by the compressors that compress it. It is not the high pressure you have to get it to. The reality of compression is that it is dealing with atmospheric gases that are hot and contaminated with other things. It is not just CO2. There is nitrogen in there, overwhelmingly, and you have to deal with all of that.
We at TransCanada have done the horsepower calculations, and I fear that most proponents of these kinds of schemes have not done the horsepower calculations. I would suspect they do not know how to do horsepower calculations.
It is a big mistake, in my view, for Canada to link its future to CCS and some of these things, recognizing, though, that there are specific projects where it does in fact make sense. Coal gasification is a good example, where it is a coal gasification scheme that is operated for decades in North Dakota. It has been uneconomic from day one, but it was built with U.S. federal government funding. It now operates, more or less, on a break-even basis, but they do have the opportunity to capture CO2 in a technically sensible way there, and that is the CO2 that goes into the Weyburn Cenovus project.
There are very few situations where it works, and it is a simple engineering calculation that would drive it.
Mr. Vredenburg: I agree with how the greenfield site is where this thing works, where you can get the pure stream CO2; and secondly, and I do not think you emphasized it, there is a market for it. There is a market here just putting things into the ground.
I was just in the U.K. as well. They have all kinds of boondoggle projects there that are totally uneconomic. You cannot just stuff the stuff in the ground. There has to be an economic market for it.
Senator Neufeld: Thank you both for great presentations.
Mr. Kvisle, I have to sort it down to one question. When you talk about a carbon tax applied broadly, what in your mind would you do with the money that you gather? I will say this, if Ottawa did that, I fear that it would end up in Ottawa and not make its way back anywhere else. How do you actually do the second part of it? I know that would have to probably be a long answer, but if you give me, maybe from a 50,000-foot level, what your thought process is on that.
Mr. Kvisle: Senator Neufeld, what I would not do is use the proceeds of a carbon tax to subsidize different schemes that are not technically sensible. I would not do that.
I think the simplest answer is that if significant money were collected from a carbon tax, there should be offsetting reductions in income tax and sales tax and other forms of tax. I think the sensible answer is to treat it as another source of general government revenue and, where possible, reduce other taxes.
Senator Neufeld: So you would follow along with British Columbia's carbon tax, which is revenue-neutral?
Mr. Kvisle: I spend a lot of time every summer driving around in British Columbia, so I pay the British Columbia carbon tax, and that tax is not adequate to cause me to change my driving behaviour, but it will be adequate over a period of a decade to cause people to buy different cars and to drive different vehicles. I think that is where the B.C. carbon tax makes sense.
Senator Banks: Thank you, gentlemen, for being here.
It is very difficult to ask one question, but I will. It is simplistic. I am an Albertan. I believe strongly that value- added work should be done in Alberta with respect to our resources where and when possible, and you have talked about the effectiveness of price points and changing people's behaviour.
I will use the example of Premier Williams in Newfoundland who had the Voisey's Bay resource, which the companies who were exploiting it — and exploitation is a wonderful word, not a bad one — said, "We can most effectively and efficiently and cheaply refine this material elsewhere, so we are just going to load it on ships and take it away." Premier Williams said no; he shut the door, and nothing happened with that resource or its extraction until the companies came and answered his request, which was that you will refine it here and we will export a more finished product.
Please give me your reaction to the concept of using that with respect to the exportation of Alberta bitumen rather than refining it here and exporting oil.
Mr. Kvisle: I will take a stab at that one first. I think if we had a finite, very limited supply of bitumen and we had one shot to get it right, then I think we would want to look at things the way Premier Williams looked at it with Voisey's Bay.
However, I think the first point is that we are not constrained in terms of the amount of bitumen, and with something like TransCanada's Keystone pipeline project, it has been criticized as a conduit for the export of bitumen. In fact, TransCanada would be delighted if that oil was upgraded to synthetic crude or refined products. All of those things can be moved through the Keystone pipeline, and the operating costs of doing so are a lot less if it is a less viscous product.
Nothing stops that pipeline from being used for other services. The batching of products is quite common in the pipeline industry.
The problem I see today is that the construction of a greenfield refinery is not and has not been economic anywhere in North America over the last 25 years. With flat demand for refined products and existing refineries that can be updated, upgraded and expanded much more cheaply than building a new greenfield refinery, the margins on refining are generally so narrow that they will not cover the capital cost of building a new refinery in Alberta or anywhere else.
The solution that, for example, ExxonMobil has chosen for Kearl is that they recognized it is economic to go ahead with that project if they can move the bitumen to their existing refineries and process it there. In the absence of the ability to move that bitumen to an existing refinery, the project — and I am not speaking for Imperial or Exxon — but the project may well not go ahead at all.
I think the right approach for Alberta to take is, in fact, to let the market decide, to study the economics of refinery construction where there are niche projects like North West Upgrading that can convert a bitumen stream into diesel fuel that is in short supply in Western Canada, to do those kinds of projects but to be very careful about subsidizing or otherwise stimulating construction of uneconomic refineries in Alberta because those will be a big burden on Albertans over the long term. When it is economic to build one and when there is demand for one, I am fully supportive of that.
Mr. Vredenburg: If I could just add one thing to Mr. Kvisle's comments, and this is thinking I have been doing of late, seeing the public opposition to moving bitumen in pipelines anywhere in North America, perhaps if we did more of the upgrading and refining here in Alberta, moving refined products would be an easier prospect with less opposition. That might be another reason where that might factor into the economics in the long run with this reputational thing again.
Senator Banks: Not to argue, but the efficiency of the cost of refining is exactly the argument that was made by the extractors in Newfoundland. That is why nothing happened for several years. I guess it was a price point move. It got to the point they said, "Okay, we will refine it there."
Thank you very much for your thoughts.
The Chair: Senator McCoy, can you fit into this tight, tight time frame here? We have already passed the limit.
Senator McCoy: First of all, let me apologize for being late. I am still not attuned to Calgary traffic, and I got caught.
Thank you both for coming and of course for your excellent presentations. I have far too many questions, but where I landed, and both of you, at least at one point in your presentations, was almost on your last slides — well, not quite with you, Mr. Kvisle. It just seems to me we spend all our time talking about upstream activities and fuels and so on, which we have to understand, and we asked you to talk about the global demand and so forth this morning. However, we do not concentrate on this concept of value and use, and we do not concentrate on talking about how the environmental impact, for example, in the mobility side of things, which is the use of oil, is where the real impact happens.
Maybe my question is far too big to be addressed, but maybe you can just comment briefly: How are we going to change the nature of our public dialogue so that we get people focusing on the end use? It is not just stopping driving, and it is not electrifying cars, I do not think. It is not saying, no, I will not to drive anywhere anymore. We have not really said to people you cannot get off oil; we do not want you to change your life-style in North America. But how will you take control of this? How are you going to engage the people in that kind of a conversation? That is a bit too vague of a question.
Mr. Vredenburg: To answer your question, what Mr. Kvisle was saying earlier is that a carbon tax is one thing that puts some rationality into looking at other alternatives, even if fossil fuels are going to be with us for the foreseeable future.
I agree with Mr. Kvisle that major subsidies are probably not a good idea, but finding some way to cost in the negative aspects of fossil fuels through a carbon tax or something like that makes sense.
Mr. Kvisle: I think that an economic price signal is the only proven way to change behavior that people will, in fact, modify their consumption habits if it is expensive enough. You can make it pretty expensive. I spent some time in Norway in the last year. If I recall correctly, I was paying about $3.50 a litre for gasoline for a vehicle there. It probably did not affect my decision to rent a car and drive around a bit, but it would sure affect my decision as to whether I wanted to drive a Dodge Ram truck with a V10 engine if I lived in Norway. I do not think I would do that. I do not do it in Canada either. I think those are the kinds of things that would cause people to change their behaviour. It is all about price.
Mr. Vredenburg: I think Mr. Kvisle's point there is absolutely right on. If you look at Western Europe where energy costs are generally considerably higher than here, their lifestyle is really not negative compared to ours, but it is less energy impactful.
Senator McCoy: It would be interesting to have a public relations campaign that was focused on some of this messaging, right? I would like to see a big billboard that says, "Would you like to pay $3.50 a gallon?"
Mr. Kvisle: There are other things, though. The most energy-efficient group of people in North America is the good citizens of New York City. The energy consumption per capita in New York is dramatically lower than, on average, for North America. Sadly, one of the least energy-efficient groups of people is the citizens of Toronto, with the very sad, rapid transit system, subway system that exists there relative to a place like New York City.
There are public policy issues around the development of infrastructure. I think Calgary should be very proud of the transit system that is unfolding here. I myself rode downtown today on the C-Train system. I did not get stuck in traffic.
Mr. Vredenburg: I came on transit as well.
Senator Massicotte: Thank you for being here. I will ask a quick question. The reputational issue that we are facing in Canada, in Alberta, because of the oil sands has probably prejudiced the Keystone pipeline regarding the issue, and I congratulate you for your recommendation of a permanent commission. I think that is a major first step.
Let me deal with my comments. With respect to IEA, you referred to a report from a month ago. The way I read it, the report basically says that if the governments do what they committed to do, we will exceed the 2 degrees by 3.5 degrees Celsius, and if they continue with the existing path, we are probably going to get more than 6 degrees Celsius.
The way I read the report, I thought they purposely rang the alarm bells. The way I read it, I said for sure we are not going to meet the 2 degrees. Is that how you read it? If that is the case, they seem to be pleading to the world, "Wake up — you are hitting the wall big time."
Mr. Vredenburg: I do not disagree with you, and I do not think anybody thinks we are actually going to meet those targets. I do not know if science really knows what the effect is — is 2 degrees the magic number? I do not know. I do not think so.
David Keith is on later this morning, and he can comment on that. We have discussed that. There is no magic to that 2 degrees, and I do not think we are likely to attain that, but are they ringing the alarm bells? I think the environmental community, and that includes in some cases organizations like the IEA as well, has been sounding alarms for far too long. I think that is one of the reasons we see nothing happening with Kyoto and other types of policy movement: Nobody knows what is going on.
A lot of people, including the Al Gores of this world, have been crying, "The sky is falling," and I do not know if that is really what is happening. However, when the IEA says that we probably need to be looking at these policies and various people are looking at policies, we are probably going to be seeing that. Will we see something that is going to limit us to 2 degrees? I doubt it.
Senator Massicotte: We always say let us go science-based. What is the preponderance of evidence today? What is the consequence if we do not meet it?
Mr. Vredenburg: What are the scientific outcomes of exceeding 2 degrees? I do not think anybody knows. It is a live experiment. It think we will see when we get there what happens, but I suspect it will not be as extreme as what we are saying, but we really do not know.
All kinds of things have suggested; the whole environmental community, in my view, has overstated the case in order to get people's attention, but as a consequence nothing has been done because it has been overstated.
Mr. Kvisle: I very strongly agree with that. I think the challenges of modelling the atmospheric system of the earth are enormous. I am a person that has had decades of experience attempting to model oil reservoirs, which are also very complex but are much more tightly controlled. There is an 80 per cent error rate in the modelling of reservoirs. We get it wrong 80 per cent of the time.
I have tried quite rigorously to drill down into the so-called scientific evidence of what is going on here, and the reality is this is all based on modelling of very complex systems. It is very difficult to get your hands on the information behind the assumptions of these different models. I think we do not know how much impact humans have on the CO2 concentration in the atmosphere as compared to other sources, and we do not know how much impact a higher CO2 level has on global temperature. There are conclusions provided by a lot of different models by a lot of people, but there are also very different conclusions provided by other modelers who get kind of scorned and distained when they bring their findings out.
I think it is a very complicated situation, and I do believe we should dramatically reduce consumption of hydrocarbons because the developing world is coming at us with a huge demand, and we need to do something about that, but I would not be an alarmist about what the consequences are going to be because I just do not think we know.
Mr. Vredenburg: Just to emphasize, I do think policy-makers are increasingly working at reducing greenhouse gases and saying it is not likely to happen, which I happen — whatever happens after 2 degrees, if we do not know anything about that, that is not enough reason to say, "Well, we should not pay attention to policy-makers who are moving in that direction around the world." I think we are going to be living in a carbon-constrained world.
Senator Brown: Thank you, gentlemen. I really was fascinated by your program.
We have got telephone calls that cost by the call, and we have electricity smart meters. Carbon tax seems to be a death knell in politics right now. Why can we not find a way to take this 80 per cent, the costs of the consumer, and use it as some kind of a transportation cost or something, put a meter on their vehicles or something so that they are paying by the amount of driving they do? It seems to me that would push the consumer a lot faster to buy cars that can really change.
I drive a four-wheel drive myself. I have to because I live in the country, but the one I got this year is almost 50 per cent less consumption than the one I had before.
Mr. Kvisle: I think you raise a very interesting point because a carbon tax would cause the consumer to use less hydrocarbon per mile driven. A taxi meter approach that you are talking about would attack the other problem of how you inspire people to drive fewer miles.
I think there are two different drivers of overall reduced consumption and reduced emission. I do not think anything like that should be ruled out. I do think, though, that the public, the negative public reaction to having taxi meters imposed on their vehicles might be even more than a reaction to having a carbon tax at the gas pump.
We have seen in British Columbia that the public actually has been reasonably willing to accept a carbon tax at the gas pump. There are, of course, vocal people who demand that you have a carbon tax, and there are vocal people that demand that you have no carbon tax, and between those I think are 80 per cent of the population that would be quite willing to go along with it.
Senator Brown: The smart meter works really well on electricity. Why cannot it work on transportation? If you slow down and reduce, maybe you would get some cut off your bill.
Mr. Vredenburg: I think the carbon tax or a variation of that to me makes a lot of sense, but we also have the other side of the equation. You also have to have good alternatives.
You can have a huge carbon tax on things, but if you do not have good public transit systems or cars that reduce your fuel consumption, then you are no further ahead. All you are doing is increasing the cost. You do have to have the alternatives as well.
Senator Sibbeston: Can you please comment a little bit further about the Mackenzie Valley pipeline? I think I heard you say that you were not too optimistic about it proceeding, but could you elaborate briefly?
Mr. Kvisle: I think there are three issues that I very quickly identify with the Mackenzie project. One is the impact that the regulatory process had on the overall capital cost. The pipeline itself, people talk about a $16-billion project, and $8 billion of that was the pipeline project. That $8-billion pipeline would have been a $5-billion project if the regulatory process had not added $3 billion to the overall cost of it.
We have got to learn how to get through these processes. People in the industry can pretty adequately predict that at the end of the process the pipeline will be seen to be acceptable and in the public interest and can be built safely. Interestingly, that is the determination on the Keystone pipeline, that the environmental impact assessment has confirmed that that pipeline can be constructed safely and without environmental impact of any significance. That would be my first point on the Mackenzie. We added an awful lot to the cost of the project as a result of that.
The second point is with just the gas reserves that are discovered today in the Mackenzie Delta, there is not enough gas to make that pipeline economic for a 30-year life, which is the life you need for a pipeline. However, I think we all know that once the pipeline is in place, further drilling will follow just as it has done in Alberta and B.C., and you would see that go. That is a problem when you expect the proponents of the project upfront to take the risk, that they or someone else will find enough gas to make it pay for the long term.
The third point is shale gas development in northern B.C., and really coming throughout Alberta, has created a huge supply of gas in Western Canada that now means that the Mackenzie pipe is bringing gas to a market that is probably already oversupplied with gas, and that is going to be a big challenge.
I do worry about the prospects for it, but to their credit, I know the people at Imperial Oil continue to work with the Government of Canada to try to find a way for that project to go ahead.
The Chair: Thank you so much, Mr. Kvisle and Mr. Vredenburg. It has been a terrific start to what is going to be a long day for us but a very fascinating one, and you have set a great tone, and we are grateful to you both.
We are going to move directly into the next panel. Colleagues, we asked these folks what role technology will play in the transition to a low-carbon environment. That is the focus.
Good morning. I think there is one more gentleman, Duke du Plessis. Coming from Quebec, whenever I see the name du Plessis I get goosebumps.
Gentlemen, welcome. It is a great pleasure and honour for us to have you three come before us. As I just said, I think you have all been presented with the sort of question as we transition, or as we might transition, to a lower- or low-carbon environment, the role that technology would and could and should play.
I am not going to go into your bios, if you do not mind, gentlemen, because we are behind time, but on my left we have with us Mr. Richard Adamson, Managing Director of Carbon Management Canada Inc. From Alberta Innovates, on my far right, is Duke du Plessis, Senior Advisor, Energy Technologies, with Alberta Innovates.
I do not believe you are francophone, but it is great to have you here, Mr. du Plessis.
With us as well is Professor David Keith from Harvard University.
We are all ears.
David Keith, Professor, Harvard University: Senators, I am going to not talk that much about technology. I do lots of work on technology. I am happy to answer questions about it, and I also run a start-up company, so I do plenty, but I think I am going to talk more about policy. I am a professor of public policy at the Harvard Kennedy School, and I do a fair amount of work on energy policy, mostly in the U.S. and internationally.
I want to speak a little bit to the confusion that there is, I believe, around the way Canada and Alberta are reacting to pressure on the oil sands. There is a kind of miscommunication between the two sides. There are obviously multiple sides, and I hope my comments can throw some light on that.
One standard way to understand this current dialogue is to say that the problems are water, the problems are the fact that the Keystone pipeline is going over the Ogallala Aquifer, the problems are local emissions, and that the solutions are to make oil sands operations a little bit cleaner, do a little bit better job on water, educate the public that the oil sands really are not as bad as some extreme people in the environmental community say, and focus on getting consumers to consume less.
That is some of the sort of dialogue we heard in the last session. I think in some way it confuses strategy and tactics of the folks who would like to see oil sands closed down, of which I am basically one, in a pretty fundamental way. When you are in a battle, confusing what your opposition is doing is not a good strategy for winning.
Let us think this through. The people who are running the big environmental movements, who have helped to marshal a campaign to attempt to block oil sands development and shut it down have a well-defined, coherent, strategic vision. I work with many of those people. They do not say explicitly what it is, and I am not speaking explicitly on their behalf because in any battle, whether you are battling about internal institutional politics, or whatever you are, strategy and tactics are different things. You will say different things in the heat of the battle from what your long-term strategic goal is.
There is a long-term strategic goal, which is to shut down oil sands operations, and that goal, from the point of view of people who care about long-term future of action on managing climate risk, is a perfectly sensible goal. The reasons for that goal are the following: They have nothing to do with local environment pollution or tailings ponds or water. It has to do with the fact that the oil sands are relatively — are very large amounts of oil and that they are relatively high- carbon oil production and that they represent a very long-lived capital stock. Things like Keystone XL represent a very long-lived capital stock that will make it hard to introduce alternatives.
If you believe basic science and math and you understand that we are going to have a problem if we keep putting carbon in the atmosphere forever and you see it as your job to try and steer humanity away from that, then you do not want to see investments like this. In particular, you know that investments in oil sands, compared to a world with less oil sands, will be a world where, all else being equal, petroleum prices are less, because oil sands are a source of petroleum products; and if you want to introduce alternatives to petroleum products, be it advanced biofuels or electricity or what have you, you do not want that and you do not want those carbon emissions. So you have a strategic view that you want to shut it down, and then you also have the problem of real world politics, that it is easier to mobilize people around single projects than it is around generic things like carbon taxes.
There is a set of reasons like that for why people have chosen to put so many political chips on blocking Keystone XL. However, those reasons, the reasons that are the fundamental strategic reasons why people put that many political chips on that, are not what they say in the heat of the battle. That is not lying. It is just normal politics, but it is important this community get it, because my impression is a lot of people in Alberta sort of think that if they just do a little bit better job and we make the oil sands 30 per cent better and we have a better water monitoring policy and so on and we put some windmills here that the opponents will kind of go away.
No. The objective is to stop it because the climate problem is real. That does not mean we have to shut it down right away. People earlier said, 50 years, it is a long problem. However, the objective is to shut them down, period. It is a problem with the product, the oil, not the process. The people whose strategic goal is to shut it down have a problem with the product.
I think understanding that is pretty important because this is a threat that this country faces and this town faces particularly. I spent two weekends ago in Detroit where they are literally bulldozing suburbs. That is what happens when you have a single-industry town and things go bad.
I think it is quite possible that that will happen here in 30 years. This is a very risky place. We are at the cutting end of fairly high-cost, high-carbon petroleum. If the world decides it does not want that product, it makes no difference what people here decide. Let us be clear, the Alberta government is not going to regulate itself out of existence, of course not.
People here are doing what is in their short-term interest, and I do not blame them. They should be. I am a shareholder in some of these companies. They should do exactly what they should do to protect shareholder interest.
However, it is important for us to think as a community about what that long-term threat is. The long-term threat is serious. The long-term threat is that people decide, for reasons that they see as sensible, that I also happen to believe are sensible, that they do not want that product, and it will not be a single snap decision. I think things here look really grim, and we need to think hard about managing that risk, and managing that risk means investing in things that can win in a seriously carbon-constrained economy. It is a hedging strategy.
Some of that means technology innovation, but it does not mean technology innovation to make the oil sands look better because that is not going to help. It does not mean you should do none of that, but it is not going to deal with the fundamental risk that this community faces.
That is what I want to say about strategy and tactics. I was not planning to do it, but I will actually say a little bit about climate science because it was brought up last time. I think it speaks to a — and I am happy to answer questions about the strengths and weakness, opportunities and threat analysis.
The Chair: First, are you a native Albertan?
Mr. Keith: No, I am not a native Albertan. I have lived here seven years. I love it. I hunt.
The Chair: You have a business here?
Mr. Keith: I have a business here. I absolutely love it here, and I am a native Canadian. I grew up in Canada, and I truly think that what I am thinking about is in the interest of Alberta in the long run because if you want to see a thriving community here in 20 or 30 years, those interests are not the same as the interests of shareholders in the big companies here.
I am also a shareholder. Companies are run by the shareholders. Their interests are short-term by definition. That is the way we define them, quarterly. Those interests are different, and we need to think hard about the interests of this community and about how we employ this many wealthy people in a town like this, and how we do it 20 or 30 years out.
The Chair: As I said, I was not going to read out their biographies, but they are in the binders, and this gentleman is a big example of the risk of the brain drain to the U.S.A., a big superstar Canadian.
Mr. Keith: A couple comments about climate science, because it was raised. I think it speaks to one of the central weaknesses here, which is a lack of understanding of the threat.
I agree with lots of what Mr. Kvisle had to say. I think he is exactly right about carbon tax and many other things, but let me just say some things about both the reality and the optics of having an oil executive say what he said about science. Each of the things he said was wrong, and I will say why, but, also it is not just the fact that they are wrong, it is the fact that he decided to do that, and that a bunch of the community and the community around here nods their heads. It is not just him; it is everybody. It is much of the community. You walk around this community. You go to parties and people just routinely believe they know better. Believe it is just all wrong.
That is not the way you win in business. You do not win in business or war, or whatever, by misunderstanding the facts. You win — I mean, understanding the facts does not mean you have to do what all the environmental advocates say right away. If we take seriously the fact that the core science is right, that does not mean we have to cut emissions right away here. We need to get the money out of the oil sands in the near future to do whatever else we are going to do. It does not mean we just capitulate, but pretending that one plus one equals some number other than two is not a good strategy.
Let me bring up what he said: It is only models, and it is very hard to get at the assumption of the models. I do not know if he spent much time doing it, but since almost all the models have all their code and documentation public on the web, I the other day actually had to find a radiation code or part of a climate model because I wanted to change it, and it took me about five minutes to bore down to the core. It is all public.
We were told that other models that are somehow popular get other answers. That would be a very strong critique were it true. There is not a single model that obeys the basic laws of physics, that is an actual real computer model of the climate, that shows no or very small impact of CO2. If there was, we would be in a different world where scientific uncertainty was much larger. There is not one of those. I am happy to hand over $10,000 to anybody who gives me one. There is not one, and the reason is because those laws of physics say something.
What there is is a bunch of critics, some industry-funded, some sincere, who will carp around the edges, and they can find lots of little holes around the edges, which is, of course, true. Science is a big ugly thing with lots of nonsense, like any other human activity. However, the reason this science has been stable for 100 years — the first modeler that got the right answer was in the 1890s with a pen and paper — is because the core physics is really pretty simple. There are lots of high-quality observations on which that physics is based.
One last thing that made me smile: "We do not know how much impact humans are having on CO2." Come on, at this point the uncertainties in the carbon budget are down to about 10 per cent. We have multiple, completely independent, overlapping ways to measure that. We have it nailed. Claiming that that is not true, to me is like it speaks to a problem we have in our society of a kind of fundamental lack of trust in institutions of science and in rationality. It is the same kind of attitude that we have saying that vaccines are dangerous so we will not vaccinate our kids or that cell phones cause cancer or that evolution is not true, sort of a fundamental turning away from rationality and science. If we do that in the West, the Chinese will beat us because they are run by technocrats. We better be serious about being honest about what is true and real and not confusing strategy and tactics. Thank you.
The Chair: Thank you, professor. That is very interesting. Since I am a right winger, I will go to Mr. Adamson next.
Richard Adamson, Managing Director, Carbon Management Canada Inc.: Thank you very much. It is a real honour to be asked to present here.
The Chair: That is my hockey position, not my politics.
Mr. Adamson: Having listened to the previous presentations, I feel like an awful lot of what I was about to say has been covered, and very eloquently as well, but I will go ahead and say it anyway. I am going to introduce Carbon Management Canada in some of my opening comments because I suspect, since we are a relatively new institution, many of you may not be aware of us.
Carbon Management Canada is under Networks of Centres of Excellence Canada. We were established in 2009 to develop the people, technologies, and insights to enable fossil fuel recovery and usage and other large stationary emitters to radically reduce carbon emissions. The focus is on innovation, which, by definition, only occurs when research results are put into actual practice. Therefore, we also concentrate on creating the means that will lead to links between academics and practitioners in industry, government, and NGOs, and specifically aim to increase the innovation practice at Canadian universities.
The company is supported by the federal and Alberta governments and seven fossil energy companies. We currently have over 150 investigators across 26 universities and colleges in Canada. We have administered two rounds of funding and are working on our third. Up to now, we have 36 research projects funded at about $18 million in total direct funding, plus a substantial amount of attracted funding from industry and other government sources.
In previous calls, the emphasis was on fossil energy sector with a few projects in generic emission reduction technologies such as accelerated rock weathering and mineralization of CO2, direct air capture, including some of David Keith's work, and other areas.
In the present call, CMC-NCE is also seeking projects relating to reducing emissions associated with mining, metallurgical processes, and cement production. CMC-NCE funds research with ambitious projects aimed at game changing technical developments and social policy change rather than incremental developments. The network also encourages multidisciplinary, multi-institutional, cross-sectoral and international participation in projects in order to facilitate breakthrough thinking and to challenge Canadian researchers to engage at a global level.
I am going to skip forward to some degree here. Part of CMC-NCE's mandate is also to help fulfill the growing demand for highly qualified professionals to work toward this end. It established a national HQP development committee. The key issue is that with respect to our HQP development and such, we have been looking at CCS development. We have been looking at all the different technologies that are under development, and we have been looking at the curves that are implicit in the government's commitments to carbon emissions reductions.
One of the key issues that are often underplayed is the shortage of highly skilled people that we are going to require to be able to implement these technologies, assuming that there are actually economic incentives and the rest of the stars align to actually implement these projects.
Many of the skill sets required, for instance, in carbon capture sequestration are variations of those that are required for the oil and gas industry. With demographic shifts and such that are happening right now, we are going to be facing a dramatic shortage of those skills for the existing industry and its plans, let alone layering on top of it the CCS side. That actually may well be the limiting factor in addressing this. If all of the other policies line up, we may find that we cannot implement it just because we cannot get the people to do it, not on the time scales we need to.
Moving ahead to the section on barriers to success, of course having the right people trained and in place will only work if the solutions that are presently in hand and those that are under development are implemented beyond a handful of demonstration projects. One of the primary barriers to pushing research forward, attracting new people in the various required fields and transferring research results to practice is the lack of a clear economic incentive to reduce carbon emissions. Some of this may sound familiar.
For many there is no clear return on investment in carbon management technologies, especially carbon capture and storage, which requires a large investment of funds. Instead, many in industry seek a focus on technologies that will reduce carbon emissions incrementally with existing technology, offering an immediate return and at low cost. Although important, these do not have the potential to meet our commitments. There is a lack of market pull for game-changing technologies.
Many promising technologies are being produced already through the first rounds of CMC's funding and through other funding processes. What is needed for these results to represent true innovation is the hard work of transfer to practice, moving from the bench scale to pilot demonstration and full commercial implementation, which requires a commitment of time and effort, as well as a substantial funding on the part of research, industry, and regulatory communities. However, without economic signals, the results of even the most promising research will stop at publication, as much good research has done before.
This is the Canadian dilemma. We are in the A leagues for basic research but well down in the B leagues for innovation and technology deployment.
Despite this, there are two strong paths that could lead to opportunities. One is to develop relationships with the EU and Asian technology companies to maximum commercialization through those channels where risk-taking is greater and piloting a more accepted route. While much less of the economic benefit of the research efforts will accrue to Canadians in this path, at least the technologies will be commercially available for Canadian industry to purchase when economic conditions create demand. We will be buying our own technologies off the Toshiba and Mitsubishi industries.
The second is to establish a broad, transparent and easy-to-understand national carbon pricing structure. Although many say this carries a huge economic penalty, this is an assumption that needs to be checked. According to the Conference Board of Canada, Canadian energy intensity dropped by 34 per cent between 1971 and 2008. Often the oil price shock of the 1970s is used to support the direct linkage between energy price and economic impact. However, the link is weakening. Further, as the investments and innovations fueled by these incentives are implemented, that link will weaken at an accelerating pace.
The Canadian research community has tremendous research capacity to solve crucial challenges relating to industrial carbon emissions, but our universities and industry have not been successful in converting this invention through to innovation.
I speak with the industry folks downtown here regularly. We regularly hear that industry is willing to convert the results of research into practice, but only within the context of a secure regulatory environment and economic incentives. Many in industry speak of having plans "in the drawer" but are frustrated because they cannot justify implementation until they see the requisite signals. Many would willingly support more pilot or demonstration projects, but the uncertainty of the economic signals and timing makes it appear a risky bet.
The current global economic downturn has hit many countries hard, and they have been forced to temporarily downgrade their attention to this crucial area. Canada, however, is in a strong position to capitalize on its relative wealth, stability, and abundance of fossil resources to take a lead in the area of carbon emissions innovation. This will require clear, transparent, and broadly applied price signals.
Complex regulatory signals are difficult for entrepreneurs, researchers, and investors to interpret. Regulations that are ambiguous or open to divergent interpretations can increase the perception of risk. They also slow technology investment and development because it takes longer to understand and respond to the requirements.
Simple, broad, clear price signals can be accurately converted to economic return on investment calculations even by small to medium enterprises that do not have access to fleets of economists and lawyers. Concise, clear signals make investment decisions more rapidly assessable by investors and make research and commercialization priorities easier to access and implement. They also reduce the likelihood of unintended and perverse consequences.
Research funding by government is, of course, important. However, effective price signals will result in appropriately targeted private sector support and will attract more highly qualified researchers, entrepreneurs, and innovators into the field.
If Canada commits to taking a lead in valuing carbon emissions, we will build a stringboard for our future global industries. We will launch the success of coming generations by embracing the challenge and the responsibility that comes with our fossil energy wealth.
At the same time, the U.S. and many other countries in the world are stepping away from carbon pricing due to the exigencies of the deep economic crisis, which is hitting them more deeply than Canada. That differential is due, in large part, to the strength of the fossil energy sector in Canada.
This brings us full circle. The world's attention will inevitably come back to concern with global change due to greenhouse gas emissions. By moving now, Canada can leverage its position to be a supplier of technology to the world's fossil energy producers. Canada is in a strong position to understand and develop the next generation of technologies to address the carbon emission challenges associated with the fossil energy production and processing.
Where the object is to foster and accelerate growth of an ecosystem of innovation, the signals need to be clear and visible to researchers; to SMEs, angel investors, venture capitalists and bankers; to technology vendors, project developers and integrators, and service companies; and to the colleges and universities planning their curricula.
A clear, broad, predictable and transparent pricing scheme, whether it is mandated or set through market mechanisms, tells Canadians and the world that Canada recognizes that resource wealth brings both benefits and responsibilities and that we embrace those responsibilities. Canada is not a free-rider on the global environmental commons.
I would like to make a couple comments on some of the questions earlier. The comments regarding the impracticality of CCS because of its economics and its energy penalties were absolutely correct. Because of the lack of investment in innovation in that field, we are relying on economics based essentially on 1950s technology, which is being applied right now for the demonstration projects.
That is all great. It is demonstrating the concept, but one should not generalize from the present level of technology, which is basically cobbling together existing older technologies to demonstrate this concept, and regard that as being the ultimate end point of where this technology could get to. Approximately — it depends; it is always project-specific — 75 per cent to 80 per cent of the total project cost is associated with the carbon capture side of things.
Using amine fluid solvents is, as I said, 1950s technology; there have been incremental improvements in the solvents, but really there has not been much in the way of breakthroughs in that area. There are some fundamentally game-changing technology improvements that are being developed on the lab benches now. However, the rate of movement into practice will hardly happen at all unless there is some way of saying that, other than the four demonstration projects that are presently funded, there will be a future market for this. Without price signals, that is not going to happen.
Yes, it is absolutely right, the existing technologies are uneconomic. They are not going to be replaced by economic technologies until there are price signals to support that.
There was a question about what should be done with the funding that is collected through a carbon tax process. I think the Alberta government has it largely right with the mechanism that drives towards supporting innovation in the form of pilot and demonstration projects and such, although I certainly agree there needs to be a great deal of examination to make sure that their projects are likely or have a reasonable chance of leading towards something that is commercially viable. At the scale that it ultimately leads to, that probably is not sufficient, but I think that with a broad tax scheme or a broad carbon pricing scheme, there are likely to be consequences to certain economic sectors that may require some supplement or some compensation, and a portion of the funding should probably be directed to deal with that.
My concern with anything less than that, where it is a piecemeal regulation process, is that you can wind up with perverse situations where people reduce their carbon emissions over here by making decisions that result in increased carbon emissions in a less regulated area.
I will actually coattail a little bit on Professor Keith's comments on global change and the 2 degree Celsius issue. This past summer I attended a global change forum at MIT, which was a fascinating, eye-opening experience. Essentially, the way I have come to understand it is that 2 degrees Celsius represents what they refer to as a guardrail, and essentially the modelling gives a reasonably good prediction of what happens this side of the guardrail. The modelling predicts that other effects are going to start happening when you cross that line, and then the uncertainty increases as to exactly what the consequences look like as we go across the line. I liken it to we are going to go through a guardrail and into a fog. The environmentalists say it is a cliff. Others say it is pavement.
I suspect it is not pavement, but I do not think it is a cliff either. There are going to be some rough roads that we pass over as we cross over into more extreme global change issues.
The reason I use the term "global changes" is that there are false assumptions that come from people talking about global warming or people talking about climate change. The issue with CO2 in the atmosphere is much more than that. People talk about how the oceans will buffer and absorb CO2. That is true, but at a cost. The oceans then start becoming acidified. The surface layers of the oceans become acidified, and you start wiping out large portions of fisheries and things like that.
The modelling issue is not a thermodynamics problem. It is chemical and thermodynamic, and the biggest part of the whole problem with modelling is human behaviour. Social changes, changes in behaviour and changes in movements of people as a consequence as we start seeing these temperature changes all have to be factored into it. The crystal ball becomes very foggy when we look into extreme changes. Thank you.
The Chair: Thank you, sir. I was told when you go over the guardrail and into the fog, you come out on a beautiful links golf course.
Mr. Keith: You can always hope.
The Chair: We go now to Duke du Plessis. Mr. du Plessis is Senior Advisor, Energy Technologies, with Alberta Innovates - Energy and Environment Solutions, previously Alberta Energy Research Institute and Alberta Finance and Enterprise.
Again, sir, you have a very distinguished background, and we have it in our binders. We also have the document, and so we are all ears.
Duke du Plessis, Senior Advisor, Energy Technologies, Alberta Innovates: I am going to speak to these notes, the green handout that you have in front of you. I will page through those and just make some comments, if you want to follow through what I am going to say.
The second slide is the introduction of Alberta Innovates - Energy and Environment Solutions, AI-EES. It is a provincial corporation that was formed in January 2010. It is the research, innovation, and technology implementation arm of the Alberta government in energy and environment, and it has a long history. It started roughly in 1970 as the Alberta Oil Sands Technology Research Authority; then it became the Alberta Energy Research Institute for 10 years; and we are now what is called the Alberta Innovates - Energy and Environmental Solutions. I am still trying to get used to that name.
Our mandate has been expanded recently to include the Alberta Water Research Institute, and our goal is to be at the forefront of technologies and processes that are of strategic importance to the development of Alberta's energy, environment, and water sectors. Now we do not do that alone. We do that in partnership with industry and also through networking with R & D organizations worldwide. That is the background.
I want to go to the next slide, which is key messages. My key messages really pertain to the strengthening of Canada's long-term energy future, which is the topic of these discussions. The first point is that we all know Alberta's vast energy resources offer a long-term secure source of energy for North American and future global markets; but if we are going to expand and if we are going to meet these growing world markets, we need access to these markets.
The energy industry is a major contributor to Canada's prosperity. Currently about 23 per cent of oil sands-related jobs are outside Alberta. In the next 25 years oil sands will support 450,000 positions countrywide. In the same time span, Alberta-based energy companies will buy about $155 billion of services from Ontario alone. These are significant investments, a significant contributor to the prosperity of Canada, and, of course, it will also contribute to future jobs for the next generation. It is significant, and we have to take that into account as we contemplate future changes.
Innovation and technology development are the key for sustainable development and a sustainable future. This is what we are about. We are about technology and innovation, and we support a balanced portfolio that focuses on key technical, environmental, and economic challenges.
The point I want to make here, in this presentation, is that significant technology advances are being made through industry-government partnerships, in collaboration with other research organizations. I would like to give a few examples of those at the end of this presentation.
Going to the next slide, titled "Broader Energy Markets," Canada and Alberta have vast hydrocarbon and renewable energy resources. We know that. It is not only our hydrocarbon resources; we also have renewable resources. The markets that we are recently serving, the low U.S. demand growth, is affecting us in the export of those products to the U.S. Particularly, what has disrupted the energy industry is that the U.S. shale gas is eroding traditional natural gas markets. Certainly that has affected Alberta dramatically. You are facing increased world energy demand, and so we need to develop new markets, especially in Asia, if we are going to play in the world market.
We do recognize the environmental challenges, the perception that the oil sands is a dirty source, a high-carbon source of fuel, and that has to be one of the issues we have to take into account. One of the ways, and I am moving to the next slide, is to diversify products and markets and add value to our resources.
This concept is a policy of the Alberta government trying to encourage value-added production, and the concept here is to convert low-value hydrocarbon and renewable resources to higher-value marketable products, generally fuels and chemicals. To do that — and through this mechanism you can create new and foreign markets — you have to have low-cost feedstocks, leading-edge technologies, and competitive infrastructure.
There are impediments to pursuing this value-added opportunity. The examples that we have in Alberta now are that we have upgrading, refining bitumen to high-quality clean transportation fuels. The North West Upgrading was mentioned as an emerging project. To convert oil sands coke into hydrogen fertilizers and chemicals — coke is a waste problem — and the question is, can you do something else with it other than stockpile it? We have hundreds of thousands of tons stockpiled. That would be a way, if we could add value to that, to produce another revenue stream for our oil sands.
The third one deals with converting municipal waste into clean biofuels and products, and I will give an example of that project later on.
Those are all examples of the concept of adding value and diversifying our products and markets.
The next slide is technology is the key. The first thing to note is that this resource of ours, particularly the oil sands, is difficult to produce. It is not a usual reservoir, and you have to develop specific technology for that. That has been the history of the oil sands, to develop technology that will cost-effectively extract this resource.
In order to do that, we need game-changing technologies to reduce the cost and the environmental footprint, and that is sort of the area that we play in. The hard fact, though, is that it takes 20 to 30 years to develop and commercialize new technologies. The oil sands are an example of that. They started in the 1970s, and they are still — they are profitable now, but there is continuous innovation going on to keep them competitive. It has taken more than 30 years to get to that point where you are on the learning curve of being able to reduce both costs and environmental footprint.
This requires ongoing innovation and improvement, and it needs sustained, long-term investment in research and technology development. As I mentioned before, industry-government partnerships are needed to share the cost of risk of these very expensive and long-term investments.
I will go to the next slide. Progress is being made through industry-government partnerships. I have given some examples of the AI-EES investment portfolio, which is generally in four areas: energy technologies; environmental management, which includes water, oil sands tailings; and then carbon capture and storage; and renewable and emerging resources, including programs in renewable energy and alternate fuel.
We have a very broad portfolio. We are not only looking at oil sands or fossil fuel-based technologies. Then the question is this: What is government's role? We are a government organization. What is government's role in technology development?
The key role is to create the conditions for investment to occur in resource development. You have got to have a profitable investment climate, and you have to actively invest in research and technology development.
I will give some examples there. The example is the one that goes back to 1970. The Alberta Oil Sands Technology and Research Authority, AOSTRA, funded the underground test facility which now is the mainstay of the in situ extraction technology, the technology needed to extract our deeper bitumen resources. This is now almost 50 years later, 40 years later, and that technology now is commercialized and is being improved constantly.
There is the $2-billion carbon capture and storage demonstration project, which has been mentioned several times here. That is a role that the government is playing. Then there is this innovative funding mechanism, the Climate Change and Emissions Management Corporation, CCEMC, which invests carbon taxes in greenhouse gas reduction technologies. They invest about $60 million a year from the taxes that are collected by the large emitters that exceed their baseline emissions. That is an innovative program. Also, government supports the Alberta Innovates corporations.
With that, I want to just give some examples of what I have talked about. The next slide talks about the petroleum value chain. If you start off and look at petroleum, maybe bitumen as a base product with a value of 1, if you move up that value chain, going to petrochemicals, then to monomers and then also to plastic resins, and eventually if you go to plastic products, the multiplier is 15 times the original value. Therefore, there is an incentive. The question is this: Can you do that economically? Have you got the technology to do it economically? Can you compete in world markets because those products are also produced elsewhere? That is we do have the raw materials, and we do have opportunities for low-cost feedstocks to in fact invest in value-added technology, the value chain as shown there. I am not going to go into detail of that.
The next thing is the City of Edmonton's biofuels demonstration plant, which is a bio-waste to bio-ethanol plant. That takes 100 million tons a year of municipal solid waste, the stuff that normally would go into landfill, and it converts it into clean bio fuel, ethanol. It reduces landfill by 90 per cent. It eliminates landfill methane emissions, replaces fossil fuel coal, and also captures the produced CO2, and it produces a product that meets renewable fuel standards. That truly is an innovative project. Alberta is a leader in that. The government, through our organization, has invested in that project, together with the City of Edmonton. That plant is being built now. That is an example of adding value to a truly waste product.
The next one is the underground coal gasification project by Swan Hills Synfuels. It is called the ISCG, which is the in situ coal gasification coal project. Again, it is a very innovative project. We supported the first pilot test on this project. That project is now moving towards commercial demonstration. It is one of the projects that did receive funding as well from the carbon capture and storage $2 billion fund.
The idea here is that you can monetize the very deep coal that we have here that would normally sit in the ground, and you can produce a clean product — clean syngas. It can be produced for clean power generation or for other higher-value chemicals.
That is an illustration of the role of technology, the difference that government investment makes through risk sharing. Now whether these things are eventually going to be economic, this is something that you have to learn by actually building a plant at a commercial scale.
The last point I want to mention speaks to the idea of the long time that it takes to go from an idea to commercial application. That graph shows the anticipated cost of a full-scale application as it goes through the various stages of research, development, demonstration, deployment, to eventually being a mature technology. The horizontal axis there is time, but it is also an indication of the technology readiness as it becomes lower risk for industry to invest in.
The point here to make is that that dotted line is indicative of the cost of existing technology. This point has been raised. Most of our projections on carbon capture are based on old technology. However, let us say that dotted line represents the carbon capture cost. The start of that curve at the bottom part, on the zero axis of the time, says here is a new idea with breakthrough potential. You can see that it has the potential to reduce the cost of, say, carbon capture or any other technology significantly. That is breakthrough. However, in order to eventually get to commercial application, which is the right-hand side of that curve, and to get into commercial practice, you have to go through 20 years of development to make it such that industry will pick it up and that those benefits that you had originally invested in will come into commercial practice.
It is a very difficult path to follow. It is the one that craters many, many good ideas. It is that barrier that we are all facing. One of our speakers said there are lots of good ideas, but how do you get them over that hump to building your first demonstration plant where you can actually start learning and then capturing the benefits from that technology. It takes a lot of courage. It takes a lot of leadership to get to that point. The Alberta government has taken a significant step towards participating in that process. Thank you.
The Chair: Thank you, sir. It was a chilling and realistic presentation on the challenge that we have.
Mr. du Plessis: I will say one thing on that. The best example of that is the oil sands industry. We started 30, 40 years ago with a concept, and they had to go through 20 years of learning. All they learned was that the costs were increasing to overcome the problems. However, once they built their first commercial demonstration plant, now you can get on the traditional learning curve where you can reduce the cost and become competitive, as they are now.
The Chair: The price of oil did not hurt.
Mr. du Plessis: The price of oil did not hurt.
Senator Mitchell: This was really riveting testimony and in some sense, from my point of view, it kind of captures an essential element of all of this issue. We have got the fundamental idea that we have got to be real. We have to accept the science. We have got to stop fighting that stuff and end it because if we do not accept reality, we can never deal in any reasonable way with what we confront.
We had a very strong presentation on the need to price, to create market mechanisms to drive this in some way that we do not have individuals trying to manage a billion different decisions. Let us get market forces, and then we have the role of technology and the importance of that.
Ultimately, your final comment was why do not we take the model of how we develop the oil sands, where we said somebody had the vision that, yes, it is too expensive now but we will get increases in prices and we will get economies of scale and we will get technology improvements, and one day maybe it will be the engine of our economy. Whoops, and it is. Why do not we apply that to wind and alternatives and conversions and conservation? I am very compelled by this.
What is missed in all of this is leadership. I say to myself — so many times I speak to people from business, and they say, "We are doing this and we are doing that; we get it." Okay, so then why are you not demanding government to do something? Why is industry not, why can we not get industry leaders, for example, to bring together powerful and other powerful industry leaders and sit down and say, "Mr. Harper, the Government of Canada, the governments of the provinces, you have got to do something, and we want to be part of it." How do we get that leadership?
It is a rhetorical question, but it is absolutely essential. I will just finalize that with one other comment.
I remember that last election. In an interview on CBC, which I love, a very senior environmentalist, who shall remain nameless, said, "Yes, Mr. Dion has the right answer, but he had done a terrible job of communicating." I am saying, "You know what" — to this leader — "you have had 40 years to communicate it. You have not done a great job either."
How do we get through that? How do we get people in business who have power in this, who have unbelievable credibility in this, to say we want a carbon tax, we want it now, we have got to get this done, and can we be competitive, can we be competitive doing that? Thank you for listening.
The Chair: You have captured it, but have you stored it?
Senator Mitchell: My question.
The Chair: Who wants to tackle that first?
Mr. Keith: I think Canada really does need to up its game on energy innovation in a pretty significant way. I think we see some real problems. This country is so driven around regionalism. Each region is different, and the deal in Ottawa is if Region A gets something, Region B gets something.
What that tends to mean in energy innovation is that money gets spread in an enormous number of little things. I know it is supposed to be bad to talk about industrial policy, but in a country of 30 some million, we have to.
One of the real pleasures I have had in the time I have been back in Canada is the Bruneau commission, a high- powered commission to Natural Resources Canada that looked across the country at energy innovation. Angus Bruneau did a great job chairing it. One of the things that was really clear from the analysis of the work and interviews done by the great staff we had is that we are putting money into extraordinarily too many things, and the idea that governments should never pick winners is just wrong. A bunch of our competitors do that.
Governments should not in some bureaucratic closed process say this is the winner. It has to find a way to do that very efficiently, and you have to have markets working. However, government cannot say we are just going to spray money everywhere at clean tech and kind of hope something happens, which is more or less what has been happening.
First of all, the amount of money is quite small. Second of all, the flow of money, the way money flows here is quite ineffective compared to our competitors. So let me criticize academe here. We have an academic system here that is much less kind of entrepreneurial and serious than many of our competitors. We have a system that has to put a little bit of money in everybody's pocket because it is un-Canadian to have real winners and losers.
This is not the way you get value out in the long run. We have a relatively weak ability to sort of do venture and angel funding and a relatively weak ability to really get major demos going. We have the money to do it, but we lack the decisiveness to do it.
Let me pick a few examples. Canada has a lot of real skill in nuclear technology. We have a reactor design, which I think probably has no future in the world as it now stands, a combination of reactor design and management structure that seems to me very unlikely to go any further. However, there are still a lot of very skilled people, and the government, successive governments — this is not a Liberal or Conservative thing — basically for a decade and a half, two decades, people who know what is going on have seen that coming, and absolutely nothing has been done.
You need to be able to make some strategic decisions: Either just kill it or get serious about trying to really think about what is the niche in the global nuclear market that we can compete at and win at and make value out of that.
There are many examples — to be honest, some of the stuff I have seen in Alberta — where there is a whole lot of funding for putting little windmills here or solar panels there where the value added, the intellectual capital, the money made on those things is outside Canada. The benefits to Canada of doing a little bit of these small demos, one here, one there, I would say, are near zero.
You have to ask yourself very hard questions about how to get a small number of things — you certainly do not choose just one — where you have a real chance of making billion-dollar, value-added businesses out of them.
I think that level of seriousness is not happening. It is not that we do not have lots of great people. Folks like Duke du Plessis are amazing with huge knowledge and experience in this business, but it is government structure issues that we have here that we all need to — there is no easy answer, but we need to do a better job of — One last one, I see a lot going back and forth in Canada and the U.S. We need stronger, independent advisory processes for energy technology. The ones in the U.S. are, in my experience, far better than the ones here. The ones in India and China are in some ways better. We really lack that. That is a structural thing. It is not individuals. It is not one government or the other. There are specific structural things that the U.S. has that we do not.
The Chair: These are think tanks.
Mr. Keith: Like the way the National Academy system works, for example. We need the ability to have really high- quality, independent advice that is independent advice from a range of high-powered industry, other bits of society, et cetera.
A few weeks ago I was at an academy panel where I sat with one of the chief guys at Cargill, one of the biggest private companies in the world, a person who was the equivalent of the Pope of the Episcopal church there in a meeting that is designed to do high-level advisory work on what the U.S.'s investment should be in these regions. There was a big range of people with very high powered industrial people and very high powered people from across society really thinking about what they are doing with lots of independent and analytical advice.
We do not have processes like that in Canada in general. We do not have a science council. To my knowledge, in Alberta there are no really independent processes that can give hard-nosed advice about what Alberta is doing right and wrong in these cases.
Mr. du Plessis: Maybe I can build on Mr. Keith's comments.
The key problem we face is this leadership issue. Have we got visionary leaders, and can our political system support visions?
I just want to explain a little bit what we are trying to do in that regard, and the idea of throwing money and spreading it around is totally, totally wasteful and should not be encouraged. What we are trying to do — and this is our business model — is identify gaps, significant gaps, and we actively go after the best technologies that can fuel these gaps. In addition to that, we also try to partner with the first potential end-users. That model has been successful.
Because of our domain knowledge, we also play a role of trying to advise government policy, and we have a program started called Technology Informs Policy. The problem is that we do not get listened to. We get listened to, but usually the decisions that have to be made are not palatable in the political system.
The idea of getting independent advice is part of it. To get that advice used and taken up is the issue.
Senator McCoy: I should interject that the amount of dollars in innovation that are being contributed by industry is miniscule. Let us not leave the record without putting some further context in the conversation.
The Chair: No, but I think that followed, naturally.
Mr. du Plessis: Yes, that is a fact. That is a fact, but how do you approach that? Our approach is that, if you know what you want to invest and get the right players to the table, you can then get industry to co-invest in that, but it takes an organization like ours to provide that first seed money and to define that project.
Mr. Adamson: Just a quick comment in relation to that. There is a broad spectrum. Industry, like almost everything else, is not a monolith. A substantial portion of industry is essentially operating arms of corporations that are based in other countries.
The technology-driving side of it, the part that is looking for new innovations and that sort of thing, is not in Canada. The mandate of the Canadian operating arms is to shave off a few percentage points — improve your efficiency a little bit, get your operating budget, forget all that other stuff. That accounts for one segment of industry.
Senator Banks: And send all the money to head office.
Mr. Adamson: And send all the money to head office.
The other segment of industry that does want to be innovative — it is the same chicken and egg situation that politicians face in a different way. A politician can demonstrate leadership only so far. You get a certain distance ahead of the crowd and your career is over. A manager in industry can only get so far ahead of the shareholders and their career is over. As much as they have the plans in the drawer, they have to be able to justify whatever position they take. If they are going to go to Ottawa and say we need a carbon tax, that is a dangerous thing to do in terms of how that looks to the shareholders. It is not going to improve your quarterly performance.
There is this challenge of you can sit down and talk to the senior executives and they say, "Just give us the signals. Show us the carbon tax and a clear path forward." We have got this drawer full of stuff that we know. We would like to work with Carbon Management Canada or other researchers or Alberta Innovates. We would like be able to leverage our funds because we see there is an issue there.
We can go a certain distance forward in terms of the social license to operate and that sort of thing. That will get us a certain amount of leeway with our investors, but it only gets us so far. I do not know what the ultimate answer is, but everybody has got these constraints that are pulling them back from stepping out and saying just do it. I do not know what the answer is.
Mr. Keith: I think if you are really talking about real clean energy innovation, one answer is more money that is really clearly focused on that topic, and the people giving out the money have to have real experience in green tech businesses and in businesses in general, and you have to find a way to really change the way the bureaucracy does it.
Some of you may know, one of my hats is that I worked with Bill Gates on energy innovation, and I commend to you a short op ed that he wrote in Science a few weeks ago arguing that we should have much more innovation in the U.S. system. I think it is even truer in Canada, and there are specific things in there that we talked about that are the ways to do it.
Senator Massicotte: Dr. Keith, you talk about science, and it is very difficult because we have a lot of witnesses. We get mixed up between science and their own personal wishes and so on.
On a pure scientific sense, if one reads the IEA report, going back to my question, it would be highly profitable, from what I can see. We are not going to choose 2 degrees Celsius. We will be lucky to hit 2.5. We are probably going to hit 4, 5, or 6.
What is the consequence of that? If you do not mind, in a scientific sense, tell us what the science predicts and what the degree of probability is. Nothing is ever 100 per cent sure as we know. Could you comment on that?
Mr. Keith: I do not believe there is actually a clear threshold of 2 degrees Celsius. I believe that is largely been socially constructed by the kind of environmental and science community that wants to see action.
I do not believe there is a real hard body of science to suggest there is a very clear shutter of the two. The fact is there are different ecosystems, and different processes have different thresholds. Some of them are well below that. If you are talking about parts of the High Arctic now, it certainly has thresholds that are much below 2 degrees Celsius globally, but there are other things where the thresholds will be much higher.
The idea there is some kind of global threshold is a tactic that the global environmental community, whose goals I support, are attempting to use to push action, but I do not think it is based on science.
I guess the following is clear. I will go from the most certain to least certain and try to do this in two minutes max. There is the basic fact that we are adding carbon to the system and that the cause of carbon increase is us. That is as certain as any facts are, like gravity. The certainty we have about how much climate change that will cause, how much change in the global temperature, our estimates of that are uncertain by at least a factor of 2, which is a lot.
That means that for a given amount carbon in the air, let us say a doubling of carbon in the air, the temperature change could be from as little as a degree and a bit to as much as 4 degrees. We really do not know. We are planning under uncertainty. Then when you get to specific impacts, it in many cases gets more uncertain. There is no question that the impacts get worse as temperature gets higher, in most cases.
I would say if there are some interesting new things in the last few years, it is, to me, the fact that there is increasingly strong evidence that many of the most important crops in the world, soybeans, maize, et cetera, are very selective actually just to plain temperature increases during the germination and early growth season. We actually have very nice data that is not from theory. It is from simple things like temperature and a bunch of years of data of temperature versus crop yields. It suggests that we have already lost about 5 per cent of global productivity from temperature rises from that effect.
At the same time, we have had technological and farming improvements that have pushed up, so total agriculture is still going up, but you can estimate from these direct observations how much we have lost due to temperature, and it looks like sort of 5 per cent. I think that is starting to be real, and it should continue to grow quite fast as temperatures go up.
One last comment: I do not think the climate change is an existential threat the way a war is. There are clearly going to be winners and losers. Not everybody loses under climate change. That is probably the reason it is hard to get a deal. There are going to be people who really benefit as the climate warms. There is not a simple threshold. If there was, the politics would be easy.
I will end with an anecdote because it just typifies the way politicians think very sensibly. One time when I was first at Carnegie Mellon University, I had Paul O'Neill in my office, who at that point in time was CEO of Alcoa and then became Secretary of the Treasury. He was interested in the climate. We had a big climate centre there, and he came into the office of myself and another now Canadian gentleman and said, "Just tell us the number." He is a very good manager. He said, "Tell us a number we have to hit, and then we can figure out how to hit it."
I completely appreciate where he was coming from, but the truth is we do not know the number. We are operating inherently under uncertainty here. The higher we push it up, the riskier it is.
Senator Massicotte: Based upon the science we know, is it important? I know that there is no certainty. When I cross the street, I take the risk of getting hit by a car. We make those decisions every day, and we deal with probabilities. That is what our brain does. So what is the problem? Is it serious?
Mr. Keith: Median expectations are the sort of impacts we are talking about if we double or triple carbon in the air. Our impacts are at a level of many per cent of global GDP averaged, many meaning like 3 per cent, but in some particular places, impacts of like 10 per cent, 20 per cent of GDP, really big impacts. So there will be places where farming used to be efficient and really is not anymore and vice versa — big changes at that scale.
It is also true that the costs of dealing with it are a few per cent of GDP, so in that sense it is a big problem. However, this is a big, slow moving 100-year problem, and it is not an instant existential threat, which is why it is so hard to get action.
For air pollution, one can say with confidence that we are killing 30,000, 40,000 people a year in North America right now for air pollution, and you can get political attraction to cut emissions. We have made huge, fantastic progress in the last 30 years on cutting emissions, not by pushing down consumption. It is true it all comes from consumers, but that does not mean the consumers are the way we solve it. We solve it by technological change. We did that for air pollution.
However, climate is fundamentally harder because it is uncertain, because there are winners and losers, and because the benefits of cutting emissions now go to our grandchildren, not to us, because of the long inertia in the system.
I truly believe that this is solvable because the fact is people do care about their grandkids. Put correctly, people are willing, I believe, to make the kinds of investments which are huge but do not end our economy. We can have efficient modern economies that work and produce all the stuff we want, maybe not quite as much, and make deep cuts in carbon emissions. Right now what we lack is a social ability to make that happen, which is primarily not a technological problem.
Senator McCoy: I agree with Dr. Keith's statement that we should get as much of our oil sands developed and saved, the proceeds and profits, as quickly as we can. I came to that conclusion because as I said in an offset in August, we are likely to run out of customers before we run out of oil.
I think we are going to run out of customers. We are at risk of running out of customers for one or two or both reasons. One is that our reputation will be shot, and the other is that the off-oil argument will have succeeded in persuading the world, or at least our markets, not to buy any more oil.
Putting reputation to one side, because I think there are some honest things we can do to actually address our reputation, and it is mostly you cannot say — you have to walk your talk. Those are relatively easy to figure out with some thought. However, what I do not see, and I was beginning to sort of poke Mr. Kvisle a little on this, is that debate on the off-oil. I do not see the clear engagement on will we be off oil, or will we not. If I am in a conference that is dominated by industry people, I hear the siren call, well, IEA projections. If I am watching CBC, I hear the siren call of solar panels and windmills and a conspiracy to prevent their predominance in providing energy.
I do not know how quite to frame my question, but it seems to me it would be helpful if we literally engaged in that debate. Maybe I would just ask your opinion about that.
Mr. Keith: We are certainly not going to be off oil globally anytime soon, but we do not have to be off oil to have our economy here be crushed because we are the high-cost end. The point is that if we get to a place even 20 years from now where 10 per cent or 20 per cent of new vehicles are some non-oil source, advanced bio fuels, synthetic hydrocarbons that are not related to oil, electricity — and there is a clear real investment going that way — and we have some real action on climate policy, then the global investment climate will not put money into new development here, and you will see things change really fast.
The point is that long before we actually get off oil, which I think is half a century plus before it really heads down towards zero, investment here will dry up, and what drives all the action here is new investment.
The kind of climate policy it would take to shut down existing oil sands operations, I think that is very hard to do because their operating costs are reasonable. They will be especially reasonable as wages go down here. However, the kind of effort it takes or political and technological changes that it takes to shut down new investment is much less.
I think the problem here ultimately is partly failure to realize that risk. I have a huge respect for Mr. du Plessis, but let me just point out that what he said when he talked about environmental performance in his talk was the perception that it is a high-carbon fuel. This is not a problem of perception, and the perception that it is just a problem of perception is the problem. This is a problem of reality.
Senator McCoy: It is a high-carbon fuel. Is what you are saying?
Mr. Keith: Exactly.
Senator McCoy: You are saying that, without being intellectually honest with ourselves and saying this is a risk and it is a significant risk to Alberta and Canada then we are not seeing a path forward properly. Let us say we accept this position. We say, okay, let us think our way through this and let us just take the worst-case scenario, which is always a good intellectual discipline. Now what do we do?
Mr. Keith: Slow down the growth by extracting more money and find ways to put that money into things that will really be successful businesses in a high carbon-constrained world. I am not talking about all the money. If you did that with 10 per cent, you would have an enormous chance to do it. I do not mean that it all flows to government and then government research consortiums and universities. I do not mean that at all. We need to find ways to do that that really pick up on private initiative and private energy. However, I do not think you can expect the companies themselves to do it.
Last comment: It must be ultimately a public government decision, a public decision. The companies cannot do it. They are bound by their shareholders to basically make hay while the sun shines. If a company here decided suddenly we are going to put some huge amount of our investment capital into something off oil sands that is high risk, the global investment community would bring them up short.
The reality is the companies are owned by the world; the CEOs are the CEOs, but ultimately they are responsible to shareholders, and they have to do more or less what they are doing. We cannot expect them to do anything very different, but we as a government can do something different.
Senator McCoy: I agree with Mr. Adamson. Realistically, the shareholders throw their CEOs out of the job, and the voters throw their politicians out of a job. So there is only so much you can do there. It has to be a collaborative effort.
Mr. Adamson: There are a couple of things I would like to respond to in that. First, one of the great frustrations I have when I engage — I have a number of frustrations. This is a frustrating conversation sometimes. One is that when we get into the conversations about wind and solar and all of that, I think, first off, we are going to have 9 billion people on this planet by 2050, and on top of that, all of the people that are there are being elevated out of poverty, and that means that their energy demand is ramping up.
I think we are going to be facing a situation where realistically we will need access to every form of energy that we can reasonably obtain in order to continue that process. However, we have to do it responsibly. We cannot just continue dumping the carbon into the atmosphere. That is just not a viable, long-term solution.
There are ways that we can substantively reduce our carbon emissions due to the extraction and processing of fossil energy. The problem of scale is one that drops off the table a lot of times. It is very attractive to talk about solar panels and wind turbines and they are clean and green. You already have a NIMBY problem with permitting new wind turbines.
In order to address the kind of scale on an energy-for-energy comparison that we are talking about with oil sands, or a coal-fired power plant for that matter, and wind turbines and solar cells, how many hundreds of kilometres do you think voters are going to be happy with covering with solar panels? We are talking about hundreds and hundreds of square kilometres, and we are talking about massive terrain being covered by wind turbines.
I am not against those technologies, but people tend to frame the discussion in terms of yes or no to oil. It is not a yes or no question. It is a "this or what?" I have not heard a realistic answer to the "or what."
Absolutely I agree nuclear is probably the only viable — the thing that is on the horizon right now that can start moving in on scale at the scale that is needed. However, the time frames for nuclear are very long, and the public appetite is very limited. That is a challenge.
I look at things in terms of we are on a journey, and we have to look at steps between here and there. The reason I think CCS is important, carbon capture and sequestration and other related variance on that theme, is not because I think it is a good idea. I think it is a terrible idea. If I were to design a system, I would never design a system from scratch that involved CCS. However, the fact of the matter is it can flange up to what exists today or in the very near future. It fits into the existing infrastructure and gives us a way of dealing with the volumes of carbon emissions that we are facing now in the near term as we transition to whatever comes next.
I really am interested in seeing what that whatever comes next is because I have not seen the thing that gives me confidence that we know what the other end of the road is.
Senator Mitchell: If we price carbon, we might find it.
Mr. Adamson: That is exactly right.
Mr. Keith: It is fundamentally different for electricity than for fuels. For electricity you can mix and match. There are places where wind power is quite dependable already and agreeing about land use. I know how to work on that. There are places, not Alberta, where some kinds of solar can be a realistic prospect at being competitive for basic electricity. Not competitive yet, agreed. Nuclear certainly could be. So there are plenty of ways to do it. You do not have to make one decision. You can mix and match.
I think fuels is fundamentally different because in this case the product has the carbon in it, so there is no way to solve the problem except to get off using that product, and for a lot of reasons to do with the linking between vehicle infrastructures and fuels, it is much harder to have a mix and match solution for fuels.
The right answer for carbon policy globally is actually not do fuels first so much. Think more about electricity and industrial processes and then fuels second. However, here we live in a place where fuel is an essential thing.
Senator McCoy: Mind you, I would not mind delaying it.
Senator Neufeld: Thank you, gentlemen, for being here. It is a very interesting discussion. I would like to just pass along a little anecdote.
I have been involved in trying to site wind farms, and let me tell you, even in unpopulated areas, I would say it is tough, or solar panels. In fact, there is one in Ontario we were told about 250 acres to generate 23 megawatts of energy. You can put that into context.
Mr. Keith, perhaps you could comment on developing industrial scale technologies for capture of CO2 from ambient air, as I think that would be very interesting to the discussion.
I will pose my other question to Mr. du Plessis. The in situ coal gasification process that is happening in Swan Hills — I am going to go back here a little bit because we were just in B.C., and I am familiar with this in B.C., that there is an estimated 1,300 trillion cubic feet of shale gas in two basins, just two, and the Marcellus and some basins around there have 1,500 trillion cubic feet estimated. That is actually what I understand is happening around the world. We know — or at least we are told — that the U.S. with their unconventional gas is going to meet all their demands within about 20 years, and that will be from unconventional gas.
With all this unconventional gas that is near pipeline, is proven — not those amounts, but there is a lot proven. The technology is there to get it, and they are operating today at $3.50. I mean, obviously a little less, but they are still operating today at $3.50, which is very interesting to me. They say they can really make money at even just $6. Why would we be going out and trying to get syngas out of coal when there is already natural gas, in huge abundance, and spend money doing so? Would it not be better to spend more money on trying to figure out how we do it cleaner in extracting shale gas that we know is there?
I am confused about that. I guess it goes along with you cannot spread money all over the place and actually get something at the end of the day. You have to pick and choose. Governments are terrible at picking winners and losers. They generally pick a loser, but industry organizations or your organization can pick winners. I have a little problem with that. Not that I have a problem with Alberta spending their money. Go ahead and spend it, but —
Mr. du Plessis: I would be glad to answer that. It is not that there is not enough gas available in volume. It is a matter of the price of that gas, the cost of that gas. In the end, the supply that is going to win out is that which is going to provide the volume, plus the price competitiveness.
The interesting call is that the supply of your raw material is known, and there is no predicted massive escalation of the price. With shale gas, it is market-driven, and nobody is sure of what that price is going to be. It is low now, but will it be low in the future?
When somebody has to decide where to invest for 30 years, do you invest in a plant that is dependent currently on the low cost of shale gas, or are you going to invest in something that would give you a more secure, lower-cost price of gas? The predictions of the production cost of underground coal gasification will have to be determined. There is a likelihood that it can be produced at a lower cost than current prices and that that price will be sustainable in the future, and that is what investors look at.
The other point is that the environmental cost for shale gas is still an unknown. It is an emerging technology, and the comments that are made are that it is going to take a while before it is clear what that total production cost and the environmental consequences are going to be.
Senator Neufeld: I appreciate that. I am a market-driven person so I understand. When you think about those two areas in North America only, that is enough to supply either of them with what they can actually extract today. I am referring to a couple hundred years of natural gas with the demand that is there or the expected increase in demand.
Mr. du Plessis: I can comment some more, but I will leave it at that.
The Chair: Did you want to try it, Mr. Keith?
Mr. Keith: Sure. I run a small start-up company called Carbon Engineering. It is one of my hats. I spend half my time, or more right now, doing it, and I am loving it. There are about 10 of us doing it. The idea is to capture CO2 from air industrial scale, and the way you make money out of that, the markets of it are basically the following: Under the current California low-carbon fuel standard and emerging low-carbon fuel standards around the world, there is a significant premium, about $100 a tonne CO2 equivalent for making hydrocarbon fuels that have lower life cycle carbon initiatives.
There are two routes to do that if you get carbon from the air. One is to use the carbon for enhanced oil recovery, and that counts as part of your life cycles. It is completely different than if you capture it from a power plant in terms of the accounting, the real environmental footprint, and the economics of such a project.
The second one is there are a few remote places, and frankly a lot of them are military remote places, where there is a sustained interest in making fuels directly from air. We have been pursuing that option reasonably seriously.
In the long run, we believe that this is a way to make fuels that provide another way to deal with the long-term challenge in hydrocarbons. Batteries are exciting, but at this point batteries are very expensive, and they have about 40 times less energy density per unit weight than hydrocarbon fuels.
Getting CO2 from the air provides a way to make hydrocarbon fuels from some other primary energy source, nuclear or central station solar, that make a fuel that has all the energy density advantages of hydrocarbons. It is compatible with hydrocarbons, the current infrastructure, but does not depend on oil. It is independent from oil.
I will say one thing about funding and interest and sort of what happens in the U.S. versus Canada. One of the really fun things we have done in that company is we went into DARPA, the U.S. Defense Advanced Research Projects Agency, which is probably one of the best science planning agencies in the world. It is the new U.S. efforts to model, and I will be in D.C. meeting with senior people at DOE next Wednesday.
The level of seriousness and the speed of response and the low bureaucracy there was really stunning compared to my experience here. We went in with a U.S. partner for DARPA. We got a very fast response. They said, "We like this, we do not like that." There was no big paperwork and it was very, very fast.
In my experience here, you write a big proposal. You throw it over, you get nothing back, and interactions in industry do not really matter. In the U.S. they would have teamed up with one of the big aerospace companies and DARPA got that. Canada does not seem to count, in our experience. The difference has really been pretty stark.
The Chair: That applies to both federal and provincial governments here?
Mr. Keith: Yes. There are individual programs that have been strong here, but in general I think the U.S. has been better at it; the amount of start-up companies and patents and money and the speed of decision making is quite a bit quicker there.
Senator Banks: You have all studied these questions. We have been looking at them for years, some of them for 10 years, but not with the focus that you have, so I am going to ask the kindergarten question.
We are all running around assuming that there is human effect, and bad human effect in most respects, on the ecology because of our consumption of things. However, we all get messages from zillions of different people, as I am sure you do, at various functions, including people, organizations, Friends of Science, for example, who argue, sometimes with elaborate charts and elaborate arguments, that this is all BS, that there is climate change but that we have got nothing to do with it and it has to do with something happening on the sun, and certainly what we are going to do is so insignificant as to be completely insignificant and have no effect whatever.
My kindergarten question is this: Because those people are our constituents, what is the simple answer to them, in your view? I am asking you this because you each study these questions and have to deal with them even more intently than we do.
Mr. Adamson: Can I respond to that one first, and it may not be a very helpful answer. I am originally from Calgary, but I spent six years in North Carolina. I watched as counties in the south banned teaching evolution in the schools, and how otherwise rational people would continue to vote for and support this theory.
Essentially there were entire counties in which children would graduate virtually unfit for a technical world because their framework had been so distorted by the influence of belief over science. There is no argument in the world that can be made to overcome that.
If the fundamental argument is that if you take a position and your first assumption is that this position is true and that the only indication that evidence might be valid is if it supports this position, and if it does not support this position then by definition it is invalid, there is no argument you can make for it. There is no way to persuade against that kind of position. There is no room for discussion because the basic framework of what the ground rules are and what the underlying facts are to support an argument are not shared in common. There is no common ground to do it.
I am afraid I have taken the position that I just walk away from those conversations because there is no positive outcome possible.
Mr. Keith: In terms of persuading the folks at Friends of Science, I agree completely with that comment. I think if you are a citizen and you hear different comments and you are trying to figure out which one you believe, and you cannot do the science yourself, for me, in areas where I do not know the science, I think about self-interest, and I think about the credibility of people on a bunch of different topics. I tend to disbelieve things when people make really omnibus statements that I know are nutty on other topics. That makes them less credible on the topic at hand, and I think a lot of it is self-interest.
When I have coffee table conversations in this town about climate, I can give an endless set of facts. You can sit for another four hours of lecture, but I am assuming that is not what you want.
I think about self-interest in a pretty direct way. The arguments that I would make — the Friends of Science will say the climate record for the last 100 years was wrong. It did not really warm up. I would point to Richard Muller, who was one of the leading critics of the record, and he did a complete re-analysis using different methods. There were other people on that re-analysis team, a bunch of people who were ex-JASONs, the U.S. defense and military elite advisers, and they did a completely new analysis of that record, and Muller, on having congressional testimony, turned around. He is a real scientist, and despite having every incentive to twist his data to show there was not warming, since he previously said that, and people typically like to stick with their previous statements and not back down, he did in fact back down and he reversed himself. That was one of the best teams to do that.
That is the kind of thing I would point to — think about motivations. You can say the same for the other temperature record. One of the famous satellite temperature records Friends of Science will always tell you does not show warming, and of course it does show warming. The lead people who always were in charge of that record and used to go to Congress and say how it did not show warming have now recanted. Again, they have huge personal interest in not recanting, and the fact that they did is because the facts became overwhelming.
Whereas the guys of Friends of Science obviously are a bunch of really nice, ex-oil patch people who do this as their hobby, and they are funded by interests in this town. I think when you are a citizen and do not know whom to ask, you think about that and especially think about people acting against their self-interest.
There is an idea there might be some conspiracy in science to produce fake climate science data, and the answer is that that kind of deeply misunderstands the way you win in science. It confuses individual action from collective. Would a government agency that funded climate science actually want to try to pretend there were no problems with science climate and say it was all true? Absolutely. Do I believe Greenpeace on the climate science? No. Do I believe Environment Canada? Not that much.
However, individuals in science win primarily by showing that their neighbours are wrong. That is the way you score. If there really was any sort of piece of evidence that was like a smoking gun to show the climate models were wrong, even if some big climate modelling agency had an incentive to keep that hidden, the individual incentive for each person who knows it is gigantic to come out and put it in the headlines and say this is it. Again, the fact that that has not happened is good evidence that there is no such gun.
Mr. du Plessis: If your question is whether there is support for denying climate change and hence not doing —
Senator Banks: No, denying the human cause of climate change as opposed to industrial.
Mr. du Plessis: The fact of the matter is nobody is denying that action has to be taken to reduce carbon emissions.
Mr. Keith: Some people are, lots of people in this town.
Mr. du Plessis: Certainly I have not — yes, I suppose there could be an argument saying, well, if you do not know there is an excuse for doing nothing. In the work I am involved in, there is no such denial, as evidenced by the massive investments being made to reduce carbon footprints.
Who is making the statement that nothing needs to be done? It is convenient to support the argument that nothing needs to be done. I do not think that the actions in Alberta support that view. It is not used as an excuse, and a lot is being done.
Mr. Keith: Simple physical fact, because there is one out there. If it was the sun warming up, you would expect the lower atmosphere and the upper atmosphere to both warm; the sun is getting hotter. If it was carbon causing the warming, it turns out you expect the upper atmosphere to cool - for some physics that I won't get into, but it is physics we have known for hundreds of years - it is dead easy.
So that is the prediction. If it is the sun, upper atmosphere and lower atmosphere both warm. If it is CO2, upper atmosphere cools; lower atmosphere warms.
You can guess what I am going to say next. There is simple observational evidence about what is happening. Those are really simple facts. What is stunning is that while Duke may not have had experience meeting people who do not believe in it, I have experience all the time - in coffee shops, in interacting with people in Duke's organization, not him personally; interacting with people in business here who just routinely say it just is not true. It is just some kind of thing made up in the environmental community to feather their own nest and to push us down. I understand that they feel threatened, but that belief is dangerous to this town and to people's livelihoods.
The Chair: You have elevated the conversation from the kindergarten classroom to the doctoral level and a pretty good discussion, and thank you all.
Colleagues, we will end our morning session with two gentlemen who in many ways are on the same mission that we are on. Roger Gibbins, and some of his colleagues from the Canada West Foundation, and David Emerson and I had conversations before we started our study. I believe there is a feeling by our witnesses and the people they represent that the Senate committee has a degree of independence that enables us perhaps to be, not more credible necessarily, but perhaps a more efficient messenger with the end product.
Also I can share with you, colleagues, that David Emerson and some of the people that he works with share our frustration that we have not already submitted our final report and we have not already seeing this framework and this strategic direction in real life at the government level.
I have assured the Honourable Mr. Emerson that we are getting closer, driven, Senator Banks, in my case by the reality of our birth date and in other cases simply by the coldness of the weather.
We were in British Columbia earlier this week. We had nine consecutive hours of hearings on Tuesday. We met with the Minister of Energy and his Deputy on Monday evening, and we visited Westport industries, which was a living example of what can be done when companies are prepared to make the investment and to develop technology to find a green solution.
It was fascinating to us, just to see that particular operation with the natural gas — liquefied natural gas fueling being sort of appended to diesel engines and adapted to operate on the liquefied or the LNG.
Anyway, then we moved on to Edmonton, and we had a full day there yesterday. I think really the evidence we have been hearing now and the fact that we have a bit more knowledge than we did when we started, is very productive. I mean, we can go from kindergarten to PhD laboratories and actually come up with a productive conclusion.
We have been hearing from every witness actually all across this country and in Ottawa about pricing carbon in many different ways and many different reasons for doing so, but one thing is clear to us, some kind of a solution in that regard is being sought on the condition that it can be done productively and in a global way, not just in isolation.
My partner here, Deputy Chair Grant Mitchell from Alberta, is just salivating at the thought that even this morning the witnesses are practically writing our report for us.
Over to you. We are looking forward to what you have to say.
Roger Gibbins, President and Chief Executive Officer, Canada West Foundation: I will make some fairly brief remarks, more on the process side of what is been accomplished. My own group became involved in this, probably now about three years ago, and I am quite astounded, actually, at the amount of progress that has been made in the pursuit of a Canadian energy strategy over the last two to three years.
We have gone to a situation where there is almost an assumption, and a frequently referred to assumption, that this kind of development is essential. We have gone from sort of the margins to the centre of the political debate. There has been some very heavy-duty input into this, such as the work done by EPIC, which I will refer you to later on.
You may feel that the Senate is moving slowly, but again, when I look back over the last two to three years in public policy terms, in dog years, if you like, we have been moving very quickly on this front.
As we have moved, there has been an important change in the context. When the discussion of an energy strategy first emerged, it was seen as a necessary complement to a much broader debate on climate policy in Canada. There was a fear on many parts, and certainly on my part, that in the discussion of climate policy we are not paying sufficient attention to the unique aspects of energy policy in Canada.
We are trying to, not exactly balance the scales, but make sure the energy side was heard.
I think what is happened now is that, in fact, the energy debate is dominating, and the climate debate is receding, for a lot of reasons.
The Chair: It must have been music to your ears to hear the newly minted Premier of Alberta out of the gate at the Economic Club in Toronto, stating that an energy policy has to be proliferated across the land.
Mr. Gibbins: I was very pleased. The Alberta government over the last two years, at the ministerial level and at the deputy level, has been really the primary driver in this whole discussion. However, the leadership from the top was more muted in the past, and so it has become much more aggressive. I am pleased.
There is still an issue that the energy discussion is too much of a Western Canadian agenda. I am delighted to see the Western Canadian leadership on this file, but I do not think we have firmly nailed down the national benefits and the national need to act. Over the months ahead, I think that is an important argument that has to be put in place. It can be made, but it has not been made as forcefully as it could.
We are getting over one of the real stumbling blocks that used to drive me crazy, and that is people would say the energy scene is so diverse in Canada that it is hard to imagine that we could move, and diversity then was seen as an obstacle, almost as a weakness, rather than as a real strength of our energy future. We are getting to the point now, I believe, where diversity is recognized as kind of the bedrock in which we can build, rather than as this huge hurdle that we will never be able to get over.
As I mentioned, a lot of the heavy lifting on the content of an energy strategy has been done, particularly by EPIC. I will just sort of leave in your ears a model that I have been thinking about, in terms of what an energy strategy might look like. The model I come back to — I might have mentioned this before — is the Canada Health Act.
Think of the Canada Health Act as sort of a series of legislative steps, not a specific document. Basically what the Canada Health Act does in six words is it sets out the principles for health care delivering in Canada. One of those words, I think, is an "and." It has to be portable, accessible, universal, comprehensive, publicly funded; and in that handful of words, we have established the framework for the delivery of health care services in Canada, and we have left the implementation of that to provincial governments.
Historically, the federal government has probably been more intrusive on the implementation side than it could have been, but as a model, it is not a bad one. It is not a bad way of thinking about what an energy policy might look like because it is going to have to combine some overarching national principles and provincial implementation and provincial fine-tuning.
So we have got a model. It has worked in the past, and I think it can work in the future.
The Chair: If my memory serves me well, the committee did cite that very example in the Attention Canada report, did we not? Or did we take it out.
Senator McCoy: The political reality, Dr. Gibbins, is somewhat at odds with your suggestion, and partly it is because of the diversity question. I am sorry, I feel obliged to say this. To delegate the defining of the principles to one government, given the 10 others that own their resources, is, I think, a political unreality.
There were some politicians or retired or recovering politicians around the table, not just us, but from Atlantic Canada who were reluctant to pursue the suggestion. What we liked about the suggestion was the fact that there were principles, but the legislative side was not as one. I would be interested in hearing you talk about the principles.
Mr. Gibbins: It is a very important point because it was never my intent to suggest that an energy strategy would be a strategy by the Government of Canada. So I was thinking of the analogy more in terms an overarching set of principles. How we get there has to be an intergovernmental process. It cannot be the federal government energy strategy because the provinces are too deeply entangled At least, you can think of the Canada Health Act as an analogy and a way of combining a national vision.
Two final points: I have become convinced that a Canadian energy strategy is going to be absolutely essential if we are going to build large energy projects in this country in the future. We have no way of articulating right now what the national interest is in terms of energy developments.
We are going into pipeline hearings where we will hear 5,000 interveners, many from outside of the country, and no capacity to articulate a national interest as opposed to very legitimate community-based interests. If we cannot balance that scale in some way, I do not see how we can get through the regulatory process or the political process on big energy developments.
That leads to my last point. Over the last six or seven months probably, the discussion of a Canadian energy strategy has become increasingly entangled with the discussion of an Asian Pacific strategy. I think that this entanglement is good. The energy relationship between Canada and the Asian/Pacific countries is one of the most important aspects of that relationship going forward, and in many ways an Asia-Pacific strategy is an embryonic energy strategy because energy plays such a large role.
I think this is good that they have become entangled, but it is not without its own complications.
The Chair: Thank you very much, Mr. Gibbons.
Now we have a man who has had a wee look into the political arena on both sides in a very eclectic way, the Honourable David Emerson. He probably said, "Oh, wow, no wonder things do not happen more quickly."
Mr. Emerson made a great contribution in the area of softwood lumber that will never be forgotten. He seems to be able to find his way through the maze of bureaucracy and governments, bilaterals neighbours in this continent, and that was a wonderful accomplishment and it is not forgotten.
We have been following your work in EPIC. You have the floor.
David Emerson, Chair, Energy Policy Institute of Canada: Mr. Chair, it is great to see many old friends and colleagues from the Senate. It is good to be here.
One of the activities that I have taken on since I left politics, as you know, was to take over the chairmanship of the Energy Policy Institute of Canada. It is not something I do full time. It is a part time, nonexecutive function that I perform, but it is something that I believe in deeply, and it strikes at the core of what you are trying to do through this committee.
EPIC is basically an organization that is private sector, and it spans the entire spectrum of the world of energy, whether it is green energy or carbon-based energy, and it extends to some sectors that essentially feed off and support the energy sector but have a deep and fundamental interest in energy, broadly speaking.
We have consciously, informally refused to have government bodies on this organization. We felt we wanted to have a clear, private sector perspective, but it is a perspective that, as I say, spans the energy spectrum and attempts to be pan-Canadian. We have a membership of about 40 companies that do span the country, so we try to be a pan- Canadian voice. So far I think we are doing reasonably well, although we feel we are a little light from some parts of Eastern Canada, notably Quebec and Atlantic Canada, but we do have membership in those parts of the country.
We have produced documents already. We tabled with the energy and mines ministers this summer in Kananaskis a document which is our first cut of an overview, if you like, of our views on what a national energy strategy might look like and what the fundamental principles might be that would underlie it.
We are making that available to you. We have subsequently produced something we call the EPIC narrative, and for you who are of political persuasion, you will think of the elevator narrative that every politician tries to have in terms of what you are seeking to promote and achieve. This is our elevator narrative, but it would be a rather long elevator ride because I think it is about four pages when you probably need to boil it down to a page.
That is all there, and we are submitting to you, as soon as we complete the translation into French, a further document which touches on something Roger mentioned, and that is the regulatory process. I have a view, EPIC has a view, and I think a lot of people have a view, that our regulatory process in this country is nearly fatally flawed.
There has been some progress, a major projects review mechanism out of Ottawa from the Energy and Mines department, but our view is that it is still not good enough. When you are into the world of energy, you are often talking about multibillion dollar projects with hundreds of millions of dollars of revenue, and you are asking private sector people to put up this kind of resource commitment, not knowing if you are going to get an approval or when you are going to get an approval or even any indication as to its likelihood. It is just no way to try to become a global leader in this area that we believe is so fundamental to Canada's economic future.
That is all on the table, and that will formally constitute EPIC's position on a national energy strategy.
I would make a few comments, and in question and answer I will probably say things that actually have not yet been determined to be the view of EPIC. You know how I am. I lead with my mouth, and I am probably never going to change; I am too old.
I want to say a couple of things first about how we are approaching energy, and then I want to talk a little bit about the broader picture. The energy picture in Canada and the future that it really promises for Canada and Canadians is actually part of a bigger picture that is evolving in the world of commodities. There are commodities that actually are driving and are necessary for developing countries that are climbing up the developmental curve. They need more copper, and they need more steel, and they need more energy. There is a range of commodities where Canada is really very rich. The energy piece is actually a subcomponent. It is, clearly, the dominant wealth generating subcomponent, but it is a subcomponent of a bigger picture.
What I believe to be true is that while Canada has long been embarrassed and while we flagellate ourselves about being a hewer of wood and a drawer of water, we still are, metaphorically speaking, a hewer of wood and a drawer of water.
If you look at the TSX index, you will see that roughly 50 per cent of the index is energy and materials of stocks. That does not even count the banks and the engineering companies and the service companies with whom you would have a very serious problem if energy ever went away.
We already see in Canada that energy and natural resources are by far our predominant source of wealth and employment creation in this country. That is something that is important to realize, and it also flows through. We can all espouse our faith and support for health care and social programs in Canada, but I tell you, if the energy sector went away tomorrow, the finances of provincial and federal governments in this country would be absolutely decimated, which takes me to another point, and it is a looming issue.
It relates to the work you are doing, and it probably is something that you need to contemplate, at least allude to, and that is that in Canada we have a very bad habit of selling nonrenewable resource assets and bringing the monetized value of those assets in and funding operating programs of government. Then we feed it into the equalization formula; and all the finances of governments in Canada are basically totally dependent on the ongoing monetization of resource assets, which we should not be doing.
In another context, I have been involved in a report where we said, very clearly, Alberta and other provinces, and perhaps even the Government of Canada, need to stop doing that and need to start taking the monetized resource assets and setting that money aside and using it to invest in the long-term future of the country because fundamentally these are assets that do not belong to this generation. They belong to all generations going forward, and we need to ensure the benefits accrue to those generations.
Another issue that again I would hope you will touch on is the effect of the Dutch disease and its cousins in Canada. I am sure you all know about the Dutch disease. It is named after what happened when the Dutch developed North Sea oil back in the 1980s. They saw a tremendous boost in the demand for their currency and their exports and tremendous demands on industrial materials and labour to the point where North Sea oil basically caused the decimation of the manufacturing sector in Holland as the guilder rose in value and other industries became uncompetitive.
We have that problem in Canada today.
The Chair: It has nothing to do with elm trees.
Mr. Emerson: It has nothing to do with elm trees, but it is an issue because it will come up in iron ore developments. It comes up in oil sands regularly, and it is an issue that is negative. It is an impediment to the ongoing diversification of the Canadian economy and the development of knowledge-based and innovative sectors that have some degree of mobility as a possibility.
I do not think we are doing enough about it. Even before the Dutch disease was called the Dutch disease, Peter Lougheed knew that this was going to be a problem. He made sure that the energy projects were staged in a way that tried to mitigate some of the bottlenecks and negative economic consequences of too rapid unrestrained development.
As all of you know, the Canadian currency is now known as a petro currency. It is a petro currency which means that when the price of oil goes up, the dollar goes up. The exchange rate is only one element of it, but there are all these other important pieces. That can play in the discussion and the execution of a national energy strategy. It becomes complicated. The EPIC work is respectful of Canadian federalism. As Roger was saying, we are not advocates of the Government of Canada being the architect or the sole architect of an energy strategy. We are proponents of governments collaborating around broad principles to develop greater and greater consistency and rigor going forward in terms of developing a national energy strategy.
I am going to stop there.
The Chair: Can I just ask you, Mr. Emerson, on the report that is in translation now relating to the regulatory process for approving major, and not so major projects, in Canada, is this a track that outlines the problems, or does it include that, plus the recommended solutions?
Mr. Emerson: It does both.
The Chair: We are dealing with 10 local governments, plus, hundreds and hundreds of Aboriginal communities and bands, plus the feds. It is clear, from the witnesses we have heard even this week, starting with the Minister of Energy and Mines in B.C. He said I only want to leave one thing with you, and it is that issue.
If we can accomplish nothing more, I suppose, with our report, that will not have been a bad thing. I am hoping you will get it to us soon in both languages.
Mr. Emerson: It is essentially ready. It is just a matter of getting it to you. Again, it articulates the federal system. It articulates some general propositions or principles, but it also gets into some anecdotal cases to demonstrate the broad policy principles we are advocating.
We are sharing it with Canada West as well, who, as Roger will tell you, is doing some work as we speak on this very issue.
I do not think there will be an excuse after this year for governments not to deal with this issue other than lack of political will. I might add, that when I was in government, when I was in the Liberal government, it was a priority to rationalize the project review process. We never got there. When I was in the Conservative government, it was a priority to rationalize it. We never quite got there. We got closer, but it is something where officialdom has enormous clout because it will show you their legislation for their particular department and their minister, and they will say, "Well, we are required by law to do all of this and that."
Probably what is required is omnibus legislation, senior legislation that takes precedence in the Government of Canada and those provinces that choose to get into a streamlined process to make sure that there is a much more rational process, and in our document we allude to the different ways in which it needs to be improved.
Senator Mitchell: To follow up on one of your later points, Mr. Emerson, the idea of it is a very powerful and important issue; that is, the impact that the energy industry has on the problems of diversifying. When I first got into politics in Alberta, they were talking about that, and it has been so hard to make progress.
Norway started and changed. They spent a lot of their oil money in Norway and realized it was having exactly that impact - inflationary and skewing the economy — and now they have a fund of $600 billion they do not spend, almost literally they do not spend in Norway.
The point I want to get to in this idea of collaboration is the jurisdictional issue and the role the Government of Canada can play. Could you flesh out the idea of collaboration? Is it the Prime Minister having first ministers' conferences periodically, frequently on this issue, because it is that important? Is it some kind of independent but Canada-wide, government-wide supportive institute that would begin to define priorities, establish the principles, reinforce them. What is it? How is that done? That is the key question for us.
Mr. Emerson: I would be somewhat pragmatic about it, and I would suggest that you break the problem up into a half a dozen pieces. For example, the energy and mines ministers have been working quite well towards defining certain pieces, including the need for better market access into the Asian-Pacific region. If we do not get that, then we have missed the opportunity for the country because that is how you take advantage of becoming what I call a new age staple economy. If we do not get access into the developing economies and continue to rely on the U.S. market, then we are going to fail in terms of taking advantage of our resource assets.
But you can break it up into innovation; you can break it up into market access; you can look at the project review piece; you could look at conservation measures so all Canadians are part of the conservation dynamic. If you got your groups of ministers together with a mandate from First Ministers to do that and come forward, you could follow it up probably with a First Ministers' meeting that basically brought it all together into a reasonably robust framework.
You are never going to get every little "i" dotted and "t" crossed, but I think you can get 80 per cent of what you need to get. If you get that kind of buy in at the senior level, you do not need every province to buy in. You need a few of the key provinces to buy in, and many might want to be from Missouri and wait and see, but eventually they would get on board because they would be disadvantaged tremendously in the competitive marketplace if they were not part of it.
Senator Mitchell: That does not sound inconsistent with what you are saying, Dr. Gibbins, really, with establishing principles and so on. What is your take on that?
Mr. Gibbins: It is not inconsistent. I am trying to avoid walking into the swamp that Senator McCoy identified.
Senator Mitchell: You can distract from that by talking about a carbon tax.
Mr. Gibbins: There is, to my mind, an inescapable need for the Government of Canada to be involved in this thrust, partly because there are a whole range of federal jurisdictions that come into play in this automatically. They are unavoidable.
Secondly, and this is more of an individual assessment, we have mechanisms in Canada, intergovernmental mechanisms through the Council of the Federation which do not involve the Government of Canada in a direct way. My sense is that those new forms of intergovernmental relations are not yet robust enough to tackle an issue of this complexity.
There is a role for the federal government. It is an important role, but it is not a matter of them setting out the strategy. We have had some examples of that in the past, and they have not worked particularly well.
Senator Mitchell: In your presentation, Mr. Emerson, you mention that Canada must put a national price on carbon. We are hearing that a lot. We heard that from Eric Newell yesterday, at least with respect to carbon capture storage and so on.
What would be best choice? I should point out just for record that, of course, EPIC is comprised of companies like Canadian Oil Sands Limited, Enbridge, EnCana, Imperial Oil, Shell Canada, Spectra. These are serious players.
What would be the best choice for pricing, and how do you get the leadership to do it?
Mr. Emerson: We have not landed on a carbon tax at this stage, although many would say that that is the most sensible way to go. Where we are today might be different by spring. Where we are today is that we need to observe certain principles, and that is, we cannot get ourselves too much out of alignment with our trading partners, most notably the U.S., simply because it starts to create quite potentially damaging competitiveness issues.
At this point we are saying it may involve provinces working collaboratively with the federal government, each having their own mechanism. B.C. has a carbon tax. Alberta has a price on carbon in a different kind of way. It may be a kind of quilt of, more or less, consistent ways of getting to a common price for carbon, and we have not landed exactly on where it would be.
My own view, I am very skeptical about the cap and trade and regulatory route. I think it is just going to be open to intermediaries manipulating the system, making gobs of money and complexities that would become bureaucratic nightmares. I like the simple models myself.
Senator Mitchell: You said the cap and trade and regulatory approaches would have those complications.
Mr. Emerson: That is my view, but again, EPIC has not landed completely, but we do believe that that would be a very difficult way to go.
Senator Banks: Mr. Emerson, I am not a tree hugger, but I am an Albertan, like you were and I hope will be again. Like most Albertans and most British Columbians, if you asked, "Is protection of the environment important to you?" we would all say yes, hands down. There is no other answer. There's a certain amount of NIMBY in what follows, but we all say that.
If I were a tree hugger and said to you that streamlining of the regulatory process is a euphemism for weakening it, answer me.
Mr. Emerson: As you know, I come out of the forestry industry, and ecosystem management and creating a better, more uniform, if you like, framework for managing the forests was not a euphemism for degrading the environment. In fact, it was a way of achieving much higher environmental objectives. I believe, and I think EPIC believes that in no way are we advocating a lessening of environmental goals and objectives or standards. However, if you stop wasting resources by doing things in an inefficient and ineffective way, you can move in a concerted and disciplined way to aspirational levels of environmental performance.
Frankly, I believe that is where we have to go. I think that in the case of Alberta, just telling the story better in terms of the oil sands is not good enough. We are going to have to articulate aspirational objectives as to where we can go over a defined period of time, using evolving technology and different ways of reducing the carbon footprint. I see it, if anything, as a way of being more effective and maybe going even further out on environmental protection.
All the industries I have been involved in, land-based industries, 95 per cent of the people in those industries are bigger lovers of nature than many of the Starbucks promoters of, you know, ecosystem correctness. That is the truth.
Senator Banks: The forestry energy is a kind of model, but that model of active cooperation and arriving at aspirational goals between these guys and these guys has not yet happened in the resource extraction industry, has it?
Mr. Emerson: It is coming, and I would add the following. If you kind of buy globalization and the fact that we will have a high tech, stable economy going forward, Canadian companies will be global supply chain managers. We already have and will increasingly have footprints around the world. Our environmental technologies and our environmental performance will be absolutely critical to Canadian companies being leading global competitors in the resources business because the environmental movement will find you in the Congo or Bolivia or wherever you are. If you are not performing and behaving in today's environment, you will be seen.
Senator Banks: It would be really good PR if you had the Nature Conservancy of Canada on the list of your members, would it not?
Mr. Emerson: We made a conscious decision that we did not want our EPIC exercise to be a negotiation amongst competing stakeholders, but we are prepared to engage, and I think ultimately engagement is going to be important.
Senator Banks: Yours is precisely the kind of leadership that can lead to those aspirational goals, and I hope you keep at it.
Dr. Gibbins, you mentioned the use of the Canada Health Act as perhaps a template with respect to energy. The Canada Health Act in the end, when it hits the fan, only works because there is a choke point on money. There is a hammer.
Could there be any such hammer in the case of energy, using the Canada Health Act as a model? The use of a hammer to ensure compliance is what I am talking about, national standards. A patchwork across the country of how we arrive at a certain stated and understood and agreed upon goal is one thing, leaving the various jurisdictions aside, and how to get there. The situation that obtains in Quebec is vastly different from the situation that obtains in British Columbia, so how you get there is a totally different thing. Does there need to be a hammer someplace?
Mr. Gibbins: I do not know. I think we overestimate the role of the financial hammer that the federal government has had with respect to the Canada Health Act.
Senator Banks: In Alberta we do not.
Senator McCoy: No, we do not.
Mr. Gibbins: Well, no, I think that hammer has been exercised at the margins. I think it has been overdone. I think the real constraint on provincial health care systems comes from a very strong public endorsement or public acceptance of the principles. I think the biggest fear is the electorate, not the bureaucrats in Finance. The hammer issue also then takes us into questions of carbon taxes and whether there's a revenue dimension to this.
Senator, I was struck by your concern about the public reaction to strengthening or streamlining the regulatory process. My point of view is that you have to be able to show that by doing so, you are also serving other goals of a broader, strategic package. I think you can make that argument, that a streamlined regulatory process helps us achieve other things we want to achieve.
I agree with you completely, that if that is rolled out sort of on its own, it is open to the accusation that streamlining is really a simplification that is making it easier for one side, if you want to use that terminology.
That is why I think it is so important to think of energy strategy in somewhat more comprehensive ways, because the pieces do nest together, and if they're cast adrift, they are less likely, I think, to find implementation.
Senator Neufeld: I appreciate both viewpoints. I have been involved in streamlining environmental processes in the province of British Columbia, and regardless of how you try to message that out there and what you are trying to do and the good goals you are trying to do, it will be deemed as reducing the environmental process.
You just have to go into it knowing that you are going to get hit with that politically and try to figure out how you deal with that issue. We can do whatever we think we want to do to make it better on the land base, I do not disagree with Mr. Emerson, but at the end of the day, you know that the environmental movement attacked us on every corner that they could and still do today because we made it more efficient — not that it is "real efficient"; we made it a bit more efficient, I should say, but we were attacked tremendously.
The federal government is going to have to accept that at the end of the day, and politically today they probably could in a way to move that process forward, but it is going to involve a huge omnibus bill into a number of different agencies and ministries to actually streamline that process. There are too many stoppers in the whole process, and you know that better than anyone.
It is just a comment.
Senator Banks: In the forest industry B.C., is there not a widespread public acceptance exactly because of what Mr. Emerson said? Aspirational goals were arrived at cooperatively between the MacMillan Bloedels and the Greenpeaces of the world. It is a pretty happy situation in B.C. now, is it not, with respect to forestry?
Senator Neufeld: I am not going to say it is not a good process. When it was introduced and done, we still got hit. That is what I am saying. As well as it is on the ground, I think if you went to the forest industry, you would find some of the things that actually were done for or on the ground made it sometimes a heck of a lot more difficult also and do not make a lot of sense. There is some give and take.
Senator Banks: So you get dumped on from both sides which is the result of a perfect negotiation.
Senator Sibbeston: My concern is about regulatory matters. I am from the Northwest Territories, and I am aware of the lengthy regulatory processes that occurred with respect to the Mackenzie Valley pipeline. I am aware of other projects that take years for regulatory approval, such as mining and so forth.
I am wondering whether as Canadians we need to go through this process because invariably the discussion on the ground involves First Nations peoples, Aboriginal peoples. In many cases they have now just gotten an opportunity to be involved because in the North we have land claims and they have co-management boards and environmental boards.
They have a chance for the very first time in their lives to have some say in projects. That process serves as a hammer, where it gives them an opportunity to have benefit agreements. Whereas, years ago, companies rode roughshod over lands and Aboriginal peoples, that does not occur anymore. This process has allowed Aboriginal people to be involved. They will be involved in the Mackenzie Valley pipeline if it does proceed, as is the case with others.
While I recognize that there is a need to streamline these regulatory processes, we have to be conscious of the fact that it is kind of like an evolutionary process. We need to go through this process to engage Aboriginal people in our country, and it is happening in a very positive way.
While we may streamline these processes, we still need to be conscious of the participation of Aboriginal peoples. Process has been a means, and we should not totally do away with these processes because then we would lose the progress.
Mr. Emerson: I agree that the relationship with First Nations has been evolutionary, it has been messy. There have been a lot of legal battles in courts through regulatory processes and other ways.
My own belief is that Canada today is not the Canada of 20 or 30 years ago and that in the resources business there is a much greater acceptance today of the need to engage with First Nations, to do partnerships with them and basically to bring them into the process.
All we are saying, at least all I would say, is that we need to have greater clarity on what the requirements of the regulatory process are. If making sure that there is an appropriate sharing arrangement with named Aboriginal groups is quite feasible to do, let us do it and articulate it. Say, "If you want to get this project approved, you are going to have to do a deal."
You do not have to put the numbers in place or the precise mechanisms through which that sharing will occur. You have got to have a way of separating the aboriginal issue from the environmental issue from the other issues and get a process that pushes it forward.
I think the country is ready for that.
Mr. Gibbins: The only very quick comment I would make is that the Mackenzie Valley pipeline issue has now gone 41 years since the project development started. I am not sure in this new international environment whether we can move at that speed. I would not want to go to Asia markets and say give us 41 years and then we will be perhaps ready to start putting pipe in the ground. It is not going to work.
Senator Brown: Mr. Emerson, we have four Prairie provinces that are able to export energy of all kinds, from hydro right through from B.C. to Manitoba. We have gas in both B.C. and Alberta. We have petroleum products in Alberta and Saskatchewan.
I wonder if you believe you can have one solid program for all of Canada's policy if four of our provinces are supplying energy to the world and to themselves, and one province has 50 per cent of the population, and Alberta is paying equalization payments to all of them, excepting B.C., I believe.
So where is this going to come down? Are we going to have two policies, one for the providers of energy and the other for consumers of energy? Are we going to have a policy that is smooth throughout the whole country?
Mr. Emerson: I am not an advocate, and I do not think EPIC is an advocate, of a uniform, one-size-fits-all approach to energy. My own view, and I think this approximates EPIC's view, is that North America is the natural core marketplace, not just for selling and producing in the most efficient way on the continent, but also for environmental management.
You must, in my view, manage your ecosystems on a continental basis at a minimum because ecosystems do not respect political boundaries, and the economics are just so critically important for North America. Then it extends to perimeter security and all those things.
What I would argue, is eventually we probably have to have greater pan-Canadian energy security, but I would not be one to say we should lead by going out and building all these links across the country. I think as you build out access to the North American markets in pieces, you at the same time extend the parallel connections east and west in Canada. I do not have any problem recognizing that each province could have a little different approach to energy and royalties and that kind of thing and how they deal with their fiscal situation.
I think there are some overriding core areas where some uniformity and process simplicity is necessary.
Senator Brown: I just worry that is the mountain we have to climb.
Mr. Gibbins: I would note that market access issues are not ones that afflict only the oil and gas industry. Getting hydro power to U.S. systems is becoming increasingly difficult. Getting new technology into U.S. markets is not going to be easy either.
I think there are some overarching concerns and principles about market access that can be more pan-Canadian in principle, but in practice they ripple out somewhat differently for different industries.
Senator McCoy: I want to commend you, Mr. Gibbins in particular, about the engagement that Canada West has been having in the energy conversations under your leadership. The Let's Talk Energy series, I read it all the time; the paper you have contributed and this lovely book that Barry Worbets brought me last time he was here on the regulatory reform project. As he said, it is one of the best he has reviewed.
I do not know if you have shared a copy of that book with other members. Can I be a shill on their behalf? I think they should read it. I think we could expand on the vision you stated there, but I think you have done an elegant job of framing the issues.
Mr. Emerson, I want to congratulate you on the Alberta premier's council on the economic future, and the report that came out in May, which was brilliant. I am sure our new premier is going to, if she has not already, read it, and will find very helpful going forward. I will definitely commend that to our committee as well, because you have captured very well the nature of not spending the revenues from the resources for Alberta's benefit, and I heard you echo that this morning. We can certainly follow up on that.
It is an issue dear to my heart because of personal experience in the regulatory world, and this call for regulatory reform and streamlining often makes me break out in hives because it seems to me we often mistake what we are asking for, if I can put it that way.
Often we are asking for effective timelines on decision making. There is no question that the process sometimes gets in the way, especially at the federal level. It was Byzantine. They did not have one decision-maker. Nobody could trump the other. There was nobody who could say, "Okay, we have got to get this moving." There was no end point. You could always change your mind so you could have everyone from directors' general in the field on up to deputy ministers and, even worse, ministers prevaricating, delaying, and, in fact, putting projects at risk or at least costing them more money
When my think tank did a study of this 10 years ago, we went out into industry and we asked the questions, and it was regulatory delay that was the problem. A lot of that had to do with the decision-making processes. I swear that there are people in the federal civil service, certainly in the mid to lower levels, who do not know how to make decisions.
So if we were to go through with the recommendation that said give every civil servant at a certain level and above management decision-making training, I would welcome it. I never hear that from anybody. That is one point, and I would invite your comments.
Number two, I want to pick up on where Senator Banks was exploring with far more delicacy than I am, and that is, on the collaborative model. We talk collaboration between governments, as long as they are federal and provincial governments. We have not seen much example of that, but we keep hoping for it. It is not a single leader model, it is not the old bully or triangular fashion. We call it collaboration. We believe in that; that is Canada. When it comes to designing how we go about developing our resources, we immediately stop talking collaboration except in the one example we have seen in the forestry industry. It took 20 years but you got there.
I want to push a little on that with this, because we have 4,000 interveners lined up at the National Energy Board which is now a simplified process of energy regulatory reform.
Can you comment on changing our model to become a collaborative design process which would allow us to proceed to building the project in a more timely fashion as an alternative?
Mr. Gibbins: The quick point I would make is that what has been happening in the oil sands over the past year shows that collaboration is actually possible where there is a shared interest and a shared threat, that Alberta cannot protect its interests in the global or the continental energy environment without the cooperation of the Government of Canada. It is just not going to work.
The oil sands cannot go it alone on this. The federal government needs to cooperate with the Province of Alberta in getting the regulatory and environmental assessment right so that it can protect Canada's international reputation abroad.
Here is a situation where the incentives for collaboration are pretty strong. The collaboration is working reasonably well, not without friction but it works. I think if the incentives are there, if the threats are there, we can actually make this work.
Senator McCoy: Would you include the representatives of the environmental and First Nations' interests in that scenario? That is the question. That is the forestry model.
Senator Massicotte: I make the observation the oil sands are very important to all of Canada, and to Alberta. It is a very important component of our future, economically and energy-wise. We have been here in Western Canada for the last three days. I am actually surprised at the number of good things that are happening, and it is an openness of mind that gets us there.
I particularly note the efforts of our premier here. When I took a look at what is happening, even with the pipeline in the United States, and I think of the comments you receive from people outside Canada, including many people in Canada, the perception of the world is that we are not taking climate change seriously and that our governments are not being proactive enough to explain to the world what the oil sands are about.
I am not an expert on it, but I am convinced that even if we were tougher with our demands, oil sands people could get it together. I sense that we need to move very quickly on this matter because, when you develop a reputation, it takes a long time to change it. We could shut off this resource from the world. Is that threat serious in your mind, and what do we do about it?
Mr. Emerson: Senator McCoy alluded to the report that we prepared for the previous premier. There is no doubt that there is urgency. It is not enough simply to produce better video footage and media material. It has to be founded on a substantial program of aspirational objectives and a reasonably well-defined track to get to a higher level of environmental performance. I think it can be done, but it is becoming urgent.
What happened with the forest industry was that the regulator, the province, was not able to get ahead of the problem of clear cutting and harvesting too close to streams and all the usual things. It went on and on with the environmentalists chaining themselves to pillars in Home Depot and lobbying the newspapers in the U.K. It got to the point where the government, who should be actually regulating with sensitivity to Aboriginals and the environment and the various social issues that come together to make the national interest, or the provincial interest, lost credibility.
When they lost credibility, they then had no choice but to engage the environmentalists, and that is where they ended up. Now, virtually all the forest companies go out and get external certification of their forest management practices. If you think about it, it is kind of crazy because the government actually ought to be doing that, and people ought to have faith that the government is doing that job.
The real worry that I have about Alberta is if we do not move with some speed and substantive forcefulness, we will lose governmental credibility. Then we will have no choice but to go and ask somebody else to come in and validate what we are doing, and you really do not want to be there.
Senator Massicotte: Mr. Gibbins, any comment on that?
Mr. Gibbins: It is flitting in and out of my mind. I guess the point to stress is that there will be a significant element within the environmental movement who will oppose oil sands development, regardless of environmental performance. You have to demonstrate to a broader electorate and a broader constituency that that environmental performance is improving. I agree with David you have to do that internally.
Everyone is not going to link arms and sort of sing Kumbaya about the oil sands, because it is a convenient point of attack for those people who believe we should move quickly to a zero carbon economy. It is a vulnerability that we cannot escape.
The Chair: We will adjourn the meeting.
(The committee adjourned.)