Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 9 - Evidence - November 16, 2016
OTTAWA, Wednesday, November 16, 2016
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:25 p.m. to study and report on the development of a national corridor in Canada as a means of enhancing and facilitating commerce and internal trade.
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Good afternoon, and welcome to the Standing Senate Committee on Banking, Trade and Commerce. My name is David Tkachuk, and I am the chair of this committee. Today is our sixth meeting on the subject of our study on the development of a national corridor in Canada as a means of enhancing and facilitating commerce and internal trade.
In the first portion of our meeting today, I am pleased to welcome Dr. Jack Mintz, President's Fellow, The School of Public Policy, University of Calgary. Dr. Mintz is here today representing his own opinions. In addition to his prestigious academic career, Dr. Mintz serves on various boards and has consulted widely with the World Bank, the International Monetary Fund, the Organization for Economic Co-operation and Development, federal and provincial governments in Canada and various businesses and non-profit organizations.
Thank you for being here today, Dr. Mintz. Please proceed with your opening remarks, after which we'll go to a question and answer session.
Jack Mintz, President's Fellow, The School of Public Policy, University of Calgary, as an individual: Thank you very much. It's my pleasure to be here today and have this opportunity. This week is my Senate week, because yesterday I was up before the Senate Finance Committee, so this is number two, except I did that one from Toronto by video conference.
In these brief remarks to the Senate Banking Committee, I would like to provide my own perception of the net benefits arising from the development of a northern corridor for Canada. I will not go into the details of the northern corridor concept but simply state that it would provide pre-approved land use for rail, transmission lines, broadband, pipelines and highways for transportation to take goods to the Atlantic, Pacific and Arctic seas.
Not since the development of the Canadian Pacific Railway as part of John A. Macdonald's national policy do we have an opportunity to build a modern infrastructure for the 21st century that could have a dramatic impact on Canada's global trading patterns and economic growth. I see the following substantial benefits from developing a northern corridor.
Number one: Regulatory costs are hurting Canada's economic development. As the World Bank shows in its Doing Business report, Canada is one of the slowest of almost 200 countries in approving permits for the construction of commercial and industrial businesses. That is also the case with respect to infrastructure projects. Many companies, including Canadian ones, have found that it is far faster to obtain approvals for transmission lines and railways in Australia, for example, than in Canada. In part, this is due to the development of corridors that enables projects to be approved for a corridor once social and environmental issues have been dealt with for land use. Our slow regulatory approval comes with a cost. You can see an example of this in the Financial Post article of August 17, 2016. Regulatory cost delays can reduce the return on projects as much as taxes on investment. This is an extraordinary efficiency cost to the Canadian economy.
Number two: Market diversification would provide important benefits to Canada. At this point, a significant share of our goods is exported to the United States, especially oil and gas, which is almost exclusively sold to the United States. It is not that Canada does not have the ability to trade with other countries where growth is expected to be robust in the future. Currently, 85 per cent of our exported logs are sold to Asia, 75 per cent of our exported coal goes to Asia, almost half of crop production to Europe and Asia, and three quarters of our metal exports to Asia and Europe. We can achieve more diversification if we improve our ability to export through Canadian rather than U.S. ports to take advantage of trade with other countries besides the United States. Given new trade agreements with Korea and Europe, and possible agreements with other major countries, we will need a transportation structure conducive with trade.
Number three: Market diversification will improve our bargaining power with the United States, who will remain our most important trading partner. An important lesson from Game Theory 101 is that a player who has few alternatives also has a weakened position in a negotiation. Canada is subject to the political whims in the United States, which have hurt us at times, such as the meat-labelling case and Buy American policies. Without alternative markets, we have less bargaining power to ensure our own economic interests when dealing with our most important trading partner.
Number four: The development of a northern corridor will have significant advantages to connect people of the North with the rest of Canada. One of my lessons from the World Bank and IMF studies over the years with respect to regional development is the importance of transportation and communication networks to enable slow-growth regions to develop their own industries. In fact, this is the best form of regional development aid that can be pursued, far easier than tax holidays, industry subsidies and other policies pursued to help economically disadvantaged regions. In preliminary discussions with First Nation groups that I have participated in, I have found this to be a very important benefit that First Nations perceive from the development of corridors.
Number five: Creating a national corridor in the middle of Canada and going to the North will be a tremendous help to urban populations needing to develop their own transportation needs. One significant benefit from developing a northern corridor is that it could shift rail and highway transportation for goods away from urban centres. It is well known, for example, that commercial trains running through Toronto add to congestion of railway lines, making it more difficult to develop passenger railway transport by Metrolinx.
Of course, a northern corridor going from British Columbia to Newfoundland and Labrador is expensive, and one would need to understand these costs and the willingness of businesses, peoples and taxpayers to cover these costs. But that is true for infrastructure in general. Perhaps some parts of the corridor would not be built since benefits are insufficient to cover the costs. However, many Canadians are already looking at Churchill, Manitoba, the Mackenzie Valley and the B.C. and Atlantic coasts for export of our abundant resources.
To develop these corridors, federal leadership is essential, working with the provinces, territories, First Nations, business and other stakeholders. This is exactly the right role for the federal government since it has a constitutional responsibility for transportation policy. It is time we put corridor developments at the front burner as a critical priority for infrastructure development in Canada.
Thank you.
The Chair: Thank you, Mr. Mintz.
Senator Wallin: I can't resist, as we've all been watching the results of the U.S. election and the promises to deregulate or streamline regulation, undo Dodd-Frank and reopen NAFTA. This creates a draw south and complications for us here. We all remember what happened after 9/11 with the Buy America legislation.
Is it, in your mind, time to recalibrate our views — I know your view on the corridor — and focus more on internal trade and getting to the tidewater so that we can go directly to Asia? Because there's resistance to TPP as well.
Mr. Mintz: Yes. Regardless of whoever won the U.S. election, I was not hopeful for TPP, because both sides of the aisle in the United States have become much more, let's say, aggressive in their views about trade and the benefits of trade.
I said this in my opening remarks. In the case of Canada, I think there are two aspects that are valuable about developing alternative trade. A good example is forestry, where prior to 2000 most of our wood went to the United States. There was very little trade with Asia. Now the trade with Asia is much bigger. As a result, if we have a dispute in that industry, we have an alternative. This is my point about Game Theory 101. Game Theory 101 shows you can do better in the game if you have threat points, and if you don't have threat points or alternatives, then you're going to get beaten up every time. That's one reason for the benefits of market diversification.
The other one is simply where the world is going today. The U.S. economy has been plodding along over the past number of years. Whether the new president and the Republican congress will be able to push up that growth rate and maybe create more opportunities for Canadians to export there, we'll have to see over the longer term. I don't think anyone questions the continuing growth of other parts of the world, whether it's Africa, Asia or elsewhere, where we have to admit that one of the great consequences of new technologies in communications, transportation and other things has led to a shift of jobs out of advanced countries into lower-growth areas. From a world perspective, we had good growth in the world as a result, and a reduction in income inequality around the world in terms of poorer regions of the world doing better because of this major shift after 1995.
That trend where we're going to see more parts of the world where you will have middle-income groups getting larger will create opportunities for demand. Even though we are close to the United States and they will still, because of transportation costs, always remain our most important trading partner, there is no reason that Canada shouldn't try to exploit these other opportunities. I commend the current government for concluding the CETA agreement, which I think was important, and the previous government over Korea, but I think these are the things we should continually be trying to do. I'm glad Canada has a positive view toward trade, not a negative one, as we see in the United States.
The third reason it's very important that we look at the northern corridor is the fact that not only will it give us benefits to trade and improve our position vis-à-vis the United States, but it could provide an opportunity to get our resources out, if it's possible to do, through cheaper means. That will improve the gains to the Canadian economy, just as you would get with internal trade barriers being removed that would allow for more growth in the Canadian economy.
Senator Wallin: The thing we hear from everyone who has testified in front of this committee is that it's a logical, important thing to do and we need it for all of the reasons you have just cited, but this is a multi-billion dollar project, and governments tend to have four-year attention spans, for obvious reasons. Is there some argument that you think has not yet been made or that you might have? You've laid out the other ones that really say to any government of any day that you have to do this. It's going to cost a lot. We know there won't be any benefits until long after you're out of office, but we've got to do it.
Mr. Mintz: Right now I see infrastructure planning developing for very long periods, but it also depends on how you pay for the infrastructure in terms of whether you can get longer-term infrastructure plans approved, which means user fees or other things.
We have lots of infrastructure that is trying to get built around the country, whether it's a pipeline or a transmission line or whatever, and people are willing to pay for the cost of that infrastructure either through development charges or whatever. Maybe governments might throw some money in to help deal with some of the social issues, but that doesn't mean that there isn't an income source that couldn't be collected to help pay for these things. In fact, one of the major benefits of the corridor is improving our regulatory system so we can get best-in-class regulations where we can still protect the interests of the public. At the same time, we can do it at far less cost in terms of time delays.
I've always argued that the most important type of infrastructure we need today is what I call productivity enhancing infrastructure — infrastructure that's going to grow the economy. I have no problem with trying to get people moving faster around urban centres because that will be a productivity improvement, but I think the other part of it is getting our goods and services to tidewater and to export. I think that is the other major imperative, and that's why I think the northern corridor is a possibility.
The overall cost to the government, we'd have to see. When you look at some of the past proposals that got turned down, sometimes there was a fiscal requirement for the government to provide some support, but in other cases we've been building pipelines and electrical transmission lines where it's been the consumers of the product that end up paying for it. And, yet, we're still having difficulty getting that electrical transmission line done in a reasonable time because of the fact that we don't have corridors, unlike Australia and other countries.
The Chair: It's more clearing the path, is what the federal government has got to do, not necessarily building the structure.
Senator Wallin: Or writing the cheque, yes.
Mr. Mintz: Exactly. This is where we have to do the evaluation. We do have to carefully study the issue of how you pay for the overall thing, and that's why I said that maybe parts of the corridor will not be sensible from an economic or financial perspective. But I suspect there are a number of them. I've talked to people since the school put out its paper about how they would really like to get Churchill done and the great possibilities that Churchill could provide for export and the need for corridors to go to Churchill. I've talked to a number of people working out trying to get this done, but part of the problem is just getting governments to focus on it.
Leadership doesn't mean just money. I mean, money may be part of it, but it might not be a lot of money. It might just be leadership coming in and saying, "Let's try to get the issues out of the way,'' because the idea of the corridor is to deal with the First Nations issues and the environmental issues and a number of other things that are hanging up our ability to get things done in this country. That's why the Australians have been so successful.
Senator Wallin: So take a little chunk, do the Churchill bit, and see how that goes.
Mr. Mintz: There's nothing wrong with pilot projects.
Senator Enverga: My question is more in line with Senator Wallin's. We know a significant share of our goods is exported to the United States, especially oil and gas, which is almost exclusively sold to the United States, according to your presentation.
Mr. Mintz: Ninety-seven per cent.
Senator Enverga: That's huge. One of the reasons we're having this national corridor is our difficulty to make the pipeline go through. Now they have a new government down south and they seem to be more conducive to approving the XL pipeline, and I have a feeling it will be approved very soon. My question is: How urgent is it now for Canada to have this northern corridor? Is it better for us to focus on the pipeline rather than making a broad statement there for a northern corridor?
Mr. Mintz: Let me answer this with two points, because the question you're raising is an important one. First of all, I don't think we should presume that simply the building of Keystone XL and maybe other potential pipelines going down to the United States will necessarily give us what we're really looking for. There are two aspects to this.
Number one is that the increase in potential supply of oil coming out of Canada, in terms of projects that are being constructed and to be finished and will soon be exporting, far exceeds Keystone XL. In fact, we will need more than one pipeline, that's for sure.
The other bigger question goes to the market diversification issue: Are we missing out on opportunities? Using natural gas an example, some of the work that's been done in the past shows that we have partly missed the boat on natural gas because we've been so slow. Where Australia has built four LNG plants and the U.S. has built six, we've built zero. We are clearly missing out on higher prices available in places like Asia and maybe even Europe down the road in terms of natural gas exports. By not thinking about our ability to use our own borders to export to other countries besides the United States, we are missing out on some potential economic returns.
The second point really goes back to regulatory delays and the cost and inefficiency of regulatory delays. When I get TransAlta telling me that they find it's much easier to work in Australia than in Canada, you can bet where the investment dollars are going to go. They're not going to Canada. We need to undertake regulatory reform in this country, and I think the corridor is really one of those important ways that you can achieve regulatory reform. Now, it may not be the whole map that we've described in this paper. It may be parts of it, as I've mentioned. But to me, the great concept of the northern corridor is the ability to facilitate trade and also productivity in this country by improving the regulatory system and reducing delay costs.
In fact, I have a piece that just came out on this on the implications of the Trump election: If the United States goes ahead seriously with tax and regulatory reform that will improve its competitiveness, there will be some good things for us because we export to the U.S. and that will help drive up some more growth in Canada. But we could also lose significant opportunities for investment unless we get our act together in terms of taxation and regulatory reform. I think regulatory reform is really the more critical need right now.
Senator Smith: We had the group in from the University of Calgary, and I am sure you have direct contact with those individuals. Do you, sir?
Mr. Mintz: I see them sometimes, yes.
Senator Smith: What I meant is that you've obviously seen what they've reported on.
Mr. Mintz: I was given the Hansard notes that were sent by the committee clerk. I've read all those.
The Chair: That was what started this whole ball rolling when we were doing the previous study on interprovincial trade. He brought up the national corridor, so he's obviously read the study.
Senator Smith: The point was that when they came here, we asked what they need to move forward, and they said they need about $800,000. As an observer and someone who has obviously initiated ideas and talked about regulatory reform and the concept of a corridor and whatever you do, it's going to benefit, because you have everything set up and ready to go in terms of Aboriginal relationships and land use, et cetera, how does this get started? Who is going to give us some of that up-front dough to get that study completed? What would you think? Who would be the most likely to do it?
Mr. Mintz: I'm not sure. I know that the school is looking at creating a wide number of partners, both government and private, to fund it. It's not meant to be an interest in only one particular group of people because there's a lot of value in looking at it. It will be up to them. To be honest with you, I'm not involved with fundraising any more with the school. That's what I used to do when I was director, but it's not my thing any more.
I think that given that the Senate has shown great interest in this, and if the government starts looking at this, there may be some value in getting an academic group like the University of Calgary and CIRANO in Quebec to at least pull together some outside analysis to look at these issues. But in the end, it really depends on the government being committed to moving ahead in studying this, because they have to take the leadership.
In my view, the success of developing corridors that would improve our regulatory system would ultimately depend on the federal government taking a leadership role in this. Again, if they want to partly fund the project, that's great. I hope they do that, in partnership with others. More important, it's not just this study; I think it's the federal leadership and the commitment made by various departments to look at all the details, because this is a huge amount of work to understand.
The reaction that I've had in dealing with federal government officials is that they feel the corridor concept can deal with a lot of difficult problems that they've been trying to handle over the past number of years in terms of regulatory issues. Given the great interest on the part of the government to build infrastructure in this country, this to me seems like a no-brainer in terms of a significant leap forward in trying to get infrastructure built in a manner that is responsive to international markets and the Canadian market, as well as enabling a more efficient process to get work done on a timely basis.
Senator Smith: We have talked to a couple of departments. Without mentioning them, because it was a bit — I'm not sure if I should say —
Senator Wallin: Vague.
Senator Smith: Vague — I was going to say "embarrassing'' — in terms of the answers they gave us, it seems that some departments have more of a micro approach to looking at transportation hubs when we asked the question around having a major problem getting wheat out to western ports so it can get to Asia —
Mr. Mintz: Good example.
Senator Smith: — and someone said, "We built the port in Vancouver so they can handle more capacity,'' but if you don't have the track to get there, it's going to be more difficult. It didn't seem to ring a bell.
From your perspective, knowledge, scope and from the types of conversations you've had, for us, a Senate group leading the charge with some help from people like you, what would be the places we would go to first in terms of departments? Could you give us some advice?
Mr. Mintz: A number of departments would need to be involved in this kind of project. I forget all the names of the new departments, but Transport Canada is clearly one of them, because that is their bailiwick. They have to be the lead on something like this. Finance would have a role, as would Aboriginal Affairs and Northern Development Canada, the new Industry Canada and potentially Global Affairs in terms of international trade. There are several very important departments that would have to be engaged in this, with the lead department taking some ownership or accountability.
Senator Greene: Thank you very much for being here. I've got a couple of questions to which you responded a few minutes ago. They were touched on by Senator Wallin. Then I have a larger question at the end.
With regard to getting this under way and arranging financing, do you envision a mixed P3, user-pay, government kind of approach? Do you envision the corridor could be paid for in different ways in different places, or do you see it as an all in one encompassing idea?
Mr. Mintz: One has to separate the projects from the corridor itself. The corridor is simply land that's approved for transmission lines, railways or whatever to be put into it, although one would like to study to make sure how much land you would want to have, what's potentially possible to do from an engineering point of view, et cetera. Those things have to be understood about what the possibilities are.
It may be that one way of trying to recover the costs of just setting up the corridor, which would require potential development costs, is to charge whatever projects there are to cover those costs eventually. Again, this has to be studied in terms of what would be the appropriate ways. Think of it as building up a new neighbourhood in a city. You have to put in new infrastructure, and you have to do land zoning and urban planning around that. How is it that infrastructure covered? It's covered by development charges that effectively go into the cost of housing in that respect.
Senator Greene: Does P3 play a role in that?
Mr. Mintz: Can you have P3 for the infrastructure? Possibly. However, you've got to remember that it will be partly a monopoly, because whoever owns it could then charge whatever they want for it if they have that right. That area would likely need some regulation because you don't want to have monopoly pricing.
I'll never forget: I worked in Hungary for the World Bank. It was at the time they were going from Communism to a market-based economy, and they were getting very excited about becoming market-based. They wanted to have private producers of bridges and highways. I said, "What about pricing and monopoly pricing?'' They said they weren't too worried about that. Later on, they became more worried about it.
You're going to need some sort of control over that. It doesn't have to be owned by the government, necessarily, although that would be the other solution. There's nothing preventing that — or having a P3, as you mentioned. But the projects themselves that go into it, by the way, could be completely private.
Senator Greene: Right. With regard to regulations, I agree. This is sort of almost a neat back-door way to get the regulations we want in a uniform way across the country. But do you see a possibility that the transport regulations, et cetera, could be different in the corridor than it is in the rest of the surrounding province?
Mr. Mintz: Now that's a good question. I haven't thought about that. I'm not sure how I would want to answer that. I'd really have to think about it. You are raising an issue now.
When you're talking about the Northwest Territories or the Yukon, for example, it's federal jurisdiction. Working with the Aboriginal and the First Nations groups is critical in term of how you develop the rules.
We have to remember that transportation policy itself is a federal responsibility under section 91 where canals were given to the federal government. In terms of the regulations, there is an issue around the governance and things like that about the responsibility of the corridor, but I see the corridor being the responsibility of the federal government even within the province. Of course, they will have to work it out with the province because it's, in a sense, expropriation of land.
Senator Greene: It is.
My final question: Assuming we all wanted to do this, do you see the first job really is for the government to project a vision and to sell the vision to Canadians?
Mr. Mintz: It has to be the federal government. As I said, it has to take leadership and express vision. In fact, they may be moving in that direction already.
Going back to your first question, one of the people who could own the corridor is the Canada Infrastructure Bank. There's an interesting idea. I haven't thought much about it, but here you are bringing together public and private capital to build infrastructure. The corridors could actually be an important way of trying to facilitate this infrastructure spending in a way that we can deal with the difficult regulatory issues that we have been rather balled up with in Canada in trying to get things done.
Senator Greene: It's a challenging thing, and a generational thing also.
Senator Ringuette: Thank you very much for your presentation. As a New Brunswicker, I look at the proposed trajectory of the corridor, and I certainly agree with the objective, but I would also like to see it being more inclusive. We need a link from west to east on a northern corridor, but we also need to tie that northern corridor to the east so there's an easy link going up to the northern section. Maybe that link could be the responsibility of the provinces, to make sure that they're into the economic development possibilities of that northern link. I have a tendency to think outside of the box. Have you looked at that trajectory and how the different provinces could link themselves so that this would be a true north-south-west-east project to help Canadians wherever they are in our geography?
Mr. Mintz: I think you're bringing up a very good point. In the University of Calgary/CIRANO paper, map 2, they have the proposed corridor concept — and it's a concept only — where it would go through Northern Quebec, into Labrador, as one potential thing. And it would also link to the existing corridor that runs through New Brunswick and Nova Scotia.
However, your question is a good one because to me the value is the corridor concept. To me, that's really the big valuable, whether you want to call it a northern corridor, southern corridor, whatever you want to call it. We already have certain corridors. If there are things that should be added on to the corridor concept that would facilitate trade, let's say a corridor that is going down to the United States from New Brunswick or something like that, why not? Why should that be excluded?
The concept is to get these corridors built for approval of projects as the land use issues have been dealt with in a more efficient manner, but also to make sure we take advantage of all the trading opportunities we have as a country and certainly not view it as the main project is to facilitate trade with the United States, just like I don't think the main project should be to facilitate trade with China. This is where the studies have to come in to see, economically, what are the most valuable ones to consider.
In principle, I don't see anything wrong with what you're suggesting.
Senator Greene: I have a follow up to Senator Ringuette. I've always imagined a corridor through Maine that would connect Montreal and the St. Lawrence Valley to the Maritimes in a much better way. It would shorten transportation and it would become part of our market then. It's not right now.
Mr. Mintz: I don't know enough about the corridor running currently through New Brunswick and Nova Scotia, but your point may be absolutely right that there is more to be done — for example, it doesn't run down to the southern part of New Brunswick — and so I don't think that is a wrong concept. In fact, even those other corridors one can think of through the country could also be useful in terms of the economics.
The reason initially we started off with the idea is that if you go back to 1867 and John A. Macdonald's policy that he adopted for development of Canada and the Canadian Pacific Railway, that created the southern corridor that didn't exist before and it linked Canada from sea to sea — not to another sea, but at least to two seas. That corridor is the one we have with some additional ones that went up, but it's not a grid.
What we see and one of the things we try to argue is that you are getting congestion in some cases. Think of the safety issues for Calgary, Vancouver, Toronto and Montreal, where you have hazardous goods running right through the city. I know that in Red Deer they've actually moved the train to go around Red Deer rather than through Red Deer. There are a huge number of benefits to the country if we look at our corridors more holistically and try to take advantages.
We sold this idea of the northern corridor in a sense as trying to shift up some of the east-west linkage, as well as making sure we get something built going to the Arctic that currently doesn't exist.
Senator Manning: Thank you for your presentation. To quote Robert Kennedy, "Some people see things as they are and say why? I dream of things that never were and say, why not?'' I'm looking at your map — and I'm from Newfoundland and Labrador — but I don't see any of those corridors in Newfoundland and Labrador, so I'm asking why not?
There is one into Labrador. We're in the process now of building a transmission line to the Island of Newfoundland from Labrador and continuing on with the transmission line for hydroelectricity from Muskrat Falls to Nova Scotia and beyond, once it reaches Nova Scotia, and the possibilities of pipelines. We're talking about the east-west pipeline, communication networks and so on, realizing that we're dealing with the Atlantic Ocean and costs that would be something other provinces may have to deal with.
What is your thought process on creating that link and the ties that bind that bring us from one coast to the other? Even though we have a major project ongoing in Newfoundland and Labrador at the present time, it cost much more than we anticipated in the beginning but we're so far in now we have to continue. What else could we include as part of that that could reap some benefits for us in the long term and Canada as a whole?
Mr. Mintz: I'm quite aware of the projects you're talking about. All I can say is that I'll pass that on to my colleagues. When you look at map 2 in the paper, these dotted lines are dotted lines. They are not meant to show where the corridor is definitely going to be. It's just to capture the imagination. If you don't have a map and say, "This is what it might look like,'' people don't appreciate it.
I know that my colleagues know that one has to study the various parts to see what's going to make sense and what would actually work and what would be economically viable. The kind of questions you're asking are very good ones and I'll pass them on. You can have more arrows or even fewer arrows in some cases, so that's why you need to have a proper study done to see what's possible.
Senator Manning: Thank you for your proposal. I appreciate that.
Senator Wallin: You can see the regional nature of senators representing their areas. It is Canada. I know that other people have said this, but somehow the penny really dropped for me today when you talked about corridors versus projects, which makes this a lot more manageable in terms of how we look at it. We all read what you write here and there, including any further thoughts either today or at some later point. I think that's important because it takes away the enormity of it and doing specific projects, all of which could be linked up later at some other point.
I would like your thoughts on that and then to follow up on Senator Greene's idea, to put your mind to that when you're trapped on some airplane would be helpful for all of us too, about seeking some kind of exemption or special status or whatever you call it. I know it's a very risky thing to say in Canada, but just to say in this area we need to change the rules a bit, to even how we might broach that. Some thoughts on that going forward would be really helpful for us too.
Mr. Mintz: Those are good points. We have to make clear what the difference is between a corridor and the projects themselves. I think that's part of the problem right now because in Canada we treat the two things as the same. Every time we put in a project, we say, "Oh, we have to build a corridor as well,'' or "We have to do the same thing as a corridor.'' That's what the Australians and a number of other countries have done that's different. They say, "Let's get the corridor approved and agreed upon,'' and then you can put in various things, and then it makes it much more efficient in terms of trying to get these projects approved. I think that is the key. To me, the biggest value of having the corridor concept is that you build it to allow for a number of possibilities.
The big issue is trying to understand what is possible and not possible. Life changes down the road, so you want to allow some flexibility. Right now you might say, "Well, there will never be a railway there,'' or "We will never construct a highway there, or an electrical transmission line.'' But things change, and once you have corridors there, it does give you an opportunity to build it. Of course, there is a certain inflexibility associated with that corridor, because once you approve it, you're kind of saying, "Well, this is where we're going to go through,'' as opposed to any other possibility. Obviously, you are introducing some inflexibility in that sense. To me, the huge benefit of this is getting the corridor done and then doing the projects that are relatively good after that.
As far as the second point goes, changing the rules, I think this is one of the areas for study for the academic groups, because that's again to understand what sorts of things must change on the regulatory and governance side to make this work. That's something that does need careful understanding and work. I think it goes beyond thinking on an airplane ride.
Senator Wallin: I meant in the context of the corridor rather than the specific projects, it becomes more manageable.
Mr. Mintz: Your point is right. That, to me, is the issue around the corridor: What are the changes in the laws, or what is the governance and what is the process that's going to be required in order to construct the corridor? I think that has to be understood. There is some experience that you get from other countries in terms of what they did, and I think that's something that should be looked upon.
The Chair: If there are no further questions, thank you very much, Mr. Mintz.
Mr. Mintz: My pleasure.
The Chair: We appreciated this, as always, and you're always welcome here.
Mr. Mintz: Thank you.
The Chair: I'm pleased to now welcome Jonathan Stringham, Manager of Fiscal Policy for the Canadian Association of Petroleum Producers.
Welcome, Mr. Stringham, and thank you for being with us today. Please proceed with your opening remarks, after which we'll go to our question session.
Jonathan Stringham, Manager — Fiscal Policy, Canadian Association of Petroleum Producers: Thank you, chair and members. I'm pleased to present a few comments regarding CAPP's thoughts on the development of a northern corridor as a means of enhancing and facilitating commerce and internal trade within Canada.
I have had some time to read through the research paper published by The School of Public Policy on planning for infrastructure to realize Canada's potential, and we generally agree on the following key benefits:
That the oil and gas industry is restricted in its ability to export commodities to world markets as international prices for oil and natural gas remain generally higher than those realized in the current North American market.
That increased efficiency in the transportation of any good produced or consumed within Canada has the dual effect of lowering overall production costs and lowering the emissions associated with the transportation of goods. It provides the benefits of jobs and growth from investments.
That the key to unlocking Canada's vast economic potential lies with the development of infrastructure and associated services, with a vital focus on preserving the environment and working in partnership with Northern and indigenous communities to enhance the quality of life.
There is a need to act. The Canadian oil and natural gas industry needs to access new markets in countries where demand is growing if it is to realize its resource potential. Canadian natural gas exports to the U.S., our only foreign customer — as we just heard, 97 per cent of all crude exports go to the United States — declined nearly one third between 2007 and 2014. This trend will likely continue, as the U.S. is expected to become a net exporter of natural gas by next year. In fact, the U.S. is Canada's largest customer, as well as our largest competitor.
World demand for natural gas is expected to increase 46 per cent by 2040, driven primarily by rapidly expanding Asian economies, which is why West Coast LNG and East Coast natural gas export terminals are critical to the future of Canada's natural gas producers.
Developing a 30-million-tonne-per-annum LNG facility or industry in B.C. could potentially provide Canada with $3.2 billion in total impact on federal government revenues annually; $3 billion in total impact on government revenues annually to the Government of British Columbia; increase national employment by an annual average of 650,000 jobs; and reduce British Columbia's unemployment rate by an average of .5 per cent over the next 30-year period.
Global LNG markets are highly competitive, and Canada's natural gas industry must face well-established international suppliers such as Qatar and emerging suppliers like the U.S., Australia and Russia. It is critical that Canada enter the marketplace as soon as possible or risk being shut out of international markets as other countries develop their export potential and look to capture the incremental growth of the LNG demand.
Significant potential economic benefits from establishing a Canadian LNG industry and resulting natural gas development could be generated across Canada if natural gas projects are established in a timely manner and are able to access international markets, to which a northern corridor would be key.
A focus on community engagement is critically important. As the oil and gas industry pursues development opportunities across Canada, it is important that it actively engage local communities on its project plans. A northern corridor, if you're active in that space, would be no different. Landowners and communities have questions about the impacts of oil and gas activities on the environment, health and quality of life. Our industry has a desire and responsibility to respond to these concerns in an open, honest and timely manner.
First Nations communities will also see a significant increase in economic benefits, skills, training and environmental stewardship if proposed natural gas pipelines and LNG infrastructure projects proceed along a northern corridor. In British Columbia, for example, nearly 90 per cent of the 32 First Nations with proposed pipelines through their traditional territories have indicated their support through one or more pipeline benefit agreements.
Global demand for energy is growing, and Canada is uniquely positioned to help meet this demand. At the same time, we must do our part to fight climate change. Canada can become a world leader on climate action through a united commitment to technology and innovation and continuing to develop its oil and natural gas sector responsibility to provide the energy the world needs.
Continued collaboration among the provincial and federal governments as new policies and regulations are developed will avoid unnecessary regulatory overlap and duplication. The federal and provincial governments need to focus on the growth of the Canadian economy, which includes pipeline access to international markets for Canadian oil and gas, and we believe a northern corridor would be a step in the right direction.
Thank you.
Senator Wallin: Could we get you to expand a little bit? You did a nice summary. What do you think we need to do on the emerging issue of the U.S. being our competitor and our market and it becoming an exporter?
Mr. Stringham: I'll use one example: eastern access. We're looking at 2 billion cubic feet of natural gas coming from the Marcellus, which is a massive gas plate located in Pennsylvania that is pushing out western Canadian gas. We are looking at that as a significant competitor to our natural gas. The federal government can certainly help by partnering with industry responsibly on the challenges of climate change while keeping a close eye on what's happening south of the border and the competitive challenges we face there.
Senator Wallin: If they continue with what the president-elect says and deregulate, you mentioned that we don't want to be shut out of international markets, so how serious do you consider that possibility?
Mr. Stringham: Being shut out of the U.S.?
Senator Wallin: International markets including the U.S.
Mr. Stringham: LNG is a good example. The Australians and the Americans have made significant gains compared to where our industry is. We are making progress, but we have to be realistic with the fact that our competitors are moving forward at a substantial rate compared to where Canada and our LNG sector are. What is worrisome to our producers in particular is where that market share lands in Asia.
Senator Wallin: From your point of view, is the U.S. going to take the lion's share of that?
Mr. Stringham: It's certainly difficult to say. What we have seen to date is that they're able to move much more nimbly than we are in Canada.
We have a good product. One of the advantages we do have here in Canada, and in B.C. in particular, is we have a product that is regulated. It is a product coming out of what I would argue is one of the heaviest regulated industries coming out of B.C. in terms of LNG. There is a carbon tax currently in place, and we are probably some of the more responsible developers of that resource internationally.
So market share will close if it's price, but if producers and buyers are looking at a broader spectrum of social issues, there is a space for us to compete. There is no question there is urgency on this.
Senator Wallin: That's part of the marketing that needs to be done.
Mr. Stringham: Yes.
Senator Enverga: Thank you for being here today. You mentioned about the gas availability in Pennsylvania and the eastern part of Canada. Is there a way when we build this northern corridor that the U.S. could be able to assist in financing and use the same infrastructure? Is it possible for us to have some cooperation with our neighbour from the south so they would be able to market from east to west?
Mr. Stringham: So have Marcellus gas come through the northern corridor and be marketed? I might not be your guy for that, but anything is a possibility. Certainly our industry would argue that we would like a made-in-Canada solution.
Senator Enverga: You mentioned the community engagement required. In the corridor proposed in the paper, how should indigenous communities be involved? How could they participate in financing the development of a northern corridor? How will they be involved there?
Mr. Stringham: We're in touch with a number of good Aboriginal leaders. Where possible, we would look for joint venture opportunities.
In terms of the northern corridor, we would look where interests align, similar to what we have already in place with some of our partnerships in the North. Where resources may be near band lands and putting a pipeline near a highway or electrical transmission line align, we would work closely with those bands. There may be an opportunity to jointly fund aspects, as Dr. Mintz pointed out, in a 3P environment.
Senator Enverga: You have been talking to some indigenous nations. What are their responses to this? Are they happy? Are they committed to having this infrastructure built on their lands?
Mr. Stringham: I would be remiss to speak on their behalf. Certainly they are positive about anything that would bring their costs of living down and would be able to bring prosperity in terms of economic growth and jobs to their communities. In terms of the overall impact, I think you'd have to talk directly to them.
Senator Smith: At this particular point in time, what are your priorities as an association in terms of trying to assist your members in actually stimulating growth or accomplishing some form of support? Are you lobbying governments yourself? What is your strategy at this time as an association? Looking at existing markets, the threats and opportunities, what is your three-point plan for moving forward?
Mr. Stringham: Market access is a key factor. We have four pipelines that leave Alberta. We're quite focused on exploring all opportunities. The northern corridor presents an interesting opportunity for us. Market access is something that's quite important.
I'm not sure how familiar the panel is with crude economics, but the price of oil quoted in the market is WTI. The large portion of the crude that's coming on is a Western Canadian Select or WCS. As of today, there is a $15 U.S. differential between the two. We're focused as an organization on behalf of our members on closing that differential through access to tidewater. If we can get our product to the various ports, get it into refineries across the world — U.S. being one of them — we believe that differential would close. That would mean more royalties paid out to the provinces and also higher income tax and taxes paid into provincial governments and the federal government as well.
Senator Smith: How actively involved are you in the Kinder Morgan project in northern B.C.? You're from Vancouver?
Mr. Stringham: I'm from Calgary.
Senator Smith: With the major initiatives that are being looked at now and subject to approval moving forward, et cetera, what are you folks focused on?
Mr. Stringham: We're focused on Trans Mountain. We're watching that closely. December 19 is the cut off.
There is currently about 4 million barrels produced today. We estimate that by 2030, there will be 5.5 million barrels coming out of Western Canada. We currently have pipeline capacity for 4 million barrels. If Trans Mountain happened, that would be about 890,000 barrels a day. If Keystone XL pipeline were to happen, it would be another 800,000. It would effectively just put us on par, on a conservative basis, for what we think 15 years from now we'll be producing out of western Canada.
Senator Ringuette: You said earlier that for whatever project or pipeline you would be looking at building in a proposed northern corridor, you would see the use of a PPP type of fund. You're not using that right now for your different pipeline projects, so why would you envision having a different approach in regard to a northern corridor?
Mr. Stringham: I don't want to wade into this too deeply, obviously, but we do use it in some ways. For some of the smaller lines, we do have limited partnerships. I do think that if we could get something in the space where we could help move these products sooner and develop a social operating licence for pipelines, I can't absolutely guarantee that everyone around our CAPP table would be absolutely harmonious on this, but what I could say is that we would be interested in certain companies looking at certain opportunities that would fit their needs. Going forward, it's something that we have to pay closer consideration to.
Senator Ringuette: But you understand that PPP includes public funds. In our discussion earlier in our first panel, with Dr. Mintz, he would see the federal government responsible for securing the terrain and the social licence and so forth, but the public business, such as your association, would have to do what they do. You'd already have the social licence, which is already a major part of your costs of any kind of transportation of petroleum products. You would be facing quite a lot of savings. I find it bizarre that you would say that you would still be looking at PPP, a public-private partnership, and you would be still looking for federal funds to move forward your project.
Mr. Stringham: In the spirit of the Mintz discussion and then the paper from the School of Public Policy, I think it's certainly outlined in there that they envisioned a PPP scenario. I guess we're just picking up on that, and we would be supportive of that framework to an extent. Obviously, as we move out of the conceptual phase into the actual development of it, we'd have to look at it very closely, but as outlined in the School of Public Policy document, I think initially we're supportive of the ideas that they're bringing forward.
Senator Smith: Just to follow up from Senator Ringuette, we talked for weeks about seed money. You have a petroleum association, and these folks are saying maybe somewhere between $800,000 and $1 million. Dr. Mintz was very clear today that the concept of a corridor doesn't necessarily mean projects. What a corridor does is give you the opportunity in the actual set-up so that projects can actually be planned, implemented and take place and be completed.
Having said that, the first thing that would need to be done is the whole corridor concept, setting up the rights with the indigenous people, doing all the topography, your charts, your maps, so that you could set this corridor up, seed money, $800,000 to $1 million. It's going to be everyone sitting there, like yourself. You look at it. Your association says, "Oh, that's interesting.'' We have other people in business, such as pension funds, saying, "Oh, that's interesting.'' But how do we get this thing kick-started? One of the issues is we have to get government involved, but everyone sits at the table and looks at each other and says, "Well, that's really good, but somebody else has got to step up.''
Government is going to have to do it, but how can we get business motivated to take a role? If it was one third, one third, one third, could we get $300,000 from members of your association across the country, or however it's set up, to put some seed money into doing a study like this for the actual corridor?
Mr. Stringham: That's an excellent question. It's certainly a question above my pay grade, that's for sure.
What we're talking about is very conceptual. Coming from a business background and working with business folks, if they were able to take this a little bit further as to what it would mean, what it would look like and what is actually contained in there, then we would probably have a stronger case to make within our organization for funding. Certainly, I think it's a concept that we're positive of, and that's why we're here today, but having said that, I think there is still a little bit more work to be done to kind of flesh out what it exactly looks like.
Senator Smith: Could you do a one-page type of criteria that your association would need to see to talk to your members about? Would that be possible for you, to jot down one page of bullet points?
Mr. Stringham: Sure. It would be along the lines of a return on investment type of proposal.
Senator Smith: You would look at it from your perspective.
Mr. Stringham: Sure.
Senator Smith: If you could give that to our clerk, then that would be helpful. We need to create input and have ideas so that we can create energy here. Our clerk will follow up with you on that, if that's okay.
The Chair: Thank you very much, Mr. Stringham.
Before I adjourn, I just want to remind everyone there is a meeting here tomorrow. Tomorrow we have officials from Indigenous and Northern Affairs Canada. We have the Honorary Lieutenant-General Richard Rohmer, who actually wrote the paper in 1967. So the report will be produced in 2017, which is 50 years later, which is about right for Canada. That's at 10:30 tomorrow morning.
We're going to suspend the meeting for a bit and then go in camera for a couple of minutes.
(The committee continued in camera.)