Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 5 - Evidence - April 12, 2016
OTTAWA, Tuesday, April 12, 2016
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:08 p.m. to study the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia and I'm chair of this committee.
I would like to welcome honourable senators, members of the public with us in the room, and viewers across the country watching on television. As a reminder to those watching, these committee hearings are open to the public and are also available via webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under "Senate Committees."
Honourable senators, as I mentioned to you in my correspondence dated yesterday, our committee meeting will be filmed today by a film crew for the purposes of possibly including some footage in a CPAC-TV mini documentary series episode focusing on carbon pricing and the cost to end-users. I thank you for this understanding and support of this initiative.
I would ask senators around the table to introduce themselves.
Senator MacDonald: Michael MacDonald from Nova Scotia.
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Senator Massicotte: Paul Massicotte from Montreal.
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Senator Patterson: Dennis Patterson from Nunavut.
Senator Seidman: Judith Seidman from Montreal, Quebec.
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Senator Mockler: Percy Mockler from New Brunswick.
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The Chair: I would also like to introduce our staff, beginning with the clerk on my left, Lynn Gordon; and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Today marks our second meeting of our study on the effects of transitioning to a low-carbon economy as required to meet the Government of Canada's announced targets for greenhouse gas emissions reductions. We are pleased to welcome officials from the National Energy Board to present to us today: Jim Fox, Vice President of Integrated Energy Information and Analysis; and Shelley Milutinovic, Chief Economist. Thank you for being here today. You have some opening remarks, and then we'll go to some questions and answers. The floor is yours.
Jim Fox, Vice President, Integrated Energy Information and Analysis, National Energy Board: Thank you for inviting us to appear in front of you this afternoon. We're both honoured to appear before the committee to discuss both your study in transitioning to a low-carbon economy and the NEB's Canada's Energy Future 2016 report. We provided the clerk with a few slides, and it's my intention to work through some of the highlights before moving on to questions.
As you're aware, the National Energy Board is an independent federal quasi-judicial regulator established in 1959. We promote safety, security, environmental protection and economic efficiency in the Canadian public interest within the mandate set by Parliament, which is for the regulation of pipelines, energy development and energy trade. The board also monitors aspects of energy supply, demand, production, development and trade. The board reports to Parliament through the Minister of Natural Resources.
In its monitoring capacity, I can easily sum up the past 18 months in Canadian energy as both volatile and uncertain. Among the many factors contributing to this uncertainty are the rapid deployment of advanced technologies for renewable energy and for fossil fuel production, the decision by OPEC to increase its production significantly, the lifting of sanctions against Iran, the denial of the Keystone XL pipeline project in the United States, the recent lifting of the U.S. crude oil export ban, and of course the climate agreement signed in Paris in December. As you can imagine, Canada's energy future will be determined by the interaction of these forces and many others. Energy prices, economic growth, policies and regulation, market access, and the development and use of new technologies will all play a significant role.
That is why today we're very pleased to discuss with you our long view as presented in the NEB's flagship document, Canada's Energy Future 2016. On our first slide we point out that this study is a key reference point because it's the only publicly available Canadian long-term energy outlook covering every energy commodity in all provinces and territories. This study continues a long tradition of energy outlook reporting from the NEB. In fact, we've been producing a study regularly since 1967.
Until a few years ago, this report was not noticed by most Canadians or even the media. Today, though, energy is very much on the minds of Canadians. Creating an energy supply and demand projection document to the year 2040 is quite challenging, especially in the current environment. I'd like to share with you a bit of the fine print before we get started.
First, it's important to note that this analysis in the report is not a projection or a prediction of the future. It is a projection of what might occur given a set of assumptions. Overall, we make three primary assumptions in the report: first, that any energy produced will find a market, whether for use in Canada or to be exported; second, infrastructure will be available to move energy products to market; and third, only government policies that are law or near to being law are included in the analysis at the time the analysis is done.
The study was completed in the early fall of 2015. Any developments since that time have not been included in the analysis. The report also outlines various projections for a series of cases, higher and lower energy prices, alternative market access scenarios and energy infrastructure assumptions. These various scenarios are not the only ones that could happen, but they do illustrate what could be projected to happen in a range of circumstances. The rest of my presentation will focus on a few key highlights in this year's Canada's Energy Future 2016 report.
On slide 2, we show our assumptions about crude oil prices and the resulting crude oil projection forecast. On the left-hand chart, our reference case, which is the case that we compare all of the other cases to, shows the oil prices assumed for Brent crude approaching $80 a barrel by 2020 and $105 a barrel by 2040. This is similar to recent outlooks of other respected forecasting agencies, such as the International Energy Agency and the U.S. Energy Information Administration, who also see the long-term supply and demand balancing near these levels.
But what does Canada look like in a world where oil prices are lower for longer? Our analysis includes a low-price case that will provide some insight. In this case, oil reaches $55 a barrel in 2020 and $80 a barrel in 2040. The right- hand chart shows forecast crude oil production in our three cases. You can see that the impact of low prices on Canadian oil production is relatively muted over the next three or four years. Momentum created by oil sands projects that have recently been completed or are under construction means that production in the low-price case is similar to that in our reference case.
However, after 2020, oil production is essentially flat in the low-price case, plateauing at about 4.8 million barrels of oil a day for the next two decades. Prices that are lower for longer mean that investment will not be significant enough to grow production beyond what will be reached within the next few years.
Slide 3 is our second highlight: Canada's overall energy production. All of our projections see energy production growing significantly through 2040. In our reference case, Canadian oil production grows by 56 per cent to 6.1 million barrels a day by the year 2040. Natural gas production grows 22 per cent from 2014 levels to 17.9 billion cubic feet per day. Liquefied natural gas exports are a key driver of that production growth.
Electricity production holds fairly steady, although coal-fired generating is declining and generation from natural gas increases significantly. This might be somewhat of a surprise to many Canadians as much of the discussion on energy issues over the past few years has focused on renewable forms of energy and their potential for growth. The reality is that most respected forecasting agencies project that all types of energy production will grow significantly in the decades to come, both from renewable sources and from non-renewable fossil fuel sources.
Our next slide considers the case where new crude oil pipelines are not built. The left-hand chart compares Western Canadian crude oil production in our reference case and our constrained case. The reference case projects considerable increases in Canadian oil production. The study assumes that infrastructure would be available to transport that oil to market. However, the pace of oil pipeline capacity development is a notable uncertainty.
In the Energy Futures report, we modelled the impact on oil production if no new major oil export pipelines were built. That would mean projects such as Northern Gateway, Trans Mountain Expansion, and Energy East would not occur. In this case, the right-hand chart shows that shipping crude by rail would increase. Rail is a more expensive mode of shipping and would mean lower overall price incentives for Canadian producers. However, looking at the supply side, we still see that many projects remain profitable with reference case prices. Under this scenario, we project that overall Canadian oil production would grow to about 5.6 million barrels a day by 2040. That's about 8 per cent lower than our baseline projection.
In summary, if major crude oil pipelines are not built, our analysis shows that as long as prices are sufficient, crude oil production will grow, albeit at a more moderate pace than in our reference case. Rail transportation provides additional take-away capacity that is necessary.
Slide 5 considers LNG exports. For this analysis, the NEB looked at a high-LNG scenario and a no-LNG scenario, which talks about the uncertainty relating to LNG exports from Canada's West Coast. In the reference case, which on this slide is the dark blue line, LNG exports are assumed to be 2.5 billion cubic feet per day by 2023. In the no-LNG case, clearly there's no LNG exported. In the high-LNG case, we assume that 4 billion cubic feet a day would be exported by 2022 and 6 billion cubic feet by 2030.
This chart shows the outcome for the total Canadian natural gas production compared to roughly 18 billion cubic feet a day in the reference case. The production at a high-LNG case is 21 billion cubic feet a day, and in the low case, 15 billion cubic feet a day.
Just a note on this slide: Canadian LNG projects are expected to operate in a vertically integrated fashion where the proponents own the reserves, the production facilities and the liquefaction plants. As a result, any amount of LNG exports would have a direct relationship to the amount of natural gas produced in Canada in that it would go up and down by the amount exported. LNG exports would not seem to have any impact on the amount of natural gas available for Canadian consumers.
Turning to slide 6, we examine the electricity outlook. Canada's total electricity generation capacity will increase by about 1 per cent per year out to 2040, with the majority of additions in capacity coming in the forms of natural gas, wind and hydroelectricity. We project that hydroelectric generation will remain the dominant source of electricity supply in Canada as it has numerous advantages, including flexibility, the lack of CO2 emissions and great cost stability. The flexibility makes it an important companion to wind and solar generation.
In addition to hydroelectric generation, the capacity of wind biomass and solar doubles over our projection period.
Natural gas electrical generation capacity will have a far greater role in Canada in 2040, contributing an estimated 20 per cent of Canada's power generation compared to the current level of 11 per cent. Factors contributing to natural gas's ascendance in this regard include lower GHG emissions than coal, shorter construction times for these facilities and a well-developed natural gas pipeline network in Canada.
Turning to energy use on slide 7, we show one of the key factors in Canadian energy, about how diverse the energy mix is across the country. Provinces and territories differ in terms of the energy resources available to them, historical infrastructure, industrial structures, policies and regulations about energy and the environment, consumer preferences and weather conditions. These differences greatly influence the current and projected energy trends and will be important considerations for anyone looking at transformation of the energy mix.
For example, our baseline reference case for 2040 projects that end-use energy in the territories is made up of over 60 per cent refined petroleum products, and that is over 80 per cent in Nunavut. In Atlantic Canada, refined petroleum products account for 50 to 60 per cent, and in other provinces refined petroleum products make up less than 40 per cent.
Quebec uses the highest share of electricity, making up 43 per cent of the province's total end-use energy mix. Alberta is at the other end of the spectrum in part due to its high share of natural gas use, with electricity accounting for less than 10 per cent. Western provinces rely on natural gas for 40 to 60 per cent of their energy needs, while in Atlantic Canada and the territories, natural gas accounts for less than 10 per cent.
Slide 8 looks at the greenhouse gas implications of energy use. In our reference case, total energy consumption in Canada grows by about 20 per cent between now and 2040. The study projects that hydrocarbon forms of energy will remain the primary source of energy used in Canada, out to 2040, to heat our homes and businesses, to transport goods and people and to power industrial equipment. It is also significant to note that in all projections, even the high-price projections, fossil fuel consumption increases in Canada.
This implies that GHG emissions will increase over the projection period, and that is consistent with the most recent greenhouse gas emissions projections from Environment and Climate Change Canada, who were here at your last meeting.
This is important because it shows that scenarios like high or low oil and natural gas prices, whether or not pipelines are built, and whether or not LNG terminals come to fruition, are not likely sufficient in and of themselves to put Canada on the path to declining GHG emissions.
On slide 9, our last slide, we look at some of the recent policy announcements that will influence our energy supply and demand between now and 2040. Governments have made numerous policy announcements on climate policy initiatives in recent months, and momentum seems to be increasing, especially following the agreement at the twenty- first Conference of Parties in Paris this December. Many of these policies announced by Canadians governments are quite bold and, if implemented, would put Canada in a position of having some of the most advanced climate approaches in the world.
Our Energy Futures report includes only those policies and programs that were law or near to being law at the time of the analysis, which ended in fall 2015. Although the forecast does not include many of these announcements, their significance remains, and they will be reflected in our future reports.
The projections that I've shared today state that fossil fuel production would continue to increase. Emerging climate policy developments, such as those shown here, would be a critical factor in Canada's energy environmental future and would result in considerable uncertainty for the long-term energy projections we've shown.
That concludes my presentation. We'd be happy to answer any questions that you may have.
The Chair: Thank you very much. We appreciate that. We'll begin with the deputy chair, Senator Mitchell.
Senator Mitchell: Thanks, Mr. Fox. We appreciate this presentation. I'm interested in a couple of things. When you refer to renewables in slide 6, I know you probably can't tell me what price you're assuming for each one, but could you tell me how you've approached the pricing of renewables and whether you've considered that the price of renewables could drop precipitously over the period of your projections?
Shelley Milutinovic, Chief Economist, National Energy Board: The model did assume that, over time, the prices of those renewables would drop, as is expected and as they have over recent years. There are assumptions for cost improvements in there.
Senator Mitchell: Again, maybe this is too specific, but could you give us some idea of the magnitude of the cost improvements and how much more competitive renewables you're considering might become with oil and gas?
Ms. Milutinovic: I don't have those numbers off the top of my head, but we could get them for you.
Senator Mitchell: It would be interesting to know the magnitude of the drop and if it were more precipitous than you're assuming, what impact that would, in fact, have on renewables competition, which is oil and gas.
Ms. Milutinovic: We have been quite conservative in the assumptions on technological improvement. There is certainly a possibility that the cost drop could be higher than was used in the forecasts.
Senator Mitchell: Thank you. I think you've probably answered it, but I'd like emphasis on this, Mr. Fox, or from either of you. On your last slide you do mention the policy changes. I think that includes, of course, the idea of a carbon tax. Have you differentiated between, say, a national carbon tax and a series of provincial carbon pricing schemes? What specific assumptions about carbon tax levels have you made in your assessments of what might be coming?
Ms. Milutinovic: When the work is done, as Jim mentioned, we assume that only laws that are in effect, or policies that are in effect, are near law. What was assumed in this was the Quebec cap-and-trade program, and the carbon price in B.C. At the time this work was done, which was last August, when the numbers were finalized, about one third of the population in Canada was subject to a broad-based carbon tax. Now more than 90 per cent of the public is subject to that, if all the plans go forward, so there's a lot of the stuff that's happened on the carbon work front that is not included in this analysis.
Senator Mitchell: Would it be your estimation that, if the carbon tax prices — the ones we now know, since your study — were implemented, that would further diminish, inevitably, the production of oil and the use of oil?
Ms. Milutinovic: It will certainly have an impact on energy markets. As we get closer to that, it's something that will be included in the next Energy Futures report that we do, which we are starting to work on now and which will be released this fall. What we know for those policies, we will incorporate in the next work.
Senator Mitchell: Mr. Fox, you said that greenhouse gases will inevitably increase. I'd like you to clarify that. Were you referring to simply in the oil sector and its production, or are you saying that because of these projections that are in use all across every sector they will inevitably increase? But if we, for example, easily found the key to electric cars or hydrogen fuel cell cars and everybody realized why wouldn't you, if you had that choice, and driving range wasn't an issue, could that dramatically change your estimation of greenhouse gases increasing overall?
Mr. Fox: When I said greenhouse gases will inevitably increase, it's in our projection. If our projection turns out to be the true path that we take, greenhouse gases will increase because more oil is being both produced and used in the economy. If other things happen, like we vastly electrify our transportation fleet, that would have an impact on the outcome, for sure.
[Translation]
Senator Massicotte: Thank you for being here and for your presentation. I think your presentation is very important to us and to Canadians. Allow me to summarize the key points to be understood. You said you assume that the typical projection —
[English]
I'll do it in English. Here is what I think you're telling us. It's important that we understand this message because people have all kinds of impressions of how we're going to solve this issue, but from what I see in your projection, the best-case scenario is that you have a 0.7 per cent increase every year in energy use from, obviously, natural economic growth. You're saying that, in your projection, you get a doubling of what I call green energy in the next 25 years, if I'm correct. In spite of that, you still see an increased use of hydrocarbons, a diminishment of coal, agreed, but a sharp increase in gas, which is approximately one third less polluting, if you wish, than coal, or close to half. In spite of all that, in spite of the doubling of green energy, you are still seeing an increase of GHGs, and yet, as you know, the government policy is that they want to reduce that by half or more like 60 per cent in the next 15 years. So there's that immense disconnect.
First of all, you seem to be saying that a lot of Canadians think, "Let's just shut off the tap on oil and gas; we have the thing resolved." You're saying forget that. You already have a doubling of green energy, and you still have a continuing increase of all hydrocarbons.
So how do we get there? I seem to be getting the impression that we're dreaming in colour to think we're going to reduce it by 60 per cent in the next 15 years, when your own scenarios include all of the cap and trade agreements in place and still have an increase of GHGs.
Mr. Fox: I'll start, and maybe Shelley can follow.
Our projection shows the outcomes that you talked about in the scenario where we didn't include the announcements and the policies that had been announced since last fall, and so it doesn't include all of those. That's point number one.
I think the second point that I would point out is that we do our projections not to identify the scenarios or the policy options that government wants to take but to identify, in the situation, were it projected into the future, what would happen. So it's not a case that we're saying we're dreaming in technicolor. It's a case where we're saying the challenge is large.
Senator Massicotte: Okay, now let's go through the details. We're increasing green energy by half.
Mr. Fox: Yes.
Senator Massicotte: Is it possible to increase it by four or five times, and, if you did that, what is the impact on GHGs?
Mr. Fox: It's difficult for me to estimate the impact because it would have to be modelled, but, while we double the amount of renewable energy, it goes from only 8 per cent of Canada's energy mix to only 16 per cent.
Senator Massicotte: I know.
Mr. Fox: So it's starting at a far smaller base, and even though it doubles, it still has a long way to go before it takes over and becomes the major energy in Canada.
Senator Massicotte: Even in doubling, you only get a 0.7 increase in your green energy. In spite of the fact that you've doubled, hydro basically stays the same percentage of use, which means we're immensely lower. Let's say we have a carbon tax of $40, $50. What is the impact on GHGs? How do we get to a 60 per cent reduction in 15 years without shutting down the economy?
Mr. Fox: The National Energy Board doesn't have an answer for that question at this point. Our modelling, our energy outlook, is to talk about what is today and what could be in the future, and some of the scenarios that we're thinking about for this year we'll look at. What if all of the policies that have been put in place are all really successful, and what would happen in that circumstance? We presume that everything works as it's intended to, model that and say, "Where does that get us," and that will help policy-makers decide what else we need to do.
Senator Massicotte: That's a computer model you have, right?
Mr. Fox: Yes.
Senator Massicotte: Could I ask you to come back to us with an assumption that you get a doubling of green energy? Could you come back to say if you double it or triple it, what is the consequence on GHGs, and the second hypotheses is, if you assume a carbon tax of, say, $50 or $70, what is the impact on GHGs and economic growth? Can you get back to us on that?
Mr. Fox: I don't think it's as simple as me putting a couple more numbers into the model.
Senator Massicotte: I'm sure it is.
Mr. Fox: Actually, it's not. We would have to go back and rerun not only our economy model but our energy supply models, where there are several, and it would realistically be several months of work.
Senator Massicotte: Try to do something that is reasonable in the next two or three weeks, if you don't mind.
Ms. Milutinovic: What we do is model the policies that are law or near law. So that's what we would model in the next —
Senator Massicotte: It's a matter of a couple of speculative elements so that we know because we need to get a sense, in this committee, of what the solutions are and what the impact on economic growth is as far as habit. So we need to do hypotheses — doubling of this or tripling of this — and what is the impact. Is there a solution?
Mr. Fox: I'm actually not sure where to go here. Our work at the National Energy Board is driven by the priorities that we have. Making a new study that has a specific assumption about a carbon tax at that $40 or $50 that you mentioned or doubling or tripling of greenhouse gas input, that modelling can be done, but —
Senator Massicotte: Thank you.
Mr. Fox: I mean, it is physically possible. I'm not sure that I'm capable of committing to doing it.
Senator Massicotte: I have a lot of confidence in you. You're a very able man. You'll get back to us, I'm sure.
Senator Seidman: Thank you very much, Mr. Fox. I'd like to ask you specifically about hydroelectricity; in your 2016 report, which is very fulsome and very informative, you refer several times to the fact that in 2015, the U.S. Environmental Protection Agency released their final version of their Clean Power Plan, which set emission-reduction goals for 47 U.S. states. Then you talk about the important relationship that Canada has with the U.S. The U.S. is our largest client for hydroelectricity, and you say here that this could create a new market opportunity for Canadian electricity exports, as well as increase the likelihood that various proposed large hydroelectric facilities will be built.
I would like it if you could explain to us in more detail the impact that this would have on Canada and the development of hydroelectricity and also whether this would have any impact on Canadians and, say, the cost of hydroelectricity to them in the future.
Ms. Milutinovic: As to the Clean Power Plan, I think it was clarified later that Canadian non-GHG emitting electricity that was constructed after 2012 could be considered renewables in that program. So it does open the door for markets for some of our new hydro plants or some other renewables to then be exported to the States if it's surplus to Canadians requirements.
Senator Seidman: If it's surplus to Canadian requirements.
Ms. Milutinovic: Well, if there is a market, if there is supply available to be exported.
Senator Seidman: And would having a larger market in the U.S. have an impact on pricing of electricity in Canada? I mean, it's clear we have some of the lowest prices. I'm from Quebec, and we have the lowest price on electricity in the country. So, as a Quebecer, if my market in the U.S. is larger and more demanding, does that have an impact on the pricing of electricity in Quebec, for example?
Mr. Fox: The pricing of electricity is regulated at the provincial level, and so that's a decision that's made in Quebec. What I can say is that the export of electricity can't be done in Canada except with an authorization from the National Energy Board, and our mandate is to look to see if the proposed export is surplus to the foreseeable needs of Canadians. So, if a company were to either build a project for export or decide to export some power, they would have to come before the board and make an application and say, "This is how we know that this power is surplus to Canadian needs." Then the board looks at that, does an analysis and either grants an authorization or not if the power is not surplus to Canadian needs.
Ms. Milutinovic: Part of that is that they look at whether other Canadians have the opportunity to access those exports at a fair market price.
Senator Seidman: I think that answer is clear, that it is a surplus and they have to prove it is a surplus in front of the board.
You also say it could increase the likelihood that various proposed large hydroelectric facilities will be built. Could you explain that, please?
Ms. Milutinovic: Well, just that it increases the size of the market for those.
Senator Seidman: Right. It increases the likelihood that there's a larger market, so larger projects would be considered, projects that may be on the books right now.
Ms. Milutinovic: Right. It may improve the economics of those projects.
Senator Seidman: That brings me to sort of the second part of my question, which has to do with the infrastructure, and in your report, under, "Key Uncertainties," you say that large electricity projects are facing a wide range of uncertainties. Project costs, environmental regulations, government policies and socio-economic concerns have implications for new and refurbished projects. Would you help us try to understand what you mean by those uncertainties?
Mr. Fox: When a project comes forward, whether it's a large hydro project that is going to flood some land or it's another piece of infrastructure like a power line, concerns have been raised about all of those issues. All of those issues seem to be more meaningful to Canadians these days, whether it is for pipelines, power lines or dams, hydroelectric projects. It's not yet worked out how we will answer those concerns of Canadians, how we as a board, other regulators and project proponents will answer the issues that Canadians want answered before they give widespread public support to big pieces of energy infrastructure. Does that answer it?
Senator Seidman: Well, sort of it. It gets at it. Are the uncertainties social considerations? I'm just trying to understand what you're talking about. Is social licence a big issue?
Mr. Fox: Yes, I think some of them are social considerations.
Senator Seidman: Okay. So I get the social licence aspect of it, which is, of course, absolutely critical.
Because you are a regulator, and we understand the importance of water to hydroelectricity, there is the temptation for me to ask you about whether you're regulating to protect the vital resource of water. You also say on page 13 here that Canada's energy resources are among the largest in the world. Canadian rivers discharge close to 7 per cent of the world's renewable water supply, and this resource provides tremendous hydroelectric generating capability.
So my question to you as a regulator is — I'm working downstream or upstream here; I'm not sure which direction at this point — given the importance of water to hydroelectricity, do you regulate? What do you do to regulate safety of the rivers and the lakes?
Mr. Fox: I'm going to answer that in two pieces. One is that in the electricity sphere, the board's regulatory oversight consists only of international power lines and an interprovincial power line that is designated by the Governor-in- Council and electricity exports. So we regulate far downstream in the value chain from any hydroelectric project. That's on the one side.
On the other side, where we regulate pipelines, which may be upstream of dams or across rivers, the board does regulate the safety of those pipelines and takes into account the safety of the water as a primary driver for environmental protection in its regulatory structure.
Senator MacDonald: I thank the witnesses for being here.
I want to go back to the energy supply and demand projections. We're looking at a 26-year time frame here from 2014 to 2040. I'm curious. We must have had these studies done in the past. How accurate have previous studies of this nature on projections been?
Ms. Milutinovic: That's a great question. If you go back to the study done in 2007, it had very different outcomes than what we have now. So, for example, now we're saying by 2040 natural gas production of almost 18 Bcf a day. Back then we were looking at natural gas production falling to 10 Bcf a day and importing all kinds of LNG. What happened in that interim period was a technology change 10 years ago that, although a few people were talking about it, almost no one in the forecasting industry was aware, and that technology change was the combination of multi-stage fracturing and horizontal drilling.
As a result of that technology, since 2008, the U.S. has added more than 4 million barrels a day of oil, which is equivalent to adding another Canada. On the natural gas side, just in the Marcellus and Utica Shales, which are right on the doorstep of Ontario and Quebec, they have added more than a Canada in terms of natural gas production.
So because of a game-changing technology that no one saw 10 years ago, we've got a totally different forecast.
Senator MacDonald: What about the price projections in the past? How accurate were they, as opposed to production?
Ms. Milutinovic: Oil is very volatile as we all know. Energy prices are very volatile. Depending on where you're going back, some of those projections in the last few years would have been higher than the price forecast we have now. So they've gone up and down over time.
Senator MacDonald: There's a difference, of course, between the way the price of oil is set and the way the price of natural gas is set. Oil is much more an international commodity, like money. Saudi Arabia can ramp up production at any time and flood the market, and it changes all the projections.
Do we foresee the same thing coming with natural gas, or is natural gas going to be more captive to domestic influences?
Ms. Milutinovic: Natural gas is becoming more international, and there are a number of LNG projects under construction to export natural gas out of the U.S. It's certainly becoming a more international market and will be more subject to international pricing influences.
Senator MacDonald: I think the number the Auditor General of Ontario quoted was that the ratepayers in Ontario had paid something like $38 billion more for their electricity than they would have about a decade ago because of the changes that were made. Have any of you looked at what occurred in Ontario and done any analysis of decisions that were made there and how they affect the cost and price?
Ms. Milutinovic: We haven't tried to replicate that number, but we take the policy and what's going on in Ontario, and that drives the assumptions in the modelling for Ontario. It's certainly taken into account in the Energy Futures analysis.
Senator Ringuette: I'm sorry; I was a little bit late, so maybe I missed the answer to my first question. Are you looking here at the result of production only, or are you looking at the result of consumption?
Mr. Fox: We look at both sides, both production and consumption.
Senator Ringuette: For instance, I look at the graph here of provincial and territorial energy diversity.
Mr. Fox: Yes.
Senator Ringuette: And I look, for instance, at the Quebec one and the electricity component. Now, looking at the Quebec one, is that the production of electricity or the consumption of electricity in Quebec, because it's two different things?
Mr. Fox: Yes, very much so. That would be the consumption of energy in the province.
Senator Ringuette: So this doesn't represent the entire electric production of Quebec.
Mr. Fox: No, it does not.
Senator Ringuette: Where would we find that in order to compare? The difference between the production of one source of energy and the consumption of the source of energy leads to a probable export situation.
Mr. Fox: Yes.
Senator Ringuette: That impacts the GHG implication in your scenario.
Mr. Fox: Yes. We haven't included in the package of information we provided today the total production of electricity in Quebec. We do have it, and we can provide it.
Ms. Milutinovic: There are detailed tables showing by province production of each kind of energy. It's in the data, if you would like us to provide it.
Senator Ringuette: I guess one of the things is with regard to the development and the production of the different sorts of energy. What is the impact on the GHG? That is also very important, because as a follow-up to Senator Massicotte's question here, if you double the production of fossil fuel, that has a certain impact on your scenarios as opposed to if you increase fossil fuel production by 20 per cent and you increase electricity production by 50 per cent. It's quite another scenario.
To what extent have you taken into consideration the production of GHG in your scenarios?
Mr. Fox: In the 2016 Energy Futures report, we did not do a scenario that related specifically to GHG output, higher or lower. We didn't look at it specifically.
What I would offer is, to your first point, that increasing the amount of hydroelectricity that's produced in Quebec can lower Canada's greenhouse gas output overall.
Senator Ringuette: That was not my assumption.
Mr. Fox: I was just going to say that what is over the amount of consumption that's shown on slide 7 is actually exported to the United States.
Senator Ringuette: Yes, I know that.
Mr. Fox: Only if that export actually happened to another province in Canada would that have any impact on Canada. I guess, going back, we haven't done a scenario that looks at a given level of GHG output or that is controlled in some way for greenhouse gas emissions in Canada.
Senator Ringuette: With regard to your scenario in energy consumption, of the different sorts, what was the major customer that drove the increase? Was it the manufacturing sector? Was it transportation demands? What was this great increase that necessitated the capacity increase that you've put in your scenario?
Ms. Milutinovic: Much of the growth in energy demand in the scenarios is driven by industrial growth and by power generation growth. Residential and transportation are pretty flat, and commercial is up a little bit, but it's the industrial and power generation sectors that really drive the growth.
There isn't a huge difference in energy demand within the six scenarios. They are kind of plus or minus 3 per cent or 3.5 per cent of the base case. One of the takeaways from this is that under the policies and technology, with some change, that were in place last summer, under any of these scenarios you get growth in energy demand.
Senator Patterson: Thank you for being here. In answer to Senator MacDonald's question, you talked about big changes in technology since your 2007 Energy Futures report, but your last full report was 2013.
Ms. Milutinovic: Right.
Senator Patterson: When there were at least some new policies in place — and I'm thinking of the B.C. revenue- neutral carbon tax initiative. Compared to the 2013 report, have federal, provincial or territorial policies aimed at addressing greenhouse gas emissions had an impact on the 2016 forecast?
Ms. Milutinovic: I don't have any off the top of my head. We could get back to you on that if you'd like, but nothing comes to mind.
Senator Patterson: It may be a simplistic question, but you talked about some very bold government policies that have recently been announced going forward.
I guess what I'm trying to get at is this: In your studies, did you come to conclusions about whether there's a link between government policies — carbon price being a common one — and greenhouse gas reductions? Is there a measurable link that you built into your forecasts?
Ms. Milutinovic: We didn't do a specific analysis of that. Obviously, when there are policy changes it changes the trajectory to some extent, but we didn't specifically address that question.
Senator Patterson: Okay. So what are the variables in your forecasting that could change the result substantially?
Ms. Milutinovic: Well, the policies that have been put in place since August will certainly change those trajectories because they are broad-based carbon taxes in a number of provinces. That is one in particular, but there are some other changes that will change things as well.
Senator Patterson: I think you're telling me that situations like the B.C. case may not have factored into your projections for 2016? That surprises me a bit.
Ms. Milutinovic: No, I didn't mean that. The circumstances in B.C. — when we do an analysis of what's going on in B.C. — those costs are part of that analysis. It's just that we didn't specifically answer the question, "Okay, what exactly was the impact of that policy on energy?" But we certainly incorporated all of that into the forecasts.
Senator Patterson: Has that work on impact of carbon taxes been done elsewhere?
Ms. Milutinovic: I think some studies have been done for B.C. I believe they are academic studies, but some work has been done.
Senator Patterson: Thank you.
The Chair: On the B.C. case, it did reduce the greenhouse gas, but a whole bunch of things happened along with it, and I think you have to look at everything. I mean the economy and some of the business dropped a bit, and all of those things have to be taken into account to find out just exactly what it is.
[Translation]
Senator Bellemare: My question is further to the queries from Senator Patterson and others. We have before us projected energy production based on certain assumptions.
[English]
You're not getting translation? I will do it in English.
[Translation]
Is it working? Yes? Good then.
So my question pertains to our greenhouse gas reduction targets. We know that we are facing significant challenges for the planet. We are also facing significant policy challenges. You said there are measures within public policy strategies that have been taken, such as the introduction of the carbon tax and markets. In my opinion, the contradiction between your results and policies shows that dramatic action will be needed to change the course of developments or forecasts, specifically in regard to types of energy such as nuclear energy.
I am very surprised to see, looking at the demand for fuel as part of the primary energy demand, a drop in nuclear energy in the reference scenario. I'm not sure that I like nuclear energy, and the public has concerns also. We know, however, that it is a source of energy that, in the short term, does not cause as much pollution as other sources.
In your scenarios and forecasts, do you think the situation could be changed through policies? Or do you think that measures or regulations would be needed, not based on markets, but stricter regulations?
[English]
Ms. Milutinovic: It's not for the board to make or debate policy. I think that the work in Canada's Energy Future 2016 shows that given the policies last year, we still have growing fossil fuel use and growing energy. Perhaps it goes exactly to your point.
With respect to nuclear, when we do the analysis, we look at what is being planned by the utilities and the provinces and just incorporate those. We don't make any judgments in our work on what should happen. It's more, what are the plans going forward?
[Translation]
Senator Bellemare: Let me ask my question in a different way. How do you account for the projected drop in nuclear energy as a share of fuel in energy demand? How do you explain that?
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Ms. Milutinovic: The reason is the planned shutdown of the Pickering facility and some work on other nuclear plants in Ontario. They kind of go off and on over the forecast period, but the Pickering plant is shut down. That's why it falls.
[Translation]
Senator Bellemare: So there is no planned increase in investments in this sector.
[English]
Ms. Milutinovic: There's none planned at this time.
Senator Mockler: I was reading an article in the Saint John Telegraph-Journal in New Brunswick. Mr. Watson had made quite a speech, which I'll share with you. He needs to be commended. He talks about pipelines. I want to come to the pipeline side of the energy production and the impact it has. He said: "In order for the Board to effectively serve the Canadian public, people need to have confidence in the NEB . . . ." That's part of the sentence. Do Canadians really have confidence in the National Energy Board?
Mr. Fox: Yes, that goes right to the point. I believe we hear from Canadians in a wide variety of ways and ever more so since Peter Watson took over as chair in 2014. Canadians express to us very great interest in energy issues. They express to us very great interest in issues like new pipelines and the safety of existing pipelines. Some Canadians express to us that they don't feel we are doing the best job we could do because they see issues that they don't feel we are dealing with well enough.
The majority of people we hear from don't express distrust, but some do. That means there's a way to go for us to explain how we regulate and undertake the various things that we do and explain them to Canadians in a way that they can understand and make a fair judgment about whether we're doing the job they want us to do.
We work within a mandate set by Parliament. We execute that mandate in the best way we can. We're answerable to Parliament through the Minister of Natural Resources on a regular basis.
Senator Mockler: That brings me to the next question, which is related to pipeline safety. It says that without development of additional oil pipeline infrastructure in Canada, crude oil production grows less quickly but continues to grow at a moderate pace over a projected period. Am I right?
Mr. Fox: Yes.
Senator Mockler: Has the NEB estimated the economic impact of not developing additional oil pipeline infrastructure in Canada, precisely in Atlantic Canada?
Ms. Milutinovic: The board ran what we call the "constrained pipeline case" to look at the impact of those four major pipelines not being built. There were a couple of effects. As you mentioned, oil production continues to grow but not as quickly. There are impacts on the GDP, which are outlined in the document. One is that there would be a reduction in capital investment in the oil industry by about $100 billion over that period as a result of that constraint.
Senator Mockler: That's a result of that constraint.
Ms. Milutinovic: Yes.
Senator Mockler: I look at provincial and territorial energy diversity, an important factor in Canadian energy. I'll follow-up Senator Ringuette's and Senator Massicotte's questions. We all know how provincial and territorial governments have looked at and promoted efficiency in our energy products. Can you provide us with details on how the federal fuel emission standards have improved fuel efficiency when we look at vehicles for long-term transportation?
Ms. Milutinovic: We can certainly do that. I don't have the numbers off the top of my head, but they are incorporated in the work.
Senator Mockler: Mr. Chair, perhaps they could provide that to us.
The Chair: Yes.
Senator MacDonald: I have a few questions on gas production. Your projections have gas productions fairly level in Canada for the next number of decades. I'll conjecture: If Energy East goes, western gas will be stranded. Sable Island gas is shutting down, so no gas would be flown into Atlantic Canada. Ontario and Quebec use about half the gas in this country, which means the only place they get gas is from the U.S., where about 12 to 15 LNG plants are coming on- stream. Production in the Marcellus Shale is starting to decline; if you take into account the number of wells, they're drilling more and more wells to get the same production, so it's getting more and more expensive. And yet we call for a fairly substantial increase in the use of natural gas in Canada. I'm a big believer in natural gas in terms of a carbon- based product. It's the best one to go with and is certainly the cleanest. How do we know we're going to have access to gas? How much will we pay for this gas? Because why would the U.S. export to us through a pipeline when they can get a lot more money for it by exporting it as LNG? What network will we have to deliver this gas to the people who need it in Central Canada?
Ms. Milutinovic: The LNG from the Marcellus, you can get a higher price if you export it as LNG, but it costs more. In terms of net back to producers, producers in the Marcellus are certainly looking towards markets in Canada to move their gas to, and there are several pipeline projects under development that would see more of that Marcellus gas come into Ontario.
In terms of natural gas production, the forecast is, as you say, very flat. If we get growth in it, it's pretty much contingent on getting LNG plants built. So you see that in the low case, it's kind of flat from where it is now. In the reference case, where we have 2.5 Bcf a day coming on, natural gas production is about 2.5 Bcf a day higher, and again higher in the high-LNG case. Growth in those LNG markets is very dependent on having more access.
In terms of available supply, we have more than 300 years' worth of marketable natural gas in Canada. Those changes that led to changes in the U.S., it's the same thing in Canada, the tight and the shale gases. So we have something like 310 years' worth of natural gas supply.
Senator MacDonald: I'll make the last point. I think it behooves us not to put our energy security in natural gas into the hands of any other country, including the Americans. If we have the gas reserves in this country that aren't being exploited, I think it's time we got the technology going at it now.
Ms. Milutinovic: We do have more than a thousand Tcf of marketable gas reserves.
Senator Mitchell: I'd like to pursue the point that was raised originally by Senator Massicotte about the doubling. I'd really encourage his point, which is, what if it tripled?
To emphasize that, I'm looking at the graph on slide 6. It is a very steep curve from 2005 to roughly 2020, and then the increases in production level off. It seems to me that, given that I think last year was the first year that more money has been invested in renewable energy in the world than in oil and gas — there may be, of course, reasons for that, but there's a lot of money going into renewable energy, and it's being supported now more and more by governments in Canada. Why would the assumption be that it would flatten out more or less at 2020? Why wouldn't that trajectory of renewable capacity increase continue at the very steep curve that's evident from 2005 to 2015? It seems to me that there will be momentum.
Ms. Milutinovic: I don't have the answer to that one off the top of my head.
Senator Mitchell: Perhaps you could get back to us with that.
Senator Massicotte: The percentage would stay the same, but you increase the amount of production of LNG immensely, the percentage of total energy.
Senator Mitchell: But the graph isn't a percentage. The graph is gigawatts, so it's not a percentage. It's absolute production. So there's no reason why it would flatten at 2020, I think, given the pressures.
The other thing is, and really just to confirm, of course there's no way that you could assume some kind of tsunami of market change where people really get frightened. It was brought home to me in the Defence Committee a couple of weeks ago, where one of our witnesses said when they go and ask port authorities what their biggest infrastructure threat concern is, they don't say terrorist attack. They say rising water because of climate change. All of a sudden, if these things begin to bear on people's minds, you could see massive shifts in demand for oil and gas, which is a real concern for a Canadian and our economy if we're not prepared. The fact of the matter is that you can't make those kinds of assumptions.
Ms. Milutinovic: That's right. In addition to technological change, changing consumer behaviour is one of the big uncertainties of the Energy Futures outlook.
Senator Massicotte: Thank you again. We talked about the pipelines and so on. I just want to use this point to clarify a couple of issues. First of all, contra what we're hoping, there's no disconnect in GDP growth and GHGs. There's a slight increase in efficiency, but still we have an increase in GHGs. Your numbers also show that if we build a pipeline, the GHGs go up. Many people would say bad news, bad news, bad news. But your numbers basically are going to say, yes, pipelines increase GHGs, but it allows us to produce more energy and export more. Most probably, the recipient of that export, if he didn't buy our petroleum products, would buy from somebody else; and for the incremental GHGs to the world, there's probably not a difference of any significant amount. Do you agree with that?
Mr. Fox: Yes. The oil is going to be produced somewhere, and that will produce roughly the same amount of GHGs.
Senator Massicotte: If I look at your graph in isolation from a Canadian perspective, it looks like bad news; and simply we use that to say let's not build pipelines, but it's a bit of a fallacy. The other thing your graph shows is that if there are no pipelines, though, obviously the competitiveness among Canadian suppliers goes up and there's actually a benefit to maybe the pharmaceutical industry or some Canadian industry, because it's obviously more competitive. Probably economists could use that to say, therefore, that our country would be more competitive and maybe that would create some GDP growth in itself. Is that accurate?
Ms. Milutinovic: The energy demand is very similar in that constrained case compared to the other case. The energy demand is coming either from Canada or from somewhere else. What happens in the constrained case is that because they end up using rail instead of pipe, it costs more, and therefore the net back to the producer. So fewer plants are economic than would be in the reference case.
The Chair: I think that's the end of the questions. I have a couple of questions.
When you hear people talking about renewables, it's about electricity. There are no renewables that I know of that take the place of plastic, that take the place of liquids from natural gas or oil. If it's been developed, it would be a surprise to me, but it hasn't been, as far as I know. So oil and gas are going to be commodities that we will continue to use, and so many times it gets mixed up.
Let's look at slide 6 and talk about the renewables and what we can do. That's electricity. It's a lot of biomass, which we're really not sure about yet either, the cost of biomass. Wind is there, but wind is not firm. You can build all the wind you want — we've built lots of it in British Columbia — but you have to build firm power alongside of it.
When you look at that, it's not a double cost, but it is actually increasing the cost of electricity dramatically. Even if the price of building wind towers comes down, you still have to build firm power alongside of it because you have to keep the lights on for people 24-7, and wind power doesn't do that.
I think we have to look carefully at that all the time when we talk about renewables and how we're going to change in Canada from using oil and gas. These charts here tell me we're going to increase it, and anything that I've ever seen says the whole world is going to increase using oil and gas, and coal. Because it's so cheap now, lots of countries are reverting to coal.
I read an article recently about Holland, who decided that they needed a lot of electric cars. We hear that in Canada, and say, "Let's change the automobiles to electricity," thinking that you just plug it in the wall. You have to build the electricity to actually charge the battery. Holland, in its wisdom, is saying that in fact in some of their bigger cities, they're not going to allow fossil fuel vehicles in the centre of the city. It's going to have to all be electric. Then they built three coal plants to provide the electricity to power those cars. Please; that just doesn't make any sense. That's where you get, I think, a lot of this, "Oh, we'll just build renewables. It's a piece of cake!" But as I said to Senator Mitchell, it doesn't actually make your rayon shirt, and it doesn't create the plastics that you use every day. There are 2,000 plastic providers in Canada. Cars are almost half plastic now. That doesn't come from electricity. That comes from natural gas, liquids and oil. That's where that comes from. We have to keep that in mind.
The one point that you make in energy production is that you have almost flatlined electricity from 2005 to 2040, right?
Ms. Milutinovic: It grows by 1 per cent per year. Both generation and demand grow 1 per cent a year.
The Chair: Okay. I go to slide 6 and I see the capacity additions and retirements by 2040. Obviously there are some coal retirements, which actually will help a lot in our greenhouse gas emissions, some uranium — you've already explained that — and some natural gas. But I also see a big slice of natural gas there for new generations. How much would that slice of blue represent in natural gas?
Ms. Milutinovic: It goes from being 11 per cent of the generation last year to about 20 per cent of the generation in 2040.
The Chair: Eleven per cent?
Ms. Milutinovic: To 20 per cent.
The Chair: Eleven per cent in 2015 to 20 per cent in 2040?
Ms. Milutinovic: That's right.
The Chair: How many billion cubic feet would that represent? A day, or a year, or what? If you don't have that number, I would appreciate it if you could provide that to the clerk.
Ms. Milutinovic: We will provide it.
The Chair: I appreciate all the information. The questions were great, and the answers were very good too. I don't think I have any other questions. Does anyone else? There are none.
Thank you very much. I appreciate it. If you can forward any of the information that you didn't have to Lynn, she will distribute it to everybody on the committee.
Ms. Milutinovic: We'll do that.
The Chair: Thank you very much, both of you, for being here. I appreciate it very much.
(The committee adjourned.)