OTTAWA, Tuesday, January 31, 2017

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:19 p.m., in public, to study the effects of transitioning to a low carbon economy; and, in camera, for the consideration of a draft report.

Senator Richard Neufeld (Chair) in the chair.

[English]

The Chair: Good evening, colleagues. Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I'm honoured to serve as chair of this committee, and I am a senator from British Columbia.

I wish to welcome all those who are here with us in the room and viewers across the country who may be watching on television or online. As a reminder to those watching, these committee hearings are open to the public and also available online at the newly redesigned Senate website, SenCanada.ca. All other committee-related business can also be found online, including past reports, bills studied and lists of witnesses.

I would now ask senators around the table to introduce themselves. I will start with you, Senator Fraser.

Senator Fraser: Joan Fraser from Montreal.

Senator Griffin: Diane Griffin, Prince Edward Island.

Senator Wetston: Howard Wetston, Toronto.

Senator Dean: Tony Dean from Toronto, representing Ontario.

Senator Meredith: Don Meredith, Ontario.

Senator Black: Doug Black, Alberta.

Senator Seidman: Judith Seidman from Montreal, Quebec.

Senator Patterson: Dennis Patterson, Nunavut.

The Chair: To all new and returning members, I'm delighted that you have been appointed to this committee. I very much look forward to working with you and I'm confident we will enjoy this committee's work on our current study.

I'd also like to introduce our staff, beginning with the clerk, Maxime Fortin, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.

Before we proceed with our witnesses, I would like to take a moment to say a few words on the record, so we have it on the record, about our outgoing clerk, Ms. Lynn Gordon. As senators may know, Lynn left us before the holidays and was replaced by our very able and competent new clerk, Maxime.

Lynn served this committee for eight years and she has been there every step of the way with a genuine willingness to get the job done and get results. Words can't express how grateful I am for her outstanding work and dedication to this committee, particularly since 2013 when I became chair. She has always been very helpful, organized and fun to be around. I've been on a number of trips with Lynn. Her organizational skills are second to none. As many senators here can attest, she runs a tight ship when travelling. It has really been a pleasure travelling with her and working closely with her.

I think I can speak on behalf of all senators who have had the pleasure of working with Lynn that her professionalism and knowledge have been important assets to the good functioning of this committee. Her positive attitude is certainly contagious. Let the record show how grateful we are for Lynn's eight years of service to this committee. We thank her and wish her all the best with the Banking Committee, where she has been transferred to, and her forthcoming retirement. Thank you very much, Lynn.

Hon. Senators: Hear, hear!

The Chair: Colleagues, on March 16, the Senate mandated our committee to embark on an in-depth study on the effects, challenges and costs of transitioning to a lower-carbon economy. The Government of Canada has pledged to reduce our greenhouse gas emissions by 30 per cent below 2005 levels by 2030. This is a big undertaking.

Our committee has taken a sector-by-sector approach to this study. We will study five sectors of the Canadian economy that are responsible for over 80 per cent of all GHG emissions. They are electricity, transportation, oil and gas, emission-intensive trade-exposed industries and buildings.

We are currently focusing on the oil and gas sector. Today, for the 30th meeting on our current study, I'm pleased to welcome, from the Global Carbon Capture and Storage Institute, Jeff Erikson, General Manager, Americas Region, who has travelled from Washington, D.C., to be here today. Thank you for joining us. Please proceed with your opening statement, after which we will go to a question and answer session. The floor is yours, sir.

Jeff Erikson, General Manager, Americas Region, Global CCS Institute: Thank you, senator. Good afternoon, Chairman Neufeld and honourable members of the committee. It's truly a pleasure to be here with you today. The committee's work offers a thoughtful vision for Canada's future and I'm pleased to have the opportunity to offer our organization's thoughts.

Before I begin, I would like to offer my heartfelt condolences to you and the Canadian people for the tragedy in Quebec City that has touched so many people so deeply. Your country has many friends around the world, and we stand with you in your sorrow.

As the chairman noted, my name is Jeff Erikson. I serve as the general manager for the Americas region for the Global Carbon Capture and Storage Institute. I've been asked to speak to you today to provide an overview and assessment of the role that carbon capture and storage technologies can play in meeting global emission reduction commitments under the 2015 Paris Agreement.

We have provided you with some information to supplement my testimony. While I won't be referring to specific pages while I speak, I think they can help to reinforce some of the points that I make today.

I come to Ottawa from Washington, but I am here to offer views on behalf of our members in carbon capture interests around the world.

The institute is a membership organization whose mission is to accelerate global deployment of carbon capture and storage. Our membership is both global and diverse. It includes some of the largest energy companies in the world, including Shell and Southern Company. It includes small technology providers such as Jupiter Oxygen Corporation, environmental NGOs like Environmental Defense Fund and research organizations such as CMC Research Institutes in Western Canada.

And our membership includes governments themselves. In our region, we work closely with energy departments of both the U.S. and Mexican national governments, and although Canada's national government has not yet joined the institute, we count the provinces of Alberta and Saskatchewan among our members.

My testimony today on behalf of that broad coalition of organizations has four key messages. First, while the pace of change may vary across countries and regions, the world is in the early stages of a transition to a low-carbon economy.

Second, carbon capture and storage, or CCS, is a proven low-carbon technology that should play a key role in that transition.

Third, because deploying carbon capture is not as simple as, for instance, installing solar panels on a roof top, thoughtful government policies must be in place in order for carbon capture to advance.

Fourth, fostering cooperation between governments, as well as between the public and private sectors, is essential for carbon capture to take hold in individual countries and to help them meet their individual environmental and economic objectives.

One of the challenges that proponents of carbon capture face is to explain clearly and simply what it is. So to be clear, carbon capture and storage, shorthanded as CCS or sometimes as carbon capture, prevents large amounts of carbon dioxide from being released into the atmosphere. The technology involves capturing CO₂ produced by large industrial and power plants, compressing it for transportation and then injecting it deep into a rock formation at a carefully selected and safe site where it is permanently stored. I'll spare you the technical details at this point, but I'm happy to answer questions, as I can, that you may have about the technology a bit later.

Earlier this month I was in Alberta and Saskatchewan to meet with our Canadian members and other key stakeholders. While I was there, I had the opportunity to visit two Canadian CCS projects: the Boundary Dam Power Station and the North West Redwater Sturgeon Refinery Project, currently under construction. These projects, in addition to Shell's Quest facility, the Alberta Carbon Trunk Line, the CCS knowledge centre in Regina, the Shand Carbon Capture Test Facility, the Aquistore Research Project and the excellent research work conducted by CanmetENERGY all reflect the leadership and vision of the Canadian government and businesses. I applaud you and the Canadian people for supporting this work and for positioning Canada as a leader in addressing climate change and the transition to a low-carbon energy future.

In November 2016, the institute published its latest annual report on the status of CCS. The conclusion of that report is that carbon capture is at a crossroads. It is essential but not inevitable — essential in order to achieve the climate change goals achieved by the leaders of 194 countries in Paris in 2015; but not inevitable, due to a lack of adequate government policy support in many countries, divided public sentiment and challenging project economics.

The International Energy Agency, or the IEA, in its 2016 World Energy Outlook, states that, despite the rapid growth of renewable energy, 74 per cent of the world's primary energy demand in 2040 will continue to come from fossil fuels. Some would argue that that number is a wild overestimate, but, even if that number is wrong by half, it's still too big to ignore. We must accept the reality of the role of fossil fuels in our energy future and address the carbon emissions associated with them.

The IEA has also concluded that CCS should contribute 12 per cent of cumulative CO₂ emission reductions required through 2050 in a two-degrees-of-warming scenario. Of that, just over two thirds of the reduction through CCS will come from the developing world and nearly one third will come from OECD countries. Fifty-five per cent will come from CCS on power generation, and, importantly, 45 per cent will come from industrial applications.

The Intergovernmental Panel on Climate Change, the IPCC, in its fifth assessment report, concluded that if you remove CCS from low-carbon energy options, the cost of staying below 2 degrees Celsius of warming will more than double. In fact, the cost will increase by 138 per cent without CCS.

In addition to the role that CCS will play in addressing climate change, it's also essential to enable countries and companies to utilize their domestic fossil resources and sell them into a global market that is increasingly demanding low-carbon energy.

One of the misperceptions among policy makers, journalists and the general public is that CCS is an unproven technology. In fact, there are 16 large-scale CCS projects in operation around the world, and 11 of those facilities are located in North America. Many have been operating for decades. By the end of 2017 or early 2018, it is expected that there will be 21 facilities in operation. Those 21 facilities are expected to capture and store more than 40 million metric tonnes of CO₂ annually, the equivalent of installing 10,000 wind turbines or eliminating the carbon emissions from 6 million homes or taking 10 million cars off the road.

Nearly all of those CCS facilities are associated with industrial plants. In fact, only three are power plants: Boundary Dam, the world's first, located in Estevan, Saskatchewan; Petra Nova, located outside of Houston, Texas; and the Kemper County Energy Facility, which is anticipated to be operational within the next month, located in Mississippi.

As you can see from the project numbers I mentioned previously, the U.S. and Canada have, to this point, been leaders in the development and deployment of CCS. However, as we look ahead, North America is at risk of ceding leadership on CCS to China. While North America has two large-scale CCS projects in the planning stages, China has eight projects and robust policy support as well. That activity, the world's attention, and technology leadership may well shift. The question is: Will China capture the market for CCS technology as they did for solar technology? If so, is that good news or bad news for companies based in the U.S. and Canada?

Another common misperception is that CCS is a technology only applicable to coal-fired power plants. As I mentioned earlier, the IEA has found that 45 per cent of the opportunity for carbon reductions associated with CCS lies in the industrial sector. In North America, where we aren't building very many new coal-fired power plants, the opportunity is an even higher percentage. Both the physics and the economics favour CCS on industrial facilities. In addition, CCS is the only way to achieve deep decarbonization in the production of cement, steel, fertilizer and ethanol and in refining and natural gas processing.

The Alberta Carbon Trunk Line, which is about to commence construction, is a model example of CCS applied to the industrial sector. It envisions transporting CO₂ captured from multiple industrial sources to depleted oil fields to be sold for use in enhanced oil recovery. Similar initiatives are under development in Europe and in the U.S., and project proponents are looking to Canada to follow your lead.

When I talk about the necessity of CCS to others, I often hear that gas-fired power plants are a fine alternative to coal-fired power plants, emitting a much lower level of CO₂. Indeed, at the point of combustion, gas-fired plants generate about one half of the CO₂ emissions of an equivalent coal-fired plant. But if we are to achieve our global climate change goals, we need an 80 per cent reduction in CO₂ emissions by 2050 and carbon neutrality by the end of the century. So, ultimately, CCS will be necessary on gas-fired power plants as well.

Accelerating the deployment of CCS will require a continuing commitment and investment from both governments and businesses. We believe that it is important that governments level the playing field for all forms of low-carbon energy, providing similar incentives, loan programs and regulatory frameworks to what is afforded to renewables. We believe that a critical role of governments is to provide research and development to accelerate technology advances and drive down costs.

Businesses, for their part, must also continue to invest, to innovate and to take risks to move us to a low-carbon economy that will reduce business and climate risk and increase prosperity for all of us over the long term.

Thank you for your attention. I'm happy to respond to any questions that you may have.

The Chair: Thank you very much, sir. We'll go to questions. I'll defer to the deputy chair, Senator Paul Massicotte from Quebec.

Senator Massicotte: Thank you, Mr. Erikson. I think we all appreciate your presentation, and we all have to admit that the success of our climate change program is very dependent upon your technology and your results, and it's the only real solution available today to keep up our whole fossil fuel industry. So we wish you luck.

You talked about being economically challenged. You have 26 projects currently. What is the cost per tonne of CO₂ relative to the current projects in question? What's a good number?

Mr. Erikson: The cost to capture a tonne of CO₂ varies pretty significantly. It's a number that's held rather closely by a lot of the project owners. I've heard numbers ranging from $30 a tonne to $150 a tonne. The projects in the $30-a- tonne range are typically those in the industrial sector, where the CO₂ is already highly concentrated. Instead of capturing CO₂ from a 12 per cent flue stream, for example, at a power plant, you're talking about the industrial process itself generating a CO₂ stream close to 100 per cent pure, so the cost, then, is only in the compression, transportation and storage rather than in the capture itself.

So it's a very broad range of costs. Those costs will continue to come down as we move from first generation technologies to second generation technologies.

Senator Massicotte: Let's say $125 a tonne. How big is that network? In other words, let's say you had a coal plant. Coal is obviously one of the cheapest sources of energy today. What impact would it have on our coal price if you assumed $125 or $150?

Mr. Erikson: I don't have those numbers. I'm happy to get back to you to provide those numbers.

Senator Massicotte: I presume it's a big difference, right? It would be a heavy cost on that coal price.

Mr. Erikson: Perhaps on the price of coal. What I do know from talking with the utilities that we work with is that the additional cost on a per-kilowatt-hour basis to their customers is quite low, most likely lower than folks will be paying for other utilities that they're purchasing on a monthly basis.

Senator Massicotte: If that's the case, we all have to adjust our expectation level for energy. It's probably going to go up given something that's occurred, pricing carbon or whatever. Therefore, given your comments, it would seem to suggest that, with an adjustment in expectation, it can be used even at today's price of CCS because you're saying that, even with the electrical costs assumed in the CCS, it's even lower than some renewables. It's in the realm of possibilities even today, in other words.

Mr. Erikson: Yes, it is. One of the challenges that we have as we talk about economics is to be able to compare the cost of a megawatt or a kilowatt of low-carbon energy generated with CCS to a similar kilowatt hour from wind or solar. The challenge is that, when you're selling into the market on just a per-kilowatt-hour basis, you're not considering all of the additional system costs associated with that that aren't necessary with CCS — for example, redundancy, the ability to dispatch power on demand, the intermittency issue, some of the challenges that renewables face associated with that.

When you're comparing apples to apples, it's quite cost-effective with respect to other forms of low carbon energy.

Senator Massicotte: I have a final question before I go on second round. You mentioned thoughtful government policies. What are you referring to with respect to Canada?

Mr. Erikson: From our members, we have had this conversation quite frequently. The National Coal Council is an advisory body to the Secretary of Energy in the U.S., and they have come out with about 20 recommendations on policy supports. We focus on four types of policy supports for carbon capture.

The first is to value carbon, to put a price on carbon whether this comes from a carbon tax or cap-and-trade system. We're neutral on what it looks like, but we think putting a price on carbon across the economy can certainly drive a shift to low-carbon technologies, including CCS.

The second mechanism is tax incentives. This is an incentive in place in the United States, and areas of Canada as well, that can provide broad support and encourage new players to invest in new projects.

The third is to develop or establish loan programs. That may include low interest loans. It may also include loan guarantees, reducing the cost of borrowing, which sometimes is just enough to shift the economics from a net present value of negative to one that is positive.

The fourth is to provide either priority dispatch for CCS, recognizing the additional value they have that renewables do not, or a low carbon portfolio standard similar to a renewable portfolio standard, but which would also incorporate CCS.

Senator Black: Thank you very much for being here. I think it's fair to say that — I can speak for myself — I would view CCS as a tool as we move toward a low carbon environment, which I think all people involved in the industry, and I'm very close to the energy industry, recognize is a desirable reality.

I do have a couple of questions for you, though, in respect of where we are today, because we're in a very fast changing environment.

The first point I would put to you: As recently as last week, I had the opportunity to meet with an organization of innovation around oil and gas in Alberta. I am told that the goal of getting to zero emissions from the oil sands in Alberta, zero carbon emissions from the oil sands in Alberta, is not too far away. I'm told that is a fact, so I accept that as a fact. If that is the case, and that is a very desirable outcome, we wouldn't need carbon capture and storage, would we?

Mr. Erikson: No.

Senator Black: Okay. So do you or your association have any information on where we are on the innovation track towards the goal of removing carbon from the extraction from oil?

Mr. Erikson: I would say there are two components of the lifecycle carbon emissions of oil. The first, which typically represents 20 to 30 per cent, is in the extraction and getting the product to market. The second, which typically represents 70 to 80 per cent, is in combustion. So for oil, even if you eliminate and you're able to be carbon neutral to get that product to the combustion phase, there still needs to be a shift or an advancement in technology to capture those emissions in the combustion phase.

Now, I'm not suggesting that carbon capture does that. However, as we electrify the transport sector, that does reduce those emissions in the combustion phase.

Senator Black: I wanted to raise that because I think it's important to understand that technology is not standing still and there is an incredible imperative in the industry to get carbon out because we understand carbon is not positive. So what you're doing is important, but I just wanted to put on the table that there are a lot of competitive forces at play now in regard to your proposals, and you would agree with that.

Mr. Erikson: Yes, indeed.

Senator Black: I want to take up with you your view on this drive towards a greener economy, taking carbon out of production. Where do we stand now with the new U.S. administration, in your view?

Mr. Erikson: I'll first say that while I live near Washington and work in Washington, I'm not a member of the administration. I don't speak for the administration. I can give you my personal view, but that's exactly what it will be.

Senator Black: Your association must have a view. We've heard that your Secretary of Energy has now determined that the Department of Energy has a value and has a worth. I'm just reporting to you what I read in the press; I don't know. Certainly we have heard suggestions by way of Twitter from your new president that he has no intention of ratifying Paris whatsoever.

Mr. Erikson: It's a mixed bag. There are many things about carbon capture that I think appeal to the Trump administration and the commitment that President Trump made during his campaign. It supports energy infrastructure development, which translates into jobs, which is a priority. It enables the U.S. to expand its use of its domestic resources. It provides additional energy security, and consequently that translates to national security in the president's mind. Those are things aside from the Paris Agreement that are important for the administration. The fourth thing is that it is an opportunity for the U.S. to remain a leader in technology, to export that technology, to build an industry, be the leader in the industry and export that technology globally. That's on the positive side.

On the other side, you're absolutely right. The president has indicated no appetite for the Paris Agreement, and he has indicated that climate change, let me say, is not a priority, although some of his cabinet has indicated that they recognize the signs of climate change.

It's a mixed bag, and I don't know better than anyone else which way it's going to move.

Senator Fraser: Welcome to the Senate, Mr. Erikson.

Mr. Erikson: Thank you.

Senator Fraser: My questions, as usual, are based on gross ignorance. I'm looking at your supplementary document, and I don't find page numbers, but on the chart labelled "Carbon Capture Operational Milestones,'' are the numbers cited here — over 1 million tonnes injected, 3 million tonnes injected — total tonnes so far over the life of these projects?

Mr. Erikson: No, senator. Those are annual.

Senator Fraser: Those are annual.

Mr. Erikson: By the way, I think in your copy the map background did not show up.

Senator Fraser: I don't think I have that. I'm sure we can get it.

I'm assuming from the placement of these things that the little stars relate to some kind of a timeline when these projects came on stream?

Mr. Erikson: Again, what didn't show up in your copy, and I apologize for that, is a global map. So as you go from left to right, Quest is the project that Shell is managing in Alberta. Boundary Dam is in Saskatchewan. The Air Products is in the Gulf Coast of the US. Sleipner is in Norway.

Senator Fraser: But we're not looking at a timeline here. We're looking at a scatter shot where they would be on a map.

Mr. Erikson: It's a geographic distribution, yes.

Senator Fraser: The same would be true for the next chart.

Mr. Erikson: Yes, that's right. It's the same map.

Senator Fraser: I have one more question, if you don't mind, chair. Your final line in this interesting document is that policy parity is integral to the widespread adoption of CCS. Policy parity, or words to that effect, are phrases often used by representatives of industry in particular to mean uniformly low taxes everywhere. Is that what you're talking about?

Mr. Erikson: No.

Senator Fraser: Oh, good. What are you talking about?

Mr. Erikson: As I mentioned at the start, our membership includes not only major corporations but environmental NGOs and governments as well.

The institute believes — and this is supported by many other institutions as well — that as governments look at their policies to, for example, support wind and solar through tax credits and renewable portfolio standards rather than selecting a technology, if you will, you select an outcome. If your outcome is low-carbon electricity, then that support should be provided regardless of what the technology is to achieve that result. As we have a renewable portfolio standard, we would like to see CCS electricity eligible for that, too.

Senator Fraser: I understand that. How far are we away from that happy situation?

Mr. Erikson: From policy parity, a long way away. The investment in renewables over the last 15 years is about 100 times the investment both government and private has in carbon capture, and that is in large part a result of a disparity in policy support.

Senator Fraser: That's fascinating.

Senator Meredith: I enjoyed your presentation. Like Senator Fraser, I'm learning about CCS as well. You talk about the reliable and cost-effective technology, but my question is around safety in terms of the storage, which is one of the things that Canadians are concerned about.. Are there any concerns you may have as this technology develops as to the impact on the environment? We're trying to remit in one way but also looking at the end results of things going sort of awry. Can you elaborate on the safety measures around how you capture this carbon?

Mr. Erikson: Certainly. First I would say that it's in the interest of every proponent of a CCS project to be primarily concerned about both environmental protection and protection of human health. If they don't do that, we lose what support we have for future projects, so there is a vested interest among the players to ensure that they are operating at the highest degree of safety.

The biggest perceived risk among many stakeholders is the risk that the CO₂ that has been injected into the subsurface will emit in kind of an explosive way under the surface and cover an area in CO₂, for example. I think that represents a misunderstanding of subsurface dynamics. In the subsurface, first, the site selection process is a very robust, very rigorous process, and everything depends on selecting the right subsurface and location for injection and storage. But the structure of the rock where the CO₂ is being injected makes it a very low risk that CO₂ would escape vertically. We're talking about two kilometres or more into the subsurface at that injection point. It is covered most frequently with many layers of cap rock — impermeable rock — so the opportunity for the CO₂ to escape to the surface is primarily through the injection and monitoring wells. If those are engineered properly — and organizations such as Shell and SaskPower have gone out of the way to go beyond what may be reasonable to make sure those first few projects there are beyond reproach. That's where the opportunity is, and I think the industry recognizes that's where the opportunity is. They also recognize the impacts and implications of a release in that manner. As always, if it's designed and executed properly, the risk of escape of CO₂ to cause damage to the environment or human health is quite low.

I would say the other concern is that many folks will often think of CCS in the same way they think of hydraulic fracturing. It's a fundamentally different approach. Hydraulic fracturing requires a percussive force that actually creates fractures in the rock. That's why you see low-level earthquakes in places like Oklahoma. Carbon capture, on the other hand, is not percussive. It is a managed injection, so the pressure does not increase. There is very low concern for anything that we could feel from a seismic perspective.

Senator Meredith: You talked in your presentation about the 21 projects and coming on stream in 2018. You talk about us losing that market to China. Can you elaborate more on that with respect to the kind of investments that Canada would have to make or that North America would have to make? How would we go about making those kinds of investments? You talked about the solar industry and wind in terms of incentives given by governments to industry to develop. Elaborate a bit on that if you could.

Mr. Erikson: There is a great deal of knowledge among both governments in Canada and private industry. Shell Oil, as part of their agreement for funding with the Province of Alberta, has committed to providing publicly all of their design worth tens of millions, if not hundreds of millions, of dollars just in design. There is so much expertise that is here within Canada that it's very important to leverage that, not just globally but also within the country as well.

I mentioned the Alberta Carbon Trunk Line. I think that is a model for how countries and companies can move carbon capture forward relatively quickly. As I said, the costs are more favourable and the physics in the capture phase is more preferable. The Alberta Carbon Trunk Line envisions multiple industrial sources feeding into a large pipeline that is taking the CO₂ down to numerous oil fields in the southwestern part of the province.

In the U.S. we're developing a similar project on the Gulf Coast. In Northern Europe, they're looking at a similar approach.

I believe the quickest path forward for CCS is through an industrial hub-and-spoke or trunk-line approach. That is going to require support from governments and investments from industry.

Senator Seidman: I would like to ask you about a couple of points you made in the presentation to us. You say that carbon capture is at a crossroads; it is essential but not inevitable. Then you go on to say that it's not inevitable due to a lack of adequate government policy support in many countries, divided public sentiment and challenging project economies. Then you go on to list certain misperceptions among policy-makers, journalists and the general public such as "CCS is an unproven technology.''

Why? Why is it not inevitable because of all this lack of support, and why are there all these misperceptions?

Mr. Erikson: Carbon capture and storage is a relatively complex process. Let me take wind and solar as an alternative example — or hydro as another example. It's easy to envision how you can turn the flow of water, blowing wind or the energy from the sun into electricity. There is an iconic figure that the public can relate to. It's relatively simple in concept.

Carbon capture requires kind of a morass of pipes and vessels, and chemical processes as well as physical processes. Then we're putting the CO₂ subsurface where no one can really see what is happening there, at least not directly. The complexity of CCS is that it is a challenge to communicate both to policy-makers and the public.

The renewables industry, in contrast, has done a marvelous job. Wind and solar are abundant, long-lasting and clean. They've found a way to brand it so that it's intuitive to the public, and that's what difficult with carbon capture. So part of it is a communication issue.

Part of that, too, is the messenger. Today, most often in addition to governments, the messenger has often been the fossil fuel industry — the coal, oil and gas industry — and those industries do not enjoy that level of trust and love that others do.

Our membership, as I said, includes some environmental NGOs. We think they are essential for us to be able to be credible messengers so that folks recognize that this is not a play the fossil fuels industry has to extend their business and is actually a climate change solution that's supported by thoughtful organizations across the spectrum.

Senator Seidman: Public education and messaging is a huge component in this whole field, as we've discovered on this committee over time. Do you see your institute as perhaps a facilitator in developing messaging and education? It's more than messaging; it's really education, to try to understand. You keep saying it's complicated and there are misperceptions. It is important, and you are presenting an argument that it is really important to meet our goals. So if it's important, where do you see your role as an institute?

Mr. Erikson: The institute was formed eight years ago, and initially, at that time, our primary activity was to develop and share technical knowledge. That was important eight years ago. That was a priority.

In the past 12 months, we have shifted pretty dramatically to advocacy. That means conversations like this. That means engagement with the press. My colleague Jeff who's with me now spends a lot of time on Capitol Hill in Washington. We're engaging with state policy-makers as well. So we absolutely see that advocacy shift as a priority and we're putting resources into doing that as well.

Now, we also need to leverage the capabilities of our members. An organization like Shell who can speak with much more authority than I can about the safety of their processes, for example, is a very important partner. When we can connect them with the government of Alberta or with the Clean Air Task Force to speak to policy-makers and to media and to general publics, then we can be more effective. I take your point. Thank you for that.

Senator Lang: Just to follow up on Senator Black's line of questioning, I want to go more specifically into the area of costs so we clearly understand this.

When we're talking about bringing on a new power plant, gas driven, what I understand you to say is that if we're going to put carbon capture and storage in place, it either has to be subsidized by a carbon tax, cap and trade or by some mechanism such as loan forgiveness to make it economically viable. Is that correct?

Mr. Erikson: Those are positive incentives, yes, but that's not the only way to make it viable. May I give an example?

In December, the Petra Nova Carbon Capture facility opened on the Parish Power plant outside of Houston. They have a brilliant business model. Not only are they selling the CO₂ that they're generating — they're transporting it to an oil field about 80 miles away — they're also getting income from each tonne of CO₂ they're sending to that oil field. In addition to that, they are a 25 per cent owner in the oil field themselves, so they're generating income from every additional barrel of oil that's coming out of the ground. In that case, they went from about 300 barrels a day to 15,000 barrels a day. That's the kind of innovative business thinking and business model that can make carbon capture economically effective with a minimum of government support.

Senator Lang: Just to pursue a little further the question of coal-generated plants and the fact that the decisions are being made to shut down coal plants, we know that at the same time worldwide there is movement in some countries such as China on putting in newly constructed coal plants with the newest of technology. With the question of carbon capture and storage, if that was put in place along with the installation of a coal plant, would that then make that particular type of generation competitive financially and environmentally to others that might be put in place, obviously because of the coal that's available and the abundance of it?

Mr. Erikson: Yes, it can, but it very much depends on what it is that you're measuring. How large is the box? What are you trying to compare to? If you're looking at the total cost of a power generation grid, for example, renewables require some redundancy, the ability to dispatch power on demand, and that requires backup. If you look at the total system costs, then it's quite competitive. If you look at it compared to buying a megawatt of solar power on the market, then it's not competitive because you're not comparing apples to apples, and there are some benefits you get from carbon capture from a power plant that you're not considering on the spot market, if you will, the power market.

Senator Lang: Thank you.

Senator Wetston: Thank you for your remarks today. I appreciate your coming.

I'm still trying to understand the regulatory framework that you're thinking about. I understand you're talking about the policy objectives, loan guarantees or loan support and tax incentives. That's not the framework you're talking about, though, when you talk about the regulatory framework. I think Senator Meredith was getting at safety issues. Do you ever build these undertake or pay contracts?

Mr. Erikson: Can you clarify that for me?

Senator Wetston: What I mean by that, obviously, there's probably a significant amount of cost involved in building the facility, the geological formations and all the things you're talking about. Somebody is going to benefit from that. But in building this thing, what I'm talking about is take or pay. For example, all the pipelines in this country early on were built on take or pay contracts. Otherwise, they wouldn't be built.

What's the economic framework in which these are constructed? Is it entirely the responsibility and the risk of building it? Is it the CCS company that's doing it? Or is there a shared relationship between the generator and the storage facility? Of course, there's another purchaser of this. You were talking about the oil well, so you're going to inject it into the oil well — by the way, producing another source of carbon. What do you do about that? It's not exactly carbon-neutral when its purpose is to produce more oil, but I'm sure you're asked that a great deal. Do you understand the framework I'm discussing here?

Mr. Erikson: Yes.

Senator Wetston: If you could help me out with that.

Mr. Erikson: There's not a standard in the industry. As I said, most of the experience we have is in the industrial sector rather than the power sector. We're not privy to the commercial agreements between, for example, the Kemper project and Denbury who operates the pipeline and injects the CO₂, but everyone needs to come to an agreement where the risk is minimized and there's a certain expectation that there will be an ongoing supply of CO₂ to the oil fields so they can continue to develop the wells. I think that's one of those areas that continues to be in development.

Frankly speaking, I think that question is probably better posed to the companies like Shell and SaskPower that have those agreements.

Senator Wetston: That's a contract or relationship, what you're discussing there. We perhaps can think a bit more about that.

Are any governments directly investing in the research associated with carbon capture, or are they participating more on the policy side, supporting the initiatives? Is there any direct investment in research or in the actual carbon capture?

Mr. Erikson: Yes, indeed. In Canada, CanmetENERGY is the research organization within NRCan. I don't have numbers for you, but they provide a significant amount of research on CCS technologies. I think they're mostly focussed on the storage components of it and the monitoring of the storage, but a significant amount of investment is there just within CanmetENERGY.

Similarly, in the U.S. Department of Energy, their Office of Fossil Energy has, I believe, a $400 million annual budget, and a significant portion of that is related to R&D. They have several laboratories they support across the country. They also have a pilot testing facility in the Gulf Coast that is jointly operated by the Department of Energy and Southern Company.

In Europe as well, the government of Norway, for example, has had a major investment. In fact, they had the first carbon capture and storage facility that's now been operating for more than 20 years effectively. That was actually driven by an imposed price on carbon economy-wide.

Interestingly, in the Middle East, some of the Middle Eastern countries see that as essential to continue to sell their product. In fact, in the United Arab Emirates, the first CCS on a steel factory was started up this summer, and the CO₂ generated from that project is going to enhanced oil recovery, not because they need it right now but they believe they'll need it in the future.

I'm not sure what's going on in China, but you can bet there's a lot of government investment in CCS in China.

Senator Wetston: Thank you.

Senator Griffin: I'm from Prince Edward Island, and our geological base is basically fractured sandstone, so we're hardly likely to be a suitable place for storage of captured carbon dioxide. But I'm wondering: Are there limits on how widespread this technology can be used? Not all geological formations are going to be suitable.

Mr. Erikson: Yes. Most certainly, this again comes down to economics. How far can you transport the CO₂ to get to an appropriate geologic formation? That's going to be driven, ultimately, by both economics and political and public support. So yes, it's not suitable for every region and every geology.

Interestingly, there's a lot of interest and excitement for non-subsurface or non-EOR utilization of CO₂. While this is kind of a budding industry, it has investors and entrepreneurs pretty excited about it, changing the paradigm of CO₂ from a waste to a resource and to be able to use that not just in power generation but also in some of the products that we use. Currently, about 99 per cent of the market is in enhanced oil recovery for utilization, but there's a lot of interest in other forms of utilization. Even in areas that aren't suitable for subsurface utilization, there is an opportunity to capture and utilize the CO₂ as we look well into the future.

Senator Griffin: Thank you.

Senator Patterson: You talked about countries that are active in CCS and you mentioned in your presentation 16 large-scale facilities in operation around the world. Where do Canada and the U.S. fit in that spectrum of countries?

Mr. Erikson: We're leaders. Between the two countries, 11 of the 16 facilities are in the U.S. and Canada. Again, as we look forward, we're in a bit of a bubble right now of openings and activity, but if we look beyond 2017 or early 2018, that shift in activity is going to move, as I said, to China.

So currently, between the two countries, we've been capturing and injecting CO₂ for decades in some cases, and we're at risk of losing that leadership.

Senator Patterson: I was pleased to hear you say that you'd visited the Boundary Dam project, which is, I think, the largest in the world and a first, as well.

Mr. Erikson: Yes.

Senator Patterson: We heard when we were there that there were some Chinese folks sniffing around that plant and expressing interest, and I think that was welcomed by the operators.

I've heard there are something like 2,000 coal-fired stations under construction, at various stages, around the world. Do you know if these plants are CCS-ready, or will they have to undergo retrofits to introduce CCS technologies in the future?

Mr. Erikson: Yes, I think the number, at least 12 months ago, was 2,400 coal-fired power plants around the world in the planning stages or in construction. That includes those not yet in construction. The number has come down somewhat. China has pulled back on some of their commitments, mainly because their power demand has flattened. I think the number now is closer to the 2,000 that you mentioned.

Most of those that we're aware of are not fitted for carbon capture. As I said, there are eight large-scale projects, and about half a million tonnes a year is where we draw the line on large-scale projects; a commercial-sized power plant. That's where we've got the work to do. While China has committed to transitioning to a low-carbon economy — CCS is part of their next five-year plan — they have not yet designed in either the retrofit or built into the new construction.

Senator Patterson: We were impressed in Estevan at the very deep, almost perfect geological formation there. Does CCS technology depend on there being appropriate geological formations for storage? If so, are there limits on how widespread this technology can be applied? As Senator Griffin was saying, P.E.I. may not be suitable. Is that a limiter?

Mr. Erikson: It is. There have been studies by the U.S. Geologic Survey that have indicated there are at least 200 years of storage capacity in the United States for their demand, or to capture all the CO₂ coming from their power plants for the next 200 years.

There's a large amount of storage capability; the problem is that it's not dispersed evenly across the geographies. Typically, anywhere you see oil and gas development, that's an area that is suitable for injection and storage mainly because in order for that oil to have stayed there for a million years, it required some kind of geology that kept that in place. That's a good place to start.

But you're right. It is unevenly distributed, geographically.

Senator Patterson: Thank you.

Senator Massicotte: In your presentation you made reference to the fact that without CCS, the costs of meeting targets of 2 per cent would increase by 138 per cent.

Mr. Erikson: Yes.

Senator Massicotte: Just explain how you get there, because you seem to be pricing the costs of not getting there. Obviously, when you say it's going to be higher, that means you have made a calculation. How much would it cost civilization to meet or not meet our target? Can you describe a bit more how you get that number and what it means?

Mr. Erikson: I'll first say it's not our number. It's calculated by the International Energy Agency, the IEA. They run numerous economic models with different variables. They ran 11 models to optimize the low-carbon mix to get to a 2 degree scenario, and what they have determined is auto is 11, and I believe it was at eight that you could not get to 2 degrees without CCS. The other three implied a 138 per cent increase in the cost.

How they do the modelling is beyond my expertise, but I do know that the model is intended to optimize what I'll call the CO₂ intensity. As you take options off the table, then the price of the other options increases just based on supply and demand, and I'd be happy to provide you with additional information for the record.

Senator Massicotte: Thank you.

Senator Seidman: You have a policy brief on your website that's titled Challenges related to carbon transportation and storage — showstoppers for CCS? The brief concludes that there are common market failures and barriers in the U.S. and European experiences. I'm sure it's very complicated, but could I just ask you if you would be able to give us some insight of what those common market failures and barriers are?

Mr. Erikson: Sure. First, I would say that that particular report you were referring to is not actually written by the institute, but by an academic partner of ours. We felt it was important for us to publish the results.

The market failures that the authors were referring to were primarily with respect to appropriately pricing the cost of what I'll call the externalities. Externalities occur where we're not appropriately pricing the impact that various industrial processes in power generation have on the environment, which ultimately results in larger mitigation and adaptation costs down the road. That key market failure is similar to what Al Gore has been talking about for the last 15 years. It's not appropriately pricing the externalities that are shared commonly across all stakeholders.

That one didn't do it for you, did it. I see the look on your face.

Senator Seidman: No. What might some of those externalities be?

Mr. Erikson: As I mentioned earlier, there is a difference in the way electricity markets value dispatchable power as opposed to intermittent power. Let me rephrase that. There is no difference and there ought to be, because dispatchable power, which is power that you can dial up on demand, has additional value for the grid itself. That's one example of the externalities that aren't appropriately priced.

Again, I think it's best if I have a reference to the report itself and get back to you at a later date.

Senator Seidman: Okay, thank you.

Senator Meredith: Again, thank you so much for your presentation and insightful discussion here this afternoon.

In your opinion, do you believe that there will be a large demand in the commercial market for carbon capture? We talk about the lack of government investments. In terms of the marketplace and how the Bay Streets and the Wall Streets can play a role in the development of this new technology through a fund, can you elaborate for me as to what your agency's thoughts are around that?

I feel that in terms of this new developing technology, everyone can participate in terms of investments. It benefits everyone not only in North America but globally and that there be sort of a green fund that can support this. Maybe there is such a thing already, but elaborate for me as to where you see that going in terms of the market, seeing there's going to be an increased commercial need for CO₂.

Mr. Erikson: Let me address that as it relates to electricity at the start. As a consumer, in my house, I purchase green power from my utility. The accountants say that you're purchasing enough to support a wind turbine somewhere else on the grid, but I'm able to purchase that and it costs me about 15 per cent more than it would for typical power. That ability is not available for the consumer, homeowner or for the corporate sector with respect to CCS, namely because we don't have much electricity on the grid that is low-carbon electricity from CCS.

What I see is certainly a market developing. Corporations globally, especially the top 500, are very much interested in reducing their overall carbon footprint, not just from their operations but across their value chain. I'm hoping that over time we're able to develop that kind of demand, that kind of marketplace, so that just as a corporation can put a solar panel on the roof and put that on their annual sustainability report, they can also purchase low-carbon electricity that has been generated through the use of carbon capture.

Because the penetration of renewables is so low on the grid right now, there's a significant amount of opportunity for growth without really disrupting the grid. At some point, the price of renewables is going to go up pretty dramatically when it reaches that saturation point. That's why we need to provide access to that kind of low-carbon electricity to the general market.

In the United States, once the broad corporate sector and the financial sector get behind such an initiative, I think it will build support among policy-makers as well.

The Chair: I have two more questioners, and we're over time because we have some other business to conduct.

Senator Black: From all that you've said — and I very much appreciated learning from you today — I take away that the development of carbon capture and storage requires either government financial support and/or regulatory intervention on behalf of governments to ensure success. Is that a fair conclusion?

Mr. Erikson: Yes.

Senator Black: Thank you.

Senator Fraser: You said you buy green electricity?

Mr. Erikson: Yes.

Senator Fraser: I'd like to know a little bit about how that works. I'm not aware of any utility in Canada that offers that option. Presumably they don't have a whole separate grid.

Mr. Erikson: No.

Senator Fraser: So you're just buying from the normal grid, except you're paying a premium out of the goodness of your heart to support green energy?

Mr. Erikson: Yes, indeed. This is very much like when you withdraw money from the bank. You're not taking the same dollars out that you put in your bank account. It's an accounting transaction. They are counting electrons. So, electrons that are being generated in southwest Virginia are not the ones coming to my house, but it's an accounting process. It's pretty common with many utilities in the U.S.

Senator Fraser: Fascinating.

The Chair: Thank you very much, Mr. Erikson, for coming. Those were great remarks and we've had great questions from everybody.

We're going to go in camera.

(The committee continued in camera.)