Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 20 - Evidence - February 2, 2017
OTTAWA, Thursday, February 2, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:02 a.m. to study the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Good morning, colleagues, and welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
My name is Richard Neufeld. I am a senator from British Columbia and chair of this committee.
I wish to welcome all those who are 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, sen.parl.gc.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 by introducing the deputy chair, Senator Paul Massicotte from Quebec.
Senator Massicotte: Good morning.
Senator Galvez: Senator Galvez from Quebec.
Senator Lang: Dan Lang from Yukon.
Senator Patterson: Dennis Patterson from Nunavut.
Senator Black: Douglas Black from Alberta.
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Griffin: Diane Griffin from Prince Edward Island.
Senator Wetston: Howard Wetston from Ontario.
The Chair: I would also like to introduce our staff, beginning with the clerk, Maxime Fortin on my left, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Colleagues, I am delighted to inform you that the Honourable Catherine McKenna, Minister of Environment and Climate Change, has invited us to an informal event on the evening of Wednesday, February 15, to discuss her ministerial portfolio and our committee's work. Perhaps you could mark that in your calendars, please.
Maxime will send you the details and all the relevant information via email, and I kindly ask that you confirm your attendance with her as well.
In March 2016, the Senate mandated our committee to embark on an indepth study of the effects, challenges and costs of transitioning to a lower carbon economy. The Government of Canada has pledged to reduce our greenhouse gas emissions 30 per cent below 2005 levels by 2030. This is a huge undertaking.
Our committee has taken a sectorbysector approach to this study. We will study five sectors of the Canadian economy which are responsible for over 80 per cent of all greenhouse gas emissions. They are electricity, transportation, oil and gas, emissionintensive trade exposed industries, and buildings.
We are currently focusing on the oil and gas sector. Today marks the thirty-first meeting of our current study. In the first segment of our meeting I am pleased to welcome, from the Institute for Oil Sands Innovation, Qi Liu. We are looking forward to your presentation and we will have questions and answers. We have two sets of witnesses this morning, so we will do the first hour with you, sir. The floor is yours.
Qi Liu, Scientific Director, Institute for Oil Sands Innovation: Good morning, Senator Neufeld, honourable senators and honourable members of the Standing Senate Committee on Energy, the Environment and Natural Resources. As you already heard, my name is Qi Liu. I'm the Scientific Director for the Institute for Oil Sands Innovation at the University of Alberta.
Just to give some background information about the Institute for Oil Sands Innovation at the University of Alberta, the acronym for the Institute for Oil Sands Innovation is IOSI. It is a university/industry/government partnership established in 2005 through an endowment from Imperial Oil. Imperial Oil puts in a $2 million endowment every year. It has been continuing for 12 years, so right now IOSI has accumulated a $24 million endowment from Imperial Oil and an $8 million endowment from the Alberta government.
The research expenditure within IOSI is about $2 million or $3 million every year, mainly coming from the endowment income, with government matching, as well as from industry such as Canada's Oil Sands Innovation Alliance.
IOSI's mandate is to develop breakthrough technologies to lower oil sands greenhouse gas emissions and environmental impact.
Let's move on to page 3 to take a look at Canada's greenhouse gas emissions and targets. As Senator Neufeld already explained, the orange curve on this chart shows the annual amounts of GHG emissions from 1990 to 2014. You can see a gradual increase in the trend, right now sitting at about 732 megatonnes a year. There is a slight dip around 2009. The reason for that is because of the economic downturn which occurred at the time.
Also, the little orange dot in the middle of the cart it shows the target for 2020. The last orange dot at the far right, the lower point, is the 2030 target, as Senator Neufeld already explained. It will be 30 per cent below the 2005 emission level, which is roughly 550 megatonnes per year.
Overall, if you look at the curve and the two orange dots, the emissions seem to be moving away from the target. The good news is that although there is an increase in GHG emissions over the years there is a reduction in the GHG emissions per GDP and per capita.
If you look at page 4, there is a steady decrease of greenhouse gas emissions per unit of GDP production over the years. Especially, since the year 2000, there is a steady drop of greenhouse gas emissions per capita.
Moving on to page 5, this is a breakdown of the emission levels in 2014 into different economic sectors, as Senator Neufeld already explained. You can see here the oil and gas production. We are sitting at 192 megatonnes, which is about 26 per cent of the overall emissions in that year. Power generation is 11 per cent; buildings, which includes heating, lighting and appliances, roughly 12 per cent; agriculture, 10 per cent; and transportation, 23 per cent. All of these are economic sectors that are vital to Canada's economy and standard of living.
Obviously the desire here is that you would like to keep the energy consumption in these sectors; you just don't want to have these high greenhouse gas emissions. The question is whether that is possible. You can certainly cut the greenhouse gas emissions if you eliminate the use of energy, but the question is whether that is actually something you want to do or not.
For your information, in the year 2014, the total energy consumption in Canada was roughly 10 million terajoules. You can actually provide that amount of energy by using different energy sources but obviously that will have a different kind of greenhouse gas emission.
Moving on to page 6, this shows a breakdown of the total primary energy supply in Canada. I could only find the numbers for 2013. It is not 2014, but I believe this correlates with the 2014 energy or gas emissions quite well.
If you look at this pie chart, the energy provided from renewable energies is less than 20 per cent or exactly 18.9 per cent. The majority of those are from hydroelectric power. From non-renewables it is more than 80 per cent and if we look at energy provided from fossil fuel it sits at 72.3 per cent. That is roughly three-quarters of the total energy. The supply really came from fossil fuel.
Moving on to page 7, it shows the CO2 emissions per gigawatt hour of power generated as a function of different energy sources. The highest bar here is from coal. I inserted columns for petroleum, meaning oil; natural gas, including shale gas; biomass; solar and everything.
There is a significant decreasing trend when you move to the right. It depends on which energy source you use. The desire here would be to use the energy source on the right side because that will give you much lower emissions.
The question is whether it is possible to use the energy source on the righthand side of this chart rather than on the left side. On the left side, the fossil fuel type oil and gas, is now the main source of our energy production, but unfortunately it generates high CO2.
To answer the question as to whether you can provide all required energy using the energy sources from the righthand side of this chart, I plotted the energy sources from the U.S.A. which are available from the United States Energy Information Administration. They published their data in 2015 from all the power generators that actually depend on different power sources.
This table on page 8 is based on the same sequence as the power or energy sources from the previous chart. The ones listed first have the highest GHG emissions and as we go down this table the emissions drop. Somewhere in the middle of the table you start to see renewable sources: wood, biomass and solar.
Let me go through some of these one by one. Let's look at biomass which has an average capacity of 3 megawatts per generator. That is a very lowcapacity generator. For the solar in the middle of the page, it has an average capacity of 8 megawatts per generator.
These two sources actually are a little too low to drive any of the industrial operations. In order to run an industrial operation you need tens of megawatts of generator power. Biomass and solar are not sufficient to drive these operations. In addition, as we know, solar power is intermittent so you need higher efficiency, energy storage and conversion in order to use solar power.
Wind generation depends on availability and is also intermittent. If you want to use wind energy you need energy storage and conversion devices.
Hydroelectric and geothermal are actually good, especially if you have them. It depends on availability. If you don't have them you are just out of luck.
Fossil fuels, which are the ones on the first few rows of this table, provide a high capacity and steady power supply. Right now they cannot be replaced by renewable energy sources; maybe in the future but not right now. They may be replaced right now by nuclear fuel, if you really aiming for lower GHG emissions.
Moving on to page 9, this shows nuclear power reserves in the world. Canada actually ranks fourth in global uranium reserves. Not only that, uranium produced from Canada is actually pretty economical. It is only costing about $40 U.S. to produce one kilogram of uranium. If you look at the energy content of one kilogram of purified uranium, if you purify it, it is equivalent to about 1,400 barrels of oil.
The CO2 emissions from nuclear power generation are also extremely low compared to natural gas. To generate one gigawatt hour of power with nuclear power, the range of CO2 emissions is from 2 tonnes to 59 tonnes per gigawatt hour, but if you use natural gas it ranges from 389 tonnes to 511 tonnes per gigawatt hour. That source shows some potential.
There are issues with nuclear power as we all know. It is the same kind of situation that we run into with high greenhouse gas emissions from using fossil fuels.
Moving on to page 10, Canada's overall global energy position is actually quite good. We rank third in fossil or crude oil reserves in the world. We rank fourth in uranium reserves, as I indicated earlier. We rank fourth also in hydroelectricity and seventh in wind energy.
Although with a relatively small population in the world we actually produce quite a bit of energy. In terms of production, as you can tell from here, we rank mostly within the first 10 positions in the world. In terms of exports of energy we rank very high in the world as well.
You can see that Canada is endowed with significant energy resources in fossil fuels, uranium and hydroelectric power, and Canada is a global leader in energy production and export.
Before I conclude I would like to put forward a hypothetical case here, which is on page 11. Let's imagine we can turn all the cars on the road now into electric cars like the Tesla. I am trying to give a picture of what that might be like.
Last year world production was at about 180 million cars. According to The Wall Street Journal, if you produced half a million electric cars you would wipe out all the lithium supplies in the world in one year. In the middle of last year Tesla announced a ramping up in their production capacity so that they can now make about 100,000 electric cars a year.
If we put all this data together, the picture is that if you want to turn all the cars on the road into electric cars you would need 360 times our lithium production right now in the world. That is near to impossible. Also you need about 1,800 companies like Tesla in order to have the capacity to produce that many cars.
Let's back off a bit. If we assume you could do that, how much CO2 reduction can you generate? You still need electricity for electric cars. It depends on how you will generate electricity. You may be able to reduce the emissions by half. If you still use natural gas to generate electricity, your electric cars only emit half of the CO2 emitted by the conventional internal combustion engine, unless you use nuclear to produce the energy, in which case you can cut the emissions quite a lot.
The total transportation sector contribution to greenhouse gas emissions is about 23 per cent. If all the cars in Canada were electric cars you could reduce that. If you use nuclear power to generate electricity, you could reduce that by about 23 per cent. If you use natural gas, you could only reduce that about 10 per cent. Let's talk about absolute numbers. The point is that you can't hit the target of a 30 per cent reduction.
Moving to page 12, first, to continue to lead our current life and standard of living and to ensure our future as one of the world's leading economies, we will be using fossil fuels for many decades to come.
Second, we need to invest in the complete basket of energy technologies and use each of them where they will have the most impact in moving us forward with decreasing our effect on the environment and the climate.
Third, we must not jump on bandwagons. We must keep an open mind and do the right thing now, tomorrow, and for decades to come to build our Canadian answer to climate and prosperity challenges.
Thank you very much, members of the committee. I will be happy to any answer any questions you may have.
Senator Massicotte: Thank you, Mr. Liu for your presentation. You quite cleverly convinced us or at least presented a case to say that we have no choice; we are dependent upon fossil fuels. I think that is your conclusion and your example regarding Tesla is a good comparison. That was the easy part. We have a problem. We know we have a problem but what's the solution?
Mr. Liu: My longheld view, to put it this way, is that we have to rely on fossil fuels to develop the renewable sources so that in the end we can kill fossil fuel.
Senator Massicotte: Look at your own examples. You referred to renewables. You are either dependent upon wind or sun. Even then, half the earth would be covered by windmills or whatever. There are physical limitations that are exerted. Look what we have done for the last 15 to 20 years. A small percentage of energy comes from renewables. It's not baseload; it's not reliable. That means that you need duplication, which means you're adding to the cost.
Do you really think that just by saying that is the solution?
Mr. Liu: Yes. The reason I believe in that, as I indicated already, both solar and wind energies are intermittent. You want to get your wind or solar generated power into the grid, so you need storage and converters to do that. Right now, that technology is still under development.
Perhaps you could actually pull off having reliable storage devices and conversion devices mainly from AC to DC. You could actually build these windmills not inside your cities but somewhere else like in a remote, wild area where the wind is really strong. You could actually store the power in your storage device. You could convert and then transfer it into your grids. That actually is doable.
We can't do that right now because the wind power source has to be close to where it is to be used. That presents a problem.
The same applies to solar power. Look at the total energy coming from the sun reaching the earth right now. That's the highest energy source you can imagine. It is even more than uranium or all the fossil fuels we're talking about. The only problem is you have to catch it, store it and use it. Right now we only rely on solar panels that are pretty close to us. They are close to our cities. You can't just rely on that. If you could build these things remotely somewhere and store the energy and transfer it to where it is going to be used, there is definitely possibility. We need this kind of research and this kind of development.
Senator Massicotte: There are two things. You need to find a way to transport that energy over long distances, which is obviously very costly, and you need a product that stores immense amounts of energy. In both cases technology today does not provide that. Am I correct in saying that?
Mr. Liu: Yes, not only storage but also conversion, as I indicated.
Senator Massicotte: We should hold our breath and hopefully a miracle will occur and we will be saved.
Mr. Liu: You used the right word. We hope that is the case, but there are indications that should be moving in the right direction.
Senator Lang: Maybe we could go to the actual question of emissions. A major source of GHG emissions, at least to date, is through the operations of the oil sands. It's no secret that those who are opposing pipelines actually want to either phase out or curtail the development of the oil sands. It's a smoke and mirror approach in respect to the political narrative. Any thinking person who has been watching what has been developing will see the fact there are other interests out there that perhaps want those curtailed as well.
You say the mandate for the Institute for Oil Sands Innovation is "to develop breakthrough technology to lower oil sands GHG emissions and environmental impact.'' Senator Black indicated yesterday or the day before that there are imminent breakthroughs on the oil sands where the GHG emissions will be very much curtailed, if not neutralized, with new technology, if I am not mistaken with what was said yesterday.
With your knowledge at the Institute for Oil Sands Innovation could you tell us where are we with these innovations? When can we expect further curtailment of GHG emissions, which will further put us in a position to compete internationally?
Mr. Liu: I would be happy to do that. As I indicated, the Institute for Oil Sands Innovation was established in 2005 or more than 10 years ago. At the time Imperial Oil approached us with a mandate: We are not going to work on the waterbased oil sands extraction. We're going to try to produce or generate a feasible breakthrough technology to extract oil from the sands without using water, which is called non-aqueous extraction.
One of the issues with the high greenhouse gas emissions from oil sands is that you have to use hot water at the start. With years of improvement now we are talking about warm water, but it's still around 50 degrees Celsius. Imagine you draw this water from the Athabasca River. Normally in the winter it's around 4 degrees Celsius and you have to raise the temperature to 50. That is the major energy consumer in oil sands extraction.
All the other associated problems like high GHGs are obviously because of the energy needed. The problem is because of the water that is trapped in the tailings that cannot be recycled. They have high water consumption which causes high energy consumption. These problems are all related.
I you have the technology that can replace the water you don't need to heat up the water. In other words you will significantly cut your greenhouse gas emissions. For the past 11 or 12 years we have been working on this technology. The idea was not new. It was experimented with some 30 years ago, but it was never used because of two problems. One is that
First, you end up with some organic solvent in the tailing that is more valuable than the bitumen. That is economics, but it also caused environmental problems with the solvent left in the tailing. Although there is no water in it and your tailings might be dry, you have lost the solvent and have caused an environmental problem.
Second, the product generated contains too much garbage, like all the water, fine solids and everything cannot be directly used.
These are the two main problems we have been wrestling with in the last 10 years or so. We are still working on it. We are pretty close to getting a solution. We just received $75 million from the federal government for what we call future energy system research. Fossil fuel is still part of the future energy system, although as I indicated earlier we rely on it but eventually will kill it. That $75 million future energy system will mainly focus on solar, wind and geothermal, as well as the heavy oil, which is oil sands.
This is where we are right now. I firmly believe that once we develop this non-aqueous extraction for the oil sands, we can significantly cut back on the greenhouse gas emissions.
Senator Lang: I would like to follow up on that. I don't quite understand why you would be taking the financial resources and trying to be everything to everybody, in view of the fact that your priority is the oil sands. The real priority should be to develop and come to a finite decision in respect to the scientific conclusion on removing the GHG emissions through the technology you have called upon.
The longer you wait, the more emissions there are and the more the political narrative is carried on. The sooner you come to a conclusion, if you are successful, that political narrative is no longer there.
Mr. Liu: The reason we are still focusing on fossil fuels more specifically in the Alberta oil sands is that we don't believe the current technology is it. There is a better way to do it with low greenhouse gas emissions. We just haven't reached there yet. That is why it's still worthwhile to work on it.
I answered earlier about how it looks like we have to rely on the fossil fuels? So what do we do? It is not like we are hopeless. We still have to focus on fossil fuels for many years. That is why we still need to find the best technology that can cut back on greenhouse gas emissions.
Senator Black: Thanks for the important work that you and your institute are doing, sir. I want to continue on where Senator Lang left off. As he referred to in his preamble, I was told last week by a group of folks in Alberta that they believe we are very close, and I presume "we'' is likely you, to eliminating GHGs from the extraction of oil from the oil sands. Is that accurate?
Mr. Liu: I wouldn't say eliminate because there is always a danger. Eliminate means you would have zero.
Senator Black: That's what they are telling me. You can get to zero.
Mr. Liu: As you indicated earlier, Senator Black, we may be one of the groups that are included in this broader conversation with you, but I am not having a conversation about getting it to zero emissions. Even if you use the non- aqueous process, as I indicated earlier, you may have very low energy input in heating up the water part. At the end of that you still have to recover your solvent. In order to recover this typically very volatile solvent that can evaporate very easily, you still have to raise the temperature somewhat but not really very high.
Senator Black: What would you tell this committee, sir? If you are successful with your work and the work that others are doing around the oil sands, what percentage and over what period of time do you believe you can reduce the emissions?
Mr. Liu: I did that calculation but I can't remember the number right now. The calculation is this: I basically assumed that we could get rid of the water, so we don't have to heat up the water. We all know the heat capacity of water and how much we use. In terms of freshwater you need from four to five barrels of water per barrel of oil you produce. You can easily work out how much energy you need to raise the temperature of that water from 4 degrees or so to 50 degrees and what GHG that would be. We could eliminate a huge amount. I can't remember the exact number right now, but I did that calculation before.
Senator Black: Is it 20? Is it 80? What is the order of magnitude?
Mr. Liu: Do you mean 20 or 80 per cent?
Senator Black: Per cent reduction, yes.
Mr. Liu: It would be more than 80 per cent.
Senator Black: Oh, my goodness. How close are you, do you believe, to the point of achieving that goal?
Mr. Liu: Right now the two issues are solvent recovery and fine solids in the final bitumen solvent product. The solvent recovery part is not much of an issue anymore. We still need to work on the cleanup of the final product.
We're actually close to what our target was. We would use the solvent to extract the bitumen. We would not go through an upgrade. We would just clean it up and send it straight to a refinery. That's a significant energy savings as far as GHG reduction in the upgraded product as well because to upgrade, as you know, we need to heat it up to 550 degrees Celsius. We are eliminating that as well.
Senator Seidman: Given your conclusions I would like to pursue this line of questioning, if I may. You say we'll be using fossil fuels for decades to come. It's interesting that you did not mention in your presentation, and I could be completely misunderstanding here, carbon capture and storage.
This week we heard from the Global CCS Institute, and they said in their latest report at the end of November that carbon capture was at a crossroads, that it was essential but not inevitable, and that the problems were a lack of adequate government policy support in many countries and economic challenges.
Given that we have the oil sands, given everything you have said, what exactly is your view of the approach of carbon capture and storage and why is it seemingly a problem?
Mr. Liu: That is an excellent point, Senator Seidman. That's the part I didn't mention. We were earlier talking about having to use fossil fuel for years to come and that it will emit greenhouse gas. You raised a very good point. You can still do that, but in the meantime you can try to capture the emissions so they won't go into the atmosphere.
I am not in the area of carbon capture and storage but I know there is concerted effort. Even with the $75 million I referred to we have a major program to do that. You can keep using fossil fuel for decades to come, as I indicated, but in the meantime you are not just sitting idle and letting the CO2 go into the air. You try to capture it and store it. That is an excellent point. That can go parallel to the use of fossil fuel.
Senator Seidman: But you don't do any work in that area.
Mr. Liu: I don't do it myself personally, but at the University of Alberta we have a group of people doing that. Even with the latest federal funding, the big initiative, we have a big group doing carbon capture storage, utilization and conversion.
Senator Seidman: Work is being done. The misperception was indicated in the presentation to us about carbon capture and storage. It is unproven technology and there isn't a lot of ability to use that technology just yet. Do you have any understanding of that?
Mr. Liu: No. As I indicated earlier I am not working in the area of carbon capture and storage. I know there are different opinions and comments. That's why it's an area that is more R & D.
Senator Griffin: Since we're part of the federal government I have a question related to the role of the federal government. What can we do to help assist industry to move to a lower carbon economy?
Based on your experience and research, is our role regulatory? Would it help if we look at that? Is it economic instruments or some combination of those? We certainly have those available to us. What could the federal government do to assist industry in moving to a low carbon economy? What would you name as the two primary things we could do?
Mr. Liu: My personal opinion is actually that I think the government right now is doing the right thing in two aspects: the one you already mentioned through regulatory measures and the second one is to support and fund research to move toward a low carbon economy. I believe those are the two things the government has been doing and doing well.
I indicated in my final conclusion that we have to keep an open mind. We should not go with the buzzword and jump on the bandwagon. If it turns out that it is going to hurt us in different ways in that case we should think twice. Even in this hearing the government is doing the right thing. You are hearing different opinions on what are the right ways to move forward. Hopefully this will help the regulatory process.
On the other side, as I indicated, the government has been supporting research and development of a low carbon economy. That one is always ongoing. I repeatedly mentioned the major federal funding to the University of Alberta because we really appreciate it. It certainly helps a lot.
Senator Meredith: I applaud your institute for the work that you are doing to reduce GHGs. Page 4 of your presentation says, "There is also a decrease in GHG emission per capita since 2000.'' It also says, "Despite an overall increase in GHG emission, there has been steady decrease in GHG emissions.''
Can you sort of elaborate a bit more on that? Is this in terms of technologies that are being employed? How do we ensure that we continue to do that?
Mr. Liu: This chart obviously is not made by me. You can see from it that this actually was taken from a report to the United Nations. If you refer back to a page 3 there is actually a drop after 2006 or 2007 in the GHG emissions. I already explained that the reason for that drop is because of the economic downturn that occurred at the time. That's why you have less or lower level of production. That's why you have a lower level of emission. That's actually the one reason that caused the reduction, but I guess overall the reduction here is because of higher energy efficiency and the use of less energy in many of the processes overall. That is actually what I read from the report submitted to the United Nations.
I have a further point about that drop in 2009. If you lower greenhouse gas emissions when you are relying on the current energy supplies it will hurt your economy. That's basically what that tells you.
Senator Meredith: I have a follow-up question to Senator Griffin's line of questioning to you. You included in your conclusion that we must not jump on the bandwagon; we must keep an open mind and do the right things now.
She asked about those two things that governments are doing. Can you further explain what else industry could do and what we should be doing as a country in terms of the targets? We heard Senator Seidman also raise the fact that we heard this week that we're not there yet. We're continuing to research.
My fear is that we continue to make targets for what we are to reach. Senator Black is concerned about that as well. Yet we see that technologies are being developed and it's almost impossible for us to meet these targets. What is the responsibility of government to truly educate the public with respect to worldstage announcements and so on? Should we ensure that we're actually doing the right things and say that it is going to take some time but not overcommit and under deliver? Can you explain the rationale behind policies that must truly be in place given the statistical data available?
Mr. Liu: That's a very good point. In a way you already said it very well. When we set a target we have to be realistic. That's part of keeping an open mind and not jumping on bandwagon. We can't do it all of a sudden just because everybody else says we have to cut it by whatever percentage and maybe we should do the same thing.
We have to do a detailed analysis like we are doing right now. We have to look at the possibility of achieving that goal because one of the problems is that you could set up a target and not reach it. Then you set another target and you don't reach it. You repeat this process two or three times and in the end the target doesn't mean anything anymore.
You have to be realistic. That actually makes the target more meaningful and achievable. That actually makes more sense. Everybody then has a real target to work on.
Looking into the future I actually firmly believe that in the end we will get rid of fossil fuels. Maybe we will use renewable sources like geothermal, wind, solar, wood, and all this biomass in not quite the same way as we are doing it right now. We need better energy converters, energy storage devices and smarter grids to transport this power. We need better energy efficiency. We should use less energy than we're using right now.
Unfortunately some of this industry's operation is energy intensive. Cities are energy intensive so you have to have enough higher capacity that is sufficient at least to drive this operation. Otherwise you just won't be able to do it.
Senator Galvez: I agree with most of what you have said and you have the numbers to show it. It is true that there is a period of transition. We will have to keep using fossil fuels. You said that we are using clean energy because we have to heat up water to extract oil. You have said that we will have to use other types of energy: solar, wind, hydrothermal and geothermal. You have said that you do not work in the area of carbon trapping.
We export raw products. We don't do the refining. I was in a conference where people were saying that we will gain economically if we refine things closer to the site. We will avoid some of the environmental impacts of the cost because it will be less diluted and we need dilution to transport. Can you please comment on that?
Mr. Liu: That is an excellent point. When you export a raw material or even a halffinished product you do not really gain as much in terms of economics. That is always the case.
Right now we are not refining all of our crude oil. Let's just put it that way. It's not like we don't have any refineries in Canada, but we are just not refining all of it. We export some intermediate products. That actually is one of the things that we are trying to improve upon.
As I indicated earlier, when we are working on this non-aqueous extraction process the idea is to not only replace the water with solvent to lower GHG emissions but also to be able to clean the product so that we can send it to a refinery directly, without it going through intermediate steps like a cleaning and then upgrading. In that way potentially it could lead to refinery operations being installed right in place.
Refinery operation is not a small investment. Let's put it that way. When any company tries to build a refinery somewhere, it has to be really careful. It is not an easy shop to set up. That is something which is involved on a bigger scale and not something I can easily comment on. Even if I said something here I don't think I could convince you because I am not really in the position to make a decision to build a refinery in Alberta or something like that.
Senator Wetston: I have a very specific question. Do you believe the 2030 target is achievable? If you answered that question, I'll move on to another question.
Mr. Liu: We have about 12 or 13 years left. If we start to develop nuclear power right now it is possible.
Senator Wetston: Is nuclear power in your view the only way to achieve it?
Mr. Liu: According to the technology development level right now, if we are to push for that and maintain, grow and even develop the current standard of living and the current economy, it is my own opinion that would be the way to go.
Senator Wetston: Your focus is very much upstream. I would like to ask you about downstream for a moment and the users of electricity or energy. On the demand side there is much happening with respect to new technologies and sources of generation, whether it's at the microgrid level or at the microgeneration level. Energy conservation and energy management systems have very much become the focus of utilities, for example. How do you view the demand side affecting your views with respect to lowering GHG emissions?
Mr. Liu: Overall in the energy picture both the production side and the user side have to work together. A lot of issues are associated with both sides, but the reason I say that is because some user sectors can indeed use more or almost solely rely on renewable sources but others, at least right now, cannot.
For example, if you look at the heating, lighting and appliances in both residential and commercial buildings you can mostly rely on renewable sources like wind or solar. If you are talking about industrial operations like auto assembly, then you cannot rely on renewable sources right now.
I am not saying that you cannot rely on renewable sources. I emphasize the right now part. If you develop better technologies later on you may be able to do it, but right now a lot of these industrial operations are energy intensive. They actually do need high megawatt-hour generators because otherwise they can't make things move. They can't do it.
In the user sector, Senator Wetston, there is lots of development. Some of the user sectors can almost solely rely on renewable energy sources, but others may not at least at the present point.
Senator Patterson: Thank you for the excellent overview. Most of my questions have been asked, but I would like to ask you if you could elaborate a bit, please, on the non-aqueous process that you seem to feel is very promising and far advanced. How does it actually work?
Mr. Liu: I already explained non-aqueous extraction is promising because essentially you could do it without raising the temperature of the water. You could do it at room temperature. The reason they need to use a higher temperature of water is to lower the viscosity of the bitumen, a heavy crude that sticks everywhere. The nonaqueous method uses a solvent that essentially dissolves the bitumen so the viscosity is dropped without raising the temperature.
Right away there is a lot of energy savings because without using water you end up with a dry tailing. You wouldn't have a 170 square kilometre pond of tailings sitting there attracting everybody's attention. You would basically have a dry, stackable tailing which you could discharge and start to reclaim right away. That's actually the second advantage.
The third advantage I already explained. We aim to clean this bitumen solvent product, remove all the fine solids, water and everything, so we could generate a feed directly to a refinery and eliminate an upgrader in the middle.
Senator Patterson: Where does the solvent come from?
Mr. Liu: The solvent obviously needs to be purchased initially, but it may be the refinery product from the bitumen itself. We are not going to always put fresh solvent in there because the solvent has to be recycled, just like the water they are using right now. You can't always use fresh solvent. Once you have the bitumen solvent you can remove it and recycle it back to your extraction circuit.
Senator Patterson: It is a hydrocarbon solvent.
Mr. Liu: It is hydrocarbon solvent, at least the ones we are testing right now. We also tried solvents that were more biological in origin but they did not work as well.
The Chair: We're getting very close to the end and we have another witness so I am going to give one quick question each in the second round and would like quick responses, please.
Senator Lang: I want to follow up on Senator Wetston's question with respect to meeting the target set by the Paris Agreement. You talk about the fact we can only meet it if we go ahead with nuclear developments. To my knowledge there are no nuclear developments under way, so perhaps you could comment on our ability to meet the Paris Agreement targets without any further nuclear development.
Mr. Liu: First, the possibility of achieving a target by using nuclear power is my personal opinion. I have to stress that because it does not represent the opinion of the Institute for Oil Sands Innovation or the University of Alberta. It is my own personal opinion.
As you point out, Senator Lang, if there is no development in the nuclear power I just can't really see how we can achieve the target without hurting ourselves.
Senator Black: Who owns the patents around the work that you are doing? If you are successful there is a fortune here for somebody.
Mr. Liu: The intellectual property the results would generate is owned by the University of Alberta, based on the foundation agreement between Imperial Oil and U of A. Imperial Oil has full user rights of all the IP generated from there. The patents are mostly filed by Imperial Oil.
Senator Meredith: With respect to the government's and your institute's responsibility in terms of collaboration, you talk about targets and not being able to meet them unless there are developments in nuclear. We have already covered that. What is the response in terms of truly working toward a solution?
Mr. Liu: I think I mentioned it earlier. Not only would we eventually reach that target and maybe even hit lower than that, but not by 2030. That is my opinion.
The Chair: Thank you very much for your presentation, Mr. Liu. I would like to make just one comment about when you talk about nuclear being the answer.
I will go back and look, but we have had testimony from people who actually work with nuclear energy. It would probably take a minimum of 10 years to even site a place, let alone build it and all of the facilities that go along with it. You have to transmit the power. To me, 2030 is coming a little more quickly than that. That's my personal opinion from testimony that we received from people in the industry.
Welcome to the second portion of this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. We are continuing our study on the effects of transitioning to a lower carbon economy.
For this second segment, I am pleased to welcome, from Emissions Reduction Alberta, Steve MacDonald, Chief Executive Officer.
Sir, the floor is yours. We look forward to your presentation.
Steve MacDonald, Chief Executive Officer, Emissions Reduction Alberta: Mr. Chairman, and senators, it is a real honour to join you today. I thought it would be helpful to begin by briefly sharing a bit of information about Emissions Reduction Alberta.
Our new brand was launched in October of last year. We were previously known as the Climate Change and Emissions Management Corporation. We were created in 2009 as part of Alberta's overall climate change strategy. Our new name, ERA for short, clearly captures our mandate to identify and accelerate innovative technologies that secure Alberta's success in a lower carbon economy.
Through the course of our work we attract investment and expand economic opportunities, support efforts to increase market access for Alberta's products and services, and deliver improved environmental outcomes.
ERA receives grants from the Alberta government to enable us to fulfill our mandate. Our funding is sourced from the Climate Change and Emissions Management Fund, a fund that large final emitters can choose to pay into as one option for complying with their emission reduction targets under Alberta's specified gas emitters regulation. It is a novel model, where funds collected from large emitters are used to advance technologies that will support their transition to a lower carbon economy.
Since 2009, ERA has committed more than $310 million in funding to over 100 projects. Our portfolio reflects the priorities in Alberta's climate leadership plan and includes projects that decarbonize Alberta's electricity supply, draw on biological resources to transform our energy system, and address GHG emissions from fossil fuels and industrial processes.
Our investments span several technology readiness levels, but we have historically focused on demonstration and deployment projects.
Our projects are estimated to reduce GHG emissions by more than 7 megatonnes by 2020.
Our funding is leveraged. For every dollar we invest in projects, another six dollars are also invested by industry, innovators and project partners.
In addition, based on a 2015 study by The Conference Board of Canada, the total economic impact of ERA and related investments from 2011 to 2016 will be more than $2.4 billion, with about 15,000 man-years of fulltime equivalent employment added over the same period.
Our interest is in reducing greenhouse gas emissions, removing barriers and sharing the knowledge gained to accelerate the development of the technologies we need.
As an arm's-length organization we are also well placed to deal with one of the difficult realities of innovation: failure, an outcome government is often less able to digest, but our transparent and rigorous due diligence process is designed to minimize this risk.
I have three key messages I would like to leave with you today. First, meeting the world's growing energy demand while reducing GHG requires transformative technologies. Incremental improvements that allow us to do the same things better are essential, but they alone will not get us where we need to go.
Second, we need to close the gap between government, industry and innovators by aligning our efforts around focused, common outcomes.
Third, Canada has tremendous potential to be a leader in accelerating transformative technologies. To be successful, we need to develop complete solutions for the challenges we face.
By taking action in these three areas we can move forward in a way that is sustainable, affordable, efficient, equitable and achievable.
One of the questions this committee is exploring is the most viable way different sectors can contribute to a low carbon economy and meet Canada's emissions targets. Colleagues whom I hold in very high regard, including SDTC President and CEO Leah Lawrence, Alberta Innovates VicePresident John Zhou, and Eddy Isaacs from Alberta, have testified before you on the need for transformative technology. Leah, John and Eddy all have tremendous expertise. I share their view. The pathway to a transition to a lower carbon economy is through transformative technology.
There are off the shelf technologies available today that can contribute to reducing GHG in the near term. There are proven technologies that need a financial push to move to commercialization. That is good news, but these technologies alone will not produce the very ambitious GHG reduction targets required to meet the commitment set out in the Paris Agreement. Achieving these reductions requires gamechanging solutions. They are high risk but potentially high reward investments.
As you heard from many others there is no silver bullet. No one technology will enable Alberta, Canada, or the world for that matter, to meet climate change targets. We need multiple solutions across multiple sectors and we need multiple players working together to achieve success.
We have to do a better job of ensuring that the hand-offs between all of the organizations in the innovation ecosystem are smooth and seamless. We need to create a world class bucket brigade of technology solutions.
It's no small task. We need clear and focused strategic outcomes so that all of our efforts can be aligned. We must also agree upon measures of success and collect related data so that we can monitor progress toward our goals and course correct as we become aware of new realities.
Today innovators face significant and numerous barriers in scaling up technologies to be adopted by industry. The pace, scale and cost of innovation differ significantly across sectors.
For example, Alberta's emission and energy challenges require a magnitude of investment that dwarfs other kinds of clean tech opportunities. Directing public money to demonstration projects that help to derisk private sector investment is important. ERA funding has helped to advance promising technologies in Alberta. Some of these technologies are now at a development stage where significant capital is still required before private financial institutions will invest.
We simply do not have access to the level of large patient capital that is required to move some promising technologies to commercialization. We need broader and deeper financial markets to reduce the costs of financing low carbon innovations. This includes a variety of complementary investment tools and supports, everything from loans to equity investments to tax incentives.
While money is part of the solution, we also know that creating fragments of solutions will not result in success. We need complete solutions. Complete solutions include not only technology and financing but also the entire suite of tools that include policy, regulatory, program, and the business innovation required to successfully deploy new technologies.
This view is reinforced by a soon to be published survey of companies in the clean tech sector in Alberta. It found that the most significant barriers to growth were access to capital, financing for commercial pilots and a lack of regulatory drivers.
These companies identified a number of needs going forward that included assistance to derisk technology, help in navigating the innovation system, support for management skills like sales and marketing, and public procurement to support first deployments.
Investors are looking for greater market and regulatory certainty before they invest. Without that certainty it's more challenging to secure the private investment required to scale up promising solutions that have been developed with public funding.
We need to think globally and put in place all the conditions for success that make it clear to investors and inventors, and all the players in between, that Alberta and Canada are the places to turn ideas into products and products into companies.
To be clear, our efforts can serve to cut costs as well as cut carbon. We need to improve our competitiveness on both price and emission profiles.
We need to accelerate technologies that will increase the resiliency and efficiency of our existing infrastructure and increase economic opportunities with bold new ways of delivering programs and services. We are building momentum.
As we mark the 150th anniversary of Confederation I am confident that we will succeed in the future, as we have in the past, by working together.
Governments, industry and innovators must focus our efforts and address shared interests. By working together we can accelerate development of the technologies we need to deliver the right economic, environmental and social benefits.
With that, I thank you for the opportunity to speak with you and I welcome your comments and questions.
Senator Massicotte: There are all kinds of things we need, obviously. Your key message that I am hearing is that you need a lot of money. You also suggest you need a regulatory environment to encourage innovation. It is very hard, even with a lot of money, to tell companies to innovate. It is a combination of things.
I am a big believer in the marketplace but the marketplace has to stimulate. It has to motivate you to get there because there are a lot of competitors. We could write books on that.
One of the key issues is price signals or basically carbon pricing. The current plan is that within a couple of years we will be up to $50 a tonne. Shell Canada came out last week saying that it should be $200 a tonne if you really want to get to where you want to go regarding our plans for the Paris Agreement.
What are your comments on that? Is that adequate? Should it go up to $200 a tonne? Would it achieve results? Do you agree with Shell's opinion?
Mr. MacDonald: We need to keep in mind it will be a suite of actions we need. It is not just a price signal. We need that regulatory push, but we need the market pull you described. To me, it is creating the conditions where we're solving the problems that industry needs solved. It is responding to the marketplace and giving the right regulatory signals, and price is one of those signals.
It is not so much the price but also what you do with it and how you invest that price. One of the advantages of the Alberta model is that it says to large final emitters: "If you pay this price you will see the return on investment, and the tax will be used to stimulate the kinds of technologies you need to solve the problems you have."
There's a lot of research on what the right price is. It makes a whole bunch of assumptions about the rate of adoption of technology. There were some early assumptions about the price needed to adopt solar. That has fallen off the table, given the innovations in that sector. I am always cautious about saying what the right price is, but yes, I believe there needs to be a price signal and that regulatory push to drive the behaviour in the markets.
Senator Lang: I'd like to refer to the Paris Agreement. You made the following statement that "technologies alone will not produce the very ambitious GHG reductions required to meet the commitments set out in the Paris Agreement.''
The statement has been made that if you were to shut down the oil and gas energy sector today, you still wouldn't meet the targets agreed to in the Paris Agreement because they are so ambitious.
In your evaluation of the Paris Agreement and the realities that your sector, Canada and the world face, I have a question for you. Will we be unable to meet the terms and conditions agreed to in the Paris Agreement no matter what we do?
Mr. MacDonald: I am in the hope business around technology. There is hope. The way I would answer that question is that those targets were a backcasting. We want to get to this point so what do we need to achieve that as opposed to we are here today, what is realistic.
If you're asking whether I believe we can achieve those targets set out for 2030 in 13 years, I am very concerned about the likelihood of being able to do that. We're a teenager away from that 2030 date and given what we have in our suite of opportunities and projections about economic growth, I find it highly unlikely that those are achievable.
Are they achievable in the longer term? Will there be a breakthrough technology that changes things? I live in the business of that hope and optimism.
Senator Lang: I would like to move on to another reality we're facing. The President of the United States has indicated that he does not intend to proceed with their commitments to the Paris Agreement. Obviously there were costs that would accrue to the industry in the United States if they had continued to move toward the Paris Agreement targets.
How is this going to affect us from the point of view of being able to compete in the oil and gas industry, in view of the fact that our largest neighbour is obviously not going to move in that direction? Have you done any evaluation of what the consequences will be?
Mr. MacDonald: Like everybody in this room I think we're all still trying to digest what the implications are and what the actual path forward for the U.S. will be.
There are two outcomes that we're driving for. It is cutting carbon but it's also about cutting costs, as I said in my speaking points. We need to compete on a cost basis. A lot of the technologies we're funding around solvents and eliminating steam and heat are about driving down costs.
For me, if the imperative changes it's not a carbon reduction we're shooting for. The imperative to get costs down is not going to change. I think technology and investing in those breakthrough technologies is as much about improving the resiliency of those existing assets as developing new technology that will allow us to extract that resource at a lower cost. That's where we're competing with the States. It is as much on a cost basis as it is on a carbon basis.
Senator Lang: I would like to follow up on that. If you put on a carbon tax it means your costs would be higher compared to the United States where there's no carbon tax. How are we to compete if we continue to increase the costs on one side of the ledger?
Mr. MacDonald: Again it comes down to what are the incentives to drive the behaviour that we need.
I have a greater concern. The price of carbon per barrel is relatively small, but when you hear conversations coming from the south about reducing the regulatory burden by cutting the business tax by 75 per cent, those are the issues that are causing me greater anxiety than whether a carbon tax is going to be the tipping point for our industry. It's part of the equation, absolutely, but we need to create the conditions and drive the behaviours that drive down our costs and make us more competitive.
I don't think we can lose sight of the realities we have lived with in Alberta in the last little while about social licence. That's not going to go away because the U.S. is backing away from that. Our product has a reputation in Alberta and Canada, and we need to change the message by demonstrating that we get it and we're taking action. How best to do that is up to you, the policymakers.
But I don't think we can lose sight of how our reputation around the environment is hard wired into the oil sands and think that that will not go away because of something that the U.S. chooses to do. Our markets haven't responded that way in the past and we have to be very mindful of that. To stop taking action would put our products at risk.
Senator Meredith: Thank you, Mr. MacDonald, for your comprehensive presentation. You've covered a lot of the areas, and questions are being generated.
At page 10 of your presentation you state:
Investors are looking for greater market and regulatory certainty before they invest. Without certainty it's more challenging to secure the private investment. . . .
Senator Massicotte raised the issue of those ideas are ready to go but need that financial push.
Could you elaborate for me on how we get there? In terms of recommendations to government, would it be that this is what we need in regulatory terms? How have you presented that to government? Have they been receptive? What are the challenges? How can we help to push that forward?
Mr. MacDonald: I've echoed in my speech what I heard from industry around certainty. I am not sure that's realistic. It should probably be more about predictability. We know generally the direction in which we're going to head, but in the regulatory environment certainty is probably asking a bit much.
I think that is just it. Can we clearly define what our targets and expectations are? I think there's an absence of that. If you ask industry where governments are heading at a provincial or national level, it's not really clear. We start to talk about a carbon price and performance standards, but clarity about the outcomes and where we're trying to head would be helpful. Then the world unfolds as it should in many ways.
We have to create a better environment that allows risk-taking and experimentation to happen. Should we apply the same regulatory environment to a prototype project as we would to a major new refinery project or extraction project? Probably not; we need to create those regulatory sandboxes where we park some of the higher standard rules for a fullscale operation to allow the testing to happen. That doesn't normally happen and that is what I've heard from industry.
What are the opportunities in the financial markets for creating larger patient capital pools? I'm not absolutely clear on what that looks like, but that's another message I've heard.
Then there is the alignment. The clarity across jurisdictions within the country is going to be important too, so they know what the rules are as they move products across borders and things like that.
Senator Meredith: I have another question on page 11, and I paraphrase where you say that Alberta and Canada are the best places to turn ideas into products and products into companies. I like that; I think you should put a trademark on that.
The Minister of Innovation, Science and Economic Development was in our chamber a couple of days ago. I am all about developing ideas. We talk about necessary investments in innovative products. Then we talk about intellectual properties with respect to companies collaborating on ideas and moving forward. There is a sense of silo mentality because no one wants to lose their technology and they're afraid of foreign companies taking those technologies.
What collaboration is happening within the industry to ensure we get those ideas funded and it's done in a collaborative manner?
Mr. MacDonald: A good example of that is COSIA in Alberta where the oil sands companies have agreed to partner on shared solutions and to share that information. Our business model is that with the public money comes a public good. That's the sharing of information and learning. We don't own the IP but we do insist that a report be produced and the learnings from the pilots are shared with others so we can accelerate the knowledge.
You are absolutely right that we need to create incentives for people to take their ideas all the way to commercialization. The collaboration that you described is absolutely essential and the collaboration in terms of when I talked about those handoffs.
An earlier speaker talked about the $150 million that the federal government provided to the University of Alberta. Our organization needs to be working closely with that institution to say, as those professors and scientists develop those new products, that we are ready with the next stage of capital to do the pilot. I should be talking with industry to make sure it is saying, "You are now solving a problem. If you get it to this point, we're prepared to bolt it on to one of our facilities and test it at a working level.'' We need the investment community there saying, "If you get past all that, we're there with $100 million to build your first pilot plant.'' That's the kind of collaboration and cooperation I think we need.
Senator Black: Sir, you're doing great work. You've indicated to us what needs to get done. We understand that. I want to focus on what's getting done.
I have a couple of questions. You talk about transformative technologies. Where are we? What are those technologies? When can we expect transformation?
Mr. MacDonald: Much of what we discussed in the previous conversation about solvent technologies has been proven. The challenge now is reliability and scaleup. They hold great promise. They are years away, not decades away. They are also focused very much on new exploration as opposed to retrofitting existing facilities.
There are opportunities on the partial upgrading side in terms of some of the technologies there. In cogeneration, the energy efficiency piece of the world, there are some great opportunities. There are some regulatory barriers and some economic barriers, but the opportunity is there to significantly reduce waste heat, reapply it and drive down costs and greenhouse gas emissions.
On carbon capture and utilization, much like COSIA and the XPrize have had an opportunity around carbon capture and utilization we have had a grand challenge. We have gone through round one and funded 25 promising technologies. We're about to announce some winners of our round two. There is potential for commercialization of some promising technologies around capturing in cement products and use of different solar technologies.
In Alberta the greatest potential really is around the extraction technologies, but I'm as reluctant as the previous witness to speculate on when adoption would happen. There's proof of concept. They worked at small scales, but will they be reliable and scalable enough to actually fundamentally change the nature of the business?
There is great promise on the renewable side. Again that is as much derisking the economics as it is the financing, the technology and driving the costs down. Those are some areas.
Senator Seidman: I would like to pursue Senator Black's line of questioning about your very assertive comment that we require transformative technology. You also say that your newly fashioned enterprise is well placed to deal with failure, one of the difficult realities of innovation. There's no question we keep hearing there is a huge challenge in the country to drive innovation forward from an idea to commercialization.
You are primarily a group of companies and emitters donate money to your fund, but do you partner with others outside industry? How do you see yourselves well placed to deal with this failure problem?
Mr. MacDonald: I'll answer the partner question. Absolutely, the only way to succeed is to partner. One of the strongest partnerships we have is with SDTC Canada. We did a joint call to try to streamline a process focused on small and medium size enterprises around innovative technologies. It was a $40 million call. We cost shared. We used one form and one process. We made it much simpler for applicants. We learned from each other the best of their processes and the best of our processes. I think we got stronger and it has made it easier for innovators.
We have a partnership with the Ontario Centres of Excellence. We're working on a partnership with folks in B.C. If you don't have those partnerships you will duplicate and frustrate innovators and it won't be as efficient and effective as possible. That's a fundamental piece of our business.
What was the second part of your question?
Senator Seidman: You say that you're well placed to deal with one of the difficult realities of innovation which is failure.
Mr. MacDonald: That is why I forgot.
Senator Seidman: Failure is not part of your vocabulary.
Mr. MacDonald: I apologize. What we do well is: We fail fast, we try to fail cheaply and we fail forward. In other words we learn from those failures and accelerate innovation moving forward.
We do that well in a number of ways. One is our whole selection process. We carefully select projects that actually have the potential. They have all the right conditions in place, not just the right technology but the right executive team, the right capacity, the right funder, the right market poll and the right market partner. We very much focus on that.
Then we also stage-gate. Rather than, "Here is a bunch of money; we'll see you in a couple of years. Let us know how you do,'' we set clear milestones. As those milestones are achieved we pause and reflect, saying, "Are we actually going to hit where we thought we were going to hit?'' If not, we end the funding but we still share the results learned up to that point, what went wrong. That stagegating, that clarity on expectations and that ongoing performance monitoring is absolutely critical and something that we think we do very well.
Then we help to manage that failure by making sure there sharing is going on. Someone told me to stop using the word failure because it's really learning. It's really an opportunity to test an idea, learn what you can from it, and move forward. That reporting requirement, that sharing of that knowledge, is another reason why I think we're well equipped to take advantage of the realities of the innovation system.
Senator Wetston: Senator Meredith was talking to you about regulatory issues. Could you provide a bit more detail on the kinds of regulatory incentives that you feel might enhance the opportunity for the goals you have for your organization or for Alberta?
As part of that, who would be providing those incentives? Would it be a regulatory body? Would it be government? Would it be tax related and those kinds of areas that you might think about?
Mr. MacDonald: That's a great question, senator. It depends on the nature of the industry and what problem we're trying to solve. I go back to my earlier comments about the need for a bit of a regulatory sandbox. In a way you need to get the technology, the innovators and the regulators in a room and to say, "What is preventing us from doing this? You haven't done this site selection. Do we really need to do that for a pilot, or can we contain it and make it very clear that this isn't an approval but an ability to test?''
In the early days of the oil sands in Alberta, just the ability to create a test bed where the rules were more flexible allowed that technology to progress. As opposed to a specific regulatory change it is more asking what product you're trying to develop. What is the regulatory environment you are operating in? Where are the barriers? We need to have those conversations as opposed to saying, "Submit your application and we'll talk to you in 18 months and see where things are at.''
When you talk about incentives there is a whole range that we need to consider. There is the IP issue. Who owns the IP? How long is that ownership? How transferable is that ownership? How well it is protected is important. In terms of the tax system itself, are we encouraging risk in a responsible way but also encouraging results? In the past some of the incentives created a lot of activity but there really wasn't accountability for results. I think you need that balance.
Then the incentives for doing the right thing are wide ranging in my mind. It is hard to answer it without asking what technology are you focusing on and what is the specific barrier that you have come up against.
Senator Wetston: This leads me to a point that you mentioned a moment ago on access to capital. For these companies seeking money obviously new technologies pose considerable risk. Raising capital in the angel market or in the venture market in Canada is often criticized as not being as available. You have done a great job out West on the Venture Exchange. It has gone through a difficult period recently because of commodity pricing but it has a great history. Alberta has done a great job in raising capital in the oil and gas exploration and production sector. There is a lot of experience in raising capital for those types of businesses.
I want to follow up on where you think there might be obstacles today in Alberta to raising capital, because I think your focus is really on technology. I think that's problematic, probably throughout the country. If you could provide the committee with a bit of information on that, I would appreciate it.
Mr. MacDonald: You're right, senator. There is a range of challenges: Are there enough good ideas? Do those good ideas have enough of an impact? Then you are right: Is there a lack of capital or resources to actually execute and take the idea to commercialization?
I'm not always convinced there is a lack of capital. There is probably a lack of having all of the other conditions in place. Is it the right management team? Is the technology actually solving a problem industry wants solved? There have to be more of those regulatory incentives to derisk in a way: If I put my money into this option there is a payoff I can compare against other existing opportunities in some way.
Even with the public money from AIMco or Alberta Treasury Branches, we need to recognize that the "terms profile'' might be slightly different in the short term for some of these ventures. The rate of write-off might have to be slightly different.
There are billions of dollars raised in Alberta all the time for all sorts of ventures. What is it about the innovation space, the clean tech space, that isn't achieving those same kinds of outcomes? I think it's some of the things I just talked about.
Senator Galvez: If you had to choose among the various technologies you are developing which would be the first three? Could you please just walk us through the steps you just mentioned: the policy, the pilot, the demonstration and the validation? Wouldn't it be a provincial responsibility to share this risk that you're talking about in raising the capital needed to develop these technologies?
Mr. MacDonald: In terms of promising technology I'm a big fan of the solvent technologies. Given the nature of the largest emission sources in Alberta there is great potential there. We have a number of ongoing pilots right now. Those pilots require additional capital.
Once there is a proof of concept and we get them at a volume that industry feels comfortable with, that is where markets have to come into play. Industry needs to step up to the plate and be prepared to adopt those technologies in a shorter cycle than they have in the past. I have seen numbers that adoption in the oil and gas sector can take 30 years. We have to significantly shorten that cycle. That is one of the realities from industry.
The risk reward has to be worked out. As a public good there is incredible potential around corporate taxes, around personal taxes and around royalties that should reflect the return for a public investment in part of that. The other piece is for industry itself to step up and say they are prepared to put the large capital in place that does the proof of concept and allows this technology to be commercialized.
Carbon capture utilization has promise. That's a long game. If it's really about transformation of the economy in some way, turning carbon from a waste stream into a useful product has to be there somewhere. That's an asset we have. How do we go beyond burning bitumen to actually turning it into other products? There is potential there. That's a much longer game.
Fundamentally, the conversations are around transitioning off fossil fuels, that is, to burn them, but there is a whole new potential in terms of products, services and supply chain that we can explore. There is potential there. That's going to take a lot of time, patient capital and public funding. There is no balance sheet. There is no product. There is nothing that a commercial person could step up and grab a hold of.
It's going to require focus of the postsecondary systems, the scientists to explore those opportunities, and industry stepping up to say it will create the space to allow you to play with these products in a real world situation.
The renewable side is another area where we need to move quickly. In a way that is buying carbon in my mind. The technology exists. We're really trying to derisk the financing side, the business model and the delivery side of it. More technologies in microgeneration area hold great potential. Storage technologies and the whole supply chain around renewables have incredible opportunities too.
I agree there is a role for the provinces, the federal government and industry. All the players need to be aligned.
The last point I would make is that we need to make some choices. Canada has a bit of a culture where everybody gets a ribbon. At some point we'll have to place some bets, make some choices and push hard in specific areas, just like I was asked, as opposed to sprinkling fairy dust all over and hoping a miracle is going to happen. That's very challenging and high risk.
Senator MacDonald: Looking through your presentation I see references to grants in the Alberta government and the term investment used over and over again, but investment implies return for investment in my mind. When I see investment I see expenditure: a lot of money going out and not sure of the return.
I will give you an example of what I'm referring to here. There are 18 coal fire plants in Alberta and 12 of them will be phased out by 2030. This means that six will be still fully operational. What are the costs of these stranded assets? There would be a substantial cost to a stranded asset like six high-end coal fire plants.
Have there been any efforts at all made into seeing what technology can be used to make these plants cleaner and more efficient? Coal fire plants are much cleaner and more efficient than they were 20 or 30 years ago. Is there any thought that we could be making solvent technologies? Is there any way that can be applied to coal fire production?
Mr. MacDonald: That technology, not so much. Carbon capture, storage and utilization, absolutely applicable. We're looking at some opportunities to work with flue gas from a power plant around the whole carbon capture and utilization. There is potential there. Alberta has been a leader in investing heavily in derisking and proving that technology. That's relevant.
Cogeneration is a big part of that. There was an earlier conversation about demand side management, not just looking at the energy source but also the energy usage side. Looking at the demand side management, there is potential.
We have done a lot of work in the biologics area: biomass, torrefaction and using wood rather than coal. Converting those plants to a different fuel source has been an opportunity.
We have worked in that area and we will continue to work in that area because generation of power is part of the issue. We're agnostic about the fuel sources. The question we ask is: How can we improve the emission profile and drive down the cost of whatever the fuel source is?
Senator MacDonald: That's good to hear. For the most part most people aren't agnostic about the fuel source. There tends to be a broad assumption that coal is out completely. When they shut these plants down in Alberta in 2030, are they going to mothball them in or keep them as a backup? In Europe and Germany they spent a fortune on wind power and other alternative sources of power. Now they have reverted to burning coal again because they can't meet demand and they're going into energy poverty.
Have we made any alternative plans? Do we have any backup plans when it comes to this stuff?
Mr. MacDonald: You've drifted into an area where I'm not really an expert, but what I would respond to is the question of reliability, affordability and capacity. They are absolutely fundamental, and technologies have to respond to them. Alberta has a high industrial load so we need absolute reliability.
To your question, as you transition you have to make sure the lights stay on. That's absolutely understood. That's part of the evaluation of the technologies that we explore. If it's solar and don't have the storage technology to go with it and be able when the sun is not shining to flip a switch and draw power from another source, that technology won't allow us to meet our needs.
The Chair: Can you tell me where your funding comes from for your organization?
Mr. MacDonald: In 2009, when the government set up essentially its levy on large final emitters, one of the options for compliance is that they can pay into the Climate Change and Emissions Management Fund. The government receives that levy. It was $15 a tonne; it is moving to $20 a tonne. Then they decide how to allocate it. In the past they've allocated a portion of that money to us. It comes to our corporation and then we make our investment decision.
It comes from large final emitters making a choice to pay into a fund and then the government choosing to give us a percentage of that funding.
The Chair: Are there any grants that come from government, federal or provincial, or is it all from large emitters?
Mr. MacDonald: It's all from large final emitters.
The Chair: When we first started this study over a year ago, there were lots of questions and things said about industry not funding much, right? There was no move on industry's part to look at some of the problems they created. As we move forward, we're hearing different things because we have heard from other groups in Alberta.
Could you give us a rundown? You don't have to do right now. You can look at it to see how much money is invested by industry and how much is invested by either the federal or provincial government. We heard from the gentleman just before you that Imperial Oil provided $24 million to the fund that he and his group work out of. It would be interesting to know just how much is expended in trying to deal with these issues. Would that be possible, sir?
Mr. MacDonald: I probably wouldn't have access to that level of detail. The point I made in my presentation was that we leverage our money six to one. We have invested a little over $300 million, but it has been on $2.2 billion worth of projects. There is an example. If people say it's just government money I know in our case in Alberta that's not accurate. It's six to one. In fact we won't invest in a project unless industry is there or there is another partner because that's our demonstration of the market pull. If someone comes to me and says, "I've got this great idea and I want you to 100 per cent finance it,'' our board will say no. What we want to see is a partner of least 50 per cent partner and ideally far more than that. Those partners can be other levels of government, industry, angel investors or whatever.
If you don't have that market pull and demonstrate it with a dollar, those projects are very high risk and not one that our board has an appetite to be involved in. So for people saying industry is not stepping up, the evidence from our organization is that is totally inaccurate. At a six to one ratio, the evidence speaks otherwise.
The Chair: That's good to know. I'm not disputing it. I want to get it on the record because those kinds of things were said to start with. In my experience that's not true either. Anything you can do to provide us with that information would be great, or maybe you could direct us someplace where we could find out. If you would do that, I would appreciate it very much.
Senator Meredith: You have answered quite a few questions today. Looking at the internal and external threats in terms of where your mandate is to lower emissions and go to a low carbon economy in Alberta, talk to us more about that in terms of what you have identified.
We talked about it in terms of the finances and government regulatory policies that need to be put in place, but I'm talking about the external threats that would impact upon your meeting and fulfilling your mandate. Could you elaborate a bit more for me on that, please?
Mr. MacDonald: The current regulatory policy uncertainty is a threat. The committee has mentioned some of the uncertainty happening down south. You need to know where your most significant customers are heading and what their expectations are.
The lack of alignment in those clear outcomes is a threat to us because there is hesitancy. If people don't believe this is the path forward or that we're actually going to follow this all the way through, they will sit on the sidelines. They won't take the risk of adopting this technology. They won't create the opportunities to pilot it on their sites. In my opinion that uncertainty is probably the greatest threat we're seeing right now.
Keeping the long game in mind, there is a risk that we lurch and jerk forward along political cycles or even shorter terms. It is a huge issue because this is a long game, especially in the energy sector. We're talking hundreds of millions of dollars and decades to actually deliver the sort of fundamental changes we want. It's a significant threat that we could lose sight of the long game. If there is not that conviction and clarity on the value of when we're done, things come off the rail.
You folks know better than anybody the significance of public opinion. Do people get what we're doing, why we're doing it and the value in the end? Those are the realities.
I know I keep going back to the capital side, but access to capital is a significant challenge. I hear that repeatedly. Within our program we even have stranded grants where we're prepared to step up with essentially 50-cent dollars. Businessmen cannot raise the matching share right now. It's a proven technology. They want to scale up but they don't have a balance sheet, they don't have a revenue stream, and they can't raise that capital. That technology will wind up being bought by a multinational, taken out of this country and commercialized someplace else.
Senator Lang: I reiterate what the chairman asked. It is important that we find out to the best of our ability exactly how much money is being made available overall. It seems kind of odd that we have to look for it. You would think you would find it in one place. That being said, it would be great if you could help us with that.
I want to go back to your question of capital and to what Senator Wetston mentioned. We have heard from witnesses a number of times about technology being advanced, capital not being available, a subsequent lag time between the technology being developed and implemented, and some of these major industrial plants that require multimillions of dollars to revise how they do their business.
Have you given any thought to the emitters to this fund in Alberta maybe paying more initially to set up a capital fund? Perhaps it could be cost shared with tax incentives from government so that money and access to capital are there? Then they could move as opposed to wait for 10 years down the road for somebody else to do it. Has any thought been given to that? I know it may cost more at the initial stage but the end result could be a payoff.
Mr. MacDonald: There hasn't been any conversation that I'm aware of about increasing the expected contribution from the large file emitters to create another capital fund. We have talked about what other tools are needed. One of the concerns is that we're a grant funding agency and when you get into the big numbers, big grants are high risk in a lot of ways.
Is there a different model from an equity point of view or a repayable grant point of view? The kinds of conversations we have been having are more about how to leverage existing money in a different way, as opposed to turning 100 per cent grant money into an asset, sort of like a revolving fund, so that if you're successful you pay back the grant rather than using that benefit for the longer term. We are exploring those sorts of opportunities.
Senator Wetston: I see two parts to this scenario that you're looking at besides the good work you're doing in what you are attempting to achieve today and in the future.
To go back to the regulatory side, my sense is that there is probably the need for some code development in the province with your regulators that would allow potentially for more innovation in the province. We understand that the oil sands in particular and of course energy production are not only important for Alberta but important for Canada.
On the security side I don't think there has been much discussion about this, but I will leave it with you to think about. Maybe we could benefit from your thoughts about it. I believe we're reaching the point on the security side that we need an innovation rule.
What do I mean by that? You have an oil and gas rule. We have mining rules. They are very important for raising capital and have very important investor protection components. It may be time for you to think about an innovation rule in the province. I leave that with you and maybe you could get back to us to see if you have had any success in moving in that direction. Have you thought about that at all?
Mr. MacDonald: I think you're right. There are different expectations and different income or revenue profiles. You probably need a slightly different product.
The Chair: Thank you very much for coming, sir, and for your presentation. I think we had some good questions and some very good answers.
Before we adjourn, I want to state that the clerk tells me that late on Friday afternoon she'll have the agenda ready for the trip to Montreal next week. Make sure you stay in touch with your staff so that you actually get it, because those taking the train from Ottawa leave at 6:30 in the morning.
Those that are already in Montreal will have a different way to meet up with us. I just want you all to be prepared for that.
Have a good day.
(The committee adjourned.)