Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 25 - Evidence - April 13, 2017
OTTAWA, Thursday, April 13, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:04 a.m. to study on 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'm a senator from British Columbia and I'm honoured to be chair of this committee.
I wish to welcome all those who are with us in the room and across the country who are watching on television or online. As a reminder to those watching, these committee hearings are open to the public and also available on the new Senate website at 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 begin by introducing the deputy chair, Senator Paul Massicotte from Quebec.
[Translation]
Senator Massicotte: Good morning.
[English]
Senator MacDonald: Michael MacDonald, Nova Scotia.
Senator Galvez: Rosa Galvez, Quebec.
Senator Fraser: Joan Fraser, Quebec.
Senator Patterson: Dennis Patterson, Nunavut.
Senator Mockler: Percy Mockler, New Brunswick.
Senator Griffin: Diane Griffin, Prince Edward Island.
Senator Seidman: Judith Seidman, Montreal, Quebec.
The Chair: I would like to introduce our staff. On the left is our clerk Maxime Fortin and on my left the Library of Parliament analysts Sam Banks and Jesse Good.
Colleagues, in March 2016, 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 30 per cent below 2005 levels by 2030. This is what we consider a huge undertaking.
Our committee has taken a sector-by-sector approach to this study. We will study five sectors of the Canadian economy that represent over 80 per cent of all GHG emissions: electricity, transportation, oil and gas, emission- intensive trade-exposed industries and buildings.
Our first interim report on the electricity sector was released on March 7.
Today, for the forty-first meeting of our current study, I am pleased to welcome, from the Canadian Gas Association, Mr. Timothy M. Egan, President and Chief Executive Officer. Thank you for joining us today. We look forward to your presentation and then to some questions.
Timothy M. Egan, President and Chief Executive Officer, Canadian Gas Association: If could I ask right off the start: How much time do I have for my presentation?
The Chair: We'd like to get some questions in, so we would like to keep you to about 10 minutes or so.
Mr. Egan: My staff told me five, so you just gave me a huge licence.
The Chair: Whatever you are comfortable with.
Mr. Egan: Thank you, honourable senators, for the opportunity to present to you this morning.
The Canadian Gas Association appreciates this opportunity.
We circulated a slide deck, which I see many of you have. I hope all of you have access to it. I'm not going to read through those slides. My notes, however, will allow you to track through those slides.
First, I'll discuss who we are. The map shows our members across the country who deliver natural gas to almost 7 million Canadian customers. Each customer is a meter at a home, a business, a church, a hospital, a school or an industrial facility.
Today, over 20 million Canadians rely on natural gas thanks to a system of approximately 450,000 kilometres of underground gas lines and many above- and below-ground storage facilities. The system is maintained and steadily expanded at a rate of close to 100,000 customers a year, with an annual investment in the order of $4 billion.
Many people don't realize just how big a role natural gas plays in energy delivery. Slide 3 has a simple graphic that makes the point. Natural gas represents well over a third of the energy we consume in Canada, significantly more than electricity, a point I make a lot given that so many energy conversations seem to suggest that the energy system and the electricity system are synonymous. They are not.
Electricity is one part of the bigger energy system, and it meets our plug-load requirements, principally for light but also for electrical appliances, communication tools, et cetera. But we have two significant energy needs besides plug load: transportation, which is the biggest portion of end use, met principally by the extraordinary concentration of energy in liquid fuels; and temperature control, mainly heat, the second-biggest portion, which is met principally by natural gas.
These three energy needs are serviced with three independent but connected energy delivery systems: vehicles and transportation routes for liquid fuels, wires for electricity and gas pipes for natural gas. I highlight all three systems because having all three is a huge part of the value proposition of Canada's economy. The integration of the three improves resiliency, facilitates the mobility of labour and goods, helps drive competition and keeps energy services affordable.
I am very concerned by the popular assumption that we can and should go to one system — an electric system. I say this, senators, with the realization that electric companies like Manitoba Hydro and FortisBC sit on the executive of my own board of directors. They say it, too, though, because Canada's energy system would be less reliable, less resilient, less competitive and more costly if it were just an electricity system.
Moreover, replacing the natural gas system with electricity would require approximately a 290 per cent increase in power generation alone to meet the load, not to mention additional transmission and distribution costs.
Let me tell you about the natural gas delivery system, one of the big three. Slide 4 details the attributes of our product. Its affordability means the average family saves in the order of $2,000 a year by using it for heating.
It is abundant. Estimates of current supply in Canada alone range from 200 to 300 years, depending on our consumption rates, and this doesn't factor in renewable natural gas or methyl hydrates.
It is clean burning, with extremely low criteria air contaminants and low CO2 emissions. Moreover, on the topic of clean, it's the go-to partner for intermittent renewables, like wind and solar, that need support 24-7 to be part of the electricity system. It's no coincidence that many of my members are also owners and operators of such intermittent renewable systems.
Natural gas is an innovative fuel. Innovation is front and centre in what we do in identifying new and more efficient end-use applications like microcombined heat and power for residential homes, or natural gas-driven heat pumps; in working with industries that rely on natural gas as a feed stock, like the chemical industry or the fertilizer industry; in integrating energy delivery systems with natural gas-fuelled trains, ships and road vehicles, as a source of energy for remote power as a means of turning power into gas through hydrogen production and storage; and in finding new sources of energy like renewable natural gas. Also, natural gas is reliable and safe.
I want to focus on the first attribute, affordability, in a little more detail. Slides 5 and 6 give you some context. Our country, I like to say, is a remarkable mass of rock, forest, swamp and water, with extremes of temperature and geography and a very small and widely distributed population. Yet we have one of the world's highest standards of living and opportunity. I would argue that being blessed with very affordable energy has contributed significantly to this.
At present, natural gas is a particularly clear example of this competitive advantage. Stats Canada reports that total household energy spending on natural gas has declined from roughly $8.1 billion in 2008 to roughly $6.4 billion in 2015. In the same period, electricity spending increased from $15.5 billion to $20.2 billion. To put that in perspective, gas spending is under 10 per cent of the average Canadian's energy spend but over 30 per cent of their energy use, whereas electricity is over 25 per cent of the spend for just over 20 per cent of the use.
That affordability translates directly into competitive advantage for Canadian companies. For instance, Stornoway's Renard Mine in Quebec opted to use natural gas rather than diesel to run its power plant and, as a result, has reduced its annual operating costs by approximately $8 million. There are stories like this across the country: ferries on the West Coast, industrial development in the Far North, remote communities in the Prairies, mining towns like Red Lake in Ontario and communities in the Maritimes where gas delivery is a relatively new development.
Canadians that do not currently have access to natural gas want to get it in order to maintain and develop their competitiveness. But that competitiveness is under threat. I refer to the recently created Coalition of Concerned Manufacturers of Ontario, a network of small- and medium-sized companies who are worried about the rising costs of energy services in their province. They note that Canadian manufacturing companies are being aggressively courted by U.S. states that offer significantly lower electricity rates, comparable natural gas rates without imposition of emission taxes or cap-and-trade regimes and the prospect of much lower corporate tax rates. In short, a significant competitive advantage.
Senators, in your report, you underscore this point. I quote:
Many industries are unable to pass the full costs to their customers since they trade in competitive and/or globally priced markets. Further, there is an apprehension that businesses will invest in, or relocate to countries that have fewer emission requirements or use electricity derived from coal-fired plants, thereby negating efforts to reduce global emissions. In so doing, Canada bears the economic cost of lost production and investment with no change in global emissions.
The Coalition of Concerned Manufacturers of Ontario makes your point.
That takes us to the crux of your study: how to reduce CO2 emissions with the least detrimental impact on the economy. It raises a lot of questions about timelines, relative merits of different approaches, balancing changing existing activities for others or simply mitigating the risks of existing activities or, as an alternative, developing adaptive strategies.
As an initial contribution to the discussion, we offer a study we commissioned from ICF last year on possible natural gas solutions. Slides 8, 9 and 10 summarize the results of a range of natural gas solutions that would reduce emissions by 2030 by as much as 48 megatonnes, making a significant dent in the declared national emissions target. These activities include the more efficient use of gas in existing applications, the substitution of gas for other fuels — at times as liquefied natural gas, or LNG, in several applications — and the introduction of RNG, renewable natural gas, into the energy mix overall.
This builds on the kind of activity the natural gas delivery industry has been doing for years. I referenced the affordability of the gas option for the Stornoway mine earlier. What I didn't note was that, in addition to a huge cost saving, the move will see a reduction in GHG, or greenhouse gas, emissions at Stornoway by 43 per cent and a significant reduction in emissions of nitrogen dioxide and sulphur dioxide, proof of the impact that choosing LNG, for example, can have.
However, I have to offer a cautionary note. Not all of the substitution activities offer that kind of win-win, as many will involve significant cost increases. Renewable natural gas, as currently available, is three to eight times more expensive than conventional natural gas, but RNG is still cheaper than virtually every application of alternative renewables, like wind and solar. Choices have to be made.
We are in the process of putting a price on the ICF recommendations. We think they could cost as much as $8 billion, or around $150 a ton. A $150 per tonne CO2 levy on natural gas, while less than the figures quoted from government documents in recent media reports of $300 per tonne, still represents a significant charge of about $7.50 per GJ, or gigajoule, of natural gas. If an average homeowner consumes 80 gigajoules per year, that's a $600 charge — $600 of disposable income, which is significant for a typical Canadian family, especially when you add the levy on their vehicular fuel usage, in addition, and electricity charges where electricity is generated from emitting fuels.
Add to that the many other charges: how the cost on industrial and commercial users is passed through the system to customers, raising the costs of goods and services; or how the cost manifests other economic charges, like declining corporate taxes as companies leave or make less profit. Then add to that the cost impacts of regulations, subsidies for emerging technologies and new taxes like the proposed clean fuel standard. We are concerned that in the enthusiastic pursuit of lower emissions, all of the associated costs are forgotten.
To wrap up, I note for you a series of targeted initiatives that we have recommended for initial action. We are working hard to continue to reduce our emissions and we are achieving results. Take, for example, the fact that a home today uses 30 to 40 per cent less natural gas than a home built in 1990. We see a further 35 per cent reduction as we approach 2030.
Our current efforts to drive innovation, most recently through our own Natural Gas Innovation Fund, have us partnering with NRCan and its CanmetENERGY Labs, with the National Research Council, with the Boucherville, Quebec-based Natural Gas Technologies Centre, with the Gas Technology Centre in Chicago and with various international colleagues around the world.
Our culture of continuous improvement in operations management has seen us dramatically reduce fugitive methane emissions, and our co-operation with the Senate promises legislation to help reduce third-party damages that cause system leaks.
We are working hard, but we are concerned about the public discourse. Not only does the enthusiastic rush for action threaten affordability, it creates, if you pardon the pun, a climate of narrow thinking. This is the thinking that sees Canada's most extraordinary achievements in the extraction, transportation and delivery of a fuel like natural gas excluded from conversations because we are seen as an industry of the past. We strongly recommend a more detailed cost analysis of all proposals being put forward and an openness to each and every fuel and technology opportunity we have. For our part, we commit to continuing to report back to you on our own analysis.
Thank you for your time.
The Chair: Thank you very much for that interesting presentation. We'll begin with questions.
Senator Massicotte: Thank you, Mr. Egan, for being with us this morning. I think it's quite important.
If I could summarize my own understanding, can you confirm whether my base of understanding is a good starting point? The reason why natural gas is so interesting from a climate change perspective is that it basically emits approximately 50 per cent fewer GHGs than coal and approximately 25 per cent fewer GHGs than oil. Is that accurate?
Mr. Egan: Senator, it depends entirely on the application: how are you using the fuel, how are you consuming the fuel and how are you burning the fuel? In some transportation applications, you may not achieve as high a reduction, while in some power generation applications, you may achieve a very high reduction. A lot of it goes to the efficiency of the technology that you are using and the conditions under which you are using that technology.
Senator Massicotte: Is that a good average?
Mr. Egan: We use a figure of around 30 per cent as a general figure.
Senator Massicotte: Compared to oil or to coal?
Mr. Egan: I'd have to check that, but I'm going to say compared to coal.
Senator Massicotte: You talk a lot about distortions and conversions costs, and that's quite relevant. What are your thoughts on a carbon tax?
Mr. Egan: We don't take an official position on it. We have member companies in eight out of ten jurisdictions in this country, and they have very different approaches to how they're dealing with their emission control plans.
The comment that we would make is that there are a variety of approaches to reduce emissions. We're not entirely convinced of the efficiency arguments of any one approach as the single best approach, because the circumstances differ jurisdiction to jurisdiction. There are a whole series of embedded provisions in place that are having the effect of affecting the energy economy already.
Senator Massicotte: Help me a little bit. Let's presume a $50 carbon tax or price of carbon, whatever method you choose. Describe to me what impact that is to the average household in Canada — a family of three or four. You referred to some examples — how much consumption. Give me a sense of the significance of that tax to the household compared to the cost of that fuel or that energy?
Mr. Egan: The simple statistic we use is that for every $10 of a carbon tax, it's 50 cents per gigajoule of natural gas. An average home uses approximately 80 gigajoules of natural gas. That's going to differ. In your home province, an average home using natural gas would use more, because the heat requirements are greater than in Senator Neufeld's province.
Senator Massicotte: Give me some round numbers.
Mr. Egan: So 80 GJ at 50 cents a GJ is a $40 difference. A $50 per tonne tax is a $200 difference per year. That's on your natural gas bill; you would see an additional $200 per year on your natural gas bill. But that doesn't factor in how that cost on natural gas use in every other sector contributes to additional consumer costs.
Senator Massicotte: The average household in Quebec or whatever would be $200 a tonne annual cost compared to a cost of how much?
Mr. Egan: I'm sorry, not $200 a tonne but $200 a year.
Senator Massicotte: You're right. Compared to his household cost for energy and heating of how much?
Mr. Egan: The average home is probably spending about $900 or $1,000 on natural gas.
Senator Massicotte: So if it's $1,000, his bill will go up to $1,200 — the average household in Canada?
Mr. Egan: Yes.
Senator Galvez: We have heard, in other committees, people from the gas industry. Please validate this information: Is the gas that circulates in Canada from Canadian sources or is it imported from the States, and in which proportion?
Mr. Egan: It depends on where you are and it depends on the day, senator.
Senator Galvez: Let's say Quebec.
Mr. Egan: As you know, we are part of an integrated gas delivery system. Historically, we have taken virtually all of our gas from the Western Canada Sedimentary Basin in Alberta through the transportation system that moves from west to east.
As gas resources have been developed in the U.S. northeast, more gas is coming into the eastern Canadian markets — Quebec and Ontario — through the U.S. northeast.
As a percentage right now — well, I'd have to get back to you on a precise figure. Because it's a market, senator, it can vary day to day. People are playing on spot markets. But you can look at the overall trend in a decline in Canadian exports to the United States and an increase in Canadian imports. The reality is that within the next 10 years, our net impact on trade may be zero, because we're importing so much gas into eastern markets from northeastern markets. That translates into a significant saving for the customers in those eastern markets.
Senator Galvez: The reason I ask is because you are not the first person I heard saying you were being excluded from the dialogue on the energy and several projects of exploitation and extraction of natural gas have been put aside in favour of other types of energy resources.
If I make a list of sources of energy, and I go from the dirtiest coal, passing by petroleum, then natural gas, then wind and solar, you are gas, a very interesting transition from fossil to green.
Can you be as honest as you can and tell me the reason your projects of extraction of natural gas have been put aside? According to you, what are the reasons? Are they political reasons? I don't think they are technical reasons, to be frank. There must be political or economic reasons.
Mr. Egan: Senator, this is in part perhaps because of my unfortunate training as a lawyer, but my response is going to be "it depends.'' I realize that's just about the worst response I could give to anything, so let me try to dig deeper on that.
First of all, I'll address the word that you used, which is "gas is transition.'' We don't use that word. We don't talk about it as a transition fuel or as a bridge fuel; we talk about it as a foundation fuel because we think gas is essential to the long-term energy needs of Canada. That's one thing.
Second, you talked about "from fossil fuels to green.'' We need to talk a lot more about what we mean by "green.'' I think that discussion is largely about CO2 emissions. I had a conversation with a prominent Canadian journalist who said, "You have to agree we have to get off of natural gas at some point.'' I said, "Why? Is your goal to reduce emissions, or is your goal to pick fuels? Because the two are different. If your goal is it to reduce emissions and I can show you creative ways to reduce emissions, why wouldn't you use any fossil fuel if you can reduce emissions?''
If you have a significant resource base in this country that can deliver economic value to Canadians and we can deliver it cleanly, why wouldn't we try to do so? That's irrespective of the fuel. With gas, we think there are a variety of opportunities to do that.
On the specific point about why we are being excluded, I'm not talking about the extractive side, because my side of the industry is the delivery side. We work closely with our colleagues in transmission and extraction and production.
I would suspect that the issues they are facing are largely around, first of all, market conditions. Certain Canadian resource basins are not going to be developed if the market isn't right. That's the huge threat to some of the LNG potential opportunities in northeastern British Columbia. It's not necessarily the cheapest gas to produce in the world. We're in a very competitiveness global market. That's one factor.
The second factor is the challenge of regulatory process. I was speaking yesterday to a group of graduate students at Johns Hopkins University in Washington about this. Everyone who is looking at investing in extracted projects in this country is going to look at alternatives to invest in markets all around the world, and they're going to look at a variety of factors. One of the factors is how cumbersome the regulatory process is. The regulatory process is an additional factor.
Senator Patterson: Seven years plus.
Mr. Egan: Right. But the specific difficulty that I'm facing is that the bias as reflected in the comments of that journalist to me and the assumption that, "Oh, well, we want to reduce emissions; therefore, we need to stop using your product. Why would we even bring you into a conversation, because that really just means we're expanding your infrastructure now, and that makes us more dependent on it over time?''
That's a very narrow perspective. It means we're not brought into certain conversations.
There's a coalition of renewable associations that's being created in Canada. I used to do a lot of work with the electricity industry. I used to work in the solar, hydro and wind industries, so I know a lot of the players. I called them and said, "I should be part of your coalition. We have renewable natural gas.'' They said, "Well, you're not really renewable, because most of your fuel isn't.'' I said, "Wait a second. Is wind always renewable? What if you've got wind in an energy system and you need it as reliable power and you can't guarantee the reliability of that wind? What are you going to do? Dollars to doughnuts, you're going to use gas as a back-up. Does that really make you renewable? Because you're integrated, and we're all part of an integrated energy system here.''
Nobody, if you will, has completely clean hands on this stuff. That's what I was referring to, senator, in terms of excluding us from certain conversations.
Senator MacDonald: Mr. Egan, it's good to see you again.
First of all, I'm a big believer in natural gas, and I think we're underselling in the country both the economic potential and the environmental potential of natural gas.
I want to talk to you specifically about what's going on on the East Coast when it comes to natural gas. In Nova Scotia, we have Heritage distributing natural gas, Enbridge in New Brunswick, and we have Sable Island gas drying up soon and Deep Panuke producing less gas than was projected. What will happen to the gas situation in Atlantic Canada? What is going to happen to the cost, particularly in the winter? What will happen to the reliability of the supply? I believe there are problems coming down the road. Am I right, or am I overstating the case?
Mr. Egan: I think that Atlantic Canada is the one place in the country where you see significant seasonal price changes, and it reflects, I think, two principal issues in the region. One is the lack of pipeline capacity to bring gas into the market, so when there is greater gas demand there is a bottleneck. There is a difficulty in finding the gas to meet that demand. Second, there is a lack of storage capacity in the region.
I mentioned in my remarks that we have significant gas storage in this country. Senators, I don't know if you are able to do site visits, but if you are, I encourage you to make a visit to a facility that is relatively close, the Dawn storage hub in southwestern Ontario, which is one the most extraordinary energy storage facilities in the world. It's a geologic storage site.
Storage is what enables us to keep gas prices steady over the course of the year. What we do as an industry is, more or less, store for six months and use for six months, and that keeps prices level.
In the Maritimes, there is very little storage so you're subject to price volatility. The pipeline constraints mean that you are unduly dependent on a few supply basins, and those that are local, as you note, have some challenges. I think what needs to happen in Atlantic Canada is there needs to be more infrastructure coming into the region to avoid the bottlenecks. There is a major storage facility under development in Nova Scotia right now — the Alton storage facility — and if that project proceeds, it will have a significant beneficial impact on customers.
Dalhousie University, for instance, installed a gas heating system a couple of years ago and ended up savings millions of dollars by doing so, and then, a few years after they had done it, they had a very cold winter, gas prices went up and their energy bill went up. There was a lot of media coverage about how much their energy bill went up because they had gone to natural gas, instead of saying, "Look at what their energy bill was before they had natural gas.'' What they're subject to now is market spikes, which can be addressed by storage and transmission.
Senator MacDonald: Strategic oil reserve is the same principle, correct?
Mr. Egan: Yes.
Senator MacDonald: In the terms of the supply from the U.S., let's say, to Eastern Canada, and not just Atlantic Canada but including Ontario and Quebec, can we rely on that supply being there over the next 20 years when they are building substantial numbers of liquefied natural gas, or LNG, exporting facilities? I would assume that if they were going to export American gas, they would prefer to get $16 per unit for it rather than $4. What is the impact of LNG development down there on supply and the impact on costs coming in?
Mr. Egan: At present, there is no impact on supply or cost because the United States, like Canada, is quite literally awash with natural gas. There is extraordinary supply.
Now, how many LNG facilities will be built and what impact will that have? Time will tell, but the indicator I use is the congressional discourse on the issue of exports. There were members of both houses of congress who had been quite critical of LNG exports, and those criticisms have declined significantly.
The criticism was the concern that you raised: Will this threaten domestic market prices? It doesn't like it will for the foreseeable future in the U.S., and therefore in Canada, but I go back to a point I made earlier about how integrated our energy transmission systems are. There is really an extraordinary network of pipes connecting us to the United States, but also to existing Canadian basins. We still do have access to western sedimentary basin gas.
The market will respond to the signals. If the U.S. gas supply price rises significantly, I would expect us to be bringing in more gas from Western Canada. We have the luxury of choice.
Senator Griffin: Thank you for being here today.
The Government of Canada has two basic types of instruments at its disposal to influence public policy or achieve goals. One, of course, is a regulatory function, and the other is to use economic instruments.
You had given a recommendation toward the end of your report in which you recommended there should be more detailed cost analyses of proposals, and I was looking for other possible recommendations. I guess my question to you is this: What is the single most important thing that the Government of Canada could do, from the point of view of your industry, to move us to a low-carbon economy?
Mr. Egan: Senator, you are right: governments have regulatory and economic tools. They also have moral suasion, and a little bit more moral suasion, speaking to the value of our fuel and our infrastructure, would be appreciated, so I will put that on the record.
In terms of the economic tools, we are very interested in the current government's interest in an innovation agenda. We think it offers enormous opportunity. Frankly, we think innovation is what has delivered the extraordinary supply picture we have in natural gas in North America now. That innovation was a consequence of co-operation between governments and private industry in recovering unconventional fuels. I think that kind of focused innovation co- operation can deliver huge emissions savings, as well.
I'll give you examples: We worked closely with Natural Resources Canada's Office of Energy Efficiency over many years, and the average efficiency of a furnace in a Canadian home has gone from around 60 per cent to around 90 per cent. That translates into a very significant and immediate reduction in emissions, because fuel consumption has dropped. We think there is another step change in emission reductions in efficiency with the average home with the variety of new technologies coming forward, and we are trying to cooperate with government on those.
Not to suggest activities for your committee, because I know how busy you are; I'm not sure if you have been to the Canmet labs, but they are doing some extraordinary work there. I don't know if you've seen the micro CHP technology they have, for instance, which is, at one level, very standard technology, and at another level, in terms of its small application for homes, potentially revolutionary. There is the work we are doing on fuel pumps as well. I would say governments should focus more directly on those kinds of activities and co-operation, where you are helping to stimulate innovation in the marketplace.
We are working very hard with our provincial counterparts, and we have asked the federal government to support this initiative, to allow for the creation of an innovation levy on the rate base. We have said to governments that if they are imposing emission reduction regimes, be they either taxes or cap-and-trade regimes, those charges are coming directly on to our customers. Allow us to take a portion of that revenue and direct it to targeting innovation. You could have that innovation overseen by the regulators so you would not be concerned about undue misdirection of funds in any way, and you could have full transparency. We think there is opportunity to drive significant new developments in emission reductions. The ones that ICF looks at, like RNG, are examples of this, but there are many.
Senator Seidman: Thank you very much, Mr. Egan, for your presentation. Welcome back to our committee.
I'd like to refer to the Canadian Gas Association's submission to Natural Resources Canada in October 2016, and specifically to natural gas for transportation, emissions and overview. You talk about priority transportation policy and technology needs in this submission, and you specifically refer to Canada's unique freight transportation needs.
We have heard testimony in this committee regarding reluctance, for example, in the heavy trucking industry to convert trucks to new technologies. A lot of reasons have been presented to us, including the expenses, the technology is not assured and a whole gamut of reasons around lack of infrastructure. There is a gamut of reasons around this.
But as you make clear in this report, this is a huge area of enormous importance in reducing the carbon footprint, and it has potential. I would like to hear from you as to some of the huge challenges you face, why you think there are these challenges and what we can do about them.
Mr. Egan: As I noted earlier, transportation fuels represent 39 per cent of energy end use. You are right: It's a huge segment.
We are doing some work with a variety of transportation subsectors. I know that Ms. Sophie Brochu appeared before the committee and spoke about some of the work that Gaz Métro is doing in Quebec with Robert Trucking and others. There are comparable pilots in British Columbia with FortisBC, and there are some pilots in other jurisdictions as well.
The challenges, as we understand them, with freight transport are that it's an intensely competitive business and the margins are very small. In the case of trucking in particular, you have thousands of individual truck owners and very small companies. The risk of a major transition from one fuel to another is significant for them.
You've highlighted some of the specific challenges, and we are looking at those. One is fuelling infrastructure. Another is the servicing of vehicles. Another is the capital cost of equipment. How do we address these in a systematic way to, if you will, have a tide that raises all boats?
We have been in conversation with Transport Canada about this, and we've recommended that we undertake with them a study that looks at the opportunity for the location of strategic fuelling hubs. Then you build out from strategic fuelling hubs. Take rail in Canada. Rail is an intensely competitive North American business. A retired rail executive said to me that you could fuel the rail system in Canada on liquid natural gas with three to six fuelling stations across the country. So where would you put those stations?
Looking at that, I then called some of my member companies. For instance, I spoke to Manitoba Hydro and said, "If there were an LNG fuelling station, what are the other benefits that could be drawn from having that?'' The executive I spoke with noted that there are a series of northern First Nations communities in Manitoba that are diesel- dependent and it's too expensive to extend the electricity system to them, but you could truck LNG to them. If you had a LNG base in Winnipeg, for instance, that could address that need.
Right now in British Columbia, LNG is trucked from the Lower Mainland to Inuvik. It's cost-effective to truck LNG from the Lower Mainland of British Columbia to Inuvik and a few other locations in the Far North. It's extraordinary that the economics work, but imagine if you could look at series of strategic hubs where you could to be delivering for those needs, for rail, trucking for marine and remote mining.
We have to recognize that the hurdle costs of any new technology innovation like this are significant, and we are under no illusion about that. We are not saying to choose this one because it's the best, because the costs are huge. But we have to look at all the possible uses and then ask, "What are the appropriate allocations of costs?'' One of thing we've said to the federal government is, "You underwrite a lot of the costs for remote communities, and many of those costs are for diesel fuel and diesel technology. You've undertaken to look at replacing that. We think we offer a more cost-effective alternative that will reduce your diesel costs, but we want to integrate that.''
It's taking that integrated approach and doing it systematically. We are talking about a road map to try to lay some of this out.
The Chair: I will have to move on.
Senator Black: Thank you for being here, Mr. Egan. I want to identify with the comments of my colleague Senator MacDonald. I am a huge fan of your industry and the contribution that you are making and have made to the development of this country. It alarms me when I hear people who talk about natural gas as a fuel of the past. In my view, this is a naive, dangerous conversation. Because if you throw out the baby, the bathwater likely goes to. I want to put clearly on the record that I'm a supporter of what you are trying to do.
I'm interested in moving to 30,000 feet for a quick question. Is it the view of your association that the objectives that Canada has set to meet in terms of greenhouse gas emissions and other obligations can be met?
Mr. Egan: By 2030, no.
Senator Black: Thank you very much.
In your association's judgment and from your point of view, how far below that goal will Canada be?
Mr. Egan: We can only speak to our own sector and the ICF study we referenced. If senators don't actually have access to the study, because I didn't put that study in front of you, I can make it available. We talked about 48 megatonnes, which is a significant cut into the desired reduction by 2030, but again that's at significant cost.
Beyond that, I couldn't speak to the rest of the economy and to the actions to be taken for the rest of economy.
Senator Black: Are you able to suggest two or three recommendations that this committee might make to assist the development of your industry as we endeavour to meet the goals that we have set out to meet?
Mr. Egan: I go back to my comments to the other honourable senator's question about innovation. A coordinated strategy on innovation would be one, and a coordinated approach on opportunities for transportation would be a second one. The moral suasion point I made, speaking, to the value proposition of natural gas, would be beneficial as well.
Senator Black: Those are all very helpful.
Your third suggestion suggests that Canadians have absolutely no idea of what this agenda will cost.
Mr. Egan: That would be my assessment. The reality is that Canadians have little understanding of the energy system, and it is kind of a tribute to the energy system. You turn on the light switch, turn up the heat, turn on your car — everything works. Few people remember that we are few generations from, and still in remote communities we still are at, the point where the actual gathering of energy — fuel — is or was a reality.
A federal minister said to me one time in a meeting: "Why are you seeing me? You are not a problem. I have problems. You are taking my time.'' And I said, "Well, I'd like to help you address some of your problems, because I think we can do that.''
The danger we face is that there is this assumption we can stop using it. Some of you will have seen the draft climate change action plan from the Ontario government last year. You might have seen that I wrote an open letter in response that was critical of it, because it talked about the phasing out of natural gas in applications in Ontario that would have created enormous cost. The mayor of Vancouver has spoken about banning natural gas in Vancouver. Now, restaurateurs are saying, "Wait a second. We cook on this stuff. And our margins are like this. How are we going to do this?''
When people come out with what I'll describe as outlandish statements, I find it's useful because it opens the door to the conversation. But we have to work a lot harder at developing an appreciation of the value proposition of our product and our industry.
Senator Black: Tremendous presentation. Thank you.
Senator Patterson: I would like to ask you to focus on the North. Canada's Natural Gas Opportunity stated that "By 2025, at least 23 power generation and 58 industrial customers in Canada's North could convert to LNG,'' resulting in savings of energy costs and GHG emissions.
By the way, I just learned that a new gold mine was announced by Agnico Eagle Mines Limited in my territory of Nunavut. They told me that their diesel gen sets are going to be convertible to natural gas.
How viable an alternative is natural gas for reducing the reliance on diesel-powered generation in the North? How practical and economical is it?
Mr. Egan: The system technology is very comparable. You are using a hydrocarbon fuel to drive engine technology, so there is no technical issue in that regard. The challenges are around the transportation and storage of fuel.
Obviously, for some of the more remote communities in your territory, senator, it is unrealistic to see pipelines delivering natural gas to them, and that's the most cost-effective way to deliver it. The alternative ways are as compressed natural gas or LNG. Liquefied natural gas is the most concentrated form and, therefore, per unit of energy, the most efficient way to move it.
I noted the Inuvik example in the Northwest Territories, and where the gas is, they have a road. You need to look at barge transport and winter road transport. Those technologies exist. There is significant barge transport of natural gas in various parts of the world, such as Southeast Asia, in and among the fjords of Norway and on the Baltic Sea, so the technology exists. I don't need to tell you the climatic conditions are unique, but you need to look, therefore, at seasonal storage.
As you know, there are various industrial facilities in the Far North which storage enormous amounts of energy. There is actually an advantage to storing LNG in the Far North: the boil-off is less, because it's cold.
The question is: Can you create sufficient load — sufficient demand — to justify the investment of the infrastructure? I think we're seeing success in Yukon and N.W.T. at a couple of applications right now, and we would like to pursue more opportunities in your territory, as well.
Senator Patterson: Natural Resources Canada has, as I understand, had discussions with your organization in terms of the potential for LNG or compressed gas to support northern mining operations, and I know that Indigenous and Northern Affairs Canada has been given money in recent budgets to explore alternatives to diesel. Is your association involved with any of those initiatives, and could you report on the progress on those connections, if you are?
Mr. Egan: We made some initial outreach to be part of those conversations. There was a first workshop conducted by the federal government in cooperation, I think, with the Manitoba government on an off-diesel strategy. We were advised at the time that that first event was just for a discussion about renewables and we were not invited to that event. However, the discussion is ongoing, and we have indicated our desire to be an active part of it.
Senator Patterson: I wonder if this is an example of the fallacy or the trap that you discussed earlier, where natural gas is overlooked in favour of more exotic wind and solar, whereas it may be a more practical approach to moving from diesel.
Mr. Egan: I can comment, senator, on the motivation, but a line that we've used for a long time is, "Right fuel, right place, right time.'' We are not saying natural gas is better than other alternatives; we're saying that every alternative needs to be considered on its merits in the application that's being looked at. We think we are a key partner to renewables.
As you know well, and as some of your northern colleagues have pointed out to me, when it's really, really cold, you want a really reliable energy source. The great advantage of diesel is that it has been a remarkably reliable energy source in northern applications. We need to take a good, hard look at whatever alternatives we're thinking of and ask if they can meet those same reliability standards. If they can't, then, as interesting as they might be, they may not be the right application for that market opportunity.
We have to use a certain kind of cold calculus, and we think that LNG can be in some of those applications; probably not all, for a variety of reasons, but we think it can be in some.
Senator Patterson: Thank you very much.
The Chair: I'm going to take the opportunity to ask a couple of questions. I really appreciated your presentation.
I don't live in Vancouver. Where I live, the grass isn't green year-round. There is actually snow on the ground. I live in northeastern British Columbia.
When we use averages across Canada, it really skewers that for people who live in the North. Even Edmonton is almost as far north as where I live in the country. When we talk about an average, per Canada, use for natural gas in gigajoules, how many was it?
Mr. Egan: For the average home, it's 80.
The Chair: Well, in my home, which is an average home, it is 160 gigajoules, so that gives you some sense of the difference. Just to put it in perspective and get it on the record, my commodity charge is $2.20 a gigajoule. At $30 a tonne, my carbon tax is $1.50. Double that, and you are paying more for the carbon tax than you are for the commodity. You wonder how this math is really going to work out at the end of day.
Where it really bothers me is industry, which uses an awful lot of natural gas. It bothers me a lot because this study is to do with what it is going to cost individuals. What individuals have been told, in many different ways, is that the world is going to end if we don't quit using fossil fuels, but they have never been told how we are going to meet that end and how much it will cost the average individual.
Those are the things I want to keep in people's minds. Averages are great. Most of the population of Canada lives in Vancouver, and they can live with the mayor there, who wants to eliminate natural gas, but I don't.
The other thing you talked about, that perhaps you can comment on, was an innovation fund to be applied to bills. I'm sure you're aware of the ICE, or Innovative Clean Energy, fund in British Columbia that, actually, I put into place when I was the minister, for those reasons. Are you talking about a fund similar to that? Because that's a charge on fossil fuels and used for innovation by a board that actually decides how you are going to use it.
Third, I would like you to comment on the petrochemical industry. Southern Ontario has the largest petrochemical industry in Canada, and the second is in Alberta. When we start seeing $30, $100 and $150 a tonne, and zero south of the border, what does that do to those industries in Sarnia and Hamilton? These are industries that literally employ thousands of people.
The other thing is that, mainly, we've talked about heating homes and those kinds of things, but there are also all of the products we get out of fossil fuels that are actually intertwined in our lives. Where is the plastic going to come from for all the beautiful motorless cars that will run on electricity? It will come from fossil fuels, at least for the near future.
Could you comment on a few of those?
Mr. Egan: I will go in reverse order. You asked about the petrochemical industry, and I encourage you to look at some of the materials being put out by the Chemical Industry Association of Canada.
The Chair: Just so you know, we visited Sarnia as a committee.
Mr. Egan: So you have a good sense of how natural gas is a critical feedstock for the chemical industry, so the prospect of charges on that feedstock is a significant additional input charge for those industries, not to mention all the derivative costs you have noted.
What does it mean for them? The petrochemical industry is global, and investment decisions are made on a global basis. If you have three or four choices for where you want to put your next investment, you're going to look at a variety of factors and one of them will be input costs. If the input costs are significantly higher in Canada, I very strongly suspect a decision will be made not to invest in Canada, which is ironic, given the fact that we actually have an extraordinarily emission-free energy system already. That's my response the chemical industry point.
We do talk in our remarks a lot about the average homeowner, but the industrial use of gas is significant in this country and it's critical to the well-being of industries. So thank you for that.
Second, on the innovation fund, yes, we have looked closely at the ICE Fund. We see an opportunity across Canada where you have 7 million customers, many of whom will see on a gas bill an additional charge that is imposed by governments as part of a regime to reduce emissions. We're saying to allocate a portion of that for innovation. That has to be done on a provincial basis, because these are entities that are regulated provincially by their regulatory boards. The federal government can have a role in that, though, because the federal government has a bully pulpit on this issue, as you know. That's my response on the innovation fund.
On your first point, senator, if I may be so bold, I'll correct the record. There was snow on the ground in Vancouver this winter. It was a cold winter in Vancouver, and so a lot of Vancouverites were using a lot more natural gas than they would have been otherwise. But you're absolutely right that the average downplays the significance of energy costs for those living in colder climates.
You said $1.50 carbon tax charge in British Columbia against a $2.20 commodity charge. As you know, the commodity charge was actually at certain points below the carbon tax charge in British Columbia last year, because the commodity charge had been so low in certain seasons. That's at $30. So, yes, at $50, that would be 2.50, which would exceed your current commodity charge.
The point I made at the beginning was that if we were to replace natural gas use with electricity, we would need to build out the electricity system by an additional 290 per cent in generation alone. The heat load requirement of this country in January and February is extraordinary for residential needs. The heat load for industrial use year round is extraordinary. There needs to be an appreciation of what the impact would be of these charges.
The Chair: An excellent presentation. Thank you very much. It makes it very clear, and what we want to actually get out to Canadians is that this is not going to be a cake walk if we're going to try to meet those targets. You've confirmed that we won't meet the targets. I don't think we will either with the way the country is going.
We have to look more seriously at adaptation, because it doesn't matter what we do. We could kill all industries in Canada to meet the target, but at the end of the day, that isn't going to change the rising temperature in the world one iota. We're still going to be faced with climate change, and we need to look more at adaptation of how we're going to meet that climate change.
Thank you very much for your presentation. We appreciate it.
For the second portion of our meeting today, I am pleased to welcome, from The Canadian Chamber of Commerce, Ms. Katrina Marsh. Thank you for being with us today. We look forward to your presentation, after which we'll go to some questions and answers.
Katrina Marsh, Director, Environment and Natural Resources Policy, The Canadian Chamber of Commerce: Thank you so much for the opportunity. This is my first time in front of a Senate committee. I feel honoured to be here.
I am the Director of Natural Resources and Environmental Policy for The Canadian Chamber of Commerce. The federal chamber's primary purpose is advocacy on behalf of our network of 450 provincial, local and territorial chambers of commerce and boards of trade in every part of the country. Our network represents 200,000 businesses of all sizes and in all sectors.
Building a bridge is a good metaphor for transitioning to a low-carbon economy. The Canadian chamber's position is that the bridge must be built. We are, however, concerned about some of the construction techniques being used.
Climate change policies are not imposed in a vacuum. Their impact on competitiveness depends on the state of the economy. Consider that CPP costs are going up. If you operate a business in Ontario, you've seen the top rate for power rising four times faster than inflation since 2006. Minimum wages are rising across the country. A planned reduction in small business tax rates have been cancelled. Budget 2017 announced permanent increases to a broad range of business fees.
Every year, the World Banks ranks 190 countries by how well their regulatory environments support business. Canada ranked 7th in 2008. Ten years later, we slipped to 22nd.
The number one issue for our network of members across the country is the cost of doing business. The challenge is that we don't see governments taking a holistic view of these costs. This is an important part of the context in which the Pan-Canadian Framework on Clean Growth and Climate Change as well as provincial climate policies will be operating.
Small- and medium-sized businesses, already feeling the pressure of rising costs, are deeply concerned about how new climate policies will impact their bottom line. Their concerns are amplified by proposed changes to federal regulation and taxation in the United States, not simply Canada's largest trading partner but, in many cases, a key competitor for investment dollars.
The solution is not to ignore climate change or to refrain from new policies to reduce emissions. However, governments must make the competitiveness of Canada business a core concern. We have five suggestions on how this could be accomplished.
First, put the money toward the mission. The Canadian chamber has supported putting a price on carbon since 2011. However, higher costs for everyone can only be justified if these revenues are applied to the mission at hand. Funds raised from carbon-pricing schemes must be applied to reducing competitiveness impacts to business or promoting climate innovation. Otherwise, governments are just using the climate as an excuse to raise taxes.
Second, it's carbon pricing or regulations, not carbon pricing and regulations. Economists argue that carbon pricing is the lowest-cost way to reduce an economy's emissions, yet we're seeing governments taking an all-of-the-above approach, layering regulation on top of carbon taxes and cap-and-trade systems. This approach could negate one of the principal advantages of carbon pricing: the flexibility it allows businesses to choose their own path to emissions reductions.
Third, think local but act global. Focusing too narrowly on achieving emissions reductions within Canada may lead to missed opportunities to reduce global emissions through trade or other forms of international cooperation.
Fourth, develop negative emissions technologies and tools. Offsets and technologies that remove emissions from the atmosphere could play an important role in allowing Canadians to make progress toward their emissions goals without hobbling the economy.
Last, fifth, good governance leads to better results. The UNFCC Paris Agreement will require updates to Canada's contribution to address climate change every five years, starting in 2023. Governments need to be transparent about the economic analysis behind their policy and program development, making sure that businesses of all sizes understand what the impacts will be on costs, also making sure that the private sector is consulted in the design of these policies in the first place.
Our members know that we must address climate change and accept this will come with a cost. What we do not accept is complacency over Canada's competitiveness. Designing climate change policies in order to minimize their impact on business is an important first step.
We would also like to see a pan-Canadian approach to government-imposed costs to doing business with Canada. As costs related to transitioning to the low-carbon economy rise, governments should be making reductions elsewhere in order to maintain Canada's economic competitiveness.
The Chair: Thank you very much for that presentation.
We'll go to questions.
Senator Massicotte: Thank you for being with us this morning, Ms. Marsh. It's always interesting to hear from The Canadian Chamber of Commerce.
Your association has been in favour of a carbon tax for some years now. I have a couple of questions: Do you have any opinion on what level of carbon tax we need to achieve our targets? You clearly said in your presentation it's a carbon price or regulations, but not both. Therefore, you must have an opinion on what level of carbon tax we need to achieve our commitments as a country. Do you have any idea in that respect?
Ms. Marsh: We've never done an analysis to see what carbon price would achieve the current target. We've never done that specific analysis. Our thinking is that, first, we have to address climate change and, second, if you do so, there are three options on the board: subsidy, regulation or pricing. Of those three, we think the pricing one, if designed correctly, would have the lowest economic impact. Therefore, we tend to prefer that one.
Senator Massicotte: Some experts who have testified here have commented that to use carbon pricing alone to achieve our target would have a very high cost — close to $150 to $200 per tonne — if that was the sole instrument we used to get there. Some people are saying, given that impact upon consumers and families, we should probably use a combination, contrary to what you're recommending: maybe a lower level of carbon tax in combination with regulation. I gather you're not in agreement with that.
Ms. Marsh: I understand the Ecofiscal Commission is doing some work studying which regulations would be complementary to carbon pricing and which ones would be additive. We don't have that level of detail. However, my members are concerned. If you look at policy development around standards for natural gas, the clean fuel, it's difficult to comment on policy that hasn't actually been presented since the consultation phase.
Looking at that, there's some sense that those policies have the potential to layer on top of a carbon price to try to achieve the same thing.
I'm not denying there might be areas of regulation that would complement carbon pricing, but I guess our response would be that we haven't seen that analysis from the government, saying, "We have this carbon pricing in place but these are the reasons why these ones need regulation: because the carbon pricing isn't touching these for X, Y and Z.''
Senator Massicotte: Do you have any opinion about how we should use the pricing of carbon? We're talking about billions of dollars. Do you have any idea of how the provincial governments should allocate those revenues?
Ms. Marsh: There are several ways. We've supported the use of a technology fund as a good way of using the funds. The issue with the technology fund is that it helps competitiveness tomorrow. You're helping technologies that are going to help you 5, 10 or 20 years down the road.
There needs to be some complement to help businesses today. There are different ways to do that. You can reduce corporate taxes or provide subsidies based on production, particularly for emissions-intensive trade-exposed industries, so that you're still incentivizing emission reductions but keeping the overall costs for these particular sectors lower because you're subsidizing them on a production basis. I believe that's something they do in the U.K. and that they are doing in Alberta as well. These reduce the overall costs to business, while maintaining that price signal to reduce.
Senator Galvez: To go deeper into the question of Senator Massicotte, you said that these funds that will be raised with taxes should be applied to competitiveness to impact business or to promote climate innovation.
Can you please tell me how you define climate innovation?
Ms. Marsh: There would be two categories. It would either be technologies that would reduce emissions — alternative technologies like renewables — or it would be technologies that would help emissions-intensive industries reduce their emissions.
For example, in the oil sector, in the oil sands, the next generation of solvent-based in situ production techniques could significantly reduce emissions, and I would include that in my definition of lower-carbon technologies. For instance, we have one member called EnSolve, in precommercialization, and their studies indicate that if this technology were to be adopted, it would lead to an 80 per cent reduction in emissions compared to the conventional in situ technologies. That would be another category.
A third category we would probably include would be negative emissions technologies, like those to actually take emissions out of the air. This could be not necessarily technologies; it could also be forest management projects as well, but it could be things like the Shell Quest project, from whom I believe you've heard, or the Boundary Dam project in Saskatchewan, and there are even a few experimental projects going on. I believe there's one in the oil patch, again, where they're using algae to take emissions out of the air near to some of the more emissions-intensive production. Then the algae takes the emissions out and they create a biofuel out of that. So that's another negative technology.
Senator Galvez: Are you talking about research and technology?
Ms. Marsh: You mean research?
Senator Galvez: What you are describing is research and technology?
Ms. Marsh: Yes.
Senator Galvez: Thank you.
Senator Dean: Thanks for a great presentation. I had cause to talk about business associations in the Senate Chamber the other day, and let me say that yours, the Canadian Chamber of Commerce, is, in my view, one of the more forward-looking and balanced, and that's represented in your presentation.
My question goes to point 3 on the second page: Think local, but act global. This goes to the heart of a big discussion about what we're doing here as opposed to what we could be doing elsewhere.
I guess you're saying we could benefit from a better balance of local and global. Could you give us a couple of examples of how you think Canada could work with others bilaterally or multilaterally? What are a couple of things we could do, that we're not doing now, in terms of looking outward and influencing the behaviour of others?
Ms. Marsh: I think the developments under article 6 of the Paris Agreement will be very important for this. To go back, also, to the question about complementary measures aside from carbon pricing, one of them could be investing in projects abroad, but using the emissions reductions that are achieved through these projects abroad and applying them towards our target. Canada's probably going to come up to a limit to what we can achieve in terms of emissions reductions at home in a cost-effective manner, on the basis of our economy and the state of current technology.
If we're focused not on reducing emissions in Canada but on reducing emissions where they can be reduced at the lowest cost, then you're looking at possibly investing in opportunities around the world and, again, taking those emission reductions and using them towards our targets. That's one way we could possibly meet these targets without hobbling our economy.
Article 6 is basically the work that's being done at the UN to facilitate those kinds of exchanges.
I don't know if there is anything the government can do now to invest in a project in India and then get those credits back for Canada, but that's something we should be talking about and planning for and pushing at the international level. The goal should be reducing emissions at the lowest cost; it shouldn't necessarily be for it to happen in Canada.
The second idea we have under this "think local and act global'' one is a little bit complicated and difficult to see how we could operationalize it. It's the idea that, if Canada has an emissions-intensive industry but we have lower emissions than anywhere else in the world, it doesn't really make sense for us not to produce in Canada, because we are lowering emissions if we're able to take market share and then trade the products with the rest of the world. Recognizing industries in cases where they can demonstrate that we do this better than anywhere else in the world, making sure those industries aren't penalized and supporting Canada's position in trade links the competitiveness, but it could also be Canada's contribution to global emissions reductions.
Senator Patterson: You mentioned the Pan-Canadian Framework on Clean Growth and Climate Change. I'm wondering if the chamber was consulted in the development of that framework.
I'd also like to ask you about your comment about redundant regulations, that it's carbon pricing or regulations, not carbon pricing and regulations.
Could you give some examples of the layering of regulation on top of carbon tax or cap-and-trade systems that you referenced in your presentation?
Ms. Marsh: What was the first question?
Senator Patterson: Were you consulted on the development of the pan-Canadian framework?
Ms. Marsh: We participated in all of the working groups they generally set up. There was the online forum — we participated in that — but they had three specific in-person working groups over the course of last summer. We participated in all three.
In that sense, we were consulted in the general consultation but not one on one.
The second question was in terms of specific examples. No. We are actually launching a project now called Climate Competitiveness where these are the five themes we'll be looking at. One of the things we'll be reaching out to asking our members is for them to give more specificity in terms of regulations that work with carbon pricing and regulations that don't. We had a round table in Calgary where one person mentioned the regulations around methane coming in and them being a bit difficult, because they weren't able to find — maybe it's a bad idea to mention an example, because I don't know the technical details of it.
I'll leave it at that. We're looking into it. We've had one round table so far, and we planned a bunch for across the country.
Senator Patterson: In connection to that, this will be very useful to our study. Could you give us an idea of the time frame for that initiative? I'm sure you'd be willing to share the results with our committee.
Ms. Marsh: Absolutely. We launched just a couple of weeks ago in Calgary. We planned round tables this month and in May and June. We expect to have a report September or October. That's our timeline.
The Chair: Could you make sure that gets through to the clerk, and then all of us get it? That would be very helpful.
Ms. Marsh: Aside from the final report, if any pertinent examples come up before then, I'd be happy to share them as they arise.
Senator Patterson: You talked about putting the money toward emissions — your first suggestion to the committee. You also talked about the use of funds raised from carbon-pricing schemes being applied to reducing competitiveness impacts to business or promoting climate innovation.
I'd like to ask you about reducing competitiveness impacts to business. Maybe I can give you one example. We have consulted with the steel industry and visited Dofasco in Hamilton. They had done quite a lot of innovations to reduce their emissions, but they pretty well said, if I dare summarize, "We can't see doing much more.'' They are an emissions- intensive industry and very trade-sensitive in a very competitive market around the world. They are managing to make profits, but it's really marginal, we were told.
If there aren't easy fixes, how do you take the carbon tax that may well be collected from Dofasco, as an example, to reduce competitiveness? Do you give it back to the company? If that's the case, why collect the tax at all? Is exemption a possibility for these emissions-intensive, trade-sensitive industries that employ many people and which, as we learned in Hamilton, make huge contributions to the community? Do you have a comment on that?
Ms. Marsh: Absolutely. Exemptions should be considered, particularly in industries mentioned before. Where Canada might be a leader in reducing emissions, there might not be, with current technologies, much more opportunity to reduce emissions. Then you're looking at having that industry move, and that doesn't really help the climate or Canada. Exemptions should be on the table.
However, I'll go back to my previous point about production-based subsidies for certain businesses, which is a way to give the money back in a way that you're still maintaining the incentive to reduce greenhouse gas emissions. Consider two firms, one with high emissions per widget and one with low emissions per widget. If you were subsidizing them on a production basis, based on how much they make, the company with the high emissions per widget is at a relative disadvantage than the one with low emissions. The one with the high emissions still has an incentive to reduce even though they're still getting some of the money back. Compared with their lower-emissions competitor, they're not quite there.
That's one way to give the money back in a way that it's still worthwhile in terms of the signalling benefit of a carbon price.
Senator Mockler: I live in a border town with the U.S., and believe me, we are inundated with the new direction of the administration in the U.S. About three weeks ago, I was reading a newspaper from Van Buren, Maine, that the chamber of commerce in the U.S. had some concerns with the industry — the direction that the present government was going.
Do you believe that Canadian governments must adjust their emission reduction goals and climate policies in light of this new administration? Should we also slow the pace of emissions reduction and work state by state rather than looking at, globally, the U.S. market?
Ms. Marsh: I'm not going to say specifically whether provinces should reduce their emissions reduction. Our point is that, as they implement policies, they should be looking at the total cost of business, and recognizing that they are adding a significant new cost in a fraught economic time, is there anywhere else they can reduce?
That would be more of our point: Look at the total cost of business, make that a priority and try to reduce that.
In terms of what's happening in the U.S., it's an interesting case. It's an economy that has been decarbonizing and lowering emissions without a strong federal signal, largely due to market forces in the electricity sector where they've been shifting from coal to natural gas, in addition to several state measures such as what's happening in California.
My members are concerned about the competitive position regarding the U.S. However, it is worthwhile to point out that the election of President Trump didn't actually change all that much. An alternative president would not have put in a federal carbon pricing system; that was not going to happen in any case. It's not like we're in the case where we're going forward under federal carbon pricing and we would have had matching up. That wasn't going to happen under a President Clinton in any case. Again, a lot of the forces that have been driving the U.S. policy have been market forces, or in some cases, state policy. That hasn't changed.
What has changed more is an administration that's been talking very aggressively about the competitiveness position, needing to lower taxes and having to bring industry back to the U.S. We don't see that similar rhetoric in Canada, that focus on tax rates, on business costs or on looking at areas of regulation that might help business. It's more those broader issues that we see as driving a lot of the concerns rather than the specifics of this climate policy.
Senator Mockler: This brings me to my next question.
We know the decision that was made on Keystone XL pipeline. I'm talking about competitiveness, and the United States administration indicated that it would pursue policies to aggressively promote domestic oil and gas production.
What will be the impact on Canada?
Ms. Marsh: That is one area where the withdrawal of federal regulations will have more of a competitive impact than the broader thing. There was alignment in terms of targets to reduce methane emissions from the oil and gas industry, so Canada is still going ahead. The U.S. said that they will be pulling back on that.
I do think there is a deep worry that investment will move to the U.S. because it is kind of a fraught time for the oil industry. Canada's oil sands tend to be longer-term investments, and you are in a situation where the U.S. is taking action at the federal level to reduce costs from regulations, and it is also an industry where you are able to go in and out a lot faster than in the oil sands or where you're building mines or with in situ facilities. I think there is some concern there that investment might be moving south.
Senator Mockler: Pipelines are the most secure means of transportation. We see Keystone. Does your organization have any comment on TransCanada's Energy East Pipeline?
Ms. Marsh: We are strongly supportive of pipelines. We don't see a dissidence between supporting pipelines and supporting a transition to a low-carbon economy. We feel that it will take decades to move the transportation system off of oil.
As long as global demand for oil is there, we see absolutely no reason for Canada not to compete for these markets. We have strong regulation, active civil society and advanced technology that can make Canada produce this at a lower impact than anywhere else in the world, so there is no reason for us not to compete. One of the key factors will be how we are able to get this product to global markets in a low-cost and efficient manner, and that means pipelines.
We are highly supportive of Trans Mountain. We are very pleased that will be starting construction in September. We support Energy East. We would like to see the discussions around that restart. We plan to be involved in the regulatory discussion on that. We were pleased about the Keystone decision, with the caveat that the Keystone decision doesn't necessarily help Canadian oil get to different markets as easily as the other two pipeline projects I mentioned.
The Chair: We have no one on second round, so I'm going to ask a couple of questions.
You said it's carbon pricing or regulations but not both, and Senator Massicotte asked a bit about that. Up until just recently, to meet the targets of 30 per cent below 2005 levels by 2030, the government was looking to find 291 million tonnes. The new numbers actually are 219, which is still a pretty big hurdle, because the 72 that they found, a lot of it was through regulation that had been put in previously but just now counted and involved the shutting down of quite a number of coal-fired plants in Alberta. To me, some of that was anticipated anyhow. Whether that happens or not, we will wait and see.
That's what I call low-hanging fruit. If you're going to shut down a coal plant, it's easy to meet those targets. But as you move on and those coal plants are eliminated, it's tougher to find that other 219.
Do you think with $50 a tonne by 2022 and by 2030 to find those 219 million tonnes that we are actually going to be able to do it without affecting the economy in Canada to a tremendous amount? Can you tell me whether you think that's going to happen? Industries that you represent, are they out there saying quietly to you "no problem''?
Ms. Marsh: They are not saying "no problem.'' They think it's an ambitious goal. In fact, when the government decided not to change the target, the feeling was that was a good thing because any change in terms of making it more aggressive would have been to make it actually not credible.
The chamber has not done analysis to see whether or not we think that the reduction is credible or what the economic impact of that reduction would be, so I don't have any evidence supporting this decision. But I do think there is the sense amongst our membership that without some planning, without some putting measures into place, meeting that target would put Canada at a significant competitive disadvantage compared to competitor nations, particularly the U.S.
That said, I think that's why number 3, think local but act global, is an important one. If Canada can look at ways to reduce global emissions, find the cheapest reduction per dollar out there and apply those reductions towards our target, then it opens a whole new world of possibilities.
The Chair: Well, if you shut down the oil and gas industry absolutely and didn't burn one gigajoule in Canada, you would find 233 million tonnes, which would meet our target, but that's pretty well impossible.
Ms. Marsh: That would meet Canada's target, but it wouldn't impact global demand.
The Chair: Exactly.
Ms. Marsh: When you don't impact global demand, you are actually not reducing emissions because the fact that oil sands are marginally a little bit more emissions-intensive than other sources, that's not what will drive emissions reductions.
The Chair: And emissions are expected to go up in the world. The IEA tells us that fossil fuel use will rise out to 2050 and probably beyond that.
Another one is if you took all transportation out of the system, everything that uses fossil fuels, you only find 157 million tonnes. When I look at those numbers, I think, my goodness, some of these targets just — it's fine to have a target, and I'm not against actually looking after what we can do that makes sense, but I think we're a bit unfairly targeted in Canada because of the size of our country and our comparison to other countries that may be able to cut a little easier.
Another thing you said was think local and act global. Dofasco was mentioned. We were there. An interesting comment I heard that I just cleared again is that steel made in China or other countries around the world has three times the greenhouse gas emissions as Dofasco has because of the things they have done to clean up.
We hear the federal government talking a lot about infrastructure, such as bridges, roads and buildings. All of that actually takes a lot of steel. Would you think the federal government should, when we are spending this money on infrastructure — specifically steel, because that's what I'm talking about here — that it should be a prerequisite that we use Canadian steel because it releases three times fewer greenhouse gas emissions globally? We all live in a global world. What you think about that? It's almost buy Canada instead of buy U.S.
Ms. Marsh: I'm not sure the Canadian chamber is a big fan of buy U.S. provisions, and the reverse of that is being a bit cautious about buy Canadian provisions.
I do believe that green procurement, the idea where you are judging inputs based on some sort of criteria based on their sustainability, could be an idea for government procurement policy, which might have the impact of increasing Canada's competitive position when bidding for these kinds of products for the reasons you said.
I would be hesitant to explicitly support Canadian labelling on that. Trade is not my issue, but I would imagine it wouldn't be WTO — Ontario did something along those lines when they were supporting wind turbines, and they had a buy Ontario provision that turned out not to be WTO compatible. So that would be a concern.
Procurement policies that say we are going to be looking as part of the contract for materials that have the lowest emissions reductions, I believe that's fine, and I believe that a lot of Canadian firms would be highly competitive under those rules.
The Chair: And that's a way of doing it. I just said blatantly what it kind of means. If we want to reduce greenhouse gases, because we live in a global world and we don't live unto ourselves, I think the federal government should somehow be looking at how we use materials that are less carbon-intensive for the billions of dollars of work that they are going to do.
Ms. Marsh: I think Treasury Board has a working group. The exact name is not coming to mind, but just on April 10 they had a session on green procurement, I think, which comes along these issues. I think it is something they are considering in terms of the federal target to reduce emissions themselves, using green procurement and expanding the criteria you use when you bid for a project as one way to support these emission reductions.
The Chair: Thank you.
Senator Massicotte: Let me just go further on the debate. Obviously, things change and everybody has a bunch of opinions. You talked a lot about the competitiveness issue from a corporate sense in your discussion. I'm not disclosing any ambitions — Mr. Trudeau can feel secure in his position — but if I were Prime Minister and the decision was solely up to me, and I looked at the choices and saw all the revenues coming in that go back to the provinces, and you work with the provinces, I suspect I would probably pay a lot of attention to the very significant argument that we must protect our emissions-intensive trade-exposed industries. If you look at the world, including Germany, they have done that. There is a strong argument for that.
You did not mention this one, but I would say the second one I would go to is lower-income families, or people who are affected to a greater proportion. As our chairman mentioned earlier, these are people who would be affected significantly, relative to the carbon tax, and unduly so, because some people can't afford the increase.
At this point, I wouldn't touch the taxes. Canada is extremely competitive tax wise. Trump may change that, but given the circumstances today, I would not allocate there; I would probably allocate it to the rest of general revenues. That is a little bit different from your priorities.
Ms. Marsh: Obviously, the Prime Minister's job is to balance a bunch of competing priorities, and helping low- income households is certainly a very worthy goal, but we are The Canadian Chamber of Commerce, and our purpose is to advocate for business competitiveness, so when we come to the table we are going to advocate for positions that help our members.
That said, as job creators and as prosperity creators, the two are linked. If you do hurt business competitiveness, you are hurting job prospects for Canadians and government revenues to help people in less fortunate situations. There is a case to be made that you do have to preserve the foundation of your economy and make sure that's solid and to not negate the worthiness of any other use for the money.
The Chair: Thank you very much for your presentation. It was very interesting and prompted some good questions and very good answers. We appreciate it very much, and appreciate your spending your time being here.
(The committee adjourned.)