Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 26 - Evidence - May 11, 2017
OTTAWA, Thursday, May 11, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:01 a.m. to continue its study on the effects of transitioning to a low carbon economy.
Senator Paul J. Massicotte (Deputy Chair) in the chair.
[Translation]
Deputy Chair: Welcome to the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Paul Massicotte. I'm a senator from Quebec and the deputy chair of the committee. I also want to welcome the members of the public here in the room and those watching on television. As a reminder, committee hearings are open to the public and are also available via webcast on the sencanada.ca website. You'll find more information on the meeting schedule under "Senate Committees.'' I'll now ask the senators around the table to introduce themselves.
[English]
Senator Galvez: My name is Rosa Galvez, and I am a newly appointed independent senator. I represent Bedford in Quebec, Canada.
Senator Fraser: My name is Joan Fraser, and I represent the province of Quebec.
[Translation]
Senator Mockler: Percy Mockler, senator from New Brunswick.
[English]
Senator Lang: Senator Dan Lang, Yukon.
Senator Seidman: Judith Seidman, Montreal, Quebec.
The Deputy Chair: Senator Dennis Patterson just walked in.
Senator Patterson: Good morning.
[Translation]
Deputy Chair: I also want to introduce our staff. Our clerk, Maxime Fortin, and our two Library of Parliament analysts, Sam Banks and Jesse Good, are here.
Since March 2016, the Senate has tasked us with studying the effects, challenges and costs of transitioning to a low carbon economy. The Government of Canada has committed to reducing our greenhouse gas emissions by 30 per cent, from 2005 levels, by 2030. It's a major challenge. Our committee has undertaken a sector-by-sector study. We'll study five sectors of the Canadian economy that, together, are responsible for 80 per cent of greenhouse gas emissions. These sectors are electricity, transportation, oil and gas, emissions-intensive and trade-exposed industries, and buildings.
Today, for our forty-second meeting on this study, we'll focus on the oil and gas sector. We're pleased to welcome four witnesses from the International Energy Agency by video conference from Paris. Let me introduce Tim Gould, Head of the Energy Supply Outlook Division; Jean-François Gagné, Head of the Energy Technology Policy Division; Peter Fraser, Head of the Gas, Coal and Power Division; and Aad van Bohemen, Head of the Energy Policy and Security Division.
Thank you for agreeing to speak here today. I would like you to proceed with your opening statement, after which we'll move on to a question and answer period. We have until 9:30 a.m. to debate this issue, so I'm asking you to plan your participation accordingly. I'll now give the floor to the witnesses.
[English]
Aad van Bohemen, Head of Energy Policy and Security Division, International Energy Agency: Thank you for having the IEA at your session. I would like to introduce Ms. Sylvia Beyer from my division who is an officer for a number of countries for the IEA, Canada among them.
Hopefully you are familiar with the IEA. We are an intergovernmental organization of 29 countries. Canada is one of our respected members, but we also have across the world the U.S., Japan, Korea, New Zealand, Australia, and around 20 or so European countries. We also work closely with a number of association countries that are not officially a member but are closely working with us. They are China, India, Thailand, Indonesia, Morocco and Singapore. Our main task is to serve our member countries with analysis and policy recommendations.
With that, we are pleased to assist you in your work on the energy policies of Canada. We know that we are now invited for your oil and gas session, but if you want to invite us for other sessions in the future, we are happy to do so.
I have a few opening remarks. The 2016 pan-Canadian Framework on Clean Growth and Climate Change, we consider it to be a big step forward. It brings energy and climate policies of federal and almost all provincial governments together. Details still need to be worked out for the implementation in 2017-2018, which is a complex task given the governance with federation and provinces and the integrated markets across North America.
Under this framework and the Paris Agreement, which Canada ratified in October 2016, Canada's nationally determined contribution is to reduce its greenhouse gas emissions by 30 per cent from 2005 levels by 2030. It's a very ambitious target for Canada. While being on track to meet its 2020 target of a 17 per cent reduction, Canada will have to address a gap from 2020 to 2030 onward.
Today, Canada's carbon intensity is among the highest of the IEA countries. In 2014, Canada's greenhouse gas emissions stood at 732 million tonnes of CO2 equivalent. Your government's projections, without any policy change, bring those emissions to 815 million tonnes in 2030, while the target is 532 or 30 per cent below 2005 levels.
Canada is a leading country in long-term policy development for international climate change. It was a strong supporter of the 1.5-degree target in Paris at COP21.Canada has already adopted a long-term, low greenhouse gas deployment strategy, which looks at the emission pathway for 2050 at 80 per cent below the 2005 level. This strategy implies a further steep cut between 2030 and 2050 of nearly twice what is planned between now and 2030.
We from the IEA think it would be preferable to start early with policy measures aimed at the 2050 target and to already tighten the 2030 target to avoid lock-in effects in the building sector and in energy infrastructure at large.
Canada is developing some policies already. It is implementing a carbon price at a federal level. At the provincial level there are ambitions for carbon tax and phase-out measures for coal-fired power generation. Today's policies are not yet able to fully reach the stated reductions in 2030, let alone aligned for the 2050 goals.
What can Canada as an important oil and gas producer mitigate at home? We at the IEA, and I think all IEA countries, acknowledge that Canada is a special case in the IEA family of countries as it is a major oil and gas producer and exporter and thereby provides energy security to other IEA countries and globally. Oil and gas production comes with greenhouse gas emissions, but efforts can be made to reduce those emissions as much and as quickly as possible.
The IEA welcomes Canada's announcement of a benchmark carbon price, which is set to have wide economic coverage, will include the oil and gas sector and will rise over time. To address competitiveness concerns of emission intensive trade exposed sectors, such as oil and gas, output based allocation and emission trading systems can be applied as forthcoming in Alberta for large final emitters, while maintaining at the same time incentives to reduce emissions.
Alberta is implementing a $30 per tonne carbon price for oil sands facilities as of 2018 to achieve reduced emissions, and Alberta set a legislated maximum greenhouse gas emission limit of 100 million tonnes CO2 equivalent on oil sands production in any of the coming years.
The federal government should continue to collaborate with provincial and territorial counterparts to ensure policy coordination and reduce duplication, including on the proposed clean fuel standard, accelerated coal phase-out and vehicle emission standards.
Let me list a few key measures that can support a peak in clean greenhouse gas emissions as soon as possible in Canada. We think these are low-hanging fruit measures. Canada has one of the world's least carbon intensive power sectors due to a high share of hydro and nuclear power in the electricity generation mix. A well-integrated regional electricity market across Canada, with interconnections, will boost a Canadian renewable market and can deliver cheap and low-carbon electricity to energy-intensive industries across the country.
On increasing energy efficiency in the industry, buildings and transport sectors, a pan-Canadian market for energy efficient products is an investment opportunity. Transport policies can go beyond vehicle standards, and with a largely decarbonized power sector, there are good opportunities for more electric vehicles. Further reducing the use of least efficient coal-fired power plants by implementing phase-out plans and then reducing methane emissions in oil and gas production because besides the CO2 emissions, which are 75 per cent of all emissions, methane emissions were 15 per cent and they are coming mainly from oil, gas and coal production.
Canada and the United States committed to reducing methane emissions from the oil and gas sector by 40 per cent to 45 per cent of 2012 levels in 2025. The IEA welcomes that this target is still in place, but it emphasizes the importance of measurements of baseline and progress. The federal regulations to reduce methane emissions will only come into force after 2023 for a target of two years later, by 2025.
As a final comment, Canada will need to set up a collective mechanism to track progress toward its climate targets consistently across the whole energy sector in the provinces and territories. IEA member countries are increasingly relying on five-year carbon budgets as the preferred tool for tracking progress based on integrated energy and climate scenarios.
To date, energy and emission data collection and evaluation across the juridictions in Canada and between the federal government entities are not consistent. Transparency and quality of the information, including of fugitive emissions from oil and gas production, will help all levels of the administration in Canada and society at large to assess progress and to determine additional measures where needed.
I would like to conclude my introductory remarks. We are happy to answer questions from the committee. I would like to point to a report that we make for all of our member countries every five years wherein we assess their energy policies across the board. Our latest review was published early in 2016. It is available on our website. I'm sure the staff of the Senate can guide you to this report.
The Deputy Chair: Does anyone else want to add any comments to the presentation?
Jean-François Gagné, Head of Energy Technology Policy Division, International Energy Agency: I think we can all say this was a very coordinated response.
The Deputy Chair: If that's the case, let us start with some questions from our senators.
Senator Galvez: Thank you so much for that very clear presentation. For one year we have been studying the issue of transition from fossil to green energy. We have visited many places and have heard many witnesses. I want to raise three questions from Canadians. I would like to have your opinion on those.
First, Canadians think the fossil fuel industry in Canada has received lots of subsidies. That is very common in Canada when we have a young industry. However, our fossil petroleum industry is quite mature and has proven itself, so people wonder if we should continue subsidizing.
Second is the role of gas in the transition from fossil fuel to clean energy. It seems that the gas industry is not seen well by the fossil fuel industry and not seen well by the green energy. They seem to be orphaned in this quest for reducing gas emissions.
Third, I would like you to comment, if you can, on job creation by green energy development. It seems that this industry can generate a lot of new jobs which can offset some of the losses in jobs in fossil fuel energy.
Mr. van Bohemen: Do you want us to answer, chair?
The Deputy Chair: Please do.
Mr. van Bohemen: I will ask my colleagues to complement. We are working across the world on subsidies for fossil fuels as we think that they are distorting the market and consumption, but we have to make clear distinctions between subsidies for lowering prices for consumers and other fiscal instruments.
As far as we understand, in Canada there are some tax breaks or early tax reductions for fossil fuel production. We don't consider them as subsidies. These are basically to attract investors and to allow them to depreciate their investments maybe earlier than otherwise. This is not uncommon in IEA countries, as the investments that have to be made are very high.
On your gas as an orphan, I don't think that is the way we see gas. We love gas, actually. For many people gas is recognized as a fossil fuel that has CO2 emissions that are twice as low as for coal when it comes to power generation. It's also quite a flexible fuel. We see gas as an important fuel for the future when we will have more and more renewable and intermittent renewable power where gas can help to balance electricity.
Tim Gould, Head of Energy Supply Outlook Division, International Energy Agency: I'd like to say a few things on the first two questions.
I'm working on the World Energy Outlook, which is our analysis of long-term energy and environmental issues to 2040. We do track fossil fuel consumption subsidies. Those are interventions on the end user price that then encourage wasteful consumption.
Using that methodology we do not see subsidies in Canada. If we look at the total global figure for those fossil fuel consumption subsidies, in 2015 it was around $325 billion worldwide. That compares with the total support in subsidies for renewable energy, which we calculate as being less than half of that at around $150 billion. Of the fossil fuel consumption subsidies, the majority are concentrated in the Middle East, in parts of developing Asia where you have regulated end user prices, which are well below the equivalent market value.
We have been big supporters at the IEA of efforts to reform these wasteful fossil fuel consumption subsidies and are working closely with the G20, APEC and others to provide analyses and data to further those efforts.
On the gas industry question, if we look at our projections, our scenarios out to 2040, gas does better than the other fossil fuels. It is seized in our main scenario, which incorporates the impact or our read of the impact of the Paris pledges, the NDCs. Gas consumption worldwide goes up by almost 50 per cent over that period. There are various reasons for that. It's a relatively versatile fuel. It can be deployed across different parts of the energy system.
As my colleague was mentioning, it is a good companion for a gradually decarbonizing energy system because of the flexibility it offers in the power network to complement the increase in deployment of variable renewables. It has advantages in terms of carbon intensity and in terms of the fight to improve air quality, which is obviously a major policy issue in many countries of the world, many emerging economies in particular.
That said, there are a couple of fault lines in that outlook and we mentioned a couple in the introduction. The issue of methane emissions along the value chain is certainly one of those.
Mr. Gagné: I have one last additional point on that second question. The gas question also needs to be looked at under a different time horizon. When we look at the different scenarios that we compare, there are opportunities for quick wins with natural gas in terms of displacement of more CO2 intensive fuels. In the longer run, though, when we look at very long-term scenarios, especially those that are in line with the lower carbon options like our 2º scenario, then natural gas as a baseload can become a high emitting source. Also there's the fact that the role natural gas would get to play in the electricity system in the longer run may entail different technology choices in terms of how you use that natural gas and what type of planning needs to be done.
Natural gas is definitely an ally to decarbonizing the industry strategy, but it doesn't mean it needs to be thought of in the same way as it has been thought of in the past. It needs to be viewed in a different way with different market mechanisms, different policies and different technology choices being considered when you consider gas in an overall low-carbon energy strategy.
Senator Seidman: Thank you for an excellent presentation. I would like to ask you about the very last points that you made in your presentation. You talked about key measures that are important for Canadian policy.
The first one you referred to was the hydro-nuclear integration in Canada and its importance, given a lot of our electricity comes from those sources. It's something that we as a committee have grappled with, integration across the country. I would like you to please elaborate on exactly what you see in this area, what it is that you're recommending.
Peter Fraser, Head of Gas, Coal and Power Division, International Energy Agency: There are some real opportunities between, for example, B.C. and Alberta. I understand yesterday there was a meeting in Regina talking about integration between Manitoba and Saskatchewan. There are opportunities for neighbouring provinces. We see that happening right now between Newfoundland and Labrador and Nova Scotia where one province with a lot of hydro power can help meet the needs of a neighbour that is actually quite reliant on fossil fuels to meet their electricity needs.
Hydro power can have the dual advantages not only of being all renewable but also being a relatively flexible resource, so that even if Alberta is trying to integrate more wind power into its system, having a neighbour that is able to flex its production very easily in response to wind power will make it easier for these provinces to move to higher levels of renewable electricity generation.
In the short run, that seems like a more regional focus to this development rather than building a trans-Canadian grid in the short run. There's a technical reason where that's a little difficult too. The reason is that our grid is a North American grid, not just a Canadian grid. B.C. and Alberta are connected together with California and the other western states in one connection system. From Saskatchewan east they are connected to a different system, the eastern interconnection. As a consequence, it's a lot easier to build stronger connections when you have ties with each other, as is the case there. Quebec, in fact, has its own separate interconnection.
Senator Seidman: I accept and concur with what you have just said based on everything we have heard from witness testimony. The issue in a country like Canada is infrastructure and trying to build out across huge expanses of land that have no population to populations in the North, for example, or in fairly isolated areas of the country. There is a cost associated with trying to develop the infrastructure.
Based on your experience with the OECD and this cooperative enterprise, do you have anything to offer in terms of suggestions to deal with that kind of a challenge?
Mr. Fraser: What we see, particularly in OECD countries but also increasingly in non-OECD countries, is an increasing demand for renewable energy. This is driving an interest in building those interconnections.
The cost of the interconnection, while considerable and in some cases involving long distances, although Canada's are quite vast, are still much less than the cost of renewable energy itself. In particular, in the Canadian context where you have cheaper renewable energy resources, or potentially cheaper renewable energy resources, that's something that has value. Provinces that want to increase their share of renewable energy might find it more economic to buy from a neighbour than to produce it themselves, or they might find it a very useful adjunct to what they themselves produce.
Yes, it's quite a significant cost, but there's also potentially a significant benefit compared to doing it all on your own.
Mr. Gagné: There are also more and more technologies being developed to cover those quite large distances that are looking at the cost per unit. There's lots of experience in places like Brazil and China with high voltage DC lines and new technologies that will allow bidirectional flows that could be of interest in terms of Canada's vast expanses and linking northern communities.
As people are trying to link resources that are farther and farther away from demand centres, the technology has also evolved in terms of bringing those resources more economically to where the demand is and allowing the match of different profiles from variable resources across a broader territory.
Senator Wetston: Thank you for the information you're providing today. I have to make a special call-out to Mr. Fraser. We worked together at the Ontario Energy Board for seven years. He obviously has a great grasp of technology and what's going on in Canada. I'm very pleased that we've been able to see Mr. Fraser on the panel today.
The area that I wanted to explore with you a bit is twofold, if I might, chair. When you talk about Canada and the opportunity to build an across-Canada grid like the Trans-Canada Highway, we all recognize the challenges in doing that. I really appreciate the comment about cost versus the cost of renewable energy. Of course we have experienced that directly in Ontario, as we probably all know.
I wanted to ask you about your 66 per cent/2ºC scenario. I realize it's very technical and it's a new model you've developed, but can you enlighten us a bit about why you did it, what you're hoping to achieve, and how it might help us in looking at this issue, particularly with 2030 in mind?
Mr. Gould: The 66 per cent/2ºC scenario was a piece of analysis that we conducted jointly with the International Renewable Energy Agency. It was presented to the Berlin Energy Transition Dialogue forum in March of this year. The intention of that was really derived from the wording of the Paris Agreement. As I'm sure you're all aware, the Paris Agreement talks of efforts to keep the long-term rise in average global temperatures to well below 2º, compared with pre- industrial levels.
The 66 per cent/2ºC scenario is in a sense a rather long way around to describing an outcome that would be consistent with this goal to have a well below 2º scenario. It's essentially a high probability of 2º and, therefore, a 50 per cent probability of ending up lower than 2º.
In a sense that's the broad framing of that work. We did not, as part of that, go into any regional or country detail. You will not find in that report specific insights on the Canadian situation or indeed of any other country around the world. Our aim was rather to illustrate the scale of the challenge and the sorts of policies that would be needed. This was not just in the power sector where decarbonization is already, in a sense, a fact of today's energy system, but the implications across the end uses where some of the really hard yards have to be won if you are to come to an outcome consistent with the Paris Agreement.
Mr. Gagné: I think maybe to help understand why we went that way, I would like refer to Aad's introductory words. We are a member-driven organization. The request came from our members, coming out of the COP21 negotiations, in terms of trying to understand a bit more what the concept of below 2º, with an aim of achieving 1.5º could mean.
What we have set out to do over the past few months is to look at a series of lines we're trying to draw in the sand in terms of some opportunities and challenges ongoing beyond our traditional 2º, in a 66 per cent scenario. The next edition of Energy Technology Perspectives will be looking at a technology maxed-out scenario. If we were to push all the known technologies today to their maximum deployment potential, what could that give?
We are working very closely with the Intergovernmental Panel on Climate Change to try to provide input that goes into the definition of what that well below 2º will mean. It's by no means a recommendation of where the energy sector should go, but more an evaluation of what the possibilities are.
Senator Wetston: There's a question that I would like to ask about what I consider potentially to be a sleeper. It's fusion power. It doesn't get a lot of attention. Scientific American seems to give it more attention than we've been giving it. I'd like to potentially explore that a bit with you.
I know the Technology Collaboration Programmes have identified fusion power as an area for further study and work. Could any of you describe that to us and potentially discuss a bit about its viability? If fusion power were viable, it could potentially address and answer a lot of the issues with respect to greenhouse gas emissions.
Mr. Gagné: You're absolutely right that within the IEA framework fusion power has always been recognized as one of the possibilities that needs to continue to be investigated. We actually have under our Energy Technology Network eight technology collaboration programs that deal with different challenges associated with fusion power. Many of these are in direct support of very large international projects like the ITER project in Europe.
We continue to support the collaborative research and to gather information on the progress and the possibilities with fusion. However, in many of the analyses that we do there doesn't seem to be much of a role for fusion to play in the outlook horizon that we look at. It's not that it can't provide a solution in the long term. We just don't see that being an impact that gets registered by our analysis in the time frame we identify.
Our latest outlook goes to 2060, but the current road map by the fusion community is aiming that by 2055 they could start producing more energy than they consume, which means that by the time it becomes cost competitive with other sources we are probably even outside the outlook period.
The other interesting challenge that is starting to be seen for fusion power is that, as we see other technologies like solar PV and like wind coming on line, the energy system seems to be moving more and more toward a more decentralized model, with what we call "prosumers,'' people who produce and consume their own electricity with grids that need to balance flows from multiple directions.
As we set up the infrastructure to deal with these new types of decentralized power sources, there is a question of what role fusion would play as it does represent the epitome of large centralized power production and large distribution.
As any technology with a very long time frame, its role would need to be evaluated, not only in terms of its own technical prowess but also how it fits within the rest of the energy system, which will evolve over the decade that it will take for fusion to become a potential solution.
Senator Fraser: Just listening to you prompts at least 20 questions, but let me confine myself to two, if I may.
First, I think it was Mr. Gould who said that we love gas. You obviously are very familiar with the Canadian situation, probably more familiar than 99 per cent of Canadians.
What are your views on the oil sands?
Mr. Gould: I can certainly give you a read on where oil sands production is in our projections. I spoke before about different scenarios. Our main scenario is one in which we incorporate the implementation of the Paris pledges.
In a sense right now you have a legacy of previous final investment decisions. You have an increase in oil sands production over the next few years, but in our view that flattens off somewhat in the 2020s. You get a gradual increase in oil sands production thereafter. If you take the 2015 value of 2.4 million barrels per day of oil sands production, we end up at around 3.8 million barrels per day in 2040.
In the medium term, we're broadly aligned with the projections of the National Energy Board and the Canadian Association of Petroleum Producers. In the longer term, we are trending somewhat lower than their own outlooks. We're more aligned with the NEB low case toward that period.
That's our outlook for oil sands.
Senator Fraser: I take it you're unwilling to say whether or not you love the oil sands. I won't press you on that.
Mr. Gould: My colleague, Mr. van Bohemen, was declaring his love for natural gas. I'm not taking a position on either.
Mr. van Bohemen: I'm a Dutch national, so we have a lot of gas in the Netherlands. When it comes to the carbon impact of the different fuels we have and also then within oil, we think that fuels should compete with each other. The environmental impact should be regulated, on the one hand. We praise the work that Canada is doing on the methane emissions and on safety of work. On the other hand, the impact should be priced so that you create a level playing field among the fossil fuels according to their environmental impact. That level playing field will decide which fossil fuelswe will produce with the lowest impact on the environment.
Mr. Gould knows better than I do, but if we look at the projections globally the world still needs a lot of oil, coal and gas. Of course we would love to see renewables coming on stream more and more and quicker and quicker, but still we need a lot of fossil fuels. There should be an effort to produce those fossil fuels with an environmental impact that is as least as possible.
Senator Fraser: Go on, Mr. Gould. You wanted to add something.
Mr. Gould: I would like to shape the considerations that go into our outlook. Clearly the issue for Canadian oil sands production is that at the moment it is a relatively high cost in a lower price environment. It has relatively high energy and emissions intensity in a world that is becoming increasingly carbon constrained.
Tackling those two challenges will clearly be in our view instrumental to the outlook for the oil sands.
Senator Fraser: This question is on a different topic, gentlemen. President Trump is to decide relatively soon whether or not he wants the United States to continue in the Paris Agreement.
Do you have analyses you can share with us of the impact if the United States pulls out?
Mr. van Bohemen: No, senator, we don't.
Mr. Gould: May I add that in the end we look very closely at the nuts and bolts of the policies in place. We would be looking at the clean power plan, at the fuel efficiency standards, and at other regulatory measures. Those are the elements that would in a sense influence the trajectory that the United States follows in our projections.
Senator Patterson: As senator for Nunavut, I'd like to say that I think Canada is a special case, not just as a major exporter of oil and gas but as a cold country. My region of Canada, which isn't typical of the urban southern areas, is 100 per cent reliant on diesel for heat and electric generation. We have no road or rail connections from southern Canada and no connections to the North American hydro grid. Nonetheless, the three territories have committed to carbon pricing, which you praised Canada for implementing.
I noted your comment about high voltage lines with two-directional flows as ways of bringing renewable energy to remote places, but we only have 35,000 people in Nunavut scattered across 25 remote communities.
I'd like to ask for your advice. What advice would you give us in designing a carbon pricing system to which we hadn't agreed that will be imposed on us in 2018, which is looming? There are no immediate energy alternatives. The cost of carbon is embedded in everything we buy and everything we do. How do you design a carbon pricing system that is good climate policy but doesn't impact economic growth and what is the highest cost of living in the country?
Mr. Fraser: I'll make an attempt on two fronts. We mainly look in warmer climates at various off-grid systems and how we can come up with more economic alternatives to the existing. That's not Nunavut. Nunavut is a very cold place. It has very long winters, very dark winters. The technologies that will work there would have to be different.
I don't think we have a specific comment on carbon pricing designs, but I note that already in Canada you have a variety of approaches. It may be that some of those approaches may work better in the Nunavut context than others, but I'm really not qualified to answer anything further about that.
Mr. Gagné: I can build on Mr. Fraser's comment in terms of probably not having done too much analysis on the proper carbon pricing schemes for remote communities. On the technology front, there are quite a few examples and a lot of work being done in terms of how microgrids can support improved access to electricity, notably in those areas where diesel becomes an extremely costly alternative. Lord knows that Nunavut is such a case. I don't think that having the Coast Guard icebreakers deliver oil is truly economic, even when you compare it to wind and storage.
Canada is a member of a working group under the mission innovation framework that is looking specifically at providing renewable electricity to remote access. Again, while we don't have any specific suggestions on the carbon pricing schemes themselves, there may be some interesting technology options that allow us to think of solutions which can remove the carbon burden, as well as the very costly fuels, through technology improvements.
Senator Mockler: My question is directed to Mr. Fraser. It's three little questions in one, and I'll start with this one first. I come from New Brunswick, so we know your reputation is unprecedented and bodes well in that committee that you're on. Also, it's quite an opportunity for all of Canada.
My question for you is: What would be your comments and views on the future of nuclear energy? We both know that New Brunswick was the first in nuclear energy in the 1970s.
The second question would be: I'd like to have your views on bringing Energy East to the biggest refinery in Canada at Saint John, New Brunswick.
I would also like it if you could share with us your opinions on the best and most reliable technology that could reduce CO2 emissions across our great country.
Mr. Fraser: I appreciate the compliment and the great confidence you place in me to answer these big questions. I will certainly make an attempt, at least on the first two.
In terms of the question of the future of nuclear energy in Canada, I have to confess to my colleagues that my early career was at what was then known as AECL. I had a role in the licensing of the Lepreau plant, so I am familiar with the Canadian technology.
Certainly looking at our economic analysis of generating costs, new nuclear plants do not have a real economic opportunity to be developed in Canada today. They are more expensive. They are of higher financial risk. It's difficult to make the economic or financial case to invest in new nuclear today.
That is a zero carbon opportunity. It's a different question when you are taking an existing plant and extending the life of it. The economics are rather different. Lepreau has recently undergone a major refurbishment and is now back in service. We are seeing in Ontario, Canada, that a major refurbishment of the Darlington station is under way.
On your second point on Energy East, again I must confess to my colleagues that I had some role in an Ontario provincial review of Energy East. I must underline the point that we were asked to look at it very much from an Ontario perspective and not from a national one. The report asked what benefits and risks to the people of Ontario the project posed. The conclusion of that study was that there were more risks for the people of Ontario than there were benefits.
Given that was the scope of the study, I would not claim to have knowledge or a full view of the Energy East project as it applied to Canada. We were deliberately scoped to look at that particular issue, and that's what we found.
As to the best technology to reduce CO2 emissions, I don't think there is a single best technology. If you look at the studies we do at IEA, the short answer is many technologies. It's not just on the supply of energy side. Many of these new technologies are on the demand side.
We are currently undertaking a study looking at the impact of digitization on the energy sector, which we think could also have significant impacts on both the demand for energy and the efficiency in which energy is supplied. We think there will be many technologies. Once we are aware of the carbon constraints that my colleague referred to earlier, they will have a profound impact and help us achieve the kinds of reductions that we will need to have a sustainable energy economy.
Mr. Gagné: On the technology front that Mr. Fraser is absolutely right. I don't think there is any answer to what is the best technology because that is very situation specific and exactly what you're trying to achieve. There are definitely a few critical technological elements that need to be considered.
First, if we can call it technology, one of the main things that we say is that the cleanest, most secure and most affordable energy source is the one you don't have to use. Basically energy efficiency truly comes first for us as the first driver. We should try to avoid unnecessary energy before trying to produce it in an economic and clean manner.
Second, when we look at all the scenarios as we do, we see electrification as an unavoidable truth. Electrification brings a lot of opportunities, so it is a good way to integrate demand and supply side aspects. It's a good way to use much more varied primary energy sources. It is much cleaner toward the end use application. Therefore, it can not only alleviate carbon emissions issues but also the air pollution aspect.
The third lever is the key technology developments that we need to focus on are less on the demand side and supply side but much more on the integration side. All optimized and economic scenarios will look at a suite of very different technologies that need to work together. As the IEA, we're always adamant that you cannot throw away the energy security baby with the environment bathwater.
It's through proper systems integration we will be able to ensure that all of these technologies can play their role both in terms of economically providing energy and doing it in a reliable and environmentally sustainable way. It's the systems integration that needs to be focused on.
Senator Dean: I would like to follow up on the question about nuclear energy, particularly given the comment earlier that there's a trend toward decentralized production modes.
Is there a role for smaller modular local nuclear production that is scalable to place? We've heard a compelling response on new, big nuclear build, but I'm thinking about smaller and more modular approaches. Is that somewhere in the future?
Mr. Gagné: There is definitely a role for any opportunity to have clean and flexible power generation. Smaller modular reactors have a nice promise to them, but like any new technology we will need to figure out how and when they produce this potential.
When we look at the flexibility needs of an electricity system, we actually try to have a balanced approach in the sense that there are many flexibility opportunities within power systems. Flexible generation is a definite one. It goes back to the discussion we had on the role of natural gas in the power sector, but is it centralized baseload versus smaller and more flexible? That's one of the levers.
We have discussed another lever already: extended market bases to be able to match more demand profiles to more supply profiles and extended infrastructure to ensure that we have a dissemination of the variability that can actually nullify itself.
The third is energy storage. In the case of Canada this is very interesting because the hydro plants can actually play a role of both dispatchable power generation as well as storage to certain degrees, depending on design.
Finally, the one that I think is the most underutilized and underinvestigated is the ability of markets to investigate the demand response opportunities of many integrated customers. That's the analysis we're doing in terms of the role that digital technologies can bring in empowering that important capacity to provide flexibility.
In order to evaluate technologies like small modular reactors in light of their flexibility approach, you have to look at the cost effectiveness at which they provide services toward the other opportunity for flexibility. What makes it very complex is this is extremely system specific. It depends on what types of other ancillary services need to be provided in these energy systems. It also depends on the integration between different energy vectors. Whether we're talking about electricity, heat and other services, it really needs to be looked at on a case-by-case basis.
Senator Lang: I welcome the panel. Is it evening there for you or morning? What time is it?
Mr. Gould: It is afternoon tea time.
Senator Lang: You're still on your day shift.
I'm a senator for Yukon, and we're very fortunate that our energy grid provides most of our energy. We're basically with a system that is green, if you want to call it that. At the same time as we look for expansion and increased energy supply, decisions will have to be made on how we expand the particular system. That doesn't just apply to Yukon. That applies, as Mr. Fraser knows, to British Columbia and other parts of Canada where hydro potential exists.
My concern is that as we move toward becoming less and less dependent on fossil fuels, there doesn't seem to be a consistent direction with respect to how we are to replace this. I heard Mr. Fraser talk a little earlier about Energy East. That was a problem because Ontario wouldn't get more benefits out of it than risks. I could argue that point, but I won't.
The point I'm making is that at the end of the day we're a country here in Canada. Some national objectives have to be clearly stated on where we're prepared to go for the purposes of our long-term energy needs.
Before I ask my question, I will use myself as an example. I'm not the most technical expert in the world from the point of view of the technology that comes out year after year, but I know I plug in more and more iPads, telephones and various things every day. That's just my household. You can imagine what it's doing across the country. Millions of these technical advancements require a small bit of energy, but when it all adds up for the country it's a huge amount.
I want to ask a question on the hydro side, which is a renewable energy. Once it is put in place, it is consistent and provides a base for regions of the country. Why aren't we as a national government prepared to subsidize if necessary and at least in part initially, the construction of these major hydro projects so that we can bring them together along with the grid so that we can meet our objectives? The grid is the one part, as Senator Wetston knows, is very expensive to put together and to justify.
Mr. Fraser, what are your comments with respect to that from the point of view of Canada and your knowledge of our potential, whether it be in Quebec, Labrador, Yukon, British Columbia or elsewhere?
Mr. Fraser: Thank you again for another very challenging question. I certainly agree with your observation that electricity policy in Canada is not really made at the national level. It's made at the provincial level today. In my opinion, there are some missed opportunities from doing so.
In trying to give an answer earlier on the connections question, I indicated that there are some opportunities to economically develop the country and increase the share of renewables by making more renewable energy available across provincial borders. This represents a real potential for the country.
I would emphasize that hydro, with all its great aspects, is not the only form of renewable around. As some of my colleagues will attest to, there are some excellent opportunities in supplies of other renewable energy in Canada, especially with supporting hydro, which can also be a very economic form of electricity supply.
The cost of wind in Alberta is going down, and it's a good windy place. You can get some very economical wind there. Solar is maybe a more specific resource, but there are some very sunny places in Canada and the cost decrease in solar TD has been remarkable.
You also heard earlier about the demand side. You made a very good point about all of the devices we're plugging in these days. Maybe my colleague Mr. Gould would like to comment on that demand level. We're seeing that it's not nearly as big as we thought it initially might have been. We thought this would be a much bigger deal for electricity demand. Our work on digitization and energy that is ongoing right now is taking a deeper look at that. It's an important demand, but demand is not going up.
We have observed the demand is not going up the way we thought it might overall. It's because these devices themselves are getting more efficient and because all the data centres that are supplying them are themselves becoming more efficient. The growth in demand is not as great, but certainly there are some real benefits in a national approach to energy policy and electricity policy.
Mr. Gould: Following up on Mr. Fraser's point, if we take the broadest view of the future of global electricity demand growth, the vast majority of that growth comes from the large emerging economies where you have a growing middle class, rising incomes and rising population.
Within the OECD the growth in electricity demand is relatively small because, as Mr. Fraser was mentioning, the rise in the number of appliances in a typical household is really offset by improvements in efficiency. Despite what my colleagues were saying before about the increasing role of electricity in end usage, which is something that we do observe in many OECD countries, the pace of growth in electricity demand is surprisingly small or surprisingly low in many countries.
Senator Lang: I want to move to natural gas and the statements that were made that natural gas will be the basis, in part, of our energy needs in the future.
As we all know, natural gas was a lot more expensive 10 years ago. It does depend on the market. Have you taken into consideration, as demand increases, the long-term repercussions of being committed to natural gas and the price perhaps moving upward as opposed to staying static?
Mr. Gould: Our outlook for pricing in North America is contingent on two major variables. One of them is our increasing awareness of the huge size of the unconventional gas resource in the United States. Many people take the view that especially between $3 and $4 per MBTU an awful lot of natural gas can be produced in Haynesville, in Marcellus, and in various other parts of the U.S.
In our predictions in our main scenario we see a gradual increase in the cost of natural gas in North America, but one that creeps higher toward a slightly higher than $6 per MBTU by the 2030s. That's our projection from last year's World Energy Outlook. We are currently revising that for the new outlook in 2017.
It has a number of implications. The abundant availability of natural gas has implications for the power mix. It has implications for the location of various parts of gas intensive industries. It has implications within North America, so the intent is to develop other unconventional resources whether in Canada or in Mexico.
It starts to have increasingly global repercussions with the onset of U.S. LNG exports in the future, in our projections, joined by LNG exports from Canada. The business model of the U.S. LNG, because it is rare that it is tied to a specific destination, plays the role of arbitrage in the international gas world and starts to tie together what, up till now, have been slightly disconnected regional markets.
One of the implications of the increase in production of gas from North America is a move toward a more globalized gas system where the differences in price between different parts of the system, which will remain, reflect the costs of moving gas around the world. Those are some of the implications that we see for the rise in North American shared production.
The Deputy Chair: Before I go on to the second round of questioning, I will allow myself to ask you two questions.
Possibly I'm looking for comfort and reassurance, but the first one relates to the sense that I sometimes get quite concerned that we will not achieve our targets in the Paris Agreement, being the 2º or hopefully the 1.5ºC. Maybe you could give me some reassurance. Where are we at? If the governments satisfy all of their commitments, what temperature increase are we looking at?
Give me a sense of the consequence of not getting there. Let's say we only meet 3ºC and not 1.5ºC. What are the economic cost and the social cost for our world population?
Mr. Gould: Perhaps I can take the first part of that question. It's certainly something that we look at in the World Energy Outlook. I talked about our main scenario, which incorporates our reading of the implementation of the Paris pledges. That has a number of very positive aspects to it from a climate perspective. You see a more rapid improvement in global energy intensity because of the greater reach and efficacy of energy efficiency policies. You see a very strong rise in renewable energy, based not only on policies but also on rapid falls in technology costs.
You see other things like peak coal in China. In our view, unless there's a very dry hydro year, China's coal consumption probably peaked in 2013. That goes down by around 15 per cent between now and 2040.
There are a number of things that would give you cause to have some cautious optimism about the direction in which we are heading. On the other side of that, there is a certain amount of inertia in the system. There is population growth. There are needs in many emerging economies for a great deal more energy. The net effect of all of this on energy related CO2 emissions is that the growth in those emissions is slowed.
What is required to meet the goals of Paris is not a slowing pace of growth but a near-term peak and then decline in emissions. The implications of that for the rise in global average temperatures means that you end up with something around 2.7ºC by the end of the century, overshooting by some distance the goal to keep the rising global average temperatures to 2º or below.
In terms of what that means, the message in a sense is that this is not set in stone. This is a projection based on what we are doing today. There is an opportunity to do more, but, if you want to think through the consequences of that, the IPCC has described in some detail the implications of different rises in global average temperatures. They refer to many different aspects of that in their own analysis and research.
Mr. Gagné: What needs to be said, as Mr. Gould said, is that this is an evaluation of where today's ambition as expressed in Paris is leading. However, the Paris process has itself, in its creation, recognized that those ambitions didn't need to be the ones that stay the same for the long run.
Next year, we will start into this 2018 facilitative dialogue to be able to take stock and really understand what we have accomplished in Paris, where that has taken us and what we can do more in terms of what we have already accomplished.
In that respect the IEA is trying to play a fairly important role in terms of tracking different metrics of how the energy sector has been changing its course over the past few years, based on different policy ambitions and different policy goals, to be able to provide back to negotiators a better understanding of what it is they have been able to accomplish up till now and how much more ambitious they could be.
While we're not dictating any specific course, we are trying to provide more analysis and more input in terms of what recent successes have achieved and what are the remaining gaps to be filled.
We produce every year a Tracking Clean Energy Progress report that looks in a very broad sense at which technologies are progressing on track to meet their objectives as defined in our scenarios, which technologies are not, and why they are not making it. We do not do specific analyses on the climate impacts of missing that target because that is not the role of the IEA. There are quite a few other organizations that specify in that aspect. However we try to provide analyses in terms of what policy decisions and technology progresses have provided in terms of getting closer to the stated objectives.
The Deputy Chair: My second question relates to more of a microperspective relative to our relationship with the United States. As you know, we are implementing a carbon pricing plan in Canada over the next six years, which will obviously significantly change the pricing of carbon, but we have a neighbour whose commitment remains uncertain. Yes, we have states and cities that basically determine structure and immensely influence their management of CO2, but it does remain a difficulty for us.
We have yet to define in Canada how we manage this whole relationship, making sure our intensive and trade exposed employers and industries have a level playing field. We will be pricing carbon, and there is a lot of money coming in, but I suspect we will do a bit like Germany and other countries. We will give a break to our employers and our companies that are highly intensive relative to emissions or trade exposed. We may give them a break, but how do you deal with the fact that you may have a lot of American companies that don't price carbon and will import their goods to Canada?
Some economists would say, "Therefore you should have a tariff on those imports to make sure that everybody is dealt with fairly.'' There are very significant economists who would say, "If you do that, you may get into some type of price war or tariff war,'' and strongly discourage you from doing that.
How do you manage all of that? How do you make sure it's fair, whereby each country does their own management of CO2? What would be your comment there on what Canada should be planning and how they should manage this issue?
Mr. Gagné: This is probably more a question for, as you say, climate economists and broader econometrics analysts. What we can say to help in terms of steering an energy system toward a cleaner path is not to rely only on one source of support. A carbon price does help in terms of finding opportunities that are cost effective in the near term and so forth, but there are longer term targets that will be completely missed by carbon pricing.
What is needed is a suite of policies actually based on the long-term view that allows us to put out innovative approaches, especially in trade exposed industries where innovation can become very high paying in the long run in terms of providing new means of achieving the same outputs, but with less CO2 and therefore providing competitiveness aspects.
It's not just a question of what this policy will do but more how an integration of policies and different suites work together.
The Deputy Chair: We are moving on to second round.
Senator Galvez: Because time is flying, I would like to move from the energy source and energy transmission to buildings and infrastructure.
In Canada we can learn from your building code in Europe because you are much ahead of us. We need to tackle this problem. We need to tackle energy efficiency and materials in construction. I would like to have your opinion on how to go about updating our building code.
Mr. van Bohemen: As was said earlier, energy efficiency is indeed a very preferable way to reduce emissions of energy use, et cetera. We are looking across our membership and we are giving recommendations to all the countries. Notably, as you mentioned, energy efficiency in buildings is always high on our list because the savings that come with it for consumers are really good to identify.
We encourage countries to come up with strict building codes for new builds and for what we call deep renovation of buildings. We see that this is improving and developing over time. Within Europe, as you mentioned, notably in the Nordic countries there are very good building codes. It takes less energy to heat a house in Norway or Sweden than it does to heat a house in Italy.
These are ready and easy to copy, so to speak. It is for the government to impose them on the sector and to enforce them when building inspections take place.
Mr. Gagné: There are two very important points in what Mr. van Bohemen just said. The first is that you need to differentiate between existing buildings and new buildings. Building codes work very well for new construction. Sometimes for existing construction it gets a bit more complex. The renovation rate of buildings is so low and buildings are there for so long that sometimes you need specific programs to encourage retrofits that will provide energy savings that people would not undertake themselves because of the very long lead in terms of payback.
Another aspect that we have been investigating within our own energy efficiency division is the prospects of energy service companies that basically provide financing for energy efficiency retrofits by paying themselves off of the energy savings in the long run. Therefore, they are considered aggregators and they can help finance retrofit projects through the expected energy savings. Therefore, they take the bulk of the risk and it becomes a specific business case.
There are multiple energy policies that can be put forward to support energy efficiency. I would encourage you to look at some of the energy efficiency policy pathways the IEA has been producing to identify different tools for our member countries. I would think in the in-depth review that Mr. van Bohemen presented this morning there probably are some pretty good recommendations for energy efficiency improvements in Canada as well.
The Deputy Chair: We have seven minutes left and three people with the second round, so short questions and short answers if possible.
Senator Mockler: I'm looking at your website where you say in your report that global oil demand will continue to grow until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation, petrochemicals, and you go on.
I am concerned. As a parliamentarian I'm encouraged by action, not inaction. For instance, in the province of New Brunswick, or I should say the greater North America of which we're part, one of the biggest untapped reserves of natural gas is in the southeast. I know Mr. Fraser knows that area of New Brunswick quite well also. The technology we have used there was fracking, and we know what has happened.
Our leadership, economically and politically in Canada, not to say North America, are saying that we need a social licence to go forward. If that's the case, can you define for us or for me what is a social licence?
The Deputy Chair: That's an easy question with a short answer, I'm sure.
Mr. Gould: We looked at this a few years back. In 2012, we produced a piece of analysis called Golden Rules for a Golden Age of Gas.
The intention was to try to think through some of the social environmental aspects of unconventional gas production to understand the legitimate concerns of local communities about the disruptive effect of increased truck traffic, the possibility of water contamination or air pollution, and various other potential impacts of unconventional gas production. It was also to come up with a set of principles that we felt could help different stakeholders to manage these impacts in a way that would allow for the development of a promising resource but also safeguard the highest practicable social and environmental standards.
They included elements about community engagement. They included elements around responsible water management. They included elements of managing not just local impacts, but thinking about cumulative impacts across the water basin or other geographical areas. I would happily refer you to those principles in that publication because it continues to represent our view of the way forward in that regard.
Senator Wetston: I have another easy question, I think, about digitization, energy efficiency, smart metering, conservation programs, and all these assorted matters. I always feel the issue is not about technology; it's about human behaviour.
How can you change human behaviour? How do your models, maybe to put it that way, consider this very challenging issue?
Mr. Gagné: Because a lot of our modelling efforts are based on quantified evidence, I would say that we are potentially somewhat a bit light on the behavioural changes aspects of it. There isn't a lot of scientific fact that can say things will go one way or another depending, but we are looking more into this question.
We're actually looking more and more into how policy influences behaviour, as well as how technology can enact different behavioural aspects such as digitalization. One aspect is the smart meter and another is on the transport side. When people have access to more efficient, more personalized mobility services, will they be moving toward more sustainable transportation means as well?
We have been doing quite a lot of work, especially on the transport sector, in terms of having a three-pronged approach to sustainability that is about avoiding unnecessary travel, shifting to more efficient modes, and then improving technologies themselves. The two first levers have a lot to do with what types of policies can get people to use much more sustainable mobility patterns than the traditional reliance on personal cars.
Senator Seidman: I have another simple question that you can answer fairly easily, I am sure.
The committee heard from most of the industry associations representing Canada's emission intensive trade exposed sectors. Many witnesses told the committee that barring breakthroughs in process technologies their sectors do not have much more GHG mitigation opportunities available to them.
We heard similar things from the transportation sector, which you've just mentioned, and similar testimony from the industry associations about their slow uptake of sustainable technologies because of economic costs and lack of complete understanding of the reliability of these new technologies.
What would you respond to these serious challenges? Specifically, are there policy recommendations that we might put forward?
Mr. Gagné: We've done quite a bit of work in the past few decades to freely link the advice we provide to governments to industry reviews and industry drivers. When we're talking about the energy intensive industries, this dialogue between policy-makers and industrial stakeholders is at an infancy right now. There has been much more dialogue with the electricity sector and other sectors than there have been with some of the energy intensive manufacturing industries.
We are currently working with two major stakeholder groups, the cement sector and the iron and steel sector, to develop low carbon technology road maps specifically for those sectors. Those road maps identify not only the technology opportunities that exist but also the means that are needed to enact the choices of those policies, as well as what types of financing frameworks and regulations would help drive this forward.
The strength of this approach is that we do this through stakeholder consultations where we have the industry representatives, the government representatives and the end-users all discussing in open forums the challenges, barriers and opportunities based on a common vision. We therefore get strong acceptance and buy in from the stakeholders into those road maps, which often allows us to then move on to the implementation with some of those stakeholders.
There is no single answer to that question. The answer is in increasing that dialogue and in demonstrating the value for stakeholders of a low carbon transition. Over the past five years, I've already seen already a change in terms of how they approach the whole question and building on that opportunity to come up with common views of what are the barriers and the best means to go over them.
The Deputy Chair: Let me thank the gentlemen from the IEA for participating and sharing their information and knowledge with us this morning, or early afternoon in their part of the world.
As we all know, climate change is probably the challenge of our generation. It's certainly a very difficult one and it encompasses many needed changes. Thank God we have the IEA, which is probably the most credible organization in the world giving us very frank and scientific advice.
We thank your organization and all four of you personally for being with us this morning. We'll certainly have an opportunity to discuss this matter frequently because it is obviously, a continuum. As you mentioned earlier, even at this point, we're only at 2.8ºC, so we have some way to go. We wish you good luck, gentlemen, in convincing the rest of the world to finally get to our 1.5ºC.
(The committee adjourned.)