Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 29 - Evidence - June 15, 2017
OTTAWA, Thursday, June 15, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:01 a.m. to study on the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Honourable senators, good morning. Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
My name is Richard Neufeld. I'm honoured to be the chair of this committee, and I'm a senator from British Columbia. I wish to welcome all those who are with us in the room and viewers across the country who may be watching on television or online.
As a reminder to those watching, these committee hearings are open to the public and also available online at the new Senate website, sencanada.ca. All other committee-related business can also be found online, including past reports, bills studied and lists of witnesses.
I will now ask senators around the table to introduce themselves. I'll begin by introducing the deputy chair, Senator Paul Massicotte from Quebec.
[Translation]
Senator Massicotte: Good morning.
[English]
Senator MacDonald: Michael MacDonald, Nova Scotia.
[Translation]
Senator Galvez: Rosa Galvez from Quebec. Good morning.
[English]
Senator Patterson: Dennis Patterson, Nunavut.
Senator Wetston: Howard Wetston from Ontario.
Senator Dean: Tony Dean, Ontario.
Senator Seidman: Judith Seidman, Montreal, Quebec.
Senator Griffin: Diane Griffin, Prince Edward Island.
The Chair: I'd also like to introduce our staff, beginning with the clerk on my left, Maxime Fortin, and our Library of Parliament analysts, Sam Banks and Jesse Good, on my right.
Colleagues, in March 2016, the Senate mandated our committee to embark on an in-depth study of the effects, challenges and costs of transitioning to a lower carbon economy. The Government of Canada has pledged to reduce greenhouse gas emissions by 30 per cent below 2005 levels by 2030. This is a big undertaking.
Our committee has taken a sector-by-sector approach to the study. We will study five sectors of Canadian economy, which are responsible for over 80 per cent of all greenhouse gas emissions. They are electricity, transportation, oil and gas, emission-intensive trade exposed industries, and buildings.
Our first interim report on the electricity sector was released March 7, and our second one, on the transportation sector, will be tabled in the next few days.
Today, for the forty-fifth meeting of our current study, I am pleased to welcome, from the Canadian Labour Congress, Donald Lafleur, Executive Vice-President, and Chris Roberts, Director, Social and Economic Policy.
Sirs, you have a presentation to make, and from that we'll go to some questions and answers. The floor is yours.
[Translation]
Donald Lafleur, Executive Vice-President, Canadian Labour Congress: Good morning. Before I begin, the Canadian Labour Congress (CLC) would like to take this opportunity to thank the senators for passing Bill C-4, yesterday, to restore a more equitable balance in Canadian labour relations.
On behalf of the 3.3 million members of the Canadian Labour Congress, we thank you for giving us the opportunity to present our views on the effects of the transition to a low-carbon economy.
Climate change is the biggest challenge humanity is currently facing. Canadian unions are ready to lead the way in the fight against climate change. We have to ensure that the fight is a fair one.
If Canada wants to address the effects of colonialism and embrace reconciliation with its Aboriginal people, it must ensure that the development of energy and natural resources does not occur without the free, prior and informed consent of Aboriginal people.
Canada must do more to meet its international commitments in the fight against climate change. In the Paris agreement, Canada committed to reducing its emissions by 523 million tonnes by 2030. According to the most recent national inventory report, published last April, Canada's emissions reached 722 million tonnes in 2015 — only a 0.7- per-cent reduction over the previous year. So we have 13 years to reduce our annual carbon emissions by 200 million tonnes.
Other countries are investing more than Canada in renewable energies. A new report of the network on renewable policies indicates that investments in other energy sources exceed investments in new fossil fuel projects.
Canada ranked well in terms of investments in hydropower and biofuels, but it is lagging far behind other countries when it comes to investments in wind, solar and geothermic energies, as well as other renewable energies.
Solutions that are based on market forces are not enough. Carbon pricing, reduction of fossil fuel subsidies and the phased elimination of coal mining will help us achieve our goals, but in order to meet our international commitments, the government will have to coordinates multi-year strategic investments to reduce emissions, create good jobs and provide assistance to affected workers and their communities.
The usual policies and market forces will simply not suffice to reach the targets quickly enough to prevent catastrophic climate change. In addition, they will not ensure fair treatment for workers and their communities.
Canada needs a renewable energy strategy that generates jobs in renewable energy production and green energy technology. We need a green building strategy to reduce emissions and poverty, and to create jobs.
We also need a national public transit strategy that will improve our quality of life, reduce pollution and traffic congestion, and create jobs. I invite you to visit the website of the Green Economy Network — an organization the CLC has been working with for a number of years — to find out more about this.
Innovative approaches such as the transformation of post offices into community centres, more charging stations for private electric vehicles, the creation of an emission-free postal fleet and home mail delivery that does not generate carbon will be critically important. We have to green all workplaces to reduce emissions at the source.
Canada has a tremendous amount of natural resources that will continue to play a vital role in its economic development and will help sustain its workforce. A more equitable and sustainable strategy for natural resource development must be incorporated into Canada's strategy to fight climate change.
Canada needs a fair transition strategy. Workers understand environmental crises. Workers involved in Atlantic cod fishing and the west coast's forestry sector have directly experienced the consequences of chaotic and unfair restructuring stemming from the disruption of ecosystems. They know that we have to produce and consume in a more sustainable manner to ensure our future. Fair transition measures must be at the heart of the path to take and they must include retraining, income support, job creation, and the development of re-employment, resettlement and restitution programs.
Canada announced its intention to phase out the use of coal in electricity production by 2030. The federal government must ensure that workers who have spent their careers producing electricity do not fall through the cracks.
Canadians will be watching the way workers and communities will be supported through the transition, and our decisions and immediate investments will be used either as an example of the procedure to follow or as a warning against reducing the collective will to honour our commitments to climate change. Once again, I suggest that you visit the website of Adapting Canadian Work and Workplaces to Respond to Climate Change — another organization the CLC has been working with for a number of years — for more information.
This year, on World Environment Day, Guy Ryder of the International Labour Organization said that a greener future will not be decent by definition, but by design. Governments must collaborate with all stakeholders, including workers, to ensure that labour regulations, supports, policies and investments help a fair transition to decent jobs in green economy, which we have to build together.
I want to thank the committee once again. We would be happy to answer any questions you may have.
[English]
The Chair: Thank you very much, gentlemen. I appreciate that presentation. We'll begin with the deputy chair, Senator Massicotte.
[Translation]
Senator Massicotte: Thank you for joining us this morning and for your comments. If I have understood your presentation, which I accept and fully support, we are going through very significant climate change that is threatening our communities. You are telling us that you are taking the situation seriously, that this is a major issue, and that we must do more than we have done in the past. I believe that is the core of your message. Am I wrong?
Mr. Lafleur: That is the core of my message. In addition, we have to ensure a fair transition for communities and their workers, including Aboriginal communities.
Senator Massicotte: You are talking in particular about coal workers in Alberta, Saskatchewan and the eastern provinces, which were very involved in electricity production. Now, the plan is to close those plants, and that will uproot people. We already have programs in place, such as employment insurance and training. Is there anything we are not doing that you recommend we do to help those people through this transition period? We are talking about a transition over the next 10, 20 or 30 years.
Mr. Lafleur: Communication and consultations with workers, First Nations communities are important. There must be dialogue. I have to admit that we have been fighting amongst ourselves. I can't give you concrete examples in Canadian history where a plant or a sector was closed and things went well for everyone. Some investments have been made to train displaced people. We have allowed people to retire early. That creates a lot of problems when we tell people that we are adopting a new approach and that we will take care of everyone. We cannot give them a concrete example, and that is a problem.
Senator Massicotte: When you talk about doing more, according to the core of your message, I still have the impression that you support the existing government program because it is doing a lot. It will invest billions of dollars. Am I wrong in saying that you are in favour of the Liberal Party's current program?
Mr. Lafleur: Improvements have definitely been made since the election. Yes, we support it.
[English]
Senator Wetston: Thank you for your presentation. I have two questions if I may, chair.
The first one is I was thumbing through The Economist last week and the suggestion was that there is a country in the world that is to go all-electric vehicles by a certain date. That date is 2030. It was a questionnaire. I will not ask you which country that is, but it happens to be India. I think it's by 2030, all electric vehicles in India.
Do you have any views about whether or not we should do the same in Canada?
Mr. Lafleur: I think that's the way to go for Canada. In the context of answering the questions of the previous senator, we should be striving to go in that direction, making sure the workers and the communities, if there is an impact on them, are taken care. We should be striving to go in that direction
Senator Wetston: My question was rather specific in the sense of 2030. Maybe it's 2040, but the point is you believe that's the direction we need to go in because automobiles obviously create a lot of pollution.
Mr. Lafleur: Yes.
Senator Wetston: I have a second question. There is a lot of discussion around the impact of workers as a result of a number of factors. It's important that workplace issues be addressed. Obviously, trade, globalization and technology have an impact on workers. I'm sure you've seen that. Much of the opportunity to achieve the goals and what the committee is studying of the effects of transitioning to a low-carbon economy will depend on technology.
In your view what would be the impact, generally speaking, on workers and how can the government address that issue? It has to be more than consultation and communication. It would need, I would think, to include education, training and other such things. Do you have views about that?
Mr. Lafleur: I'll let Mr. Roberts elaborate, but definitely that's part of a just transition. We've talked about using money from employment insurance for retraining in those fields, so definitely that's part of it.
I wanted to get back to your previous question as well. I should have added, and it's in the document we presented, that public transportation has to be a big part of the transitioning as far as transportation is concerned as well.
Chris Roberts, Director, Social and Economic Policy, Canadian Labour Congress: If I may, I will quickly respond with a few additional points.
The confluence of so-called disruptive technologies affecting the future of work and employment in advanced industrialized economies, with the disruption entailed in an accelerated transition to a low-emission economy, makes the question of labour adjustment and workplace adaptation to these forces more complex.
An important component of what the labour movement is proposing is really mechanisms to allow workers and their organizations to play a fully informed and fully engaged role in both anticipating and governing the introduction of new technologies in the workplace that affect work and employment and measures to reduce emissions and achieve greater efficiency in workplaces.
Congress is proposing legislation and support for environment committees in each workplace that would function a bit like our health and safety committees at the moment. This would provide an opportunity for workers themselves to be informed, to have a voice in and to participate in measures to reduce emissions by introducing new technologies and by transforming the nature of work, production and provision of services.
We think that would be a way to both allow unions and workers to play a leading role in improving the efficiency of workplaces on the side of production, but also to play a role in adapting to new technologies that will transform work as well. That's an important dimension. There have to be mechanisms to allow workers and their organizations to own the process of transition to a sustainable economy.
[Translation]
Senator Galvez: I would like to begin by thanking you for these brave, responsible and forward-looking comments. As someone who comes from a group that represents workers, I find it very refreshing and encouraging. Other groups have come here with a completely different vision of the future.
In order to get to know the group you represent better, and since you have not introduced your organization, I would like you to take a few minutes to explain to us the type and number of workers you represent, and tell us what provinces they are in.
[English]
Second, what interests me the most is that when we make this transition it will cause problems with the workers in training, education and their skills. I have been talking to lots of workers about the transition and the building code. Two things are coming out of these conversations.
One is about the mobility of workers through provinces and the competition with workers coming from abroad. The second point I have been discussing with them is the question of training. It seems that the people doing the training are not keeping up with the changes in technology.
Who is training the workers? Is it CEGEPs, universities and technical schools? How can we help so that everything advances in parallel and not like this?
[Translation]
Mr. Lafleur: I will begin with the first question. In my opening remarks, I talked about 3.3 million workers. That accounts for a large portion of all sectors of the Canadian economy. In that context, we are talking about 56 affiliated unions and 12 labour federations on a provincial level. Similarly to the government's structure, there are federal, provincial and municipal levels. When it comes to municipalities, we have various labour councils, like those in Montreal, Toronto and Vancouver. We are talking about all sectors of the economy, including education, the private sector, the automotive, natural resource and oil sands sectors, and so on. In a way, it is the umbrella of nearly the whole union movement in Canada.
You talked about the transition. In April, we met with three government departments, the Liberal Party and the Office of the Prime Minister. The goal was to come up with a policy on any issues related to a just transition. In particular, we talked about the closing of the coal industry in Alberta and potentially using that situation as an example. We have held discussions with the Alberta Federation of Labour, the Notley government representatives and federal government representatives. Steps have already been taken. We have been in discussions with the government for a long time already. I will let Mr. Roberts tell you more about that.
[English]
Mr. Roberts: I have two broad points on the questions that are very complex. We emphasize the fact that there are enormous challenges and sources of insecurity entailed in necessary transition to a lower emissions economy, but there are huge opportunities as well. We think the research of ILO, the OECD and other organizations has established the potential for significant job creation opportunities and the kinds of jobs that we would describe as good jobs, decent work and decent-paying jobs.
The necessary element, though, as we understand it, is a much more ambitious program of public investment in particular in renewable energies, public transit, inner city transportation and a national program of energy conservation aimed at home and building retrofits.
If there really is a level of ambition to return Canada to a track on which it will actually meet its 2030 emission reduction targets, which we are not on currently, that will go a long way to create conditions to achieve a fair and equitable transition for displaced workers in industries that are currently carbon intensive and high emission and having better labour adjustment programs than Canada currently has. That's the starting point.
We have a number of deficiencies in our existing labour adjustment programs. We have weak active programs in many respects. The idea behind a just transition is that it provides training opportunities, employment guarantees, income guarantees for workers and their communities, and a program of investment in resource communities to provide a future for workers, their families and their communities.
If those mechanisms are in place in the context of a much more ambitious fiscal program, we believe we can take a lot of insecurity and anxiety out of this transition. Currently we have the opposite. Since 2014, in Alberta, what we have seen is unguided, unplanned and unsupported collapse rather than a systematic, supported transition. We still think there is an opportunity to put in place the mechanisms to have positive outcomes for working people.
Mr. Lafleur: The April meeting I talked about earlier, I should have mentioned Tara Peel the representative of the Canadian Labour Congress in Health, Safety and Environment, Joel Duff assistant to the president, but also Samantha Smith of ITUC were part of the team that met with the three departments and the PMO. The ITUC has now established a just transition department in Oslo and she is the head of that. It's just getting on its way, but one of the main reasons she was present was that she knew we had already been talking about a just transition policy that the government would develop in discussions with the labour movement. The ITUC is seeing it as a lead, that we would be leading the way in developing and implementing a real just transition and using the Alberta coal sector as a starting point for implementation.
Senator Seidman: Thank you very much for your presentation. It's clear from everything we've heard from witnesses that transitioning to a low-carbon economy will have an impact on workers and their work and also clearly on their lives. It's not only that we feel this in our work transitioning but also we feel it in our lives on a daily basis.
The study you referred to, "Making the Shift to A Green Economy,'' makes a lot of very definitive factual statements about the moneys that need to be invested. You say public investments totalling $46.5 billion need to be made to stimulate the development of renewable energy sources, with a priority being put on wind, solar, geothermal and tidal power. Then you go on to say that $50 billion has to be invested by home and building owners and an additional $1 billion on a green home strategy.
You make very definitive statements with specific numbers. I'm wondering how you came up with these numbers. Where is that money to come from? Obviously, you see a shifting from where government puts money now to where they might put it in the future to achieve their goals. Could you give me an indication of that?
Mr. Roberts: Sure. Thank you for the question. About a week or two ago, the OECD released its economic outlook for 2017. It reiterated the point that the world economy is in a low-growth trap of persistently weak investment, weak productivity growth and stagnant wage growth, accompanied by chronically high unemployment and underemployment.
According to the OECD, if member states are to break out of this low-growth trap, there must be a greater commitment to using the fiscal levers that exist for countries like Canada, in particular, that have an enviable fiscal position and the capacity to engage those fiscal levers. They must take advantage of the exceptionally low interest rates that exist today to support an expanded, more ambitious program of public investment to create the next generation of infrastructure that will produce a climate-resilient economy and a basis for a low-emissions economy, generating jobs and economic activity in the process.
I believe in the thinking of the OECD and other institutions as well. This is the sort of injection of investment that's required to stimulate economic activity, private sector investment, hiring and income growth to stimulate higher rates of growth and productivity growth going forward, which in turn will generate improved revenues.
We think that the challenge is not in the first instance on the revenue side. It's about getting the level of investment and economic growth up to the point where this economic program of transition can sustain itself. A good deal of opinion suggests that public borrowing in this exceptionally low interest rate public environment, insofar as it supports a program of infrastructure investment, can actually pay for itself effectively going forward. That is not my opinion. That is the view of Larry Summers and other eminent spokespeople, not trade unionists or socialists by any means, but rather conventional, orthodox economists.
We think there is a good argument for a much more ambitious program than we have seen from the Canadian government so far. I think that addresses the question of where the money comes from. We have really untapped opportunities to have the federal government and all governments play a greater role in kick-starting economic activity, which will pay off all dimensions of the Canadian economy, in our opinion.
Mr. Lafleur: In my presentation I talked about the Green Economy Network. You'll see some numbers along the lines of what you are asking about. Off the top of my head, this is talking about retrofitting buildings, public transportation and renewable energy. Those are the three main pillars of the Green Economy Network. We give numbers, not only nationally but also provincially, indicating that carbon is down, how much it is down, and jobs created per province and nationally.
Dealing with the question that you asked, Angella MacEwen has done a lot of work in this regard. She works in the socio-economic policy with Chris Roberts, Marny Gerard and Tony Clarke, who are the main organizers of the Green Economy Network. We are looking at an $80 billion expense. That's what we have estimated as the cost. However, the reality is clear in the documents we have produced. The cost of doing nothing is $90 billion. That's also explained. It's in that context that we need to look at it.
This should not be just public money. Whether its training, retraining, or research implementation, the private sector has a vested interest unless everything would be in public hands, which would be my wish. The reality is that the Exxons of the world will benefit from this and they should be paying into the pot as we are going in that direction.
[Translation]
Senator Massicotte: I just want to be sure that I have understood. You refer to the OECD, which believes that the time is right to spend more, since interest rates are very low and the government's record makes it possible. You are surely aware of the fact that the current government has already announced investments of $100 billion in over the next eight years. There is even a debate on the creation of an infrastructure bank through which the federal government would add $35 billion to create an envelope of an additional $100 billion for infrastructure, including the private sector. That is a concern for many people, but the government in place feels that it is acceptable.
You are planning to spend more than what is already planned by the current government, if I understand correctly. Although the program is planning investments of $200 billion in infrastructure over 10 years, you recommend that additional investments be made.
[English]
Mr. Roberts: It's important to remember that up until now there has been a chronic underinvestment in public infrastructure in Canada. We are already emerging from a long period of underinvestment and negligence with respect to the renewal and upkeep of our physical infrastructure in Canada, not just in Canada but in other countries as well. That's the context.
On top of that, we need to make rapid and significant investments to transform our infrastructure going forward for the next number of decades to allow this transition to occur. In that context, the numbers are necessarily significant. That's what we want to see from governments. That's what the OECD, the UN and other bodies are calling for from governments.
In our view, there are certain problems associated with initiatives like the Canada Infrastructure Bank which, to our mind, is primarily an initiative designed to reward large private investors, institutional investors and large pools of capital looking for investment outlets. First and foremost, in our view, this is a project conceived by, designed by and implemented for large pension funds and other institutional investors seeking investment outlets. In fact, the cost of these investments will be much higher in the long run to the taxpayer and to the public purse than a straight public investment program based on public borrowing.
Senator Massicotte: I appreciate all of that but $200 billion are already proposed for infrastructure.
Are you recommending that the government spend more money than has already been planned?
Mr. Roberts: I would say a combination of things. Better targeted spending in the areas we have identified will achieve the greatest emissions reduction with the greatest opportunities for job creation. Yes, we think that the current program can be more ambitious, given that we are nowhere near on track to meet our 2020 or 2030 emissions reduction targets. The point of the green economy projections is to show that we can actually meet our already fairly modest NDC commitments for 2030 if we invest ambitiously today. The advantages of investing ambitiously today, as opposed to tomorrow, are well established.
Senator Dean: Thank you both for the presentations, and thanks for bringing this lens of adjustment to our study and our discussions. It has opened up, obviously, somewhat of a new field of discussion for us.
On the question of labour market adjustment, it's fair to say that we are struggling right now in Canada just to keep up with what we might call the shift to just-in-time production processes and just-in-time innovative workplaces. We are focused on the here and now and getting skilled workers to the plant that will open tomorrow in Tillsonburg. It's hard for government to shift sights and to think about what is to come a decade or two or three down the road.
For that reason, I think the specific scaled proposal of looking at coal in Alberta and developing a strategy for that is a terrific idea. We know it's coming. It's specific. We know it's in place, and you are saying, "Let's put in place a strategy for it.''
Could you talk to us a bit, by looking back at previous successful labour adjustment strategies that have involved the labour movement? I have steel in my mind for some reason. What has worked in the past where we've seen, if I might call it, bipartite or tripartite approaches to adjustment? Can we learn anything from that?
Mr. Lafleur: Again, I will let Mr. Roberts elaborate. As I was saying earlier, there aren't very good examples. I was at the World Social Forum in Montreal last summer. We did a presentation on the Green Economy Network, the three pillars and Just Transition. It was a roomful of steelworkers. One participant stood and said, "There are no examples. Can you come up with examples?'' Mr. Roberts may be able to come up with examples, perhaps internationally, that we could point to but they're pretty rare.
Mr. Roberts: Very quickly, I would reinforce what Mr. Lafleur said. It is recognized that Canada has a particularly weak system of labour adjustment that tends to leave out older workers, in particular. The targeted programs that we have for older workers aren't particularly effective in preventing large drops in income and re-employment opportunities.
We have a lot of negative environment-related examples in Canada. Workers in the Atlantic cod industry sector and B.C. forestry workers suffered large drops in welfare. To the extent there are positive examples, the Alberta coal phase- out is likely to have a much more positive outcome for workers than the Ontario coal phase out. We don't even know what happened to those workers. At least we will have some attempt to monitor and intervene in that transition in Alberta.
I would say the package that has been announced and developed with respect to softwood lumber in Canada is something to look at positively. This was a reactive response, of course, to a shock to the industry, although the industry itself has been in very dire straits for a decade. The federal government, in conjunction with the provinces and the stakeholders, has developed a program of work sharing, income support, loan support and support to the sectors, et cetera, is very encouraging.
There are bases to build from, but I agree that internationally the case studies are better. An example would be coal mining in the Ruhr valley in Germany, which has been through a multi-decade transition. There are benefits to be had from looking hard at that experience as a way to ensure the livelihoods of workers affected is an important priority in that process.
Senator Patterson: Coming from a region with the highest proportion of indigenous people in the country, Nunavut, I noted with interest your invocation of the right to free, prior and informed consent over energy and natural resource development projects in the UN Declaration on the Rights of Indigenous Peoples.
I have three questions. First, does the CLC have a mandate to speak for and advocate for indigenous people?
Second, in your view, does free, prior and informed consent give a veto to indigenous peoples on these projects if they are opposed?
Third, as an organization whose mandate, I'm sure, includes creating and providing jobs for skilled workers, are you at all concerned about the challenges of indigenous organizations challenges numerous resource development projects in Canada, like Site C in B.C., which currently employs several thousand workers?
Mr. Lafleur: Does the CLC have the mandate? No, but we work with indigenous peoples and have for decades. Many, if not most, of the affiliates, the 56 unions I talked about earlier, have policies supporting the rights of indigenous people, their land, and their struggle for hundreds of years now.
I was at the AGM of United Way as a partner a couple of weeks ago. Chief Wilton Littlechild was one of the commissioners on the truth and reconciliation file. No, we don't have a mandate as far as veto is concerned. If we are talking about their land, my gut reaction would be yes. It's our working with them. They tell us where they want to go, what they want to do, and we support those decisions.
I am not sure about the last question.
Mr. Roberts: It's important to point out that the policy direction and program of the Canadian Labour Congress with respect to transition to a sustainable economy includes measures to address the employment challenges, energy and environmental needs of indigenous and First Nations communities. We want to retain that as a fundamental feature of what we are proposing, the sorts of investments in indigenous communities to generate economic opportunities, and address the crying social and environmental needs as a fundamental part of it.
We think, again, there are enormous opportunities in this climate emergency for all Canadians, all people living in Canada.
Senator Patterson: We'd all like to see greater employment among indigenous communities. We have Energy East, the Ring of Fire, Kinder Morgan, Site C and the Northern Gateway, all of which could produce significant employment for indigenous and other people.
Is the Canadian Labour Congress concerned about court and other challenges to these projects and their impact on job creation?
Mr. Roberts: I think you'll find is that the affiliate unions of the Canadian Labour Congress have taken different positions on pipeline investments and those sorts of projects. Unifor, for instance, has opposed many pipeline investments, as have other affiliate unions of the congress. It's their prerogative to decide what they back and what they don't.
We believe as a congress that there are greater long-term opportunities and benefits from investing ambitiously now in renewable energy generation and in improving and reducing emissions in oil and gas and existing fossil fuel industries that can generate employment and good jobs, skilled work and training opportunities for all communities in Canada, as opposed to reinforcing for short-term gain the existing path that we're on.
We believe a transformative investment program is better all around economically and environmentally for everyone in Canada. That's the direction the Canadian government and sub-national governments should be charting.
The Chair: You have referred to renewable energy a lot. What do you classify as renewable energy that will help us meet our targets?
Mr. Lafleur: I think the document mentioned solar, wind and geothermal. Those are the main ones. I guess we could have added tidal to that list. You could talk about forestry if it's done properly, which is not the case in many instances today. Those are the main ones I'd talk about.
The Chair: As chair of this committee, I hear quite a lot that all we need is more wind energy and more solar energy, and the world is fine. Can you tell me what you replace the products with that we get from the petrochemical industry, the oil and gas industry, as it relates to all kinds of things: plastics, medicines, steel or the rubber we use to build cars that everybody thinks should be electric? Where do you get the wire from? It all takes fossil fuel.
You have told me that renewable energy to you is more windmills, when over 80 per cent of our generation in Canada is completely clean. We are one of the best in the world so far. It doesn't mean we shouldn't get better, but that won't get us there. That won't provide us with the products that we actually enjoy now and probably take for granted.
If you look around this room, it's plumb full of those products. What do you say to that?
Mr. Lafleur: I'll let Mr. Roberts elaborate, but if we use those petrochemical products, just the examples you gave, it would be an immense improvement over what we are facing today as far as all our cars and trucks. We need to keep pushing the technology to even move away from that, but if we kept it to the examples you gave, there would be a lot less CO2 emissions in the atmosphere.
The Chair: I just listed a few. There are hundreds and hundreds of products, pages of them that come from petrochemicals we use on a daily basis in our lives, even to our clothes.
I will ask you to be quick, because my colleagues want to get in with a last question.
Mr. Roberts: You have put your finger on the scale of the challenge facing our economy and other economies. We have built an economy based on fossil fuels. The enormity of that transition is hinted at in your comments, but that doesn't avoid the challenge of having to electrify our transportation systems as much as possible to replace fossil fuels in our manufacturing and processing industries and to invest in the kinds of technologies, research, development and innovation that will allow us to substitute those fuel sources in those manufacturing processes.
I don't think anyone has solutions, but we certainly have to make the investments that will allow us to move away from that dependence.
The Chair: It's a Herculean task, I can tell you that. I agree with what you said earlier. We will not meet our targets for 2030, the way we are going today, and 2050 is even tougher. Anyhow, I appreciate that testimony.
Senator Galvez: Just for clarification, it's true that these are petrochemicals, but it is the carbon capture. The carbon is inside. The problem is when we burn carbon or CO2 and it gets into the air.
If we invest all this money the government is saying, and you are suggesting even more, to construct infrastructure — roads, bridges, electrification and hospitals — how can we use an old, existing building code that is outdated? What can we do with our building code, Mr. Lafleur,to be efficient?
I'm not a building code expert, but I can tell you there are good examples around the world working with both adapting Canadian workplaces and the Green Economy Network. Germany comes to mind, and even the United Kingdom and Canada as well. There are examples of things that should be changed or improved in the Labour Code to go in that direction, including training of workers who do the insulation. If you go to the insulators union in British Columbia, you'll get some really good examples where they insulate pipes and things like that.
Lee Loftus is the president of the B.C. wing of that union. They have done a lot of work now being used in New York and other parts of the United States as examples of how to not only change the building code but to make sure it's done properly by trained workers.
Mr. Roberts: In Toronto, under the aegis of the Toronto Labour Council, building trades unions are gathered together with contractors within the Better Buildings Partnership to jointly devise more stringent building codes and processes to ensure the retrofit of existing building stock and the construction of new stock are increasingly efficient in energy use and emissions.
Senator Wetston: I just want to put on the record that borrowing at low interest rates has its consequences as well. It's not without economic effect. It's not quite that, as I'm sure you will agree with me.
I realize we talked about public projects and that Senator Massicotte identified the billions of dollars that will be invested in infrastructure. You are well aware of the Highway 407 in Toronto. As an example, it's owned 43 per cent by Ferrovial, a big Spanish company; 40 per cent by CPPIB; and 17 per cent by SNC-Lavalin. What is wrong with that?
Mr. Lafleur: I think it's another example of privatization and the profits going to the few rather than to the public purse. That's what is wrong with that, as far as I'm concerned.
If you want to put tolls on highways, you should maintain it in public hands and make sure the profits made are reinvested in hospitals, schools and other public services, and not going to the three examples that you gave as far as multinational corporations.
The Chair: Thank you very much, gentlemen, for your presentations and for your answers to our questions.
Mr. Lafleur: I want to thank you again. The paper in Toronto is called The Green Print. It has tons of examples.
The Chair: Thank you.
For the second segment, I'm pleased to welcome from the Canadian Fuels Association, Peter Boag, President and Chief Executive Officer, and Lisa Stilborn, Vice-President, Ontario Division.
Welcome. You have a presentation to make and then we will go to questions and answers.
Peter Boag, President and Chief Executive Officer, Canadian Fuels Association: Thank you, senators. It's our pleasure to be with you today. We certainly want to commend you and the committee for its thoughtful sector-by- sector approach to this very important study of the effects of transitioning to a low-carbon economy.
We note that this is our second opportunity to meet with your committee in the context of this study, at least a number of members of the committee. Last summer we hosted several of you at a round table and a refinery tour in Sarnia. We are appreciative of that opportunity to meet with you on site and give you a first-hand perspective on our industry and its facilities. From our perspective it was certainly an important opportunity to see our operations up close. We appreciate the commitment of time and effort by the committee members to travel to Sarnia and meet with some of our members and staff and tour our facilities in that important centre of refining for Canada.
For those who weren't able to travel to Sarnia for that event I will start with a little background of who we are and what our industry does.
Canadian Fuels represents the industry that produces, distributes and markets petroleum products in Canada. We are people who take that stuff our upstream brothers pull out of the ground and make into useful products that Canadians rely on and use every single day. Our members include companies such as Federated Co-op, Husky Energy, Imperial Oil, Irving Oil, Parkland Fuel, Suncor Energy, Shell Canada and Valero.
Collectively, to those companies, our members supply nearly 95 per cent of all transportation fuels that Canadians rely on every day. They are also an important source of petrochemical feedstocks used within that important petrochemical sector in Canada. In fact, it has very integrated in nature, and you probably would have seen some of that in Sarnia in terms of integrated nature of individual facilities across the refining and petrochemical sector. From a mobility perspective we underpin the Canadian economy. Our refineries and the complex networks that support and enable the distribution of those fuels are recognized as part of Canada's critical energy infrastructure.
As an association, we engage at all levels of government on regulatory files across departments with an almost exclusive focus on environment, health and safety. Of course, it will come as no surprise that the whole climate policy file is very much one that is at the centre of our engagement with governments at all levels across Canada today.
Let me first say that on the issue of climate policy, as an industry, we support carbon pricing as the most cost- effective way of achieving meaningful greenhouse gas reductions. To this end, we have worked collaboratively with early movers: British Columbia with its carbon tax, Quebec and Ontario with cap and trade systems, and more recently in Alberta with its hybrid system of a tax and output-based allocation for industrial sectors.
Our aim and our objective in that effort in working with governments to implement a smart carbon pricing policy are to ensure, first, that policies are effective; second, transparent; and, third and not of least importance, that we protect the competitiveness of all our energy-intensive, trade-exposed sectors across the country. These sectors are very much a foundation of our economy. They support the standard of living and the social policies and programs, et cetera, that governments provide to Canadians.
We also welcome the pan-Canadian framework on climate change. We are working with both the federal and provincial governments to promote policy alignment between jurisdictions. For us as a national industry, policy fragmentation is a real challenge as is the prospect of moving forward with a pan-Canadian framework. I know much of the actual heavy lifting will be left to provinces under the pan-Canadian framework. At least it is an approach that works toward establishing a greater level of alignment and coherence. It is very much a positive activity and initiative in our view.
Some may find this a bit surprising, but we are also supporters of the federal government's proposed clean fuel standard. I know Senator Neufeld, from his experience in B.C., will be familiar with the significant fragmentation of the Canadian fuels market through the plethora of provincial renewable or low-carbon fuel standards that have taken what is in the North American context already a relatively small national fuels market and cut it up into even smaller markets because of differing standards. That's highly inefficient and creates challenges with respect to the resiliency of security of supply in the event of supply disruptions in one jurisdiction compared to another.
We very much support the clean fuel standard, at a national level, as an opportunity to bring greater coherence and alignment to the regulation of fuels and to avoid what is, in our view, an unhelpful fragmentation of the Canadian fuels market into many what we would call boutique markets.
We also recognize that the fuel mix is changing. The reduction of GHG emissions in the transportation sector is a daunting task. It represents 25 per cent of Canada's overall emissions. It's one of the segments of the economy in which emissions have been growing the most over the last 25 or 30 years.
We acknowledge that the pathways to achieving meaningful reductions in transportation are diversification of the fuel mix, new fuel technologies and new vehicle technologies. That said, we also recognize, and hope you do as well, that liquid petroleum fuels will be with us for some time to come. They will continue to be a significant component of fuelling essential transportation in Canada for decades to come.
Yes, their share of the market will gradually reduce, but they will still be a significant component of market. Certainly, when you look at forecasts, whether it is at the international level from organizations like the International Energy Agency, at the North American level, from the U.S. Energy Information Administration, or even in the Canadian context from the National Energy Board of Canada, all of those forecasts are very consistent in forecasting a continuing and important role for liquid petroleum fuels, particularly in the transportation sector.
Back to our issue of ensuring that we maintain a competitive refining sector, particularly in the context of continuing demand for our products for years to come, we have been doing some type of work in identifying the regulatory challenges, particularly from climate policy, with respect to the continued competitiveness of industries and the implications of that for government policy. The deck that we have provided to the committee in advance highlights a recent report that we have done. It highlights the challenges around the regulatory agenda and what it could, if not handled appropriately, do to erode the competitiveness of Canada's refining sector.
The report concluded that under certain scenarios there is a risk that five of Canada's current fifteen refineries could close before 2030, with the most significant impact in Eastern Canada. When we speak of Eastern Canada, that is from Ontario east, so that would include those refineries in Sarnia that some of you visited last year.
That's independent of the policy-induced reduced demand that will come from government policies associated with the pan-Canadian framework or provincially to accelerate or facilitate the transition to alternative fuels. Our concern is the classic one around leakage. Imposing an overall regulatory agenda on Canadian refiners will erode their competitiveness to the point that they are no longer able to operate and close before policies reduce the demand for products. They will be ahead of policy objectives to reduce the demand for transportation fuels and close refinery capacity in Canada sooner than required.
As a result, that means we will import our fuels. When we import our fuels, we export jobs. We export the economic activity that's important in many communities across Canada, and we just export those emissions. We actually don't achieve anything, and that is the classic case of carbon leakage.
Certainly, over the last six or seven months, if we don't think about policy smartly, the potential for leakage has increased. There's no question the biggest competitor Canadian refineries faces are refineries in various states in the U.S. We have seen a sea change, at least at the federal level, in carbon perspective or the potential for carbon pricing on a broad base in the U.S.
Yes, there are a number of subnational governments that are still leading the way in the United States. California, for one, is certainly at the front edge of that leadership. In the refining sector, Canadian refineries don't compete with refineries in California. Largely, we compete with refineries on the U.S. Gulf Coast, in states like Texas, Louisiana and Mississippi. As you will all know, those are states that are not likely to be introducing any form of carbon pricing in the foreseeable future.
When I say we compete, it is a free-flowing market in Canada for fuels. There are no borders when it comes to the trade of finished products, finished fuels, across the Canada-U.S. border. On any given day, at any given geographical location, fuels are flowing in both directions across the border. It will differ by region, product and season as refiners on both sides of the border look to maximize the efficiency and competitiveness of their operations.
We compete with U.S. refineries not only for our domestic market in Canada, but we also compete for the export market in the U.S. Today, we still are a net exporter of finished products to the United States. However, over the past 10 years, our trade surplus in finished products with the U.S. has declined dramatically. It's a lumpy curve if you look at it on a year-by-year basis, but, between 2007 and today, our trade surplus on refined products in the United States has been cut in half or more. I think that's a reflection of the competitive challenges for Canadian refineries.
When we look at the findings of that Baker & O'Brien report, it really is our concern and our desire to work with policy makers, both at the federal and provincial levels, to ensure that policies achieve objectives in a way that doesn't cause the leakage problem where we divert emissions from Canadian refineries to refineries south of the border, and away from refineries that are already some of the cleanest in the world, potentially, to refineries that are less clean in their operations. Not only do we not reduce emissions. We could in fact be increasing global emissions by closing our refineries and relying on imports from refineries in the U.S.
As those who travelled to Sarnia would know, we have highly skilled, highly trained people who earn solid salaries and wages that support the economics of important communities. We would certainly not want to see that decline by buying it elsewhere instead of making it here in Canada.
We would urge the committee, very much, to consider the potential consequences as you continue to deliberate on this important subject. We would certainly see the refining sector as part of Canada's critical energy infrastructure, as an energy-intensive, trade-exposed sector, and as a potential barometer of the relative performance of climate policy implications in other sectors. We think that some of answers lie in carefully sequencing and pacing the policy agenda over the 2020 to 2030 period in particular.
If governments are successful in reducing transportation emissions, it goes without saying that we will see a reduction in the demand for refined petroleum products. We are a unique sector in that the products and facilities are being regulated for GHG emissions reductions. If governments are successful, through their various policy initiatives, in reducing the demand for petroleum products, of course, that will reduce the requirements for refining capacity in Canada and ultimately reduce emissions from the refining sector. It is important to look at that in that context.
We use the analogy that we as a sector are a bit like the candle burning at both ends. That needs to be considered. The important acknowledgment of the trade-exposed nature of many of Canada's sectors in refining is very much an important policy consideration that we expect policy makers to pay close attention to as they design and implement policies in the years going forward.
Thank you very much. I appreciate the opportunity to deliver those opening remarks and very much look forward to your questions.
The Chair: Thank you very much. We will begin with the Deputy Chair, Senator Massicotte.
Senator Massicotte: Thank you very much for being with us and for your presentation this morning. It's obviously very relevant.
Given the constraints or the impositions we are causing to your sector to become more green or satisfy our climate goals, I gather the basic argument you are making is that it is causing you to be uncompetitive because you have some countries like a big neighbouring country and Venezuela that are stringent. It is the world market, as you said, and it is less stringent. Your argument is: Please treat us as a trade-exposed high emitter and don't treat us like all the rest, given the impositions we have upon you.
Having said that several provinces already have carbon pricing intact. Alberta, B.C. and Ontario have accepted the concept that certain industries are trade-exposed high emitters, so we should protect them. Have they accepted your argument in the four provinces? Are you exempt from the carbon pricing regime of those four provinces?
Mr. Boag: No, we are not exempt and that's something we haven't asked for. We don't see that as a solution.
We understand the challenges ahead and we understand that we need to play a role. The way both Ontario and Quebec have implemented their cap and trade systems and responded to the challenge of energy intensive, trade- exposed sectors is largely around the concept of free allowances, recognizing that in order to protect the competitiveness of sectors they shouldn't have to buy all of their allowances at auction or purchase them.
A level of not entirely free allowances are provided. Members still have to go out at auction in Ontario and Quebec to buy the allowances if they are unable to lower their emissions allowances to meet their emissions level. The blow is softened somewhat by the provision of free allowances. Those free allowances will decline over time. The cap under which those companies operate will decline over time, but certainly it has been working with governments in terms of the solution.
How steep is that decline rate, particularly in the context of competitors who have no cap? What is the role and to what degree can free allowances offset the challenges around competitiveness?
Of course there are other flexibility measures within the cap and trade system design, such as the ability to utilize offsets and those things. We look to ensure governments and policy makers provide an adequate level of understanding. Free allocations are certainly key components, as are other flexibility measures which enable obligated parties and facilities to pursue and achieve the most cost-effective solutions to meeting your obligations under a cap and trade system.
Senator Massicotte: You also asked us in your presentation not to compare you to California as they are not your competitors. You said that you were competing more with other countries. That argument has some merit, but what are the California refineries doing? Obviously they must bear the burden of a tougher regulatory environment. How do they survive?
Mr. Boag: They are very challenged. Over the last number of years I can't draw a straight line between climate policy and an individual refinery closure, but there have been some closures of refineries in California.
California is a unique market due to its size. Its economy is greater than the Canadian economy. It's in a very small geographical area relative to the geographical area of Canada. It's on the other side of mountains, so the degree to which that market is accessible to others may be different as well.
Certainly we see that in Western Canada. When you look at the results of that Baker & O'Brien study, the biggest challenges are for eastern Canadian refineries. They are more exposed to competitive pressures because those markets are either on or adjacent to tidewater, which provides easy access to those markets from competitors using cost- effective marine tankers.
Western Canada, and I'm talking in particular about Manitoba, Saskatchewan and Alberta, are very much a landlocked market. We are dealing with the challenges of crude oil and finding that the market access is constrained into the U.S. because of the lack of infrastructure. It works the same way for bringing fuels from other markets, particularly the U.S., into those provinces. They have a more protected market. It's much more difficult for competitors to bring fuels into that market. That's why you see that these competitive challenges, in terms of the threat of closure, are much less in western Canadian refineries than in eastern Canadian refineries. Geography plays a part, and I suspect it also plays a part in California.
Senator MacDonald: Thank you, Mr. Boag. I want you to clarify something for me and then I want to ask you a question.
For refined product exports 432,000 barrels a day are going out and 243,000 coming in. I am just curious. Am I assuming that most of that coming in is natural gas?
Mr. Boag: No. This is liquid petroleum fuel. This is probably gasoline, diesel, jet fuel and perhaps some marine bunker fuel.
Senator MacDonald: Why is it more competitive to bring that in than produce that?
Mr. Boag: Remember, it is a net surplus. Our market is spread across the breadth of Canada. Refineries are built to optimize their economics. In a relatively small market, it may be uneconomic for a refinery to produce a small amount of a particular fuel for its local market. It's more economic to actually bring that in from where it is produced in a large facility that supplies a larger market. That's why we see regional differences and product differences on the exports.
We are certainly a very significant exporter of gasoline and much of that happens in the eastern part of Canada in one refinery in particular. There's a second refinery as well in terms of Eastern Canada, but there are pockets within Canada where we will import gasoline and where we will import diesel. Jet fuel is probably one of the most significant fuels that we import. It is a specialized product. It's just not economical for a refinery to chop up its production to meet needs within its small market for every product. That's the nature of the economics on a day-to-day basis. It's also seasonal in nature.
We may be in Eastern Canada, for example, where there is not the same access for natural gas for home heating. There is a much larger proportion of homes in Eastern Canada, Quebec and east, that are heated by home heating oil than elsewhere. The seasonal demand for home heating oil may mean that we have to import other distillates because our capacity on an all-year basis is not sufficient to meet that need. There are other factors that create that situation.
Senator MacDonald: You mentioned earlier security of supply and the market exposure of the eastern refineries. Canada has no strategic oil reserves; the U.S. has four of them. We have none. Should we?
Mr. Boag: I'm not the most qualified person to ask about that. My focus is on refined products, not on the upstream side of the industry. As I understand the history and going back into those conversations when the strategic oil reserves were created, most of that came out of the oil embargo and issues in the 1970s. As a net exporter of crude oil, we have natural strategic reserves of crude. It's in the ground.
Those countries, and certainly in the case of the U.S., that established strategic crude reserves are countries that at the time and even today are still significantly reliant on imports. They can't meet their own crude needs from their own supply. Canada can. As I understand it, that's largely the rationale behind no need for a strategic oil reserve in Canada because we already have lots of oil and we have it in the ground in a natural reserve.
Senator MacDonald: Let's just postulate this for a second. Let's say Energy East is finished and petroleum is going east to Saint John, New Brunswick, and there is a rupture in that line. Someone sabotages the line. How do you get the oil to it?
Mr. Boag: Again, I'm not a pipeline expert, but we have seen unfortunate circumstances of pipeline events over the last number of years. Yes, they happen. They are few in number, certainly in terms of main line pipeline ruptures. They are generally addressed and responded to in a matter of days, not weeks or months.
The threat to security of supply is pretty minimal. First, in many cases our refineries in Canada have days or weeks of crude inventory on supply to address short-term outages. The risk of outages and then how that would trickle down to shortages of supply of refined products is very low. Admittedly, we did see some issues in Alberta last year as a result of the Fort McMurray fire situation, where pipelines and oil sands facilities were shut down for a relatively short period of time. It wasn't a significant event in terms of what that meant for consumers in terms of fuels. In part, it was accentuated by the fact that one of refineries in the Alberta area was already on a scheduled shut down for maintenance, so it was a number of things combined. Even then, the disruptions in supply to the system were minor and of very short duration.
Senator Griffin: Thank you for being here and thank you for putting the recommendations on page 23 of your deck in such a concise format
I have a question about one of them. What exactly do you mean when you say, "Additional stringency of supply driven emissions should be back ended''?
Mr. Boag: Referring back to an answer to an earlier question, in a number of jurisdictions we are already working with carbon-pricing regimes. Certainly I have referred to the cap and trade of the Ontario and Quebec jurisdictions. The compliance period for their initial cap and trade systems that are in place now is 2020. Those jurisdictions are now formulating the framework for the next compliance period from 2020 to 2023. They are looking at additional stringency in the caps for those cap and trade systems.
In considering the design of those new post-2020 systems, we're suggesting and recommending to them that they would think about looking beyond 2023 for additional stringency in the refining sector. I understand those provinces in their cap and trade systems are aggressively going after the transportation fuels side of it.
That is to my point. If the governments are successful in reducing the demand for transportation fuels, we believe that will naturally cause a reduction in refining capacity and refining activity in Canada. We will already accomplish the aim of reducing emissions from the refining sector.
Instead of trying to impose additional early stringency on refiners, which could have an impact on their competitiveness and result in a leakage issue, it is more of a "wait and see.'' If you are successful in addressing your transportation issue, you will also address the supply emissions. However, if you are moving out to the mid-2020s and you see it is not happening, that's the time when we can potentially crank up stringency on the refiners to get to the same point you want to get to in 2030. It's a relatively shallow or flat curve for the first few years. If it is not being achieved naturally through attrition, then you can back end through some additional stringency. That's how we would explain that.
Senator Wetston: I'm trying to understand where refinery fits. I understand where it fits in the sense of its roles and responsibilities in the sector, but is refining part the problem with respect to the greenhouse gas emissions, or is it part of the solution with respect to greenhouse gas emissions?
Mr. Boag: I would answer first by saying that refiners don't operate and produce fuels because they can. They refine and produce fuels because there is a significant demand for their product. Transportation is a very critical activity in Canada. Over our history the transportation sector has shown an almost singular preference for liquid petroleum fuels as the mode of energy to power transportation. The industry exists to support and provide the supply for that demand.
We are part of the solution. You can look at the track record of refineries in their performance. We are very proud of that. I was in Toronto yesterday meeting with the Ontario Minister of Environment and Climate Change, Glen Murray. Some of the statistics we were able to share with him is that in Ontario the refinery sector has reduced emissions by 30 per cent since 1990. We are playing a part in this emissions reduction challenge. We believe that we are part of the solution.
There are new technologies that will continue to improve the energy efficiency and ultimately the GHG emissions performance of the sector. We really are supplying that demand that you and I and others in businesses have around our expectations of a reliable, affordable supply of energy to power our personal transportation needs. What often gets overlooked by individuals is the very important role that freight transport plays in our daily lives.
Senator Wetston: What you indicated is important and we understand that. I guess what I was getting at is: What are you doing from the point of view of investment in refineries to ensure the technology is included and being relied on to improve or deal with greenhouse gas emissions? You more or less touched on that.
Mr. Boag: Yes. The biggest opportunity and where we have achieved reductions over the last number of years has been through improved energy efficiency. Refineries are very energy intensive facilities. Every time an investment is made with respect to replacing some component of that energy consuming infrastructure in refineries, the focus is on finding the most energy efficiency and investing in the highest degree of energy efficiency.
That's not just from a climate perspective. As we talked about the challenges around competitiveness and what is a highly competitive North American global refining sector, industries are also looking to reduce their energy consumption to keep competitive. That's probably the biggest area. When refineries look to do their regular maintenance and their turnarounds, they are looking at opportunities to improve their efficiency and their environmental footprint, whether on climate, GHG emissions or conventional air emissions.
One the challenges industry has, as governments look to impose additional stringency around emissions of conventional air pollutants, NOx, SOx, CO2, particulate matter and other traditional pollutants, the technologies and solutions that allow you to reduce those emissions are often technologies and solutions that increase energy consumption.
There is push-pull within that policy environment. You are asking us to do this. We can achieve that, but the solutions that allow us to achieve that will increase our GHG emissions because we will become more energy intensive in order to address that objective. That is a constant push and pull within governments and policy makers in terms of prioritizing. Is it emission reductions of convention pollutants or is it emissions reduction of GHG or GHG equivalents?
That's part of the challenge and decisions that are being made continually. In terms of investment, this is an industry that annually invests over $2 billion a year and that's largely not around producing any more fuel. That's continuing to improve efficiency and continuing to meet higher environmental performance standards. If you look at the last decade, the industry on aggregate has invested $10 billion solely in environmental performance improvements.
Senator Wetston: Thank you.
Senator Galvez: Thank you very much. This is a very well-structured report, very nice and very easy to read.
You are in the refining sector and you are saying that there are only 15 refineries in the whole of Canada. That's a very small number, so we can study each one of them relatively easily. I am interested in these refineries. I want to know, for example, how old they are, when they were planned, when they were designed, and what is their life expectancy. I'm sure some have exceeded their initial life expectancy. There were retrofits and there were modifications.
We have conventional petroleums and unconventional petroleum. They are very different than the tar sands. When petroleum arrives at refineries, even the colour of the fuel coming out of refineries is very different.
You have said that these refineries are efficient but you have only mentioned four parameters: NOx, SOx and VOCs. Petroleum is big soup with thousands of compounds. I would be interested in knowing it is efficient in terms of which compounds. Which of these compounds relate to our problem of climate change? Of the petroleum going in, what is recuperated and what is burned is very different. It is very terrigenous. I would like you to comment on this.
Mr. Boag: You are actually right. You have a very good understanding of the nature of the business and its diversity in terms of facilities.
Senator Galvez: My other point is that you mentioned the government is telling you do this but this will result in more emissions. Shouldn't it be you, because you know your business, to decide what is best in whatever you are doing?
If you are saying this technology is expensive, there are tonnes of technology such as carbon capture and filters. Where is the research? Are you doing research? How much research are you doing? What are your own goals? How are you to attain the goals we want to achieve?
Mr. Boag: There are a number of important points that I would like to address, and I appreciate the opportunity.
You are quite right that no two refineries in Canada are alike. They look alike as you drive by them but they are all different. They have been built in different times. The oldest refinery in Canada dates back to the 1800s. That's the Imperial Oil refinery, which some of you saw last year. I think those who saw that and participated would not think that was something built in the late 1800s. None of the infrastructure that would have been built at that time is there anymore.
Refineries are continually being updated and a lot of that updating to respond to increasingly stringent environmental performance requirements. Yes, while the original refinery on that site is old, the refinery there today bears no resemblance. It is nothing like the refinery there at the beginning. In fact, today they are very much advanced technology facilities, highly capital intensive and highly technology intensive. They can all be different and that difference reflects when they were built, the markets they serve, and the crude they had access to. Different provincial jurisdictions have imposed different environmental requirements at different times. They responded differently.
That gets to another very positive point that you made on most of the regulators' approaches in Canada, be they federal or provincial We have an outcome-based regulatory system in Canada. Rather than telling refiners and being specific by saying that they need to install this technology or adopt these processes, they set an outcome. We want you to reduce your total production, what we would call the refinery bubble for the whole refinery. This is not on equipment by equipment basis, but for the whole refinery. We have set these requirements for you with respect to maximum annual outputs of SOx, NOx and VOCs.
I understand we focus on those because those are the ones that are really the focus of regulatory activities in provinces. There are a number of differences. That's why we use NOx or SOx. It's not just one. There are several. VOCs are a broad range of chemical compounds. It's not just those ones. Those are families in some respects, and we get into issues like benzene and those things as well.
It is very much an outcome-based approach that allows individual refiners, based on the unique nature of their facilities, to decide what is the most cost-effective way to achieve a particular outcome. Some will use it in terms of saying, "That could have impact on what feedstocks I will use.'' They will not use this particular crude or that particular crude. They will use a blend of crudes instead because they allow for a cost-effective way to achieve that regulatory outcome. Others may install new technology. Others may do it through a combination of both.
A positive aspect of regulatory approach in Canada is that it is outcome based, which is quite different from what it is in the United States under the environmental requirements of the Environmental Protection Agency. They are very much a prescriptive organization in terms of prescribing what refiners have to do to meet environmental requirements. That would be great in a one-size-fits-all world, but that's clearly not the world we live in, in Canadian refining where no two refineries are alike.
Yes, there is diversity and there is the approach the Canadian government has taken. It is same around GHGs. Whether it's a cap and trade system, it is your cap of emissions and how you achieve that. Whether you make investments to actually reduce your emissions or whether you find that the most cost-effective way is to buy allowances to meet your obligation, it's a flexible system which allows individual refiners, based on the unique nature of their facility, to find the most cost-effective approach to comply with regulatory requirements. That's a positive approach which needs to continue.
I'm not sure if I addressed everything you asked.
Senator Seidman: Thank you very much for your presentation, Mr. Boag.
I'd like to refer to the unintended consequences in your deck. In fact, you have referred to getting the sequencing correct several times. It is important, especially between 2020 and 2030. In other words, from now until 2030 pretty much.
Mr. Boag: We recognize that looking out to 2030 is a long time. We understand the government longer term goals are to 2050, but it is hard to consider because there is so much uncertainty right now.
Senator Seidman: I understand that, but it's a matter of the moment, in a sense, because we are looking at now until 2030. You say that, and I think it's really critical:
Shrinking Canada's refining critical infrastructure more than and/or earlier than warranted by declining fuel demand will make Canadians increasingly reliant on fuel imports.
That will have some kind of impact on the whole industry and on the whole country.
You've talked about how the industry is effective in meeting regulatory outcomes as they occur, but I would like to know how the industry is preparing itself in a more futuristic way in developing new technologies and trying to ensure that you not only meet the regulatory outcomes of next week, next month or next year, but you look beyond that in a larger way. You are right. This will have a huge impact on Canadians. I would like to know what the industry is doing to make sure that we can keep the industry at home.
Mr. Boag: First, it's sometimes hard to talk about what the industry is doing. We are an association of competitors. They are competing among themselves for their business in Canada or elsewhere. They have their own individual business strategies, both short and long term. Sometimes it's hard to speak to what the industry is doing because it is individual companies looking at how do we survive and prosper in what will be a very different world. It kind of constrains how I can actually answer that.
There is a huge effort to look at how to improve energy efficiency. We are starting to look at different potential feedstocks. A number of our companies are looking beyond their traditional business areas of being oil and gas producers and refinery operators. Two of our members are among the largest ethanol producers in the country. Some are big into wind power. Others are certainly looking at the opportunity for natural gas in operations where natural gas has not been the traditional fuel, for example, in transportation.
There is a broad look at what the future of their business will look like that includes the refining interests but looks beyond that. While many of our member companies are refiners, they are also fully integrated companies in the oil and gas sector. They have significant upstream operations, which may include oil sands operations and significant natural gas producers. We are seeing that continued shift within individual companies as how they look at the future and respond to the challenges of climate change and the climate agenda.
Certainly, within the refining sector you cannot look at refineries independent of the products they produce and the markets they serve. As that market changes, some of that will be regulated. For example, I spoke briefly around our support for the federal clean fuel standard. Our fuel suppliers, our members, will be the obligated parties under the compliance requirements of the clean fuel standard. They are looking at how they can address the needs of continuing to provide and supply cleaner fuels.
Biofuels will continue to be a part of it, but others are looking at how they can meet that by potentially co- processing both crude oil and biomass feedstocks. Under the hood there is a huge amount of research, innovation and exploration being done in terms of how to make refineries operate more efficiently and how to address the changing fuel market. Some of it is from a business opportunity perspective and some of it from a regulatory compliance perspective. There is a lot going on. It will differ company by company so it's hard to say what industry is doing because it's not a monolith.
Senator Seidman: I was under the impression from prior witness testimony that there is a certain amount of cooperation in terms of R&D.
Mr. Boag: There are formal structure. Probably the best example of that is on the upstream in the oil sands side with COSIA. A formal coalition has been formed to address the collaborative development of improved environmental performance technology specifically in the oil sands sector.
There is a no comparable formal, collaborative structure in the downstream or refining component of the industry. Again, I'm not privy to it, but there is probably some collaboration or partnering going within member companies. All of it is done within the constraints of the Competition Act. It constrains our ability to do some of that within the context of the association because we are very sensitive to the needs not only to be actually in compliance but to be seen and perceived to be in compliance with the Competition Act.
We are an industry, certainly at the retail level, that is under intense scrutiny. We operate in a careful way to ensure we provide Canadians with the confidence that we are operating fully within the requirements of the Competition Act. There are all kinds of factors that influence it.
Senator Massicotte: I will take you to your slide in your deck at page 7 and it's entitled, "Canada Transportation Energy Demand by Fuel, Reference Case.'' Your source is the National Energy Board. It's obviously their projection. It only includes those legislative changes made before November 2016, but I understand that already includes the carbon pricing and includes the announcement by Alberta regarding its coal plants.
When you observe that and when you look at 2030, for instance, you basically note that motor gasoline is only down a bit from where it was. Diesel is up somewhat. There is a slight expansion in natural gas but that's obviously transportation energy, and there is actually a very small increase in electric.
I know this is only a projection of what will be out there and it's not yours, but you probably understand this better than we do. When the average reader would look at that he will say, "We must have failed immensely our 2030 goals.'' When you look at that it's pretty nearly an increase or flat production of energy from our traditional energy sources.
Is that the case? How does one reconcile that projection with our goals as a country? Is that a declaration that we're missing completely or is there an alternate explanation?
Mr. Boag: I would characterize this, rather, as demonstrating the challenge of GHG emissions reductions in the transportation sector. Certainly those challenges were very well highlighted in a report done by the Conference Board of Canada two years ago now, entitled A Long, Hard Road. It highlighted the challenges.
If you look back to that 1990 benchmark, as we all know it was the basis of Kyoto accord and the GHG reduction goals that were the objective of Kyoto. We can contrast that to what happened to transportation emissions in Canada between 1990 and the year of the Conference Board report in 2013 or 2014. Emissions from the transportation sector at the time when Kyoto was targeting emissions to drop went up by 40 per cent. That's the magnitude of the challenge we face in transportation.
I will not say this is what it will look like. It doesn't mean we will achieve our objectives, but it highlights the magnitude of the challenge of transportation. To use an overused phrase, there is no single silver bullet to reduce transportation GHG emissions. It really is about a comprehensive approach that needs to look at kind of three important pillars.
How do we improve the propulsion system and the vehicle technologies already in place? That's largely internal combustion engine. How do we conserve energy and operate individual vehicles and fleets more efficiently? Lastly, how do we transform over time to alternative lower or zero emitting energy sources? Each of those strategies is important and each has its own set of opportunities, challenges and possible solutions.
We can look at research work done by organizations like MIT, for example. MIT has just done an important update on a report originally called On the Road in 2035. It's now called On the Road toward 2050. From their researchers point of view, they're looking at opportunities and technology for emissions reductions in the transportation sector.
It's not easy. They would agree that these are three very important strategies. They put a huge amount of focus on that first strategy of improving the propulsion system in vehicle technologies already in place. We are already doing a lot when we look at the 2025 standards, but there are lots more opportunities for technology.
Those are the kinds of vehicles Canadians want to buy. If you look at the 2016 vehicle purchase numbers, something like less than 0.5 per cent of the market were electric vehicles. People are buying larger SUVs. The last time traditional cars outsold the light truck category, which is vans and SUVs, was September 2009.
We need to find ways to help Canadians buy the vehicles they want but to buy them faster. If you look at the technology and emissions improvements over the last number of years and what is going to happen for the next 15 to 25 years, the sooner we can get those 1.5 million earlier than 1995 cars still registered in Canada off the roads, the sooner the newer model cars that are 20, 30, 40 and 50 per cent more efficient will be on the roads. It is a huge early opportunity for us to reduce emissions, while technology also continues to transform and develop over time.
The Chair: Mr. Boag and Ms. Stilborn, thank you very much for your presentation and your answers to the questions. We appreciate it very much.
Folks, before we adjourn, I remind everybody that this is our last meeting before summer recess. You don't have to worry about coming back on another early Thursday morning or a Tuesday night. The transportation report we finished should be tabled sometime early next week, so that will be good. There will be some media around that.
I take the opportunity to thank each and every one of you for your commitment to this committee, for always being here and asking those questions, listening, and helping us write these reports. It's great to have all of you here and participating. We don't know what will happen when we come back in September. I just hope we are constituted much the same, because we're a good team working together. I thank each and every one of you for that work.
I also thank the clerks Maxime and analysts Sam, Jesse and Marc, whom some of you haven't seen but because he is off on sick leave, and the stenographers and all the people who work to make this committee process function. They are here early in the morning, always ready to try and figure out what we're actually saying sometimes. Thank you very much. I hope all of you have a great summer. I hope we end soon, but you never know.
Hon. Senators: Hear, hear.
(The committee adjourned.)