THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, October 5, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:01 a.m. to study the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Good morning, colleagues, and welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld, I’m honoured to be 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 on the new Senate website at sencanada.ca. All other committee-related business can also be found online, including past reports, bills studied and lists of witnesses.
I would now ask senators around the table to introduce themselves, and I’ll begin by introducing the deputy chair, Senator Paul Massicotte from Quebec.
Senator Massicotte: Good morning.
Senator Galvez: Rosa Galvez from Quebec.
Senator MacDonald: Michael MacDonald from Nova Scotia.
Senator Fraser: Joan Fraser from Quebec.
Senator Patterson: Dennis Patterson from Nunavut.
Senator Seidman: Judith Seidman from Montreal, Quebec.
The Chair: I’d also like to introduce our staff, beginning with our clerk, Maxime Fortin, and our Library of Parliament analysts, Marc LeBlanc and Sam Banks.
Colleagues, in March 2016, the Senate mandated our committee to embark on an in-depth study on the effects, challenges and costs of transitioning to a lower carbon economy. The Government of Canada has pledged to reduce our greenhouse gas emissions 30 per cent below 2005 levels by 2030. This is a huge undertaking.
Our committee has taken a sector-by-sector approach to this study. We will study five sectors of the Canadian economy that are responsible for over 80 per cent of all greenhouse gas emissions. They are electricity, transportation, oil and gas, emissions-intensive trade-exposed industries and buildings. Our first interim report on the electricity sector was released on March 7 and our second one on the transportation sector was released on June 22.
Today, for the fifty-first meeting of our current study, I’m pleased to welcome, from BC LNG Alliance, David Keane, President and Chief Executive Officer. Sir, we’ll wait for your presentation and then we’ll go to questions and answers. The floor is yours.
David Keane, President and Chief Executive Officer, BC LNG Alliance: Senator Neufeld and members of the committee, good morning and thank you for inviting me.
I would like to extend my appreciation on behalf of our members for inviting me to testify today about the implications of transitioning to a low-carbon economy for B.C.’s emerging liquefied natural gas industry.
The BC LNG Alliance represents the seven leading liquefied natural gas or LNG companies in British Columbia. Our purpose is to support the responsible development of a globally competitive and sustainable LNG industry in British Columbia.
Our members are looking to supply responsibly developed Canadian natural gas to the world, including to the world’s second-largest economy, China, and our members will achieve these goals by working with and providing benefits to communities and indigenous peoples.
Our view is that liquefied natural gas is part of the transition to a lower carbon global economy, that Canada’s natural gas can be part of a solution to reducing global greenhouse gas emissions, and that carbon pricing with protection for emissions-intensive and trade-exposed industries is appropriate.
The export of Canada’s abundant natural gas as LNG to countries seeking to reduce their dependence on coal for energy is the most significant global greenhouse gas abatement effort that Canada can provide.
While the potential emissions reductions fluctuate moderately depending upon a range of variables and assumptions, in general, natural gas used to produce electricity results in a carbon intensity that is up to 50 per cent less than coal on a life-cycle basis.
To put this emission reduction scenario in perspective, for the purpose of illustrating potential global net benefit, one large B.C. LNG facility produces between 60 million to 100 million tonnes per year less CO2 than coal for the equivalent power produced. This is equal to displacing or replacing between 20 and 40 coal-fired power plants in Asia with cleaner-burning natural gas.
Exporting Canadian LNG could also promote renewable energy integration to countries that are dependent on coal for their electricity because natural gas is affordable, easily available and provides a constant form of energy when renewable forms of electricity such as solar or wind are not available.
We encourage a global perspective to moving towards a low-carbon economy. Consider this: If the world’s greenhouse gas emissions were represented by a stadium filled with 50,000 people, all of Canada’s emissions would represent approximately 800 of those people.
Canada can and will pursue the opportunity to set an example for reducing our overall greenhouse gas emissions through innovation and implementation of new practices and technologies that cut emissions. For this reason, the BC LNG Alliance recommends the Government of Canada recognize that Canadian natural gas could be part of the global solution to reducing greenhouse gas emissions.
In British Columbia, our members are committed to building a sustainable and environmentally responsible LNG industry. LNG from British Columbia is subject to the only global emissions intensity benchmark that will result in among the least carbon intensive of any LNG in the world and will set an example globally for responsible liquefied natural gas development.
British Columbia, providing the lowest emission LNG anywhere in the world, is important for the environment and for B.C.’s and Canada’s economies. A competitive LNG industry in Canada will open up new markets needed for B.C.’s natural gas industry. This diversification will preserve more than 13,000 jobs in British Columbia’s natural gas exploration and production industry.
BC LNG Alliance members are committed to being environmentally responsible while remaining globally competitive. Out of 18 LNG-producing countries, LNG from B.C. would become only the second LNG-producing jurisdiction, along with Norway, with a carbon tax on LNG.
This brings me to my final point: the need for protection for Canada’s emissions-intensive trade-exposed industries such as LNG. The proposed B.C. LNG industry is already facing taxes and costs that are not in place for other LNG-producing jurisdictions.
For example, the U.S. has been able to benefit from brownfield LNG facilities. U.S. LNG projects are saving years and billions of dollars in construction costs and are already shipping their LNG overseas. There are no emissions-intensity benchmarks in the U.S. and there are no carbon taxes. In fact, U.S. LNG producers are receiving incentives to build LNG export facilities.
A higher carbon price for the LNG industry in Canada without emissions-intensive trade-exposed protections would have the following implications: redeployment of investment capital from Canada to jurisdictions without the same fiscal hurdles or stringent carbon policies; increased global greenhouse gas emissions by or carbon leakage to LNG-producing jurisdictions with less stringent carbon policies than Canada; reduction in natural gas production in Canada; and lost opportunities for jobs, tax revenue and positive GDP impact on Canada. For example, according to the Conference Board of Canada, a modest LNG industry of two large and one small facility inclusive of the entire value chain will contribute more than $7.4 billion annually to Canada’s GDP and support 65,000 jobs across the country every year for 30 years.
Importantly, if LNG capital investment is deployed to other jurisdictions, it will mean the elimination of the opportunity for indigenous peoples in B.C. to participate in and benefit from a new industry in Canada.
In conclusion, the BC LNG Alliance advocates for competitive parity with other global jurisdictions. The LNG sector requires carbon policy certainty and we encourage the federal government to continue to work with the provinces, consumers and industry to better understand the different scenarios and the most effective emission reduction pathways from the overall competitiveness standpoint and cost benefit perspective.
If Canada can responsibly supply the cleanest LNG to the world and assist other nations to switching to cleaner forms of energy, including renewables, we must not cost producers out of that opportunity, and we must not lose the opportunity for Canadians to responsibly benefit from our resources as other countries do.
The BC LNG Alliance is confident that Canada is capable of developing potentially the cleanest LNG in the world. A world-class LNG sector could contribute to Canada’s economy, clean technology and innovation, and support the global transition to a lower carbon economy if it can be globally competitive. We must not think only of the cost but of the opportunity cost to Canada if we continue to put in place barriers to a competitive LNG industry.
Senators, thank you again for this opportunity.
The Chair: Thank you very much, Mr. Keane.
Senator Massicotte: Thank you, Mr. Keane, for being with us this morning. Your assistance here is timely and we need to be better informed about some of the things happening.
I appreciate your argument about why you think you’re trade-exposed. That argument makes sense to me. Tell us where Canada is with the world market. The government finally approved the Petronas LNG plant a year ago. Now the major sponsor is declining or has financial problems, seemingly not interested. The Japanese have pulled out of two projects. Irrespective of problems, it looks like the world has decided they don’t need our LNG or we’ve decided we’re not prepared to play that game. Where are we at? Are we still competitive? Can it happen? What are the issues? Why can’t we get going on this stuff?
Mr. Keane: Senator, I think we have to be globally competitive. If I can back up a bit, we represent the seven leading project proponents in British Columbia. They include several of the largest liquefied natural gas players in the world like ExxonMobil, Shell, Chevron, the big Australians, Woodside. We also represent several smaller proponents, like AltaGas, Woodfibre and FortisBC.
When you look at where we started in 2012 and 2013, prices for LNG in Japan and Tokyo were at about $18 per million British thermal units. Today it’s around $6 to $7. We have seen a tremendous fall in prices that weren’t projected. When oil fell, it dragged down the price of natural gas in Asia.
Our expectations are that the next window of opportunity will be between 2023 and 2026. We’re expecting to see demand exceed supply, which will again increase prices. If you look at these large facilities, they take five years to construct. Having a final investment decision in 2018, 2019 or 2020 makes a lot of sense for these projects to move forward. All of our members are very much focused on their projects.
I think you’ve seen, with a couple of projects ceasing their focus on developing them, that that’s a natural attrition. We had at one time 22 proposed projects in British Columbia. You will see consolidations. You will see a reduction in the number of those that are going to move forward. The reason for that is these are highly complex projects, not from an engineering perspective but from a financing and customer perspective. You’re looking at investing somewhere between $40 billion and $50 billion.
So I think we haven’t missed the opportunity. We have the next window of opportunity just before us, and our members are focusing on developing that and moving forward.
Senator Massicotte: You have members prepared to invest those billions of dollars on the assumption of a 300 per cent increase in the price of natural gas.
Mr. Keane: I wouldn’t say a 300 per cent increase. Our members in British Columbia have worked hard to reduce their controllable cost — the cost of material, the cost of contractors and the like. They’re working very hard to reduce their overall costs.
Now, we have to be competitive on a global basis. We’re competing with other jurisdictions, like the United States, Australia, East Africa, the Middle East, Russia and Iran, so we have to be globally competitive. Again, when you look at our liquefied natural gas, in my view, we will in fact have the cleanest LNG in the world.
So as countries like Canada or China or others are moving towards reducing global greenhouse gas emissions, and all things being equal, if our price can be competitive, then why wouldn’t these big Asian buyers say, “We want to reduce global greenhouse gas emissions so why not buy from Canada?”
Senator Massicotte: Canada is a player competitively? I know we have a very slow regulatory approval process. We’ve approved some. Are we there?
Mr. Keane: We’re moving in that direction. I think there are things that need to be done to increase our competitiveness. Again, we’re working very hard on doing that. I think we’re getting close to being there.
I was fortunate enough to attend a trade mission with Minister Carr to China, and I think the message we received from the Chinese is we must be globally competitive with other jurisdictions. The minister heard that. The other question is, why does it take so long to get things done in Canada?
Senator Massicotte: What’s your answer?
Mr. Keane: Well, the answer is we have to have a regulatory process that is efficient and doesn’t protract or go back and relook at regulatory issues. Once they’ve been approved, these projects will be moving forward. We have to be clear in terms of what projects need our regulatory certainty and fiscal certainty.
Senator Galvez: Thank you very much, Mr. Keane, for your presentation. Depending on who you hear, some people will consider that liquefied natural gas is the energy of transition between coal, petroleum and the renewables. Sometimes they don’t like the word “transition” because transition means temporary. You don’t want to be a temporary solution; you want to be a long-term solution.Actually, I do believe that if we compare tar sands, oil and your gas, I think it is a better choice than these petroleum compounds.
However, you mentioned LNG is pure, so I want to get into the composition. It’s a high-pressure gas circulating in pipelines. Your pipelines have to be very tight to hold this gas that is wanting to come out of the pipelines. I don’t know if you’re following the news, but in Saskatchewan, there is a lot of fugitive gas coming out, and we are talking about methane, sulphuric acid and sulphuric hydrogen sulphide, which is toxic to people, and people have died recently. There’s a big investigation right now.
I would like you to talk about the exploitation and all the measures that will make this industry the safe way of continuing using non-sustainable energy.
Mr. Keane: Senator, if you look at where our gas will come from, which is primarily the Montney Basin or the Horn River, it will come from northeast British Columbia, western Alberta. The Montney is probably the number one or the number two basin in the world. It is high-quality natural gas. It has liquids associated with it like propanes and butanes. It is an extremely prolific natural gas basin. If you look at the reserves that we have today, the last forecast I saw from the government of British Columbia is 388 years of supply. We have a tremendous amount of supply.
Your question around fugitive emissions is important. The natural gas producers, the Canadian Association of Petroleum Producers, have agreed to work to reduce fugitive emissions by 45 per cent between now and 2025, I believe it is. They’re doing that.
The producers have also agreed to work and find ways to electrify the upstream so that you remove diesel rigs, diesel generation compression and use electricity to do all of that. That again reduces greenhouse gas emissions. The producers are working very hard to reduce fugitives and greenhouse gas emissions.
When you look at the pipelines, the pipelines will be built to the highest standards in the world. One thing I want to be clear about is that liquefied natural gas, when it’s stored in its tanks, whether it’s in Kitimat or Prince Rupert, is not stored under pressure other than atmospheric pressure. When it’s transported, it’s not transported under pressure. The ships are loaded with LNG as a liquid, and LNG looks just like this, only boiling. It’s not transported under pressure. If there’s a leak, it will typically evaporate unless there’s a spark to cause the leak.
When you look at LNG shipping, it has probably the safest form of transportation of any form of transportation. In more than 100,000 voyages, there have been virtually no incidents with a significant loss of containment of LNG from the vessels. It’s extremely safe. I think part of the reason is you have highly trained crews that are manning the ships, along with highly technical ships and state-of-the-art vessels.
Senator Galvez: Are you saying that the gas companies in Saskatchewan are not operating at the same standards that you will operate at in B.C.?
Mr. Keane: No, I’m not saying that at all.
Senator Galvez: What are you saying?
Mr. Keane: I don’t know how the gas operators operate in Saskatchewan. I am saying that the producers in Western Canada, and I would think it would also include Saskatchewan, are looking at ways in which they can reduce fugitive emissions. I think all of them are working very hard to do that. I don’t know anything about Saskatchewan, so I can’t comment on them.
Senator Patterson: Thank you for the presentation. I have a couple of questions about the purity of B.C. LNG. You said that it’s subject to the only global emissions intensity benchmark and will result in among the least carbon intensive of any LNG in the world. Could you elaborate on that?
I’m not accusing you, but we don’t want to be self-serving about this. Are there independent ways of measuring the purity and the carbon intensity of LNG that shows we stand out with the best?
Mr. Keane: Yes, there are. Senator, that’s a good question. The reason why I put that in there in terms of the benchmark is a law was passed that came into effect on January 1, 2016, in British Columbia, which is called the Greenhouse Gas Industrial Reporting and Control Act, that requires these facilities to have an intensity benchmark of 0.16. If you’re above the 0.16, you’ll end up buying carbon offsets to get to the 0.16 or investing into a tech fund.
Senator Patterson: So you’re saying all of your members are going to be able to obtain that benchmark?
Mr. Keane: They legally have to attain it. If you look at one of our members, Woodfibre LNG Limited, which is all electric, their intensity will be 0.054. If you look the LNG Canada, which is the Shell-sponsored facility at Kitimat, they are using electricity for their ancillary services, so their benchmark is going to be set at 0.15. It will be below the legislatively mandated benchmark. Other facilities that, say, have a 0.21 or 0.22 will have to get down to the 0.16 by buying carbon offsets or investing into a tech fund.
Senator Patterson: You have argued for protections on an emissions-intensive trade-exposed industry, LNG, and in our work, we’ve heard this from the steel industry and others.
The carbon pricing — I like to call it carbon tax — regime in Canada is coming into force in 2018. Could you tell me where the LNG industry is in the effort to get concessions as an emissions-intensive trade-exposed industry? Is it B.C. where you’re making those efforts? Is that where the exemptions must be found, and how is it going?
Mr. Keane: Senator, again, that’s a good question. We’re just beginning those discussions.
It is provincially led. To be clear, British Columbia has a $30 per tonne carbon tax today on 100 per cent of combusted emissions. If an LNG facility were operating in British Columbia today, it would be paying the $30 per tonne carbon price. If its intensity benchmark were above the 0.16, it would essentially pay an additional $25 per tonne on top of the $30 per tonne to get itself back down to the 0.16.
We’ve been pretty clear that we’re not opposed to the $30 per tonne carbon price, but as we increase those carbon prices from the $30 up to $50, we will find ways in which we can protect emissions-intensive industries. I think you have probably heard from other industries that if we’re not successful, much like what happened in British Columbia in 2007 when the initial law was passed, you will see facilities, like cement, close and move to Washington State, and then you get to buy your cement back from the U.S.
Senator Patterson: Are you optimistic?
Mr. Keane: I am very optimistic. I think we are going to be very successful.
There are a lot of reasons to get LNG right in British Columbia and in Canada if you look at our close proximity on the West Coast to the big Asian markets; if you look at the colder climate that gives us about a 25 per cent increase in production capacity vis-à-vis the U.S. Gulf Coast, Australia, East Africa or the Middle East; and if you look at our highly trained and skilled population and at our enormous supply of natural gas.
The big buyers, whether they are in Asia or in Europe, are going to want to diversify their gas supply. If you look at the political risk today, the risk of supply from Australia, the political risk in the Middle East between Qatar and Saudi Arabia, and the fact that China currently buys about 10 per cent of its gas supply from Russia, how much more gas does it want from Russia? I think there a lot of positive reasons for the buyers to want to diversify supply risk and political risk, and you look at Canada: long-term; stable and governments, both provincially and federally, with a rule of law.
Senator Patterson: Thank you. Very good answer.
Senator MacDonald: Thank you, Mr. Keane, for being here today. I’m a big believer in natural gas and LNG, and I’ve been watching what’s been going on in B.C. for the last decade. I’m less optimistic than you are, but I’m glad you are optimistic. You mention that it’s a very complex process to get LNG developed and into the market. I wouldn’t expect it should be any less complex in the U.S. From all indications I have from the past decade, the U.S. is, for lack of a better term, eating our lunch on this. They’re off and running, building plants and exporting. Is it more complex here than it is in the U.S.? Why is it so much easier to get things done and get things developed there?
Mr. Keane: Senator, that’s a good question. If you look at the U.S., part of the reason why they have been moving forward more rapidly is they’re converting their import facilities to export. They already have the tanks, jetties and pipeline infrastructure in place, which are the huge costs of building these facilities. Having said that, they’re still investing $6 billion to $7 billion on these facilities versus what we’re looking at for a full-chain investment of $40 billion to $50 billion. They’re moving them forward.
If you look at the United States, even though they don’t have a free trade agreement with China, they’ve signed an MOU or letter from the President saying, “We want to sell our natural gas to China.” That has encouraged the Chinese to say, “Okay. We can buy our gas supply from the U.S.” It has encouraged the suppliers in the U.S. to say, “Okay. We can now focus some attention on China.”
It’s important to recognize that the U.S. has moved forward, but again, there is a lot of political risk in the U.S. that wasn’t there two or three years ago. I think the big Asian buyers or the big European buyers will want to diversify their supply risk. If you’re Europe, instead of buying natural gas from a long way away, like the U.S. Gulf Coast, why not buy from the East Coast of Canada? If you’re China or India, why not buy from the West Coast of Canada? We have an enormous supply of natural gas and a highly talented work force, with a long-term, stable government both provincially and federally.
Senator MacDonald: I agree with you. Why not buy from the East Coast or the West Coast? I don’t think the problem is in market demand for the product. The problem in Canada is from the government in getting this stuff done. Where is the big issue on the West Coast? How much responsibility sits with the federal government’s inability to get this done and how much with the provincial governments and local politics?
Mr. Keane: That’s a tough question to respond to. I think everyone is working to get these projects across the finish line. I feel like we missed the first window of opportunity, which is the middle part of this current decade. We have another window of opportunity in the middle part of the next decade. If these facilities take five years to construct, looking at having positive final policy decisions in 2018, 2019 or 2020 makes an awful lot of economic sense from the proponent’s perspective as well as from the suppliers’ or the buyers’ perspective.
Senator MacDonald: You project the next window to start about 2023. You’d be paying $50 a tonne for production of this stuff. Can you be competitive?
Mr. Keane: I think we can be competitive, but we have to figure out how you protect emissions-intensive and trade-exposed industries. If you’re paying $50 per tonne in carbon that other jurisdictions globally don’t pay, how can you ameliorate that to be competitive? Those are the discussions that we must have with both the province and the federal government.
Senator MacDonald: The answer may be we can’t be competitive.
Mr. Keane: I disagree, senator. I think we can be competitive and find creative ways to make these projects work.
If we’re successful, as I mentioned in my comment, according to the Conference Board of Canada, that will result in about $7.4 billion to Canada’s GDP and 65,000 jobs across the country. As I’ve said a number of times when I give speeches, what we’re talking about is nation building. We’re nation building for Canada because one large LNG facility in British Columbia will represent the largest investment ever made in British Columbia. Two or three large LNG plants will represent the largest investment ever made in Canada. There are enormous economic opportunities.
There is also nation building also for First Nations. If you look at how our industry has worked with our First Nations partners, I think it’s safe to say that we have actually elevated the bar in terms of how resource industries partner with First Nations communities, going in and listening to what they’ve got to say, taking their advice and changing pipeline routes, changing designs of the facilities. If you look at the Woodfibre facility in Squamish, which is 45 kilometres north of Vancouver, the Squamish First Nation was concerned about the discharge water going back into Howe Sound. The concern was the water would be warmer than normal water. After discussions, Woodfibre agreed to go to air cooling. It cost them more money, but they changed the design of the project after listening to the First Nations. Then there is the Haisla nation in Kitimat. I was with one of their deputy chiefs last week on a panel, and she said that because of LNG, the Haisla Nation is a real long-term partner in developing these projects, with long-term economic opportunities.
I have said a number of times that First Nations children, just like our children, should have opportunities to become the welders, the electricians, the lawyers, the accountants and the engineers in these projects and have the same opportunity that every other single Canadian has.
Senator Fraser: Thank you very much. Like Senator MacDonald and I’m sure others, I have a natural bias toward natural gas, whether it’s as a transition thing or as a more permanent element in the mix.That said, to get the gas to the coast, you have to have pipelines, and then you have to have facilities on the coast. What happens when the big earthquake comes?
Mr. Keane: These projects will be designed to manage the earthquakes.
Senator Fraser: Big, big, big earthquakes?
Mr. Keane: If British Columbia falls into the ocean, I’m not sure.
Senator Fraser: I’m quite serious about this.
Mr. Keane: A serious answer to your question, senator, is I retired from British Gas, from BG Group. BG was responsible for developing an LNG import facility in Quintero, Chile. It became operational just before the big earthquake outside of Valparaiso. Absolutely nothing happened to that facility. It was built to withstand an 8 or so earthquake, and it managed it with no problem to the pipelines, which were designed to be able to move along with the earth. With a significant earthquake, I think these facilities will continue to operate.
That plant, which was important because it supplied about 40 per cent of Chile’s natural gas supply, was back operational within about seven days. It couldn’t operate immediately because one of the unloading arms in the jetty had to be repaired. Their ships were in the bay waiting to offload and, as soon as the jetty was repaired, they could offload. These things can be designed. However, it depends if you’re talking about the entire West Coast.
Senator Fraser: I’m not talking about B.C. actually falling into the sea.
Mr. Keane: These can be designed to withstand significant earthquakes.
Senator Fraser: What does that do to the cost?
Mr. Keane: It increases the cost, but any facility along the West Coast of Canada will have to be designed to manage an earthquake and those costs are included in the design.
Senator Seidman: Thank you, Mr. Keane, for your presentation. There is no question that we have heard from previous witnesses about serious hardship for the emissions-intensive and trade-exposed industries. You have spoken about the need for carbon policy certainty and encouraging the federal government and the provinces to better understand different scenarios and the most effective emission reduction pathways from an overall competitiveness and cost-benefit perspective.
You may have already referred to this in previous answers to my colleagues’ questions but I want to be sure I understood. Should the emissions-intensive and trade-exposed industries be exempted from carbon pricing programs? You’ve talked about your degree of optimism around making the LNG sector more ablely competitive. That isn’t an issue from your perspective. It can happen. Beyond the initial suggestion I made, what are the different aspects of making competitiveness a certainty?
Mr. Keane: In terms of carbon pricing and carbon taxes, I think we recognize that Canada is moving in that direction, so we have to be prepared to manage carbon pricing. Again, as I’ve said, we’re not opposed to the $30-per tonne price of carbon in B.C. today.
As we look at how we protect against further increases, if you pay a $50 per tonne carbon price, can certain things be done to offset that in other areas, such as income tax or whatever, looking at various opportunities where you are working towards reducing your greenhouse gas emissions.
It’s important to note that once an LNG facility is constructed, that’s it. That’s the way it will operate for the rest of its life. If you look at the economic lives of these projects, they have received 40-year export licences from the NEB, so they will have economic lives of 40 years. Once the plants are designed and constructed, you can’t go back and change it without significant — in the billions of dollars — capital cost to do so.
It’s also important to recognize that, through technology, the greenhouse gas emissions intensity is actually being lowered on a rather substantial basis from year to year because of improvements in jet engine design, which will be the turbines used to liquefy the gas. There are many improvements in technology and innovation.
When you look at innovation and technology, people talk about innovative industries and seem to always want to refer to Microsoft or Google or somebody like that. However, if you look at the oil and gas industry, I don’t know of an industry that’s more technologically advanced or that uses more innovations.
If you go back 15 years, North America was running out of gas supply. The reason we have so many import facilities in the U.S. and on the East Coast of Canada is because North America was running out. Because of innovation and the use of technology, we have more gas supply in North America than we know what to do with, and that’s the reason we want to export it.
There are a lot of ongoing improvements in our industry, and we want to be responsible developers and participate with the Government of Canada and the province of British Columbia in terms of finding ways to reduce greenhouse gas emissions. I think that’s through looking at carbon pricing and how you manage carbon pricing and finding ways to actually achieve the goals that Canada is seeking to achieve. I don’t think I answered your question.
Senator Seidman: You have gone some way, for sure. However, in terms of our competitiveness, you ask the federal and provincial governments to explore ways to make us more competitive from the point of view of more effective emission-reduction pathways. I’m quoting from your presentation to us. From your point of view, as someone working in this particular area, what would be one or two of those ways to make us more competitive?
Mr. Keane: First of all, it’s looking at the controllable costs of the proponents. These are hugely expensive facilities to build. All the proponents are finding ways to reduce their controllable costs, whether it’s buying equipment, the material that will be needed to build them, or the big EPC — engineering, procurement and construction — contractors they will employ to build these facilities. That’s one point.
Then you have fiscal policy costs from a provincial level and federal level. It’s about finding ways to manage those costs. As an example of a fiscal policy cost in British Columbia, we have a special LNG income tax that’s not applicable to any other industry within British Columbia. If you do want to use all electric in British Columbia, you get to pay a power rate of $84 per megawatt hour versus the industrial rate of $53 per megawatt hour.
There are things that can be done without penalizing an industry that is not even developed yet.
The Chair: You mentioned that this can be a game changer for all of Canada. The largest petrochemical industry in Canada is in Sarnia, southern Ontario, and the second largest one is Alberta. The petrochemical industry will continue to need the butane, ethane and propane — all the things that are stripped out of natural gas — so they will continue to produce natural gas to provide to the petrochemical industry. Petrochemical makes things we all use in our everyday lives. Plastics and all those kinds of things come from that.
If we don’t support using LNG, what will happen to that straight methane is that it will head south to the U.S. through the pipelines that are already there, I would assume, and be turned into LNG and shipped around the world. All those ancillary jobs and investment in secondary production of our raw resource is lost to Canada. I don’t think that’s a good idea, to be perfectly honest. Would it not be better to build these plants in British Columbia, or anywhere in Canada, and export LNG worldwide and create jobs, investment and wealth in Canada?
I know it’s a long question, but a lot of people don’t understand it. The gas will still be produced, but it will just be shipped somewhere else for secondary manufacturing. And guess what? We all live in the same atmosphere. It’s really not that far to the Gulf of Mexico. Those greenhouse gas emissions will still be in the atmosphere.
What do we stand to lose if we continue to send the raw resource? Canada is great at that: Let’s just send our raw resource someplace and let someone else manufacture it, because we want to tick off a box at home that says, “We reduced emissions by so much,” understanding that we still live in the same atmosphere, the world is still the same world and we still have those greenhouse gas emissions. Do you have a financial figure, or job production or taxation for the federal government that would happen if that’s what we do at the end of the day, if we refuse to look at this industry as something that’s good for Canada?
Mr. Keane: Senator, going back to what The Conference Board of Canada said in its report last year, we would lose the opportunity for the $7.4 billion of additional GDP for the Canadian government; we’d lose $5.3 billion a year for the B.C. government in terms of GDP; and we’d lose $3 billion a year of increased revenue for British Columbia, for its treasury.
Your question is spot-on. Something that is starting to resonate in our social media is around the idea of us selling our natural gas raw, like raw logs, to the U.S. We’ve already seen producers in Alberta signing contracts with Cheniere Energy to send natural gas from Alberta to the Gulf Coast to liquefy it and not paying carbon prices on that. If you look at Jordan Cove in Oregon, their gas will come from British Columbia without a carbon price.
The notion that you shut down LNG means that you shut down gas production in Canada is incorrect. Gas production will slowly decline, but it won’t shut it down, and it will move it to the United States.
What will happen, in my view, is that the United States will take its domestic production, increase its value, either through petrochemicals or liquefaction and selling it overseas, and then come back to Canada and say, “We’ll buy your natural gas at pennies on the dollar.” Our gas at Ako in Alberta trades at about a dollar less than the Henry Hub in Louisiana.
That’s a societal or government decision that needs to be made in terms of whether we do that and forgo the value-added opportunities such as additional skills training and developing tradespeople and engineers who will work in this industry. That’s a good question. From our social media perspective, that is something that people are starting to say, “Why would we want to do that?”
The Chair: My second question is further to Senator Galvez’s question about fugitive gas. I am aware that the Canadian Association of Petroleum Producers has stepped up on fugitive gas or natural gas from pipelines because it’s straight methane. They are doing a lot of work and, in fact, have been for quite a few years. It didn’t just happen; it happened when I was still in the British Columbia government, and that’s about nine years ago.
I’m not sure whether Senator Galvez looked at it, but I did look at the media. In Global News it says:
Is Saskatchewan ignoring the potentially deadly gas from oil wells?
That’s oil wells as compared to gas wells, although there is sulphur in H2S in gas also. I think that was part of it.
Senator Massicotte: I appreciate your being with us because you are an expert. We read and speculate a lot and many people are talking about doomsday, but you have the knowledge. I understand you’re quite optimistic with the LNG market, with the maturity and projected growth, in spite of the government processes in place and the Aboriginal issues and so on. You’re quite optimistic that we can be a player and we’re in the game. You seriously think that we can be competitive and we will be there. Am I correct in saying that?
Mr. Keane: Yes, that’s correct.
Senator Massicotte: Very good. I’m glad to hear that.
I have a technical question. When the LNG Petronas project was announced, there were some news releases about the same argument that it’s good for the environment, relatively speaking, compared to your choices. There was a change in the B.C. government and new people came to the fore, and some people were put in doubt about the environmental necessity or wherewithal with this project, given everything it represents. Is there still a significant improvement relative to the status quo, relative to oil and gas, or coal, the radiation market? There are a lot of people saying that construction only will produce a lot of CO2.
Mr. Keane: I’m not sure I understand the question.
Senator Massicotte: The CO2 that the Petronas project will create, is it good for Canada and the world?
Mr. Keane: It will increase greenhouse gas emissions in British Columbia, but it will reduce global greenhouse gas emissions by replacing whether it’s coal for electricity production in Asia or coal used for industrial processes or coal used for heating. It will have a positive net global benefit in reducing global greenhouse gases.
Senator Massicotte: Can you give me a sense of the significance compared to coal? Let us presume we replace coal in Asia. What percentage is that?
Mr. Keane: It is about 50 per cent less.
Senator Massicotte: With that proposed plant, what is the percentage?
Mr. Keane: It’s about 50 per cent less.
Senator Massicotte: Even with the Petronas plant?
Mr. Keane: Yes. The intensity of the Petronas plant would have been about .22, I think. Again, it would have been required to buy carbon offsets to get down to the legislated target of .16.
Senator Massicotte: Do you think that project is dead? We often talk about the Shell project. Is the Petronas project dead?
Mr. Keane: You would have to talk to Petronas. They are no longer a member of the BC LNG Alliance.
Senator Galvez: I want to talk about the transport of gas. There are many players in the transport of petroleum or gas products. You have the big companies that own it, and then you have the companies that temporarily own the product while transporting it from point A to point B.
Following on from the point of Senator Fraser that an accident — an earthquake, a flood, climate change, permafrost, whatever — can happen, remediation costs are huge, and it has an impact on the transport economy or the industry of petroleum, oil and gas.
There is a sector that is aware of all these costs, which is the financial, banking and insurance sector. There are two phenomenons happening. One is the investment from oil, coal and petroleum; and the other one is insurers not wanting to continue to insure these transporters. Can you explain how insurance works in the transport of LNG, for example?
Mr. Keane: From an insurance perspective, most of them will be self-insured because of their balance sheets.
I want to make sure we’re clear that we’re not talking about petroleum and oil. We’re talking about natural gas. The real risk would be a fire, if there were some sort of spark if there were a leak. Other than that, if there were a leak, it would simply evaporate without any noticeable environmental impact other than greenhouse gas emissions or methane, fugitive emissions.
Again, these pipelines are built to world-class standards. If you look at British Columbia, for example, and Western Canada, we’ve been transporting natural gas by pipeline for more than 60 years without any incidents at all. It’s very rare that you would see a pipeline having significant problems.
Senator Galvez: What is the amount of the insurance?
Mr. Keane: I don’t know the answer to that question.
Senator Galvez: Can you find that out for us?
Mr. Keane: Yes.
Senator Fraser: When you were responding to Senator Seidman’s questions, I was intrigued at the notion that if you just went back to ordinary industrial rate hydro, that would be a help on costs. I gathered that the LNG income tax is higher than for other industries, so if they could remove it, that would also help the cost. But I don’t think I heard you answer her opening suggestion of an exemption from carbon taxes for exported LNG. If I did, then correct me and tell me again what you said because I didn’t grasp it.
In any case, would such an exemption not run the risk of running afoul of the various trade agreements to which Canada is a partner? I know we’re not selling into the United States, or we hope we’re not selling into the United States, which is the big worry right now, but there are many trade agreements out there and lots of competitors. Would that be a problem?
Mr. Keane: As I’ve said, we’re not opposed to the $30 per tonne price of carbon. We potentially could be supportive of the increase to $50 if we can find ways to help offset the increase of the carbon pricing. The purpose of the carbon pricing is to incentivize you to reduce your greenhouse gas emissions, so are there things that can be done where you increase a carbon price but then offset it through other mechanisms.
Senator Fraser: I’m asking because you outlined, in your response to Senator Seidman, what sounded like a couple of industry-unique elements, but there are other industries that are also pleading for some kind of an exemption or other measures to offset the costs that the incoming regime in Canada will impose on them. When you start thinking about this, the instant thing is, “Well, we will just take off the tax on whatever is exported.” Have you done any work to find out whether that would run afoul of trade agreements?
Mr. Keane: No, we have not.
The Chair: We’ve reached the end of our questions. Thank you very much, Mr. Keane, for your presentation. It was very interesting. There were some good questions and some very good answers.
I now want to welcome, from the Conference Board of Canada, Louis Thériault, Vice-President, Industry Strategy and Public Policy. You have a presentation to make, and after that we’ll go to some questions. The floor is yours, sir.
Louis Thériault, Vice-President, Industry Strategy and Public Policy, Conference Board of Canada: Thank you, Mr. Chair. I’m still waiting for my notes that are apparently getting photocopied at the moment for your benefit and for the benefit of the translators. I can start. I don’t necessarily need them, but it’s probably better if I wait for them.
The Chair: We’ll wait for them. It won’t take long.
Senator Massicotte: Are you trying to suggest you don’t know what you’re talking about or what?
Mr. Thériault: Well, I have a vague idea, after 30 years of thinking about this.
The Chair: Okay, sir. You have your notes.
Mr. Thériault: Thank you to the committee and thank you, Mr. Chairman. It’s great to be here today again.
My role here today is to discuss with you the main results of an analysis of Canada’s options for a lower carbon future.
Our report — this is why we got the invitation — was released early in September. The report is called “The Cost of a Cleaner Future: Examining the Economic Impact of Reducing GHG Emission.”
This analysis is the result of technical modelling, so we built on the partnership of the Canadian Academy of Engineering under the umbrella of the Trottier Energy Futures Project. Building on that technical analysis, we developed an economic analysis and did some modelling and policy analysis on the basis of that, and I must say a fair bit of head scratching.
The main results were presented at our Reshaping Energy conference earlier this year. It was discussed with industry, government and academic presenters. The key learning from the discussion at the event was that the complexity of the challenge Canada must address is significant.
Before I get into it, I think it’s important to follow a pretty straight line to explain what we did because it’s quite complex. The first thing to talk about are the targets we talk about for greenhouse gas emissions, 2030/2050, and the scenarios we built. How does that align?
First, Paris, as you know, says we must keep global warming below 2 degrees, but it leaves each country to interpret what that means for them.
Canada has filed its first Nationally Determined Contribution report and has linked its contributions strongly to the Pan-Canadian Framework. Canada’s NDC says that by implementing the framework, we will be able to meet or exceed the target of 30 per cent reduction from the 2005 level by 2030. That would leave emissions around 517 megatonnes. If you compare to one of the scenarios we analyzed, we’re within the 10 per cent band. We’re at 565. In the climate world, you would say that we’re close enough.
I must say that there are three scenarios we analyzed. The one for 2030 is close. In the other two, in fact, most of the reductions take place after 2030, so by 2050, we get the real reductions or most of the reductions take place.
Of course the scientific consensus you hear most about is that in order to meet the Paris Agreement for the level of global warming, we need to get to 80 per cent reduction from the 1990 level by 2050. That means only 122 megatonnes for Canada by 2050. Frankly, none of our scenarios get within the 10 per cent mark. In other words, in the scenarios we analyze, the best gets to 60 per cent by 2050.
There are two overarching messages from our work. The first is simply that pricing carbon to achieve deep greenhouse gas emission targets is insufficient.
Technology is talked about a lot. Technology and innovation will play a key role in the long term. It can’t get us there by 2030 simply because there’s a relatively short window available to develop and adopt these solutions.
The second overarching message is that given the required investment that will be in the trillions of dollars to re-engineer the economy relative to a business-as-usual scenario, policymakers really need to communicate to Canadians the scale of how this transformation will impact their everyday lives.
Here I’d like to talk more specifically about some of the results. You’ll see that in the report that is available for you, the report first examines the impact of various levels of carbon tax to help Canada achieve its reductions in greenhouse gas emissions. It finds that even if carbon taxes were to reach $200 per tonne by 2025, this would only result in 1.5 per cent reduction in greenhouse gas emissions outside the power generation sector. So quite short of the target for 2030.
The analysis also suggests that pricing carbon will have only modestly negative impact on the economy overall, but a significant impact on specific sectors. To get to that result, though,carbon tax revenues, as expected, will add significantly to the government coffers, but the revenue collected is expected to be put back into the economy through tax cuts and higher public spending and investment. The assumption that carbon revenues will be recycled into the economy is really the key reason why the total impact on the economy is small.
As mentioned, this research also quantified the economic impacts of making the greenhouse gas emission reductions. The investment requirements are based on the work we did in partnership with the Canadian Academy of Engineering under the Trottier Energy Futures Project analysis. That analysis outlines several technical pathways for Canada to achieve 30 to 60 per cent reductions in greenhouse gas emissions by 2050, but bringing emissions 30 per cent below 1990 levels by 2050 leaves us far away from hitting our Paris Agreement target, while a 60 per cent reduction brings us closer.
The most investment-intensive scenario achieves a 60 per cent reduction in emissions by 2050. It requires $3.4 trillion in new investments between now and 2050. This is a big number, and, frankly, it’s really hard to put your head around what it means. Put differently, it’s about $100 billion annually. That is also a big number that’s hard to get your head around. What makes it more tangible is it’s about half the current non-residential business investment in Canada at the moment and in our forecast. Half of what’s directed to different areas of the economy would have to be redeployed for those new technologies to come to market and be implemented and adopted in the market.
More than half of the investment will be directed towards power generation to enable an electrification of Canada’s economy. That’s a central element of all those technical scenarios. Electrification of Canada’s economy is underpinning all of that.
Given that Canada is fast approaching its economic capacity — so this is back to the macroeconomic implication — the Canadian economy would be challenged to absorb this new investment. We’re at capacity. We hear the Bank of Canada talk about that all the time. Our potential economic growth in the long term is limited by our capital stock and labour force. In other words, that new investment would crowd out spending in other areas of the economy in a business-as-usual scenario.
The capital and the labour are fully employed, so there’s no large pool of labour or capital funds idly waiting to be directed towards these required investments. The simple fact is that Canada is unable to leverage the funds, capital, labour and resources required to generate these investments without crowding out funds and productive capacity away from other economic activity.
In summary, the Conference Board looks at Canada’s low-carbon future based on some very strong technical analysis, the partnership with the Canadian Academy of Engineering. It is clear that from a technology standpoint, as we get partway to the target for the 80 per cent reduction by 2050, our work layers more onto that in terms of the economic and investment implications.
What’s clear is that carbon pricing alone can complement technology adoption, but neither technology nor carbon tax can get us to the finish line.
Governments that are about to tax carbon need to reinvest that revenue to keep our economy growing. That’s a central assumption in all these scenarios.
Competitiveness will be a key issue. Some sectors will be impacted and will only be partly offset by a flexible exchange rate. That’s part of the macro portion of our analysis. The exchange rate acts as a buffer, to a certain extent, but not enough to compensate for the overall impact for some sectors that are energy intensive and trade dependent.
The role of consumers needs to be better understood and better communicated. It is a huge political agenda. Getting Canadians on board is central to all of this.
We talk a lot about technology as a way to get us there, but it progresses along a really measured growth path. It doesn’t happen overnight. This applies to both technology development and adoption, notwithstanding the impact of disruptive technologies like automated vehicles, for example.
I have watched this climate agenda evolve in the last 30 years. We’re coming out of a slow-moving policy environment on climate. We’re beginning to attach actions to the aspiration that we have to decarbonize the economy. The Pan-Canadian Framework is still vague, but it’s comforting that implementation discussions are happening.
The discussion is going on beyond disruptive technologies, which it has to. The debate between the negative impacts of curtailing some industries and technologies and the positive impacts of expanding in others is at least a bit counterproductive.
Our analysis confirms that there will be tens of thousands of green jobs created, and that green investment will crowd out more conventional investments as we transition. In a word, that means the economy can continue to grow at about the same pace, but the composition of the economy will shift.
Perhaps the biggest unanswered question is how Canadians and society will respond to disruptive technologies. We have an emerging picture of how to green our electricity production and how much additional electricity energy we have. We would need to displace hydrocarbons in buildings and vehicles, which is part of the answer. We only have a limited picture of what motivates consumers to select individual technologies, and we have mostly speculation regarding things like automated vehicles.
The Conference Board is expanding its contribution to this debate on Canada’s climate action plan. We’re launching centre on a low carbon growth economy later this year under four pillars. I think these are the four policy levers we can work within: Energy demand, energy production, energy efficiency and business opportunity. Perhaps the most challenging will be to demonstrate the business opportunities in a balanced way.
In case you haven’t noticed from my previous comments, we believe it is time to expand the discussion to better understand how consumer behaviour can help us reshape our energy and our economy and break the link between economic growth and emission growth. This is central to this political agenda. People typically don’t think about the environment as the first criteria when they make house and vehicle purchase decisions, as we know. Bringing Canadians on board on this agenda is essential.
Those are my introductory remarks. I’m happy to answer any questions.
[Translation]
Senator Massicotte: Thank you for appearing before our committee this morning. I quickly read your report and I listened to your presentation. We always try to put all the information into perspective. With the four or five main points, we can develop a scenario that makes sense to us. I’m trying to understand your message. I will try to summarize it, please tell me if I am wrong.
Carbon pricing has no significant impact on the economy, with the exception of certain sectors. If the money is invested, the result is almost net zero. You say that imposing a price on CO2 is not the solution we want in order to meet our international obligations and reduce CO2 to an acceptable level in coming years. This is valid because it is measured in the short term, but we will not see those short-term results for 15 to 20 years. This measure will become more significant around 2050 or 2060 and will take longer than expected. Behaviours, the habits of consumers and the public must be changed. You give the impression that this is the only solution that we need to consider.
I am always a little pessimistic about the idea that, if we do not impose a price on carbon, consumers, even if they have good intentions, quickly forget because it costs nothing and there is no incentive to encourage good habits. What do you think about my analysis? Could I be wrong?
Mr. Thériault: No, in fact, your analysis follows the main points of the presentation I have just delivered today. I think it’s important to remember that the Canadian economy, as we know it today, is based on comparative advantage. So we have a lot of energy available, generally at low cost by international standards. In our economy, the consumption of carbon and energy is generally very high. This has affected consumers’ transportation habits, the size of their homes and their heating choices. All this is connected to our abundance of energy. This is a key benefit of our collective wealth. So to change what is natural to begin with, the notorious “business as usual,” the carbon tax should be very high.
According to analyses conducted in collaboration with the Canadian Academy of Engineering, if the currently available technologies were commercialized, the implicit carbon price that would have to be imposed in order to make them competitive would be close to $1,200 per tonne. That is a gigantic gap. That is why we say that imposing a tax on this plan would cause a significant tear in the economic fabric. It would not be sustainable.
We are not saying that the carbon tax is not useful; on the contrary, we are saying that it is part of the necessary set of tools. As you say, sending messages about prices is important, but it is not enough.
We are also saying that innovation and new technologies may eventually lead us to where we want to go, but the methods we know today will not. When you set reduction targets as high as 80 per cent by 2050 compared to the 1990 level, we are talking about an ambition, but we do not have a clear idea of how it could be achieved. The idea is to plan for an orderly transition, I would say, without tearing Canada’s economic fabric. In addition, it is important to have a transition plan ensuring that the affected sectors will be able to make an orderly transition without suffering and without disrupting the labour market, and so on. So there are no simple solutions.
Senator Massicotte: If you were a minister, what would the solution be? If we absolutely wanted to achieve the environmental objectives, what should we do?
Mr. Thériault: First, I would make sure that the process is not political. Great Britain is a good example; the assembly set up an independent secretariat, and all parties agreed that the climate agenda should be handled by this independent secretariat.
Senator Massicotte: What is the mandate of the independent secretariat?
Mr. Thériault: It is a committee of experts.
Senator Massicotte: I see, but let’s say that we have an independent, entirely non-partisan committee. What must this committee do to achieve our objectives?
Mr. Thériault: You have to send out signals and check the progress every three or five years. Setting a very firm date in such a complex agenda is sort of boxing yourself in. However, people must work together to achieve this. So I would say that messages about the price, such as the carbon tax, are part of that. An industrial strategy and an innovation strategy are also part of it. In addition, there is public engagement in general. How is that achieved? Probably not by talking about the environment protection program, because many other factors influence consumers’ choices. The debate must include Canadians, but at a level other than the purely environmental one. This will be a secondary benefit of measures taken from the outset.
Senator Massicotte: Thank you.
Senator Galvez: Thank you for that interesting presentation. I agree with almost everything you have said, and I agree with my colleague Senator Massicotte’s analysis. The carbon tax is important. However, right after that, you talked about education, changing consumer culture and attitudes, and I have two questions about that.
First, could the revenue from carbon sales or exchange be earmarked for technological innovation and education? Right now, those revenues go into the public purse and we are not sure how they will be invested. Would that not be more effective, since, in your analysis, you say that we must speed up development and innovation, as well as influence consumers?
We all understand that, depending on the generation, the culture of consumption is very different. Baby boomers have their own way of consuming, and so do members of generation X, Y and the millennials.
Finally, have you also calculated the price of doing nothing? If we continue with business as usual, what would the cost be of the tragedies and natural disasters we would be facing? Today, we have many examples that can be used as real data to calculate the price of doing nothing.
Mr. Thériault: In response to your first point, whether revenue from a tax should be reinvested in education and innovation, I would say that significant investments are being made in those areas right now. It’s a matter of deciding where to invest. In our scenarios, the relatively small effect on the economy as a whole depends on two key conditions. The first is reinvesting revenue through corporate or personal tax cuts and the second is investment in infrastructure. A federal and provincial program on infrastructure spending is already fundamental to the project being discussed right now, so other measures would be complementary. It is not necessarily a perfect addition, because a lot of money is already being invested in those areas, but it could speed up infrastructure projects, yes. So I would connect the innovation program directly to the infrastructure needs to make our scenarios more consistent with respect to the relatively small overall impact.
The cost of doing nothing has not been calculated here. I would say this is an international challenge. If Canada acts alone — the “made in Canada” solution — it will not produce significant results on a global scale. I think we have to keep this in mind. In the discussions so far, it has not been articulated yet, but I think it will be soon. In the 1990s, it was a key issue, because Canada’s economy depends on energy to stay competitive. Its economy is relatively small and open, so it depends on trade. In short, a winning solution for the environment internationally can be a winning solution for Canada as well. I think there are business opportunities in terms of trade.
By taking action, Canada will benefit from a significant economic gain, because it provides solutions for China and India. The countries that will contribute to climate change over the next 30 years are the fastest growing economies, not countries like Canada. However, India does not have the Canadian solutions, China does not have the Canadian solutions, but we can have them. In fact, we are one of the developed economies that rely heavily on the energy sector, and we have technologically advanced solutions to offer.
So it is important to add a trade agenda to this discussion, and we always have to remember that the goal is the good of the planet.
There is also the so-called “carbon leakage” phenomenon. If Canada does not produce certain products, such as aluminum, pulp and paper or mining chemicals, and if they are all produced elsewhere, will the carbon footprint be higher or lower than if those products were made in Canada? I will venture to say that Canada has the most advanced standards internationally in comparison with other countries with which it competes in the mining sector, for example. So the whole planet would lose out if we did not take this carbon leakage into account.
[English]
Senator Seidman: Thank you, Mr. Thériault, for sharing your findings of the Conference Board of Canada’s report with our committee.
You said in your presentation that these proposals, your modelling, would have a significant impact on specific sectors. The language you used was “significant impact on specific sectors.” Your report says:
Households are hit hardest in these scenarios due to rising prices, and it is unlikely that the general population understands the impact that these investments will have on their day-to-day lives.
I would like to ask about the significant impact on specific sectors, and, of course, one of the sectors is Canadian households. I would like you to expand a bit on the economic impacts households might experience if Canada pursues the range of GHG reduction targets that the Conference Board modelled.
Mr. Thériault: There is the industry sector and the consumers. For consumers, the carbon tax, of course, is a tax. There will be a negative impact on the purse of the general Canadian.
There will also be a macro impact because some industries will face higher costs of doing business. From other work we’ve done at the board, that has an impact on wages in the medium and longer term. The mixture of reduced disposable income from tax, like tax on motor fuels, for natural gas, et cetera, electricity, would take some disposable income out of consumers’ pockets. The other impact is from slightly lower wages. This is for the consumer.
We could talk a lot about how consumers perceive the impact on their wallets from an environmental policy. As I mentioned earlier, consumers will make decisions or do the right thing for them based on a number of considerations. The environmental consideration is not necessarily the first one. How that will be perceived by Canadians is unclear. It’s not something that has been communicated. We just know that typically there is resistance when we talk about tax.
If there is a clear way to demonstrate the offset that comes from the way the tax revenues are reinjected in the economy and there are collective benefits that are clear, maybe consumers will go for it. Canadians are willing to pay taxes, but there is that social contract that you have to recalibrate in that context.
That’s for consumers. Do you want me to comment on producers?
Senator Seidman: I’d like to explore the consumer portion a little more. That was pretty strong language that you used when you said a significant impact on specific sectors.
Mr. Thériault: Producing sectors in particular, sectors that are open to trade, that are energy intensive. That is what we call the big six, like pulp and paper, iron and steel, aluminum, mining, petroleum refining. Those are extremely trade-dependent. They’re at the early stage of transformation of primary raw products and raw material. Those are the ones that I’m referring to.
Senator Seidman: We’ve heard much about those sectors. If that’s what you are referring to, fine. So let’s go back to the households and the consumers.
Your report uses extremely strong language when it says:
Households are hit hardest in these scenarios . . . and it is unlikely that the general population understands the impact —
I am repeating that because that is important language.
— it is unlikely that the general population understands the impact that these investments will have on their day-to-day lives.
Mr. Thériault: That has been my message throughout. Canadian consumers in general don’t really understand the trade-offs and implications of moving to a low-carbon economy. To be successful, that transition will have to have Canadians on board. At the moment it’s unclear.
Senator Seidman: You said getting Canadians on board is central, so how, in your opinion, can that happen? How can the government position these changes to ensure broad-based support?
Mr. Thériault: If I knew exactly the answer to that — well, maybe I would be talking to you today. It would certainly make my life easier. I mentioned that it has been 30 years that we have been talking about this. We signed and ratified the Rio Declaration back in 1992. There was the Kyoto Protocol and then there was the Copenhagen Accord and now there is Paris Agreement.
Frankly, it’s not whether the federal government was the Liberal Party or Conservative. It is not about that. It’s just that it’s really hard to do.
I’m not sure if you noticed in my intro comments that we’re coming out of a slow-moving policy environment on climate. The international agreement on the need to limit 2 degrees global warming, it is 450 particles per million for greenhouse gas emissions in the atmosphere. There is a global consensus. China is on board because of the health of their own population. We saw that in the Olympics.
Not that I don’t want to answer the question; it is just that it is really complex. If it was simple, we would have done it in 1992. The first target was to stabilize by 2000 the levels of 1990. Now we’re talking about reducing by 80 per cent the 1990 level. This is a level of political ambition and aspiration that we have never heard before. There is no simple path to get there.
Senator Seidman: There is no question that it is really complex.
Mr. Thériault: Everyone is in favour of a greener and cleaner environment. The question is not about that. We have to look at the reality today and how to transition to an environment that is cleaner. That’s the tension here. There is a dichotomy between what decision makers like you need to consider and what the general public actually wants. Reconciling that is the Gordian knot that we have to all figure out together.
Senator Seidman: That’s indeed the challenge. Thank you.
Senator Fraser: Thank you very much. I’d like to come back to that independent agency in Britain that you mentioned earlier. Does it have actual power, or is it just a morally persuasive agency?
Mr. Thériault: In fact, it is embedded in the law to achieve the targets. That independent body ensures that the U.K. stays on track. If they don’t meet, the consequences are up for debate because it is part of the law.
Senator Fraser: But the agency cannot step in and say, “There shall be no more fossil fuel cars on the road.” That would have to be through Parliament.
Mr. Thériault: But they recommend specifically what could be done to get there. It’s up to the Parliament to actually act on those recommendations.
Senator Fraser: How long has that agency been in existence roughly?
Mr. Thériault: About 12 years, 2005, 2006.
Senator Fraser: Has it had an impact? When it speaks, do people listen?
Mr. Thériault: Parliament has never questioned the authority of that body. Every five years, they report whether they are on track or not, and what levers can be pulled to get where they need to go. So the targets are there. Is it exactly in 2025 or 2030 or 2050? It is whether the direction is right and we are actually making progress.
It’s hard to say it’s the greenhouse gas emission targets that drove some of the decisions around coal and the heavy industries that were re-engineered and some of the political decisions around some of what I would call the equivalent of the rust-belt. There is, of course, consequences, and can we tie the two together? There’s causality.
Senator Fraser: Brexit?
Mr. Thériault: Yes, of course, Brexit. When you start leaving people behind, there is a political backlash. We have seen that in the States as well. With policies that have a direct impact on jobs and on big sectors of the economy and big regions, if you don’t have a transition plan and take care of these people, then success is not likely.
Senator Fraser: We’ve had an environment commissioner for I don’t know how many years, but quite a number of years by now, and we saw again this week she was basically saying, “I did a report. Everybody said it was wonderful and then almost nobody did anything about it.” It’s depressing because all she was asking for were plans, not actual changes in behaviour. I’m looking for guidance about how an agency of this nature can actually have an impact.
Mr. Thériault: Well, I can give a really clear example. The work we’ve done here suggests that we would need a national electricity grid. We would have to decarbonize electricity generation, so we would have to electrify the economy in a big way.
The good news is that we’re already 80 per cent renewable, so it’s not a far stretch. There are some sectors in Alberta; Nova Scotia; in particular, New Brunswick, to a certain extent; and even in Ontario and B.C., where there is some thermal capacity. There are some shocks to the system, so to speak, if we just move there overnight. That’s one part.
The other part is how to make a true national grid. It’s about transmission, not generation. That’s a provincial jurisdiction. It’s a tense conversation, as we all know, but that’s the premise on which any deep greenhouse gas reduction will happen.
Senator MacDonald: Reading the report of the Conference Board — I will have to have some full disclosure. I don’t believe in carbon tax at all. I think it’s a huge drag on the economy.The Conference Board, reading the recommendations here, do they have an opinion on whether there should be carbon taxes? You have not really mentioned that in here. You touched on the fact that there will be one and the effects of it. What’s the Conference Board’s opinion on carbon tax?
Mr. Thériault: It’s part of the tool kit, I must admit. There is no price signal. If we don’t internalize what we consider bad for the environment and the price of what we consume, there is a mixed signal.
I will give you an example. The average motor gasoline price in Western Europe is around $2 a litre, or around a dollar. That’s between $350 and $400 a tonne in terms of tax equivalent. The starting point between us and the reality in economies that are not as carbon-dependent, I would say, is quite large, so we would have to go to a level that would be politically unacceptable to Canadians. It would be really disruptive.
It’s part of the mix. We can use that as part of the tool kit to get us there, to send a message and a signal. How that’s done, how we get buy-in from Canadians that that’s the right thing to do, is part of this.
At the end of the day, there will be consumers, yes, but there will also be business that will have to pass on the extra cost of doing business. That will be on prices of what we consume every day, and that’s going to be some of the trade-offs around wages that I talked about and issues around competitiveness for industries that are trade-dependent. If we don’t bring all of that in the mix when we talk about carbon tax, we are missing the balance needed to get global buy-in for that.
Of course, the first reaction is if we’re the only one to do that, and you look at industries that are essentially trading what they produce, not selling in the Canadian market, and for an open trade economy like Canada, it’s creating a competitive advantage overnight, particularly with the States. When the States were behind the Paris Agreement, then you could say, okay, well, at least there will be a level playing field. From a business standpoint, it’s neutral. But now that the U.S. is not moving in sync, it begs the question, what is the implication of that?
In Alberta, there are debates around not just carbon tax. It’s pricing carbon. There are cap-and-trade systems that exist and all sorts of design dimensions that can go into that, for example, for energy-intensive industries, and the output base allocation that they are talking about in Alberta is one way to get around the competitiveness issue.
I would argue that any design that has a capital transfer or a flow of funds to jurisdictions outside of Canada is not helpful. Right now, the Quebec system is designed in the North American context with California, in particular, but given the initial design of that system, it essentially means — maybe not so much for Quebec, but for other jurisdictions trying to adopt the same model, it would be a transfer of funds to California. There might be design aspects of this that need to be reconsidered, frankly.
It’s a tough one. It’s not that people don’t like taxes. People will willingly pay taxes if they feel that, in the whole scheme of things, it’s benefiting them and our collective societal goals. Articulating how it achieves this in the context of climate change is tough, so that is back to what I was saying around getting the buy-in. It’s the level that I feel is the problem right now. Just looking at the fiscal tools to get us there, it’s not sufficient. The level would be so high given our starting point that it makes it a really hard sell.
Senator MacDonald: You were talking about the prices of gasoline and power in Europe. It’s hard for us to operate ignoring the U.S. economy and the way we’re tied into them. If we can’t be competitive with the U.S., it is hard for us to compete with anything else.
The board stated that the carbon price will directly affect household costs for heating, electricity and transportation. Businesses will have higher input costs as energy prices rise, increasing the costs of goods and services throughout the economy. Has the Conference Board estimated the annual cost increase for the average Canadian household?
Mr. Thériault: That’s the$3,000 in one of the scenarios, the $80 a tonne, if I recall correctly. All the specifics are in the report, but that’s the annual cost.
Senator MacDonald: And for businesses?
Mr. Thériault: For businesses, it’s a more nuanced story because it is the pass-through of the increased cost of doing business. That’s the big question. It’s assumed, in this context, that because of relative prices changing, there will be a trade impact. Some is cushioned by the fact that a lower amount of trade in certain sectors will depreciate the dollar, which will help offset some of that cost. In other words, some sectors will benefit because of the depreciation of the dollar. Motor vehicle parts, for example, and motor vehicle assembly is a sector that benefits.
Overall, the net, as I mentioned, is relatively small for the economy. It is slightly negative. But in the whole scheme of things, I would say it’s in the margin of error. It is not where the real tension is. It’s the specific sectors and regions that are affected.
To your point around the difficulty of getting a carbon tax adopted, or pricing carbon in a way that gets the buy-in, this is where the nuances come in. We have to think of offsetting mechanisms as part of the design of any pricing carbon systems.
I mentioned the Alberta output-based allocation. It’s quite complex and the word is a mouthful, but the logic behind it is good. It suggests that you look at a given sector and you have the whole sector emit greenhouse gas emissions to a certain standard within the sector. It’s an encouragement for some plants that haven’t invested in the latest technology, more green technology, to do so without the leakage of funds that would be associated with just a pure cap-and-trade system that doesn’t consider the output-based allocation system.
The Chair: In response to Senator MacDonald on average household cost, the cost that you came up with is averaged totally across the whole country. Is that correct?
Mr. Thériault: Yes.
The Chair: That might skewer some places a little. For instance, Quebec has relatively cheap electricity and most of the heating in Quebec is done with electricity. If you take a place like Alberta, most of the heating is done with natural gas. When you do an average, it doesn’t always reflect what’s going to happen in certain places.Do you have it by province?
Mr. Thériault: We have some partial results by province, but the work was essentially done from a national perspective. It’s quite complex technically to get where we landed. That would be a next layer of refinement. We have some early results, but they’re not detailed enough to really get to what you’re saying, which is quite right. The consumers wouldn’t be impacted equally across the country. The obvious provinces of Saskatchewan and Alberta, in particular, because of the carbon intensity of the electricity mix is a case in point.
The Chair: In Saskatchewan, Alberta and British Columbia, the major source of home heat is natural gas, not electricity. If there are some numbers that you can give us, I would appreciate that on the cost.
You also said that Canada had some solutions for India and China. Will you expand on that a little bit?
Mr. Thériault: With pleasure. In fact, I think this is something that hasn’t come back on the agenda yet. It was in the 1990s. When Rio and Kyoto were discussed, there was something called joint international ventures that was central to the environmental policy at the time, and it hasn’t come back on the radar screen yet.
In other words, this means that Canada partners with, let’s say, a business in India or China, and there is a technology transfer from Canada to that country that helps the greenhouse gas emission footprint. How Canada gets credited for taking a proactive stance and that tech transfer is what was debated at the time, which hasn’t come back on the radar screen yet.
I would argue that Canada, if you look at oil-producing and gas-producing countries around the world, is one of the most advanced, if not the most advanced, technology-wise. We had to overcome cost barriers with the oil sands. We have developed technologies that are really state of the art.
Look at mining and the environmental standards we have to comply to. Again, we have had to develop technologies and ways to reclaim land, so it goes beyond greenhouse gas emissions. There is definitely a technology component around saving money and having a positive bottom-line impact by investing in technologies that are using less energy. Mining is one of the most energy-intensive industries.
There are incentives in place from a number of fronts to make Canada a gold standard for many of these industries, and there is a huge opportunity for Canada to export. As the Paris Agreement gets to be more real for countries, they’ll look for solutions. We could be credited back so there is a net negative for Canada in these cases.
We’ll still produce oil for a long time. If we get credited back for the technology we transfer somewhere else that leads to reduction in global greenhouse gas emissions, that is a win for Canada and for the planet. There is a huge opportunity there. It’s challenging from a monitoring and inventory of greenhouse gas emissions standpoint. That’s a challenge from a mechanical, technical standpoint, but from a greater good standpoint, it makes a lot of sense.
The Chair: I’m happy to hear you say that, because that’s music to my ears. I come from Western Canada, from British Columbia, but we just had a presenter prior to you, the BC LNG Alliance, talking about the same things. If you can displace coal in China and India with LNG from Canada — which, as you have said, our petroleum industry is one of the best in the world — we should get some credit back for that instead of being penalized. The way the system is going right now, we’re just trying to penalize those kinds of industries even though they are trying to do things the best they can.
The other thing was carbon leakage, and I just want to double-check with you. I know what carbon leakage is. If we were to send our raw resources, like we do right now, our natural gas, a lot of our oil, just straight to the U.S., that’s what I call carbon leakage, because in many cases they don’t have the same standards that Canada does in the development of those. We tend to take that raw resource and just send it away because we don’t want to increase our greenhouse — we want to check that box off that says, “Hey, we didn’t increase our greenhouse gases. Aren’t we good?” We can pat ourselves on the back, the jobs go south of the border and the atmosphere still gets — in fact, in many cases gets more greenhouse gas emissions than it would if that was developed in Canada. Would I be correct in saying that?
Mr. Thériault: Carbon leakage is a central element that needs to be considered in the carbon policy for Canada.
I made the point about a made-in-Canada-only carbon policy would not make sense given our economic structure, given our competitive advantages, given that we’re a small open economy. By definition, this level of environmental ambition needs to maybe have a made-in-Canada solution but that would include these dimensions. Carbon leakage and Canada as a solution provider for the problem has to be central in the discussion.
That said, this is not the forum for it, but the technical challenges in making sure the planet as a whole is better off by the time everything is said and done is a challenge, but I wouldn’t stop at that. We can put people on the moon. I think we can figure that one out.
The Chair: I think we can too.
When you list off where all the conferences were held about greenhouse gas reduction — all the nice places, Rio, Kyoto and Paris — I think we should have one in Iqaluit in January and maybe bring some reality to some of the talk about how we can just simply do this kind of thing.
[Translation]
Senator Massicotte: Mr. Thériault, I am trying to understand your message. You reiterate that it is a challenge. So what should we do? I think we should accept that we are not achieving the objectives, not only in Canada, but globally. We are in fact not alone in having these same challenges and experiencing these difficulties.
Do we have to increase our efforts? Are we going to reach 4°C instead of our target of 2°C? Do we have to prepare accordingly because we will not achieve our goals? How should we direct our efforts? Should we increase the price? Will we try to minimize CO2 or take mitigation measures to try to manage the consequences?
Mr. Thériault: I hope that is not how my message was received. I talked about the need for a carbon tax. I talked about the challenges in selling this concept. I also talked about different ways to think about the price on carbon. It’s possible, but we have to talk about it. Right now, we are not talking about it. That’s the number one priority. The price level on carbon should be very, very high.
Given where we are starting, this is not the only tool that would promote a carbon reduction policy. The other thing we’ve just discussed, and which I’ve reiterated in a number of ways, are the solutions that Canada can offer to other countries that do not have the same standards as ours. Our policy must be aligned with the good of the planet, introducing a natural solution to reduce greenhouse gases. I am thinking of China and India in particular, because greenhouse gases will go up significantly over the next 30 years. This has to be included in the solutions, and I do not see it at the moment.
My message is not all negative, far from it, because there are significant business opportunities in all of this. Certainly, consumers rarely make purchasing decisions solely with the environment in mind. We have a collective responsibility. I would say that parliamentarians and politicians have a major role to play in inviting Canadians to take part in this key, this essential energy transition. If Canadians are not part of the solution, if they are not involved in this transition, if they do not see the broader benefits for them, it will be politically difficult to stay the course.
The past 30 years have confirmed this. This is not being negative. The reality of 30 years of climate policies has not brought us close to the goal. Let’s be frank. What does this entail? Let’s look at the various tools at our disposal. We must look at Canada’s tax tools, technology, and innovation agenda. This all needs to be articulated and discussed now. The solutions will come from there. There is also the whole commercial side. We are not talking about it yet, and I made it my duty to address the issue today. It is an aspect of climate policy that must be a key priority in Canada.
[English]
Senator Galvez: Thank you very much for making that clear with Senator Massicotte’s question. What you’ve just heard is proof that climate politics is not a good way of dealing with this problem. It cannot be politicized. I think the key thing you said today is that it has to happen outside of politics. When we are dealing with politics, there is lobbying and there is conflict of interest. There a lot of things that don’t allow us to see the big picture.
Of course, the economy has to keep going for Canada and for the welfare of Canadians. I agree 100 per cent with you that there are economic opportunities for Canada to grow. One example is steel. We import steel from China. It’s expensive and it’s bad quality. However, here we have iron, calcium carbonate and cheap electricity. Why can we not get these things? We cannot see the big picture. We are involved in the politics of “I have to favour this lobby.”
I believe the reason that this independent group works in England while here we have our environmental commissioner who cannot do anything is because of the power and influence on legislation.
Could you please explain more about how we can depoliticize these problems?
Mr. Thériault: Parliament would have to come to an agreement. In the U.K., that’s what happened. The Conservative Party and the Labour Party came to the table and said, “For the U.K. this is an agenda that’s central for the future of the country, and we’re putting the politics of this agenda aside.” There was consensus around that to start with. That was the precondition to make it work.
Senator Galvez: Could I ask you to put that in a letter and explain these things to us so we can hear your opinion on this specific point?
Mr. Thériault: It’s a governance model around the agenda. Simply, that’s what it is. It’s embedded in the law, and then the governance model makes it work. I’d be pleased to provide a summary.
Senator Fraser: What law is that? I just want the title of the law.
Mr. Thériault: The exact name of the law, I couldn’t tell you right now. I know it’s embedded because the executive director, the president of the group, came and spoke at the British High Commission here. He explained that the foundation for that group to work was the non-political aspect of it. With the fact that it’s now embedded in the law, they will achieve these targets. I don’t know the name of the particular law. Those are the preconditions; and then the governance model around it, the way they structured it and how they report back to Parliament, was crafted in the early design of this group. They’ve made progress; and if not, there are recommendations on how to get there.
The Chair: Thank you for a very interesting presentation. There were good questions and good answers. Thank you very much for being here this morning. The meeting is adjourned.
(The committee adjourned.)