Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 8 - Evidence - May 12, 2016
OTTAWA, Thursday, May 12, 2016
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day, at 9:02 a.m., to continue its study on the effects of transitioning to a low carbon economy.
Senator Paul J. Massicotte (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: My name is Paul Massicotte, and I represent the province of Quebec in the Senate. Today, I will preside over the committee in my capacity as deputy chair. The chair of the committee, Senator Neufeld, regrets not being able to be here this week.
I would like to welcome the members of the public in attendance, as well as all our viewers. I want to remind you that the committee's meetings are open to the public and can be viewed online through a webcasting service at www.sen.parl.gc.ca. You will also find information on the schedule of witnesses under "Senate Committees.'' I now invite the senators to introduce themselves, starting with the colleague to my right.
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Senator MacDonald: Michael MacDonald, Nova Scotia.
[Translation]
Senator Ringuette: Good morning. I am Pierrette Ringuette, a senator from New Brunswick.
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Senator Patterson: Dennis Patterson, Nunavut.
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Senator Mockler: Good morning. My name is Percy Mockler, and I am a senator from New Brunswick.
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Senator Johnson: Janis Johnson, Manitoba.
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The Deputy Chair: I would also like to introduce our staff, starting with our clerk, Marcy Zlotnick, and our two analysts from the Library of Parliament, Marc LeBlanc and Sam Banks.
This is our ninth meeting in the study on the effects of transitioning to a low carbon economy. This transition is required to meet the Government of Canada's announced targets for greenhouse gas emission reductions.
It is our pleasure to welcome the witnesses appearing today. By videoconference, live from British Columbia, we have the Association of Major Power Customers of BC, represented by Brian Wallace, Counsel; Carlo Dal Monte, Director, Energy, Catalyst Paper Corporation; and Karina Brino, President and CEO, Mining Association of BC.
I want to thank all three of you for agreeing to testify before our committee today. I invite you to make your opening statement. Afterwards, we will move to a question period. Mr. Wallace, go ahead.
[English]
Brian Wallace, Counsel, Association of Major Power Customers of BC: Thank you. I will give the opening statement, and then we will be available to answer questions. Our opening statement has been forwarded to you by way of PowerPoint. Do you have that?
The Deputy Chair: Yes, we do.
Mr. Wallace: Thank you very much for the opportunity to appear before you today. We are pleased to be here.
AMPC, the short form for the Association of Major Power Customers, is an association of forestry, pulp and paper, electrochemicals and mining companies operating in the resource industry in British Columbia. The AMPC members represent 20 per cent of BC Hydro's load. Accordingly, electricity, one of the subjects of your mandate, is very important to us and to BC Hydro, I believe.
These industries are generally accepted as energy-intensive and trade-exposed industries, and I will say more about that in a few minutes. These industries have worked over the years to reduce their carbon emissions and continue to implement additional initiatives.
I mentioned they were energy intensive. Chart 3 shows a breakdown of the electricity as a percentage of their total operating costs. Electrochemicals are 50 per cent to 70 per cent electricity as a base cost. Mechanical pulp and paper electricity makes up 30 per cent of their total operating costs; and mining is at 15 per cent. They are significant costs and of real concern to our members. They are trade-exposed industries in that they face global commodity pricing. As I'm sure the committee is very aware, global commodity prices are currently low, forcing production at the margin in many places around the world to shut down.
Carbon price-related costs cannot normally be passed on to customers unless world competitors experience similar costs, that is, unless there's a level playing field. When our industries become uncompetitive, they close down or shift production to other locations. This has happened recently and is currently a concern. Multiple mines in British Columbia have closed. One paper mill has closed, and another thermo-mechanical pulp mill has indefinitely postponed its restart after a major and expensive refit.
The Province of British Columbia and BC Hydro have both responded to the plight that the industry finds itself in at this time. They have introduced legislation that allows some mines to defer payment of BC Hydro bills for up to five years. BC Hydro has implemented a $100 million incentive program for mechanical pulp and paper producers to reduce energy consumption.
Industry has worked hard over the years to reduce its carbon emissions, and it has achieved impressive results. The forestry pulp and paper sector has reduced its absolute carbon emissions by 62 per cent since 1990, and it has reduced its carbon intensity by 57 per cent since 1990.
Electrochemicals have also achieved reductions. The chemical industry members have reduced GHGs by 65 per cent since 1992.
Mining also has achieved significant reductions, and sector results are being assessed. Unfortunately, we don't have those results to share with you at this time.
I'd like to talk about why we are here. It's threefold, I think. First is to share the B.C. experience from the industrial customer's perspective. In our view, each jurisdiction that you will be considering involves different considerations. Second is to caution against unnecessary — and I stress "unnecessary'' — increased costs and unintended consequences as government policy focuses on reducing carbon. Third is to confirm AMPC support for thoughtful and sustainable policy making.
We would like you to consider the following three factors. First is the need for federal programs to take into account existing provincial programs. Industry cannot afford the layering-on of costs. Second, consider the possibility of unintended adverse consequences in carbon-pricing scenarios. I'll be saying more about this later, but particularly including increased GHGs. Third, revenue neutrality claims and plans must be considered carefully.
In B.C., one cannot consider electricity policy without having a basic understanding of BC Hydro and its importance to its customers. BC Hydro has a large supply of clean electricity, which historically has been priced at a relatively low cost in comparison to many other jurisdictions. Unfortunately, years of rapid increases have resulted in the erosion or elimination of BC Hydro rates as a competitive advantage for B.C. business. BC Hydro industrial rates are now similar to those where our industry competitors are located.
In addition there is serious pressure toward future rate increases, and there are a number of factors, of which I'll cite a few. One is aging assets. The average age of hydroelectric facilities in British Columbia is 45 years. The three-year planned capital expenditure amount for new facilities is $8 billion, and that's on a plant and equipment base of approximately $20 billion.
There are major renewable IPP purchases that have been undertaken in recent years that are now just fully coming to fruit in the B.C. system.
There are other new facilities planned, Site C being the most major one. It is a dam at a projected cost of approximately $9 billion.
In addition, there are existing regulatory deferral accounts that will have to be recovered in upcoming rates of approximately $5.5 billion.
Finally on this list, we see potential increase in debt and interest-rate risk as being a potential driver of major rate increases in the future.
It's also important to understand the B.C. carbon tax impacts and how they affect customers. The provincial carbon tax in British Columbia is $30 a tonne at present. To put it in terms that I think more of us are familiar with, that translates to $1.49 a gigajoule on natural gas. That amount is greater than the present price of natural gas at Station 2 in northeast British Columbia, which is ranging around $1. So you see it's almost 50 per cent greater than the commodity charge in the field.
The carbon tax is a consumption tax that is paid regardless of profitability. It comes straight out of companies' bottom lines. The amounts are substantial on operations. The forest sector paid $108 million in 2015 in carbon tax. The mining sector figures are not available at the moment for the sector as a whole, but the impact is substantial. One company reports paying over $50 million, and that's in one year over several operations. Electrochemicals paid approximately $1.5 million in a year.
The carbon tax is often passed on to members by their suppliers, but normally cannot be passed on by AMPC members to their customers because they operate in the global economy.
B.C. has been a leader in working to reduce greenhouse gases for many years, and I'm sure the members of the committee are familiar with some of those efforts. In particular, from the electricity point of view, the B.C. government has imposed a 93 per cent minimum clean-generation requirement on BC Hydro. Currently, I believe it is operating at approximately 95 to 97 per cent clean energy.
BC Hydro has also taken steps, besides its natural hydroelectric facilities that you are familiar with. It has purchased in recent years more than 14 million megawatt hours of IPP electricity in 2015. It did so at a high cost. The portfolio cost for those purchases was somewhere greater than $90 a megawatt hour, and that is to be compared to the $35 per megawatt hour projected market price at the nearest market in the U.S., Mid-C. The total cost or premium for those purchases is in excess of $750 million per year.
BC Hydro maintains a world-class energy efficiency and conservation program through Power Smart and continues to invest in clean energy infrastructure.
The message we want to leave with you is that British Columbia is doing a lot, particularly in the area of electricity.
I would like to turn to our concern around potential unintended consequences of higher carbon pricing.
When a B.C. plant is closed or reduces its output, that production is likely to be made up in another jurisdiction. One example of how that works is the transfer of production due to electricity pricing that occurred in Alberta in the electrochemical industry. When the decline happened in Alberta, it resulted in an increase of production in the southeastern United States. It was a very clear and distinct movement.
Almost all jurisdictions in North America now have some sort of renewable portfolio standards that require a minimum of clean energy. But those standards, generally, are much lower than BC Hydro's 93 per cent clean energy standard.
A shift in production from British Columbia to a less clean jurisdiction can potentially increase greenhouse gas intensity by a factor of 10 or more. I'd like to give a brief example of that. Let's assume BC Hydro is 93 per cent clean and 7 per cent natural gas, and competing jurisdiction is 30 per cent clean and 70 per cent natural gas, which would be a very clean jurisdiction, indeed. If production is displaced from B.C. to the other jurisdiction, it could increase greenhouse gas intensity by a factor of 10 in that simple example. If the other jurisdiction relies on coal, the increase would be much larger.
The message is that in setting carbon prices, one has to be very careful that the result is not counterproductive by making the local industry non-competitive.
I would like to briefly address revenue neutrality. AMPC believes strongly that carbon taxes should be revenue neutral to government and focus on greenhouse-gas-related factors. The revenues that come from a carbon tax should advance greenhouse gas reduction measures, such as — and we have a few examples of what could be done — funding investments that reduce greenhouse gases, reducing the cost of clean electricity and making electricity more attractive to customers. An example of the latter would be funding the removal of the provincial sales tax in British Columbia. A third example would be supporting the replacement of diesel with LNG or renewable fuels in trucks and other mobile equipment. Some of these steps are being taken to greater or lesser degrees elsewhere.
I would like to summarize our recommendations.
First, any federal carbon pricing measures must appropriately take into account existing provincial carbon taxes and measures. There should not be any layering of federal and provincial measures.
Second, the federal government should recognize the costs associated with existing electric utility generation renewable portfolio standards but not get involved in setting them. The provincial governments are in the best position to direct local resources and consequences.
Third, revenues from any carbon tax are best used to advance greenhouse gas reduction measures and to help businesses and individuals adapt to the transition to a low-carbon economy.
That concludes our opening statement, and we would be pleased to answer any questions that members might have.
The Deputy Chair: Mr. Dal Monte and Ms. Brino, did you want to add anything?
Carlo Dal Monte, Director, Energy, Catalyst Paper Corporation, Association of Major Power Customers of BC: Not for me, thanks.
The Deputy Chair: We will proceed to questions, then.
Senator Johnson.
Senator Johnson: Good morning. The Government of B.C. estimates that energy demand in the province will increase 40 per cent over the next 20 years. In addition, there is significant potential for new customers from the mining, shale gas, pipeline and LNG industries within the province, which would increase pressure on rates. How do B.C.'s industrial electricity rates compare to other competing jurisdictions?
Mr. Wallace: I will start out by answering that, and either of my colleagues may wish to add something.
Our information at this time — and I think Mr. Dal Monte can be more specific — is that our industrial rates are now in the range of rates in competing jurisdictions. However, the pressures and rate of increase on our domestic rates are higher than we see in the other jurisdictions.
Mr. Dal Monte: I think that's fair. We're seeing a compression within regions that are generally considered to be lower energy cost regions. We're getting compression there, so now British Columbia sits within that group average.
Karina Brino, President and CEO, Mining Association of BC, Association of Major Power Customers of BC: For the mining sector, the situation is relatively similar. Electricity costs have increased substantially since the 10-year plan was implemented. Part of what we try to represent here to the provincial government is the fact that the cost of doing business in British Columbia, because of the increase in electricity rates as well as the carbon tax, is certainly putting us at a competitive disadvantage.
Senator Johnson: Thank you.
I have a question with respect to Germany because it came up in our hearings last week. Their federal government chose to keep industrial electricity rates low while raising residential rates to help pay for the country's transition to cleaner generation and to preserve manufacturing jobs.
Would you endorse such a policy for B.C. or other provinces? I believe you know what happened last Sunday in Germany, when they started paying people not to use electricity.
Mr. Wallace: I think the German situation was a matter of necessity in order to keep their industry going. They could not raise rates to the level that was required by their taxing and green energy policies. Accordingly, they simply had to do that.
It's a good example for making sure that you don't let the tax and the green measures get out of touch with the market realities of business or what the country's competitors are doing — the level playing field concept.
Senator Johnson: I see.
Are there any other comments?
Ms. Brino: From a mining perspective, the industry is interested in precisely that balance. It is important for us to understand that we are competing globally, so the cost of doing business here is paramount when it comes to where investment goes.
The Deputy Chair: Let me ask a technical question relative to your presentation. You referred to electrochemicals. Could you give some examples for the audience? What is that exactly?
Mr. Dal Monte: In British Columbia that's primarily the production of sodium chlorate. Those businesses take a brine solution and pass current through it and through that electrochemical process generate sodium chlorate or sodium hydroxide.
The Deputy Chair: Why is that in your summary? Is that a major cost to your producers? Is that important to your economy?
Mr. Dal Monte: There are a significant number of facilities in B.C. I believe there are three sodium chlorate plants. It's a relatively large load in British Columbia. There are also large plants in Manitoba and Quebec. I believe, looking at the CIAC material, that Canada is the largest exporter of sodium chlorate in the world.
The Deputy Chair: It paid $1.5 million of carbon tax, I gather, per annum in recent years?
Mr. Dal Monte: Yes.
The Deputy Chair: That's obviously a big number.
Mr. Wallace: That's the estimate we've been provided with.
The Deputy Chair: Maybe that's why it's here, because at 57 per cent of electricity cost it's sort of striking, but I'm glad to see it's not a big component of your GDP.
Another question I have is this: You referred to your reduction of carbon since 1990. A lot of things have happened since 1990. A lot of those reductions are probably technology related. Do you have those numbers since, say, 2005?
Mr. Dal Monte: Yes, we have the data and we can provide it. I would be reading it off a graph right now. The majority of the impacts, though, happened prior to 2005. Most of the technologies in the forestry sector occurred before 2005. It was largely the elimination of fuel oil in boilers and the increased use of biomass and natural gas.
Senator MacDonald: How can your membership improve its use of energy over time? What areas have the most potential for energy improvements in British Columbia in your industry?
Mr. Wallace: To clarify the question, what do we see as the biggest opportunities for improvement going forward?
Senator MacDonald: Yes.
Mr. Wallace: I'll let each of my colleagues answer that.
Mr. Dal Monte: I think it's really specific to each of the industries. We have a variety of industries, everything from paper mills to mines to electric chemicals, so there are very specific technologies out there.
Generally, given the nature of the stepped rate, there have been a number of investments that companies have made to reduce their electrical intensity, but I can't point to one specific technology that would be a one-size-fits-all opportunity.
Senator MacDonald: In the East, we've always been under the impression that energy, hydro energy in particular, was one of the great advantages for British Columbia. It seems like that advantage is dissipating somewhat. How do your rates compare to other jurisdictions like Alberta and Quebec when it comes to power?
Mr. Dal Monte: Quebec traditionally has been lower. The one reference point is that Hydro-Québec puts out a rate survey on an annual basis. Manitoba has had the lowest rates in Canada on an industrial basis and then Quebec. B.C. has typically been third or fourth. What we've seen lately is this year Alberta has been less expensive. If you look at last year, Alberta has actually been less expensive than British Columbia.
Senator MacDonald: Do you think the provincial administration in British Columbia has been responsive to the concerns you've raised and the increase?
Ms. Brino: I would think so.
Mr. Dal Monte: I would say yes. In the presentation, we highlighted the program for the mechanical pulp producers.
Ms. Brino: And the mining industry.
Senator Seidman: Thank you very much for being with us very early this morning.
You mentioned in your presentation your aging assets. I presume that's the average age of the hydroelectric facilities, which are 45 years old. I'd like to ask you about the plans around aging infrastructure, how your members are dealing with this and what plans are being made for future investments. I don't have the data in front of me right now, but I do believe that major investments are being made in hydropower facilities out in B.C. I could be wrong about that, but could you please give us some information?
Mr. Wallace: As we indicated, BC Hydro is undertaking steps to renovate large parts of its transmission system and the electrical system. The dams themselves are probably good for quite a while. The turbines will need work. BC Hydro has a capital plan, as I suggested in the opening statement, to spend $8 billion over the next three years. It's a very high rate of "spend.'' It has been up for a few years now and it will continue for a while. From our members' point of view, that will find its way into rates. That's where it's going to put significant pressure.
While we've been a low-rate jurisdiction for many years, we're even with others now, but we are fearful that the rates will be higher in the future and that the competitive advantage will not only dwindle but may become a competitive disadvantage.
Senator Seidman: I'm trying to understand the law of supply and demand. Will not improving your facilities and perhaps increasing the efficiency of supply, or even the supply, ultimately have an effect in lowering rates, even though you have huge capital investments, but ultimately in terms of efficiency and usage?
Mr. Wallace: I would think not; a nice thought and we'd appreciate it if it would.
BC Hydro and the government have been pushing for efficiencies, but there are today's costs versus the initial costs of those highly depreciated facilities. For example, the entire plant and equipment for BC Hydro account for approximately $20 billion. When you add Site C, which is the big new dam that's getting a lot of publicity at this time, you increase the capacity of the system to deliver electricity by I think it's something less than 10 per cent, but you increase the cost by 50 per cent, so your unit costs can only go up.
Senator Seidman: That's bad news, obviously. What suggestion might you have to improve this outlook?
Mr. Wallace: Just making sure we don't layer on additional costs that are unnecessary. The electrical system rates are going to be rising rapidly in any event. We already have very strong price signals in British Columbia. The industrial rate is a two-step rate. The first 90 per cent is at a lower level, and then the last 10 per cent marginal rate delivers a much higher price signal to the customer. So they're getting good price signals.
As you review what's planned, we would be urging you to think about the situation that exists and be aware. Extra costs may not be necessary, and may be very harmful, so really be careful about that.
Senator Patterson: Thank you to the witnesses.
We've often been told that B.C. is one of the first role models for revenue-neutral carbon pricing, but now you tell us that despite impressive reductions in carbon emissions, carbon taxes are levied in B.C. regardless of profitability and regardless of what competitive jurisdictions are charging.
I see you've said that multiple mines have closed and a paper mill has closed. I don't know what a TMP mill is; maybe you could explain. It has definitely postponed its restart.
I'd like to first focus on these impacts that you've recited. We know that global commodity prices have hit mining hard all over the world, but I think you're suggesting that the multiple mines that have closed were also hit by the cost of energy in B.C., and the paper mills as well. Could you comment on whether it was the energy costs that put these companies into closure, or were the commodity prices the bigger reason?
Ms. Brino: Thank you for the question, senator. I would like to provide a brief overview of what's been going on with the mining industry over the last five years.
You're absolutely correct; commodity prices have gone down and have been going down for the last five years. With regard to coal prices, we are primarily a metallurgical coal producer as well as copper, and both commodities have suffered a gradual decline over the last five years.
When some of these operations were put into operation, prices were definitely at a much higher level. Together with that, the cost of electricity, primarily in B.C., has been going up lately. Our labour costs have gone up, so it is a combination of prices going down and operational costs going up. On top of that, now the carbon tax is significantly putting pressure on operations in B.C., in particular.
I think it is fair to say that the British Columbia government has been responsive to the situation that the industry has been in. There was a previous question asking about whether they understand what those pressures are, and we believe that those conversations are meaningful.
The revenue neutrality of the carbon tax really applies to government; it doesn't apply to industry. For us, it is an additional cost.
Senator Patterson: Your recommendations to our committee, whose recommendations will focus on the federal government, is that any federal carbon pricing measures must not add to the burden of carbon pricing and taxes in a province. I think you're saying you're already doing your share in B.C., and it would not be at all productive and would indeed be counterproductive and might increase carbon emissions if some kind of federal scheme was applied to the province. Do I understand that correctly?
Ms. Brino: The mining industry, senator, has expressed that we're not opposed to a price on carbon. We do have a well-established program here in British Columbia. As I said, it is revenue neutral to government; it isn't to us. What we're saying to the provincial government, in this particular case, is that there needs to be consideration for emissions- intensive, trade-exposed industries, like other countries do protect those sectors.
We believe that we are going to continue to be a key economic driver in this province, so we need to remain competitive. What we're saying to the federal government is to please look at what the different jurisdictions, in this case B.C., are doing to do our share in reducing emissions and learn also from what other countries are doing. How do we, together as a country, learn from each other in terms of what's been going on here in B.C., and how do we best apply measures at a national level that will be effective in reducing emissions and not necessarily have the unintended consequence of affecting the economy?
Mr. Wallace: I want to emphasize that from a federal point of view it is the layering on that we are particularly concerned about. If the federal government were to put a $20-a-tonne carbon tax across the country, we would be saying, "Wait, we've already gone $30 a tonne.'' The circumstances of the individual provinces must be taken into account.
Second, in terms of neutrality, the carbon tax should be targeted where there's carbon to be removed. Hopefully, the revenues from the tax would help the targeted companies get rid of that and reduce their costs through plans that would allow them to remove the tax and protect their bottom line.
Senator Patterson: So leave carbon pricing to provinces is what you're saying?
Mr. Wallace: No, I think we're saying take into account the programs that exist in the provinces. It's very different right now. We're $30 a tonne; many others are zero. Take into account what the existing taxes are, if there is federal carbon pricing.
The Deputy Chair: I will ask a follow-up question to that.
To appreciate what a $30 CO2 tax per tonne is, in the mining sector, what percentage of the revenues of your typical mining company does that tax represent?
Ms. Brino: Senator, we don't have the specific data to provide to you at this point. We've been trying to get that information from our members. But, as was cited before, one of our companies that has multiple operations in British Columbia pays about $50 million a year. In another operation, that would be a different ratio and a different percentage.
We can make a commitment to try and gather that information for you. I don't have it at this point.
The Deputy Chair: That one customer pays $50 million a tonne a year in CO2 tax? Is that what you're saying?
Ms. Brino: Carbon tax.
The Deputy Chair: What percentage of that is —
Mr. Wallace: It's $50 million spread over, I think, five operations.
The Deputy Chair: What are the total revenues from that operation?
Mr. Wallace: We don't have that number.
The Deputy Chair: The other question you made reference to that if B.C. hydro rates are not competitive — the point you make is very valid — the companies are basically moving to the southeastern United States. Where would they be moving to? Where is that threat, and where are they going?
Mr. Wallace: It depends on the industry. The example we gave was the electrochemicals that were being produced in Alberta. They reduced their operations, and the slack was picked up in the southeastern United States. I don't have the specific details of that.
The Deputy Chair: You referred earlier to a 2015 Hydro-Québec comparison of electricity rates in major North American cities dated April 1, 2015. In that, they have residential rates but also large power customers. I appreciate that, and I hear you loud and clear that the increase of your hydro rates in B.C. maybe going up higher than inflation. But as you well know, the hydro rates of B.C., except in comparison with maybe Manitoba, Quebec and Alberta, is still 10 to 20 per cent cheaper than it is in every other American city I can see on this list. In many jurisdictions, it's significantly higher; it could be 100 per cent higher.
So I can appreciate your sensitivity to it. Everybody is sensitive to increasing costs, but it looks like you still have a major competitive advantage compared to most of your competitors. Would that be accurate?
Mr. Dal Monte: In the mechanical pulping industry, the mills are concentrated in those areas where energy costs are low. Typically, mechanical pulp mills are concentrated in British Columbia, Quebec and Washington state, in areas where hydroelectricity is available and the rates are relatively low.
Our competitive set is concentrated within the low-cost jurisdictions, so that's who we compare ourselves against.
The Deputy Chair: Seattle is at 8.20 a kilowatt. You're at 7.04. Portland is at 8.05. So it's still a 15 per cent difference there.
Let me ask for your explanation. Last week, we heard people from Alberta. I can appreciate that everybody is concerned with increasing costs. Everybody wants to keep the cost advantage they have. We heard testimony that they were very concerned that if hydro came into the province of Alberta, that would be unfair. Yet, when I look at their electricity rates for major industrial customers, Edmonton is at 6.97 and Calgary is actually at 4.76. That's amazing. And they don't have much hydro; it's predominantly still coal or natural gas electricity generation.
How do you explain that competitive advantage, and yet they're saying, "Not fair; if you guys or Manitoba comes to Alberta, it's going to hurt us''?
Mr. Wallace: I will start that discussion. Alberta is low right now — there's no question — but it has been much higher, traditionally. It has a market price system that's unique in Canada. Accordingly, if there's a bit of surplus, markets tend to fall, and if there's a shortfall, they tend to spike.
Accordingly, I'm not sure that Alberta's situation at any particular point in time is typical of what you would base a decision to build or move a plant.
With respect to importing hydro, I don't think we have a view on that.
Mr. Dal Monte: I was going to make one comment on the Hydro-Québec survey. In some of our investigations in other jurisdictions, one of the items is that many of those American jurisdictions do have access to wholesale energy. The Hydro-Québec survey does a survey of industrial rates for those utilities, but getting to a level of detail on a mill- specific basis requires a fair amount of work. So it gets more difficult to make those comparisons.
The Deputy Chair: The other significant message, which I can appreciate, is the whole issue of a level playing field. If you don't have a level playing field, you can't pass the costs to your customers and all these theoretical additional taxes.
How do you get there? I hear you saying that if the United States doesn't impose a carbon tax of the same nature and same amount, that's unfair to you. It reallocates scarce resources in our economy. These are very valid points.
But what do you do if you are the Prime Minister of Canada and you have this reality, yet you know the whole world suffers immensely if you don't get CO2 and all the other gases under control? Do you resign yourself to saying, "I guess I'll duplicate exactly what United States is doing with the elimination of coal plants and do it by way of regulation''? In other words, real life is not so simple. What would you do if you were the Prime Minister of Canada with this dilemma?
Mr. Wallace: I'll take the first crack, and maybe it will inspire some comments. It is a very tough issue and tough question. I appreciate that.
We're saying you have to be cognizant of those trade factors. The Prime Minister cannot raise, say, carbon taxes to take a ridiculous number to $1,000 and destroy all our industry. All you'll do is destroy the jobs and industry here, and send all that production to those low-cost areas that are much dirtier or less clean than British Columbia at 93 per cent clean, and you will not have achieved the greenhouse goals that are for the benefit of the world.
It's a difficult balancing act, but there has to be an awareness of it. The consequences are very real. There is this dilemma that by appearing to endorse clean principles, you will increase greenhouse gases in some cases, as we put in our example, by a factor of 10. If it's a coal jurisdiction that the production moves to, that could be a factor of 60, 70, 100.
It's tough, but that work has to be done, or we will suffer the consequences and greenhouse gases will get worse.
The Deputy Chair: You sound like a politician during the campaign where you make all kinds of promises, but you provide no answer. What would you do in real life, though, if you had to run the country? What would you do?
Mr. Wallace: You have to find out what is going on in competing jurisdictions. You maybe don't have to match them, but you do have to assess the consequences of your actions.
The Deputy Chair: Any other comments from the other guests? Nobody else wants to play prime minister for five minutes?
Mr. Wallace: That's left to lawyers.
Senator Ringuette: I'm puzzled by the fact that today you seem to imply that the pulp and paper industry and the mining industry in B.C. are in B.C. because of the cost of electricity. I was always under the impression it was because of the location of the resources. Also, I would think these plants were located where they are because of the relatively very high cost of transportation. So how exactly does the cost of electricity in production factor in with regard to the cost of transportation if the industry were not in B.C.?
I respect the fact that you're putting the case here in regard to the cost of hydroelectricity in B.C., the competitive issues and so forth — maybe not so much in regard to electrochemicals. The pulp and paper and mining industries locate their processing plants closest to the resources, notwithstanding any kind of electricity cost.
I'm from New Brunswick, and our pulp and paper mills are close to the resources. Our mining processing is where the resource is, notwithstanding electricity costs.
I'm puzzled by the entire issue that you're putting forward, that these industries will not be located in B.C. if the price of hydroelectricity goes higher.
Mr. Dal Monte: I can only speak to the mechanical pulp and paper industry. You're correct: The reason the mills are in British Columbia is because that's where the wood is. The pulp and paper industry in British Columbia was designed as a means to deal with the sawmill residual; the fundamental for the forest industry in British Columbia is the milling of wood, but since trees are round, about 50 per cent is left over as chips.
In our industry, we have two approaches. One is a chemical approach, which is less energy-intensive but you lose about 50 per cent of the fibre. The other one is a mechanical approach, and that's much more energy-intensive, but you conserve a lot more of the fibre.
Given the low cost of energy in B.C., historically with all the hydroelectric resources, that is the path the industry took, especially on Vancouver Island and the coast of B.C. A lot of mechanical pulp mills were built, so the sensitivity to electricity is a lot higher.
Fibre is the largest component in our business. With respect to the mechanical pulp and papering industry in B.C., that's why we're in British Columbia. In the context of B.C., early on the decision was made to go with a mechanical process versus an electrical one.
In terms of transportation, while we're not freight-logical necessarily for North America and the Eastern Seaboard, we are freight-logical for the Pacific Rim. We do export to South America and Asia. There is an advantage for being on the coast, for example.
The Deputy Chair: That ends our questioning. Mr. Wallace, Mr. Dal Monte and Ms. Brino, thank you very much for your availability and sharing your knowledge. It's much appreciated. We'll certainly consider it in our report.
(The committee adjourned.)