Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 16 - Evidence - November 24, 2016
OTTAWA, Thursday, November 24, 2016
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:02 a.m. to study the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia, and I am chair of this committee.
I'd like to welcome honourable senators, any members of the public with us in the room and viewers all across the country who are watching on television. As a reminder to those watching, these committee hearings are open to the public and are also available via webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under "Senate Committees.''
I would now ask senators around the table to introduce themselves, and I will begin by introducing the deputy chair, Senator Paul Massicotte, from Quebec.
Senator Massicotte: Good morning.
Senator Griffin: Diane Griffin, Prince Edward Island.
Senator Ringuette: Pierrette Ringuette, New Brunswick.
Senator MacDonald: Michael MacDonald, Nova Scotia.
Senator Lang: Dan Lang, Yukon.
Senator Mockler: Percy Mockler, New Brunswick.
Senator Seidman: Judith Seidman from Montreal, Quebec.
The Chair: I'd also like to introduce the staff, beginning with the clerk, Maxime Fortin, and our one Library of Parliament analyst this morning, Sam Banks.
Today marks the twenty-fourth meeting of our study on the effects of transitioning to a low-carbon economy as required to meet the Government of Canada's announced targets for greenhouse gas emission reductions.
I'm pleased to welcome our witnesses. First, from Sustainable Development Technology Canada, Leah Lawrence, President and Chief Executive Officer; and from Alberta Innovates, Dr. John Zhou, Vice-President, Clean Energy.
Thank you for joining us, both of you. I believe you both have statements to make and then we'll go to questions. The floor is yours, folks.
Leah Lawrence, President and Chief Executive Officer, Sustainable Development Technology Canada: Thank you, Mr. Chairman. Thank you, senators, for having us here today. John and I have had the privilege of having known each other for a few years, so it's nice to be here presenting to you jointly.
I'd like to specifically take a minute to honour Senator Elaine McCoy, who isn't here today. She's a long-time mentor of mine that I've known for over 20 years and in fact got me into the climate change field a few years ago when she started Alberta's Climate Change Central. It was quite a few years ago, probably over 20 if I actually count it. I just wanted to acknowledge that.
I'd also like to take a minute to acknowledge the challenging times in the oil and gas sector, specifically in Alberta, Saskatchewan and Newfoundland and Labrador. As a former Calgarian of 21 years who moved to Ottawa a year and a half ago, I have many colleagues and friends who are in difficult times. I would note that the subject matter of the panel is important today with respect to that because they're living the changes that dramatic technological change can bring because of horizontal wells and fracking in the production of shale oil and natural gas. It is very much of a topical discussion here this morning.
As you know, SDTC is a federal foundation. We were created 15 years ago on behalf of the Government of Canada. In that way, we work on behalf of you to invest in pre-commercial demonstration technologies.
Today, clean technologies, as we call them, are really the growth thing over the world in general, and in particular the United States, China, South Korea and Germany. Global investment is booming in this area, and in 2015 alone, there was $329 billion in global investment in clean technologies. This compares, for your interest, to $810 billion in global investments in the oil and gas industry in the same year, so over a third.
Canada's clean technology companies are riding this wave, but to be frank, they are falling behind. The country's share of the global market for clean technologies dropped 41 per cent between 2005 and 2013. In Canada, that means clean energy technologies as well because about two-thirds of the technologies that we would have in the clean technology space are clean energy technologies.
I just want to tell you a little bit about a study to this end that we've done with Cycle Capital, a venture capitalist company from Montreal. We wanted to understand, given this global wave in clean technology investment, where Canada's strategic advantage might be. So we commissioned a study to look at the number of publications and patents by Canadians in key segments within clean technologies.
What we found was that Canadians are very good at invention. The number of scientific publications is 15 per cent that of the United States and China, which if you look at a per capita basis and the size of our economy, it's about 50 per cent higher than you would expect. This shows that our universities are world-class in research in clean technologies. John works very closely with them on that.
But we also found that the transition of this research to patents and commercialization is weak. The number of academic patents per 1,000 publications is 7 per cent of U.S. patents, whereas we would expect it to be 10 per cent on a per capita basis. China, who has really been leading a push in this area, is publishing much more than Canadians, with Canadian patents being only 1 per cent of Chinese patents. So 7 per cent of U.S. and 1 per cent of Chinese is the Canadian number. This translates into clean tech, clean energy, as I said, and oil and gas specifically.
Patents are not a perfect proxy for commercialization, but they are a necessary pre-condition, especially in a globalized world where free trade is a priority for Canada. In such a world, ideas are the currency of economic growth and prosperity, and ideas have to be commercialized for Canadians to make money off of them.
So that's my first message for you today, that we have this great potential in research and development in Canada, and we do have the potential to lead the world in clean energy technologies. But there is a gap between the idea, the patenting and the commercialization. That is a very important role that the public and private sectors need to think about and work together on.
As I said earlier, SDTC was created in 2001. What we do, then, is try to fill a bit of that gap in that we provide grants in conjunction with private sector financiers and other public funding to invest in clean technologies, primarily small- and medium-sized enterprises, and I'm pleased to say that's from coast to coast to coast.
These entrepreneurs' goals are audacious. They want to transform our environmental and economic prosperity, and they target the big challenges: climate change, energy security, water security, and the life-cycle repurposing and elimination of waste.
It takes a long time to go from idea to commercialization in clean technologies; 8 to 10 years or more, on average, is what we see with the companies we invest in. This means that we have to think long term when we're thinking of technologies.
We're lucky in that some of the companies that we've worked with have graduated, so to speak, given our vintage of 15 years, so we've seen about 70 companies that have graduated and are selling their companies into markets, having gone through the SDTC system. They're generating about 6.3 million tonnes of greenhouse gas emissions today, generating 9,200 direct and indirect jobs and generating about $1.4 billion in revenues.
To give you some context with that, in the entire longevity of SDTC, the Government of Canada has allowed us to allocate investment of about $1 billion. So $1 billion, as compared to $1.4 billion, would say that the companies that have come through our system and commercialized their technologies are actually paying back annually the money that we, as Canadians, have encouraged them to invest each and every year.
That's a pretty exciting statistic that we can be proud of, but it's not enough, unfortunately. We need them to get even better at what they're doing. Canadian revenue for clean technologies in 2014, the last year available, was $12 billion. Let's compare that to revenues of the sector that we're talking about today, oil and gas. In the equivalent year, 2014, which I'll add was, as I'm sure you know, a historic peak, revenue from the oil and gas sector was $150 billion, so an order of magnitude 10 times bigger.
In 2016, it's not quite as good, as we know. The revenues estimated for 2016 are $73 billion, so, as you can see, there is still a significant difference between clean technology revenues of today and oil and gas.
Growth rates in clean technology are about 3.5 per cent a year, so if we add that over a cumulative basis for a number of years, even by 2050, we would only see about $40 billion in annual revenues in clean technologies. So that really is going to get me to my second point in a minute, which is that we need to accelerate that rate of adoption of clean technologies in Canada, commercialization through to adoption.
How might we do that? I'm going to get to some of the slides that you have before you in a minute. As you know, life-cycle analysis is often used for the basis of government policy, and that also helps us to think about where we would target our efforts on technology investment. Life-cycle analysis, for example, is used by the U.S. Environmental Protection Agency, the Low Carbon Fuel Standard in California and, of course, the EU's Fuel Quality Directive.
I'll just draw your attention to slide 4. What you see on slide 4 is the life-cycle analysis of the oil and gas sector, and it looks at the different phases of oil production and upgrading, oil transportation, refining and refined products, transport, and then, of course, combustion. As you can see and as we know, the two big areas to tackle in terms of technologies are the combustion, or ourselves driving cars, flying planes, these things, and also oil production and upgrading. That's going to be the focus of both John's and my discussion this morning.
I would just add, before I do that, that SDTC supports technologies in all of these areas, and that's what you see at the bottom of the slide, the logos of some of our champions within this sector. They go from everything from Nsolv, which is a company in Alberta that I'll talk about in a minute, to General Fusion, which is in Vancouver, as many of you would know well. There are Ballard and Westport as well. So they cross the country. CO2 Solutions is in Quebec City. New Flyer is in Winnipeg. Just a great breadth and depth of Canadian talent and expertise that I wanted to show you there.
Just going on from there, the next slide shows you the emissions breakdown per barrel, the percentage breakdown of well-to-combustion emissions per barrel of oil produced in various fields around the world. Two things I would show you here: You can see that there are various lines for different regions of Canada. For example, you have Canada offshore Hibernia. You have Canada oilsands in situ Cold Lake, and you have other examples.
Why do they show differently? Depending on where the barrel of oil is produced, it's a proxy for its underlying chemical composition. So you can see here that the emissions profile for a barrel is very different, for example, in offshore Newfoundland and requires less energy to go through that life cycle to be refined and then used in our vehicles or in our planes than one in Alberta, which is bitumen, which is a heavier molecule and more complicated to refine and upgrade and get through to gasoline or jet fuel.
That just gives you an idea of the challenge. It also shows what I'll get to, which you'll hear from John and I, that we're really focused a lot in Canada on trying to get the bitumen upgraded and to par with what would be a lighter barrel from, say, Newfoundland or average in the United States. That's where you see a lot of the research in Canada, really trying to get to a par basis of what an average global or North American barrel would be. That gives you our goal.
Let me just tell you about two technology companies that we invest in that are trying to do that, one in the production space and one in the upgrading space. One is Nsolv. There's a gentleman named John Nenninger, who is a Swiss immigrant to Canada. He had great ideas for how to produce bitumen more efficiently, with less energy, using a solvent, so propane or butane. That would dramatically reduce greenhouse gas emissions and, in fact, eliminate water from the production of in situ oilsands in Alberta. This company has been working with us for a number of years and has had some great initial results from their applications — and John can expand upon that a lot — really looking like you could deliver a barrel at 75 per cent fewer GHG emissions and no water, as compared to existing processes.
MEG Energy is the next company I'll highlight because it's the next one up the value chain that I showed you in the life cycle. They're looking at ways of allowing upgrading to happen with much less energy as well. Bitumen, as I'm sure you know, I always think is kind of a Silly Putty with a lot of sand in it. So it doesn't flow very well down a pipeline. So what you have to do is mix it with a lighter hydrocarbon and ship it, and that's what we usually do. MEG Energy has a process where they're trying to eliminate that. If they're successful, they would reduce greenhouse gas emissions by 20 per cent on a barrel basis.
You can see that, combined, these two technologies actually could bring a bitumen barrel in line with the Canadian average or even better, if we aspire to greater things. I just wanted to give you some context of companies.
But what is the challenge? We have a lot of really great technologies, but, as I said earlier, the adoption is the challenge. The next slide shows you a study by McKinsey and Company, which looked at oil and gas technology adoption rates. You can see here that the story is a little bit challenging. This study isn't specific to clean technologies but, in fact, those broader production technologies that you would see that are central to the core business of production in the sector. It shows that it takes 31 years to go from idea to 75 per cent market penetration. That's a very long time, especially if you're a small- or medium-sized enterprise that probably only has a life of maybe two to three years of cash flow. That compares, as you can see, to 16 years for artificial intelligence and telecommunications, 12 years for medicine and 8 years for consumer products. So we need to look at ways that, collectively, we can accelerate that.
The good news is that — and John knows this well — we have done that in the past. In fact, in Alberta, through the Alberta Oil Sands Technology Research Authority, we have had public-private partnerships that worked very collaboratively to come up with solutions that could tackle big problems like this. That is the kind of history one would want to look to as Canadians to see how we could actually get to some very different numbers in these absolute emissions per barrel.
To conclude with my second message, the oil and gas sector needs to accelerate the adoption of new technologies if we're going to hit the greenhouse gas targets we aspire to, both within the sector and nationally.
I've made two key observations. Canada has no shortage of people with ideas to create a cleaner energy future, but it's also true that these ideas are not developed, commercialized and adopted at nearly the rates we would like them to be.
Efficient capital deployment is the issue. Early-stage funding of new ideas through university and other research is relatively plentiful. Although efficient capital deployment is the issue, we need to develop those ideas and get them adopted faster.
SDTC fills this gap in pre-commercial funding, but in energy, in particular, there is a severe shortage of capital at the subsequent commercial stage. During boom times, private operators see new technologies as a distraction because they're very focused on trying to do other things, but it is precisely at these times when we need to champion productivity increases and increases in productivity expensing that will allow us to go forward.
Governments generally play a far more significant role in promoting local technology commercialization than is commonly recognized. Many folks today don't know the historic participation that both the provincial and federal government played in the oil sands story, and it's one that we should all know. It is getting to be a number of decades ago, but it's still an important lesson to remember.
The need for a public role arises in part because private and social motivations for investing in productivity can diverge. For government, higher Canadian productivity helps our international competitiveness in any price environment, which is, of course, the challenge we have today.
Globally diversified energy companies are motivated to maximize operating margins and existing technology and develop new investment capital wherever it has the highest marginal return in its worldwide operations. In the current price environment, these corporate investment decisions don't necessarily align with those productivity improvements and the interests of Canada and its provinces.
We're entering a phase where the contribution of ideas to national output and wealth is increasing, and I strongly believe we need to find ways to allow Canadians to take those ideas and to better compete on a global stage by providing stronger support for commercialization.
It's my privilege to be here today, and I look forward to hearing John's remarks and your questions.
The Chair: Thank you very much.
John Zhou, Vice President, Clean Energy, Alberta Innovates: Good morning, Mr. Chairman and senators. Thank you for the invitation to speak today to share my insight on how innovation in Alberta will improve our country's drive toward a low carbon economy.
I also want to acknowledge my fellow witness here, Leah who has done a great job at the federal organization.
My name is John Zhou. I am the VP of Clean Energy at Alberta Innovates. Alberta Innovates is dedicated to accelerating research and innovation to deliver social, environmental and economic value to Alberta. Our mission is to be recognized as a leader in catalyzing innovation to deliver a resilient and diversified economy, a sustainable environment and a healthier population. The work we do benefits not only Alberta but the also the entire country.
With respect to the mandate of this committee, my submission will focus on the role of energy resources — in particular, oil and gas — development in the transition to a low carbon economy.
The Canadian oil and gas sector is a major contributor to the Canadian economy. The global oil demand will continue to grow, and the natural gas demand will even be greater in terms of growth. This is indicated by the 2016 World Energy Outlook from the International Energy Agency. Canadian leadership in low-emission production, processing and the consumption of oil and gas will benefit not only Canada but also the world, because the demand for oil and gas is still increasing.
Innovation is the key to this successful transition. The Canadian oil and gas sector is undergoing a transition to remain cost competitiveness and to become carbon competitive as well.
Working with our government and private industry partners, including SDTC, we have developed a portfolio of technologies to help the province and the country achieve its economic development and climate leadership goals. On page 2, this figure shows a number of technologies we developed related to the oil and gas industry, with a focus on the oil sands in the low carbon economy. The technologies include advanced hydrocarbon recovery, value-added processing, clean power, enabling clean technologies, waste-to-fuel, CO2 conversion and utilization, and bitumen beyond combustion, simply called BBC.
All these opportunities are considered in terms of potential economic impact and the GHG reduction potential. I want to emphasize the numbers you are seeing in the figure is really for illustration to give you a sense of the scale, not absolute numbers.
I'm going to take you through a few examples just to show how these programs can help the industry transition to the low carbon economy and develop the value of the resources at the same time.
The first bubble on this diagram on the upper right corner is "Advanced Hydrocarbon Recovery.'' That one has the greatest economic value, estimated at tens of billions of dollars, and also has the greatest GHG reduction potential. We're talking about probably tens of mega-tonnes a year.
Canada's oil sands industry has experienced extraordinary growth. Total production has more than doubled since 2005 and reached 2.37 million barrels per day in 2015. Although GHG intensity has decreased by 40 per cent from 2005 to 2015, total GHG emissions have increased.
There are also other challenges. The cost of our oil sands production is still too high to be competitive. To simultaneously reduce production costs and GHG emissions, innovative technologies are required to significantly outperform the incumbent technologies.
If you look at the graph on page 3, this is a portfolio of the technologies we have been developing, supporting or considering. I'm going to highlight a group of technologies Leah mentioned on the solvent-enhanced SAGD process and also solvent-based technologies. These technologies offer promise to reduce GHG emissions by 40 to 80 per cent compared with the SAGD process used today.
Also, these processes use less or no steam, and they promise to significantly reduce total production costs and water usage, especially the surface facility for water treatment and steam generation. So innovation in this area is critical for the oil sands industry to be cost and carbon competitive. I think there are a number of technologies that come very close to commercialization, but they need field demonstrations.
The second opportunity I want to talk about is value-added processing. This is another $10 billion opportunity.
Over 60 per cent of Alberta's bitumen is shipped as diluted bitumen and sold to U.S. refineries at a large discount. The heavy-light differential is as high as $20 Canadian per barrel, which shifts profits to refiners. The diluent cost is $10 per barrel, with much of this being an unrecoverable cost, not to mention that diluent requires much-needed pipeline capacity.
For the 40 per cent of the bitumen that is converted to synthetic crude oil, or SCO, the production cost and lifecycle GHG emissions are high.
Alberta Innovates and Natural Resources Canada have been supporting the industry in developing a number of bitumen partial upgrading technologies. A number of technologies are at the pilot and field demonstration stages. According to a recent study by the University of Calgary's School of Public Policy, every 100,000 barrels per day of bitumen partially upgraded, it can generate $3.5 billion labour income, $13.37 billion GDP and contribute $2.77 billion in revenue to the federal government and $1.85 billion in revenue to the provincial government over a 20 year period of time. Bitumen partial upgrading can also reduce GHG by up to 20 per cent on a wheel to tank lifecycle basis.
Finally, I want to give you a very new concept in the oil sands, especially in the bitumen industry, which is bitumen beyond combustion, or BBC. It is a new concept and a long-term strategy for Canadian oil sands. Many believe that oil will hit its peak before or by the middle of this century. Bitumen as a fuel commodity will face even greater challenges by that time. Through BBC, innovative technologies are sought to make value-added materials from bitumen. BBC takes advantage of the large molecules in bitumen. Hydrogen in bitumen may provide the energy required for the conversion, making the entire value-added process emissions-free. BBC could also have a significant economic impact.
We have two programs that are at the very early stages right now. We're working with three oil sands companies together with the Bowman Centre in Ontario.
At Alberta Innovates, we believe collaboration cultivates innovation and will be a key to building a sustainable resource industry in a low-carbon economy. In particular, we would like to acknowledge important partnerships with Emissions Reduction Alberta, COSIA, NRCan, SDTC and universities and entrepreneurs across the country.
The transition to a low-carbon economy is a national challenge and requires national effort. Building a low- emission, clean energy sector is part of this collaborative national effort.
Recently we also started to provide support to an industry-led, super-cluster proposal to Innovation, Science and Economic Development Canada.
To achieve GHG emission targets in a manner that is sustainable, affordable, efficient, equitable and achievable, Alberta Innovates makes a number of recommendations.
First, recognize the oil and gas sector as a solution for building a low-carbon economy. Canada can neither abandon its largest export industry nor achieve its GHG emission targets without transformation in this sector. Industry is a willing partner and has invested heavily in innovation, as noted in a recent study by the federal Science, Technology and Innovation Council. Growing the industry under the emission cap is not only possible but also essential.
Second, support targeted innovation and investing in areas where it can make the greatest impact in the short, medium and long term. In the short term, the Government of Alberta should support industry to demonstrate and deploy new technologies through lower GHG emissions and enhance its competitiveness. Agencies such as SDTC would be the perfect vehicle for that. For the medium and long term, the Government of Canada should support the deployment of transformational innovations, such as BBC.
The Government Canada should continue to encourage collaboration among government institutions, academic institutions and private companies, and among industry players themselves. The Government of Canada should support ongoing collaboration between NRCan and Alberta Innovates, in particular our national programs in bitumen partial upgrading, non-aqueous extraction and oil sands tailings.
Intellectual property ownership has been a major barrier to innovation in universities, federal and provincial labs and industry. The Government of Canada should make its major funding conditional on IP sharing within Canada.
Those are my remarks. Thank you very much, Mr. Chair and senators.
The Chair: Thank you very much for your presentations.
Senator Massicotte: Thank you to both of you for being here this morning with us. It's obviously very important, especially from people like you, who are experts in the field. I have a lot of questions, but I will ask a couple to start and then my colleagues will pick up from there.
Ms. Lawrence, you have a graph that refers to GHG emissions for a benchmark set of crude oil. Obviously, like you mentioned, it's hard to read given it's so small.
We were told recently during our trip to Western Canada that it is accurate to say that, with recent technology, the recent oil sands projects of importance now have GHGs equivalent to the American average per barrel. I see the average American figure and I see offshore being relatively low pollutant, but is it accurate to say that? I'd like to think that because it's very refreshing, whereby one can say any new oil sands project today will not contribute more GHGs than the average American barrel of oil consumed. Is that accurate? I don't see that.
Ms. Lawrence: Yes, I would say it could be accurate.
Senator Massicotte: That gives me a lot of comfort.
Ms. Lawrence: Yes, me too.
For example, for the technology Nsolv that I highlighted today, yes, what you just said would be accurate if it was adopted and deployed on a continuous basis, going forward. Nsolv, though, is still pre-commercial demonstration. They're still having challenges raising commercialization funding to be able to deploy a full-scale commercial facility to show all oil and gas producers that what they can do can work.
So the answer to your question, I believe, is yes, the current technologies that we could deploy have the potential, but we're not yet deploying them en masse.
Senator Massicotte: You have a lot of qualifications at the beginning. There are two major projects currently producing a lot of oil, not only experimental, so their GHG equivalent is not equal to the American average, the more recent ones. In other words, if I started a new project today and it's in situ —
Mr. Zhou: Yes, the Kearl project is Imperial Oil's mining, so the bitumen is shipped as diluted bitumen, and that one is on par with average U.S. imports.
Senator Massicotte: Can we also say that any new project that would occur and new investment would also meet that American average? Obviously, new projects would use current technology, the latest technology, and, therefore, they would not be more pollutant than the American average. Is that accurate to say that?
Mr. Zhou: Probably, with some conditions.
Ms. Lawrence: If I could add to that, the Kearl project is a mining project. About 20 per cent of Alberta's oilsands are produced through mining. So your comment — and as John said — pertaining to mining is correct.
Eighty per cent of Alberta's bitumen resources are in situ, which is the Nsolv technology I talked about today, and those technologies are still using steam-assisted gravity drainage as the benchmark technology. That technology would not be equivalent to the U.S. barrel greenhouse gas emissions. You would need new technology in that.
Senator Massicotte: It would be of a lot of comfort to most Canadians and to world citizens if we could say what I just said, but you're saying, no, we can't say that for new projects.
Ms. Lawrence: If we start to deploy the technologies that, right now, are in pre-commercial demonstration, the answer is yes, but we aren't yet deploying them.
Senator Massicotte: That's not reassuring to make that condition. We can set up a lot of things in this world and never get there. But I appreciate it.
Both of you make significant recommendations. You make a lot of points relevant to our lack of commercialization and motivation. You're talking to a convinced audience. We love to hear that; we love to be told that we're getting to solutions. But your audience really is the oil and gas industry. The government can help to incite further R&D, but it's the oil and gas industry, and they're significant players who can understand fully what you just tried to tell us and also put up some real dollars.
What do they say when you show them this stuff? If it is so easy, why is it not getting done? What's the problem here?
Ms. Lawrence: I think the answer to your question is that it's not easy. That's why we're seeing 31 years to adoption on the one slide I showed.
What you have was characterized really well a few years ago by Jeffrey Immelt, when he spoke at a conference I was at. He said that energy companies in particular, if they didn't develop the technology in-house, like to be second- generation adopters. So they would like somebody else to prove that something works before they do.
What you have is this chicken and egg thing for small- and medium-sized enterprises that I work with because they go to a large company and say, "I have this idea, and I financed it to the stage that is right before you could adopt it broadly. So there is still some technology risk.'' What they often hear is, "Once you get that figured out, then you can come back to see us.''
What Jeffrey Immelt is saying when he says that we adopt second-generation technologies is that he waits for the small- and medium-sized enterprises to take out all of the risk and probably fail, and then takes the idea and adopts it. We need a bridge that encourages the bigger companies to bring in the small- and medium-sized technologies.
Senator Seidman: Actually, we're moving very much in the direction of my questions to both of you. They were very thought-provoking presentations from both of you, and actually exciting to imagine. I'm only confirming my colleague's point about how much we love to hear that there is new innovation in this country worth pursuing and that Canada could be a leader but isn't.
Ms. Lawrence, I must say that, at the beginning of your presentation, you said that we're falling behind our global peers. Where might we have an advantage? We're good at invention, but our translation of research into patents is weak. I think your study is particularly interesting because it does get to the essence of a problem. Then you say that we'll have to get to the root of the problem of why our current policies and approaches have not yet enabled the transition of good ideas from publication to patents to commercialization to scale globally. I put that back at you now, your own words, to try to help us to understand a bit.
I would like to preface that by saying that I find your graph on page 6 really shocking — oil and gas industry lags on adoption of new technologies. I look at medicine, for example, 12 years. Medicine takes a whole lot of innovation and a whole lot of investment. Then I look at the oil and gas industry, and it's 31 years, almost three times as long. I really do find that shocking.
I would like to know what proportion of the budgets of the large companies in the oil and gas sector go to R&D in innovative technologies.
Ms. Lawrence: Let me start with the root of the problem. I took over as the head of SDTC about a year and a half ago, so my observations are coming from 10 years in the private sector when I was trying to sell these technologies to oil and gas companies.
The Government of Canada, to its credit, has started talking about this a lot in recent months, around outcomes.
The first thing I noted when I walked in the door at SDTC was that we were very much focused on inputs — how many dollars came in, how many were leveraged and did the technology meet its milestone. But to actually get to adoption, we need to be focused as well on outcomes. Did 60 companies take it up? Did we get to greenhouse gas barrels on par with the U.S., or are we making progress towards that?
So my observation about SDTC — but I think it's more broadly in the public policy suite that we have — is that we have a lot of programs that were developed and designed to focus on start-up or what we call research and development and pre-commercial demonstration. Then, once a company gets to that, we had the view that everybody will right away rush to want to buy their technology, but, in fact, that's not what happens in the private sector and, in particular, in oil and gas. What happens is that the private sector goes, "Well, have you deployed 15,000 units?'' Many of you would know this from your past experiences. "Have you run it for 80,000 plus hours? Have you got 10 customers who can tell me that you're going to securitize? Have you got X, Y and Z?''
The SMEs that we work with don't have that, to be frank. What they have is a good idea that they've used friends, family and fools to fundraise for. They maybe have got some VC capital in the early stages, but they are unable to have a big asset bank that they're able to securitize and get lending from so that they can sell to a large multinational or even a large Canadian independent. That's a big gap, and it really worries me, as the head of SDTC, because I take this great cohort of amazing entrepreneurs from across the country. Then we say, "Go fly; be free,'' and there is nothing to catch them. The public policies that we have were designed to do start-up, but not scale-up or not early commercialization.
We have had a couple in the past, in my observation, and there will be others who would be more knowledgeable in this area, but NRCan had an ecoEII program and SDTC had a NextGen Biofuels Fund a few years ago, and that was effectively for first commercial demonstration to try and show and be more market ready. It covered things that pre- commercial demonstration doesn't.
We do have some bridges that we done in the past, but they have been sporadic and challenging. In clean technology in energy in particular, when you start to get into that space, those projects are very capital intensive and they still have an element of risk and could fail. That gets into a challenging space in public-private investment, because you don't know whether you're going to get the outcome you're looking for. As we've seen in the United States, if they fail it can make the front-page news.
What we need to think about as Canadians is to come to some idea about how to get through that space after pre- commercial demonstration is done, because the companies and technologies still aren't ready for mass adoption. How do we become comfortable with the fact that some of those things will work and work extraordinarily well and some of them might not?
The deputy chair asked about the technologies. There are probably 15 or 20 technologies that could get us to an average barrel in situ that would be comparable to the U.S. Only two of them will really make it, but we need to fund all 15 to make sure we get to that average barrel, and that's one of the big challenges.
Senator Seidman: You say the policies don't adequately get us to that next phase. What kind of policy do we need to get us through that bridge?
Ms. Lawrence: Canada needs to look at having a publicly funded early commercialization fund, which it does not have today, which would be on par with what the U.S. Department of Agriculture or the U.S. DOE has. They don't grant like we do. They usually securitize loans for other things. They think deeply about what the risk is that they are trying to address for those big capital technologies companies and then they are thoughtful in how they bridge that gap.
We were in a great conversation recently where we talked about procurement for both the public and private sector. A small company said, "Getting a grant from SDTC is great, but I can only leverage it when I go for private finance one time. If I get a procurement contract where I will sell 10,000 units, or where my process is going to bridge and I have a contract where the government will guarantee they will give me waste for a certain number of years and I will be able to have my inputs covered, then I can multiply that when I go to the financial community many times more. Ten times, perhaps.''
It's those kinds of tools that you want to look at more deeply. I don't have the perfect solution today, but more depth and knowledge in that area will be useful.
Senator Ringuette: First of all, the commercialization of innovation is, from my perspective, almost the same in every sector in Canada. We seem to be very shy and not very adventurous, or we have, as a nation, not been able to, never mind the funds, provide the level of expertise to surround these small- and medium-sized businesses to move forward with some confidence in the direction that they want to go.
In regard to the oil and gas sector and all the evidence and issues that you have highlighted, the lack of investment in innovation and so forth, how much of that would be due to the fact we are looking at large oil companies that are relatively the same group? When you're looking at any other sector of the planet, it is the same group of investors in oil or gas. Are they investing more in other areas of the planet where they have production than they are in Canada? The problem is bigger, and we have to have a full comprehension of not only what is happening in Canada but what is happening elsewhere with these same major companies before we can ascertain recommendations.
Ms. Lawrence: I think, senator, it's a great question. In this sector in Canada, we have a very interesting ecosystem, because we have a fully functioning group of small- and medium-sized enterprises, medium-sized companies, and then we have Canadian independents and multi-nationals. I think you are asking what happens on the multi-national side.
Before I took this job, I was looking at natural gas globally and LNG in particular. Globally, you are right. There is a group of leading companies that looks to maximize their margin around the world at any given time, and LNG is a great example of that because there are around 10 companies that own about 60 per cent of global supply of LNG; so they are able to look across the globe and see where their dollar and their margin will be greatest at any given minute.
That's a challenging thing. Those are the big-producing assets where they spend a lot of money, and that would translate down to clean technologies in some way. Whether they invest in clean technologies in Canada depends upon what their margin is in a particular resource at the highest level.
John has alluded to this: The advent and the robust change that shales around the world have brought means that all their capital is moving to those technologies that are not clean technologies — they are production technologies — but they are cost-related.
It is a great question that gets to one of the points I made at the end, which is that Canadian public policy and provincial public policy differs obviously from the interest and the profit motivation of the multi-nationals, and in a time of global price environment like we're in today, we know that those companies will go and invest elsewhere because that's where their material gains are. It's up to us to decide that we want to bridge that down cycle and work together to come up with the technologies John talked about that will revolutionize our sector and get it to someplace new in terms of emissions and even other product markets.
It is a bigger context. We are competing at the margin in a global market, and it's challenging to think about that. We need to think about what we should do from that perspective.
Senator Lang: It has been a very interesting presentation. I have a question on financing. Obviously everything seems to come down to money at the end of the day, whether or not you can afford what you're doing.
Correct me if I'm wrong, but my understanding was that at least in the province of Alberta, all the companies have come together to share the information, the research and innovation in order that they can all take advantage of it. Plus there is a substantial amount of money, I believe, that is put toward this type of research and innovation. How does that relate to what you do?
Mr. Zhou: You're probably referring to Canada's Oil Sands Innovation Alliance, which has 13 oil sand companies. We share the IP and the knowledge. We certainly work very closely with them. Up until a few months ago, their scope was limited to the environmental issues: the GHGs, the biodiversity, the water. They don't get into the subsurface. Now that limitation has been lifted, so they can work on all aspects of the production.
In terms of funding for their group, they have a certain budget for those common projects, but the bigger dollar, what they call a JIP, joint industry project, is still driven by individual companies working with the companies in the alliance. From our point of view, there is a major gap in terms of policy and availability of the funding for large field demonstrations and also for the sharing of knowledge among the companies.
Senator Lang: Perhaps you could give us an idea of what kind of financing they're talking about in respect to their annual amount of money that goes towards this.
Mr. Zhou: In their history, they have spent up to $1 billion of the projects actually shared. A majority of those is done with individual companies, but that information has been shared. But in terms of the COSIA itself, the amount of investment is probably quite modest; I would say less than $100 million.
But for field demonstration, you are talking about probably $300 million to $500 million for a large-scale field demonstration for the in situ recovery. There is an initiative being worked on now. For the bitumen partial upgrading, we're talking about probably $200 million.
Senator Lang: When you say $200 million, is that to do something physically on the ground to revise an existing plant so they can meet some of these objectives?
Mr. Zhou: No. This would be a totally new plant. I mentioned 3,000 barrels a day, and an increase in the value, as I said. You can increase $15 of more value per barrel of bitumen. That's the impact.
Senator Lang: I want to get a sense of where we're going. On the one hand, we're saying we have incomes coming in that you can identify. But the question I think you referred to is outcomes for the actual results of what has been some very good research and innovation. What you're telling me is we are moving ahead, if I'm not mistaken, with a very capital-intensive investment to prove that this research and innovation does work and is economic. That's the other side; it has to be economic.
Mr. Zhou: Yes.
Senator Lang: Is that what you just told me?
Mr. Zhou: Yes. If I may, let me take one step back. The oil sands and bitumen is technology oil. Twenty or thirty years ago, this resource was there, but we didn't gain anything from it. It's due to the technology, actually, that enabled us to produce bitumen to have a market value.
The innovation is still going on on the in situ side. Actually, from my angle, I know the technology being tested in the field right now, in three to five years, to that question by the deputy chair, we will be there. In my mind, there's no question. On the partial upgrading side, the major investment required to demonstrate those technologies will bring more value to our bitumen.
Senator Lang: The question of a carbon tax for the country has been predominant, and it's a major concern for this committee. If it's going to be implemented, how would it be implemented and what are the implications?
I'm going to ask Ms. Lawrence if she would respond to this. From a policy point of view, if the Province of Alberta and the Government of Canada were to put in a policy that would give the incentives for industry directly to move in this direction for this major capital investment that would be required to meet these emissions, wouldn't that make a lot more sense than setting a policy across the country where you have a carbon tax and it just gets swallowed up in the Government of Canada and you never know where it goes, whether it goes to the Health Accord or to some other area of responsibility in the government that has nothing to do with trying to get greenhouse gas emissions addressed.
Ms. Lawrence: My job is to deliver programs that I'm told to deliver, not to expound on the preference of policy. I want to talk about financing, and then I'll get to your question.
Let's take a question of a project that you wanted to invest in.
Senator Lang: An existing plant. I've already spent $2 billion.
Ms. Lawrence: There are two ways innovation happens. One is internal to a large corporation; the other is small- and medium-sized enterprises outside bring forward ideas that could rapidly transform. You see that with Tesla and other big automakers, both trying to get to electric vehicles. My view is you need both, so you want to think about public policies that encourage both. Because I think you have a synergy between both that takes us somewhere that we can never dream of if we focus public policy on one or the other.
The second thing would be the amount of capital we need here in oil and gas transformation is very significant. For a company like Nsolv, who has come to us, just their pre-commercial demonstration is $20 million to $50 million for one application. To go to the full-scale is probably twice or three times that. So that's one application, one first commercial for one plant that might not work. You're talking about financing tools and dollar values that are quite large.
There isn't a one-size-fits-all policy; it's a suite of policies. Whether it includes carbon tax and other incentives, I'm not sure, but that's the challenge before you as policy-makers, is how do you get the basket to work to get us to go in a right direction and incent not just the big companies but the others that would also have ideas from the outside as well and allow them to have space to encourage everyone to move forward?
Senator MacDonald: I'll turn some of the questions to the impact of the American election. The new government in the U.S. seems to be favourably disposed to the completion of the XL pipeline, and I think most Canadians support that. What impact will that have on investment and development in the oil patch? How much has been backed up because of the inability to get that product to market?
Mr. Zhou: Certainly the market access is a major issue. You can look at it two ways. Currently, all our exports go to one destination, one country. Personally, I don't feel that that will be a great strategy for the country and for the industry. Access to the tidal water is probably more important, in my view. Certainly the new pipeline to the U.S. will help, but it's not as significant as access to the tidal water, I would say. Again, my expertise is on the technology side.
Senator MacDonald: Ms. Lawrence, do you have any response to that?
Ms. Lawrence: I would have to say that I don't know the numbers. I'm not current on the numbers of volumes and increases, at this point, but I can always come back to you on that.
Senator MacDonald: I'd like your opinion on carbon taxes. I've been firmly on the record that I'm against carbon taxes. I think they're a drag on the economy, on development and on employment, but we realize that we have to respond in some nature to these things. Most of the energy that is produced in this country is produced at the provincial level, on the provincial regulation authority. A carbon tax — I've used this analogy before — to me is like the Government of Canada telling the Canadian public that we're going to issue everybody shoes and going to pay for them, but everybody is getting size 9, so good luck. I think it's a problem. If you look at a place like Nova Scotia, which burns a lot of coal, and Alberta and places like Quebec or British Columbia, Manitoba, which use a lot of hydro, everybody is starting from a different base when it comes to managing this issue.
Do you believe in a carbon tax? Do you believe it provides the solution we need, or does setting arbitrary and artificial targets, particularly if they're artificial targets that we apparently can't reach anyway, do more harm than good?
Ms. Lawrence: First, I would say that I agree with you that the provinces actually are really key in any public policy that we do in this area. I say that for a few reasons. I had just moved to Ottawa when Alberta came out with its climate change policy. I thought it was very thoughtful and well done because it looked through everything, from transition of employment for folks who would be adversely affected to how you engage First Nations to, obviously, how you reduce the emissions that they're targeting for reduction and then the mechanisms that they would use on a regulatory basis. Nova Scotia's I don't know as well, but I do know the outcomes of Nova Scotia's provincial regulation, which is probably one of the best in the country in terms of outcomes.
Senator MacDonald: I think they are the best in the country, actually.
Ms. Lawrence: Yes. I'm not an expert, but I've heard that and am very proud of what Nova Scotia has done.
I want us to get to outcomes, which is emission reductions. One of the first things I did at SDTC was to engage in provincial relationships. In addition to Alberta Innovates, we have a partnership with what was Climate Change Emissions Management Corp Alberta and is now ERA. I forget what the acronym stands for.
Mr. Zhou: Emissions Reduction Alberta.
Ms. Lawrence: Thank you. The goal there was to do exactly what you're talking about, get deployment of shared capital federally and provincially to target projects and get them done sooner. We basically have done one application. It's all minutiae in terms of execution, but the goal is to get there.
My view on what the federal policy should be is that I think the federal government plays a role as a backstop. If it's regulatory or tax, I think there are different benefits to that, and I do have personal views, but at SDTC, the point that bothers me or that keeps me up at night is that I think that the innovation will come from the small companies. I think that that means federal and provincial on-the-ground, rolling up sleeves, removing regulatory barriers that are quite micro in nature. Unless we do that, any broad-based policy that we might put out won't get us to the outcome we need. It may be a condition that we'd like overarching, but it's not necessary and sufficient to get us to the outcomes that we need on a provincial basis.
Mr. Zhou: Can I add something? I wouldn't be able to comment on the carbon tax, but I think it is a good idea to make the industry carbon competitive — the oil and gas producers, to reduce emissions, reduce the intensity of their emissions per barrel or per kilojoule of natural gas. The reason for that is that, if you push very hard, you actually will see the alignment of the GHG intensity reduction and the cost of reduction. The solvent process is the best example. By reducing the water use, steam use, you actually reduce both the cost and the GHG emissions.
Senator Fraser: I'm still new to this committee, so I'm on a steep learning curve. I'm intrigued by the bitumen partial upgrading concept. I guess I had a couple of questions. One is: How much adaptation would the existing system need in order for partial upgrading to reach any kind of interesting scale? For example, can you then shove the stuff through the same pipelines, or do the pipelines have to be adapted? Do the customers at the other end have to spend money to adapt their refineries, or do they just shut down a portion and go with the rest?
That leads to the second question: What's in it for those customers? You say that we're shifting $20 a barrel in profits to the refiners, and I think I heard you say that we could recapture $15 of that. If I were a customer and you were taking away $15 of my profit, I might not be happy. What incentive is there for them?
Mr. Zhou: It's actually a very good question. First of all, in terms of capacity, the example I gave there is 100,000 barrels a day. Just to let you know, there are about three or four technologies lined up now at the demonstration stage, anywhere from 5 to 3,000 barrels a day. The next scale-up will get us to that 100,000 barrels a day if we have a couple of plants going. That's a scale problem.
In terms of value, there are two portions. One is related to the product itself. If you make the product better, like if you ship bitumen as diluted bitumen, the refinery at the other end has to do more work, essentially, to refine that product. But, if you do a bit of processing here, the other side will do less work, and it will also eliminate the pipeline capacity requirement. Right now, if you ship diluted bitumen, one third of the shipment is actually the diluent. You are not shipping the bitumen. So you actually reduce the capacity. You actually can put the partially upgraded bitumen directly into the pipeline, so you don't need to make any changes.
In terms of value proposition, you're right; if we only have one customer that can take that diluted bitumen or the refined product, then you are at the mercy of the other end. If they don't like your product, you're at their mercy.
Senator Fraser: Or if they want to keep the profits.
Mr. Zhou: That's right. However, right now, we are also looking across Canada, the refineries in Ontario and on the East Coast, and we're also looking at the international market to see what other refineries can actually take this partially upgraded product.
At the end of the day, there is still an incentive for the U.S. refinery to take partially upgraded bitumen. If you look at the whole value chain right now, you are losing $30 per barrel, essentially. If we gain $15, they will still have $15 to make. Does that make sense?
Senator Fraser: It makes sense from our point of view. I'm still not sure that the existing customers would be that happy, but finding new customers would seem like a potentially more useful way to go, which is what you were discussing. So that's interesting. Thank you.
Senator Patterson: Thank you for the presentations.
Dr. Zhou, you talked about the portfolio of technologies that Alberta Innovates has developed. I'm interested in clean power, coming from an area that depends entirely on diesel for electrical generation, and of course it has an application in the oil sands. Is there anything exciting happening with small nuclear reactors that you mentioned in your presentation?
Mr. Zhou: Yes. That opportunity has been looked at, actually, for quite a few years. A few years back, the Petroleum Technology Alliance of Canada looked into that. More recently, we have done a study. We looked at the U.S. Pacific Northwest National Laboratory, PNNL, and looked at all the technology available on the small modular reactor, SMR, and selected a couple of technologies that we are going to pursue.
A Canadian company, Terrestrial Energy, has one of the technologies we're looking into. In fact, recently we had meetings with them and we are going to look into the feasibility of the small nuclear reactor in the oil sands sector.
This is a bit of a challenging situation because, as I indicated, the oil sands, especially the in situ oil sands, are moving into solvents. In the future, the demand for steam may not increase very much. So there is a bit of a fit there because the nuclear-based technology has a high cost, which is still a bit of a barrier. But we're certainly looking into that possibility right now.
Ms. Lawrence: Senator, if you would permit, Terrestrial Energy is the company we invested in, I think two rounds ago, for the purpose of clean power, not oil sands application. At some point, if you'd like, I can send you information related to that company.
They are looking at exactly what you're interested in: how we can deploy — they're called molten salt reactors — into smaller community settings which might not have the infrastructure of transmission lines and all those other things. I didn't check in the last week, but they were shortlisted for potential Department of Energy funding in the United States.
An interesting thing I've been told by that company is that we have a regulatory system in Canada that was actually quite well suited to encouraging innovation in this space, and that's one of the reasons they are working with us and trying some of their first applications in pre-commercial demonstration here in Canada.
Senator Patterson: I think SDTC has invested in creation of energy from waste heat. Can you give me a quick snapshot of what's going on in that area, please?
Ms. Lawrence: Maybe I can get back to you on that one. We have a few technologies in the portfolio, but I wouldn't be able to make any aggregate "where is it going at this point'' without doing a little bit of thinking for you.
Senator Patterson: I'll give you my card. Thank you.
Senator Mockler: I'll start by saying that your presentations are, I believe, quite accurate. What I mean by "quite accurate'' is that there's an item I'd like to have your opinions on, namely, the social acceptance or social licence of any project.
We all know, depending on the region of Canada or depending on the group that opposes it, or any group that will have the best time on the news in the evening, this influences — should not, but does — the objectivity of what our government and/or stakeholders will want to advance. Can you give us a description of how you would define "social licence'' and to what extent it influences innovation?
Ms. Lawrence: I think this is a great question. I would start by saying I think social licence crosses sectors, not just this one.
I'll use the example, which will date me, of VHS and Betamax. The folks I work with on a day-to-day basis are sure that technology is the only thing that matters and that technology will save the world, and I love them for that. But the example of VHS and Betamax, of course, tells us that that's not true. Betamax was widely believed to be the best technology for viewing tapes in the day, and we know that's not the one that was deployed rapidly as time went on; and technology has now changed and we don't even use those two words anymore, so we've moved on.
The question becomes why. Was there social licence, if you will, for that technology versus another? I think it speaks to a bunch of things. It speaks to availability, interest and ability to quickly adopt.
If I think about technology, a good idea will never actually translate into an innovation unless you get both regulatory systems supporting it and social acceptance. How I would define "social licence'' is the ability of any technology to show that its combined benefits, both to public policy-makers in the regulatory realm and to society at large, are great enough that they would like to change to that new technology and abandon or evolutionalize from the status quo.
To what extent does it influence these technologies? I think that's a great question that we, as Canadians, need to talk a lot more about.
Years ago, I asked someone who had been instrumental in public research investment — Clem Bowman is his name — what his regret was, if he had any regrets about the amazing success they had in development — as he was the chair of Alberta Oil Sands Technology and Research Authority — to where we are today with oil sands development. This was a few years ago. Anyway, he said at the time we had research dollars to think about how we produce better and to improve energy efficiency, all these things, and we had budget to think about the environmental challenges of the day, but we were so busy figuring out the economic and other technical challenges that perhaps we didn't spend enough time on that other piece, which is of course the one that to some extent is important for social licence.
To what extent does social licence influence? I think it's almost paramount in that you have to get to some consensus that you want to continue to use the products that these technologies will produce and that the benefits of them are outweighing any of the challenges that we have. Because all technologies, in particular energy technologies, have challenges we have to manage when they're deployed, and so society has to agree that the benefits outweigh the challenges.
Senator Mockler: Mr. Zhou, do you have any comment on that?
Mr. Zhou: I will try. I think social licence, for the most part, certainly can have a positive impact, whether you look at the footprint of the development or at the GHG intensity or the water use. Actually, the desire to get that social licence pushes you in the right direction. From that point of view, I think it's painful at the time but in the long run, it will be helpful.
However, one thing I feel frustrated about as a technology guy, over the years, is the misinformation and the politicization — I don't know if that's the right word — around social licence. You hear that the oil sands are a carbon time bomb and all those kinds of things, essentially, the end of the world. It's not true. We know the intensity of that oil compared with other oils. Right now, it's slightly high but not by much, and we are pushing very hard to reduce that GHG intensity, as I said. We will be there. The technology will be there, actually, for the early adopter. The technology will be there within five years. If you look at MEG Energy that Leah mentioned, their steam-to-oil ratio, which is a measure of the energy input and the GHG intensity of their oil, is 2.2, compared with industry average, which is 3.0. They have a road map to get the intensity to 1.5. It's real. The technology is there.
Again, back to the question, I think the social licence push is a positive thing, but the misinformation is frustrating.
Senator Mockler: How would you then qualify the mechanism in place from the Government of Canada and provincial governments, who have a role to play also, and even cities, depending on where you want to locate? Is it a robust mechanism, or is it still a work-in-progress, when you look at projects related to energy?
Mr. Zhou: At the national level, I don't know. We are looking more at the provincial level. Our organization is focused on Alberta.
I think that all the major mechanisms are in place. Five or six years back, we worked very hard on the tailings management. We had some issues before we put a tailings management road map back in place with COSIA. We have reduced the water use in the oil sands dramatically over the last 10 years, especially on the in situ side. It is very dramatic, over 40 per cent in terms of water intensity.
The climate leadership policy is, I think, a very balanced approach, very progressive. It got wide support from the industry. Overall, I feel pretty good that we are doing it very responsibly.
The Chair: Before we go to the second round, I will ask a few questions myself. Sometimes I get to do that and sometimes I don't.
I want to put on the record one thing. Not everyone on the committee was able to go to Western Canada, but we did go to Calgary and we did meet with the Canada's Oil Sands Innovation Alliance and had a very good discussion with them.
They launched in 2012, at least my records show, with 13 members, which is 90 per cent of the oil companies that are working in the oil sands. They're now getting together instead of each one of them trying to develop probably the same thing, the same technology. They're getting together. One might say: Why didn't they do that a long time ago? Well, because of competition rules. To get 13 of some of the world's largest oil companies to work together, there are rules that they have to abide by, and we were told one of the most difficult things was the legalities to get through that process so they could work collectively. That's one of the reasons, at least, that they explained to us. That's just for those that didn't get to come to Calgary with us. I think it's great that they finally decided that instead of all of them trying to work on the same nut, they could figure out how to work together, but it was apparently quite a long process to get there.
Ms. Lawrence, what's your budget? How much money do you get? How much money did you get in 2016-17? Does it all come from government, or do you get funding from other sources?
Ms. Lawrence: In the last number of years, we've been given on average $100 million a year by the Government of Canada, and we allocate about that on an annual basis. It varies from year to year, but that would be the average. Some years it's a bit less.
As to whether that is that all government sources, some smaller ones have come in over time, but the vast preponderance are Government of Canada funds.
The Chair: So $100 million, and when I look at your graph going back to 2011-2015, you say $1 billion in Government of Canada investment, but yielding $1.4 billion in annual revenues.
Ms. Lawrence: That's correct.
The Chair: That's remarkable, I think. I think it's actually great. So with that kind of return and the things we have to look at, the things we're trying to innovate and you say become more of an innovator in Canada, why would the government not fund you more money? I know everyone wants more money. I get that. I've been in government and know how that goes. But when you look at the revenue that was generated from the things that SDTC did, it's remarkable. What is the present government's response? Are you looking at a large increase this coming fiscal year, do you think? Had you applied for a larger increase?
Ms. Lawrence: Yes, so let me give a little background. I have a private sector board chaired by Jim Balsillie and a number of eminent Canadians from across the country, and they keep my feet to the fire thinking about private sector kinds of things, and it's fantastic. On the other side, I have Minister Bains and Innovation, Science and Economic Development Canada. That to us is new. We used to be under Minister Carr or the Natural Resources Canada department, and they moved us over right after the election with a view to thinking about how we can be more of an outcomes-focused organization and how we get these companies further along.
In answer to your question, yes, the government is looking at recapitalizing us and has been positive in that regard. They gave us $50 million in the last budget to get us through to the end of next year, and for 2017 they are looking at a similar $100 million a year for four years for a similar kind of investment.
The Chair: I'm a bit disappointed it isn't more, to be perfectly honest, not because you should get more money but because of the challenge that we actually have. The challenge we actually have is humongous when you look at the reduction in GHGs that we tend to think we should be doing by 2030 and then by 2050. It's herculean. I can't imagine how we're going to meet it, so I'm disappointed that we don't take better action into some things that actually develop a lot of the clean technologies that we have.
Ms. Lawrence: Thank you. I would say that in terms of scale-up, you're right; they're not funding us for that. If they chose to fund us for that, we'd be happy to work in this area or support whoever else might work in that area. They are thinking about that. I don't have complete details. We did encourage them to think about that and consider additional funding that would be in the scale-up area, and that would get to deployment, which is a challenge.
The Chair: I noticed both of you concentrated on oil sands, not any of the other fossil fuels, other than I think I heard the words "natural gas'' once. What's your opinion on natural gas being, as they say many times, the fuel of the future that will help us reduce greenhouse gases worldwide? We are all in the same atmosphere, so if we can reduce — China at the bottom, to get them to burn maybe more natural gas or LNG to generate electricity. Would that be beneficial for everyone?
Ms. Lawrence: Yes, definitely that would be beneficial. Natural gas, as we've called it in the past, continues to be a bridge fuel that's important, displacing higher carbon fuels like coal and natural gas. The exciting thing about global shale gas production is its low cost, and therefore even cost competitive, to bring a more environmental solution to market in and of itself.
The Chair: Why did you both pick oil sands instead of elaborating a little more? I will ask another question with that. I don't have any problem with the chart. It's from ARC Resources. I know them quite well. I don't see where conventional Canadian crude fit in there, but I do see the U.S. average crude. Am I just missing it?
Ms. Lawrence: Yes. If you look about almost halfway, there is Canadian Conventional High Water, Midale.
The Chair: So that's what you're calling the Canadian average, or is that conventional?
Ms. Lawrence: No, there is no Canadian average. You're correct on that.
The Chair: There is no Canadian average. That's one thing.
Ms. Lawrence: That's a good question.
The Chair: It would have been nice to have.
So the Canadian conventional is the average of all conventional oil developed in Canada?
Ms. Lawrence: The conventional Midale is a different grade, but it would be about in the middle.
The Chair: Maybe you could get back to the clerk and provide us a little bit more information on where we stand on that.
Ms. Lawrence: Sure.
The Chair: I don't like hearing from anyone that Canada is not a leader, because I'm pretty patriotic to this country and I think we're a pretty good leader in many things. This is my opinion: I think that when we talk about Canada, we should be talking about Canada being a leader. Canada is a leader. Canada does a lot of good things. It maybe doesn't excel in everything, because we are a smaller country than the U.S. or some of the other countries that we're compared to.
When you say Canada was a leader at one time and Canada is no longer a leader, how did you figure that out? What makes you say that? Is there some documentation you could provide to us that would help us a little bit with that and so I could understand? I will still always say Canada is a leader. I live in a wonderful country, and I think we are leaders. If you don't have that information with you now, that's fine; but if you could get it to us, I think it would help a little bit.
Ms. Lawrence: You bet.
The Chair: You mentioned, Ms. Lawrence, provinces and regulatory issues. I don't know if you were pushing it off to provinces because they do not have the right regulatory issues in place to encourage development. Maybe I misunderstood you. Perhaps you could elaborate on that a little bit.
I'm taking quite a bit of time and I don't want my colleagues to get mad at me, because we have three or four who want to ask questions, so if you could answer that a little quickly, please.
Ms. Lawrence: In terms of provinces, no, I was not trying to push off. What I was saying is that our companies, when they try to do something, they hit municipal, provincial and federal barriers. Often the applied regulatory barriers are provincial, so shipping something from A to B, getting a site permit in Alberta and those kinds of things.
I believe the original question was related to carbon tax. What I was trying to say, and perhaps I didn't say well, is that one overarching policy at the federal level isn't enough. We have to dig a little deeper into micro-policies, which are often overseen by provinces, and that's one of the things we've been trying to support our companies in doing.
The Chair: If you would provide to us — you don't have to tell us now — some of those barriers so that we understand, other than in general terms. Give us some examples of where those barriers are, and do it across Canada, right from west to east.
Next we'll go to a brand new senator who has been here for about a week, Senator Griffin from P.E.I. Welcome to the committee. It's great to have you here, and we look forward to spending more time with you. The floor is yours.
Senator Griffin: Thank you.
My interest in this committee is long-standing, even though this is my first meeting. I once worked for the Alberta Department of Energy and Natural Resources, maybe 20 or 25 years ago. Later on, when I moved back to Prince Edward Island, I was on the environment committee of New England Governors and Eastern Canadian Premiers. Of course, at that point we were really getting started on addressing greenhouse gas emissions issues, and we found it very effective working on a provincial to a state basis within a region of North America. I'm sure there are still good relationships between some of the states and provinces.
My questions are related to the current uncertainty in the United States as a result of the recent election, the election campaign and some statements that were made. This is going to have, I think, a lot of repercussions in the United States in relation to dealing with greenhouse gases; it's hard to visualize yet in exactly how many ways, and I'm hoping some of the individual states can help to neutralize any negative impact.
I'd like your impression of how the current political situation that's developing in the United States could affect the growth of clean technology investment in the United States and what impact that might have for Canada as a result.
Ms. Lawrence: Let me start with this: Regardless of the impact of the election, the U.S. government, federally and state-wide — as you would well know, given your experience — has been investing hundreds of millions of dollars in clean technology. In some ways, that won't change, because those companies and investments will continue to pay dividends for years to come, and they will go into deployment, which is an amazing thing.
From that perspective, perhaps I'm an optimist, but I don't think an administration change will have a large impact on deployment of clean technologies, just given how much money is being deployed on that in the United States. In addition, not only have hundreds of millions of dollars in the United States been deployed this way, but similarly in South Korea, China and Germany — hundreds of millions of dollars worldwide. There is a momentum that I think is unstoppable in many ways. That's my business, so perhaps I'm overly optimistic sometimes, but I'm very encouraged by that.
What does it mean for Canada? I think it means we might have an opportunity to collaborate with some folks and lead on some things that we might not have had the space for before as they figure out what they will do in their transition, which will take a little time. I think that's an exciting thing as well.
Just to give you a couple of facts, the companies that I talked about that are generating the $1.4 billion revenue, 60 per cent of that revenue is in sales globally, a vast majority in the United States. Now with other opportunities, perhaps we can expand to other jurisdictions as well. These are Canadian exporting companies that are creating clean technology, so here's an opportunity perhaps for them to have space to compete and get into the game more quickly.
Senator Massicotte: Technical questions: You compare revenue growth of 1.5 compared to an investment of $1 billion, and you said wow. Our chair said, "Why don't we do more of this?'' But let's do apples to apples. What's the net — call it IBIDA, whatever — that those companies are producing relative to that investment? Did the $1 billion investment encourage another $9 billion invested by the private sector? What is the share of the IBIDA or the net profits to the $1 billion, just to make sure we're talking apples-to-apples?
Ms. Lawrence: That's a great question. I don't have the share of the EBITDA. These are early stage companies in its revenues. It's a great question. We need to translate that to EBITDA.
The Chair: If you get the response back through the clerk.
Senator Seidman: I just quickly want to confirm that this "Oil and Gas Industry Lags on Adoption of New Technologies'' bar chart is international. It's not Canada; is that correct?
Ms. Lawrence: This is international.
Senator Seidman: It is international. That's really important to note.
I appreciate the comment that our chair made about Canada's Oil Sands Innovation Alliance, and I also, coming from the medical field, understand that one of the biggest problems there has been is that people work in silos and they don't come together, and that's really critical.
My question is for you, Mr. Zhou, because your last recommendation is that intellectual property ownership has been a major barrier to innovation in universities and federal and provincial laboratories and industry; the Government of Canada should make all its major funding conditional on IP sharing within Canada. That speaks to the working in silos. Does that mean that if anyone gets funding in Canada from the government, there should be no patents and that they should have to share their intellectual property, so to speak, with every other corporation?
Mr. Zhou: So this is a tough one. Patent protections are very important. What I'm saying is that when you work with universities, or even with the COSIA, the organizations and within the industry, the IP sharing is still a major issue. I don't know what SDTC's experience is, but in our case, COSIA's IP concern is that negotiating the agreement can take six months to settle the agreement on a sale, so it has become a very painful experience and slows down innovation. So that is our observation.
To tell the truth, I really don't have a good suggestion as to how to deal with it, but it is an observation that IP ownership is an issue.
Senator Lang: I agree with the chair's remarks. I honestly believe the glass is half full and not half empty. Actually, your presentation has been a breath of fresh air in many ways to show us where we are.
I would like you to give us a further breakdown in respect to what is exactly happening in respect to the area of the oil sands for these innovative research developments that have been implemented, as opposed to comparing ourselves to other countries. We may be comparing ourselves apples to oranges.
Second, could you provide us with a list of what you think should be changed in the regulatory process to allow these smaller companies to be able to participate more than they already have, because you said that was a barrier?
The Chair: Thank you. You can provide those answers to the clerk.
Senator MacDonald: I have one quick question on comparison in terms of trying to reduce GHG emissions.
Coal is always targeted, and we understand why. It is a big emitter. But coal is primarily used in Canada for the generation of power now in large plants. Diesel is also used, particularly in the North, to produce power, but it's everywhere; it's trains, buses and ships. It's excessively dirty. We have ships being built around the world, large vessels, large cruise vessels, that are converting to LNG.
Are we concentrating too much on coal burning plants and not doing enough about the diesel being consumed in this country? And should we be targeting diesel more than we are? It looks like natural gas is a great alternative for diesel, and the technology exists. Are we doing enough in this area, or are we letting it slide by?
Ms. Lawrence: Senator MacDonald, I agree that we need to invest across the value chain. Slide 4 speaks to 81.5 per cent of the problem being in consumption, like the examples you gave. We are investing exactly that. Corvus Energy, for example, is on the list. That's diesel displacement in ships; it's fuel cell related. My technical team agrees with you. We need to invest in that area and make changes there as well.
Senator MacDonald: When you think of the large number of vessels sailing around the world carrying everything, whether containers or people, they must have an enormous carbon footprint when it comes to the consumption of diesel. If all those ships worldwide were regulated to change to LNG, it would be a substantial reduction in their footprint.
Ms. Lawrence: I would be happy to send you information on some of the work we've been working on in that area.
The Chair: Ms. Lawrence and Dr. Zhou, thank you very much for your presentations and your answers. It was refreshing, and we'll look forward to the answers that you will provide through the clerk. That way, all of us will get a copy of them.
The meeting is adjourned.
(The committee adjourned.)