Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue No. 19 - Evidence - December 15, 2016


OTTAWA, Thursday, December 15, 2016

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:03 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: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Paul Massicotte from the province of Quebec, and I am deputy chair of this committee.

I would like to welcome the members of the public here in the room as well as those watching on television. As a reminder, these committee hearings are open to the public and are also available via webcast on the sen.parl.gc.ca website. You may find more information on the meeting schedule on our website under Senate committees.

I would now ask senators around the table to introduce themselves, beginning with my colleague on my right, Senator MacDonald.

[English]

Senator MacDonald: Michael MacDonald, Nova Scotia.

Senator Enverga: Tobias Enverga, Ontario.

Senator Fraser: Joan Fraser, Quebec.

Senator Seidman: Judith Seidman, Montreal, Quebec.

Senator Lang: Dan Lang, Yukon.

[Translation]

The Deputy Chair: I would also like to introduce our staff, beginning with our clerk, Maxime Fortin, and our two Library of Parliament analysts, who are to my right, Sam Banks and Marc LeBlanc.

Before introducing our witness, I would like to mention that Senator Carignan's motion, which was adopted by the Senate last week, will bring a few changes to our committee. First of all, new members will be joining us. The committee will soon have 15 members. Another change will affect the make-up of the Subcommittee on Agenda and Procedure, which will have an additional member, chosen from the senators who are not members of a recognized party. The committee's adopting a motion to this effect is good practice.

If you agree, I would need a motion stipulating that, pursuant to the order adopted by the Senate on December 7, 2016, the membership of the Subcommittee on Agenda and Procedure be increased by one non-voting member chosen from the senators who are not members of a recognized party, to be designated after the usual consultations.

Is the motion moved?

[English]

Senator Lang: So moved.

[Translation]

The Deputy Chair: Thank you. Is it your pleasure, honourable senators, to adopt the motion?

Some Hon. Senators: Yes.

The Deputy Chair: The motion is adopted.

Today marks our twenty-ninth meeting in 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 am pleased to welcome today's witness, by videoconference, from the Canadian Energy Research Institute, Allan Fogwill, president and chief executive officer. Thank you for agreeing to testify before us today. I invite you to make an opening statement, after which we will go to a question and answer session.

[English]

Thank you for joining us this morning, Mr. Fogwill. We appreciate your input. One of our witnesses made reference to your institute earlier this week, and we look forward to hearing from you.

Allan Fogwill, President and Chief Executive Officer, Canadian Energy Research Institute: Thank you to the committee for the invitation. What I'd like to do is give you a few points about our electrification study, and then we can discuss it generally.

The Canadian Energy Research Institute is a 40-year-old organization that provides objective research dealing with the economic and environmental impacts of energy issues. Due to our neutral status, we do not make recommendations or suggest policy options. We do our best to give government and industry factual evidence from which to make their decisions.

There is a lot of debate in Canada right now about the transition to a lower carbon economy. One solution is to use electricity for all end uses in the residential, commercial, industrial and transportation sectors. CERI undertook an analysis to determine the impacts of electrifying the residential, commercial and passenger transportation sectors. Industry and freight transportation are more complicated to assess, so those were left out of our analysis for now.

We wanted to know how effective these sectors could be in helping Canada meet its 2030 and 2050 carbon dioxide reduction targets. Our research sought the answer to three questions: One, what major transitions in energy systems are required to electrify the end use energy services of residential, commercial and passenger transportation services? Two, what level of emissions reductions can be achieved through electrification? And three, what would it cost?

We compared our electrification scenario to business as usual. Under this scenario, electric equipment replaces natural gas equipment in the residential and commercial sectors through the normal retirement and replacement cycle. The one exception is that the predominant fuel being replaced in Atlantic Canada is heating oil, not natural gas.

We also replaced gasoline and diesel passenger vehicles with electric cars. The timeline for this replacement started farther out in our review period due to the still developing nature of electric car technologies.

At the same time, the increased electricity demand, which was provided by the grid, evolves into one with a high level of renewable and other non-emitting generation options, averaging over 60 per cent in each province or region. The remainder of the electricity was produced with natural gas or with natural gas combined with carbon capture and storage.

Our first observation from the analysis is that a significant move of energy services away from natural gas, gasoline, diesel and heating oil would suggest a significant drop in emissions. There was, only not enough.

If we consider our 2030 target, which is 30 per cent below 2005 levels, we see that Atlantic Canada is 7 per cent below; Quebec, 9 per cent; Ontario, 14 per cent; Manitoba, 11 per cent; Saskatchewan, 8 per cent; Alberta, 6 per cent; and B.C., 9 per cent. In 2050, the results are similar, namely, additional reductions in emissions but only a fraction of what is needed to achieve the 80 per cent reduction target.

So this first observation is that electrification of these three sectors is not enough. The industrial and freight transportation sectors are significant in terms of greenhouse gas emissions and would be need to be included to achieve Canada's emission reduction goals.

The second observation in our analysis is that the average retail electricity price in 2050 would be about 16 per cent to 77 per cent higher than the business-as-usual case. That roughly means that in addition to the usual annual increases we see in electricity rates of 1 to 2 per cent across the country, we would see an additional 2 to 3 per cent each year for 30 years — not large in and of themselves annually, but many electricity customers across the country are already concerned about affordability.

The third observation is that the increase in electricity demand is about two to three times what we use now. That would mean an expansion of the grid in each province of two to three times. Given that renewable technologies represent lower energy density options, that land-use footprint would likely be larger.

We know from simply reading the news that citizens are concerned about energy infrastructure being built anywhere near their communities. This build-out of the electricity system would be cause for concern. One solution to this, however, is the extensive use of distributed and self-generation. While this option can help reduce the overall footprint of the expanded electricity grid, siting issues will remain a challenge.

One other thing to keep in mind is that there are taxes on fuels. Total taxes collected federally and provincially on gasoline amounts to $11 billion annually. This tax revenue would disappear if we moved to our electrification scenario, with follow-on consequences to government budgets.

In summary, a move to electrification of the residential, commercial and passenger transportation sectors is only part of the solution if the federal and provincial governments want to achieve their emissions reduction goals.

Thank you.

The Deputy Chair: Thank you, Mr. Fogwill.

Senator Lang: Thank you very much for being here this morning. The first question I have is to do with the assumptions that you accepted for the purposes of your long-term study to determine the energy required in the years out that you spoke of. I ask this because Canada presently welcomes approximately close to 500,000 new applications in one manner or another for Canadian citizenship or to work here or to go to university. The numbers are significant. In one year, you've got the size of a big city; in 10 years you would have 5 million people if you used those figures.

In order to determine the requirements that individual Canadians would use individually and collectively, what assumptions did you make in respect to the population that Canada would be at when you came to the end of your study?

Mr. Fogwill: Senator, I don't have the exact number in my head at this point, but we did include the general growth in population and economic activity that has been demonstrated in the last 10 years, and we've projected that out to the end of our study cycle.

Senator Lang: Do you think you could provide us with that information?

Mr. Fogwill: Absolutely.

Senator Lang: I want to go into another area, and you touched on it in your presentation. That's the question of the difficulty in proceeding with any project of any kind in view of what some term as the "not in my backyard'' syndrome in respect to actual development, whether it be electricity, hydro or anything else of that nature.

My question goes to the fact that there has been a significant change in the political milieu of Canada. At one time, those that would make presentations to the regulatory process were individuals who brought generally their own individual perspectives and were not paid to do it. It gave the opportunity to voice their opinion. Today, we have organizations that are being funded from outside this country with significant millions of dollars to go on a daily basis to protest any development here in Canada.

Has your organization ever thought of doing an in-depth study of where this money is coming from and who is actually providing this money so that Canadians can be made aware of exactly who and why people are giving millions of dollars to provide for these political organizations?

Mr. Fogwill: Senator, we've never had that discussion within the institute. The short answer to that is no, we haven't had any thoughts about doing that sort of work.

Senator Lang: Does what is occurring concern you?

Mr. Fogwill: As a citizen, I am in favour of people respecting our democratic institutions. In terms of how prepared people are to engage with those democratic institutions, I view that as secondary to the credibility of the institutions themselves. My hope is that we're all able to respect the process and the decisions that come out of the process.

Senator Lang: I'd like to follow up. I'd like to hear your observations in respect to the fact that millions of dollars are being made available from outside this country to finance a good portion of these protestations. Was that of concern to you or your organization in respect of how you view the regulatory process and how we appear not to be able to proceed with any of these decisions?

Mr. Fogwill: Senator, I don't know enough about the ins and outs of the various organizations that may or may not be funding different stakeholders, so I don't feel in a position to speculate on what's happening. I can't really form a valid opinion about that.

Senator Fraser: Good morning, Mr. Fogwill. Thank you very much for being here.

I have two questions. The first just arises out of my ignorance. In your presentation, you talk about one solution to the social problems possibly created by building out the electricity system, and you say one solution is the extensive use of distributed and self-generation. I suppose self-generation is having your own solar cells or windmills or whatever.

Mr. Fogwill: Yes.

Senator Fraser: What is distributed generation?

Mr. Fogwill: It's similar, but it would be a larger scale. If you think of an electricity grid, normally you have generators out at the end, transmission that brings it into the cities, and the distribution system that distributes the electricity. You could build small generators in the city so that it's more connected to the local system. They aren't necessarily for one individual but, rather, for the system as a whole.

Senator Fraser: Driving around the countryside, we increasingly see quite large farms of solar panels, but what I don't have is a fix on how large one of those collections of solar panels would have to be to supply a village. Do you have any sense on that? I'm thinking about your acute comment about social resistance to too much land use.

Mr. Fogwill: Going back to my point about low energy density for wind and solar, I wouldn't be able to give you an exact number right now. I could in terms of a follow-up. It would be extensive, and it would be several acres for a small village, and even larger than that as the community became larger.

Senator Fraser: Thank you. If you do have any data, it would be good to see.

Mr. Fogwill: Okay.

Senator Fraser: As we go forward, what did you assume about the increased energy efficiency of equipment that uses electricity, be it cars or appliances?

Mr. Fogwill: Well, there's inherent efficiency improvement when you move away from a fossil fuel-based piece of equipment to an electric one. In residential space heating, you can have 90 to 95 per cent efficient natural gas furnaces, but your electric baseboard heater is 99 per cent efficient; so there is an automatic improvement there.

The real improvement happens in passenger transportation, where you're getting about a 300 per cent improvement in energy use in an electric vehicle compared to an internal combustion engine.

Senator Fraser: But that's with today's technology. What I'm wondering is whether you were assuming even more efficient technology. For example, if I go out now to buy a dishwasher, I can see how much energy it's likely to use, and it is going to be significantly less energy than the dishwasher I bought a few years ago.

Mr. Fogwill: With the still-emerging passenger vehicles, we've made an assumption about their improvement over time, so there is something built into that, but the real big change in efficiency for passenger transportation is just that one switch between an internal combustion engine and an electric car.

Senator Seidman: I appreciate the economic analysis and the set-up of the use of electricity. Coming from Quebec, of course, I understand the efficiency of electricity and the value of access to low-cost electricity.

We have discussed in this committee the grid-sharing across provinces, and the impact of that, besides it being fairly complicated, was very costly alternatives. What we heard from other witnesses was that this would be extremely costly and involve huge infrastructure and expansions. Have you looked at the feasibility of build-up in the North, across provinces, so that electricity could become more viable for provinces that don't have immediate access or aren't rich in electricity generation?

Mr. Fogwill: Senator, we produced another study a few months ago that I can provide to the committee, and it looked at several hydroelectricity generation options to bring hydroelectricity to the province of Alberta. The options range from the Site C project in British Columbia to a potential project being built on the Slave River, all the way over to a project being built on the Nelson River in Manitoba. We have the costs associated with those.

If you look at it from a tonnes-of-CO2 perspective, the cost ranged into the $200 per tonne range. They're not cheap, but it's definitely possible with today's technology.

Senator Seidman: Have you costed other options, a mixed use, building in other sustainable energy options? We've mentioned wind and solar. Have you looked at a mixed grid?

Mr. Fogwill: In this study we're about to release, we do have a high percentage of wind and solar and large-scale hydro and nuclear as non-emitting sources in each of the provinces, so there is a mix of those technologies for the generation of electricity.

Senator Seidman: And that study is coming out soon?

Mr. Fogwill: It's on my desk right now. It will be out within a week.

Senator Seidman: I look forward to seeing that.

The Deputy Chair: Before we continue, if you don't mind, colleagues, I'd like to introduce Senator Galvez, who joined us in the Senate yesterday. Welcome here. You have a lot of expertise in our committee's subject. Thank you for joining us.

Senator Galvez: Thank you.

Senator Enverga: Thank you for your presentation, Mr. Fogwill. On your status about reducing the gas emissions, have you ever compared Canada to other countries? Are we better or do we still have a long way to go?

Mr. Fogwill: Well, we haven't done a formal comparison, but Canada is very much in the forefront of having a low-carbon electricity system, primarily because we've been blessed with large-scale hydroelectric resources across the country. That has really put us very much at the top overall internationally in terms of how much of our systems actually start off with low emitting attributes compared to other jurisdictions.

Senator Enverga: The federal government announced a benchmark for carbon pricing in Canada. The benchmark is set at $10 per tonne in 2018 and increases by $10 a year to reach $50 per tonne in 2022. My question is this: Do you support carbon pricing as a means to reducing gas emissions? Do you believe carbon pricing in Canada will have negative consequences on Canadian companies, particularly in light of pro-business policies being proposed by President-elect Donald Trump?

Mr. Fogwill: Senator, I'll go back to a statement I made at the beginning of our discussion: We're a neutral organization that doesn't make recommendations or suggest policy options.

What I can say in terms of carbon-management tools is that there are examples around the world where carbon taxes or carbon levies have worked. There are also examples around the world where cap and trade systems have worked. There are examples around the world where regulations have worked. My reading of those suggests that some combination of all of those elements would probably be very successful, but in terms of whether I agree that we should go with a carbon tax versus a cap and trade system, that's not my place to say.

Senator Griffin: Thank you for your presentation. It was very interesting.

In September, your institute released a 20-year forecast for Canadian crude oil and natural gas industries. Will the recent pipeline approval for Kinder Morgan's Trans Mountain Expansion and the Enbridge Line 3 projects significantly change the outlook of Canada's oil and gas forecast that you made?

Mr. Fogwill: Our initial discussions — we will update that in a few months — suggest that there may be some slight change, but there are other aspects associated with oil-production increases aside from market access. The other thing to keep in mind is that at certain prices, there is already market access through the rail network that companies have been investing in. In the short term, it's not clear whether or not those decisions will have an immediate effect on production.

Senator Griffin: My second question is: Other than electrification, what are the next two or three best technologies that will lead to a lower carbon economy?

Mr. Fogwill: Senator, I've been thinking about this a lot, and I've been thinking about climate change and carbon management almost my entire career. There is no silver bullet; there is no one answer.

Speaking as an individual now and not as the head of the institute, I believe we have to look at everything. We have to consider carbon capture and storage. We have to consider nuclear. We have to consider changes in the structure and design of our cities. Everything should be on the table, and nothing should be set aside because it seems like a simple answer. It's not. It's very complicated. It's going to require everything from everybody to bring us to that point. I do believe that in the end, we'll have a mix of renewables, non-emitting sources and fossil fuels with carbon capture and storage. I think that's the only way we're going to be able to make it.

Senator MacDonald: Actually, there is a way to do it, and you touched upon it. To produce this type of power, to provide this type of electrical grid that would electrify everything, isn't the only way to do it and have no carbon footprint to go nuclear? Nuclear power would provide all this and would be able to meet demand. Solar and wind don't meet demand. Isn't nuclear the way to go if we want to produce power at this level and provide the type of electrical grid where you can electrify everything?

Mr. Fogwill: You're saying a fully nuclear system?

Senator MacDonald: In terms of producing that kind of power across the country where you would electrify everything and be able to meet the demand, how could anything be better than nuclear?

Mr. Fogwill: It's definitely something that needs to be considered, of course. When any technology is dismissed from consideration because of uncertainty or lack of facts, that's an improper way of looking at it. I do think nuclear needs to have a stronger consideration going forward. We still have issues and concerns related to long-term storage of nuclear waste. Those need to be addressed and would want to be addressed before we take a long step towards more nuclear.

The Deputy Chair: If I could, Mr. Fogwill, I will just ask you a couple of questions.

I'm trying to make sure I understand the starting point of your presentation. You've electrified everything you thought you could, with the exception of industrial and freight transportation. When you say "industrial,'' you're not talking about industrial transportation. It is industrial firms, industrial companies and freight transportation. Is that accurate?

Mr. Fogwill: That's correct, the industrial sector.

The Deputy Chair: You electrify everything: 60 per cent by green energy, 40 per cent by natural gas and some combination of natural gas and CCS. Even at that, you basically get a reduction of maybe 10 to 11 per cent on average across Canada. The conclusion you're making is that we're a long way off the 30 per cent that we define as our goal across the country even if we did all of that.

Mr. Fogwill: Yes.

The Deputy Chair: What's the solution? You're saying, verbally, we're not getting there. We have to look at everything else and so on. If you look at the price per tonne of CO2, what is the next best step? Is this the cheapest way to get there, electrification? You probably have an average cost of $75 to $100 a tonne. Ontario is at $114. From a pure economical point of view, if the population bought into it, what are the next two or three things we have to do, at the cheapest cost for the economy, to get there?

Mr. Fogwill: Several areas come to mind, and they're really about technology development so that we have the tools available.

One of the drawbacks associated with wind and solar is their intermittent nature. As a result, they are held back by the lack of firm power, which they can get from storage. There is a lot of research being done on storage, and that needs to continue in order for the wind and solar to really take a much larger role in our electricity grids.

The other aspect that I think we should be considering is carbon capture and storage in a much bigger way in order to be able to use our fossil fuels but reduce or eliminate their impact on the environment. We don't have an energy shortage, but we do have an emissions problem. If there's a way that the fuels can be still used and emissions can be eliminated, then that benefits both the environment and our economy.

The Deputy Chair: Having said that, what is your assumed cost per tonne for CCS?

Mr. Fogwill: Carbon capture and storage was expensive. I don't have the numbers here, but it is in the report. It's quite expensive.

The Deputy Chair: We had a witness with us recently, Dr. Jaccard, who was saying basically $176 a tonne. He was asked, if you want to go simply pricing carbon, how do you get there, and he replied that $176 is the most economical way, but the population would probably not buy into it, so therefore you have to combine it with regulation and so on.

You're saying if you electrify the adjacent provinces, it is $200 a tonne. That's pretty high. CCS is probably close to that, from our understanding, at least over $100 a tonne. What would nuclear be, in your mind? Do you know that number?

Mr. Fogwill: Nuclear in terms of dollars per tonne related to carbon emissions?

The Deputy Chair: Exactly.

Mr. Fogwill: No, I don't have that number.

The Deputy Chair: Would one of the solutions be to increasingly remove natural gas from the production of electricity? You've still got 40 per cent use of natural gas to get there.

Mr. Fogwill: If you're looking at trying to decarbonize the electricity supply, yes, you want to do your best in terms of minimizing natural gas use, but the concern there is that the alternatives, which are the renewables, can't provide the same type of service to the grid as the natural gas units can. That's where you would need to be able to have much better storage options for the electricity than the renewables would produce. It's a little bit complicated.

The Deputy Chair: How about conservation? With this imputed price of carbon, did you project maybe just consuming it less? Is that in your model also?

Mr. Fogwill: No, we didn't include that because we were trying to keep the scenarios and the parameters within the scenarios tight. We just wanted to show the difference of electrification. There's definitely a role for conservation and energy efficiency in other areas. We didn't include that.

There are other studies that show that there are significant improvements. Some of those studies, however, really focus on improving the same fuel. For example, you'll see studies from natural gas companies that say, "We can save this amount of natural gas by going from 70 per cent efficient equipment to 90 per cent efficient equipment.''

What we see with the electrification study is that for most of the end use equipment, it's at its maximum limitation in terms of efficiency. At that point, you're limited in your conservation efforts to looking at the envelope with a house or the building and the size of the house or the building.

The Deputy Chair: Senator Galvez, would you have a question for our guest?

Senator Galvez: It's very interesting, and I will have many questions, but maybe what I can do is complement the answer that Mr. Fogwill gave to the nuclear question by Senator MacDonald. There is the experience in Europe of European countries, such as France, which is facing the end of the life of their nuclear facilities, and they are facing the problem of what to do with all the radioactive waste that has been accumulated and was not factored in any economic studies.

I really appreciate and have learned a lot from your answers, Mr. Fogwill.

The Deputy Chair: Mr. Fogwill, I think you've answered all our questions. Again, thank you for being with us this morning. We appreciate it. Keep up the good work, because I think it's very important information for the decision makers in effecting all these alternatives available to us. Again, thank you for being with us this morning.

(The committee adjourned.)