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

Issue 5 - Evidence


OTTAWA, Tuesday, February 4, 1997

[English]

The Standing Senate Committee on Energy, The Environment and Natural Resources met this day at 8:00 a.m. to consider Bill C-29, to regulate interprovincial trade in and the importation for commercial purposes of certain manganese-based substances.

Senator Ron Ghitter (Chairman) in the Chair.

The Chairman: We will begin with witnesses from Environment Canada. Please proceed.

Mr. H. A. (Tony) Clark, Assistant Deputy Minister, Environmental Protection Service, Environment Canada: With me today are Ellen Fry, general counsel from the Department of Justice; and Mr. Frank Vena, director of Transportation System Division.

We in the government believe that clean air is a priority for Canadians. When we look at Canada, we see that most of the people are in the cities and near the urban centres. There is now a very clear indication through lots of data which shows that air quality and health are inextricably linked. For example, on a bad smog day in Toronto, we find that many more people go to hospitals, particularly those who are at risk with respiratory ailments. Those are the facts.

Our nation is increasingly urban. More people are living in the cities. The transportation sector is the single leading source of air pollution in Canada. When we speak of transportation, we automatically think of the motor vehicle and the automobile. There are about 14 million of those automobiles plying the roads in Canada at this time.

Air pollution and pollution from automobiles is a matter which is national in scope. The Canadian Council of Ministers of the Environment established a task force on cleaner vehicles and fuel some years ago. A number of recommendations arose from that task force. The federal government was asked to adopt tighter new vehicle emission standards in harmony with the U.S. and to work on cleaner fuels. For example, it was recommended that we lower the sulphur in diesel fuel and in gasoline, and also lower the benzene in gasoline.

The Canadian federal government responded favourably. We have already announced our intention to implement the new emission standards for motor vehicles. Those standards will be consistent with those in the United States.

We have been told over and over again that, in North America, we have one vehicle basically designed. That vehicle has state-of-the-art control technologies on it.

We are also working closely with the fuel industry to develop those cleaner fuels which are required nationally by the CCME.

The task force recognized that the engines, the technology, the vehicles and the fuels are an integrated system. They work together. The automobile people are incapable of meeting the stringent emission standards out of the tailpipes of these vehicles unless the fuels are there to make that happen.

In fact, the CCME went so far as to say that the federal government should be moving into the area of lower emission vehicles by the year 2001. At one point, British Columbia went so far as to call for zero-emission vehicles. However, that is another matter with which we are still struggling in North America concerning how practical it is. I can tell you that it is the future.

Bill C-29 is in line with the national approach to improve fuel quality and to limit harmful emissions from vehicles.

The bill is contentious, and that is why we are here today. We have two of the largest industrial sectors in this country unable to come to an agreement on the matter of MMT. The government has been facilitating these discussions for a number of years. The question of MMT has been a rather difficult one and it is clear that, after many years, we have agreed to disagree. Both sides have groups of experts and have done many studies and neither agrees with the conclusions of the other side.

The automobile industry says very clearly -- and, all manufacturers have been part and parcel of the consensus -- that the on-board diagnostic systems are affected by MMT. Both the ethyl and petroleum industries claim otherwise.

The OBD system, as it is known, is basically an on-board inspection and maintenance function. It alerts drivers to any malfunctioning of the technology in the automobile. From that standpoint, it is a sophisticated piece of hardware. It should reduce air pollution into the atmosphere.

However, because of the lack of agreement on this particular matter, time was running out. The new engines are on the market as of last year and more of them are coming out this fall. The automobile industry got very concerned about warranty liability, and some of them started to offer reduced warranties. In fact, some of them are already beginning to disconnect the systems. It is a rather interesting situation where the industry spent millions of dollars to develop this high technology and then they are beginning to disconnect the systems in Canada. The consumer is beginning to face a problem in terms of the warranty situation with automobiles.

The evidence is not conclusive either way vis-à-vis the studies of either side. We have looked at the data on both sides. Both sectors have had their people look at the data. The bottom line is inconclusive.

The government decided to be prudent and to err on the side of caution, the environment and human health. This is an excellent example of the precautionary principle that this government signed onto at Rio, with Agenda 21, back in 1992.

I have worked in the environmental field for 30 years and my work has been simply one of reaction. We wait for problems to occur and then we fix them. We give lip service to the precautionary principle, but we never pay any attention to it.

These are two giants in Canada who are unable to resolve this matter voluntarily. Recognizing that vehicles are coming into the marketplace; that any further studies in this area would take probably several years more to complete; and that there is no solution in the near future, the government chose to act on the basis of available information.

One factor that needed to be taken into account was the disruption in the marketplace because of the loss of warranty and the disconnection of these systems. Consumers would get very upset.

The government decided to use its trade and commerce powers to prohibit the import and the provincial trade of MMT, effectively removing it from the marketplace.

That is where we are today. We believe that we made the right decision. The Americans are currently getting the best from their technology. The question is: Should we in Canada settle for less?

Senator Kinsella: Mr. Clark, would you put on the record what MMT technically stands for?

Mr. Clark: Yes. It is methylcyclopentadienyl manganese tricarbonyl.

Senator Kinsella: If we had a container of MMT, what would it look like? What colour would it be, for example?

Mr. Clark: May I ask my technical expert?

Mr. Frank Vena, Chief Transportation System Division, Air Pollution Prevention Directorate, Environment Canada: I am not sure what it would look like.

Mr. Clark: I am not sure, either.

Senator Kinsella: This is a two-litre container of water. If that was a barrel of gasoline that had been refined up to that point in the refining process when the MMT is added in the polishing stage, how much MMT would I put into this container? This is so that members of the committee can have a sense of the proportion of what we are dealing with. We do not know what it looks like and we can hardly pronounce it. Let us try to get quantitative indication. About how much MMT would I have to put in this pitcher?

Mr. Vena: If that pitcher was about two litres, the maximum concentration that we can put in there by law is 18 milligrams of MMT, as manganese, per litre. That is a small quantity in that two-litre pitcher.

Senator Kinsella: Would I be correct in saying that if I put one drop of water into this container, that would be roughly the proportion? We are laymen and women here, but that is the amount of MMT we are talking about?

Mr. Vena: You are approximately talking about a few drops, yes.

Senator Kinsella: My first question relates to an attempt to understand the logic that underlies this bill. I will start with your department.

I reviewed the testimony that you gave in the House of Commons, Mr. Clark. At one point you stated that it was clear that "they" -- I think you were referring to the automobile manufacturers -- thought they had evidence showing that the OBD systems would be affected by MMT and that they made that very clear to you. That is part of the sense of what you told us here this morning.

Although we were not as much interested in what the Canadian Vehicle Manufacturers Association thought they had evidence on, my question is: Do "they" have evidence or do "they" not have conclusive evidence, as you see it, as the ministry responsible for the environment in our country?

Mr. Clark: I remember distinctly when this matter came to a head. The entire automobile industry held a symposium in Ottawa. I am not sure whether they held the same thing for the Standing Committee on the Environment, but certainly Environment Canada and other federal government officials attended. It was a rather interesting exhibit because, all along the walls, they showed a series of exhibits of what they claimed to be the effects of MMT on the catalytic systems of their automobiles. They even had evidence concerning the spark plugs and they had the slices of these pieces of equipment. They sawed them through. It was clear -- at least on what we saw -- that there were heavy deposits of material on these systems, which, if true, would undoubtedly impair the performance of these systems.

They also gave us a series of studies in terms of the effects of MMT on on-board diagnostics. In fact, they flooded us with paper, and I believe you have most of that paper.

Senator Kinsella: Mr. Clark, are you aware of the General Motors Service Bulletin number 57-65-21, dated November, 1995, on the subject of OBD-II serviceability issues? The GM bulletin itself issues several causes of OBD malfunctions, including low fuel levels; failure to properly secure the gas cap after refilling; routine added-on equipment such as cell phones and antitheft alarms; and environmental conditions like weather, altitude and excessive mud cakes on the wheels. Are you aware of that service bulletin?

Mr. Clark: I am not aware of it.

Senator Kinsella: What studies has Environment Canada conducted on whether or not MMT gums up OBD devices?

Mr. Clark: We have done no studies.

Senator Kinsella: You have alluded to the controversy or the argument that was taking place between different parties. You have alluded to a call for an independent panel. This was your statement in the house committee on October 18, when they were examining Bill C-94. You said that Environment Canada did not see the value of an independent panel.

We are trying to understand the logic behind this bill. If you have done no studies and there has been argument on what the scientific base is -- that is, what the truth is -- why was an independent study not done? A lot of reference has been made to the EPA work in the United States. Why was the U.S. EPA work not considered independent? Why did the Canadian Council of Ministers of the Environment not conduct of study of MMT in their task force report on cleaner fuels and vehicles?

In the same vein, why was the idea of striking an independent expert panel by the Royal Society of Canada not seen as a viable option? Also, recently the Minister of International Trade and the Minister of Natural Resources praised the results of an independent expert panel formed by the Royal Society, which concluded that the government of France was wrong to ban importation of a type of Canadian asbestos. Why was this model or this expert panel of independent people, brought together by the Royal Society, not warranted on this topic of the MMT?

Mr. Clark: A bit of context might be helpful here. We were sequestered with both industries for several years trying to bring a voluntary resolution to this problem. They both put forward their studies. It was our view in Environment Canada that an independent review would have solved nothing. In any event, that independent review would have taken years to complete. This was not something that could have happened in one or two months, or three, or six.

The timing was very important. We were already at a point in time where the new vehicles and new technologies were coming on to the road. You may quarrel with their view but, having tried for several years, the government felt it was time to act. An independent review would neither prove nor solve anything. From that standpoint, we declined to get into that particular box.

Senator Kenny: Perhaps we could follow up on Senator Kinsella's comments. Why would an independent study by the government solve nothing?

Mr. Clark: An independent study by the government would have cost a lot of money and would have taken a lot of time. These two industries had already had independent people looking at these results. The independent people had said the results were inconclusive and that it could go either way on this particular subject. We are not quite sure where this would have taken us.

Senator Kenny: Why are you here before us? There is a lot of talent sitting around this table. We are spending time here dealing with a bill. Some of us are puzzled as to why we are here acting as referees between two industry groups. We would like to know why the issue was not resolved some place else, why you did not take up the offer of CPPI to fund the third party study, and why this issue has come to us and was not settled some place else.

Mr. Clark: We had a similar feeling. We were being asked to referee between two industrial giants in the Canadian sector. We thought this was a wonderful opportunity to keep the government out of this particular issue. After all, both the fuel people and the car people are selling one product to a consumer, a person who buys the automobile. Why do they need big government to act as referee between both of them? We did not feel included enough to continue to referee after several years of this matter.

Timing was important. The engines were on the ground. For both groups, this was a wall issue. Those are their words, a "wall issue". However, on the automobile side of things, they were beginning to disconnect technology. They were beginning to say that they were not liable for warranties. We felt that there would be a serious problem in the marketplace. Where there is a serious problem in the marketplace, the government would probably be brought to bear with respect to what it would do about this. In this instance, the government thought this was the most prudent way to act to bring some stability to the marketplace.

Senator Kenny: It is difficult for the committee to address this because, if I understand you correctly, you are saying that we will hear from experts over the next week on one side who will prove conclusively that MMT is satisfactory and a good additive. We will then hear from experts on the other side who will tell us conclusively that MMT will gum up the diagnostic equipment. We would like to look to a third party who can tell us the truth. What is the truth?

Mr. Clark: What is the truth? As far as the government is concerned, the truth is that MMT can gum up the OBD systems. That can cause more air pollution, which is bad for the health of Canadians. It will disrupt the marketplace in terms of the consumer. Using the precautionary principle in terms of erring on the side of human health and the environment, MMT should be banned.

Senator Kenny: Upon what do you base this truth?

Mr. Clark: This truth is based on the precautionary principle that it can be bad for human health and the environment.

Senator Kenny: Perhaps the witness could help us with the question of Bill C-29 and whether it is inconsistent with the government's obligations under the NAFTA.

Mr. Clark: The government does not believe that the bill is inconsistent with the environmental provisions of not only the NAFTA but also the GATT, which is now the WTO. Provisions in both of those instruments speak to environmental protection. We believe that it is consistent with the environmental protections of those two trade agreements.

Senator Kenny: Notwithstanding Mr. Eggleton's letter.

Mr. Clark: Mr. Eggleton had a view. I cannot speak for Mr. Eggleton, but the government's view is that it will move forward on this particular bill.

The Chairman: The government or your department?

Mr. Clark: The government. This is a government bill, not an Environment Canada bill.

If I can speak to process for a moment, any policy, regulatory initiative or piece of legislation goes through a rather excruciating process in government before we get it onto the Order Paper. Everyone in this town has a kick at this cat. Every conceivable aspect of the policy is looked at, whether it is economics, trade, jobs, unity or the environment. To get anything on to the Order Paper requires a superhuman effort. This bill required a superhuman effort, as other bills do. It is a government bill, not an Environment Canada bill. I want to make that extremely clear.

The Chairman: We look forward to having Mr. Eggleton before our committee as well so that we can ask him those questions.

Senator Cochrane: You said that one of the factors for not going ahead with this study was the cost factor. Was that not so? Is that why you did not do a review of MMT and do more of a scientific study?

Mr. Clark: Costs may have been a factor, even though the parties were prepared to fund those costs.

Environment Canada receives a lot of requests to prove out technology. We receive them regularly. Someone has their favourite little widget, and they would like to have Environment Canada assess that widget and say that it is the greatest thing since sliced bread so they can get market advantage. We decided a long time ago that we did not have the resources, the time and the people -- decreasingly so in these days of cutbacks -- to do that sort of thing. We are not in that business any longer. We might have been at one time, but we are not now.

Senator Cochrane: Someone must be in business to do a review of something that you are claiming to be so detrimental. Is another department responsible for doing these assessments?

Mr. Clark: No. In the environmental field, I am not sure there is any other department in that business.

Senator Ghitter: You are not suggesting that an issue of this magnitude compares to a widget.

Mr. Clark: That is an interesting question. Our understanding is that both the capital and the operational costs to replace MMT are in the tens of millions of dollars and perhaps even $100 million. No, it is not a widget, but, by the same token, while it is a lot of money, we are not talking about something that is excruciatingly expensive either.

That is a judgment call and should be struck from the record.

Senator Cochrane: Are you aware that the American auto makers are conducting their own $12 million test program on MMT?

Mr. Clark: Yes. Because MMT was not being used in the United States, they had no evidence on the effects of MMT on OBD systems. We have it up here; they do not have it down there. In the typical U.S. tradition, the data must be generated down there. The EPA has certain protocols that must be followed. They do not accept data from other countries easily, so they insist on doing their own thing. However, it is not EPA doing the work; it is the private sector doing the work according to EPA protocols. The government down there is not paying for the tests and is not doing an independent study either, but it must be done.

Senator Cochrane: Could we not wait for the results of that being put forward?

Mr. Clark: MMT is not being used in the United States; MMT is being used in Canada. The automobile is in use in the U.S. and in Canada. The problem is not down in the U.S; the problem is up here in Canada with the gummed-up systems.

Senator Spivak: Could you clarify why the precautionary principle has now been accepted by most of the nations in the world? It means that where there is inconclusive evidence, it is up to the company or the institution that wishes to sell a particular chemical or get it into use to prove conclusively that it is not harmful. That is a change in the way that we have been operating. Is that correct?

Mr. Clark: You mentioned two things: User-producer responsibility and the precautionary principle.

The precautionary principle says that where there is a lack of full scientific certainty, that is not a reason to say that you should not act.

The history of the environmental field is littered with absolute cause-and-effect linkages. I will be a bit dramatic. Until the dead bodies are in the street, we do not do anything about it. Until acid rain, smog or stratospheric ozone depletion has occurred, we will do something about it only after we have skin cancer, and so on. The precautionary principle says that you do not have to prove it 100 per cent completely. Sometimes the weight of evidence is enough to say that you should do something about it. That is the precautionary principle.

People who produce new products in the marketplace now, for example new chemicals, increasingly have a responsibility to show that their product will not harm human health and the environment. The government used to take on that responsibility. The government is saying, "We do not have the resources to do that. In any event, that is not the right thing to do. It is your product. You prove that it will not hurt the environment."

Senator Spivak: How many chemicals are in circulation in the United States and Canada that have not been tested for their safety?

Mr. Clark: There are approximately 70,000 chemicals in circulation in the U.S. and approximately 23,000 in Canada. I cannot tell you how many have been tested because that is the old way of doing business, but in terms of the new chemicals coming onto the market, about 1,000 new chemicals per year are coming onto the market globally. Each of those chemicals must go through the environmental screen. In terms of new chemicals, the producers must prove that those chemicals cannot harm the environment before they are allowed into production and commerce.

Senator Spivak: You say, "We understand the problem with MMT is in Canada and not in the United States because it is not generally in use there." I understand there is a manufacturer in Canada of something called MBTE, which is as effective an alternative as MNT and perhaps less toxic. How prevalent is the use of MMT both in Canada and in the world? How prevalent is the use of MMT worldwide? How many other countries besides Canada use it? What is in Canada? What is the extent of the use of alternatives to MMT?

Mr. Clark: I believe we are the only country using MMT, but I could be corrected by Mr. Vena on that.

Senator Spivak: I understood that Bulgaria also uses it.

Mr. Vena: My understanding is that the Ukraine -- and probably the representatives from Ethyl can clarify this -- may have applied for use as well. Some other South American country may be using it also. Obviously, Canada is the country where it is used foremost.

Mr. Clark: Let us say that we are the only major country that is still using MMT.

Senator Spivak: What about the use of the Canadian-manufactured alternative?

Mr. Clark: There many types of alternatives. You mentioned one. We have done some studies on MTBE. A few years ago, it was deemed non-toxic. I believe MTBE is used in the United States, too. It is used in the Canadian marketplace. It is a niche product. It could be used as a replacement for MMT. Several other types of octane enhancers can be used. There is choice in the marketplace.

Mr. Vena: With respect to the MTBE, it is the oxygenate of choice in the U.S. for octane enhancement, as well as world principle constituents and RFG, which is a cleaner burning fuel mandated in a number of areas in the U.S.

We have a facility in Edmonton that produces MTBE largely for export to the U.S. and also for use by Chevron in Alberta, which uses MTBE in their fuel formulations. Another plant that is being constructed in Alberta will be producing MTBE and the ethanol derivative.

Senator Spivak: Where in Alberta?

Mr. Vena: My understanding is that it is located in Fort Saskatchewan.

Senator Whelan: We asked for the measurement of this MMT per litre. Regarding the former addition of lead to a litre of gasoline, does anyone know how much lead there was in gasoline? Could you measure the amount of lead that was contained in a litre?

Mr. Vena: It was in terms of the concentration. It was a similar situation. These are metallic compounds. A drop or a pinch would probably give you the proper octane number.

With respect to the question, it is difficult to know what it looks like because it is put in a carrier and then it is distributed across the country. Depending on what the carrier looks like -- that is, the organic material in which it is placed -- it is difficult to see what it looks like.

Senator Whelan: All of us realize that it does not take very much of something for it to become a dangerous killing material. If I may use a real wild example, one could say that the venom from a rattle snake or the poison from a honey bee is so small that you can hardly measure it, but it can certainly do a lot of damage.

I have read all the material that we have been given by doctors. I recently had a discussion with Dr. Labella from the University of Manitoba and I have read materials by other learned people who have made comparisons with lead. In 1922, everyone said, "Lead is not damaging. Lead will not hurt you." They are now saying the same thing about MMT in 1990, 1992 and 1994. After reading these other reports and after the discussion that I had with Dr. Labella, I cannot see why anyone would even want to manufacture this product.

There was talk about damage to automobiles. I have a close relative who is a grand master technician. That is a mechanic who knows an automobile from bumper to bumper. I had a discussion with him on the weekend. Platinum spark plugs that are supposed to last for 100,000 kilometres -- and they do where there is no MMT -- last for only about 20,000 kilometres in Canada. They must be replaced because they are guaranteed for 100,000 kilometres.

When they say that there is no damage, you can give them the other examples regarding this material. When you talk to Dr. Labella and others about the damage caused by the dust that falls out when mufflers are repaired, they maintain that these mechanics should wear some kind of complete coveralls with masks, et cetera, because of the dangers related to inhaling this very toxic material. All of this is so plain in the evidence. We are asking for a further study when it is obvious to me that this a bad situation.

The Chairman: Do you have a question to ask?

Senator Whelan: Can you tell the committee the status of the U.S. test that was mentioned before? Have the Canadian vehicle manufacturers carried out similar definitive studies and are they involved in the current U.S. studies?

Mr. Vena: The U.S. study involves largely the parent companies of the Canadian manufactures, as well a number of importers. It is a joint effort between the automotive manufacturers in the U.S -- that is, domestic manufacturers -- and two importers. They are looking at 80 vehicles and are breaking them down into two categories. Approximately 40 of them will be used to measure emissions at various intervals from vehicles burning clear fuel and those burning fuel with MMT. The other 40 will try to answer a very simple question, largely a binary question. They will age the catalyst in those vehicles to see if this malfunction indicator light which suggests that there are problems with the catalyst is affected by the use of MMT. That program is taking place as we speak. We are expecting results from it sometime in late 1997 or early 1998.

To underscore the point that Mr. Clark made a little earlier, our understanding is that to date MMT is being used very sparingly in the U.S. In essence, they have the time to develop this information to be used in assessing what should happen in the U.S. That is the extent of the test program.

In Canada, they have not done this kind of testing.We have a real world situation. MMT has been used, and the vehicle manufacturers can speak to the kinds of problems and impacts they have been seeing on their vehicles.

Senator Whelan: I am sure you are aware of all the doctors who have made statements concerning MMT. What is your opinion of some of these learned people: Dr. Cummings from the University of Western Ontario, Dr. Donaldson from Queen's and Dr. Labella from Manitoba? Do you have an opinion on their opinion?

Mr. Clark: We would prefer that the health people who will appear before the committee answer the health questions. We are not in a position to comment on that. On any issue, you can find people on both sides. We find that today in the climate change issue as we have found on acid rain and many other issues.

It is important to understand that this is not about lead. I do not want to bring lead into this discussion, but the senator did. Increasingly, in the environmental field today, we are dealing with trace amounts of things in the environment that accumulate over time. It does not matter whether it is one drop or two or three. Using dioxins as an example, one part in a billion will ensure that there will be reproductive effects in certain forms of wild life. That has been proven by the Canadian Wildlife Service.

My point is that quantity is not always important; it is trace amounts and the accumulation in the human systems that are of concern.

I do not wish to be facetious, but if you are concerned about the exposure of humans to toxic substances, or any other form of substance, a good place to combust it would be in automobile fuels in the cities of Canada.

That is why we come back to the precautionary principle. The EPA in the United States lost its court battle on a technicality. The EPA is very concerned about MMT. On their behalf, Ethyl is running a battery of tests on health and the automobile people are running a battery of tests on the OBD systems. They continue to say that they do not want to use the American people as guinea pigs for MMT and gasoline. Some of these things must be taken into consideration in the precautionary principle.

Senator Taylor: Mr. Clark, is MMT a widely accessible product? Is there competition in the selling of it?

Mr. Clark: It is widely accessible. There is only one supplier, as I understand it, but it is accessible across Canada.

Senator Taylor: Does that mean it is patentable; that they are the only ones who can sell it in the world?

Mr. Clark: I am not sure, but I am sure it is patentable.

Mr. Vena: At one time the chemical may have been, but it has been around for a while. Our understanding is that Ethyl Inc. is the only manufacturer. It is imported by Ethyl Canada from its U.S. parent and distributed across the country.

Ms Ellen Fry, General Counsel, Legal Services, Environment Canada: Ethyl may have some comments on that issue when they appear here.

Senator Taylor: There is only one corporation that makes this, but you do not know why?

Senator Whelan: They have supply benefit.

Mr. Vena: That particular company has made a number of other additives in the past. Its business is largely making fuel additives and fuel lubricants. It is the principal one in the U.S.

Senator Buchanan: I have been following this issue for a number of months. I did not think it was that big an issue until in the late fall when I started hearing from other political people and also from people in the oil industry, primarily in the Atlantic provinces. I took great interest then in finding out what it is all about.

You said some things this morning that disturbed me a bit because they oppose the view that has been presented to me. You said that the Americans do not use MMT at all. Is that correct? That is not my understanding. I understand that when the Supreme Court lifted the ban on EPA, many companies in the U.S. registered to use MMT and that some are now using MMT in the process.

Mr. Vena: Our understanding is that many have registered, but registration does not necessarily mean that they are using it. Our latest information from surveys that were done by the American Automobile Association last summer and this winter of a number of gasoline servers across the country show that, if it is being used, it is being used sparingly.

Some of those surveys did not show that there is MMT in the fuel.That does not mean it is not being used in smaller centres, but discussions we have had lead us to believe that is being used sparingly.

Mr. Clark: To the best of our understanding, the large companies are staying away from MMT. Exxon, Shell and Sun are not putting it back into gasoline. One wonders why not.

Senator Buchanan: I have a statistic here which says that less than one year ago, of 24 of the largest U.S. firms, 18 have registered to use MMT. Since then, I have learned that a few have proceeded to adjust their refineries to use MMT.

I was intrigued when you said that in the United States there was no use of MMT. You also said that the Americans are getting the best from their technology and that we should not settle for less. What did you mean by that?

Mr. Clark: The EPA and the Americans have driven new technology for emission controls. They have been world leaders. As a consequence, tailpipe emissions have been reduced by 90 to 95 per cent or more since the 1970s.

The automobile sector has spent millions, if not billions, of dollars creating the new technology to ensure that air is cleaner. The Americans are getting the benefit of the new technology because of the fuels they have there which are compatible with the technology.

In Canada, the automobile companies were beginning to disconnect that technology. If you were to buy a new car it would have the new OBD technology, which will increase the price of the car another $2,000. A person in the automobile dealership then disconnects the $2,000 technology. On that basis, I do not think we are getting the benefits of the technology.

Senator Buchanan: What about NOx?

Mr. Vena: I think the senator must be referring to reports which indicate that in fuel which contains MMT and in fuel which is clear, there is a nitrogen oxides benefit with respect to the MMT fuel. Nitrogen oxide is one of the principal tailpipe gases which comes from automobiles. It is one of the prime constituents in the formation of ground level ozone. The question is pertinent, senator.

From what EPA has looked at with respect to the Ethyl testing and from what we have seen in analyzing that data, it is clear to say that for some models in their test there is a NOx benefit. That NOx benefit is in the order of .1 gram per mile. How that particular NOx benefit recognized in the test situation is then extrapolated to a real world situation involves a number of statistical issues.

That aside, if there is a NOx benefit and if you are into a policy decision, then the question which must be asked is: Are there trade-offs here? That is the situation in which we find ourselves, without getting into the veracity of it because there is some value in that NOx benefit. The rationale here is one of protecting pollution control equipment and ensuring that it works well. Obviously, if it does, then that benefit must be greater than this potential NOx increase.

We could get technical and suggest that some people argue with that NOx benefit in terms of how it has been extrapolated. They ask if those test values can be put into the real world. We have had discussions with Ethyl to try to understand that particular issue. I believe that the motor vehicle manufacturers will tell you that this is not a significant statistic. We have tried to accept it at face value because we get a lot of information at face value. Having put it into the real world and having recognized the trade-offs, the benefits outweigh that particular issue.

Senator Buchanan: Why do you say that? In looking at some statistical information here, I see that the removal of MMT would increase NOx levels up to 20 per cent. The two independent studies which have been done indicate that the increase in levels without MMT would be in the range of 50,000 tonnes by the year 2000. If that is even close to being true, you are saying the trade-off of that is ensuring emission standards and the gumming up of vehicles. Yet, after a lot of studies, the EPA in the United States concluded that MMT does not cause or contribute to the failure of vehicles to meet applicable emission standards required by the U.S. Clean Air Act. What is the trade-off, then?

Mr. Vena: Returning to the up to 20 per cent issue, the range is there, although it could be somewhat less than that. Those independent studies were done mostly by Ethyl.

Senator Buchanan: T.J. McCann and Associates is not a member of the Ethyl group. Are you saying that independent consulting groups would do what their masters tell them to do?

Mr. Vena: My point was that that work was contracted to McCann by Ethyl.

Senator Buchanan: That is fine. When you contract work out, you also contract it to consultants.

Mr. Vena: I was simply making the point that that work went out from Ethyl.

Senator Buchanan: Have you conducted any studies?

Mr. Vena: Assuming there is a NOx reduction that comes out to so many tonnes, the other side of the coin which I was trying to explain is that there are three ways to try to reduce motor vehicle emissions, as Mr. Clark said a little earlier. We tighten standards, improve the fuel and try to ensure that those vehicles are properly maintained and inspected.

The only area of the country in which there is a full-blown inspection and maintenance program on vehicles which tries to deal with the third leg -- that is, ensuring that vehicles operate properly -- is in B.C. In vehicles from their vehicle fleet which have gone through that test, carbon monoxide emissions have been reduced by 24 per cent, hydrocarbons by 20 per cent and NOx by 3 per cent. They have also improved fuel economy by 5 per cent. In essence, that is a program that looks at the maintenance of vehicles.

What we have here is a real-time situation which tries to alert us to the fact that these on-board diagnostics monitor the performance of that equipment. I was trying to equate the fact that if that equipment is there as a pollution measure, there are benefits on that side as well.

The Chairman: This is an important point. The EPA in the United States also stated that Ethyl has satisfied its burden under the Clear Air Act to establish that the use of MMT in the specified concentration will not cause or contribute to a failure of any emission control device or system within the life of the engine. That runs contrary to what I am hearing.

Mr. Vena: There is a qualifier to that. That decision was rendered on testing that was provided by Ethyl to EPA. That testing was done on approximately 44 vintage vehicles from 1988 and some 46 vintage vehicles from 1992-93. My understanding is that few of those, if any, had functioning on-board diagnostic systems. The EPA made it very clear that they still had reservations and concerns about the proper functioning of this equipment.

The Chairman: If what you say is true, I must return to Senator Kinsella's point. After the House of Commons hearing, General Motors released a bulletin in which they stated that they had looked at many other causes of the gumming up of the works, so to speak, which included things ranging from weather to faulty installation. There is a multitude of things that GM themselves is saying that it could be other than MMT. I am confused.

Mr. Vena: That is a fair statement which indicates that on-board diagnostics are a new and fairly complex technology. Our understanding is that there is work going on right now at EPA over a two-year period in which time they will assess the implementation of this new technology. It is a matter of course for them.

In speaking to EPA officials, this technology is on all vehicles. It works. They are into better understanding implementation -- that is, the on-board diagnostic codes and what that really means with respect to the operation of the vehicle.

In California, they are even adding elements that are being sensed by their on-board diagnostics systems. They are not removing them.

Senator Buchanan: When was the on-board diagnostics systems first installed in the United States?

Mr. Vena: They have gone through a number of generations. Right now, they are on to OBD-II, which is the second generation.

Senator Buchanan: When did they install them for the first time?

Mr. Vena: It is my understanding that OBD-II started to come into the U.S. marketplace in the 1994 model year.

Senator Buchanan:If that is the case, why did the EPA not appeal the decision of the Federal Court of Appeals? They could have appealed it, but they did not.

If they had information on these new systems that may change the decision of the court, they had up to December 5 to appeal, but they did not.

Ms Fry: They were caught in that case on a technical situation. They realized that in that situation, they would not win on appeal. The technicalities do not affect how they feel about issues of policy, health, and so on.

Senator Buchanan: What was the technicality? I cannot find it anywhere.

Ms Fry: They said we are entitled to consider health effects. The court said that health effects are important, but if you look at the detailed provision of the law they were relying on, it did not say they could look at health effects, so they were out of court.

They are taking future action. They are calling for health studies to be made. Obviously, this is tangible evidence that they have a continuing concern.

Senator Carstairs: Clearly, we have had two evolutionary processes here: One in the United States and one in Canada. One is MMT as additional fuel incentive and you have the United States with a different history. Why?

Mr. Clark: I will try to respond and perhaps Mr. Vena can take over. The lead issue has been instructive to EPA.

There was a concern about labile metals floating around in the atmosphere, particularly if they are included on top of fine particles that are breathed into the lungs. There was a general concern about fine particles that people breathe into their lungs. I think that is one of the reasons why they had a concern.

Mr. Vena: The advent of pollution control technology brought about certification of vehicles to ensure that those vehicles meet standards of safety and pollution.

In the late 1970s, the common wisdom was that manganese in fuels would cause or contribute to the failure of these devices. That is precisely why EPA banned it for their 49 states.

The EPA were putting forward concerns about catalyst plugging, spark plugs not working and that, in addition to this NOx reduction, it is clear that you see a hydrocarbon increase with manganese in fuels.

Initially, in 1978, when it was prohibited for use in unleaded gasoline in the U.S., it was largely a concern that manganese would cause or contribute to the failure of emission control decisions of the day to meet the standards. There have been four waiver attempts by Ethyl since then to overturn that decision. They went differently because of regulatory requirements in the U.S.

In Canada, it started to become an issue in the middle to late 1980s, when we moved away from lead. We were harmonizing our standards with those in the U.S. For many years now, that has been the principal, disharmonizing element with respect to fuels.

Senator Carstairs: Obviously, if they were aware that this was a problem as they were developing generation one OBDs and then into generation two, why did we suddenly seem to come upon this so late?

Mr. Clark: We did not come upon this late. We have been sitting down with the fuel and automobile people since 1993, or thereabouts, trying to resolve this matter.

The automobile people were very concerned about the model year, starting around 1996, 1997, and certainly 1998. There was constant pressure on us to help them resolve this matter with the fuel industry. This has been going on for at least five years.

Mr. Vena: When Canada embarked on a harmonization policy with the U.S. to harmonize our 1988 standards in the U.S., the issue of MMT then came up. It was recognized that there was some concern with MMT and that a hydrocarbon increase could arise with the use of MMT.

At that time, through a Canadian General Standards Board assessment of the MMT issue, it was recognized that there could be durability concerns with respect to equipment and that we should keep a watching brief on this issue additive. In essence, it has not come late. It has been since the mid-1980s. In attempts to deal with this issue, we have not been successful with reconciliation.

The Chairman: I know my colleagues have more questions to ask, but we must press on.

Before we do, I would like you to explain this to me: If MMT is everything you suggest it is, then why are we dealing with a trade bill and not an environmental bill? Why are you not just banning it? Why are we dealing with this type of legislation which brings up NAFTA issues, lawsuits, threats from our provinces who are threatening to take us to court, and a $200 million claim from Ethyl?

Why not just ban it under legislation, rather than regarding this as an importation/exportation type of bill which raises all these other issues?

Mr. Clark: All I can say is that the government looked at all the options and this seemed to be the most effective way of ensuring the ban on MMT.

The Chairman: Speaking just for your department, why did your department not move to ban it? I know the government's position. What about your department?

Mr. Clark: We could not move in Environment Canada that way.

The Chairman: Why?

Mr. Clark: The mandates we have do not permit us to do that at this point in time.

The Chairman: Why?

Mr. Clark: We do not have mandates under the Canadian Environmental Protection Act, for example, to ban MMT in terms of the use and production of those things.

The Chairman: Even if it is deleterious to the environment, you do not have that right under your legislation?

Mr. Clark: If something is toxic, yes, but to this point in time -- at least for the priority substance that we use in Canada -- manganese is not a toxic substance.

The Chairman: In other words, you could not prove your point under environmental legislation on that basis, so you had to find another piece of legislation to deal with it. Is that what I am hearing?

Mr. Clark: You could say that, yes.

Senator Kinsella: It is clear that we have other questions and we must invite these witnesses back.

We floated around a number of issues which flow from the Department of the Environment. We have not really focused on the issue of your question.

In light of what you just said, I have a document here with Mr. Vena and Chandra Prakash's signature, dated October 24, 1994. It is a document going to the Minister of the Environment of the day relating to meetings with interested parties on MMT.

You focus on manganese, to which you alluded a second ago. Are you saying that manganese is not something that Environment Canada is on top of as part of your mandate?

Mr. Clark: We have a clear process under the Canadian Environmental Protection Act as to how we assess substances as to whether or not they are toxic. It is a clear and narrow corridor. It must go into the environment, there must be exposure, and there must be an effect. In terms of the protocols that we follow on the CIPA, at this point in time, we have not dealt with manganese as a toxic substance.

Senator Buchanan: You said it was non-toxic.

Mr. Clark: The Health Canada people will be attending. Everything must be related to exposure and the risks and the levels in the environment. It could be non-toxic at one level and quite toxic at another.

Senator Buchanan: Health Canada says that health risk speculations are not founded.

Mr. Clark: Health Canada did not deal with the possible effects on OBD systems which could create additional air pollution and which could definitely affect health.

The Chairman: We may well be inviting you to return. We will determine that later. We must proceed now. Other witnesses are waiting. Thank you for assisting us.

We will now hear witnesses from the Canadian Petroleum Products Institute.

Mr. Alain Perez, President, Canadian Petroleum Products Institute: Before proceeding, I should like to explain that CPPI is a national association. We have a membership of 15 companies which are involved in refining and marketing of oil products. We have facilities in every province and territory in Canada. Directly and indirectly, we employ approximately 300,000 people in Canada. Collectively, our membership accounts for over 90 per cent of all transportation fuels manufactured and sold within Canada. Our institute represents the industry on economic and health issues and, more and more often, on environmental issues.

Bill C-29 has been a complex issue over the past years. It touches on the environment, economics, and health. Equally important, in our view, it touches on provincial and regional interests in the country. It touches on issues of good governance and on how public policy is being developed in this country.

Approximately 17 years ago, Canada became one of the first, and we are still one of the few countries in the world, to eliminate lead from gasoline. Lead provided octane, so we had to replace the octane. The decision was made at the time that MMT, as an additive, was the preferred option.

Quite quickly after that, allegations were made as to the effect of MMT on catalysts. This was in the late 1980s. Allegedly, it resulted in increased tailpipe emissions. Studies were conducted in 1986 by the Royal Society of Canada and the Canadian General Standards Board, and they both recommended that we retain MMT in Canadian then-unleaded gasoline.

With the production of newer technology control -- that is, OBD-II, on-board diagnostic systems, second generation -- in the early 1990s, the question of MMT was raised again. The question was: Did MMT foul emissions sensors?

In 1993, we agreed with the vice-president of Ford Motor Company that both industries should conduct a test. We wrote to the MVMA at that time, telling them our understanding of what the test would entail, and that letter was approved by Ford representatives on the board of MVMA. We agreed to such a test but, unfortunately, the other auto makers on the MVMA board rejected the notion of the test, and we have been fighting on the issue of whether and how to conduct the test since then.

During the discussions, both the Canadian and American governments were also reviewing MMT. Health Canada reviewed issues related to health and manganese exposure. The U.S. EPA reviewed issues related to MMT, its impact on emissions-control technologies and tail-pipe emissions - that is, pollution.

In 1994, Health Canada concluded that "the use of MMT as a gasoline additive in Canada does not represent a health threat to any component of the Canadian population."

Their study was a real-life study based on real exposure as opposed to other studies that were done using models. The same year, the EPA reported that the use of MMT did not "cause or contribute to a failure of any emission control device," after having received information from both the auto manufacturers and from Ethyl. In the same year, EPA concluded that removing MMT from gasoline would increase nitrogen oxides in the atmosphere by an average of 8 per cent of the standard. We will return to that point.

In essence, both Canada and the United States, in separate, impartial, government reviews, determined that MMT use represented neither a health concern nor an impediment to the efficient operation of OBD systems.

One would have thought at this point that the MMT issue would have faded into well-deserved obscurity. Such was not the case, since in 1995 the federal Minister of the Environment determined there was a pressing need to ban the use of MMT. Since MMT did not pose a health concern, a ban using CEPA, the existing Canadian Environmental Protection Act, was not possible. You must prove under CEPA that the substance is toxic before you can regulate. Since MMT did not increase vehicle emissions -- in fact, it lowers emissions -- using the Motor Vehicle Safety Act was also impossible; hence the need for special legislation, Bill C-94, which became Bill C-29.

My colleagues will talk about the flaws in that special legislation, and problems we have as an industry in using special legislation to regulate a minor additive in gasoline.

Here we are with Bill C-29. It is a ban which is not a ban. It prohibits neither the manufacture nor the use of MMT within the boundary of any province. It will still be widely used, and the bill does not, in fact, address the issues that were raised as its own rationale, such as the environment, health, et cetera.

Mr. Brian Fischer, Senior Vice-President, Products and Chemicals, Imperial Oil Limited: We believe Bill C-29 is a very biased and flawed piece of legislation. If endorsed by the Senate, it would set several extremely prejudicial precedents in Canadian public policy. The resulting legislation would adversely affect the competitive position of an entire industry sector without justification.

Most importantly to yourselves as senators, it will precipitate a series of events resulting in protracted political and legal confrontations among the federal government, provincial governments, the Canadian Council of Ministers of the Environment, and several private-sector companies. These disputes will centre on matters of domestic trade, international trade, the constitutionality of the legislation, and issues of financial compensation.

While there are many theories as to what is behind the legislation, I want to state for the record once more that if a case was ever made on scientific grounds for the banning of MMT, we would be supporting the objective of Bill C-29, not opposing it.

As an industry, we accelerated the phase-out of lead in gasoline, we have introduced low-sulphur diesel fuel, and we have reduced summer gasoline's vapour pressure, which reduces evaporative emissions. This was all with a goal of improving the environmental performance of our products. Further, we have proposed to the Canadian Council of Ministers of the Environment a national fuel standard which, if adopted, will give Canada the most stringent national fuel standards in the world.

These actions clearly show that our industry has acted, and will act, on fuel composition to improve environmental performance where there is a need.

Our association has opposed Bill C-29 from its inception because of its lack of foundation. Since the beginning, we have also suggested constructive alternatives for resolving this issue. We have made repeated offers to the auto makers, federal government departments, the provinces, and even to the Prime Minister, to reduce the allowable limit of MMT in Canada to match that of the United States, while conducting a comprehensive test program on MMT's effects on vehicles. Further, we have agreed and stated that we will abide by the eventual findings of such a test program.

While repeatedly rejected by the auto makers, and not supported by the federal Environment Minister, our offers have been unconditionally endorsed by the most federal departments, the provinces, the Council of Energy Ministers, and a number of editorial writers.

We ask you to reflect carefully on the legislation before you today. We believe you have the opportunity and the obligation to rework Bill C-29.

Mr. Jim Pantelidis, Executive Vice-President, Petro-Canada: I would like to start by giving you some historical perspective on this issue. We cannot rewrite history today, although we would like to do so. After almost two years of debate within the cabinet and in the House of Commons, the government invoked closure on Bill C-29 and passed the bill for review by the Senate.

However, the issues raised by the debates in the house have not dissipated with a call of the roll. It is now the responsibility of the Senate to consider this extraordinary piece of legislation.

Our chairman has already noted the question of motivation concerning the issue of MMT. For a question so often asked, there are few clear answers, just many theories of political gamesmanship and industrial power brokering. I will not get into those theories today, but I will provide some facts.

There have been four primary justifications for Bill C-29 since its inception: harmonization of fuel standards, health, air pollution, and the impact on vehicle technology. We have filed with the committee's research staff all the relevant documents referred to in my discussion. They are available to you for further consideration. I will briefly summarize our views on each of these four issues.

On the issue of fuel harmonization, when the Canadian government introduced its MMT ban in 1995, MMT was not used in unleaded gasoline in the United States. MMT has always been allowed for use in leaded gasoline, which is still used in many parts of the southwestern U.S.

Following extensive testing of MMT in the U.S., in 1994, the Environmental Protection Agency determined that it "will not cause or contribute to a failure of any emission control device or system to achieve compliance with the emissions standards."

The EPA elected to defer issuing a waiver until December 1995, when so ordered by the U.S. Court of Appeals.

Opening the U.S. fuel market to MMT not only eliminated the harmonization argument, but passage of Bill C-29 would now create an exception to the principle of harmonization.

On the second issue, health, CPPI has always taken the position that we would abide by any decision of the Health Protection Branch of Health Canada in terms of the use of MMT.

Several reviews resulted in the branch making the determination in 1994 that MMT use did not represent a health threat. We understand this continues to be the case. Clearly, if new evidence were to come forward supporting the need for more caution in the use of MMT, we would want to know.

Please remember, it is our employees who work most closely with vehicle fuels, and we are committed to ensuring their health and safety. For this reason, we have continued to work with Health Canada in monitoring the issue. We, along with the federal government and the Quebec government, have continued to cosponsor the research work of Dr. Joseph Zayed, who I believe you will hear from as well.

On the third issue of air pollution, our chairman noted earlier that the CPPI continues to be engaged in a wide-ranging program of fuel redesign to improve its environmental performance. The phasing out of lead, the reduction of gasoline vapour pressure, the use of deposit control additives, the introduction of low-sulphur diesel fuel, and use of MMT are part of a broad strategy to make transportation fuels better. While we use MMT for its octane enhancing qualities, it has also provided a benefit in terms of reducing nitrogen oxide emissions which reduce urban smog.

Air quality data from Environment Canada's monitoring reports consistently indicate a continuing improvement in Canadian air quality, notwithstanding increases in vehicle ownership and use. Prohibiting the use of MMT could quickly reverse these air quality improvements, particularly in regions where urban smog is an issue.

For example, estimates developed by the U.S. EPA suggest that the removal of MMT would result in an overall 8 per cent increase of nitrogen oxide emissions from vehicles. This would result in a significant downturn in the Canadian air quality, especially for large urban areas. For refiners to offset this NOx increase through fuel formulation, we would have to severely limit the sulphur content in gasoline, at a cost of roughly $2 billion. The technical and financial demands entailed in this effort are well beyond the capability of most if not all the refining companies in this country. The impact on the refining industry could be substantial.

On the last issue of MMT's impact on emission control systems, Mr. Perez has already noted the findings of the Royal Society, the Canadian General Standards Board and the U.S. EPA on this issue. Ethyl Corporation will be providing substantial additional information on their studies. Clearly, our agreement with Ford in 1993 to sponsor a test program would indicate that even some auto makers were uncertain of the facts concerning MMT use and wanted to find out more about it.

We have not seen evidence that confirms the need for a ban on MMT use. Our member companies have taken part in the Royal Society and the CGSB deliberations. We have carried out our own independent research programs and supported an independent review of the research by Ethyl Corporation and the auto companies.

Through all of this, at worst what we saw was some anecdotal evidence suggesting the issue needed to be reviewed. We agree. When the Prime Minister initiated his review of the legislation last August, we told the inter-departmental review committee that, having failed to enlist the support of the government and auto makers in an independent test, we would do one ourselves and report the results to them.

Over a three-month period, ORTECH Corporation and Protect Air of Mississauga tested 1964 to 1996 model year vehicles which were equipped with the latest emission control technology. These vehicles had an aggregate mileage of 11.4 million kilometres, accumulated by their owners under Canadian driving conditions. The objectives of our study were to determine if any emission problems could be detected and also to determine if the vehicles' computers were noting any failures of the emission control systems.

The results indicated that the vehicles' emission control performance was excellent. All the vehicles tested were well within the Ontario test standard, which covers hydrocarbon, carbon monoxide and nitrogen oxide emissions.

In addition, tests of the vehicles' on-board diagnostic systems showed problem-free performance in 184 of 185 vehicles. One vehicle had an indication of a problem related to a faulty spark plug, but there was no evidence to suggest the failure was related to MMT.

As with any sample survey of this nature, we did not expect to get conclusive evidence solving the issue, but we did expect to get sufficient information to either validate claims about MMT's impact on vehicle systems or at least give some indication of a trend. We found a very high level of performance of vehicle systems integrated with fuel containing MMT.

Beyond our own experience on this matter, many provinces have had the benefit of hearing the technical arguments of auto makers and Ethyl Corporation and have concluded that the evidence presented today does not lead to the conclusion that a ban is warranted. What everyone has concluded, however, is that a test program is required, something we have been trying to get going since 1993.

Currently, American auto makers are conducting their own $12 million test program on MMT. This is a surprising contradiction to the view of the Canadian auto industry which seems to feel that they know all there is to know about MMT.

What we proposed to the auto makers two years ago and again last summer was to have an independent authority conduct a test program. Such a program should involve active monitoring of the in-use performance of a range of Canadian vehicles equipped with the current emission control systems and fuelled with MMT and lasting for a period that allows enough mileage to permit some conclusions to be made.

I would like to turn things over now to Mr. Routs.

Mr. Robert Routs, President, Shell Canada Products Limited: Mr. Chairman, I would like to speak about consequences and conclusions.

We believe that this is an opportune moment for the Senate and each individual Senator to rigorously examine this legislation and pass judgment on its merit. If not considered closely, we know that Bill C-29 will be the catalyst for serious conflicts between the federal and provincial governments caused by the lack of appropriate review of the legislation and its premise.

You are already aware of the expressions of concern registered by several provincial premiers and most environment and energy ministers on this point. They have repeatedly requested of the Prime Minister and the federal environment minister that this legislation be deferred until a proper evaluation can be completed.

You are aware of the potential for Bill C-29 to disrupt domestic trade relations through a challenge to the bill under the Agreement on Internal Trade. While Alberta will launch the challenge, it has widespread provincial support.

You are aware through media reports of the possible challenge to the legislation under the NAFTA which the product manufacturer, Ethyl Corporation, is considering.

We will know that Bill C-29 is deemed to be beyond the constitutional competence of the federal government. The legal briefs have been filed with the research staff, and we understand that two provinces are considering a challenge to Bill C-29 in this context.

With respect to our industry sector, we have been driven in recent years to reduce costs and invest efficiently so that Canadian oil products remain competitive with imports. By doing so, Canada continues to benefit from an annual $2 billion trade surplus in oil products with the United States.

If unfounded and unchecked, Bill C-29 will cost our industry some $115 million for capital equipment and some $69 million annually in operating costs, according to estimates provided by a third party, Kilborn Engineering, to Environment Canada. These expenses will be required to bypass the loss of MMT.

The cumulative effect of Bill C-29, in tandem with some other potential changes in gasoline formulation, will jeopardize the future of several Canadian refineries. Older and smaller refineries will be the most affected.

We believe there are several alternative courses of action the Senate could consider prior to reporting the bill.

Number one, given the many requests for tangible evidence of the need for Bill C-29, we believe an obligation has been created to require the completion of an assessment of all technical issues, as would normally be conducted by any other comparable legislation. This could compel the completion of a vehicle test program as has been recommended so widely. This action could address directly the many concerns raised by the provinces and ourselves about the need for and merit of this legislation.

Additionally, several trade and constitutional issues have arisen since the legislation was reviewed in the house. We believe an equal obligation has been created to examine the potential consequences of Bill C-29 in these areas.

The Standing Senate Committees on Legal and Constitutional Affairs and Banking, Trade and Commerce should have the opportunity to advise you on these matters to ensure full consideration of the bill before final reporting.

Finally, the committee could further refer consideration of the bill to be conducted in tandem with any upcoming discussion of the Canadian Environmental Protection Act. The legislation makes provision for examining fuel and vehicle issues within the context that a need for any regulatory measure must be validated in an open manner.

We believe that Bill C-29 would not exist today if required to meet the test of scientific legitimacy inherent in most other existing federal legislation. We appeal to this committee to exercise your best judgment in encouraging the development of responsible public policy.

Senator Kenny: If the on-board diagnostic systems on the vehicles being produced today are impaired, are we likely to see increases in vehicle emission pollutants?

Mr. Fischer: The evidence that Mr. Pantelidis put forth through the ORTECH test that was conducted would indicate that that is not the case and that the emission equipment is not being impaired.

Senator Kenny: That is not my question. If it is impaired, would we see increased pollution?

Mr. Fischer: We would not know until it happened. We would have to measure it once we understood whether it did impair.

Senator Kenny: You are just ducking that question, then.

Mr. Fischer: I do no know the consequences. We have not seen the impairment of the OBD systems.

Mr. Perez: Your question goes to the heart of what has been claimed by the Minister of Environment last July to justify his reintroduction at third reading of the legislation. The argument we have heard is as follows.

If MMT or anything impairs the OBD-II systems, the auto manufacturers will have to disconnect those systems. Otherwise, it will give false warnings. If the driver receives false warnings or if it is disconnected, he will not know if his car is or is not actually polluting, if and when it happens. There is a possibility that, down the road, some of those cars will exceed the emission standards without knowing it. Therefore, there will be some increased level of pollution.

Even if you accept, which we do not, that the evidence is that those sensors will be fouled, and if you look statistically at what has happened to sensors in the U.S. in the past three or four years, the amount of increased pollution would be minuscule compared to not inspecting cars and certainly compared to an 8 per cent increase in NOx, which is a gigantic step in smog production, particularly in large cities such as Toronto.

I do not know what it would do, but obviously OBD-II systems have been affected by many things in the U.S. in the past three years without MMT. GM, among others, has asked seven states for relief from regulation because of problems with their OBD-II systems and has disconnected them while waiting to correct those issues. Clearly, they are not MMT related. They have stated altitude in Colorado, humidity in some states and bad driving habits as the causes of these problems. In Canada, they are stating that MMT is the problem.

Again, we are not disputing that there would be a remote possibility that it has an effect. All we are asking is that we work on the evidence. We will abide by the results. We have been saying that for three years, but we have gotten nowhere.

I hope I am addressing your question.

Senator Kenny: You are.

Related to that, in the event that OBD systems broke down, would consumers be penalized by increased service calls and the associated costs and inconvenience related to that?

Mr. Perez: If they break down because of a manufacturer's defect, there will be inconvenience, but it will be the liability of manufacturers. That is a large issue in the minds of all manufacturers when they are introducing new technologies. That may be something this committee should keep in mind. If it is caused by our fuels, we will be liable. We will get out of that problem long before we are liable for anything. If it is an issue, it will not be an issue for long because we can stop using MMT in 24 hours.

Senator Kenny: Mr. Pantelidis mentioned the point that your association is very much in line with the government's position on reducing motor vehicle pollution. Specifically, you made reference to Health Canada tests. You are aware that those tests did not relate to pollution from malfunctioning emission control systems.

Mr. Pantelidis: Yes, we are aware that they were not.

Senator Kenny: Is that not the issue that we are into here? It is not a question of whether MMT itself is a pollutant -- the question is whether the product gums up the OBDs.

Mr. Pantelidis: Basically, there are two issues. One issue initially was the potential health impact of MMT relative to the manganese related to MMT. That is what we referred to when we said that Health Canada's position had been that their study showed that MMT did not cause health issues related to manganese.

In terms of health issues related to overall broader emissions with the on-board diagnostic systems working faultily, there has not been a conclusive test program. That is what we have been vying to get going since 1983.

Senator Kenny: I understand that. When you referred to the Health Canada study, though, it really did not relate to whether or not we would see increased pollution as a result of the OBDs being gummed up, did it?

Mr. Pantelidis: No.

Senator Kenny: I have a question for Mr. Routs. You made reference to the cost figures. You specifically referred to the Kilborn study. You suggested it was done for Environment Canada. It is my understanding that it was done for the Canadian Council of Ministers of the Environment. The figures that I have are significantly different than the $2 billion that Mr. Pantelidis mentioned or the figures that you had.

The costs that came from the Kilborn study were $115 million in capital expenditures and $50 million in ongoing expenditures. It netted out to $5 per year per consumer.

Is that consistent with what you have, Mr. Routs, or is that something different?

Mr. Routs: The capital figures and the operating cost figures for removal of MMT are about the same as the ones that I referenced.

The figure of $2 billion to obtain the same NOx or nitrous oxide reduction deals with the equivalent sulphur reduction that we must do to obtain the same 8 per cent reduction in nitrous oxide. That means major investments in our refineries in order to address the sulphur issue.

Mr. Pantelidis: Ultimately, it points out the real value of MMT.

Senator Kenny: We have a list of companies, such as Amoco, Anchor, ARCO, BP, Chevron, Conoco, Exxon, Hess, Marathon, Mobile, Penzoil, Phillips, Sun and Texaco, which are not using MMT. Why is it a problem for you and it is not a problem for them?

Mr. Pantelidis: Obviously, you are mentioning a lot of U.S. companies in this particular instance.

Because of the ban on MMT in unleaded fuels in the U.S., they were forced to cope with the issue and invest accordingly to avoid having to use the MMT, which they were not allowed to do. In retrospect, had they not been required to remove MMT, they could potentially have saved quite a bit of money in capital expenditures in the U.S. industry.

It is interesting to note that in the last 10 years, the U.S. refinery industry has spent close to four times what we have spent in Canadian refineries to cope with environmental legislation. It has moved their industry from a leading world-wide position competitively to, in many categories, the second-most efficient industry in the world. Many of those refiners today would tell you that they have not received a return for their investment and that in many cases the investments were not the best alternative they could have chosen.

We view this debate on MMT and the potential avoidance of having to remove MMT as a potential advantage for the Canadian industry, especially if there is no good environmental rationale for removing it. That is part of our premise. If we could spend our money on really helping the environment while at the same time providing a competitive position for our refineries in Canada so that the industry remains healthy, we would have the best of both worlds.

Mr. Perez: The fact that they are using their investments to create octane also means that in the U.S. they are running more crude oil to get the same equivalent of gasoline, which means they are producing more CO2 and more gases at the refinery level. Our refineries are more environmentally efficient when it comes to that because we use less energy to produce the same amount of gasoline.

Senator Hervieux-Payette: Is this a financial problem or a technical problem? It seems to me that we are talking two languages. First, is this product incompatible with the type of equipment being fabricated by the automobile industry and therefore they are asking you to change your product, or are you saying, "Adapt the product and things will go well"?

It is hard to solve a problem when we do not know exactly what the problem is.

Mr. Perez: It is a financial issue. It is not huge, like sulphur or others would be, but it is significant for some refiners, particularly the small ones. It is not an overwhelming financial issue; it is money wasted.

It is a technical issue because we cannot get the answers. More importantly, it is legislation which creates a precedent.

Instead of letting the two industries negotiate, as they do in the U.S. and Europe, the Government of Canada has clearly taken sides. It has interrupted a negotiating process which was not going well, I agree, and removed any motivation for the auto industry to continue negotiating with us. Now all they need do is wait for the U.S. results or create something better for themselves in Canada and use that as a precedent. What truly terrifies us -- and I use that word consciously -- is that the precedent will then be used on other components of gasoline.

The real issue for us is whether we will be footing the next $5 billion of environmental bills without a chance for study, without a chance for rationale, and without any chance for negotiating because a precedent has been set. Newspapers have quoted political staff of the current minister as saying that most of the next gains in air pollution will come from fuel purity. That was in the Montreal Gazette a few months ago.

We want to negotiate. If we can survive as a competitive industry, the country will be better off. If we cannot survive, we cannot survive. However, it is a certainty that if there are no negotiations, and if we end up footing the next $5 billion bill, half of the industry will disappear. Everything east of Alberta will disappear.

That is what is at stake. That is why we are so adamant in telling the federal government not to pass legislation which sets such a bad precedent. That is the real issue for us.

Senator Hervieux-Payette: The users will pay the bill. Where do we stand among the Group of Seven or the OECD countries with respect to the cost of oil and making an abstraction of taxes? There is your price and then there is what everyone is adding. We know what the Europeans are adding.

Since our country has been targeting world trade as a major trend for all our industries, transportation has become very important. Where do we fit internationally in terms of the energy cost for the transportation of our goods?

Mr. Pantelidis: Let us look at the refinery industry because many of the costs we are talking about today are related to that industry. That industry made great strides in the last five years to become world competitive.

Salomon Brothers ranks refineries across the world in 10 categories. In a number of categories, we have moved up to first position relative to our competition, including the U.S. refineries. One reason for that is the needless expenditures which refineries in the Unites States have had to make which have put them in a less competitive position.

If you were to make the hypothesis that we were forced to spend needlessly and without good rationale in a number of areas to improve our fuels, the net outcome of that would be either a closure of our refineries or our refineries becoming less competitive worldwide. The net outcome could be that we would have to rely more and more on imported finished products, especially in Eastern Canada. That would obviously affect the balance of trade.

Even more punitive would be the result that the net cost of our product to our consumers would increase substantially. That could lead to any number of things -- a decrease in demand, an increase in the costs the consumer pays and, at the end of the day, our industry being in a less competitive position than it is today.

To what extent that would happen depends to a large extent on how much money we must expend over the next 10 years for environmental and competitive reasons.

In very simple terms, it is a foregone conclusion that shutting down refineries will be a net negative outcome for Canada.

Senator Hervieux-Payette: You spoke about history, and I need some clarification there. Fuel has always been a factor with car manufacturers. Are they breaking the process in terms of testing your product with regard to their mechanics? It is a partnership. They cannot develop a car without fuel. If cars are not using your fuel, then, possibly, they could use water. That is something everyone has been dreaming about for a long time, especially those of us in Canada.

It is important that you supply us with an economic analysis of this situation in order for us to make a decision. We need to know how it will affect Canada's competitiveness with regard to the quality of fuel, since that is something we do not want to sacrifice.

What is the situation now in terms of the breakup of the marriage between the car industry and yourselves?

Mr. Fischer: Clearly, as we pointed out, the issue around this current piece of legislation is far beyond just MMT. It is the precedent it sets. That precedent says that whenever there is an area of disagreement or a negotiating difficulty between the oil industry and the automotive manufacturers, we will resort to this type of legislation to resolve it. That is because, clearly, it chooses a winner and a loser. It is our concern that this process will be invoked on other even more expensive gasoline issues.

In the United States and in Europe, there is a close working relationship between the automotive manufacturers and the oil industry, although it does not always run smoothly. In those jurisdictions, the government has not elected to choose sides. They have elected to allow the industries to work out their issues and resolve them. That is the fundamental difference between what has happened in this case and what goes on in other countries.

Mr. Pantelidis: Over the last few years, we have attempted very proactively to try to get meaningful negotiations between ourselves and the MVMA. As I mention in my brief, that has been done with outside objective measurements and bodies assessing the issue.

Mr. Fischer and I visited Minister Copps about a year-and-a-half ago. We basically encouraged her to try to bring the MVMA to the table. We were still positioned at that time to say, "We will undergo an independent study on this issue and add according to the results." We encouraged Minister Copps to do that. We left her office with the impression that that is what she would do.

The net outcome of that meeting was that she informed us, through public means -- and I am paraphrasing her comments -- that the two of us should meet to resolve this issue, and if we could not, the government would pass Bill C-94.

The net result of that was that the MVMA said "We do not need to negotiate if we cannot come to an agreement because we will not talk to you anyway. The bill will be passed." That was the extent of the cooperation we got from the environment ministry at the time.

Senator Hervieux-Payette: When lead was removed from gasoline over the last 25 years, I suppose that you had to conduct some tests and then adjust your formulae. You were not doing that on your own without contributions from the car industry. Was there a break in your partnership? What role do you see the government playing in ensuring that you are serious about cleaning up the air while at the same time ensuring that we move at a speed which will keep us competitive in the world? Was there a break in this relationship two or three years ago because of the U.S. situation?

Mr. Routs: Our company has been involved in discussions with the auto industry, both in the U.S. and in Europe. An issue like this has never come up. Usually we have been able to come to some agreement.

It has been repeated a number of times that we have undertaken every effort in the book, even going to the Prime Minister when we said, "We want this cooperation and we want to resolve this situation." There is a willingness on our part to come to the table. The other party seems to want to wait until the government intervenes.

With regard to economics, I do not know if most people around this table are aware that this industry makes large volumes of fuel. Any issue can be made ridiculous in terms of cents per litre and cost. The minister has said, "This issue will cost the industry .2 cents per litre, so what are they worrying about?" Our profits are less than 1 cent per litre. Some members of the industry make more, some make less. If you put it in that context, you can see that .2 cents on 1 cent is quite a bit.

Mr. Fischer: The closest we have come to being able to elicit input and collaboration from the MVMA was in late 1994 when we established an independent panel of three people. We asked both the auto manufacturers and Ethyl Corp. to bring forward their data. At that time, we said that we would abide by what comes out of that panel.

The conclusions of that panel were somewhat disappointing. They concluded, first, that views held by Ethyl and the auto manufacturers were diametrically opposed. Second, they concluded that the data and conclusions were irreconcilable due to different vehicles, test conditions and scientific rigour. Third, they concluded that Ethyl had used more controlled testing protocols whereas the auto manufacturers relied heavily on warranty rate differences between Canada and the U.S., inferring that those differences were due to MMT. They concluded, and continue to support the position that we have taken, that the only way to resolve this issue would be to put together a joint test to do so. We have been unsuccessful in doing that, largely because this bill supports the removal of MMT, which has not fostered that type of joint study.

Mr. Pantelidis: The other point we should underline here is that, from our viewpoint, this is really an issue of process. We have examples which show that when the process was right, the outcome was correct. I go back in time to 1992-93 when we first started talking about low sulphur diesel. That process involved ourselves, the MVMA and various departments of government. The process followed a scientific approach. It came to a conclusion which required the refineries in Canada to spend a considerable amount of money to reduce sulphur in diesel, but it was based on scientific data. On a voluntarily basis, not through legislation, we and the refineries undertook to reduce sulphur on the basis of that scientific data. That was in conjunction with the MVMA. Because of the process, we both came to the same conclusion, one by which we abided.

Putting the MMT issue aside, which is somewhere in the middle, it is the same process we are now using to determine the use of sulphur in gasoline. In this particular case, a number of departments in the government, the MVMA and ourselves have agreed to a study to come to a conclusion by which we will abide.

Here are two processes on either side of MMT where we have the full cooperation of government and the MVMA. I believe in both those circumstances that the outcome will be something by which we can all abide.

The MMT issue is stuck in the middle. I am not sure if that is because the issue was politicized early in the process, or whether there is a reason the MVMA is not putting forward as to why they do not want to follow the traditional process which has proved successful in the past and which we hope will prove successful in the future.

Mr. Perez: If Environment Canada had provided leadership in 1993, 1994 and 1995, the issue would have been solved before 1994. I think the bureaucrats wanted to do that. They have done it with us. We work very well with them on 99 per cent of the issues.

You are being kind. In 1995, when Bill C-94 was introduced, it immediately became a highly charged and politicized issue. If you refer to the Debates of the House of Commons, the tone employed was describing us as people leaking information and being untrustworthy.

Suddenly, in one month, it became a "do or die" issue politically. Instead of having to prove something technically, we found ourselves having to fight a political battle, which my industry is not used to doing. That is when we started talking to provinces and getting allies. It has been politicized above whatever the department itself wanted, and the issue became controllable at that point.

The Chairman: I must comment that, coming from the west, I have seen your industry fight the odd political battle. I am not sure you are quite as naive about that problem. You might want to comment on that before we move on.

In a press release issued in September of 1996, you were quoted as saying:

We have already initiated a technical review of MMT and will provide the results of that analysis to the federal government upon completion next month;

You have done that.

... a full comprehensive study could be completed in a few months, with the proper support of the government...

If I were the motor vehicle people looking at this with the pressures which are apparently on them, from a credibility point of view and considering the nature and complexity of the issue, I would wonder if you were serious when you indicated you could do this in a few months. One of your letters referred to three months. Do you feel it is reliable or credible that you could do that type of comprehensive study within that short period of time?

Mr. Perez: All we would have to do is take a sample of 300 cars and add a few hundred more. First, we would ask Environment Canada to lead the study. We want the government to be in charge of the process of that study, similar to what we are doing with sulphur. We would take those cars off the road and drive them under hard conditions, on the bench or on the runway, and get them to the mileage that would satisfy the auto manufacturers as being the mileage that would meet their warranties.

How long does it take to go from the 40,000 kilometres that the cars have today to 160,000? Probably a month or month and a half of constant running. While doing that, you periodically check the computer codes in the car. If, at the end of that, you have codes which indicate fuel failure or sensor failure, you know you have a problem. If the codes do not say that, you know you have no problem.

It is not a difficult test. We are not asking for something beyond a reasonable doubt. We want MMT to stay out of the legislative process, and we want to reach a compromise. We have told Minister Marchi and Minister Copps that we do not want the legislation. We do want some evidence that those claims are real. If they were there, and if government led the study, I believe it could be done in three months. If it is a question of resources, we will provide the resources -- the cars.

Senator Taylor: I am glad you made that comment about politics in the oil industry. I thought perhaps I was in an entirely different hearing for a minute.

I have a short technical question on the difference between MMT as an octane enhancer, regular gasoline, and premium gasoline. Is there any MMT in regular, or is there just less in regular than there is in premium?

Mr. Pantelidis: Are you referring to Canada?

Senator Taylor: Yes.

Mr. Pantelidis: If I may speak for our refineries, we generally use MMT in all our grades of gasoline in equal dosages. The way it is used is that it enhances the total octane pool. You use it as an additive to your total octane before you actually start to split it between premium and regular.

Senator Taylor: You are speaking about cooperation. Several years ago, the automobile industry offered to accept a solution whereby you would do as you did in the past with ethyl, which was to have two pumps: those with MMT and those without MMT. Therefore, if your mechanic told you that MMT was not good for your car, you could buy it from the other pump. You say you refused to do that. Why was that?

Mr. Fischer: It was the cost of putting in another segregated system for yet another unique product, which an MMT-free gasoline would be. MMT exists in all grades of our gasoline presently. You would require segregated distribution facilities in your refineries. More importantly, we would be required to install some 20,000 to 30,000 additional tanks at our service stations to segregate it, as well as additional pumps.

If we had some evidence that MMT should be removed from gasoline because it causes harm to OBD systems or raises health issues, we would not put in that type of system; we would simply take MMT out of gasoline. However, we could not justify the cost of a completely segregated system for MMT.

Senator Taylor:When you pull up to a Shell station, you have quite a time deciding which pump to go to. They have everything under the sun, starting with 70 octane all the way up to 105, which might be so high it would pull my old car's motor right through the radiator. I hope they are not all coming out of the same tank.

Mr. Routs: My colleague referred to the number of extra tanks we would be required to put underground. Today, we put two or three tanks underground.

Senator Taylor: Do you get six grades out of the three tanks?

Mr. Routs: You are not far from the truth. For the octane question, we use two underground tanks and blend to the required octane. You are still getting the product you are paying for, but it is delivered in different ways to the customer.

Senator Taylor: My last question is one of motives. This is probably more legal or philosophical. If, indeed, you are right that the manganese does not foul up the OBDs on the automobiles, and, indeed, if things happen and manganese is not used in gasoline and yet two years from now these OBDs are still fouling up, would the automobile industry not have lot of egg on its face? Why would a huge industry like the automobile industry ask you to cut back on manganese when, if it was done, it would not make any difference? I cannot understand what motive you are ascribing to the manufacturers if they do not have an honest belief that manganese is ruining their OBDs.

Mr. Perez: I would be happy to answer that question on motivation.

Several years ago -- I do not have the details, but it is clear in my mind, as it is in yours, I am sure -- Chrysler Corporation issued statements saying that if anyone uses ethanol in gasoline, they would void the warranties. The warranties for a period of time were voided if people used ethanol in their cars. You will not hear any manufacturer today tell you that their engines cannot sustain a mixture of ethanol with gasoline, so why did they make these claims?

There is no question, Senator Taylor, that if you had fewer additives in gasoline and if some components were reduced, it would be technically easier for their engineers to make their systems and perhaps make them more reliable. Conversely, if they demanded less octane, it would be much cheaper for us and it would be environmentally more sensible to produce gasoline. Octane is the one which requires more energy, more severity, additives, et cetera. These are the issues we should be discussing back and forth with them.

Would they have egg on their face? I will refer you to the ethanol issue. I refer you to the fact that, in several states, they are claiming that their sensors are not working, without saying it is MMT-related.

I do not know. We are really puzzled by the variety of claims and how the rationale shifts: harmonization; fouled sensors; plugged catalysts; spark plugs; health issues; manganese. Obviously someone is running after rationale to justify something, but in the case of the manufacturers, they have a simple way of doing it: On a preponderance of evidence that there is a technical issue, we are out of MMT in 24 hours.

Senator Kinsella: Mr. Chairman, the witness mentioned meetings they have had with Minister Copps. Frank Vena, who was a witness from the environment department earlier this morning, in a memo that he prepared for the minister in preparation for one of these meetings, wrote this:

With respect to health impacts of manganese, there are areas in Canada for example, near steel making facilities in Hamilton and Sault Ste. Marie, where airborne manganese levels sometimes exceed the concentrations that Health Canada would consider safe. These elevated levels of manganese are not caused by MMT in gasoline, but by the industrial steel making sources. Given the Minister's stand on MMT in gasoline, Ethyl Inc. and fuel producers may be aware of this information and may draw this to the Minister's attention with a view to demanding action in this area if the Minister continues her pursuit of MMT.

In your meetings with Minister Copps, did you raise the question to which that memo alludes, that if the concern is with manganese and the environment, there is more concentration caused by the steel mill in Hamilton than by automobiles in Hamilton?

Mr. Fischer: We had a meeting with Minister Copps in Hamilton in October of 1994. We desired to meet with her at that time because she was positioning a favourable position in the media towards the motor vehicle manufacturers. We restricted our dialogue to two points. One point surrounded the health impacts of MMT as ruled by Health Canada because our subject was MMT, not steel mills or what have you. We did not raise that as a particular issue. The other point was our encouragement for her to help us get the motor vehicle manufacturers into a process to resolve the issue, rather than taking sides and leaving them with an impression that, if they did nothing, that their way would be met.

To the best of my knowledge, in any meetings in which I participated, we restricted any discussions or comments on health issues on manganese related to what goes into the environment from the use of MMT, which has been monitored in Canada for the past 17 years or so.

Senator Kinsella: You mentioned what I took to be a compromise proposal in your testimony earlier this morning in reference to reduction of MMT, reduction in quantity. The government may persist with this piece of legislation. They have the majority and they can insist. If the government persists, notwithstanding receiving no answer on whether MMT damages the environment or causes health damage or gums up the OBDs, should this committee attempt to get into some detail on your proposal or to make an amendment to the bill dealing with, not the prohibition of the transportation of MMT, but rather with the real issue of the manufacturing of MMT and finding a way in which we could have a reduction? That is the general question.

If the answer is that yes, in a bad situation we should be exploring that, how much of a reduction are you speaking of in terms of the quantity that is put into the finishing process? What effect will that reduction have on the NOx phenomenon which, as Premier Savage says in his letter from Nova Scotia, is a positive benefit of MMT? Would you comment on that?

Mr. Pantelidis: We have any number of times volunteered in conjunction with launching a test on this issue to reduce from 18 to 9 milligrams per litre. That is a 50 per cent reduction.

What impact will it have on emissions? It is hard to say because utilization between 18 and 9 differs across the country depending on the age of the refinery, how much octane is needed, et cetera. However, we were willing to reduce an average of 9 across the country. We did that more in conjunction with the number which was actually tested by Ethyl Corporation in the U.S. in their tests to determine whether there were any impacts on the OBD-IIs or on the emissions from vehicles.

We figured that if we could align ourselves with proven test results, we could then get the agreement from the auto manufacturers to proceed with the tests and maybe, at the same time, alleviate some of the concerns which might be there relative to manganese, which we feel are unfounded.

Senator Kinsella: Mr. Fischer, if this approach were adopted, how would that impact on the Imperial Oil refinery in Dartmouth, Nova Scotia, in terms of its ability to achieve the necessary octane level with the equipment that is in Dartmouth but with the reduction in the usage of MMT?

Mr. Fischer: Let me clarify what Imperial Oil has stated publicly about our refinery in Dartmouth.

Our refinery in Dartmouth, Nova Scotia, is the last refinery in Nova Scotia. It is not advantaged by scale. We are constantly challenged by "survivability" but have been successful in surviving. Over the last 18 months, the refinery has reduced its cost structure by $11 million and a further 60 staff.

The removal of MMT adds about $4 million in costs. Essentially, 40 per cent of that reduction is wiped out by the unnecessary removal of MMT. I would view that as a major setback. It is not something that would force us to close our refinery. We would go on to look for other ways to reduce our costs.

In answer to your specific question, I would guess the impact of restricting MMT to half its present level would result in a $2 million cost impact on Dartmouth rather than $4 million.

Senator Kinsella: I represent the province of New Brunswick, along with other colleagues from my province. We have in Saint John the major Irving refinery. As a lay person, I spent an afternoon there trying to understand as much as I could of the process.

I was pleasantly surprised, Mr. Chairman, at how tidy an oil refinery is.

I understand that Irving is not a member of the CPPI. Have you had consultations with them? It is my understanding, and I would like to put it on the record if it is true, that they are in agreement with the position of CPPI on this. Is that true?

Mr. Pantelidis: Yes.

Senator Kinsella: They have been manufacturing MMT-free gasoline, mainly for the New England market, for a number of years. Therefore, they would be able to manufacture for the Canadian market but with some added capital costs. Is that correct?

Mr. Pantelidis: Capital and operating costs.

Senator Kinsella: It is my understanding that the Minister of the Environment in the province of New Brunswick has expressed his opposition to this bill as well.

The question was raised here as to NOx reduction, and we are receiving various numbers. What are the factual numbers?

Mr. Fischer: I think Ethyl's data would show some reductions up to 20 per cent. The study we have relied on was provided by the U.S. Environmental Protection Agency on July 1, 1994. The letter was written by the chief of data management analysis at the EPA. It said that test data for NOx showed a substantial and consistent decrease for this pollutant and that the average across the vehicle models was 8 per cent of the standard. That is where we got our figure of 8 per cent.

Mr. Perez: Actually, senator, we would like to table the data with the committee, if we could.

Senator Cochrane: Mr. Perez, could some marginally profitable refineries, especially in Atlantic Canada, be forced to shut down as a result of this legislation? I am thinking particularly of the Come By Chance refinery in Newfoundland which has been dealing with the United States in regards to MMT. Could you tell us perhaps how many jobs would be at stake if they do shut down?

Mr. Pantelidis: It is hard to pinpoint one particular piece of legislation as the cause of a shutdown of a refinery, but it is a foregone conclusion that a number of older and smaller refineries in Canada, given an accumulation of different pieces of legislation related to environmental expenditures, will at some time get to a point where they are no longer viable.

As to your question with respect to the Come By Chance refinery, we cannot speak on their behalf. Frankly, we do not know enough about their operation to determine whether this legislation or this legislation in conjunction with something else might put it in jeopardy. However, I want to stress that there is no doubt that a number of smaller and older refineries, through an accumulation of different pieces of legislation on the environment, will be forced to leave their present locations.

You asked about the number of jobs that might disappear. Generally speaking, a refinery employs anywhere from 200 up to 500 employees, so the number of jobs in jeopardy would be 200 to 500 times the number of refineries.

In the recent analysis done by CPPI, refinery jobs were classed as the second highest in terms of complexity of manufacturing jobs and contribution to the overall economy. They are extremely valuable to the economy because of the gross disposable product they generate.

Senator Cochrane: Mr. Chairman, just for the record, I have received information stating that the Come By Chance refinery will be adversely affected if this legislation goes through.

Mr. Perez: That refinery is not part of CPPI. I had some informal discussions with them and was told that one of the most perverted, although unintended, results of this legislation is that their competition in the United States, the small refiners, will be using MMT and lowering their costs at the moment when the Come By Chance refinery will not be able to use it because you cannot export gas with MMT. They will lose some of their competitiveness against their U.S. competition. This is why they have stated that it would adversely affect them.

Senator Cochrane: I know that you have repeatedly suggested to the federal government that an independent assessment be done. In fact, this assessment could have been done in the period since this legislation was first introduced. Has the federal government indicated to you why it refuses to do so?

Mr. Pantelidis: They have never really given us a good rationale. As a matter of fact, the indication we received from Minister Copps was that she would endeavour to get the MVMA to agree to a joint test. This was just prior to the release I mentioned earlier where she said publicly that if the MVMA and the CPPI could not come to an agreement, the government would introduce legislation. That was the only attempt I know of -- a half-hearted one -- to encourage us to work this thing out.

The Chairman: Would you speculate as to why this is happening after the assurances you seem to have received? Can you speculate a little for us as to what you think caused the turnaround?

Mr. Perez: It has been claimed several times that those studies were in the possession of the minister.

The Chairman: Which studies?

Mr. Perez: Studies proving the facts alleged by the MVMA. In the House of Commons, the minister has stated on at least two occasions that those studies existed.

A question was asked during the debate: "Then why do you not share it with everyone?" The response was that famous quote: "If I give it to CPPI, they will leak the results of those studies. They are confidential. I, as minister, am convinced that those results are correct. I do not need more." The inference was that studies existed, but they would not be given to us, and that whatever their content was, it was sufficient for the minister to decide.

Senator Rompkey: Just to continue on that particular point, I am a little puzzled because obviously the Canadian auto makers are being portrayed as the bad guys in the game. That does not square with the Canadian image at all. We are good guys and we do not go around being bad guys.

I am told that the European auto makers cooperate and the American auto makers cooperate. I thought there was some relationship between the American auto makers and the Canadian auto makers, but perhaps I am wrong.

Mr. Perez: They are the same companies.

Senator Rompkey: You are telling me that the American auto makers cooperate and the Canadian auto makers, which are the same companies, do not cooperate.

Mr. Perez: Yes.

Senator Rompkey: Can you explain that?

Mr. Perez: I cannot, but I can speculate.

First, the facts are absolutely clear. In the U.S., Ford, GM and Chrysler are members of a board that also has four oil companies on it. It represents both industries at the CEO level. They, in turn, have a technical committee which advises them. The whole process is known as U.S. auto-oil. They cooperate. They have ongoing discussions. There are minutes. Those minutes go to the companies. The EPA acts as an observer.

Senator Rompkey: The difference is that the different corporations cooperate.

Mr. Perez: Actually, they cooperate so well that Environment Canada and us and the MVMA are undertaking a review right now. Our job between now and the end of April is to go to the U.S. jointly and get from the oil and auto industry in the U.S. all the information they have regarding sulphur. It will be the next issue with Environment Canada. It is well managed. I want to say that right away. They cooperate. It is their way of life.

Why do they not do that here? Well, perhaps they do not have to do it. These three companies are Canadian subsidiaries, 100 per cent owned, of U.S. companies. There may be some difficulties in negotiating different positions in the U.S. and Canada. I do not know that. I am speculating here.

The other speculation I can advance -- and this one, I believe, is well founded -- is that they have been trying to achieve breakthroughs in Canada for their industry which they can use as precedents in the U.S., Mexico and elsewhere. I do not doubt that they would like simpler fuels, just like we would prefer lower octane. That is not the issue. I think that is why they do not negotiate because they do not have to. For them to have to negotiate, we must get them into a process like sulphur where the Government of Canada acts like the honest broker. However, we have not had any face-to-face dealings for a long time.

Mr. Pantelidis: I do not want to give the impression -- I want to make sure that we are fair about this -- that we have never negotiated or that we do not plan to negotiate in the future. We have had a few successes with the MVMA.

If you look at MMT, my only speculation as to why we have had problems with this specific issue is that at the time it was being considered for removal in Canada, it was not used in the U.S. When we were negotiating with the MVMA back in 1993, the Canadian counterparts had very strict instructions from the U.S. telling them -- I am speculating now -- that by no means should they ever agree to not have MMT removed from gasoline in Canada because we had been successful in the U.S. not to reintroduce it. That goes back to 1993.

When it was eventually reintroduced in 1995 by the U.S. Supreme court, for all intents and purposes the game changed in the U.S. That does not mean, though, that the U.S. auto manufacturers are in agreement with the reintroduction of MMT. I suspect one of the reasons they are going through this test in cooperation with the oil companies is that ultimately they believe the outcome might say that MMT should not be used. In the interim, they do not want the Canadian auto companies to make any commitment to add MMT back to gasoline in case it is eventually removed again in the U.S. A process of timing in terms of this issue caused this disagreement.

Senator Rompkey: Earlier on, the remark was made that perhaps MMT had become politicized. What does that mean? My impression is that this is not a burning political issue in the country. The water cannons are not out to disperse the demonstrators. We are heading into an election. We want to question Mr. Eggleton, but as far as we know, the Prime Minister and the cabinet want this bill passed. How has the issue been politicized?

Mr. Perez: You are absolutely correct. The context is that you have a minor piece of legislation, in terms of its desired effect, removing one additive from gasoline. It suddenly becomes a political issue in the sense that eight provinces are opposed. Their environment ministers make representations; their energy ministers make representations; and their premiers make representations in three cases. Quebec goes to the extra step of voting unanimously twice in their national assembly, first a warning shot and then a blank. Why did all of that happen? Even if we were accused of having provoked it, surely we cannot convince a provincial government to do something that they would not view as being in their interests.

It was politicized, I think, because of what was used technically to make that legislation happen. One of my colleagues stated here that they could not use CEPA. They could not use the motor vehicle safety acts because they do not increase pollution, so they used a trade act. That is where the trouble began. Now you are using something which restricts trade. You are restricting the trade of a substance which has no health impact -- Health Canada -- and which has no emission impact -- Transport Canada. Environment Canada, as far as I know, has never said it is a big priority of theirs at a departmental level.

You are invading provincial jurisdiction very clearly. In doing so, you are running against the principles of an accord signed a year-and-a-half ago -- the agreement on interprovincial trade -- which states that those kinds of things will not happen.

We are afraid of precedents such as sulphur, et cetera, but think of everything that could be banned by simply saying it is legal inside the province but that no one shall transport it across the border of the province. That is what got several provinces up in arms, and that is why I believe there will be those kinds of political consequences if the bill passes without amendment the way it is today.

Alberta has already stated publicly that they will challenge the bill under the agreement on interprovincial trade. They have already given notification that they will proceed in that manner. They are awaiting Royal Assent to do so.

Two provinces are examining the constitutional validity of Bill C-29. I cannot speak for them, but I believe they will challenge the bill.

This bill has become politicized because it is using a sledge hammer to get rid of a little fly.

So many other things could have happened to prevent that from happening up to three months ago and up to now. Give us a chance to test, and we will promise you, just as we promised the Prime Minister, to abide by the results. If you do not give us that opportunity, we will have been denied by the minister, the cabinet, the house and the Senate of a very fundamental thing.

Are we to be legislated component by component in our products? That is the issue and that is why we embarked on this political game.

Senator Rompkey: On page 5 of your brief you state that your offers have been endorsed by most federal departments. Could you give us a list of the federal departments that have endorsed your offers?

Mr. Perez: Natural Resources Canada. When you say "endorse" --

Senator Rompkey: I did not say "endorse"; you said "endorse".

Mr. Perez: In July of 1996 when the Prime Minister ordered a review of Bill C-29, he did so in a way that would represent the two camps, if I can use that phrase. He asked Minister Marchi, Minister Manley, Minister Eggleton and Minister McLellan. They were in two camps comprised of those who were for Bill C-29 and those who were against Bill C-29. That debate went on inside the cabinet and in the House of Commons around trade issues with Minister Eggleton. Obviously once the decision was made, the cabinet stopped arguing and the government became united.

Senator Rompkey: The only departments that have been involved are energy, environment, health and perhaps industry.

Mr. Perez: Yes, industry. More departments have been involved. Minister Dion's department has also been involved. I have spent time with the minister on the basis that the PCO has a responsibility to look at the process used in legislation in Canada.

When the July review was ordered by the Prime Minister, Mr. Dion assured me that they would play a significant role in that study. The review was cut short after a few weeks. We can speculate why, but the real review as ordered by the Prime Minister never happened. It took the form of some discussions between him and some ministers, but there was not the review that we were promised would happen.

Senator Rompkey: I would like to explore that a little more down the road as to the position of other government departments.

The Chairman: I should bring to the attention of the committee that we have asked Ministers Eggleton and McLellan to appear before this committee and they have refused. I sent them a further letter indicating that it is important to our work that we have them here. I have not received a response to that yet. Clearly, their input is essential to the work of this committee. Hopefully they will reconsider this position and come here to answer some of these questions.

Senator Buchanan: One of the unusual and unique situations we have here -- at least in the time that I have been involved in provincial politics for 24 years as an elected member and 13 as premier -- is that eight provincial governments out of ten are basically in substantial agreement on an issue. This has happened before on some minor issues. The other one that I recall was the 1981 constitutional impasse where the so-called "gang of eight" got together and agreed on certain procedures. I recall that very well; I was one of them.

To follow up on Senator Rompkey's comment and the politicization, it is unique also. There are no politics involved here. You have four Liberal provincial governments, two PC governments, one NDP government and one PQ government. How much more diverse could you get than that? It is not a political issue at all.

Senator Rompkey: I was not referring to big "P", I was referring to small "p".

Senator Buchanan: That is fine.

As Mr. Perez mentioned, this involves interprovincial trade. I can remember discussions on that over a longer period of time. This issue also concerns jobs and the environment.

You mentioned that you were looking for allies. I suspect that the CPPI did not go out looking for these provinces. The provinces decided on their own that they would be opposed to this bill for those three reasons. I think the provinces have looked at those, although perhaps not with exhaustive studies.

With respect to Nova Scotia, their studies were conducted on emissions from automobiles. There is no question that NOx reduction came partially as a result of MMT. I recall that from several of those studies.

I want to concentrate on the Atlantic provinces for a minute. Specifically, I wish to talk about Nova Scotia.

Mr. Fischer, as far as Imperial Oil is concerned, I have watched the struggle that it has had in the local markets and competitively off shore. I have also watched where the employees and management at Imperial Oil have worked very hard over the last number of years to keep competitive in what has been a real struggle for them as a small refinery.

We have watched two refineries in Nova Scotia close over the last few years. With great regret, we watched those jobs go. Quite frankly, we do not want anything to happen which may -- and I say "may" -- result in another closure.

I am told that the removal of MMT will undo much of the cost saving that the employees and management have achieved over the last number of years at Imperial Oil and also could put us in a precarious position with Imperial Oil.

A very distinguished Nova Scotian has said that Bill C-29 would place the Dartmouth refinery in a precarious financial position and threaten 234 skilled jobs. I agree with Premier John Savage 100 per cent. We have always looked upon our refineries in Nova Scotia, and specifically now Imperial Oil, as employing those 250 people, but there is a large indirect employment related to that too. We have statistics in our department -- at least, when I was there we had the statistics, and I know they still do -- that many other jobs in the Halifax-Dartmouth area are dependent on that refinery. It is not just a few jobs. Literally hundreds of jobs in the service industry, the transportation industry and the consumer industry are affected by that refinery. This puts us, as Premier Savage says, in a precarious financial position as far as Imperial Oil is concerned. Would you comment on that?

Mr. Fischer: As I have noted, over the last 18 months, the refinery has worked extremely hard in cooperation with management and all the employees to bring about structural cost reductions in the order of $11 million. That is a very significant undertaking.

The removal of MMT erodes about 40 per cent of those savings. As I said, the big disappointment to us is that we have taken three steps forward and one back because of that. We have not declared defeat and we will look for ways to offset it, but it has undone a substantial amount of the fine work that has been done.

Senator Buchanan: It has undone a lot of the work that employees and management have done over the years. We have watched them work very hard to keep that refinery competitive.

I have taken a look at the Come By Chance Refinery and checked some statistics. There could be a precarious financial situation there. Even though they are not members of the CPPI, I am told that they are very concerned about loss of jobs with that refinery in Newfoundland, as Senator Kinsella has said. The Minister of Environment has pointed out clearly the competitive position of the refinery in Saint John if MMT is not permitted to be used there any longer. He also talks about the lack of understanding and the lack of substantive evidence and information about the so-called health problems and environmental problems concerning MMT, as does Wayne Adams, the Minister of Environment as he was then in Nova Scotia. There is no evidence at all, as far as they are concerned, that MMT is the great, bad additive that some of us say it is.

The Chairman: And your question is?

Senator Buchanan: Do you agree with that?

Mr. Fischer: I can comment on our Dartmouth refinery; I cannot comment on Come By Chance.

Your last statement, that there is no evidence that MMT is a bad additive, is the evidence that we have as well.

Senator Buchanan: Those are quotes taken from our own environment ministers in Nova Scotia, New Brunswick and, I believe, in Newfoundland, but I am not sure of that.

If an independent study is conducted over the next while and conclusively states that there is a danger to health, the CPPI is willing to take the risk of waiting for that and removing MMT if it is proven that MMT is a health hazard. Is that right?

Mr. Fischer: Absolutely.

Senator Rompkey: This has nothing to do with a health hazard. We are not discussing a health hazard here.

Mr. Perez: Yes, if it is a health hazard or involves OBD-II or any of the claims that have been made.

Mr. Fischer: That is the offer we have been making since 1993.

Senator Buchanan: I have it here. That is the offer they have made.

The Chairman: We have that information on the record.

Senator Whelan: How much does the industry contribute to research and to whom do you make that contribution?

Mr. Fischer: In our downstream petroleum products industry, Imperial Oil spends about $30 million a year and, in our upstream, about $20 million a year on research.

Senator Whelan: Does that account for research to public institutions, universities, et cetera?

Mr. Fischer: Imperial is a member of the Environmental Science and Technology Association of Canada, which supports 17 universities on collaborative research and development.

Senator Whelan: Do you have a dollar figure?

Mr. Fischer: I believe our grant program and the ESTAC program would add up to about $1 million a year.

Senator Whelan: What about Petro Canada?

Mr. Pantelidis: I do not have a specific number, but we contribute similarly to a number of universities and a number of research programs, especially at Memorial University in Newfoundland. We are very active in offshore production and exploration, et cetera.

Senator Whelan: Mr. Chairman, my real concern is government cutbacks in research and independent research that would protect the general population of Canada.

There is a very dangerous element to this. I know of instances where funding was cut back by companies in the agricultural field because they did not like the research that the public institution was carrying out.

Research by government has been cut back. Government researchers today are scared to make a statement because, if they lose their jobs, the only place they could go to work is for the big companies. They are very cautious about what they are doing. I am concerned about that.

You also speak about political pressures. One of you said that you have no trouble working with the laws in Germany, for example. I do not know about the laws for the gasoline industry, but I know about the laws for the chemical industry because I lived near a huge chemical plant all my life. I worked there when I was younger.

The laws for that kind of plant in Canada and the United States are completely different than in Germany. Germany enforces the laws for disposal of waste products, rather than having huge settling beds that contaminate the underground water supply.

Are you saying that the oil industry has a great working relationship with the auto industry in Europe and not in North America?

Mr. Perez: We did not say "great". We said there is a continuous process in the U.S.A. called auto-oil between all the American auto manufacturers and the oil industry. They talk constantly. It is a very structured process which is ongoing as we speak. It stopped functioning in Canada a few years ago. We know that the same discussion happens in Europe. In the case of Europe, the European Community is usually the observer, and they end up making recommendations to the European states.

With regard to research, we agree with you that the government is getting away from research, which is a worrisome trend.

A very small example, but relevant to our discussion, is that Environment Canada, Health Canada, the MVMA and us have agreed to undertake a study on sulphur. The total bill will probably be from $900,000 to $1 million. We are contributing 75 per cent of that, recognizing that it is very difficult for governments to find that kind of money. Environment Canada has contributed a substantial amount. Some provinces have contributed $5,000. They have all tried to contribute to the study, but it is difficult. There is much less money in governments today for that kind of research.

We have given the money, but we have given complete management of the study to independent scientists and to Health Canada and Environment Canada. We have absolutely no influence in the outcome of that study, other than as a member.

Senator Whelan: If you did not like the results of a study, you would not cut off funding.

Mr. Perez: No, sir, we are stuck with it. Mr. Vena knows about the process. The money has been given in advance. The funds are being managed by the former principal of McGill University. We would never think of cutting back even one dollar.

If anything, we have opened the door for more contingency funds to be spent if there is justification. We need the science on sulphur to be on the table in order that policy making can be based on something, just as we need the science of MMT to be on the table.

Senator Whelan: I am a very strong believer in research. When I was Minister of Agriculture, we built the biggest research branch of any branch in government because we believed that research was our biggest product. We also thought it was our most independent research body, but we find that that is not so today. When the scientists are let go, they can only go to big industry. If they have been speaking against big industry, their chance of getting a job is at least 50 per cent less than if they had been cautious about what they said.

I have spoken to these people. Three hundred and fifty of them were let go. Some of them went to Germany and various companies. Some did not go anywhere.

If I understood you correctly, you said it would be great if our laws were the same as those in the United States of America.

Mr. Perez: No. It would be nice if the auto manufacturers -- GM, Chrysler and Ford -- followed the same process that their parent company follows in the U.S. It will be essential to have some level of harmonization between fuels in both countries because we drive the same cars.

Currently, outside of those areas in the U.S. which have great environmental problems, I believe that our fuels are of a higher standard and will continue to be of a higher standard. As well, we have some climate conditions which are unique, et cetera.

We are not asking for the same thing, although we think it would be smart not to have disharmony between the two.

Senator Whelan: It alarms me a little when you refer to those great southern states using MMT. Those are among the most polluting states there are in the agricultural industry. They pollute streams and underground water. There are hardly any laws controlling them.

I am not impressed to hear that the southern states are environmentally concerned because I know that they are not. I know that they are not concerned about labour laws or very many social laws at all.

Mr. Pantelidis: The southwestern states that were using MMT were using it in leaded gasoline, not in unleaded. We were just pointing out that there are areas in the U.S. that actually use MMT.

Our view is that the use of MMT would actually help the environment in those southern-western states. If they need improvement, that will go a long way toward helping.

Senator Whelan: Dr. Baribeau, Dr. Labella and Dr. Donaldson are probably receiving research money. I talked to Dr. Cummings from the University of Western Ontario and he says that they are violently opposed. Are you now saying to these highly learned people who are concerned about health that they should not be concerned about health?

Mr. Pantelidis: We are not saying that.

Senator Whelan: In essence, you are saying they are wrong because you outline all the virtues of MMT and say that it does no damage.

Mr. Pantelidis: What we are saying is that Health Canada has stipulated a number of times that MMT, and specifically the manganese in MMT, is not a health concern in the amounts that we use in the oil industry. To a large extent, these are the same researchers to whom you are referring.

Senator Whelan: I am also saying that Health Canada is not superior to Dr. Barabeau of Montreal, Dr. Donaldson of Queen's or Dr. Labella of the University of Manitoba. I know some of the people in Health Canada. I dare them to say that they are superior to these other people.

When you say "politicized", I tend to side with these doctors who are still independent and who, hopefully, will stay that way.

Mr. Chairman, we know there is a simple way to get rid of MMT and to ensure that both the environment and gasoline are good. It is through the use of ethanol. You oppose ethanol. Most of you opposed the plant being built in Chatham. You can drive all the way across the states from Detroit to Washington State using ethanol gasoline. The scientific proof is that ethanol does not have the pollution that MMT does.

Mr. Routs: First, you are talking about the cooperation between the car industry and the oil industry. It is on that level that we are commenting on the states and the political process tied into that, not so much on the regulations or legislation that are in place in the U.S.

Second, if we look at learning processes, what we see happening in Europe is that the European Community, together with the car and oil industry, has learned from the American situation. They have decided that, to a certain extent, the U.S. has gone overboard and that there are better and cheaper solutions for the environment.

Your question related to research. Our company has put quite a bit of money into research. In that regard, we are comparable to Imperial Oil in Canada. Worldwide, we have a tremendous research program which looks at those situations.

Pertaining to your question on ethanol, ethanol is one way to increase octane. There are a number of other ways. We can run our refineries differently. As Mr. Pantelidis has said, we can increase the severity of our reformers, which is one of the processes in our operations. We can increase octane that way. We can also do it through the use of ethers. MTB is the best known ether used in the U.S. We can tie into a number of components in order to improve our octane situation.

Most of those components are more expensive and not as effective, or they need subventions from the government, as ethanol does to a large extent, which costs the taxpayers a lot of money in the end.

If we go to an ethanol content that would give us the same bang as other components do, then a 10 per cent ethanol scenario is not unthinkable. Ten per cent ethanol at 34 billion gallons of gasoline is 3.5 billion litres of ethanol. This would cost the government something in the order of $800 million per year. Is that the kind of situation the government wants to get into?

Senator Whelan: The health situation in Canada is also in the order of billions of dollars. I have listened to these doctors who have done all this research over the course of many years. I would ask them how we can measure what you are saying. We know there are many things out of which we can make ethanol.

How many refineries have you closed in the last 10 years in Canada?

Mr. Pantelidis: I would say around 12.

Senator Whelan: The closing of those refineries had nothing to do with MMT, did it?

Mr. Pantelidis: To a large extent it was an accumulation of factors. At the end of the day, these refineries could not be competitive.

Senator Whelan: I can remember when, in my town, we had seven gas stations. We now have two. The population has increased nearly threefold.

I have a very close relative who is a grand master technician. That is a mechanic who knows everything from bumper to bumper. He is bilingual too. He is a very bright young man. He can tell you what MMT does to platinum spark plugs and all the other things on cars. I just met with him on the weekend again. He is my son-in-law.

I asked him if he would come before this committee, Mr. Chairman. His marks in all his exams were excellent. He was very distressed when, one day, he only got 96 per cent on one exam. He said: "I should have got 98. I got cheated out of two marks." He loves cars and engines. He studies what your material, or any other material, does to automobile engines. He says that MMT does damage to the cars.

Senator Hays: First, I should like to thank the presenters for their thorough and helpful evidence before this committee. For obvious reasons, they have done a great deal of work on their presentations.

I had some questions that came up during the course of the discussion thus far, some of which have been answered. I will list them and ask for further comment or clarification. You may have covered one in response to Senator Whelan when you said that without MMT, nitrous oxide emissions would increase by 8 per cent. What is the assumption with regard to their being substitutes for MMT, MTB or whatever is used and the fact that they are not as efficient?

The other comment was that fuels with MMT would still be widely used even if the legislation were passed.

On the competitiveness issue -- and this may have been some sort of an exaggerated comment -- the comment was made that arbitrariness on the part of the government in determining the components of fuel could lead to closure of all refineries to the east of Alberta. In terms of what you said about U.S. competitiveness not being as good as Canadian, I should like a further comment. In terms of industrial power brokering, if there is something more to what you said in answer to Senator Rompkey's question about levering, timing and so on, that would be helpful.

Another of my questions has to do with the return to the refiner of 1 cent per litre and the increased costs. This question goes back to the figure of about .002 cents and the ability to pass that cost on in terms of the refining sector. Why would it be difficult to pass on those additional costs?

Mr. Perez: With regard to the figure of 8 per cent, as has been mentioned, studies have shown the figure to be between 8 per cent and 20 per cent. The study which resulted in the 20 per cent finding was done by Ethyl. Therefore, we do not think it has the credibility of the EPA, certainly in the eyes of this committee. We have always chosen to quote the EPA study, which study is documented in a letter I will leave with the clerk after our presentation.

I do not think any companies would be able to answer your second question as to whether the fuel would be widely used. It raises many competitive questions amongst them. We belong to the same association, but our members compete with each other.

Clearly, a company which has a contained, provincial supply network will be tempted to keep using MMT after Bill C-29 because the law allows it to do so. Therefore, it is my contention that some level of MMT, probably substantial levels, will continue to be used.

Senator Hays: Stockpiled, in other words?

Mr. Perez: You would have to stockpile the additive, and very small amounts are needed for gasoline. It could also be manufactured. Making MMT is not a difficult process. We could manufacture it in two or three provinces and sell it with gasoline within those provinces. It is not a CPPI policy to do that, and this would never be discussed with the CPPI among all the companies. However, each company would have the option, and it is probable that some levels of MMT will be in gasoline for a long time to come.

You mentioned competitiveness and made reference to everything east of Alberta. This situation was not in reference to MMT but in reference to the comparison between MMT removed and NOx increases of 8 per cent. Truly, 8 per cent would be an unsustainable level for many Canadian cities. We have no way of removing 8 per cent. We could remove half of that by removing almost all the sulphur in gasoline. That would cost $2 billion, according to a study handed to Environment Canada by consultants this week. Half of the country would not be able to afford that kind of investment. Therefore, it would be a very different refining network in the country. MMT will not have the effect of closing down half the refineries. It may not have the effect of closing down any refinery. It may precipitate financial problems for a number of them. We have stated that the smaller ones and the other ones in Eastern Canada are in the most precarious position.

Again, the study on sulphur we are doing with Environment Canada produced some results on a refinery-by-refinery basis, all 18 CPPI refineries, plus Irving in Newfoundland. In Eastern Canada, it shows that in 1995-96, return on investment has been between 0 and 4 per cent; in Ontario, between 2 and 5 per cent; and in Western Canada, between 10 and 12 per cent. You have a picture over two years of an industry which is doing reasonably well in the west and which is not doing well at all in the east.

The Chairman: That applies to most things in life -- the west just does better.

Mr. Perez: That is true.

Mr. Fischer: We view the current bill as being very arbitrary. We are still searching for the science that would underlie it and allow it to be looked at in a different way. Currently under discussion around the world is the topic of sulphur in gasoline, and Mr. Perez outlined the process. However, it is merely an example.

If, arbitrarily, Canada set a standard for sulphure in gasoline not based on sound work, negotiation, and clear science and which was substantially lower than in other parts of the world, you would put the refineries in Canada at a competitive disadvantage. A Bill C-29 approach clearly allows that, which is why it is such a poor precedent to establish. If you could say that no gasoline with a higher sulphur content than "X" can move across a provincial border, that would restrict the industry to taking actions that were very arbitrary.

Senator Hays: As a lawyer -- perhaps you are lawyers as well -- I accept your reasoning. That is one way of making a point. However, this is not necessarily the beginning of a series of steps. Is there anything more we should know?

Mr. Fischer: It certainly establishes the precedent for that when there is a debate between industries and you put in place some legislation which allows one industry to win the debate.

Senator Hays: It could be your side, though.

Mr. Pantelidis: That is our fear. In the past, we have been able to work out a distinct process based on science, and we were successful. I cite the low sulphur diesel example. It was so successful that it led to the oil industry actually volunteering a reduction as opposed to having to enact legislation to do it.

We are concerned about going from that to a precedent of an arbitrary removal on the basis we have discussed here today without a well-defined process to establish why it should be removed. In the future -- and we use the example of sulphur in gasoline -- someone saying, "Here is an arbitrary level because the MVMA feels you should have 100 parts-per-million of sulphur in your gasoline," could lead a portion of our refinery industry to be completely non-competitive and eventually disappear.

Mr. Perez: This is not speculation; this is happening today. Two or three weeks ago, we had a meeting with Environment Canada and the MVMA on sulphur. Against any result that had been produced in the U.S. or Europe or Japan, before we had even completed our work here, they handed us a document entitled "American Automobile Manufacturers Association Standards for Future Lower Emission Vehicles". It reads 80 parts-per-million compared to 360 parts-per-million here. They are taking the step of saying, "We do not want that in the gasoline." Why? It will not be a health issue, as the Canadian study will prove. It will not be a compatibility issue, as the U.S. has already proven. It means that they would have to spend less money on their catalysts. We are saying, "Let us compare how much money you would have to spend with how much we would have to spend, and let us negotiate."

The precedent is there in their mind. They are pressuring the system now to get down to a level that, frankly, we will not be able to sustain and which is unreasonable because it is way beyond what the Europe, the U.S. or Japan are doing or are willing to do.

We are puzzled. Perhaps you could ask those questions and enlighten us as to their motives.

The Chairman: To follow on that point, there is a time when governments must provide leadership. As we saw in California when our committee went there, they have legislated reformulated gasoline, which is having an immense impact in a positive way in severe reductions in pollution. The government did take action, and it seemed to me to be very appropriate. This is moving off the topic somewhat, but it has been on my mind since our trip to California.

Why is there not more movement toward reformulated gasolines in Canada? We could solve many of these problems, get away from the more minor issues and come to grips with the products. Maybe you could help us on that.

Mr. Perez: We are reformulating all the components of gasoline in consultation with Environment Canada. We are finding under their leadership a new national standard. That national standard, overall, will be better than the one in the U.S.

We are addressing parts of the U.S. which have pollution problems that are unknown in this country. Therefore, I believe that Environment Canada has never felt under any obligation to decree that Toronto or Vancouver or Montreal needed a California-type or even what the U.S. calls ozone non-attainment regulations because we do not have those problems. If we ever had those kinds of pollution problems in any Canadian city, we would absolutely favour reformulating gasoline to abide by those emission standards.

We recognize that Environment Canada has a duty to issue standards for the country according to science, as they do, and according to Canadian policy. Once those standards are there, we are there to meet them. There is no dispute about that.

If we had a California-type situation, we would favour California-type fuels. We do not have that situation in Canada. Environment Canada would be the most credible people to explain that to you. We do not have those rules because we do not have those problems.

The Chairman: They did explain it to us in a sense this morning when they explained that they must sometimes take precautionary measures even though all of the scientific evidence is not there. They would argue, in light of your response to me, that we should not wait for that to happen in Canada. Perhaps we can do it in advance and be proactive instead of always reactive, in the words of Mr. Clark this morning.

What is your response to that? Surely we do not want to wait for a California to come to Metropolitan Toronto.

Mr. Pantelidis: We do not want to give the impression here that we are not working with Health Canada and, to a certain extent, with the MVMA to be proactive. This made-in-Canada, reformulated gasoline we are discussing has been examined very intensely over the last year. I believe it is at the position where we can get mutual agreement to legislate that as the new standard. Much work was done. That is proactive and that is thinking in the future.

Even if we were to use MMT as an example -- and that is why I think this is mostly a process issue -- and even had we acted on this in 1993, whatever the outcome would have been, by 1994 we would have done one of two things: Either the government would have legislated something with which we agreed, or we would have voluntarily agreed to remove MMT or reduce it.

We are now speaking three years after the fact. I cannot see Health Canada saying that sometimes you must act in a precautionary sense because we could have acted three years ago had the process been right. That is our contention in this particular issue.

Senator Kinsella: Mr. Chairman, can you get from someone an articulation of this precautionary principle? I would like to know exactly what that means. My understanding is that it refers to serious threat. We need an articulation of this principle. It has been used three times this morning. I am not sure what it really means.

The Chairman:I would be happy to send a letter of inquiry to the department. Some of their representatives are here right now. Possibly they would not mind responding to Senator Kinsella's inquiry as to what that does mean. We would appreciate that.

Mr. Perez: The principle is defined in the draft of the harmonization accord between the federal government and the provinces. It is defined there, and that is likely the information you are requesting. It is very clear.

Senator Kenny: Some legislators have been concerned about reports of refineries closing in their ridings or areas as a direct result of the MMT legislation. If I have heard you correctly as a panel, your response to that is, no, you do not believe that any refineries will close as a result of this MMT legislation. However, you are concerned that it will have an impact on some of your more marginal refineries, and you are concerned that it sets a precedent for future legislation. Have I correctly summarized your position?

Mr. Pantelidis: To a large extent, that summarizes it well, yes.

Senator Whelan: You do not believe that we should wait until Vancouver gets as bad as California.

Mr. Perez: I do not believe Vancouver will wait. We do not make policy.

Senator Whelan: We know what the weather does in Vancouver. It goes up against the mountains and backs up as far over as Victoria.

Mr. Perez: This country has clean air. This country does not have the problems of other countries such as the U.S. This country has those results because of good government leadership and good cooperation from the industries. We have never disputed that. We want that to continue.

Mr. Fischer: British Columbia, in recognition of some specific issues in the Fraser Valley, has put in place more severe restrictions and appropriately so.

Mr. Routs: I was personally involved in those negotiations. We did the right thing for British Columbia in my opinion.

Senator Whelan: In the first part of my career, I worked with a minister who was a chemical engineer with a Ph.D. and a master's degree in business. Minister Jack Davis was minister when the environment department was created. I was his parliamentary secretary, so I know a little bit about British Columbia and about Canada. I know a little about the U.S. because I live in the shadow of Detroit, and I know we get pollution from there.

Thomas Jefferson, during the American Revolution, said that no nation shall tell another how it shall be governed. We should be independent in Canada. We feel this is right. You can call it politicizing. Our government policy, as set out in the Red Book as of September 24, 1993, was to ban MMT. I am sure they are aware of that.

Mr. Perez: I know your committee will be considering hearing a second panel of CPPI companies next week.

The Chairman: We have made no decision.

Mr. Perez: I have checked with Parkland, Husky, Sunoco, and Ultramar. They would be very eager to come and talk to you. One of the reasons you should talk to them is that they represent the type of industries which are not represented at this table today. They are one-refinery companies. Some of them may look at the issues of economics and vulnerability differently than the people on this panel. They are the ones who have been the most in touch with their provincial governments, and they may want to give you that perspective also. It does not need to be a two-and-a half-hour session, but I would urge you to consider their request.

The Chairman: We will consider that. Thank you.

The committee adjourned.